[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



          HUD OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                 of the

                        COMMITTEE ON GOVERNMENT
                          REFORM AND OVERSIGHT
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 27, 1997

                               __________

                            Serial No. 105-8

                               __________

Printed for the use of the Committee on Government Reform and Oversight

39-819              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1997

____________________________________________________________________________
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              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois          TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland       ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
STEVEN H. SCHIFF, New Mexico         EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida         GARY A. CONDIT, California
JOHN M. McHUGH, New York             CAROLYN B. MALONEY, New York
STEPHEN HORN, California             THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia                DC
DAVID M. McINTOSH, Indiana           CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana              TIM HOLDEN, Pennsylvania
JOE SCARBOROUGH, Florida             ELIJAH E. CUMMINGS, Maryland
JOHN SHADEGG, Arizona                DENNIS KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio           ROD R. BLAGOJEVICH, Illinois
MARSHALL ``MARK'' SANFORD, South     DANNY K. DAVIS, Illinois
    Carolina                         JOHN F. TIERNEY, Massachusetts
JOHN E. SUNUNU, New Hampshire        JIM TURNER, Texas
PETE SESSIONS, Texas                 THOMAS H. ALLEN, Maine
MIKE PAPPAS, New Jersey                          ------
VINCE SNOWBARGER, Kansas             BERNARD SANDERS, Vermont 
BOB BARR, Georgia                        (Independent)
------ ------
                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                       Judith McCoy, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

                    Subcommittee on Human Resources

                CHRISTOPHER SHAYS, Connecticut, Chairman
VINCE SNOWBARGER, Kansas             EDOLPHUS TOWNS, New York
BENJAMIN A. GILMAN, New York         DENNIS KUCINICH, Ohio
DAVID M. McINTOSH, Indiana           THOMAS H. ALLEN, Maine
MARK E. SOUDER, Indiana              TOM LANTOS, California
MIKE PAPPAS, New Jersey              BERNARD SANDERS, Vermont (Ind.)
STEVEN SCHIFF, New Mexico            THOMAS M. BARRETT, Wisconsin

                               Ex Officio

DAN BURTON, Indiana,                 HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
            Christopher J. Allred, Professional Staff Member
                       R. Jared Carpenter, Clerk
              Ronald Stroman, Minority Professional Staff


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 27, 1997................................     1
Statement of:
    Cuomo, Andrew, Secretary, Department of Housing and Urban 
      Development, accompanied by Paul Leonard, Assistant 
      Secretary for Policy Development & Research; Stephanie 
      Smith, Deputy Assistant Secretary, Housing; and Michael 
      Stegman, Deputy Assistant Secretary for Policy Development.    15
Letters, statements, etc., submitted for the record by:
    Cuomo, Andrew, Secretary, Department of Housing and Urban 
      Development:
        Information concerning community development block grants    46
        Prepared statement of....................................    20
    Gilman, Hon. Benjamin, a Representative in Congress from the 
      State of New York, prepared statement of...................     9
    Pappas, Hon. Michael, a Representative in Congress from the 
      State of New Jersey, prepared statement of.................    14
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............     2
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................     4

 
          HUD OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE

                              ----------                              


                      THURSDAY, FEBRUARY 27, 1997

                  House of Representatives,
                   Subcommittee on Human Resources,
              Committee on Government Reform and Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11:10 a.m., in 
room 2247, Rayburn House Office Building, Hon. Christopher 
Shays (chairman of the subcommittee) presiding.
    Present: Representatives Shays, Snowbarger, Gilman, Pappas, 
Towns, Kucinich, and Allen.
    Staff present: Lawrence J. Halloran, staff director and 
counsel; Christopher J. Allred, professional staff member; R. 
Jared Carpenter, clerk; Ronald Stroman, minority professional 
staff; and Ellen Rayner, minority chief clerk.
    Mr. Shays. I would like to call this hearing to order and 
to welcome our guest, our witness, the Secretary of HUD, who 
has honored us by his presence. Our goal today is constructive 
oversight. Our goal is to continue the dialog that we had with 
Secretary Cisneros in his two appearances before this 
committee.
    In the last Congress, this subcommittee examined HUD's 
takeover of the Chicago Housing Authority, waste in the public 
housing Tenant Opportunity Programs and the growing 
unsustainable cost of insured multi-family housing subsidy 
contract renewals. The question then and now is: can HUD 
overcome the internal and external obstacles to performing its 
missions? The internal challenges, acknowledged management 
weaknesses that have been a part of HUD as long as I have been 
a part of Congress and certainly are not attributed to any one 
individual, any one administration, or any one party, and the 
external challenges, the budget constraints that Congress 
imposes, as well as the White House, on the operations of HUD 
and the huge cost of past subsidy commitments on multi-family 
projects.
    This subcommittee looks forward to hearing from Secretary 
Cuomo, to hearing Secretary Cuomo's plans for HUD to meet these 
challenges and commit continued constructive oversight to help 
the people of HUD meet its mission and do an even better job.
    At this time, I would like to acknowledge and ask if my co-
friend and co-worker in this effort, Mr. Towns, if he would 
like the floor.
    [The prepared statement of Hon. Christopher Shays follows:]

    [GRAPHIC] [TIFF OMITTED] T9819.001
    
   Mr. Towns. Thank you very much, Mr. Chairman, because the 
Secretary of HUD is a New Yorker. That is the reason I was here 
so early. I was delighted to see him.
    Mr. Chairman, I am pleased to join you today in welcoming 
Secretary Cuomo to this subcommittee. I also want to commend my 
fellow New Yorker for his sterling record of public service, 
first, as an advocate for the homeless and then as HUD 
Assistant Secretary for Community Planning and Development, 
where he did a magnificent job.
    Mr. Chairman, throughout his public career, Secretary Cuomo 
has demonstrated innovation, insight, leadership, and 
sensitivity to the community as well. I am confident that as 
HUD's Secretary he will bring the same level of achievement and 
dedication to the entire range of HUD programs.
    Secretary Cuomo faces many difficult challenges at HUD. One 
of the most important will be what to do about the expiring 
Section 8 contracts. As the Secretary is well aware, 3 million 
Section 8 contracts supporting more than 6 million people will 
expire over the next 5 years. It will be necessary for Congress 
and the administration to work in a bipartisan fashion, and I 
stress bipartisan fashion, to make sure that HUD has sufficient 
budget authority to renew the expiring Section 8 contracts. 
Failure to renew those contracts would hasten the loss of 
affordable housing, devastate neighborhoods, and increase 
homelessness.
    I am also concerned about certain provisions of H.R. 2 
introduced by Congressman Lazio. The bill includes a section 
which would repeal income base rent in housing developments. 
Such a repeal would lead to rent increases for public housing 
tenants and further segregation of the poor. Public housing 
authorities might direct families choosing the pay income base 
rent to those properties where the authority would lose the 
least money, while those families who agree to pay flat rent 
would be steered to better properties. And that concerns me. It 
would be essential in any reform of such public housing that we 
keep income base rent capped at 30 percent.
    Finally, Mr. Chairman, the General Accounting Office and 
the Inspector General at HUD have consistently discussed with 
us the continuing management problems at HUD. These are 
difficult problems which will require thoughtful solutions. I 
look forward to working on them with the Secretary, knowing 
that he has the ability to provide the kind of leadership that 
is really needed during these difficult days. I yield back.
    [The prepared statement of Hon. Edolphus Towns follows:]

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    Mr. Shays. I thank the gentleman. I agree with his 
statement.
    At this time, I would like to invite the vice chairman of 
this subcommittee, Mr. Snowbarger, from Indiana, if he has a 
statement or comments.
    Mr. Snowbarger. From Kansas, Mr. Chairman.
    Mr. Shays. I am sorry.
    Mr. Snowbarger. The note is incorrect and I noticed that.
    I would like to welcome the Secretary and say to you that I 
am as new to this process as you are, but I hope you know more 
about this issue than I do. I am looking forward to your 
comments today, looking forward to establishing a long term 
relationship between you and this committee so that we can 
address the housing needs of those in the United States.
    Thank you, Mr. Chairman.
    Mr. Shays. Thank you. And I am sorry. Wrong State. 
[Laughter.]
    Mr. Snowbarger. Oh.
    Mr. Shays. Listen. It is a great State. He is the vice 
chairman.
    Mr. Pappas, from New Jersey.
    Mr. Gilman.
    Mr. Gilman. Thank you, Chairman Shays, and I thank you for 
the opportunity----
    Mr. Shays. I need to comment. This is the first time we 
have had Mr. Gilman in this committee, so you have brought out 
the best.
    Secretary Cuomo. Best in New York, anyway, Mr. Chairman.
    Mr. Gilman. I had to be here for a fellow New Yorker.
    Mr. Chairman, I am pleased that we are holding today's 
hearing in light of GAO's citing of HUD as a high-risk agency, 
and I look forward to hearing from our newly appointed HUD 
Secretary, Andrew Cuomo, who I want to personally congratulate.
    Secretary Cuomo. Thank you.
    Mr. Gilman. And wish him well in his new endeavors. We want 
to know how he plans to address GAO's concerns. As the agency 
responsible for our Nation's housing and community development 
programs, it is imperative that HUD identify the problems that 
it currently faces and develop a plan to seriously address 
those issues. I am certain our new Secretary has some ideas of 
his own. The mission of providing adequate housing for low-
income families in our communities is extremely important and 
one that should not be jeopardized by any mismanagement. I 
have, throughout my tenure in Congress, fought hard for 
affordable housing programs for low- and middle-income 
Americans. In fact, during the past two Congresses, I 
introduced legislation which was approved by the House and 
later stalled in the Senate to remove Rockland County's median 
income level from the New York Primary Metropolitan Statistical 
Area, the PMSA, and we look forward to working with you on that 
problem.
    Currently, as you know, this New York Statistical Area 
includes all of New York City and grossly misrepresents 
adjoining counties median income. In fact, currently, Rockland 
County's median income for a family of four is reported by HUD 
as $40,500 when, actually, the median income level should be 
$60,479 as reported in the 1990 census, a difference of some 
$20,000. Accordingly, many hard working families who cannot 
afford a piece of the American dream are considered by HUD to 
be making more than is necessary to purchase a home and, 
therefore, are not eligible for affordable housing assistance. 
By removing Rockland County from the current PMSA, these 
families will be eligible for Federal and State affordable 
housing programs, something that many of us would like to see 
come about. So I look forward to working with Secretary Cuomo 
and with this committee in resolving problems such as the one I 
mentioned. I am confident that by working together with the 
Congress, HUD can once again successfully provide the kind of 
needed housing in our communities. And I want to thank Chairman 
Shays for holding this meeting once again. Thank you.
    [The prepared statement of Hon. Benjamin Gilman follows:]

