<DOC>
[105th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:39819.wais]
HUD OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HUMAN RESOURCES
of the
COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
FEBRUARY 27, 1997
__________
Serial No. 105-8
__________
Printed for the use of the Committee on Government Reform and Oversight
39-819 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1997
____________________________________________________________________________
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COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN H. SCHIFF, New Mexico EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California
JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York
STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
THOMAS M. DAVIS, Virginia DC
DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana TIM HOLDEN, Pennsylvania
JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland
JOHN SHADEGG, Arizona DENNIS KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio ROD R. BLAGOJEVICH, Illinois
MARSHALL ``MARK'' SANFORD, South DANNY K. DAVIS, Illinois
Carolina JOHN F. TIERNEY, Massachusetts
JOHN E. SUNUNU, New Hampshire JIM TURNER, Texas
PETE SESSIONS, Texas THOMAS H. ALLEN, Maine
MIKE PAPPAS, New Jersey ------
VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont
BOB BARR, Georgia (Independent)
------ ------
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
Judith McCoy, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Human Resources
CHRISTOPHER SHAYS, Connecticut, Chairman
VINCE SNOWBARGER, Kansas EDOLPHUS TOWNS, New York
BENJAMIN A. GILMAN, New York DENNIS KUCINICH, Ohio
DAVID M. McINTOSH, Indiana THOMAS H. ALLEN, Maine
MARK E. SOUDER, Indiana TOM LANTOS, California
MIKE PAPPAS, New Jersey BERNARD SANDERS, Vermont (Ind.)
STEVEN SCHIFF, New Mexico THOMAS M. BARRETT, Wisconsin
Ex Officio
DAN BURTON, Indiana, HENRY A. WAXMAN, California
Lawrence J. Halloran, Staff Director and Counsel
Christopher J. Allred, Professional Staff Member
R. Jared Carpenter, Clerk
Ronald Stroman, Minority Professional Staff
C O N T E N T S
----------
Page
Hearing held on February 27, 1997................................ 1
Statement of:
Cuomo, Andrew, Secretary, Department of Housing and Urban
Development, accompanied by Paul Leonard, Assistant
Secretary for Policy Development & Research; Stephanie
Smith, Deputy Assistant Secretary, Housing; and Michael
Stegman, Deputy Assistant Secretary for Policy Development. 15
Letters, statements, etc., submitted for the record by:
Cuomo, Andrew, Secretary, Department of Housing and Urban
Development:
Information concerning community development block grants 46
Prepared statement of.................................... 20
Gilman, Hon. Benjamin, a Representative in Congress from the
State of New York, prepared statement of................... 9
Pappas, Hon. Michael, a Representative in Congress from the
State of New Jersey, prepared statement of................. 14
Shays, Hon. Christopher, a Representative in Congress from
the State of Connecticut, prepared statement of............ 2
Towns, Hon. Edolphus, a Representative in Congress from the
State of New York, prepared statement of................... 4
HUD OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE
----------
THURSDAY, FEBRUARY 27, 1997
House of Representatives,
Subcommittee on Human Resources,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 11:10 a.m., in
room 2247, Rayburn House Office Building, Hon. Christopher
Shays (chairman of the subcommittee) presiding.
Present: Representatives Shays, Snowbarger, Gilman, Pappas,
Towns, Kucinich, and Allen.
Staff present: Lawrence J. Halloran, staff director and
counsel; Christopher J. Allred, professional staff member; R.
Jared Carpenter, clerk; Ronald Stroman, minority professional
staff; and Ellen Rayner, minority chief clerk.
Mr. Shays. I would like to call this hearing to order and
to welcome our guest, our witness, the Secretary of HUD, who
has honored us by his presence. Our goal today is constructive
oversight. Our goal is to continue the dialog that we had with
Secretary Cisneros in his two appearances before this
committee.
In the last Congress, this subcommittee examined HUD's
takeover of the Chicago Housing Authority, waste in the public
housing Tenant Opportunity Programs and the growing
unsustainable cost of insured multi-family housing subsidy
contract renewals. The question then and now is: can HUD
overcome the internal and external obstacles to performing its
missions? The internal challenges, acknowledged management
weaknesses that have been a part of HUD as long as I have been
a part of Congress and certainly are not attributed to any one
individual, any one administration, or any one party, and the
external challenges, the budget constraints that Congress
imposes, as well as the White House, on the operations of HUD
and the huge cost of past subsidy commitments on multi-family
projects.
This subcommittee looks forward to hearing from Secretary
Cuomo, to hearing Secretary Cuomo's plans for HUD to meet these
challenges and commit continued constructive oversight to help
the people of HUD meet its mission and do an even better job.
At this time, I would like to acknowledge and ask if my co-
friend and co-worker in this effort, Mr. Towns, if he would
like the floor.
[The prepared statement of Hon. Christopher Shays follows:]
[GRAPHIC] [TIFF OMITTED] T9819.001
Mr. Towns. Thank you very much, Mr. Chairman, because the
Secretary of HUD is a New Yorker. That is the reason I was here
so early. I was delighted to see him.
Mr. Chairman, I am pleased to join you today in welcoming
Secretary Cuomo to this subcommittee. I also want to commend my
fellow New Yorker for his sterling record of public service,
first, as an advocate for the homeless and then as HUD
Assistant Secretary for Community Planning and Development,
where he did a magnificent job.
Mr. Chairman, throughout his public career, Secretary Cuomo
has demonstrated innovation, insight, leadership, and
sensitivity to the community as well. I am confident that as
HUD's Secretary he will bring the same level of achievement and
dedication to the entire range of HUD programs.
Secretary Cuomo faces many difficult challenges at HUD. One
of the most important will be what to do about the expiring
Section 8 contracts. As the Secretary is well aware, 3 million
Section 8 contracts supporting more than 6 million people will
expire over the next 5 years. It will be necessary for Congress
and the administration to work in a bipartisan fashion, and I
stress bipartisan fashion, to make sure that HUD has sufficient
budget authority to renew the expiring Section 8 contracts.
Failure to renew those contracts would hasten the loss of
affordable housing, devastate neighborhoods, and increase
homelessness.
I am also concerned about certain provisions of H.R. 2
introduced by Congressman Lazio. The bill includes a section
which would repeal income base rent in housing developments.
Such a repeal would lead to rent increases for public housing
tenants and further segregation of the poor. Public housing
authorities might direct families choosing the pay income base
rent to those properties where the authority would lose the
least money, while those families who agree to pay flat rent
would be steered to better properties. And that concerns me. It
would be essential in any reform of such public housing that we
keep income base rent capped at 30 percent.
Finally, Mr. Chairman, the General Accounting Office and
the Inspector General at HUD have consistently discussed with
us the continuing management problems at HUD. These are
difficult problems which will require thoughtful solutions. I
look forward to working on them with the Secretary, knowing
that he has the ability to provide the kind of leadership that
is really needed during these difficult days. I yield back.
[The prepared statement of Hon. Edolphus Towns follows:]
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Mr. Shays. I thank the gentleman. I agree with his
statement.
At this time, I would like to invite the vice chairman of
this subcommittee, Mr. Snowbarger, from Indiana, if he has a
statement or comments.
Mr. Snowbarger. From Kansas, Mr. Chairman.
Mr. Shays. I am sorry.
Mr. Snowbarger. The note is incorrect and I noticed that.
I would like to welcome the Secretary and say to you that I
am as new to this process as you are, but I hope you know more
about this issue than I do. I am looking forward to your
comments today, looking forward to establishing a long term
relationship between you and this committee so that we can
address the housing needs of those in the United States.
Thank you, Mr. Chairman.
Mr. Shays. Thank you. And I am sorry. Wrong State.
[Laughter.]
Mr. Snowbarger. Oh.
Mr. Shays. Listen. It is a great State. He is the vice
chairman.
Mr. Pappas, from New Jersey.
Mr. Gilman.
Mr. Gilman. Thank you, Chairman Shays, and I thank you for
the opportunity----
Mr. Shays. I need to comment. This is the first time we
have had Mr. Gilman in this committee, so you have brought out
the best.
Secretary Cuomo. Best in New York, anyway, Mr. Chairman.
Mr. Gilman. I had to be here for a fellow New Yorker.
Mr. Chairman, I am pleased that we are holding today's
hearing in light of GAO's citing of HUD as a high-risk agency,
and I look forward to hearing from our newly appointed HUD
Secretary, Andrew Cuomo, who I want to personally congratulate.
Secretary Cuomo. Thank you.
Mr. Gilman. And wish him well in his new endeavors. We want
to know how he plans to address GAO's concerns. As the agency
responsible for our Nation's housing and community development
programs, it is imperative that HUD identify the problems that
it currently faces and develop a plan to seriously address
those issues. I am certain our new Secretary has some ideas of
his own. The mission of providing adequate housing for low-
income families in our communities is extremely important and
one that should not be jeopardized by any mismanagement. I
have, throughout my tenure in Congress, fought hard for
affordable housing programs for low- and middle-income
Americans. In fact, during the past two Congresses, I
introduced legislation which was approved by the House and
later stalled in the Senate to remove Rockland County's median
income level from the New York Primary Metropolitan Statistical
Area, the PMSA, and we look forward to working with you on that
problem.
Currently, as you know, this New York Statistical Area
includes all of New York City and grossly misrepresents
adjoining counties median income. In fact, currently, Rockland
County's median income for a family of four is reported by HUD
as $40,500 when, actually, the median income level should be
$60,479 as reported in the 1990 census, a difference of some
$20,000. Accordingly, many hard working families who cannot
afford a piece of the American dream are considered by HUD to
be making more than is necessary to purchase a home and,
therefore, are not eligible for affordable housing assistance.
By removing Rockland County from the current PMSA, these
families will be eligible for Federal and State affordable
housing programs, something that many of us would like to see
come about. So I look forward to working with Secretary Cuomo
and with this committee in resolving problems such as the one I
mentioned. I am confident that by working together with the
Congress, HUD can once again successfully provide the kind of
needed housing in our communities. And I want to thank Chairman
Shays for holding this meeting once again. Thank you.
[The prepared statement of Hon. Benjamin Gilman follows:]
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Mr. Shays. Mr. Gilman, it is really terrific to have you
here because you are extraordinarily busy and you have pointed
out, again, to the new Members that no Member is too senior to
plug for a local project. [Laughter.]
Mr. Gilman. Especially housing.
Mr. Shays. At this time, I would like to call the gentleman
from Ohio, Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman, members of
the committee, Mr. Secretary. As a former councilman and clerk
of courts and mayor of the city of Cleveland, I have had
opportunities to be very much involved with HUD policies over
the years and I am glad to see that the Secretary is now in a
position where he can work with Congress to help construct an
urban policy. Because I think one of the things that we have
really lacked over the last few decades without in any way
diminishing the contributions that have been made by past
Secretaries is a coherent urban policy which addresses not only
the housing needs of our various communities, but also the
question of urban development and the choices which we should
make to encourage urban development and to make sure that we
have sustainable development as well.
