<DOC>
[108 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:92859.wais]
S. Hrg. 108 - 411
PROPOSED FISCAL YEAR 2004 BUDGET
FOR THE U.S. DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
THE ADMINISTRATION'S PROPOSED FISCAL YEAR 2004 BUDGET FOR THE U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
__________
MARCH 4, 2003
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island JON S. CORZINE, New Jersey
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Mark A. Calabria, Economist
Jonathan Miller, Democratic Professional Staff Member
Jennifer Fogel-Bublick, Democratic Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
----------
TUESDAY, MARCH 4, 2003
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Reed................................................. 3
Senator Corzine.............................................. 4
Prepared statement....................................... 43
Senator Crapo................................................ 5
Senator Allard............................................... 5
Senator Dole................................................. 6
Prepared statement....................................... 44
Senator Sarbanes............................................. 13
Senator Carper............................................... 13
Senator Sununu............................................... 20
WITNESS
Mel Martinez, Secretary, U.S. Department of Housing and Urban
Development, Washington, DC.................................... 6
Prepared statement........................................... 45
Response to written questions of Senators Sarbanes and Reed
not were
available at time of printing.
(iii)
PROPOSED FISCAL YEAR 2004 BUDGET
FOR THE U.S. DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
----------
TUESDAY, MARCH 4, 2003
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:03 a.m. in room SD-538 of the
Dirksen Senate Office Building, Senator Richard C. Shelby
(Chairman of the Committee) presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The Committee will come to order.
We are pleased this morning to welcome Secretary Mel
Martinez from the Department of Housing and Urban Development.
Ranking Member Sarbanes and I have asked Secretary Martinez
to come before the Committee today to share the details of the
Administration's proposed Fiscal Year 2004 Budget for HUD, and
I appreciate the Secretary making the time to be with us today.
Mr. Secretary, I am going to have to leave in just a few
minutes because we have a very important organizational
shuffling in the Appropriations Subcommittees. And if you are a
Subcommittee Chairman, which I have been fortunate to be, you
certainly have to be there. So, Senator Allard is supposed to
come and relieve me. But if I happen to walk out, it is not
because you are doing or saying anything I don't like.
Secretary Martinez. I understand.
Chairman Shelby. I will be back.
Secretary Martinez. Yes, sir.
Chairman Shelby. Mr. Secretary, let me begin by saying that
I think this is a valuable opportunity for me and the other
Members of the Committee. In previous years, HUD's budget
hearing was many times held at the Subcommittee level. Since
HUD is such a crucial and important part of this Committee's
jurisdiction, I thought it would be important to hear from you,
Mr. Secretary, here before the Full Committee.
I am pleased that Senator Allard, the Subcommittee Chairman
on Housing and Transportation, has for many years made HUD
oversight a priority and he has worked diligently there. I am
looking forward to working with him and going forward on
important housing issues.
President Bush is proposing to fund HUD at $31.3 billion in
2004, an increase of $262 million over 2003. It includes
several important and ambitious initiatives. I am particularly
pleased to see the Administration's budget submission contains
many important tools to increase homeownership.
On average, American families have 44 percent of their net
wealth in the equity value of their home. Homeownership is
shown to be an important tool to lifting low-income and
minority families out of poverty. Providing homeownership
opportunities for these families not only provides them with an
opportunity for wealth building, but also increases community
pride and has a stabilizing effect on children.
The President's American Dream Downpayment Initiative is a
great first step, I believe, in meeting this goal.
The greatest barrier to homeownership is a lack of
resources for downpayment and closing costs. The American Dream
Downpayment Initiative calls for a $200 million program to
provide assistance for downpayment and closing costs to
families wanting to own a home.
Additionally, the 2004 Budget proposes a new mortgage
insurance product within the Federal Housing Administration. It
is designed to serve a subprime market of families who, because
of poor credit history, are unable to get mortgage insurance on
the private market at a reasonable rate. This program envisions
requiring families to pay a higher premium insurance rate at
the outset, but offers the opportunity for reduced rates in
subsequent years once a pattern of prompt payment and better
credit is established.
Another portion of the budget submission I would like to
mention is the creation of the Housing Assistance for Needy
Families Program. This bold initiative would block-grant funds
from the Section 8 Housing Choice Voucher Program. By
allocating resources to the States here, there is an
opportunity for increased efficiency and, we believe, the
potential for enhanced coordination with other social service
programs administered at the State level. I will be interested,
Mr. Secretary, in learning just how this change might be
implemented.
One area of concern I would like to mention here this
morning is, and while this doesn't relate directly, Mr.
Secretary, to your budget submission, I think it is important
that it be raised in the context of HUD funding.
Some sources estimate that HUD is overpaying Section 8
rental payments at an estimated rate of $2 billion a year. This
is a troubling situation if that is true, but one that I know
you are making every effort to rectify and to get your hands
on.
Particularly in this challenging budget in this climate
today, I think it is extremely important that you focus on
efficiencies within the Department, and I know you have talked
with me about this before. Two billion dollars a year, if that
figure is right, in misdirected funds is way too high and
causes all of us significant concern. The $2 billion is money
that could be spent for serving other needy communities or
meeting other budgetary programs.
Mr. Secretary, we are pleased to have you with us this
morning and I look forward, as I have been, to working with you
and we are proud of what you are doing.
Secretary Martinez. Thank you, Senator.
Chairman Shelby. Senator Reed.
STATEMENT OF SENATOR JACK REED
Senator Reed. Thank you very much, Mr. Chairman.
Welcome, Secretary Martinez.
I had the pleasure and privilege of working with the
Secretary and it has been a distinct pleasure. He is someone
with enthusiasm and commitment to the housing goals that we all
share. And as I said to you prior to the hearing, Mr. Chairman,
I think I like the budget that you sent to OMB better than the
budget that OMB sent to us, because this budget, frankly,
doesn't begin to meet the needs of housing in the United
States.
We have seen in something that is not recent, but since
1976, HUD has lost about two-thirds of its purchasing power in
terms of its budget. And at the same time, housing costs have
accelerated throughout the United States. So, people are really
caught in a squeeze between increasing rental prices,
increasing home prices, and dwindling Federal commitment to
housing, particularly housing production. Again, this budget
seems to reflect that.
I am glad that programs like HOME and lead hazard control
grants have been increased a bit. But overall, the budget just
does not respond to the needs we see out there in every
community of this country for adequate, safe, affordable
housing for our citizens.
Prices go up, 14 percent in my State, and they keep going
up, and still, people are without adequate housing.
We also have seen a commitment by you and the
Administration, a laudable one, to end homelessness in 10
years. But, frankly, the funding in this budget for homeless
programs is not nearly enough to meet this 10-year goal.
In my home State of Rhode Island, homelessness has
increased by 23 percent during the past year, and the number of
homeless children has increased by 31 percent. These are
statistics that we all regret and, hopefully, we can do
something about.
As I noted, the lead program has an increase of $10 million
over your fiscal year 2003 request. But that is still $39
million less than Congress appropriated for fiscal year 2003.
So, I think that the sentiment is there, but the resources
aren't adequate.
Last year, we had a hearing, as I chaired the Subcommittee,
to meet the goal of saving children by 2010 from the exposures
to lead. It would take about $400 to $500 million a year, by
calculations. Certainly, much less is being appropriated in
this bill.
I am concerned that you are zeroing-out the Section 8
program. I am also concerned that we have a cut in public
housing funds. The Administration has proposed cuts of $1.2
billion in capital funds in the past three budget submissions,
despite a $24 billion backlog in need for public housing
authorities throughout the country. In addition to that, there
is a proposal to zero-out the HOPE VI program.
So the budget, I think, again, is not adequate to the task
of providing every American with access to affordable housing.
I know that is your goal. That is your commitment. That is what
you want to do. Hopefully, working with you, we can fix some of
these shortfalls in funding.
I thank you, Mr. Secretary.
Secretary Martinez. Thank you, Senator.
Chairman Shelby. Senator Corzine.
STATEMENT OF SENATOR JON S. CORZINE
Senator Corzine. Thank you, Mr. Chairman.
I have a full statement I would like to submit for the
record.
Chairman Shelby. Without objection it will be made part of
the record in its entirety.
Senator Corzine. Thank you. I want to reiterate some of the
concerns that I heard my colleague mention. I have serious
concerns about the 2004 Budget with respect to the Department
of Housing and Urban Development. I believe it is going to
bring enormous harm to low- and middle-income families
throughout America and I can say quite practically that will be
the case to the people of New Jersey.
It is a budget that provides no direct Federal aid to those
States facing their worst fiscal crisis on a more broad basis
than what is concerned here. We have heavy cuts going on in
social programs, including in the housing area in our State. I
won't go through homeland security and education and other
things, but I am truly concerned about what it does to housing
programs.
The fact is, in my view, if I am calculating this right, we
have $2 billion less for public housing programs through the
operating funds and the fund for the Public Housing Drug
Elimination Program. The Administration's proposals to block-
grant the Section 8 program, which will likely reduce funding
dramatically for this
program over a period of time, given the competing needs in the
States.
I am truly concerned, as I expressed to you last year,
about the Public Housing Drug Elimination Program. One of the
things that is most surprising to me, based on the kinds of
commentary we had from the Secretary was about the HOPE VI
program. I just have a hard time understanding what is almost
universally accepted as a successful, bipartisanly supported
program is undercut tremendously, eliminated practically in all
real forms.
The Empowerment Zones issues, which I am working with a
number of Republican colleagues in the House and in a number of
places across our State--it is a tough budget. I know we are in
a tough financial situation as a Nation. That is why I am so
adamantly opposed to having tax cuts while we are cutting the
kinds of programs that I think are fundamental to the welfare
of our Nation, both low- and middle-income families.
The Low-Income Housing Tax Credit is going to suffer
enormously in the context of the dividend exclusion. Ernst &
Young has out a report that says that 35 percent fewer units
would be financed. There is a programmatic effort that makes
one wonder whether we are committed to affordable, low-income
housing.
I can tell you in New Jersey, this is a crisis. It is
absolutely a crisis. There are not enough homes available for
families to put people back to work, but the houses and housing
is not available in the areas where people need to work.
It is a real stretch.
So, I know the Secretary is good-willed about where he
wants to go with these things, but these budget proposals I do
not think match the words. They do not always match the kinds
of comments we have had in hearings like this before.
I am anxious to hear your comments with regard to the
budget constraints.
Thank you.
Chairman Shelby. Senator Crapo.
COMMENTS OF SENATOR MIKE CRAPO
Senator Crapo. Thank you very much, Mr. Chairman. I won't
make an opening statement at this time. I will save my comments
until the question period.
Chairman Shelby. Senator Allard, I am going to recognize
you and turn the hearing over to you.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard [presiding]. Thank you, Mr. Chairman.
I want to thank you for holding this hearing. I appreciate
the opportunity to learn more about the Administration's Fiscal
Year 2004 Budget request and legislative proposals for the
Department of Housing and Urban Development.
As Chairman of the Subcommittee on Housing and
Transportation, I have a keen interest in this issue, and while
housing is often an overlooked portion of our jurisdiction, I
believe it is one of the most important. And I am particularly
pleased to be able to have this discussion.
I believe this is a responsible budget. As I have noted on
many previous occasions, Government agencies should be judged
by their results, not by the size of their budgets or the
number of new programs. The success of HUD will be determined
by how many people it helps to achieve self-sufficiency and not
by how much money it spends. By integrating performance and
budget, the Administration has taken concrete steps toward
providing real help while establishing accountability.
Unfortunately, some still continue to focus only on money,
as if compassion is measured by a percentage increase or new
dollars can be the only mark of a high priority. More
Government spending does not necessarily mean that more people
are served, and it certainly does not mean that anyone is
better served.
I would like to commend the President and Secretary
Martinez for a number of initiatives in the budget,
particularly the focus on minority homeownership. I am pleased
to join forces with them to enact the American Dream
Downpayment Initiative, which I plan to reintroduce in the next
few weeks.
I hope my colleagues on the Banking Committee will join me
in this effort to help thousands of low-income and minority
families realize the American Dream of homeownership.
As we all know, homeownership is an important means for
these families to build wealth and prosperity. I am also
pleased that the Administration has proposed the consolidation
and streamlining of a number of programs. For many years, HUD
has suffered because its leadership failed to focus on the
Department's core mission--to provide decent, safe, sanitary,
and affordable housing.
While there may be a need for a number of different
programs to address the various aspects of this mission, there
was a proliferation of inefficient boutique programs. These
yielded hundreds of different programs at HUD, many of which
are unauthorized, duplicative, or outside of the core mission.
The Department has sorely needed to focus on the core
mission through consolidation and streamlining and I am very
pleased that Secretary Martinez is providing that leadership. I
look forward to receiving more details on the legislative
proposals.
I want to conclude by welcoming Secretary Martinez back to
the Banking Committee. I know that your schedule is very full
and so, I appreciate your taking the time to be here. I am sure
that your comments will be helpful as the Committee considers
the Administration's proposal. I look forward to hearing your
testimony.
Senator Dole have you had an opportunity to speak?
COMMENTS OF SENATOR ELIZABETH DOLE
Senator Dole. Thank you very much.
Mr. Secretary, I certainly want to welcome you to the
hearing. Thank you for the outstanding work you are doing as
Secretary.
I have a statement I would like to put into the record. But
in the interest of time, I believe I will submit it, and wait
for questions.
Senator Allard. Without objection, so ordered.
Secretary Martinez, welcome. We are all looking forward to
hearing your comments.
STATEMENT OF MEL MARTINEZ
SECRETARY
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Secretary Martinez. Mr. Chairman, Ranking Member Reed, and
Members of the Committee, it is a pleasure to be back with you.
Thank you for your invitation to talk about our 2004 Budget, as
proposed by President Bush for the Department of Housing and
Urban Development.
I would like to offer a full version of my remarks for the
record, if I could, and just try to summarize in order to save
more time for the questions.
Senator Allard. Without objection, so ordered.
Secretary Martinez. Thank you, Mr. Chairman.
During this time of uncertainty in the world, as the
Administration continues to focus on strengthening the U.S.
economy, creating affordable housing options remains a critical
component of the President's agenda.
HUD's proposed $31.3 billion budget offers new
opportunities for families and individuals, and minorities in
particular, seeking the American Dream of homeownership. It
offers new opportunities to increase the production of
affordable housing and expand access to housing free from
discrimination.
It provides new opportunities for strengthening communities
and in generating renewal, growth, and prosperity with a
special focus on ending chronic homelessness.
Our budget creates new opportunities to improve HUD's
performance by addressing the internal management problems that
have long challenged the Department.
I know that this in particular is the subject of great
importance to Members of the Committee and I want you to know
that I share the concerns of the Members, and that this
Administration has been, and continues to be, committed to
improving management. I am pleased to say that we are making
progress in that area and I will return to this subject later
in my testimony.
Let me begin by discussing homeownership.
The President has committed this Nation to creating 5.5
million new minority homeowners by the end of this decade.
Several new expanded proposals in the Fiscal Year 2004 Budget
will increase the availability and production of affordable
homes and help more families to come to know the security of
homeownership.
As a first step, HUD proposes to fund the American Dream
Downpayment Initiative, which, as you just indicated, Chairman
Allard, you have so kindly agreed to introduce for us. And we
will fund this Initiative at $200 million in this budget year.
The Initiative will help approximately 40,000 low-income
families with a downpayment on their first home. We also reach
out to low-income families hoping to make the move into
homeownership by allowing them to put up to a year's worth of
their Housing Choice Voucher assistance toward a home
downpayment.
To promote the production of affordable single-family homes
in areas where such housing is scarce, the Administration is
proposing a tax credit of up to 50 percent of the cost of
construction on new homes or the rehabilitation of an existing
home.
HUD is very committed to helping families understand the
home-buying process and how to avoid the abuses of predatory
lending. The Fiscal Year 2004 Budget will expand funds for
counseling services from $40 million in fiscal year 2003 to $45
million. This will allow us to provide 550,000 families with
home purchase and homeownership counseling and about 250,000
families with rental counseling.
Our budget also strengthens HUD's commitment to SHOP, the
Self-Help Homeownership Opportunity Program. SHOP is a key
initiative that turns low-income Americans into homeowners by
partnering with the Federal Government with faith-based and
other community organizations. The program is funded at $65
million, which will support the construction of 5,200 homes.
So along with boosting homeownership, HUD's proposed 2004
Budget promotes the production and accessibility of affordable
housing for families and individuals who rent. We achieve this
in part by providing States and localities with new flexibility
and additional resources to respond to local needs.
The HOME Investment Partnerships Program is a major tool
for helping communities meet housing affordability needs. As
reflected in this year's program, the HOME program is
successful because it is well-managed and its flexibility
ensures local decisionmaking. Our 2004 Budget provides a 5
percent or $113 million increase over amounts that were
proposed for the HOME program in fiscal year 2003. Overall,
HOME will make nearly $2.2 billion in funds available to State
and local grantees to help finance the cost of land
acquisition, new construction, rehabilitation, downpayment, and
rental assistance.
To ensure greater flexibility within the Section 8 Housing
Choice Voucher Program, and to empower States to make the
decisions based on local needs, we propose converting the
voucher program to a State-run block grant called Housing
Assistance for Needy Families. Turning over administration of
the program to the States is the appropriate way to ensure the
best service for needy families, while improving its management
by putting it closer to the people it is intended to serve.
Our Budget includes legislative proposals that would
substantially improve living conditions within public housing
communities by giving public housing authorities new ability to
leverage private capital.
The Public Housing Reinvestment Initiative would authorize
HUD to replace public housing subsidies for development or for
portions of developments with project-based voucher assistance.
Our Budget also adds a partial loan guarantee that will cover
up to $1.7 billion in loans.
This financial restructuring will allow PHA's to secure
private
financing to rehabilitate or replace aging properties on a
property-by-property basis, as other affordable housing owners
do if they are privately owned.
The Public Housing Reinvestment Initiative reflects our
vision for the future of public housing.
For 10 years, the HOPE VI program has been an avenue for
funding the demolition, replacement, and rehabilitation of
severely distressed public housing. Established to revitalize
100,000 of the Nation's most severely distressed public housing
units, the program has already funded the demolition of over
115,000 such units and the production of more than 85,000
revitalized dwellings.
With the 2002 and 2003 appropriations, we anticipate being
able to demolish an additional 15,000 units and replace 15,000
more. Just this week, we began notifying those communities that
have been awarded HOPE VI grants for the 2003 cycle. With the
$2.5 billion already awarded but not yet spent, and an
additional $1 billion to be awarded in 2002 and 2003, HOPE VI
will continue to serve communities well into the future.
When HOPE VI was first created, it was the only significant
means of leveraging private capital to revitalize public
housing properties. But that is no longer the case. Today, HUD
has approved bond deals that have leveraged over $500 million
just in the last couple of years. PHA's can mortgage their
properties to leverage private capital.
In Maryland and Alabama, the PHA's are combining efforts to
leverage their resources and assets to attract private capital.
Some cities, like Chicago, are committing hundreds of millions
of dollars of their own money to revitalize public housing
neighborhoods.
HUD is also seeking additional tools from Congress, such as
the Public Housing Reinvestment Initiative. HOPE VI has been a
successful program that was created to serve a specific
purpose. It is time to look to the future and pursue new
opportunities, working with the Congress, as we together look
for creative ways to learn from HOPE VI and move to new areas
of opportunity for urban revitalization.
