[House Hearing, 105 Congress] [From the U.S. Government Publishing Office]DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT, AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 1998 ========================================================================= HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED FIFTH CONGRESS FIRST SESSION ________ SUBCOMMITTEE ON VA, HUD, AND INDEPENDENT AGENCIES JERRY LEWIS, California, Chairman TOM DeLAY, Texas LOUIS STOKES, Ohio JAMES T. WALSH, New York ALAN B. MOLLOHAN, West Virginia DAVID L. HOBSON, Ohio MARCY KAPTUR, Ohio JOE KNOLLENBERG, Michigan CARRIE P. MEEK, Florida RODNEY P. FRELINGHUYSEN, New Jersey DAVID E. PRICE, North Carolina MARK W. NEUMANN, Wisconsin ROGER F. WICKER, Mississippi NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full Committee, and Mr. Obey, as Ranking Minority Member of the Full Committee, are authorized to sit as Members of all Subcommittees. Frank M. Cushing, Paul E. Thomson, Timothy L. Peterson, and Valerie L. Baldwin, Staff Assistants ________ PART 6 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT ________ Printed for the use of the Committee on Appropriations ________ U.S. GOVERNMENT PRINTING OFFICE 40-907 O WASHINGTON : 1997 ------------------------------------------------------------------------ For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 COMMITTEE ON APPROPRIATIONS BOB LIVINGSTON, Louisiana, Chairman JOSEPH M. McDADE, Pennsylvania DAVID R. OBEY, Wisconsin C. W. BILL YOUNG, Florida SIDNEY R. YATES, Illinois RALPH REGULA, Ohio LOUIS STOKES, Ohio JERRY LEWIS, California JOHN P. MURTHA, Pennsylvania JOHN EDWARD PORTER, Illinois NORMAN D. DICKS, Washington HAROLD ROGERS, Kentucky MARTIN OLAV SABO, Minnesota JOE SKEEN, New Mexico JULIAN C. DIXON, California FRANK R. WOLF, Virginia VIC FAZIO, California TOM DeLAY, Texas W. G. (BILL) HEFNER, North Carolina JIM KOLBE, Arizona STENY H. HOYER, Maryland RON PACKARD, California ALAN B. MOLLOHAN, West Virginia SONNY CALLAHAN, Alabama MARCY KAPTUR, Ohio JAMES T. WALSH, New York DAVID E. SKAGGS, Colorado CHARLES H. TAYLOR, North Carolina NANCY PELOSI, California DAVID L. HOBSON, Ohio PETER J. VISCLOSKY, Indiana ERNEST J. ISTOOK, Jr., Oklahoma THOMAS M. FOGLIETTA, Pennsylvania HENRY BONILLA, Texas ESTEBAN EDWARD TORRES, California JOE KNOLLENBERG, Michigan NITA M. LOWEY, New York DAN MILLER, Florida JOSE E. SERRANO, New York JAY DICKEY, Arkansas ROSA L. DeLAURO, Connecticut JACK KINGSTON, Georgia JAMES P. MORAN, Virginia MIKE PARKER, Mississippi JOHN W. OLVER, Massachusetts RODNEY P. FRELINGHUYSEN, New Jersey ED PASTOR, Arizona ROGER F. WICKER, Mississippi CARRIE P. MEEK, Florida MICHAEL P. FORBES, New York DAVID E. PRICE, North Carolina GEORGE R. NETHERCUTT, Jr., Washington CHET EDWARDS, Texas MARK W. NEUMANN, Wisconsin RANDY ``DUKE'' CUNNINGHAM, California TODD TIAHRT, Kansas ZACH WAMP, Tennessee TOM LATHAM, Iowa ANNE M. NORTHUP, Kentucky ROBERT B. ADERHOLT, Alabama James W. Dyer, Clerk and Staff Director DEPARTMENTS OF VETERANS AFFAIRS, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, AND INDEPENDENT AGENCIES APPROPRIATIONS FOR 1998 ---------- Tuesday, March 18, 1997. U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WITNESSES ANDREW M. CUOMO, SECRETARY DWIGHT ROBINSON, DEPUTY SECRETARY MICHAEL STEGMAN, ACTING CHIEF OF STAFF HAL DeCELL, ASSISTANT SECRETARY FOR CONGRESSIONAL AND INTERGOVERNMENTAL RELATIONS NICOLAS RETSINAS, ASSISTANT SECRETARY FOR HOUSING--FEDERAL HOUSING COMMISSIONER KEVIN MARCHMAN, DEPUTY ASSISTANT SECRETARY FOR DISTRESSED AND TROUBLED HOUSING RECOVERY, OFFICE OF PUBLIC AND INDIAN HOUSING KEVIN CHAVERS, PRESIDENT, GOVERNMENT NATIONAL MORTGAGE ASSOCIATION HOWARD GLASER, DEPUTY GENERAL COUNSEL FOR POLICY AND PLANNING, OFFICE OF COMMUNITY PLANNING AND DEVELOPMENT BOB HICKMOTT, COUNSELOR, OFFICE OF GENERAL COUNSEL SUSAN FORWARD, DEPUTY ASSISTANT SECRETARY FOR ENFORCEMENT AND INVESTIGATIONS, OFFICE OF FAIR HOUSING AND EQUAL OPPORTUNITY SUSAN GAFFNEY, INSPECTOR GENERAL MARILYNN DAVIS, ASSISTANT SECRETARY FOR ADMINISTRATION JOHN KNUBEL, CHIEF FINANCIAL OFFICER MARK KINSEY, ACTING, DIRECTOR, OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT WILLIE GILMORE, ACTING DEPARTMENTAL BUDGET OFFICER, OFFICE OF BUDGET Welcoming Remarks by Chairman Lewis Mr. Lewis. If we could have the meeting come to order. Ladies and gentlemen, this afternoon it is my pleasure to welcome Secretary Andrew Cuomo to his first hearing with the VA, HUD, and Independent Agencies Subcommittee as Secretary of the Department of Housing and Urban Development. As you all know well, Secretary Cuomo is no stranger to this subcommittee. He was Assistant Secretary for Community Planning and Development under former Secretary Henry Cisneros. My colleagues and I are looking forward to substantive discussions over the next three days regarding HUD's budget, as well as its overall mission. Mr. Secretary, as you know, both the Congress and the White House have signed on to balancing the budget by the year 2002. I have never seen such harmony in both bodies and both parties and downtown regarding that subject. There are some disagreements, I guess, or misunderstandings, as to how we might get there, but in the meantime, we're all in the same boat and we'll see. Unfortunately, we continue to target the ever-shrinking pool of discretionary dollars without emphasizing entitlement spending. Of course, that's the major rub. I note with some interest and concern that, although we are committed to balancing the budget by just after the turn of the century, nearly every one of the 20 agencies funded by this appropriations bill, with the exception of NASA, has requested a funding increase. I am not quite sure how we ever reach a balanced budget if all of our agencies continue to grow year after year. Now, I would add to that, Mr. Secretary, if we're dealing with a reasonable world, the fact is that we can look to those agencies and commissions and address the question of reducing the rates of growth and really get on pretty reasonable targets in terms of balancing the budget. So much of our task involves looking at those portions of our agency responsibility where money has been well spent, and then look at areas where we don't judge the money to have been very well spent, and try to make some sense out of all that. increase in section 8 renewals request Having expressed my concern, one of the biggest challenges we face centers around a $6 billion increase in expiring Section 8 contract renewals this year, and a $10-15 billion increase over the next several years. These renewals are driving our budget process this year and pose a very real threat to overwhelm the entire HUD budget over the next few years, unless we take some very decisive actions in the very near future. There is plenty of blame to go around as to how we got here. The most important task we now face is averting a crisis that could force literally millions of people out on the streets. Let me state very clearly for the record, for all of those who would be listening, this Congress is not about to put people who currently receive assistance out on the streets. The challenge we face has been raised to the highest level of our leadership, including Speaker Gingrich, Budget Chairman Kasich, Ways and Means Committee Chairman Archer, and Housing Subcommittee Chairman Rick Lazio. Mr. Secretary, I look forward to your thoughts and ideas into how we can all work together to deal with this extremely difficult subject area, and just as importantly, how we avoid traveling down a similar path in the future. review of hud investments Secretary Cuomo, I have shared with my colleagues my firm belief that our Americans are willing to invest a portion of their tax dollars to assist the less fortunate families in meeting their housing needs, as long as this investment is spent wisely and shows positive results. I must say that many taxpayers across the country continue to question past Housing and Urban Development investments. If we don't begin to get a handle on future HUD investments, public support will begin to erode very quickly. With that said, I do believe that HUD's mission is a very important one. However, HUD must continue to eliminate or change ineffective programs and push for more efficiencies, both at headquarters as well as out in the field. With a shrinking pool of dollars, HUD must become more creative and efficient. I think it is safe to say that all of my colleagues, as well as our constituents, want to see--well, ``more bang for the buck'' is suggested here. NASA, I might mention, has already stepped up to the plate. Some would suggest it is now the responsibility, as well as the turn, of other agencies, including HUD. For example, the American taxpayer wants to see a rental assistance program that is no more expensive than in the conventional marketplace, not artificially inflated above market cost. This is but one of many areas where Congress and the administration can and should work together to change where we have been in the past. HUD's annual outlays are about $35 billion. It is this taxpayer investment that has made HUD one of the most important partners in building a housing infrastructure that is unrivaled in the world. However, I believe the American taxpayer expects us to do better. Excluding single-family homes that enable homeowners to take advantage of tax deductions, there are approximately eight million homes that are federally subsidized in some fashion. Of that total, HUD has contributed resources for at least six million homes. Thirty-four hundred public housing authorities own and manage about 5,000 apartments that, by and large, are good homes for families. That achievement I think we can all take some pride in. However, this achievement is diminished by miserable failures, of the likes of Robert Taylor Homes and Cabrini Green in Chicago, Desire Homes and St. Thomas Homes in New Orleans, and Clifton Terrace in Washington, D.C. Also, extravagance in HUD's Indian housing programs, illustrated recently in the Seattle Times, make it very difficult to argue that taxpayers are getting the biggest result for the dollars spent. Over the course of the next several days, I do plan to focus in some detail on HUD's mismanagement of Indian housing programs. It is my strong belief that Congress and the administration have a very short time to get a handle on these difficulties. We must change existing circumstances, where necessary, and all of us should be a part of that. Let me clarify that statement just a bit. We must expect property owners and tenants to treat these federal assets like they were their own. We must confront those people head on who take advantage of the system by fraudulently diverting taxpayer funds, and who have systematically been-- well, it can be classically demonstrated as ripping off the poorest of the poor. I want to expand the role and mission of the Inspector General and other federal law enforcement partners in this effort. I want to see waste, fraud and abuse cases prosecuted to the fullest extent possible under the law. Each and every program at HUD must be reformed so that those individuals and families intended to benefit do benefit in a manner which is accountable to the taxpayers. From this point forward, I want every owner, mayor, governor, public housing executive director and developer, to view HUD's budget as a precious resource and treat it accordingly. I don't believe that the Secretary or my colleagues want us to reward mismanaged public housing authorities, or state and local governments, with more of HUD's precious dollars if they're performing poorly. I do not want to punish housing providers who are doing a good job by diverting HUD's scarce resources away from them to an inadequate housing provider. I want to see HUD become totally accountable for every taxpayer dollar it spends. importance of housing to americans Last week, I concluded a series of housing roundtable meetings with a broad mix of housing providers. One of the points that was repeated during those roundtables was that housing rates dead last on the list of congressional and administration priorities. It is time to change that rating if we believe that neighborhoods and communities are important to the American way of life. We must also remember that housing needs aren't just big city phenomenon. Housing needs for rural and suburban America are every bit as real and important as those in the big cities. Mr. Secretary, as you begin your tenure, I am extremely interested in learning from you, as well as your senior staff, how each and every program administered by HUD benefits those families and individuals they were created to serve, whether you can quantify those results, and if not, what you need to do to move the program in that direction. Again, Mr. Secretary, we very much welcome you to this committee. Frankly, I am very anxious to work closely with you and your positive supportive staff as we move forward down these avenues. Now, because I know my ranking member, Lou Stokes, has not just a long interest in this subject but a great contribution to make to this effort, to kind of refocus, it is my privilege to call upon Mr. Stokes for any comments he has. Welcoming Remarks by Mr. Stokes Mr. Stokes. Thank you, Mr. Chairman. Let me just take a moment to join with you in welcoming Mr. Andrew Cuomo before our committee, as the new Secretary of HUD. He has appeared in this forum on many occasions, but this, of course, is his first appearance here in this new capacity. We anxiously look forward to his presentation on this occasion. I join with you also, Mr. Chairman, in your remarks regarding the fact that it is incumbent upon us on this subcommittee to scrutinize their budget submission very carefully and analyze it in accordance not only with the new reforms being proposed, but also from our appropriation budget perspective. There are a lot of ongoing issues that I think are of importance to the Nation in the housing area today, and much of the legislation we passed in the last Congress impacted upon the HUD agency. So for that reason, I, too, will be posing some questions relative to some of these very specific areas of concern. It's a pleasure to have you here, Mr. Cuomo, and we look forward to your testimony. Secretary Cuomo. Thank you. Mr. Lewis. Mr. Secretary, before I ask you to begin your testimony, have you been to the other body yet? Secretary Cuomo. Is there another body? [Laughter.] We have begun to have some discussions, yes. Mr. Lewis. But in terms of formal meetings, have you given public testimony there? I'm just curious. Is this your first meeting? Secretary Cuomo. We have had an authorizing hearing earlier, yes. Mr. Lewis. Very good. Secretary Cuomo. Focusing on public housing primarily. Mr. Lewis. Mr. Secretary, your entire statement will be included in the record. You can proceed as you wish, either presenting it all or off the top, whatever you want to do, and we'll be glad to interpose questions from there. Opening Remarks of Secretary Cuomo Secretary Cuomo. Thank you very much, Mr. Chairman. I think in the interest of time, and as the official testimony will all be submitted, let me give you an overview so we can get on the with discussion, which I think is probably the most beneficial use of the committee's time. Let me first thank you for the warm welcome. It is not my first time here, but it is my first time as Secretary of HUD. I am looking forward to the same type of productive relationship that we've had over the past 4 years when I was the Assistant Secretary for Community Planning and Development. I am firmly convinced that the way we will get things done is by doing them together. It has been the experience in the past and I'm sure that's going to be the experience in the future. introduction of hud principal staff Let me, if I might, Mr. Chairman, also take the opportunity to introduce the HUD team who is here today. We're almost full strength today, and I know you'll be hearing from them over the next few days. But let me introduce them to put some faces with the names. We have the Deputy Secretary of the Department, Dwight Robinson; we have Mike Stegman, who is the Acting Chief of Staff; Nic Retsinas, who is the Assistant Secretary for Housing--FHA Commissioner; Kevin Marchman, Assistant Secretary for Public Housing; KevinChavers, President, is here from Ginnie Mae; Susan Forward, Deputy Assistant Secretary for Fair Housing; Hal DeCell, Assistant Secretary for Congressional Relations; Susan Gaffney, the Inspector General; John Knubel is the CFO; Bob Hickmott is Counselor; and Marilyn Davis, Assistant Secretary for Administration, is here. I think that's everyone. Introduction of Chairman Livingston Mr. Lewis. Mr. Secretary, I might mention that, if you've introduced that portion of the team--it is certainly not all of it but those that we may be dealing with--the Chairman of the full Committee apparently is out in the hall and he wants our permission to come in. I have never turned down my Chairman. [Laughter.] Secretary Cuomo. Neither have I. Mr. Stokes. And you're not about to start today. Mr. Lewis. I think he might want to say a few words, if we could have him do that, and then you can continue with your testimony. He has to be at a meeting at 2:30. Mr. Chairman, I heard that you might be in the hall. Remarks of Chairman Livingston Mr. Livingston. I apologize for disrupting the Committee. Mr. Lewis. This is our first meeting with Secretary Cuomo, and we're happy to call on you for whatever time you might consume, Mr. Livingston. Mr. Livingston. Thank you very much, Mr. Chairman. Mr. Secretary, welcome. Congratulations again to you. I have had a chance to meet you and extend my congratulations in the past. You have some difficult issues and we certainly wish you well. Under Mr. Lewis' guidance, we will work closely with you to try to resolve some of the very tough problems that face you. I guess, with the members' indulgence, I just would have to say that, coming from the city of New Orleans, we have some very significant problems down there. I know that you're aware of them. I look forward to working with you and with Chairman Lewis. He was nice enough to go down there a couple of weeks ago and take a look at the problems, significant problems. But we can work our way through them. I know he has a lot of good ideas, and I know you have some great innovations you would like to bring with you to your new job. The more we can work with the existing institutions--Tulane and Xavier are working to bring some common sense to the whole effort. If we can develop those scattered sites and rehabilitate old housing that's available in abundance down there, I think we can solve that problem, and maybe even set a pattern for other cities that have similar problems. Mr. Chairman, I really don't have any significant questions. I just wanted to thank you and I wanted to take this opportunity to extend my best wishes to the Secretary. Mr. Lewis. We appreciate your being here, Mr. Chairman. The Secretary has indicated he's going to present his full testimony for the record, and we have indicated we are happy to have him proceed as he wishes, and then we'll go to questions. Mr. Livingston. Great. Mr. Lewis. Mr. Secretary, proceed. balancing the budget with many priorities Secretary Cuomo. Thank you very much, Mr. Chairman. I think, very much in association with the Chairman's opening comments, we at HUD are in the midst of very interesting times and pressing challenges, with priorities to balance the budget. It's the President's priority and it is a priority of this Congress, to balance the budget by the year 2002. The best way is with a working economy that is pulling people up, pulling people out of poverty, keeping the interest rate debt down, and making home ownership affordable. So balancing the budget is no doubt a top priority. At the same time there is a priority to balance the budget, there are also very pressing needs that it is within the Department's purview to address. You still have 600,000 homeless people who are on the streets. You still have one out of five children in poverty this evening. You still have a dream of home ownership that is beyond the reach of many Americans. You still have people on waiting lists for public housing. So I think our challenge is within this balanced budget environment, with that as a priority, how do you meet the needs of the people we're trying to serve and serve to balance the budget. I think as the Chairman said, the task is to come up with a better, smarter, leaner, more effective HUD. We think we can do that. It's not just a question of a smaller HUD. We can definitely do that. We can definitely get the place smaller. The challenge is smaller and better. I don't think it's the intent of this Committee just to see a smaller Department in terms of work force or in terms of a budget, but to see a Department that is serving the clientele, serving the mission better than ever before, with a more efficient and effective mechanism. That is our goal. We also realize that it's going to be a significant effort for us at the Department. We have much work to do. But we have already done much work over the past 4 years. I think if we keep the productive relationship that we've had in the past, and apply that going forward, the future is bright, not just for the Department but for its primary recipients. priorities of hud If I can, Mr. Chairman, to abbreviate the presentation, we have a few charts that I would like to flip through, which will give you our sense of what we're doing in the Department, and then whatever question you might have, it will be our pleasure to respond. [Chart Presentation.] The priorities we have laid out for the Department---- Mr. Lewis. In case the members don't know it, you have these charts at your table, I believe. Secretary Cuomo. The priorities we have laid out for the Department, Mr. Chairman, very much echo those that you just articulated in your opening statement. The first priority is averting the so-called Section 8 crisis. The second priority is expanding affordable housing opportunities--that's doing the main work of the Department, the housing work. The third priority is making welfare reform work. Although HUD is not directly involved in welfare reform, our clients are, and the communities that we serve are. The overlap between welfare and HUD's mission is astonishing. And the fourth priority is restoring the public's trust. Mr. Chairman, much of the testimony that you just gave the HUD team is similar to what we've been saying at the Department for the past few months. averting a section 8 contract renewals crisis The first priority is averting the Section 8 crisis. The Committee knows the numbers. You're right, Mr. Chairman, we've been talking about it for years. However, it is now upon us. The issue is ripe. We have the 30-year contracts that are coming due; we have the 20-year contracts that are coming due; we have 15-year contracts coming due; and then we have the 1-year contracts of late, and now we have a great wave of renewals which is cascading upon the Department at one time. In 1998, you see a big spike in the cost and the number of units, 1.8 million units which are coming up for renewal just in 1998. As the units come up for renewal, the cost goes up. In 1997, it was $4.5 billion, and in 1998, $10 billion, and then it goes up from there, close to $19 billion in the year 2002. In terms of the number of Americans affected--we talked about 1.8 million units that will expire and the cost to renew. About 4.4 million Americans are in the units that are expiring. Mr. Chairman, we have lists of expiring contracts that the Committee might be interested in. These contracts are literally all over the country. There are very few places, very few cities, that are immune from this crisis. In terms of the budget that we have submitted, there is a $5.6 billion increase in budget authority for this year. That $5.6 billion, which is a large increase, especially given the fiscal constraints we're under, is almost entirely to renew the Section 8 expirations. That increase is just to cover the Section 8 crisis. The rest of the HUD budget is basically flat but for the Section 8 renewals. We did not come to this Committee asking for new BA without having cleaned our own house first, if you will. The cost of renewals is the $5.6 billion, plus $2.4 billion which we have accomplished in program and Department savings. So we're not asking for the entire cost of renewals. The $5.6 billion doesn't represent the entire cost. It's $5.6 billion plus $2.4 billion, which we are finding in savings. The $2.4 billion comes from reduction of subsidies to landlords, the so-called ``mark to market'' or portfolio reengineering proposals, increasing the number of working families to fill vacant units, limiting annual adjustment factors, maintaining a $25 minimum rent, reducing administrative funds to PHAs, and some other miscellaneous savings. expanding affordable housing opportunities But once we get past the Section 8 problem--and we're optimistic and hopeful that we will--the second priority becomes the main mission of the Department, which is expanding housing opportunities and doing it better than we've ever done it before. We ask again for 50,000 new housing certificates, incremental certificates, to get into that backlog of families who qualify for housing and whom we haven't been able to reach for too long. To renew the vouchers is important. To renew the Section 8 contracts is important. To start to make some progress on the people who have been on the lists for years is equally important. The President is very optimistic that we can have the highest home ownership rate in history, and we want to work towards that goal. We want to continue our efforts on helping the homeless, and as the Chairman mentioned, with an approach that recognizes the myriad of problems affecting the homeless populations, the mental health problems, substance abuse problems, and treating the underlying problem as opposed to just the symptom. We are continuing to transform public housing, to work with the success of the HOME program, and to do all of this in a context that ensures fair housing. making welfare reform work The third priority, as I mentioned, is making welfare reform work. While we're doing HUD's mission, one of the main factors driving the lives of our customers, and driving the dynamic of the community, will be welfare reform. We want to be a positive synergy with welfare reform. The bottom line for welfare reform in many communities will be do you have the jobs at the end of welfare reform, period? HUD can help by providing economic development activities that can go a long way towards providing those jobs. We announced the second round of empowerment zones, which is one of the President's priorities. We are requesting $25 million