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    Mr. Shays. Mr. Gilman, it is really terrific to have you 
here because you are extraordinarily busy and you have pointed 
out, again, to the new Members that no Member is too senior to 
plug for a local project. [Laughter.]
    Mr. Gilman. Especially housing.
    Mr. Shays. At this time, I would like to call the gentleman 
from Ohio, Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman, members of 
the committee, Mr. Secretary. As a former councilman and clerk 
of courts and mayor of the city of Cleveland, I have had 
opportunities to be very much involved with HUD policies over 
the years and I am glad to see that the Secretary is now in a 
position where he can work with Congress to help construct an 
urban policy. Because I think one of the things that we have 
really lacked over the last few decades without in any way 
diminishing the contributions that have been made by past 
Secretaries is a coherent urban policy which addresses not only 
the housing needs of our various communities, but also the 
question of urban development and the choices which we should 
make to encourage urban development and to make sure that we 
have sustainable development as well.
    So your participation as the Secretary of HUD and your 
vision is going to be needed to help make the promise of HUD 
and the potential of HUD become a reality. I think every Member 
of this Congress is well familiar with the litany of problems 
which have been the result of administrative challenges that 
have not been met in HUD over the years; but you have a new 
opportunity and with it comes a chance to help revive the 
fortunes of America's cities. So I look forward to working with 
the chairman and with you and the members of this committee in 
helping to move this country forward on issues that relate to 
housing and urban development. Thank you.
    Secretary Cuomo. Thank you, sir.
    Mr. Shays. I thank the gentleman. I would like to get some 
housekeeping out of the way and ask unanimous consent that all 
members of the subcommittee be permitted to place an opening 
statement in the record and that the record remain open for 3 
days for that purpose. Without objection, so ordered.
    [The prepared statement of Hon. Michael Pappas follows:]

    [GRAPHIC] [TIFF OMITTED] T9819.009
    

    Mr. Shays. I also ask unanimous consent that our witnesses 
be permitted to include their written statements in the record. 
Without objection, so ordered.
    Mr. Secretary, before calling on you, I would like to just 
introduce some of the staff members in our committee who will 
be working with your people. We have on the minority side, 
Chanda Tuck, right here and then we also have Ron Stroman, who 
works for the full committee. And my chief counsel in this 
committee, Larry Halloran, and also Chris Allred in the back 
right here, who handles all housing issues.
    And as you know, we swear in all our witnesses, including 
Members of Congress, so I would just ask if you would stand now 
and I will swear you in.
    [Witness sworn.]
    Mr. Shays. Thank you very much. Mr. Secretary, we are 
delighted to have you here and you can summarize your 
statement, just make whatever comments you want, and then we 
will get in with the questioning.

STATEMENT OF ANDREW CUOMO, SECRETARY, DEPARTMENT OF HOUSING AND 
   URBAN DEVELOPMENT, ACCOMPANIED BY PAUL LEONARD, ASSISTANT 
 SECRETARY FOR POLICY DEVELOPMENT & RESEARCH; STEPHANIE SMITH, 
   DEPUTY ASSISTANT SECRETARY, HOUSING; AND MICHAEL STEGMAN, 
    ASSISTANT SECRETARY FOR POLICY DEVELOPMENT AND RESEARCH

    Secretary Cuomo. I will not take a lot of the committee's 
time with an opening statement, because I think in your opening 
remarks you touched on the issues that, basically, we are here 
to discuss.
    If I might, Mr. Chairman, please allow me to introduce some 
of the people who are here from HUD just so we can put some 
faces with the names.
    Mr. Shays. Terrific.
    Secretary Cuomo. We have Mike Stegman, who is the Acting 
Chief of Staff of the Department.
    Mike, if you could just signal.
    Mr. Shays. Yes, he has acknowledged himself. He has raised 
his hand. We can see him here.
    Secretary Cuomo. And Paul Leonard, who is the Deputy 
Assistant Secretary for Policy Development and Research; Hal 
DeCell, who is the Assistant Secretary for Congressional 
Affairs; Cheryl Fox, who is a special assistant to me, works on 
all the issue briefings; Stephanie Smith, who is the Deputy 
Assistant Secretary for Housing, which is an important area 
handling Section 8 issues, among others; Mark Gordon, who is a 
senior advisor to the Secretary and Jon Sheiner, who is a 
Deputy Assistant Secretary for Legislation.
    I think, gentlemen, that I take over HUD at a very 
interesting time in this country, many things going very, very 
well. President Clinton, working with Congress, has certainly 
amassed an impressive record, putting the country in the right 
direction. But that is not to say that we do not have a lot to 
do. The President is the first to say there is still a lot that 
needs to be done. In his State of the Union Address, there are 
very few of us who can go back to our homes or our districts 
and not see the challenges that face us in cities like 
Bridgeport and areas like Brooklyn right across the country. 
There are still real problems that have to be addressed, and 
that is where HUD comes in and HUD's mission as we see it.
    One of the questions posed to me was what are the main 
obstacles facing HUD. And I think they were mentioned in your 
remarks, but I would say there were two. First and foremost, in 
my opinion, is what we referred to as the Section 8 crisis, 
which is not a glamorous topic. It is not an overly appealing 
topic. It is a technical topic, but it has a potentially 
devastating impact on the Department and housing, in general.
    The second issue, as again you mentioned, is the overall 
management problems at HUD. And it is something that we are 
also making a top priority.
    If I could refer you to the charts on your left, just to 
talk quickly about this Section 8 problem. The Section 8 
crisis, as we refer to it, is the expiration of contracts that 
are coming due. These are contracts that were signed 30 years 
ago, 20 years ago, or as recently as 1 year ago. And these 
contracts are now coming up for renewal. They are expiring. The 
question is, what do we do once they come up for renewal. Very, 
very big numbers: 1.8 million units; 4.4 million Americans; 6 
million Americans by about 2002.
    You look at the impact which is all across the country 
where these Section 8 units are coming up where they are 
expiring, New York City, 111,000; Bridgeport, 3,300; Cleveland, 
21,000; San Francisco, 16,000; Indianapolis, 15,000. All big 
numbers across the country. And again, the universe is as high 
as 6 million people 2000, 2002. You cannot just afford to allow 
the contracts to expire and lose the units to the inventory. 
The numbers are big on the people who inhabit the units. They 
are also big on the cost of renewals. The cost to renew the 
contracts that are coming due, it is just about $10 billion, a 
little less, about $10 billion. How much is $10 billion? It is 
about half of HUD's entire budget this year, just from the cost 
of renewal.
    Now, this is a problem that we have talked about for a long 
time, but, as it is thorny, no one has really wanted to grapple 
with it. So the numbers and the impact are devastating. What 
would happen to the people who are displaced if we allowed 
ourselves to lose these units? I do not think it is overly 
dramatic to say you could have massive homelessness in the 
Nation, which then triggers another problem as this committee 
knows.
    So the first question we pose to the committee is, renew or 
not renew. That is the question, to paraphrase. The second 
question is, if you choose to renew, if you say we cannot lose 
these units, we cannot have 4 million Americans homeless, we 
have to renew the contracts, the question becomes, where does 
the funding come from to renew the contracts?
    This year, the 1998 budget which we are here to discuss, 
requires $5.6 billion in new budget authority to renew the 
contracts. Where do you get the $5.6 billion?
    One theory would say, we will take it from the existing HUD 
budget. ``If you want to renew the contracts, HUD, God bless 
you. Take it from your budget.''
    To take $5.6 billion out of the HUD budget, you would 
basically have to cut everything else 35 percent across the 
board--public housing moneys would have to be cut $1.9 billion; 
the CDBG program, total program $4.6 billion, one of the 
strongest HUD programs, would have to be cut $1.6 billion. The 
HOME program which is a model of a block grant affordable 
housing program would have to be cut by $549 million. The 
homeless assistance would have to be cut by $288. Housing for 
people with AIDS would have to be cut $71 million.
    In our opinion, if you tried to take the $5.6, the $5.6 
billion necessary to renew the contracts, if you tried to take 
that from the rest of the HUD budget, it would be a cut-and-
shift-the-burden strategy which would be counter productive. It 
is robbing Peter to pay Paul. You would be trying to help 
communities on one hand and hurting them with the other. These, 
35 percent of the HUD budget being cut, would have a truly 
disastrous impact on the communities that have been working 
long and hard to come back.
    What is our solution to the problem? Twofold. First, we 
say, the $5.6 billion in new budget authority should not be 
taken from the HUD budget, but should be additional BA added to 
the HUD budget. The President's budget for 1998 does that. The 
HUD budget goes up 30 percent. The 30 percent increase is just 
to take care of this renewal crisis.
    At the same time, we say it is not enough just to say new 
money to cover it, how can we reduce the cost of these 
contracts and the Section 8 program overall? So we have also 
come up with $2.4 billion in savings. So that our solution, the 
way we propose we address this crisis is twofold: $5.6 billion 
in new budget authority and $2.4 billion in savings from 
reforms.
    What is in that $2.4 billion? There are a number of 
savings, the most notable of which is what we call the ``Mark-
to-Market'' proposal, the so-called portfolio re-engineering 
proposal which would save about half of that $2.4, about $1.2 
billion. It is a proposal we have discussed for a couple of 
years. And what that says is this. Of the expiring Section 8's 
there is a segment of that portfolio which the FHA has insured 
and we subsidize with Section 8 certificates and vouchers. The 
cost on some of those units are currently in excess of the fair 
market rents. In other words, the taxpayers subsidize apartment 
rents subsidies to the tune of 150, 160, sometimes 200 percent 
of fair market rent to landlords. So the American taxpayer pays 
twice what the same unit could be worth just down the block. We 
think that is unconscionable. We think it is intolerable. 
Something has to be done about it. We say, ``Mark-to-Market,'' 
which would say, ``Reduce the FHA mortgage on the property 
which would then allow you to reduce the Section 8 rents which 
that project requires to be liquid down to fair market rent.'' 
Reduce that 200 percent, 160 percent, get it down in keeping 
with what you have to pay. That, in a nutshell, is the Mark-to-
Market proposal. You have to go project by project, reduce the 
FHA mortgage and now you can reduce the Section 8 rent. We need 
legislative authority to do it, but it would bring us a very 
large savings, $1.2 billion, which would help us solve the 
overall problem. More importantly, I think, as a matter of 
fairness, as a matter of equity in these times where we are all 
very concerned about balanced budgets and fiscal austerity and 
government departments are downsizing and working very hard to 
be efficient and intelligent about it, you cannot justify 
paying a private landlord twice what the going rent is for an 
apartment in light of everything else that is going on and how 
precious these resources really are. That is the Section 8 
crisis. This year, 4.4 million Americans are affected.
    The second challenge to HUD is, as you said, the overall 
management reforms and I see the lights are going off. Let me 
sum up----
    Mr. Shays. Do not worry about the lights. That is not a 
problem.
    Secretary Cuomo. OK. On the management reform side, as the 
committee has pointed out, these are problems that have plagued 
HUD for a long time. The GAO gives HUD the unique distinction 
of being the only department that is, ``a high risk'' 
department. Some of the reasons for that are historical. The 
high risk designation is, in part, because of the so-called HUD 
scandals in the 1980's and that is one of the things that got 
us that designation and one of the things that continues to 
give us that designation. But there is no doubt that as HUD has 
made progress and Secretary Henry Cisneros did amazing things 
on the management side as GAO will point out, there is still a 
long way to go on the management side. That is going to be a 
top, top priority for me. The two priorities for my tenure at 
this point will be the Section 8 crisis and improving the 
management of HUD, earning the public trust, right across the 
board, from both clients--be they private landlords, be they 
public housing authorities, be they the residents of public 
housing, demanding more responsibility, ``one-strike-and-
you're-out'' policies on criminal behavior and drug behavior. 
Demand responsibility from our clients, also demand 
responsibility and managerial efficiency and intelligence from 
ourselves. Begin cleaning up by cleaning up your own house and 
that is what we want to do at HUD. We have already made strides 
in that area in just the first few weeks. We have mapped out a 
plan we think that will show real management change in about 18 
months, and we are going to pursue that aggressively. So the 
reforms on the management side at HUD, I share this committee's 
concern. I know they are long standing. I know we have made 
progress, but I know that we have a long way to go.
    Before I was Secretary, I was Assistant Secretary in 
Community Planning and Development. During those 4 years, the 
CPD, as they call it, staff was reduced by 25 percent and at 
the same time, we actually administered more resources. 
Literally did more with less, consolidated applications, 
consolidated reports. We even won an award from Harvard for the 
consolidation efforts that we did. So that doing more with 
less, the consolidation, streamlining, getting the funding, 
getting the authority back to communities that we did at CPD 
for the past 4 years, is what we are looking forward to 
continuing doing with the entire department.
    I also know from my past 4 years as Assistant Secretary 
that nothing happens unless it happens together. That as hard 
as we work at the Department, unless we are doing it in 
partnership with Congress, we will not be successful. And in 
that mode, I come to this committee and I say I am looking 
forward to a productive rela-
tionship, a close relationship, a synergistic relationship that 
helps us both do what we want to do. And I think we can and I 
am looking forward to the opportunity and I am looking forward 
to beginning today. Thank you.
    [The prepared statement of Secretary Cuomo follows:]

