<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:34661.wais]
PUBLIC HOUSING IN THE 21ST CENTURY: HUD'S VIEW ON THE FUTURE OF PUBLIC
HOUSING IN THE UNITED STATES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERALISM
AND THE CENSUS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JULY 18, 2006
__________
Serial No. 109-231
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
JON C. PORTER, Nevada C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of
PATRICK T. McHENRY, North Carolina Columbia
CHARLES W. DENT, Pennsylvania ------
VIRGINIA FOXX, North Carolina BERNARD SANDERS, Vermont
JEAN SCHMIDT, Ohio (Independent)
BRIAN P. BILBRAY, California
David Marin, Staff Director
Lawrence Halloran, Deputy Staff Director
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Federalism and the Census
MICHAEL R. TURNER, Ohio, Chairman
CHARLES W. DENT, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut PAUL E. KANJORSKI, Pennsylvania
VIRGINIA FOXX, North Carolina CAROLYN B. MALONEY, New York
BRIAN P. BILBRAY, California
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
John Cuaderes, Staff Director
John Heroux, Counsel
Juliana French, Clerk
Adam Bordes, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on July 18, 2006.................................... 1
Statement of:
Bernardi, Roy A., Deputy Secretary, U.S. Department of
Housing and Urban Development; and Orlando J. Cabrera,
Assistant Secretary for Public and Indian Housing, U.S.
Department of Housing and Urban Development................ 5
Bernardi, Roy A.......................................... 5
Cabrera, Orlando J....................................... 12
Letters, statements, etc., submitted for the record by:
Bernardi, Roy A., Deputy Secretary, U.S. Department of
Housing and Urban Development, prepared statement of....... 8
Cabrera, Orlando J., Assistant Secretary for Public and
Indian Housing, U.S. Department of Housing and Urban
Development, prepared statement of......................... 16
Clay, Hon. Wm. Lacy, a Representative in Congress from the
State of Missouri, prepared statement of................... 20
Turner, Hon. Michael R., a Representative in Congress from
the State of Ohio, prepared statement of................... 3
PUBLIC HOUSING IN THE 21ST CENTURY: HUD'S VIEW ON THE FUTURE OF PUBLIC
HOUSING IN THE UNITED STATES
----------
TUESDAY, JULY 18, 2006
House of Representatives,
Subcommittee on Federalism and the Census,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m. in room
2154, Rayburn House Office Building, Hon. Michael R. Turner
(chairman of the subcommittee) presiding.
Present: Representatives Turner, Clay, and Dent.
Staff present: John Cuaderes, staff director; Jon Heroux,
counsel; Juliana French, clerk; Adam Bordes, minority
professional staff member; and Jean Gosa, minority assistant
clerk.
Mr. Turner. Good morning. A quorum being present, this
hearing of the Subcommittee on Federalism and the Census will
come to order.
Welcome to the subcommittee's hearing entitled, ``Public
Housing in the 21st Century: HUD's View on the Future of Public
Housing in the United States.'' This is the fifth in a series
of hearings the Federalism and the Census Subcommittee is
holding on public and low-income housing.
Congress first authorized the concept of public housing in
1937 as part of President Roosevelt's public works legislative
package. Congress originally intended public housing to serve
working families on a temporary basis. Over the years, public
housing has evolved in a program that has served poorer
families who are more likely to become long-term residents.
By the 1960's and 1970's, much of the Nation's public
housing had fallen into disrepair and distress. By the 1980's,
the public and many in Congress were demanding that the public
housing system be reformed. Congress responded and made several
minor reforms throughout the late 1980's and early 1990's. By
1995, however, it was clear that these reforms had not done
enough. Far too many people still lived in public housing
developments that did not provide clean, safe and quality
housing.
In 1998, Congress again responded to the problem by passing
the Quality Housing and Work Responsibility Act. This landmark
legislation was the largest overhaul of the public housing
system since its creation. It was a sweeping reform of the
public housing system. On many levels, it has been widely
praised and has been successful.
Still, no legislation is perfect, and the Quality Housing
and Work Responsibility Act is no different. It too has some
shortcomings. Beginning February of this year, the subcommittee
has held four hearings to examine the viability and efficiency
of the Nation's assisted and public housing system. We have
received testimony from a wide variety of stakeholders. These
witnesses have included members of academia, public housing
authority directors, non-profit housing developers, financiers
and public housing tenants. These hearings have been
interesting and informative.
Our inquiry, however, is not complete. That is why we have
invited the Department of Housing and Urban Development to
testify before us today. The purpose of this hearing is to
allow the Department the opportunity to discuss its vision for
the future of public and assisted housing programs. Also within
the context of this subcommittee's last four hearings, we have
asked the Department to respond to the views and
recommendations of our previous witnesses.
[The prepared statement of Hon. Michael R. Turner follows:]
[GRAPHIC] [TIFF OMITTED] 34661.001
[GRAPHIC] [TIFF OMITTED] 34661.002
Mr. Turner. With that, I would like to welcome once again,
returning to our committee, the Honorable Roy Bernardi, who is
Deputy Secretary of the U.S. Department of Housing and Urban
Development. I would also like to welcome the Honorable Orlando
Cabrera, who serves as Assistant Secretary for Public and
Indian Housing at HUD. Assistant Secretary Cabrera will be
joining Deputy Secretary Bernardi to assist him in answering
the subcommittee's questions.
Thank you for agreeing to testify today. I welcome you both
and look forward to your comments. Secretary Bernardi has
kindly prepared written testimony which will be included in the
record of this hearing. You will notice that there is a timer
at the witness table. The green light indicates that you should
begin your prepared remarks, and the red light indicates that
time has expired. The yellow light will indicate when you have
1 minute left in which to conclude your remarks.
Mr. Secretary, I will be very lenient, of course, with your
time, since you have been so gracious in appearing before this
committee. It is the policy of this committee that all
witnesses be sworn in before they testify. Will you please rise
and raise your right hands?
[Witnesses sworn.]
Mr. Turner. Please let the record show that all witnesses
have responded in the affirmative.
And with that, I will recognize Secretary Bernardi.
STATEMENTS OF ROY A. BERNARDI, DEPUTY SECRETARY, U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; AND ORLANDO J.
CABRERA, ASSISTANT SECRETARY FOR PUBLIC AND INDIAN HOUSING,
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
STATEMENT OF ROY A. BERNARDI
Mr. Bernardi. Good morning, Chairman Turner. It is a
pleasure to be here, not only myself, but on behalf of
Secretary Alphonso Jackson, for the opportunity to share our
views on the current and future direction of public housing in
the United States.
The need for affordable housing and structural problems of
the public housing program call for reconsideration of how this
asset is best used to serve the most people. The management and
operation of the public housing program has evolved into a
system characterized by complexity, inflexibility and
centralized control. This has resulted in a program that is not
easily adapted to the specific needs of a single community or a
troubled development.
By the 1990's, our existing system had produced 100,000
troubled and severely distressed public housing units. It has
taken the Department over a decade to address this legacy of
good intentions and failed policy through the HOPE VI program,
the Capital Fund program and other initiatives. The HOPE VI
program alone has resulted in the demolition of 78,000 plus
severely distressed units, the construction or rehabilitation
of 50,400 public housing tax credit and market rate units, and
the successful relocation of over 63,000 families. And the work
in this program is ongoing.
While the goal of the public housing program should be to
ease the burden of low income Americans by providing them with
a simple and affordable housing option, the current system
unfortunately makes this helping hand its own heavy burden. We
need to find a better solution for transitioning people to
self-sufficiency, so others can benefit from public housing.
The current system discourages honesty and work by making
eligible income the basis on which rent is determined. In
addition, the process for calculating rent and verifying income
are onerous, often inaccurate, and can result in significantly
different rents for similar households.
Our current rent system has become a trap for lowered
aspirations and often is viewed as a lifetime entitlement for
tenants who might otherwise achieve greater independence. We at
HUD propose a much different future for public housing, having
evaluated the shortcomings of the current system.
I want to be very clear about the status of elderly and
disabled within any proposed reforms. Nothing we intend to do
will change the protected status of elderly and disabled
residents within the public housing program.
