Datasets:

gtfintechlab
/

CoCoHD_transcripts

	<html>
	<title> - HUD OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE</title>
	<body><pre>
	[House Hearing, 105 Congress]
	[From the U.S. Government Publishing Office]



	HUD OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE

	=======================================================================

	HEARING

	before the

	SUBCOMMITTEE ON HUMAN RESOURCES

	of the

	COMMITTEE ON GOVERNMENT
	REFORM AND OVERSIGHT
	HOUSE OF REPRESENTATIVES

	ONE HUNDRED FIFTH CONGRESS

	FIRST SESSION

	__________

	FEBRUARY 27, 1997

	__________

	Serial No. 105-8

	__________

	Printed for the use of the Committee on Government Reform and Oversight

	39-819 U.S. GOVERNMENT PRINTING OFFICE
	WASHINGTON : 1997

	____________________________________________________________________________
	For Sale by the Superintendent of Documents, U.S. Government Printing Office
	Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
	Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

	COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

	DAN BURTON, Indiana, Chairman
	BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
	J. DENNIS HASTERT, Illinois TOM LANTOS, California
	CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
	CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
	STEVEN H. SCHIFF, New Mexico EDOLPHUS TOWNS, New York
	CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania
	ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California
	JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York
	STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin
	JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
	THOMAS M. DAVIS, Virginia DC
	DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania
	MARK E. SOUDER, Indiana TIM HOLDEN, Pennsylvania
	JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland
	JOHN SHADEGG, Arizona DENNIS KUCINICH, Ohio
	STEVEN C. LaTOURETTE, Ohio ROD R. BLAGOJEVICH, Illinois
	MARSHALL ``MARK'' SANFORD, South DANNY K. DAVIS, Illinois
	Carolina JOHN F. TIERNEY, Massachusetts
	JOHN E. SUNUNU, New Hampshire JIM TURNER, Texas
	PETE SESSIONS, Texas THOMAS H. ALLEN, Maine
	MIKE PAPPAS, New Jersey ------
	VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont
	BOB BARR, Georgia (Independent)
	------ ------
	Kevin Binger, Staff Director
	Daniel R. Moll, Deputy Staff Director
	Judith McCoy, Chief Clerk
	Phil Schiliro, Minority Staff Director
	------

	Subcommittee on Human Resources

	CHRISTOPHER SHAYS, Connecticut, Chairman
	VINCE SNOWBARGER, Kansas EDOLPHUS TOWNS, New York
	BENJAMIN A. GILMAN, New York DENNIS KUCINICH, Ohio
	DAVID M. McINTOSH, Indiana THOMAS H. ALLEN, Maine
	MARK E. SOUDER, Indiana TOM LANTOS, California
	MIKE PAPPAS, New Jersey BERNARD SANDERS, Vermont (Ind.)
	STEVEN SCHIFF, New Mexico THOMAS M. BARRETT, Wisconsin

	Ex Officio

	DAN BURTON, Indiana, HENRY A. WAXMAN, California
	Lawrence J. Halloran, Staff Director and Counsel
	Christopher J. Allred, Professional Staff Member
	R. Jared Carpenter, Clerk
	Ronald Stroman, Minority Professional Staff


	C O N T E N T S

	----------
	Page
	Hearing held on February 27, 1997................................ 1
	Statement of:
	Cuomo, Andrew, Secretary, Department of Housing and Urban
	Development, accompanied by Paul Leonard, Assistant
	Secretary for Policy Development & Research; Stephanie
	Smith, Deputy Assistant Secretary, Housing; and Michael
	Stegman, Deputy Assistant Secretary for Policy Development. 15
	Letters, statements, etc., submitted for the record by:
	Cuomo, Andrew, Secretary, Department of Housing and Urban
	Development:
	Information concerning community development block grants 46
	Prepared statement of.................................... 20
	Gilman, Hon. Benjamin, a Representative in Congress from the
	State of New York, prepared statement of................... 9
	Pappas, Hon. Michael, a Representative in Congress from the
	State of New Jersey, prepared statement of................. 14
	Shays, Hon. Christopher, a Representative in Congress from
	the State of Connecticut, prepared statement of............ 2
	Towns, Hon. Edolphus, a Representative in Congress from the
	State of New York, prepared statement of................... 4


	HUD OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE

	----------


	THURSDAY, FEBRUARY 27, 1997

	House of Representatives,
	Subcommittee on Human Resources,
	Committee on Government Reform and Oversight,
	Washington, DC.
	The subcommittee met, pursuant to notice, at 11:10 a.m., in
	room 2247, Rayburn House Office Building, Hon. Christopher
	Shays (chairman of the subcommittee) presiding.
	Present: Representatives Shays, Snowbarger, Gilman, Pappas,
	Towns, Kucinich, and Allen.
	Staff present: Lawrence J. Halloran, staff director and
	counsel; Christopher J. Allred, professional staff member; R.
	Jared Carpenter, clerk; Ronald Stroman, minority professional
	staff; and Ellen Rayner, minority chief clerk.
	Mr. Shays. I would like to call this hearing to order and
	to welcome our guest, our witness, the Secretary of HUD, who
	has honored us by his presence. Our goal today is constructive
	oversight. Our goal is to continue the dialog that we had with
	Secretary Cisneros in his two appearances before this
	committee.
	In the last Congress, this subcommittee examined HUD's
	takeover of the Chicago Housing Authority, waste in the public
	housing Tenant Opportunity Programs and the growing
	unsustainable cost of insured multi-family housing subsidy
	contract renewals. The question then and now is: can HUD
	overcome the internal and external obstacles to performing its
	missions? The internal challenges, acknowledged management
	weaknesses that have been a part of HUD as long as I have been
	a part of Congress and certainly are not attributed to any one
	individual, any one administration, or any one party, and the
	external challenges, the budget constraints that Congress
	imposes, as well as the White House, on the operations of HUD
	and the huge cost of past subsidy commitments on multi-family
	projects.
	This subcommittee looks forward to hearing from Secretary
	Cuomo, to hearing Secretary Cuomo's plans for HUD to meet these
	challenges and commit continued constructive oversight to help
	the people of HUD meet its mission and do an even better job.
	At this time, I would like to acknowledge and ask if my co-
	friend and co-worker in this effort, Mr. Towns, if he would
	like the floor.
	[The prepared statement of Hon. Christopher Shays follows:]

	[GRAPHIC] [TIFF OMITTED] T9819.001

	Mr. Towns. Thank you very much, Mr. Chairman, because the
	Secretary of HUD is a New Yorker. That is the reason I was here
	so early. I was delighted to see him.
	Mr. Chairman, I am pleased to join you today in welcoming
	Secretary Cuomo to this subcommittee. I also want to commend my
	fellow New Yorker for his sterling record of public service,
	first, as an advocate for the homeless and then as HUD
	Assistant Secretary for Community Planning and Development,
	where he did a magnificent job.
	Mr. Chairman, throughout his public career, Secretary Cuomo
	has demonstrated innovation, insight, leadership, and
	sensitivity to the community as well. I am confident that as
	HUD's Secretary he will bring the same level of achievement and
	dedication to the entire range of HUD programs.
	Secretary Cuomo faces many difficult challenges at HUD. One
	of the most important will be what to do about the expiring
	Section 8 contracts. As the Secretary is well aware, 3 million
	Section 8 contracts supporting more than 6 million people will
	expire over the next 5 years. It will be necessary for Congress
	and the administration to work in a bipartisan fashion, and I
	stress bipartisan fashion, to make sure that HUD has sufficient
	budget authority to renew the expiring Section 8 contracts.
	Failure to renew those contracts would hasten the loss of
	affordable housing, devastate neighborhoods, and increase
	homelessness.
	I am also concerned about certain provisions of H.R. 2
	introduced by Congressman Lazio. The bill includes a section
	which would repeal income base rent in housing developments.
	Such a repeal would lead to rent increases for public housing
	tenants and further segregation of the poor. Public housing
	authorities might direct families choosing the pay income base
	rent to those properties where the authority would lose the
	least money, while those families who agree to pay flat rent
	would be steered to better properties. And that concerns me. It
	would be essential in any reform of such public housing that we
	keep income base rent capped at 30 percent.
	Finally, Mr. Chairman, the General Accounting Office and
	the Inspector General at HUD have consistently discussed with
	us the continuing management problems at HUD. These are
	difficult problems which will require thoughtful solutions. I
	look forward to working on them with the Secretary, knowing
	that he has the ability to provide the kind of leadership that
	is really needed during these difficult days. I yield back.
	[The prepared statement of Hon. Edolphus Towns follows:]

	[GRAPHIC] [TIFF OMITTED] T9819.002

	[GRAPHIC] [TIFF OMITTED] T9819.003

	[GRAPHIC] [TIFF OMITTED] T9819.004

	Mr. Shays. I thank the gentleman. I agree with his
	statement.
	At this time, I would like to invite the vice chairman of
	this subcommittee, Mr. Snowbarger, from Indiana, if he has a
	statement or comments.
	Mr. Snowbarger. From Kansas, Mr. Chairman.
	Mr. Shays. I am sorry.
	Mr. Snowbarger. The note is incorrect and I noticed that.
	I would like to welcome the Secretary and say to you that I
	am as new to this process as you are, but I hope you know more
	about this issue than I do. I am looking forward to your
	comments today, looking forward to establishing a long term
	relationship between you and this committee so that we can
	address the housing needs of those in the United States.
	Thank you, Mr. Chairman.
	Mr. Shays. Thank you. And I am sorry. Wrong State.
	[Laughter.]
	Mr. Snowbarger. Oh.
	Mr. Shays. Listen. It is a great State. He is the vice
	chairman.
	Mr. Pappas, from New Jersey.
	Mr. Gilman.
	Mr. Gilman. Thank you, Chairman Shays, and I thank you for
	the opportunity----
	Mr. Shays. I need to comment. This is the first time we
	have had Mr. Gilman in this committee, so you have brought out
	the best.
	Secretary Cuomo. Best in New York, anyway, Mr. Chairman.
	Mr. Gilman. I had to be here for a fellow New Yorker.
	Mr. Chairman, I am pleased that we are holding today's
	hearing in light of GAO's citing of HUD as a high-risk agency,
	and I look forward to hearing from our newly appointed HUD
	Secretary, Andrew Cuomo, who I want to personally congratulate.
	Secretary Cuomo. Thank you.
	Mr. Gilman. And wish him well in his new endeavors. We want
	to know how he plans to address GAO's concerns. As the agency
	responsible for our Nation's housing and community development
	programs, it is imperative that HUD identify the problems that
	it currently faces and develop a plan to seriously address
	those issues. I am certain our new Secretary has some ideas of
	his own. The mission of providing adequate housing for low-
	income families in our communities is extremely important and
	one that should not be jeopardized by any mismanagement. I
	have, throughout my tenure in Congress, fought hard for
	affordable housing programs for low- and middle-income
	Americans. In fact, during the past two Congresses, I
	introduced legislation which was approved by the House and
	later stalled in the Senate to remove Rockland County's median
	income level from the New York Primary Metropolitan Statistical
	Area, the PMSA, and we look forward to working with you on that
	problem.
	Currently, as you know, this New York Statistical Area
	includes all of New York City and grossly misrepresents
	adjoining counties median income. In fact, currently, Rockland
	County's median income for a family of four is reported by HUD
	as $40,500 when, actually, the median income level should be
	$60,479 as reported in the 1990 census, a difference of some
	$20,000. Accordingly, many hard working families who cannot
	afford a piece of the American dream are considered by HUD to
	be making more than is necessary to purchase a home and,
	therefore, are not eligible for affordable housing assistance.
	By removing Rockland County from the current PMSA, these
	families will be eligible for Federal and State affordable
	housing programs, something that many of us would like to see
	come about. So I look forward to working with Secretary Cuomo
	and with this committee in resolving problems such as the one I
	mentioned. I am confident that by working together with the
	Congress, HUD can once again successfully provide the kind of
	needed housing in our communities. And I want to thank Chairman
	Shays for holding this meeting once again. Thank you.
	[The prepared statement of Hon. Benjamin Gilman follows:]

