<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:33392.wais]
POVERTY, PUBLIC HOUSING AND THE CRA: HAVE HOUSING AND COMMUNITY
INVESTMENT INCENTIVES HELPED PUBLIC HOUSING FAMILIES ACHIEVE THE
AMERICAN DREAM?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERALISM
AND THE CENSUS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JUNE 20, 2006
__________
Serial No. 109-218
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
JON C. PORTER, Nevada C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of
PATRICK T. McHENRY, North Carolina Columbia
CHARLES W. DENT, Pennsylvania ------
VIRGINIA FOXX, North Carolina BERNARD SANDERS, Vermont
JEAN SCHMIDT, Ohio (Independent)
------ ------
David Marin, Staff Director
Lawrence Halloran, Deputy Staff Director
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Federalism and the Census
MICHAEL R. TURNER, Ohio, Chairman
CHARLES W. DENT, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut PAUL E. KANJORSKI, Pennsylvania
VIRGINIA FOXX, North Carolina CAROLYN B. MALONEY, New York
------ ------
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
John Cuaderes, Staff Director
Jon Heroux, Counsel
Juliana French, Clerk
Adam Bordes, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on June 20, 2006.................................... 1
Statement of:
Gutzmann, Jon, president, Public Housing Authorities
Directors' Association, executive director, St. Paul Public
Housing Agency; George Moses, chairman of the board of
directors, National Low Income Housing Coalition; James
Riccio, director, Low-Wage Workers and Working Communities
Policy Area; Benson F. ``Buzz'' Roberts, senior vice
president, policy and program development, Local
Initiatives Support Corp.; and Judy Kennedy, president and
CEO, National Association of Affordable Housing Lenders.... 8
Gutzmann, Jon............................................ 8
Kennedy, Judy............................................ 51
Moses, George............................................ 21
Riccio, James............................................ 27
Roberts, Benson F. ``Buzz''.............................. 41
Letters, statements, etc., submitted for the record by:
Clay, Hon. Wm. Lacy, a Representative in Congress from the
State of Missouri, prepared statement of................... 6
Gutzmann, Jon, president, Public Housing Authorities
Directors' Association, executive director, St. Paul Public
Housing Agency, prepared statement of...................... 11
Kennedy, Judy, president and CEO, National Association of
Affordable Housing Lenders, prepared statement of.......... 54
Moses, George, chairman of the board of directors, National
Low Income Housing Coalition, prepared statement of........ 23
Riccio, James, director, Low-Wage Workers and Working
Communities Policy Area, prepared statement of............. 29
Roberts, Benson F. ``Buzz'', senior vice president, policy
and program development, Local Initiatives Support Corp.,
prepared statement of...................................... 43
Turner, Hon. Michael R., a Representative in Congress from
the State of Ohio, prepared statement of................... 3
POVERTY, PUBLIC HOUSING AND THE CRA: HAVE HOUSING AND COMMUNITY
INVESTMENT INCENTIVES HELPED PUBLIC HOUSING FAMILIES ACHIEVE THE
AMERICAN DREAM?
----------
TUESDAY, JUNE 20, 2006
House of Representatives,
Subcommittee on Federalism and the Census,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2154, Rayburn House Office Building, Hon. Michael R.
Turner (chairman of the subcommittee) presiding.
Present: Representatives Turner, Dent, Shays, Foxx, Clay,
Kanjorski, and Maloney.
Staff present: John Cuaderes, staff director; Juliana
French, clerk; Jon Heroux, counsel; Adam Bordes, minority
professional staff member; and Jean Gosa, minority assistant
clerk.
Mr. Turner. Good morning.
Quorum being present, this hearing of the Subcommittee on
federalism and the Census will come to order. Welcome to the
subcommittee's hearing entitled, ``Poverty, Public Housing and
the CRA: Have Housing and Community Investment Incentives
Helped Public Housing Families Achieve the American Dream?''
This is the fourth in a series of hearings the federalism and
the Census Subcommittee is holding on public and low-income
housing.
The purpose of this hearing is twofold. First, we will
examine the self-sufficiency and poverty deconcentration
provisions of the Quality Housing and Work Responsibility Act.
Second, we will examine the Community Reinvestment Act [CRA],
and its purpose to public and affordable housing. Our first
goal today is to gain a better understanding of whether QHWRA's
self-sufficiency and poverty deconcentration provisions have
helped Public Housing Authorities [PHAs], to improve the living
situations of their tenants in a meaningful way. From what we
have learned in our previous hearings, there is evidence that,
despite some of the progress, the rules governing the
calculations of rents and other incentives are still too
complicated and cumbersome to use effectively. The Public
Housing Authorities have cited numerous examples of the
complexity within the current system and the burden that
complexity brings to managing their portfolios. They have
argued that this complexity is counterproductive and is
diverting limited resources away from their primary mission
which is their providing low-income families with safe, clean
and affordable housing. The Public Housing Authorities have
repeatedly called for changes in the law they claim would ease
this administrative burden. These changes range from
simplifying the rent calculation process to expanding the
Moving to Work program.
While these proposed changes may appear to be common sense
approaches for addressing the problem, they may also have
unintended consequences.
In this hearing, we hope to gain the perspective of tenant
advocates. We also want to ascertain the impressions of our
witnesses on any past or current proposals designed to address
these issues. The second purpose of today's hearing is to
review the public policy theory behind the Federal investment
and public and affordable housing and the role of the Community
Reinvestment Act and how it has played in achieving the public
policy goals.
As the subcommittee learned in its May 23, 2006 hearing on
public housing in the capital markets, the Community
Reinvestment Act has provided incentives to some financial
institutions to invest in low-income housing when they may not
have otherwise done so. However, recent rule changes by the
four agencies regulating financial institutions have caused
some affordable housing advocates to be concerned that these
goals may be undermined. It is their concern that these rule
changes may weaken the effect the CRA has on future decisions
by financial institutions to invest in affordable housing. For
this reason, we have invited two CRA experts to testify on this
topic. Before we move on, I would like to yield to our ranking
member, the gentleman from Missouri, Mr. Clay for any opening
remarks he may have.
[The prepared statement of Hon. Michael R. Turner follows:]
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Mr. Clay. Mr. Chairman, I thank you for holding today's
hearing to examine how well programs to decrease widespread
poverty in public housing are working. I welcome our witnesses
and look forward to their testimony.
There have been significant pros and cons raised concerning
both public housing rental costs and efforts to develop mixed-
income housing, the options for a resident. Although current
law seeks to protect the poorest of residents with the 30
percent cap on rent, many lower-income working individuals are
now contributing upwards to 50 percent of their annual income
toward rent. This is a major concern for me as many public
housing residents that return to work end up in low-wage jobs
with little hope for advancement.
Furthermore, I have significant concerns about the
elimination of program requirements to replace a decommissioned
housing unit with a new unit on a one-to-one basis. This
policy, coupled with reductions in the number of housing
vouchers available, is causing significant decreases in the
availability of affordable public housing units for many low-
income working citizens.
As I've previously stated, if the Federal Government cannot
be considered a reliable funding partner, our capital markets
will have little incentive to remain a contributor to the
development and maintenance of public housing programs. While
the Community Reinvestment Act and other proposals are helpful,
pure economics will not permit adequate investment without a
strong commitment from both the Congress and the
administration. This concludes my remarks, Mr. Chairman, and I
yield back.
[The prepared statement of Hon. Wm. Lacy Clay follows:]
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Mr. Turner. Thank you, Mr. Clay.
Today we have one panel of five witnesses. The first three
witnesses will discuss the self-sufficiency and poverty
concentration topic. Next, as I just mentioned, the last two
witnesses will discuss the Community Reinvestment Act and its
relationship to affordable and public housing. First, we will
hear from Jon Gutzmann, president of Public Housing Authorities
Directors' Association, and executive director of the St. Paul
Public Housing Authority. Next, we have George Moses, chairman
of the board of the National Low Income Housing Coalition and a
tenant organizer in Pittsburgh, PA. Following Mr. Moses, we
will have James A. Riccio, director of low-wage workers and
communities at MDRC, a research institution focusing on social
programs. On the issue of the CRA, we will first hear from
Benson ``Buzz'' Roberts, senior vice president for policy and
program development at Local Initiatives Support Corp. [LISC].
And, finally, we have Judith Kennedy, president and CEO of the
National Association of Affordable Housing Lenders, who will
also be speaking to us on the CRA.
I welcome each of you here today, and we look forward to
your comments. Each witness has kindly prepared written
testimony which will be included in the record of this hearing.
Witnesses will notice that there is a timer light on the
witness table. The green light indicates that you should begin
your prepared remarks, and the red light indicates that your
time has expired. The yellow light will indicate when you have
1 minute left in which to conclude your remarks. It is the
policy of this committee that all witnesses be sworn in before
they testify. So if you would please rise and raise your right
hands.
[Witnesses sworn.]
Mr. Turner. Let the record show that all the witnesses have
responded in the affirmative.
And we will begin our testimony today with Mr. Gutzmann.
STATEMENTS OF JON GUTZMANN, PRESIDENT, PUBLIC HOUSING
AUTHORITIES DIRECTORS' ASSOCIATION, EXECUTIVE DIRECTOR, ST.
