<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:66338.wais]
PROVIDING ADEQUATE HOUSING: IS HUD FULFILLING ITS MISSION?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CRIMINAL JUSTICE,
DRUG POLICY, AND HUMAN RESOURCES
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
NOVEMBER 3, 1999
__________
Serial No. 106-140
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
__________
U.S. GOVERNMENT PRINTING OFFICE
66-338 WASHINGTON : 2000
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South DENNIS J. KUCINICH, Ohio
Carolina ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia DANNY K. DAVIS, Illinois
DAN MILLER, Florida JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
LEE TERRY, Nebraska THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California ------
PAUL RYAN, Wisconsin BERNARD SANDERS, Vermont
HELEN CHENOWETH-HAGE, Idaho (Independent)
DAVID VITTER, Louisiana
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
David A. Kass, Deputy Counsel and Parliamentarian
Carla J. Martin, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Criminal Justice, Drug Policy, and Human Resources
JOHN L. MICA, Florida, Chairman
BOB BARR, Georgia PATSY T. MINK, Hawaii
BENJAMIN A. GILMAN, New York EDOLPHUS TOWNS, New York
CHRISTOPHER SHAYS, Connecticut ELIJAH E. CUMMINGS, Maryland
ILEANA ROS-LEHTINEN, Florida DENNIS J. KUCINICH, Ohio
MARK E. SOUDER, Indiana ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas JIM TURNER, Texas
DOUG OSE, California JANICE D. SCHAKOWSKY, Illinois
DAVID VITTER, Louisiana
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Sharon Pinkerton, Staff Director and Chief Counsel
Mason Alinger, Professional Staff Member
Frank Edrington, Professional Staff Member
Lisa Wandler, Clerk
Cherri Branson, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on November 3, 1999................................. 1
Statement of:
Beard, D. Michael, District Inspector General for Audit,
Texas, Department of Housing and Urban Development; Carolyn
Federoff, vice president, Massachusetts State Office AFGE
Local 3258; and Saul Ramirez, Jr., Deputy Secretary,
Department of Housing and Urban Development................ 85
Kuhl-Inclan, Kathy, Assistant Inspector General for Audit,
Department of Housing and Urban Development; Joyce Gibson,
spokeswoman, Coalition for Accountability; Cheryl Peterson,
homeowner, Boise, ID; and William Apgar, Assistant
Secretary for Housing, Department of Housing and Urban
Development................................................ 13
Letters, statements, et cetera, submitted for the record by:
Apgar, William, Assistant Secretary for Housing, Department
of Housing and Urban Development:
Information concerning previous participation experience. 52
Prepared statement of.................................... 35
Beard, D. Michael, District Inspector General for Audit,
Texas, Department of Housing and Urban Development,
prepared statement of...................................... 87
Federoff, Carolyn, vice president, Massachusetts State Office
AFGE Local 3258, prepared statement of..................... 111
Gibson, Joyce, spokeswoman, Coalition for Accountability,
prepared statement of...................................... 30
Kuhl-Inclan, Kathy, Assistant Inspector General for Audit,
Department of Housing and Urban Development, prepared
statement of............................................... 16
Mica, Hon. John L., a Representative in Congress from the
State of Florida:
Memo dated September 10, 1999............................ 165
Prepared statement of.................................... 6
Ramirez, Saul, Jr., Deputy Secretary, Department of Housing
and Urban Development, prepared statement of............... 121
PROVIDING ADEQUATE HOUSING: IS HUD FULFILLING ITS MISSION?
----------
WEDNESDAY, NOVEMBER 3, 1999
House of Representatives,
Subcommittee on Criminal Justice, Drug Policy, and
Human Resources,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2154, Rayburn House Office Building, Hon. John L. Mica
(chairman of the subcommittee) presiding.
Present: Representatives Mica, Mink, Kucinich, and Tierney.
Staff present: Sharon Pinkerton, staff director and chief
counsel; Steve Dillingham, special counsel; Mason Alinger and
Frank Edrington, professional staff members; Lisa Wandler,
clerk; Cherri Branson, minority counsel; and Jean Gosa,
minority staff assistant.
Mr. Mica. I would like to call the Subcommittee on Criminal
Justice, Drug Policy, and Human Resources to order.
This morning I would like to open with a statement and
yield to other Members as they arrive, but we would like to
proceed. We have a full agenda, two full panels. We will try to
expedite the hearing as quickly as possible today.
Today's hearing before the Subcommittee on Criminal
Justice, Drug Policy, and Human Resources will examine recent
developments at the Department of Housing and Urban
Development. Specifically, we will focus on changes in two HUD
program areas. The first topic will be the Federal Housing
Authority [FHA], Marketing and Management Program. The second
topic will be HUD's Community Builders Program. As I pointed
out to our subcommittee members, we do have oversight
jurisdiction and investigation jurisdiction over HUD, and I
believe this is our first subcommittee hearing and probably our
only one this year, so we will cover these two areas.
As we examine changes that have occurred and problems that
have arisen in these two programs, it is important to remember
that program problems are not new at HUD. In fact, HUD has had
the continuing distinction of being classified by the General
Accounting Office [GAO], as being a department at which is
termed ``high risk.''
The reasons that underlie this ``high risk'' designation by
GAO are numerous and, of course, documented. They include a
series of problems which are internal control weaknesses,
unreliable information and management systems, organizational
deficiency, and ineffective program monitoring and oversight,
which is due, in part, to staff with inadequate skills. Again,
these are some comments and observations and determinations by
the General Accounting Office.
The seriousness of these deficiencies is magnified when you
consider the scope of the Department's responsibilities, which
continue to multiply. FHA now insures about 6.5 million loans
totaling over $400 billion. In fiscal year 1998, FHA paid out
more than 76,000 claims valued at almost $6 billion, and had
more than 42,000 properties in its inventory. HUD staff now
includes approximately 9,300 Federal employees, and its annual
budget exceeds $26 billion. This subcommittee needs to explore
and know a little bit more about whether taxpayers are, in
fact, getting the most for their tax dollars and whether
housing needs for those who need these public housing
assistance programs are being met.
Today, we will examine changes regarding two HUD programs
and attempt to learn whether recent changes have made things,
in fact, better or worse.
First, we will hear from witnesses on the topic of HUD's
Marketing and Management Program, which replaced the Real
Estate Asset Management Program. The new program contracts out
critical marketing and management responsibilities. We will try
to find out why HUD decided not to follow OMB Circular A-76 in
studying the costs and benefits of the program prior to
implementing it. If a comprehensive study had been conducted,
could current problems have been avoided? Is the program now
working properly, or do risks continue? What needs to be done
in light of the fact that the largest contractor, Intown, has
filed for bankruptcy, apparently leaving others holding the
bag?
On March 29, 1999, HUD awarded 16 Management and Marketing
contracts to seven contractors for a 5-year value of about $927
million, nearly $1 billion. The contractors manage nearly every
aspect of the property disposition, including acquiring and
maintaining property, and marketing and selling it. The Office
of Inspector General will testify today that HUD, in fact, and
this is from their testimony, ``did not adequately document or
evaluate basic business decisions before executing these
contracts.''
We will also hear testimony that some properties are not
being maintained as they should be, and some are not being
disposed of efficiently. There are continuing reports of
damage, vandalism, neglect and delay, probably also decay.
Overall inventory has increased, and defaults are up. Why does
this occur? Is there adequate incentive for contractors and
subcontractors to protect and enhance property values? Should
properties continue to be sold in a condition as is?
A serious problem identified by the Office of Inspector
General is that the contracts are not clear about how
contractor costs will be reimbursed or whether penalties can be
assessed for poor performance. This omission and lack of
clarity reportedly results in needed repairs and maintenance
being ignored.
A major marketing and management failure is the recent
experience of the largest contractor, Intown. That contractor,
Intown, successfully bid on and received 7 of 16 management
contracts, covering some 39 percent of HUD's properties. The
company's recent bankruptcy filing has caused contractor liens
to be placed on many properties, creating serious financial and
legal problems for both subcontractors and also for people in
need of affordable housing. Why did one company get the lion's
share of the contracts and then go bankrupt within months? Is
the problem being remedied? These are questions which I think
this subcommittee must ask and which we must seek answers for
today.
Let me run this tape here.
[Videotape played.]
Mr. Mica. This is just one television account of some of
the problems that have occurred across the country. I saw a
similar piece here in the District of Columbia because of some
of the problems, the default situation and the condition of
properties. We could play many of these tapes, as I said. This
one was from Idaho.
Our second topic today that we are going to address,
briefly, is the controversial Community Builders Program. We
want to look at specifically why the program was developed and
implemented in the manner that it was, and what the successes
and failures of that program are to date. Why wasn't a
comprehensive study conducted on the need for such a program
when it was started, and how has that project developed to
date? Those will be some of the questions we will ask.
The Department claims to have relied upon recommendations
from a 1994 consultant report performed by the National Academy
of Public Administration in proposing the program. A clear
reading of the NAPA report recommends that a small number of
staff be assigned to State coordinators, and that experienced
staff, ``who can work well with community leaders'' and
``effectively across the complexity of HUD's programs'' be
selected through a ``merit system process.'' That was their
recommendation.
How can this recommendation be misconstrued as justifying
the hiring of hundreds of persons, persons lacking HUD
knowledge and experience, outside of normal competitive merit
system selection rules and procedures? Having chaired the Civil
Service Subcommittee, I can tell you that I am aware of no one
who envisioned the hiring of hundreds of individuals for this
type of program relying on a minor revision in regulations
governing the provision that we have in Civil Service for
excepted service. I am very troubled that the Department chose
to drive a Mack truck through a small regulatory opening
intended to provide some flexibility under unique hiring
circumstances. I think we are up to 800 Community Builders in a
program the size of some small agencies.
In the recent fiscal year 2000 appropriations language,
Congress is requiring that HUD conduct an open competition for
these positions and evaluate job applicants pursuant to normal
hiring practices in the future.
Perhaps veterans' preferences will now be properly
evaluated and applied to new hires, as was not done originally,
and happens to be one area that we have focused on. We were
able in Civil Service to get some changes in the law, and now
the law has been circumvented.
I am also very concerned about certain conflicts of
interest and ethical lapses of some Community Builders,
resulting in reprimands and employment terminations. Why would
HUD allow federally employed Community Builders to hold
partisan elective offices? Were these employees adequately
briefed and assessed at the beginning of the hiring process?
Hopefully, these deficiencies have been corrected.
I am very pleased that the appropriators have attempted to
correct this situation, but I am uncertain that they have done
enough. I will seek more assurances from HUD that further
corrections have been made and that past irregularities in this
program and hiring practices will not be repeated. I am
awaiting the findings of the review of HUD's personnel
practices by the Office of Personnel Management, as requested
by the Office of Inspector General.
The concerns that I have outlined with these two programs
raise a much broader issue that is very important to our
subcommittee and to many others, including some of our
witnesses today.
Is HUD focusing on obtaining affordable homes for deserving
people, or is it investing too much time, energy and money in
promoting its image, and on an off-track agenda? HUD's stated
mission is to, and let me quote from their mission statement,
``promote adequate and affordable housing, economic
opportunities, and a suitable living environment free from
discrimination.'' I think we will hear testimony today that
brings into question HUD's progress in promoting this mission.
I am very concerned that millions of dollars have been
unwisely expended on training and travel for temporary
employees who will be leaving their positions soon. I am also
concerned about the millions of dollars devoted to HUD's TV
studio. I am also concerned that the Secretary is traveling 30
percent of his time, making public appearances across the
Nation, while his Department continues to experience
significant problems and to be, not as I have termed it, but as
GAO has termed it, at risk for even more.