Regulatory barriers on the State and local level have an
enormous impact on the development of rental and affordable
housing. Within the 2004 Budget, HUD builds on its commitment
to work with States and with local communities to reduce these
regulatory barriers.
Through the new Office of Regulatory Reform, HUD will spend
an additional $2 million next year to learn more about the
nature and extent of the regulatory problem and how to reduce
the effects of excessive barriers to rental and affordable
housing.
The President has made it a top priority to reduce costly
regulatory barriers on the Federal level and we are committed
to doing so at HUD as well.
State and local governments depend upon HUD grants to
support community development projects that revive troubled
neighborhoods and spark reinvestment and renewal. In fiscal
year 2004, HUD will strengthen its core grant programs by
ensuring that grantees have even greater flexibility to address
locally determined priorities.
The Community Development Block Grant Program will provide
$4.4 billion in funding to meet local needs in more than one
thousand jurisdictions. In 2004, HUD will make the program more
effective by studying ways to reward communities that commit to
results-oriented, outcome-based performance plans.
Through the Fiscal Year 2004 Budget, HUD will strengthen
its effort to protect the Nation's most vulnerable--those
individuals and families who truly need Government assistance:
The budget fund services benefiting adults and children from
low-income families, the elderly, those with physical and
mental disabilities, victims of predatory lending practices,
and families living in housing contaminated by lead-based paint
hazards.
I want to highlight this Administration's unprecedented
commitment to those who have no place to call home.
Across the scope of the Federal Government, funding for
homeless specific assistance programs increases 14 percent in
the Fiscal Year 2004 Budget proposal. This Samaritan Initiative
is an important new element of the Administration's strategy to
end chronic homelessness within a decade.
The Samaritan Initiative includes a proposed competitive
grant that would be administered jointly by HUD, the Department
of Health and Human Services, and Veterans Affairs. For 2004,
HUD provides $50 million for the housing component of this
initiative, while HHS and VA will each provide $10 million for
services such as substance abuse treatment and primary health
care.
To increase the community's flexibility in combatting
homelessness, the 2004 Budget proposes to consolidate the
current three competitive homeless assistance programs.
Finally, in recognition of the effectiveness of the
recently reactivated Interagency Council on Homelessness, the
Department will provide $1.5 million to operate the Council in
the fiscal year 2004, which represents a 50 percent funding
increase.
HUD has made great progress over the past 2 years in making
the Department work better for the taxpayers and for every
American who seeks a place to call home. HUD fully embraces the
President's Management Agenda and is on target to meet its
challenging goals of improving overall efficiency and
effectiveness.
The steps the Department has taken thus far have gone a
long way to restoring the confidence of the Congress and the
public in HUD's management of its financial resources.
I can assure the Members that this commitment to the
highest standards of ethics, management, and accountability
will continue during the coming fiscal year.
I would like to thank each of you for your support of my
efforts and I welcome your guidance as we continue to work
together.
The steps that the Department has taken thus far have gone
a long way toward restoring the confidence of the Congress and
the public in HUD's management and the way we manage our
financial resources.
I would like to thank each of you for your support and I
look forward to our continued effort to work together.
Thank you very much.
Senator Allard. Thank you, Mr. Secretary, for your comments
and your remarks.
I think an agency or a department needs to be aware of the
needs of the American people as they emerge. I think we have a
group of individuals out here whose needs are emerging. We need
to think about how we are going to deal with these groups.
These are the members in our reserve forces and our National
Guard units. These are volunteer individuals who are being
called up to serve this country who have home payments they
have to make. They have to leave their jobs. Their employers
have to make sacrifices, too.
And as the threat of war with Iraq amounts to thousands of
armed forces and National Guard units have been activated for
duty, both domestically and in the Middle East, many of these
troops may face financial difficulties because they have been
called away from their jobs to serve their country.
I understand that the Soldiers' and Sailors' Civil Relief
Act of 1940 provides service men and women with financial
relief on their rent and their mortgage payments and an
additional provision
limits the interest rate to 6 percent. What additional
resources will be available for those serving our Nation so
that they do not risk foreclosure?
Secretary Martinez. Mr. Chairman, I think, based on the
current state of the law, that those are the limits of what we
can do.
Post-nine/eleven, when the war on terror began, I joined
with Secretary Rumsfeld in initiating a reactivation of the
Soldiers' and Sailors' Civil Relief Act. And that did provide
the kinds of assistance that you describe.
However, in the current environment, where mortgage rates
are at 6 percent on a very competitive basis, perhaps it would
be one possibility to consider, and I think you are addressing
a very, very important point, the fact that perhaps 6 percent
as a minimum or as a benchmark would not be appropriate.
Perhaps something lower than that would be the kind of
significant help that I believe the Act intended to have.
So, I would welcome any suggestions from the Committee of
how we might work together to deal with this new reality.
I think you are correct that these people are giving of
themselves and, in reality, are under financial hardship. I
have heard of very encouraging things going on in certain
communities. I know the homebuilders in Central Florida, for
instance, are banding together to provide home repair services
and things like that at no cost to those service men and women
who have been called to service, but the families that are left
behind are still left with a leaky roof or a heater that
doesn't work. And they are providing, as a community service,
just on an ad hoc basis, some assistance.
More can be done, and I would welcome the opportunity to
work with you as we think through this problem and how we might
be able to provide assistance, especially working with the
Department of Defense, as to how they might identify the
problem areas that families are encountering.
Senator Allard. There is a need here for some interagency
communication. I am glad to hear that as part of your comments.
I was going to ask you if there was any other tools other
than perhaps reducing that 6 percent that you could think of.
It doesn't sound to me like you have any at this point.
Secretary Martinez. I do not have at this point.
Senator Allard. It sounds like you are looking for some
guidance from this Committee.
Secretary Martinez. Right. Also, actually, I think we
probably should talk to the people in the Defense Department as
to what they encounter as these forces are activated because I
am sure that there are some systemic problems that they all may
encounter.
So, I would propose to get with my colleagues in the
Defense Department and then get back to the Committee with
perhaps some other ideas of how we might be of assistance.
Senator Allard. I think we need to give that some thought
and see what we can do because obviously, some Americans are in
need, but they are also doing a huge service for this country
and we shouldn't forget them.
As you know, I have been very supportive of efforts to
consolidate and eliminate programs that are duplicative or
troubled. I believe we should streamline Government programs
and make them as cost-effective and efficient as possible.
Accordingly, can you please explain the rationale behind
placing environmental clean-up programs such as BEDI under the
jurisdiction of the Environmental Protection Agency rather than
at HUD? And can you also comment on the proposed elimination of
the HOPE VI program?
Secretary Martinez. First, on the BEDI program.
Essentially, it was a $25 million program. The Environmental
Protection Agency has had, for a long time, a much larger
program of environmental clean-up on economic development and
their funding levels, I believe, are significantly higher than
those at HUD.
It was felt as an Administration-wide policy that combining
these programs under one roof would be a better way to manage
them.
I would argue that perhaps the better place to combine them
might be at HUD. I did not win that argument, but in any event,
I believe we do have a way at HUD of dealing with communities
in a very comprehensive way. And while environmental clean-up
perhaps is more suited to the EPA's mission, the economic
development portion probably is better suited to what we do at
HUD.
In any event, it was felt that the better part of good
judgment was to combine all of these in one place, which I
think is sound policy, and that our small program of only $25
million would be better served by going together with the
remaining programs that EPA has, which are much larger.
On the issue of HOPE VI, I alluded in my opening comments
about that. I believe HOPE VI has been a largely successful
program. I believe there are some things about HOPE VI that
have given us all concern--the displacement of families, even
during the construction phase, but certainly in long-term,
whether there are not enough people that are in assistance
situations and living in a given project when the project gets
redeveloped, still have an opportunity to live there, is a
concern.
There are a number of other concerns about it. But I
believe, overall, it has been a very, very successful program
and it has done a lot of good.
As we look to it, we currently have an incredible amount of
the monies that were--in fact, about 50 percent of the monies
that have been allocated to projects have yet to see the light
of day. It has taken a long time for these projects to get off
the ground and to actually come to fruition.
For instance, in Chicago, we continue to work with them,
and although they are making steady progress, there is still a
significant amount of dollars that are funded to the Chicago
Housing Authority that have yet to be developed.
So, we believe that this is a good time, in a time of
significant budgetary constraints, and at a time when difficult
choices had to be made, that perhaps because of the continuing
nature of the existing funding levels to HOPE VI that are still
out there, that it was a good opportunity for us as this
program came for reauthorization, that we should jointly come
up with what should be the
future of the type of HOPE VI program, how we should look to
the future to revitalize communities to continue to improve
public housing.
We have put forth some private-type initiatives I believe
have merit. But I do think that we need to continue to work
together to look at how we revitalize public housing, how we
revitalize urban areas, utilizing the model of a HOPE VI, but
also learning from some of the areas where we could all agree
we would identify as shortcomings. And so, it is a competitive
grant program. There is no one out there currently expecting a
HOPE VI, other than those who are in the current process, or
maybe even into next year.
And so, we felt like, in a time of making difficult
choices, this was a choice that was reasonable to make. As the
program was up for reauthorization, we think we should stop and
take a good look at where we are on something like a HOPE VI,
and we should determine where we would want to take it into the
future.
We intend to have proposals to you in the coming months on
some ideas that we would have of how to reinvigorate an urban
revitalization program like a HOPE VI.
Senator Allard. I was going to call on Senator Reed next
for questions, but we have a couple of Members, Senator Reed,
that have shown up.
Senator Reed. Let me yield to Senator Sarbanes.
Senator Allard. Senator Sarbanes and also Senator Carper.
We will see if they would like to make an opening statement and
then we will come back to you.
Senator Reed. Fine, Mr. Chairman.
Senator Allard. Senator Sarbanes.
COMMENTS OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Mr. Chairman, I will defer my statement.
I think I come after Senator Corzine. I will wait until then.
Senator Allard. Okay.
Senator Carper.
COMMENTS OF SENATOR THOMAS R. CARPER
Senator Carper. Thank you very much, Senator Allard.
I want to welcome Secretary Martinez. We are grateful that
you are here and I will just wait until it is my turn to ask
questions. Thank you.
Senator Allard. We are back to you, Senator Reed.
Senator Reed. Thank you, Mr. Chairman.
Again, Mr. Secretary, thank you so much for your testimony
today. Also thank you because Newport, Rhode Island, was one of
those grantees for a HOPE VI grant. That brings me back to the
whole issue of HOPE VI.
You have said it is a worthwhile program. My understanding
is that your Department had to make some difficult decisions
and turn down some very worthy requests. So the need is still
out there. I wonder again why this program that has
demonstrated success is being zero-funded?
Secretary Martinez. Well, we have a situation where the
program is up for reauthorization. We have about $2.5 billion
that still remains unexpended, another billion that will be
coming through the next two cycles, the ones that your area in
Rhode Island is benefiting from, and then still next year to
come.
We have only had 14 out of 165 projects that have been
completed to date. More than half, as I said, of the $4.5
billion that have been allocated remain unexpended.
So, we still see that, although it has great promise, the
promise has yet to be fulfilled. And that in a difficult budget
cycle, in a time when we had to make difficult choices, we also
felt like we should take a moment to look at what should be the
future of a program like this and where we should take it into
future years in terms of dealing with the distressed public
housing of America.
I know that there continue to be needs. There is no
question but that is true.
It was established in 1992. It was supposed to demolish
86,000. We have more than funded that, and then some. So it
just seems to me that it is one of those programs that had a
beginning, a middle, and now this is the end of it, and we
should think together about how we approach it into the future.
Senator Reed. One of the concerns I have is that there
doesn't seem to be anything that will follow on, and
particularly when it comes into the context of the public
housing authorities with their significant backlog in repairs
that they have to do, let alone this type of innovative mixed-
use, mixed-income housing that was part of HOPE VI. Was there
any thought to taking the HOPE VI funds and simply putting them
back into the backlog for public housing repairs?
Secretary Martinez. No, sir, that was not considered.
Senator Reed. Well, again, it just seems that we had a
program, HOPE VI, that was operating effectively. Even though
the money was rolling out slowly, the projects were worthy and
the vision was good. And now, we have not simply shifted funds
to another approach, we have just taken the money off the
table.
Let me pick up another issue with respect to public
housing, Mr. Secretary. And that is, I wrote, along with many
colleagues, to you urging HUD to restore some of the funding to
PHA's lost because of the $250 million shortfall in the
operating fund. At the time of the letter, I understand that
you did not want to increase the PHA's allocations above 70
percent of their needs until the fiscal year 2003 bill was
complete, the appropriations bill, and funding was assured. Now
that we have passed the bill a few weeks ago, have you
increased the share of funding available to PHA's?
Secretary Martinez. Yes, sir, we have. We are grateful that
the Congress allowed us to maneuver the situation to a point
where we were able to do that. And so, we have been able to
fund, or will be in the process of funding what we believe will
be very close to a 90 percent allocation to all public housing
entities that are in line for those funding levels.
So the initial assessment was based on the status of the
budget situation. But clearly, we now are able to forecast and
confidently predict that we will fund approximately 90 percent,
give or take, in that range.
As you understand, this was a long-term fiscal deficiency
in the Department that we felt was necessary to try to correct.
And in doing so, we fell into a shortfall problem. But the
funding level at a 90 percent level is not dramatically
atypical if you look at a 10-year history of public housing
funding from what has occurred over a period of time. Some
years it has been 100 percent. The exception rather than the
rule has been 100 percent. Most years, it has been somewhere
between 90 and 100 percent funding.
Senator Reed. Are we going to have this same problem this
coming year, Mr. Secretary?
Secretary Martinez. No, sir. In fiscal year 2004, we will
not see that problem occur and, in fact, part of what I am very
pleased to be able to report to you is that we have fixed the
problem that had been carried over for a number of years and we
have taken care of it. I do not believe that we will see this
problem arise into the future.
Senator Reed. What level do you anticipate funding public
housing authorities, the operating subsidy?
Secretary Martinez. For the 2004 fiscal year, we anticipate
100 percent funding.
Senator Sarbanes. When are you going to the 90 percent?
Secretary Martinez. That will be for the 2003 fiscal year.
Senator Sarbanes. Yes, but when are you going to do it?
Secretary Martinez. Within 4 weeks, I am told.
Senator Reed. My time has expired.
Senator Allard. Senator Crapo.
Senator Crapo. I will pass at this point, Mr. Chairman.
Senator Allard. Senator Corzine.
Senator Corzine. Thank you.
First of all, Mr. Secretary, I appreciate your testimony. I
want to reiterate the questions that my colleague from Rhode
Island spoke to with regard to HOPE VI. This has been an
extraordinarily successful program, I think by the assessment
of HUD, and outside objective analysts about changing the lives
of individuals that are associated with these projects.
I think you are familiar with the lowering of poverty
rates, unemployment rates, people off welfare, all those things
that would be objective standards of quality of a program.
And it is hard for me to understand why we have something
that is working as well as this, particularly in the context of
moving away from distressed public housing. I feel a little bit
like I did last year about the public housing drug programs.
I hope that we are not cancelling programs that a lot of
people feel have had great success, zeroing-out programs. I
know that you are working through this. I just want to be on
record that this HOPE VI effort is something that I think, on a
bipartisan basis--as a matter of fact, your own language in
most testimony over the last period of time that you have been
the Secretary, has been very supportive of this. And this seems
inconsistent with many of those remarks.
Second, on the Drug Elimination Program, last year, we made
a very substantial argument that the money that was being
zeroed-out of that program was going to be made available in
other areas through expenditures. Can you bring us up to date
whether that is actually taking place, and how it is taking
place?
Secretary Martinez. What we have done is allow the housing
authorities to utilize the current and ongoing operating
subsidy that they receive. It was increased by $250 million,
almost 100 percent of the amount that was in the Drug
Elimination Program.
We have allowed them to utilize that subsidy money for
those kinds of programs that they were doing before in the drug
elimination arena if they were good and successful programs.
Senator Corzine. Have you taken surveys to the local public
housing authorities to address whether the money is being used
in those ways or in other ways to assure that the purposes for
which I think many people had argued on both sides of the aisle
that
the Drug Elimination Program was positive for, there were some
complaints about specific activities--gun registration programs
and things.
Secretary Martinez. Right. Local authorities have the
discretion to utilize the funds as they see fit. We do not
survey their utilization of it, but it is available to them if
they make the decision to utilize them for a drug program if
they believe is successful.
In making their choices that they have to make, anybody has
to make, in deciding how to utilize funds, they are capable of
doing that if they wish to do so and it is purely a local
decision.
Senator Corzine. Do you think it is no longer an issue that
HUD should be addressing?
Secretary Martinez. No. I believe it is important. Public
safety in public housing is an important issue. I believe it
has its roots and its solutions at the local level.
We do provide a fairly--well, one would argue whether it is
adequate or not--but the levels of funding and the operating
subsidies that we provide to local public housing, which was
increased to an amount equal almost to the amount of the Drug
Elimination Program, allows them to utilize it in that way if
that is what they choose to do.
We would also encourage public housing authorities if they
have a local public safety problem or a drug problem, that it
is the responsibility of local mayors and local public safety
agencies to not disregard public housing residents as something
akin to second-class citizens not deserving of public safety
protection and not
deserving of other local programs that do drug elimination or
whatever the program may be.
So, I think a concerted effort working with local
communities is the way to approach the problems that residents
of public housing may be affected with.
I think there is too much of a segregating effort in any
community that has a substantial amount of public housing. I
think those people need to be integrated into the mainstream of
life of their communities.
And people who live in public housing should have every
right to police protection that every other citizen in that
community has.
Senator Corzine. Not at this point, but after the hearing,
I wonder if I could get some specifics about how that $250
million that you suggested was being spent on programs that
were the same, actually occurred.
Secretary Martinez. I would be happy to provide that.
Senator Corzine. We had a hard time piecing that together.
Are you familiar with the Ernst & Young discussion with
regard to the dividend tax cut proposal that the President has
put down and its potential for causing a 35 percent drop or so
in the number of affordable rental units?
Secretary Martinez. I am aware that the Ernst & Young
report describes those kinds of figures and reaches those
conclusions.
Senator Corzine. And also potentially undermines the
President's own single-family tax credit proposal.
Secretary Martinez. I know that those are the conclusions
of the Ernst & Young report.
Senator Allard. The Senator's time is expiring.
Senator Corzine. Have you had time to study and see whether
you have different views or different comments on it?
Secretary Martinez. Senator, I have looked at the report
and not thoroughly studied it yet because I just received it a
couple of days ago. But in fact, those analyses of that report
would have to come from the Department of the Treasury, who
really does tax policy.
At HUD, we do not do tax policy. So in terms of dealing
with the specifics of the report and the issues that it raises,
I believe even in those areas where it deals with housing, that
Treasury would be the better place to have a comprehensive
response to the specifics of the tax policy.
I do believe that it is the position of the Administration
that the impact described in that report is greater by that
report's judgment than those that the Department of the
Treasury would forecast in terms of the impact on housing.
Senator Corzine. We will come back.
Senator Allard. Thank you, Senator.
I am going to be fairly tight on the time because I want to
give everybody an opportunity to ask one question. We all have
a lot of committees going on at the same time. Then we will
have another round of questioning and you can come back if you
want.
Senator Crapo, you passed. Do you have another question
that you want to bring forward?
Senator Crapo. I would like to ask some questions at this
point if I could, Mr. Chairman.
Senator Allard. Go ahead.