PAUL PUBLIC HOUSING AGENCY; GEORGE MOSES, CHAIRMAN OF THE BOARD
OF DIRECTORS, NATIONAL LOW INCOME HOUSING COALITION; JAMES
RICCIO, DIRECTOR, LOW-WAGE WORKERS AND WORKING COMMUNITIES
POLICY AREA; BENSON F. ``BUZZ'' ROBERTS, SENIOR VICE PRESIDENT,
POLICY AND PROGRAM DEVELOPMENT, LOCAL INITIATIVES SUPPORT
CORP.; AND JUDY KENNEDY, PRESIDENT AND CEO, NATIONAL
ASSOCIATION OF AFFORDABLE HOUSING LENDERS
STATEMENT OF JON GUTZMANN
Mr. Gutzmann. Thank you, Chairman Turner and subcommittee
members.
I am Jon Gutzmann and the president of the Public Housing
Directors Association. I am also the executive director at St.
Paul Public Housing, a position I have had for the last 18
years. I'm testifying on behalf of PHADA, its 1,900 members and
St. Paul Public Housing, which has 20,000 low-income
households, and I'm advocating on behalf of the 1.2 million
households that live in public housing. Public housing is 1
percent of the housing supply in America. Our agency has been
rated a high performer ever since it was created. We collect 99
percent of the rent. We've been 99 percent occupied for 7
consecutive years, have had no audit findings for 9 years and
many more things. And I point to those out of pride but also
say they're representative of most housing authorities in the
country.
As I mentioned, housing represents 1 percent of housing in
America, and it's under assault. More than 60 percent of public
housing residents have incomes below 30 percent of AMI. The
average income of $11,000, frankly, is about 20 percent of AMI.
The shelter is for mostly very poor, mostly elderly, mostly
disabled and a vast majority who either work or are on a
pension but is under severe distress.
And the source of distress is threefold. The shrinking
Federal financial support from Congress, burdensome
micromanagement from HUD, and a real resistance to change and
deregulation from some of our advocacy colleagues. The
combination of these influences place the public housing
program in jeopardy. And although appropriations are not a
matter of this subcommittee's jurisdiction, I think it's
difficult to talk about policy reform without talking about the
dollars. Our programs have lost $1.4 billion in the last 4
years. The House recently approved the appropriation budget for
2007. And in it, $250 million is eliminated from the capital
fund, and the operating fund is only funded at 78 percent.
Contrary to the deregulation and decontrol goals of QHWRA,
housing authorities face unprecedented levels of
micromanagement and oversight from HUD. HUD is ignoring its
recommendations from its inspector general and how they want us
to set up procurement. HUD is moving away from GAAP accounting
requirements and implementing new mandates and more.
So added to the funding problem and the HUD
micromanagement, it just seems that our programs are under
assault, and I predict that many housing authorities will be
out of business within a few years. PHADA has supported for
over 15 years national policy alternatives that preserve the
public housing asset and improve the quality of the stock and
the way we conserve residents. We believe in deregulating
public housing and getting the true flexibility that QHWRA
promised. We want to support and maintain communities within
public housing and encourage appropriate levels of self-
sufficiency by residents.
We do endorse the Moving to Work programs that have been
advocated. The recently introduced Moving to Work Charter
Program Act, Senate 3508, would make the demonstration
permanent, expand a number of participants from the current 27
to 250 agencies of diverse size. In the experiences of the
existing Moving to Work communities like Keene, NH, Portland,
OR, and others, demonstrate that housing authorities can
establish rent structures that preserve affordability while
rewarding work. There are documented positive outcomes in these
housing authorities, and there are no documented outcomes of
PHAs rushing to the marketplace with their rents, which is a
fear many of our advocate friends have.
Others would say these are anecdotal. Well, the anecdote of
the Keene Housing Authority added to the anecdote of the Tulare
County Housing Authority are real tenants and many of them who
have successfully transitioned from welfare to work while
maintaining affordability.
We've had experiences in my housing authority with
unanticipated outcomes of the existing rent structure where
people quit their jobs when the earned income disregards
expire. PHADA has promoted rent reform for the last 15 years.
In 2004, we introduced our rent reform proposal. It has two
alternatives we believe would resolve this problem. One is a
tiered rent system that resembles the Low-Income Housing Tax
Credit System. It can be made affordable. And the second is a
simplified income-based rent system. I'll stop right there, Mr.
Chairman, and take your questions later.
[The prepared statement of Mr. Gutzmann follows:]
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Mr. Turner. Thank you.
Mr. Moses.
STATEMENT OF GEORGE MOSES
Mr. Moses. Thank you, Mr. Chair. Thank you to the
subcommittee. My name is George Moses. Thank you for the
opportunity to testify before the House Government Reform
Subcommittee on federalism and the Census. I am chair of the
board of the National Low Income Housing Coalition. I reside in
Pittsburgh, PA, where I am a tenant organizer, member of the
Southwestern Pennsylvania Alliance of HUD Tenants and a member
of the Board of Directors of the Housing Alliance of
Pennsylvania. I was a project-based Section 8 resident for 15
years until last month.
The National Low Income Housing Coalition is focused
exclusively on what is in the best interest of people who
receive and those who are in need of Federal housing
assistance. These are people with low incomes. Our research has
shown that there is nowhere in the United States where you can
work full time at minimum wage and afford the local fair market
rent for a one-bedroom apartment. The private market does not
meet the housing needs of the lowest-income Americans.
In Pittsburgh, there's a deficit of more than 15,000 units
affordable and available to people with low incomes below 30
percent of the area median. Unless this reality changes, the
Federal Government has to help bridge the gap between housing
costs and what low wage earners and people on fixed incomes can
afford.
If we define self-sufficiency as being able to take care of
one's self and one's family, I would argue that all residents
of Federal assisted HUD housing are self-sufficient because
they have found ways to afford housing in a market where there
simply are no affordable alternatives.
HUD's Moving to Work has in its name the words ``moving and
work'' but this demonstration with public housing cannot show
itself to have accomplished its goal, reducing costs or
increasing housing choices. The jury's still out on this
demonstration model to achieve its goals. HUD's own reports as
well as the HUD's inspector general have issued inconclusive
reports on Moving to Work. We fear the real motive behind the
proposed expansion of the Moving to Work is to give PHAs the
authority to disregard their statutory requirements of meeting
the needs of the lowest-income people in an affordable way in
order to cope with the continued cuts in the PHA budgets caused
by Congress's failure to appropriate significant funds to run
PHAs. This is not an acceptable reason to take a huge risk in
the well being of millions of people with modest means.
To many neighborhoods, they might not look like good
neighborhoods. My neighborhood was such a neighborhood, but
there was a lot of good neighboring. We must be extremely
careful when we interrupt this neighboring and community under
the name of revitalization and deconcentration of poverty. When
you tear all that apart, you don't know your neighbors; you
don't know where to turn when you need a baby sitter, a friend,
a quart of milk or just someone to talk to.
From our perspective, it's about choice. HOPE VI demolishes
public housing under the name of deconcentration but only
provides vouchers that can be used in other high-poverty
neighborhoods. This is not choice. To claim to want to
deconcentrate but then offer no real choice for how extremely
poor people can afford to live in low-poverty areas is much
more about displacement of the Nation's Federal housing safety
net. And I would recommend that folks read, Root Shock, by Dr.
Mindy Fullilove, who explains this very well.
Congress's appropriations must ensure that housing
assistance funds serve the lowest-income households. In
Pennsylvania, more than 87 percent of the households with
incomes below 30 percent of the area median pay more than half
of their incomes toward rent. Only 10 percent of households
with incomes between 31 and 50 percent of area median do so. In
Ohio, more than 90 percent of the households with incomes below
30 percent of area median pay more than half of their incomes
toward rent.
The National Low Income Housing Coalition proposes a new
housing production and preservation program, a national housing
trust fund. Such a fund exists in H.R. 1461 and would provide
new off-budget resources to produce and preserve housing for
extremely low-income people. This solution is desperately
needed and is at hand. We must know how to--so we know how to
solve our Nation's housing crisis by producing and preserving
affordable housing for low-income folks. This is a tremendous
network of professionals ready to take on the task. They just
need the resources to do so. Thank you very kindly.
[The prepared statement of Mr. Moses follows:]
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Mr. Turner. Thank you.
Mr. Riccio.
STATEMENT OF JAMES RICCIO
Mr. Riccio. Mr. Chairman and committee members, I'm Jim
Riccio of MBRC, a national nonprofit, nonpartisan policy
research organization. Thank you for inviting me to testify
today.
Most people would agree that public housing residents who
can work should work. After all, these are some of the poorest
people in some of the poorest places in the Nation, and it's
hard to imagine they can escape poverty or their communities
can reduce the concentration of poverty, or that public housing
itself can remain viable without making work a part of the
solution. Simply put, many residents need to earn more money,
and most people would agree that something should be done to
help them to do that.
But what should be done? Unfortunately, this is a field in
which credible evidence about effective strategies is hard to
come by, and policymakers usually have to guess about what
would work. Today I want to tell you about one approach that we
now know is effective. It's called Jobs Plus. It's the most
carefully evaluated jobs initiative ever tried in public
housing. It was a focus of a six-city evaluation sponsored by
HUD and the Rockefeller Foundation, along with other funders.
MBRC conducted the study.
The good news is that this study, which was conducted like
a clinical trial using a control group, shows that Jobs Plus
substantially increased residents' earnings in the mainstream
labor market. It thereby helped residents advance toward self-
sufficiency, which is a longstanding bipartisan public policy
goal now enshrined in QHWRA. How did Jobs Plus do this? First,
it attacked the problem with a three-component intervention. It
offered assistance with employment and training at a job center
located conveniently within the housing development. It gave
working residents a break on their rent by introducing new rent
rules, allowing them to keep more of their earnings, and these
were rent moves that were simpler, broader and much more
generous than in QHWRA. And it spread work-related information
through residents' own social neighbor to neighbor networks
within the development.