	[GRAPHIC] [TIFF OMITTED] T9819.005

	[GRAPHIC] [TIFF OMITTED] T9819.006

	[GRAPHIC] [TIFF OMITTED] T9819.007

	[GRAPHIC] [TIFF OMITTED] T9819.008

	Mr. Shays. Mr. Gilman, it is really terrific to have you
	here because you are extraordinarily busy and you have pointed
	out, again, to the new Members that no Member is too senior to
	plug for a local project. [Laughter.]
	Mr. Gilman. Especially housing.
	Mr. Shays. At this time, I would like to call the gentleman
	from Ohio, Mr. Kucinich.
	Mr. Kucinich. Thank you very much, Mr. Chairman, members of
	the committee, Mr. Secretary. As a former councilman and clerk
	of courts and mayor of the city of Cleveland, I have had
	opportunities to be very much involved with HUD policies over
	the years and I am glad to see that the Secretary is now in a
	position where he can work with Congress to help construct an
	urban policy. Because I think one of the things that we have
	really lacked over the last few decades without in any way
	diminishing the contributions that have been made by past
	Secretaries is a coherent urban policy which addresses not only
	the housing needs of our various communities, but also the
	question of urban development and the choices which we should
	make to encourage urban development and to make sure that we
	have sustainable development as well.
	So your participation as the Secretary of HUD and your
	vision is going to be needed to help make the promise of HUD
	and the potential of HUD become a reality. I think every Member
	of this Congress is well familiar with the litany of problems
	which have been the result of administrative challenges that
	have not been met in HUD over the years; but you have a new
	opportunity and with it comes a chance to help revive the
	fortunes of America's cities. So I look forward to working with
	the chairman and with you and the members of this committee in
	helping to move this country forward on issues that relate to
	housing and urban development. Thank you.
	Secretary Cuomo. Thank you, sir.
	Mr. Shays. I thank the gentleman. I would like to get some
	housekeeping out of the way and ask unanimous consent that all
	members of the subcommittee be permitted to place an opening
	statement in the record and that the record remain open for 3
	days for that purpose. Without objection, so ordered.
	[The prepared statement of Hon. Michael Pappas follows:]

	[GRAPHIC] [TIFF OMITTED] T9819.009


	Mr. Shays. I also ask unanimous consent that our witnesses
	be permitted to include their written statements in the record.
	Without objection, so ordered.
	Mr. Secretary, before calling on you, I would like to just
	introduce some of the staff members in our committee who will
	be working with your people. We have on the minority side,
	Chanda Tuck, right here and then we also have Ron Stroman, who
	works for the full committee. And my chief counsel in this
	committee, Larry Halloran, and also Chris Allred in the back
	right here, who handles all housing issues.
	And as you know, we swear in all our witnesses, including
	Members of Congress, so I would just ask if you would stand now
	and I will swear you in.
	[Witness sworn.]
	Mr. Shays. Thank you very much. Mr. Secretary, we are
	delighted to have you here and you can summarize your
	statement, just make whatever comments you want, and then we
	will get in with the questioning.

	STATEMENT OF ANDREW CUOMO, SECRETARY, DEPARTMENT OF HOUSING AND
	URBAN DEVELOPMENT, ACCOMPANIED BY PAUL LEONARD, ASSISTANT
	SECRETARY FOR POLICY DEVELOPMENT & RESEARCH; STEPHANIE SMITH,
	DEPUTY ASSISTANT SECRETARY, HOUSING; AND MICHAEL STEGMAN,
	ASSISTANT SECRETARY FOR POLICY DEVELOPMENT AND RESEARCH

	Secretary Cuomo. I will not take a lot of the committee's
	time with an opening statement, because I think in your opening
	remarks you touched on the issues that, basically, we are here
	to discuss.
	If I might, Mr. Chairman, please allow me to introduce some
	of the people who are here from HUD just so we can put some
	faces with the names.
	Mr. Shays. Terrific.
	Secretary Cuomo. We have Mike Stegman, who is the Acting
	Chief of Staff of the Department.
	Mike, if you could just signal.
	Mr. Shays. Yes, he has acknowledged himself. He has raised
	his hand. We can see him here.
	Secretary Cuomo. And Paul Leonard, who is the Deputy
	Assistant Secretary for Policy Development and Research; Hal
	DeCell, who is the Assistant Secretary for Congressional
	Affairs; Cheryl Fox, who is a special assistant to me, works on
	all the issue briefings; Stephanie Smith, who is the Deputy
	Assistant Secretary for Housing, which is an important area
	handling Section 8 issues, among others; Mark Gordon, who is a
	senior advisor to the Secretary and Jon Sheiner, who is a
	Deputy Assistant Secretary for Legislation.
	I think, gentlemen, that I take over HUD at a very
	interesting time in this country, many things going very, very
	well. President Clinton, working with Congress, has certainly
	amassed an impressive record, putting the country in the right
	direction. But that is not to say that we do not have a lot to
	do. The President is the first to say there is still a lot that
	needs to be done. In his State of the Union Address, there are
	very few of us who can go back to our homes or our districts
	and not see the challenges that face us in cities like
	Bridgeport and areas like Brooklyn right across the country.
	There are still real problems that have to be addressed, and
	that is where HUD comes in and HUD's mission as we see it.
	One of the questions posed to me was what are the main
	obstacles facing HUD. And I think they were mentioned in your
	remarks, but I would say there were two. First and foremost, in
	my opinion, is what we referred to as the Section 8 crisis,
	which is not a glamorous topic. It is not an overly appealing
	topic. It is a technical topic, but it has a potentially
	devastating impact on the Department and housing, in general.
	The second issue, as again you mentioned, is the overall
	management problems at HUD. And it is something that we are
	also making a top priority.
	If I could refer you to the charts on your left, just to
	talk quickly about this Section 8 problem. The Section 8
	crisis, as we refer to it, is the expiration of contracts that
	are coming due. These are contracts that were signed 30 years
	ago, 20 years ago, or as recently as 1 year ago. And these
	contracts are now coming up for renewal. They are expiring. The
	question is, what do we do once they come up for renewal. Very,
	very big numbers: 1.8 million units; 4.4 million Americans; 6
	million Americans by about 2002.
	You look at the impact which is all across the country
	where these Section 8 units are coming up where they are
	expiring, New York City, 111,000; Bridgeport, 3,300; Cleveland,
	21,000; San Francisco, 16,000; Indianapolis, 15,000. All big
	numbers across the country. And again, the universe is as high
	as 6 million people 2000, 2002. You cannot just afford to allow
	the contracts to expire and lose the units to the inventory.
	The numbers are big on the people who inhabit the units. They
	are also big on the cost of renewals. The cost to renew the
	contracts that are coming due, it is just about $10 billion, a
	little less, about $10 billion. How much is $10 billion? It is
	about half of HUD's entire budget this year, just from the cost
	of renewal.
	Now, this is a problem that we have talked about for a long
	time, but, as it is thorny, no one has really wanted to grapple
	with it. So the numbers and the impact are devastating. What
	would happen to the people who are displaced if we allowed
	ourselves to lose these units? I do not think it is overly
	dramatic to say you could have massive homelessness in the
	Nation, which then triggers another problem as this committee
	knows.
	So the first question we pose to the committee is, renew or
	not renew. That is the question, to paraphrase. The second
	question is, if you choose to renew, if you say we cannot lose
	these units, we cannot have 4 million Americans homeless, we
	have to renew the contracts, the question becomes, where does
	the funding come from to renew the contracts?
	This year, the 1998 budget which we are here to discuss,
	requires $5.6 billion in new budget authority to renew the
	contracts. Where do you get the $5.6 billion?
	One theory would say, we will take it from the existing HUD
	budget. ``If you want to renew the contracts, HUD, God bless
	you. Take it from your budget.''
	To take $5.6 billion out of the HUD budget, you would
	basically have to cut everything else 35 percent across the
	board--public housing moneys would have to be cut $1.9 billion;
	the CDBG program, total program $4.6 billion, one of the
	strongest HUD programs, would have to be cut $1.6 billion. The
	HOME program which is a model of a block grant affordable
	housing program would have to be cut by $549 million. The
	homeless assistance would have to be cut by $288. Housing for
	people with AIDS would have to be cut $71 million.
	In our opinion, if you tried to take the $5.6, the $5.6
	billion necessary to renew the contracts, if you tried to take
	that from the rest of the HUD budget, it would be a cut-and-
	shift-the-burden strategy which would be counter productive. It
	is robbing Peter to pay Paul. You would be trying to help
	communities on one hand and hurting them with the other. These,
	35 percent of the HUD budget being cut, would have a truly
	disastrous impact on the communities that have been working
	long and hard to come back.
	What is our solution to the problem? Twofold. First, we
	say, the $5.6 billion in new budget authority should not be
	taken from the HUD budget, but should be additional BA added to
	the HUD budget. The President's budget for 1998 does that. The
	HUD budget goes up 30 percent. The 30 percent increase is just
	to take care of this renewal crisis.
	At the same time, we say it is not enough just to say new
	money to cover it, how can we reduce the cost of these
	contracts and the Section 8 program overall? So we have also
	come up with $2.4 billion in savings. So that our solution, the
	way we propose we address this crisis is twofold: $5.6 billion
	in new budget authority and $2.4 billion in savings from
	reforms.
	What is in that $2.4 billion? There are a number of
	savings, the most notable of which is what we call the ``Mark-
	to-Market'' proposal, the so-called portfolio re-engineering
	proposal which would save about half of that $2.4, about $1.2
	billion. It is a proposal we have discussed for a couple of
	years. And what that says is this. Of the expiring Section 8's
	there is a segment of that portfolio which the FHA has insured
	and we subsidize with Section 8 certificates and vouchers. The
	cost on some of those units are currently in excess of the fair
	market rents. In other words, the taxpayers subsidize apartment
	rents subsidies to the tune of 150, 160, sometimes 200 percent
	of fair market rent to landlords. So the American taxpayer pays
	twice what the same unit could be worth just down the block. We
	think that is unconscionable. We think it is intolerable.
	Something has to be done about it. We say, ``Mark-to-Market,''
	which would say, ``Reduce the FHA mortgage on the property
	which would then allow you to reduce the Section 8 rents which
	that project requires to be liquid down to fair market rent.''
	Reduce that 200 percent, 160 percent, get it down in keeping
	with what you have to pay. That, in a nutshell, is the Mark-to-
	Market proposal. You have to go project by project, reduce the
	FHA mortgage and now you can reduce the Section 8 rent. We need
	legislative authority to do it, but it would bring us a very
	large savings, $1.2 billion, which would help us solve the
	overall problem. More importantly, I think, as a matter of
	fairness, as a matter of equity in these times where we are all
	very concerned about balanced budgets and fiscal austerity and
	government departments are downsizing and working very hard to
	be efficient and intelligent about it, you cannot justify
	paying a private landlord twice what the going rent is for an
	apartment in light of everything else that is going on and how
	precious these resources really are. That is the Section 8
	crisis. This year, 4.4 million Americans are affected.
	The second challenge to HUD is, as you said, the overall
	management reforms and I see the lights are going off. Let me
	sum up----
	Mr. Shays. Do not worry about the lights. That is not a
	problem.
	Secretary Cuomo. OK. On the management reform side, as the
	committee has pointed out, these are problems that have plagued
	HUD for a long time. The GAO gives HUD the unique distinction
	of being the only department that is, ``a high risk''
	department. Some of the reasons for that are historical. The
	high risk designation is, in part, because of the so-called HUD
	scandals in the 1980's and that is one of the things that got
	us that designation and one of the things that continues to
	give us that designation. But there is no doubt that as HUD has
	made progress and Secretary Henry Cisneros did amazing things
	on the management side as GAO will point out, there is still a
	long way to go on the management side. That is going to be a
	top, top priority for me. The two priorities for my tenure at
	this point will be the Section 8 crisis and improving the
	management of HUD, earning the public trust, right across the
	board, from both clients--be they private landlords, be they
	public housing authorities, be they the residents of public
	housing, demanding more responsibility, ``one-strike-and-
	you're-out'' policies on criminal behavior and drug behavior.
	Demand responsibility from our clients, also demand
	responsibility and managerial efficiency and intelligence from
	ourselves. Begin cleaning up by cleaning up your own house and
	that is what we want to do at HUD. We have already made strides
	in that area in just the first few weeks. We have mapped out a
	plan we think that will show real management change in about 18
	months, and we are going to pursue that aggressively. So the
	reforms on the management side at HUD, I share this committee's
	concern. I know they are long standing. I know we have made
	progress, but I know that we have a long way to go.
	Before I was Secretary, I was Assistant Secretary in
	Community Planning and Development. During those 4 years, the
	CPD, as they call it, staff was reduced by 25 percent and at
	the same time, we actually administered more resources.
	Literally did more with less, consolidated applications,
	consolidated reports. We even won an award from Harvard for the
	consolidation efforts that we did. So that doing more with
	less, the consolidation, streamlining, getting the funding,
	getting the authority back to communities that we did at CPD
	for the past 4 years, is what we are looking forward to
	continuing doing with the entire department.
	I also know from my past 4 years as Assistant Secretary
	that nothing happens unless it happens together. That as hard
	as we work at the Department, unless we are doing it in
	partnership with Congress, we will not be successful. And in
	that mode, I come to this committee and I say I am looking
	forward to a productive rela-
	tionship, a close relationship, a synergistic relationship that
	helps us both do what we want to do. And I think we can and I
	am looking forward to the opportunity and I am looking forward
	to beginning today. Thank you.
	[The prepared statement of Secretary Cuomo follows:]