Senator Crapo. Thank you, Mr. Chairman, and Mr. Secretary,
I appreciate your being here with us today.
I too have some concerns about the budget. There has been a
lot of discussion already with regard to the HOPE VI program
and the fact that it has not been funded. But I am concerned
about HUD's responsiveness to the Congress and in particular,
some of the other programs as well that have been zeroed-out.
For example, one of the concerns that is very important to
me is the Rural Housing and Economic Development Program that
is scheduled to have no funding at all in the Fiscal Year 2004
Budget.
I would like to ask you to explain to me why that program
is not receiving the funding that it has received in the past.
And if we have time, I want to go on to the Brownfields issue
as well.
Secretary Martinez. In regards to the rural housing
program, Senator, every year that I have been at HUD, and I
think even perhaps from years before that, it has been the
judgment of the Office of Management and Budget that it is a
program that belongs in the Department of Agriculture and not
at HUD. And so, they consistently zero it out in the budget
cycle. Congress consistently funds it and we move on.
I met with Senator Bond a few days ago and he is
particularly concerned about that as well. I understand your
concerns. It is just a matter of basic policy judgments that
are made by the Administration that it is a program that should
be better managed from the Department of Agriculture.
Senator Crapo. Did the Department propose funding for this
in the Agriculture budget, though?
Secretary Martinez. I am not sure if that is the case or
not. I am sorry. I cannot answer that.
Senator Crapo. You can see the concern there.
Secretary Martinez. Sure.
Senator Crapo. If it is zeroed-out in HUD's budget, and if
it is not put into the Agriculture budget, then the
Administration is basically proposing to take it out.
I do believe I agree with Senator Bond, and I suspect many
of the other Senators, that this is a very critical part of our
housing need in this country. Idaho, for example, has a
tremendous need for rural housing support. I would encourage
you to reevaluate whether to zero-out that budget.
What about the Brownfields Redevelopment Program? It also
has been zeroed-out.
Secretary Martinez. The program is funded in the EPA
budget. That has been transferred over to the EPA and it was
funded in the EPA budget. It was felt that it should be
consolidated in one place for better management of the program,
with the funding all in one location, rather than have some at
HUD and some at the EPA. But that is funded in the EPA budget.
Senator Crapo. Do you know whether the levels of funding
were equal as they transferred over from HUD?
Secretary Martinez. Yes.
Senator Sarbanes. On Brownfields?
Secretary Martinez. On Brownfields. It is a $10 million
increase. It is a drop from $25. So, I was wrong on that. I
thought it was at the same level, but it apparently is only at
the $10 million level.
Senator Crapo. So it was at $25 million and now it is down
to $10 and transferred to the EPA.
Secretary Martinez. That is correct.
Senator Crapo. Well, I will conclude my questioning with
that. It is just that I am concerned that some of the important
priorities that Congress is setting are not being addressed in
the budget.
I am sure we will have opportunities to address this at a
further point. But I really would encourage you to go back and
take another look at the Rural Housing Economic and Development
Program because that is a critical program to States--I think
every State has rural areas, but particularly a State like
Idaho.
Senator Allard. Senator Dole.
Senator Dole. Mr. Secretary, let me repeat that from all I
have heard and read, you are doing an excellent job in heading
the Department. However, the challenges that you have faced at
HUD, I know, have been daunting and it is hard for some to
gauge the quality of the work that you and your team bring to
the table with an agency that has had so many fundamental
problems.
Clearly, the General Accounting Office, the HUD Inspector
General have acknowledged the improvements that you have
instituted in many areas where there have been issues that have
plagued HUD for some time. According to the GAO, HUD has
designated programmatic and financial management information
systems as one of the Department's major management challenges.
Many of the problems that HUD seems to be facing right now
and struggling with seem to be caused by inadequate information
technology systems. For instance, the issue of the operating
subsidy shortfall announced in January was attributed to an
internal financial management system failure.
According to budget documents, $300 million has been spent
in each of the last 3 years for information technology. That is
$900 million. Can you tell us if this $900 million has really
moved us closer to resolving these problems? And how much more
do you estimate would be needed to fix the problems?
Secretary Martinez. Senator, thank you for your comments.
I think we have made very significant progress in
information technologies at HUD. I must say that I believe that
pattern was begun even prior to my arrival at HUD. But it is
something that has been dramatically different from the
situation that existed just a few years ago.
I believe the funding that has been provided by the
Congress for us to address that issue has, in fact, provided us
the opportunity to fix something like the operating subsidy
shortfall in the public housing program where we do not think
that we will have that problem in the future ever again.
We believe the commitment that has been made to adequately
fund those issues at HUD is paying off and making a difference.
In terms of future funding needs, I am not prepared to go
beyond what the current budget provides. But over the next 5
years, we are talking about $380 million. We also are talking
about modernization efforts that will reduce the cost in 2007
and 2008. I believe that the levels you suggest will continue
for the next 5 years. But we do believe that in 2007 and 2008,
we will begin to reduce the cost of continuing our IT
upgrading.
I will be glad to provide you a little more detailed
information in a written question if you would like.
Senator Dole. Fine. Thank you. I would appreciate that.
According to the January 2003 GAO Report, the Department is
seeking to further reduce the number of noncompliant computer
systems from 17 to 14 in this fiscal year 2003, and then you
would hope to be fully compliant with Federal financial
standards, all systems compliant by 2006. Are you confident
that that 2006 goal is realizable? What steps are being taken
to reach that goal? Who will be accountable?
Secretary Martinez. Our management people are very much
focused on continuing to improve those financial systems. We
cannot assimilate them all into one system. We are always going
to have to have a multiplicity of systems because of the very
different tasks that we accomplish at HUD, with FHA being in
one area and very different issues as it relates to maybe
personnel, payroll types of systems.
So, necessarily, we are going to have different systems.
But we believe that the consolidation that has taken place
has been very productive, very positive. It has allowed us to
meet now audits on a recurring basis that have had no serious
deficiencies or flaws. That is 2 years running, which I am very
proud to see because I do not think that that had ever occurred
in recent years at HUD.
So those kinds of progress that we have seen in the past, I
think can continue and enhance.
I would love to have our CFO, Angela Antonelli, who is
here, and probably very anxious to answer these questions more
fully than I am able to, and Vickers Meadows also, the
Assistant Secretary for Administration, to more fully brief you
on some of the details of these efforts because I think we are
doing really some very good things and making substantial
progress in what I think, by anyone's admission, it would be
systemic problems at HUD for many years, that we are really
putting behind this.
Senator Dole. Yes, I understand that.
Senator Allard. Senator Dole, I think that is a good point
that you bring up. I think in our Subcommittee on Housing and
Transportation, it is something that we need to follow up with.
I would also be interested in getting a briefing on this as we
move forward because we do have that 2006 deadline.
Senator Dole. Right. Thank you.
Senator Allard. Senator Sununu, do you have a statement?
COMMENTS OF SENATOR JOHN E. SUNUNU
Senator Sununu. I do not have a statement. I have just a
few questions at the appropriate time.
Senator Allard. We will put it there.
Senator Sarbanes.
Senator Sarbanes. Welcome, Mr. Secretary.
Secretary Martinez. Senator.
Senator Sarbanes. Mr. Secretary, I like you very much,
personally. I wanted to say that right at the outset.
[Laughter.]
Secretary Martinez. This is not off to a good start,
Senator.
[Laughter.]
Senator Sarbanes. I still remember your confirmation
hearing when we discussed the work that you had done in
Orlando, and my perception of a commitment you had to help
people who weren't able to make it, and a genuine concern about
affordable housing. But somehow, in the internal workings of
the Administration, you are really getting jammed into the
corner in terms of the resources you have with which to address
the challenges that confront you.
It all came home to me as I looked over this budget request
for the fiscal year we are going into. I am quite concerned
about a number of areas which I hope to explore with you this
morning.
Now, presumably, the people lined up behind you there in
the seats are supporting you to the hilt. I would certainly
hope so. However, I can hardly say that about the OMB. And
there is always a struggle and tension between the Department
and the OMB, as we well know.
But I do not see how HUD is going to do its job given the
erosion that is taking place in your budget. And that becomes
doubly significant when we realize that so much of what is done
in housing and community development requires a partnership
between your Department, the State governments, the local
governments, the nonprofit sector, and the private for-profit
sector, because a lot of the programs have been arranged in a
way that all of these interests interrelate.
So the end result is often dependent on HUD funding, the
HUD catalyst or the HUD glue to hold this all together. And
these outside groups and governments really have to look to HUD
to provide an infusion of funding, often at the outset, but
certainly as the process moves along, in order to ensure
success.
I want to explore with you some of these problems. I may
have to use another round in order to do it, although I hope
that some of this time will get attributed to an opening
statement which I did not give.
It is our perception of the budget that the Section 8
vouchers are not being fully funded and that we are actually
not going to be able to fund all vouchers in use.
Public housing is again taking a hit. The capital fund for
repair of public housing units is being cut. And yet, there is
a huge backlog in repairs. We have an inventory of public
housing out there, and if it is maintained and repaired, it can
continue to provide affordable housing.
Senator Crapo raised the issue about the rural housing,
which seems to be going down the drain as best I can understand
the budgets. Although we are told to go look in somebody else's
budget for rural housing funding, thus far, we have not been
able to find it there.
It is a little bit like this EPA problem that just came up
a minute ago. And while it is not a big amount of money, it is
important.
For example, you are getting out of the business of
Brownfields redevelopment. You tell us the EPA is going to do
this, but HUD was doing it at $25 million and they are going to
do it at $10 million a year, which is more than a 50 percent
cut.
Others have talked about the HOPE VI program. Actually, I
want to focus on that for just a moment. You approved
yesterday, and we are most appreciative of it, the application
from Frederick, Maryland, for a HOPE VI project.
Now this I think is a perfect example of how some HUD money
can produce, once it works its way out of the system, a very
significant infusion of resources in order to address the lack
of affordable housing.
In this instance, we are seeking to transform two severely
distressed public housing developments and their surrounding
neighborhoods, the city, county, State, and private sectors all
committed significant resources. The city contributed several
off-site parcels of land to the project to build a community
center, have a recreational facility and park, and fund
infrastructure improvements.
They joined with the county in a tax increment financing
district to support economic development and job opportunities.
The State committed tax credits to help raise private
equity. It is calculated that a $16 million HOPE VI grant, and
you approved $15 million, so I do not quarrel with you on that,
but that that money will leverage an additional $55 million--
$55 million--in non-Federal and private funds.
So, you put in $15 million. We are going to get another $55
million from other sources. We are going to put $70 million
into this community.
The proposal in the end was carefully worked out, had the
support of the public housing residents that are in these
distressed projects. It has the support of Interfaith Housing
of Western Maryland, which is a very highly regarded nonprofit
that works as a housing advocate. It has the support of the
NAACP--it was all very carefully done.
This project will construct low-density public housing,
homeownership properties, and market-rate rental units. Two-
thirds of the current households will be able to remain in or
return to the site. And in addition, provisions have been made
so that the remaining tenants will be placed in existing public
housing or provided with other units.
This project has been very carefully put together and I
think that is why it merited your approval. But it seems to me
a dramatic
example of how the HOPE VI program can work.
Now, I listened as the others were asking you questions
about this program and you said, well, we have a problem with
relocation of tenants. If we have a problem, we should solve
it. It was solved in this instance, apparently, and solved very
well. It has also been solved in other successful HOPE VI
projects.
You say that it takes a long time for the projects to be
completed--well, that may be true. Sometimes it takes a while
to put together this kind of community support and this kind of
package. But there is example after example of where this
program works very well. HOPE VI is getting rid of severely
distressed housing. Housing that is depressing the
neighborhood. We are drawing a lot of resources in. We marshal
community support.
I do not quarrel with you that there are certain problems
in administering the program. But it seems to me that it
represents a very important initiative. And the way to go at it
is not to simply drop the program and the initiative, but to
tighten it up or improve it in terms of its functioning so you
get the kind of results we see in communities around the
country.
So on that one, let me ask why are we letting that program
go by the boards? It is a tool that has been used and can be
used to address these severely distressed neighborhoods where
there is an absolute depressant effect on many of our urban
areas and even not so urban areas across the country.
Secretary Martinez. Senator, I understand that the program
is not unsuccessful, and my comments were not directed at
trying to suggest that it is not meritorious.
First of all, the backlog in the output was only to suggest
to you that there is still a lot to be done in HOPE VI, that
the time that it takes for these projects to get off the ground
will still allow an awful lot of what you are just describing
to take place over the next several years, with still two more
rounds currently in the budget cycle that will take place as we
go forward. That is a timeframe that we should utilize to see
how we can continue to develop better ideas and other ideas of
how something like a HOPE VI can continue to work.
It does take a long time for the projects to come together.
The displacement of people, which was not an issue in
Frederick, Maryland, because Frederick, Maryland, is not a
large urban center. It is not the same experience that they had
in Chicago, for instance, where there have been multiplicities
of lawsuits from tenant groups or so-called those self-
appointed representatives of tenants.
That is not to say it is a bad program. That is only to say
that in a very difficult budget cycle, a program that was up
for reauthorization, that it had concluded--as I said, it began
in 1992 and it was to run for 10 years. This year, it was up
for the reauthorization cycle.
It seemed to us that in making difficult choices, this was
a place where we could begin to think anew and begin to think
of how we could go forward with some program that would be
patterned after the HOPE VI, but maybe yet even with better and
more improved ideas.
Senator Sarbanes. Well, what is that program?
Secretary Martinez. I am sorry?
Senator Sarbanes. What is that program?
Secretary Martinez. Senator, we do not have that to present
to you today.
Senator Sarbanes. So, you are going to end the HOPE VI
program that was held out there to eliminate the distressed
housing, but there is nothing to replace it.
Secretary Martinez. Not today.
Senator Sarbanes. At least at this point. Is that correct?
Secretary Martinez. That is correct.
Senator Sarbanes. Do you advise your children to quit one
job before they get another? As a matter of advice, would you
say, or do you usually counsel them to make sure that they have
another job lined up before they leave the one they have?
Secretary Martinez. They usually do not leave a job with 50
percent of the funding that they were given for the prior job
still unspent. They usually have spent all their money by the
time the job is concluded.
Senator Sarbanes. Well, as Jack Reed pointed out, you have
all these projects all over the country, many of them
meritorious. It is not as though you are lacking applicants
with some merit. You can cite me an example of Chicago that has
been tied up, but you have a lot of other places that are
coming in with meritorious projects that you could move on.
Secretary Martinez. I do not think there is any question,
Senator Sarbanes, that if we did not have choices to make that
were difficult in this budget cycle, that HOPE VI would not
have been where it is today.
Senator Allard. Senator Sarbanes--12 minutes. I do not mean
to be rude. I was going to call on Senator Carper, but we may
have lost him. Let me go ahead and call on Senator Sununu and
we will come back. I am sorry.
Senator Sununu. Thank you, Mr. Chairman.
I want to pick up briefly on that point, just so that I
understand the financial ramifications and that I understand
exactly where we are on HOPE VI.
Mr. Secretary, what are the unobligated balances for HOPE
VI, the money that has been appropriated, but not obligated for
the improvement revitalization of public housing demolition and
identifying new units?
Secretary Martinez. We have 14 projects of the 165 that
have been completed. More than 50 percent, or $2.5 billion,
remains unspent.
Senator Sununu. $2.5 billion.
Secretary Martinez. Correct.
Senator Sununu. Is there any money that is going to be
added to that over the next couple of years?
Secretary Martinez. About another billion dollars will be
added to that.
Senator Sununu. I think that is important because the
suggestion that, suddenly, with the absence of a new
appropriation in 2004, and we do not know if that is going to
happen or not, but the suggestion of the absence of an
appropriation in 2004 prevents us from being able to transition
to a different program, prevents us from being able to continue
part of the mission of HOPE VI, I think is inaccurate.
Senator Sarbanes. Would you yield so that we can be very
clear on that point?
Is that $2.5 billion money that has been committed for
projects that have been approved and not yet spent? Or is that
$2.5 billion you have on hand that could be used for newly
approved projects?
Secretary Martinez. There is $2.5 billion that has been
approved but unspent.
Senator Sarbanes. That funding has been committed to
projects.
Secretary Martinez. Committed but unspent.
Senator Sarbanes. Yes.
Senator Sununu. It has all been obligated?
Senator Allard. They are obligated dollars. Is that
correct, the $2.5 billion?
Secretary Martinez. That is correct. They are obligated
dollars. There is $500 million coming in the 2003 budget cycle
that still is not committed. We have just committed half a
billion dollars this week, and there is another half billion
yet uncommitted. There is $2.5 billion committed, but unspent.
Senator Sarbanes. So if one of Senator Sununu's communities
is putting together a HOPE VI application now, the only money
available that they can compete for is the $500 million that is
in this year's budget. Is that correct?
Secretary Martinez. In 2003, yes. In the 2003 budget. Now
an additional source of funding may be if some community, by
failure to act over a period of time, the monies might be
recaptured.
Senator Sarbanes. I thank the Senator for yielding, but I
think there was an impression being given that there was $2.5
billion available within the Department to commit for projects.
Senator Sununu. My first point is that there is $3.5
billion available and your point is that there--$3.5 billion in
the pipeline and $500 million, as you point out, is
uncommitted, completely uncommitted at that point, so it is
still available for competition.
The second point is that there is a legislative proposal,
and I do not know that it is a good one or a bad one, but it is
a legislative proposal, for the PHRI, the revitalization
initiative that would involve access to private financing.
Again, I do not know if this is a good proposal or a bad
proposal. It is a new proposal, and it is intended to provide
access to private financing and encourage public/private
partnerships to revitalize public housing.
I just think that those points are important to make,
especially when, as was noted by others today, there are severe
problems, management problems, backlog problems, and within the
HOPE VI program.
Finally, I know and I understand, and I want everyone here
to understand, that I recognize the value that HOPE VI has
provided in a number of communities. And that shouldn't
surprise anyone in the least. Even if it is a poorly managed,
poorly designed, poorly constructed, and poorly implemented
program, if you or I were spending $500 million a year, we had
darn well better be able to show some progress, some families,
some communities, some areas of the country that have benefited
by that $500 million.
That doesn't mean that it is a good program or not a good
program. It just means that we spent a tremendous amount of
money. And the real questions we need to answer, and that I
think the Secretary and his staff need to answer, is why is
this not the best use of $500 million to revitalize distressed
areas, to demolish programs, to encourage private financing?
That is the burden that is on you and I would hope we would
answer.
But it is not just a question of finding some community
where we have spent $10 million or $50 million or $100 million
because, unfortunately, even the most poorly managed program is
going to provide some positive results somewhere, even if the
money has been spent inefficiently.
I also want to comment about the initiatives that were
mentioned earlier, the programs that were eliminated in the
budget in addition to HOPE VI, the Section 8 Loan Guarantees,
Brownfields was mentioned, the Empowerment Zones are another
example.
I simply want to offer the following observation.
I do not know whether all of these proposals or requests to
terminate the programs are appropriate or not. I will comment
about one, and that is Brownfields.
My intuition is that the Brownfields initiative belongs in
the EPA. We passed good bipartisan Brownfields legislation last
year. It increases funding for Brownfields initiatives to the
highest level ever across the country. Yes, we have had a small
Brownfields initiative within HUD. I think it is fair to argue
that that Brownfields program is better managed, that those
dollars will do more for more people and more communities if
managed under the EPA.