for the Brownfields initiatives. As the Committee knows, Brownfields are a pressing problem for urban areas all across the country, large and small. How do we clean up ``dirty sites'' and make them potential for redevelopment. For the CDBG program, which is one of the mainstays of the Department, we ask for the same level of funding as last year. We ask for $50 million for the EDI, the Economic Development Initiative program; $1.3 billion in the Section 108 loan program, which is basically the same as last year; $30 million for the Youthbuild program; and $10 million for the Bridges-to- Work program, which works directly with welfare reform, trying to get people to where the jobs are, if the jobs aren't where the people are. This program aims at getting people out to the suburban communities that more often than not are the locus of the jobs. And then 50,000 new housing certificates, which we mentioned, will cost about $305 million. restoring the public's trust The fourth priority, and once we get past the Section 8 crisis, Mr. Chairman, is what we will focus most intenselyon, which we have already begun to work significantly on, restoring the public's trust in the Department. I couldn't agree more with the Chairman's comments. I think in many ways job one is showing that HUD can perform, HUD can perform well, and these programs can work well, that when it comes to the public's trust, it is sacrosanct at the Department. We're going to be working on cracking down on bad landlords, cleaning up troubled housing authorities, clearing out drugs, gangs and crime from public housing, which is through the drug elimination grants, and Operation Safe Home, which has been such a big success for the Department, and the ``one strike and you're out'' policy in public housing. downsizing and integrity at hud At the same time, we are very aware of the Committee's concern for fiscal integrity and downsizing. We have made significant strides over the past 4 years, going from over 13,000 employees to about 10,400 today. Over the next 4 years, we intend to go from 10,400 to 7,500 employees, which means in 8 years the Department will have gone from over 13,000 to 7,500 employees, I think the Committee would agree, that is a dramatic downsizing. We're trying to do it in the spirit that the Committee has suggested. But I just don't want to make this a numbers game. If I come to you, Mr. Chairman, 4 years from now and said, ``Well, I brought the work force down the way I said I would, but I don't have a better record of accomplishment and achievement'', I don't think I will have done my job as Secretary. We are not about a downsizing exercise as an accounting exercise. It is a management exercise that says there is waste and there is fat that can be cut. Let's come up with a new mission for the Department, a new management vision for the Department, and then a staffing pattern that fits the vision. We're not going about this as a downsizing effort first. We're going through it as a revisiting of the mission of the Department, what is the vision for HUD, what do we want HUD to do, and then, how do we manage the resources to fulfill that mission. We have the vision of HUD in the year 2000, we are developing the policies and programs to implement that vision, and then we will come up with staffing and resources to do it. We talk about it in terms of downsizing, but actually, it's flipped. It's a new vision first and the downsizing is the bottom line. In just the past few months, Mr. Chairman, we have done quite a bit of work towards that regard. Secretary Henry Cisneros started us on this road 4 years ago, and we've made good progress thus far. We are looking to keep up the pace, if not accelerate it. Again, Mr. Chairman, we're looking forward to doing all of this in concert with the good productive relationship that we've had with this Committee in the past, and we're looking to keep that going for the future. Thank you. [The information follows:] [Pages 11 - 36--The official Committee record contains additional material here.] section 8 renewals and tax policy proposal Mr. Lewis. Thank you very much, Mr. Secretary. For the members present, I have had a discussion with Mr. Stokes and with the Secretary as well, that we're going to proceed through a number of issues, Section 8 being a very high priority, today. We probably will, if you will bear with me, put off questions that involve Indian housing until the very beginning of our session tomorrow morning. So if you have questions in connection with that, I would prefer we take those up tomorrow. The Secretary will be with us for a limited period of time at that point, but in the meantime we'll proceed with other priorities, Mr. Secretary. Going right to the crunch of Section 8, the contract renewal issue is clearly the most serious funding issue the Congress will face this year. It's going to dominate a lot of our discussion with members of the Budget Committee, as well as play a very significant role in the pressures that are placed upon all the other discretionary pools of money available to the process that's the Appropriations Committee's work. Section 8, in fact, is driving the entire discretionary budget. If we're honest, there's no ``silver bullet'' to eliminate the problem. Its cost can only be ameliorated. Last year the Appropriations Committee, after substantial input from the House and Senate housing subcommittees, and non- Federal partners, including a demonstration aimed at the Section 8 project-based contracts that expired in 1997. Though I would have preferred a less restrictive demonstration, the compromise was the best that we could do. Since then, I have devoted a good deal of time studying this issue, and I am fairly well convinced that a congressional response will be less than adequate if a solution to the tax problems the owners of these properties face is not included in the final policy. Mr. Secretary, I am mentioning that up front because there is many a facet to this problem and I'm sure that your people have not only worked with the implications of tax policy, the impact it had on this marketplace, we're very much interested in your staff expertise, working with us as we begin dialogue with committees like Ways and Means in the House. While I have approached both the Ways and Means Committee as well as Chairman Archer, personally, to alert them to the need for legislation in this area, they at this point in time are highly skeptical. I think maybe many of the professional staff are wondering how did we ever possibly get ourselves into this box in the first place? And as I indicated in my earlier comments, there is enough blame to go around but to say the least we are here and the crunch is now. It occurs to me that if Congress agrees to deregulatethese buildings in a thoughtful manner, reduce the mortgage to a level that can be sustained by rent levels appropriate to the individual building, underwrite the new mortgage to include the costs of modernization and rehabilitation so that the property can attract clients, and eliminate the tax consequences of debt forgiveness, all at the expense of the taxpayers, that the taxpayers ought to be able to get back in return, including a property that this statement says, never--I try not to use the word, never, but hopefully--never falls into disrepair without serious consequences to the owner and manager, long-term affordability for a significant number of families and responsible management. These are just a few of the items that taxpayers ought to be able to expect for its investment. There may be more. And perhaps you have some ideas, Mr. Secretary. Would you care to comment first on this general statement and do you plan to introduce a proposal that deals with Section 8 contract renewal issues and will it include a provision to address the tax problems? Mr. Secretary. tax policy proposals Secretary Cuomo. Thank you, Mr. Chairman. I, again, could not agree more with the Chairman's statement. There is no silver bullet, to use your expression, on the renewal problem. Because at one point, as the expression goes, it is what it is. The contracts are coming up for renewal and if we seek to renew them, which I would urge we do, there is going to be a cost associated with it. I would also point out to the Chairman the difference between the budget authority increase which is significant and the outlay increase which is much, much, much less significant. The increase in outlays is about $1 billion, while there is a very significant jump in budget authority. So, this is a budget authority problem we are looking at as opposed to an outlay issue. Mr. Lewis. If I could interpose there for a second. You are absolutely correct but I know that you are experienced and wise enough not to fall into that congressional trap which says that, you know, talk to me now and pay me later. The reality is that when you do extend budget authority we absolutely are going to have outlay that is connected with that over time. And as long as we are dealing with between now and 2002, we have got to keep that in mind. Secretary Cuomo. No, I could not agree more, Mr. Chairman. That is why I did not raise it in my initial comments and saved it for the question. So, it is a BA issue, but I understand it is nonetheless a very significant issue. I also agree that the proposals we have put forth in the past both mark-to-market, and portfolio reengineering, without a tax fix, so to speak, they were not going to work. The Department has learned that lesson. I think the Congress has learned that lesson. When we looked at the numbers in practicality, how this would work on a building-by-building basis without a tax piece of legislation, the numbers do not add up. We do anticipate putting forth a proposal. We do anticipate putting forth a proposal that has a tax fix in it. And, Mr. Chairman, your caution I think is well advised. If we are now going to offer tax benefits to the owners of these buildings, who have had tax benefits in the past--they had the normal depreciation on the building, many of these buildings were then syndicated which was an additional tax advantage to the owner. If Government is now going to offer another tax benefit to the owners of the building, we want to make sure that there is consideration back and that the American people are buying something for this additional tax incentive and that it is a transaction that we are all proud of. We want to extend the affordability of those units so we preserve that housing stock and we can preserve it for a significant period of time, 20 years or 15 years, and we do not have to revisit this in the immediate future. We will get the best management that we can get, be that private management or not-for-profit management and let the market work. I do not know why we should be wholly wed to project-based. We should consider tenant-based vouchers that allows the market to work and allows owners to compete for tenants. We should consider rehabilitation where we can do it, and a fair bargain and sale. Do we need the tax fix? Yes. But we want to make sure that the American people are preserving these units and preserving the housing at a fair price. And those will be the cluster of issues that the proposal we put forward will be addressing. But I agree, Mr. Chairman, that we have to address it, and the best we can do is change the mark-to-market to bring with it a tax piece of legislation and then let us make sure we make a good deal for the American people. congressional action on tax policy proposal Mr. Lewis. I might repeat, Mr. Secretary, that there are preliminary discussions at the tax committee level. I have no idea what is going on at the other body. But within the House, people are scratching their head and looking with some serious question as to how we got there. The memory is not very long when staff of 10 years ago or 15 years ago did something that now is something we are suddenly having to deal with. So, it seems to me that at all levels we need to be starting now communicating with each other. So, with that, I am very interested in having input, before we end up moving our bill out of committee, from you as to when you think a proposal might be prepared that would come up? I would not expect that you would have that answer today but soon we are going to need it and your people know the time frame. Do you expect Congressional action during this Fiscal Year? I would hope the answer to that is, yes. If not, do you have any suggestions to improve the demonstration that is included in the appropriations measure? We are very interested in following--well, let me have you respond to those couple of questions. Secretary Cuomo. Mr. Chairman, I think sooner rather than later. You can expect a proposal from us in the next several weeks, if not a piece of legislation. We will defer to the Committee and you tell us which is a more prudent course and constructive course of conduct for the Department and that is the one that we will follow. But we will have a proposal and/or a piece of legislation in the next several weeks and I would hope that we have a piece of legislation at the end of this session that does something about this beyond the demonstration because it is not enough. washington post article on clifton terrace Mr. Lewis. I would agree with that, Mr. Secretary. It is very apparent to me though that the various committees have not really, at a staff level, been communicating and when you have very fine and talented staff people who have been used to trying to find solutions almostoblivious to this problem it is an indication of just how little we have brought other people into the mix. And it is important that all of us, the administration, as well as our committee staff, help us accelerate and provide some efficiency in connection with that need. Mr. Secretary, on October 16 1996, the Washington Post ran a story with the headline, ``Misery's New Landlord: In a move that symbolizes the failing anti-poverty effort, the U.S. is taking over Clifton Terrace.'' This story reflects that Clifton Terrace, an FHA-insured property, that HUD recently assumed ownership where we did, is filled with crack dealers, hookers, human waste and toddlers. Tenants are charged $1,140 per month to rent a two-bedroom apartment where the most recent city inspection turned up nearly 1,000 housing code violations. The former owner of this property for 13 years was a North Carolina multi-millionaire, according to the news article, named Rick Marshal. He is a partner in 100 other subsidized complexes across the country. In the Post story, Marshal called Clifton Terrace, ``My laboratory'' where he tests his theories about poverty and psychology and where, according to him, he ``makes unconscionable amounts of money.'' One of his laboratory tests, about which he speaks quite freely, was to study what happens when no security is provided in a project infested with criminal elements. Included in that laboratory test was $300,000 that HUD provided to him specifically for security. During the course of the ``experiment'' an elderly gentleman was shot in the laundry room by a man stealing washing machine tokens. After many years of contractual and regulatory violations, HUD filed a lawsuit alleging that Marshal and his partners improperly pocketed more than $1 million in profit and fees and left the complex so unsafe as to present an immediate threat of injury. The parties to the lawsuit settled. HUD's rationale for settling was to avoid further decay of the building in light of Marshal's action to declare bankruptcy and let the property disintegrate further. I raise this example, Mr. Secretary, because HUD has requested $25 million to improve enforcement strategies. I applaud this decision especially because Assistant Secretary Retsinas allows that there may be other Clifton Terraces in the country. However, I am very concerned that the enforcement tools HUD suggests have no teeth in them. For example, the justification stated that you planned to remove bad owners, improve lender and subsidize administrator's performance, encourage competition by projects for residents, identify, diagnose and resolve troubled properties and train asset managers and so forth. Frankly, that strategy sounds to me like business as usual. While I think you ought be employing these strategies as a matter of course, I would suggest, with all due respect, that they are not serious enforcement actions, nor will people like the Rick Marshals of this world think of them as such. So, let me provide a few questions that follow this line. Secretary Cuomo. Please. proposed legislation for bad landords Mr. Lewis. Have you instituted an audit of the financial dealings of every property in which Mr. Marshal has an interest to determine potential fraudulent activities? Secretary Cuomo. May I make a general comment, Mr. Chairman, in response? Mr. Lewis. Yes. Secretary Cuomo. Mr. Chairman, first, I agree with the thrust of the Chairman's comments. The multifamily portfolio is a serious challenge at the Department of Housing and Urban Development; about 20 percent of the portfolio or about 5,400 properties are so-called troubled. And I agree that the criticism, business as usual, may be fair in this regard, Mr. Chairman, and I think you will be seeing over the next several weeks a more aggressive strategy from the Department on the multifamily portfolio. First, we are going to be proposing legislation that increases not only the civil sanctions, equity-skimming sanctions, civil penalties, but also increases the criminal sanctions against the so-called bad landlords. We want to send a signal to the landlords in multifamily that HUD is serious. It is nothing like business as usual. Not only are we going to come after you on a civil side, with our auditors, investigators, program people, but we are going to come after you on a criminal side and we are going to be looking to make the case for U.S. Attorneys across the country and we are looking for legislation to do that. The second piece we will have in the legislation is we are looking to privatize. We want to have a professional asset management capacity. We need to privatize the asset management function, in my opinion, which is essentially a private sector function. We need to contract the function to the people who are qualified, who are in the private sector, who run multifamily housing and who can go in for us and do the inspections and do the audits and turn over to us the problems, which we may not have been able to discover ourselves. The third piece is we are looking for legislative relief is for bankruptcy. All too often the Mr. Marshals of the world run into bankruptcy and find protection within that thicket because then we wind up with a long lawsuit in bankruptcy court, and the building is going down and we are in limbo. So, criminal sanctions as part of a new get tough policy, privatization of the asset management function and a piece of bankruptcy legislation to remove that as an impediment. Specifically with Mr. Marshal, I know the Department has been very aggressive in investigating him and all the related dealings that he has with the Department and I can find out for the Chairman. If we do not know now we will know shortly the exact status of those investigations and audits. hud actions against rick marshal Mr. Lewis. Mr. Secretary, I am very interested in this subject because Mr. Marshal was kind of put out in glaring highlight because the Washington Post seems to be read around here. It is by way of saying that both my colleague, Mr. Stokes and I are very interested in working closely with you in an effort to make certain that we are putting the highest spotlight on those who, in a systematic way, spend their time and make a living by ripping off the poorest of the poor. That is not what our appropriations should be about and in the past, I am just wondering how much a lot of it was about that. I would be interested in knowing, if you know, has the Department instituted disbarment or suspension proceedings against, specifically in this case, Mr. Marshal? Or his partners based on problems at other properties? Secretary Cuomo. Assistant Secretary Nic Retsinas is here, Mr. Chairman, and I would refer to him for that specific question. Mr. Lewis. Sure, come up, Nic. Mr. Retsinas. In the case of Mr. Marshal the Department has undertaken the full review of his entire portfolio as you asked before. We have completed that review and we are now instituting proceedings based on the results of that review. I do not want to undermine those proceedings, but the proceedings, we think, will be responsive to some of the conditions that are unacceptable, not at Clifton Terrace, but other parts of his portfolio. So that review has been undertaken, those proceedings are under way. Mr. Lewis. Well, Mr. Secretary, I ask you this by way of Mr. Retsinas and others who are your support personnel. Where there is the potential of abuse and misuse of Federal dollars that are designed for housing purposes, we have other resources within the Federal Government who should be exercised. So, it has not been the standard pattern in the past, but let me ask you for I do expect the answer to be, yes, at least over time if it is not now, have you enlisted the support of the FBI to investigate Mr. Marshal? Mr. Retsinas. We have consulted with the Justice Department on the review and, again, I only hesitate to tell you the conclusions of the review because I do not want to undermine that investigation. [The information follows:] Investigations of Rick Marshal and Partners The review of George S. (Rick) Marshal and his affiliates has resulted in proposed debarment, which includes immediate suspension from participation in Executive Branch transactions. Another letter has been sent requiring him to correct Housing Quality Standards violations in a Section 8 property he owns in Chicago, which does not have FHA insurance. If he fails to make those corrections, it could result in suspension or termination of his Section 8 contracts. Debarment would exclude him from participation in procurement and non-procurement transactions throughout the Executive Branch for a period of 5 years. Other on-going investigations may result in discovery of additional violations. Mr. Lewis. That is fair. Mr. Retsinas. But, yes, we have consulted with Justice. Mr. Lewis. But you are tapping other resources and recognize the breadth of those resources? Secretary Cuomo. Well, let me also say, Mr. Chairman--and again, I think that the Assistant Secretary's point is that we do not want to prejudice an ongoing investigation. The worst case scenario would be we would prejudice a case and, therefore, we cannot make that case. But, let me say as a matter of practice which we are going to begin literally--and I think we will have an announcement--in the next few weeks, it will be standard practice for the Department to team with other Federal departments--especially law enforcement departments--in all of these pursuits, not just the ``Mr. Marshals,'' where when it gets in the Washington Post, then we act. Mr. Lewis. Good. Secretary Cuomo. We want to make this a standard practice across-the-board. This is a different message. It will not just be a program review. It will not just be a HUD employee who calls on you. We will do the initial work, audit investigation, but if there are discrepancies we will be as aggressive with criminal prosecutions and will form the partnerships to do that ab initio. cost of defaults by rick marshal and partners Mr. Lewis. The committee is very much interested in that sort of effort. Can you tell me how much HUD has paid out to cover the defaults by Mr. Marshal and his partnerships? Secretary Cuomo. Would you know? Mr. Retsinas. No. I would have to look that up. Mr. Lewis. I do have the figures. It is a small figure. If it were not money that was supposedly going to the poorest of the poor it would not bother me so much. Our record indicates it is $28 million. Secretary Cuomo. I would disagree with the Chairman, that is a small number, with all due respect, that is a lot of money. Mr. Lewis. That is a lot of money. Secretary Cuomo. It is a lot of money. reasons for disbarment against rick marshal Mr. Lewis. Was Marshal debarred or suspended from participation in HUD's programs because of his activities at Clifton Terrace? Mr. Retsinas. No. In the matter of Clifton Terrace, Mr. Chairman, as you indicated, the Department concluded that the priority was taking control of that property. The conditions were intolerable. As part of the discussion with Mr. Marshal, he retreated under the bankruptcy provisions--as you may know the bankruptcy provisions put a stay on our regulatory ability. [The information follows:] Default Payments to Rick Marshal and Partnerships HUD has paid $33 million for defaults on 11 projects owned by Rick Marshal and partners. This sum includes payments of claims on insured loans, and the unpaid balance on the mortgage when HUD took a deed in lieu of foreclosure on Clifton Terrace. Mr. Lewis. Right. Mr. Retsinas. That is why, as Secretary Cuomo indicated, we are submitting legislation and we would earnestly seek your help with it, that would allow those regulatory responsibilities and authorities to continue in spite of the bankruptcy proceeding. In that particular case, we wanted to take control of the property, and we have done so. There are actions now underway, including a full security force and all the things you referenced. Regarding the debarment proceedings, the investigations really relate to the full range of the Marshal portfolio. Those are the actions we are taking. need for legislation to stop abuses in public housing Mr. Lewis. The committee will be very interested in reviewing with you, across the country, people who fall in this category who have systematically seemed to develop a pattern of abusing and taking advantage of existing opportunities to abuse the existing law. We are not interested in creating a gestapo here but, indeed, when you are talking about money that is supposed to go to the poorest of the poor somewhere you have to draw some lines. I have a question that says, why exactly are owners and management agents able to get away with abusing the program? You suggested some things but, clearly, it is long past due that we insist that we have a better pattern here. I will be interested in some specifics. We are not going to get to it today. But precisely what does HUD intend to do to stop these abuses? And I do want a report, at least for the ranking member and I, in this short time ahead. Do you require additional legislative authority to enable you to get rid of those people, who I find it difficult to describe as other than just plain crooks, before they cripple the development, abuse the families that live in these developments and rip off the taxpayers of the country? Secretary