	[GRAPHIC] [TIFF OMITTED] T9819.010

	[GRAPHIC] [TIFF OMITTED] T9819.011

	[GRAPHIC] [TIFF OMITTED] T9819.012

	[GRAPHIC] [TIFF OMITTED] T9819.013

	[GRAPHIC] [TIFF OMITTED] T9819.014

	[GRAPHIC] [TIFF OMITTED] T9819.015

	[GRAPHIC] [TIFF OMITTED] T9819.016

	[GRAPHIC] [TIFF OMITTED] T9819.017

	[GRAPHIC] [TIFF OMITTED] T9819.018

	[GRAPHIC] [TIFF OMITTED] T9819.019

	[GRAPHIC] [TIFF OMITTED] T9819.021

	[GRAPHIC] [TIFF OMITTED] T9819.020

	Mr. Shays. Thank you, Mr. Secretary, that was very helpful.
	What we are going to do is I am going to recognize Mr. Towns
	first. We may have a vote and I may leave before they even call
	the vote or as soon as they call it, and then I will come back
	and be able to ask some questions. But I think what we will do
	is we will start with Mr. Towns.
	We are going to keep the 5-minute rules, given that we have
	a number of Members, and then we are going to do another round
	where we might take 10 minutes per Member just so that we can
	have a first round. So Mr. Towns.
	Mr. Towns. Thank you very much, Mr. Chairman.
	And let me begin by saying, Mr. Secretary, I am elated to
	have you to come before the committee, look forward to working
	with you. I know of the outstanding job that you have done up
	to this point. And the first question is the Genesis Project,
	which I took the budget chair--Mr. Kasich, who visited the
	district, and, when you take people to your district, you know,
	you want to show them the best. So I took him to the Genesis
	Project to show him in terms of what was going on there and how
	things could be done. This project, of course, is in my
	district and provides housing for 150 families, as well as a
	wide range of other services as you know, that are there to
	support these families, is a wonderful organization. And I
	wonder if you have any intentions of funding organizations like
	Genesis on a national level, because it seems to me that is a
	way that we will be able to provide adequate housing and at the
	same time, the housing will be protected. Because, as you know,
	during the old days--and I say ``the old days,'' we would build
	something and they would tear it down and, of course, we would
	have to come back and build it all over again. But this is
	something that really works. So I would like to get your views
	on whether you plan to take this nationally?
	Secretary Cuomo. Congressman, that is an interesting
	question and a helpful starting-off point. I think before I
	answer the question, just as a matter of full disclosure, I
	would ask who the management of the Genesis Project was and who
	did that project in your district?
	Mr. Towns. Well, I must admit it was Secretary Andrew
	Cuomo.
	Secretary Cuomo. Oh, well. [Laughter.]
	Well, I think it is a great project. And I think it has a
	lot to do with the leadership of the organization. I was
	actually with Chairman Kasich the other day and he reminded me
	of that visit which was back, I guess, in like 1988 now. And he
	remembered the project. This is in Bedford-Stuyvesant,
	Schnediker and Hinsdale, in the Congressman's district, and he
	had a tour and Congressman Kasich had come out and I had led
	the tour and we discussed the concept at that time. The concept
	was unique. This was transitional, quote/unquote, housing at a
	time before we really knew about transitional housing. And it
	started to make the breakthrough that said, ``Look. You have to
	do the housing as the foundation, as the starting point.''
	Everybody needs the housing just to have the security, but then
	you have to build from there. And the housing alone is often
	not enough to help the individual and often not enough to help
	the community.
	Comprehensive approaches, be they on the community
	development side or on the individual development side,
	specifically in a homeless-related context, often are the most
	appropriate path to follow. Genesis did that in Brooklyn. It
	has been open just about 10 years, now, actually, Congressman,
	since we first started that. And I am pleased to be able to say
	that in my opinion, and, again, I gave you the disclosure, but
	that it is working as well today as it did 10 years ago. And if
	you go to the people and the neighbors in the community, they
	will tell you that.
	So that kind of approach that says comprehensive solutions,
	give people housing, but also give them the services and the
	tools they need to do for themselves and move on, Genesis is
	transitional. You do not come and live there forever. You come,
	you get the services, you get the help you need and then you
	move on to independence. Independence is the goal. Right?
	Independence is the goal of all these government programs. The
	goal of the government program is to end the reliance on the
	government program. The goal of the government program is to
	end the need for the program, to almost self-terminate. And
	that is what Genesis is doing. Not for profits. Comprehensive.
	In partnership with communities. I think that is the way to go.
	Mr. Towns. Right. I will tell you, it is working. No
	question about it. In more ways than I think one would realize
	in terms of the service that it provides to the community,
	community meetings and being involved in community activities,
	and to see tenants suddenly recognize the importance of being
	involved in the community. I want to extend the invitation to
	the chairman. My good friend Mr. Kasich has already seen it, so
	I want to take the chairman there to see it because I am hoping
	that, as we get people to see it and they know what is going
	on, that we can buildup some support here. In fact, I may
	invite the entire committee after we take the chairman out. You
	know, that is how excited I am about it.
	But let me just move along to one other question in terms
	of the legislation that has been put forth by Congressman
	Lazio, which is referred to as H.R. 2, the Housing Opportunity
	and Responsibility Act of 1997. The bill contains a provision
	to repeal the income-based renting public housing or what is
	really known as the Brook amendment.
	This caused a tremendous uproar among public housing
	residents in the last term. Let me add that I opposed this
	provision. I want to go on record right now indicating that.
	How can we balance HUD's need to decrease its rental subsidies
	with the need to maintain affordable low and moderate income
	housing? How can we work out a balance?
	Mr. Shays. If we could have a relatively, maybe a first
	pass at that answer, because the gentleman's time is up and I
	am going to really try to respect----
	Mr. Towns. I want to respect--I will even withdraw the
	question.
	Mr. Shays. Why do we not withdraw it now and then we will
	do it.
	Mr. Towns. I will withdraw it.
	Mr. Shays. And you will get to repeat it twice that you are
	against the bill.
	Mr. Towns. I want to cooperate because I want to get you to
	Brooklyn. I withdraw it.
	Mr. Shays. You can ask the question a second time and
	emphasize that you oppose the bill a second time.
	Mr. Snowbarger.
	Mr. Snowbarger. Well, if Mr. Towns would allow, I would be
	happy to have the question answered in my timeframe.
	Mr. Shays. If it is a question you want to ask.
	Mr. Snowbarger. Go ahead and answer the question, yes.
	Mr. Towns. I would like to thank the gentleman. Thank you.
	Mr. Shays. Let me try to be economical with the time.
	Secretary Cuomo. I do not think there is a short answer,
	Congressman. I think before we look to get the shortfall from
	the tenant who can least afford it by raising their rent, we
	should look to, again, our own house. How can HUD do more with
	less? How can the local public housing authority do more with
	less? How can we get working families into that public housing
	who then can pay more because the 30 percent is a larger number
	because they are working and they have higher incomes. Use that
	mechanism to make up some of the short fall. But I think the
	last place to go is to a tenant who is barely making it and
	say, ``You have to pay more than the 30 percent Brook
	guarantee.''
	Mr. Snowbarger. Let me followup on a couple of things you
	mentioned during your statements and in answer to the question
	first. Explain to me, you are dealing with a freshman here, why
	are we subsidizing up to 200 percent of these rents to
	landlords? How did that come about?
	Secretary Cuomo. Congressman, first, you have to appreciate
	you are dealing with a freshman, also, but I had the same--I
	had the same question when I walked in.
	Mr. Snowbarger. Like I said, I hope you have more answers
	than I have questions.
	Secretary Cuomo. Yes. What happened on the Section 8
	contracts, remember that many of these contracts were signed 30
	years ago, 20 years ago, they came up with certain assumptions
	and one of the assumptions was we, government, will sign the
	contract 20 years ago and we will pay escalators, adjustments
	to the rent over a period of years. And we signed that 20 years
	ago.
	As it worked out for many of these contracts, those
	escalators have now brought the subsidies to a point where they
	exceed the subsidies which are in the neighborhood fair market
	rents in the neighborhood. We have been contractually bound in
	many cases to be paying these.
	The contracts expire. That is good news and bad news. The
	bad news is now we have 4 million people, 6 million people in
	2002, that we have to figure out how to house. It is an
	expensive problem. That is the bad news. The good news is the
	contract expired, you can do something different. You are no
	longer bound to pay 200 percent. You are no longer bound to use
	the same buildings if you do not want to. You are no longer
	bound to say 100 percent of the people in this building, all
	poor people, 100 percent every unit. You do not have to do
	that. You can say, we are going to go to mixed income in
	buildings because that is smarter. You can say, now, we are
	going to use a Section 8 voucher, not just to pay a landlord's
	mortgage, but to allow a person to go buy their own home with a
	Section 8 voucher. So the contract expired. You now can do all
	sorts of creative things. You can repair the mistakes that you
	made in that first contract signing, because you have learned a
	heck of a lot over 20 or 30 years.
	And first and foremost, you do not have to pay 200 percent
	for a unit that you can rent in the marketplace down the block
	for half the price.
	Mr. Snowbarger. Can you describe those escalators for me?
	Apparently, it was not done just based on a CPI or something of
	that nature. Was there a percentage increase guaranteed every
	year?
	Secretary Cuomo. I have a team of people----
	Mr. Snowbarger. The staff is looking at each other and they
	cannot figure it out. So I may be asking the wrong----
	Secretary Cuomo. I can get you more specific information
	because, Congressman, we have a number of programs that were
	signed at different times all with slightly different deals at
	whatever time they were doing it. Remember, these contracts,
	some were signed in the Sixties, some in the Seventies, some in
	the Eighties. Some are very recent roll-overs. But
	interestingly, the past couple of years, we have been trying to
	get legislation to do something about this. When we do not get
	the legislation, and we have been unsuccessful, there has not
	been a housing authorization bill in 6 years, the result of
	doing nothing is continuing the status quo where even if the
	contract has been expired, we have been renewing them at the
	excessive rents, rolling them over, if you will, at the
	excessive rents because we have not come up with legislation
	that changes the course significantly. So to do nothing is to