Now that is my intuition. I do not know that that is
necessarily right or wrong. But I do respect the fact that your
proposals in these areas are designed to, at least, engage us
in a debate and a discussion as to whether or not these
programs are being operated and run in the right place and,
frankly, whether or not they are the right programs to have
today.
We shouldn't just keep appropriating money to the same
programs because they are the programs that we have already
run, and if we expect you to do a better job, if we expect to
meet emerging needs and housing needs better, I would hope that
you are at least engaging us in some debate and discussion
about structuring programs, creating new programs and,
ultimately, eliminating programs that aren't the best use of
taxpayers' money.
An issue was raised earlier that I think you addressed on
the problems in the operating subsidy, $250 million.
It is my understanding that your response was that you
intend to fund at 90 percent of the operating subsidy for 2003,
and that you intend to avoid this problem in 2004. My question
is, can you be more specific as to how you intend to avoid this
problem again in 2004?
Secretary Martinez. We became aware of a shortfall in the
operating subsidy in the year 2002. We at that time informed
the OMB and the Congress and the public housing industry. We
believe that our management has now been able to put in place
the types of oversight and the types of systems that will
prevent a shortfall from occurring in the future. And we
believe that we have solved this potential problem from ever
occurring again.
I believe that by the management changes that we made and
the systems that are now in place, that we have corrected what
has been a long-term problem that was creating, frankly, a very
bad accounting practice that was simply taking $250 million
from the next year's money, just to cover the shortfall, and it
was essentially deferring the problem to yet the next year.
Senator Sununu. So the funding levels you are requesting in
this budget submission, coupled with the management changes
that you describe, are enough to give you confidence that this
problem will be entirely avoided in fiscal year 2004?
Secretary Martinez. That is my confident answer to you.
Senator Sununu. Final question. Senator Dole mentioned the
information technology initiatives. I appreciate the amount of
money that has been put forward to try to deal with
improvements in information technology.
One problem that I had become aware of and done some work
on in the House when I was on the Budget Committee was the
issue of overpayments in the Section 8 program that is the
result of the lack of systems in place to confirm or to verify
applicants' income.
The amount of overpayments at various points over the last
4 or 5 years have been anywhere from $500 billion to $900
billion a year. It would seem to me that this is an area where
better management of information systems can make an enormous
difference in order to make sure that you are not providing an
overpayment. That gives you more money obviously to meet the
Section 8 and the voucher needs that are out there, that we all
know are out there.
To what extent have management changes or the application
of information technology enabled you to address the income
verification and Section 8 overpayments?
Secretary Martinez. Senator, there has been an overpayment
and underpayment issue. It has been an inaccurate payment
problem, so it has been on both ends of the balance sheet. We
have worked very diligently to try to correct those problems. I
am not at liberty to give you the specific details.
[Pause.]
I am going to ask Michael Liu, if I could, my Assistant
Secretary for Public and Indian Housing, to give you a more
specific answer on that.
Senator Sununu. Thank you.
Mr. Liu. Senator, Secretary Martinez has put together a
special team which has been in operation now for over a year at
HUD to specifically address this important issue. We have
progressed on a number of fronts.
Number one, we are in the process of developing a better
system to assist our housing agencies both in public housing
and Section 8, where they can deal with the up-front income
verification issue of applicants to the programs. That seems to
be the key problem that we have.
Number two, we are putting out a notice on the Section 8
and public housing side that will require public housing
agencies to use State data on wage and income to compare with
their information that they receive from applicants where that
State information is available.
Number three, we are also engaging with the States around
the country on getting agreements with them to share their
information on wage and new-hire information with HUD, and we
are going to distribute that to the housing agencies for their
view.
Finally, we have gone out and provided intensive reviews of
the largest public housing agencies and Section 8 agencies in
the country to get a baseline of what their issues are, what
their problems are, and are providing them technical
assistance.
We have set a goal that by the end of fiscal year 2003,
that we will have reduced our error rate by 15 percent. And
further, by 2005, we would have reduced our problem by at least
half of what it has been.
So, we have been very methodical and very focused on this
issue.
Senator Sununu. Thank you very much.
Senator Allard. Now, I want to call on Senator Carper, but
before I do, we had a discussion about the dollars being
transferred to the Department of Agriculture. I had my staff
look it up. There is $25 million in rural housing in your
budget, Mr. Secretary. We have noted that there was an increase
on the agriculture business for rural housing of $500 million.
That is a 25 percent increase in that part of their budget.
So it sounds to me like in that particular instance, they
have more than picked up the rural housing that was decreased
in your Department over in the Department of Ag.
Secretary Martinez. If I may add another answer to that,
sir. In the area of Brownfields, I am also informed that the
Brownfields, as Senator Sununu pointed out, under the EPA
program, in this Administration, has increased from $100
million to $210 million. So while HUD had a very small program
and maybe the transfer was only $10 million, overall, the
commitment, the budgetary commitment to Brownfields
redevelopment has gone from $100 million to $210 million.
Senator Allard. Senator Carper.
Senator Carper. Thank you, Mr. Chairman.
Before I finish, Mr. Secretary, and I am not going to ask
you to do this initially, but you may be thinking about it, I
want you to share with us some of the Administration's
proposals as they pertain to increasing the opportunity for
homeownership, which is one of my passions and I understand it
is one that you and the President share, and I just want to
better understand how your budget speaks to that concern.
Others have already raised some of the questions that I
had.
We have one HOPE VI project in the State of Delaware. It
has been a slow start-up. The project was approved about 3
years ago when I was Governor. Finally, we broke ground on it
last fall and we hope that significant progress will be made on
the project this year and it will be a good thing for
Wilmington and for the families that are able to be there.
This is probably not a good analogy, but I am going to use
the analogy of Superfund.
We toiled for years with Superfund, unhappy with how slow
we were and how slow the process was in cleaning up Superfund
sites. And finally, what seemed like 5 or 6 years, we figured
out how to start cleaning up sites and have made a whole lot of
progress in the last decade.
There is a lot still to go, but maybe part of what is going
on here with HOPE VI is that it takes us and the local
communities a while to get it, to figure out how to use HOPE VI
and to move it along. As I understand it, HUD's own goal for
relocating residents I guess in HOPE VI was exceeded I think in
the report sent last December, exceeded by about 5 percent.
I am told that HUD's own goal for constructing 5,500 units
in 2002 was actually exceeded by 20 percent or by an additional
1,000 units. HUD's own goal of having 5,000 units occupied in
2002 was actually exceeded by a little more than 23 percent,
with over 6,100 units occupied. I think those numbers were
given to us by your own people.
So, you heard from a lot of other people here about HOPE
VI. I believe it is a project or program that is worth
preserving. And I am told that the Urban Institute is
conducting a rather large study of HOPE VI to get
recommendations for the continuation of the program or its
improvement. I do not believe the results of that study are in,
and I would just urge that we wait on that and to learn from
that study.
Any comment?
Secretary Martinez. No. I think that is an excellent idea.
I am not here to trash HOPE VI, by the way.
Senator Carper. I noticed.
Secretary Martinez. I know that Senator Corzine remembers
well my comments on it. It is a great joy to travel to
communities and see what used to be, and see the pictures of
the old and then the new and the revitalized areas of many of
our urban centers.
I just think that we need to engage in an energetic debate
about what it should be and how we should think beyond the 1992
box that began HOPE VI, how we might get it to more communities
around the country rather than have it be so focused on maybe
some of the same communities, how we deal with people who might
have moved out of a project--we only know 14 of them have been
completed out of 165. So, therefore, there is a whole lot of
people who got moved to somewhere else, told that they will be
able to move back, who still haven't moved back to anything.
There are things about it that we can think through and
improve. I am willing for us to look at that Urban Institute
report. I am sure it will have a lot of credibility as to how
we might do this even better.
I do not mean to monopolize your time, but thank you.
Senator Carper. Well, thank you. I used to hear a phrase a
lot--perhaps you did too--if it ain't broke, don't fix it. I do
not like that little saying. We changed that in Delaware to, if
it is not perfect, make it better. And that might apply here as
well.
Let me just refocus, if I can, on Section 8's and block-
granting the voucher program.
I was involved, as a Governor through the National
Governors Association working with the Clinton Administration
and Congress, in taking the AFDC and block-granting it to
create a different kind of program that we called TANF, as you
know--Temporary Assistance for Needy Families.
The States were initially reluctant to agree to take an
entitlement program and to block grant it and say, that is it,
in terms of the funds that you are going to have for cash
assistance for welfare in the future. And we ultimately did so
because we believed that there was going to be a drop-off in
the number of families that would be participating, that would
need cash assistance over the coming years.
It turns out that that is exactly what has happened.
Nationwide, the rolls for cash assistance are down by about
half, even in the midst of a recession that we are coming out
of.
There is a difference between taking a block-grant approach
to AFDC and turning it into TANF. And I think taking this
voucher program, Section 8 rental assistance program, and
block-granting that, because I am not sure that the kind of
caseload reduction that we have seen in TANF is going to be
replicated in Section 8.
I would just have us be mindful of that fact as we go
forward in this area. I do not think the block-grant approach
anticipates any changes in inflation, any decreases in
caseload.
Any comments with respect to that analogy?
Secretary Martinez. Yes, Senator. I would say that many of
your former colleagues and governors around the country are
welcoming that opportunity because of the positive experience
with TANF. We are calling this HANF because we believe it is a
parallel program.
I am not sure I can speak to caseload reduction, but I can
certainly speak to a couple of issues that I think would be
much better managed.
No one can suggest that for over a billion dollars a year
to be recaptured from housing money, that then gets allocated
to perhaps other needs, it is a good thing for the needy
families of America who need better housing.
I believe that by providing local and State governments
with the opportunity and flexibility to manage the program, and
certainly we will avoid that recapture issue.
I also find that a program that requires the rent levels to
be adjusted out of Washington with a lot of paperwork and
usually a 6 month delay, say a community all of a sudden bumps
up against a rent level where people cannot with a voucher go
get a place to rent because there is nothing on the
marketplace.
They cannot just make that adjustment at the State level.
They have to come all the way to Washington, to HUD, a very
inefficient place, by the way, which we hope every day to make
more efficient, but yet not there. And it might take 5 or 6
months for the local agency to then have that adjusted rent
level.
So, I think, just on those two examples, this is a retail
program and it could be better managed at the State level with
the same commitment I heard--and I remember someone this
morning made the comment that over time, money would be lost
from housing.
I think that it can be very clearly written into the
legislation and the enacting legislation that I would ensure
that this money remain in housing. And I believe that that
could happen.
I believe that Section 8, while it is a good program, it is
broke. I mean, that it is not working exactly great when we see
the under-utilization of vouchers. It really breaks my heart to
think about that money being recaptured and then not
necessarily going--where you know that there are so many places
where people are saying, we desperately need more vouchers,
where other places, they cannot use them.
Senator Carper. Mr. Secretary, as we debate whether to go
forward on this path, keep in mind the concerns that I raised,
please.
And the other thing that I would ask is if we keep in mind
whether or not a block-grant structure may affect the
willingness on the part of landlords to participate in the
program. There are some concerns that they will not if we have
a fragmented system with 50 different programs out there. Would
you take just a minute on homeownership and tell me what is in
the budget that really speaks to that?
Secretary Martinez. Yes, Senator. Thank you very much for
the opportunity.
We believe that the President very passionately believes in
homeownership as a key to reaching the American Dream for many
American families.
We have a commitment of $200 million to the American Dream
Downpayment Initiative which would provide, through the HOME
program, downpayment assistance to families for the first-time
homebuyers, obviously in the right income brackets, to buy
their first home.
In addition, a very important component of homeownership
from what the Government can do is the $45 million in
homeownership training and education.
We believe that families need the counseling, particularly
families that are immigrants to this country, speak English as
a second language, that they can use--and all poor families,
really--the understanding of how to go about the home-buying
process, how to order their finances, how to fix their credit
problems.
We also continue to fund SHOP, which provides homeownership
opportunities. The tax credit program that the President has in
this year's budget for single-family construction would also
enhance the availability of affordable single-family housing in
distressed areas of our communities.
The second part of the program which is equally important
is the private-sector partnership. And in that arena, we have a
very strong partnership with Fannie Mae, with Freddie Mac, and
with the Nation's mortgage banking community.
In addition to that, the homebuilders, the realtors, all of
the people really in the home-buying and home-financing
industry coming together to offer partnership where now we have
a large number of partners working with us diligently to try to
create 5.5 million more homeowners through the next decade.
We have benchmarks in place. We will have a yearly report
which will come out in June to tell us how we have done in the
past year and ensure that this goal is not just a goal, but, in
fact, can be a reality.
Senator Allard. Senator Carper, your time is expired.
Senator Carper. Thank you, sir.
Senator Allard. Now, I will turn it over to the Chairman.
Chairman Shelby. Thank you, Senator Allard, for presiding.
As I told the Secretary earlier, we have been in an
appropriation shake-up of the subcommittees. The shake-up is
okay.
[Laughter.]
I am glad to be here.
Mr. Secretary, in March 2000, the HUD Inspector General--I
know you were not there then--issued a report detailing the
serious financial and managerial concerns that they have with
Puerto Rico's Public Housing Administration. More than $21.8
million in wasteful or fraudulent expenses were identified by
the Inspector General of HUD. In addition, the Inspector
General found that the Public Housing Administration was not
complying with the Federal procurement requirements. Schemes
involving kickbacks and fraudulent activities have led to the
indictment of several public housing employees there. That is a
lot of money.
Where is HUD today in making a determination that Puerto
Rico's Public Housing Administration should go into
administrative receivership and have HUD make decisions on
behalf of the PHA?
If this is not under consideration, what other options
exist? And what, if any, progress has been made since the
Inspector General's report--not our report, but your Inspector
General's report in 2002 regarding this? Has any effort been
made--I know I am asking you several questions here--to recover
the $21.8 million in ineligible expenses identified by the
Inspector General? Do you want to bring somebody else up?
Secretary Martinez. Yes, sir. Michael Liu, Assistant
Secretary for Public and Indian Housing. Let me make a stab
initially, and then I might turn it over to him to complete the
answer.
Chairman Shelby. Yes, sir.
Secretary Martinez. I just returned from Puerto Rico. I was
there last Thursday and Friday.
At the very beginning of my time at HUD, I met with
Governor Calderon of Puerto Rico, who was also a newly elected
Governor. We identified these as very serious problems that
needed to be addressed. The first thing we addressed was the
HOPE VI program that they had there. They had an ongoing HOPE
VI which was in such a state of mismanagement and disarray,
that we felt it necessary for HUD to take over the
administration of that program. We did so and we have now
initiated that HOPE VI, which was a construction project to be
completed.
Chairman Shelby. Has it changed a lot since you took it
over?
Secretary Martinez. It has changed dramatically. And
frankly, we are now considering turning it back over to the
Puerto Rico Housing Authority.
We have done a couple of other administrative things. I am
going to let Mr. Liu give you some details.
Chairman Shelby. We would like that.
Secretary Martinez. But I also want to tell you something
very innovative and positive that we did in Puerto Rico, which
is that we have just now for the first time on a pilot basis--
Puerto Rico is different from every other housing authority in
America. It is a commonwealth-wide housing authority
administration. We now have partnered with four municipalities
in Puerto Rico to give them management over their housing
authorities at the very local level, which we think will break
up a lot of the issues and problems that have chronically
plagued the Puerto Rico Housing Authority. We are going to do
this with four cities on a pilot level. We may expand it later.
The second thing, or the last thing I will say before I
turn it over to Mr. Liu, is that we, Senator, have the
confidence that new management of the Puerto Rico Housing
Authority and Mr. LaBoy, who has come into being to direct that
agency, is doing a very, very good job. We have a great deal of
confidence that the problems of the past are not being
repeated.
However, we do concern ourselves with that greatly. And I
would not have hesitated to put him under Federal receivership
as I did with the New Orleans Housing Authority when that was
in a situation that we felt there was no other choice.
So, we did it in the case of New Orleans. We continue to
work with the government of Puerto Rico in a way that we felt
would get us to a better day. We think we are coming to that
moment now. And I will let Mr. Liu get into some of the details
on the issues that you raised.
Chairman Shelby. Thank you.
Mr. Liu. Mr. Chairman, real quickly.
Chairman Shelby. Identify yourself for the Reporter.
Mr. Liu. Yes, sir. Michael Liu, Assistant Secretary for
Public and Indian Housing.
Chairman Shelby. Okay.
Mr. Liu. In regard to the monies that you have mentioned, a
good portion of that was tied to the HOPE VI, one of the HOPE
VI contracts that we had with a contractor there that the
public housing authority did. With the cooperation of this
management of the public housing authority, we pursued that
individual, that firm, to the last resort through the courts.
We lost.
In conjunction with our Inspector General, the Inspector
General has agreed that we have exhausted all possible courses
of action there. They have recommended and agreed that we
dispense with $12 million of that obligation. However, in
return for $7 million from the housing authority on the sale of
a piece of property that is in transaction right now.
In the other areas of procurement, we have worked very hard
in providing technical assistance and in monitoring their
procurement practices. As the Secretary mentioned, we now feel
very firm that they are on the right track.
Chairman Shelby. Have you been working with the Inspector
General regarding the initial report 2 years ago, 3 years ago?
Mr. Liu. Yes, sir, we have been.
Chairman Shelby. He is on top of things?
Mr. Liu. Yes, sir.
Chairman Shelby. Okay.
Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman.
Mr. Secretary, let me associate myself with the remarks of
Senator Carper about the Section 8 voucher program because I
think that the issue here is the ever rising cost of housing.
As I understand the current program, the reimbursement is
based on actual housing costs. And the danger in the block
grant is that the monies may not keep up with these rising
costs of housing, leading the States to either cut back on the
number of people served or to somehow decrease the subsidy.
And as I look at the budget, the fiscal year appropriation
for the Housing Certificate Fund was $17.09 billion and the
President's request is $17.058 billion. There is already a
slight reduction from what was appropriated last year.
If my numbers are right, I wonder how we are going to keep
up--I guess the basic question is, how are you going to ensure
that this block grant doesn't result in less people being
served than are currently being served?
Secretary Martinez. Senator, the block-grant proposal would
fund the precise number of units that are being funded today.
It would not fund a lesser number. It would just allow the
States to do the management of it in a more direct way. But it
would not be the intent to result in an immediate cut in the
funding to Section 8 vouchers.
We have, Mr. Liu tells me, $700 million additional in the
Section 8 voucher program. So, I just do not think that we
anticipate a reduction in the funding levels.
Senator Reed. I guess if the issue is management, of being
efficient in terms of distributing the vouchers, identifying
recipients, that is one thing. But how do the States manage to
increase housing costs without increased monies?
Secretary Martinez. I suppose from time to time, the
housing costs would have to be accounted for in increases on
the levels of funding that they would receive from year-to-
year. I do not think they would be frozen in time. It would
just be a management tool.
Senator Reed. Well, I think, again, Senator Carper
eloquently described the concerns that he has and I share.
Secretary Martinez. Senator, if I may.
Senator Reed. Yes, Mr. Secretary.
Secretary Martinez. I just think it would be an appropriate
debate for us to have. I think it is an innovative way. I think
it is revolutionary. I think it will dramatically have many
things that would be positive. But we do keep in mind those
things that you mentioned and I hope we can continue to debate
this topic.