I do not accept the Department's response that public
relations has not been a major factor in HUD's operations and
programs. An OIG audit found that a significant number of
Community Builders state that they spend 50 percent or more of
their time on public relations activities.
Today, HUD has released the findings of the Ernst & Young
analysis of the Community Builder Program, a study that was
designed, funded and reviewed by HUD. The conclusions of the
study indicate that Community Builders improved customer
services and perceptions.
The report also mentions expanded outreach, increased
partnering, valuable experiences, and furtherance of strategic
objectives. While I realize that HUD prefers the terminology
``customer relations'' rather than ``public relations'' in
describing Community Builder roles, I think there is an obvious
overlap of the two terms in this program.
Furthermore, I am not persuaded that HUD should distinguish
its employees with public trust responsibilities from Community
Builders. I also fail to understand how HUD's strategic goal of
restoring public trust is served by filling hundreds of
positions with employees dedicated to improving HUD's image
and/or customer relations. It is my opinion that capable
Federal employees with knowledge, training and experience in
performing HUD business effectively and efficiently can, in
fact, earn public trust. From what I see, a new public
relations core may be, in fact, unnecessary. It is also
wasteful and harmful to employee morale, and, most importantly,
it drains significant personnel resources from HUD programs
that remain at risk.
In conclusion, the Community Builders Program has been a
topic of considerable controversy in the Department, in the
press, and in Congress. On September 16, 1999, the Senate
Appropriations Committee reported, and again this is their
report, ``There is no valid evidence that these Community
Builders are communicating HUD programs effectively or
providing a link for the delivery of program services, and much
of the activity seems to be primarily for public relations. In
many cases, the Community Builders do not appear to act like
HUD staff, but instead act in the capacity of lobbyists for a
particular community or group.'' Again, not my comment, but the
Senate appropriations report.
Because of these concerns, appropriations conferees
mandated that the existing Community Builders Program with
temporary fellows is to terminate effective September 1, 2000.
Any functions now being performed by the Community Builders
fellows will be carried out by regular Civil Service employees.
I hope that meaningful lessons have been learned from this
unfortunate and sad chapter in HUD's history and will not be
repeated again.
I would like to thank our witnesses for appearing today,
some of whom have traveled at a great distance with personal
sacrifice, and I look forward to hearing from each of you as we
explore how best we can meet our Nation's critical housing
needs and ensure a maximum return on our Nation's precious tax
dollars.
With that background and those opening remarks, I am
pleased to yield to our ranking member, the gentlewoman from
Hawaii.
[The prepared statement of Hon. John L. Mica follows:]
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Mrs. Mink. Thank you very much, Mr. Chairman. I would like
to also join with you in welcoming the panelists that have been
called to examine these two areas that the chairman has so
carefully outlined as problem areas that he feels oversight
responsibility in examining. And while I agree certainly that
we do have that responsibility to make sure that the programs
that are implemented by all of the executive departments are
working well and have consistent missions that relate to their
statutory functions, in both of these cases today I raise some
of my own personal qualms about the necessity of pursuing these
issues.
In the first place, the full Committee on Government Reform
not too many months ago conducted a hearing about the whole
matter of the foreclosures and the management of the properties
under foreclosure, the long-term possession by the HUD
department, and the failure to put these properties out to
market in a reasonable length of time. And it seemed to me that
as an outcome of that hearing, that much was said, and the
Department, I thought, responded to the questions of the
chairman of the full committee quite adequately.
We are placing on the department a huge responsibility to
be able to balance the demands of efficiency and also
productivity and to assure against loss of public funds in this
whole program of mortgages and foreclosures and management. As
a matter of deeply held personal commitment, I generally do not
support the notion of privatizing what I consider to be
functions that government could very well perform adequately,
and it seems to me that this whole idea of property management
is one area in which HUD could have retained responsibility.
But given the huge hue and cry about the management program, I
can see why HUD felt compelled under the demands for reform and
change and responding to criticism, opening up a whole new area
of privatization. And now that they have done that, responded
to the private cry--the public cry for privatization, it seems
a bit hasty to now fall upon the Department for having retained
someone who totally failed, as a private contractor, from
performing its responsibilities.
I think that the Department should answer the questions as
to the propriety of this particular contract, and why the
contractor was selected, and how it performed, and why the
contract was terminated. I think those are reasonable
questions. But the whole concept of challenging the
government's decision to privatize because of one failure I
think is a bit premature and certainly something that I don't
fall readily to, basically because I really don't like the
whole idea of privatization in the first place. But having done
that, it seems to me that the government has done, in this
case, a fairly reasonable job in making sure that there was
reasonable value performed by the contractor.
On the matter of the community development--developer or
Community Builders Program, again, in the years that I have
been in Congress, there has always been a hue and cry by the
Congress and others in the public that the Department needed to
find ways in which to respond to the public criticism of
connecting its major responsibilities to the public so that the
public would have a better understanding of what its functions
were, and we have demanded, in fact insisted, that the
Department look for ways to revise its functioning, to reform
its general mission and the way in which its responsibilities
were being conducted. So, here is an initiative which the
Department has embarked upon, and now it is being mercilessly
criticized for failures to conform to the expectations of the
public.
Now, I personally have some views and conclusions that I
have made about this initiative, but I certainly don't fault
the Department for having moved in this direction.
I am pleased that, and hopefully, with the decisions made
by our appropriators in terms of revision of this program, I
hope that the criticism has now been put to rest, and we can
analyze it from the viewpoint of whether any substantial
advantages have been developed as a result of the
implementation of this program. I have been advised that, yes,
there have been some substantial improvements to the overall
conduct of the Department because of the Community Builders
participation in implementation of the Department's mission.
So yes, I look forward to the panelists, Mr. Chairman,
today to elucidate on both of these issues. I must say in
advance, next door my Committee on Education and the Workforce
is having a markup on four bills, and I may have to drift in
and out, and I apologize if I am called to vote next door.
Thank you very much.
Mr. Mica. Thank you.
I recognize the gentleman from Massachusetts Mr. Tierney.
Mr. Tierney. Thank you, Mr. Chairman.
I really have nothing to add to the remarks that have
previously been made, except to also say that I am on the same
committee as Mrs. Mink, and that you may find me coming in and
out to vote on the markup over there, but I would prefer, if we
could, to get on with the witnesses and thank them all for
sharing their time and thoughts with us this morning. Thank
you.
Mr. Mica. Thank you.
Mr. Kucinich, would you like to make an opening statement?
Mr. Kucinich. I just want to join my colleagues in
welcoming the witnesses and particularly those who are serving
the Department of Housing and Urban Development, thanking them
for the work that they do, and I look forward to working with
you.
Mr. Mica. Thank you, Mr. Kucinich.
Let me just say as I introduce our first panel that we did,
in fact, on March 23rd hold a full committee meeting on the
question of Marketing and Management Programs. It is my
understanding, just for the record, that, in fact, Intown
Properties won a contract in March to manage and market a $367
million program. Since that time, Intown, as I stated, has
filed for bankruptcy, so that has occurred since then; in fact,
on September 22nd. Since then, the press has exposed and others
have found that the contractor that HUD contracted with was a
convicted felon with a string of and histories of bankruptcies.
So I think our subcommittee is moving in a proper fashion
of oversight and investigations to see how that contract got in
that situation, what is going on with this program. Community
Builders has been battered around. We have put off a hearing,
and the Senate has gone before us and appropriators. But we
still have an obligation to look at what has happened there and
how that program will be phased down or replaced.
With those comments, let me introduce our first panel of
witnesses. You will have to help me with the name here. Ms.
Kathy Kuhl-Inclan. Ms. Kathy Kuhl-Inclan is Assistant Inspector
General for Audit of the Department of Housing and Urban
Development; Ms. Joyce Gibson is a spokeswoman from Chicago,
IL, for the Coalition for Accountability; and Ms. Cheryl
Peterson is a homeowner from Boise, ID. We also have the
Honorable William Apgar, who is the Assistant Secretary for
Housing with the Department of Housing and Urban Development.
I would like to welcome all of our witnesses. We are an
investigations and oversight subcommittee of Congress. We do
swear in our witnesses, so if you would stand to be sworn.
[Witnesses sworn.]
Mr. Mica. Let the record reflect that the witnesses
answered in the affirmative.
I would like to again welcome our panelists. I think what
we are going to do is, we have had you sworn, take about a 15-
minute recess, run to the floor, vote and come back. So if you
will excuse us for about 15 minutes, we will vote and then
return. This subcommittee will stand in recess.
[Recess.]
Mr. Mica. I would like to call the Subcommittee on Criminal
Justice, Drug Policy, and Human Resources back to order.
Our first agenda item again is panel one, and deals with
the Marketing and Management Program. I have introduced our
witnesses, so we will go directly to Ms. Kathy Kuhl-Inclan, who
is Assistant Inspector General for Audit with the Department of
Housing and Urban Development. I did swear you in, and I also
will advise each of our witnesses that if you have lengthy
statements or documentation or reports that you would like made
a part of the record, if you will just request that, and by
unanimous consent, we will include as much as possible of that
information in the record.
So with that, we will recognize the Assistant Inspector
General for Audit with HUD. Welcome, and you are recognized.
STATEMENTS OF KATHY KUHL-INCLAN, ASSISTANT INSPECTOR GENERAL
FOR AUDIT, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT; JOYCE
GIBSON, SPOKESWOMAN, COALITION FOR ACCOUNTABILITY; CHERYL
PETERSON, HOMEOWNER, BOISE, ID; AND WILLIAM APGAR, ASSISTANT
SECRETARY FOR HOUSING, DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
Ms. Kuhl-Inclan. Thank you. Chairman Mica and other members
of the subcommittee, I appreciate the opportunity to appear
before you today to discuss the Management and Marketing
contracts for HUD's property disposition activities.
On September 17, 1999, our Southeast/Caribbean District
issued a comprehensive audit of HUD property disposition
activities entitled, ``Nationwide Internal Audit of Federal
Housing Administration's Single-Family Property Disposition
Program.'' When we began this review, plans for contracting out
property disposition activities were still under discussion. By
the end of our audit, the M&M contracts, as they have been
called, had been awarded, but had not yet been started.
I want to make it clear that we have not audited the
current Management and Marketing contracts. We made a conscious
decision to hold off on any detailed audit work until the M&M
contracts had sufficient time to get up to speed. We believe
that sufficient time has elapsed, and we plan to begin that
audit this month.
We did have an opportunity to review the M&M contracts and
the contracting monitoring policies toward the end of our
property disposition audit. We also looked at the M&M contracts
in an audit of the departmental procurement activities earlier
in the year. Our property disposition audit noted that while
the M&M contracts and contract monitoring policies were
comprehensive, there were some areas in need of improvement.
Contracts did not contain sufficient information regarding
FHA's reimbursement to contractors for property repair costs or
monetary penalties for contractor noncompliance.
In addition, the new Contracting Monitoring Manual did not
provide comprehensive guidance to review and approve
reimbursements of repair costs, conduct contract risk
assessments, and document monitoring results. We thought
clarity and consistency in applying this policy was needed, and
I would like to add that the HUD staff agreed with us almost
immediately and indicated that they would make these changes to
their policies.