In addition, Jobs Plus was not a limited-slot program but
reached out to all working-age residents of the development.
Finally, Jobs Plus was not just a housing authority program.
Instead, it was accomplished through a local partnership that
involved the Welfare Development, Workforce Development Agency
and work force representatives. Now let me tell you a little
bit more about what the sites achieved and how big a difference
they made. Three of the sites, Dayton, OH, Los Angeles, and St.
Paul, fully implemented and sustained Jobs Plus over several
years. From their experiences, we learned not only that it is
possible to integrate a work focus into the day-to-day
operation of public housing but also how to do this. In these
three sites, we found Jobs Plus increased residents' average
earnings above and beyond the control groups' earnings by over
$1,100 per year during the 4-year followup period. This is a 14
percent improvement over the control group, which was made up
of similar residents living in public housing elsewhere in the
city. Also, the size of the earnings effect grew larger over
time. In the 4th year, in fact, it exceeded $1,500 per
resident, which is a 20 percent improvement, and there was no
sign of the effect going away by the end of the study. And,
cumulatively, by the end of the study, residents who had worked
were substantially better off than they would have been without
Jobs Plus by about $6,000 on average. The program also had
large earning effects for a wide range of residents including
welfare recipients and those not on welfare, men as well as
women, African-American, single mothers and legal immigrants
from Mexico, Central America, Southeast Asia and many other
parts of the world. By increasing residents' earnings, Jobs
Plus helped deconcentrate poverty within public housing. This
was especially true in tight housing markets where resident
move-out rates were low. Deconcentrating poverty is another
important core goal, and Jobs Plus contributed to it by helping
existing tenants not by replacing them with new higher-earning
residents.
Finally, it's worth noting that Jobs Plus achieved its
results at fairly modest costs. The overall net government
expenditure on Jobs Plus per person totaled roughly between
$2,000 to $3,000 over the 4-year period, including the cost of
the rent breaks. So, to sum up, the Jobs Plus results deserve
special attention because they occurred in high-poverty public
housing environments; the effects were substantial and
sustained; they occurred for very different types of people and
places; they occurred in good economic times and bad; they were
achieved for modest costs; and they are based on highly
credible evidence. As a result it's likely that many more
public housing authorities would embrace an opportunity to
implement Jobs Plus if they had the funds to do so. So the
evidence of Jobs Plus's effectiveness in hand, Congress may
wish to consider introducing Jobs Plus in additional public
housing developments across the country. It need not try to do
this everywhere, but it would serve an important public purpose
to replicate Jobs Plus even on a limited basis where the need
is great and where the local commitment is strong. Thank you.
[The prepared statement of Mr. Riccio follows:]
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Mr. Turner. Thank you.
Mr. Roberts.
STATEMENT OF BENSON F. ``BUZZ'' ROBERTS
Mr. Roberts. Thank you, and good morning. I'm Buzz Roberts.
I work at LISC, the Local Initiative Support Corp. One brief
word about LISC, our job is to raise capital mostly from the
private sector and to provide it to nonprofit community
organizations that are rebuilding urban neighborhoods and
isolated rural areas, and we do that all over the country
through 33 local offices and a national rural development
program. Over our 26 years, we've raised about $7 billion and
put that on the street in low-income communities, and that
includes almost $1 billion last year alone.
Today, Judy Kennedy and I are going to cover some of the
same territory. So in order to make this as efficient as
possible, I'm going to talk a little bit about how Federal
policies come together on the ground, and Judy's going to talk
a little bit about some specific policy recommendations that
flow from all that. Over the last 20 years, we have seen the
emergence of a new production system for affordable housing and
a wider range of community development activities at the local
level, and this system has been flexible and decentralized and
well integrated. And it is distinctive because it is market-
driven; it is locally controlled; and it is performance-based.
So there are a lot of checks and balances on the system that
make it work. And what it does very effectively is it combines
a variety of public policies. In fact, a cluster of policies
has really enabled this system to emerge and to be sustainable
over time with private sector investment, and private sector
investment is crucial to this whole system. Now, part of that
is that there are limited Federal resources, so in order to
stretch them as far as possible, it's great to bring in private
capital. That's fine. But there are other important reasons as
well. Private capital brings a discipline to the system that
you just can't get with public funds alone. And for those of us
who care about not just providing housing per se but also
rebuilding communities, access to that private capital is
fundamental to healthy communities well beyond the reach of a
particular deal or a particular loan, and a system that works
encourages the private sector to do more and more in these
communities. So we can really reverse the vicious cycle of
disinvestment and turn it into a virtuous cycle of
reinvestment, and we're seeing that happen in some of the
toughest communities around the country, urban and rural.
So how does it work? I'd like to sort of walk you through a
little table on page 3 of my testimony. It looks like this.
It's somewhat simplified but not too awfully simplified because
it shows you how financing comes together. One piece is equity
investment. That's what owners invest. In a typical affordable
housing production deal, that's going to come from low-income
housing tax credits. In a more traditional private sector
model, equity investors are going to look for cash-flow and
capital appreciation. Affordable low-income housing isn't going
to provide either of those things. So instead, the Low-Income
Housing Tax Credit does that, and it is performance-based, and
so there are a lot of incentives from equity investors to plan
and build and operate these properties very, very tightly.
Second is a first mortgage. This is obviously a traditional
source. Banks traditionally originate these loans. And the
third is gap financing. And that's pretty much as it sounds.
When you look at how much a bank can lend and how much
investors can invest, there's often a gap in order to make the
deal really work, and that's where gap financing comes into
play.
Now, what about this system? What about the Federal
policies? Pretty simple. Equity investment comes from housing
credits, as I said. States allocate those credits according to
a very competitive allocation plan, and oftentimes, banks make
those investments. And guess what, CRA is an important reason
they do.
Additionally, Fannie Mae and Freddie Mac are also major
investments based on housing credits. On first mortgages,
again, CRA makes a big difference here. It encourages banks to
make those loans. Those loans are often profitable and safe,
but they're what we call high-touch loans. They're not easy to
do. They take time and effort. And if you're just trying to
maximize your profit, you might want to find a bigger easier
deal to do. And the Fannie Mae, Freddie Mac affordable housing
goals encourage Fannie and Freddie to buy those loans on the
secondary market. So it's a very important part of the policy
puzzle.
And, finally, the gap financing typically comes from home
and CDBG and a variety of other Federal sources. HOPE VI often
plays this role in the redevelopment of public housing. So you
put that together, and you've got yourself a deal.
[The prepared statement of Mr. Roberts follows:]
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Mr. Turner. Thank you, Mr. Roberts.
Ms. Kennedy.
STATEMENT OF JUDY KENNEDY
Ms. Kennedy. Well, first let me compliment the committee on
the hearing. It's the first of its kind in either chamber that
I'm aware of. The devil's in the details of a lot of things,
but certainly the description Buzz just gave, brings home to
you there are a lot of details and a lot of devils in community
reinvestment. Our group represents 50 of the largest banks and
50 of the blue chip nonprofit lenders that many of you know of
because they're in your home State.
The concept was actually established by David Rockefeller
before community reinvestment. He's still alive. He's 91. I
haven't given up hope that somebody's going to lure him to
Washington for a hearing. His premise was that if banks
couldn't get involved in very low-income housing on their own,
they could pool their money, they could pool their risks, they
could hire the right skill sets for originating, underwriting
and servicing loans affordable to very low income, I mean under
50 percent of area median income. Our nonprofit lenders by and
large as the San Francisco Fed has documented are providing
affordable housing to families under 60 percent of area median
income to the degree of about 90 percent. It's Self Help in
North Carolina. It's Ohio Capital Corp. and the National
Affordable Housing Trust in Ohio. And so this is the new face
of affordable housing. It's beautiful. It's very different from
what you'd think of or the public thinks of in terms of
programs.
I heard former Fed Chairman Paul Volcker speak and the
difference it's made in the last 30 years as taking the rough
edges off of capitalism. And in a sense, that's true, but as
much as anything, it's been an exciting motivation to go into
emerging markets. Without which I think our cities would look
very different.
All you have to do to understand CRA is drive up 14th
Street. You get a sense of a neighborhood that over 20 years
has been totally revived by infusion of private capital. So
every study that's looked at this has confirmed that it's an
enormous success. Total data's hard to come by, but focus on
some of these numbers: $16 billion invested in low-income
housing over about a 10-year period by just national banks.
Take a look at the Federal Reserve's report from 2000, that
banks have put about $1 trillion into low-income lending over a
6-year period. Take a Treasury study in 2001 that said
increased home purchase loans to low-income, under 50 percent
of area median income, up 94 percent in 5 years. The numbers
are extraordinary even though they're not totaled. Clearly,
this works. Clearly, banks know that it works and are excited
about the business. I've got to bring home though that there
are some things that we need to increase the flow of private
capital to low-income neighborhoods.
Buzz spoke about Fannie and Freddie buying the loans.
Unfortunately, the loans that they buy are not the same loans
that banks are required to originate. Fannie's affordable
housing goals are very different from banks, and it's allowed
them frankly to double count, triple count the House would fix
this. Mr. Oxley and Ney's bill would reform the GSE bills so
they would finally have to provide a secondary market for loans
affordable to low-income families.