Senator Reed. One of the concerns I have is that if you
look back historically, GAO did a report when Congress block-
granted social programs in 1981 and found that almost every
program faced huge cuts in the following years in terms of
their appropriations because the block grant was easier to cut
than individualized, specified, targeted programs.
Secretary Martinez. Right.
Senator Reed. So let me put that in context. And I agree
with you that this is something that we have to watch very
carefully.
Let me turn for a moment again to the issue of public
housing operating funds. I might be confused and I would
appreciate your direction here.
The fiscal year 2003 appropriation bill was $3.57 billion.
But $250 million of that I assume was used to the shortfall.
Secretary Martinez. Correct.
Senator Reed. So, effectively, we are going into 2003 with
about $3.327 billion to cover costs which we know are at least
that much. And the request this year is just for $3.574
billion.
It just seems to me that there is $250 million here that we
pulled from the 2003 budget to last year's budget. And yet, we
are not increasing the request by anything on the order of $250
million extra.
Secretary Martinez. We had a 1-year shortfall that was
funded by the--was it special defense appropriations?
[Pause.]
By the operating subsidy on this year, is being funded. We
then, going forward, will be able to function with that budget
level because what we have done is fix the problem that was
creating that shortfall on a year-to-year basis.
I do not think we have a $250 million shortfall going
forward like we have had in the past.
Senator Reed. Just one final question, Mr. Secretary. You
have talked about moving the Brownfields program from your
Department to EPA. My assumption is that EPA's responsibility
on Brownfields are remediation of the site, State compliance,
not housing directly. When those funds are going over to EPA,
does EPA now have the responsibility and the obligation to
directly use these resources for residential housing?
Secretary Martinez. Sir, our program did not do residential
housing, either. It was economic development in Brownfields
areas. So it was really for economic development opportunities.
The EPA will do the same thing.
Senator Reed. So, they will do the same thing.
Secretary Martinez. Economic development.
Senator Reed. Thank you, Mr. Secretary.
Chairman Shelby. Senator Allard.
Senator Allard. Mr. Chairman, I cannot let this go by
without asking you about the Government Performance and Results
Act.
Secretary Martinez. GPRA.
Senator Allard. I ask every member of HUD that comes here
to testify about this question because I am interested in
making sure that we move forward with that. Would you please
discuss how the Administration is utilizing this approach
through the President's Management Agenda? How does the
integration promote accountability? How will this outcome focus
to help benefit those people in HUD who are relying on the
programs, as well as the taxpayer, if you will?
Secretary Martinez. Senator, if I may allow Angela
Antonelli, our Comptroller, to answer that question. I will
defer to her. My notes do not have GPRA today.
Senator Allard. Okay. Very good.
[Laughter.]
Ms. Antonelli. Senator Allard, performance measurement, as
you know, is a very high priority within the President's
Management Agenda and budget and performance integration.
Consistent with that, we have made every effort to align
our programs and our dollars with the Department's strategic
goals and objectives. And attached to all of that are
performance measures on how we hold our programs accountable.
We produce, as part of the GPRA, the Annual Performance
Plan. We will be producing our 2004 APP and delivering that to
Congress very shortly.
As you know, the APP has performance measures attached to
all of our programs. Through the Performance and Accountability
Report, we report annually to Congress and just delivered the
2002 Performance and Accountability Report to Congress. That
reports on our performance for 2002.
So it is something that we take very seriously. We are
working very hard within the Department to continue to improve
the quality of our measures and we will continue to do that in
the 2004 APP. And we certainly welcome any comments from this
Committee with regards to the quality of that and the extent to
which we continue to improve that.
Senator Allard. Thank you.
The General Accounting Office has repeatedly cited human
capital as a weakness at HUD. The problem is exacerbated by
HUD's aging workforce. Apparently, it is the oldest in the
Government.
I am aware that you recently completed a Resource
Estimation and Allocation Process called REAP that would help
match needs with skills. What were the results of the REAP and
how is HUD using that to address its human capital
deficiencies?
Secretary Martinez. Senator, I am happy to report that we
have been able to ``staff up,'' if you will. One of our goals
has been to continue to revitalize and reenergize our
workforce. We have established an internship program where we
now are bringing in talented young people with a new and
positive skill set.
We find that the aging workforce, while it is a double-
edged sword, on the one hand, you may be losing very
experienced employees. But then again, we may be gaining new
ones with the new skill sets the 21st Century sometimes
requires. We are working hard at making a positive out of that.
We are employing the REAP as a guide. We have reached
staffing levels that are really adequate for the moment. We are
looking forward to stabilizing that. We staffed up a little
quickly. We now need to slow down in our hiring. So it is
always a moving target, if you will. But I am pleased that we
have been able to move our staffing levels from 9,100 to the
9,300, which has been authorized and utilizing REAP so that we
do it in keeping with our needs, but also the critical hire
list. We continue to work on improving our controls of how we
do that process.
Senator Allard. Now, I know that you are working to try and
increase homeownership among minorities. You use the 5.5
million by the end of the decade. I know that you were very
much working together on the American Dream Downpayment
Initiative. Do you have other programs going out there to help
meet that goal of 5.5 million by the end of the decade?
Secretary Martinez. Well, certainly, we do the ongoing
programs that HUD has. But on the specific, the Downpayment
Initiative Program that you have kindly agreed to sponsor. It
is also the educational component and it is also the tax credit
proposal which provides an additional amount of affordable
single-family homes in distressed areas in our communities all
working together. But I also think we rely greatly on our
partners in the private sector because, really, that is going
to provide a tremendous infusion of not only dollars, but
manpower and know-how, in providing families that are desirous
of becoming homeowners the opportunity to do so.
Senator Allard. Thank you, Mr. Chairman. I see that my time
is about ready to expire.
Chairman Shelby. Senator Corzine.
Senator Corzine. Thank you, Mr. Chairman.
Mr. Secretary, I want to go back to this Ernst & Young
study with regard to the dividend tax cut proposal,
particularly since you have mentioned tax credits now twice
within the context of homeownership.
The tax credit efforts also apply in some of the Fannie Mae
and Freddie Mac programs. Before the proposal on the dividend
exclusion, was there any discussion with HUD on what the
implications of that would be from either Treasury or OMB?
Secretary Martinez. Senator, let me first of all let you
know that I have been informed that the Mortgage Bankers
Association will be releasing a study early next week saying
that they find no major effect from the low-income tax credit
proposal on housing.
My early discussions with even the homebuilders, while
initially there was some concern, later, as they further
studied it, I believe their concerns have been dissuaded.
I believe that the Ernst & Young report raises some very
valid and serious concerns. But I do not believe it is a
unanimous voice. And I do know that the Department of the
Treasury has a very different point of view on that specific
issue.
Senator Corzine. I guess my question was, was that a
consideration? Did we think about the housing implications and
whether or not that would work to the advantage or the
disadvantage? Did we think about that when we were putting
together an overall budget proposal?
Secretary Martinez. Senator Corzine, as I told you earlier,
the tax proposals of the Administration are really a product of
the Department of the Treasury and not the Department of HUD.
And in fact, we piggyback with them on issues like the single-
family housing tax credit. But it is not a program that either
HUD designs or develops.
Senator Corzine. Right. I hope that you and Treasury
Secretary Snow can get on the same page on these as it impacts
these housing programs.
I won't beat up on this. I want to put in a word for the
Enterprise Zone activities which are zeroed-out.
I, like you, come from the private sector. I think leverage
is a terrific opportunity when the Federal Government will put
down a dollar and gets 10 dollars. As I suggested the last
time, I would love to take you to Cumberland County and see
where $123 million has been leveraged by about $10 million of
public investment.
Several hundred new housing units renovated, rehabilitated,
reconstructed. New jobs. And without that kind of funding for a
program, it is hard to understand how economic development can
go forward. I suspect that this individual situation may be
reflective of other things around the country and we are
interested in economic growth.
This is a great example of public/private partnership, as
we heard earlier on HOPE VI and other areas. I would think that
that would be consistent with the philosophy of the
Administration.
I have a question, though, that ties with something that
you said in your opening statement, where you made a very real
and, I believe, sincere, commitment to promoting homeownership
among
minorities. But in some ways, I do not understand how that
relates to something that I think HUD has recently proposed in
a rule that would repeal requirements for recipients of
Community Development Block Grants to demonstrate a commitment
to diversity.
Under the Johnson Executive Order 11246, companies with 50
or more employees in Federal contracts of more than $50,000 are
required to file with the Federal Government written
affirmative action plans.
Those plans did not mandate hiring quotas, but did require
companies seeking Federal contracts to demonstrate a plan and a
good-faith effort toward hiring women and minorities. I
understand HUD is proposing to exempt organizations that
receive Community Development Block Grants, more than $4.4
billion allocated in fiscal 2003 from their obligations under
the Executive Order.
First of all, I would love to hear your comments about it.
But is HUD's position that there is no longer a need for this
commitment to diversity as exhibited in this Executive Order?
Secretary Martinez. Senator, I am sorry to say I am unaware
of the issue that you raise. I will look into it and be glad to
consider responding to you in writing. But I am not familiar
with that issue whatsoever.
Senator Corzine. I think it is one of those things that was
included on a January 6, 2003 proposal from HUD, if I am not
mistaken, that was associated with some of the faith-based
initiatives that have come.
Secretary Martinez. The faith-based initiative attempts to
break down barriers and bring more people into opportunities
for partnership with the Federal Government.
There is nothing that I am aware of in that particular
regulatory change that would in any way either attempt or by
design or accidentally, limit participation by people from a
broad spectrum of race and creed and other backgrounds.
Senator Corzine. I certainly would want clarity with regard
to this as it relates to Community Development Block Grants
because I think it is a major shift in policy----
Secretary Martinez. Senator Corzine, I am looking back here
to Assistant Secretary Roy Bernardi the Assistant Secretary who
manages the Community Development Block Grant Program. He is
unaware of this issue. It is not something that we are aware
of.
Senator Corzine. We need to sort this out because our legal
people are suggesting to me that this January 6 order with
regard to Community Development Block Grants actually changed
the basic framework of this.
Secretary Martinez. Would that be an order from HUD or----
Senator Corzine. According to the research that my people
have been able to develop.
Secretary Martinez. Okay. What we should do is perhaps have
your people communicate with us and we can get together and try
to ascertain what that is about.
Senator Corzine. Thank you.
Chairman Shelby. Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
Mr. Secretary, a number of times here you have used a
phrase--I am trying to recall exactly the phase. It was, I
believe, ``Given the current situation we confront on the
budget.'' Was that the phrase you used as you were responding
to the question about why there are some cutbacks and why you
are not funding the HOPE VI and so forth? What was that phrase
that you used?
Secretary Martinez. I guess, I am not sure exactly the
phrase, but what I am alluding to is that we are in a time of
unprecedented needs from a standpoint of national defense. We
are at a time when the economy has not been as flourishing as
we would all like it to be. And so, it is a difficult budget
year.
Senator Sarbanes. Is that a euphemism on your part for what
you heard from OMB? Is that phrase designed to mask, as it
were, an OMB directive?
Secretary Martinez. No, sir. I think it is reflecting the
current reality in which our country is living.
Senator Sarbanes. So when you went to OMB to begin with,
did you already factor that into your request, or was that
consideration, this kind of broader view of the macroeconomic
situation, was that in effect fed back to you by OMB?
Secretary Martinez. I believe that the development of the
President's Budget, which HUD is a part of, is a product of the
interaction of the Department, OMB, and the overall priorities
that the President sets out.
And that my role in the Administration is to, number one,
do a good job with HUD in terms of preparing a thoughtful
budget, and then allow it to be part of the process which at
the time you were reminiscing about earlier when I was at my
confirmation hearing, I had no idea just exactly what those
three letters meant to my world, but as you well know, are
significant.
OMB does play a very large role in the preparation of the
President's Budget.
Senator Sarbanes. Do you think Secretary Rumsfeld, when he
puts forward his budget, factors in these broader
considerations, or do you think he puts forward a budget that
reflects what he judges to be the needs within his area of
responsibility?
Secretary Martinez. I believe your question to be more
rhetorical in nature than seeking an answer from me. But I
think you should know that I am not going to comment on how
Secretary Rumsfeld puts together his budget request because I
think that that is something that should be answered by him.
Senator Sarbanes. Let me ask you a couple of questions
about public housing. First, what is the view of the Department
with respect to expanding the current stock of public housing?
Not vouchers. I am not talking about vouchers now. Second, what
is the view of the Department with respect to maintaining the
current stock of public housing?
Secretary Martinez. If you mean by the expanding of public
housing, it is new construction for public housing.
Senator Sarbanes. Right.
Secretary Martinez. I do not believe that our approach to
that is any different than it has been for many years, which is
that, essentially, there is not a public housing production
program at HUD today, nor has there been one to my knowledge
for quite a number of years.
In terms of the existing stock of public housing, I think
we have a continuing commitment commensurate with budget levels
that have been around again for some period of time to continue
to modernize and upgrade public housing.
I know from my experience many years ago in the local
housing authority, that even then, in the early 1980's, we had
great concern about what was called modernization and the need
to continue to do new roofs or to somehow or another continue
to maintain the stock of public housing.
I think that our view of that is that we continue to make
that commitment and continue to do what we can to improve
public housing within the constraints of----
Senator Sarbanes. Do you think that your commitment of
resources for the modernization of the existing stock of public
housing is at a level sufficient to sustain it? Or do you think
you are falling behind the need so that you are going to lose
some of the stock because it will simply deteriorate into a
condition in which it is either not usable or too expensive to
bring up to standards?
Secretary Martinez. I believe that what we are doing to
maintain public housing is adequate to maintain it.
We also are opening avenues of new opportunities for public
housing agencies to do a lot for themselves in order to provide
and acquire private financing which will allow them to do the
necessary maintenance and upkeep, and upgrade.
I think that these innovative ideas are going to provide
the independence for the housing authorities to do on a
project-by-project basis or even on a single apartment complex
basis, the kinds of improvements that they have not been able
to do in the past.
So, I believe we are freeing up the imagination and the
creativity of our local housing authorities in partnership with
local lending institutions and all to improve that.
Senator Sarbanes. Now does that approach involve an
assurance to the public housing authority of vouchers from HUD?
If the public housing authority is going to go out and
borrow a lot of money to put into the maintenance or
modernization of its public housing, which I take it is what
you are suggesting, to what will the lender look for repayment
of this debt that the public housing authority will be
assuming?
Secretary Martinez. My intuition tells me that what they
look to is to the stream of income that would be coming by the
rents that are collected. But this is not just an idea. This is
actually occurring and happening. Today, Chicago has committed
$300 million in new, innovative financing. Philadelphia, $120
million. The District of Columbia, $33 million.
These are all happening today in a way that I think are
going to be very successful and then encourage even more of our
public housing entities to do the same thing.
Senator Sarbanes. And they are going to, in effect, carry
the debt simply by the rents?
Secretary Martinez. The way in which financing usually
takes place is that the lender will look for a stream of income
coming to the borrower that will then allow that borrower the
reasonable prospects of repaying the loan, that I think is what
occurs here.
Senator Sarbanes. Where is that stream of income coming
from? Is it just the rents? That was my question.
Secretary Martinez. A certain percentage of the capital
fund, rent, and other income.
Senator Sarbanes. What is the other income?
Secretary Martinez. It would be management fees. It would
be other activities that public housing entities sometimes
enter into. In different communities, they have different
opportunities to do things which derive income for them. It is
a private financing mechanism.
Senator Sarbanes. Well, I would like to see this financing
arrangement. It doesn't assume any stream of income coming to
the public housing authority from HUD?
Secretary Martinez. I think that, inevitably, the public
housing authority receives rental--I mean they receive monies,
operating subsidies, from HUD every year. The rent that is paid
by the tenants, and the subsidies that are given provide a
stream of income that appears to be sufficient for these
financial institutions to make a commitment.
Senator Sarbanes. All right. So, then, it is critical to
making this work, that a stream of income from HUD is assured
or guaranteed, is it not?
Secretary Martinez. The current system is working in these
three cities, and I am sure in others. And whatever guarantees
the financial institutions obtain was sufficient to allow them
to make the loans.
Senator Sarbanes. We will have to take a careful look at
that. I am concerned that you are setting up a system to
replace capital grants for modernization by shifting the
housing authorities into a borrowing arrangement. And it is not
clear to me once they go into the borrowing arrangement, where
the funds will come from to handle the repayment. It seems to
me--will HUD eventually drop out of that picture?
Secretary Martinez. I do not think so, sir.
Senator Sarbanes. Is HUD putting an income stream into
those situations that you just described?
Secretary Martinez. I think HUD's participation with public
housing authorities and the way that it has been done in the
past is not anticipated to be changed dramatically by these
arrangements. It is just allowing them a new vehicle, a new way
that they can improve the stock of housing by having yet
another avenue available to them.
Senator Sarbanes. Well, you have cut the Capital Fund each
year now since you have been at HUD. And of course, the budget
submissions for cutting the Capital Fund have been
significantly greater than what the Congress has in the end
done. The Congress has swallowed some of the cuts, but we have
really restored a great deal of them.
In three budget submissions, you have proposed $1.2 billion
in cuts to the Public Housing Capital Fund. I do not see how we
are going to sustain this housing--I think it would be a policy
lacking in common sense to allow existing public housing stock
that, through reasonable measures, could be sustained as
available affordable housing, simply to fall into disrepair,
and I am quite concerned about that.
It is a policy argument whether we should build more public
housing, and I understand that. As you pointed out, we have not
done that in recent years because we have gone down the Section
8 path. But I do want to know what the basic attitude is toward
sustaining the public housing. There are some people who argue
that they want to do it all in and go completely to vouchers.
I take it that is not your position.
Secretary Martinez. That is not my position. It is not
currently anything under discussion by this Administration.
Some would argue that that would be a healthy way to go. But
that is not something that I am particularly advocating or it
is nothing that is indicated by any of the things that you
suggest.
Senator Sarbanes. Of course, if you went that way, you
would give up a lot of currently available housing stock, a lot
of which is helping us to meet the problem of affordable
housing.
Secretary Martinez. Yes. I am not suggesting that that is
something that we should engage in.
Senator Sarbanes. Well, my time is expired.
Chairman Shelby. Thank you, Senator Sarbanes.
I noticed in the budget, Mr. Secretary, that you are
calling for $17 million for the manufactured housing program.
That is a 30 percent increase in funding over recent years.
Since HUD's budget for this program is paid, I think it is
paid for entirely by label fees and the industry is not as
healthy as it was several years ago, I am curious as to how you
justify such a significant increase, whereas, I understand that
you are estimating that industry will sell 281,000 homes in
2004.
Secretary Martinez. The numbers arise, Mr. Chairman, by our
determination of the fees by taking the appropriate amount and
dividing it by the number of units that we expect to be
produced.
Chairman Shelby. I understand that, the label. Your 281,000
homes projected for 2004 seems rather high considering that in
the calendar year 2002 we just finished, the most recent data
available there, only 168,000 homes were sold. This would be
over a 100,000 increase. Of course, the industry would like it.
But they feel like that is an inflated figure.
Do you want to respond?
Secretary Martinez. Housing Commissioner Weicher.
Chairman Shelby. Okay.
Mr. Weicher. Thank you, Mr. Chairman. I am John Weicher. I
am the Assistant Secretary for Housing and the Federal Housing
Commissioner.
Chairman Shelby. Yes, sir.
Mr. Weicher. The 281,000 unit figure comes from the
forecast of DRI. It is the only private forecast that we know.