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    Mr. Shays. Thank you, Mr. Secretary, that was very helpful. 
What we are going to do is I am going to recognize Mr. Towns 
first. We may have a vote and I may leave before they even call 
the vote or as soon as they call it, and then I will come back 
and be able to ask some questions. But I think what we will do 
is we will start with Mr. Towns.
    We are going to keep the 5-minute rules, given that we have 
a number of Members, and then we are going to do another round 
where we might take 10 minutes per Member just so that we can 
have a first round. So Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    And let me begin by saying, Mr. Secretary, I am elated to 
have you to come before the committee, look forward to working 
with you. I know of the outstanding job that you have done up 
to this point. And the first question is the Genesis Project, 
which I took the budget chair--Mr. Kasich, who visited the 
district, and, when you take people to your district, you know, 
you want to show them the best. So I took him to the Genesis 
Project to show him in terms of what was going on there and how 
things could be done. This project, of course, is in my 
district and provides housing for 150 families, as well as a 
wide range of other services as you know, that are there to 
support these families, is a wonderful organization. And I 
wonder if you have any intentions of funding organizations like 
Genesis on a national level, because it seems to me that is a 
way that we will be able to provide adequate housing and at the 
same time, the housing will be protected. Because, as you know, 
during the old days--and I say ``the old days,'' we would build 
something and they would tear it down and, of course, we would 
have to come back and build it all over again. But this is 
something that really works. So I would like to get your views 
on whether you plan to take this nationally?
    Secretary Cuomo. Congressman, that is an interesting 
question and a helpful starting-off point. I think before I 
answer the question, just as a matter of full disclosure, I 
would ask who the management of the Genesis Project was and who 
did that project in your district?
    Mr. Towns. Well, I must admit it was Secretary Andrew 
Cuomo.
    Secretary Cuomo. Oh, well. [Laughter.]
    Well, I think it is a great project. And I think it has a 
lot to do with the leadership of the organization. I was 
actually with Chairman Kasich the other day and he reminded me 
of that visit which was back, I guess, in like 1988 now. And he 
remembered the project. This is in Bedford-Stuyvesant, 
Schnediker and Hinsdale, in the Congressman's district, and he 
had a tour and Congressman Kasich had come out and I had led 
the tour and we discussed the concept at that time. The concept 
was unique. This was transitional, quote/unquote, housing at a 
time before we really knew about transitional housing. And it 
started to make the breakthrough that said, ``Look. You have to 
do the housing as the foundation, as the starting point.'' 
Everybody needs the housing just to have the security, but then 
you have to build from there. And the housing alone is often 
not enough to help the individual and often not enough to help 
the community.
    Comprehensive approaches, be they on the community 
development side or on the individual development side, 
specifically in a homeless-related context, often are the most 
appropriate path to follow. Genesis did that in Brooklyn. It 
has been open just about 10 years, now, actually, Congressman, 
since we first started that. And I am pleased to be able to say 
that in my opinion, and, again, I gave you the disclosure, but 
that it is working as well today as it did 10 years ago. And if 
you go to the people and the neighbors in the community, they 
will tell you that.
    So that kind of approach that says comprehensive solutions, 
give people housing, but also give them the services and the 
tools they need to do for themselves and move on, Genesis is 
transitional. You do not come and live there forever. You come, 
you get the services, you get the help you need and then you 
move on to independence. Independence is the goal. Right? 
Independence is the goal of all these government programs. The 
goal of the government program is to end the reliance on the 
government program. The goal of the government program is to 
end the need for the program, to almost self-terminate. And 
that is what Genesis is doing. Not for profits. Comprehensive. 
In partnership with communities. I think that is the way to go.
    Mr. Towns. Right. I will tell you, it is working. No 
question about it. In more ways than I think one would realize 
in terms of the service that it provides to the community, 
community meetings and being involved in community activities, 
and to see tenants suddenly recognize the importance of being 
involved in the community. I want to extend the invitation to 
the chairman. My good friend Mr. Kasich has already seen it, so 
I want to take the chairman there to see it because I am hoping 
that, as we get people to see it and they know what is going 
on, that we can buildup some support here. In fact, I may 
invite the entire committee after we take the chairman out. You 
know, that is how excited I am about it.
    But let me just move along to one other question in terms 
of the legislation that has been put forth by Congressman 
Lazio, which is referred to as H.R. 2, the Housing Opportunity 
and Responsibility Act of 1997. The bill contains a provision 
to repeal the income-based renting public housing or what is 
really known as the Brook amendment.
    This caused a tremendous uproar among public housing 
residents in the last term. Let me add that I opposed this 
provision. I want to go on record right now indicating that. 
How can we balance HUD's need to decrease its rental subsidies 
with the need to maintain affordable low and moderate income 
housing? How can we work out a balance?
    Mr. Shays. If we could have a relatively, maybe a first 
pass at that answer, because the gentleman's time is up and I 
am going to really try to respect----
    Mr. Towns. I want to respect--I will even withdraw the 
question.
    Mr. Shays. Why do we not withdraw it now and then we will 
do it.
    Mr. Towns. I will withdraw it.
    Mr. Shays. And you will get to repeat it twice that you are 
against the bill.
    Mr. Towns. I want to cooperate because I want to get you to 
Brooklyn. I withdraw it.
    Mr. Shays. You can ask the question a second time and 
emphasize that you oppose the bill a second time.
    Mr. Snowbarger.
    Mr. Snowbarger. Well, if Mr. Towns would allow, I would be 
happy to have the question answered in my timeframe.
    Mr. Shays. If it is a question you want to ask.
    Mr. Snowbarger. Go ahead and answer the question, yes.
    Mr. Towns. I would like to thank the gentleman. Thank you.
    Mr. Shays. Let me try to be economical with the time.
    Secretary Cuomo. I do not think there is a short answer, 
Congressman. I think before we look to get the shortfall from 
the tenant who can least afford it by raising their rent, we 
should look to, again, our own house. How can HUD do more with 
less? How can the local public housing authority do more with 
less? How can we get working families into that public housing 
who then can pay more because the 30 percent is a larger number 
because they are working and they have higher incomes. Use that 
mechanism to make up some of the short fall. But I think the 
last place to go is to a tenant who is barely making it and 
say, ``You have to pay more than the 30 percent Brook 
guarantee.''
    Mr. Snowbarger. Let me followup on a couple of things you 
mentioned during your statements and in answer to the question 
first. Explain to me, you are dealing with a freshman here, why 
are we subsidizing up to 200 percent of these rents to 
landlords? How did that come about?
    Secretary Cuomo. Congressman, first, you have to appreciate 
you are dealing with a freshman, also, but I had the same--I 
had the same question when I walked in.
    Mr. Snowbarger. Like I said, I hope you have more answers 
than I have questions.
    Secretary Cuomo. Yes. What happened on the Section 8 
contracts, remember that many of these contracts were signed 30 
years ago, 20 years ago, they came up with certain assumptions 
and one of the assumptions was we, government, will sign the 
contract 20 years ago and we will pay escalators, adjustments 
to the rent over a period of years. And we signed that 20 years 
ago.
    As it worked out for many of these contracts, those 
escalators have now brought the subsidies to a point where they 
exceed the subsidies which are in the neighborhood fair market 
rents in the neighborhood. We have been contractually bound in 
many cases to be paying these.
    The contracts expire. That is good news and bad news. The 
bad news is now we have 4 million people, 6 million people in 
2002, that we have to figure out how to house. It is an 
expensive problem. That is the bad news. The good news is the 
contract expired, you can do something different. You are no 
longer bound to pay 200 percent. You are no longer bound to use 
the same buildings if you do not want to. You are no longer 
bound to say 100 percent of the people in this building, all 
poor people, 100 percent every unit. You do not have to do 
that. You can say, we are going to go to mixed income in 
buildings because that is smarter. You can say, now, we are 
going to use a Section 8 voucher, not just to pay a landlord's 
mortgage, but to allow a person to go buy their own home with a 
Section 8 voucher. So the contract expired. You now can do all 
sorts of creative things. You can repair the mistakes that you 
made in that first contract signing, because you have learned a 
heck of a lot over 20 or 30 years.
    And first and foremost, you do not have to pay 200 percent 
for a unit that you can rent in the marketplace down the block 
for half the price.
    Mr. Snowbarger. Can you describe those escalators for me? 
Apparently, it was not done just based on a CPI or something of 
that nature. Was there a percentage increase guaranteed every 
year?
    Secretary Cuomo. I have a team of people----
    Mr. Snowbarger. The staff is looking at each other and they 
cannot figure it out. So I may be asking the wrong----
    Secretary Cuomo. I can get you more specific information 
because, Congressman, we have a number of programs that were 
signed at different times all with slightly different deals at 
whatever time they were doing it. Remember, these contracts, 
some were signed in the Sixties, some in the Seventies, some in 
the Eighties. Some are very recent roll-overs. But 
interestingly, the past couple of years, we have been trying to 
get legislation to do something about this. When we do not get 
the legislation, and we have been unsuccessful, there has not 
been a housing authorization bill in 6 years, the result of 
doing nothing is continuing the status quo where even if the 
contract has been expired, we have been renewing them at the 
excessive rents, rolling them over, if you will, at the 
excessive rents because we have not come up with legislation 
that changes the course significantly. So to do nothing is to 
continue the status quo. But specifically, I can get you the 
actual terms of the contracts that were signed years ago that 
brought those rents up.
    Mr. Snowbarger. Well, I understand there may be multiple 
ways of having done that. It would be helpful to me. Following 