So your participation as the Secretary of HUD and your
vision is going to be needed to help make the promise of HUD
and the potential of HUD become a reality. I think every Member
of this Congress is well familiar with the litany of problems
which have been the result of administrative challenges that
have not been met in HUD over the years; but you have a new
opportunity and with it comes a chance to help revive the
fortunes of America's cities. So I look forward to working with
the chairman and with you and the members of this committee in
helping to move this country forward on issues that relate to
housing and urban development. Thank you.
Secretary Cuomo. Thank you, sir.
Mr. Shays. I thank the gentleman. I would like to get some
housekeeping out of the way and ask unanimous consent that all
members of the subcommittee be permitted to place an opening
statement in the record and that the record remain open for 3
days for that purpose. Without objection, so ordered.
[The prepared statement of Hon. Michael Pappas follows:]
[GRAPHIC] [TIFF OMITTED] T9819.009
Mr. Shays. I also ask unanimous consent that our witnesses
be permitted to include their written statements in the record.
Without objection, so ordered.
Mr. Secretary, before calling on you, I would like to just
introduce some of the staff members in our committee who will
be working with your people. We have on the minority side,
Chanda Tuck, right here and then we also have Ron Stroman, who
works for the full committee. And my chief counsel in this
committee, Larry Halloran, and also Chris Allred in the back
right here, who handles all housing issues.
And as you know, we swear in all our witnesses, including
Members of Congress, so I would just ask if you would stand now
and I will swear you in.
[Witness sworn.]
Mr. Shays. Thank you very much. Mr. Secretary, we are
delighted to have you here and you can summarize your
statement, just make whatever comments you want, and then we
will get in with the questioning.
STATEMENT OF ANDREW CUOMO, SECRETARY, DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT, ACCOMPANIED BY PAUL LEONARD, ASSISTANT
SECRETARY FOR POLICY DEVELOPMENT & RESEARCH; STEPHANIE SMITH,
DEPUTY ASSISTANT SECRETARY, HOUSING; AND MICHAEL STEGMAN,
ASSISTANT SECRETARY FOR POLICY DEVELOPMENT AND RESEARCH
Secretary Cuomo. I will not take a lot of the committee's
time with an opening statement, because I think in your opening
remarks you touched on the issues that, basically, we are here
to discuss.
If I might, Mr. Chairman, please allow me to introduce some
of the people who are here from HUD just so we can put some
faces with the names.
Mr. Shays. Terrific.
Secretary Cuomo. We have Mike Stegman, who is the Acting
Chief of Staff of the Department.
Mike, if you could just signal.
Mr. Shays. Yes, he has acknowledged himself. He has raised
his hand. We can see him here.
Secretary Cuomo. And Paul Leonard, who is the Deputy
Assistant Secretary for Policy Development and Research; Hal
DeCell, who is the Assistant Secretary for Congressional
Affairs; Cheryl Fox, who is a special assistant to me, works on
all the issue briefings; Stephanie Smith, who is the Deputy
Assistant Secretary for Housing, which is an important area
handling Section 8 issues, among others; Mark Gordon, who is a
senior advisor to the Secretary and Jon Sheiner, who is a
Deputy Assistant Secretary for Legislation.
I think, gentlemen, that I take over HUD at a very
interesting time in this country, many things going very, very
well. President Clinton, working with Congress, has certainly
amassed an impressive record, putting the country in the right
direction. But that is not to say that we do not have a lot to
do. The President is the first to say there is still a lot that
needs to be done. In his State of the Union Address, there are
very few of us who can go back to our homes or our districts
and not see the challenges that face us in cities like
Bridgeport and areas like Brooklyn right across the country.
There are still real problems that have to be addressed, and
that is where HUD comes in and HUD's mission as we see it.
One of the questions posed to me was what are the main
obstacles facing HUD. And I think they were mentioned in your
remarks, but I would say there were two. First and foremost, in
my opinion, is what we referred to as the Section 8 crisis,
which is not a glamorous topic. It is not an overly appealing
topic. It is a technical topic, but it has a potentially
devastating impact on the Department and housing, in general.
The second issue, as again you mentioned, is the overall
management problems at HUD. And it is something that we are
also making a top priority.
If I could refer you to the charts on your left, just to
talk quickly about this Section 8 problem. The Section 8
crisis, as we refer to it, is the expiration of contracts that
are coming due. These are contracts that were signed 30 years
ago, 20 years ago, or as recently as 1 year ago. And these
contracts are now coming up for renewal. They are expiring. The
question is, what do we do once they come up for renewal. Very,
very big numbers: 1.8 million units; 4.4 million Americans; 6
million Americans by about 2002.
You look at the impact which is all across the country
where these Section 8 units are coming up where they are
expiring, New York City, 111,000; Bridgeport, 3,300; Cleveland,
21,000; San Francisco, 16,000; Indianapolis, 15,000. All big
numbers across the country. And again, the universe is as high
as 6 million people 2000, 2002. You cannot just afford to allow
the contracts to expire and lose the units to the inventory.
The numbers are big on the people who inhabit the units. They
are also big on the cost of renewals. The cost to renew the
contracts that are coming due, it is just about $10 billion, a
little less, about $10 billion. How much is $10 billion? It is
about half of HUD's entire budget this year, just from the cost
of renewal.
Now, this is a problem that we have talked about for a long
time, but, as it is thorny, no one has really wanted to grapple
with it. So the numbers and the impact are devastating. What
would happen to the people who are displaced if we allowed
ourselves to lose these units? I do not think it is overly
dramatic to say you could have massive homelessness in the
Nation, which then triggers another problem as this committee
knows.
So the first question we pose to the committee is, renew or
not renew. That is the question, to paraphrase. The second
question is, if you choose to renew, if you say we cannot lose
these units, we cannot have 4 million Americans homeless, we
have to renew the contracts, the question becomes, where does
the funding come from to renew the contracts?
This year, the 1998 budget which we are here to discuss,
requires $5.6 billion in new budget authority to renew the
contracts. Where do you get the $5.6 billion?
One theory would say, we will take it from the existing HUD
budget. ``If you want to renew the contracts, HUD, God bless
you. Take it from your budget.''
To take $5.6 billion out of the HUD budget, you would
basically have to cut everything else 35 percent across the
board--public housing moneys would have to be cut $1.9 billion;
the CDBG program, total program $4.6 billion, one of the
strongest HUD programs, would have to be cut $1.6 billion. The
HOME program which is a model of a block grant affordable
housing program would have to be cut by $549 million. The
homeless assistance would have to be cut by $288. Housing for
people with AIDS would have to be cut $71 million.
In our opinion, if you tried to take the $5.6, the $5.6
billion necessary to renew the contracts, if you tried to take
that from the rest of the HUD budget, it would be a cut-and-
shift-the-burden strategy which would be counter productive. It
is robbing Peter to pay Paul. You would be trying to help
communities on one hand and hurting them with the other. These,
35 percent of the HUD budget being cut, would have a truly
disastrous impact on the communities that have been working
long and hard to come back.
What is our solution to the problem? Twofold. First, we
say, the $5.6 billion in new budget authority should not be
taken from the HUD budget, but should be additional BA added to
the HUD budget. The President's budget for 1998 does that. The
HUD budget goes up 30 percent. The 30 percent increase is just
to take care of this renewal crisis.
At the same time, we say it is not enough just to say new
money to cover it, how can we reduce the cost of these
contracts and the Section 8 program overall? So we have also
come up with $2.4 billion in savings. So that our solution, the
way we propose we address this crisis is twofold: $5.6 billion
in new budget authority and $2.4 billion in savings from
reforms.
What is in that $2.4 billion? There are a number of
savings, the most notable of which is what we call the ``Mark-
to-Market'' proposal, the so-called portfolio re-engineering
proposal which would save about half of that $2.4, about $1.2
billion. It is a proposal we have discussed for a couple of
years. And what that says is this. Of the expiring Section 8's
there is a segment of that portfolio which the FHA has insured
and we subsidize with Section 8 certificates and vouchers. The
cost on some of those units are currently in excess of the fair
market rents. In other words, the taxpayers subsidize apartment
rents subsidies to the tune of 150, 160, sometimes 200 percent
of fair market rent to landlords. So the American taxpayer pays
twice what the same unit could be worth just down the block. We
think that is unconscionable. We think it is intolerable.
Something has to be done about it. We say, ``Mark-to-Market,''
which would say, ``Reduce the FHA mortgage on the property
which would then allow you to reduce the Section 8 rents which
that project requires to be liquid down to fair market rent.''
Reduce that 200 percent, 160 percent, get it down in keeping
with what you have to pay. That, in a nutshell, is the Mark-to-
Market proposal. You have to go project by project, reduce the
FHA mortgage and now you can reduce the Section 8 rent. We need
legislative authority to do it, but it would bring us a very
large savings, $1.2 billion, which would help us solve the
overall problem. More importantly, I think, as a matter of
fairness, as a matter of equity in these times where we are all
very concerned about balanced budgets and fiscal austerity and
government departments are downsizing and working very hard to
be efficient and intelligent about it, you cannot justify
paying a private landlord twice what the going rent is for an
apartment in light of everything else that is going on and how
precious these resources really are. That is the Section 8
crisis. This year, 4.4 million Americans are affected.
The second challenge to HUD is, as you said, the overall
management reforms and I see the lights are going off. Let me
sum up----
Mr. Shays. Do not worry about the lights. That is not a
problem.
Secretary Cuomo. OK. On the management reform side, as the
committee has pointed out, these are problems that have plagued
HUD for a long time. The GAO gives HUD the unique distinction
of being the only department that is, ``a high risk''
department. Some of the reasons for that are historical. The
high risk designation is, in part, because of the so-called HUD
scandals in the 1980's and that is one of the things that got
us that designation and one of the things that continues to
give us that designation. But there is no doubt that as HUD has
made progress and Secretary Henry Cisneros did amazing things
on the management side as GAO will point out, there is still a
long way to go on the management side. That is going to be a
top, top priority for me. The two priorities for my tenure at
this point will be the Section 8 crisis and improving the
management of HUD, earning the public trust, right across the
board, from both clients--be they private landlords, be they
public housing authorities, be they the residents of public
housing, demanding more responsibility, ``one-strike-and-
you're-out'' policies on criminal behavior and drug behavior.
Demand responsibility from our clients, also demand
responsibility and managerial efficiency and intelligence from
ourselves. Begin cleaning up by cleaning up your own house and
that is what we want to do at HUD. We have already made strides
in that area in just the first few weeks. We have mapped out a
plan we think that will show real management change in about 18
months, and we are going to pursue that aggressively. So the
reforms on the management side at HUD, I share this committee's
concern. I know they are long standing. I know we have made
progress, but I know that we have a long way to go.