On the Senate side, Senator Santorum, Sarbanes and Reid are
in agreement so I hope this would happen soon. We do have some
CRA rule problems. I think we had a problem a couple years ago
when some of our bank regulators didn't understand the enormous
impact of CRA on home building. Take, for example, that the
Low-Income Housing Tax Credit is involved in 40 percent of all
rental housing starts in our country and 98 percent of all new
rental affordable to low income. Once the bank regulators
understood the impact of gutting the Community Reinvestment
Act, three of them stopped, reconsidered and did the right
thing, and I give great credit to the OCC, the FDIC and the
Federal Reserve for coming out with a rule for what they call
intermediate small banks, banks between $250 million and $1
billion. It's an improvement over current regulations.
Unfortunately, the Office of Thrift Supervision without real
public consultation or notice totally gutted Community
Reinvestment Act regulations, and that has not been fixed
despite the fact that there's a new OTS director for almost the
past year. So we need to bring all of the rules into alignment,
and we need to do the right thing. And it would also be
sensible to allow big banks credit for community development
lending. Ironically, this lending on affordable multifamilies
doesn't get any CRA credit now for banks over $1 billion. It
maybe gets a little icing on the cake, but it's not a layer on
the cake. That should be fixed.
Finally, what we've learned the hard way is it's hard to do
anything for public housing with the micromanagement that,
frankly, the pulling out the rug from underneath the Section 8
and the block grant funding and public housing funding now. You
know, when banks are investing for CRA, they're investing your
savings and mine. They have to be prudent about maybe taking a
little less return on the loan, but they do need to have a
return to the principle. And until 2 years ago, if a borrower
came in and said, I'm going to take all the Section 8 vouchers
that are presented to me in Columbus, anybody that comes with a
voucher, I will be tickled to rent to, that would get a little
increase in the mortgage amount because you knew you could
count on Section 8 funding. In other words, he could create a
couple more affordable housing units. By virtue of what the
administration's done, Section 8 is now a liability in
underwriting. In other words, my lenders are asking for
reserves if a borrower says he wants to do Section 8.
And then, finally, what Katrina has taught us is, you can't
rob Peter to pay Paul. It doesn't make sense to take money away
from Missouri or Ohio for those States. They need their own
dedicated resources. Because their rents were so low pre-
Katrina, we think they need Section 8 vouchers on top of the
generous tax credits being provided. And finally, I'm not going
to go into the details with this. Just know that we've been
following the Basel Accord, the international risk-based
capital rules. Right now, American regulators are supporting us
in saying banks' investments in communities shouldn't be
subject to the kinds of capital requirements on investing in
Bill Gates' latest venture. And I hope that will all come
together. We'll be following it closely. Thank you for giving
us this opportunity to talk about this lovely new face of
affordable housing.
[The prepared statement of Ms. Kennedy follows:]
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Mr. Turner. First off, I want to thank all of you again for
incredible testimony, incredible insight into this issue and
topic. But as you are aware, our subcommittee has been taking a
look at public housing and affordable housing and the
mechanisms for funding that are out there, its impact on
neighborhoods and communities and the impacts on residents. The
discussion that we're having on the ability to assist residents
in transition, providing services to residents who are in
public housing, recognizing that communities that have public
housing are hosts to those housing, it's part of the fabric of
the neighborhood and the community. And how do we make certain
that the neighborhoods and the community and the public housing
authorities are meshed? And then the issue of the capital
markets, and how do we find private capital to support
affordable housing?
And, Buzz, you gave an incredible discussion of the tax
credit process, and your chart is incredibly helpful. You took
a $150,000 unit and indicated $90,000 of the money would be
coming from tax credits, $35,000 from a first mortgage, $25,000
from a gap financing, which could be in the form of additional
public subsidies that come from either CDBG or home dollars
that a community contributes.
In their discussions, both Ms. Kennedy and Mr. Roberts, you
acknowledge also that some of these Low-Income Housing Tax
Credit developments would seek residents with Section 8
vouchers and provide housing for them. When you look at the
ability to provide private capital to these projects, the
amount of subsidy does get to be significant. I mean, even
though there's a line of tax credits being a credit, it really
is in the form of a grant. And those are Federal moneys that
are going directly to the project through private hands.
They're exchanging a credit that they're going to receive off
of their income taxes in exchange for the dollars that they're
handing to the development.
So of the three categories that you identified, only one is
fairly clear or clean of any other additional subsidy. Then
once you take the tenant, and if they have a Section 8 voucher,
you have additional subsidy that's being laid on top of that.
Perhaps you could speak for a moment as to why this is still a
good deal even though the tax credit line item, the gap
financing, which could be CDBG dollars or home dollars, and the
Section 8 voucher placed on top of it are all looking to some
type of Federal program or source?
Mr. Roberts. Right. Well, it costs a lot of money, and it
takes a lot of subsidy in order to serve very low-income
tenants on a sustainable basis. And you know, it's just a
matter of math. If you have a tenant who is earning $20,000 and
they can afford to pay 30 percent of that for rent, that's
about $500. First, off the top are things like utilities and
maintenance and repairs and management, and that just doesn't
leave a lot of cash-flow available to carry a private mortgage.
So if there were plenty of supply of affordable rental
housing, this would not be a worthwhile thing to do. But I
would also say there are four or five specific kinds of cases
where there is simply no substitute for production. One is
where you have deteriorating stock that is dragging down an
entire neighborhood, and unless you fix that stock, you are
going to lose a lot more not just affordable housing
opportunity for poor people but also moderate-income housing
for moderate-income people and middle-income people in that
same neighborhood. We lose entire neighborhoods because of this
kind of deterioration, and a few billion dollars of prevention
is worth manyfold that in cure.
Second is there is some housing that serves populations
that have special needs, whether they're homeless or elderly or
disabled or struggling to become independent off welfare or
whatever the case is. In those special needs housing
situations, you have to produce because there is an integral
service and housing system that enables folks to live stable
and independent lives. And it's much cheaper to do that than to
have mentally ill people unstable, committing crimes landing in
acute care in hospitals, landing in jail; much cheaper than
paying through the Medicare/Medicaid system for nursing homes
because there's no decent independent living facility for the
elderly and the like. And third is, there are some places where
we have just outright supply shortages, and you have to produce
in order to overcome those.
Ms. Kennedy. Can I just add to that?
Mr. Turner. Ms. Kennedy, if you would pause for a second. I
think almost all of you are aware, I'm a big fan of Low-Income
Housing Tax Credit. So having served as mayor of my community
two terms, 8 years, one of the things that we had undertaken
and were utilizing the Low-Income Housing Tax Credit for
redevelopment, the senior housing is an area where we were most
effective, even taking two abandoned structures where we
combined it with historic tax credit to cause redevelopment.
One of the developments--actually two of the developments
ultimately my grandmother moved into. She moved into one and
then relocated into another one when we opened the next one.
And she was not receiving a Section 8 voucher, although she
qualified for the income requirements. And so I'm aware also
that you get a mix of the initial subsidy that occurs, and then
some units where the initial subsidy occurs, but then also the
Section 8 voucher provides additional subsidy. So the unit as a
whole has a different cash-flow than just a public housing
facility itself.
But my question--and Ms. Kennedy, we won't miss your
comments. I will give you an opportunity also at the end to add
anything that you want to add as we go along. I will give you
all an opportunity to add to the record.
But the attraction of capital to these projects is really
how they're tauted. The question would be to Mr. Roberts, Ms.
Kennedy and Mr. Gutzmann--aware of any studies--and also, Mr.
Riccio, if the other two of you are aware, or Mr. Moses, you
can also chime in--of any study of comparison of the Low-Income
Housing Tax Credit as a vehicle for providing affordable and
low-income housing versus straight public housing, and its
cost, overall subsidy cost to the taxpayer? I'm unaware of an
actual comparison of how we can cut a check for public housing
authorities to create a unit. We can put together a development
vehicle for Low-Income Housing Tax Credit program which creates
a unit. In the end, the cost to the taxpayer--I wonder if you
are aware of how that comparison flushes out.
Mr. Roberts. I'm not sure I have seen a study about it, but
I would say that our experience with housing credits has been I
think unique in the history of Federal housing policy. And
that's because it's a pay-for-performance credit. And if you
only pay for success, you set up a system that really creates
success. So in the housing credit world, we see foreclosure
rates, which is how we measure failure, at 0.02 percent
annually, 0.02 percent annually. That is a much lower
foreclosure rate on low-income rental housing without the
benefit of Federal guarantees or guaranteed rent flows than we
see on any other form of commercial real estate, including
luxury high rises, office and retail.
Ms. Kennedy. I guess you hit the nail on the head with the
story of your grandmother. When Mr. Oxley and Mr. Ney wanted to
understand what pulling the rug out from Section 8 meant in
their districts, Ohio Capital Corp. took them to a lovely tax
credit building, introduced them to a lovely little old lady
who had also lived in the building affordable to under 60
percent of area median income with a little help from her son.
She didn't have a voucher. Until he went to Iraq, and he was
re-upped. And all of a sudden, she needed a voucher to be able
to stay in that apartment. So I guess I would say, think about
this continuum of need. What CRA did brilliantly--let's use
Chicago as an example where there's still a very strong housing
stock that just needs some rehab. How can affordable to under
60 percent of area median income--there doesn't involve tax
credits, but in Chicago for elderly and disabled, there is a
need for tax credits, and in Chicago, there is a need for tax
credits plus Section 8 plus home because of the cost of
construction. And in Chicago, there is a need for public
housing. So all of these resources put together address
different places along the continuum of need.