Necessary changes. The statutory and regulatory environment
governing public housing should be simple, flexible and
progressive. Central among these policy shifts will be the
transition to asset management. This approach will focus on the
sustainability of each property and allow housing authorities
to become true asset managers in line with the private sector.
Moving a portfolio of 1.2 million units to this asset
management model is essential for promoting stability and
private financing options.
Housing authorities should be authorized to simplify how
they charge tenant rent and set rents based on local
conditions, increased expectations and efforts to promote self-
sufficiency. Again, the elderly and disabled should be
protected classes within this system and exempt from these
increased expectations.
More housing authorities need opportunity to access
flexibility, responsibility and authority that Moving to Work
status provides. Housing agencies and the Moving to Work
program are experimenting with term limits in concert with rent
reform and employment incentives. Such bold reforms allow more
families to achieve self-sufficiency, ultimately serving more
Americans.
Our vision for public and rent-assisted housing includes
the opportunity for home ownership. HUD has had a successful
home ownership voucher program that has paved the way for low
income Americans to become homeowners. Home ownership
counseling, strong and committed collaborations among PHAs and
assistance from local non-profits and lenders have proven to be
essential in making this program work.
Mr. Chairman, over 8,000 low income families moved from the
Section 8 rental program and used their Section 8 assistance to
become home owners during the program's first 4 years. By the
end of fiscal year 2007, the program will provide home
ownership opportunities for some 10,000 families.
Another key home ownership initiative put forward by the
Secretary is legislation to revitalize the Federal Housing
Administration. FHA has been invaluable to helping first time
and minority home buyers who are low and moderate income
achieve home ownership. Legislation in the House and Senate,
H.R. 5121 and S. 3535, would make valuable changes to again
allow greater access to home ownership with safe, amortizing
mortgage loans for more low income families.
In closing, public housing is valuable to low income
Americans, but needs reform to ensure deserving families get
the affordable housing they need. I know, Mr. Chairman, you
have held numerous meetings and numerous hearings on this
matter. I am sure that we will be talking about improper
payments, that we have a nice track record here at HUD for
that. We will be talking about Moving to Work, we will be
talking about asset management, and I am just very pleased to
have with me Assistant Secretary for Public and Indian Housing,
Orlando Cabrera. He and his staff are working very, very hard
to necessitate the changes that we feel are necessary, and
working in conjunction with your committee, hopefully working
together, so we can utilize this asset and provide more
opportunities for more people, but at the same time, moving
people from public housing to Section 8 to low income to tax
credit programs, and then eventually to self-sufficiency.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Bernardi follows:]
[GRAPHIC] [TIFF OMITTED] 34661.003
[GRAPHIC] [TIFF OMITTED] 34661.004
[GRAPHIC] [TIFF OMITTED] 34661.005
[GRAPHIC] [TIFF OMITTED] 34661.006
Mr. Turner. Thank you, Mr. Bernardi. I want to congratulate
you and Secretary Jackson on your diligence. I know from your
background as a former mayor, you have looked to not just the
issue of how to manage public housing, but how do you impact
the lives of the people who are in public housing, how do they
receive the assistance that they need.
Throughout your testimony, you highlight, and I know that
Secretary Jackson also is committed to the issue of transition
and self-sufficiency, that public housing be an opportunity,
not merely just an issue of warehousing or of an opportunity
for providing fixed housing for fixed populations, but an
opportunity for people to receive the services and the
intervention that they need, so that they can transition to
economic independence.
HUD's commitment to ending what had been a period of
economic segregation in our large warehousing projects to
economic diversity is a very important issue. And I want to ask
you a policy question first. We have been joined by Mr. Clay.
I'm sorry, does Mr. Cabrera have a statement also?
Mr. Cabrera. Only if the chairman would like to hear it.
Mr. Turner. I would absolutely love to hear it. I am sorry,
from the opening I thought perhaps you did not, Mr. Cabrera.
Mr. Cabrera. Not at all. If it is easier and you would like
me to waive, I am happy to.
Mr. Turner. No, I would be glad to hear your opening
statement and also acknowledge we have been joined by Mr. Clay,
our ranking member.
STATEMENT OF ORLANDO J. CABRERA
Mr. Cabrera. Thank you, Mr. Chairman.
Mr. Chairman and Ranking Member Clay, thank you for
inviting us to testify today about the future of public housing
in the 21st century. My name is Orlando Cabrera, and I am the
Assistant Secretary for Public and Indian Housing at HUD.
After reviewing the testimony of all of the witnesses that
have appeared before you, one might conclude that public
housing is in a state of crisis. I would suggest that it is
not, and it is in a state of much needed change.
In brief, public housing is joining the world of multi-
family housing in terms of financial management and oversight.
The most effective means to illustrate this change, in my
experience, is using financial analysis. Yet it is the one
least used when discussing public housing, which traditionally
has been perceived as a social program.
First, a very brief and very general history of public
housing finance might help. Public housing first came about as
a way to provide decent housing for lower income workers in our
cities. Nationwide, but particularly in our larger cities, most
of the developments that are used as public housing today are
about 70 years old and were the stock used to house those
workers.
The Federal Government paid to construct the units and the
rents covered the operating costs, because the units were
relatively new. And because the families that were housed were
mostly the working poor, the basic arithmetic worked in most
cities for about 20 years.
In the early years, there was no Federal operating subsidy,
and as such, there were few Federal operating requirements. By
the early to mid-1960's, this simple financial model began to
break down mostly because those assets aged. Operating costs,
including deferred maintenance, began to rise and tenant
incomes began to decline. PHAs were still free to set rents
flexibly, only it required higher rent burdens on increasingly
poorer tenants.
In 1968, Congress passed the Brook amendment, which fixed
rents at 25 percent of tenant incomes. While Brook protected
the tenant, it hastened the financial crisis for many large
PHAs in many ways. It wasn't for another 6 years that Congress
established a comprehensive operating subsidy program and
another decade or more until it established a comprehensive
program for capital improvements.
Once we began to finance public housing operations and
capital improvements through appropriation, we discouraged
public housing authorities from operating in accordance with
sound real estate practices, charging adequate rents and
creating capital reserves. For some years, that persisted until
it became clear that public housing's capital stock had aged so
much and was in such dire need of capital improvement that the
issue had to be revisited. Capital investment occurred during
the late 1970's and early 1980's, but essentially very little
change when it came to improving public housing stock.
In 1994, Congress passed HOPE VI to address the most
distressed public housing authorities. PHAs began to demolish
the obsolete inventory and rebuild with affordable units as
opposed to public housing units. Then in 1996, Congress passed
the Quality Housing and Work Reform Act, creating new operating
fund and capital fund programs. The Congress directed HUD to
develop these programs through negotiated rulemaking.
A byproduct of QHWRA was that Congress began to reconsider
the business model that public housing had used for decades.
Much of this issue centers around the adequacy of the former
business model and the possibility of new business models. It
commissioned a study known as the Harvard Cost Study. The
Harvard Cost Study examined the way that PHAs were funded. It
looked at the cost of operating other HUD housing programs in
similar markets. It recommended a new formula for determining
operating subsidy, replacing a system that traditionally
disfavored the Nation's newer population centers, in the south
and southwest, from those parts of the country that were losing
population.
Based on Harvard's research, Congress directed HUD to
undertake asset management, and HUD did. The operating fund
rule was produced after a 2-year negotiated rulemaking process
and set forth the path for change. The former business model
for public housing essentially paid public housing authorities
an operating subsidy based on a formula that assumed a set
number of units with the same cost per unit, regardless of the
nature of each individual development that the public housing
authority owned. No manager of real estate would use this
model, because it would be impossible to know the true cost of
actually operating the units under management.
The new model contemplates that public housing authorities
run their units in a way that actually recognizes the economics
of running each of the developments that is under a public
housing authority's management. First, asset management does
not apply to PHAs that have fewer than 250 units. Second, asset
management requires public housing authorities to make
decisions based on the economics of managing units first.
Third, asset management requires public housing authorities to
know the cost of running their business. Fourth, asset
management encourages local flexibility by minimizing HUD
involvement in operations. Finally, asset management will mean
that the operating subsidy formula will change. Seventy-percent
of PHAs are gainers under the new formula, while about a
quarter are decliners.