Before I was Secretary, I was Assistant Secretary in
Community Planning and Development. During those 4 years, the
CPD, as they call it, staff was reduced by 25 percent and at
the same time, we actually administered more resources.
Literally did more with less, consolidated applications,
consolidated reports. We even won an award from Harvard for the
consolidation efforts that we did. So that doing more with
less, the consolidation, streamlining, getting the funding,
getting the authority back to communities that we did at CPD
for the past 4 years, is what we are looking forward to
continuing doing with the entire department.
I also know from my past 4 years as Assistant Secretary
that nothing happens unless it happens together. That as hard
as we work at the Department, unless we are doing it in
partnership with Congress, we will not be successful. And in
that mode, I come to this committee and I say I am looking
forward to a productive rela-
tionship, a close relationship, a synergistic relationship that
helps us both do what we want to do. And I think we can and I
am looking forward to the opportunity and I am looking forward
to beginning today. Thank you.
[The prepared statement of Secretary Cuomo follows:]
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Mr. Shays. Thank you, Mr. Secretary, that was very helpful.
What we are going to do is I am going to recognize Mr. Towns
first. We may have a vote and I may leave before they even call
the vote or as soon as they call it, and then I will come back
and be able to ask some questions. But I think what we will do
is we will start with Mr. Towns.
We are going to keep the 5-minute rules, given that we have
a number of Members, and then we are going to do another round
where we might take 10 minutes per Member just so that we can
have a first round. So Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman.
And let me begin by saying, Mr. Secretary, I am elated to
have you to come before the committee, look forward to working
with you. I know of the outstanding job that you have done up
to this point. And the first question is the Genesis Project,
which I took the budget chair--Mr. Kasich, who visited the
district, and, when you take people to your district, you know,
you want to show them the best. So I took him to the Genesis
Project to show him in terms of what was going on there and how
things could be done. This project, of course, is in my
district and provides housing for 150 families, as well as a
wide range of other services as you know, that are there to
support these families, is a wonderful organization. And I
wonder if you have any intentions of funding organizations like
Genesis on a national level, because it seems to me that is a
way that we will be able to provide adequate housing and at the
same time, the housing will be protected. Because, as you know,
during the old days--and I say ``the old days,'' we would build
something and they would tear it down and, of course, we would
have to come back and build it all over again. But this is
something that really works. So I would like to get your views
on whether you plan to take this nationally?
Secretary Cuomo. Congressman, that is an interesting
question and a helpful starting-off point. I think before I
answer the question, just as a matter of full disclosure, I
would ask who the management of the Genesis Project was and who
did that project in your district?
Mr. Towns. Well, I must admit it was Secretary Andrew
Cuomo.
Secretary Cuomo. Oh, well. [Laughter.]
Well, I think it is a great project. And I think it has a
lot to do with the leadership of the organization. I was
actually with Chairman Kasich the other day and he reminded me
of that visit which was back, I guess, in like 1988 now. And he
remembered the project. This is in Bedford-Stuyvesant,
Schnediker and Hinsdale, in the Congressman's district, and he
had a tour and Congressman Kasich had come out and I had led
the tour and we discussed the concept at that time. The concept
was unique. This was transitional, quote/unquote, housing at a
time before we really knew about transitional housing. And it
started to make the breakthrough that said, ``Look. You have to
do the housing as the foundation, as the starting point.''
Everybody needs the housing just to have the security, but then
you have to build from there. And the housing alone is often
not enough to help the individual and often not enough to help
the community.
Comprehensive approaches, be they on the community
development side or on the individual development side,
specifically in a homeless-related context, often are the most
appropriate path to follow. Genesis did that in Brooklyn. It
has been open just about 10 years, now, actually, Congressman,
since we first started that. And I am pleased to be able to say
that in my opinion, and, again, I gave you the disclosure, but
that it is working as well today as it did 10 years ago. And if
you go to the people and the neighbors in the community, they
will tell you that.
So that kind of approach that says comprehensive solutions,
give people housing, but also give them the services and the
tools they need to do for themselves and move on, Genesis is
transitional. You do not come and live there forever. You come,
you get the services, you get the help you need and then you
move on to independence. Independence is the goal. Right?
Independence is the goal of all these government programs. The
goal of the government program is to end the reliance on the
government program. The goal of the government program is to
end the need for the program, to almost self-terminate. And
that is what Genesis is doing. Not for profits. Comprehensive.
In partnership with communities. I think that is the way to go.
Mr. Towns. Right. I will tell you, it is working. No
question about it. In more ways than I think one would realize
in terms of the service that it provides to the community,
community meetings and being involved in community activities,
and to see tenants suddenly recognize the importance of being
involved in the community. I want to extend the invitation to
the chairman. My good friend Mr. Kasich has already seen it, so
I want to take the chairman there to see it because I am hoping
that, as we get people to see it and they know what is going
on, that we can buildup some support here. In fact, I may
invite the entire committee after we take the chairman out. You
know, that is how excited I am about it.
But let me just move along to one other question in terms
of the legislation that has been put forth by Congressman
Lazio, which is referred to as H.R. 2, the Housing Opportunity
and Responsibility Act of 1997. The bill contains a provision
to repeal the income-based renting public housing or what is
really known as the Brook amendment.
This caused a tremendous uproar among public housing
residents in the last term. Let me add that I opposed this
provision. I want to go on record right now indicating that.
How can we balance HUD's need to decrease its rental subsidies
with the need to maintain affordable low and moderate income
housing? How can we work out a balance?
Mr. Shays. If we could have a relatively, maybe a first
pass at that answer, because the gentleman's time is up and I
am going to really try to respect----
Mr. Towns. I want to respect--I will even withdraw the
question.
Mr. Shays. Why do we not withdraw it now and then we will
do it.
Mr. Towns. I will withdraw it.
Mr. Shays. And you will get to repeat it twice that you are
against the bill.
Mr. Towns. I want to cooperate because I want to get you to
Brooklyn. I withdraw it.
Mr. Shays. You can ask the question a second time and
emphasize that you oppose the bill a second time.
Mr. Snowbarger.
Mr. Snowbarger. Well, if Mr. Towns would allow, I would be
happy to have the question answered in my timeframe.
Mr. Shays. If it is a question you want to ask.
Mr. Snowbarger. Go ahead and answer the question, yes.
Mr. Towns. I would like to thank the gentleman. Thank you.
Mr. Shays. Let me try to be economical with the time.
Secretary Cuomo. I do not think there is a short answer,
Congressman. I think before we look to get the shortfall from
the tenant who can least afford it by raising their rent, we
should look to, again, our own house. How can HUD do more with
less? How can the local public housing authority do more with
less? How can we get working families into that public housing
who then can pay more because the 30 percent is a larger number
because they are working and they have higher incomes. Use that
mechanism to make up some of the short fall. But I think the
last place to go is to a tenant who is barely making it and
say, ``You have to pay more than the 30 percent Brook
guarantee.''
Mr. Snowbarger. Let me followup on a couple of things you
mentioned during your statements and in answer to the question
first. Explain to me, you are dealing with a freshman here, why
are we subsidizing up to 200 percent of these rents to
landlords? How did that come about?
Secretary Cuomo. Congressman, first, you have to appreciate
you are dealing with a freshman, also, but I had the same--I
had the same question when I walked in.
Mr. Snowbarger. Like I said, I hope you have more answers
than I have questions.
Secretary Cuomo. Yes. What happened on the Section 8
contracts, remember that many of these contracts were signed 30
years ago, 20 years ago, they came up with certain assumptions
and one of the assumptions was we, government, will sign the
contract 20 years ago and we will pay escalators, adjustments
to the rent over a period of years. And we signed that 20 years
ago.
As it worked out for many of these contracts, those
escalators have now brought the subsidies to a point where they
exceed the subsidies which are in the neighborhood fair market
rents in the neighborhood. We have been contractually bound in
many cases to be paying these.
The contracts expire. That is good news and bad news. The
bad news is now we have 4 million people, 6 million people in
2002, that we have to figure out how to house. It is an
expensive problem. That is the bad news. The good news is the
contract expired, you can do something different. You are no
longer bound to pay 200 percent. You are no longer bound to use
the same buildings if you do not want to. You are no longer
bound to say 100 percent of the people in this building, all
poor people, 100 percent every unit. You do not have to do
that. You can say, we are going to go to mixed income in
buildings because that is smarter. You can say, now, we are
going to use a Section 8 voucher, not just to pay a landlord's
mortgage, but to allow a person to go buy their own home with a
Section 8 voucher. So the contract expired. You now can do all
sorts of creative things. You can repair the mistakes that you
made in that first contract signing, because you have learned a
heck of a lot over 20 or 30 years.
And first and foremost, you do not have to pay 200 percent
for a unit that you can rent in the marketplace down the block
for half the price.
Mr. Snowbarger. Can you describe those escalators for me?
Apparently, it was not done just based on a CPI or something of
that nature. Was there a percentage increase guaranteed every
year?
Secretary Cuomo. I have a team of people----
Mr. Snowbarger. The staff is looking at each other and they
cannot figure it out. So I may be asking the wrong----
Secretary Cuomo. I can get you more specific information
because, Congressman, we have a number of programs that were
signed at different times all with slightly different deals at
whatever time they were doing it. Remember, these contracts,
some were signed in the Sixties, some in the Seventies, some in
the Eighties. Some are very recent roll-overs. But
interestingly, the past couple of years, we have been trying to
get legislation to do something about this. When we do not get
the legislation, and we have been unsuccessful, there has not
been a housing authorization bill in 6 years, the result of
doing nothing is continuing the status quo where even if the
contract has been expired, we have been renewing them at the
excessive rents, rolling them over, if you will, at the
excessive rents because we have not come up with legislation
that changes the course significantly. So to do nothing is to
continue the status quo. But specifically, I can get you the
actual terms of the contracts that were signed years ago that
brought those rents up.
Mr. Snowbarger. Well, I understand there may be multiple
ways of having done that. It would be helpful to me. Following
up on your statement there, what is it about the legislation
that is required or that was passed that required you to roll
over the same terms?
Secretary Cuomo. Two things. First, before we can reduce
the rent in many cases, we have to reduce the mortgage. In
other words, we are both mortgage holder of many of these
properties, FHA mortgage, and subsidizer and rent-payer. And
the mortgage is matched to the rent. And we are paying out of
both pockets. If you want to reduce the rent, you have to
reduce the mortgage so you do not default on your own mortgage.
We do not want to reduce the rent and then wind up with massive
defaults on FHA mortgages. So we need legislation to do that.