Cuomo. We will need, Mr. Chairman, legislation to increase the civil sanctions, to increase the criminal sanctions, to allow us to use more private sector expertise in managing this portfolio and the bankruptcy protections that Assistant Secretary Retsinas talked about. Mr. Lewis. Could you give us an indication, very soon maybe you can do it now, when you expect that sort of legislation to come to Congress? Secretary Cuomo. Again, that would be in the next several weeks, Mr. Chairman. Mr. Lewis. I am abusing my time terribly, Mr. Stokes. So, just use what time you might consume. reduction in operating subsidy request Mr. Stokes. Thank you, Mr. Chairman. Mr. Secretary, according to the budget justifications, the request for public housing operating subsidies is 7 percent less than the amount HUD calculates is required by its performance funding system formula. The largest shortfall is only 5 percent projected for the current fiscal year. How do public housing authorities make up for these shortfalls in federal operating assistance? Secretary Cuomo. Mr. Chairman, the PFS is about 93 percent this year. It has been in the past as high as 100 percent. It has also been less over the past few years. The operating funds and the capital funds in this budget are just about flat from last year to this year. Again, in a perfect world, we would have a higher percentage of PFS, we would have more money for operating, more money for public housing capital. As I pointed out on the Section 8 numbers, to cover the Section 8 renewals, we are asking for $5.6 billion additional for the overall HUD budget. The rest of the HUD budget stays just about constant and public housing is also held about constant in that regard. effect of reductions in operating subsidies Mr. Stokes. Well, are these public housing authorities going to have to cut back on areas such as say, security, preventative maintenance, things of that sort? Secretary Cuomo. They would have to trim their budgets, Mr. Stokes. It would be up to them where they would make the cuts-- whether it is in administrative personnel; or it could potentially be in maintenance; or it could potentially be in security. Mr. Stokes. I guess the reason I am posing this question is because I am a little concerned that while at the same time that HUD is urging a greater mix in terms of housing, that this type of shortfall possibly makes public housing less attractive as a place to live. Secretary Cuomo. I do not know that the 93 percent is that dramatic from the past few years, Congressman. And if it is a couple of percentage points one way or the other, it is basically in that range. And, again, the budget from last year is just about flat, just about constant. So, I do not think it is a significant burden on the housing authorities this year as opposed to last year. Is it a good situation? No. Do we wish we could do better? Certainly. But there are budget realities overall, the balanced budget priority, as well as the Section 8 increase, which again brings us in at an additional $5.6 billion on the bottom line. So, it is not that HUD is being shy or bashful about asking for additional budget resources--as a matter of fact, I think we are being quite aggressive--but the Section 8 problem is eating up the majority of them. status of reducing backlog of substandard housing Mr. Stokes. Where are we today in terms of eliminating substandard housing, in terms of let us say, public housing modernization, capital improvements, all the kinds of things necessary to eliminate the backlog of substandard housing? Secretary Cuomo. Again, Congressman, we have consolidated over the past few years the modernization funds, the development funds into a fund we now call the capital fund and there is one capital fund and one operating fund. When you put the funds together, consolidate them, the funding this year is just about constant with last year. effect of welfare reform on housing programs Mr. Stokes. Mr. Secretary, in your charts that you utilized in your presentation this afternoon, you made reference to making welfare reform work. And, of course, as we now look at the fact that welfare reform will place additional pressures on public housing, as residents lose those benefits and rent payments, of course, are reduced, tell us what is going to happen there? Secretary Cuomo. I wish I could tell you what is going to happen with welfare reform. I do not know that anyone can tell you that today. We are optimistic that the welfare reform initiatives around the country will bring training, will bring support services, will be moving people from welfare to work. I think HUD can help by creating the jobs at the other end of the welfare reform transition, if you will. Many of the welfare recipients are in inner-city areas. There is not a lot of opportunity there now. There are not a lot of jobs. There is not a lot of training. And HUD is working to provide those, jobs, training packages, et cetera. Public housing is very often the site of residence for many welfare recipients, so, we can also work with them through housing authorities where they live. The Department will be cooperating with the States in implementing welfare reform. But how does it all turn out across the country? I do not know that we could say at this point. public housing residents and ssi loss Mr. Stokes. Along the same line, Mr. Secretary, as you know under last year's legislation most legal immigrants will lose SSI and a number of children will lose SSI benefits, as well. Do you have any estimates of the number of public housing residents who will be affected by these and similar changes? Secretary Cuomo. Congressman, I would not want to offer estimates to the Committee at this time. I have heard estimates that cover a very, very broad range from tens of millions of dollars in impact to virtually nothing. Some scenarios say it could be a positive financial impact. It depends on how the welfare reform programs turn out. It depends on the States, it depends on the progress, it depends on the lack of job opportunities. So, I do not think it prudent to give a range of estimates. But we are watching it very, very closely. As this welfare reform is now implemented in States, we are monitoring it. Assistant Secretary Marchman had a seminar at the Department just the other week to bring in people to say how is this going, and what is the possible impact. So, we will be monitoring it as it goes and we will keep the committee informed. hope vi Mr. Stokes. Mr. Secretary, the HOPE VI to rehabilitate or replace the most severely distressed public housing has now been under way for several years. What progress has been made so far, not just in demolishing unlivable housing but also in providing replacements? And could you also tell the subcommittee a bit about the kind of replacement housing that is under construction or in planning? That is, what sort of things are being done to develop a public/private partnership and the supplement HOPE VI assistance with other sources of government and private funding? Secretary Cuomo. Yes, Congressman. We have planned about 100,000 units to be demolished between now and the year 2000. We will demolish some of the units that did not work as originally planned. As the Chairman said in his opening comments, some of the public housing projects were literally flawed from inception and doomed by design. There was too much density, they were too large. And with those units, sometimes the best thing you can do is demolish them and about 100,000 units will be demolished between now and 2000. In their stead, we will be applying the lessons learned over the past decades--smaller, less density, mixed income, not a lot of poor people in one place, integrated with economic development opportunities, building communities as opposed to institutions and doing it in concert with other resources, very often the low-income housing tax credit program, very often the HOME program, and private sector partnerships working with the market not against it. Those are the hallmarks of the new public housing. Mr. Stokes. Mr. Secretary, the housing units that have been demolished through the HOPE VI program, can you tell us how many have been replaced with new housing and how many have with housing vouchers? Mr. Stokes. Assistant Secretary Marchman has the numbers, the specific numbers for you, Congressman, if I could refer to him. In general, the one-for-one concept is being met between hard and what we call soft voucher replacement housing. But if you would like the specifics, if I could refer to Assistant Secretary Marchman or---- Mr. Stokes. He can provide that for the record. [The information follows:] Demolition and Replacement of Units Through HOPE VI The HOPE VI Program has played a key role in the transformation of public housing both by driving the fast pace of demolitions across the country and encouraging innovative replacement strategies. The fiscal years 1993-1996 HOPE VI grantees will account for the demolition of approximately 35,000 public housing units. Of this number, approximately 7,600 units have been demolished so far. For the most part, the demolished units will be replaced with both ``hard'' and ``soft'' units. The 1993-1996 grantees will develop approximately 18,000 new ``hard'' units; construction has already begun on 6,615 units. Of these units, 1,206 have been completed to date. An additional 13,400 Section 8 (``soft'') replacement units have also been assigned to these grantees for a total of 31,400 replacement units. While HOPE VI has been a catalyst for the removal of thousands of obsolete and distressed public housing units across the nation, the Department's goal to demolish 100,000 units by the year 2000 will also be met in part by hundreds of non-HOPE VI housing authorities that have been encouraged to eliminate old and dilapidated units from their inventory. As of March 31, 1997, 26,300 units have been demolished since fiscal year 1993. The attached chart demonstrates the aggregate number of units (which includes HOPE VI units) to be torn down and replaced across the country between fiscal years 1993 and 2000. The chart shows that the Department anticipates replacing 99,170 of the 100,000 units torn down with a mixture of new units and Section 8 certificates for an almost one-for-one replacement rate. [Page 48--The official Committee record contains additional material here.] Secretary Cuomo. Okay. displacement of families and vouchers Mr. Stokes. Let me just stick with you a little bit because I would like to know what efforts are being made to make sure that all families, displaced by demolition, have a new place to live and whether families receiving vouchers have had difficulty finding affordable housing in which to utilize the vouchers? Secretary Cuomo. Congressman, when we work through this process, obviously, any family that is being displaced needs new housing, be that a hard replacement public housing unit or a housing opportunity through a tenant voucher, it has to be one or the other. And the tenant program, as the Committee knows, works very well across the country. It has an excellent track record, works with the market, provides mobility. It is not to say that it is a perfect program. I have not come across a perfect program. Some of the jurisdictions that have tougher markets and less vacancies, the voucher program does not work in those situations as expeditiously. In those markets, we work with the people who receive vouchers. We counsel them to find available units. But either a hard unit or a voucher and a placement is the goal of any of these developments. troubled phas Mr. Stokes. My next question sort of gets to one of the concerns that I am sure our Chairman has and that is withreference to troubled housing authorities. Where are we now in terms of some of the troubled housing authorities? Are we making any progress on reducing them or are they increasing or where are we? Secretary Cuomo. We are making good progress by and large on the troubled housing authorities. The number of troubled housing authorities, which to begin with, is a very small number in relation to the 3,400 public housing authorities that exist in the country. When the troubled housing authority inventory is high we are talking about in the range of 100 compared to 3,400. So, the number of housing authorities that are actually troubled, again, is a small percentage of the overall inventory. But even among those, the number has been coming down. The Department has used a number of creative mechanisms to work with troubled housing authorities. We have some ideas on changing the way the Department deals with troubled housing authorities to reflect the downsizing that the Department is going through. In some, with the reduction in the work force that we plan, we have to change some of the businesses that we are in and we cannot be in the retail business of operating troubled housing authorities. In many cases, HUD is very aggressive in stepping in and then HUD staff are very helpful and influential in actually running the troubled housing authority. To accomplish the downsizing that the Committee wants us to and that we are hopeful that we can accomplish, we would have to get out of the business of running troubled housing authorities and we would need an alternative mechanism to do that. One possibility is giving the troubled housing authority a period of time to improve its performance under the so-called PHMAP system. If that does not work, we go to a receiver and let the receivers work through the management. But, by and large, we have had good success with troubled housing. incremental certificates and welfare reform Mr. Stokes. Mr. Secretary, in your budget you are proposing to fund 50,000 units of incremental Section 8 housing certificates to be used as part of a welfare-to-work initiative. Can you tell us a little more about that initiative and how it fits into the administration's strategy for implementing welfare reform? Secretary Cuomo. It would be my pleasure, Congressman. We are working very hard just to renew contracts. If we accomplish everything we discussed with Section 8 basically, to use a term, we break even, we house everyone who is currently housed and given the challenges we face even that would be an accomplishment. But not to strive to do more than just break even, we believe would be a mistake. You have five million people who are spending at least 50 percent of their income on housing. You have lists across this country for public housing that are way too long. For the Department to take a posture that says all we are trying to do is break even and house those who are housed, we do not think is the right goal for the Department. To that end, we say we would like to provide 50,000 incremental vouchers over and above those people we currently house, which again is just a fraction of the eligible population needing housing. And again, in keeping with the welfare reform movement, housing can be a valuable tool in helping to move a person from welfare to work. Often one of the problems in making the transition for a family is the location. And what we would like to do with the 50,000 welfare-to-work vouchers is to work through partnerships with housing authorities and States who are implementing welfare reform plans and make these vouchers available to them as part of their welfare-to-work strategy. So, if they can help move somebody from welfare-to-work by offering a voucher that moves them to a location where they can get a job, then we would make these vouchers available to those types of strategies and those types of partnerships. preservation program Mr. Stokes. Now, Mr. Secretary, I note that you are not requesting funds to continue the preservation program that was funded in the current fiscal year. That program provided financial incentive for owners to keep buildings in use as low- income rental housing rather than exercising their option to pre-pay subsidized mortgages and, thereby, avoid continuing affordability requirements. Why do you believe this program should be discontinued? Do you believe that many owners are likely to actually pre- pay their mortgages without these incentives? Secretary Cuomo. Congressman, I do not believe that the preservation program is a program without merit. I think there is a lot of intelligence to the preservation program. Unfortunately, once again, this is a case of tough choices and this budget has a lot of tough choices in it. Does it make sense to preserve units, to preserve physical stock when you can, as opposed to using vouchers? Sure it does. But the cost of preservation is a multiple of the cost of a voucher. And in times of these tight resources, when we can provide a housing opportunity with a voucher at a fraction of the cost of preserving a unit, we are recommending using the voucher. But that is not to say that we do not understand the argument that says preserve hard units whenever you can. The question is the cost. hud actions against bad landlords Mr. Stokes. Last question and then I will defer and yield back my time. I think everyone recognizes that there are some owners who have abused HUD programs, whether Section 8 or the older mortgage interest subsidy programs. But what are you doing to crack down on the bad owners who fail to maintain their buildings or skim off equity that is needed for operations and reserves or otherwise fail to live up to their obligations? When renewing project-based Section 8 contracts, what mechanisms are in place to review the owner's record of performance under the contract and avoid renewing those contracts that really do not merit renewal? Secretary Cuomo. Well, two points to the question, Congressman. First, on the Section 8 renewals, you would not renew a building unless you reviewed the building, you reviewed the financials, you reviewed the physical construction and you decided you wanted to renew the building. Just as the landlord does not have to renew with us, we do not have to renew with him or her. This is a reevaluation for both parties, owner and government. It is also an opportunity to take some of the lessons we have learned and bring them now to the housing policy that we will literally make for the next millennium. But you would do a case-by-case review, literally, of each building, each owner, each circumstance, decide if you want to renew. If you want to renew, at what cost, what is a fair bargain and sale for that transaction. As far as bad landlords are concerned, I refer back to the conversation with the chairman and Assistant Secretary Ritsinas. But I could not agree more, it is a priority for the Department. Frankly, as the Secretary of the Department I cannot tell you how damaging a story like the Clifton Terrace story is, because it is used by people to confirm a stereotype that they want to believe that too many of the housing programs are rife with waste, fraud and abuse and one case justifies an entire stereotype that damns the Department, frankly. So, we are going to be ferocious on this and, again, most of these instances are in the multifamily side, and you will see a three-part agenda from the Department literally in the next several weeks codified in proposed legislation. Number one, increased sanctions, civil and criminal, and criminal, which will be a very loud and different signal for this Department to send. Number two, we want to use private sector management expertise. Bring in asset management companies that do this for a living with private sector portfolios and do it very well. We will utilize their expertise. And, thirdly, as Assistant Secretary Retsinas was referring to, strip away some of those bankruptcy protections so a landlord and owner cannot say to us, in essence, if you come after me I will declare bankruptcy and then we will be in a judicial tangle for 4 years, 5 years, meanwhile the building goes down and HUD has no recourse. Mr. Stokes. Thank you, Mr. Secretary. Thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Stokes. I am going to be calling on members on the order in which they came to the committee and always first after Mr. Stokes is Mr. Frelinghuysen. rental assistance for the disabled Mr. Frelinghuysen. Well, thank you, Mr. Chairman. I appreciate your doing that. Mr. Secretary, good afternoon. Secretary Cuomo. Good afternoon. Mr. Frelinghuysen. What a difference a year makes. Last year you were sitting over here and now you are sitting front and center. Secretary Cuomo. I do not know that I would not rather be sitting over there though, Mr. Congressman. Mr. Frelinghuysen. There is no getting out of it now. [Laughter.] Mr. Frelinghuysen. Good luck to you. Secretary Cuomo. Thank you. Mr. Frelinghuysen. As a result of your sitting there last year, I am sure you were listening very closely to the questions I asked your predecessor. If you were not, I will remind you with a few of my own. Last year, in a bipartisan effort, the Congress, I may say, led by this House and the Chair of this Committee, authorized and then appropriated $50 million in Section 8 tenant-based rental assistance specifically for people with disabilities. The Congress realized that these funds were a step towards trying to offset the loss of housing faced by non-elderly people with disabilities due to the designation of elderly-only public and assisted housing. As you may know, according to the report ``Opening Doors: Recommendations For A Federal Housing Policy for People With Disabilities'' by the Consortium of Citizens With Disabilities Housing Task Force people with disabilities will and have lost access to over 273,000 units of public and assisted housing between 1993 and the year 2000 due to the designation of elderly housing only. Already 66 public housing designation plans have been turned in to your Department for review and of these, 44 have been approved and 12 are pending. Between the 44 already approved plans, over 21,000 units of public housing have been designated as elderly units. My question is, since we have a demonstrated need out there, I cannot understand why you, Mr. Secretary, have not included in your Fiscal Year 1998 HUD budget this particular need that is out there and why there is not included funding for Section 8 tenant based rental assistance for people with disabilities? There is a big zero in your budget sheet here and I am wondering why that situation exists? We sort of crossed this bridge last year because there was nothing in the budget and the Committee insisted in adding--I think it was proper, it was bipartisan--$50 million for this critical need. Can you give us the rationale for not including this in the budget in this year? Secretary Cuomo. Congressman, we are sympathetic, obviously, with the need of the disabled population, especially in conjunction with what we're trying to do with the elderly housing and allowing public housing authorities the option if they would like to designate housing for the elderly only. And that means you need housing opportunities for the disabled, obviously. First, we do have the $50 million, as you pointed out that the Committee put in. A NOFA is going out for that funding. So that is one resource. Number two, the 811 program, which is the main source of funding for the disabledcommunity, we propose having 25 percent of that funding going to the disabled which would be roughly 2,000 units. So, we do have provisions for the disabled. Again, would we like to do more? Of course, we would. But given the size of the pie that we are cutting up we have had to make some tough choices. But we have the $50 million, thanks to this Committee, which is going out and 25 percent of the 811 request, which is about 2,000 units. Certificates for the Disabled Mr. Frelinghuysen. Let me just say for the record, and correct me if I am wrong, that the 811 program was never designed nor intended by Congress to be the sole Federal response to the issue of designated housing, most particularly, for this important population. Where do we stand relative to these certificates? What is the timetable here? A lot of the organizations that most of our committee members are familiar with, you are familiar with, that represent people with developmental disabilities, mental illness, mental retardation, spinal cord injuries, they are wondering where we stand in that process and they want to know when the certificates are going to be out and if the public housing authorities who administer this assistance, will be required to consult with people with disabilities and their advocates in determining that allocation; where do we stand relative to that process? You have said that something is about to happen; where do we stand? Secretary Cuomo. I would make two points, Congressman. First, for the people who would suggest that the 811 is the only resource within the Department for people who are disabled, I would commend them to look at the HOME program, which is a very successful program of the Department, about $1.3 billion. The HOME program can be used to house the disabled. In the CDBG program, which $4.6 billion--some of that can be used too. Mr. Frelinghuysen. If the community development money is used for housing---- Secretary Cuomo. If the community makes those decisions. But much of what we are doing in the spirit of devolution, is we are trying to give local communities control over their own communities and their own destiny. The Department believes, and I think the Congress shares the opinion, that rather than having a lot of Federal dictates, mandates, local flexibility, leave it to the local community. The HOME program, the CDBG program are designed just in that air. CDBG was created in 1974 and has a long track record but it was the same intent. So, if a community says we have a problem housing the disabled--and you are right, we leave it to the local community, which I would endorse--but CDBG then is an asset, HOME is an asset. Homeless funds, which are about $800 million, they could also be a potential resource. Mr. Frelinghuysen. They will only be a potential resource if, in fact, there is, I think, a combination of leadership locally and leadership on your part. From my understanding, and I understand because I come out of local government, that a lot of the Community Development Block Grant is being used to address access issues. The real problem is that since--and we are not pitting a battle here, you know, we are not pitting the elderly against the non- elderly or the elderly against people with disabilities--the real problem is that unless your Department makes some plans to fill this zeroed out portion with a like amount that we put in last year, I fear that people with disabilities are going to get shut out of the process. They cannot only depend on Section 811 or the HOME program or the Community Development Block Grants. I think they need, we need some specific action and leadership and I would like to