As part of phasing in asset management, the negotiated
rulemaking committee recommended and HUD ultimately adopted a
concept called stop loss that applies only to those PHAs that
are declining in subsidy and elect to apply for stop loss. Stop
loss means that a PHA that declines its subsidy may elect to
apply for stop loss designation, which will mean that their
pre-operating subsidy rule allocation level will remain the
same because they have achieved stop loss status. They have
become efficient.
Stop loss is a very small component of asset management.
Comparatively, few of the Nation's PHAs will apply for stop
loss simply because they do not decline significantly.
Moreover, the stop loss assumes that an applicant PHA has
elected to accelerate their move toward asset management. Many
witnesses who have testified noted that asset management was
prescriptive. Some went further and alleged that asset
management was micromanaging. My sense is that most of the
comments relate to stop loss, not asset management.
Asset management, as previously mentioned, is a move toward
greater local control and flexibility and less centralized
control at HUD. Stop loss is a small subset of asset
management. Effectively, it guarantees that a decliner can lock
in its former subsidy level at the expense of other gainers and
declining PHAs. So in order to achieve stop loss, HUD has
required that stop loss applicable PHAs demonstrate that they
are achieving efficiency on their own and within their budgets
without external subsidy.
Another aspect of asset management that is fundamental is
better financial reporting. Asset management was developed
after consulting with accountants in order to achieve a model
that better conforms with generally accepted accounting
principles consistently applied. Achieving a better conforming
financial structure means that PHAs will be better equipped to
access financial markets, because the former model was not a
model that most stakeholders in the financial community, namely
rating agencies, investment bankers, bond insurers and others,
might better assess PHAs as entities.
The transition toward asset management begins in earnest in
2007 and full conversion should be in place by 2011. It is a 4-
year process. Assuming that asset management is successfully
implemented, the 21st century for public housing means that
PHAs will evolve using a variety of business models, not just
one. It means that PHAs will be better positioned to access
debt and capital markets in order to improve the condition of
existing units, units where it makes sense to rehab, or more
likely than not, develop new affordable housing units that
serve their communities. Ultimately, the issue is change and
adaption.
Thank you for your time and attention. I am ready to answer
any questions that you may have. Thank you, Mr. Chairman.
[The prepared statement of Mr. Cabrera follows:]
[GRAPHIC] [TIFF OMITTED] 34661.007
[GRAPHIC] [TIFF OMITTED] 34661.008
[GRAPHIC] [TIFF OMITTED] 34661.009
Mr. Turner. Thank you, Mr. Cabrera. We do not have a copy
of your written testimony, so if you would please provide us
with a copy of that, I would greatly appreciate it.
Mr. Cabrera. Sure.
Mr. Turner. And I would like to recognize our ranking
member, Mr. Clay, for his comments and questions.
Mr. Clay. Thank you very much, Mr. Chairman. I thank you
for holding today's hearing to receive the administration's
views on public housing issues, and I certainly welcome our
witnesses's testimony. I would love to submit my statement in
its full text into the record.
Mr. Turner. Without objection, so ordered.
[The prepared statement of Hon. Wm. Lacy Clay follows:]
[GRAPHIC] [TIFF OMITTED] 34661.010
[GRAPHIC] [TIFF OMITTED] 34661.011
Mr. Clay. Thank you.
Let me start with Mr. Bernardi. How are you this morning?
Mr. Bernardi. Fine, sir.
Mr. Clay. It is good to see you.
You know, I believe we need to rid public housing of
dilapidated developments and allow for new developments to
replace them. According to the St. Louis Housing Authority,
however, there are more than 700 units that need repair or are
uninhabitable in their public housing program.
Can you speak on ways in which HUD can work to improve its
capital development efforts for PHAs to ensure that housing can
be replaced or repaired in a timely manner?
Mr. Bernardi. Yes, Ranking Member Clay. I know you are
familiar with our HOPE VI program that went into place in 1994.
There were 100,000 severely distressed units throughout the
country. The HOPE VI program in its infancy took applications
from PHAs around the country. I am pleased to say that from an
unlimited amount of dollars that could be expended with a
particular PHA, changes were made. Now I believe the maximum
limit is $20 million for a PHA to address that situation.
At the same time, we encountered some difficulties in the
process that many PHAs, while they had the ability to manage a
housing authority, were not developers and didn't really know
how to go about putting into place the demolition of properties
and then the reconstruction of those properties. That is a
program that we have at HUD.
Unfortunately, a tremendous amount of money is still in the
pipeline, money that has been appropriated has not been
expended. But that program continues to exist, and that is the
main program that I believe that we have that addresses the
concern of severely distressed public housing to either
rehabilitate that or to take it down. But what is awfully nice
about HOPE VI is that in its lifetime, I believe it has
leveraged like $9 billion of non-public moneys. So you can see
the cooperation and the utilization of other entities to
provide quality housing.
Then the housing that evolves from that, sir, is not just
affordable housing, it is mixed income housing, it is housing
on a voucher program. So it really lends to what I believe we
all would like to see, an integration, if you will, of lower
income folks into the mainstream of the community when it comes
to housing.
Mr. Clay. Tell me why the money is still stuck, for lack of
a better term, why is it still stuck in the pipeline and not
really in the hands of the housing authorities to do the
repairs?
Mr. Bernardi. There are some instances, and I am sure
Secretary Cabrera can give you those chapter and verse, but
there are some instances like Atlanta, for example, and I
believe in Chicago, where they have done wonderful things. As I
mentioned earlier, you really need, and now we require that
when an application is submitted you have a developer online.
Previously many of these, they were public housing authorities
who made the application and then the process just bogged down
as they looked to move it forward, trying to find the right
development, the right partners.
Mr. Clay. You know that the housing authorities will give
us a different angle than that.
Mr. Bernardi. That is true, but in some instances, sir,
when that money has been in the pipeline for 3, 4 and 5 years,
there has really been very little action, that gives us pause.
We have always thought, I feel very strongly it is a good
program. But there is still a couple of billion dollars, I
believe, in the pipeline. And we need to make sure that is
expended.
And then some day, I believe it was then-Secretary
Martinez, now Senator Martinez, said, we need to improve on
this and we need to talk about perhaps maybe a HOPE VII. We are
taking a look at it. Our folks in Public and Indian Housing are
studying it, and they can give you good examples of how it is
working, but in other areas where we can improve.
Mr. Clay. Let me ask Mr. Cabrera, then, Mr. Bernardi
mentioned HOPE VI several times. The President's budget for
fiscal year 2007 proposes once again to zero fund the HOPE VI
program, a program given high marks by many housing experts.
How is Congress expected to improve the operation and
performance of our public housing programs if we are constantly
fighting for adequate funding among these programs? And how can
the private sector reliably partner with PHAs seeking HOPE VI
program funds when the long term viability of the program
remains in question?
Mr. Cabrera. Well, one way is to leverage the capital fund.
The capital fund is a fund that is open in the marketplace, in
other words, PHAs can use the capital fund to do demolition and
disposition of their properties, and they have.
The second way is doing precisely what Secretary Bernardi
just said. One of the things we have discovered is that PHAs,
as a general rule, are on a learning curve when it comes to
development. They understand how to manage public housing units
pretty well, they have been doing it for a while. But
development is not something that they have been doing for a
very long time.
An issue with HOPE VI, and I think the real context of the
conversation is this, I think Deputy Secretary Bernardi has
mentioned HOPE VI favorably in many cases, as has Secretary
Jackson and the President. I want to distinguish that, though,
from an effective use of funds. Of the $5.5 billion that has
been allocated to HOPE VI, approximately $2 billion has not
been used.
Adding to that, some of those developments are 10 years
old. Usually what you would see is that in those cases where
the PHAs apply competitively for HOPE VI money, those PHAs
applied on their own, generally not venturing with a developer
with the experience in construction. So therefore, they have
been hampered in their development.
On the other hand, when you look at Atlanta, and that is a
great example, Renee Glover appeared before you, she understood
this. So she partnered with a variety of developers and got
things moving. That model, I think, is predominating now. I
think what you have seen in the last 2 years is PHA moving in
that direction and realizing that development is a whole
different ball of wax in management.
So essentially the short answer here is it is a learning
curve. It isn't simply an issue of appropriation. It is an
issue of how you utilize the appropriation on the ground level
as a PHA.