Our recent internal audit followup review of HUD
contracting was dated September 30th and examined the
contracting actions leading up to the M&M contracts. The
Department carried out this procurement action without
conducting an OMB Circular A-76 cost comparison to determine if
contracting out was warranted. While these M&M contracts were
at an anticipated cost of $927 million over the next 5 years,
the Department believed that a cost comparison was not legally
required. We disagreed. The supplement to Circular A-76 states
that the circular is not designed to simply contract out;
rather it is designed to balance the interests of the parties
in a make or buy cost comparison, provide a level playing field
between public and private offerors to competition, and
encourage competition and choice in the management and
performance of commercial activities.
The Department stated that there is no requirement to
conduct an A-76 review if the contract is not affecting more
than 10 HUD employees. Additionally, it said that it is the
program office's responsibility to evaluate all the procurement
activities and the contracting office's responsibility to
ensure that once the decision is made, that the award is
carried out efficiently. We believe the Office of Procurement
and Contracts needs to be more involved.
We reviewed the implementation and pre-award files for the
M&M contracts. Prior to award, these kinds of functions were
handled by a combination of HUD staff and the Real Estate Asset
Managers [REAM], contractors. Even though these procurements
have a 5-year spending authority of almost $1 billion, and the
contractors will have substantial control over HUD's
multibillion-dollar single-family property inventory, the
Office of Housing did not adequately document or evaluate basic
business decisions before executing these contracts. Instead of
preparing an A-76 cost study, the Office of Housing requested a
determination from the Chief Financial Officer that a study was
not technically required. The memorandum did not explain
Housing's intent to contract out the entire process at the cost
of almost $200 million a year.
The CFO did agree with Housing that since the Department
was not reducing staff, the study was not required, but that
didn't make sense to us, because of all of the downsizing and
the restructuring of the Department that had been done and was
being considered.
In addition to the absence of a cost analysis for the M&M
procurement, we questioned the Department's examination of the
financial and operational capacity of the bidders. Intown
Management Group was awarded contracts comprising almost 40
percent of HUD's work, making Intown one of the largest
property managers in the country. We asked contracting staff if
they considered Intown's financial capacity to manage such a
large contract. We reviewed the summary of negotiations and
technical evaluation reports and did not see a discussion of
their capacity. The staff indicated that these matters were
discussed, and it was determined that the Intown had sufficient
financing.
During negotiations, Intown reduced its original bids from
$565 million to $367 million. That is a 30 percent drop.
Revised best pricing schedules provided by Intown during the
negotiation process may have been overly ambitious. In fact,
Intown's estimated costs would actually decrease due to
improved efficiencies. By contrast, staff stated that Intown
had the highest technically rated proposal and believed the
negotiation process evidenced HUD's interest in procuring the
best value.
When we completed our field work in August 1999, Intown had
sold only 2.8 percent of its assigned inventory. M&M contracts
receive 30 percent of the fees when properties are listed and
the remaining 70 percent when properties are sold.
Consequently, there was a concern that Intown would not be able
to adequately maintain the 20,000 HUD properties assigned to
them without the revenues it generated from property sales.
On September 23rd, HUD announced it had terminated the M&M
contract with Intown Management Group. We hope that those
contractors remaining can manage this large workload that is
left. We anticipate a report from our upcoming audit in about 6
months, and we will be happy to keep you apprised. Thank you.
Mr. Mica. Thank you.
[The prepared statement of Ms. Kuhl-Inclan follows:]
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Mr. Mica. We will next hear from Ms. Joyce Gibson, who is
the spokesperson for the Coalition for Accountability from
Chicago, IL. Welcome, and you are recognized.
Ms. Gibson. Good morning, Mr. Chairman. My name is Joyce A.
Gibson. I am the president and owner of J.A. Gibson Realty &
Associates in Chicago. I would like to thank the committee for
allowing me this opportunity. I am here today as a spokesperson
for the Unity Coalition for Accountability, a loosely formed
coalition of 70 small businesses, 240 churches, and a handful
of community organizations in Illinois and Indiana who are
concerned about the lack of responsibility and accountability
HUD has exhibited with respect to its M&M contracting program.
Our coalition was formed after Intown Management, a HUD
Marketing and Management prime contractor, lost its contract
and declared bankruptcy. That was September 22, 1999. For many
small businesses in Illinois and Indiana, and 20 other States
around this country, that day will live in infamy. It was the
day we learned that after providing millions of dollars in
labor and material over a period of 5 months to maintain HUD-
owned properties, we would not be paid.
From the information we have gathered, the amount owed in
Illinois alone is $3.5 million, and that just represents the
contractors who have heard about our efforts and contacted us.
As we began to talk to more people over the Internet, we
realized that this problem was much larger than just a few
vendors not being paid in Illinois. We have heard from an
appraiser in Maryland who is owed $411,000, a contractor in
Virginia owed $41,000, a property manager in New York owed
$54,000, and the list goes on, totaling more than $7.5 million.
Mind you, this figure only represents moneys owed to
approximately 87 subcontractors.
When we started this effort, we were only focused on the
short-term view: Our money. As we talked to more people in our
respective communities, we began to see an even bigger problem,
one of abandoned homes that create unsafe, unhealthy
environments; lost tax revenues to local municipalities; and a
destabilization and devaluation of the communities where these
properties are located. It is why our efforts have been joined
by local ministers and community groups concerned about housing
issues.
I am here to represent the small voice of hard-working
citizens that often get overlooked. We don't have the millions
to hire lobbyists to speak for us. We pass the hat, hope we
have enough money for airfare and room accommodations, and pray
that we can spare the time from our businesses to make the
trip. That is why we are extremely grateful that someone in our
government is willing to spare the time to listen to what we
have to say.
It is our understanding that HUD has taken the position
that they are not responsible for the actions of their
contractor. We disagree. We believe that HUD contracted an
agent, Intown Management, and the agent provided management and
marketing services for the owner of this property: HUD. As a
realtist, this says that an agency relationship existed, and
under an agency relationship, they cannot just walk away and
not be accountable for the actions of their agent. HUD still
has accountability and responsibility.
Most of the vendors were willing to provide services
because Intown was HUD's prime contractor. To many of us, that
meant payment would be slow in coming, but it was guaranteed
payment. That is why people felt confident in refinancing their
homes to buy equipment and purchase materials. That is why
people continued to provide services even after there was no
payment for 90 days. It wasn't because of Intown; we didn't
know them, nor do we know them now. We trusted that our
government had made a wise selection and that our government
was behind these people.
I am sure that it was not HUD's intention to stick it to
small business, but that is exactly what has happened in the
M&M program. Intown is the second contractor that HUD has had
in the Chicago area. There are vendors who contacted us who
have not only not been paid by Intown, but who are still owed
money from a contractor called Citywide. And to add insult to
injury, we have been informed as of yesterday that many of the
vendors who were promised payment in 14 days by the new
contractor, Goldenfeather, are now 30 days due, and counting.
I don't know how much money was paid to Intown, but it
would seem to me that HUD has a responsibility to pay for the
services that were contracted on their behalf up to and
including the day that they pulled the plug.
Additionally, HUD has got to take responsibility for the
condition of the properties that are in our communities. These
properties belong to the taxpayers. HUD cannot delegate its
responsibility to no-name companies and then walk away.
We believe that HUD needs to rethink its current use of
national contractors and return to the model that allows for
local-based management and marketing of HUD properties. We also
believe that HUD must establish more effective monitoring
guidelines. We cannot continue with a program that erodes the
credibility of our government and causes economic devastation
to its citizenry. Thank you.
Mr. Mica. Thank you for your testimony.
[The prepared statement of Ms. Gibson follows:]
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Mr. Mica. We will also hear from Ms. Cheryl Peterson, a
homeowner from Boise, ID. Welcome, and you are recognized.
Ms. Peterson. Thank you.
In August of this year, my husband and I bid on a HUD home,
and we won that bid. On September 24th, we signed the closing
documents and were preparing to move. Earlier in this same
week, HUD fired Intown, their management company. The next day,
Intown filed bankruptcy, and it became uncertain who would
represent HUD in completing our paperwork process.
On September 30th, our paperwork was received back from
HUD, and we were in the final stage of acquiring our home. On
Monday, October 4th, our title company went to record the deed
at city hall, and it was discovered that there was a $1,320
lien placed on the property and numerous other properties in
the State of Idaho.
At this time the situation became very stressful for my
family. Within 2 weeks, we really did not have a place to live.
We called everyone. We called our realtor, our title company,
our lender, our lawyer and our Congresswoman. Within a few
days, there was yet no resolve.
So, on October 7th, we paid the $1,320 lien, believing that
we would have our home that day. Yet, when the title company
went to city hall to record the deed, they called to say that
another lien had been placed on our home. We had a difficult
decision to make at that time. It was either to back out, cut
our losses, or pay the $120. And this, of course, was somebody
else's debt, not ours.
So on October 8th, we paid the $120, and we were recorded
that day, and the home became ours. As a taxpayer, we paid
$1,440 for property management.
We did have to ask ourselves what we were paying for. The
weeds on the right side of the house were chest high, the grass
was dead, there was a beehive in the sprinkler box that was a
foot in diameter. This home had sat vacant for 6 months. Yet,
in the end, we were very thankful that we were never without a
place to live and that we now have a place that we call home.
Thank you.
Mr. Mica. Thank you for sharing your experience with us.
We will now hear from Mr. William Apgar, who is the
Assistant Secretary for Housing of HUD. Welcome, and you are
recognized, sir.
Mr. Apgar. I am pleased to testify today about how HUD
has----
Mr. Mica. You might pull that mic over.
Mr. Apgar. I am pleased to testify today about how HUD is
fulfilling its mission to address the homeownership and
affordable housing needs of the Nation and to report on our
progress in the management market initiative.
The past 12 months have been historic for the Department.
Secretary Cuomo's 2020 reforms have produced substantial
evidence that HUD works. At the start of the year, our progress
in reforming the Department was recognized by the House and
Senate as they approved the best HUD budget in a decade. The
year culminated last month when Congress enacted an even
smarter and stronger budget, giving us $1.5 billion more
resources to do our programs, including 60,000 new rental
vouchers, a homeownership security program for older Americans,
a major job creation program, and new tools to assess the
growing crisis of opt-outs.
FHA has also had an outstanding year this year. We have
assisted 1.3 million families in purchasing homes, with an all-
time record of $125 billion in mortgage insurance. FHA
multifamily mortgage insurance remained at a near record level
of $4.1 billion.
Regarding the implementation of the M&M initiative, I am
also pleased to report that after 7 months of operation, six of
the seven contractors retained by HUD are generating very
positive results and have demonstrated that profit-motivated,
private sector real estate professionals can more efficiently
and effectively manage, market and sell REO properties. The
bottom line is the M&M system is selling more homes faster and
doing so in a way that is generating greater returns to the
FHA.
Since implementing the M&M initiative nationwide, in March,
six of our seven contractors, who had the responsibility of
more than 60 percent of the inventory at takeover, had
performed well. Over the first 6 months they have increased
HUD's average gross property sales by 25 percent; they have
increased FHA's recovery on the mortgage insurance claims by
some $3,243 per property. Taken together, these six contractors
have sold 16,273 properties through September, and with an
improvement in our recovery rates, we have generated savings of
more than $50 million to the Department.
Still, despite the overall success of the M&M initiative,
one contractor, Intown Management Group, failed to meet HUD's
performance standards. Intown did not properly maintain HUD's
properties, as was discussed, and they were extremely slow to
list properties for sale and to enter into sales contracts.