	continue the status quo. But specifically, I can get you the
	actual terms of the contracts that were signed years ago that
	brought those rents up.
	Mr. Snowbarger. Well, I understand there may be multiple
	ways of having done that. It would be helpful to me. Following
	up on your statement there, what is it about the legislation
	that is required or that was passed that required you to roll
	over the same terms?
	Secretary Cuomo. Two things. First, before we can reduce
	the rent in many cases, we have to reduce the mortgage. In
	other words, we are both mortgage holder of many of these
	properties, FHA mortgage, and subsidizer and rent-payer. And
	the mortgage is matched to the rent. And we are paying out of
	both pockets. If you want to reduce the rent, you have to
	reduce the mortgage so you do not default on your own mortgage.
	We do not want to reduce the rent and then wind up with massive
	defaults on FHA mortgages. So we need legislation to do that.
	When we have not gotten the legislation, since nobody wanted to
	displace all the people who were in the units, Congress said,
	``Continue. Roll over. You can pay 160 percent of fair market
	rent.'' And that is what has happened for the past few years.
	Mr. Snowbarger [presiding]. Thank you. I think my time has
	expired. Mr. Allen, do you have questions?
	Mr. Allen. Yes, I do. I apologize for being late. And if
	some of my questions cover matters that you went into before,
	my apologies.
	I was once the mayor of Portland. I was on the city council
	in Portland, ME, for 6 years. And my first question has to do
	with if you went through the city of Portland right now, looked
	at the public housing, it works, and it works very well. And I
	think the Section 8 program works pretty well. We have gone
	through some periods where we had to make sure that we were
	paying, what we were paying was more in line with market rents.
	I know that your Department, of necessity, has to deal with
	some of the larger cities in this country, and I am just
	wondering, are there any issues that you foresee that will
	affect small cities and more rural areas differentially than
	the larger cities in this country that we ought to be aware of?
	Secretary Cuomo. It is an interesting question,
	Congressman. I think two things. First, the Section 8 crisis is
	almost unique to HUD in that this problem affects almost all
	cities across the country. Different degrees, depending on the
	size of the city, because that is the number of units--larger
	cities probably have more units. But proportionately, it is
	still a devastating impact. New York City's number is 111,000
	people on a larger universe, obviously. But Cleveland, 21,000;
	San Francisco, 15,000; and that is across the country. And that
	is one of the powerful problems of this crisis is the blanket
	effect across the country.
	Having said that, public housing is interesting in a number
	of ways to me. It really has gotten a bad rap, public housing.
	People talk about public housing as if it was a failure. It is
	too often the way it is portrayed. Public housing, oh, that was
	a mistake. That was a problem.
	It was not, really. Public housing is actually a great
	success story in this Nation and it is actually a testament to
	what government can do. Public housing works. Portland, public
	housing works; 95 percent of the time, public housing works.
	Public housing has been too often typified by some of the large
	developments in the large cities, Cabrini Greens in Chicago.
	That is not the face of public housing. It is smaller. It is
	less dense. It is more welcomed by the community, and it works.
	What we want to do at HUD is change, as one of our
	management reforms, change our management depending on what the
	authority is and what its performance is. The smaller
	authorities that are performing well, God bless them, let them
	run the business, devolve authority to them. Deregulate to the
	extent you can. Not irresponsibly, but deregulate. Portland
	Housing Authority is working. Give them the funding and let
	them run it. Focus, instead, on the larger, more troubled
	public housing authorities.
	Mr. Allen. Just by way of an example, we have married to
	our community policy effort to our public housing and we have
	been increasingly tough about people who have criminal records.
	They are now being moved out of the public housing. It has made
	a huge difference. We have got educational programs. They are
	all--they all seem to me to be moving along in the right
	direction.
	One last question. The field operations for HUD in the
	State of Maine consist of two people in Bangor and one person
	in Portland. As you reduce the staff, you know, nationwide of
	HUD people, obviously, we would be concerned the field
	operations might take more of a hit than the central, than the
	D.C. offices and I wondered if you could respond to that.
	Secretary Cuomo. Two things, Congressman. First, between
	the headquarters and the field, I think your point--there is a
	lot of wisdom in your point. And if there is a disparate impact
	in the reductions, I think it should be disparate toward
	headquarters if anything, because we are trying to get more
	authority out to the field and we need people in the field to
	do that.
	Having said that, 4 years ago, HUD was 13,000 people. In 4
	years, I am pledged to reduce it to 7,500. That is almost a 50
	percent reduction. So there are going to have to be fewer HUD
	people in a lot of places. At the same time, we want to make
	sure we have representation. And if it is only a couple of
	people now there, I would have to do it all within the context,
	but I would rather see a continued presence and a reduction in
	other areas that have more people. But I would not, if we can
	avoid it, I do not want to lose the presence entirely in an
	area.
	Mr. Allen. Good. Thank you very much.
	Secretary Cuomo. My pleasure.
	Mr. Snowbarger. I apologize to the Secretary. We do have a
	vote that is taking place right now and I think we are going to
	take a brief recess. The chairman is expected back shortly. We
	will stand in recess.
	[Recess.]
	Mr. Shays. I would like to call this hearing back to order.
	What I would like to do, I was delinquent in doing this. The
	Secretary may want to call on one of his staff that is to
	answer a specific question. And so, what I am going to ask is
	any staff member that might respond to a question, not
	necessarily will, but might, if they would stand up and we will
	just take care of swearing you in and then it may be that none
	of you will have to respond to anything, but at least this way
	you have the flexibility. You can stay seated, Mr. Secretary,
	but if the others would stand and raise their right hand? And
	we will just make sure we identify who they are.
	[Witnesses sworn.]
	Mr. Shays. Thank you. Could you just each state your names?
	Mr. Stegman. Michael Stegman.
	Mr. Shays. And?
	Mr. Leonard. Paul Leonard.
	Ms. Smith. Stephanie Smith.
	Mr. Shays. We will make sure you have cards for the
	recorder if there is responses.
	Take them down for any reason? Are we all set to go? Do we
	have them anywhere?
	Mr. Secretary, I can start. I can start and we can see if
	we can recapture them.
	Secretary Cuomo. We will get them back up.
	Mr. Shays. OK. It strikes me that, first off, I will say to
	you in this room we had the hearings, really, the Lantos
	hearings, and I was part of that committee that looked into
	Section 8 housing. And we knew of the tremendous abuse. One of
	the big abuses was that people would get the housing and they
	would get a tax credit. They would get financing and, in
	essence, what we found is they took all their money out up
	front. And then HUD had this incentive to continue with large
	subsidies in order to pay the mortgages that would, if they
	went bankrupt, HUD ended up with.
	And if you could just kind of sort out for me this process?
	I know almost every community, particularly the large
	communities, have Section 8 housing that is running out. And
	so, you have that one issue. So one of my questions will be the
	mortgages run out at the same time question. The other issue is
	when we had hearing on Section 8 housing last time, we were
	really appalled with the condition of some of the housing and I
	can say that we have the same circumstance, say, in Monteray
	Village in Norwalk. It is not untypical, where we are actually
	paying higher than market rate as you have pointed out.
	I am unclear as to how you sort this out: (1) Are the
	mortgages paid up by these individuals and, therefore, do we no
	longer have the at-risk of HUD taking over the facility with
	the guarantee? And (2) does this mean then that their cash
	needs are different because they do not have large mortgages?
	How do you sort all that out?
	Secretary Cuomo. Mr. Chairman, if I can, I said when you
	were out of the room before, the expiration of the contracts is
	a good news/bad news scenario.
	Mr. Shays. OK.
	Secretary Cuomo. Bad news is we are in danger of losing
	units that would house about 6 million people by the year 2002,
	and the cost of renewal is very high.
	Mr. Shays. Is very what?
	Secretary Cuomo. Is very high at a time when there are not
	many resources. That is the $5.6 billion that is required in
	new budget authority plus $2.4 billion in savings. That is just
	the cost of renewal. The HUD budget goes up 30 percent this
	year just to cover the cost of renewal. We are not doing
	anything else. The rest of the HUD budget is basically flat
	besides the renewal----
	Mr. Shays. Is that a one shot or is it continuous?
	Secretary Cuomo. No. That is not a one shot. That is the
	problem. This wave of expirations, of contract expirations,
	starts to break in 1998, but it breaks in 1998, 1999, 2000,
	2001, 2002 is the main impact. We want to get something done
	now so we can reduce the cost in the later years because the
	number gets higher as we go out, not lower. 1998 is significant
	because one of the largest increases is in 1998 from 1997. A
	jump from 1997 to 1998. But 1998 to 1999, 2000, 01, 02, it is
	also a very, very significant number, so we have to do
	something. That is the bad news is the impact on the numbers.
	The good news is you can now literally rewrite housing
	policy for the first time in 30 years. The good news is the
	contracts are expired and you are no longer bound by the
	situations that you were bound by. You are no longer
	handcuffed. How many times did we walk through a community and
	we said, ``Well, that's a Section 8 project. We can't do
	anything because we have a contract and it would foreclose or
	default and it would be a tremendous problem.'' The contracts
	expire. So I would say, now you have a chance to rewrite
	Federal housing policy, change the policy and start with a
	blank slate. Do you want to renew that building? Maybe the
	building is an asset to the community. Maybe it is not an asset
	to the community. I would pose the question: Do you want to
	renew that building?
	If you do want to renew the building, do you want to renew
	it at 100 percent subsidized units? Some people think that
	mixed income is a good idea, not 100 percent. If you want to
	renew the building, would you like to get in not-for-profit
	management, if it was a possibility. Would you like to offer
	tenant mobility? If the tenant chooses to leave the building,
	should the tenant have that choice? If the tenant chooses to
	leave and leaves with a Section 8 voucher, should the tenant be
	able to use that Section 8 voucher to buy their own home? Home
	ownership as opposed to rental. These are all questions that