up on your statement there, what is it about the legislation 
that is required or that was passed that required you to roll 
over the same terms?
    Secretary Cuomo. Two things. First, before we can reduce 
the rent in many cases, we have to reduce the mortgage. In 
other words, we are both mortgage holder of many of these 
properties, FHA mortgage, and subsidizer and rent-payer. And 
the mortgage is matched to the rent. And we are paying out of 
both pockets. If you want to reduce the rent, you have to 
reduce the mortgage so you do not default on your own mortgage. 
We do not want to reduce the rent and then wind up with massive 
defaults on FHA mortgages. So we need legislation to do that. 
When we have not gotten the legislation, since nobody wanted to 
displace all the people who were in the units, Congress said, 
``Continue. Roll over. You can pay 160 percent of fair market 
rent.'' And that is what has happened for the past few years.
    Mr. Snowbarger [presiding]. Thank you. I think my time has 
expired. Mr. Allen, do you have questions?
    Mr. Allen. Yes, I do. I apologize for being late. And if 
some of my questions cover matters that you went into before, 
my apologies.
    I was once the mayor of Portland. I was on the city council 
in Portland, ME, for 6 years. And my first question has to do 
with if you went through the city of Portland right now, looked 
at the public housing, it works, and it works very well. And I 
think the Section 8 program works pretty well. We have gone 
through some periods where we had to make sure that we were 
paying, what we were paying was more in line with market rents.
    I know that your Department, of necessity, has to deal with 
some of the larger cities in this country, and I am just 
wondering, are there any issues that you foresee that will 
affect small cities and more rural areas differentially than 
the larger cities in this country that we ought to be aware of?
    Secretary Cuomo. It is an interesting question, 
Congressman. I think two things. First, the Section 8 crisis is 
almost unique to HUD in that this problem affects almost all 
cities across the country. Different degrees, depending on the 
size of the city, because that is the number of units--larger 
cities probably have more units. But proportionately, it is 
still a devastating impact. New York City's number is 111,000 
people on a larger universe, obviously. But Cleveland, 21,000; 
San Francisco, 15,000; and that is across the country. And that 
is one of the powerful problems of this crisis is the blanket 
effect across the country.
    Having said that, public housing is interesting in a number 
of ways to me. It really has gotten a bad rap, public housing. 
People talk about public housing as if it was a failure. It is 
too often the way it is portrayed. Public housing, oh, that was 
a mistake. That was a problem.
    It was not, really. Public housing is actually a great 
success story in this Nation and it is actually a testament to 
what government can do. Public housing works. Portland, public 
housing works; 95 percent of the time, public housing works. 
Public housing has been too often typified by some of the large 
developments in the large cities, Cabrini Greens in Chicago. 
That is not the face of public housing. It is smaller. It is 
less dense. It is more welcomed by the community, and it works.
    What we want to do at HUD is change, as one of our 
management reforms, change our management depending on what the 
authority is and what its performance is. The smaller 
authorities that are performing well, God bless them, let them 
run the business, devolve authority to them. Deregulate to the 
extent you can. Not irresponsibly, but deregulate. Portland 
Housing Authority is working. Give them the funding and let 
them run it. Focus, instead, on the larger, more troubled 
public housing authorities.
    Mr. Allen. Just by way of an example, we have married to 
our community policy effort to our public housing and we have 
been increasingly tough about people who have criminal records. 
They are now being moved out of the public housing. It has made 
a huge difference. We have got educational programs. They are 
all--they all seem to me to be moving along in the right 
direction.
    One last question. The field operations for HUD in the 
State of Maine consist of two people in Bangor and one person 
in Portland. As you reduce the staff, you know, nationwide of 
HUD people, obviously, we would be concerned the field 
operations might take more of a hit than the central, than the 
D.C. offices and I wondered if you could respond to that.
    Secretary Cuomo. Two things, Congressman. First, between 
the headquarters and the field, I think your point--there is a 
lot of wisdom in your point. And if there is a disparate impact 
in the reductions, I think it should be disparate toward 
headquarters if anything, because we are trying to get more 
authority out to the field and we need people in the field to 
do that.
    Having said that, 4 years ago, HUD was 13,000 people. In 4 
years, I am pledged to reduce it to 7,500. That is almost a 50 
percent reduction. So there are going to have to be fewer HUD 
people in a lot of places. At the same time, we want to make 
sure we have representation. And if it is only a couple of 
people now there, I would have to do it all within the context, 
but I would rather see a continued presence and a reduction in 
other areas that have more people. But I would not, if we can 
avoid it, I do not want to lose the presence entirely in an 
area.
    Mr. Allen. Good. Thank you very much.
    Secretary Cuomo. My pleasure.
    Mr. Snowbarger. I apologize to the Secretary. We do have a 
vote that is taking place right now and I think we are going to 
take a brief recess. The chairman is expected back shortly. We 
will stand in recess.
    [Recess.]
    Mr. Shays. I would like to call this hearing back to order. 
What I would like to do, I was delinquent in doing this. The 
Secretary may want to call on one of his staff that is to 
answer a specific question. And so, what I am going to ask is 
any staff member that might respond to a question, not 
necessarily will, but might, if they would stand up and we will 
just take care of swearing you in and then it may be that none 
of you will have to respond to anything, but at least this way 
you have the flexibility. You can stay seated, Mr. Secretary, 
but if the others would stand and raise their right hand? And 
we will just make sure we identify who they are.
    [Witnesses sworn.]
    Mr. Shays. Thank you. Could you just each state your names?
    Mr. Stegman. Michael Stegman.
    Mr. Shays. And?
    Mr. Leonard. Paul Leonard.
    Ms. Smith. Stephanie Smith.
    Mr. Shays. We will make sure you have cards for the 
recorder if there is responses.
    Take them down for any reason? Are we all set to go? Do we 
have them anywhere?
    Mr. Secretary, I can start. I can start and we can see if 
we can recapture them.
    Secretary Cuomo. We will get them back up.
    Mr. Shays. OK. It strikes me that, first off, I will say to 
you in this room we had the hearings, really, the Lantos 
hearings, and I was part of that committee that looked into 
Section 8 housing. And we knew of the tremendous abuse. One of 
the big abuses was that people would get the housing and they 
would get a tax credit. They would get financing and, in 
essence, what we found is they took all their money out up 
front. And then HUD had this incentive to continue with large 
subsidies in order to pay the mortgages that would, if they 
went bankrupt, HUD ended up with.
    And if you could just kind of sort out for me this process? 
I know almost every community, particularly the large 
communities, have Section 8 housing that is running out. And 
so, you have that one issue. So one of my questions will be the 
mortgages run out at the same time question. The other issue is 
when we had hearing on Section 8 housing last time, we were 
really appalled with the condition of some of the housing and I 
can say that we have the same circumstance, say, in Monteray 
Village in Norwalk. It is not untypical, where we are actually 
paying higher than market rate as you have pointed out.
    I am unclear as to how you sort this out: (1) Are the 
mortgages paid up by these individuals and, therefore, do we no 
longer have the at-risk of HUD taking over the facility with 
the guarantee? And (2) does this mean then that their cash 
needs are different because they do not have large mortgages? 
How do you sort all that out?
    Secretary Cuomo. Mr. Chairman, if I can, I said when you 
were out of the room before, the expiration of the contracts is 
a good news/bad news scenario.
    Mr. Shays. OK.
    Secretary Cuomo. Bad news is we are in danger of losing 
units that would house about 6 million people by the year 2002, 
and the cost of renewal is very high.
    Mr. Shays. Is very what?
    Secretary Cuomo. Is very high at a time when there are not 
many resources. That is the $5.6 billion that is required in 
new budget authority plus $2.4 billion in savings. That is just 
the cost of renewal. The HUD budget goes up 30 percent this 
year just to cover the cost of renewal. We are not doing 
anything else. The rest of the HUD budget is basically flat 
besides the renewal----
    Mr. Shays. Is that a one shot or is it continuous?
    Secretary Cuomo. No. That is not a one shot. That is the 
problem. This wave of expirations, of contract expirations, 
starts to break in 1998, but it breaks in 1998, 1999, 2000, 
2001, 2002 is the main impact. We want to get something done 
now so we can reduce the cost in the later years because the 
number gets higher as we go out, not lower. 1998 is significant 
because one of the largest increases is in 1998 from 1997. A 
jump from 1997 to 1998. But 1998 to 1999, 2000, 01, 02, it is 
also a very, very significant number, so we have to do 
something. That is the bad news is the impact on the numbers.
    The good news is you can now literally rewrite housing 
policy for the first time in 30 years. The good news is the 
contracts are expired and you are no longer bound by the 
situations that you were bound by. You are no longer 
handcuffed. How many times did we walk through a community and 
we said, ``Well, that's a Section 8 project. We can't do 
anything because we have a contract and it would foreclose or 
default and it would be a tremendous problem.'' The contracts 
expire. So I would say, now you have a chance to rewrite 
Federal housing policy, change the policy and start with a 
blank slate. Do you want to renew that building? Maybe the 
building is an asset to the community. Maybe it is not an asset 
to the community. I would pose the question: Do you want to 
renew that building?
    If you do want to renew the building, do you want to renew 
it at 100 percent subsidized units? Some people think that 
mixed income is a good idea, not 100 percent. If you want to 
renew the building, would you like to get in not-for-profit 
management, if it was a possibility. Would you like to offer 
tenant mobility? If the tenant chooses to leave the building, 
should the tenant have that choice? If the tenant chooses to 
leave and leaves with a Section 8 voucher, should the tenant be 
able to use that Section 8 voucher to buy their own home? Home 
ownership as opposed to rental. These are all questions that 
are triggered when you are freed from the contractual 
parameters.
    Mr. Shays. But there are two contracts. Right? There is one 
that is a subsidy. The other is the mortgage.
    Secretary Cuomo. No.
    Mr. Shays. Do the mortgages end when the--is that what is 