When we have not gotten the legislation, since nobody wanted to
displace all the people who were in the units, Congress said,
``Continue. Roll over. You can pay 160 percent of fair market
rent.'' And that is what has happened for the past few years.
Mr. Snowbarger [presiding]. Thank you. I think my time has
expired. Mr. Allen, do you have questions?
Mr. Allen. Yes, I do. I apologize for being late. And if
some of my questions cover matters that you went into before,
my apologies.
I was once the mayor of Portland. I was on the city council
in Portland, ME, for 6 years. And my first question has to do
with if you went through the city of Portland right now, looked
at the public housing, it works, and it works very well. And I
think the Section 8 program works pretty well. We have gone
through some periods where we had to make sure that we were
paying, what we were paying was more in line with market rents.
I know that your Department, of necessity, has to deal with
some of the larger cities in this country, and I am just
wondering, are there any issues that you foresee that will
affect small cities and more rural areas differentially than
the larger cities in this country that we ought to be aware of?
Secretary Cuomo. It is an interesting question,
Congressman. I think two things. First, the Section 8 crisis is
almost unique to HUD in that this problem affects almost all
cities across the country. Different degrees, depending on the
size of the city, because that is the number of units--larger
cities probably have more units. But proportionately, it is
still a devastating impact. New York City's number is 111,000
people on a larger universe, obviously. But Cleveland, 21,000;
San Francisco, 15,000; and that is across the country. And that
is one of the powerful problems of this crisis is the blanket
effect across the country.
Having said that, public housing is interesting in a number
of ways to me. It really has gotten a bad rap, public housing.
People talk about public housing as if it was a failure. It is
too often the way it is portrayed. Public housing, oh, that was
a mistake. That was a problem.
It was not, really. Public housing is actually a great
success story in this Nation and it is actually a testament to
what government can do. Public housing works. Portland, public
housing works; 95 percent of the time, public housing works.
Public housing has been too often typified by some of the large
developments in the large cities, Cabrini Greens in Chicago.
That is not the face of public housing. It is smaller. It is
less dense. It is more welcomed by the community, and it works.
What we want to do at HUD is change, as one of our
management reforms, change our management depending on what the
authority is and what its performance is. The smaller
authorities that are performing well, God bless them, let them
run the business, devolve authority to them. Deregulate to the
extent you can. Not irresponsibly, but deregulate. Portland
Housing Authority is working. Give them the funding and let
them run it. Focus, instead, on the larger, more troubled
public housing authorities.
Mr. Allen. Just by way of an example, we have married to
our community policy effort to our public housing and we have
been increasingly tough about people who have criminal records.
They are now being moved out of the public housing. It has made
a huge difference. We have got educational programs. They are
all--they all seem to me to be moving along in the right
direction.
One last question. The field operations for HUD in the
State of Maine consist of two people in Bangor and one person
in Portland. As you reduce the staff, you know, nationwide of
HUD people, obviously, we would be concerned the field
operations might take more of a hit than the central, than the
D.C. offices and I wondered if you could respond to that.
Secretary Cuomo. Two things, Congressman. First, between
the headquarters and the field, I think your point--there is a
lot of wisdom in your point. And if there is a disparate impact
in the reductions, I think it should be disparate toward
headquarters if anything, because we are trying to get more
authority out to the field and we need people in the field to
do that.
Having said that, 4 years ago, HUD was 13,000 people. In 4
years, I am pledged to reduce it to 7,500. That is almost a 50
percent reduction. So there are going to have to be fewer HUD
people in a lot of places. At the same time, we want to make
sure we have representation. And if it is only a couple of
people now there, I would have to do it all within the context,
but I would rather see a continued presence and a reduction in
other areas that have more people. But I would not, if we can
avoid it, I do not want to lose the presence entirely in an
area.
Mr. Allen. Good. Thank you very much.
Secretary Cuomo. My pleasure.
Mr. Snowbarger. I apologize to the Secretary. We do have a
vote that is taking place right now and I think we are going to
take a brief recess. The chairman is expected back shortly. We
will stand in recess.
[Recess.]
Mr. Shays. I would like to call this hearing back to order.
What I would like to do, I was delinquent in doing this. The
Secretary may want to call on one of his staff that is to
answer a specific question. And so, what I am going to ask is
any staff member that might respond to a question, not
necessarily will, but might, if they would stand up and we will
just take care of swearing you in and then it may be that none
of you will have to respond to anything, but at least this way
you have the flexibility. You can stay seated, Mr. Secretary,
but if the others would stand and raise their right hand? And
we will just make sure we identify who they are.
[Witnesses sworn.]
Mr. Shays. Thank you. Could you just each state your names?
Mr. Stegman. Michael Stegman.
Mr. Shays. And?
Mr. Leonard. Paul Leonard.
Ms. Smith. Stephanie Smith.
Mr. Shays. We will make sure you have cards for the
recorder if there is responses.
Take them down for any reason? Are we all set to go? Do we
have them anywhere?
Mr. Secretary, I can start. I can start and we can see if
we can recapture them.
Secretary Cuomo. We will get them back up.
Mr. Shays. OK. It strikes me that, first off, I will say to
you in this room we had the hearings, really, the Lantos
hearings, and I was part of that committee that looked into
Section 8 housing. And we knew of the tremendous abuse. One of
the big abuses was that people would get the housing and they
would get a tax credit. They would get financing and, in
essence, what we found is they took all their money out up
front. And then HUD had this incentive to continue with large
subsidies in order to pay the mortgages that would, if they
went bankrupt, HUD ended up with.
And if you could just kind of sort out for me this process?
I know almost every community, particularly the large
communities, have Section 8 housing that is running out. And
so, you have that one issue. So one of my questions will be the
mortgages run out at the same time question. The other issue is
when we had hearing on Section 8 housing last time, we were
really appalled with the condition of some of the housing and I
can say that we have the same circumstance, say, in Monteray
Village in Norwalk. It is not untypical, where we are actually
paying higher than market rate as you have pointed out.
I am unclear as to how you sort this out: (1) Are the
mortgages paid up by these individuals and, therefore, do we no
longer have the at-risk of HUD taking over the facility with
the guarantee? And (2) does this mean then that their cash
needs are different because they do not have large mortgages?
How do you sort all that out?
Secretary Cuomo. Mr. Chairman, if I can, I said when you
were out of the room before, the expiration of the contracts is
a good news/bad news scenario.
Mr. Shays. OK.
Secretary Cuomo. Bad news is we are in danger of losing
units that would house about 6 million people by the year 2002,
and the cost of renewal is very high.
Mr. Shays. Is very what?
Secretary Cuomo. Is very high at a time when there are not
many resources. That is the $5.6 billion that is required in
new budget authority plus $2.4 billion in savings. That is just
the cost of renewal. The HUD budget goes up 30 percent this
year just to cover the cost of renewal. We are not doing
anything else. The rest of the HUD budget is basically flat
besides the renewal----
Mr. Shays. Is that a one shot or is it continuous?
Secretary Cuomo. No. That is not a one shot. That is the
problem. This wave of expirations, of contract expirations,
starts to break in 1998, but it breaks in 1998, 1999, 2000,
2001, 2002 is the main impact. We want to get something done
now so we can reduce the cost in the later years because the
number gets higher as we go out, not lower. 1998 is significant
because one of the largest increases is in 1998 from 1997. A
jump from 1997 to 1998. But 1998 to 1999, 2000, 01, 02, it is
also a very, very significant number, so we have to do
something. That is the bad news is the impact on the numbers.
The good news is you can now literally rewrite housing
policy for the first time in 30 years. The good news is the
contracts are expired and you are no longer bound by the
situations that you were bound by. You are no longer
handcuffed. How many times did we walk through a community and
we said, ``Well, that's a Section 8 project. We can't do
anything because we have a contract and it would foreclose or
default and it would be a tremendous problem.'' The contracts
expire. So I would say, now you have a chance to rewrite
Federal housing policy, change the policy and start with a
blank slate. Do you want to renew that building? Maybe the
building is an asset to the community. Maybe it is not an asset
to the community. I would pose the question: Do you want to
renew that building?
If you do want to renew the building, do you want to renew
it at 100 percent subsidized units? Some people think that
mixed income is a good idea, not 100 percent. If you want to
renew the building, would you like to get in not-for-profit
management, if it was a possibility. Would you like to offer
tenant mobility? If the tenant chooses to leave the building,
should the tenant have that choice? If the tenant chooses to
leave and leaves with a Section 8 voucher, should the tenant be
able to use that Section 8 voucher to buy their own home? Home
ownership as opposed to rental. These are all questions that
are triggered when you are freed from the contractual
parameters.
Mr. Shays. But there are two contracts. Right? There is one
that is a subsidy. The other is the mortgage.
Secretary Cuomo. No.
Mr. Shays. Do the mortgages end when the--is that what is
happening? Have they paid off their mortgage?
Secretary Cuomo. No. No. Here is the caveat. When you go
to--and, again, there are a lot of different flavors within
this.
Mr. Shays. Some can pay back early? Correct? You have the
20 and the 40.
Secretary Cuomo. Yes. You have different situations. Some
have the right to prepay at the end of 20 years, which is a
different portfolio than the portfolio we are talking about
here. This is basically we want to reduce the rent, the Section
8 subsidy, but you have to make sure that what you reduce the
rent to can satisfy the mortgage. Because, as you have pointed
out, you also, the Federal Government, hold the mortgage. You
do not want to reduce the rent to a level that would see that
mortgage default because now you have a lot of properties and a
lot of foreclosures. So reduce the mortgage, write down the
mortgage, mark it to market, reduce the mortgage as you are
reducing the Section 8 rent. And you can reduce them both, but
they both have to balance. In some cases, you may be able to
expire the mortgage.
Mr. Shays. I have a sense that the mortgages are, in some
cases, greater than the value of the property, except over
time, part of the mortgage has been paid back. But even then,
probably if they defaulted, you would lose--HUD, the
government, would lose.
Let me just tell you what I am thinking of. I think of the
Section 8 housing that is not properly maintained and then I
see Section 8 housing that is very well maintained. It happens
to be, say, in downtown Stanford, Four Acres. I know what that
builder is going to do. It has already been sold a few times,
but they are not selling it in my judgment so that they can
renew Section 8 housing. They are either going to go right out
into the marketplace which was, in one sense, the original
design of this program, to create more housing and then
privatize it. Or they are just going to tear it down because it
is 4 acres in downtown Stanford and then you will have hundreds
of people without housing.
So what I am trying to sort out, and I really do not yet
have a clear picture of this, is the contracts are coming due,
are ending for the subsidies. They're able to be bought out
because this time has arrived. So the ones who will want to
buy-out, it seems to me, would be the ones that are in prime
choice areas. And the ones that will want to continue are the
ones that, frankly, took everything out of the project early on
and are just going from month to month.