That is their forecast for the volume of manufactured homes in
2004. We get the $17 million figure by multiplying that by the
fee per unit, which we established by regulation last year. We
are not proposing to change the fee in reaching that number.
Chairman Shelby. Thank you.
Senator Sarbanes, do you have any other questions?
Senator Sarbanes. Mr. Chairman, no. I do think, and I will
discuss it with you, we should give some thought to doing
budget sessions on specific programs because I think it is
clear today that you do not really have a chance to get as far
in depth with respect to the budget as might be desirable.
I think the prospect of just doing the entire HUD budget at
one hearing doesn't give us that chance. So maybe we should
give some thought to whether we should just focus on particular
aspects of it and then explore that with the Secretary and
whichever Assistant Secretary is responsible.
Chairman Shelby. Senator Allard is not here, but his
staffer is here. He is the Chairman of the Subcommittee over
that, and we might look at it.
Senator Sarbanes. Good. Thank you very much.
Chairman Shelby. Mr. Secretary, we appreciate your
appearance here today and your candor.
Secretary Martinez. Thank you.
Chairman Shelby. We wish you well. And let's build housing
for every American, if we can.
Secretary Martinez. Thank you, sir. It is good to be with
you.
Chairman Shelby. Thank you.
Secretary Martinez. Thank you very much.
Chairman Shelby. The Committee is adjourned.
[Whereupon, at 12:15 p.m., the Committee was adjourned.]
[Prepared statements and response to written questions
follow:]
PREPARED STATEMENT OF SENATOR JON S. CORZINE
Thank you very much, Mr. Chairman. I want to reiterate the concerns
outlined by the Ranking Member and my colleagues about the
Administration's 2004 Budget for the Department of Housing and Urban
Development (HUD) and the enormous harm this budget will have on low-
and middle-income families throughout America.
Regrettably, this seems to be the norm for this Administration,
rather than the exception. The budget of the ``Leave No Child Behind''
President has no significant aid for America's public schools. They
have offered a trickle down economic plan that by their own admission
offers very little in the form of immediate stimulus, but will add $1.5
trillion to our already enormous Federal deficit.
It is a budget that provides no direct Federal aids to States
facing their worst fiscal crisis in four decades. Now many will be
forced to cut funding for vital programs like Medicare and Head Start.
And it fails to adequately fund important homeland security measures
like first responders and ensuring the security of chemical plants,
many of which can be found in residential communities.
It is not a stretch to assert that this Administration's budget
will likely leave this country worse off tomorrow than we are today--
there is no doubt that at least fiscally, America is worse off now than
before this Administration was in place. But nowhere are this
Administration's misplaced priorities more demonstrable than in its HUD
budget and its housing programs.
Over the past 2 years, the President has slashed $2 billion from
the public housing program, slashed funds for the Public Housing
Operating Fund and eliminated funding for the Public Housing Drug
Elimination Program (PHDEP).
The Administration's proposal to block grant the Section 8 program
will likely reduce funding for the program and undermines the program's
mission to assist the most low-income families afford housing. At a
time in which more and more families are struggling to afford housing
and voucher utilization is on the rise, underfunding the Section 8
program is a misguided step.
But the HUD budget is not just about slashing public housing
programs. It is also about rescinding Federal support for community
revitalization projects that are transforming our Nation's urban core,
including those in my State, New Jersey.
I am nothing short of outraged at the proposed elimination of the
very successful, bipartisan HOPE VI program; funding for Round II
Empowerment Zones and cuts for Brownfield redevelopment. Each of these
programs has been successful in communities throughout America.
The Hope VI program has been particularly vital in New Jersey,
where its helped transform some of the Nation's oldest public housing
stock into safe, livable mixed-income communities for families.
The Cumberland County EZ in my home State has created hundreds of
jobs, renovated, rehabilitated, and constructed more than one hundred
housing units, and funded more than 60 programs that are expected to
leverage more than $123 million in private, public, and tax-exempt bond
financing. The Cumberland County EZ is leveraging $10 in non-Federal
funds for every $1 of Federal financing.
Why does the President want to eliminate such successful programs?
Secretary Martinez, you yourself seem to be developing a serious
credibility gap. At your confirmation hearing, and in subsequent
questioning, you articulated HUD's support for PHDEP--a year later you
eliminated it, without saying a word to Congress. Last year, you said
the HOPE VI program was ``overall . . . a great program that has done
an awful lot of good, and we [Bush HUD] are delighted.'' Now a year
later, like we witnessed with PHDEP, you are completely eliminating
funding for that program.
The constant here appears to be that your Agency, Secretary
Martinez, continually seems to be used as a funding source to offset
the costs of this President's ``Leave No Millionaire'' behind tax-
cutting agenda. It is the reverse Robin Hood scenario, robbing programs
that help the poor to pay the cost for programs that make the richest
Americans wealthier. Even the President's proposal to exclude taxes on
corporate dividends hurts housing efforts, particularly the Low-Income
Housing Tax Credit (LIHTC). The tax credit will likely become less
attractive to investors should this dividend exclusion be enacted.
A recent report by Ernst & Young, LLP, indicated that 35 percent
fewer units
financed by the LIHTC would be produced every year if the dividend tax
cut were enacted. Again, the poor gets hurt for an initiative that
primarily benefits the wealthiest of Americans.
In closing, Mr. Chairman, I would like to state a few facts about
the housing crisis we are facing in America and in my State, New
Jersey. There, 34 percent of households are renters, and today the
average family would have to work 146 hours at minimum wage to afford
the Fair Market Rent for a 2-bedroom apartment. Waiting lists for
Section 8 in New Jersey are as long as 3 years--and even with vouchers,
the lack of affordable housing stock makes it difficult for families to
find housing. Those numbers are similar in urban communities throughout
America.
Secretary Martinez, the housing crisis in this country is very
real--but your HUD budget seems to give short shift to the housing
crisis, or the families affected by this crisis. And that is a shame,
because it is your job to care.
Thank you, Mr. Chairman.
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PREPARED STATEMENT OF SENATOR ELIZABETH DOLE
I would like to express my appreciation for your holding this
hearing today and join you in welcoming Secretary Martinez to discuss
the Administration's Department of Housing and Urban Development budget
request.
Let me begin by making it very clear that I believe that Secretary
Martinez should be congratulated for the good work he has done at HUD.
Secretary Martinez took over an Agency which was in disarray. Staffing
cuts had been made by the previous Administration to adhere to
arbitrary staffing goals. Unfortunately, some of the Agency's most
senior and experienced staff was lost due to downsizing. The HUD
Inspector General's Office referred to this as ``the brain drain'' and
noted that serious long-term effects would be felt.
In addition, a series of management reform initiatives in the
previous Administration moved and consolidated staff in new areas of
the country. This unfortunately created enforcement gaps exploited by
criminals who took advantage of HUD and took advantage of ordinary
citizens. I am reminded of a North Carolina saying that goes, ``you
cannot fall off the floor''--and in some sense that could have applied
here. Secretary Martinez had nowhere to go but up with such a trouble-
ridden Department, but he has clearly exceeded all expectations.
I have reviewed the General Accounting Office's January 2003 review
of HUD. The GAO states on the first line of the first page of the
report that, ``HUD has made progress since January 2001 in addressing
identified weaknesses in its high-risk program areas and management
challenges, but significant challenges remain.'' I look forward to this
opportunity to discuss with the Secretary those significant challenges
which remain, and assess the extent to which these will be addressed in
the Fiscal Year 2004 Budget.
A top priority for the proposed budget is achieving the goal of
homeownership for low- and moderate-income families. I believe this is
a laudable goal on the part of this Administration. While the United
States enjoys an all-time high national homeownership rate of 68
percent, there are sectors of the population for whom homeownership
remains frustratingly unattainable. In fact, the homeownership rate for
African-Americans and Hispanics is in the 40th percentile. This is an
unacceptable disparity that we must work to change, for my friends and
my neighbors in North Carolina and throughout the country.
The benefits of homeownership for families, communities, and the
Nation are profound. When individuals and families own their home, they
establish roots in their communities and have a greater stake in the
growth, safety, and development of their towns and cities. It is
through initiatives to further grow homeownership that we empower
individuals and families by helping them build wealth and improve their
lives.
While most of the Fiscal Year 2004 HUD Budget is allocated for
important programs such as rental assistance and public housing, I have
always believed that programs designed to lead their beneficiaries to
independence are the best use of taxpayer dollars. Increasing the rate
of homeownership for Hispanic and African-American communities is one
such goal that is clearly demonstrated in the programs contained in the
Fiscal Year 2004 HUD Budget, and I am committed to working with
Secretary Martinez and my colleagues on this and other related issues.
We need to ensure that HUD becomes known first and foremost for its
programs that improve the lives of America's families, and not for
bureaucracy and inefficiency.
Thank you.
PREPARED STATEMENT OF MEL MARTINEZ
Secretary, U.S. Department of Housing and Urban Development
March 4, 2003
Overview
Chairman Shelby, Ranking Member Sarbanes, and distinguished Members
of the Committee, thank you for the invitation to join you this
morning. I am honored to outline the Fiscal Year 2004 Budget proposed
by President Bush for the U.S. Department of Housing and Urban
Development (HUD).
HUD has achieved measurable success since 2001 in carrying out its
mission and meeting the many challenges confronting a Cabinet-level
Department. Today, HUD annually subsidizes housing costs for
approximately 4.5 million low-income households through rental
assistance, grants, and loans. It helps revitalize over 4,000
localities through community development programs. The Department
provides housing and services to help homeless families and individuals
become self-sufficient. HUD also encourages homeownership by providing
mortgage insurance for more than 6 million homeowners, many of whom
would not otherwise qualify for loans.
Supported by HUD's proposed $31.3 billion Fiscal Year 2004 Budget,
this very important work will continue. Housing remains a critical
component of both the President's plan to promote economic growth and his focus on meeting the common challenges faced by Americans and their communities.
The President does not intend to change his 2004 Budget based on
the program or Agency levels included in the 2003 Omnibus bill the
Congress adopted in mid-February. The President's 2004 Budget was
developed within a framework that set a proposed total for
discretionary spending in 2004, and each Agency and program request
reflected the Administration's relative priority for that operation
within that total. While we recognize that Congress may believe there
is a need to reorder and adjust some of these priorities, the
Administration intends to work with Congress to stay within the 2004
overall amount.
HUD's proposed budget offers new opportunities for families and
individuals--and minorities in particular--seeking the American Dream
of homeownership.
It offers new opportunities for renters by expanding access to
affordable housing free from discrimination.
It provides new opportunities for strengthening communities and
generating renewal, growth, and prosperity--with a special focus on
ending chronic homelessness.
And our budget creates new opportunities to improve HUD's
performance by addressing the internal management issues that have long
plagued the Department.
Increasing Homeownership Opportunities
Americans place a high value on homeownership because its benefits
for families, communities, and the Nation as a whole are so profound.
Homeownership creates community stakeholders who tend to be active
in charities and churches. Homeownership inspires civic responsibility,
and owners vote and get involved with local issues. Homeownership
offers children a stable living environment that influences their
personal development in many positive, measurable ways--at home and in
school.
Homeownership's potential to create wealth is impressive, too. For
the vast majority of families, the purchase of a home represents the
path to prosperity. A home is the largest purchase most Americans will
ever make--a tangible asset that builds equity, credit health,
borrowing power, and overall wealth.
Due in part to a robust housing economy and Bush Administration
budget initiatives focused on promoting homeownership, more Americans
were homeowners in 2002 than at any time in this Nation's history. The
national homeownership rate is 68 percent. That statistic, however,
masks a deep ``homeownership gap'' between non-Hispanic whites and
minorities: While the homeownership rate for non-Hispanic whites is
nearly 75 percent, it is less than 50 percent for African-Americans and
Hispanics.
The Administration is focused on giving more Americans the
opportunity to own their own homes, especially minority families who
have been shut out in the past. In June 2002, President Bush announced
an aggressive homeownership agenda to increase the number of minority
homeowners by at least 5.5 million by the end of this decade. The
Administration's homeownership agenda is dismantling the barriers to
homeownership by providing downpayment assistance, increasing the
supply of affordable homes, increasing support for homeownership
education programs, and simplifying the home-buying process.
Through ``America's Homeownership Challenge,'' the President called
on the real estate and the mortgage finance industries to take concrete
steps to tear down the barriers to homeownership that minority families
face. In response, HUD created the Blueprint for the American Dream
Partnership, an unprecedented public/private initiative that harnesses
the resources of the Federal Government with those of the housing
industry to accomplish the President's goal.
Additionally, HUD is proposing several new or expanded initiatives
in fiscal year 2004 to continue the increase in overall homeownership
while targeting assistance to improve minority homeowner rates.
As a first step, HUD proposes to fund the American Dream
Downpayment Initiative at $200 million. This was first introduced in
fiscal year 2002, this program targets funding under the HOME program
specifically to low-income families wanting to purchase a home. The
fiscal year 2003 appropriations provided for $75 million for this
initiative, which will be sufficient to begin the program. The Fiscal
Year 2004 Budget provides funding to assist approximately 40,000 low-
income families with downpayment and closing costs on their homes.
The HOME Investment Partnerships Program (HOME) plays a key role in
addressing the shortage of affordable housing in America. As reflected
in this year's program assessment, the HOME program is successful
because it is well-managed and its flexibility ensures local
decisionmaking. In 2004, a total of $2.197 billion is being provided to
participating jurisdictions (States, units of local government, and
consortia) to expand affordable housing, which represents a 10 percent,
or $200 million, increase for HOME from the 2003 enacted level. The
funds dedicated to expanding and improving homeownership will be spent
rehabilitating owner-occupied buildings and providing assistance to new
homebuyers. Based on historical trends, 36 percent of the
homeownership-related funds will be used for new construction, 47
percent for rehabilitation, and 14 percent for acquisition.
Recipients of HOME funds have substantial discretion to determine
how the funds are spent. HOME funds can be used to expand access to
homeownership by subsidizing downpayment and closing costs, as well as
the costs of acquisition, rehabilitation, and new construction. To
date, HOME grantees have committed funds to provide homebuyer
assistance to more than 288,000 low-income households.
To promote the production of affordable single-family homes in
areas where such housing is scarce, the Administration is proposing a
tax credit of up to 50 percent of the cost of constructing a new home
or rehabilitating an existing home. This new tax credit targets low-
income individuals and families; eligible homebuyers would have incomes
of not more than 80 percent of their area median.
HUD is committed to helping families understand the home-buying
process and how to avoid the abuses of predatory lending. Housing
counseling has proven to be an extremely important element in both the
purchase of a home and in helping homeowners keep their homes in times
of financial stress. The Fiscal Year 2004 Budget will expand funds for
counseling services from $40 million in fiscal year 2003 to $45
million. This will provide 550,000 families with home purchase and
homeownership counseling and about 250,000 families with rental
counseling.
The Fiscal Year 2004 Budget strengthens HUD's commitment to the
Self-Help Homeownership Opportunity Program (SHOP). SHOP provides
grants to national and regional nonprofit organizations to subsidize
the costs of land acquisition and infrastructure improvements.
Homebuyers must contribute significant amounts of sweat equity or
volunteer labor to the construction or rehabilitation of the property.
The Fiscal Year 2004 Budget request for $65 million triples the funding
received in 2002, reflecting President Bush's commitment to self-help
housing organizations such as Habitat for Humanity. These funds will
help produce approximately 5,200 new homes nationwide for very low-
income families. Funds are provided as a set-aside within the Community
Development Block Grant account.
The Federal Housing Administration (FHA) is the Federal
Government's single largest program to extend access to homeownership
to individuals and families who lack the savings, credit history, or
income to qualify for a conventional mortgage. In 2002, FHA insured
$150 billion in mortgages for almost 1.3 million households, most of
them first-time homebuyers, which represents a 21 percent increase over
the previous year. Thirty-six percent were minority households.
FHA offers a wide variety of insurance products, the largest being
single-family mortgage insurance products. FHA insures single-family
homes, home rehabilitation loans, condominium loans, energy efficiency
loans, and reverse mortgages for elderly individuals. Special discounts
are available to teachers and police officers who purchase homes that
have been defaulted to HUD and who promise to live in their homes in
revitalized areas.
HUD is proposing legislation for a new mortgage product to offer
FHA insurance to families that, due to poor credit, would either be
served by the private market at a higher cost or not at all. It is
anticipated that borrowers will be offered FHA loan insurance under
this new initiative that will allow them to maintain their home or to
purchase a new home. The new Mutual Mortgage Insurance Fund (MMI)
mortgage loan program is expected to generate an additional $7.5
billion in endorsements for 62,000 additional homes.
Through its mortgage-backed securities program, Ginnie Mae helps to
ensure that mortgage funds are available for low- and moderate-income
families served by FHA and other Government programs such as VA and the
Rural Housing Service of the U.S. Department of Agriculture.
During fiscal year 2002, Ginnie Mae surpassed a total of $2
trillion in mortgage-backed securities issued since 1970. Reaching this
milestone means that more than 28.4 million families have had access to
affordable housing or lower mortgage costs since Ginnie Mae's
inception. HUD is proud of Ginnie Mae's accomplishments and its
important role in helping to support affordable homeownership for low-
and moderate-income families in America. HUD's role in the secondary
mortgage market provides an important public benefit to Americans
seeking to fulfill their dream of homeownership.
The Fiscal Year 2004 Budget supports five HUD programs that help to
promote homeownership in Native American and Hawaiian communities.
The Native American Housing Block Grants (NAHBG) Program provides
funds to tribes and to tribally designated housing entities for a wide
variety of affordable-housing activities. Grants are awarded on a
formula basis that was established through negotiated rulemaking with
the tribes. The NAHBG program allows funds to be used to develop new
housing units to meet critical shortages in housing. Other uses include
housing assistance to modernize and maintain existing units; housing
services, including direct tenant rental subsidy; crime prevention;
administration of the units; and certain model activities.
The Title VI Federal Guarantees for Tribal Housing Program provides
guaranteed loans to recipients of the Native American Housing Block
Grant who need additional funds to engage in affordable-housing
activities but who cannot borrow from private sources without the
guarantee of payment by the Federal Government. Because the grantees
have not applied for all funds appropriated in prior years, the amount
of subsidy required in fiscal year 2004 is reduced from $2 million to
$1 million, and the loan amount supported is reduced from $16.6 million
to $8 million. Prior-year funds remain available until used.
The Indian Housing Loan Guarantee (Section 184) Program helps
Native Americans to access private mortgage financing for the purchase,
construction, or rehabilitation of single-family homes. The program
guarantees payments to lenders in the event of default. In fiscal year
2004, $1 million is requested in credit subsidy for 100 percent Federal
guarantees of approximately $27 million in private loans.
The Hawaiian Homelands Homeownership Act of 2000 established the
Native Hawaiian Home Loan Guarantee Fund, which is modeled after
Section 184. The Fiscal Year 2004 Budget will provide $1 million in
credit subsidy to secure approximately $35 million in private loans.
Modeled after the NAHBG, the Native Hawaiian Housing Block Grant
(NHHBG) was authorized by the Hawaiian Homelands Homeownership Act of
2000. The Fiscal Year 2004 Budget will provide $10 million. Grant funds
will be awarded to the Department of Hawaiian Home Lands and may be
used to support acquisition, new construction, reconstruction, and
rehabilitation. Activities will include real property acquisition,
demolition, financing, and development of utilities and utility
services, as well as administration and planning.