know whether we can see some sort of another look at this, coming forward with these dollars? Mr. Lewis. Would the gentleman yield? NOFA for section 202/811 Mr. Frelinghuysen. Yes, Mr. Chairman. Mr. Lewis. Mr. Secretary, I think what Mr. Frelinghuysen is getting to here is that there is a very clear message that we want these monies to go out. There seems to be a reality that within the Department there are people who really do not have a lot to do with this program who are not letting it get out. And it may very well require your attention. Secretary Cuomo. It is my understanding, Mr. Chairman, that the notice will be going out literally in a matter of days. But I will check that immediately and if that is not the case, I will find out why and it will go out in as short a period of time as possible. Mr. Frelinghuysen. Is it for the entire amount or it is for $25 million or is it for the whole shooting match? Secretary Cuomo. It is for $50 million, for the full amount, sir. Mr. Frelinghuysen. Okay. In addition, Mr. Secretary, where is the notice of funding availability for the Section 811 tenant based rental assistance which was also included in last year's appropriations bill? Secretary Cuomo. It is in the clearance process which means it is in circulation within the Department and it normally takes several weeks to complete. We will expedite that also, Congressman. Mr. Frelinghuysen. So, the timetable is that that will be, that notice will be expedited? Secretary Cuomo. Yes. Use of CDBG funding for the disabled Mr. Frelinghuysen. Would you comment on the general utilization of the Community Development Block Grants and howthey, if you were to break down the spending to date, let us say in the last five years, how have those dollars been directly used for individuals with disabilities? Secretary Cuomo. I can get either specific numbers or estimates of the overall use of the Community Development Block Grants funds for the disabled. I do not believe that we would have that here this afternoon, but we can find that out. Need for additional Section 811/202 funding Mr. Frelinghuysen. Are there enough dollars in Section 811 for programs for people with disabilities? Secretary Cuomo. Are there enough funds in the 811 program to solve all the needs of all the disabled in the country? No. Would I like to see more funding there, Congressman? Absolutely. [The information follows:] Direct Use of CDBG Funds for Persons With Disabilities There are three specific activity codes under which entitlement grantees report the direct use of CDBG funds to benefit persons with disabilities. These are: expenditures for centers for the handicapped; expenditures for public services for the handicapped; and removal of architectural barriers. Dollars reported spent on each of these three activities grew over the 1989-1993 5-year period: Funds expended for Handicapped Center grew from $7.9 million to $11.1 million, an increase of 41 percent. Funds expended for Services for the Handicapped grew from $6.3 million to $9.8 million, an increase of 54 percent. Funds expended for Removal of Architectural Barriers grew from $15.8 million to $34.2 million, an increase of 138 percent. In general, historical data show that five out of eight entitlement communities funded at least one activity providing benefit specifically directed to the disabled. Morris County, New Jersey, reported seven activities which specifically benefited people with disabilities for a total of $97,644. Mr. Frelinghuysen. What is the split there now for 811? Secretary Cuomo. Overall the split, Congressman, is 3,800 units for the elderly and 3,100 units for the disabled. Mr. Frelinghuysen. Last year, is it true HUD requested $174 million for Section 811 program and Congress added $20 million during the floor debate? Secretary Cuomo. Yes, Congressman. Mr. Frelinghuysen. Why are we not asking for more? I may be asking for a canned answer, but why are we not asking for more if we have a serious problem out there? Secretary Cuomo. As I said to Congressman Stokes, I would like to have more money for public housing, I would like to have more money for the homeless, I would like to have more money for the HOME program, CDBG, and I definitely would like to have more money for the 811. These are all tough choices, Congressman, and with that Section 8 crisis squeezing everything to begin with, and that means if you do not renew that Section 8 contract, you will put people into the streets. It makes a bad situation worse. Mr. Frelinghuysen. Well, as critical as that is, and think we realize that is the major problem facing us. I hope that in the final analysis that there will be a real identification on your part that people with disabilities need some special attention. I do not think we necessarily can buck a lot of these issues back to local residents. I do feel that specifying a certain dollar amount is a fairly good way of assuring that people with disabilities get their fair shake and I certainly would ask that you reconsider the non-elderly-disabled portion on Appendix B of your budget submission. Thank you. Thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Frelinghuysen. Mr. Price. Disaster Relief Funding For North Carolina Mr. Price. Thank you, Mr. Chairman. I would like to add my thanks, Mr. Secretary, my congratulations and welcome to the subcommittee. Secretary Cuomo. Thank you, Congressman. Mr. Price. As probably will not surprise you, given that I come from central North Carolina, I would like to begin with some questions about disaster relief. Hurricane Fran devastated a large portion of North Carolina more than six months ago and there is still a lot of repair work to be done. Tarps still serve as roofs, sewer systems are still destroyed, much in the way of damage mitigation is still to be done. Mr. Secretary, I think you are familiar, or I know at least some of your staff are familiar, with the work of the North Carolina Disaster Recovery Task Force which Lt. Governor Dennis Wicker chaired. The report, included a set of recommendations for action issued on February 14th. One of the reasons for the report was to outline the unmet needs that still exist and that still need to be addressed. The report details a number of projects which would be appropriate for Community Development Block Grant funding. One of the things I would like to explore with you today is what is the possibility for that sort of funding through some kind of supplemental appropriation or otherwise? I assume you would agree that this kind of funding is the standard source of funding for disaster relief in a state ravaged by a natural disaster such as Hurricane Fran. What can you tell us about requests that you have pending for Community Development Block Grant funding in the Bosnia supplemental appropriations bill or any other request that would or could be applied to the remaining work in North Carolina? What is the status of those requests and what can you tell us about them? Secretary Cuomo. Congressman, the Acting Chief of Staff of the Department, Mike Stegman is from North Carolina and he has been---- Mr. Price. I am well aware of that. [Laughter.] And we are happy to have him here with us today. Secretary Cuomo. He has been heading up the Department's efforts in response to the North Carolina disaster and I would ask him to respond to the question if it is okay with you, Mr. Congressman? Mr. Price. Fine. Mr. Stegman. Congressman, as you know, the Secretary granted a number of waivers to the State and the local communities that experienced damage in the hurricane last year and waived the local match requirements under the HOME program. One of the problems we had with the supplemental last yearand in trying to develop justifications for a community development part of a supplemental that may come forward this year dealing with storm, hurricane, flood damage, is that we have yet to receive on a project-by-project basis in North Carolina estimates of costs that are not covered by FEMA and that are not really included as local match for FEMA funds. That is to say, the Administration will not permit CDBG supplemental funds to be used to pay the State or local matching share of FEMA. So, what we need in order to make a case is damage estimates on a project basis that goes above and beyond that which FEMA pays for and above and beyond the local cost share that the State may come up for FEMA funds. Quite frankly, we have not yet received the kind of detailed cost estimates that would allow us to make a case for a CDBG supplemental. That has really been the case. We have damage estimates and so on, but it is not above and beyond that which is covered by and coverable by FEMA. It takes a long time for communities and the State to really aggregate those kinds of uncovered cost estimates so that they can be appraised for eligibility for CDBG. Mr. Price. Well, you are aware of the extensive work that has gone into this Disaster Recovery Task Force? Mr. Stegman. Absolutely. Mr. Price. And those estimates seem plausible to you? What kind of further work needs to be done? Mr. Stegman. Well, it is not a question of plausible. The estimates are real, but the question of whether or not and how much of them ultimately are coverable by FEMA is still yet to be determined. Two weeks ago I was looking with our staff at the estimates that were coming in and it is a matter of when they come in and timing and when there may be any kind of work to put together a supplemental. But as of now, we have not gotten costs that allowed us to get approval by OMB for a CDBG component to any supplemental that might come up. It is based on damage estimates that are not verifiable on a project basis that show above and beyond local costs shares for the FEMA funds. I mean it is as simple as that. Mr. Price. Well, will you be recommending that there be a CDBG component in whatever supplemental comes forward with respect to disaster assistance in general? Mr. Stegman. In conversations with OMB, we put together as good a case as we could for a CDBG component to a disaster supplemental. In the past Act we were turned down based on lack of verifiable costs, unreimbursed cost estimates above and beyond that which the State must contribute to the FEMA costs. Mr. Price. That applies to North Carolina and to other States? Mr. Stegman. The big focus on this, quite frankly, was Hurricane Fran, the rest of the flood damage and so on was largely not CDBG related in terms of what the components of the supplemental was. I mean most of what we were looking at was North Carolina for the CDBG component of the supplemental. And, so as of now there is no CDBG component. Mr. Price. We will want to follow-up with you to determine what---- Mr. Stegman. Sure. I would be more than happy to in your office. status of 1997 funding for disasters Mr. Price [continuing]. Further documentation is needed. North Carolina has been steadily working on making their case and I am sure they want to continue to do that. Back to your reference a moment ago about last year's supplemental request. I am puzzled about that and maybe you can clarify it. In your budget justification for Fiscal Year 1998, in the section referring to Community Development Block Grants there is a listing of $100 million appropriated for Fiscal Year 1997 under disaster assistance. There is this footnote which says that funds requested in September of 1996 for assistance in the aftermath of Hurricanes Fran and Hortense were not enacted by the Congress. And what is the status of that $100 million? Mr. Stegman. It was not enacted. The $100 million for CDBG as part of the supplemental was not enacted. Mr. Price. So, you do not---- Mr. Stegman. Again, based on just what I said before, if you think about that we still do not have the kind of documentation that OMB requires, we certainly did not have it in October and when that initial supplemental was being debated in the Congress and enacted. So, we were not successful in getting a CDBG component to that one either, although we requested it. Mr. Lewis. Mr. Price, would you yield? Mr. Price. Certainly. Mr. Lewis. It is my understanding that there is an effort going on for a supplemental next month in April. I certainly hope the work would be done so that this package would be a part of that. Mr. Stegman. It is. That is right. I am looking at the cost estimates that we have received in the last couple of weeks for the supplemental that the Chairman is talking about in April. We have not been successful in getting approval from OMB for a CDBG part at this point, based on that. I will be glad to follow-up with your office. Mr. Price. All right, but just to clarify this $100 million from 1997, that budget authority does not exist, you are saying? Mr. Stegman. The $100 million was not approved by the Congress. Mr. Price. Why is it listed in the budget estimate in this document? Mr. Stegman. If I might see that? We were fighting for the $100 million and we did not get it approved. Mr. Lewis. Which is a guesstimate. Mr. Stegman. It was an estimate. We were requesting it. Mr. Price. Requesting it a year ago and it was never approved so this money is not available? Mr. Stegman. That is correct. Mr. Price. This money is not available for disaster assistance? Mr. Stegman. That is correct. Secretary Cuomo. Congressman, if the Department can be of assistance in working with the State or the communities to assess the community development need in any way it would be our pleasure. As Chief of Staff Stegman said if we can do it in Washington and have meetings that would be helpful, it would be our pleasure. If it would be helpful to the Congressman to send the appropriate personnel on-site that would also be our pleasure. Mr. Price. Good. Well, I know there has been a cooperative relationship over the life of this task force. There is a detailed report in there on the remaining needs andthe extent to which they would appear to be eligible for CDBG funding. We do need to know what further work is necessary in order to fully justify the request and we will gladly follow-up with you on that. Secretary Cuomo. It would be our pleasure, sir. Mr. Price. Thank you. Mr. Lewis. I am going to call on members in the following order in which they came to the committee. It is a difficult thing for we traditionally kind of go back and forth but in the meantime there have been members waiting for considerable lengths of time. Mr. Wicker, Mr. Walsh and Mr. Knollenberg and Mrs. Meek. Mr. Wicker? ig report on rental assistance payments Mr. Wicker. Thank you, Mr. Chairman. Mr. Secretary, let me begin by referring to a semi-annual report by the HUD IG issued last year for the second half of Fiscal Year 1996, concerning rental assistance payments. The report says HUD currently spends more than $18 billion annually in rent subsidies to assist 4.4 million low-income households. A study by HUD's chief financial officer estimated 1995 excess rental payments at $839 million. Now, I understand that this term, excess rental payments, to mean payments which were made to people who were in excess of the amount to which they should have been entitled. But the report of the IG goes on to say that this estimate is based only on under-reporting of income from reported income sources. And that it did not even attempt to identify income from sources that were not disclosed at all. In other words, only a part of the non-disclosed income was taken into account. I wonder if you could comment on that? The CFO apparently, according to the IG report, believes that this represents an acceptable level of risk and I quote the exact language of the IG. I wonder if you could comment on that and if we have plans to include all of the types of undisclosed income rather than only part? Secretary Cuomo. Congressman, it would be my pleasure. Acceptable level of risk, my supposition is that is an accounting term or a management term that when you are dealing with budgets in the range of $9 billion or more that there is a level of ineffectiveness that I would suppose is to be expected. But maybe the CFO could speak to that terminology. Let me say this, though. Whatever the accounting or management expectations are, our hope and our goal and our expectation is to run as efficient and as effective an organization as possible on all levels. And that is not just for HUD Central, the Department of Housing and Urban Development, but also for its agents such as local public housing authorities. We have been working with them over the past few years to come up with the best mechanisms that we can verify income which is the situation that you refer to. Right now, local public housing authorities are charged with the responsibility of reporting the income of the tenants. And basically the way it works is a local public housing authority will have the tenant certify as to what their income is. One of the areas that the Department has been pursuing is how can we verify that income as it is represented by the tenant? That has posed a number of challenges. I know Congressman Knollenberg is familiar with some of them on the so-called income verification. We have been working with the Internal Revenue Service, for example, to see if we could get access to certain information that would allow us to verify the income of the tenants. That has raised certain privacy issues that we are trying to work through or around. But, in general, it is the responsibility of the local public housing authority to verify the income. The tenant certifies to the income and we are looking for additional information sources that would help us help the PHA to verify the income. And hopefully, over the next few months, we will have an even better system. Mr. Wicker. Well, I wonder though why an attempt would not be made to even discover a whole area of undisclosed income? Do you understand the distinction that I am making in this question? There is under-reporting of disclosed income. And then there is just not disclosing whole sources. And the IG---- Secretary Cuomo. Yes. I do not see the distinction, Congressman, from a practical sense. irs and income matching Mr. Wicker. I wonder if you could check on that and get back to me and the committee? Secretary Cuomo. Yes. Well, we have the IG here and the CFO. The CFO is John Knubel. Mr. Knubel. Congressman, I would add that since that estimate was made, we have embarked on a program of exchanging and comparing income information that is given to the Social Security Administration and as well with the IRS. Now, there are some legal problems with using the data that we get from the IRS and we are addressing those. We found that as a result of the comparisons with the data that we get from the Social Security Administration, our current revised estimate is that the number that you just quoted is between $400 and $700 million with a 95 percent level of confidence. As a result, it is between 2 and 4 percent of this year's $19 billion figure. This is comparable to other means tested programs in Government. So, when I said, ``acceptable level of risk,'' I did not mean that we are not working to decrease it, and that we are not taking advantage of new opportunities to share data as they become available from other sources, to us legally, but that we have a number that is roughly comparable to the ``state-of-the- art'' in dealing with this problem in other departments, such as Agriculture. I could name many others. If you would like we could follow-up with a written statement. [The statement of Mr. Knubel follows:] [Page 62--The official Committee record contains additional material here.] Mr. Wicker. I would appreciate that. And I would just be interested if you included all undisclosed income what your estimate would be? Secretary Cuomo. If I could, Congressman, possibly clarify the question. We want to verify the income regardless of the source of the income. The best information that we can get to verify that income is what we want to avail ourselves of and the local public housing authority. We do not make any distinction between sources of income. Any income source that we can find is what we want to verify. Mr. Knubel. Absolutely. Of course, we are limited in not being able to access other sources of income or to distribute them and verify them. Except for Federal sources. And we are working on this issue with the IRS and others. That would be a major breakthrough but there are legal inhibitors to that but we are working on it. Mr. Wicker. Let us know what the Congress can do to assist you in that. implementation plan for trigger mechanisms Let me ask you about the President's long-term budget, Mr. Secretary, and the trigger mechanisms that will take effect if the balance is not reached by the year 2002. As you know, CBO has estimated the President's budget will have a $65 billion deficit by the year 2002. And if there is a $65 billion deficit CBO estimates that HUD wouldneed to reduce spending by 4 percent across-the-board. I know that administration disagrees with CBO's estimate on scoring the President's budget but, nevertheless, if the trigger mechanisms come into play, how will they affect you and, at this point, do you have a plan for implementing the trigger mechanisms? It would seem to me that you are not going to be able to cut across-the-board every program. Like, for example, Section 8 housing contracts, you will not be able to cut them in the year 2002. Secretary Cuomo. Congressman, first of all, as you mentioned, we do have a disagreement about whether or not the President's budget is balanced. I am aware of the CBO discrepancy. But is there is a disagreement and have we planned for the shortfall as described by CBO? No. But let me say this, if HUD had to take a cut and I agree with the Congressman that certain things would be ``preserved'' not to displace people, such a cut would be very, very tough for HUD to take. I mean the discussion we have had on 811. Do you cut 811 further? Do you cut public housing further as Congressman Stokes was pointing out? So, these would be very, very tough decisions especially if you made the decision not to displace people and put them on the streets which I would agree would be a wise one. 1996 carryover Mr. Wicker. Okay. We had a discussion earlier between you and the chairman about budget authority. I am told that at the end of last year HUD found $1.6 billion in extra budget authority. And that the Department is carrying that amount over to Fiscal Year 1998. Can you elaborate on how this came about? Secretary Cuomo. Through better management, more efficient financial systems, we allow public housing authorities a 6- month operating reserve for budget purposes. And the Department has become much more diligent about checking those accounts, checking the financial resources, checking to make sure local public housing authorities are in compliance with the regulations. Through those efforts, we found $1.6 billion in extra reserves that we carried over to this year. Mr. Wicker. So you have a policy of allowing the public housing authority to carry up to how much reserves? Secretary Cuomo. Six months operating reserve. Mr. Wicker. And do you have any figures on to what extent that is practiced? Do most of them do so? Secretary Cuomo. Most of them do so, yes, Congressman. Mr. Wicker. Thank you, Mr. Chairman. Mr. Lewis. Thank you, Mr. Wicker. I might mention that the Secretary is correct in his comments regarding administrative efficiencies, that the availability of more computer capacity has allowed for a search. That has allowed them in turn to find some of these reserves that just were not readily apparent. They are continuing that scrub, by the way, so your question is very appropriate in terms of follow-on. I just mention for the members who are interested that we are encouraging a no part because we know we are going to need every bit of authority we can find as we look ahead in the very difficult months ahead. Mr. Walsh. Mr. Walsh. Thank you, Mr. Chairman. I would just like to welcome the Secretary to this subcommittee again. Secretary Cuomo. Thank you, Congressman. Mr. Walsh. And as a New Yorker, we are all very pleased and have high expectations, and wish you all the best in your new capacity. Secretary Cuomo. Thank you very much. cost of section 8 contracts Mr. Walsh. You are welcome. I have a Congressional Quarterly article here that estimates that the cost of fulfilling these Section 8 contracts in 1998 is $9.2 billion in budget authority. Secretary Cuomo. That is basically our estimate. Mr. Walsh. And you have proposed some savings that can be garnered, $2.4 billion? Secretary Cuomo. Yes, Congressman. Mr. Walsh. Which would provide $2.4 billion towards that $9.2 billion requirement under Section 8? Is that what you are proposing? Secretary Cuomo. The $2.4 billion would be savings. With $5.6 billion additional, that would cover the cost of renewal. Mr. Walsh. So with the 2.4 and the 5.6, you come up with what you need for Section 8? Secretary Cuomo. Yes. public housing reform bill--h.r. 2 Mr. Walsh. Now, just an opportunity for you to comment generally. Another one of our fellow New Yorkers, Congressman Lazio, has proposed a fairly all-encompassing measure, H.R. 2, aimed at overhauling the nation's public housing system. I just wondered if you would care to comment on that pending legislation. Secretary Cuomo. We had a hearing on it several weeks ago, Congressman, and I think that the thrust of Chairman Lazio's legislation is productive. A lot of it are things that we are now doing, that this Committee has continued from year to year, and public housing authorities have relied on. To have that now authorized I think would bring a sense of security to the industry, so they would know that some of these changes, which are major changes, will be around for a while and not only considered on a year-to-year basis. And I think many of the directions in Chairman Lazio's legislation are correct, and we support it. We also have differences with some of the aspects of the legislation, the Brooke amendment, the income targeting, etcetera, but I believe we agree on the thrust of the legislation. Many of the specifics we agree on. Those specifics where there are differences, I believe they will be overcome, and I think we will have a piece of legislation that the Administration can support. Mr. Walsh. Is there anything in that legislation that deals specifically with the Section 8 housing shortfall? Mr. Lewis. Good question. Secretary Cuomo. That is not the purpose of the public housing legislation. We would need a different piece of legislation to solve the so-called mark-to-market or portfolio reengineering problem legislation to get the kind of changes need. Mr. Walsh. So while he has proposed authorizing legislation to do an overhaul of the existing system, there really is not anything specifically targeted at your main problem which you identified early on as