happening? Have they paid off their mortgage?
    Secretary Cuomo. No. No. Here is the caveat. When you go 
to--and, again, there are a lot of different flavors within 
this.
    Mr. Shays. Some can pay back early? Correct? You have the 
20 and the 40.
    Secretary Cuomo. Yes. You have different situations. Some 
have the right to prepay at the end of 20 years, which is a 
different portfolio than the portfolio we are talking about 
here. This is basically we want to reduce the rent, the Section 
8 subsidy, but you have to make sure that what you reduce the 
rent to can satisfy the mortgage. Because, as you have pointed 
out, you also, the Federal Government, hold the mortgage. You 
do not want to reduce the rent to a level that would see that 
mortgage default because now you have a lot of properties and a 
lot of foreclosures. So reduce the mortgage, write down the 
mortgage, mark it to market, reduce the mortgage as you are 
reducing the Section 8 rent. And you can reduce them both, but 
they both have to balance. In some cases, you may be able to 
expire the mortgage.
    Mr. Shays. I have a sense that the mortgages are, in some 
cases, greater than the value of the property, except over 
time, part of the mortgage has been paid back. But even then, 
probably if they defaulted, you would lose--HUD, the 
government, would lose.
    Let me just tell you what I am thinking of. I think of the 
Section 8 housing that is not properly maintained and then I 
see Section 8 housing that is very well maintained. It happens 
to be, say, in downtown Stanford, Four Acres. I know what that 
builder is going to do. It has already been sold a few times, 
but they are not selling it in my judgment so that they can 
renew Section 8 housing. They are either going to go right out 
into the marketplace which was, in one sense, the original 
design of this program, to create more housing and then 
privatize it. Or they are just going to tear it down because it 
is 4 acres in downtown Stanford and then you will have hundreds 
of people without housing.
    So what I am trying to sort out, and I really do not yet 
have a clear picture of this, is the contracts are coming due, 
are ending for the subsidies. They're able to be bought out 
because this time has arrived. So the ones who will want to 
buy-out, it seems to me, would be the ones that are in prime 
choice areas. And the ones that will want to continue are the 
ones that, frankly, took everything out of the project early on 
and are just going from month to month.
    Secretary Cuomo. Yes. I am going to ask Mike or Stephanie 
to give you a sense of the numbers in two different portfolios, 
we call the preservation portfolio which are those units where 
the owner now has a right to prepay the FHA mortgage.
    Mr. Shays. That is called preservation.
    Secretary Cuomo. Preservation.
    Mr. Shays. Do you need another chair?
    Ms. Smith. No. I'm fine.
    Mr. Shays. OK.
    Secretary Cuomo. And the other is the Mark-to-Market 
portfolio. And if Stephanie could also speak to----
    Mr. Shays. I am sorry.
    Secretary Cuomo. Stephanie Smith. Your issue is might there 
be units where the owner chooses to go to the market and not 
renew the expiring contract.
    Mr. Shays. OK. And I am making an assumption that in many 
cases we still hold the mortgage insurance.
    Ms. Smith. Mr. Chairman?
    Mr. Shays. Yes.
    Ms. Smith. The Secretary is referring to two distinct 
portfolios. There is one portfolio for which we have Section 8 
contracts which are beginning to expire now and will continue 
to expire for the next decade. And those Section 8 contracts 
rent significantly above market, as he mentioned.
    Mr. Shays. Yes.
    Ms. Smith. We also have FHA insurance on the mortgage. The 
structural flaw in the program is that the Section 8 contracts 
are for 20 years. The mortgage insurance is for 40 years. So in 
all those cases, the mortgage insurance usually runs for at 
least another 20 years, if not a little bit longer.
    There are about half-a-million units which are expiring in 
the next 10 years where the Section 8 contracts are 
significantly above market and we have FHA insurance on the 
mortgage. The other distinct portfolio which you are raising is 
the preservation portfolio. In many cases, those Section 8 
contracts are also expiring in the next few years, by the end 
of the decade, but those are the projects in which the owners 
have the right to prepay their mortgages. Congress restored 
that right to those owners last year. But if the owner prepays 
the mortgage, that does not mean that he is released from the 
Section 8 contract. He has prepaid his FHA-insured mortgage. 
There is a certain set of restrictions that he is released from 
on the mortgage side, but he still has the Section 8 contract.
    If the owner decides to opt out of the Section 8 contract 
at the point of expiration, then he has to give the Department 
1 year's notice prior to opting out of the program. We then 
provide the tenant at the expiration of that 1 year notice 
period with tenant-based vouchers and certificates, so they 
continue to receive assistance, but it may not be tied to that 
specific building.
    So there are two very distinct portfolios that are being 
discussed here at the moment. That portfolio which is sort of 
preservation-eligible, there is about 350 or 400,000 units in 
that particular portfolio. Many of those units have Section 8 
contracts with rents below market because of the way they were 
developed 20 years ago.
    Mr. Shays. I am sorry to ask such ignorant questions, but I 
learn from my questions. Do I make an assumption that the face 
value of the mortgage has been brought down over 20 years so 
maybe then it actually is worth the market price? Or, do we 
still have problems that even after 20 years of paying down the 
mortgage, it is not a balloon mortgage? Right? It is a 
constant.
    Ms. Smith. It is not a balloon mortgage. It is an 
amortizing mortgage.
    The best way I think to think about this, Mr. Chairman, is 
that these are two distinct portfolios of properties.
    Mr. Shays. Right.
    Ms. Smith. For the portfolio that the Secretary mentioned 
with rents significantly above market, in many cases, the face 
value of the mortgage is greater than the actual value of the 
property.
    Mr. Shays. And hence, why we pay more.
    Ms. Smith. Right.
    Mr. Shays. OK.
    Ms. Smith. In the case of the portfolio that is prepayment 
eligible which is below market, in many cases, there is not a 
lot of debt remaining on those properties.
    Mr. Shays. Yes.
    Ms. Smith. They were developed at a time where the mortgage 
amount was smaller, the amount of debt remaining on the 
property is significantly less. And in many cases, the value of 
the property is probably equivalent to the value of the 
mortgage.
    Mr. Shays. In some cases, they did not mortgage to the top.
    Ms. Smith. These are sort of two distinct ways in which 
these portfolios----
    Mr. Shays. It is hard for me to understand, though, how we 
are in a very good bargaining condition if we still hold the 
debt insurance and they are basically telling us to pay more 
than the market rate. I guess I do not really understand the 
Mark-to-Market. Are you suggesting that, basically, we are 
going to buy down the mortgage by just writing it off?
    Secretary Cuomo. You would have to--your point----
    Mr. Shays. Thank you very much.
    Secretary Cuomo. Thank you, Stephanie.
    The dilemma you see is the real one. You would have to, 
under this proposal, negotiate with that owner as to the bona 
fide expenses of operating the building, bona fide cost of 
operations, et cetera, and what mortgage payment that building 
could satisfy to keep it at the fair market rent and then you 
would have to reduce in some cases the actual mortgage, write 
down the mortgage and in those cases, there would be an expense 
to the FHA fund. Net, when you do all of this, you are reducing 
the Section 8, you are reducing the mortgages. Some are a cost 
in the reduction of the mortgage because you would literally 
have to write it off. Net, the cost is minimal. There are some 
scenarios where we can even figure out making money with the 
right tax consequences. But there are scenarios where to reduce 
the rent you have to reduce the mortgage.
    Mr. Shays. OK. And then that raises the question in my mind 
of whether or not, since we have given a benefit to the owner 
of these facilities who have already, frankly, made a lot of 
money off of these facilities, they would have continued 
obligations to keep them in the housing stream, in perpetuity. 
In other words, would there be a quid pro quo for that for 
writing down the debt?
    Secretary Cuomo. That is one of the issues that is being 
discussed in proposals that are going forward and it depends in 
whose opinion. In my opinion, I would say, in the Department's 
opinion, I would say, yes. If we are going to reduce the rent, 
write down the mortgage, reduce the rents----
    Mr. Shays. We pay either way.
    Secretary Cuomo. We pay either way.
    Mr. Shays. Except, we are up for renegotiations. So that is 
where we have some strength. If you wanted, you could basically 
close them down and then you have the facility. And I would 
think in some cases, if you did not have a willing negotiator 
on the other side, you just close him down, take over the 
property. You will look at those tradeoffs, I would gather.
    Secretary Cuomo. And those would all be the tradeoffs on an 
individual basis. Again, Mr. Chairman, some buildings, you may 
not want to renew. Some buildings you may say, this did not 
work. It hurt the community. The people who live there do not 
want to stay there. So you may choose not to renew a building.
    Mr. Shays. They have to feel you may be willing to not give 
them what they want in order to get what you want from them.
    Secretary Cuomo. That's exactly right. And right now, HUD 
is in no negotiating position because if the owners do nothing, 
they are basically renewed at the current rent. As a matter of 
fact, by law, HUD is prevented from reducing the rent. So you 
have landlords who if nothing happens, if no legislation is 
passed, status quo serve them. They will be rolled over, they 
will be renewed as much as 160 percent of fair market rent.
    Mr. Shays. I am going to get to Mr. Snowbarger in just a 
second, but let me just pursue this point. That means, clearly, 
that you would be looking to us to strengthen your bargaining 
position in Congress, to give you a little more flexibility, I 
would think.
    Secretary Cuomo. That is exactly what we are looking for.
    Mr. Shays. And so, that will be something that you will be 
deciding with, I guess particularly Mr. Lazio, and the Senate 
side, I do not know who that is. Who is the Senate side?
    Secretary Cuomo. Mr. Mack. Senator Mack.
    Mr. Shays. You will be working with them to figure out how 
to proceed on that issue.
    Secretary Cuomo. Yes, sir.
    Mr. Shays. Let me just ask this one last question related 
to it. Both GAO and the Inspector General's Office have 
questioned the ability of HUD to take on this massive project. 
This is going to take some very smart energetic people who know 
the marketplace and a whole host of different places. And you 
have alerted us so now we have to be part of the solution. And 
I am happy you have. The question is what steps are you taking 
and will be taking so that you have a strong group within HUD 
that can take on this project.
    Secretary Cuomo. Mr. Chairman, there are two sides to this 