Promoting Decent Affordable Housing
Ideally, homeownership would be an option for everyone, but even
with its new and expanded homeownership initiatives, the Administration
recognizes that many families will have incomes insufficient to support
a mortgage in the areas where they live. Therefore, along with boosting
homeownership, HUD's proposed Fiscal Year 2004 Budget promotes the
production and accessibility of affordable housing for families and
individuals who rent. This is achieved, in part, by providing States
and localities new flexibility to respond to local needs.
HUD has three major rental assistance programs that collectively
provide rental subsidies to approximately 4.5 million households
nationwide. The major vehicle for providing rental subsidies is the
Section 8 program, which is authorized in Section 8 of the U.S. Housing
Act of 1937. Under this program, HUD provides subsidies to individuals
(tenant-based) who seek rental housing from qualified and approved
owners, and also provides subsidies directly to private property owners
who set aside some or all of their units for low-income families
(project-based). Finally, HUD subsidizes the operation, maintenance,
and modernization of an additional 1.2 million public housing units.
HUD is proposing a new initiative--Housing Assistance for Needy
Families (HANF)--under which the funding for vouchers, which has been
allocated to approximately 2,600 public housing authorities (PHA's),
would be allocated to the States. States, in turn, could choose to
contract with PHA's or other entities to administer the program. The
funding for both incremental and renewal vouchers will be contained in
the HANF account.
There are a number of advantages to providing the voucher funds to
the States. The allocation of funds to States rather than PHA's should
allow for more flexibility in efforts to address problems in the
underutilization of vouchers that have occurred in certain local
markets. The allocation of funds to the States will be coupled with
additional flexibility in program laws and rules, to allow States to
better address local needs and to commit vouchers for program uses that
otherwise would go unused. In the former Housing Certificate Fund, more
than $2.41 billion has been recaptured over the last 2 years from the
Housing Choice Voucher Program. These large recaptures have resulted in
a denial of appropriated housing assistance for thousands of families,
which will be avoided under HANF. The administration of the HANF
program should run more smoothly, with HUD managing fewer than 60
grantees compared to approximately 2,600 today.
Allocation of the funds to the States should allow for more
coordinated efforts with the Temporary Assistance for Needy Families
(TANF) Program, and the One-Stop Career Center system under the
Workforce Investment Act, successfully
administered by the States, to support the efforts of those now
receiving public
assistance who are climbing the ladder of self-sufficiency.
HUD proposes that fiscal year 2004 be a transition year in which
PHA's would continue to receive voucher funds directly while States
ramp up in preparation for administering the HANF program. Up to $100
million would be made available to assist States with this effort. In
addition, States could apply for incremental vouchers if they are ready
to do so, and could request waivers that would assist in the
implementation of their programs.
The HANF account would contain $13.6 billion in funding for voucher
renewals and incremental vouchers. This would include funding for up to
$36 million in incremental vouchers for persons with disabilities,
additional incremental vouchers to the extent that funding is
available, $252 million for tenant protection vouchers to prevent
displacement of tenants affected by public housing demolition or
disposition of project-based Section 8 contract terminations or
expirations, and $72 million for Family Self-Sufficiency Coordinators.
For fiscal year 2004, the Administration proposes separate funding
for vouchers under the new HANF account. The Project Based Rental
Assistance Account will retain funding for renewals of expiring
project-based rental assistance contracts under Section 8, including
amounts necessary to maintain performance-based contract
administrators. An appropriation of $4.8 billion is requested for these
renewals in fiscal year 2004, which is a $300 million increase over the
current fiscal year. In addition to new appropriations, funds available
in this account from prior-year balances and from recaptures will
augment the amount available for renewals and will be available to meet
amendment requirements for on-going contracts that have
depleted available funding, as well as a rescission of $300 million.
It is anticipated that approximately 870,000 project-based units
under rental assistance will require renewal in fiscal year 2004, an
increase of about 50,000 units from the current fiscal year, continuing
the upward trend stemming from first-time expirations in addition to
contracts already under the annual renewal cycle. The HANF account
funds an estimated 30,300 units in subsidized or partially assisted
projects requiring tenant-protection vouchers due to terminations, opt-
outs, and prepayments.
Public Housing is the other major form of assistance that HUD
provides to the Nation's low-income population. In fiscal year 2004,
HUD anticipates that there will be approximately 1.2 million public
housing units occupied by tenants. These units are under the direct
management of approximately 3,050 PHA's. Like the Section 8 program,
tenants pay approximately 30 percent of their income for rent and
utilities, and HUD subsidies cover the remaining costs.
HUD is programmatically and financially committed to ensuring that
the existing public housing stock is either maintained in good
condition or is demolished. Maintenance is achieved through the subsidy
to PHA's for both operating expenses and modernization costs.
Legislation to implement a new financing initiative is included and
enhanced in the Fiscal Year 2004 Budget. This will allow for the
acceleration of the reduction in the backlog of modernization
requirements in public housing facilities across the Nation.
The formula distribution of funds through the Public Housing
Operating Fund takes into account the size, location, age of public
housing stock, occupancy, and other factors intended to reflect the
costs of operating a well-managed public housing development. In fiscal
year 2004, HUD will increase the amounts provided for operating
subsidies from $3.530 billion to $3.559 billion, plus $15 million to
fund activities associated with the Resident Opportunities and
Supportive Services (ROSS) Program.
The Public Housing Capital Fund provides formula grants to PHA's
for major repairs and modernization of its units. The Fiscal Year 2004
Budget will provide $2.641 billion in this account. This amount is
sufficient to meet the accrual of new modernization needs in fiscal
year 2004.
Of the funds made available, up to $40 million may be maintained in
the Capital Fund for natural disasters and emergencies. Up to $30
million can be used for demolition grants--to accelerate the demolition
of thousands of public housing units that have been approved for
demolition but remain standing. Also in fiscal year 2004, up to $40
million will be available for the ROSS program (in addition to $15
million in the Operating Fund), which provides supportive services and
assists residents in becoming economically self-sufficient.
To address the backlog of capital needs, the Department is
including a legislative proposal in its 2004 Budget called the Public
Housing Reinvestment Initiative (PHRI) that will allow PHA's to use
their Operating Fund and Capital Fund grants to facilitate the private
financing of capital improvements. This initiative also will encourage
development-based financial management and accountability in PHA's.
These objectives would be achieved by authorizing HUD to approve,
on a property-by-property basis, PHA requests to convert public housing
developments (or portions of developments) into project-based voucher
assistance. The conversion of units to project-based vouchers will
allow the PHA's to secure private financing to rehabilitate or replace
their aging properties by pledging the property as collateral for
private loans for capital improvements.
The Fiscal Year 2004 Budget enhances this proposal, which was made
in last year's budget request, by also proposing a guarantee of up to
80 percent of the
principal of loans made to provide the capital for PHRI. There was
substantial interest by PHA's and others in last year's budget
proposal; the loan guarantee should greatly facilitate the involvement
of private lenders. The budget includes $131
million in subsidy for this guarantee, which would allow the guarantee
of almost $2 billion in loans and significantly accelerate the
improvement in public housing conditions.
The PHRI reflects our vision for the future of public housing.
For 10 years, the HOPE VI program has been the Government's primary
avenue for funding the demolition, replacement, and rehabilitation of
severely distressed public housing. With $2.5 billion already awarded
but not yet spent, and an additional $1 billion to be awarded in 2002
and 2003, HOPE VI will continue to serve communities well into the
future.
When HOPE VI was first created, it was the only significant means
of leveraging private capital to revitalize public housing properties.
But that is no longer the case. Today, HUD has approved bond deals that
have leveraged over $500 million in the last couple of years. PHA's can
mortgage their properties to leverage private capital. In Maryland,
PHA's are forming consortiums to leverage their collective resources
and assets to attract private capital. Cities such as Chicago are
committing hundreds of millions of dollars of their own money to
revitalize public housing neighborhoods. HUD is also seeking additional
tools from Congress such as the Public Housing Reinvestment Initiative.
HOPE VI has served its purpose. Established to revitalize 100,000
of the Nation's most severely distressed public housing units, the
program has funded the demolition of over 115,000 severely distressed
public housing units and the production of over 60,000 revitalized
dwellings. There are also more effective and less costly alternatives.
The average cost per rebuilt HOPE VI unit is approximately $120,000,
compared to $80,000 in HUD's HOME program. Only 20,000 new HOPE VI
units have been completed to date. On average, 5 years pass between the
time a HOPE VI award is made and a new unit is occupied. In contrast,
during the same period, HUD's HOME program produced 70,000 new rental
units with an average construction time of about 2 years. It is time to
look to the future and pursue new opportunities, such as those I have
noted, which can more effectively serve local communities.
Among HUD's other rental assistance programs, FHA insures mortgages
on multifamily rental housing projects. In fiscal year 2004, FHA will
reduce the annual mortgage insurance premiums on its largest apartment
new construction program, Section 221(d)(4), for the second year in a
row--from 57 basis points to 50 basis points. With this reduction, the
Department estimates that it will insure $3 billion in apartment
development loans through this program, for the annual production of an
additional 42,000 new rental units, most of which will be affordable to
moderate-income families, and most of which will be located in
underserved areas. Additionally, because this program is no longer
dependent on appropriated subsidies, FHA avoids the uncertainty and the
suspensions that have plagued the program in prior years. When combined
with other multifamily mortgage programs,
including those serving nonprofit developers, nursing homes, and
refinancing mortgagors, the FHA anticipates providing support for a
total of some multifamily 178,000 housing units.
In addition to the extensive use of HOME funds for homeownership,
the HOME program has invested heavily in the creation of new affordable
rental housing. The program has, in fact, supported the building,
rehabilitation, and purchase of more than 322,000 rental units. Program
funds have also provided direct rental assistance to more than 88,000
households.
The Native American Housing Block Grant (NAHBG) and Native Hawaiian
Housing Block Grant (NHHBG) are also used for a wide variety of
affordable-housing
activities. Several other HUD programs contribute to rental assistance,
although not as a primary function. For example, the flexible Community
Development Block Grant (CDBG) Program can be used to support rental
housing activities.
Regulatory barriers on the State and local level have an enormous
impact on the development of rental and affordable housing. HUD is
committed to working with States and local communities to reduce
regulatory and institutional barriers to the development of affordable
housing. HUD plans to create a new Office of Regulatory Reform and
commit an additional $2 million in fiscal year 2004 for research
efforts to learn more about the nature and extent of regulatory
obstacles to affordable housing. Through this Office, researchers will
develop the tools needed to measure and ultimately reduce the effects
of excessive barriers that restrict the development of affordable
housing at the local level.
Strengthening Communities
HUD is committed to preserving America's cities as vibrant hubs of
commerce and making communities better places to live, work, and raise
a family. The Fiscal Year 2004 Budget provides States and localities
with tools they can put to work improving economic health and promoting
community development. Perhaps the greatest strength of HUD's economic
development programs is the emphasis they place on helping communities
address locally determined development priorities through decisions
made locally.
The mainstay of HUD's community and economic development programs
is the CDBG program. In fiscal year 2004, total funding requested for
the CDBG is $4.732 billion. Funding for the CDBG formula program will
increase $95 million from the fiscal year 2003 enacted level, to $4.436
billion. Currently, 865 cities, 159 counties, and 50 States plus Puerto
Rico receive formula grant funds.
HUD is analyzing the impact of the 2000 Census on the distribution
of CDBG funds to entitlement communities and States. Based on this
review, revisions to the existing formula may be proposed so that funds
are allocated to those communities that need them the most and will use
them effectively. Any proposals will, of course, consider measures of
need and fiscal capacity, as well as other factors.
Of the $4.732 billion in fiscal year 2004, $4.436 billion will be
distributed to entitlement communities, States, and insular areas, and
$72.5 million will be distributed by a competition to Indian tribes for
the same uses and purposes. This budget presumes legislative changes
proposed in fiscal year 2003 to fund CDBG grants to insular areas as
part of the formula, and to shift administration of the Hawaii Small
Cities Program to the State. The remaining $224 million is for specific
purposes and programs at the local level and is distributed generally
on a competitive grant basis.
As it did in fiscal year 2003, the Fiscal Year 2004 Budget again
proposes $16 million for the Colonias Gateway Initiative (CGI). The CGI
is a regional initiative, focusing on border States where the colonias are located. Colonias are small, generally unincorporated communities that are characterized by substandard housing, lack of basic infrastructure and
public facilities, and weak capacity to implement economic development
initiatives. The Fiscal Year 2004 Funds will: Provide start-up seed
capital to develop baseline socio-economic information and a geographic
information system; identify and structure new projects and training
initiatives; fund training and business advice; and provide matching
funds to develop sustainable housing and economic development projects
that, once proven, could be taken over by the private sector.
HUD participates in the privately organized and initiated National
Community Development Initiative (NCDI). The Fiscal Year 2004 Budget
will provide $30 million for the NCDI and Habitat for Humanity, in
which HUD has funded three phases of work since 1994. A fourth phase
will emphasize the capacity building of community-based development
organizations, including community development corporations, in the
economic arena and related community revitalization activities through
the work of intermediaries, including the Local Initiatives Support Corporation and the Enterprise Foundation.
The Fiscal Year 2004 Budget provides $31.9 million to assist
colleges and universities, including minority institutions, to engage
in a wide range of community development activities. Funds are also
provided to support graduate programs that attract minority and economically disadvantaged students to participate in housing and community development fields of study.
Grant funds are awarded competitively to work study and other
programs to assist institutions of higher learning in forming
partnerships with the communities in which they are located and to
undertake a wide range of academic activities that foster and achieve
neighborhood revitalization.
The Fiscal Year 2004 Budget requests $65 million for the Youthbuild
program. This program is targeted to high school dropouts ages 16 to
24, and provides these disadvantaged young adults with education and
with employment skills through constructing and rehabilitating housing
for low-income and homeless people. The program also provides
opportunities for placement in apprenticeship programs or in jobs. The
fiscal year 2004 request will serve more than 3,728 young adults.
The Community Renewal Tax Relief Act of 2000 authorized the
designation of 40 Renewal Communities (RC's) and 9 Round III
Empowerment Zones (EZ's), and provided tax incentives which can be used
to encourage community revitalization efforts. Private investors in
both RC and EZ areas are eligible for tax benefits over the next 10
years tied to the expansion of job opportunities in these locations.
These programs allow communities to design and administer their own
economic development strategies with a minimum of Federal involvement.
No grant funds have been authorized or appropriated for RC's or Round
III EZ's. Round II Empowerment Zone communities have received grant
funding in the past, but after 4 years of funding, still have balances
of unused funds available. Of course, all of the tax and other benefits
associated with Zone designation remain intact. Also, both HOME and
CDBG funds can be used for the same activities.
The Administration is deeply engaged in meeting the challenge of
homelessness that confronts many American cities. Across the scope of
the Federal Government, funding for homeless-specific assistance
programs increases 14 percent in the Fiscal Year 2004 Budget proposal.
We are fundamentally changing the way the Nation manages the issue of
homelessness by focusing more resources on providing permanent housing
and supportive services for the homeless population, instead of simply
providing more shelter beds.
HUD is leading an unprecedented, Administration-wide commitment to
eliminating chronic homelessness within the next 10 years. Persons who
experience chronic homelessness are a sub-population of approximately
150,000 individuals who often have an addiction or suffer from a
disabling physical or mental condition, and are homeless for extended
periods of time or experience multiple episodes of homelessness. For
the most part, these individuals get help for a short time but soon
fall back to the streets and shelters. Research indicates that although
these individuals may make up less than 10 percent of the homeless
population, they consume more than half of all homeless services
because their needs are not comprehensively addressed. Thus, they
continually remain in the homeless system.
As a first step, the Administration reactivated the U.S.
Interagency Council on Homelessness. Reactivating the Council has
provided better coordination of the
various homeless assistance programs that are directly available to
homeless individuals through HUD, HHS, VA, the Department of Labor, and
other agencies. And $1.5 million is earmarked within the Homeless
Assistance Account for the operations of the Council in fiscal year
2004.
HUD and its partners are focused on improving the delivery of
homeless services, which includes working to cut Government red tape
and make the funding process simpler for those who provide homeless
services. The Fiscal Year 2004 Budget continues to provide strong
support to homeless persons and families by funding the HUD homeless
assistance programs at the record level of $1.528 billion.
Several changes to the program are being proposed that will provide
new direction and streamline the delivery of funds to the local and
nonprofit organizations that serve the homeless population.
The Fiscal Year 2004 Budget includes funding for a new program to
address the President's goal of ending chronic homelessness in 10
years: The Samaritan Initiative. Funded by HUD at $50 million, the
Samaritan Initiative will provide new housing options as well as
aggressive outreach and services to homeless people
living on the streets. This program is part of a broader, coordinated
Federal effort
between HUD, HHS, VA, and the Interagency Council on Homelessness.
In order to significantly streamline homeless assistance in this
Nation and increase a community's flexibility in combating
homelessness, HUD will propose legislation to consolidate its current
homeless assistance programs into a single program.
The Administration is also proposing legislation that would
transfer intact the Emergency Food and Shelter Program (EFSP) that
administered by FEMA to HUD. The transfer of this $153 million program
would allow for the consolidation of all emergency shelter assistance--
EFSP and the Emergency Shelter Grant Program--under one agency. EFSP
funds are distributed to a National Board, which in turn allocates
funds to similarly comprised local Boards in eligible jurisdictions.
Eligibility for funding is based on population, poverty, and
unemployment data. The Board will be chaired by the Secretary of HUD
and will include the American Red Cross, Salvation Army, and the United
Way, as well as other experts.
In addition to funding homeless supportive services, the fiscal
year 2004 funds services benefiting adults and children from low-income
families, the elderly, those with physical and mental disabilities,
victims of predatory lending practices, and families living in housing
contaminated by lead-based paint hazards.
Nearly two million households headed by an elderly individual or a
person with disabilities receive HUD rental assistance that provides
them with the opportunity to afford a decent place to live and
oftentimes helps them to live independent lives.
The Fiscal Year 2004 Budget will provide the same level of funding
for Housing for the Elderly and Housing for Persons with Disabilities
as was requested for fiscal year 2003. The effectiveness of the Housing
for the Elderly Program was evaluated this past year using the Office
of Management and Budget's new Program Assessment Rating Tool (PART),
and received low performance scores. The Administration recognizes the
need to improve delivery of housing assistance to the elderly (Section
202) and will examine possible policy changes or reforms to strengthen
performance. Funding for housing for the elderly is awarded
competitively to nonprofit organizations that construct new facilities.
The facilities are then provided with rental assistance, enabling them
to accept very low-income residents. In fiscal year 2004, $773 million
plus $10 million in recaptures will be provided for elderly facilities.
Many of the residents live in the facilities for years; over time,
these individuals are likely to become frailer and less able to live in
rental facilities without some additional services. Therefore, the
program is providing $30 million of the grants for construction to
convert all or part of the existing properties to assisted-living
facilities. Doing so will allow individual elderly residents to remain
in their units. In addition, $53 million of the grant funds will be
targeted to funding the services coordinators who help elderly
residents obtain needed and supportive service from the community.