Secretary Cuomo. Yes. I am going to ask Mike or Stephanie
to give you a sense of the numbers in two different portfolios,
we call the preservation portfolio which are those units where
the owner now has a right to prepay the FHA mortgage.
Mr. Shays. That is called preservation.
Secretary Cuomo. Preservation.
Mr. Shays. Do you need another chair?
Ms. Smith. No. I'm fine.
Mr. Shays. OK.
Secretary Cuomo. And the other is the Mark-to-Market
portfolio. And if Stephanie could also speak to----
Mr. Shays. I am sorry.
Secretary Cuomo. Stephanie Smith. Your issue is might there
be units where the owner chooses to go to the market and not
renew the expiring contract.
Mr. Shays. OK. And I am making an assumption that in many
cases we still hold the mortgage insurance.
Ms. Smith. Mr. Chairman?
Mr. Shays. Yes.
Ms. Smith. The Secretary is referring to two distinct
portfolios. There is one portfolio for which we have Section 8
contracts which are beginning to expire now and will continue
to expire for the next decade. And those Section 8 contracts
rent significantly above market, as he mentioned.
Mr. Shays. Yes.
Ms. Smith. We also have FHA insurance on the mortgage. The
structural flaw in the program is that the Section 8 contracts
are for 20 years. The mortgage insurance is for 40 years. So in
all those cases, the mortgage insurance usually runs for at
least another 20 years, if not a little bit longer.
There are about half-a-million units which are expiring in
the next 10 years where the Section 8 contracts are
significantly above market and we have FHA insurance on the
mortgage. The other distinct portfolio which you are raising is
the preservation portfolio. In many cases, those Section 8
contracts are also expiring in the next few years, by the end
of the decade, but those are the projects in which the owners
have the right to prepay their mortgages. Congress restored
that right to those owners last year. But if the owner prepays
the mortgage, that does not mean that he is released from the
Section 8 contract. He has prepaid his FHA-insured mortgage.
There is a certain set of restrictions that he is released from
on the mortgage side, but he still has the Section 8 contract.
If the owner decides to opt out of the Section 8 contract
at the point of expiration, then he has to give the Department
1 year's notice prior to opting out of the program. We then
provide the tenant at the expiration of that 1 year notice
period with tenant-based vouchers and certificates, so they
continue to receive assistance, but it may not be tied to that
specific building.
So there are two very distinct portfolios that are being
discussed here at the moment. That portfolio which is sort of
preservation-eligible, there is about 350 or 400,000 units in
that particular portfolio. Many of those units have Section 8
contracts with rents below market because of the way they were
developed 20 years ago.
Mr. Shays. I am sorry to ask such ignorant questions, but I
learn from my questions. Do I make an assumption that the face
value of the mortgage has been brought down over 20 years so
maybe then it actually is worth the market price? Or, do we
still have problems that even after 20 years of paying down the
mortgage, it is not a balloon mortgage? Right? It is a
constant.
Ms. Smith. It is not a balloon mortgage. It is an
amortizing mortgage.
The best way I think to think about this, Mr. Chairman, is
that these are two distinct portfolios of properties.
Mr. Shays. Right.
Ms. Smith. For the portfolio that the Secretary mentioned
with rents significantly above market, in many cases, the face
value of the mortgage is greater than the actual value of the
property.
Mr. Shays. And hence, why we pay more.
Ms. Smith. Right.
Mr. Shays. OK.
Ms. Smith. In the case of the portfolio that is prepayment
eligible which is below market, in many cases, there is not a
lot of debt remaining on those properties.
Mr. Shays. Yes.
Ms. Smith. They were developed at a time where the mortgage
amount was smaller, the amount of debt remaining on the
property is significantly less. And in many cases, the value of
the property is probably equivalent to the value of the
mortgage.
Mr. Shays. In some cases, they did not mortgage to the top.
Ms. Smith. These are sort of two distinct ways in which
these portfolios----
Mr. Shays. It is hard for me to understand, though, how we
are in a very good bargaining condition if we still hold the
debt insurance and they are basically telling us to pay more
than the market rate. I guess I do not really understand the
Mark-to-Market. Are you suggesting that, basically, we are
going to buy down the mortgage by just writing it off?
Secretary Cuomo. You would have to--your point----
Mr. Shays. Thank you very much.
Secretary Cuomo. Thank you, Stephanie.
The dilemma you see is the real one. You would have to,
under this proposal, negotiate with that owner as to the bona
fide expenses of operating the building, bona fide cost of
operations, et cetera, and what mortgage payment that building
could satisfy to keep it at the fair market rent and then you
would have to reduce in some cases the actual mortgage, write
down the mortgage and in those cases, there would be an expense
to the FHA fund. Net, when you do all of this, you are reducing
the Section 8, you are reducing the mortgages. Some are a cost
in the reduction of the mortgage because you would literally
have to write it off. Net, the cost is minimal. There are some
scenarios where we can even figure out making money with the
right tax consequences. But there are scenarios where to reduce
the rent you have to reduce the mortgage.
Mr. Shays. OK. And then that raises the question in my mind
of whether or not, since we have given a benefit to the owner
of these facilities who have already, frankly, made a lot of
money off of these facilities, they would have continued
obligations to keep them in the housing stream, in perpetuity.
In other words, would there be a quid pro quo for that for
writing down the debt?
Secretary Cuomo. That is one of the issues that is being
discussed in proposals that are going forward and it depends in
whose opinion. In my opinion, I would say, in the Department's
opinion, I would say, yes. If we are going to reduce the rent,
write down the mortgage, reduce the rents----
Mr. Shays. We pay either way.
Secretary Cuomo. We pay either way.
Mr. Shays. Except, we are up for renegotiations. So that is
where we have some strength. If you wanted, you could basically
close them down and then you have the facility. And I would
think in some cases, if you did not have a willing negotiator
on the other side, you just close him down, take over the
property. You will look at those tradeoffs, I would gather.
Secretary Cuomo. And those would all be the tradeoffs on an
individual basis. Again, Mr. Chairman, some buildings, you may
not want to renew. Some buildings you may say, this did not
work. It hurt the community. The people who live there do not
want to stay there. So you may choose not to renew a building.
Mr. Shays. They have to feel you may be willing to not give
them what they want in order to get what you want from them.
Secretary Cuomo. That's exactly right. And right now, HUD
is in no negotiating position because if the owners do nothing,
they are basically renewed at the current rent. As a matter of
fact, by law, HUD is prevented from reducing the rent. So you
have landlords who if nothing happens, if no legislation is
passed, status quo serve them. They will be rolled over, they
will be renewed as much as 160 percent of fair market rent.
Mr. Shays. I am going to get to Mr. Snowbarger in just a
second, but let me just pursue this point. That means, clearly,
that you would be looking to us to strengthen your bargaining
position in Congress, to give you a little more flexibility, I
would think.
Secretary Cuomo. That is exactly what we are looking for.
Mr. Shays. And so, that will be something that you will be
deciding with, I guess particularly Mr. Lazio, and the Senate
side, I do not know who that is. Who is the Senate side?
Secretary Cuomo. Mr. Mack. Senator Mack.
Mr. Shays. You will be working with them to figure out how
to proceed on that issue.
Secretary Cuomo. Yes, sir.
Mr. Shays. Let me just ask this one last question related
to it. Both GAO and the Inspector General's Office have
questioned the ability of HUD to take on this massive project.
This is going to take some very smart energetic people who know
the marketplace and a whole host of different places. And you
have alerted us so now we have to be part of the solution. And
I am happy you have. The question is what steps are you taking
and will be taking so that you have a strong group within HUD
that can take on this project.
Secretary Cuomo. Mr. Chairman, there are two sides to this
issue. The first one we have discussed, the impact, what kind
of legislative authority we need to actually do something about
it. Second, as you accurately point out, if you have the fix,
the legislative authority to do a fix, how do you now implement
it? Eight thousand five hundred properties. How do you now
implement it with 8,500 properties across the country?
One scenario would say, ``Well, we are going to bring HUD--
hire more people, increase the size of HUD and we will perform
this task.'' That is not our recommendation.
We have a plan to downsize HUD. We want to stay on that
downsizing track and our implementation vehicle for this would
look to outside parties, outside third parties, be they housing
finance agencies, be they subcontractors, but there is talent
in the private marketplace that can do this very well. This is
a very skilled expertise. These are people who have to be able
to come to the table and negotiate and know the facts because
they are against trained real estate developers on the other
side. So our opinion is there is expertise in the marketplace.
Let HUD contract for the expertise rather than trying to
develop it in house.
Mr. Shays. I am struck by the fact that you really have
almost a war-room type of situation where I would almost
visualize someplace in HUD where you have got a gigantic map
and time lines and so on, especially, if you are going to be
farming out some of this, because this is going to be a massive
undertaking.
Secretary Cuomo. It is a massive undertaking. In any
scenario, it is a massive undertaking. It is massive even if
you contract it out. It is massive just to coordinate it. But I
think it is a far more doable task if you contract it out, get
the best expertise you can get out there and then manage the
process of contracting out.
Mr. Shays. Well, I have not spoken to Mr. Towns and the
other members of the committee, I suspect that we are going to
probably have a few hearings on this issue to weigh in with the
authorizing committees to see how we could provide suggestions.
Mr. Snowbarger, has the gentleman from Ohio asked
questions?
Mr. Snowbarger. He has not.
Mr. Shays. He has not. Do you mind if we----
Mr. Snowbarger. That would be fine.
Let me make just two real quick ones.
Mr. Shays. Yes.
Mr. Snowbarger. Two real quick ones, because they have to
do with the questions.
Mr. Shays. You have the floor.
Mr. Snowbarger. Thank you, Mr. Chairman.
They have to do with the questions that were asked by the
chairman: We are talking about 8,500 properties out there and
we are trying to figure out what our leverage is. Do we have
any analysis of those properties in terms of are they in--now,
I have got to figure out how to ask the question right. Are
they in markets where there are excessive units on the market?
Are they in markets where housing is very tight? Obviously, if
there are excessive units on the market, it seems to me we are
in a pretty decent bargaining position there. And then, how do
those particular contracts relate to these 200 percent rental
subsidies that we were talking about earlier? Do we have that
kind of analysis that you have done already?
Secretary Cuomo. We can get you, Congressman, where the
buildings are. We have a more thorough breakdown of the cities
that you see on that chart. We have a breakdown by city of
where they are across the country. And then we know where the
markets are a little tight or a little soft. We also know the
locations within cities and, obviously, sometimes the housing
market changes within different parts of the city. So we have
that data and we can get it to you.
Mr. Snowbarger. OK. And then, the last followup was on this
management side of things. I want to congratulate on the job
that you did in terms of downsizing with the Community Planning
and Development and it sounds like that is a part of the
process for all of the Department is a downsizing.