Section 8? Secretary Cuomo. Yes, that is correct. Do not get me wrong, Congressman. The reforms in the public housing are very important to the department, also, and will do a lot of good work in that public housing legislation. But does it solve the Section 8 problem? No. portfolio re-engineering Mr. Walsh. This mark-to-market reform that you have talked about, this portfolio reengineering, could you give us sort of a sketch of how that will work? You look at otherexisting properties' comparative values and try to assess whether you are paying too much or not enough? Secretary Cuomo. In a nutshell, Congressman, you would look at the particular building that is expiring, where the contract is expiring. The owner would have to decide whether or not they want to continue the relationship with Government. Government would have to decide whether or not it wants to continue the relationship with the owner. Then you would have to come to fair terms. The Government is paying rents which are in excess of the fair-market rents. We want to get the rents down to where they are fair to the market place. In many cases, to do that we have to reduce the mortgage which is an FHA insured mortgage. Mr. Walsh. Is the government ever a mortgage holder in that case, first or second mortgage? Secretary Cuomo. Well, with FHA you are essentially responsible. You insure the loan. There is a private lending institution which made the loan, but you in essence hold the mortgage. And you are paying the rent. So you are paying out of both pockets. If you want to adjust the rent, you have to adjust the mortgage, and you have to keep the two in balance. The rent has to go to pay the mortgage and the operating and other costs, bona fide costs of the building. You would have to do that renegotiation for the monthly rent and the cost of the mortgage. The reduction in the mortgage would be an expense to the FHA fund. The reduction in the mortgage also causes a taxable consequence to the owner, and that is what the chairman was referring to when he said we need a piece of tax legislation. Because what the owners are saying is, ``I cannot do that renegotiation and have the mortgage reduced, because it is a very significant tax consequence when you reduce the mortgage. And unless you can help me with that tax consequence, the numbers do not work.'' We are saying then, in exchange, we will do that, the Administration will support a tax legislation, tax fix, but what then will the owner do in reciprocity for that tax fix? Mr. Walsh. It is a fairly complex process. You have estimated $1.3 billion in savings. How did you arrive at that figure? Secretary Cuomo. When you consider the savings from the Section 8 rent, the cost to the FHA fund, and the number of buildings that would come in---- Mr. Walsh. How did you estimate the Section 8 savings? Secretary Cuomo. You would be reducing the monthly rent after this renegotiation. The rents would come down, so you would save money by paying lower rents. Mr. Walsh. I understand. Secretary Cuomo. At the same time, the FHA mortgages would be reduced, and there is a factor called proactivity. Hopefully, we could encourage owners to come into the program, to come forward with their buildings and do the renegotiation, if we had an attractive enough financial package. So buildings where we are now contractually bound to pay high rents for years to come, we are trying to get those landlords in so we can renegotiate. Mr. Walsh. Do you think this is a pretty solid number? Would you say it is a conservative estimate? Secretary Cuomo. I think it is a solid estimate. These numbers were all scrubbed by OMB. Obviously, they will go to CBO, and then there will be another discussion. There have been occasions where CBO and OMB actually have a difference of opinion on numbers, so it would not be the first time. But I am confident OMB went through the numbers and they feel good about them. manufactured housing Mr. Walsh. Two specific questions, one on manufactured housing. You mentioned that there are literally millions of Americans that are paying over 50 percent of their incomes on their housing. I think somebody told me a long time ago that you should try to keep your housing costs to about a quarter of your income. So that is a fairly substantial bite out of somebody's income. Manufactured housing--I am told you can buy a new manufactured home at about $36,000. Is there anything that your department can or should do to move people into that sort of housing, especially in rural areas? Secretary Cuomo. Congressman, if I could, just a quick point from the previous discussion. Mr. Walsh. Sure. Secretary Cuomo. On the numbers, OMB has certified them, and also the department engaged Ernst and Young, a private accounting firm. They also went through the numbers and helped us with the analysis. So that is a government number, and it is also E&Y number, which I think the Committee would agree is a reputable accounting firm, which has gone through the numbers also. So we feel confident in those calculations. On manufactured housing, the Department, as you know, regulates certain aspects of the manufactured housing construction business. It is a growing field, as the Congressman knows. In the state of New York, 10, 15 years ago, the manufactured housing business was a small fraction, and there has been an explosion of acceptability. And it also provides a very affordable product and, given the proper regulations, a good product. So do we promote manufactured housing? In concept, yes. In specifics, since we are the regulator, we do not really promote it over any other type of housing. But the concept of affordability, fast construction, makes total sense, especially given some of the pressing needs we have. baldwinsville project Mr. Walsh. My last question, Mr. Secretary, is you and I have had several conversations and correspondence has passed back and forth regarding an initiative that you had developed on the Erie Canal, that commercial sector in upstate New York. And there is one particular proposal that just does not quite fit the small cities program that encompasses that development projects. And I know you are somewhat familiar with the specifics of it. We have not yet been able to meet the flexibility requirements that that project is going to take. Can you offer me any hope at this point, specifically, on that Baldwinsville project? Secretary Cuomo. Congressman, I had a conversation with the mayor after we spoke. Mr. Walsh. I know you did. Secretary Cuomo. And it was a good conversation. Frankly, I do not have a specific positive answer yet. I want to speak to a couple of the neighboring jurisdictions and see if we cannot form some partnerships there. Also there is an option, under the CDBG program where, you do not have to take the option that Baldwinsville did, which is they are a participating jurisdiction within the county. You could also be a ``small city'' and go the competitive route, ratherthan going within a county. And that is an option that is available to Baldwinsville. I want to make sure that they understand what that option would mean, but it is something that they may want to pursue. Mr. Walsh. Thank you very much for your responses. Secretary Cuomo. Thank you, Congressman. Mr. Walsh [presiding]. And since Chairman Lewis is not here, I will for the moment call upon Mr. Knollenberg. Mr. Knollenberg. Mr. Secretary, welcome, and congratulations on your move up. I enjoyed the association I had with your predecessor, Henry Cisneros, and look forward to getting to know you a little better. Secretary Cuomo. Thank you very much, Congressman. So do I. promulgation of property insurance Mr. Knollenberg. In last year's hearing--not on your watch, but you were part of the grouping--Betsy Jullian, who was then the Assistant Secretary of Fair Housing, stated that the department had no plans to promulgate additional regulations pertaining to the application of the Fair Housing Act to the business of property insurance. This was reiterated just recently. I appreciate the response from Mr. DeCell in regard to my letter to Susan Forward. And I would like to enter that, Mr. Chairman, in the record, if I could, that letter in response to my question. Mr. Walsh [presiding]. Without objection, so ruled. Mr. Knollenberg. He wrote, and I quote: ``The department's position remains unchanged. HUD will continue to carry out its enforcement responsibilities, including investigating complaints and seeking their resolution.'' The implication, as I see it, is that HUD would not undertake, or will not undertake, any proactive steps for the remainder of this fiscal year to involve themselves in this issue. And for the record, I just want to know, is that basically how you understand it? Secretary Cuomo. My understanding, Congressman, is that we have no plans to promulgate any insurance regulations. Obviously, it is the department's responsibility to investigate complaints. Mr. Knollenberg. Would that be true for fiscal year '98, as well? Any idea? Secretary Cuomo. That would be true for '98, as well, Congressman. equal split of fhip & fhap monies Mr. Knollenberg. Now, on to a subject that has a bit of a ring to it, FHIP and FHAP. They could name that something else, I suspect, and we would still have trouble with it. But I know the difference between FHIP and FHAP, and I know that you do, too. In the fiscal year '98 budget proposal, HUD estimates in fiscal year '97 that it will spend $18 million on the FHIP program, the Fair Housing Initiatives Program. Currently, it is $6 million they are spending on the Fair Housing Assistance Program, or FHAP. In last year's bill, we appropriated $30 million. We appropriated $15 million for each, and our expressed intention was to split it evenly. And I guess my question is, how do you explain--and if you do not, would somebody else please come forward--the discrepancy between your estimate and the directions of the report language which was very specific about $15 million for each? I can refer to the budget that you submitted, in Appendix B. Secretary Cuomo. Congressman, in fiscal year 1997, we are doing as directed, which is the split as suggested by the Committee between FHIP and FHAP. And I agree with the Congressman: If we can come up with better acronyms, we will. But we are splitting the funds as the Committee directed for fiscal year 1997. For fiscal year 1998, our proposal is a different split, as the Congressman pointed out. Mr. Knollenberg. Well, again in the appendix that I see here, the actual estimate budget outlays--these are outlays, now--for the FHIP program was $18 million, and for Fair Housing Assistance it was six. So that does not mirror the direction in the report language. I guess I am interested in why. Secretary Cuomo. Well, Congressman, we now have three concepts. The outlays are not necessarily from 1997; as a matter of fact, probably are not 1997 funding. They are from previous years. Mr. Knollenberg. Was there a carry over? Secretary Cuomo. They are now carrying over and laying out at different rates. So that is the outlays which are a product of previous years' funding, then the Committee's split on fiscal 1997, and then our proposal going forward. purpose of fhip funding to states Mr. Knollenberg. It is a little unclear. And I understand that when you talk about unspent balances and carryover balances and that kind of thing it does get a little bit difficult to understand. But do you intend to spend beyond the $6 million level in FHAP? Let me tell you in a moment why I am asking these questions. Secretary Cuomo. Please do. Mr. Knollenberg. The reason we did that evening-up last year was to speak to the problem--and you well know this. And I could ask you a couple of questions about how many states, frankly, right now are substantially equivalent in terms of their fair housing operations? Do you know what that number is? Secretary Cuomo. I do not, but we can find out. We have Deputy Assistant Secretary Susan Forward here, who could give us that information if you would like, Congressman. Mr. Knollenberg. Either that, or it could be submitted. My question really is, I know that somewhere in a draft of information that we received, it states that there are 18 state governments that do not qualify for financial assistance under the program because they lack fair housing laws that are substantially similar to what the Federal Government has. Secretary Cuomo. Right. Mr. Knollenberg. I do not know who those 18 states are, but I would like to have that information. Secretary Cuomo. We can provide the Congressman with that. [The information follows:] States With Laws Which are Equivalent to the Fair Housing Act Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, and West Virginia. States With Laws Which are Equivalent on their Face, But Which Are Not Participants in the Fair Housing Assistance Program Illinois and Kansas. States With Laws Actively Pending Legal Review or Legislative Action Alabama, Nevada, New York, Oregon, and Vermont. States With Laws Which Are Not Equivalent to the Fair Housing Act Alaska, Arkansas, Idaho, Maine, Minnesota, Mississippi, New Hampshire, New Jersey, New Mexico, North Dakota, South Dakota, Wisconsin, and Wyoming. Mr. Knollenberg. What I am really after I think is why the emphasis away from FHAP, because FHAP monies literally are there to bring up, I thought, those states that are out of compliance, out of level, out of being substantially equivalent, to a point where perhaps they would be, because that would take the responsibility off of HUD's shoulders and more onto the states'. And that was the belief that we had, and that is why we drove that point home about evening it up. And so I guess I would like to know, is FHIP money now currently being targeted to states that do not get FHAP money? And the answer is ``No''? Secretary Cuomo. No. Mr. Knollenberg. They are not? Secretary Cuomo. No. Mr. Knollenberg. Would there be perhaps a greater emphasis on FHAP spending in the future, let us say in '98, to bring those states up to compliance, up to a level? Secretary Cuomo. Let me ask the Deputy Assistant Secretary to step up, Congressman. I do not think it is a question of emphasis away from FHAP to FHIP. I think it is an emphasis, an affirmative emphasis, on what we are doing with FHIP, the testing we are doing with FHIP, the groups that are doing good work through that. And we want to encourage that and continue it, as opposed to a movement away from FHAP. But let me ask Deputy Assistant Secretary Forward to respond to the question. Ms. Forward. Thank you. I might add that with the FHAP program, the Department is doing everything we can to include as many jurisdictions as possible. We currently have 73. There are 29 states and 44 localities. We had at one point a pool of 120 localities and states, and the Department is working very hard to assist those states and localities that would like to have laws substantially equivalent to the Federal Fair Housing Act. So I would suggest that, yes, the FHAP program will be spending out at a higher rate than it currently is. Mr. Knollenberg. The reason that a lot of my questioning comes into play is that on page 4 of Mr. DeCell's response, in question number seven, he indicates that the fiscal year 1997 appropriations language established a minimum allocation for FHIP. The report language is very, very clear. It says 15. And so I do not want to make a big thing out of it. It is just that I want to know the direction for the future, if what you say is that you are moving in that direction. And if we can help you in our way, please let us try. I do not know what that would be, but I know, in fact, the Secretary mentioned for example H.R. 214, which is the income matching provisions, which we are trying to do. And there is also the question of the single asset bill, which I think you spoke to, Mr. Chairman, early on. And that has done some damage, I believe. I know Mr. DeCell has been kind enough to share some of his knowledge of that with our staff. And I will continue to work with you on that to assure that we come to some closure maybe in those areas that will help you reduce your cost, because I know it has been excessive. So essentially, if you are moving that way--And I guess that is what you are telling me? You are moving in that direction? Ms. Forward. Yes, we are. Mr. Lewis. In that event, he is looking ``forward'' to working with you. [Laughter] Ms. Forward. And I am looking forward to working with him. status of detroit pha Mr. Knollenberg. Thank you, Mr. Chairman. There are several things I could ask you, but in an effort to give everybody a chance here I wanted to relate back to a conversation I had with Mr. Cisneros last year on Detroit. And at that time, he ranked Detroit--Out of 40, I think it was fourth from the bottom. That is a pleasant way of saying 36th, I guess. But he was optimistic about working with Mayor Archer. And I just wondered if you have any up to date information as to the status of the program that a year ago seemed to havean optimistic flavor to it. Do you have any current status report? Secretary Cuomo. Yes, I do. Mr. Knollenberg. On Detroit and the PHA situation there? Secretary Cuomo. Yes, I do, Congressman. The city of Detroit, which at one time was used in this country as the poster city for urban decay, really has been remarkable in a turnaround. And if it was a poster city for urban decay, I hope they now use it as a poster city for what is possible. They won an empowerment zone, as the Congressman recalls. And we did a report several weeks ago that said that Detroit was one of the most successful empowerment zone cities in the country. The public housing authority, which was troubled just a couple of years ago--and on which we came up with an agreement with the city and Mayor Archer to work with them on the housing authority--just last week passed the PHMAP score, the grading score, and is now no longer a troubled housing authority. So the housing authority is a success story. Indeed, the overall city's progress is a real success story, and a heartening one. Mr. Knollenberg. Thank you. That is the conclusion of my questions, Mr. Chairman. Thank you. Mr. Lewis. Thank you, Mr. Knollenberg. Mrs. Meek. Mrs. Meek. Thank you, Mr. Chairman. I would like to welcome Secretary Cuomo. Secretary Cuomo. It is a pleasure. Thank you, Congresswoman. section 108 and CDBG programs Mrs. Meek. And I am pleased to see you and happy to work with you. I need some information and advice on Section 108 of the loan guarantees. Secretary Cuomo. Yes. Mrs. Meek. It has come to my attention that many--I get a little concerned about the local authorities and what they are doing with HUD monies; in that many times the local authorities may not be really equipped or aware of the many needs regarding economic development. And I understand that a lot of cities and counties are sitting on the 108 monies, the loan guarantees. Will you explain that to me? Several groups have come to me and said they have gone specifically to my county asking for 108 monies. They have discovered, to their discontent, that a lot of the 108 monies are being channeled towards some of the big, big infrastructure projects and stuff of that sort. Would you clarify some of that for me? I really do not know what is being done with 108. Secretary Cuomo. Congresswoman, it is an important topic for the entire Department. First of all, we are trying to emphasize HUD's economic development potential. We have an extensive housing portfolio, as we have discussed at length, but the Department also has some real economic development tools, empowerment tools that they can bring to bear to help a community which I believe are more critical than ever before. We are talking about welfare reform. We are talking about creating jobs. We are talking about creating jobs for people in very distressed communities, which is normally where the welfare recipients live. HUD can be of help in the economic development arena. One of the main weapons we bring to bear is the Economic Development Initiative Program or EDI. Economic Development is a CDBG-eligible cost, and the Section 108 loan program, which allows a local jurisdiction to take a loan for a CDBG purpose up to five times their annual CDBG allocation. So it could be used for economic development loans, or any other CDBG purpose: housing, social services, etcetera. Our experience has shown that, if anything, jurisdictions are somewhat reluctant to use it because the underlying security for the Section 108 funding is their CDBG. Mrs. Meek. That is right. Secretary Cuomo. In other words, they make a loan to a specific project. The first security is that project, itself. The project is supposed to generate income which will pay off the loan. However, if the project does not pay off the loan, then we can look to that jurisdiction's CDBG annual allocation to recoup the cost of the loan. And that makes jurisdictions nervous, because the CDBG money is so precious. So we have seen some reluctance to use the program because of that, until they understand it. We have capacity in the Department that we can make available to local communities. If the Congresswoman would like, we can send out people who work with this program and know the eligible uses. We can have a meeting in the district where we get the local jurisdictions and HUD personnel, to discuss how the program works and its potential uses. If that would be helpful, it would be our pleasure. Mrs. Meek. Mr. Secretary, they know the guidelines and they know how it can be used, but they will not loan it, because they feel that it is a threat to their CDBG monies. And as a result of it, the people I represent are going without some of these loans because of that. And local government makes that decision, that it cannot be used. Now, I do not know how to get around that. Maybe I will talk to you and some members of your staff a little bit later. But I wanted you to know that of all the monies that HUD has out there, the 108 is not really being utilized in the communities that really need community development funds. And it matches other monies. Am I correct? Secretary Cuomo. Yes. usage of CDBG money in florida Mrs. Meek. And in that way, it prohibits a lot of growth in our communities. I am concerned about that. Also, the people I represent--and, of course, all kinds of people--we have a lot of concerns about CDBG monies, because I wish you could have someone tell me where CDBG money goes, particularly in the state of Florida; in that, the way it looks to most of us--and we do not have the figures; these are just speculations, having been around it a long time--that a lot of the CDBG monies go toward building the big infrastructures that are downtown, the large buildings. And when the people I represent get all upset, then they worry about, ``What happened to the CDBG monies?'' Secretary Cuomo. Yes. Mrs. Meek. And they look at me. And I am looking at you. I want to know what happened to the CDBG monies. Secretary Cuomo. Well, I am going to look over here, then, Congresswoman---- Mrs. Meek. Okay. [Laughter] Because it is very crucial. And we are going through a lot of throes in south Florida, as you know--quite a few. We have a very large immigrant population; welfarereform has come up; the legal immigrants need someplace to go, they need jobs; and everyone-- the ones who have been there all the time need it. So it is important. I wish you would help me with that particular piece, as to how we can work with local government with those funds. I am also concerned about the 202 programs for the elderly. I want to know, did OMB take your original request, or did they cut it down? Because you went from $830 million to $300 million. Secretary Cuomo. Congresswoman, on your first point, it would be our pleasure to tell you where the CDBG funds go nationwide. We have all sorts of reports that detail the uses of the program, what percent of the money is going where on an national basis. We can also now show you where the CDBG money is going. Mrs. Meek. Good. Secretary Cuomo. One of the things we have done over the past 4 years is we have used the computer to have mapping software literally for the entire country. And jurisdictions now put on these electronic maps where the CDBG money is going. And we can make a map of a city, of a county, of a congressional district, and show you where in that district the CDBG money is going. We can do that for you. It is also on the Internet, so it is accessible to anyone who looks. And it really brings the CDBG program into a new light, because rather than just reading about percentages you get to actually see where the money is going in the district. And it would be my pleasure to follow up with you on that. Mrs. Meek. Thank you. Secretary Cuomo. On the 202 program, I agree with the Congresswoman that it is a good program. I wish that we could have gotten it more resources. As far as conversations between the department and OMB, we consider those basically conversations within the family, and we try to keep them that way. But I agree with the overall comment of the Congresswoman. Mrs. Meek. All right. If I may go further---- Mr. Lewis. Was that a response? Mrs. Meek. No, it was not. Secretary Cuomo. Well, it was a within-the-family response. [Laughter] Mrs. Meek. All right. Local communities are the ones who are giving me problems, because cities that are operating in distress, like the city of Miami--I should not call it names; I love my city, but they are operating in distress. And my constituents are so concerned that in order for them to balance out and do what they need to do, that CDBG monies will be utilized primarily for that. And I think I have gotten that message across to you. And there is very little, it seems, that I can do, except to yell and shout about it, unless some new regulation or some new policy is placed in. I worry when all federal flexibility is taken off. I worry about it, because if we do not maintain something, we will go back to somebody blocking the school house door, and I am concerned about that. And I do not know whether we will ever get back to the stage where we realize that all ain't fair in this country. All right? And until we get to looking at some of these things from a federal level and taking some initiatives-- on the way, there have been a lot of abuses. I understand that. But I am concerned about it. preservation funding for jacksonville, florida I would also like to say I have got a lot of requests about--I think the Senator sent me a letter regarding the Jacksonville situation. And I do not want to talk about it if it embarrasses you in any way. Secretary Cuomo. I do not know if it does or it does not-- -- Mrs. Meek. Well, suppose I tell you about it. [Laughter] Secretary Cuomo. Well, unless you do not want to tell me about it---- Mr. Lewis. Just within the family. Secretary