Mr. Gutzmann. Mr. Chairman, I would just echo that
continuum concept. If you look at, again, the entire supply, if
you add in the tax credit and the Section 8 and the public
housing, we're still talking about 4 to 5 percent of the
housing supply in America. That's all we're serving with all of
these products, and there is a continuum, and they serve very
different audiences. Tax credits can never reach the income
levels that public housing serves. The tax credit deals
generally are targeted to people at 50 to 60 percent of area
median income. Public housing across the country from the
backward-up model of who applies, that's who you'll serve; it
serves 20 percent of AMI nationally. So it's, again, it's a
slice of our inventory, 45 percent nationally, and it's really
a gut check of America on how we want to serve. There's no
secret to get those kind of deep subsidies. It costs money.
And last point I'd make, in St. Paul, it costs me $650 a
month to run a public housing unit. The backward model of rent
based on income, my average rents are $200. I can only serve
people at 20 percent of AMI if I get $450 a month from HUD. And
if we want that product deeply affordable, then we have to pay.
There's no other way to really make it work. We're kind of
saying that now we don't want the product, is really the state
of our world. The appropriations have basically already written
off 20 percent of the housing supply of America. And we're
going the wrong direction with our funding, and there's just no
secret. It costs money to serve low-income folks.
Mr. Turner. Mr. Moses and Mr. Riccio, I want to change
topics for a moment because, in the two different testimonies,
there was a great comparison of the issue of what I consider
the transition process for low-income housing. Obviously, our
seniors or those who have a disability who are in our public
housing or some other condition that is making it difficult for
them seeking employment or making a transition, impediment if
you will, are those individuals we want to make certain we
provide that safety net in the continuation of housing
opportunities in public housing? All the other studies that
have been done have indicated that the most important thing
that we could do in public housing besides providing clean
affordable safe housing is the intervention process of
assistance for those individuals that have the ability to
transition to independence; that being the goal of those who
are in public housing, is the same goal as the providers, same
goal as the taxpayer and the families that are impacted. That
is a difficult process in that the circumstances of each
individual who's in public housing, their needs, the assistance
that they need and intervention for transition will vary
widely.
In looking at the public policy issues of how do we make
certain that people are in an environment that encourages
transition and independence, one of the ills that we saw was
economic segregation. When you look at the model of a small
town, those individuals who are in an economically diverse
small town, their children, their families tend to do better in
the opportunities for transition than individuals who are in
high-concentration poverty neighborhoods. And you know, when I
was the mayor of Dayton, I lived in one of the lowest-income
census tracks in the city. And I can tell you that, as the
neighborhood was transitioning, one of the things that was
important for the interaction in the community was an
understanding of what's even necessary as children looked to
their dreams as to what they might become in the future, as to
what's necessary for them to do now, what's necessary for them
to do later, if someone wanted to say, I want to be a lawyer,
it was important that there was a lawyer in the community that
can say, what does it mean, if you're going to have that goal
and pursue it, what is that path? So economic segregation we
know is an ill that we want to remedy. I'm not very fond of the
word deconcentration because it sounds like your goal is
dispersal of the individuals instead of improving the lives of
the individuals, and in our public policy review, economic
segregation has proven to be a cycle of poverty.
Mr. Moses, you gave a great description of the concept of
community that I think is one that certainly I saw in my
neighborhood, and I think is very important.
Mr. Riccio, you gave a great--your testimony was a great
public policy outline of the types of topics and issues that
we're addressing. So I'd like if we could for a moment have a
discussion, and we'll start with Mr. Moses and then Mr. Riccio.
I'm also very fond of saying, those of you who have been to
my hearings before, you know that another word that I hate is
gentrification because I've never met a gentry in my life. So
when we look at communities that are in transition that are
going to diverse economics, it does appear that there is an
improvement in opportunity for everyone who is in the
community. And Mr. Moses, I'd like you to expound, if you
would, on your statements because your statements could be
taken to be cautionary of making certain, as you're making this
transition, that you be sensitive to the issue of--that you
have a community that you are dealing with, relationships and
individuals, much as we should have been when we put the
interstate highways through cities and didn't take into
consideration the fabric of the communities that we divided. Or
it could be an alternate view of the issues of the public
policy of making certain that we have economically diverse
communities.
And Mr. Riccio, if you would, in following up on that, if
you could talk to how our having diverse economic communities
might relate to the issue of transition economically.
Start with Mr. Moses.
Mr. Moses. Thank you. I appreciate what you said, sir, and
I look at what I used to do when I came to Washington, when I
first came here, and I met Cushing Dolbeare some years ago, and
she has been my mentor in this whole process. There was a place
I believe that was called the Chili Bowl. It was a great place
where you could go get food, great, great restaurant. And I
remember the guy telling me the story that as he was growing
up, and his dad was there; he knew everybody in the two-block
radius. Now he knows no one. This is the story that's happening
all across America. In Pittsburgh, it's the same thing. When
you break up that fabric--I remember once taking some
foundation folks in Pittsburgh on a tour of the public housing
communities in Pittsburgh because all they had was this
negative stereotype of who lives in public housing. And one
morning, we got up, and we took a bus, and we rode through the
communities, and they saw people getting up in the morning,
going to work with their children, and fathers and mothers
going, doing jobs. And then we took them into some folks' homes
in public housing. And they were amazed to see the folks live
the way they did, and the lady says, well, this is my home, why
should it not be that way? Your home would be the same for you.
This is my home. And she was really amazed at that. Why, I
could not understand. But she was really amazed at that. And
then we came through what we call was the HOPE VI thing. I
lived through the urban renewal when the lower hill was
removed, and my family was displaced, and we had to go other
places. It happened all over again when we did this with the
HOPE VI thing. People who had got removed in the 1960's were
now being displaced in the 1990's, and the alternative was,
people again were losing that connection of family, of friends.
When I lived in these communities--in Bedford Dwellings. It was
called Bedford Dwellings. It was a 1,700-unit complex that was
straight-lined. But in there, there were different communities.
There was Francis Street. There was Summers Drive. Whiteside
Road. And when I get back, I'm going to a Whiteside Road
reunion where we all get together again, but when they came in
and said, we're going to make it better, and we're going to
tear it down and rebuild, a lot of folks got scared because
they remember what happened in the 1960's, and being not
included in the planning process of what was taking place,
families and neighbors got split apart as if you dropped a bomb
back onto the community. And people who--I remember as a young
man coming up, and there was a young lady. She's referenced in
this book, Root Shock, which chronicles--Pittsburgh, the study
was done there--that we could go to her if we had a problem; if
you needed some, a little bit of money to pay your rent, if you
needed a baby sitter, she would settle disputes. She was the
matriarch of the complex.
But when they came in and they said ``boom,'' everybody
went. They pushed us places that we had no existence of, no
knowledge about. And that fabric of quality, of neighboring,
was lost.
Who do I turn to when I need a babysitter? Who do I turn to
when I have a problem? And as some of this, as we are led to
believe in this Moving-to-Work experience, in Pittsburgh, at
least, they said they were supposed to create all of these
tiers, and it was not done.
All of this case management, all of these things that were
supposed to keep us together, it did not happen. And as a
result, in some instances, 450 families, they don't even know
what happened to them. Still do not know what happened to them.
And so when we look at this, we must be very sensitive to
what we do when we come into a community, and, for the sake of
revitalization, we tear that inner fabric that makes a
neighborhood, that makes a community. And we must be very
sensitive to that.
Mr. Turner. Mr. Moses, that was a very compassionate and
great description of that issue.
Mr. Riccio.
Mr. Riccio. I would like to make two comments about mixed
income. One is creating mixed income populations within public
housing. One way to do it is to try to get higher-income people
to move in. That doesn't necessarily do anything, at least in
the immediate term, for the people who are already living
there.
Another way is to try to help the people who are living
there move up. And that is the effect that Jobs-Plus had,
particularly in communities where there was not very high
turnover in public housing. So you can raise average earnings,
increase the mix of income, or intervene, as Jobs-Plus did
within the Public Housing Development itself. That is one
strategy.
Another strategy is to move people out of public housing to
lower-poverty communities. There is another very rigorous study
of the strategy to do that, the Moving to Opportunity Study,
which used a random assignment methodology. So it was a very
credible study, and it found that although there were some
positive outcomes on safety and other issues, there were no
effects on self-sufficiency outcomes. There was no increase in
employment and earnings.
So I think the idea of just moving people to a different
environment, to a lower-poverty environment, and expecting that
is going to change their economic experiences in the short
term, doesn't seem to be supported by the evidence we have so
far.
It may be that if you move people to lower-poverty
communities but you connect them to an employment-focused
intervention that tries to help them adapt to work and take
advantage of new opportunities that might confront them in that
community, you might see some change in economic outcomes.
Mr. Turner. We turn now to Mr. Clay. And I appreciate his
patience as we have had this discussion.
Mr. Clay. Mr. Chairman, let me ask Mr. Gutzmann, have
rental policies under QHWRA, such as the flat rent option, as
opposed to families paying 30 percent of their income, had a
positive or negative effect on your members' efforts to
stimulate economic self-sufficiency, and are the results the
same between large and small or urban and rural PHAs?
Mr. Gutzmann. Thank you. Sir, they have had some positive
effect, I would say. But QHWRA ultimately limits any rent
structure to 30 percent of median income. You can play around
with flat rents, ceiling rents a little bit, but ultimately
QHWRA did not repeal Brook, and Public Housing can ultimately
not charge more than 30 percent of adjusted gross under any
scheme.
So you can have flat rent models, ceiling rent models, but
it is not a true market model, and perhaps--nor should it be.
It still should be affordable. I do not think there has been
any difference in application across large or small.
The fact of the matter is, it is still a very incredibly
complicated rent-setting system. If you think about it, there
is basically one rent for every person who lives in public
housing. They all have their own rent. And that is 1.2 million
households with their own rent.