I guess I am curious as to where you see downsizing fitting
in at a point in time when the tasks that you are called upon
to accomplish, at least for a short term here, are massively
increased.
Secretary Cuomo. That is the challenge, Congressman.
Mr. Snowbarger. But apparently, you see that it can be
done. I mean, that is what you proposed.
Secretary Cuomo. Yes. Our plan is we were at 13,000. We are
now at about 10,000. The plan is to go to 7,500. Our challenge
is to not be driven by the number, but change the management
plan, change the mission of the Department which then can work
with a smaller work force. And I think it can be done. It is
not--it is by no means an easy task, but that is why I point to
the CPD experience. We reduced the work force 25 percent and
administered more funding, ran more programs, got more things
done than when we had the larger work force. You can do it. You
have to rethink the mission, but we have to rethink the mission
of HUD anyway. Public housing areas. I was saying in response
to Congressman Allen, we have to have a new vision of how we
want to manage public housing in this Nation. The overwhelming
majority of public housing authorities work well. ``Well, then,
why are we spending a lot of time regulating them and
monitoring them? Deregulate and let the high performers work.
Focus on the troubled portfolio.''
You start to make those kinds of changes in your mission,
you can do it. You start talking about contracting out more
functions, especially these highly specialized functions rather
than trying to hire a work force, train the work force, keep
them up to date with all the changes in the tax code and all
the changes in the real estate law. Contract out with attorneys
and accountants and housing finance agencies that can do it.
Those kinds of changes in the mission will then allow us to
make the kind of efficiencies that we are looking to make.
Mr. Snowbarger. You had mentioned earlier devolving a lot
of these responsibilities back to local authorities that have a
track record of managing well. Do you have any feel for how
much of this responsibility can be shifted?
Secretary Cuomo. Well, we have a little bit of apples and
oranges. On this task, the Mark-to-Market task, the 8,500
properties, that task is going to be staff-intensive whether we
contract out, whether we do part of it in-house and part of
it--I do not see significant, if any, reductions in that area
on the multi-family side. That does not mean you cannot make
those reductions in other parts of the Department. In other
words, the work force has to come down. I am not saying it has
to come down everywhere equally. It depends on where you can
change the mission. This is not one of those areas. The
devolution is more on the public housing side, to the high
performing public housing authorities, the Portland Public
Housing Authority. If they are working well, devolve the
responsibility, monitor them so when they get into trouble, we
know it, but otherwise devolve the responsibility and that is
where you can save staff.
Mr. Snowbarger. Well, I guess the question was on the
public housing side. Do you have a feel for how much of that
can be devolved at this point? Or is it just anecdotal? You
know, this one works well. That one works well. We do not have
any idea----
Secretary Cuomo. We are going to have a draft of a specific
proposal in the next several weeks, Congressman, but the
overwhelming majority of public housing authorities work well.
It is a handful that are the so-called troubled housing
authorities that really require attention.
Mr. Snowbarger. Thank you, Mr. Chairman.
Mr. Shays. If we could, we will get further into the
troubled housing authorities.
Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman.
Mr. Secretary.
Mr. Shays. And I think what we will do is we will go 10-
minute cycles now. OK?
Mr. Kucinich. Thank you.
I have been informed by staff of the ongoing discussion you
have had about the Section 8 program and I have also been
informed that the housing court in the city of Cleveland has
been experiencing a very brisk trade in evictions in connection
with landlords and contractors involved in Section 8. What I
would like to have happen is for somebody from your office
contact the Cleveland Housing Court, Judge Ray Biantra is the
administrator of it, and to see if there is anything that can
be done to effectively intervene to try to protect people from
being thrown out of their homes.
I mean, the problem of homelessness in this country, as all
of us agree, is serious enough without contractors taking
advantage of various provisions that HUD may have. And you
know, perhaps it is within your authority to intervene to see
if you can protect some people from being thrown out on the
street. So I would really like you to look into that and I just
wanted to mention that in connection with this overall
discussion about the program, if you would.
Secretary Cuomo. It would be my pleasure, Congressman. I am
not familiar with the specifics that are going on in Cleveland,
but we will be shortly, as soon as we leave the hearing. As you
know, there are protections within the Section 8 program, and
we will find out what is going on.
Mr. Kucinich. Yes. I have just been informed just now,
myself, and I thought I would notify you.
A question I have, Mr. Secretary and Mr. Chairman, there
have been instances in the past in which local governments have
attempted to use community development block grant funds to
attract jobs and companies from other States. I wondered if it
is your policy as Secretary if you thought it was appropriate
use of community development block grant resources to be
attracting, using those resources to attract jobs and companies
from one State to another?
Secretary Cuomo. No, sir. We have been aggressive in
promoting the use of CDBG for economic development purposes.
CDBG is one of the largest programs HUD administers, $4.6
billion, 20-year program. So it has consistency, continuity, an
entire infrastructure that understands how to use it.
Historically, it was not used for economic development. It did
a lot of good things, social services, infrastructure, public
services, but not economic development primarily because HUD
had not steered the program that way. It was part of the
President's empowerment agenda, trying to get jobs into cities.
We have been pushing the CDBG program as a way to attract
businesses, grow businesses, small business loans, micro-
enterprise loans, community development banks, all can be done
by CDBG.
There is a specific prohibition against what they call
piracy. New definition of piracy. It is no longer on the high
seas. For us, it is stealing businesses from one city to the
other by using EZ and EC dollars. So that is specifically
prohibited.
Mr. Kucinich. Now, when you say it is prohibited, is it by
regulation?
Secretary Cuomo. Yes, sir.
Mr. Kucinich. By administrative rule? By what?
Secretary Cuomo. I know it is prohibited by regulation. I
do not know if it is in the law. I believe it is regulation.
Mr. Kucinich. Excuse me?
Secretary Cuomo. I believe it is by regulation, sir.
Mr. Kucinich. OK. And when were those regulations
promulgated?
Secretary Cuomo. I do not know, but I can check. The anti-
piracy regulations on the CDBG?
You stumped the entire staff on that one, Congressman. It
does not happen often, but we can find out, and we will get
back to you.
[The information referred to follows:]
The Empowerment Zones and Enterprise Communities
Initiative, which benefits 105 urban and rural areas including
Cleveland, Ohio, prohibits using funds to relocate businesses
from one area to another [Section 1391(f)(2)(F) of the Omnibus
Budget Reconciliation Act of 1993.]
The Community Development Block Grant program requires
communities to use the funds in such a way that minimizes the
displacement of existing businesses [Section 105(a)(17) of the
Housing and Community Development Act of 1974.] However, the
23-year old program does not clearly restrict the use of funds
to relocate businesses from one area to another.
Mr. Shays. And that is not, certainly, our objective. There
may be a number of questions, if I could just at this time say
that if we are not able to answer, we will just get the answer.
Mr. Kucinich. OK. That is fine. And I agree with the Chair.
It is not my intention to raise questions that cannot be
answered. I would like to find out what the policy is to make
sure that it is in place and to make sure that it is enforced,
that there is not any movement of jobs being occasioned through
the use of Federal funds in community development block grants.
And I appreciate your expression of what your policy is,
because that is going to be very comforting to those of us who
are concerned about keeping our jobs in our communities and
when I was mayor of the city, we used that community
development block grant program to go to, in fact, to improve
the infrastructure of neighborhoods. And that, in turn, was
responsible for helping to spark some local investment and
helped a lot of the businesses in the area. So I know about the
value of that program and I am pleased to see that you are
intending to make sure that communities are protected in the
use of those funds. And I am very gratified to hear your
policy. I just like to know the history on it.
I have one other question, if I may, Mr. Chairman.
And this may be another one that, perhaps, you have already
decided on and as a new Member, you may help me to catch up on
some of these issues. Before August 1996, I understand that HUD
had a J-1 visa waiver policy that allowed foreign physicians to
come into the United States and practice medicine in under-
served areas in the city where poverty-stricken people live.
The program helped to provide medical services to many people
in lower income communities. I wondered what the status is of
that policy.
Secretary Cuomo. Congressman, could I just quickly step
back to your other issue on the tracking business. It's a CDBG
issue. It has also been an empowerment zone issue. Cleveland is
also an empowerment zone city and one of the problems is moving
businesses from one city rather than creating new jobs. And
both were related. And I will get you information on both, the
empowerment zones and the CDBG.
Mr. Kucinich. I would be interested in that because, of
course, the empowerment zone is of great concern to Cleveland.
I think we received over $100 million.
Secretary Cuomo. Yes.
Mr. Kucinich. In a program that has great implications for
a large area of Cleveland. So your looking into that would also
be very much appreciated.
Secretary Cuomo. Fine. I will do that, sir.
Second, on the J-1 visas. We are trying to get HUD
downsized and we are trying to get HUD to focus on our core
mission. Some tasks that are good tasks have to give way
understanding the realities of the downsizing, et cetera. The
J-1, the J-1 visa program, well, I think very intelligent in
its intent, was difficult for HUD to administer. We were not
really in a position where we can police, verify whether or not
the doctors are then working in the areas where they are
supposed to be working to qualify for these visas. It is not in
our usual portfolio, the function of monitoring doctors and
verifying where their service area is.
We discontinued the J-1 visa program at HUD. And we are now
considering what, if anything, should be done about it, but the
program is now discontinued.
Mr. Kucinich. I would like to say on behalf of my
constituents, Mr. Chairman, and members of the committee, that
there is a great concern in areas such as Cleveland,
particularly where foreign physicians have given their services
in under-served areas, that the J-1 visa program be continued
and I--on the one hand, it is comforting to know that the
reason for its discontinuation were more administrative which I
suppose relates to the dollar issues and not that the program,
itself, proved to be a failure. What I think would be helpful,
as we are all government looking at ways of doing better with
Federal funds, it would be good to see if a cost benefit
analysis was arrived at with respect to that program. To see if
a discontinuation of it is not really more expensive in terms
of the toll on the health of the people in the areas where
these physicians were looking. I would really appreciate it if
you could do that, because it would at least give us a chance
to make an evaluation as to whether or not it was in the
interest of the people to do that. I would really appreciate it
if you would consider that, Mr. Secretary.
Secretary Cuomo. We will, Congressman.
One of the points I tried to get to in my opening statement
was there were two focuses at HUD: (1) Section 8 crisis; (2)
management. Part of the management is restoring the public
trust. I want to make sure that if we are administering a
program, we are sure that it is being run properly.
On the J-1 program, there was some suggestions that the
certifications that were being put in, that doctors were
working in those areas, that there were some cases where that
was not actually the fact. And especially given the nature of
this committee, I want to be able to say that if we are running
a program, I know that it is working well and that we are in a
position to run this program. And that is one of the issues
that was with the J-1 program, whether or not the doctors were
actually where they were supposed to be to get the visas in the
first place and what was HUD's capacity to make sure that was
the case, but we will--I will give you the analysis that we
have done back at the Department. And then if you would like to
chat about it, it will be my pleasure.