	are triggered when you are freed from the contractual
	parameters.
	Mr. Shays. But there are two contracts. Right? There is one
	that is a subsidy. The other is the mortgage.
	Secretary Cuomo. No.
	Mr. Shays. Do the mortgages end when the--is that what is
	happening? Have they paid off their mortgage?
	Secretary Cuomo. No. No. Here is the caveat. When you go
	to--and, again, there are a lot of different flavors within
	this.
	Mr. Shays. Some can pay back early? Correct? You have the
	20 and the 40.
	Secretary Cuomo. Yes. You have different situations. Some
	have the right to prepay at the end of 20 years, which is a
	different portfolio than the portfolio we are talking about
	here. This is basically we want to reduce the rent, the Section
	8 subsidy, but you have to make sure that what you reduce the
	rent to can satisfy the mortgage. Because, as you have pointed
	out, you also, the Federal Government, hold the mortgage. You
	do not want to reduce the rent to a level that would see that
	mortgage default because now you have a lot of properties and a
	lot of foreclosures. So reduce the mortgage, write down the
	mortgage, mark it to market, reduce the mortgage as you are
	reducing the Section 8 rent. And you can reduce them both, but
	they both have to balance. In some cases, you may be able to
	expire the mortgage.
	Mr. Shays. I have a sense that the mortgages are, in some
	cases, greater than the value of the property, except over
	time, part of the mortgage has been paid back. But even then,
	probably if they defaulted, you would lose--HUD, the
	government, would lose.
	Let me just tell you what I am thinking of. I think of the
	Section 8 housing that is not properly maintained and then I
	see Section 8 housing that is very well maintained. It happens
	to be, say, in downtown Stanford, Four Acres. I know what that
	builder is going to do. It has already been sold a few times,
	but they are not selling it in my judgment so that they can
	renew Section 8 housing. They are either going to go right out
	into the marketplace which was, in one sense, the original
	design of this program, to create more housing and then
	privatize it. Or they are just going to tear it down because it
	is 4 acres in downtown Stanford and then you will have hundreds
	of people without housing.
	So what I am trying to sort out, and I really do not yet
	have a clear picture of this, is the contracts are coming due,
	are ending for the subsidies. They're able to be bought out
	because this time has arrived. So the ones who will want to
	buy-out, it seems to me, would be the ones that are in prime
	choice areas. And the ones that will want to continue are the
	ones that, frankly, took everything out of the project early on
	and are just going from month to month.
	Secretary Cuomo. Yes. I am going to ask Mike or Stephanie
	to give you a sense of the numbers in two different portfolios,
	we call the preservation portfolio which are those units where
	the owner now has a right to prepay the FHA mortgage.
	Mr. Shays. That is called preservation.
	Secretary Cuomo. Preservation.
	Mr. Shays. Do you need another chair?
	Ms. Smith. No. I'm fine.
	Mr. Shays. OK.
	Secretary Cuomo. And the other is the Mark-to-Market
	portfolio. And if Stephanie could also speak to----
	Mr. Shays. I am sorry.
	Secretary Cuomo. Stephanie Smith. Your issue is might there
	be units where the owner chooses to go to the market and not
	renew the expiring contract.
	Mr. Shays. OK. And I am making an assumption that in many
	cases we still hold the mortgage insurance.
	Ms. Smith. Mr. Chairman?
	Mr. Shays. Yes.
	Ms. Smith. The Secretary is referring to two distinct
	portfolios. There is one portfolio for which we have Section 8
	contracts which are beginning to expire now and will continue
	to expire for the next decade. And those Section 8 contracts
	rent significantly above market, as he mentioned.
	Mr. Shays. Yes.
	Ms. Smith. We also have FHA insurance on the mortgage. The
	structural flaw in the program is that the Section 8 contracts
	are for 20 years. The mortgage insurance is for 40 years. So in
	all those cases, the mortgage insurance usually runs for at
	least another 20 years, if not a little bit longer.
	There are about half-a-million units which are expiring in
	the next 10 years where the Section 8 contracts are
	significantly above market and we have FHA insurance on the
	mortgage. The other distinct portfolio which you are raising is
	the preservation portfolio. In many cases, those Section 8
	contracts are also expiring in the next few years, by the end
	of the decade, but those are the projects in which the owners
	have the right to prepay their mortgages. Congress restored
	that right to those owners last year. But if the owner prepays
	the mortgage, that does not mean that he is released from the
	Section 8 contract. He has prepaid his FHA-insured mortgage.
	There is a certain set of restrictions that he is released from
	on the mortgage side, but he still has the Section 8 contract.
	If the owner decides to opt out of the Section 8 contract
	at the point of expiration, then he has to give the Department
	1 year's notice prior to opting out of the program. We then
	provide the tenant at the expiration of that 1 year notice
	period with tenant-based vouchers and certificates, so they
	continue to receive assistance, but it may not be tied to that
	specific building.
	So there are two very distinct portfolios that are being
	discussed here at the moment. That portfolio which is sort of
	preservation-eligible, there is about 350 or 400,000 units in
	that particular portfolio. Many of those units have Section 8
	contracts with rents below market because of the way they were
	developed 20 years ago.
	Mr. Shays. I am sorry to ask such ignorant questions, but I
	learn from my questions. Do I make an assumption that the face
	value of the mortgage has been brought down over 20 years so
	maybe then it actually is worth the market price? Or, do we
	still have problems that even after 20 years of paying down the
	mortgage, it is not a balloon mortgage? Right? It is a
	constant.
	Ms. Smith. It is not a balloon mortgage. It is an
	amortizing mortgage.
	The best way I think to think about this, Mr. Chairman, is
	that these are two distinct portfolios of properties.
	Mr. Shays. Right.
	Ms. Smith. For the portfolio that the Secretary mentioned
	with rents significantly above market, in many cases, the face
	value of the mortgage is greater than the actual value of the
	property.
	Mr. Shays. And hence, why we pay more.
	Ms. Smith. Right.
	Mr. Shays. OK.
	Ms. Smith. In the case of the portfolio that is prepayment
	eligible which is below market, in many cases, there is not a
	lot of debt remaining on those properties.
	Mr. Shays. Yes.
	Ms. Smith. They were developed at a time where the mortgage
	amount was smaller, the amount of debt remaining on the
	property is significantly less. And in many cases, the value of
	the property is probably equivalent to the value of the
	mortgage.
	Mr. Shays. In some cases, they did not mortgage to the top.
	Ms. Smith. These are sort of two distinct ways in which
	these portfolios----
	Mr. Shays. It is hard for me to understand, though, how we
	are in a very good bargaining condition if we still hold the
	debt insurance and they are basically telling us to pay more
	than the market rate. I guess I do not really understand the
	Mark-to-Market. Are you suggesting that, basically, we are
	going to buy down the mortgage by just writing it off?
	Secretary Cuomo. You would have to--your point----
	Mr. Shays. Thank you very much.
	Secretary Cuomo. Thank you, Stephanie.
	The dilemma you see is the real one. You would have to,
	under this proposal, negotiate with that owner as to the bona
	fide expenses of operating the building, bona fide cost of
	operations, et cetera, and what mortgage payment that building
	could satisfy to keep it at the fair market rent and then you
	would have to reduce in some cases the actual mortgage, write
	down the mortgage and in those cases, there would be an expense
	to the FHA fund. Net, when you do all of this, you are reducing
	the Section 8, you are reducing the mortgages. Some are a cost
	in the reduction of the mortgage because you would literally
	have to write it off. Net, the cost is minimal. There are some
	scenarios where we can even figure out making money with the
	right tax consequences. But there are scenarios where to reduce
	the rent you have to reduce the mortgage.
	Mr. Shays. OK. And then that raises the question in my mind
	of whether or not, since we have given a benefit to the owner
	of these facilities who have already, frankly, made a lot of
	money off of these facilities, they would have continued
	obligations to keep them in the housing stream, in perpetuity.
	In other words, would there be a quid pro quo for that for
	writing down the debt?
	Secretary Cuomo. That is one of the issues that is being
	discussed in proposals that are going forward and it depends in
	whose opinion. In my opinion, I would say, in the Department's
	opinion, I would say, yes. If we are going to reduce the rent,
	write down the mortgage, reduce the rents----
	Mr. Shays. We pay either way.
	Secretary Cuomo. We pay either way.
	Mr. Shays. Except, we are up for renegotiations. So that is
	where we have some strength. If you wanted, you could basically
	close them down and then you have the facility. And I would
	think in some cases, if you did not have a willing negotiator
	on the other side, you just close him down, take over the
	property. You will look at those tradeoffs, I would gather.
	Secretary Cuomo. And those would all be the tradeoffs on an
	individual basis. Again, Mr. Chairman, some buildings, you may
	not want to renew. Some buildings you may say, this did not
	work. It hurt the community. The people who live there do not
	want to stay there. So you may choose not to renew a building.
	Mr. Shays. They have to feel you may be willing to not give
	them what they want in order to get what you want from them.
	Secretary Cuomo. That's exactly right. And right now, HUD
	is in no negotiating position because if the owners do nothing,
	they are basically renewed at the current rent. As a matter of
	fact, by law, HUD is prevented from reducing the rent. So you
	have landlords who if nothing happens, if no legislation is
	passed, status quo serve them. They will be rolled over, they
	will be renewed as much as 160 percent of fair market rent.
	Mr. Shays. I am going to get to Mr. Snowbarger in just a
	second, but let me just pursue this point. That means, clearly,
	that you would be looking to us to strengthen your bargaining
	position in Congress, to give you a little more flexibility, I
	would think.
	Secretary Cuomo. That is exactly what we are looking for.
	Mr. Shays. And so, that will be something that you will be
	deciding with, I guess particularly Mr. Lazio, and the Senate
	side, I do not know who that is. Who is the Senate side?
	Secretary Cuomo. Mr. Mack. Senator Mack.
	Mr. Shays. You will be working with them to figure out how
	to proceed on that issue.
	Secretary Cuomo. Yes, sir.
	Mr. Shays. Let me just ask this one last question related
	to it. Both GAO and the Inspector General's Office have
	questioned the ability of HUD to take on this massive project.
	This is going to take some very smart energetic people who know
	the marketplace and a whole host of different places. And you
	have alerted us so now we have to be part of the solution. And
	I am happy you have. The question is what steps are you taking
	and will be taking so that you have a strong group within HUD