issue. The first one we have discussed, the impact, what kind 
of legislative authority we need to actually do something about 
it. Second, as you accurately point out, if you have the fix, 
the legislative authority to do a fix, how do you now implement 
it? Eight thousand five hundred properties. How do you now 
implement it with 8,500 properties across the country?
    One scenario would say, ``Well, we are going to bring HUD--
hire more people, increase the size of HUD and we will perform 
this task.'' That is not our recommendation.
    We have a plan to downsize HUD. We want to stay on that 
downsizing track and our implementation vehicle for this would 
look to outside parties, outside third parties, be they housing 
finance agencies, be they subcontractors, but there is talent 
in the private marketplace that can do this very well. This is 
a very skilled expertise. These are people who have to be able 
to come to the table and negotiate and know the facts because 
they are against trained real estate developers on the other 
side. So our opinion is there is expertise in the marketplace. 
Let HUD contract for the expertise rather than trying to 
develop it in house.
    Mr. Shays. I am struck by the fact that you really have 
almost a war-room type of situation where I would almost 
visualize someplace in HUD where you have got a gigantic map 
and time lines and so on, especially, if you are going to be 
farming out some of this, because this is going to be a massive 
undertaking.
    Secretary Cuomo. It is a massive undertaking. In any 
scenario, it is a massive undertaking. It is massive even if 
you contract it out. It is massive just to coordinate it. But I 
think it is a far more doable task if you contract it out, get 
the best expertise you can get out there and then manage the 
process of contracting out.
    Mr. Shays. Well, I have not spoken to Mr. Towns and the 
other members of the committee, I suspect that we are going to 
probably have a few hearings on this issue to weigh in with the 
authorizing committees to see how we could provide suggestions.
    Mr. Snowbarger, has the gentleman from Ohio asked 
questions?
    Mr. Snowbarger. He has not.
    Mr. Shays. He has not. Do you mind if we----
    Mr. Snowbarger. That would be fine.
    Let me make just two real quick ones.
    Mr. Shays. Yes.
    Mr. Snowbarger. Two real quick ones, because they have to 
do with the questions.
    Mr. Shays. You have the floor.
    Mr. Snowbarger. Thank you, Mr. Chairman.
    They have to do with the questions that were asked by the 
chairman: We are talking about 8,500 properties out there and 
we are trying to figure out what our leverage is. Do we have 
any analysis of those properties in terms of are they in--now, 
I have got to figure out how to ask the question right. Are 
they in markets where there are excessive units on the market? 
Are they in markets where housing is very tight? Obviously, if 
there are excessive units on the market, it seems to me we are 
in a pretty decent bargaining position there. And then, how do 
those particular contracts relate to these 200 percent rental 
subsidies that we were talking about earlier? Do we have that 
kind of analysis that you have done already?
    Secretary Cuomo. We can get you, Congressman, where the 
buildings are. We have a more thorough breakdown of the cities 
that you see on that chart. We have a breakdown by city of 
where they are across the country. And then we know where the 
markets are a little tight or a little soft. We also know the 
locations within cities and, obviously, sometimes the housing 
market changes within different parts of the city. So we have 
that data and we can get it to you.
    Mr. Snowbarger. OK. And then, the last followup was on this 
management side of things. I want to congratulate on the job 
that you did in terms of downsizing with the Community Planning 
and Development and it sounds like that is a part of the 
process for all of the Department is a downsizing.
    I guess I am curious as to where you see downsizing fitting 
in at a point in time when the tasks that you are called upon 
to accomplish, at least for a short term here, are massively 
increased.
    Secretary Cuomo. That is the challenge, Congressman.
    Mr. Snowbarger. But apparently, you see that it can be 
done. I mean, that is what you proposed.
    Secretary Cuomo. Yes. Our plan is we were at 13,000. We are 
now at about 10,000. The plan is to go to 7,500. Our challenge 
is to not be driven by the number, but change the management 
plan, change the mission of the Department which then can work 
with a smaller work force. And I think it can be done. It is 
not--it is by no means an easy task, but that is why I point to 
the CPD experience. We reduced the work force 25 percent and 
administered more funding, ran more programs, got more things 
done than when we had the larger work force. You can do it. You 
have to rethink the mission, but we have to rethink the mission 
of HUD anyway. Public housing areas. I was saying in response 
to Congressman Allen, we have to have a new vision of how we 
want to manage public housing in this Nation. The overwhelming 
majority of public housing authorities work well. ``Well, then, 
why are we spending a lot of time regulating them and 
monitoring them? Deregulate and let the high performers work. 
Focus on the troubled portfolio.''
    You start to make those kinds of changes in your mission, 
you can do it. You start talking about contracting out more 
functions, especially these highly specialized functions rather 
than trying to hire a work force, train the work force, keep 
them up to date with all the changes in the tax code and all 
the changes in the real estate law. Contract out with attorneys 
and accountants and housing finance agencies that can do it. 
Those kinds of changes in the mission will then allow us to 
make the kind of efficiencies that we are looking to make.
    Mr. Snowbarger. You had mentioned earlier devolving a lot 
of these responsibilities back to local authorities that have a 
track record of managing well. Do you have any feel for how 
much of this responsibility can be shifted?
    Secretary Cuomo. Well, we have a little bit of apples and 
oranges. On this task, the Mark-to-Market task, the 8,500 
properties, that task is going to be staff-intensive whether we 
contract out, whether we do part of it in-house and part of 
it--I do not see significant, if any, reductions in that area 
on the multi-family side. That does not mean you cannot make 
those reductions in other parts of the Department. In other 
words, the work force has to come down. I am not saying it has 
to come down everywhere equally. It depends on where you can 
change the mission. This is not one of those areas. The 
devolution is more on the public housing side, to the high 
performing public housing authorities, the Portland Public 
Housing Authority. If they are working well, devolve the 
responsibility, monitor them so when they get into trouble, we 
know it, but otherwise devolve the responsibility and that is 
where you can save staff.
    Mr. Snowbarger. Well, I guess the question was on the 
public housing side. Do you have a feel for how much of that 
can be devolved at this point? Or is it just anecdotal? You 
know, this one works well. That one works well. We do not have 
any idea----
    Secretary Cuomo. We are going to have a draft of a specific 
proposal in the next several weeks, Congressman, but the 
overwhelming majority of public housing authorities work well. 
It is a handful that are the so-called troubled housing 
authorities that really require attention.
    Mr. Snowbarger. Thank you, Mr. Chairman.
    Mr. Shays. If we could, we will get further into the 
troubled housing authorities.
    Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman.
    Mr. Secretary.
    Mr. Shays. And I think what we will do is we will go 10-
minute cycles now. OK?
    Mr. Kucinich. Thank you.
    I have been informed by staff of the ongoing discussion you 
have had about the Section 8 program and I have also been 
informed that the housing court in the city of Cleveland has 
been experiencing a very brisk trade in evictions in connection 
with landlords and contractors involved in Section 8. What I 
would like to have happen is for somebody from your office 
contact the Cleveland Housing Court, Judge Ray Biantra is the 
administrator of it, and to see if there is anything that can 
be done to effectively intervene to try to protect people from 
being thrown out of their homes.
    I mean, the problem of homelessness in this country, as all 
of us agree, is serious enough without contractors taking 
advantage of various provisions that HUD may have. And you 
know, perhaps it is within your authority to intervene to see 
if you can protect some people from being thrown out on the 
street. So I would really like you to look into that and I just 
wanted to mention that in connection with this overall 
discussion about the program, if you would.
    Secretary Cuomo. It would be my pleasure, Congressman. I am 
not familiar with the specifics that are going on in Cleveland, 
but we will be shortly, as soon as we leave the hearing. As you 
know, there are protections within the Section 8 program, and 
we will find out what is going on.
    Mr. Kucinich. Yes. I have just been informed just now, 
myself, and I thought I would notify you.
    A question I have, Mr. Secretary and Mr. Chairman, there 
have been instances in the past in which local governments have 
attempted to use community development block grant funds to 
attract jobs and companies from other States. I wondered if it 
is your policy as Secretary if you thought it was appropriate 
use of community development block grant resources to be 
attracting, using those resources to attract jobs and companies 
from one State to another?
    Secretary Cuomo. No, sir. We have been aggressive in 
promoting the use of CDBG for economic development purposes. 
CDBG is one of the largest programs HUD administers, $4.6 
billion, 20-year program. So it has consistency, continuity, an 
entire infrastructure that understands how to use it. 
Historically, it was not used for economic development. It did 
a lot of good things, social services, infrastructure, public 
services, but not economic development primarily because HUD 
had not steered the program that way. It was part of the 
President's empowerment agenda, trying to get jobs into cities. 
We have been pushing the CDBG program as a way to attract 
businesses, grow businesses, small business loans, micro-
enterprise loans, community development banks, all can be done 
by CDBG.
    There is a specific prohibition against what they call 
piracy. New definition of piracy. It is no longer on the high 
seas. For us, it is stealing businesses from one city to the 
other by using EZ and EC dollars. So that is specifically 
prohibited.
    Mr. Kucinich. Now, when you say it is prohibited, is it by 
regulation?
    Secretary Cuomo. Yes, sir.
    Mr. Kucinich. By administrative rule? By what?
    Secretary Cuomo. I know it is prohibited by regulation. I 
do not know if it is in the law. I believe it is regulation.
    Mr. Kucinich. Excuse me?
    Secretary Cuomo. I believe it is by regulation, sir.
    Mr. Kucinich. OK. And when were those regulations 
promulgated?
    Secretary Cuomo. I do not know, but I can check. The anti-
piracy regulations on the CDBG?
    You stumped the entire staff on that one, Congressman. It 
does not happen often, but we can find out, and we will get 
back to you.
    [The information referred to follows:]