While this has lead to substantial problems for FHA, for
homeowners, for communities, for subcontractors, I want to
stress that it is the FHA monitoring and control system that
identified the problems with Intown and developed a record that
facilitated termination of the contract and the proposed
debarment of the principals and will be a basis for future
actions as we seek to hold Intown accountable for their failure
to meet the obligations of this contract.
This monitoring system noted problems in the very early
days of the contracts. Within 45 days, we terminated one Intown
contract. But, despite our repeated efforts, Intown's overall
performance didn't improve. Having started with 16,803 homes,
the inventory in the Intown area swelled to 26,000 homes by the
end of September, an increase of 9,400 homes. In contrast, over
the same period, the other six contractors sold more than
16,000 homes, and collectively the inventory in these areas
held more or less steady.
There are a lot of statistics here, and I will explain them
more in detail in my written statement, which I would like to
have included in the record. But the bottom line is simple.
Intown didn't sell homes. They didn't even do a good job of
listing homes for sale. As a result, the overall inventory
mushroomed.
My testimony also includes detailed descriptions of how we
are doing in the 6 weeks since we terminated the Intown
contract. I am pleased to report that the new replacement
contractors are working well. For example, in just 6 weeks,
they have completed the sale of over 1,900 properties, nearly
as many as Intown did in the 6 months that they had the
contract. The new contractors in 6 weeks have sold almost as
many homes.
I would like to end my testimony with an assessment of how
we got to this situation today. My answer is simple. Intown
failed because its three principal partners did not deliver the
resources that they promised in their proposal. Each of these
individuals had performed well in the past under HUD and other
Federal contracts.
Consider Larry Latham, a recognized leader in online real
estate marketing. The proposal indicated that Mr. Latham would
be in charge of marketing, but Intown's marketing effort was
slow to start and, even after 6 months, was hopelessly
inadequate. I am not a lawyer, but I believe that Intown and
its three partners misrepresented to HUD the resources that
they would bring to the contract, and in doing so, may have
committed fraud against the U.S. Government.
That is why I recently moved to immediately suspend each of
Intown's principals from all government contracting and also
proposed that they be debarred for a period of 10 years.
Moreover, I have asked HUD's Office of General Counsel to refer
the three principals to HUD's Office of Inspector General
within the Department of Justice for criminal investigation.
In conclusion, I feel that HUD and the FHA are headed in
the right direction. I thank you for this opportunity to
testify, and I look forward to answering your questions today.
Mr. Mica. Thank you, Mr. Apgar.
[The prepared statement of Mr. Apgar follows:]
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Mr. Mica. Right off the bat, let's get into the Intown
situation. A contract was awarded in March for $367 million. It
defaulted and filed bankruptcy on September 22nd. I have a
story from the Atlanta Constitution, and through some simple
checking they found that the principal here, Melton L. Harrell,
who won the contract, had a record of felony convictions and
had a history of filing bankruptcy, I mean a pretty basic check
that even the media did.
Was HUD aware of this individual's background and his
record of bankruptcy and felony convictions?
Mr. Apgar. We were not aware at the time that the contract
was issued. Let me explain our process.
Mr. Mica. Wouldn't you check? This is over a third of $1
billion.
Mr. Apgar. I hear you. Under our process we have a previous
participation review. It is the responsibility of the Inspector
General's Office to conduct that review. We asked them in
October, when we first had Intown's bid, again in December, to
review Intown for their suitability for this contract. I have
here letters signed by appropriate officials at the Inspector
General's Office that said they conducted such a review and
found nothing.
Notice that there is no requirement for the Federal
Government in its contracting procedure to check background
checks on criminal records going back that far. We did check
the Dunn & Bradstreet records. They showed nothing of any
nature of financial liability. We checked other performance
records relative to HUD contracts. Each of the contractors had
substantial contract experience with the Federal Government,
and there was no indication of any of that work by Mr. Latham,
Mr. Gonzalez or Mr. Harrell had any problem, including
substantial contracts with the Department of the Army, the
FDIC, and other Federal agencies.
Mr. Mica. Well, Ms. Kuhl-Inclan, the Assistant Secretary,
is saying that it was your responsibility to check, and he has
a report here that says that you found a clean bill of health;
is that correct?
Ms. Kuhl-Inclan. That check was done by another part of the
Office of the Inspector General. I am not aware of the letters
he has, but I will be glad to check on that when I return to my
office.
Mr. Apgar. You are right, it is part of the standard of
previous participation experience report. The letterhead is the
Office of the Inspector General. I appreciate that this is not
done by Kathy's division, so she might not be aware of this,
but this is standard contracting procedure. The Inspector
General is the responsible party for identifying potential
criminal violations on the part of contractors.
Mr. Mica. Well, somewhere it seems like somebody missed the
boat. I mean, just a perfunctory check by the Atlanta
Constitution seems to reveal that we are dealing with a
convicted felon with repeated bankruptcy failures.
Mr. Apgar. Again, in terms of the bankruptcy----
Mr. Mica. It is astounding to me. I have been in the
development business, and I couldn't imagine an award anywhere
near this size and not having the scrutiny.
Now, we will have to find out where the problem is. Is the
Department going after these folks? Are you reporting them to
the Department of Justice?
Mr. Apgar. Yes. As I mentioned in the testimony, we have
made appropriate referrals to our Office of General Counsel.
They are considering a referral to the Inspector General, as
well as to the Justice Department, and it is under review. The
whole item is now, of course, in bankruptcy court.
Mr. Mica. Did you say considering, or is this under way?
Mr. Apgar. From my point of view, it is under way.
Mr. Mica. So we should expect some action by the Department
of Justice.
Is there someone at the Department of Justice now who has
already started an investigation?
Mr. Apgar. Working through our Enforcement Center, they
have met with people from the Department of Justice. I could
get you the names of the Department of Justice people that they
have been working with.
Mr. Mica. Could you provide us with that?
Mr. Apgar. Right.
Mr. Mica. The next question is we have people like Ms.
Peterson. She has laid out $1,400. It may not seem like a lot
to people in Washington, put probably a good part of her
savings to close on this house. A lien was slapped. The lien
was really the responsibility of a mistake made by HUD in
awarding a contract--the contract to these fleecing artists.
Is there a system now being considered to reimburse people?
And Ms. Gibson told us about subcontractors that haven't
been paid to the tune of multimillion dollars. What is the plan
for resolution for these folks?
Mr. Apgar. Well, I by no means minimize Ms. Peterson's
$1,400 lien. She is, in fact, an FHA home-buyer and insured her
house with the Federal Housing Administration, so we know our
customer profiles very well and appreciate that for that
family, $1,400 was a major problem.
In Intown's failure, they failed to pay many contractors
across the country. Those contractors rightfully put liens on
our property. We now have a system in place where we are
bonding the liens. That is the way of preserving our capacity
to recover against Intown in bankruptcy, while at the same time
allowing the sales to go forward.
Mr. Mica. That has been in only 20 States so far, or some
States? It is not in place everywhere?
Mr. Apgar. No. We are going State by State. The proof is in
the pudding. We have sold almost 2,000 homes, and so we have
substantially attacked the lien problem.
Mr. Mica. What about this lady sitting next to you?
Mr. Apgar. In cases where individuals paid their own liens,
we will establish a process in which we will repay them for
that lien and assume the responsibility as we have with the
other liens in order to let the sales go forward.
Mr. Mica. How much is the taxpayer going to end up paying
as a result? Is there any estimate? Has the IG or has your
Department estimated what this is going to cost us in the end?
Mr. Apgar. Well, it is our understanding there will be no
cost to the government; that, in fact, I would say that our
overall program has been generating benefits in excess of the
cost of the program.
In terms of the liens, of course, we paid every dollar that
Intown billed us, so they had the money to pay many of these
contractors. That matter will be resolved in bankruptcy court.
Mr. Mica. But we don't have a clear estimate as to what
this will cost?
Mr. Apgar. The bankruptcy court is assembling a nationwide
estimate of what was owed and what was paid. I mean, let's be
clear. Intown, when we seized their records, were in
substantial disarray. We literally had to do almost like a
midnight raid in order to get into their offices. And again,
the records were in substantial disarray.
Mr. Mica. But what concerns me finally is we have Ms.
Gibson testifying today under oath that now we have another
contract--well, we have a previous contractor, Citywide,
replaced, what is it, Goldenfeather.
Ms. Gibson. Goldenfeather replaced Intown. Intown replaced,
I guess, the previous contractor, Citywide.
Mr. Apgar. If I could say a word about Goldenfeather.
Let me tell you a little bit about Goldenfeather.
Goldenfeather was and is one of the best contractors we have
had and proven by experience. They took over initially the very
difficult southern California market. They have been now
selling homes faster than they have been taking them in,
lowering the inventory, returning good return, better than we
did through our old system.
Mr. Mica. But they are overtaking Citywide, which has not
met its obligations.
Mr. Apgar. Now they are in Chicago trying to dig out from
the mess that Intown had created, and we fully anticipate that
they will be able to work with the contractors, pay the liens
where they are appropriate, and move forward.
Mr. Mica. Ms. Gibson, you testified, however, that
Citywide, was that the one that----
Ms. Gibson. The first--there were people who told us that
they had worked for, and I don't know if they were M&M or REAM
contractors, but they were called Citywide, and that when they
came to us, because they had not been paid by Intown, a number
of them had said they were still waiting to be paid from
Citywide.
Mr. Mica. Which was the previous one?
Ms. Gibson. Which was the first one.
Mr. Mica. Before Intown.
Ms. Gibson. Before Intown.
Now, a lot of those people went and signed up to work for
Goldenfeather, even though our position was that they should
not work for Goldenfeather until Goldenfeather was able to put
in writing to us that we would be paid for services.
Goldenfeather refused to do that. My position was that I was
not going to do anything else on any contract until HUD was
prepared to say, these are the people we sent to town to do
work for us and we backed them. If that is not happening, then
most of the contractors that I represent are not providing
services for Goldenfeather, and as of last week, they were
begging for contractors because their credibility has been
shot. So therefore, the properties are sitting. They do not
have enough contractors in the Chicago area to meet the needs,
and people are not going to provide those services because we
don't have any accountability or feel that we are going to be
paid.
Mr. Mica. Let me clarify for the record, if I may. Is it C-
I-T-Y--Citiwest, not Citywide. I have been saying Citywide.
Citiwest, what is more disturbing to me, Mrs. Ranking Member,
is Citiwest, who she is talking about, who didn't perform
before Intown, who went bankrupt, that didn't perform, has
contracts that were given June 19th for business in New England
and now hasn't performed in New England; only has 84 of 218
properties available. So the dudes that messed up in her area
have now moved into the Northeast to perform their
nonperformance tasks.
Mr. Apgar. If I could give you a full report on Citiwest's
performance in New England, I am not sure what information you
are looking at, but they have performed well under this
contract. They also have increased the FHA's----
Mr. Mica. Did you talk to them about meeting their
obligation back in----
Mr. Apgar. There is no evidence that they haven't. We would
be happy to hear that complaint.
Mr. Mica. We just had testimony to that effect.
I have taken more than my time.
Mr. Apgar. With all due respect to Ms. Gibson, she also
testified that Goldenfeather was begging for contractors. Our
reports from Goldenfeather, that they are up and operating in
Chicago, and they have ample resources to perform these
contracts. Obviously, Ms. Gibson is not one of those
contractors, but others have stepped forward, and the process
is working.
Mr. Mica. Mrs. Mink.