	that can take on this project.
	Secretary Cuomo. Mr. Chairman, there are two sides to this
	issue. The first one we have discussed, the impact, what kind
	of legislative authority we need to actually do something about
	it. Second, as you accurately point out, if you have the fix,
	the legislative authority to do a fix, how do you now implement
	it? Eight thousand five hundred properties. How do you now
	implement it with 8,500 properties across the country?
	One scenario would say, ``Well, we are going to bring HUD--
	hire more people, increase the size of HUD and we will perform
	this task.'' That is not our recommendation.
	We have a plan to downsize HUD. We want to stay on that
	downsizing track and our implementation vehicle for this would
	look to outside parties, outside third parties, be they housing
	finance agencies, be they subcontractors, but there is talent
	in the private marketplace that can do this very well. This is
	a very skilled expertise. These are people who have to be able
	to come to the table and negotiate and know the facts because
	they are against trained real estate developers on the other
	side. So our opinion is there is expertise in the marketplace.
	Let HUD contract for the expertise rather than trying to
	develop it in house.
	Mr. Shays. I am struck by the fact that you really have
	almost a war-room type of situation where I would almost
	visualize someplace in HUD where you have got a gigantic map
	and time lines and so on, especially, if you are going to be
	farming out some of this, because this is going to be a massive
	undertaking.
	Secretary Cuomo. It is a massive undertaking. In any
	scenario, it is a massive undertaking. It is massive even if
	you contract it out. It is massive just to coordinate it. But I
	think it is a far more doable task if you contract it out, get
	the best expertise you can get out there and then manage the
	process of contracting out.
	Mr. Shays. Well, I have not spoken to Mr. Towns and the
	other members of the committee, I suspect that we are going to
	probably have a few hearings on this issue to weigh in with the
	authorizing committees to see how we could provide suggestions.
	Mr. Snowbarger, has the gentleman from Ohio asked
	questions?
	Mr. Snowbarger. He has not.
	Mr. Shays. He has not. Do you mind if we----
	Mr. Snowbarger. That would be fine.
	Let me make just two real quick ones.
	Mr. Shays. Yes.
	Mr. Snowbarger. Two real quick ones, because they have to
	do with the questions.
	Mr. Shays. You have the floor.
	Mr. Snowbarger. Thank you, Mr. Chairman.
	They have to do with the questions that were asked by the
	chairman: We are talking about 8,500 properties out there and
	we are trying to figure out what our leverage is. Do we have
	any analysis of those properties in terms of are they in--now,
	I have got to figure out how to ask the question right. Are
	they in markets where there are excessive units on the market?
	Are they in markets where housing is very tight? Obviously, if
	there are excessive units on the market, it seems to me we are
	in a pretty decent bargaining position there. And then, how do
	those particular contracts relate to these 200 percent rental
	subsidies that we were talking about earlier? Do we have that
	kind of analysis that you have done already?
	Secretary Cuomo. We can get you, Congressman, where the
	buildings are. We have a more thorough breakdown of the cities
	that you see on that chart. We have a breakdown by city of
	where they are across the country. And then we know where the
	markets are a little tight or a little soft. We also know the
	locations within cities and, obviously, sometimes the housing
	market changes within different parts of the city. So we have
	that data and we can get it to you.
	Mr. Snowbarger. OK. And then, the last followup was on this
	management side of things. I want to congratulate on the job
	that you did in terms of downsizing with the Community Planning
	and Development and it sounds like that is a part of the
	process for all of the Department is a downsizing.
	I guess I am curious as to where you see downsizing fitting
	in at a point in time when the tasks that you are called upon
	to accomplish, at least for a short term here, are massively
	increased.
	Secretary Cuomo. That is the challenge, Congressman.
	Mr. Snowbarger. But apparently, you see that it can be
	done. I mean, that is what you proposed.
	Secretary Cuomo. Yes. Our plan is we were at 13,000. We are
	now at about 10,000. The plan is to go to 7,500. Our challenge
	is to not be driven by the number, but change the management
	plan, change the mission of the Department which then can work
	with a smaller work force. And I think it can be done. It is
	not--it is by no means an easy task, but that is why I point to
	the CPD experience. We reduced the work force 25 percent and
	administered more funding, ran more programs, got more things
	done than when we had the larger work force. You can do it. You
	have to rethink the mission, but we have to rethink the mission
	of HUD anyway. Public housing areas. I was saying in response
	to Congressman Allen, we have to have a new vision of how we
	want to manage public housing in this Nation. The overwhelming
	majority of public housing authorities work well. ``Well, then,
	why are we spending a lot of time regulating them and
	monitoring them? Deregulate and let the high performers work.
	Focus on the troubled portfolio.''
	You start to make those kinds of changes in your mission,
	you can do it. You start talking about contracting out more
	functions, especially these highly specialized functions rather
	than trying to hire a work force, train the work force, keep
	them up to date with all the changes in the tax code and all
	the changes in the real estate law. Contract out with attorneys
	and accountants and housing finance agencies that can do it.
	Those kinds of changes in the mission will then allow us to
	make the kind of efficiencies that we are looking to make.
	Mr. Snowbarger. You had mentioned earlier devolving a lot
	of these responsibilities back to local authorities that have a
	track record of managing well. Do you have any feel for how
	much of this responsibility can be shifted?
	Secretary Cuomo. Well, we have a little bit of apples and
	oranges. On this task, the Mark-to-Market task, the 8,500
	properties, that task is going to be staff-intensive whether we
	contract out, whether we do part of it in-house and part of
	it--I do not see significant, if any, reductions in that area
	on the multi-family side. That does not mean you cannot make
	those reductions in other parts of the Department. In other
	words, the work force has to come down. I am not saying it has
	to come down everywhere equally. It depends on where you can
	change the mission. This is not one of those areas. The
	devolution is more on the public housing side, to the high
	performing public housing authorities, the Portland Public
	Housing Authority. If they are working well, devolve the
	responsibility, monitor them so when they get into trouble, we
	know it, but otherwise devolve the responsibility and that is
	where you can save staff.
	Mr. Snowbarger. Well, I guess the question was on the
	public housing side. Do you have a feel for how much of that
	can be devolved at this point? Or is it just anecdotal? You
	know, this one works well. That one works well. We do not have
	any idea----
	Secretary Cuomo. We are going to have a draft of a specific
	proposal in the next several weeks, Congressman, but the
	overwhelming majority of public housing authorities work well.
	It is a handful that are the so-called troubled housing
	authorities that really require attention.
	Mr. Snowbarger. Thank you, Mr. Chairman.
	Mr. Shays. If we could, we will get further into the
	troubled housing authorities.
	Mr. Kucinich.
	Mr. Kucinich. Thank you very much, Mr. Chairman.
	Mr. Secretary.
	Mr. Shays. And I think what we will do is we will go 10-
	minute cycles now. OK?
	Mr. Kucinich. Thank you.
	I have been informed by staff of the ongoing discussion you
	have had about the Section 8 program and I have also been
	informed that the housing court in the city of Cleveland has
	been experiencing a very brisk trade in evictions in connection
	with landlords and contractors involved in Section 8. What I
	would like to have happen is for somebody from your office
	contact the Cleveland Housing Court, Judge Ray Biantra is the
	administrator of it, and to see if there is anything that can
	be done to effectively intervene to try to protect people from
	being thrown out of their homes.
	I mean, the problem of homelessness in this country, as all
	of us agree, is serious enough without contractors taking
	advantage of various provisions that HUD may have. And you
	know, perhaps it is within your authority to intervene to see
	if you can protect some people from being thrown out on the
	street. So I would really like you to look into that and I just
	wanted to mention that in connection with this overall
	discussion about the program, if you would.
	Secretary Cuomo. It would be my pleasure, Congressman. I am
	not familiar with the specifics that are going on in Cleveland,
	but we will be shortly, as soon as we leave the hearing. As you
	know, there are protections within the Section 8 program, and
	we will find out what is going on.
	Mr. Kucinich. Yes. I have just been informed just now,
	myself, and I thought I would notify you.
	A question I have, Mr. Secretary and Mr. Chairman, there
	have been instances in the past in which local governments have
	attempted to use community development block grant funds to
	attract jobs and companies from other States. I wondered if it
	is your policy as Secretary if you thought it was appropriate
	use of community development block grant resources to be
	attracting, using those resources to attract jobs and companies
	from one State to another?
	Secretary Cuomo. No, sir. We have been aggressive in
	promoting the use of CDBG for economic development purposes.
	CDBG is one of the largest programs HUD administers, $4.6
	billion, 20-year program. So it has consistency, continuity, an
	entire infrastructure that understands how to use it.
	Historically, it was not used for economic development. It did
	a lot of good things, social services, infrastructure, public
	services, but not economic development primarily because HUD
	had not steered the program that way. It was part of the
	President's empowerment agenda, trying to get jobs into cities.
	We have been pushing the CDBG program as a way to attract
	businesses, grow businesses, small business loans, micro-
	enterprise loans, community development banks, all can be done
	by CDBG.
	There is a specific prohibition against what they call
	piracy. New definition of piracy. It is no longer on the high
	seas. For us, it is stealing businesses from one city to the
	other by using EZ and EC dollars. So that is specifically
	prohibited.
	Mr. Kucinich. Now, when you say it is prohibited, is it by
	regulation?
	Secretary Cuomo. Yes, sir.
	Mr. Kucinich. By administrative rule? By what?
	Secretary Cuomo. I know it is prohibited by regulation. I
	do not know if it is in the law. I believe it is regulation.
	Mr. Kucinich. Excuse me?
	Secretary Cuomo. I believe it is by regulation, sir.
	Mr. Kucinich. OK. And when were those regulations
	promulgated?
	Secretary Cuomo. I do not know, but I can check. The anti-
	piracy regulations on the CDBG?
	You stumped the entire staff on that one, Congressman. It
	does not happen often, but we can find out, and we will get
	back to you.
	[The information referred to follows:]