It is very complicated. It is very affordable, but it is
very complicated. There are always charts we have published on
all of the steps you have to do to disregard income. Congress
just passed a new one with the appropriation bill that
disregards military income.
So housing authorities have to figure that out. HUD is over
us on every little mistake; they say we are inefficient if we
have one mistake. But let's just think about it. There is
probably 1.2 million rents for 1.2 million households. It is
very complicated.
Mr. Clay. Sounds complicated. In your testimony you
mentioned the Jobs-Plus program. Please offer us some examples
of success stories from St. Paul's Jobs-Plus programs and how
they can aid poverty deconcentration efforts.
Mr. Gutzmann. Thank you, sir. We are proud to be one of the
demonstrationsites in St. Paul. We had the program for 7 years.
The headline was that the control site, when it began, only 16
percent of the people were working; and when it was over, 51
percent were working. And their incomes doubled during that
period of time.
Mr. Riccio was a close partner. MDRC evaluated it. The
trick, though--and I talked to Jim about this--it costs the
Federal Government $1.4 million for our success. Those 350
families really became successful because we fixed their rent
problem.
We did not increase their rent when they got their job. And
that cost us lost rent, and HUD paid. And it cost us $1.4
million. HUD paid. So my comment is, it is a very successful
model. People went to work, doubled their income, but it was
kind of costly.
Mr. Clay. I don't see that as too costly.
Mr. Gutzmann. I personally do not see it as too costly.
Mr. Clay. We spend money on other objects around. Thank you
for your answer.
Mr. Moses, in your testimony you talked about the Chili
Bowl. It was really Ben's Chili Bowl, still here, located at
13th and U Streets Northwest. While you are here, you may want
to visit. Let me ask you about QHWRA----
Mr. Moses. Are you buying?
Mr. Clay. It is very good. I have been going since a
teenager. QHWRA does not require PHAs to replace units that are
dilapidated on a one-for-one match with units built in their
place.
What impact does this have on those at the lower economic
rung of public housing?
Mr. Moses. Thank you, sir. I would say it has a great
effect. I think that has been one of the most impacted policies
that has been--because from Pittsburgh, they demolished
millions--thousands of units. And when you do not replace those
units, you lose the affordability, you lose units of
affordability for folks.
As I have said in my testimony, that Pittsburgh, by the
University of Pittsburgh's report, that we are lacking 15,000
units of affordable accessible housing. And so when you have a
PHA demolished, let us say 1,200 units of affordable public
housing units, and only rebuild, let's say, 480 units, and of
those 480 only so many are public housing units, so many are
tax credit units, so many go for market rate, the loss becomes
great. So it does affect folks, it does affect where folks live
and how they--and where they live and who they live with.
Mr. Clay. Thank you for that response.
Let me ask you one other question. Does a 1 or 2-year
exemption for those beginning to work again provide enough time
for them to regain financial stability before facing rental
rate increases? The 1 or 2 years, is that enough time?
Mr. Moses. Good question. And personally I do not know,
sir. I would, in the jobs market that is out there, in--and as
we have stated where the minimum wage, which most of our
workers earn, and they cannot afford nowhere; if they go up the
pay scale, it might be, but they would have to get at a scale
where we are talking about $15 an hour to maintain a 1-bedroom
unit. So 2 years, I am looking at, and I would say it would be
close, but it would be very close to doing that.
Mr. Clay. Thank you for your response. I am going to move
down the line.
Mr. Riccio, are PHAs better suited to participate in Jobs-
Plus if they are moving toward communities, or if they
participate in other types of public housing demonstrations?
Did you hear the question.
Mr. Riccio. Jobs-Plus, in fact, was--the Jobs-Plus sites
were, in fact, Moving-to-Work sites. So they did have
additional flexibility to change the rent rules and to do other
things in support of the program. So certainly the ability to
change the rent rules was fundamental to Jobs-Plus. And Moving-
to-Work, providing that opportunity. That is not to say that
you couldn't operate Jobs-Plus outside of the context of
Moving-to-Work if there were other ways, other legislation that
would provide for modifying rent rules.
Mr. Clay. Mr. Roberts, can you offer us some stats on the
number of low-income areas affected since the Office of Thrift
Supervision eliminated financial service requirements for
thrifts?
Mr. Roberts. Well, thrifts operate in low-income
communities and elsewhere all around the country. So I would
say that, in general, most places would be affected by that
relaxation of the thrift requirements.
Mr. Clay. OK. Let me shift to another issue that you
brought up. In your opinion, are revenue-based tax credit
programs considered a more desirable redevelopment funding
mechanism for lenders than discretionary programs such as HOPE
VI?
Mr. Roberts. Well, you know, as the point was made earlier,
you need different tools in your tool boxes for different
tasks. I am reluctant to say that screwdrivers are better than
hammers, in general. They are better for driving screws than
hammers are, for sure, but hammers are better for driving
nails.
There are certain ways in which HOPE VI is absolutely
fundamentally important. If you have a very large Public
Housing Development project that you need to redevelop, you
probably cannot get enough housing credits and home and CBDG
money to do it, because that money has to be distributed fairly
widely, and you need a big hunk of money from HOPE VI,
typically $25 million or so, in order to get that done.
Second is that even in HOPE VI deals, HOPE VI does connect
with housing credits and private mortgage finance. Usually the
mix is a little different. And, of course, you need to have the
public housing operating subsidies or something equivalent to
that in order to make sure that whatever portion you want to
preserve as affordable to extremely low-income people, can do
that.
You know, capital subsidies are different from operating or
rent subsidies. If a family cannot afford to pay in rent enough
money to cover the basic operating expenses of the building,
you can give the building away for free and it is not going to
be sustainable and affordable at the same time.
So you really do need to have the mix. The key is to have a
local system in place, a partnership network that understands
the different roles that they as players contribute to the
system, and the different tools in the Federal tool box that
can be best applied in the right way.
Ms. Kennedy. I would add one thing quickly, and that is, in
my experience, the key to private capital coming in is stable,
predictable funding. In tax credits you have relative
stability. You have a commitment to the investor to maintain
all of the factors necessary to ensure those tax credits. And
as Buzz pointed out, you have the discipline, then, of the
private sector overseeing that.
Five years ago, section 8 was considered stable,
predictable funding. And banks leaned on Fannie and Freddie for
worrying about appropriations risk and not buying those loans
because they involved Section 8.
We were talking about financing public housing, property by
property. Well, the funding is no longer stable, it is no
longer predictable, it is no longer an asset.
Mr. Clay. Thank you for that. Mr. Chairman, my final
question to Ms. Kennedy.
What role or responsibilities do your member institutions
play in the rebuilding of the gulf coast and other areas
destroyed by natural disasters?
Ms. Kennedy. Well, I think there are exciting
opportunities. This is a case where all four financial
regulators--from day one, because you are a member of the
Financial Services Committee--were flexible and understanding
about the waivers the banks needed to continue to support
recovery and then rebuilding. And we are very pleased with
that.
Recently, NAAHL members captured--by NAAHL members I mean
both our nonprofit lenders and our banks, about $660 million of
new markets tax credits, which will be an enormous incentive to
economic recovery in the gulf. We know that there are lots of
low-income housing tax credits.
And so I think this package of tax credits, if and when it
is supplemented by some of these spending subsidies to get down
to the very low income.
In Alabama tenants were paying $40 a month for rent. Now,
low-income housing tax credits are not going to allow people to
come back at $40 a month. So I think banks and nonprofits are
going to be hugely involved, and it is just a matter of, again,
stable, predictable funding to supplement tax credits.
Mr. Clay. Has your association or your institutions taken a
position on the adequacy of the insurance programs and their
coverages in the gulf coast region?
Ms. Kennedy. The adequacy of which?
Mr. Clay. Of the insurance coverage, of the insurance
programs. Is there adequate protection?
Ms. Kennedy. Well, I cannot speak for my members on that,
because we haven't discussed it. I think there are a lot of
uncertainties. And I certainly hear the banks talking about
that. And I think for the nonprofits, again, they attract
private capital based on some predictable streams of income.
And if there are uncertainties about getting insurance, the
banks always say they haven't been so interested in the
insurance companies having to lend in low-income neighborhoods,
they are concerned about insurance companies insuring the
properties on which the banks have made mortgages.
Mr. Clay. I thank all of the witnesses for their responses.
Thank you, Mr. Chairman.
Mr. Turner. Thank you, Mr. Clay. Appreciate your assistance
and certainly your leadership in your community on the issue of
public housing.
A couple more questions, Mr. Roberts, and Ms. Kennedy. In a
previous hearing, one of the things that came up about CRA and
the low-income housing tax credit, which is why we wanted to
pursue this issue, was the question of why aren't we able to
attract capital beyond banks and low-income housing tax credit
developments?
And, second, if the CRA requirements were not there, would
banks continue to invest in those opportunities? The answers
that we received were that capital outside banks are not going
to be attracted to these investments because their returns are
so low that without an alternative incentive to invest,
monetary return is not present sufficient for that to attract
the capital.
The second is that there was a real fear that the CRA--and
there is certainly in your testimony, Ms. Kennedy, you allude
to it--that absent the CRA benefit to financial institutions,
that they might cease to fund these important investment
vehicles.
Can you talk to both a moment about that issue, the need to
keep the banks at the table; and the second, what do you think
it would take so that these tax credits might be an attractive
investment even beyond the compulsory incentive that we have
for banks? We'll start with Ms. Kennedy.
Ms. Kennedy. Sure. Well, I learned from the threat to tax
credits that we survived a couple or 3 years ago that roughly
banks hold about a third, Fannie and Freddie hold about a
third, and other companies do hold about a third. And what
their motivations are, in addition to tax relief, I don't know.