Mr. Kucinich. Well, again, thank you, Mr. Chairman. I just
want to conclude this round by saying that this is a very
important department for so many of our urban areas. And as a
person who represents a substantial part of the city of
Cleveland, I am grateful that we have a Secretary who is
showing this sensitivity to these issues and I think that it
augers well for your relationship with the Congress. And I
thank you so much for being here.
Secretary Cuomo. Thank you, sir.
Mr. Kucinich. Thank you, Mr. Chairman.
Mr. Shays. I thank the gentleman.
Mr. Pappas.
Mr. Pappas. Thank you, Mr. Chairman.
Mr. Secretary, again, congratulations to you.
Secretary Cuomo. Thank you.
Mr. Pappas. I want to shift gears a bit and talk about two
programs that I dealt with as a county official in New Jersey,
that being the community development block grant program and
the HOME Program.
First, a comment. The way it was structured, I believed was
probably a great example of how even at times the Federal
Government can allow great flexibility at the local level where
local government officials can include people from municipal
government and from the community to help make decisions. At
least that is how we did it in Somerset County, NJ. And for my
more than a decade as a county elected official, the CDBG
program was very effective and one that really helped meet
needs that were addressed in neighborhoods and communities. I
think we need to do more of that. The HOME Program is not as
old, at least my involvement is not as long standing; but,
again, I felt that is a great example of how local governments
could very effectively deal under some broad Federal
guidelines, but we could meet identified needs at the local
level. I would just encourage you to--you and your colleagues
here from the President's cabinet to do that as frequently as
possible.
Having said that, I am wondering if you could just comment
and I apologize because you may have covered this while I was
absent from the room, but if you could just comment as to how
you view those programs and how you view their continuation in
your overall priorities.
Secretary Cuomo. Congressman, thank you for the opportunity
and thank you for the comment. The CDBG program and the HOME
Program, I would just affirm everything you said with the only
stipulation that I put a exclamation mark at the end of the
paragraph. CDBG and HOME, to me, are as close to the model of
Federal, local, State relations as you can get, because what
they say is everything we have been talking about for the past
few years: devolution, local control. But--but, not a blank
check block grant. Right? Oversight committee. We want to make
sure the funds are going to where they are supposed to go.
Federal, Federal purpose.
And that is basically what CDBG and HOME do. They say,
``This is the Federal goal, Federal purpose. This money is
supposed to go to provide housing affordability to low and
moderate income people, basically, the HOME Program.'' Federal
goal, but let the local community figure out how to do it. We
cannot sit here and decide what housing policies work for
Somerset County or what community development needs are No. 1,
2, 3 in Somerset County.
Let's set the Federal goal, affordable housing, community
development for low and moderate income people under CDBG. Let
Somerset County figure out how to do it. Let them set the local
means. One caveat and one caveat only, they should include the
community when they start making those decisions, citizen
participation process. CDBG started as a Republican program--
since it is bipartisan and in my opinion really a great model
of what should happen.
The HOME Program follows the basic template of CDBG. And as
the Congressman points out the HOME Program has only been
around since 1992, so it does not have the same institutional
bearing or experience that CDBG does, but it is the same
template: Federal goals, local means, involve the community,
let the community decide. And those are the two mainstays of
HUD.
You know, when people talk about HUD, we have the FHA
housing side, public housing and then the community development
side and the HOME and the CDBG program are the two pillars of
community development. And where the funding goes in HUD, $4.6
billion, I believe the largest single program is CDBG. And it
works well almost universally.
Mr. Pappas. We have had over the years, when I was county
official, there were probably only three occasions in the 12 or
more years that I was involved in it there was any kind of a
question or objection from the community. And when you are
dealing with 21 municipalities and my county and the number of
local officials, municipal officials that we got involved and
people from the community, that is quite a track record. And I
would even just, in conclusion, would just add that I think the
HOME Program was even as good as the CDBG program is, the HOME
Program, I think, is even improved--it is an improvement in
that I viewed there is almost less bureaucracy involved, at
least that was my experience in New Jersey in the
administration of it.
Secretary Cuomo. Well, Congressman, we ran the HOME
Program--actually, 4 years ago at my confirmation hearing and
the confirmation of Secretary Henry Cisneros, the complaint was
the HOME Program, which at that time was not spending, because
the department had so many regulations on it, at that time 4
years ago, only 3 percent of the money had been spent because
there were so many regulations. And it was made clear to me at
the Senate confirmation that they wanted that changed. Today,
we have a spend-out of about 92 percent of the HOME Program,
110,000 units built. So it is working.
I do not like to say which is better, HOME or CDBG, because
that gets me into trouble, but they are both working well.
Mr. Pappas. Let me just say one other thing. You're right.
People back home, I hope they do not hear that I said that, but
the community support, the understanding that they have of how
well it works I think has been great. And I also think for both
programs the pressure that there is to make sure that this
money is spent within a reasonable amount of time I think is
very appropriate. There are many non-profit agencies or most
instances whenever there has been a proposal for some sort of
housing, it is not housing rehabilitation of people's homes
that meet the criteria, but where there have been non-profit
community-based organizations whether it is for people and
whatever their circumstances. Some just have not been able to
put it all together and within a couple of years they are not
able to and that money has been reallocated and it just works
very well.
Secretary Cuomo. Thank you.
Mr. Pappas. Thank you.
Mr. Shays. I thank the gentleman.
At this time, I will call on Mr. Towns.
Let me give you an idea, Mr. Secretary, I know you have
pressing needs and you have been very generous with your time.
It is about 15 of, now. We are going to get you out of here no
later than 15 after and maybe sooner.
Secretary Cuomo. Mr. Chairman, whatever works. At the
pleasure of the committee, my time is yours.
Mr. Shays. Thank you. You have been very cooperative, but
it will just give your staff an idea of how much. We will
proceed about a half-hour more. Thank you.
Mr. Towns. Thank you very much, Mr. Chairman.
There was testimony earlier about the empowerment zones
and, of course, empowerment of communities. Could you sort of
give us an assessment? I know you have not been around that
long in terms of your views, your feelings as to how they are
working up to this point?
Secretary Cuomo. Congressman, I think the empowerment zone
initiative, the empowerment zone program as designed by the
Federal Government is working well primarily because it allows
for the individual circumstances that different cities and
different communities bring. How are the empowerment zones
doing? Which I think is a different question than how is the
empowerment zone program doing. The empowerment zone program is
doing well.
Mr. Towns. I agree with you.
Secretary Cuomo. The empowerment zones, it depends. It
depends on what zone in what city in what context. The
Cleveland zone is going very well. Really going gangbusters. I
have been to the city a few times. They are actually attracting
businesses from the suburbs back into the city with the
empowerment zone, which is the exact opposite cycle that we
have been seeing, businesses moving out of cities to suburbs.
So Cleveland, it is working very well. Comprehensive, the
communities involved, and it is bringing back jobs which is the
purpose of the program.
Some other cities we have had more obstacles in the
startup. Sometimes political obstacles, sometimes community
obstacles. Some of the situations that we are trying to solve
are more complex and they have opposition existing between and
among community groups. And then the empowerment zone has to
work through that context. So I think it depends. But the
program, itself, is doing well. By and large, the cities are
doing very well, some better than others.
Mr. Towns. Thank you very much. In New York State, in
particular, we have been hearing a lot about privatization. You
can go to any housing development and another rumor has started
that it is going to be privatized. And of course, I am not
saying, it is good, bad or indifferent. I think the real
question is based on what has happened in Louisiana, and
similar where there have actually been some selling of, what
happens to the poor and the homeless if that happens? Is there
any provision for them if there is move toward privatizing?
Secretary Cuomo. I think, Congressman, there is no silver
bullet and sometimes we struggle for one solution that sounds
like it is the panacea and it is going to solve everything. And
I think in that context, sometimes privatization is thrown
around. We privatize and then, presto, change-o, all the
problems are gone.
I do not think it is a silver bullet. I think it has its
place in some contexts and we have had good experience with
privatization in some context. I think it is always, when you
talk about privatization, it is always important to make sure
you protect those whom it may not be in the private interest to
serve. And that has to be factored in. Otherwise, it will not
work for those who most desperately need the help which is the
point of the program in the first place.
Mr. Towns. Mr. Chairman, I yield back. But I also, just
before I yield back, want to say that I am impressed with your
sensitivity, I am impressed by your commitment and your
dedication. So I want to let you know I look forward to working
with you and trying to be able to solve some of these problems.
I know it is going to require a lot, because, let's face it,
when you are cutting a budget the way you are cutting it and at
the same time the need for services are increasing, you have to
almost be a miracle maker. What we are saying to you is that I
am hoping that this committee along with the Congress will join
you in terms of trying to be able to come up with some
solutions. So I look forward to working with you.
Secretary Cuomo. Thank you very much, Congressman. Thank
you.
Mr. Shays. I thank the gentleman.
I am going to focus in on the distressed public housing,
but I just want to touch on the fact that you clearly have a
massive undertaking here. Is it your intention to suggest
reorganization of HUD? Are you going to be coming in with any
plan? Or are you just going to be responding to proposals that
have been made by others?
Secretary Cuomo. We will be coming in with a management
plan for HUD, Mr. Chairman. We will be coming in with a plan
that is driven by a new vision of the mission of the
Department, how to accomplish that and then a downsizing plan
for the work force in response to the revised mission.
Mr. Shays. Thank you. And clearly, your management needs
are acute. I mean I would say that to whoever was Secretary. I
would also say to you because I know it is so significant, I
have some sense of patience about how long it will take and so
on, but it would seem to me--if I were Secretary, I would
almost have a crisis management team on this issue, I would
have a crisis management team on management. And the other area
that I am concerned about is the whole issue of distressed
public housing. I am pretty convinced from my obviously limited
experience in my own district, because I just have 10 towns,
but I have a Stanford, a Norwalk, and a Bridgeport, but I have
been on this committee, now, for 10 years and one of the things
that surprised me is if you have a capable and talented public
housing authority that really uses money well and does not try
to hire people for political reasons, but just hires the best
and the brightest, you can do extraordinary things. If I can
get a little parochial, I just am extraordinarily impressed
with the housing director in Bridgeport and what HUD has been
able to do with this housing authority. And Mayor Ganum happens
to be a Democrat who has been a very good leader of that
community.
Mr. Towns. Most Democrats are. [Laughter.]
Mr. Shays. That is true, most are. And in one case, in one
case, one of the most is in Bridgeport. Now, I could say all
Republicans are--[laughter.]