Mr. Clay. I agree with that, but I am still hearing two
conflicting premises coming from this administration. One, the
President zeroes out in his budget HOPE VI. Then I hear you
today saying that all but $2 billion of the $5 something
billion has been spent because housing authorities have been
created.
Mr. Cabrera. No, the $2 billion is approximately somewhere
between 30 percent and 40 percent of the entire appropriation.
That is a significant number. I think this is what folks are
wrestling with. In other words, great, it is a nice idea, but
if you can't get the money used, you wind up in a position
where the program comes into question.
Mr. Clay. Now, there has not been a misunderstanding
between HUD and the PHA? Initially, the PHAs were not under the
assumption that they could come up with their own development
and then told in the middle of the ball game, oh, you had
better find a private partner? Has that happened?
Mr. Cabrera. Mr. Ranking Member, you know, I have only been
here since November, so I don't know if it has happened in the
past 11 years. It might have, it might not have.
Mr. Clay. I see.
Mr. Cabrera. But I think the real issue amongst most PHAs,
and I think most PHAs would say that yes, there is a remarkable
difference between development and management and yes, it is a
better policy than not to work within the framework of someone
who knows construction than not to work within that framework.
Mr. Clay. I know that in St. Louis, we have been able to
find a pretty good partnership between PHAs and private
developers, McCormick Barron being one of them.
Mr. Cabrera. We have had other large, major cities with
HOPE VI developments that have struggled mightily with this
issue because they did not partner. Now they have come to the
issue of the partner.
Mr. Clay. So if other cites come forward with a partnership
then the $2 billion is still on the table?
Mr. Cabrera. Yes.
Mr. Clay. Mr. Bernardi, did you have something to add?
Mr. Bernardi. I wanted to address the budgetary concerns
that you raised, Ranking Member Clay. As you know, we have a
finite number of dollars with which to run all of our programs
at HUD. The fact of the matter is, since 1998, 42 percent of
our budget was consumed by tenant-based and project-based
vouchers. In the 2007 budget, that percentage will go from 42
to 62 to 64 percent. I make that distinction to let you know
that we are being pulled in many directions with a finite
number of resources.
So logic tells us that if you have $2 billion that has not
been expended in a particular program, albeit it a very good
program and a program that works well in most cases, at the
same time, we have other programs that we need to fund, so it
is a balancing act, as you know, from budget year to budget
year.
Mr. Clay. Are there any considerations on the table for
some type of creative, I want to say creative financing or in
some ways have public housing authorities make money? Have you
seen any examples of that?
Mr. Bernardi. We have public housing authorities that
utilize their capital dollars and I believe even their
operational dollars to go out into the marketplace to bond and
receive resources, so that they can repair and build.
Mr. Clay. Like the authority in Atlanta.
Mr. Cabrera. May I add to the Deputy Secretary's answer?
Mr. Clay. Sure.
Mr. Cabrera. I would go a step further. We have public
housing authorities that are running units that are not within
any restriction in terms of who they serve. So we have some
public housing authorities that actually make a good amount of
money basically being real estate managers. And they are using
that money for development wherever they can.
Mr. Clay. That is an interesting concept. I thank you, and
I thank the chairman. I am sure I will get another opportunity.
Mr. Turner. Absolutely. I want to thank my ranking member,
Mr. Clay. As this committee has undertaken the issues of urban
revitalization, public housing, he has been a leader both in
his community and on this committee in making certain that we
flesh out the issues as to how on the Federal level we can best
assist those in our local communities in addressing our public
development issues.
Mr. Bernardi, I had signaled to you that I was going to ask
you a policy question. As you know from the hearings we have
had, we have had a broad range of topics that we have
discussed. So my questions will be very diverse in the areas
that I ask you. And the first one is a policy question. To ask
you this policy question, I am going to tell you a story first
of when I served as mayor of Dayton. In our very first hearing,
when we had former Secretary Cisneros and former Representative
Lazio, I told them this story and asked them their comments,
which sparked a specific policy debate that I want to direct
toward you.
When I served as mayor of the city of Dayton, we had
undertaken a fairly significant housing strategy with our view
that we needed economic diversity not only in public housing
but in our neighborhoods. And in looking at not only how we
could use home dollars and other low income tax credit vehicles
for providing quality, affordable housing, but ways in which we
could bring market housing into our neighborhoods, specifically
our inner ring around our downtown, where some of our more
historic neighborhoods presented an opportunity for attracting
capital.
In one of those neighborhoods, there was a public housing
development that was a site for significant criminal activity,
complaints from the neighborhood, complaints from those who
lived within the development. And it was also strategically
located as a piece of property that had significant economic
redevelopment value.
Being aware that the public housing authority had a
significant vacancy rate overall in its property management, I
approached the public housing authority and inquired about the
availability of this property for demolition and redevelopment
and was surprised to hear from the then-director of the public
housing authority that the housing authority was in the process
of applying for funds to refurbish and redevelop this facility.
They were actually going to be seeking the city's support for
that. And they were not interested in looking at this as a
development opportunity that could be leveraged in partnership
with the city in development for some of their other housing
issues and needs.
The reason I was given by the director of the public
housing authority was that the individuals that were living
within this facility were not likely to move to the other
vacancies that the public housing authority had because they
were on the economic borderline of self-sufficiency and that
there was significant amount of affordable housing available in
the neighborhood in which this was located, that they would
probably transition to independence rather than transition to
other public housing facilities.
When I inquired, well, isn't that the goal, I was told that
the cost to the public housing authority in the overhead charge
that they are able to apply to operate this facility was
important for them to be able to maintain their staff and
functions, for them to be able to provide their services to
their other facilities. That is a facility that is
transitioning, where ultimately, through change of leadership,
there was a desire on the part of the community and the housing
authority to partner with the community in ways that site might
be redeveloped.
That brought us to the public policy point on which former
Secretary Cisneros and Representative Lazio disagreed. That is,
there are some who believe that once a piece of ground has been
public housing ground, that it should be forever public housing
ground, regardless of the change in demographics in the
community, regardless of the ability for the land to serve both
those who are in public housing and the community itself. And
that the goal of providing affordable housing in public housing
and assisted housing is not diminished by recognizing that a
real estate portfolio of a public housing authority is a
dynamic portfolio that can shift.
Could you please tell me what your view and perhaps the
current view of HUD is with respect to the transitioning of
property where it perhaps has become dilapidated, needs to be
addressed as insufficient for satisfying the needs of those who
live there, and whether or not communities can work in
partnership with their public housing authorities for
transitioning of land that at one point made perfect sense to
be public housing but perhaps needs to be mixed use and mixed
income or mixed housing and commercial?
Mr. Bernardi. Mr. Chairman, the proposals that we have on
the flexible voucher program and the asset management program I
think will give me an opportunity to answer your questions. The
fact is, the 3,400 plus public housing authorities throughout
the country, they are not all the same. Dayton is not like
Syracuse, it is not like St. Louis. St. Louis is different from
Atlanta.
The fact is, we need to provide more flexibility and more
responsibility to the public housing authorities to manage
their operations given what is best in their particular locale.
I can liken that to, asset management is so important to us,
where each entity provides exactly what it takes to operate
that entity, is the money that is being utilized there, is it
being utilized to the best possible advantage, the best
possible services, are the tenants being taken care of
properly?
What we presently have is we have each public housing
authority without asset management, where they present to HUD
and have for years, here is what it costs for us to operate our
certain number of units and certain number of buildings. We
need to break that down. That is not unlike a developer, in my
opinion, who has three properties. Two are very profitable and
doing very well and one is not. But to continue to lump them
together, you indicated a particular piece of property in
Dayton that the public housing authority had and I think you
absolutely were trying to do the right thing, could you work
together, and if you can't work together you can't get things
done.
That doesn't mean, nor would we propose that we would want
to lower the number of units that are available. But if a
structure is not performing, if a structure needs to be razed,
if you can move individuals within that same neighborhood, if
you will, and provide them with affordable housing there, but
you also mentioned that someone indicated to you, well, these
folks would go out and become independent renters or
homeowners, that is what we would all like to accomplish, that
is what we are here for.
The fact of the matter is that our budget keeps increasing
every year at HUD, as I mentioned earlier to Ranking Member
Clay. But we don't serve more people, we don't have more units.