Buzz may be able to speak to that.
You know, I think going back to the Volker comment about
taking the rough edges off of capitalism, we certainly know
from the Fannie, Freddie, Enron era, the pressure on management
of companies to deliver stable earnings per share hit those
numbers, and the fiduciary responsibility to get the highest
return to shareholders.
All of that is mitigated by CRA. You know, in essence, the
law said you are getting a Federal charter, you are getting
insurance on all of your deposits, you get access to the
payment system, you get Federal Home Loan Bank and Federal cost
of funds. In return for that, you should have to meet the
credit needs of your entire community.
And meeting the credit needs of the entire community has
been a regulatory directive. The challenge for the banks and
the nonprofits has been that the GSEs did not have that same
regulatory directive. So they are sitting on billions of
dollars of multifamily, affordable loans, single-family loans
to people under 80 percent of varying median income. And when
they try to sell them, they have to go one by one, like a
Fuller Brush man, you know, to insurance companies and others
who may be interested. Pension funds.
So I think the complicated issue is, you know, what role
does this Federal regulatory incentive play in meeting the
credit needs of very low-income and immigrants, and I think
experience shows it plays a huge role. And not until private
capital is flowing into every historically underserved
community and is available to every historically underserved
person at comparable rates, will we not need these incentives.
Mr. Roberts. I would say there are a few reasons why banks
and other financial institutions dominate the investment market
for housing credits.
Mr. Turner. Before you go on, I just want to tell you, Mrs.
Kennedy, we were just discussing among ourselves about how
thrilled we were by your answers and your insight.
Ms. Kennedy. Well, thank you.
Mr. Turner. I think that you could cut out your testimony
in this hearing on your answers and frame them, and you would
have great succinct policy statements.
Ms. Kennedy. I wish my daughter were here to hear this.
Mr. Turner. Mr. Clay was mentioning that it would be
helpful for the Financial Services Committee. But we do really
appreciate it. It has been wonderful listening to you.
Mr. Roberts.
Mr. Roberts. Well, Judy is a tough act to follow. With
trepidation, I proceed.
Mr. Turner. Not to put you under any pressure, by the way.
Mr. Roberts. There are a few reasons why financial services
companies dominate the investment market for housing credits.
One of them is they understand the basic business of what it
means to invest in affordable multifamily housing. And, you
know, does General Motors specialize in that? No, they focus on
building cars. So this is--it is close to home, whether it is a
bank or a GSE or it is an insurance company that does this kind
of thing all of the time, it is within their range and comfort
zone.
The second is, for a bank, investing in housing credits
generates other business. It can generate a construction loan
on the same deal, it can generate other lending opportunities
in the same neighborhood in which the housing credit deal plays
a catalytic revitalization role.
And the third is, they get CRA credit for making the
investment. And that does affect the price of housing credits.
And if you lighten up on the interest of investors,
specifically banks, in the credit, there will be other
investors who come in, but at a different rate of return, and
they will require a higher rate of return for that market to
clear.
And when that happens, guess what? Go back to the table and
the financing gap widens. And then Congress is very hard-
pressed to appropriate additional funds to fill those financing
gaps, and the bottom line is less housing and the housing that
gets produced is less affordable to a wide range of families.
Mr. Turner. Mr. Gutzmann, you were talking about the issue
of the regulatory burden income calculation, the issues that
you face in having to meet the Federal requirements for
oversight.
It is obviously a difficult balance. The statistics that
you gave us for your performance are wonderful, and certainly
would be great to see in every housing authority.
But obviously there has to be a balance in that. On 60
Minutes we can probably all recall seeing exposes on poorly run
housing authorities and the impacts on the families and on the
neighborhoods. How do you balance that?
Mr. Gutzmann. Well, Mr. Chairman, I just, again, want to
thank you for holding these hearings. I can tell that you are a
mayor--a former mayor--in your questions, and I can tell that
you care about public housing and low-income people by all of
your comments. And it really sings to me.
You balance it with tough love. HUD has all of the
authority right now to get rid of poor performing housing
authorities. Receivership is probably the best tool. When they
are that broken, they need to be out of the local politics. As
you know, in local politics you need to have executive
directors who are not the brother-in-law of somebody, but
actually legitimate housing professionals. You need to have
strict oversight and accountability. And receivership has been
a good model.
This housing authority in the District of Columbia came out
of trouble by being placed in receivership. So I think you have
to deal with the bad actors, and get them to perform on a
performance-based model that exists. They are an embarrassment
to the industry. And we who struggle hard to perform our
mission feel that they weigh us down.
Having said that, we know they are a small number of the
3,200 housing authorities, but yet, sadly, usually they occupy
big cities and they get the headlines.
Mr. Turner. In a previous hearing we had Betsy Martens,
director of the Boulder Housing Partners. And she talked
extensively about the cumbersomeness of the rent calculations
for tenants, especially with regard to income set-asides and
exclusions.
She suggested that the Congress pass a standard deduction
for medical and other expenses. She gave a pretty eloquent
description of having to account for receipts for a resident
with a potassium deficiency, had to eat a significant amount of
bananas, and she actually subsequently gave us a copy of the
receipts that had to be counted in order to be able to
determine the medical expenses that she was incurring.
She had suggested that there be almost, as in our income
taxes, a standardized deduction. What is your view of that?
Mr. Gutzmann. I think any model to simplify the rent
calculation formula makes sense. That one is a good one. The
FADA approach also includes just a different income-based
model. Right now it is 30 percent of adjusted gross. This is
the foldout, these are real steps to calculate rent. I am going
to give this to you, too.
These are all the steps we have to do to calculate rent.
First you disregard income with exclusions, deductions for
medical; then you calculate income, then you calculate rent.
And Congress keeps passing laws that are worthy, that say
let's not charge people rent on military income. That just
passed the House Appropriations Committee.
Simplify it, but keep it affordable is our mantra. And I
think you can do it with income-based----
Mr. Turner. Just a second. We have seen that chart before.
You may or may not be able to do this for us, but I am assuming
that this is a calculation that your staff are going through.
Might it be possible, as a supplement to this hearing, that you
would provide us an estimate of the cost administratively to
get through that?
Mr. Gutzmann. I can tell you right now. But I will provide
a supplement. I have 10 percent of my staff who do nothing but
calculate rent. I have 220 staff; 10 percent of them do nothing
but calculate rent, redetermine rent when income changes,
recertify rent if people are still eligible to live in public
housing.
I say probably nationwide, 10 percent of the housing
authority's staff are in some way, shape, and form involved in
income and rent calculations. We will get more information for
you and try to quantify that.
The danger is, we keep getting our staff reduced and these
burdens remain. The worst world for us is bad money and liberal
rules. And this is a wonderfully affordable way of calculating
rent, but it is very burdensome. And, as I mentioned, it is the
case management approach. 1.2 million households, 1.2 million
different rents.
It could be simple, it could be affordable; 25 percent of
gross income, for instance, just that. That is one of the FADA
models, just say 25 percent of gross income, with maybe a few
deductions for medical, so you really do not hurt your
grandmother and my grandfather who lived in public housing, and
the elderly who tell us, I have already worked my whole life, I
have paid taxes, I do deserve a place to live affordably for my
remaining years.
So 25 percent of gross income actually has about the same
burden to households as 30 percent of adjusted gross, with all
of those things to do to calculate the true rent. And that is a
FADA proposal, in our rent reform package. It would mean great
simplification.
There are ways to keep it affordable and simple, and that
is what I would hope this committee also takes into account. We
are having a hard time selling that because these are our
friends, in the low-income housing advocacy world. They think
if we get that freedom, we will rush to the marketplace, and
that is not what we are going do. And so it is a hard sell
within our own advocacy community to be given freedom from all
of this rent burden.
Mr. Turner. Mr. Moses, I will turn to you next.
Mr. Moses. He is my friend, and I admire and respect him
very much.
But H.R. 5443, has no standard Medicare deductions and many
other good simplifications. And we believe that the tiered rent
just gives you too many peaks and valleys that people--to fall
in for residents, and it would be just more cumbersome to try
to enact.
And H.R. 5443 rejects the tiered rent approach and keeps
the standard deduction at 30 percent of income. So, you know,
we support some things, but on this we say, this is what needs
to be done.
Mr. Turner. Mr. Riccio, by the one comment that you made,
about the Dayton experience, which was a plus, I do not believe
that they are moving toward community. There may be some
additional issues that you might want to look at as to how
they, with the Jobs-Plus program, operated outside of Moving-
to-Work.
But in your written testimony, you make a comment that goes
to actually some of my perceptions and experience in public
housing in Dayton. And in going through how the various
communities were successful with Jobs-Plus, you indicated where
private rental housing was much more affordable; example,
Dayton Jobs-Plus residents were quicker to move out than they
were in other cities.
Dayton is a very affordable community. In fact, our
companies that transfer people into Dayton say that the people
coming into your community feel like they have won the housing
Lotto, and people in Washington, DC, would be envious of what
you can afford in Dayton with respect to housing and prices.
An experience that I had with our Public Housing Authority
when I served as mayor, there was a neighborhood in which we
had undertaken a mixed-income development. It was a distressed
neighborhood. It also had a historic district overlay. It
historically had varying levels of housing stocks. So it would
lend itself very nicely to redevelopment as a mixed-income
community.
It had a public housing facility that we would normally
think of as projects-type public housing, that was the source
of both crime and criminal activity, and was a high level of
complaints for those who lived in the facility and those who
lived around it. It was land that presented an opportunity for
redevelopment.