    The Empowerment Zones and Enterprise Communities 
Initiative, which benefits 105 urban and rural areas including 
Cleveland, Ohio, prohibits using funds to relocate businesses 
from one area to another [Section 1391(f)(2)(F) of the Omnibus 
Budget Reconciliation Act of 1993.]
    The Community Development Block Grant program requires 
communities to use the funds in such a way that minimizes the 
displacement of existing businesses [Section 105(a)(17) of the 
Housing and Community Development Act of 1974.] However, the 
23-year old program does not clearly restrict the use of funds 
to relocate businesses from one area to another.

    Mr. Shays. And that is not, certainly, our objective. There 
may be a number of questions, if I could just at this time say 
that if we are not able to answer, we will just get the answer.
    Mr. Kucinich. OK. That is fine. And I agree with the Chair. 
It is not my intention to raise questions that cannot be 
answered. I would like to find out what the policy is to make 
sure that it is in place and to make sure that it is enforced, 
that there is not any movement of jobs being occasioned through 
the use of Federal funds in community development block grants. 
And I appreciate your expression of what your policy is, 
because that is going to be very comforting to those of us who 
are concerned about keeping our jobs in our communities and 
when I was mayor of the city, we used that community 
development block grant program to go to, in fact, to improve 
the infrastructure of neighborhoods. And that, in turn, was 
responsible for helping to spark some local investment and 
helped a lot of the businesses in the area. So I know about the 
value of that program and I am pleased to see that you are 
intending to make sure that communities are protected in the 
use of those funds. And I am very gratified to hear your 
policy. I just like to know the history on it.
    I have one other question, if I may, Mr. Chairman.
    And this may be another one that, perhaps, you have already 
decided on and as a new Member, you may help me to catch up on 
some of these issues. Before August 1996, I understand that HUD 
had a J-1 visa waiver policy that allowed foreign physicians to 
come into the United States and practice medicine in under-
served areas in the city where poverty-stricken people live. 
The program helped to provide medical services to many people 
in lower income communities. I wondered what the status is of 
that policy.
    Secretary Cuomo. Congressman, could I just quickly step 
back to your other issue on the tracking business. It's a CDBG 
issue. It has also been an empowerment zone issue. Cleveland is 
also an empowerment zone city and one of the problems is moving 
businesses from one city rather than creating new jobs. And 
both were related. And I will get you information on both, the 
empowerment zones and the CDBG.
    Mr. Kucinich. I would be interested in that because, of 
course, the empowerment zone is of great concern to Cleveland. 
I think we received over $100 million.
    Secretary Cuomo. Yes.
    Mr. Kucinich. In a program that has great implications for 
a large area of Cleveland. So your looking into that would also 
be very much appreciated.
    Secretary Cuomo. Fine. I will do that, sir.
    Second, on the J-1 visas. We are trying to get HUD 
downsized and we are trying to get HUD to focus on our core 
mission. Some tasks that are good tasks have to give way 
understanding the realities of the downsizing, et cetera. The 
J-1, the J-1 visa program, well, I think very intelligent in 
its intent, was difficult for HUD to administer. We were not 
really in a position where we can police, verify whether or not 
the doctors are then working in the areas where they are 
supposed to be working to qualify for these visas. It is not in 
our usual portfolio, the function of monitoring doctors and 
verifying where their service area is.
    We discontinued the J-1 visa program at HUD. And we are now 
considering what, if anything, should be done about it, but the 
program is now discontinued.
    Mr. Kucinich. I would like to say on behalf of my 
constituents, Mr. Chairman, and members of the committee, that 
there is a great concern in areas such as Cleveland, 
particularly where foreign physicians have given their services 
in under-served areas, that the J-1 visa program be continued 
and I--on the one hand, it is comforting to know that the 
reason for its discontinuation were more administrative which I 
suppose relates to the dollar issues and not that the program, 
itself, proved to be a failure. What I think would be helpful, 
as we are all government looking at ways of doing better with 
Federal funds, it would be good to see if a cost benefit 
analysis was arrived at with respect to that program. To see if 
a discontinuation of it is not really more expensive in terms 
of the toll on the health of the people in the areas where 
these physicians were looking. I would really appreciate it if 
you could do that, because it would at least give us a chance 
to make an evaluation as to whether or not it was in the 
interest of the people to do that. I would really appreciate it 
if you would consider that, Mr. Secretary.
    Secretary Cuomo. We will, Congressman.
    One of the points I tried to get to in my opening statement 
was there were two focuses at HUD: (1) Section 8 crisis; (2) 
management. Part of the management is restoring the public 
trust. I want to make sure that if we are administering a 
program, we are sure that it is being run properly.
    On the J-1 program, there was some suggestions that the 
certifications that were being put in, that doctors were 
working in those areas, that there were some cases where that 
was not actually the fact. And especially given the nature of 
this committee, I want to be able to say that if we are running 
a program, I know that it is working well and that we are in a 
position to run this program. And that is one of the issues 
that was with the J-1 program, whether or not the doctors were 
actually where they were supposed to be to get the visas in the 
first place and what was HUD's capacity to make sure that was 
the case, but we will--I will give you the analysis that we 
have done back at the Department. And then if you would like to 
chat about it, it will be my pleasure.
    Mr. Kucinich. Well, again, thank you, Mr. Chairman. I just 
want to conclude this round by saying that this is a very 
important department for so many of our urban areas. And as a 
person who represents a substantial part of the city of 
Cleveland, I am grateful that we have a Secretary who is 
showing this sensitivity to these issues and I think that it 
augers well for your relationship with the Congress. And I 
thank you so much for being here.
    Secretary Cuomo. Thank you, sir.
    Mr. Kucinich. Thank you, Mr. Chairman.
    Mr. Shays. I thank the gentleman.
    Mr. Pappas.
    Mr. Pappas. Thank you, Mr. Chairman.
    Mr. Secretary, again, congratulations to you.
    Secretary Cuomo. Thank you.
    Mr. Pappas. I want to shift gears a bit and talk about two 
programs that I dealt with as a county official in New Jersey, 
that being the community development block grant program and 
the HOME Program.
    First, a comment. The way it was structured, I believed was 
probably a great example of how even at times the Federal 
Government can allow great flexibility at the local level where 
local government officials can include people from municipal 
government and from the community to help make decisions. At 
least that is how we did it in Somerset County, NJ. And for my 
more than a decade as a county elected official, the CDBG 
program was very effective and one that really helped meet 
needs that were addressed in neighborhoods and communities. I 
think we need to do more of that. The HOME Program is not as 
old, at least my involvement is not as long standing; but, 
again, I felt that is a great example of how local governments 
could very effectively deal under some broad Federal 
guidelines, but we could meet identified needs at the local 
level. I would just encourage you to--you and your colleagues 
here from the President's cabinet to do that as frequently as 
possible.
    Having said that, I am wondering if you could just comment 
and I apologize because you may have covered this while I was 
absent from the room, but if you could just comment as to how 
you view those programs and how you view their continuation in 
your overall priorities.
    Secretary Cuomo. Congressman, thank you for the opportunity 
and thank you for the comment. The CDBG program and the HOME 
Program, I would just affirm everything you said with the only 
stipulation that I put a exclamation mark at the end of the 
paragraph. CDBG and HOME, to me, are as close to the model of 
Federal, local, State relations as you can get, because what 
they say is everything we have been talking about for the past 
few years: devolution, local control. But--but, not a blank 
check block grant. Right? Oversight committee. We want to make 
sure the funds are going to where they are supposed to go. 
Federal, Federal purpose.
    And that is basically what CDBG and HOME do. They say, 
``This is the Federal goal, Federal purpose. This money is 
supposed to go to provide housing affordability to low and 
moderate income people, basically, the HOME Program.'' Federal 
goal, but let the local community figure out how to do it. We 
cannot sit here and decide what housing policies work for 
Somerset County or what community development needs are No. 1, 
2, 3 in Somerset County.
    Let's set the Federal goal, affordable housing, community 
development for low and moderate income people under CDBG. Let 
Somerset County figure out how to do it. Let them set the local 
means. One caveat and one caveat only, they should include the 
community when they start making those decisions, citizen 
participation process. CDBG started as a Republican program--
since it is bipartisan and in my opinion really a great model 
of what should happen.
    The HOME Program follows the basic template of CDBG. And as 
the Congressman points out the HOME Program has only been 
around since 1992, so it does not have the same institutional 
bearing or experience that CDBG does, but it is the same 
template: Federal goals, local means, involve the community, 
let the community decide. And those are the two mainstays of 
HUD.
    You know, when people talk about HUD, we have the FHA 
housing side, public housing and then the community development 
side and the HOME and the CDBG program are the two pillars of 
community development. And where the funding goes in HUD, $4.6 
billion, I believe the largest single program is CDBG. And it 
works well almost universally.
    Mr. Pappas. We have had over the years, when I was county 
official, there were probably only three occasions in the 12 or 
more years that I was involved in it there was any kind of a 
question or objection from the community. And when you are 
dealing with 21 municipalities and my county and the number of 
local officials, municipal officials that we got involved and 
people from the community, that is quite a track record. And I 
would even just, in conclusion, would just add that I think the 
HOME Program was even as good as the CDBG program is, the HOME 
Program, I think, is even improved--it is an improvement in 
that I viewed there is almost less bureaucracy involved, at 
least that was my experience in New Jersey in the 
administration of it.
    Secretary Cuomo. Well, Congressman, we ran the HOME 
Program--actually, 4 years ago at my confirmation hearing and 
the confirmation of Secretary Henry Cisneros, the complaint was 
the HOME Program, which at that time was not spending, because 
the department had so many regulations on it, at that time 4 
years ago, only 3 percent of the money had been spent because 
there were so many regulations. And it was made clear to me at 
the Senate confirmation that they wanted that changed. Today, 
we have a spend-out of about 92 percent of the HOME Program, 
110,000 units built. So it is working.
    I do not like to say which is better, HOME or CDBG, because 
that gets me into trouble, but they are both working well.
    Mr. Pappas. Let me just say one other thing. You're right. 
People back home, I hope they do not hear that I said that, but 
the community support, the understanding that they have of how 
well it works I think has been great. And I also think for both 
programs the pressure that there is to make sure that this 
money is spent within a reasonable amount of time I think is 
very appropriate. There are many non-profit agencies or most 
instances whenever there has been a proposal for some sort of 
housing, it is not housing rehabilitation of people's homes 
that meet the criteria, but where there have been non-profit 
community-based organizations whether it is for people and 
whatever their circumstances. Some just have not been able to 
put it all together and within a couple of years they are not 
able to and that money has been reallocated and it just works 
very well.
    Secretary Cuomo. Thank you.
    Mr. Pappas. Thank you.
    Mr. Shays. I thank the gentleman.
    At this time, I will call on Mr. Towns.
    Let me give you an idea, Mr. Secretary, I know you have 
pressing needs and you have been very generous with your time. 
It is about 15 of, now. We are going to get you out of here no 
later than 15 after and maybe sooner.
    Secretary Cuomo. Mr. Chairman, whatever works. At the 
pleasure of the committee, my time is yours.
    Mr. Shays. Thank you. You have been very cooperative, but 
it will just give your staff an idea of how much. We will 
proceed about a half-hour more. Thank you.
    Mr. Towns. Thank you very much, Mr. Chairman.
    There was testimony earlier about the empowerment zones 
and, of course, empowerment of communities. Could you sort of 
give us an assessment? I know you have not been around that 
long in terms of your views, your feelings as to how they are 
working up to this point?
    Secretary Cuomo. Congressman, I think the empowerment zone 
initiative, the empowerment zone program as designed by the 
Federal Government is working well primarily because it allows 
for the individual circumstances that different cities and 
different communities bring. How are the empowerment zones 
doing? Which I think is a different question than how is the 
empowerment zone program doing. The empowerment zone program is 
doing well.
    Mr. Towns. I agree with you.
    Secretary Cuomo. The empowerment zones, it depends. It 
depends on what zone in what city in what context. The 
Cleveland zone is going very well. Really going gangbusters. I 
have been to the city a few times. They are actually attracting 
businesses from the suburbs back into the city with the 
empowerment zone, which is the exact opposite cycle that we 
have been seeing, businesses moving out of cities to suburbs. 
So Cleveland, it is working very well. Comprehensive, the 
communities involved, and it is bringing back jobs which is the 
purpose of the program.
    Some other cities we have had more obstacles in the 
startup. Sometimes political obstacles, sometimes community 
obstacles. Some of the situations that we are trying to solve 
are more complex and they have opposition existing between and 
among community groups. And then the empowerment zone has to 
work through that context. So I think it depends. But the 
program, itself, is doing well. By and large, the cities are 
doing very well, some better than others.
    Mr. Towns. Thank you very much. In New York State, in 
particular, we have been hearing a lot about privatization. You 
can go to any housing development and another rumor has started 
that it is going to be privatized. And of course, I am not 
saying, it is good, bad or indifferent. I think the real 
question is based on what has happened in Louisiana, and 
similar where there have actually been some selling of, what 
happens to the poor and the homeless if that happens? Is there 
any provision for them if there is move toward privatizing?
    Secretary Cuomo. I think, Congressman, there is no silver 
bullet and sometimes we struggle for one solution that sounds 
like it is the panacea and it is going to solve everything. And 
I think in that context, sometimes privatization is thrown 
around. We privatize and then, presto, change-o, all the 
problems are gone.
    I do not think it is a silver bullet. I think it has its 
place in some contexts and we have had good experience with 
privatization in some context. I think it is always, when you 
talk about privatization, it is always important to make sure 
you protect those whom it may not be in the private interest to 
serve. And that has to be factored in. Otherwise, it will not 
work for those who most desperately need the help which is the 