I believe I am correct in stating that.
So what we really need to do, and our philosophy is with
asset management and with the programs that we have, reducing
improper payments and also the Moving to Work status, which we
feel very comfortable with, which gives the housing authorities
tremendous flexibility to provide employment opportunities, to
provide term limits and rent reforms. Right now the rental
structure that we have in place, it really lends to
individuals, not stating the number of people that are in a
unit, either not reporting or under-reporting income. We have
an awful lot to do.
In my opinion, again speaking for myself and HUD, we need
to be as productive as we possibly can with every single unit
and every single structure that is out there. The way to do
that is to push as much as we can to the local housing
authorities. Obviously with the checks and balances in place,
but you can't have a big brother from Washington. We provide
resources every year and we see basically the same results. I
think everyone would like to see that change.
Mr. Turner. Thank you.
Former Secretary Cisneros, whom I have great deal of regard
for and who has certainly been a leader in the issue of
economic diversity and addressing the issue of the condition of
distressed public housing projects, espoused the view plainly
and straightforwardly that once a piece of real estate has been
designated as public housing land, it should forever be public
housing land. I appreciate your view, which is consistent with
former Representative Lazio's that it is a dynamic asset
portfolio that we have to reflect, and that public housing is
an integral part of a community, not separate from a community,
and should be looked at in the overall development plan.
Which raises the next aspect of the exact same development
that you actually mentioned in what you believe is important
for the community to look to, and that is the preservation of
the opportunities for the public housing that is at the site.
The public housing authority in Dayton had placed in its long-
term strategy that this would be a facility that would
transition, that would be demolished, and the real estate would
transition to a mixed use. Their long-term plan included
seeking Section 8 vouchers for replacing those units that were
not one to one replaced.
Because this site was one that they had begun the process
of determining that it would be demolished rather than
refurbished, they did not refill each and every unit as they
became vacant, which would be consistent with any asset
management or property management, you would want to lower your
costs, the impacts on the families, the impacts of relocation.
And now they are concerned that the policy that they were
pursuing of getting the units replaced with Section 8 vouchers
and other units that they have, that they might be penalized
for their process of having a long-term strategy and plan, and
that the Section 8 vouchers may not be available to them for
units that they did not fill in planning for the ultimate
decommissioning of this facility.
We have heard this concern from other PHAs that as they do
the asset management planning and they plan for a facility to
be decommissioned, that reducing the population of that
facility actually penalizes them, resulting in less
qualification for Section 8 vouchers and then units for their
management. Are you familiar with this concern and could you
give us some thoughts on that?
Mr. Bernardi. A little bit, and then I will defer to
Assistant Secretary Cabrera. It would seem to me that we do not
replace one for one when it comes to our HOPE VI program. What
we are trying to do, as you mentioned, is to place individuals
into affordable, market-rate, low income tax credit housing. I
don't think the goal here is to keep the amount of units that
you have or to add to these units. I think the big picture
needs to be that we would like to lessen the number of units
that we have over a period of time, if you want to look 10 or
20 years into the future. We want to be able to provide
opportunities for individuals to have short-term housing, but
at the same time, have the services that they need, the
counseling, the employment opportunities, so they can be self-
sufficient. I believe the overwhelming majority of Americans,
that is what they would like to do.
Now, as far as the replacement of Section 8 vouchers for
the individuals who are not part of the HOPE VI reconstruction,
I believe they have those vouchers and they are portable. But I
will leave that to Assistant Secretary Cabrera.
Mr. Cabrera. It is helpful when one looks at an issue like
that to segregate things into two pots.
Mr. Turner. Before you continue, this is not a HOPE VI
site.
Mr. Cabrera. I didn't assume it was. I assumed it was just
a straight demo dispo of some kind. So let's assume that it is
a piece of property that is being currently used as public
housing. Let us further assume that there are tenants there.
They have been now approved for demolition. So that means that
they more probably than not receive tenant protection vouchers
for those people who were in those units. And those vouchers
would be used as any other Section 8 program.
But the reason I wanted to create these two pots is, public
housing works at the exclusion of Section 8. It is a distinct
program. So once those tenants have now moved on into units,
the PHA would typically demolish the improvement and build
something back, using whatever subsidy it wishes to use,
private activity bonds, tax credits, if the State, in this case
I am assuming it is the State of Ohio, has a State program for
soft money for gap financing, great.
But they will build those units. Those units, when they are
built, are either going to be given some public housing
attribute, some or all of them, or they are not. They are going
to be affordable housing units. Affordable housing units serve
a wider band of demographics, but vouchers can be used at
affordable housing units. Once they have gone and become
temporary vouchers, they are inside of the baseline and they
will not or should not be lost.
So I am somewhat at a loss for the concern. I think the
concern might be coming from another place, which is that there
is this sense, and it is the correct sense, that we have seen
the Section 8 program grow so enormously that there are
stresses building at the fringes over how much more it can
grow. The Section 8 program has grown 100 percent in 2006
dollar terms since 1990; 100 percent. I am not talking about
1990 dollars versus 2006 dollars. I am talking about 1990
dollars in 2006 value versus 2006 value today. That is enormous
growth.
So I think one of the things you might be hearing is
tension over the reality that it can't keep growing, because it
is beginning to impact the other programs within the agency,
not the least of which is the capital fund, the operating fund.
And this causes enormous policy stress.
Mr. Turner. That gets me to my next question, and that is,
Secretary Bernardi, recognizing this stress that is occurring
and that people have seen the concern of this sort of pac-man
future of Section 8 as it eats away overall at HUD's ability to
look in the future for its budget, what are some of the things
that HUD is looking toward, recognizing this growing impact on
HUD?
Mr. Bernardi. We need to make sure that our statutory and
regulatory environment is conducive to what the public housing
authorities need to undertake. I think the simplicity,
flexibility, being progressive, I think public housing
authorities maybe should look to consolidation. As a former
mayor, I realized full well when you didn't have the resources
that you could consolidate in such a way that you would be able
to provide the same kind of service and increased service at
least the same cost, if not a lesser cost.
I think it is going to be very, very important, the asset
management program that we have put in place, that the housing
authorities utilize that resource. That will give them the kind
of control that they are going to need to utilize their
resources so that they can stretch them farthest way possible.
Mr. Turner. The number of PHAs, although our hearings were
not budgetary in their focus, many budgetary issues arose. And
many of the PHAs claimed that at the end of last month, HUD
informed them that the proration of the public housing
operating fund for 2006 would be significantly lower than had
previously been announced. The PHAs argued that they had been
funded at 92 percent of their eligibility for the first 6
months of 2006. Under the new rule, the annual proration would
be reduced retroactive to the first of the year to 85.5
percent, and that would have significant budgetary consequences
for the PHAs, since they had planned obviously a certain level
spent, as they had been going through the year at a certain
level, that the magnitude of the impact then would be felt
solely in a half of the year.
Would you want to comment on their concerns?
Mr. Cabrera. Currently we are looking at the issue. The
issue is really being driven by utility costs. Utility costs
exceeded what was expected by, as I understand it from the
industry and frankly internally, approximately $300 million.
That is a lot of money when you look at the entire operating
subsidy budget.
That is an issue I believe we are going to need to bridge,
and certainly we are spending an awful lot of time trying to
bridge it as I speak.
Mr. Turner. My staff has pointed out that a concern is that
apparently in the budgetary document that HUD submitted to
Congress for 2007 the Department estimated that utility costs
would actually decrease from 2006 to 2007 and the budget
document further estimates that the total 2-year increase in
utility costs from 2005 to 2007 will amount to just 2.4
percent. I don't know if you have anyone with you who wants to
speak on that. And I won't ask you a specific question on the
budget numbers, other than to reflect that the staff had
provided us these numbers. Do you have concerns about the
current method in which HUD is looking at its future energy
cost structure that impacts PHAs and their management? And what
might you be doing to address that?
Mr. Cabrera. We are looking at the whole spate in terms of
the budgetary concerns. So I would say that it is basically
part and parcel of my previous answer. We are looking at the
whole enchilada.
Mr. Turner. OK. Switching to a random series of topics,
rent simplification, Mr. Secretary, you mentioned that as an
issue. Many of the PHAs raised it as an issue.