Mrs. Mink. I think that one of our fundamental principles
in America is that if people work for whoever, even under
bankruptcy laws, that they have a priority commitment on the
part of the court and the government that they be paid, and it
seems to me that that principle needs to be recognized by HUD.
Now, going back to the Intown contract of $300-some
million, what was that money supposed to represent, if it was a
contract of commitment to Intown?
Mr. Apgar. This was a performance-based contract. Intown
got paid when they listed properties and when they sold
properties.
Mrs. Mink. So the $360-some-odd million is an estimated
value of the properties that was assigned to Intown to sell?
Mr. Apgar. Right. Estimated--the number of properties that
they were assigned over a 5-year period over an estimated
basis.
Mrs. Mink. So the assumption is if they did their job and
sold the properties, then they could pay all of the people that
helped them perform in the maintenance and upkeep of these
properties before they were sold.
Mr. Apgar. That's right. It was a performance contract.
They got an initial just for listing the property, and they got
additional payment when they sold the property.
Mrs. Mink. So in some instances then, the properties were
actually listed, and the government then paid them the 30
percent advance fee, even though the properties were not sold;
is that correct?
Mr. Apgar. Right. We paid them in two stages.
Mrs. Mink. How much was paid to Intown then?
Mr. Apgar. How much was paid to Intown in total? Many
millions of dollars. I have to get the exact figure.
Mrs. Mink. Out of that money that Intown was paid, is there
any way to make sure that the actual obligations to the
subcontractors are actually met for maintenance, or is that not
part of the contract that you entered into with Intown, that
they pay these obligations first out of that 30 percent?
Mr. Apgar. Yes. They are bound by all kinds of contractual
law which says that as contractors and in their relationship to
subcontractors, they are obligated to pay.
Mrs. Mink. So what is the overall total then of the
subcontractors' claims against Intown? Now that it is all
public and it is in the bankruptcy courts, I imagine that that
total figure is available.
Mr. Apgar. No. They are still totaling up the figure.
Mrs. Mink. What is your estimate of what the figure would
be?
Mr. Apgar. Oh, several millions of dollars, maybe as many
as $10 million.
Mrs. Mink. Up to $10 million.
Mr. Apgar. Yes. That is just a rough estimate.
Mrs. Mink. Now, is that----
Mr. Apgar. Can I explain why it is difficult to sort this
out? We don't have clear information as to whether or not
Intown has taken the money we have given them already and paid
these contractors.
Mrs. Mink. That was my earlier question; you made the
estimate that it is about $10 million. Is any part of that
money somewhere in escrow so that these people can be paid?
Mr. Apgar. We withheld every payment that wasn't made at
the time of termination back, and that is part of our resources
that are moving forward.
Mrs. Mink. So does HUD consider this to be a firm
obligation to meet with respect to all of these subcontractors
and workers that have not been paid for work that they have
done?
Mr. Apgar. We have, as we noted, taken the step of paying
all the liens by posting surety bonds. By doing it that way, of
course, it retains our claims in bankruptcy court so that we
will be able to recover against those claims. We want to be
careful not to pay twice for work that has already been done,
and we have no obligation or resources to do that. It was our
intention to work to make sure that the subcontractors are made
whole, consistent with the operations of the bankruptcy court.
Mrs. Mink. How long do you think that process will take
before these people can be paid?
Mr. Apgar. Well, we are paying already, as folks who have
liens are being paid. We cleared almost 2,000 houses for sale,
and the liens on all of those are being paid.
Mrs. Mink. You are making good on the liens. How about Ms.
Peterson's?
Mr. Apgar. Right. It has come to our attention that a few
people paid their own liens in order to do this, and then our
procedure will be to identify those folks and pay their lien--
--
Mrs. Mink. So Ms. Peterson can expect to get her money
soon?
Mr. Apgar. As soon as we can handle that transaction, that
is correct.
Mrs. Mink. Thank you.
I have a whole bunch of other questions, but I am being
beckoned to my other committee. But I did want to get to the
point of the how come they didn't know about this individual's
defaulting on bankruptcies and criminal record, and you stated
that it was the Inspector General's responsibility. As I
understand it, this is an entirely separate operation, so it is
unfair to place that burden of failure of knowing who these
people were on the Department when you have an Inspector
General that is supposed to be doing the job.
Mr. Mica. Well, let me say just in a quick dialog with the
ranking member, if I may, and Mr. Tierney, that there is
something wrong on the procedure. I don't know if it is in the
law or in the regulations or their administrative procedure,
but when you can award a $367 million contract to a guy with a
conviction of felonies and a series of bankruptcies with that
much public trust responsibility, there is something wrong.
Mrs. Mink. Can I make an amusing comment, side-bar?
Mr. Mica. Go right ahead.
Mrs. Mink. I understand that the Majority party, however,
is adamantly opposed to the administration's recommendation
that we do establish a policy in which we examine the records
of the would be contractors, and while I think that is a very
good stand that the administration's taking, I wonder why it is
being so vehemently opposed on your side.
Mr. Mica. Well, I don't oppose it. I happen to be----
Mrs. Mink. Good. Score one.
Mr. Mica [continuing]. In favor of looking at what the
problem is here, but obviously, we have a report that was just
read by the Assistant Secretary from the IG office within the
agency that is supposed to perform this function. Something
went wrong, badly wrong, in this process, and whether it is
changing the law, the regulation or whatever, we need to look
at it. I am open to that, certainly.
Let me yield now to Mr. Tierney, the gentleman from
Massachusetts.
Mr. Tierney. Thank you, Mr. Chairman. I am not going to
take up any time. I think that you have pretty much hit it on
the head, that where we ought to be going with this is looking
at the process and determining where it broke down and what we
should do to make sure it doesn't happen again; because
clearly, you are exactly on point, that we should not be giving
contracts out of this magnitude without some investigation into
the past.
We have now identified that nobody at this table was
supposed to do the investigation, but one of the agencies
should have. Maybe the next set of hearings should be bringing
those people in to find out why they didn't do the appropriate
job. Thank you.
Mr. Mica. I thank the gentleman.
We are going to leave the record open for at least 3 weeks,
because we will have additional questions that we are going to
ask the agency.
Ms. Gibson, let me just clarify again, the contractor you
spoke about was Citiwest that was in Chicago before Intown, and
Citiwest was taken over by Intown. But you are telling me that
there were--I don't know if there still are, but there were
obligations of Citiwest, the first one, not met.
Can you again enlighten the subcommittee?
Ms. Gibson. Some of the subcontractors, again, when they
came to us, they said that they were still waiting to receive
all of their full compensation out of Citiwest. They had not
received that money, and then my question, of course, to them
was, if you haven't been paid from the first contract, why are
you now with Intown, in this boat with those of us who came on
board just with Intown? Their response was, well, we had to
work. Those people are probably still with Goldenfeather.
But I just have a question, because I am really not
understanding what Mr. Apgar just said to us. I am trying to
understand, are you saying that if we put liens on the
property, we will get paid, because you are saying you are
going to pay off the vendors that put liens on the property. We
were advised against putting liens on the property by some
attorneys who had done work for HUD, because we have called, I
think, every agency in this government trying to find out how
we get remedy. We were advised against putting liens. But what
I seem to be hearing you say is that if we, as small vendors,
put liens on the HUD property, then you will pay us our money.
I am just asking for clarification.
Mr. Mica. Secretary Apgar, she raised the question, and I
think you addressed how the lien folks--and you did say that in
some States you are in a bonding situation, so there are some
that aren't. But what about also this question of nonlien
obligations?
Mr. Apgar. It is my understanding that State law enables
contractors of this type to place liens against the property as
a way of securing an interest. I am particularly mindful of the
fact that many of these contractors are literally the folks who
cut the glass and do small chores all the way up to substantial
rehab contractors, and that is essentially a way of getting
around issues of bankruptcy court and other complexities. So,
in fact, I don't know who advised Ms. Gibson as to how to
pursue her rights, but contractors that have placed liens
against the properties have secured their interest that way,
and we are, in fact, moving ahead with paying those contractors
in order to facilitate the sale of the property.
Mr. Mica. But again, those who haven't slapped a lien on,
what is their recourse?
Mr. Apgar. They don't lose their claim, and as we work with
the bankruptcy court, we are pursuing options so that we can
pay contractors directly.
Mr. Mica. Do you know how much money was disbursed to
Intown before they filed bankruptcy?
Mr. Apgar. That is a number that I would have to check on.
Mr. Mica. I would like that information.
Mr. Apgar. The annual contract, if they sold the
properties, it would have been many millions of dollars. They
sold so few that the actual disbursements were small, or less
than they would have been if they had been performing.
Mr. Mica. My question would be if the portion--I guess they
got a certain amount for management and other----
Mr. Apgar. They got--for initial listing?
Mr. Mica. Well, for their initial activities, right.
Mr. Apgar. They got initial listing fees, that is correct.
Mr. Mica. What percentage was it?
Mr. Apgar. I think it was 30 percent of the overall payment
that they eventually received that came up front, and then----
Mr. Mica. I would like to know how much of that they did
get, excluding money for the sales, how much money they did
get.
Mr. Apgar. Right. I will get you that figure, sir.
Mr. Mica [continuing]. I think that is important.
Mr. Apgar. There are no buzzes coming from the air back
here, so I think my supporting folks don't have that. We will
give you the exact number. We do have these numbers, of course,
in our central computers.
Mr. Mica. All right. Finally, you said you had a report
from the IG. Who signed that report? Can you tell us what
office it came from?
Mr. Apgar. Yes. It is the previous participation
experience. It is the IG's office, and it is signed by a Mary
Dickens.
Mr. Mica. Dickens?
Mr. Apgar. I am trying to read this. It is handwritten
here. Dickens. I am sure that our contracting office could give
you the name of this person because----
Mr. Mica. Are you familiar, Ms. Kuhl-Inclan?
Ms. Kuhl-Inclan. It is Mary Dickens, yes.
Mr. Mica. Mary Dickens. What office of the IG?
Ms. Kuhl-Inclan. She works in our Office of Management and
Policy.
Mr. Mica. All right. Would you provide us with a copy of
that report for the record?
Mr. Apgar. Yes. Be happy to.
Mr. Mica. Without objection, those reports will be included
as part of the record.
[The information referred to follows:]
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Mr. Mica. Ms. Kuhl-Inclan, what went wrong?
Ms. Kuhl-Inclan. I can only--I really don't know, sir.
Intown Management Group was a brand-new organization, and that
is the only thing I can speculate is that it was looked at--
when the request came in, it came under Intown Management
Group. Our experience had been with Intown Properties, Inc.,
but that is only speculation. I will have to get you a complete
answer.
Mr. Mica. Is your office also recommending working with the
Department of Justice now to make certain that we pursue both
criminal and civil action against these folks?
Ms. Kuhl-Inclan. I have not seen the request to our office,
but yes, if it is sent to us, we will make sure that we work
with the office, for both civil and criminal.
Mr. Mica. Do you have anything else, Mr. Tierney?
Mr. Tierney. No. We are obviously talking to the wrong
people, but I would assume the IG's office would check the
principals at least for their background.
Ms. Kuhl-Inclan. I have no--I will give you a complete
explanation.
Mr. Mica. Well, we may follow through with your request. I
think this is a large enough item for us to continue pursuing
not only in this hearing, but a subsequent hearing, to make
certain the program works well. I mean, we want people like
Mrs. Peterson to have housing. We want to dispose of these
properties. We don't want folks like Ms. Gibson out there also
left holding the bag and other subcontractors across the
country. This is a pretty big problem, and when they went down,
it has created some incredible problems. But we need to work
our way through this and make sure that it doesn't happen
again, for God's sake.