Cuomo. Yes, right. Yes. Mrs. Meek. This has to do with the preservation program, the low-income housing program, the preservation program. Because of something that happened in the regional office of HUD--And I do not really know all of the vicissitudes of what happened, but what happened, Florida, being a very large state, ended up because of some delays with very little monies from this low-income preservation fund. Now, they are writing me and calling on me, and they only had three--I think they had three grants funded out of this whole thing out of the Jacksonville field office. And the people are questioning as to how the fourth-largest state stands to receive only 1.6 percent of the total amount that was appropriated for this program over a two-year period. So I am taking a lot of heat on that. So I need to know the question that has been asked me, whether or not there can be some recompense for this. I understand the funding is short and it is going to go out soon, but I came here today to tell you my troubles. Secretary Cuomo. Okay. Mrs. Meek. I know you want me to listen to yours, but I want you to listen to mine. [Laughter.] So it is important. I hear that most of the money that you had in there, the $350 million, is almost gone. It is either gone, or it is fully committed. So you see where that leaves Senator Mack, Graham, Meek, and all the rest of us. Secretary Cuomo. Okay, Congresswoman, you raised two very important points. First, on the CDBG, the CDBG Program is a block grant. But that does not mean that it is a blank check from the Federal Government to the local communities. As a matter of fact, with CDBG there is a whole process of citizen participation, citizen communication, that the local jurisdiction has to go through before it determines its use of CDBG money. This is not a program where the city sits down and the founding fathers go in the back room and cut up the CDBG pie. They have to go through a citizen process. There has to be notice. There have to be hearings. Citizens have a right to be heard. And the jurisdiction has to account on those citizen concerns and what the disposition was thereof. If we don't think the process was fair, HUD can withhold funding. So if you have a question about how the process is going or how the jurisdiction is making decisions, we would love to hear that and check with the jurisdiction. Because, again, there is a process that has to be followed with CDBG. If it is not being followed, they should not be getting the funding. And on the whole new thrust for HUD of restoring the public trust, CDBG is part of that, and we would love to be helpful if we can. Mrs. Meek. All right. Secretary Cuomo. On the preservation, the demand for preservation was multiples of the available resources. For every one project that is in line to actually get funding, there must have been 15, 20, maybe more, requests. As far as the situation in the Jacksonville office, the information that I have before me, Congresswoman, suggests that the office performed adequately in the reviewing of the applications, that there was not an undue delay; therefore they were not unduly prejudiced, and there is no reason to move them up on the list. But I would like to check, with the Congresswoman's permission. Let me check the facts. Let me inquire, myself. And I will get back to you on whether or not that is the case. [The information follows:] Allocation of Preservation Funds to the Jacksonville Office There are 146 eligible projects in the State of Florida, but only 54 owners applied. Many of them either did not apply in time, or their offers did not meet program requirements, despite repeated efforts by HUD Jacksonville to bring the submissions of the owners, and in some cases of non-profits and owners, into compliance. If the owner did not apply in time to have an approved plan of action by September 30, 1996, HUD could not make a grant. Jacksonville's processing time from Initial Notice of Intent to Plan of Action approval (695 days) is actually below the national average (740 days). For 1997, HUD has allocated $5,669,323 for two Resident Homeownership Grants handled by the Jacksonville Office from Preservation funds. One project had already been approved from 1996 funds. Five projects were given extensions in previous fiscal years. Mrs. Meek. All right. One last facet of this---- Mr. Lewis. Before we leave that subject, Mrs. Meek. Mrs. Meek. All right. Mr. Lewis. I think the Secretary is being very delicate within the family. The fact is, there was $350 million that was appropriated. Remember, we zeroed that account in our bill, so it was through the conference. Mrs. Meek. Yes. Mr. Lewis. That money was available on a first-come, first- served basis. The owners knew that they had to get their plans of action in. Other states' owners in a similar circumstance were more responsive, got up front. And if I were the gentlelady, I would have my owners sit down with me and say, ``Hey, friends, next time this happens, you have got to get in line or you are going to find yourself in the same position.'' It is not your fault. They knew what the story was. Mrs. Meek. Well, beside that, Mr. Chairman, is that you allowed New York and Florida and somebody--not Florida, New York and some other states---- Mr. Lewis. Ohio and California---- Mrs. Meek [continuing]. To dip in. Had I been here, you would have had a dip-in for Florida. [Laughter.] That is right. Secretary Cuomo. They are not that delicate outside the family. Mr. Lewis. Mrs. Meek, clearly, as a member of this Committee you can deliver a message to your owners. They knew what the timing was. They knew they had to get in line. They knew it was first-come, first-served. And frankly, you ought to look them in the eye and say, ``Hey, friends, I can only do so much.'' I think that is right. We are just here to help, you know? Mrs. Meek. I see. Mr. Lewis. Okay. Mrs. Meek. Now, I think I heard the Secretary tell Mr. Price that that $100 million was not really $100 million? Someone on your staff said it, or did they? Secretary Cuomo. That was a proposal for funding that was not enacted. Mrs. Meek. So we cannot ask you for any reserves, can we? Secretary Cuomo. You can ask. We do not have any. [Laughter.] Mrs. Meek. All right. Mr. Chairman, I do not want to take all day. Mr. Lewis. You are doing well. Mrs. Meek. I have lots of questions, but I will submit them for the record. And thank you very much, Mr. Secretary. Secretary Cuomo. Thank you, Congresswoman. oversight vs. over-regulation Mr. Lewis. As you can see, Mrs. Meek is very intent on making sure that her people are responsive to the process, and I am sure that they will hear from her. A couple of items. I want to spend a little time on HANO and New Orleans while the Secretary is available. Before going to that, as you know, I have been very interested in HUD's efforts to restructure its management from top down, centralized approach to one that recognizes the importance of local input and decision-making. Obviously, this approach requires a significant amount of monitoring and oversight, but a modicum of regulation. I am really kind of thinking in the back of my mind about what happened in Indian housing, but I don't want to raise that, per se. It reminds me of this. Just because we are talking about a modicum of regulation doesn't mean we don't have a serious oversight responsibility that we need to follow through on. Does HUD staff have the ability to understand the difference between oversight and over-regulation? Secretary Cuomo. Yes, it does, Mr. Chairman, and I think that is the balance. That is the balance that the Department, if successful, will find. I said in response to Congresswoman Meek, CDBG is a block grant. It is not a blank check. Mr. Lewis. That is right. Secretary Cuomo. Block grants, local flexibility, the CDBG program, the HOME program, I think those are the ways of the future. That does not mean that we hand over a check and whatever the local jurisdiction wants to do, it does. There are Federal goals that have to be met, and there is a monitoring responsibility. That is on one end of the spectrum. The other end of the spectrum is over-regulation and so much red tape that you constrain the local jurisdiction. So the truth, as usual, is somewhere in the middle. That is the balance the Department seeks to find in its reinvention of its mission. The second cut on that same issue, Mr. Chairman, for us is what is the best role for the Department in that scenario, and when there is a private sector task, or when we need private sector expertise such as construction management under HOPE VI, or have a very specialized task to oversee construction or need to know what is the appropriate fee structure between a construction manager and a subcontractor and a general contractor? When you have these specific private sector tasks, privatize them and get the private sector expertise in. For example, asset management on the multifamily portfolio and how to read those balance sheets that the owners put together; you have to really know your numbers and know the business. Let's get the private expertise in the places where it is appropriate. Let's remember our role, which is to oversee as opposed to strangle with regulations. Block grants don't mean blank checks. I think that is the balance that the Department needs to find. Mr. Lewis. I think I will probably be heard to say on many a occasion that that which you don't measure, you don't get very much from, and while I was going to ask will it be necessary for you to change the structure of existing programs in our management to assure that those programs are administered properly and at the same time protect the taxpayers' interests, it is pretty obvious by your comments today that there will have to be some adjustment and rethinking of what our appropriate role is here, but it is very important that we look to the end result and try to measure those results. Secretary Cuomo. Mr. Chairman, I think in all of these programs, performance has to be one of the first concepts we think of. I think you will see in the legislation that we put forward that there's a new emphasis on performance that you haven't seen before from the Department such as spend out rates on funds, whether they be formula or competition, are people spending the money, how quickly are they spending the money, what are we getting for the money. Those will all be essential criteria for the Department. time frame for buyout authority Mr. Lewis. What is the time frame? HUD received buyout authority last year. So what is the time frame in which HUD must act to make the most of that authority? Secretary Cuomo. I don't follow the question, Mr. Chairman. Mr. Lewis. Last year, by way of this bill, by way of the comprehensive appropriations, HUD did receive buyout authority last year. Secretary Cuomo. Oh, buyout authority. I am sorry. Mr. Lewis. So what is the time frame within which HUD must act to make the most of that authority? Secretary Cuomo. The optimum time for the Department to act, the best position of the window, if you will, Mr. Chairman, is April. The Department is anticipating buyouts in a first phase of approximately 600, and the timing would be about April. funding for hano Mr. Lewis. Okay. That fits with what I was talking about. Let's see. I have a number of questions that relate to the Chicago Housing Authority and Cabrini Green. I think, in view of the time, I would prefer to go forward to HANO and discuss that with you, and we may then come back to this. Let's see. Mr. Secretary, as you know, I was recently in New Orleans visiting a number of public housing developments, as well as touring local neighborhoods. Clearly, New Orleans is a city with significant challenges. The Federal commitment to the public housing authority is significant. Approximately $70 million, including modernization and operation subsidies is directed at HANO every year. Yet, the condition of each development there, and there are 10--one of my staff people suggested that he has yet to find one in which a human ought to be asked to live. In addition to these grants, HANO has received about $60 million in HOPE VI grants, about $50 million for DESIRE, and $10 million for St. Thomas homes. Based on what I saw while in New Orleans, I suspect that millions more dollars will be sent to New Orleans to clean up the remaining Section 8 locations. I must say in view of this recent history, the numbers of dollars, we understand that flow, et cetera. I just hardly see a stick relative to public housing dollars that can be reflected in places where people live. If you were with me on that trip, I think your hair would be my color. I am very impressed by the professionalism with which Tulane and Xavier Universities conducted the tour that I had of the public housing facilities. They put their reputations on the line by promising turnaround at the PHA, and it is a serious difficulty, a challenge that they are faced with, and filled with troubles. I do admire their confidence. I was very interested in the Campus Affiliates Program that Tulane and Xavier have created to cooperate in a cooperative fashion with the residents of C.J. Peat Development and applaud the determination of the students and the faculty who participate in that program. I hope the program can expand beyond the boundaries of the Peat Development to other public housing facilities in the city. HUD provides $2 million for this program a year. Therefore, the expansion should not be accomplished with Federal resources, but bolstered by donations from local nonprofits and foundations. I would be interested in the $2 million that is involved and this cooperative effort. Are you? Secretary Cuomo. Generally, I am, Mr. Chairman. Mr. Lewis. Well, I am really interested in some response as to why there would be no recommendation of additional Federal dollars. Secretary Cuomo. Beyond the---- Mr. Lewis. The $2 million. Secretary Cuomo. I am not familiar that there was no recommendation against additional Federal funds. It was our opinion that the $2 million which HUD was funding the organizations was sufficient to accomplish the goals that we had set out for them. Mr. Lewis. The staff suggested that the reason she isasking why is because there ought to be local nonprofits getting involved and leveraging the money for more dollars. If you look at the history of the universities involved and if you look at the way other public housing dollars had been used in the community, I wouldn't ask why. The fact is, the university is looking at this flow of money for more revenue to do what they want to do with the revenue and aren't leveraging the dollars very effectively. I would ask why aren't we asking those questions and insisting that they leverage those nonprofits effectively. So I just lay that on the table, and that is kind of one small piece of my response from that very brief trip. Despite my admiration for the CAP program, I do not want to fool you by saying that conditions in New Orleans, public housing complexes will be improved substantially in the near future. I am very disconcerted by the amount of money that has been spent over the last several years, and as I have suggested, the lack of livability of the conditions in the community in terms of any real change. Can we afford more money to be directed to New Orleans? That is a question I have, and I wonder if you have a response to that. Secretary Cuomo. I think, in general, Mr. Chairman, we have made progress at the authority, if nothing but internal organizational progress, but I would agree that the Department isn't satisfied with the amount of progress we have made thus far in the lives of people, in the actual physical stock. I also agree with the Chairman that it is quite a significant undertaking and probably one of the most troubled housing authorities in the country. The amount of funding that is now going into the authority, $2 million for the Xavier Tulane, which is a good service, and a necessary service. We have HOPE VI money there that is not yet being spent, $44 million just on DESIRE, and I believe the Chairman's number of approximately $60 million is correct. So I don't know that our problem there is a problem of funding, per se. Mr. Lewis. Well, Mr. Secretary, let me be reasonably specific. Earlier on in this last year, there was a request for bids for the remodeling of some of the facilities at DESIRE. There were four or five local contractors that bid. The proposal was to remodel existing facilities or buildings. As I understand it, the bids came in between roughly $145,000 and $165,000 per unit, a reasonable square footage cost, I would suggest, maybe a very, very unreasonable square footage cost. Now the local authority has decided that instead of remodeling, they are going to demolish those buildings, at least if we sign off on Phase I. It was suggested that one of the reasons for the original bids coming in so high was that there were contractors who didn't feel safe doing work in the area, and any number of reasons, the Government doesn't deliver its checks in a timely fashion, et cetera. I was heard to ask, did you even suggest that maybe we should get some bidders who were from out of state or other people who are less busy or less frightened. I got no response from that, and in terms of the Federal HUD oversight, I don't see us kind of insisting that the marketplace work in connection with processes like that. At the highest level within HUD, you could make a very big difference if you suggested we are going to really suggest there be competition in that marketplace. Secretary Cuomo. Mr. Chairman, I have not heard those numbers before, $145,000 and $165,000 per unit, but before I came to this job, I did construct housing and operate housing. Those numbers are very high, and we will take a long hard look at that, but I believe they are in excess of what we believe the total development cost should be for a public housing unit. Mr. Lewis. You are very well aware that there are many executive directors of public housing authorities who have turned around troubled authorities. There is a new directorate, HANO, who seems to be on a pathway that, for me at least, provides a sense of hope, but people like Rick Gentry of Richmond, Virginia, Harold Lucas of Newark, Gregory Burn of Miami, and Miami--is that right? Miami, Dade, Florida? And of course, David Gilmore, here in Washington, D.C. There are nonprofit companies that have successfully partnered with housing authorities and HUD to turn around troubled developments. Kevin McCormack of McCormack Bairnes Associates. You know, there is a list of people that we have seen perform well. If we could ever find ourselves in a position where tapping the private sector, as well as nonprofit interest, that we could make a model out of revising a public housing authority, namely by way of HANO, indeed, there would be a signal that would go out there that would be very interesting. Clearly, the people who live in those buildings are exactly the same kinds of people with the same kinds of needs that we see David Gilmore getting results for and from right here in Washington, D.C. Secretary Cuomo. I couldn't agree more, Mr. Chairman. The challenge for the Department is how in a time of shrinking resources, shrinking staff, shrinking budgets, do you come up with a national strategy to handle troubled housing authorities. One thing is clear to me. We cannot on a retail level step in and run these troubled housing authorities. We don't have the staff resources. We don't have the financial resources to run 5, 10, 15 different troubled housing authorities all across the country. We just can't do it and do it well and do it the way it should be done. What then is the alterative? We are looking at some possibilities. We are looking at a period of time where once PHA becomes troubled, we try to work it out with them, let's say for a year. If we are unsuccessful in working it out, they are unsuccessful in improving their condition. Then we go to a receiver, like David Gilmore in Washington, D.C., which if you talk to many of these public housing professionals, they will say a receiver is in many ways the optimum performance situation from their point of view. The politics of the situation is gone, if there was politics. Many of the burdens are removed, and a receiver can be appointed from the best talent across the country, just with the purpose of running the PHA. It could be an individual. It could be a company. It could be a not-for-profit. It could be a combination thereof, but those are some of the solutions that we are searching, and I agree, if we can start to turn around these troubled housing authorities, the way we are with many of them--Detroit, Chicago, great success stories--a HANO is probably one of the loudest examples in many regards. Mr. Lewis. It is the example, but problems like Cabrini Greens and others very much raise question after question. I might mention that within HANO, there is a lot of positive to be said about this new environment that involves the two schools and their work. For example, an item I would bring to your attention, I was most impressed with the concerted effort, with almost no cost, that have young people from the universities going to the housing projects and serving as tutors for young people, changing the kind of atmosphere and environment for motivation. All of that stuff is very positive, very low-cost kinds of improvements. At the same time, when I look to any new facility, even though lots of money has flowed, I see the real results coming from partnership that are different than HUD partnerships, neighborhood reinvestment working with local banks, for example, two blocks from the main drag, St. Charles Street, new facilities being developed and suddenly available, but kind of outside of HUD's traditional work. Habitat is having some impact there, and that is impressive as well, but for the number of dollars flowing, very little as a result of our traditional programs. Mr. Stokes, I wanted to mention that we have asked the Inspector General to spend some time helping us look at that circumstance down there. I know that she has testified elsewhere and is very well prepared to involve herself here, but frankly, I don't intend to do that to Susan at this moment, for I haven't warned her of that, but in the meantime, as we move forward, we will be looking for their input and their assistance as well. Mr. Stokes? effect of mounting policies on the homeless Mr. Stokes. Thank you, Mr. Chairman. Mr. Secretary, earlier this afternoon, you mentioned that there are approximately 600,000 people that constitute the class of being homeless. This is a subject that you and I have discussed on numerous occasions before our subcommittee. I am concerned about the cumulative effects of a number of policies and circumstances on the availability of housing for the poorest of the poor. Funding for incremental units of assisted housing was essentially ended by the 1995 rescision bill, although I do note that you are once again proposing to restore some incremental Section 8 funds. Housing authorities are now being encouraged to move towards a greater mix of income levels in public housing. Many units of public housing are being demolished as result of efforts to get rid of the worst buildings and projects. Minimum rents are being established, and while many of these policies may be meritorious in and of themselves, should we be worrying about the cumulative effect on the lowest-income families? Is it conceivable that the unintended result could be an increase in homelessness? Secretary Cuomo. Congressman, I share a lot of the concerns that you mention. I think you see an effort by the Department to address it, given the constraints, again, 50,000 incremental vouchers which we have asked for before, but we ask for once again, and the increase in homeless assistance. On the public housing side, the Department is supporting the Brooke amendment, income targeting in public housing, which could really have a disastrous effect in our opinion if we now also change the income targeting in public housing, which would, in effect, preclude the poorest of the poor and leave them on the lists virtually forever. So I share the overall concern, and my opinion, the greatest challenge is going to be seeing how welfare reform turns out. That is why I am targetting it as one of the four priorities for the Department. I want to see HUD aggressively work with welfare reform because, depending on how that turns out in a specific context, it could be a net positive, or it could be a real negative. We are hopeful and we are optimistic, but it is going to take a lot of energy and a lot of work to make this turn out as a positive experience, which is what we all want. brownfields initiative Mr. Stokes. I notice that you are requesting funds for a new Brownfields initiative. This is an area of a great deal of concern for me because, representing a large urban community, that is a very big problem with cities such as Cleveland. EPA selected Cleveland as a pilot project, in fact, for a Brownfields initiative, which is a very successful initiative. Can you just tell us a little bit how you are going to tie into EPA's Brownfields initiative and what your funding will go for? Secretary Cuomo. Congressman, I couldn't agree more with the importance of addressing the Brownfields in this country. All of these things start to tie together, welfare reform, lack of housing. The one thing that is clear is that we have to create opportunities in inner-city areas. We have to create jobs. We have to grow businesses. We have to get businesses back. One of the things you need, besides capital, besides financial expertise, and besides capacity, is the need for land for the buildings to locate on. Brownfields is the single greatest obstacle to economic development as cited by the Conference of Mayors. They will all point to the Brownfields problem. What the President has proposed is a joint effort between EPA and HUD, where EPA Administrator Browner does the cleanup portion, if you will, and HUD comes in and does the redevelopment portion. So those are the two sides of the equation. EPA will do the cleanup, then HUD comes in. We proposed $25 million per year to do the redevelopment of that Brownfields, and we will do it in concert with Administrator Browner. Mr. Stokes. Sounds very promising. Mr. Lewis. EPA does the cleanup and then certifies, is that right? Mr. Stokes. I do not know about the certification part, is that---- Secretary Cuomo. That would be within their bailiwick. Mr. Stokes. Right. But they do the cleanup and then they come in for the redevelopment part of it. Mrs. Meek. Would the gentleman yield? Mr. Stokes. I would be delighted to yield to the gentlelady. Mrs. Meek. Does the Council for Environmental Quality, do they come into this type of