The Boulder Housing Partners gave us some pretty compelling
information about what they are experiencing in rent
calculation. In fact, they went on to state that, they gave us
a story, and the documentation that went with it, in looking at
rent calculation of a elderly and disabled resident who, in
order to calculate the medication deduction was prescribed
things from bananas to vitamin C and that their staff has an
enormous task in looking at receipts for various purchases in
order to determine what the rent calculation is.
I believe they were saying that 10 percent of their overall
budget is devoted to the activities of rent calculation. They
speculate that perhaps you might be looking at 3.2 million
different rents in the process of calculation, and that there
really isn't anyone served by having either the residents have
to go through this process, which has to feel very violating at
times, or the staff to go through the process of individually
calculating a rent based upon expenses and income, rather than
looking at some standard deductions and income proofs that
would allow both the dignity of the resident, instead of having
to come in with bags of receipts, and the staff time of the
facility to be freed up and perhaps income confirmation but
expenses by looking at standard deductions. Could you comment
on that?
Mr. Bernardi. The rent reform is a major part of what we
are putting forward to change the system. It is a very onerous
system when it does come to rent. We need to be looking at flat
rent, maybe percentage of income tiered rents. We need to look
at this a little differently to allow individuals who perhaps
earn additional dollars, maybe they should have an escrow
account so they can realize that savings. The rent needs to be
matched to local conditions. I don't believe that as a housing
authority you are looking to charge rents so that you can have
a better bottom line. I think you need to take care of the
individuals as opposed to the agency.
We had improper payments back in 2000 that totaled about
$3.2 billion. That has been cut better than half now by our
review of tenant files, our extensive outreach and training,
cooperation with States when it comes to data on HHS, using
their income verification efforts along with ours. But in the
final analysis, the rent structure needs to be changed. We need
to make sure that people aren't working the system against us.
A fair rent has to be charged, but I think it has to be
transparent. I think it has to be flexible, and it is not
flexible now.
Mr. Turner. Mr. Clay.
Mr. Clay. Thank you, Mr. Chairman.
Mr. Bernardi, our Section 202 and 811 programs for the
elderly and disabled are vital to elderly and disabled
individuals, as these households represent about 75 percent of
public housing's population. I believe these programs represent
those with the greatest needs and must be our first priority
when contemplating any future policy changes. Yet HUD's fiscal
year 2007 budget request would have made significant cuts to
funding for these programs. Fortunately, this funding was
restored in the House during the appropriations process.
What is the administration's rationale for trying to cut
these programs?
Mr. Bernardi. Ranking Member Clay, the difficulty in the
budget process, Secretary Jackson testified that difficult
choices had to be made. I mentioned earlier the amount of
dollars that we are spending on our tenant-based and project-
based. It is approximately $22 billion of our 2007 budget out
of a $32 billion budget. That is 62, 63 percent. Just back in
1998 it was 42 percent.
In the 202 and 811 program, for the elderly and for the
disabled, the budget that has been proposed is not going to
affect the individuals that are part of the process, or the
maintenance of what we have. Unfortunately, what it does affect
is creating additional units. We fund all the renewals and the
issue is construction funding, as I was saying. There are funds
that are unexpended in those accounts.
But in the final analysis, even giving you that kind of
information, it is very difficult to balance all of our
programs, our home program, our homeless program, housing
opportunity for persons with AIDS, our manufactured housing. We
have significant challenges, and we would like to be able to
fund them all, if we could.
Mr. Clay. We do have significant challenges. I know that in
the coming years, we will experience a huge wave of retirees,
with the aging and graying of the baby boomers, which tells me
that we ought to be prepared for that onslaught of new elderly.
Would it be helpful if you all were allowed to shift some of
this funding? Like you said, there are surpluses in some
programs. Do you do that now? Do you shift the funding, the
dollars from one program to the next?
Mr. Bernardi. We try the best that we can to make sure that
all of the funding requests, that they are in programs that are
functioning to full capacity as possible. We mentioned the HOPE
VI program earlier and the amount of money that is in the
pipeline.
The fact remains, you are absolutely correct, with the baby
boomers coming to their time right now in the next few years,
myself included, there is an awful lot of senior citizen and
elderly housing that is going to be necessary. I would hope,
though, that would be an opportunity in many instances where
you would have the private sector, in conjunction with
Government, working on that.
Mr. Clay. Let me ask you about another situation. In St.
Louis, there are over 700 units out of 3,700 in the project-
based public housing program unavailable because of demolition
or modernization efforts. While we want to continue improving
our housing choices for our families, many communities face a
chronic shortage of vouchers or project-based units. Would you
agree that modernization and development efforts for new
Section 8 housing are often too slow to meet demand?
Mr. Bernardi. Well, the demand obviously outstrips the
resources that we have. But to do the modernization,
unfortunately when you do demolition you are going to have
situations where you are not going to be able to replace unit
for unit. More resources would be nice, but with limited
resources, I believe we are doing the best we can.
Mr. Clay. Is the modernization project approval process
broken, and other processes, are they broken as far as how HUD
interacts with public housing authorities?
Mr. Bernardi. No, I don't believe so. I think the
relationship that our Assistant Secretary and his staff has
with public housing authorities is a very good one. It is
ongoing. There is constant communication. The situation calls
for additional resources, and we put those resources to play
where we can.
Mr. Clay. Mr. Cabrera, would you like to comment?
Mr. Cabrera. Yes, I would have to say that it probably is
working better now than it has in a very long time, for a
variety of reasons. Public housing authorities, like anyone
competing for a resource, and I don't mean competing for a HUD
resource, I mean competing for resource, when they put together
these deals, they have to look at a variety of pools.
The first place they look is not HUD. The first place they
look when they want to develop units is the low income housing
tax credit. And the reason is because it is not debt, it is
equity. Therefore, they are not going to owe any money. Yet
they will have units that can serve their residents.
So that is a competitive process. In the case of Missouri,
my good friend and now former executive director, Erica Dover,
put together a wonderful program that helped PHAs, I believe,
that in Missouri there was a setaside for PHAs.
But what happens is, you can't stop there, because the low
income housing tax credit by law cannot finance a deal by
itself. It has to be brought into context with other
components, other money. That money can be State money in the
form of gap financing, that money can be local money. Here is
some money that can't or typically is not used if it is done
directly. It is very rare to see that kind of development come
up with CDBG. Why? Because it is a dollar for dollar reduction
in eligible basis, which means you get less tax credits. So you
are more likely to see a loan come from a State than CDBG.
You look for other moneys, from non-profits and NGO's. So
it is a difficult process to get those units up. But it is
multi-layered, it is a cake.
I would like, Mr. Ranking Member, I wonder if I might be
indulged to go back to the 811 issue for a moment. I can't
speak to 202, 202 is housing, not me. But 811 is in part me.
And what is happening in 811 is the voucher programs actually,
that budget has increased significantly. So the issue in the
debate currently, in that group of stakeholders, is do we want
more vouchers so that folks who have disabilities can go out
and look for units where they can or where they want to, or do
we want to build the units where they will be? That is a debate
that has been going on for some time.
But certainly in the budget, the 811 voucher allocation or
appropriation is higher, considerably higher than it was the
prior year.
Mr. Clay. I appreciate what both of you all have said and
how you have answered the question about the process, saying
that it is not broken. However, when we hear from PHAs, they
indicate to us that the process is broken, which tells me that
there is probably a breakdown in communication between your
offices and their operations. Perhaps we could do a little
better job of working with each other in that circumstance.
Mr. Cabrera. Mr. Ranking Member, I think most people in the
stakeholder community would tell you that they have my e-mail
address. The reason is because I give it when I give speeches.
And they have my number. And they are not shy about calling, or
for that matter yelling.
So at the end of the day, I think what happens is, it is
3,400 PHAs. When you look at the pool of 3,400 PHAs, and those
undertaking modernization, most of them would say, no, this is
going pretty smoothly. If you were to talk to Chicago, they
would say, oh, it is going quite smoothly, because we have
moved faster on deals than has ever been the case before. If
you look at other cap fund deals throughout the country, they
would tell you the same thing.
So my sense of life is it is moving much faster. Is it
perfect? No, but I don't think that it can ever be.