Well, I thank this panel. We have fulfilled some of our
responsibility in conducting oversight and investigation on
this program. We will excuse you at this time, and we will call
our second panel.
In the second panel we are going to discuss the Community
Builders Program, which we have heard has been the source of a
great deal of controversy, to discuss that program and some of
the problems surrounding it. We have several panelists. They
include Mr. D. Michael Beard, who is the District Inspector
General for Audit, Texas, Department of Housing and Urban
Development; Ms. Carolyn Federoff, and she is vice president of
the Massachusetts State Office AFGE, and I am glad to see Mr.
Tierney here from Massachusetts; and we have the Honorable Saul
Ramirez, Jr., Deputy Secretary, Department of Housing and Urban
Development.
Ms. Kathy Kuhl-Inclan, I am told you are also going to sit
in on this panel. You have been sworn. If the other three could
please stand.
[Witnesses sworn.]
Mr. Mica. The witnesses answered in the affirmative. We
welcome the three new panelists. Again, if you have lengthy
statements or additional information you would like added to
the record, we would be glad to do that upon request.
With that, I will recognize first Mr. D. Michael Beard,
District Inspector General for Audit, Texas, Department of
Housing and Urban Development.
STATEMENTS OF D. MICHAEL BEARD, DISTRICT INSPECTOR GENERAL FOR
AUDIT, TEXAS, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT;
CAROLYN FEDEROFF, VICE PRESIDENT, MASSACHUSETTS STATE OFFICE
AFGE LOCAL 3258; AND SAUL RAMIREZ, JR., DEPUTY SECRETARY,
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Beard. Chairman Mica, Ranking Member Mink, and other
subcommittee members, I appreciate the opportunity to appear
before you today to discuss the results of our audit on
Community Builders at the Department of Housing and Urban
Development. I am accompanied today by Kathryn Kuhl-Inclan, the
Assistant Inspector General for Audit.
Our audit generally found problems with the Community
Builder concept, its implementation and its impact on HUD.
While we did see some positive results from the 85 Community
Builder specialists, overall we concluded that HUD could not
afford the Community Builder concept. Over the last two
decades, HUD has downsized from 20,000 employees to just over
9,000. During this same period, HUD's programs have increased
dramatically. The General Accounting Office placed the
Department on its ``high risk'' list.
Our audits have also identified some weaknesses. A common
theme in these audits is the lack of sufficient resources to
effectively manage and monitor programs. We do not see how
Community Builders contribute to resolving any of those
deficiencies. On the contrary, we believe a large number of
staff devoted to this function diverted other staff resources
from performing oversight functions.
The Community Builders was an attempt to separate the
outreach and monitoring functions. However, HUD chose an
expensive and controversial solution. HUD did not properly
establish the necessity for the Community Builders or the level
of resources it required. Rather than targeting staff from
within, HUD chose to look to the general public for Community
Builder fellow positions. In our view, HUD used Schedule A
authority because it offered the most latitude in hiring
outside Civil Service rules.
In selecting personnel for Community Builder fellow
positions, HUD ignored veterans' preference and OPM's rule of 3
selection process. Senior management dismissed the failure to
follow veterans' preference and selection rules as
administrative errors. Further, in response to our report, HUD
stated they complied with veterans' preference. However, audit
evidence shows they did not. In light of the foregoing, we have
asked Director Lachance of the Office of Personnel Management
to conduct a full review of HUD actions.
The Community Builders' positive impact on HUD's mission is
indeterminable. The Community Builders' purpose is everything
from providing one-stop customer service to solving the
toughest economic and social problems facing communities. This
visionary mission is not easily measured or realistically
accomplished.
Through the establishment of the Community Builder Program,
HUD has redirected a significant amount of its staff resources
to outreach and customer relation activities. Since the
function was created without any increase in HUD funding, all
associated costs reduced the funds available for other program
staff. These other program staff, known as public trust
officers, have the responsibility for monitoring and overseeing
several HUD programs. At a time when HUD is designated by GAO
as a high-risk agency, HUD can ill afford to devote substantial
resources to the Community Builder concept. Community Builder
activities do little to address HUD's mission and require
scarce resources being directed away from areas that could help
in addressing the many identified material weaknesses in HUD's
program.
Our overall conclusion is HUD should discontinue the
Community Builder position. As designed and implemented, the
Community Builder function is too costly. Excluding the
Community Builder specialists assigned to specific program
areas, HUD never established the need for Community Builders,
identified skills Community Builders would need, or gave focus
to their activities.
In responding to our report, HUD cites favorable comments
by other organizations on Community Builders; however, these
organizations performed limited reviews. For example, the
interim Ernst & Young report stated their work was limited to
reporting on 25 case studies identified by HUD.
HUD had also asked to control the selection of the people
that we wanted to interview and the sites that we wanted to
visit, but we declined.
HUD also cited several instances where Community Builders
have had a positive impact. We have no doubt individual
Community Builders have had a positive impact; however, we
believe career HUD employees have always had a positive impact
and could have had an even greater impact if given the same
resources provided to the Community Builders.
Let me emphasize that we are the only entity to give the
Community Builder Program an independent review. The other
organizations that have reviewed it are consultants. I would
like to quote from the engagement parameters of the Ernst &
Young report which says, ``Our sample of case studies was drawn
solely from the population of case studies provided by HUD. The
terms and scope of our engagement did not provide for us to
independently verify or otherwise test the completeness of the
overall case study population provided. Further, this report is
based solely on information submitted by the Community
Builders, HUD, and individuals interviewed. In addition, all
case study interview sources were identified from the Community
Builders, identified as references in their individual
selective case studies. Our findings and observations relate
solely to the selected case studies. The scope of our
engagement did not provide for us to interview HUD employees
regarding the Community Builders Program. These and other
engagement parameters are described in more detail in section 5
of the report.''
The project was considered a consulting engagement under
the standards of the American Institute of Certified Public
Accountants. So therefore, it was not an audit engagement.
Thank you very much.
Mr. Mica. I thank the gentleman.
[The prepared statement of Mr. Beard follows:]
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Mr. Mica. I would like to yield now to the gentleman from
Massachusetts, Mr. Tierney, for the purpose of an introduction.
Mr. Tierney. Thank you, Mr. Chairman.
It is my pleasure to introduce Carolyn Federoff, who is
known to me for her fine work up in our area. Carolyn Federoff
works in the Boston office of the Department of Housing and
Urban Development. As the development attorney with the
Department, she has helped in the development of many projects,
particularly in my district, including the Whittier School
Apartments, which is an eight-unit development for persons with
mental disabilities in Amesbury, as well as the HEPA 39
apartments, which in reality is a 54-unit development for the
elderly. She has an outstanding reputation amongst HUD's
clients.
Carolyn has been elected union representative for more than
10 years, and during that time she and her coworkers have kept
the Massachusetts congressional delegation informed of proposed
changes to HUD and the impact on our constituents. I will just
add that she has done an excellent and incredible job. We
appreciate her services, and I am pleased to introduce you
today, Carolyn.
Mr. Mica. Thank you, Mr. Tierney.
Welcome, you are recognized.
Ms. Federoff. Thank you, Congressman Tierney, for that kind
introduction, and thank you, Mr. Chairman and Members, for
inviting me to testify on behalf of our members. We represent
members throughout New England, and our members are very happy
that you are taking an interest in the programs and issues at
HUD. I hope that you will place my written testimony into the
record, but I am going to provide only some details.
Mr. Mica. Without objection, your entire statement will be
included in the record.
Ms. Federoff. A little bit of background. In 1991, the
Boston office had 322 staff. In 1999, we have 183 staff, which
represents a 43 percent reduction in staff over 8 years.
Currently, more than 10 percent of our staff are Community
Builders.
HUD is very resource-poor, but what particularly disturbs
employees is that we believe it uses its resources poorly, and
the M&M contract is a case in point, which the previous panel
did discuss, and that is covered in my written testimony.
There is another contract that was considered in that same
audit by the IG that looked at the M&M contract, and that is
the Section 8 contract administration contract. That is also a
$1 billion contract over 5 years for which the agency has not
conducted any credible cost-benefit analysis and certainly no
cost-benefit analysis under A-76. Based upon our review of
agency documents, we believe that contract is $159 million more
than hiring HUD staff annually. That works out to more than
27,000 housing vouchers that could be provided for homeless
families if this work were to be kept in-house as opposed to
contracted out. The IG also mentions that there are significant
threats to the integrity of the program if this were to be
contracted out.
I realize that this panel is concerned primarily with
Community Builders. Now, first allow me to say that our
testimony is not directed toward individual Community Builders,
because, in fact, all of the Community Builders that I know
personally are, in fact, committed to the mission of the agency
and came here with that express purpose. Our concern is that
given the expenditure of funds and the expenditure of resources
that is necessary to maintain the Community Builder Program,
that, in fact, it is not significant enough to warrant that
distribution of resources.
In New England, we presently have 43 Community Builders.
Only the Office of Housing has more staff resources than the
Community Builder Program has in New England. So, for example,
our Community Planning and Development Office has 28 staff in
new England. This staff oversees congressionally mandated
programs, such as 55 community development block grant
recipients, 28 home recipients, 22 emergency shelter grant
recipients and 550 McKinney homeless grant recipients.
In Massachusetts alone, the staff is responsible for
overseeing more than $170 million in funds, and they are also
responsible for Maine, New Hampshire, Vermont and Rhode Island.
So statutorily mandated, taxpayer-funded program
responsibilities receive only two-thirds of the staff that is
currently dedicated to front office responsibilities,
responsibilities which have no statutory mandate or rule or
regulation.
Now, the grade parity issue has been an issue that has been
identified, the Community Builders GS 13, 14 and 15. And
frequently as a union rep, I am asked what is the impact on
rank and file, and clearly there is an impact on rank and file,
but this really has to be taken as a full management issue.
Let's compare one Community Builder position, which is the
Officer Next Door Program. The Officer Next Door Program staff
person is a job that had previously been one part of a GS-11
single-family property disposition specialist job, and I
understand that this Community Builder fellow has far more
territory to cover than any GS-11 PD specialist had previously.
However, this person has--oversees no staff, has no fiscal
responsibilities, and cannot obligate agency funds, and is a
GS-15. Compare this to our Director of our--of the New England
multifamily Hub. That GS-15 Director is responsible for
overseeing 88 staff in five offices, more than $150 million in
development dollars in 1999 alone, the largest portfolio in the
country of 2,266 active properties, and more than 200
properties in the development pipeline.
Now, why would you become a manager in the Federal
Government if you have that much responsibility and are paid
the same amount as the GS-15 down the hallway?
This is an issue that attacks the morale of the agency
throughout the entire agency. I realize that the agency is
saying that this is no longer an issue, that we are no longer
going to have a temporary Community Builder Program. Well, in
fact, it appears that we are going to have a permanent
Community Builder Program, and this is going to be a severe
blow to the morale of employees throughout the agency.
We hope that this committee and our representatives in
Congress will look seriously at the distribution of resources
in our agency, particularly with regard to the Community
Builders and the Section 8 administrative contract, which is a
serious issue for our members and for our constituents. Thank
you for giving us this opportunity.
Mr. Mica. Thank you for your testimony.
[The prepared statement of Ms. Federoff follows:]
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Mr. Mica. We will now hear from Mr. Ramirez, who is the
Deputy Secretary for the Department of Housing and Urban
Development.