situation you have just described or is it just EPA and HUD? Mr. Stokes. I do not believe CEQ has a function in this area. I think it is basically between the EPA and HUD, is that correct, Mr. Secretary? Secretary Cuomo. That is my understanding, Congressman. Mr. Stokes. Right. Mrs. Meek. I think it is going to run into problems, Mr. Stokes, for the residents. Mr. Stokes. Which phase of it, Mrs. Meek? Mrs. Meek. In terms of the environmental qualities, unless there is some substantive evaluation by HUD and EPA. It is going to take a lot of money. It is a good idea. Mr. Stokes. Well, I think if we look back for a moment to the EPA pilot projects around the country, and, of course, what they are trying to do really is to get at the problem of eliminating these contaminated lands from the inner-city so that we can begin utilizing the urban development there and make it economically profitable to cities. lead-based paint abatement Mr. Secretary, another problem that I have had discussions with your Department on over a number of years has been the health hazards to children caused by lead-based paint. As your budget justification notes, the Centers for Disease Control estimates that 1.7 million children have elevated levels of lead in their blood, making lead poisoning the number one childhood environmental disease. In 1995, a HUD task force estimated that there are at least 500,000 units of privately owned low-income housing where the owners do not have sufficient cash flow to finance the necessary lead hazard abatement work. Can you summarize the progress that is being made in this area by HUD programs? Secretary Cuomo. Yes, I can, Congressman. First, on the HUD programs specifically, the funding for the lead base paint abatement initiatives were $60 million last year. We asked for an additional $60 million this year, so, we keep the funding constant. And as we have discussed at length this afternoon, constant funding for a program at HUD, given the budget constraints we are under, is an affirmative statement by the Department, because as we have heard there are tremendous demands for any available resources. I also believe, not only are we keeping the funding constant but I also believe on this problem we have started to make progress. HHS has done a report that suggests there is real progress in understanding the amount of the damage that has been done historically by lead especially among children. So, I think we start to have real results and we intend to continue the effort at last year's level. empowerment zones and enterprise communities Mr. Lewis. The Administration's budget, Mr. Secretary, proposes designation of a second round of empowerment zones and enterprise communities. Can you give us some idea of the results of that you are now seeing from the first round and give us some idea of what has been the program's effectiveness? Secretary Cuomo. Well, as the Congressman recalls, we designated 72 empowerment zones, and enterprise communities on the urban side--there were also rural empowerment zones and enterprise communities--but 72 on the urban side. There were over 300 cities which applied for those 72 slots, just to give the Congressman an idea of the need and the demand, and hence, the rationale for the second round. So, 300 cities applied for 72 slots. Of the 72 slots, we released a report last week which said of the 72 cities, 67 are already showing progress in just year two of a ten-year program. There are about five cities which were not showing progress and I was saying to the Chairman, with the new emphasis on performance what we are saying to those five is, if they do not start to show progress, we will actually revoke the designation from them and we will give the designation to other cities who had applied. But 67 of 72 cities are already showing progress. I think that is an overwhelming success. homeownership zones Mr. Stokes. That certainly is. That is good news. Mr. Secretary, in 1998 you propose to use $50 million in CDBG funds for an initiative called Home Ownership Zones. How do you envision those funds would be allocated and how exactly would they be used? Secretary Cuomo. Home Ownership Zones, the concept there, Congressman, is that there are many communities which to do real revitalization you need to come in with a large scale housing effort. In dealing with distressed communities, where if you just come in and do scattered site, one house here, one house there, it is not going to work. You literally have to come in and rebuild the neighborhood. The concept we work on at the Department in community development is basically a critical mass notion. That in some communities if you do not come in with enough reconstruction and enough rehabilitation, you do not change the dynamic of the community, the community overwhelms what you went in to do. Too often jurisdictions cannot find that level of funding to do a large scale effort. The HOME program and CDBG program have a lot of demands placed upon them and there is funding for a few houses here and there. But if a jurisdiction came in and said, I want to do 25, 50, 100, 300 homes, they cannot find the funding from existing resources. This says for those instances where we need large scale housing, literally in the 50-to-300-house range, rebuild an entire neighborhood, the Homeownership Zones fund would apply. It would be a national competition, it would look for leveraging, creative architecture, partnerships with local communities but it would be for that large scale homeownership redevelopment. section 8 outlay trend Mr. Stokes. It sounds very interesting. My last question, Mr. Secretary. Mr. Secretary, we are all aware of the budgetary problems created by the rising volume of Section 8 contracts coming due for renewal and your testimony this afternoon emphasizes the serious consequences for residents if these contractors are not renewed. But would it be accurate to say, however, that the budgetproblem largely involves budget authority rather than actual outlay? The growth in budget authority is substantial but it is outlays and not budget authority that determines the annual budget deficit. What would be the trend in outlays for Section 8 contracts and for the Department, as a whole, under your budget proposal? That is, tell us would outlays rise any where near as quickly as the budget authority which you showed us on these charts? Secretary Cuomo. Congressman, I would have made that point if I were not chastised for it earlier by the Chairman---- [Laughter.] Secretary Cuomo. But now that you brought it up, the BA does go up dramatically. It goes up from about $4 billion in 1997 to about $18 billion in 2002. And that is that big spike, that is a BA spike. The outlays from 1997 to 2002 go from $18 to $19 billion and I would almost say only one billion from 18 to 19 is the increase. But a billion is, obviously, a very significant amount of money. But it is from $18 billion to $19 billion in outlays. The BA is the big increase from $4 billion in 1997 to $18 billion in 2002. So, this is a BA problem primarily and not an outlay problem. Mr. Stokes. Thank you, Mr. Secretary. Thank you, Mr. Chairman. epa and brownfields initiative Mr. Lewis. Thank you, Mr. Stokes. If the gentlelady would permit me, I am very interested in having the Secretary and his fine staff help clarify for me and maybe for Mr. Stokes, it may be very clear but Brownfields questions that Mr. Stokes was asking involves a $25 million pool. And that pool involves EPA essentially handling the cleanup that is necessary on these properties. I would assume that if we are going to have children living on those properties in HUD housing that, indeed, we would want to have some assurance that EPA had done its work. I am not sure how much experience they have in actually cleaning up themselves but, nonetheless, having said that, if EPA was not very timely and professional in following through on that part of the responsibility, then the $25 million might be available for some other kind of allocation to local governments to use, for example, to guarantee their 108 money, which then would allow those local communities to leverage their, let us say their CDBG dollars. They could have a guarantee, go to the bank, get money for CDBG to expand that activity. That may or may not provide funding flows for housing for poor people and that concerns me. And I think that we have got to have a pretty clear understanding of what we are doing here if we go forward with these funds because there is a great deal of activity that needs to take place to guarantee that Brownfields work and we have to have follow-through that assures that there is going to be housing flows. Now, CDBG can be used for housing in some circumstances, but that is not necessarily what local government does. Mr. Stokes. Mr. Chairman, would you yield? Mr. Lewis. Certainly. Mr. Stokes. I concur with you that these questions are certainly raised by this but we ought to let the Secretary try to answer that for you. Secretary Cuomo. If I may, Mr. Chairman, on the Brownfields initiative, the Brownfields initiative is about economic development and the anticipation is while you could clear a site to do housing, my estimation is that it would not be the predominant use of this program; it would be clearing a site to locate businesses. That is what we are trying to do is get businesses back into cities. Businesses cannot find the available land so we want to clear the land so that we can get businesses back, with a tax base and jobs. EPA and HUD will have two separate functions. EPA will do ``the cleanup.'' They will provide funding to local governments to allow the cleanup. It is not my understanding that EPA is going to actually go in and perform the cleanup operations. But that they will fund through local governments the cleanup. Private contractors will come in and adhere to whatever the certification process is, be it city law, State law, Federal regulation. That will happen through EPA funding. HUD funding then would allow the anticipated reuse of the site being economic development reuse. But just as we would not do the redevelopment side of it, EPA will not do the actual cleanup. But they would be funding the cleanup side, we will be funding the redevelopment side. And, again, the primary purpose businesses. Mr. Stokes. If the Chairman would just yield for a moment? Mr. Lewis. Sure. Mr. Stokes. That was my understanding of their purpose. Not coming in necessarily for housing but to supplement what is a very real problem in terms of trying to get businesses to relocate back in the inner-city. And when they come in to the city and run into this contaminated land in there, they, of course, immediately throw up their hands. And, then, of course, what you have are many businesses who can come into that area but who do not have the proper funding to be able to do so. Given the aid in that respect, they would be able to function as businesses. Many of them are small businesses and many of them minority businesses and this is a combination between these two agencies to try and help facilitate bringing that type of economic revitalization back so that we start adding this land back to the tax base. need for guidelines for brownfields funding Mr. Lewis. If we are using Brownfields in an effective way to make these lands available for economic development or for housing it seems to me that there needs to be some pretty careful guidelines, since we are talking about Federal monies that are being used to do this. And, indeed, short of our becoming the authorizing committee, I am very concerned that there are no guidelines out there that really give us a clear idea that these objectives are going to be reached. And I am not sure how rapidly we should move forward unless there are authorization guidelines. Secretary Cuomo. Well, Mr. Chairman, the---- Mr. Stokes. It is a legitimate concern. You might want to address it, Mr. Secretary. Secretary Cuomo. It is two-fold. First of all, the need here it is tremendous, as I mentioned earlier. Mr. Lewis. Yes, I can see that. Secretary Cuomo. And I bet you the Conference of Mayors would say that this is their number one concern. Whenever they have a conference, Brownfields is at the top. As far as the spending money, the $25 million from HUD isgoing to be a drop in the bucket on this need. In the practical context, what you have are sites in cities all across the country which were factory sites, industrial sites. You have a great rusting steel skeleton of a factory. The site has been contaminated over the years by use. It now sits fallow because nobody has the funding to come in and clean up. And a business that would come and locate there, does not want to be responsible for the cleanup either financially or legally. So, it is a standstill. The site is there, the site is empty. The city cannot redevelop the site because it cannot get it cleaned up and you cannot get any business in. The Brownfields initiative will let EPA help with the funding of the cleanup. Once the site is clean, HUD will fund an economic development related new enterprise. There is pending Brownfields legislation now, which will be very specified about how the EPA portion of it would be funded. On the HUD side, Mr. Chairman, we believe we can do this within existing authority, that is why we do not suggest authorizing language. However, if the Chairman would prefer, we could write up the full specifications on how this program would be administered, what the criteria for competition are, what the selection criteria are and present them to the committee for your review. Mr. Lewis. I think that would be very valuable. And we might even share it with the authorizing committee. [The information follows:] Brownfields Redevelopment Grants As part of the Administration's Brownfields Initiative, the Department proposes $25 million for the Brownfields Redevelopment program. This is the first of four annual funding requests, for a total of $100 million to be dedicated to this initiative between 1998 and 2001. This program will make competitive Economic Development Initiative (EDI) grants in conjunction with Section 108 loan guarantees for qualified brownfield projects. Grants would be focused on community and economic development activities, and could also be used for environmental remediation. Grants would be used to enable brownfields to be returned to productive, job-creating uses and to address the economic development needs of communities in and around such sites. All activities carried out under these grants must be CDBG-eligible activities that support the cleanup and economic redevelopment of targeted brownfields sites. CDBG-eligible activities include: (1) acquisition of property; (2) clearance, demolition, removal and rehabilitation of buildings and improvements; (3) rehabilitation of buildings or construction of real property improvements carried out by public or private organizations; (4) assistance to private, for-profit entities for economic development projects; (5) infrastructure improvements, including construction, reconstruction or installation of public or and other site improvements; and (6) the investigation and cleanup of environmental contamination in connection with any of these other eligible activities. Grants will be made on a competitive basis in accordance with Section 108 (q) selection criteria. In making these awards, HUD will give priority to communities that will emphasize the use of grant funds for redevelopment activities, and will require communities to carry out project activities in accordance with sound environmental practices. The selection criteria are the following: (1) level of distress in the community to be served and in the jurisdiction applying for the assistance; (2) quality of the proposed plan; (3) financial need for assistance; (4) demonstrated capacity to conduct a program for the cleanup and redevelopment of brownfields sites; and (5) demonstrated capacity and commitment to coordinate project activities with appropriate environmental regulatory agencies. Priority will be given to projects located in designated Empowerment Zones or Enterprise Communities. Mrs. Meek. Mr. Chairman. Mr. Lewis. The gentlelady. epa efforts in florida Mrs. Meek. Mr. Chairman, I just would just want to add a comment to that. I think, as I said before, that it is a very serious project and it is one that will work but what has killed that in the State of Florida for so long is EPA's slowness to implement any of these things. I have been hearing about underground storage tanks, I have been hearing about EPA cleanup for the last 10 or 15 years and we still have those sites that are in those communities because there is no money, Mr. Secretary. Secretary Cuomo. Well, I think that---- Mrs. Meek. And that is the problem. So, you think there will be? I know the $25 million will not do it. Secretary Cuomo. Well, as I said to the Chairman, the $25 millions is a drop in the bucket. But, on the Congresswoman's point about the frustration that exists in local communities, let me just put an exclamation point on that statement. I do not believe it is the dilatory tactics of the EPA. Quite the contrary. Administrative Browner and I have spoken about this problem and she is raring to go, to use an expression. The problem is that the funding was not previously available. Mrs. Meek. That is what I said. Secretary Cuomo. Where is the funding for the cleanup? EPA has not had the funding, local governments have not had the funding for this program, and HUD has not had the funding. Theoretically you can now do this through CDBG, through the EDI program---- Mrs. Meek. What is CDBG? Secretary Cuomo [continuing]. But there is too many demands on the CDBG. So, this would be additional resources to do this. Mrs. Meek. Excuse me, Mr. Secretary. Excuse me, Mr. Chairman. Mr. Lewis. Sure. Mrs. Meek. I just want to say they are going to beat a good horse to death. CDBG. Secretary Cuomo. You could use CDBG to do Brownfields if you could figure out a way to meet all the other needs. The problem with CDBG is that it is almost too good. There are so many needs that the program can address you have to balance all those competing needs on the local level. Much the way we are having a discussion here today trying to balance the needs between the disabled and public housing, et cetera. So, there is not enough CDBG funds to go around. Mr. Lewis. If I could just partially share with you my new understanding of some of this. It is my understanding that the last couple of years EPA has requested funding for Brownfields. Mrs. Meek. Yes. Mr. Lewis. And in the year before last we gave them somewhere in the neighborhood of $30 million, last year $39 million, whether or not any of that money is actually being spent at specific locations or not we have yet to hear. You will have the opportunity. In fact, I commend you this opportunity for asking EPA that question, what precisely have you done with that $69 million and what kind of jobs are we going to get out of that in the next ten years or two years or three years? Mrs. Meek. Thank you, Mr. Chairman. Mr. Chairman, I do know that they have a grant program out but I do not know very much about the rest of it. Mr. Lewis. Okay. You have still more time. We have been---- Mrs. Meek. Well, sir, I have a lot of questions but I want--Lou is training me; he has asked a lot of questions I had an interest in. Mr. Lewis. All right. Mr. Stokes, do you have any further questions? Mr. Stokes. No, Mr. Chairman. Nothing further for me, thank you very much. timely submissions of 1998 justifications Mr. Lewis. I am going to ask that you respond to the Cabrini Green, Chicago's Housing Authority stuff for the record. We may want to have some exchange with you in connection with that. I did want to mention one other item. This is only my third season in this responsibility and it is the first time that I can say that I have had this experience and I can say it is the first time in most people's memory that we have had this experience, that is that HUD--and you are to be congratulated, Mr. Secretary--actually provided justifications to the committee. And that is a pattern that we commend and encourage. And I want to congratulate you and express my appreciation for it, it is very helpful. Tomorrow we will come back in the morning if you will, and we will have some questions regarding Indian housing and then we will go from there and you and I can talk tomorrow morning about what your schedule really involves and we will try to be as cooperative as possible with your schedule. Secretary Cuomo. Thank you, very much. Thank you, very much, Mr. Chairman. Mr. Lewis. With that, we are adjourned until tomorrow. Wednesday, March 19, 1997. seattle times article--tulalip tribe Mr. Lewis. The meeting will come to order. Welcome, Mr. Secretary. Secretary Cuomo. Thank you. Thank you for having us back, Mr. Chairman. Mr. Lewis. I would apologize at the beginning for the ongoing conflict of meetings. Members are in Appropriations Committees all over the place. So Mr. Stokes and I just generally agreed that we will move forward in order to get our appropriate questioning done, and in the meantime, try to keep all of our schedules reasonably sensible. Louis, before I start out on Indian housing questions, do you have any comments? Or should we just proceed? Mr. Stokes. Why don't we just proceed, Mr. Chairman? Mr. Lewis. Look at this. Someone wants me awake, even. [Laughter.] Mr. Lewis. That is dangerous. Good morning. Mr. Secretary, I would like to continue this morning with an area that has been receiving a fair amount of attention in recent months, largely because of the series of articles which ran in the Seattle Times last December. The 5- day series raised serious questions as well as allegations relating to improper and in some cases potentially illegal use of taxpayer dollars by tribal governments and Indian housing authorities. These articles raise a troubling portrait of mismanagement of Indian housing programs that should be and I believe is now being investigated fully. It is my understanding that the HUD inspector general was notified of these allegations, and she is presently conducting a thorough investigation. I also understand that HUD remains committed to a policy of zero tolerance towards the abuse of Federal housing programs. That being the case, Mr. Secretary, I think you would agree that we must insist upon full accountability in the manner in which Indian housing programs are carried out. Having said that, Secretary Cuomo, when can we expect the final report of the inspector general? And can you give us some insights into the types of conclusions we might expect from that report? Secretary Cuomo. Yes, I can, Mr. Chairman, and thank you once again for your time and attention and for having us back this morning. I share the Committee's concern about the Seattle Times series. I do not know that it is tremendously important to go through on a case-by-case basis all the cases reported. Were they all accurate? Was HUD behind the eight ball on all of them? Were they all fraud? I do not know that it is necessary to debate it, and we would have some differences with some of the reports in the paper. But overall if the thrust of the story was HUD did not do an adequate job in oversight, the stories are correct. Assistant Secretary Marchman has said repeatedly that in his opinion the Department's position is we should have done a better job on oversight and there are lessons to be learned from the entire situation. To remedy what has transpired, the Inspector General, as you know, is doing a full review, full audit. She has made some findings basically on the Tulalip Housing Authority situation, and is continuing with a full review. The program office is also doing a full review. We are looking to recoup funds, again, specifically from the Tulalip Housing Authority, which is a situation that is getting the most attention right now from the Department. Following the Inspector General's review and the program office review, we will then reassess the entire situation, and if there are any possible criminal sanctions, we will make those referrals and we will cooperate with the enforcement. As we discussed yesterday, restoring the public's trust is a high priority for the Department. The Department cannot be aggressive enough, not just in the traditional means--program letters, audit letters, Inspector General renew--but also on the criminal side. And if there is that possibility, we want to pursue that route. I think that will also send a different type of signal to the people who use HUD programs.If you misuse these funds, sure, you are going to get an audit letter and, sure, you are going to get a program letter. But we will also make the referral to the criminal agencies. And we are serious about it. That will be a different signal and a loud signal and an effective signal, I believe. So that is the overall position of the Department on this situation thus far, and, again, that is retrospective. Prospective, we have the new legislation that is a tremendous opportunity to correct these wrongs and learn those lessons and make sure it never happens again. oversight responsibilities to protect indian families Mr. Lewis. I appreciate that response, Mr. Secretary. I would like to make some preliminary comments. These are largely just off the top, because sometimes I best communicate with my friend, Louis Stokes, where I am coming from on issues like this by that. It is my concern that we are addressing a very unusual Federal relationship here. The Bureau of Indian Affairs generally is responsible for a variety and mix of oversight that relates to Indian programs and Indian problems. At the same time, where there are Federal dollars flowing that come from HUD, we have got very clear and very serious responsibilities. Mr. Stokes, I might mention that the Seattle Times article focused upon a housing authority, an individual responsible for housing funds flowing into the tribe, where those funds apparently were diverted, to some extent, and that led to that individual family building a 5,000-, 5,500-square-foot home for themselves. To say the least, some would suggest that diverted monies from the poorest of the poor within the Indian tribe or the Indian country circumstance. Now, shifting gears, going to my own district, where there is a local tribe, I will not even name that local tribe, but nonetheless has fewer than 100 families. That tribe has revenues from gambling in the neighborhood of $100 million a year. Each of their houses in the mountainsides of my territory is about the size we are talking about here, which raises a very interesting specter. If one is going to have a separate country and one is going to be a separate nation, one ought to begin to say what is our responsibility in terms of the poorest of the poor within