	The Empowerment Zones and Enterprise Communities
	Initiative, which benefits 105 urban and rural areas including
	Cleveland, Ohio, prohibits using funds to relocate businesses
	from one area to another [Section 1391(f)(2)(F) of the Omnibus
	Budget Reconciliation Act of 1993.]
	The Community Development Block Grant program requires
	communities to use the funds in such a way that minimizes the
	displacement of existing businesses [Section 105(a)(17) of the
	Housing and Community Development Act of 1974.] However, the
	23-year old program does not clearly restrict the use of funds
	to relocate businesses from one area to another.

	Mr. Shays. And that is not, certainly, our objective. There
	may be a number of questions, if I could just at this time say
	that if we are not able to answer, we will just get the answer.
	Mr. Kucinich. OK. That is fine. And I agree with the Chair.
	It is not my intention to raise questions that cannot be
	answered. I would like to find out what the policy is to make
	sure that it is in place and to make sure that it is enforced,
	that there is not any movement of jobs being occasioned through
	the use of Federal funds in community development block grants.
	And I appreciate your expression of what your policy is,
	because that is going to be very comforting to those of us who
	are concerned about keeping our jobs in our communities and
	when I was mayor of the city, we used that community
	development block grant program to go to, in fact, to improve
	the infrastructure of neighborhoods. And that, in turn, was
	responsible for helping to spark some local investment and
	helped a lot of the businesses in the area. So I know about the
	value of that program and I am pleased to see that you are
	intending to make sure that communities are protected in the
	use of those funds. And I am very gratified to hear your
	policy. I just like to know the history on it.
	I have one other question, if I may, Mr. Chairman.
	And this may be another one that, perhaps, you have already
	decided on and as a new Member, you may help me to catch up on
	some of these issues. Before August 1996, I understand that HUD
	had a J-1 visa waiver policy that allowed foreign physicians to
	come into the United States and practice medicine in under-
	served areas in the city where poverty-stricken people live.
	The program helped to provide medical services to many people
	in lower income communities. I wondered what the status is of
	that policy.
	Secretary Cuomo. Congressman, could I just quickly step
	back to your other issue on the tracking business. It's a CDBG
	issue. It has also been an empowerment zone issue. Cleveland is
	also an empowerment zone city and one of the problems is moving
	businesses from one city rather than creating new jobs. And
	both were related. And I will get you information on both, the
	empowerment zones and the CDBG.
	Mr. Kucinich. I would be interested in that because, of
	course, the empowerment zone is of great concern to Cleveland.
	I think we received over $100 million.
	Secretary Cuomo. Yes.
	Mr. Kucinich. In a program that has great implications for
	a large area of Cleveland. So your looking into that would also
	be very much appreciated.
	Secretary Cuomo. Fine. I will do that, sir.
	Second, on the J-1 visas. We are trying to get HUD
	downsized and we are trying to get HUD to focus on our core
	mission. Some tasks that are good tasks have to give way
	understanding the realities of the downsizing, et cetera. The
	J-1, the J-1 visa program, well, I think very intelligent in
	its intent, was difficult for HUD to administer. We were not
	really in a position where we can police, verify whether or not
	the doctors are then working in the areas where they are
	supposed to be working to qualify for these visas. It is not in
	our usual portfolio, the function of monitoring doctors and
	verifying where their service area is.
	We discontinued the J-1 visa program at HUD. And we are now
	considering what, if anything, should be done about it, but the
	program is now discontinued.
	Mr. Kucinich. I would like to say on behalf of my
	constituents, Mr. Chairman, and members of the committee, that
	there is a great concern in areas such as Cleveland,
	particularly where foreign physicians have given their services
	in under-served areas, that the J-1 visa program be continued
	and I--on the one hand, it is comforting to know that the
	reason for its discontinuation were more administrative which I
	suppose relates to the dollar issues and not that the program,
	itself, proved to be a failure. What I think would be helpful,
	as we are all government looking at ways of doing better with
	Federal funds, it would be good to see if a cost benefit
	analysis was arrived at with respect to that program. To see if
	a discontinuation of it is not really more expensive in terms
	of the toll on the health of the people in the areas where
	these physicians were looking. I would really appreciate it if
	you could do that, because it would at least give us a chance
	to make an evaluation as to whether or not it was in the
	interest of the people to do that. I would really appreciate it
	if you would consider that, Mr. Secretary.
	Secretary Cuomo. We will, Congressman.
	One of the points I tried to get to in my opening statement
	was there were two focuses at HUD: (1) Section 8 crisis; (2)
	management. Part of the management is restoring the public
	trust. I want to make sure that if we are administering a
	program, we are sure that it is being run properly.
	On the J-1 program, there was some suggestions that the
	certifications that were being put in, that doctors were
	working in those areas, that there were some cases where that
	was not actually the fact. And especially given the nature of
	this committee, I want to be able to say that if we are running
	a program, I know that it is working well and that we are in a
	position to run this program. And that is one of the issues
	that was with the J-1 program, whether or not the doctors were
	actually where they were supposed to be to get the visas in the
	first place and what was HUD's capacity to make sure that was
	the case, but we will--I will give you the analysis that we
	have done back at the Department. And then if you would like to
	chat about it, it will be my pleasure.
	Mr. Kucinich. Well, again, thank you, Mr. Chairman. I just
	want to conclude this round by saying that this is a very
	important department for so many of our urban areas. And as a
	person who represents a substantial part of the city of
	Cleveland, I am grateful that we have a Secretary who is
	showing this sensitivity to these issues and I think that it
	augers well for your relationship with the Congress. And I
	thank you so much for being here.
	Secretary Cuomo. Thank you, sir.
	Mr. Kucinich. Thank you, Mr. Chairman.
	Mr. Shays. I thank the gentleman.
	Mr. Pappas.
	Mr. Pappas. Thank you, Mr. Chairman.
	Mr. Secretary, again, congratulations to you.
	Secretary Cuomo. Thank you.
	Mr. Pappas. I want to shift gears a bit and talk about two
	programs that I dealt with as a county official in New Jersey,
	that being the community development block grant program and
	the HOME Program.
	First, a comment. The way it was structured, I believed was
	probably a great example of how even at times the Federal
	Government can allow great flexibility at the local level where
	local government officials can include people from municipal
	government and from the community to help make decisions. At
	least that is how we did it in Somerset County, NJ. And for my
	more than a decade as a county elected official, the CDBG
	program was very effective and one that really helped meet
	needs that were addressed in neighborhoods and communities. I
	think we need to do more of that. The HOME Program is not as
	old, at least my involvement is not as long standing; but,
	again, I felt that is a great example of how local governments
	could very effectively deal under some broad Federal
	guidelines, but we could meet identified needs at the local
	level. I would just encourage you to--you and your colleagues
	here from the President's cabinet to do that as frequently as
	possible.
	Having said that, I am wondering if you could just comment
	and I apologize because you may have covered this while I was
	absent from the room, but if you could just comment as to how
	you view those programs and how you view their continuation in
	your overall priorities.
	Secretary Cuomo. Congressman, thank you for the opportunity
	and thank you for the comment. The CDBG program and the HOME
	Program, I would just affirm everything you said with the only
	stipulation that I put a exclamation mark at the end of the
	paragraph. CDBG and HOME, to me, are as close to the model of
	Federal, local, State relations as you can get, because what
	they say is everything we have been talking about for the past
	few years: devolution, local control. But--but, not a blank
	check block grant. Right? Oversight committee. We want to make
	sure the funds are going to where they are supposed to go.
	Federal, Federal purpose.
	And that is basically what CDBG and HOME do. They say,
	``This is the Federal goal, Federal purpose. This money is
	supposed to go to provide housing affordability to low and
	moderate income people, basically, the HOME Program.'' Federal
	goal, but let the local community figure out how to do it. We
	cannot sit here and decide what housing policies work for
	Somerset County or what community development needs are No. 1,
	2, 3 in Somerset County.
	Let's set the Federal goal, affordable housing, community
	development for low and moderate income people under CDBG. Let
	Somerset County figure out how to do it. Let them set the local
	means. One caveat and one caveat only, they should include the
	community when they start making those decisions, citizen
	participation process. CDBG started as a Republican program--
	since it is bipartisan and in my opinion really a great model
	of what should happen.
	The HOME Program follows the basic template of CDBG. And as
	the Congressman points out the HOME Program has only been
	around since 1992, so it does not have the same institutional
	bearing or experience that CDBG does, but it is the same
	template: Federal goals, local means, involve the community,
	let the community decide. And those are the two mainstays of
	HUD.
	You know, when people talk about HUD, we have the FHA
	housing side, public housing and then the community development
	side and the HOME and the CDBG program are the two pillars of
	community development. And where the funding goes in HUD, $4.6
	billion, I believe the largest single program is CDBG. And it
	works well almost universally.
	Mr. Pappas. We have had over the years, when I was county
	official, there were probably only three occasions in the 12 or
	more years that I was involved in it there was any kind of a
	question or objection from the community. And when you are
	dealing with 21 municipalities and my county and the number of
	local officials, municipal officials that we got involved and
	people from the community, that is quite a track record. And I
	would even just, in conclusion, would just add that I think the
	HOME Program was even as good as the CDBG program is, the HOME
	Program, I think, is even improved--it is an improvement in
	that I viewed there is almost less bureaucracy involved, at
	least that was my experience in New Jersey in the
	administration of it.
	Secretary Cuomo. Well, Congressman, we ran the HOME
	Program--actually, 4 years ago at my confirmation hearing and
	the confirmation of Secretary Henry Cisneros, the complaint was
	the HOME Program, which at that time was not spending, because
	the department had so many regulations on it, at that time 4
	years ago, only 3 percent of the money had been spent because
	there were so many regulations. And it was made clear to me at
	the Senate confirmation that they wanted that changed. Today,
	we have a spend-out of about 92 percent of the HOME Program,
	110,000 units built. So it is working.
	I do not like to say which is better, HOME or CDBG, because
	that gets me into trouble, but they are both working well.
	Mr. Pappas. Let me just say one other thing. You're right.
	People back home, I hope they do not hear that I said that, but
	the community support, the understanding that they have of how
	well it works I think has been great. And I also think for both
	programs the pressure that there is to make sure that this
	money is spent within a reasonable amount of time I think is
	very appropriate. There are many non-profit agencies or most
	instances whenever there has been a proposal for some sort of
	housing, it is not housing rehabilitation of people's homes
	that meet the criteria, but where there have been non-profit
	community-based organizations whether it is for people and
	whatever their circumstances. Some just have not been able to
	put it all together and within a couple of years they are not
	able to and that money has been reallocated and it just works
	very well.
	Secretary Cuomo. Thank you.
	Mr. Pappas. Thank you.
	Mr. Shays. I thank the gentleman.
	At this time, I will call on Mr. Towns.
	Let me give you an idea, Mr. Secretary, I know you have
	pressing needs and you have been very generous with your time.
	It is about 15 of, now. We are going to get you out of here no
	later than 15 after and maybe sooner.
	Secretary Cuomo. Mr. Chairman, whatever works. At the
	pleasure of the committee, my time is yours.
	Mr. Shays. Thank you. You have been very cooperative, but
	it will just give your staff an idea of how much. We will
	proceed about a half-hour more. Thank you.
	Mr. Towns. Thank you very much, Mr. Chairman.
	There was testimony earlier about the empowerment zones
	and, of course, empowerment of communities. Could you sort of
	give us an assessment? I know you have not been around that
	long in terms of your views, your feelings as to how they are
	working up to this point?
	Secretary Cuomo. Congressman, I think the empowerment zone
	initiative, the empowerment zone program as designed by the
	Federal Government is working well primarily because it allows
	for the individual circumstances that different cities and
	different communities bring. How are the empowerment zones
	doing? Which I think is a different question than how is the
	empowerment zone program doing. The empowerment zone program is
	doing well.
	Mr. Towns. I agree with you.
	Secretary Cuomo. The empowerment zones, it depends. It
	depends on what zone in what city in what context. The
	Cleveland zone is going very well. Really going gangbusters. I
	have been to the city a few times. They are actually attracting
	businesses from the suburbs back into the city with the
	empowerment zone, which is the exact opposite cycle that we
	have been seeing, businesses moving out of cities to suburbs.
	So Cleveland, it is working very well. Comprehensive, the
	communities involved, and it is bringing back jobs which is the
	purpose of the program.
	Some other cities we have had more obstacles in the
	startup. Sometimes political obstacles, sometimes community
	obstacles. Some of the situations that we are trying to solve
	are more complex and they have opposition existing between and
	among community groups. And then the empowerment zone has to
	work through that context. So I think it depends. But the
	program, itself, is doing well. By and large, the cities are
	doing very well, some better than others.
	Mr. Towns. Thank you very much. In New York State, in
	particular, we have been hearing a lot about privatization. You
	can go to any housing development and another rumor has started
	that it is going to be privatized. And of course, I am not
	saying, it is good, bad or indifferent. I think the real
	question is based on what has happened in Louisiana, and
	similar where there have actually been some selling of, what
	happens to the poor and the homeless if that happens? Is there
	any provision for them if there is move toward privatizing?
	Secretary Cuomo. I think, Congressman, there is no silver
	bullet and sometimes we struggle for one solution that sounds
	like it is the panacea and it is going to solve everything. And
	I think in that context, sometimes privatization is thrown
	around. We privatize and then, presto, change-o, all the
	problems are gone.
	I do not think it is a silver bullet. I think it has its
	place in some contexts and we have had good experience with
	privatization in some context. I think it is always, when you
	talk about privatization, it is always important to make sure
	you protect those whom it may not be in the private interest to
	serve. And that has to be factored in. Otherwise, it will not
	work for those who most desperately need the help which is the