You are recognized, sir. Welcome.
Mr. Ramirez. Thank you very much, Mr. Chairman and members
of the subcommittee. It is certainly a pleasure to be here, and
as I mentioned, I am the Deputy Secretary, my name is Saul
Ramirez, and it is a pleasure to be here to discuss our
Community Builder Program. I would like to request that both my
written and oral testimony be included for the record, Mr.
Chairman.
Mr. Mica. Without objection, so ordered.
Mr. Ramirez. Let me say that this is an innovation that we
are extremely proud of, and it is a critical part of our
successful management reform efforts and is making the
Department work better for the people we serve. Please allow me
a brief moment to explain how the Community Builder Program
came about.
For years, HUD was considered the poster child of inept
government. It was criticized as a bureaucracy riddled with
waste, fraud and abuse, and was known more for red tape than
results. The media reported HUD scandals and landlord rip-offs.
HUD customers shared horror stories of making 10 phone calls to
10 different people, just to find a simple answer, if they
could get one at all.
In 1994, with the recommendation of Congress, HUD worked
with the National Academy of Public Administration to look at
its management. NAPA told HUD that it needed to make working
with communities just as important as enforcing regulations.
They said HUD should be providing comprehensive services to the
communities it serves.
By January 1997, when Secretary Cuomo arrived, many in
Congress were fed up with the situation at HUD, citing sloppy
or nonexistent accounting, shoddy program monitoring and
blatant disregard for the needs of the customers. They called,
in fact, for HUD's elimination. HUD needed to get its own house
in order first and fast, and a goal for a comprehensive
management reform plan was designed to transform HUD into a
streamlined, effective community partner.
First we began to restore the public trust and improve our
competency. We focused agency staff on ridding waste, fraud and
abuse. We cracked down on bad landlords, debarring those who
were cheating taxpayers or who refused to provide safe, decent
housing. We hired an FBI agent to head up our new Enforcement
Center, and we went after lenders who discriminated and
cheated. We built a system for the first time that enabled us,
in fact, to assess the condition of our entire housing
portfolio, and, for the first time in our Department's history,
we balanced our books and had a clean opinion, as concurred by
the Inspector General.
But we also needed to better serve our current clients and
customers as well as those underserved communities still in
desperate need of assistance and who found us unapproachable. I
am certain that no one in this room would disagree with me when
I say that cutting red tape and streamlining operations is the
right goal, and that is exactly what Community Builders helped
do, and here is how.
At the heart of better customer service and better overall
management, it is the recognition that the employee role
confusion undermines performance. Now, let me repeat that. The
recognition that employee role confusion undermines
performance. NAPA understood this, as well as David Osborne,
who warned HUD of pitfalls when one employee must assume two
contradictory roles. We know HUD staff can no longer wear two
hats, serving as both facilitators to help communities access
resources, and monitor those same communities and make sure
that they use their funds properly. These contradictory roles
weaken both customer service and monitoring and compliance.
Using private sector reorganization as a model, HUD took a
customer service function that was performed by all HUD
employees and concentrated them in a small number of employees,
our Community Builders. Now, Community Builders, some 9 percent
of the agency work force, focus on customer service, leaving
more than 90 percent of the agency to put 100 percent of its
time into restoring the public trust in meeting our mission to
meet compliance and monitoring efforts within the Department.
This change makes sense to all of us intuitively. What
insurance company would have the same group of employees act as
both a sales force and an underwriting force?
We are pleased to say that many people agree with these
changes that we have made and, in particular, in our Community
Builder Program. You have alluded to the Ernst & Young report
that concludes, in fact, that the Community Builder Program may
serve as an innovative government model for improved customer
service for government institutions at all levels.
I would also like to state that Andersen Consulting
conducted a survey in which they found, ``In striking contrast
to the image of the Federal bureaucracy, HUD staff is perceived
by customers as providing exemplary service and accurate
information. Many of these customers are public entities and
officials, Members of Congress, and others that have worked
directly with Community Builders,'' and I have submitted a list
of some of the hundreds of people and organizations that we
have heard from as it relates to this effort.
I would like to just conclude by saying that the OIG is the
only organization that has criticized HUD Community Builders,
and that the Department firmly disagrees with the OIG
criticism. In fact, it would take me hours to just walk through
the many mistakes and misassumptions that the OIG report has
stated.
So I urge you to thoroughly review the detailed response
that we have provided you in response to their audit.
Let me just briefly state three items that we disagree on.
First, the OIG argues that there were problems with the process
for hiring Community Builders. HUD followed all proper
procedures and consulted with the Office of Personnel
Management to institute a very stringent hiring process, a
process, I might add, that was carried out entirely by civil
servants. Congress decided at this point, though, in its most
recent budget that we make all Community Builders now Civil
Service positions, and we are moving in that direction.
The second point that the IG highlights is that the
Community Builders take up too many of the Department's
resources. Well, that is just simply wrong. I would refer you
to that chart of our salaries and expenses, as well as our
travel dollars that we allocate in the Department, and would be
happy to allude to in greater detail as it relates to that.
Third, I would like to say that the Community Builders do
add value in contrast to what the Inspector General has cited
in their report, and Members of Congress, mayors, HUD customers
and clients and respected organizations that are credible, like
Ernst & Young, Andersen Consulting, Booz-Allen, public strategy
groups, have stated specifically that Community Builders are a
tremendous asset to the Department. Even GAO and NAPA
acknowledge that the Department is moving in the right
direction to deal with its weaknesses.
We at the Department are still not satisfied with that and
are working to improve our systems, and will outline any
additional detail in improving those systems, but I am prepared
to answer any questions that you may have at this time as it
relates to this subject or any other, Mr. Chairman.
Mr. Mica. Thank you.
[The prepared statement of Mr. Ramirez follows:]
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Mr. Mica. Your testimony stated that the only organization
that has criticized the Community Builders is the OIG. I would
imagine that Ms. Federoff represents--who is representative our
civil servants, maybe AFGE has a different opinion. I think she
stated some of that here.
There was concern about the selection process. There is
concern when you have someone with no supervisory
responsibility, limited duties as far as oversight of financial
obligations and things of that sort, major consequences being
at a substantially different pay grade. That sounds
inequitable. So, I think other than the OIG, and I did cite the
U.S. Senate, I guess that could be referred to as an
organization, although sometimes it is a bit disorganized, has
been very critical.
Ms. Federoff, we are now sort of institutionalizing the
Community Builders. If we were to properly do that in your
estimation, how would we proceed?
Ms. Federoff. Well, I believe that, in fact, there is a
role to play by Community Builders. However, I think it would
be a smaller cadre of staff that would be more appropriately
graded to reflect the duties that they are doing and put them
on par with other employees within the Department.
I believe that one of the largest problems with this
program is the large numbers of temporary employees at very
high-grade levels that causes a significant morale problem.
Mr. Mica. Well, that is one of the inequities I pointed out
that you had mentioned. We have this in place--Congress wants
it changed, and I am sure that there has been some good to come
out of the program. The problem we have now is we have a lot of
these folks in high-paying positions selected on a different
basis.
Mr. Ramirez. May I address that?
Mr. Mica. In fact, I was going to ask you a question about
it.
Mr. Ramirez. Yes.
Mr. Mica. As we make this transition, how are the employees
or employees' groups going to have a say in how this is
organized? It was my understanding that OPM uses civil servants
to help in the selection process. Is that correct?
Mr. Ramirez. No. All of the hiring was done by HUD civil
servants for the external Community Builders. If I may, the
total number is almost even between career Community Builders
and fellows at this time. There are a few more fellows than
there are career.
Mr. Mica. So you are going to fire all the fellows?
Mr. Ramirez. No. What we are going to do, sir, is we are--
as term employees are subject to, and we have had other types
of term employees employed by the Department that are subject
to limited tenure--let me just state a couple of points.
First off, we went into this reform with the national
representatives as well as locals into 2020 reform, which
included Community Builders, at the onset of this. We have kept
that dialog current with our national representative and also
met with the local presidents. I was sorry to miss Ms.
Federoff.
Mr. Mica. How would you propose to bring the pay schedule
in to some----
Mr. Ramirez. I was going to get to that point. I would like
to state this for the record, that if you take the Grades 13s,
14s and 15s on the career side of Community Builders and the
fellow side, that, in fact, the career Community Builders
average more than $5,000 in their salary than the fellows, if
you take out--if you take the average of salaries between those
grades. What we are proposing to do is, again, based on the
formula for need and other activities within a jurisdiction,
allocate those fellows accordingly.
I would like to also add that we did follow the veterans'
preference in contrast to what has been stated by the OIG, and
would say that, in fact, the Neighborhood Next Door, a fellow
that was alluded to by Ms. Federoff as well as the other two
are veterans that were hired by the Department. So there have
been a lot of items that have been stated that have not been
thoroughly reviewed or investigated or have not had the kind of
objectivity that we would like to place forth as we move
forward in meeting Congress's wishes to make sure that we
address the deficiencies that we have as a department, Mr.
Chairman.
Mr. Mica. Ms. Federoff, again, back to the question of how
do we achieve some new equity as far as pay, what would be your
recommendation? We talked a little bit about positions, about
getting the pay schedule in order. How do we solve something
like that now that we have gotten ourselves into this?
Ms. Federoff. This is a very uncomfortable position for a
union representative to be in.
Mr. Mica. Well, you know, the Federal employees have a lot
at stake. There are 90 percent of your folks that are living by
a different set of rules and regulations. Congress----
Mr. Ramirez. That is not so, sir. They were all hired under
the same standards that are applied to higher public trust
officers and by civil servants. They were the same rules and
same regulations, and the compensation that they received was
based on the analysis that the Federal Government provides to
hire new outside hires into the Federal Government as well as
position descriptions and responsibilities that they assume.
Mr. Mica. Well, Ms. Federoff doesn't seem to agree entirely
with that. Maybe you would like to comment.
Ms. Federoff. Well, it is interesting that in the Inspector
General's report the Inspector General does quote, I believe,
yourself as saying that much of the work being done by
Community Builders now is work that had been done for at least
6 years previously by our CPD staff. The journey level for our
CPD staff is a Grade 125.
Now, what is particularly infuriating for our staff is that
the very best work, quite frankly the ``funnest'' work that we
do, which is customer relations, was taken away from us, and we
were told, no, now all you are going to do is be enforcers. I
didn't come to work for the United States in order to be an
enforcer. I came to work with customers, to find a way to get
them the product that they deserve. And now to be told that the
very best work I do will be given to another employee at a
Grade 13, 14, 15, and I will be relegated to doing nothing but
enforcement actions is--quite frankly, insulting.
Mr. Mica. She is not a happy camper.
I do want to give the gentleman a chance.
Mr. Ramirez. Real quickly. She sells herself short to say
she would be just a regulator. She brings a technical expertise
and the program experience that is necessary to deliver that
product.
And I would like to say two more things real quickly. First
off, all HUD employees had an opportunity to apply for
Community Builder positions. No one was excluded. So if they
chose to want to do that, they could have applied for those
positions.
Second, I will note that even after the first year of
implementation, that as a result of having our public trust
officers concentrate 100 percent of their efforts to, yes,
compliance and monitoring, which is a statutory requirement, as
well as facilitating program expertise, that in particular
those activities that community development workers or staffers
were doing, we have actually increased our numbers. We have
been able to show that in our Home Household Program, for
example, we went from, in 1998 where we serviced 75,323 homes
to, in 1999, 90,958. We also went out there and increased, in
this particular line of work, new community partnerships. We
went from a goal of 300 to 609 that were created as a result of
that. We believe that in addition to that, community
consultations were almost doubled as a result of now having a
true bifurcation of responsibilities that allows for the
technical expertise, the compliance and monitoring effort be
focused 100 percent, and the Community Builders be the contact
for the general information-gathering and dissemination of what
the Department does.