point of the program in the first place.
    Mr. Towns. Mr. Chairman, I yield back. But I also, just 
before I yield back, want to say that I am impressed with your 
sensitivity, I am impressed by your commitment and your 
dedication. So I want to let you know I look forward to working 
with you and trying to be able to solve some of these problems. 
I know it is going to require a lot, because, let's face it, 
when you are cutting a budget the way you are cutting it and at 
the same time the need for services are increasing, you have to 
almost be a miracle maker. What we are saying to you is that I 
am hoping that this committee along with the Congress will join 
you in terms of trying to be able to come up with some 
solutions. So I look forward to working with you.
    Secretary Cuomo. Thank you very much, Congressman. Thank 
you.
    Mr. Shays. I thank the gentleman.
    I am going to focus in on the distressed public housing, 
but I just want to touch on the fact that you clearly have a 
massive undertaking here. Is it your intention to suggest 
reorganization of HUD? Are you going to be coming in with any 
plan? Or are you just going to be responding to proposals that 
have been made by others?
    Secretary Cuomo. We will be coming in with a management 
plan for HUD, Mr. Chairman. We will be coming in with a plan 
that is driven by a new vision of the mission of the 
Department, how to accomplish that and then a downsizing plan 
for the work force in response to the revised mission.
    Mr. Shays. Thank you. And clearly, your management needs 
are acute. I mean I would say that to whoever was Secretary. I 
would also say to you because I know it is so significant, I 
have some sense of patience about how long it will take and so 
on, but it would seem to me--if I were Secretary, I would 
almost have a crisis management team on this issue, I would 
have a crisis management team on management. And the other area 
that I am concerned about is the whole issue of distressed 
public housing. I am pretty convinced from my obviously limited 
experience in my own district, because I just have 10 towns, 
but I have a Stanford, a Norwalk, and a Bridgeport, but I have 
been on this committee, now, for 10 years and one of the things 
that surprised me is if you have a capable and talented public 
housing authority that really uses money well and does not try 
to hire people for political reasons, but just hires the best 
and the brightest, you can do extraordinary things. If I can 
get a little parochial, I just am extraordinarily impressed 
with the housing director in Bridgeport and what HUD has been 
able to do with this housing authority. And Mayor Ganum happens 
to be a Democrat who has been a very good leader of that 
community.
    Mr. Towns. Most Democrats are. [Laughter.]
    Mr. Shays. That is true, most are. And in one case, in one 
case, one of the most is in Bridgeport. Now, I could say all 
Republicans are--[laughter.]
    But I am concerned. I think we provide a lot of money to 
public housing authorities. And if they use it well, they can 
use it to leverage, they can do a lot. But what concerns me is 
that I do not think there is a real plan on how you decide when 
to take over a public housing authority. And I do not know how 
you wean them off the list. And if you could just touch a 
little bit about troubled housing authorities?
    Secretary Cuomo. Yes, sir, Mr. Chairman.
    First of all, on your overall point about the serious 
nature of this problem, I could not agree with you more, and we 
do very much have a crisis mentality on this issue. And I said 
in response to Congressman Snowbarger, we have a downsizing 
plan, a management plan, but it is driven by how to get the job 
done. It is not a numbers game. And we will have personnel 
where we need personnel and we need personnel to work this out.
    Mr. Shays. You are talking about Section 8.
    Secretary Cuomo. Section 8.
    Mr. Shays. Yes.
    Secretary Cuomo. Even though we want to go primarily to 
third party outside sources to implement it, we still have to 
make sure it is done right. So this is no doubt a priority.
    On the distressed public housing, I could not agree more. 
Where you have a good public housing authority, it is amazing 
the kinds of things that they can do. Father Panis Village Hope 
Six Grant which basically just--program on Hope Six was those 
comprehensive solutions devolved to the local authority, 
learning the lessons that we have learned, but let the local 
authorities work it out. And it has been working quite well. 
And what we would like to see on the public housing side is 
more devolution, deregulation to those high performing PHAs. 
Let us focus on the distressed public housing authorities.
    And then the chairman raises another interesting point: 
What is a distressed public housing authority? At what point do 
you become a distressed public housing authority? HUD has a 
grading system. We call it PHMAP, but it is actually a grading 
system that grades the management of a housing authority. And 
you get a score. You then have a passing score or a failing 
score. If you fail, you are now a troubled housing authority. 
If you pass, you are an acceptable performer. That score, that 
PHMAP score which we have revised recently, we are going to 
have discussions about revising it again, especially if we move 
more toward deregulation, because then that score is very 
important. Based on that score, you will decide to deregulate 
or not. And that is the PHMAP score. And as I said, it has just 
been revised within the past several weeks and we are going to 
take a second look at it, especially if we go more toward 
deregulation.
    Mr. Shays. It just strikes me that you have a danger of 
making sure that you do not manipulate it or game it. There are 
so many ways you can make a decision on who is distressed. 
Obviously, you have to have gradations. And I suspect that even 
with the limit of staff that you have that you are going to 
have a hard time dealing with all the distressed public housing 
that you have.
    What I am trying to understand is do you have a management 
team that focuses on this? A management team on Section 8, a 
management team that focuses in on distressed public housing? A 
management team that is focusing just on management problems?
    Secretary Cuomo. Yes. You have the three main program 
areas. We are talking about, one is the housing department. 
Nick Retsinas, Stephanie Smith is the deputy who is here today. 
You heard from her earlier. That is basically working on this 
as their top priority. The Section 8 crisis is their top 
priority.
    Mr. Shays. Right.
    Secretary Cuomo. Public housing, Assistant Secretary Kevin 
Marchman is focusing on the public housing problem and we are 
focusing on that PHMAP monitoring score, how to deregulate high 
performers and how to handle the distressed public housing in 
this country without HUD running out there and managing every 
project. The third program area is community planning and 
development. That is the HOME Program, CDBG, and then fair 
housing would be the fourth.
    Mr. Shays. I am just going to express some concerns and 
then I will be done and I do not know if any Member just wants 
to jump in for later. It seems to me that there is obviously 
multi-discipline. One of the things I was amazed to find is the 
Department of Agriculture has public housing for rural areas. 
And that was a surprise to me. But I mean I can see a tough 
decision for you as Secretary to decide, ``Well, do you get 
into policing? Do you get into drug control issues? Do you get 
into welfare reform?''
    And I would think in one sense the answer is, yes. And the 
other way, you are just saying, ``Well, my gosh, I am just 
dangerously spreading myself and the Department too thinly.'' I 
am not asking for a indepth explanation, but tell me how far 
you take the interdisciplinary and where do you sometimes bring 
another department in or do you say, ``Heck, we can do it and 
we should do it?''
    Secretary Cuomo. I think, Mr. Chairman, you have to do 
both. I think the interdisciplinary is almost forced, if you 
are going to make any of these things happen because we talk 
about comprehensive solutions on the community level. Community 
development people, local housing authorities will say, ``We 
need comprehensive solutions, otherwise it doesn't work.'' They 
will talk about holistic solutions. They will talk about 
continuums. They will say, ``I cannot just do housing. I have 
to do housing and community development and I have to have the 
jobs or else none of this works.'' That, by definition, is 
interdisciplinary. How do you do that? I think on the highest 
level, it is interdisciplinary among Federal departments. 
Cooperation among Federal departments. It is the point of the 
Vice President's Empowerment Board that cross cylinders, cross 
Federal departments, bring that coordination.
    And then within HUD, it is the same thing. When we go to 
talk to a city of Bridgeport or any city in the country and we 
say, ``We are here to help,'' they do not ask us just for 
housing. They need housing, but they need more than housing. 
And they need that housing in a context. And they ask for 
economic development assistance, which we have a very large 
portfolio we did not really talk about today, but we have 
significant efforts in economic development, job creation, 
which is more and more a priority. Welfare reform: at one 
point, the time limit is up. Somebody needs a job, otherwise 
nothing is going to work. They need the economic development. 
They need the policing. They need safety in public housing. 
``One strike and you're out.'' ``Operation Safe Home.'' 
Initiatives that we have. CDBG works in that area. They need 
the community development and they need the housing. So I think 
for us to do our job, we have to be able to come up with a 
comprehensive solution, albeit in a very intelligent and 
efficient manner, given all the other constraints.
    Mr. Shays. I am just going to make a few observations and I 
welcome any of the other Members--we are going to get you out 
by 15 after, but----
    Secretary Cuomo. Whatever. Take your time.
    Mr. Shays. I know. The problem is not on your side.
    One is that I spent about 3 years, but a year really 
focused on how do we rebuild cities, since I represent three. 
And we met with every conceivable group. And when we came right 
down to it, we came down to this basic answer: the way you save 
urban areas is to bring businesses back in to do two things, to 
pay taxes and help create jobs. And of all the things, so I 
know that this Congress is not as eager to have HUD in economic 
development, but if you gave me a choice, frankly, of fixing up 
public housing in some instances or providing an area where you 
could bring in a business and they could employ people there, I 
would encourage that.
    Now, one of the ways I think that HUD can serve in a very 
dynamic way, you have the issue of impacted/non-impacted. And I 
will not even localize it to a particular community. But in an 
area where you are redoing significant public housing, your 
requirement is to go into a certain number of non-impacted 
areas. And non-impacted areas sometimes tend to be low-zoned 
areas where you do not have as much density. And one of the 
things that we found in one of our communities is that when we 
did the vouchers, we actually created something we did not 
intend. We took home-owned neighborhoods that were mixed. 
Black, Hispanic, white, but they were home-owned. And they were 
solid. And then Section 8 came in and really in some cases 
Section 8 pays more than the vouchers, paid more than the 
market rate, which is kind of interesting. And they came in and 
they ended up making some streets rental instead of home-owned. 
And it had a very kind of negative, unintended impact. And the 
irony was that in one of my communities, the public housing is 
better than the neighborhood. They have a flag. They have a 
shield up front pointing out this is public housing. It is 
well-maintained and they have upgraded neighborhoods. And it 
would seem to me that one of the ways to rethink the whole 
issue of impacted and non-impacted would be to give communities 
some leeway if in the process of building more and impacted, 
they have a partnership and require them to have partnership 
with the business community and others to do economic 
development, store fronts, a whole host of other things that 
really--then you have taken the public housing that has been a 
catalyst for economic development without even your putting 
money in. But basically saying, ``OK, we will forego to some 
measure the impact and non-impacted, but we have different 
requirements now. You have to upgrade the community 
economically by your doing that.'' And it may be a way for you 
to do that interdisciplinary just because of the carrot that 
you have of saying, ``Well, if you don't, you are going to go 
into single family neighborhoods.''
    I mean the silly thing was that we were having in one of 
our communities, HUD was buying individual homes, just a 
plethora of them and having minimal impact over all. So that is 
just the one thing I just want to share with you.
    Do you have anything you would like to share?
    Mr. Towns. Thanks, Mr. Chairman.
    Mr. Shays. We usually close by asking is there any question 
that you wish we had asked. And also, with your indulgence--
sometimes the staff who get to enjoy not saying anything, but 
also think a lot in terms of your response to our questions--if 
any of your staff want to make a point, we would welcome that. 
If there is some point in hearing these questions and the 
answers of the Secretary, we would welcome you doing that. And 
I do not think the Secretary would mind, because I am sure you 
would not contradict him. But do any of you want to make an 
emphasis?
    Secretary Cuomo. They are a shy group, Mr. Chairman.
    Mr. Shays. They are shy.
    Secretary Cuomo. Here, they are a shy group. Not at HUD. I 
can promise you that.
    Mr. Shays. No, but they are sizing you up. Any question 
that you wish we had asked? [Laughter.]
    Secretary Cuomo. Let me say, if I might, Mr. Chairman, I 
hope we have made clear in this hearing and I know that the 
committee stated it in your opener, so you did not need us to 
bring it to your attention, but if we could reaffirm it, 
hopefully, the Section 8 problem we need help with. It is a 
desperate situation for the Department. I have been told by 
people who have been at the Department from day one that this 
is the greatest crisis HUD has ever faced. Forget the 1980's 
and the scandals and everything else. This is it. And it is not 
just for the Department. This is not an inside-the-beltway 
story.
    Mr. Shays. Yes.
    Secretary Cuomo. This is every city across the country--6 
million Americans. This will be the legacy of affordable 
housing between now and the year 2000. What happens here will 
be what we did with affordable housing as a Nation. And we need 
your help. We cannot do it without Congress. We understand 
that.
    Second, on the management, that is something that we can 
do. That will be our priority. I have heard this committee, I 
have seen it in your correspondence earlier, it will be my 
personal priority and we will be working on it. And I hope to 
have in 18 months noticeable change that we can report back to 
the committee. And beyond that, Mr. Chairman, again, my 4 years 
as Assistant Secretary showed me the only way anything happens 
is when it happens together, bipartisan, with Congress; and I 
am looking forward to a productive relationship and I think we 
can do good things. We have real challenges here, but we also 
have real opportunities. And met, we can make things better 
than they are today if we work together.
    Mr. Shays. Do you want to just thank the Secretary?
    Mr. Towns. Right. Mr. Chairman, thanks a lot.
    I would just like to thank the Secretary for coming and 
that I really think that he shed a tremendous amount of light 
on many subjects. And of course, as I indicated early on, I 
look forward to working with you. It just feels good to have 
someone that truly understands the problems out there. And I 
think that also makes a major difference. Sometimes you get a 
new Secretary, they have to spend 2\1/2\ years getting familiar 
with the problems that are out there. And then by the time they 
get familiar with the problems, they are gone. Your situation 
is so different. You are thoroughly familiar with the problems 
and we look forward to working with you.
    Secretary Cuomo. Thank you.
    Mr. Shays. I concur and thank you again for coming. Have a 
great day.
    Secretary Cuomo. Thanks for having us.
    Mr. Shays. This hearing is adjourned.
    [Whereupon, at 1:05 p.m., the subcommittee was adjourned.]

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