	point of the program in the first place.
	Mr. Towns. Mr. Chairman, I yield back. But I also, just
	before I yield back, want to say that I am impressed with your
	sensitivity, I am impressed by your commitment and your
	dedication. So I want to let you know I look forward to working
	with you and trying to be able to solve some of these problems.
	I know it is going to require a lot, because, let's face it,
	when you are cutting a budget the way you are cutting it and at
	the same time the need for services are increasing, you have to
	almost be a miracle maker. What we are saying to you is that I
	am hoping that this committee along with the Congress will join
	you in terms of trying to be able to come up with some
	solutions. So I look forward to working with you.
	Secretary Cuomo. Thank you very much, Congressman. Thank
	you.
	Mr. Shays. I thank the gentleman.
	I am going to focus in on the distressed public housing,
	but I just want to touch on the fact that you clearly have a
	massive undertaking here. Is it your intention to suggest
	reorganization of HUD? Are you going to be coming in with any
	plan? Or are you just going to be responding to proposals that
	have been made by others?
	Secretary Cuomo. We will be coming in with a management
	plan for HUD, Mr. Chairman. We will be coming in with a plan
	that is driven by a new vision of the mission of the
	Department, how to accomplish that and then a downsizing plan
	for the work force in response to the revised mission.
	Mr. Shays. Thank you. And clearly, your management needs
	are acute. I mean I would say that to whoever was Secretary. I
	would also say to you because I know it is so significant, I
	have some sense of patience about how long it will take and so
	on, but it would seem to me--if I were Secretary, I would
	almost have a crisis management team on this issue, I would
	have a crisis management team on management. And the other area
	that I am concerned about is the whole issue of distressed
	public housing. I am pretty convinced from my obviously limited
	experience in my own district, because I just have 10 towns,
	but I have a Stanford, a Norwalk, and a Bridgeport, but I have
	been on this committee, now, for 10 years and one of the things
	that surprised me is if you have a capable and talented public
	housing authority that really uses money well and does not try
	to hire people for political reasons, but just hires the best
	and the brightest, you can do extraordinary things. If I can
	get a little parochial, I just am extraordinarily impressed
	with the housing director in Bridgeport and what HUD has been
	able to do with this housing authority. And Mayor Ganum happens
	to be a Democrat who has been a very good leader of that
	community.
	Mr. Towns. Most Democrats are. [Laughter.]
	Mr. Shays. That is true, most are. And in one case, in one
	case, one of the most is in Bridgeport. Now, I could say all
	Republicans are--[laughter.]
	But I am concerned. I think we provide a lot of money to
	public housing authorities. And if they use it well, they can
	use it to leverage, they can do a lot. But what concerns me is
	that I do not think there is a real plan on how you decide when
	to take over a public housing authority. And I do not know how
	you wean them off the list. And if you could just touch a
	little bit about troubled housing authorities?
	Secretary Cuomo. Yes, sir, Mr. Chairman.
	First of all, on your overall point about the serious
	nature of this problem, I could not agree with you more, and we
	do very much have a crisis mentality on this issue. And I said
	in response to Congressman Snowbarger, we have a downsizing
	plan, a management plan, but it is driven by how to get the job
	done. It is not a numbers game. And we will have personnel
	where we need personnel and we need personnel to work this out.
	Mr. Shays. You are talking about Section 8.
	Secretary Cuomo. Section 8.
	Mr. Shays. Yes.
	Secretary Cuomo. Even though we want to go primarily to
	third party outside sources to implement it, we still have to
	make sure it is done right. So this is no doubt a priority.
	On the distressed public housing, I could not agree more.
	Where you have a good public housing authority, it is amazing
	the kinds of things that they can do. Father Panis Village Hope
	Six Grant which basically just--program on Hope Six was those
	comprehensive solutions devolved to the local authority,
	learning the lessons that we have learned, but let the local
	authorities work it out. And it has been working quite well.
	And what we would like to see on the public housing side is
	more devolution, deregulation to those high performing PHAs.
	Let us focus on the distressed public housing authorities.
	And then the chairman raises another interesting point:
	What is a distressed public housing authority? At what point do
	you become a distressed public housing authority? HUD has a
	grading system. We call it PHMAP, but it is actually a grading
	system that grades the management of a housing authority. And
	you get a score. You then have a passing score or a failing
	score. If you fail, you are now a troubled housing authority.
	If you pass, you are an acceptable performer. That score, that
	PHMAP score which we have revised recently, we are going to
	have discussions about revising it again, especially if we move
	more toward deregulation, because then that score is very
	important. Based on that score, you will decide to deregulate
	or not. And that is the PHMAP score. And as I said, it has just
	been revised within the past several weeks and we are going to
	take a second look at it, especially if we go more toward
	deregulation.
	Mr. Shays. It just strikes me that you have a danger of
	making sure that you do not manipulate it or game it. There are
	so many ways you can make a decision on who is distressed.
	Obviously, you have to have gradations. And I suspect that even
	with the limit of staff that you have that you are going to
	have a hard time dealing with all the distressed public housing
	that you have.
	What I am trying to understand is do you have a management
	team that focuses on this? A management team on Section 8, a
	management team that focuses in on distressed public housing? A
	management team that is focusing just on management problems?
	Secretary Cuomo. Yes. You have the three main program
	areas. We are talking about, one is the housing department.
	Nick Retsinas, Stephanie Smith is the deputy who is here today.
	You heard from her earlier. That is basically working on this
	as their top priority. The Section 8 crisis is their top
	priority.
	Mr. Shays. Right.
	Secretary Cuomo. Public housing, Assistant Secretary Kevin
	Marchman is focusing on the public housing problem and we are
	focusing on that PHMAP monitoring score, how to deregulate high
	performers and how to handle the distressed public housing in
	this country without HUD running out there and managing every
	project. The third program area is community planning and
	development. That is the HOME Program, CDBG, and then fair
	housing would be the fourth.
	Mr. Shays. I am just going to express some concerns and
	then I will be done and I do not know if any Member just wants
	to jump in for later. It seems to me that there is obviously
	multi-discipline. One of the things I was amazed to find is the
	Department of Agriculture has public housing for rural areas.
	And that was a surprise to me. But I mean I can see a tough
	decision for you as Secretary to decide, ``Well, do you get
	into policing? Do you get into drug control issues? Do you get
	into welfare reform?''
	And I would think in one sense the answer is, yes. And the
	other way, you are just saying, ``Well, my gosh, I am just
	dangerously spreading myself and the Department too thinly.'' I
	am not asking for a indepth explanation, but tell me how far
	you take the interdisciplinary and where do you sometimes bring
	another department in or do you say, ``Heck, we can do it and
	we should do it?''
	Secretary Cuomo. I think, Mr. Chairman, you have to do
	both. I think the interdisciplinary is almost forced, if you
	are going to make any of these things happen because we talk
	about comprehensive solutions on the community level. Community
	development people, local housing authorities will say, ``We
	need comprehensive solutions, otherwise it doesn't work.'' They
	will talk about holistic solutions. They will talk about
	continuums. They will say, ``I cannot just do housing. I have
	to do housing and community development and I have to have the
	jobs or else none of this works.'' That, by definition, is
	interdisciplinary. How do you do that? I think on the highest
	level, it is interdisciplinary among Federal departments.
	Cooperation among Federal departments. It is the point of the
	Vice President's Empowerment Board that cross cylinders, cross
	Federal departments, bring that coordination.
	And then within HUD, it is the same thing. When we go to
	talk to a city of Bridgeport or any city in the country and we
	say, ``We are here to help,'' they do not ask us just for
	housing. They need housing, but they need more than housing.
	And they need that housing in a context. And they ask for
	economic development assistance, which we have a very large
	portfolio we did not really talk about today, but we have
	significant efforts in economic development, job creation,
	which is more and more a priority. Welfare reform: at one
	point, the time limit is up. Somebody needs a job, otherwise
	nothing is going to work. They need the economic development.
	They need the policing. They need safety in public housing.
	``One strike and you're out.'' ``Operation Safe Home.''
	Initiatives that we have. CDBG works in that area. They need
	the community development and they need the housing. So I think
	for us to do our job, we have to be able to come up with a
	comprehensive solution, albeit in a very intelligent and
	efficient manner, given all the other constraints.
	Mr. Shays. I am just going to make a few observations and I
	welcome any of the other Members--we are going to get you out
	by 15 after, but----
	Secretary Cuomo. Whatever. Take your time.
	Mr. Shays. I know. The problem is not on your side.
	One is that I spent about 3 years, but a year really
	focused on how do we rebuild cities, since I represent three.
	And we met with every conceivable group. And when we came right
	down to it, we came down to this basic answer: the way you save
	urban areas is to bring businesses back in to do two things, to
	pay taxes and help create jobs. And of all the things, so I
	know that this Congress is not as eager to have HUD in economic
	development, but if you gave me a choice, frankly, of fixing up
	public housing in some instances or providing an area where you
	could bring in a business and they could employ people there, I
	would encourage that.
	Now, one of the ways I think that HUD can serve in a very
	dynamic way, you have the issue of impacted/non-impacted. And I
	will not even localize it to a particular community. But in an
	area where you are redoing significant public housing, your
	requirement is to go into a certain number of non-impacted
	areas. And non-impacted areas sometimes tend to be low-zoned
	areas where you do not have as much density. And one of the
	things that we found in one of our communities is that when we
	did the vouchers, we actually created something we did not
	intend. We took home-owned neighborhoods that were mixed.
	Black, Hispanic, white, but they were home-owned. And they were
	solid. And then Section 8 came in and really in some cases
	Section 8 pays more than the vouchers, paid more than the
	market rate, which is kind of interesting. And they came in and
	they ended up making some streets rental instead of home-owned.
	And it had a very kind of negative, unintended impact. And the
	irony was that in one of my communities, the public housing is
	better than the neighborhood. They have a flag. They have a
	shield up front pointing out this is public housing. It is
	well-maintained and they have upgraded neighborhoods. And it
	would seem to me that one of the ways to rethink the whole
	issue of impacted and non-impacted would be to give communities
	some leeway if in the process of building more and impacted,
	they have a partnership and require them to have partnership
	with the business community and others to do economic
	development, store fronts, a whole host of other things that
	really--then you have taken the public housing that has been a
	catalyst for economic development without even your putting
	money in. But basically saying, ``OK, we will forego to some
	measure the impact and non-impacted, but we have different
	requirements now. You have to upgrade the community
	economically by your doing that.'' And it may be a way for you
	to do that interdisciplinary just because of the carrot that
	you have of saying, ``Well, if you don't, you are going to go
	into single family neighborhoods.''
	I mean the silly thing was that we were having in one of
	our communities, HUD was buying individual homes, just a
	plethora of them and having minimal impact over all. So that is
	just the one thing I just want to share with you.
	Do you have anything you would like to share?
	Mr. Towns. Thanks, Mr. Chairman.
	Mr. Shays. We usually close by asking is there any question
	that you wish we had asked. And also, with your indulgence--
	sometimes the staff who get to enjoy not saying anything, but
	also think a lot in terms of your response to our questions--if
	any of your staff want to make a point, we would welcome that.
	If there is some point in hearing these questions and the
	answers of the Secretary, we would welcome you doing that. And
	I do not think the Secretary would mind, because I am sure you
	would not contradict him. But do any of you want to make an
	emphasis?
	Secretary Cuomo. They are a shy group, Mr. Chairman.
	Mr. Shays. They are shy.
	Secretary Cuomo. Here, they are a shy group. Not at HUD. I
	can promise you that.
	Mr. Shays. No, but they are sizing you up. Any question
	that you wish we had asked? [Laughter.]
	Secretary Cuomo. Let me say, if I might, Mr. Chairman, I
	hope we have made clear in this hearing and I know that the
	committee stated it in your opener, so you did not need us to
	bring it to your attention, but if we could reaffirm it,
	hopefully, the Section 8 problem we need help with. It is a
	desperate situation for the Department. I have been told by
	people who have been at the Department from day one that this
	is the greatest crisis HUD has ever faced. Forget the 1980's
	and the scandals and everything else. This is it. And it is not
	just for the Department. This is not an inside-the-beltway
	story.
	Mr. Shays. Yes.
	Secretary Cuomo. This is every city across the country--6
	million Americans. This will be the legacy of affordable
	housing between now and the year 2000. What happens here will
	be what we did with affordable housing as a Nation. And we need
	your help. We cannot do it without Congress. We understand
	that.
	Second, on the management, that is something that we can
	do. That will be our priority. I have heard this committee, I
	have seen it in your correspondence earlier, it will be my
	personal priority and we will be working on it. And I hope to
	have in 18 months noticeable change that we can report back to
	the committee. And beyond that, Mr. Chairman, again, my 4 years
	as Assistant Secretary showed me the only way anything happens
	is when it happens together, bipartisan, with Congress; and I
	am looking forward to a productive relationship and I think we
	can do good things. We have real challenges here, but we also
	have real opportunities. And met, we can make things better
	than they are today if we work together.
	Mr. Shays. Do you want to just thank the Secretary?
	Mr. Towns. Right. Mr. Chairman, thanks a lot.
	I would just like to thank the Secretary for coming and
	that I really think that he shed a tremendous amount of light
	on many subjects. And of course, as I indicated early on, I
	look forward to working with you. It just feels good to have
	someone that truly understands the problems out there. And I
	think that also makes a major difference. Sometimes you get a
	new Secretary, they have to spend 2\1/2\ years getting familiar
	with the problems that are out there. And then by the time they
	get familiar with the problems, they are gone. Your situation
	is so different. You are thoroughly familiar with the problems
	and we look forward to working with you.
	Secretary Cuomo. Thank you.
	Mr. Shays. I concur and thank you again for coming. Have a
	great day.
	Secretary Cuomo. Thanks for having us.
	Mr. Shays. This hearing is adjourned.
	[Whereupon, at 1:05 p.m., the subcommittee was adjourned.]


	</pre></body></html>