I would like to finish by saying that as a mayor for over 8
years, one of the most difficult things I had to contend with,
as mayor in dealing with HUD, was that I had a community
development representative come in 1 week, an FHA
representative coming the following week, and intermittently
nobody knew that each other was down there, and I needed both
of those to make projects work in a comprehensive way. That is
what we are trying to get to with this particular program of
Community Builders.
Mr. Mica. Thank you.
I will yield to Mr. Tierney, the gentleman from
Massachusetts.
Mr. Tierney. Thank you, Mr. Chairman.
Mr. Beard, you have been getting off scot-free here, so I
want to talk to you for a second.
I understand what the Under Secretary is saying, and I
understand what Ms. Federoff is saying, but I guess the
question I would have is coming from Boston, where we have gone
from an office of about 322 employes down to about 237, that is
about a 26 percent whack there, at a time when Congress is
mandating certain programs to be operated and adding some, such
as the McKinney program, what does your office say about the
appropriateness of instituting a new public relations type of
effort, one, I think, that we are going to have trouble
servicing the mandates that Congress has put on for programs?
Mr. Beard. This is the point that we are making. HUD's
resources are shrinking. The Inspector General has consistently
taken the position that HUD does not have sufficient people to
do the work outlined for it to do now, and as this number is
shrinking, what has happened is HUD has taken a large chunk of
people away from what its primary functions are to do this
customer service, public relations function.
This is one of the points that we are making. It can't
afford to do this, because it is being asked to do so much
more. It has so many more programs. Its monitoring and
enforcement functions are extremely important, and they don't
have the resources to do that.
Mr. Tierney. Now, if we give the Under Secretary credit at
least for the fact that there is some obvious legitimacy to
having some outreach to communities and coordinating HUD's
efforts so that mayors and other local officials don't go
around, what is the recommended way of dealing with all of the
enforcement and monitoring provisions and using resources to
also take care of those issues; and is the Under Secretary's
argument that you can't do both from the same position because
it is a conflict which is going to compromise your position
relevant in your view?
Mr. Beard. It is not relevant, in my view. As a matter of
fact, the one individual that that has really settled on is the
Secretary's representative. They still play both an enforcement
and outreach function.
HUD has always had an outreach function. It has always been
there with the Secretary's representatives. It has always been
there with the office managers and State coordinators. They
have different titles, but there have always been contacts from
mayors, towns, executive directors to come to one person to ask
their questions and get the answers that they need.
So I don't think it is a function that we dismiss, it is an
important function. But our point is the scale that this
particular Community Builder position has been built to has
taken away too much from the other things that HUD is supposed
to be doing.
Mr. Tierney. Ms. Federoff, the employees, the ones that are
left with the idea of monitoring in that position, they must
now feel overwhelmed with what is left to them in terms of the
fact that they have fewer flows, particularly in the Boston
office, have all of those responsibilities, and they have
another group of about 16, I think it is, in the Boston office
come in, and their job doesn't expend any funds, they are just
out there, as you say, having the fun end of the job. I am sure
they serve a purpose, but what effect does this have on
employees?
Ms. Federoff. I know that when I was provided an
opportunity to testify before this subcommittee, I sent a
message out to our local executive board, our stewards and our
alternate stewards and asked them should I, in fact, testify,
and I got back a resounding yes, and I was told emphatically
that I was to stress the morale issue on Community Builders,
that that was our membership's top priority, although, quite
frankly, I am more exercised over contracting out. But yes, our
employees are very concerned about this program.
Mr. Tierney. Well, the contracting out issue, I guess, is
one that we are not going to get into today, although I would
love to both on the other issue and this issue. It seems to me
that is one direction where some in the majority have been
going, and I think this is just one more example of how that is
a failed policy and a bad idea. Maybe we could talk about the
IG report or the agency's plan to contract out Section 8 and
talk about how there is about $38 million missing in that
operation that we could have probably saved by keeping it in-
house and work on that basis.
So I guess I just want to go on record as saying that I
think that we should probably do a lot better in terms of
morale, we should probably do a lot better in terms of getting
this function served within our existing staff, but not at the
sacrifice to those programs that Congress has mandated.
Mr. Ramirez. May I address that? In our reorganization
efforts, there have been a little less of an equal amount of
public trust positions that were created and have been
available to other employees, or all employees of HUD to
actually apply for and still dedicate themselves to doing
public trust work. It is not like we went out and only hired
Community Builders. In this process we staffed up an
enforcement center and a real estate assessment center that, by
the way, for the first time has inspected our entire portfolio
for physical and financial conditions.
And let me just state for the record that the downsizing of
the Boston office was primarily due to the fact that we
consolidated our underwriting activities into four centers
around the country in our single-family operation, and as a
result of that, we have now been able to show with unequivocal
results that we went from 1,000,080 endorsements last year to
over 1,291,000 endorsements.
All we have tried to do here in this reorganization and in
the reform that was as a result of Congress coming out there
and pointing out real weaknesses that we have had for over 10
years, since Ms. Federoff has been there, is that we are trying
to address them in a real, bold, innovative and responsible
way. We think we have been able to balance it. We think we have
strengthened our public trust role. The numbers reflect it
through the results of our business and operating plan, and the
Community Builders are out there facilitating programs to
underserved areas and touching communities that have not been
touched in the past. We look forward, though, to working to
further refine, strengthen, and move into the direction that
Congress has so instructed us.
Mr. Tierney. I appreciate your comments, but I just as
strongly want to urge you back that I think you can do better.
Mr. Ramirez. Absolutely.
Mr. Tierney. I am not nearly as sold on the success of this
program as you are, and I think that in Boston alone, although
you consolidated everything down to Hartford or whatever, you
took those 90 positions away from Boston and filled them with
16 PR people, in my view that are not implementing programs,
and I don't think that is such a hot break for the Boston and
greater Boston area. So if you could take that message back to
Mr. Cuomo, maybe we can do better.
Mr. Ramirez. I would be glad to, sir.
Mr. Beard. Mr. Chairman, could I be allowed to just mention
the irregularities in hiring?
Mr. Mica. Go right ahead, on Mr. Tierney's time.
Mr. Beard. Page 143 of the report, I would like to draw
your attention to a letter written by the Deputy Director of
the Office of Human Resources in which she informs a 10-point
disabled veteran that the selecting official at HUD was free to
select any 3 of the 41 candidates listed for the Fort Worth
job, and that is precisely how HUD approached hiring people.
They selected anybody they wanted to off of any list they were
dealing with.
In our letter to Janice Lachance, the Director of OPM, this
is what we listed that she should be looking into in terms of
Schedule A and both hiring irregularities: HUD did not
establish that it was facing a limited pool of applicants; it
did not set up a plan for cross-fertilization to occur;
intended the individuals hired with occupied policy-determined
positions; conducted full examinations of the applicants when
Schedule A anticipates examinations would be impractical;
failed to establish the need for 460 temporary employees;
advertised using a GS-13, 14, 15 career ladder; failed to
determine needed skills; failed to determine needed grade
levels; failed to mention veterans' preference in the
advertisement; prepared one best qualified list for all
applicants rather than three separate lists for each level
advertised; failed to document or show how they determined a
successful applicant's grade level; hired at grade levels
higher than the Department's norm; hired Schedule A employees
to perform functions previously performed by career staff
without the required approval from OPM; ignored veterans'
preference in the selection process; and ignored the prescribed
selection process set forth in 5(c)FR302, which is essentially
rule of 3.
Mr. Ramirez. Let me just comment on that. Before we moved
on with our Schedule A authority as allowed by law, we had our
human resource department craft it out. We had OPM's input in
implementing the Schedule A, and I would like to note for the
record that a current Assistant Counsel for the Office of the
Inspector General, Mr. Anthony De Marco, was the one who
crafted and signed off on the legal analysis on the Schedule A
hiring authority and its appropriateness as it relates
specifically to the external Community Builders.
Mr. Mica. Well, we seem to have some serious internal
problems in the agency, making certain that the intent of
Congress and also the law on regulations as we would like to
see them fulfilled are, in fact, executed. I am very concerned
about the veterans' preference matter. I worked for 4 years to
try to make certain that our veterans have preference and are
considered as having served in Federal employment, and we want
them to have that recognition and consideration in the Federal
jobs opportunities. So I am not a happy camper about that at
all.
Mr. Tierney has expressed some of his concern. We want this
to work. Certainly the agency has to resolve these things.
Mr. Ramirez. Let me just say that, again, we are of the
opinion and do have the legal analysis and the record shows if
someone would look at the process of how it was employed, and
it is being looked at, veterans were hired, Mr. Chairman.
Mr. Mica. Again, there is something wrong, whether it was
the previous panel or the IG's office, one arm of the IG's
office doesn't know what the other end of the Department is
doing; whether it is somebody checks off in your agency, it is
still not as we intended it.
We also have contracted out, and it has been part of the
new majority's intent, even the administration, the Vice
President, what is it, reinventing government, wants to
contract some of these things out. It wasn't our intent to
contract out work to convicted felons with bankruptcy
histories. Something has gone askew in the process. So whether
it is with the previous panel or this panel, we want this thing
to work right.
I have some serious questions about home builders--I am
sorry, Community Builders and HUD. Mr. Apgar works for you?
Mr. Ramirez. Yes.
Mr. Mica. He sent out a memo, and it is my understanding
Community Builders are supposed to work with tenants and with
individuals, whoever needs information. He sent out a memo on
September 10th. We have a copy that says it has come to our
attention that in their effort to provide responsive customer
service, Community Builders in certain areas have
misrepresented or overstepped their role in dealing with HUD's
identified troubled family projects. He goes on to say, at no
time is it proper for the Community Builder to schedule
meetings, respond to or initiate contacts directly with an
owner, owner's representative, owner's agent, the media,
tenants, Members of Congress, or their staffs regarding a
troubled multifamily project without the explicit prior
agreement of the Director of the Multifamily Hub/Program Center
and, where DEC is involved--I can read the rest of this memo,
and we will make it a part of the record.
[The information referred to follows:]
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Mr. Mica. But, you know, they have certain responsibilities
to work with everyone. Here we have memos being sent out----
Mr. Ramirez. And I know you don't--and I am glad you are
including the entire memo for the record, sir. But it also
states that this is in regards to multifamily projects that are
currently----
Mr. Mica. Right, current troubled multifamily projects.
Mr. Ramirez. That are currently being investigated by the
Enforcement Center. Once it is in the Enforcement Center's
hands, we are coordinating the troubled projects directly with
the program manager for the site, as well as--and that is--that
was the spirit of that memo as it was sent out, and I regret
that Assistant Secretary Apgar is not here, but it was in
direct response to projects that were being referred to the
Enforcement Center, of which we have 500 nationwide right now.
Mr. Mica. Well, I have additional questions regarding this
memo, other specific problems that have been brought to the
attention of the subcommittee. Without objection, we will leave
the record open for at least 3 weeks.
We will not have any further questions at this time.
Unfortunately, we do have a vote pending, and it will be some
time before we get back. So we will dismiss this panel and
thank you for your cooperation.
There being no further business to come before the
subcommittee at this time, this meeting is adjourned.
[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
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