And the other truth of the matter is, sometimes we run into
PHAs that are not equipped to deal with the process of getting
a loan. The reason they are not equipped is they do not have
the experience of having done it. So they don't have, for
example, a lawyer. This happens a lot. They don't have a
financial advisor. So they will come in on their own looking
for a loan, and that can actually exacerbate the problem.
Mr. Clay. I thank you for that response. In my final
question, GAO has done work on the amount of improper payments
made under HUD housing programs. One, can you describe for us
the extent to which fraud or mismanagement has drained the
resources of HUD's housing programs; and two, are there
significant managerial challenges that pose a barrier to
adequate oversight of agency expenditures?
Mr. Bernardi. As I mentioned earlier, Mr. Ranking Member,
back in 2000, the improper payments totaled $3.2 billion.
Through the hard work of our folks at PIH and in conjunction
with HHS and income verification with the States, we have been
able to reduce that by better than, I think almost 60 percent.
We have a rating system, and OMB has given us, I think we are
the only agency in the Federal Government in improper payments
that has a green light, if you will. We are making good
progress. Of course, we want to eliminate it all. We are
working toward doing that.
But at the same time, I would like to couple my response
with, we really need some rent reform. The system is in place
right now, it just tends to have people try to beat the system
as opposed to having a system in place that is fair. If people
make additional dollars, that does not necessarily mean it does
now, that has to go toward rent. I think people need to see a
light at the end of the tunnel, if you will, where they can
utilize those resources, have an escrow account and then move
from public housing Section 8 low income housing tax credits on
to self-sufficiency.
Mr. Clay. Thank you for your response, both of you. I
appreciate it, Mr. Chairman.
Mr. Turner. Thank you, Mr. Clay.
Two other questions of items that have come up in testimony
that we have had from other PHAs. In the Moving to Work
program, the current rule for Moving to Work work requirements
is, I believe, 8 hours per month. There are some PHAs who
indicated, who are in the Moving to Work program, their desire
to increase that, both with community support and through
agency support. And they cited difficulty in the administrative
process and working with HUD in order to increase those
requirements.
In your both adamant policy commitment and also your
eloquent statements of transition, this is a direction that
certainly would assist those who are transitioning to
independence. Could you please comment on the PHAs' efforts to
increase those requirements and provide that assistance to
residents?
Mr. Bernardi. I will start it off, and then give it to
Assistant Secretary Cabrera. I think we have about 30 Moving to
Work programs--27--27 programs. It has proven in our judgment
that if it works real well that they experiment with term
limits, with rent reform and employment incentive. We need to
do more of that. I know that our PIH department works very
closely with the housing authorities to maximize that Moving to
Work program. I know that others would like to have that same
opportunity.
Mr. Cabrera. If it were an issue, it is an issue of a
baseline. If a PHA wants to exceed the baseline, I don't
believe that PIH would ever say no.
The issue in Moving to Work has more to do with
flexibilities for PHAs to function in a looser regulatory
framework than not. So my experience, I was reading the
testimony and I was struck by Mr. Moses' testimony when he said
the jury is still out. I think if you ask PHAs, the jury is not
out. The jury has come back and said, please, please, please,
give us Moving to Work. The reason is because in the cases of
the high performers, it gives them the ability to deal with
those things most critical to them: operating flexibility and
attending to their units.
This is the thing that sometimes gets lost in the
conversation. Moving to Work has been equally important in
those PHAs that have traditionally been troubled. The reason
that they have become helpful is because usually when they have
been troubled they have been in receivership and you can use
the flexibility of Moving to Work to restructure them so that
they are healthy when you move them back to normalcy.
So I think on the whole Moving to Work has been a rather
resounding success in most cases.
Mr. Turner. From many PHAs, we hear concerns of the impact
of drug dependency being classified as a disability. As PHAs
attempt to have senior housing that includes a disability
component, many times the clash between those who have been
classified as having a drug disability, a drug dependency and
therefore a disability, in a facility that is predominantly
focused on senior housing as being disruptive and an issue of
safety for the residents that are there.
We have heard this from many PHAs. I wondered if HUD had
taken up this issue, what your thoughts might be and if you are
undertaking a policy review of what might be able to be done
there.
Mr. Cabrera. We are not currently undertaking a policy
review. Part of this issue comes back to what I noted during my
opening statement. Looking at PHAs through a financial prism is
quite different than looking at PHAs through a social prism.
The thing is, public housing is just one component of a very
large issue. That includes issues of drug dependency. HUD is
not, and I don't believe anybody would say it is, well equipped
to address drug dependency amongst its tenants or anyone else.
It might be equipped as one of the places the media by which a
drug dependency program could be undertaken.
Mr. Turner. The question doesn't relate to how to intervene
to provide assistance to someone who has drug disability. The
question is, the drug disability as a classification carries
with it a disability designation which then permits someone to
be eligible for housing that is both senior housing and
disabled housing. And that drug dependency as a disability
causes a disruption and thereby has been a threat to those
senior residents who are typically not seeking housing that
might have that interruption or influence in their community.
Mr. Cabrera. Mr. Chairman, I am sorry. I misunderstood the
question. It is a very short answer. We are not currently
looking at that issue.
Mr. Turner. It is one that we have been looking at with
PHAs, and that we may be looking at whether or not there is a
legislative fix to provide PHAs the flexibility to be able to
say that drug dependency is a disability in areas where they
are attempting to provide senior housing perhaps it is not
compatible. I raise the issue expecting that you probably did
not have a policy aspect on the table, but that you might also
want to concurrently look at the issue.
Mr. Bernardi. We would be happy to convene some of our
people and have a discussion on that with your folks.
Mr. Turner. Great. Thank you.
I would like to recognize our Vice Chair, Mr. Dent from
Pennsylvania.
Mr. Dent. Thank you, Mr. Chairman. I appreciate your
holding this hearing. I also thank you, gentlemen, for being
here today. I know that you have also discussed a little bit
about the HOPE VI program, and I didn't hear those comments.
But I just wanted to point out again, I appreciate the
Department's help with the HOPE VI project that is currently
underway in my district. It appears to be attracting
considerable private sector investment.
As you know, the administration has recommended not to fund
HOPE VI in its recent budget proposals. The main question is to
Mr. Cabrera. What is your experience with HOPE VI and if so,
what is it about the program that you seem to think might
attract that much private investment?
Mr. Cabrera. My experience with HOPE VI when I was the head
of Florida Housing was that it tended to consume a lot of
resources that were not HUD resources with the resources that
Florida Housing was allocating, and not necessarily producing
units in a timely way. One reason for that is something,
Congressman, we were discussing just a bit ago. So I am going
to rehash something, and I am afraid I am going to bore Ranking
Member Clay and the chairman.
HOPE VI's issue is one of initial choice when a PHA applies
for HOPE VI. If a PHA, which is not a development entity
traditionally, and to the extent they have become one, have
become one recently, last 5 years or so, undertakes a HOPE VI
deal on its own, typically it runs into a problem with reality.
And reality is running a construction program is very different
than managing units.
So what we have seen over time is HOPE VI deals that have
been put together as joint ventures with precisely what you
said, which is with the private sector, and I include non-
profits, incidentally, in the private sector. They tend to move
better. They tend to perform better. The problem with HOPE VI
over time has been that one, where originally, and Deputy
Secretary Bernardi mentioned it earlier, you had a situation
where you didn't even have to show readiness to proceed. And in
the case of redevelopment, readiness to proceed is everything.
If you are not ready to proceed, it is your sure path to bad
things.
So what becomes important is the ability for the PHA
community to become more comfortable in partnering with the
private sector. One of the problems there has less to do with
Congress or Federal policy and more to do with State policy.
Many States, most States, all States have statutes that
essentially charter PHAs. Many of those statutes have not been
visited in 40 years. So PHAs are sometimes working under a
rubric where they believe they can only go so far in terms of
risk-taking. So they believe they have to do it themselves.
Other times, it is just choice. They want to do it themselves.
More often than not, the successes have been when they worked
with the private sector.
Mr. Dent. So I guess part of your concern with the HOPE VI
is the timeliness of expenditure of the funds, if I understood
you correctly, among other things?
Mr. Cabrera. Yes.
Mr. Dent. Detroit had a situation, they had three HOPE VI
grants, I believe, and I don't know how quickly those moved,
but that was something like 8 years ago.