But I am concerned. I think we provide a lot of money to
public housing authorities. And if they use it well, they can
use it to leverage, they can do a lot. But what concerns me is
that I do not think there is a real plan on how you decide when
to take over a public housing authority. And I do not know how
you wean them off the list. And if you could just touch a
little bit about troubled housing authorities?
Secretary Cuomo. Yes, sir, Mr. Chairman.
First of all, on your overall point about the serious
nature of this problem, I could not agree with you more, and we
do very much have a crisis mentality on this issue. And I said
in response to Congressman Snowbarger, we have a downsizing
plan, a management plan, but it is driven by how to get the job
done. It is not a numbers game. And we will have personnel
where we need personnel and we need personnel to work this out.
Mr. Shays. You are talking about Section 8.
Secretary Cuomo. Section 8.
Mr. Shays. Yes.
Secretary Cuomo. Even though we want to go primarily to
third party outside sources to implement it, we still have to
make sure it is done right. So this is no doubt a priority.
On the distressed public housing, I could not agree more.
Where you have a good public housing authority, it is amazing
the kinds of things that they can do. Father Panis Village Hope
Six Grant which basically just--program on Hope Six was those
comprehensive solutions devolved to the local authority,
learning the lessons that we have learned, but let the local
authorities work it out. And it has been working quite well.
And what we would like to see on the public housing side is
more devolution, deregulation to those high performing PHAs.
Let us focus on the distressed public housing authorities.
And then the chairman raises another interesting point:
What is a distressed public housing authority? At what point do
you become a distressed public housing authority? HUD has a
grading system. We call it PHMAP, but it is actually a grading
system that grades the management of a housing authority. And
you get a score. You then have a passing score or a failing
score. If you fail, you are now a troubled housing authority.
If you pass, you are an acceptable performer. That score, that
PHMAP score which we have revised recently, we are going to
have discussions about revising it again, especially if we move
more toward deregulation, because then that score is very
important. Based on that score, you will decide to deregulate
or not. And that is the PHMAP score. And as I said, it has just
been revised within the past several weeks and we are going to
take a second look at it, especially if we go more toward
deregulation.
Mr. Shays. It just strikes me that you have a danger of
making sure that you do not manipulate it or game it. There are
so many ways you can make a decision on who is distressed.
Obviously, you have to have gradations. And I suspect that even
with the limit of staff that you have that you are going to
have a hard time dealing with all the distressed public housing
that you have.
What I am trying to understand is do you have a management
team that focuses on this? A management team on Section 8, a
management team that focuses in on distressed public housing? A
management team that is focusing just on management problems?
Secretary Cuomo. Yes. You have the three main program
areas. We are talking about, one is the housing department.
Nick Retsinas, Stephanie Smith is the deputy who is here today.
You heard from her earlier. That is basically working on this
as their top priority. The Section 8 crisis is their top
priority.
Mr. Shays. Right.
Secretary Cuomo. Public housing, Assistant Secretary Kevin
Marchman is focusing on the public housing problem and we are
focusing on that PHMAP monitoring score, how to deregulate high
performers and how to handle the distressed public housing in
this country without HUD running out there and managing every
project. The third program area is community planning and
development. That is the HOME Program, CDBG, and then fair
housing would be the fourth.
Mr. Shays. I am just going to express some concerns and
then I will be done and I do not know if any Member just wants
to jump in for later. It seems to me that there is obviously
multi-discipline. One of the things I was amazed to find is the
Department of Agriculture has public housing for rural areas.
And that was a surprise to me. But I mean I can see a tough
decision for you as Secretary to decide, ``Well, do you get
into policing? Do you get into drug control issues? Do you get
into welfare reform?''
And I would think in one sense the answer is, yes. And the
other way, you are just saying, ``Well, my gosh, I am just
dangerously spreading myself and the Department too thinly.'' I
am not asking for a indepth explanation, but tell me how far
you take the interdisciplinary and where do you sometimes bring
another department in or do you say, ``Heck, we can do it and
we should do it?''
Secretary Cuomo. I think, Mr. Chairman, you have to do
both. I think the interdisciplinary is almost forced, if you
are going to make any of these things happen because we talk
about comprehensive solutions on the community level. Community
development people, local housing authorities will say, ``We
need comprehensive solutions, otherwise it doesn't work.'' They
will talk about holistic solutions. They will talk about
continuums. They will say, ``I cannot just do housing. I have
to do housing and community development and I have to have the
jobs or else none of this works.'' That, by definition, is
interdisciplinary. How do you do that? I think on the highest
level, it is interdisciplinary among Federal departments.
Cooperation among Federal departments. It is the point of the
Vice President's Empowerment Board that cross cylinders, cross
Federal departments, bring that coordination.
And then within HUD, it is the same thing. When we go to
talk to a city of Bridgeport or any city in the country and we
say, ``We are here to help,'' they do not ask us just for
housing. They need housing, but they need more than housing.
And they need that housing in a context. And they ask for
economic development assistance, which we have a very large
portfolio we did not really talk about today, but we have
significant efforts in economic development, job creation,
which is more and more a priority. Welfare reform: at one
point, the time limit is up. Somebody needs a job, otherwise
nothing is going to work. They need the economic development.
They need the policing. They need safety in public housing.
``One strike and you're out.'' ``Operation Safe Home.''
Initiatives that we have. CDBG works in that area. They need
the community development and they need the housing. So I think
for us to do our job, we have to be able to come up with a
comprehensive solution, albeit in a very intelligent and
efficient manner, given all the other constraints.
Mr. Shays. I am just going to make a few observations and I
welcome any of the other Members--we are going to get you out
by 15 after, but----
Secretary Cuomo. Whatever. Take your time.
Mr. Shays. I know. The problem is not on your side.
One is that I spent about 3 years, but a year really
focused on how do we rebuild cities, since I represent three.
And we met with every conceivable group. And when we came right
down to it, we came down to this basic answer: the way you save
urban areas is to bring businesses back in to do two things, to
pay taxes and help create jobs. And of all the things, so I
know that this Congress is not as eager to have HUD in economic
development, but if you gave me a choice, frankly, of fixing up
public housing in some instances or providing an area where you
could bring in a business and they could employ people there, I
would encourage that.
Now, one of the ways I think that HUD can serve in a very
dynamic way, you have the issue of impacted/non-impacted. And I
will not even localize it to a particular community. But in an
area where you are redoing significant public housing, your
requirement is to go into a certain number of non-impacted
areas. And non-impacted areas sometimes tend to be low-zoned
areas where you do not have as much density. And one of the
things that we found in one of our communities is that when we
did the vouchers, we actually created something we did not
intend. We took home-owned neighborhoods that were mixed.
Black, Hispanic, white, but they were home-owned. And they were
solid. And then Section 8 came in and really in some cases
Section 8 pays more than the vouchers, paid more than the
market rate, which is kind of interesting. And they came in and
they ended up making some streets rental instead of home-owned.
And it had a very kind of negative, unintended impact. And the
irony was that in one of my communities, the public housing is
better than the neighborhood. They have a flag. They have a
shield up front pointing out this is public housing. It is
well-maintained and they have upgraded neighborhoods. And it
would seem to me that one of the ways to rethink the whole
issue of impacted and non-impacted would be to give communities
some leeway if in the process of building more and impacted,
they have a partnership and require them to have partnership
with the business community and others to do economic
development, store fronts, a whole host of other things that
really--then you have taken the public housing that has been a
catalyst for economic development without even your putting
money in. But basically saying, ``OK, we will forego to some
measure the impact and non-impacted, but we have different
requirements now. You have to upgrade the community
economically by your doing that.'' And it may be a way for you
to do that interdisciplinary just because of the carrot that
you have of saying, ``Well, if you don't, you are going to go
into single family neighborhoods.''
I mean the silly thing was that we were having in one of
our communities, HUD was buying individual homes, just a
plethora of them and having minimal impact over all. So that is
just the one thing I just want to share with you.
Do you have anything you would like to share?
Mr. Towns. Thanks, Mr. Chairman.
Mr. Shays. We usually close by asking is there any question
that you wish we had asked. And also, with your indulgence--
sometimes the staff who get to enjoy not saying anything, but
also think a lot in terms of your response to our questions--if
any of your staff want to make a point, we would welcome that.
If there is some point in hearing these questions and the
answers of the Secretary, we would welcome you doing that. And
I do not think the Secretary would mind, because I am sure you
would not contradict him. But do any of you want to make an
emphasis?
Secretary Cuomo. They are a shy group, Mr. Chairman.
Mr. Shays. They are shy.
Secretary Cuomo. Here, they are a shy group. Not at HUD. I
can promise you that.
Mr. Shays. No, but they are sizing you up. Any question
that you wish we had asked? [Laughter.]
Secretary Cuomo. Let me say, if I might, Mr. Chairman, I
hope we have made clear in this hearing and I know that the
committee stated it in your opener, so you did not need us to
bring it to your attention, but if we could reaffirm it,
hopefully, the Section 8 problem we need help with. It is a
desperate situation for the Department. I have been told by
people who have been at the Department from day one that this
is the greatest crisis HUD has ever faced. Forget the 1980's
and the scandals and everything else. This is it. And it is not
just for the Department. This is not an inside-the-beltway
story.
Mr. Shays. Yes.
Secretary Cuomo. This is every city across the country--6
million Americans. This will be the legacy of affordable
housing between now and the year 2000. What happens here will
be what we did with affordable housing as a Nation. And we need
your help. We cannot do it without Congress. We understand
that.
Second, on the management, that is something that we can
do. That will be our priority. I have heard this committee, I
have seen it in your correspondence earlier, it will be my
personal priority and we will be working on it. And I hope to
have in 18 months noticeable change that we can report back to
the committee. And beyond that, Mr. Chairman, again, my 4 years
as Assistant Secretary showed me the only way anything happens
is when it happens together, bipartisan, with Congress; and I
am looking forward to a productive relationship and I think we
can do good things. We have real challenges here, but we also
have real opportunities. And met, we can make things better
than they are today if we work together.
Mr. Shays. Do you want to just thank the Secretary?
Mr. Towns. Right. Mr. Chairman, thanks a lot.
I would just like to thank the Secretary for coming and
that I really think that he shed a tremendous amount of light
on many subjects. And of course, as I indicated early on, I
look forward to working with you. It just feels good to have
someone that truly understands the problems out there. And I
think that also makes a major difference. Sometimes you get a
new Secretary, they have to spend 2\1/2\ years getting familiar
with the problems that are out there. And then by the time they
get familiar with the problems, they are gone. Your situation
is so different. You are thoroughly familiar with the problems
and we look forward to working with you.
Secretary Cuomo. Thank you.
Mr. Shays. I concur and thank you again for coming. Have a
great day.
Secretary Cuomo. Thanks for having us.
Mr. Shays. This hearing is adjourned.
[Whereupon, at 1:05 p.m., the subcommittee was adjourned.]