So we approached the Public Housing Authority about this
particular housing development, and noted their vacancy rate
that they had in other units, and indicating that this would
present an opportunity for mixed-use income, that we would like
to seek for this site to be redeveloped. And the then-housing
director said to me, I cannot do that. The people who are
living in this facility are economically on the cusp of
independence, and if I take this facility out of my inventory
they will not move to my other units. They themselves can be
economically independent and will move unto the neighborhood
where all around them there was affordable housing that they
could afford.
I, of course, said to him, gee, I thought that was the
point. But he related to me, though, that the impact on the
Public Housing Authority itself, on the overhead charge that
they receive, would result in his impact on his budget for his
administrative staff. The conclusion to the story is that site
is now transitioning and is scheduled for redevelopment.
Many communities, though, given this paragraph, you really
broke out the different experiences of communities. And I
wondered if you would contrast for us what a community is
facing that has affordable housing all around it, and easily
accessible, and those that do not; because those individuals in
that Dayton community would not readily have the ability if
they were in a different market. And if you would just expound
on that, I would appreciate it.
Mr. Riccio. It relates to the issue of how do you judge
success of an employment-focused or self-sufficiency-focused
intervention in public housing? One way to think of it is in
the way that public housing officials would be most inclined to
think of it, is looking at the proportion of people employed,
proportion of their tenants employed year to year, and the
average earnings in the development year to year. Are those
earnings going up, or are they staying flat?
Well, it is actually a little more complicated, because you
may have a successful intervention that is giving people a leg
up, really giving them a boost, and they move away. And that is
more likely to happen if there is a soft housing market as in
Dayton. So people can, in effect, take their earnings game with
them outside. So it may look like year to year, well, we are
not increasing employment, we are not increasing earnings, but
in fact--and you cannot see it as an official--you may be
having a very big effect on people's self sufficiency. It is a
kind of a launching pad strategy.
The beauty of the Dayton situation is that someone comes
in, gets help, moves out; another poor person comes in, can get
some help, moves out and so on. Year to year, you may not see a
big increase in average earnings, but you may in fact be almost
like a factory if you are really effective, helping a lot of
poor make the jump.
Now in another situation, St. Paul is a good contrast,
there is much less affordable housing. So by helping the
existing residents, you are increasing their earnings, and
their earnings increase the overall average year to year,
because those residents who gain in earnings are a little slow
to move out. So, kind of lifting the average earnings and
employment rates for the development as a whole.
Many people even in St. Paul do move out. We do have some
stories of people buying homes from the savings that they
accumulated with the rent reforms and so on.
But the main point is that, you know, that an intervention
like this can function and have different kinds of effects on
the development as a whole, in different communities, and both
can be positive.
Mr. Turner. Well, I want to thank all of you, not only for
the time that you have taken in the preparation today, but in
all of the work that you do that changes communities, impacts
people's lives.
Each of you have reached out to try to accomplish more than
just the tasks that are on your desk, and I greatly appreciate
that. The expertise that you have lent to us is certainly
great. The impact that you have on our learning curve by coming
and describing to us both the bedrocks of some of the policy
and the realities of how you are executing public housing
really makes a difference in formulating policy here.
As promised, I want to give you an opportunity, there have
been a number of topics that we have discussed, a number of
questions that you may have anticipated that we have not asked.
And so I would ask that if you have any items that you would
like to add to the record, I am going to give you the
opportunity now to give us some of that discussion.
But also you can submit items later after the hearing is
over if you would like them to be considered for the record,
included in the record.
I would start with Mr. Gutzmann, if you have any closing
comments for us.
Mr. Gutzmann. Again, Mr. Chairman, thank you so much for
holding this hearing. It is really good to know that Members of
Congress care and that they get this. I will submit additional
written testimony, as I described, about the percentage of
staff who do rent calculations.
I do think that the Moving-to-Work demonstration offers a
good opportunity, and our advocate friends who are nervous
about it actually cannot point to any bad things, and they only
say, well, there is anecdotal success.
But these are coming in one community at a time. And the
local communities that have had this freedom have preserved
affordability and removed disincentives to employment. They say
there is no data. Let's start collecting the data. Let's start
showing that these demonstrations are productive, that we are
advocates too. We are preserving affordability, we are helping
people move up and out of poverty.
And, again, for the small slice of our housing stock, let's
preserve it. And that has to happen with continued
congressional appropriations. Thank you, Mr. Turner.
Mr. Turner. Thank you. Mr. Moses.
Mr. Moses. Thank you, Mr. Chairman, for having me here for
these hearings. I think it was incredible for me to be in this
surrounding, and around all of those great people.
I too will submit some other written comments later to the
committee, but I would just like to say that I believe that as
my colleague has said, Mr. Gutzmann, let's get that information
to see what Moving-to-Work has really done.
I have talked to many folks in many jurisdictions, and it
is just not working. So I would like to see the statistics on
what has really been accomplished and what is just really
working before we increase any other housing authorities to go
into this program. Thank you very kindly, sir.
Mr. Riccio. Yes. I would like to make comments on two
issues briefly. One is on the cost of the rent incentives and
other aspects of Jobs-Plus. It is true that in St. Paul, as I
mentioned to Mr. Gutzmann just before the hearing, they had a
very extensive rent structure, particularly in the first year.
But they switched to a cheaper rent structure in subsequent
years. We had cheaper rent incentives structures in subsequent
years as well in other sites. So there are more expensive and
less expensive ways to do rent reform. The more common way in
the demonstration was to institute a set of flat rents in
public housing with an income-based rent as a safety net for
people who could not afford the flat rent.
And taking into consideration the cost of that flat rent
structure, and the other services in Jobs-Plus, we estimated
that the program, on average, cost $2,000 to $3,000 per person
over a 4-year period, which when you compare to other Welfare-
to-Work or employment interventions is really quite modest.
The other point I would like to make is that the issue of
self-sufficiency in public housing is not just a public housing
issue. It is a welfare system issue. It is an employment
system, work force development system issue. Their clientele
live in public housing, they have a responsibility to do
something to help those people. Jobs-Plus tried to address the
problem, understanding that those other systems had resources
and had expertise that the public housing system did not have
around employment, and built, I think, effective partnerships
to deal with an employment issue within public housing.
So there are resources and there is expertise outside of
public housing that has to be brought into the solution in
addressing work questions within public housing.
Mr. Turner. Mr. Roberts.
Mr. Roberts. A couple of points, quite quickly. One is this
whole question of raising rents as incomes rise is terribly
unfair. It imposes a 30 percent income tax surcharge on the
poorest people in our country. And that is without payroll
taxes or Medicare, Medicaid taxes, or income taxes, and earned
income tax credits and the like. If you want public to work, do
not give them the highest tax rates in the country.
Second is, resident leadership and involvement is very
important in all of this. We are all fearful of what is going
to happen when more powerful institutions decide our fates. And
we are all much more willing to be part of a solution if we are
on board from the beginning.
Our work works almost entirely through local nonprofit
community organizations. And that has really made a big
difference in setting the course for revitalization. And what
residents want are mixed-income communities. They do not want
forced displacement. They don't want the breakdown in the
social networks that keep neighborhoods together. But they want
a place that works for everybody.
And finally we are increasingly working with PHAs to get
them involved in the whole system of private finance. And there
are a lot of great PHA partners who are already at the table in
this world.
Mr. Turner. Ms. Kennedy.
Ms. Kennedy. Well, I want to reiterate my gratitude to you
and Mr. Clay, not just for the nice words, which I will try to
tell my teenager, but for doing this hard work. We are a dog-
bites-man story. Nobody is interested. And, frankly, this good
news needs to get out, because I think it affects all of the
policy decisions that are being made both at the macrolevel and
the appropriations level.
I have said more than I want to think about over the last 3
years, thank God for Ohio. You Members get it. You know that
whole continuum of need. And you have a fabulous housing
delivery system, one of the top three in the country in my
mind.
But there are Members, because of your leadership limits,
moving up to stay in financial services, who only know one
piece of the continuum of need. They need to get the mortgage
limit of Fannie and Freddie increased.
So we are going to need all of you and your understanding
and knowledge of this to help deliver this good-news story of
affordable housing. Let me leave you with one picture. Rosa
Park's home is in Montgomery, AL, the first elderly, disabled,
affordable housing in Montgomery, a result of 7 years of a
nonprofit taking bank investments and working with tax credits.
But I also leave you with the idea that in Massachusetts,
someone Barney Frank has known a long time, our chairman,
introduced low-income housing tax credits and can no longer do
that business, because private capital has moved in, and they
pay subsidized prices in Massachusetts with what they are
making in, say, Iowa.
And so he has moved on to the new markets tax credit. And
the Louisiana bankers, even as we speak, are trying to invent
one of these nonprofits that has so benefited Alabama and
Massachusetts.
But the more you can help us get this good news out, the
better off we will all be.
Mr. Turner. Well, thank you. I certainly appreciate your
reverence for Ohio.
Before we adjourn, I would like to thank all of you again
for preparing today, and for what you do in this area. It is
very important in impacting the lives of people, and in making
certain that we have effective policies, and policies that we
understand their impacts.
In the event that there may be additional questions from
Members that we did not have time for today, or other Members
who were unable to attend, I would like the record to remain
open for 2 weeks for submitted questions and answers, if you
would be so kind to answer them, if you you do have questions
submitted to you; but also to remain open if there is anything
in the next 2 weeks that you would like to add to your
testimony, we would certainly be appreciative of receiving it.
With that, we thank you all. We stand adjourned.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]
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