Mr. Cabrera. They are great examples, Congressman. Thank
you. In one case, it is 10 years ago and in the other two
cases, it is 8 and 6. Only recently after HUD has taken Detroit
Housing Commission into receivership, with the cooperation of
the Mayor, have those units been able to move, or those
developments been able to move.
Mr. Dent. Is there an effective measure that HUD might be
able to implement to regulate the timeframe in which a grant
must be utilized?
Mr. Cabrera. It is certainly, I think the fair answer to
that is probably yes. I think one effort that was made by my
predecessor, Assistant Secretary Liu, was to attack the issue
of readiness to proceed. Because essentially it means
everyone's skin is in the game.
When you approach development, the issue is precisely what
you identified, which is time. When you have private sector
involvement in that, their issue is, get it built as quickly as
possible, because if you take longer than it should, it is
going to cost you a boatload of money. So you don't necessarily
need to do that by regulation in terms of giving them a
deadline. You need to do it by regulation in terms of making
sure all the pins are set prior to shooting your bowling ball
down the alley. So that is really where Assistant Secretary Liu
focused correctly, and it has been very effective in the last 3
years.
Mr. Dent. Mr. Chairman, I yield back.
Mr. Turner. Thank you, Mr. Vice Chairman. I have one more
easy question for you, Mr. Secretary, then I will open it for
you and Mr. Cabrera to make any closing statements that you
want. And that is, you had mentioned affordable housing tax
credits. We talked to many PHAs who have undertaken tax credit
projects as part of their overall portfolio. My understanding
is that in the affordable housing tax credit process that HUD
does not have a significant role in the administration of that
program and yet it is obviously part of the Federal plan for
housing. Do you believe that there could be greater
coordination between the affordable housing tax credit program
and HUD's public housing programs?
Mr. Bernardi. We obviously like to be involved as much as
we possibly can. But at the same time, the affordable housing
tax credit program goes to the States and the States distribute
it. As far as getting involved in the distribution process,
that is a format that the States use. I think they take a look
at what is needed and which housing authorities are going to
utilize it in the best possible way.
Other than that, I can't see us involving ourselves any
further.
Mr. Cabrera. I would like to take my hat off as Assistant
Secretary for a little bit and put my hat on as former
executive director of Florida Housing. HUD has a very important
role to play with respect to the low income housing tax credit
in four ways. The Secretary basically designates difficult
development areas. The Secretary can name which qualified
census tracks are in play for what is called the 40 percent
bump. And HUD puts together the rent caps for low income
housing tax credit developments.
The beauty of the low income housing tax credit is it is
largely autonomous. Because people focus on the developer. The
developer is not where the game is with low income housing tax
credit. The investor is.
If your deal goes sideways because you did something wrong,
the folks who have to deal with the IRS aren't the folks at the
development. It is the folks who put the money into the deal.
And the recapture provisions are so harsh that there is
assurance that there is performance.
From our perspective, certainly, and I think my staff would
tell you, I have made it my mission to make sure that folks are
better educated on how it works, so that at the very least,
from PIH's perspective, we do no harm. That is the issue. We
get out of the way. Learning to get out of the way is very
important.
So I think my focus has been, look, we need to know this
specifically with public housing, our area of public housing
investment. Because it gets used so often, it gets used when we
deal with HOPE VI, it gets used in other modernization. So it
is a good thing. But at the end of the day, I think the biggest
role we can play is understanding the limited nature of our
role.
Mr. Turner. I appreciate both your answers to that. I am a
big fan of the affordable housing low income tax credit. It has
been a great vehicle in my community, specifically in the area
of senior housing. I appreciate your perspective on that.
With that, I want to ask, we have had a series of
questions, and you might have some thoughts that you want to
add to the record before we close, or any statements that you
might want to make and things that we have not asked that you
have expected or prepared for.
Mr. Bernardi. Chairman Turner, I want to thank you, and I
want to thank you for holding not only this hearing but the
previous hearings that you have held in a very important part
of the American process. We need to make sure, and we at HUD
are committed to making sure that low income Americans have the
opportunity for decency and quality housing. Where we will be
20 years from now, hopefully this hearing and other hearings
that you put forth will be able to provide greater assistance
to the people that are in need. We know there are waiting
lists, and we need to make sure that every person that has
access to affordable housing has the opportunity some day to be
out there on their own, independent, either renting or
purchasing a home.
We are committed to the mission, and that mission is to
utilize the resources in the best possible way. We need
changes, and I think we have brought forth those changes today,
with the asset management, with the changing of the rent
structure. We are taking a look again at our HOPE VI program.
And Assistant Secretary Cabrera mentioned the low income
housing tax credits.
It is an area that is forever evolving, but at the same
time, it is staying the same. We can't do that. Everything
changes. We need to change our approach. We need to work even
more closely with the interest groups and the executive
directors throughout this country to make sure that the housing
that we provide is not permanent housing, that it is a way
station, if you will, to self-sufficiency for more Americans.
And I want to thank you.
Mr. Cabrera. First of all, Mr. Chairman, thank you very
much. I would like to thank Ranking Member Clay and Congressman
Dent as well.
I guess from my perspective, in terms of looking, I would
like to focus on the future and what we worry about, what we
deal with most. That is, we are currently dealing with a public
housing delivery system that is 70 years old, with in many
cases, 70 year old improvements. Our issue is dealing with
these things, dealing with these improvements as either
performing real estate or under-performing real estate. That is
going to create a forum where people can have broader
conversations than have been had traditionally, conversations
about what do we want to do with precisely what you mentioned
in Dayton.
Just coming back to Secretary Cisneros, should a piece of
dirt have an encumbrance on it that is essentially in
perpetuity. And my answer would be, well, it depends. It
depends on what you want to do, it depends upon where that is
situated. You have to make economic decisions. Most of what we
are talking about here has to do with economic decisionmaking.
Public housing authorities have traditionally not had to mostly
focus on thinking about economics. They have thought about a
lot of things, but they haven't really thought about economics
and structure. They are moving to a point where they have to
access markets. And markets only understand things in the way
that markets understand things.
So we can't have PHAs that are incomprehensible to, for
example, rating agencies or bond insurers. Because otherwise,
they won't have access to money. With 70 year old improvements,
they need that access.
The second thing is, we really and truly need to deal with
issues like rent reform, like income. Because those are two
issues that were in H.R. 1999 that are critical to change. The
reason that they are critical is because they evince local
control over these issues.
Much of what you have heard us discussing is an impulse to
move as much as possible toward a local control on the theory
that the local PHA, No. 1, can be trusted because they are tied
to their communities, they are accountable to their
communities, but No. 2, they know better what their real estate
market is than we do. We are working in some cases with respect
to rent on 2 year old, not some cases, in most cases, 2 year
old information when it comes to rent setting. And that is a
very big change from where we were before.
So coming back to it, I think we are focusing on issues of
change, of financial management and of a commitment to local
control.
I would like to thank your staff, who was kind enough to
sit with us for about an hour on the phone and have a good
chat. With that, I will close. Thank you very much.
Mr. Turner. Thank you, Mr. Cabrera. I appreciate your
dedication and the expertise you bring to HUD. Mr. Secretary, I
greatly appreciate both your bringing your service as a mayor
to HUD and also your thoughtfulness to the people who HUD
serves and looking holistically at HUD's programs as a part of
an overall impact on a community.
Please pass on our appreciation to Secretary Jackson for
his leadership of HUD and his commitment. As you and I
discussed, he toured Dayton and we were very appreciative of
his thoughts as he looked to our development challenges. We
certainly would invite and welcome you there so we could show
you some of the things that we have both accomplished and see
as challenges in the future that go to some of the topics we
have discussed today.
I thank you for your preparation. I know that all of you
have a pretty strong to-do list. So whenever you take time away
to come here and speak on these topics, you not only spend time
preparing, but also spend time with us. It gives us greater
insight into what we need to do for our job. So I appreciate
your willingness to share your knowledge and your time.
I would also like to thank my colleagues for their
participation in this hearing. In the event that there are
additional questions that we did not have time for today, the
record shall remain open for 2 weeks for submitted questions
and answers. We thank you all. We are adjourned.
[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]
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