The budget for fiscal year 2004 proposes to separately fund grants
for Supportive Housing for Persons with Disabilities (Section 811) at
$251 million. The disabled facilities grant program will also continue
to set aside funds to enable persons with disabilities to live in
mainstream environments. Up to 25 percent of the grant funds can be
used to provide Section 8-type vouchers that offer an alternative to
congregate housing developments. In fiscal year 2004, $42 million of
the grant funds will be provided to renew ``mainstream'' Section 8-type
vouchers so that, where appropriate, individuals can continue to use
their vouchers to obtain rental housing in the mainstream rental
market. The Housing for Persons with Disabilities Program also received
low performance scores when it was evaluated using the PART. The
Department proposes to reform the program to allow faith-based and
other nonprofit sponsors more flexibility in using grant funds to
better respond to local needs. In addition, the reformed program would
recognize the unique needs of people with disabilities at risk of
homelessness, and give priority to serving this group as part of the
Administration's Samaritan Initiative to end chronic homelessness.
One of the targeted uses of new incremental vouchers under the
Section 8 program is for nonelderly disabled individuals who are
currently residing in housing that was designated for the elderly.
Disabled individuals are provided Section 8 vouchers to continue their
subsidies elsewhere. If a sufficient number of applications for these
vouchers are not received, the PHA's may use them for any other
disabled individuals on the PHAs' waiting lists. In fiscal year 2004,
the Department will allocate $36 million for the nonelderly disabled to
fund approximately 5,500 vouchers.
HUD will also provide $297 million in fiscal year 2004 in new grant
funds for housing assistance and related supportive services for low-
income persons with HIV/AIDS and their families. This is an increase of
$5 million over the fiscal year 2003 level and is based on the most
recent statistics prepared by the Centers for Disease Control and
Prevention. Although most grants are allocated by formula, based on the
number of cases and highest incidence of AIDS, a small portion are
provided through competition for projects of national significance. The
program will renew all existing grants in fiscal year 2004 and provide
new grants for an expected three new jurisdictions. Since 1999, the
number of formula grantees has risen from 97 to an expected 114 in
fiscal year 2004.
HUD's Lead-Based Paint Program is the central element of the
President's program to eradicate childhood lead-based paint poisoning
in 10 years or less. In fiscal year 2004, funding for the Lead-Based
Paint Program will increase to $136 million from $126 million provided
in the President's request for fiscal year 2003. Grant funds are
targeted to low-income, privately owned homes most likely to expose
children to lead-based paint hazards. Included in the total funding is
$10 million in funds for Operation LEAP, which is targeted to
organizations that demonstrate an exceptional ability to leverage
private sector funds with Federal dollars, and funding for technical
studies to reduce the cost of lead hazard control. The program also
conducts public education and compliance assistance to prevent
childhood lead poisoning. The President's budget requests an additional
$25 million for a new, innovative lead hazard reduction demonstration
program to eliminate lead-based paint hazards in homes of low-income
children, funded under the HOME program. This new program will provide
creative ways of identifying and eliminating lead-based paint hazards--
methods that will serve as models for existing lead hazard control
programs, such as replacing old windows contaminated with high levels
of lead paint dust with new energy-efficient windows.
Also included is $10 million for the Healthy Homes Initiative,
which is targeted funding to prevent other housing-related childhood
diseases and injuries such as asthma and carbon monoxide poisoning.
Working with other agencies such as the Centers for Disease Control and
the Environmental Protection Agency, HUD is bringing comprehensive
expertise to the table in housing rehabilitation and construction,
architecture, urban planning, public health, environmental science, and
engineering to address a variety of childhood problems that are
associated with housing.
HUD is requesting $17 million in fiscal year 2004 to meet the
expanded costs of its Manufactured Housing Standards Program. This is a
$4 million increase over the current fiscal year. These funds will meet
the costs of hiring contractors to inspect manufacturing facilities,
make payments to the States to investigate complaints by purchasers,
and cover administrative costs, including the Department's staff. Fees
have been set by regulation to support the operation of this program.
Ensuring Equal Opportunity in Housing
In this land of opportunity, no one should be denied housing
because of that individual's race, color, national origin, religion,
sex, familial status, or disability. The Administration is committed to
the fight against housing discrimination, and this is reflected in
HUD's budget request for fiscal year 2004.
HUD is the primary Federal agency responsible for the
administration of fair housing laws. The goal of these programs is to
ensure that all families and individuals have access to a suitable
living environment free from discrimination. HUD contributes to fair
housing enforcement and education by directly enforcing the Federal
fair housing laws and by funding State and local fair housing efforts
through two programs: The Fair Housing Assistance Program (FHAP) and
the Fair Housing Initiatives Program (FHIP).
The Fiscal Year 2004 Budget will provide $29.7 million--an increase
of $4 million above the fiscal year 2003 level--under FHAP to support
State and local jurisdictions that administer laws substantially
equivalent to the Federal Fair Housing Act. The increase will provide:
(1) An education campaign to address persistently high rates of
discrimination against Hispanic renters (as identified by the 2000
Housing Discrimination Study); (2) funding for a Fair Housing Training
Academy to better train civil rights professionals and housing partners
in conducting fair housing investigations; and (3) additional funding
for expected increases in discrimination cases processed by the State
and local fair housing agencies as a result of increased education and
outreach activities. The Department supports FHAP agencies by providing
funds for capacity building, complaint processing, administration,
special enforcement efforts, training, and the enhancement of data and
information systems. FHAP grants are awarded annually on a
noncompetitive basis.
The Fiscal Year 2004 Budget will provide $20.3 million in grant
funds for nonprofit FHIP agencies nationwide to directly target
discrimination through education, outreach, and enforcement. The FHIP
for fiscal year 2004 is structured to respond to the finding of the 3-
year National Discrimination Study and related studies, which reflect
the need to expand education and outreach efforts nationally as a
result of continuing high levels of discrimination.
Fighting predatory lending is an important activity for FHIP
agencies, as reports continue to show that the abusive lenders
frequently target racial minorities, the elderly, and women for
mortgage loans that have exorbitant fees and onerous
conditions.
Educational outreach is a critical component of HUD's ongoing
efforts to prevent or eliminate discriminatory housing practices. HUD
will continue its work to make individuals more aware of their rights
and responsibilities under the Fair Housing Act. A major study titled
``How Much Do We Know'' emphasized the continuing need for public
education on fair housing laws; in fiscal year 2004, FHIP organizations
throughout the country will continue to fund a major education and
public awareness campaign in support of study findings.
The colonias have many barriers to fair and affordable housing in
both rental and homeownership. Many of the residents are recent
immigrants unaware of their rights under the Fair Housing Act. Funds
will be targeted to FHIP agencies that provide education and
enforcement efforts in those areas. FHIP-funded fair housing
organizations with grants targeted to the colonias will provide
residents with information on the Fair Housing Act and substantially
equivalent laws and respond to allegations of discriminatory practices.
FHIP will continue to emphasize the participation of faith-based
and community partners. Recognizing the tremendous impact that
education has on the implementation of fair housing laws, virtually any
entity (public, private, profit, and nonprofit) that actively works to
prevent discrimination from occurring is eligible to apply for funds
under this initiative.
Faith- and community-based partnerships in FHIP will empower
citizens by: (1) Encouraging networking of State and local fair housing
enforcement agencies and organizations; (2) working in unison with
faith-based organizations; and (3) promoting a fair housing presence in
places where little or none exists today. HUD will emphasize
partnerships with grassroots and faith-based organizations that have
strong ties to those groups identified in the 2000 Housing
Discrimination Study as being most vulnerable to housing
discrimination, particularly the growing Hispanic population.
Promoting the fair housing rights of persons with disabilities is a
Departmental priority and will remain an important initiative within
FHIP. Fair Housing Act accessibility design and construction training
and technical guidance is being implemented through Project Fair
Housing Accessibility First (formerly called the Project on Training
and Technical Guidance). The project, which is now in its second year,
will provide training at 48 separate venues to architects, builders,
and others on how to design and construct multifamily buildings in
compliance with the accessibility requirements of the Fair Housing Act.
During that same period, Project Fair Housing Accessibility First will
maintain a hotline and a website to provide personal assistance to
housing professionals on design and construction problems.
Promoting the Participation of Faith-Based and Community Organizations
HUD's Center for Faith-Based and Community Initiatives (Center) was
established by Executive Order 13198 on January 29, 2001. Its purpose
is to coordinate the Department's efforts to eliminate regulatory,
contracting, and other obstacles to the participation of faith-based
and other community organizations in social service programs.
The Center will continue to play a key role in fiscal year 2004 in
facilitating intra-Departmental and interagency cooperation regarding
the needs of faith-based and community organizations. It will focus on
research; law and policy; development of an interagency resource center to service the faith-based and community partners; and expanding outreach, training, and coalition building. Additionally, the Center will participate
in the furtherance of HUD's overall strategic goals and objectives--particularly as they relate to partnership with faith-based and community
organizations.
On December 12, 2002, the President issued Executive Order 13279,
``Equal Protection of the Laws for Faith-Based and Community
Organizations.'' Its intent is to ensure that faith-based and community
organizations are not unjustly discriminated against by regulations and
bureaucratic practices and policies. The Order directs the Center to:
(1) Amend any policies that contradict the Order; (2) where appropriate, implement new policies that are necessary to further the fundamental principles and policymaking criteria set forth in the Order; (3) implement
new policies to ensure that the collection of data regarding the
participation of faith-based and community organizations in social service programs that receive Federal financial assistance; and (4) report to the President the actions it proposes to undertake to implement the Order.
In compliance with Executive Orders 13198 and 13279, the Center
will continue to participate in implementing HUD's strategic goals and
objectives, as well as the following key responsibilities: Conduct an
annual Department-wide inventory to identify barriers to participation
of faith-based and community organizations in the delivery of social
services; initiate and support efforts to remove said barriers; widen
the pool of grant applicants to include historically excluded groups;
identify and reach out to faith- and community-based organizations with
little or no history of working with HUD; work with HUD program offices
to strengthen and expand their faith-based and community partnerships;
and educate HUD personnel and State and local governments on the faith-
based and community initiative.
Embracing High Standards of Ethics, Management, and Accountability
Improving the performance in HUD's critically needed housing and
community development programs begins at home in the Department, by
embracing the high standards of ethics, management, and accountability.
The President's Management Agenda is focused on how we can better
manage to fulfill our mission by addressing the Department's
longstanding major management challenges, high-risk program areas, and
material management control weaknesses. Accountability begins with
clarity on the Department's goals, priorities, and expectations for
performance results. We have integrated the goals of the President's
Management Agenda with our budget, our annual management operating
plans, and our management performance evaluation processes, to better
assure accountability and results.
A key focus of the President's Management Agenda is to address
deficiencies in HUD's management of its financial and information
systems and human capital, which have hindered the Department's ability
to properly control and mitigate risks in the rental housing assistance
and single-family mortgage insurance programs. There are no quick fixes
for these longstanding problems, but we continue to pursue a deliberate
and methodical improvement process that is clearly demonstrating
progress in improving HUD's program delivery structure and performance
results.
Financial Management and Information Systems
A primary focus of the past 2 years has been on addressing the
Department's most significant financial management systems deficiencies
in the FHA, and on stabilizing and enhancing HUD's existing core
financial management systems operating environment. The FHA Subsidiary
Ledger Project is proceeding on-schedule as a multiyear, phased effort
to replace FHA's commercial accounting system with a system that fully
complies with Federal requirements, including budgetary accounting and
funds control and credit reform accounting. A major project milestone
was accomplished with the successful implementation of the new FHA
general ledger system in October 2002. Enhanced funds control
capabilities of the new system are scheduled for implementation in
2004, and FHA will continue to adapt and further integrate its 19
insurance program feeder systems over the next several years to achieve
full systems compliance by 2006.
While FHA awaits the completion of these systems improvements, they
have been working with the HUD Chief Financial Officer on a Department-
wide effort to improve HUD's funds control. HUD's handbook on policies
and procedures for the administrative control of funds had not been
updated since 1984. We updated and strengthened these policies and
procedures in a new Administrative Control of Funds Handbook issued in
December 2002.
With respect to HUD's core financial management system, the HUD
Central Accounting and Program System (HUDCAPS), we have been focused
on stabilizing and enhancing systems operations to support the
accelerated preparation and audit of HUD's consolidated financial
statements. We eliminated two reportable conditions from the OIG's
fiscal year 2000 financial statement audit related to: (1) The
reliability and security of HUD's critical financial systems, and (2)
controls over fund balance with Treasury reconciliations. We prepared
mid-year financial statements in fiscal year 2002 and have begun the
preparation of quarterly statements in fiscal year 2003. Our year-end
audit and reporting process was accelerated by 1 month for fiscal year
2002, and we have plans for further acceleration the next 2 years to
meet the OMB mandate for issuance of our fiscal year 2004 audited
financial statements by November 15, 2004.
HUD has received unqualified audit opinions on the Department's
consolidated financial statements for the last 3 consecutive years--a
strong indicator of financial management stability and accountability.
However, the audit of our fiscal year 2002 financial statements was not
trouble free. It contained 3 material weakness and 10 reportable
conditions. Addressing these remaining internal control deficiencies is
a high priority for the Department.
While HUD's core financial management system, HUDCAPS, is
substantially compliant with Federal financial management systems
requirements, it is inefficient and expensive to maintain. We initiated
the HUD Integrated Financial Management Improvement Project (HIFMIP) to
study options for the next generation core financial management system
to replace HUDCAPS. Previous HUD systems integration improvement
efforts failed to fully meet their intended objectives due to
inadequate planning and commitment. HUD is taking the time to properly
plan this project. A HIFMIP Executive Advisory Committee was convened
in January 2003--with representation from the Principal Staff of HUD's
major organizational components, including FHA and GNMA, and an
advisory role has been provided for the HUD OIG. A new Assistant CFO
for Systems was hired in October 2002, and Project Manager was hired
for HIFMIP in February 2003. The HIFMIP Vision is scheduled for
completion by January 2004, and feasibility studies with a systems
recommendation by July 2004.
HUD's overall fiscal year 2004 information technology (IT)
portfolio will benefit from our continuing efforts to improve the IT
capital planning process, convert to performance-based IT service
contracts, strengthen IT project management to better assure results,
extend the data quality improvement program, and improve systems
security on all platforms and all applications. HUD is also continuing
to pursue increased electronic commerce and is actively participating in
the President's ``e-Government'' projects to better serve all of our
citizens and realize cost-efficiencies through standardized systems
solutions in common areas of information and processing need.
Human Capital Management
HUD's staff, or ``human capital,'' is its most important asset in
the delivery and oversight of the Department's mission. Effective human
capital management is the purview of all HUD managers and program
areas, and improvements have been geared toward meeting HUD's primary
human capital management challenges. HUD has taken significant steps to
enhance and to better utilize its existing staff capacity, and to
obtain, develop, and maintain the staff capacity necessary to
adequately support HUD's future program delivery. Building upon the
REAP and TEAM management tools, a new staff resource estimation and
allocation system implemented in 2002, HUD will complete a
Comprehensive Workforce Analysis in 2004 to serve as the main component
to fill mission critical skill gaps through succession planning,
hiring, and training initiatives in a Five-Year Human Capital
Management Strategy.
HUD is working to determine where application of competitive
sourcing to staff functions identified as commercial would result in
better performance and value for the Government. We have worked with
OMB to ensure the appropriate amount and mix of competitive sourcing
opportunities, taking into account the workforce we have inherited,
including the significant downsizing and extensive outsourcing of
administrative and program functions over the past decade. HUD's
Competitive Sourcing Plan identifies some initial opportunities for
consideration of possible outsourcing, in-sourcing, or direct
conversion studies to realize the President's goals for cost efficiency
savings and improved service delivery. HUD will continue to assess its
activities for other areas where competitive sourcing studies might
benefit the Department.
Strengthening Controls Over Rental Housing Assistance
HUD's considerable efforts to improve the physical conditions at
HUD-supported public and assisted housing projects are meeting with
success. HUD and its housing partners have already achieved the
original housing quality improvement goals through fiscal year 2005 and
are raising the bar with new goals. However, HUD overpays hundreds of
millions of dollars in rental housing subsidies due to the incomplete
reporting of tenant income and the improper calculation of tenant rent
contributions. Under the President's Management Agenda, HUD's goal is
to reduce rental assistance program errors and resulting erroneous
payments 50 percent by 2005. HUD has established aggressive interim
goals for a 15 percent reduction in 2003 and a 30 percent reduction in
2004.
To achieve our erroneous assistance payments reduction goal, we
have taken steps to reestablish an adequate HUD monitoring capacity in
the field to oversee intermediary performance. Field staff is
conducting intense, on-site monitoring reviews to detect and correct
income verification and subsidy calculation errors. We are also working
to provide intermediaries with improved program guidance and automated
tools to more efficiently and effectively administer the rental
assistance programs. Program simplification proposals are also under
consideration, along with a pending legislative proposal for increased
authority to perform more effective computer matching with tenant
income data sources to enable intermediaries to perform upfront
verifications of income used in rent and subsidy calculations. Updated
error measurement studies will be performed on program activity in 2003
through 2005 to assess the effectiveness of our efforts to reduce
program and payment errors.
Improving FHA's Single-Family Housing Programs Risk Management
FHA manages its Single-Family Housing Mortgage Insurance Program
area in a manner that balances program risks with the furtherance of
program goals, while maintaining the financial soundness of the
Mortgage Mutual Insurance (MMI) Fund that supports these programs. The
MMI Fund is financially sound and the single-family housing programs
are contributing to record homeownership rates, with a focus on
homebuyers that are underserved by the conventional market.
Nevertheless, overall program performance and the condition of the MMI
Fund could be further improved if all lenders, appraisers, property
managers, and other participants in FHA's program delivery structure
fully adhered to FHA program requirements designed to reduce program
risks and further program goals.
In the past 2 years, FHA has initiated or completed numerous
actions to improve the content, oversight, and enforcement of its
program requirements, including consideration of alternative business
processes. FHA developed 16 rules to address deceptive or fraudulent
practices. This includes the new Appraiser Watch Program, improvements
to the Credit Watch Program that will identify problem loans and
lenders earlier on, new standards for home inspectors, a final rule to
prohibit property ``flipping'' in FHA programs, and rules to prevent
future swindles like the 203(k) scam that threatened the availability
of affordable housing in New York City. These reforms, and the greater
transparency they ensure, will make it more difficult for unscrupulous
lenders to abuse borrowers. The HUD budget ensures that consumer
education and enhanced financial literacy remain potent weapons in
combating predatory lending.
In addition, FHA continues to enhance its staff capacity for
administering this program area, and continues to achieve favorable
property disposition results through its performance-based management
and marketing (M&M) contracts. M&M contracts have resulted in a steady
decline in FHA's property inventory, from 36,000 homes at the end of
fiscal year 2000 to 30,113 at the end of fiscal year 2002. The loss per
claim on insured mortgage defaults has been cut from 37 percent to 29.5
percent.
Conclusion
As we implement our proposed Fiscal Year 2004 Budget, we will also
judge our success by the lives and communities we have helped to change
through HUD's mission of compassionate service to others: The young
families who have taken out their first mortgage and become homeowners,
the homeless individuals who are no longer homeless, the neighborhoods
that have found new hope, the faith-based and community organizations
that are today using HUD grants to deliver social services, and the
neighborhoods once facing a shortage of affordable housing that now
have enough homes for all.
Empowered by the resources provided for and supported by HUD's
proposed
Fiscal Year 2004 Budget, our communities and the entire Nation will
grow even stronger. And more citizens will come to know the American
Dream for themselves.
I would like to thank each of you for your support of my efforts,
and I welcome your guidance as we continue our work together.
Thank you.