our States, if you will. My point is that there is plenty of responsibility to go around here. If there has been a misuse of Federal housing dollars, we need to focus clearly upon that. But in turn, I raise the other questions because the sphere is one that we have not--I have not seen addressed around here in a clear way, and it is about time we are willing to ask very delicate questions. So with that, it is my belief that HUD must exercise proper oversight to protect not only the taxpayer but to ensure that Indian families have a decent chance at a decent life. I recognize that the U.S. Government and the Indian Nation have a unique relationship that is based on tribal sovereignty and the preservation of Indian culture. Self-determination is important. This relationship requires mutual respect and working together towards the common goal of making life on the reservation more productive for every Indian family. balance between oversight and overregulation Before we go any further, let me ask a very straightforward question. Does this administration have an Indian housing policy? And if so, can you give me your sense of what it is? Secretary Cuomo. I think, Mr. Chairman, as I said in my response to your first question, the retrospective view is very important here, not just in what HUD did, but I think the Chairman's point is very well taken as well. The entire history of the relationship between the Federal Government and Indian tribes in this country is really unique in the way it has developed, and that history, I think, plays a large role in the situation that we saw reported in the Seattle Times. But the retrospective is important. What worked? What did not work? And how do we correct it? Going forward, I think we bring those lessons. The legislation that was passed by the Congress, the Native American block grant, gives us an opportunity that we have not had before. This literally wipes the slate clean, takes the 1937 Housing Act as it applies to these areas and says let's start over, let's redesign. We are going to a negotiated rulemaking, and I think it is an opportunity to do it right. As the Chairman said, the need is profound--gambling aside and the issues that are raised. But the need for the vast majority of these Indian tribes is probably the most severe housing need in the Nation. So recognizing that, it is our obligation to try to do this and do it right. The block grant and the new legislation and the negotiated rulemaking gives us an opportunity. I think there are a couple of hallmarks that we have to keep in mind going forward. Block grant does not mean blank check. We use that block grant---- Mr. Lewis. I have heard that phrase. Secretary Cuomo. Yes, I have heard it myself. I cannot remember where, Mr. Chairman. Let's bring that forward. When you say block grant, different people hear different things. And too often local governments hear; they get the funding; the Federal Government is a pass-through; HUD is a conduit. It is a pipeline, both ends open. The funds come in one side, they go out the other side, and then the local government does whatever it wants to do with the money. That is not the purpose of any block grant. We have to make sure when we say block grant that we all understand what we are talking about--performance measurement as opposed to regulations for the sake of regulations. What do we want the money to do? Let the Federal Government set the goal. Let the local government determine the means to meet that goal, but let's have performance measurement so we all know what we are doing, what we are talking about, and where the money is going, bringing that forward. We have also learned, painfully, that there is a lack of capacity in many of these housing authorities and with many of the tribes. Part of HUD's role has to be to increase that capacity, to bring the technical assistance to the table, so that the local governments can actually use the funds and use them effectively. Because as good as we are on our side of the table, HUD's side of the table, as intelligent a system, as clear a system, as performance-driven a system, if you do not have the capacity on the other side of the table with the Indian tribes, it is not going to work. And a lot of what the Seattle Times was talking about I think reflected lack of capacity as much as it reflected lack of oversight. I think those will be the balances that we have to reach. The Chairman said it well when you said the distinction between oversight and over-regulation. And that is what we have to work through on this block grant. hud interaction with bia Mr. Lewis. I appreciate that response. I gather that the general response would suggest that, insofar as this Secretary is concerned, Indian housing is a very high priority in terms of your overall, this administration's overall housing priorities. Secretary Cuomo. Yes, it is, Mr. Chairman. I would say one of the highest, most acute housing needs in the Nation exists on Indian lands. Mr. Lewis. As you know, HUD bears ultimate responsibility for the disbursement of taxpayer dollars. You have indicated that. And for the use of tribal governments and Indian housing authorities, while it is not traditionally Congress' role to micromanage specific housing programs, you are suggesting that you are going to insist that we have a mechanism for measuring results at the other end. Secretary Cuomo. Yes, Mr. Chairman, exactly. Mr. Lewis. We have found over time that the Bureau of Indian Affairs from time to time seems to operate in a fashion that they would just as soon we did more than keep arm's length, that we stayed out of their business; and indeed, that if we begin asking questions, we may be interfering with their responsibility. I would like to get a sense from you what kind of interaction you have with BIA in connection with these problems. Secretary Cuomo. I can ask Assistant Secretary Marchman what the day-to-day interaction is, but the concept that we bring to the table is, the question of congressional jurisdictions and authority aside, we are responsible, HUD is responsible for administering these funds; we are responsible for the accountability and the protection of the public trust; and we will exercise that with all due diligence and report to this Committee on it. As far as the interaction with the Bureau of Indian Affairs, Assistant Secretary Marchman may have a better idea. Mr. Lewis. Welcome, Mr. Marchman. We appreciate it. Mr. Marchman. We work with the Bureau and we work with other Indian agencies, but primarily we work with the tribes. The Secretary is absolutely correct. What we see in the current program, and certainly in the new program, is to make sure that there is accountability. There had been some confusion that we have taken too much of a hands-off approach and perhaps that has given us some---- Mr. Lewis. It has been suggested that that might be the case. Mr. Marchman. Yes, painfully suggested. But it is the balance, as the Secretary talked about, of oversight and the over-regulation, and I think the new legislation, as we put together the rules and the regulations, has to strike that balance. And we are working, even as of today as the negotiated rulemaking is ongoing, to make sure that we have that balance in the new program. funding for indian housing programs Mr. Lewis. Mr. Secretary, we await the IG's report, but the GAO draft report notes that from fiscal year 1986 through 1995, HUD provided $3.9 billion to approximately 189 housing authorities to develop and maintain affordable housing and assist low-income renters. Nevertheless, as you know, the conditions on the reservations remain extremely difficult. In your view, Mr. Secretary, are we spending too much, too little, or just about the right amount of dollar flow to Indian housing authorities? Secretary Cuomo. I think, Mr. Chairman, that we are not spending enough. We had this discussion yesterday. If you said are we spending enough to meet the entire need, the answer is no. Mr. Lewis. There is still a line. Secretary Cuomo. Yes. And the line exists almost across the board. CDBG is not meeting all the needs that it could meet. In public housing, the lines exist, obviously. In the HOME Program, the line exists, 202, right across the board, 811 as it was made clear yesterday. At the same time, we are in a balanced budget environment. We are trying to reach that balance by the year 2002, and we are making many, many tough choices. But is there enough funding to meet the need? No. tulalip tribe case Mr. Lewis. Of particular concern to me is that some of the neediest people within some tribes are being deprived of decent housing, while others either in a position of authority or with high incomes are living in homes far more extravagant than most people, presumably the people that those funds are intended to serve in the first place. In one particular case I am aware of, a large home was owned by the executive director of the Indian housing authority and her husband, the very people who were responsible for administering housing dollars for the benefit of the entire tribe. Mr. Secretary, I am looking for a little guidance here. Is this an example of laws being broken, or is this just a case of extremely poor judgment? Do regulations exist to oversee the size of homes built on reservations? You know, if not, should there be, et cetera? Secretary Cuomo. Mr. Chairman, first of all, I will have the full report from the Inspector General by the end of May, which will give us a clear sense of what happened in all of these cases. The specific matter that the Chairman refers to was with the Tulalip tribe. A 5,200-square-foot house was built. The executive director of the authority later married the director of development of the authority. They lived in the house together. It raised many questions: conflict of interest, obviously, between an executive director who then marries the director of development, so literally there is no check and balance. Conflict of interest was there. The size of the house was obviously excessive. It violated existing regulations, Mr. Chairman. This is not a situation where we did not have a regulation. We had the regulation. The purpose of these funds and programs is to build ``modest'' homes. No one would argue that the house that was built by the Tulalip tribe was a modest home. So it violated the regulations. So I think you have, again, both sides. You have more capacity, education, that we need to get to the tribes; conflict of interest, what is acceptable, what is not; better oversight of our regulations. It is not that we did not have a regulation. We had it. It did exist. To give the Committee comfort on our actions since, we are pursuing vigorously this specific situation. We are looking to recoup approximately an additional $45,000 that went to the house for infrastructure work. The couple paid about $215,000 for the house. They did not pay for the infrastructure development to get to the home. We are now looking to recoup those funds. We have sent out what we call a corrective action letter. So we are moving aggressively after the fact. Mr. Lewis. I must say that this illustration raises the public concern about oversight. You have suggested that now after the fact we are looking back to oversight. Was there or has there been a problem of some suggesting within the Department that we transferred that responsibility to the tribes, given them more flexibility, so our oversight responsibilities thereby are relieved? Secretary Cuomo. The Department would not take that position at all. Again, deregulation, I do not think this is an issue of deregulation. We had the regulations. They were violated, and then there is a question as to whether or not we were diligent enough on the oversight to find those violations. And that is the question that we have to address going forward. Mr. Stokes. Would the Chairman yield? Mr. Lewis. I certainly would. Mr. Stokes. A point of clarification here. How many such homes are there in this category of being in violation up there on this reservation? Secretary Cuomo. On the specific reservation, we could check, Mr. Stokes. But overall we are talking about the vast minority. We have a handful of cases here in years of operation. So this is obviously the exception and not the rule. Most of the homes that are built are modest homes. We have regulations as to the expense, the cost of the homes. The Seattle Times, the entire series, is trying to characterize the entire program with a handful of bad players and bad examples, which we will accept responsibility for. But that does not stereotype or characterize the entire program. impact of seattle times article Mr. Stokes. That is why I pose the question. I am getting the impression here that we are talking about something that is relatively widespread, when what you are saying to me is that this is not widespread. Secretary Cuomo. No, no. The dilemma for the Department, Congressman, is that this, literally a handful of cases over 8 years, is what the Seattle Times is reporting on. Mr. Stokes. And approximately how many housing---- Secretary Cuomo. Oh, thousands and thousands of units, and they have a handful. Most of the cases that the Seattle Times reported on, HUD is the one who disclosed them, turned them over to the Seattle Times. Many of them were already being investigated by the Inspector General. So they did not even tell us, by and large, anything that we did not know in the first place. We knew this. We were making the cases. They put it in the newspaper. They get headlines out of it. But most of these cases we knew. And, again, these are the perverse exceptions to what normally happens. Having said that, the Department has to be diligent to make sure this never happens, because literally if it happens once, it is used against the entire program, which is what is happening here. Mr. Lewis. Which is exactly what is happening here. Secretary Cuomo. Yes. Mr. Lewis. And it is of great concern to me. The report makes the point that this Committee constantly is attempting to make sure we have oversight about. That is, as we shrink resources in the discretionary pool, there are only so many dollars to go around. And an illustration like this literally highlights the reality that some people will abuse the process for their own purposes, and they are really in another location in the country taking monies that deservedly should be flowing to the poorest of the poor and using it for their own purposes. Mr. Stokes. If the gentleman would yield? Mr. Lewis. Sure. Mr. Stokes. I totally agree with you, Mr. Chairman. I think the Secretary touched upon something but did not elaborate on it. But those of us who follow housing in this country realize that, as bad as housing is in many urban communities, probably the worst housing in America is Indian reservation housing. Mr. Lewis. Correct. Mr. Stokes. And you really compound what I think is a national tragedy when you think of the fact that virtually we still have people on reservations in this country. We are talking about the people who were the Native Americans before anybody else came here. We still have them up on reservations. And we compound problems now by the kind of situation you have highlighted where they are being taken advantage of, whether it is one instance or ten instances. It is still bad, and it is wrong. Mr. Lewis. Correct. Mr. Stokes. And, you know, you are certainly justified in highlighting it, but we did put the whole thing in context and understand what the whole picture is like. In almost anything in American life, we find some bad apples in everything. We have got to highlight the real problem, and I think some emphasis needs to be put on the tragedy of what is happening to Indians. Mr. Lewis. I frankly agree with that, and I believe, I sense that the Secretary feels the same way. We have had a flow to these Indian housing authorities of $3.9 billion over the period of time that we are talking about. There are 189 housing authorities. But within that mix, the conditions of the average Indian family are conditions that we do not want any human being to have to live in. And the reality of that is that an awful lot of money seems to be flowing in a direction that never quite gets to the poorest of the poor. That happens in our urban centers, but tragically, it would appear this is happening within Indian reservations as well. And we are really trying to get to the heart of this in--this room--nobody will report on what goes on here, and that is fine. The reality is that we have got a responsibility for oversight, and we want to make sure that we are doing that together. Secretary Cuomo. If I might, Mr. Chairman, I think Congressman Stokes raises a very important point. The context here is important. And in some ways, to typify the Indian problem or the efforts that the Federal Government has made on Indian reservations by the Seattle story, and to be responsive to that, really is a perversion of the reality. I understand the damning effect that the Seattle story had, as we discussed yesterday, when we are fighting for credibility on these programs and we are looking for more funds, how damaging a story like that can be. That is why I want to make sure that I am responsive to that story, and I do not want the Committee to think that we do not take that seriously. Even if it is one, it is one too many, and we are going to ferret it out. But at the same time, the context that Mr. Stokes points to I think is very true. These are literally a small handful of what is otherwise a program that has done tremendous, tremendous things. And these are really unique situations where you have an executive director of an authority who winds up marrying the director of development of the authority. They build a 5,200-square-foot house together. It is inexcusable. But it is also one in tens of thousands. If I might, one other second, as we have seen the Tulalip picture, I do not want that to typify, the 5,200-square-foot house to typify what we are now out there doing with federal taxpayers' money. These pictures are the majority, obviously, and these represent the types of housing that we are building in these places with these funds, modest homes, three-, four-, five-bedroom homes, $80,000, $76,000 total cost. This is the kind of housing we are building with federal monies. The Tulalip example is really an aberration and one---- number of homes built without violations Mr. Stokes. If I can ask a question, Mr. Chairman, give us some idea of the number of homes in that category that HUD has assisted the community in putting up, where you have no violations or irregularities of any kind. Secretary Cuomo. Assistant Secretary, how many homes would you say overall? Mr. Marchman. I think some 60,000 homes. I think that is the number. Mr. Stokes. Sixty thousand homes fall in this category. Mr. Marchman. Yes. Mr. Stokes. Where there are no violations or irregularities of any kind. hud actions to stop abuses Mr. Lewis. Mr. Stokes, if I could make a point for the Seattle Times, this is a picture of a woman who is standing in front of the home that she is living in, a condition that she should never have to live in, and she has been on a waiting list for 10 years. So the question in this series, at least, is working together we need to figure out--this illustration is the kind of homes we should--I must say that far outstrips anything that I saw in New Orleans. Not to return to a sore subject, but it is a subject with me. But in the meantime, Indian housing continues to be one of our most difficult challenges. So I ask you, Mr. Secretary, I am interested in how we can better help these people of tribes help themselves, how we can better make sure our service is delivered to ladies like this one, and what steps HUD is taking to make sure that abuses like this--they do illustrate an extreme, but nonetheless it is an important illustration. Secretary Cuomo. The point is well taken, and the point of setting the context was we just do not want to throw out the baby with the bath water, if you will, because there was one bad actor. Mr. Lewis. Yes. Secretary Cuomo. We are now going to---- Mr. Lewis. It was a human being who saw an opportunity and say, hey, friends, it may require a marriage, but let's take advantage of it. Made the supreme sacrifice. Secretary Cuomo. They literally were in bed together, Mr. Chairman. [Laughter.] Mr. Lewis. Excuse me, ladies and gentlemen. We do not want to make light of this. It is very important. Secretary Cuomo. But, going forward, as I mentioned---- Mr. Lewis. Going forward, yes. Secretary Cuomo. Moving right along, the opportunity now is to do it right, because I agree with the Chairman that if it is once, it is once too many. What is the balance? The block grant gives us the opportunity to do it. The negotiated rulemaking gives us an opportunity to try to do it. Through that process, hopefully we will be successful, and I think the two hallmarks will be creating the capacity on the side of the tribes to make it work, and the Federal Government finding the balance between oversight and over-regulation. And that is where we will be working. Mr. Lewis. That balance is important. Mr. Stokes, I am going to yield to you at this point, and then we will go through the balance of our colleagues. Then I will have a few more questions, and we will try to keep the Secretary on his schedule. So, Mr. Stokes? complicity of hud officials Mr. Stokes. On this same point, I guess one of my concerns is on the Seattle situation, there was no complicity of HUD officials in what transpired here, was there? Secretary Cuomo. No. Mr. Stokes. This was just---- Secretary Cuomo. None has been alleged. None has been suggested. None is being investigated. Mr. Stokes. Right. That was one of my concerns. Over the years, you and I have been through a lot of things here on this Subcommittee, and, of course, one of the things that was very disturbing a couple years back has been complicity of HUD officials in scandals of this sort. This is something that took place in which HUD officials has no involvement. There may have been some laxity in catching this before it occurred, but that is the extent to which HUD was involved. Mr. Lewis. The local authorities were not HUD officials but, rather---- Secretary Cuomo. Yes, yes. I think that both points are very well taken. Number one, there was no allegation of complicity by any HUD official. We are talking about actionsby local housing authorities, not HUD officials. The worst allegation made against HUD is lack of oversight. Having said that, as I review the facts and circumstances in the Seattle Times story, again, this is a handful of cases. Again, these are cases that happened over 8 years. And most of these cases, if not all of these cases, HUD was already dealing with. One thing that we definitely proved here was lack of press management and handling a story effectively, because if you read the Seattle Times, you would think they came in and discovered something and HUD was asleep at the switch and that they went out and did all this research and they found out things that we should have known. That is not the case. That is not the case. Should we have been more diligent? Should we have moved faster? That is a discussion we could have. But we were not asleep at the switch, and we were certainly not involved in any of the actions which are being discussed. And even on those actions, there is a range from mismanagement, lack of capacity, lack of oversight. So there is no one, clear-cut, demonstrable flaw in the system. These have to be corrected, but, again, I do not think they speak---- Mr. Lewis. Mr. Stokes, I wonder, could we have the Secretary--you suggested that maybe there was some lack of press management in that. Secretary Cuomo. Yes. In my opinion, for that story to be written the way it was, to give that impression, was more than the normal sensationalism that a paper is due. Mr. Lewis. I only wanted to follow up on that because the Speaker wanted me to follow up on that. [Laughter.] I do not think the story fairly accounts for the reality of the situation. housing assistance from bia and hud Mr. Stokes. Let me understand a little more clearly, where BIA comes in and where HUD comes in, in terms of providing this type of housing to Indians who are required to live on a reservation. Can you speak to that? Secretary Cuomo. I will turn to Assistant Secretary Marchman. Mr. Stokes. Mr. Marchman, can you clarify this for me? Mr. Marchman. Unfortunately, I cannot. I can offer this clarification or a little bit more enlightenment on it. Under the programs which we run from HUD, we do the CDBG for Tribes, we do renter programs and in this particular case, homeownership. We work very closely with the BIA and other groups in an interagency council, if you will. But we take the lead with this. There may be other programs which the BIA runs which assist in housing but I am not familiar with them. But I can get that for you. [The information follows:] BIA Programs Which Assist in Housing The Department of the Interior, through the Bureau of Indian Affairs (BIA), operates only one program which provides housing assistance to Native Americans. Called the Housing Improvement Program, it allocates funds to Indian tribes for repairs to existing dwellings, down payments or closing costs to purchase dwellings and, under certain limited circumstances, new housing construction. The program has an annual appropriation of approximately $16 million which includes the cost of salaries and expenses for the BIA staff who work on the program. Mr. Stokes. Have you ever visited the site? Mr. Marchman. Not this particular site, no. I have seen sites in Indian country. This is probably typical of the program and most of the cases, particularly as you know for the renter programs, it is much less than this. This is one of the programs in which the housing authority is able to fashion homeownership programs for the Native American and they suit that to the local need, they suit that to the local terrain, and they suit that to local resources. This is a very strong program and that is why we are so disheartened to see it so maligned in the press. Mr. Lewis. Mr. Stokes, could I just ask a question? Mr. Stokes. Sure. Mr. Lewis. Those pictures are an illustration of what we want to see as a result of the HUD programs but I do not think you would suggest that that is the typical HUD housing project within an Indian reservation. Mr. Marchman. Oh, no. Mr. Lewis. They are largely square boxes from what I have seen. Mr. Marchman. And the homeownership program, let me make that distinction. No, this is not typical at all of the overall housing that is in Indian country. Mr. Lewis. I mean I would not live in the houses I have seen even when they were new. This is maybe okay but---- Mr. Marchman. Again, that shows the tremendous need. Mr. Stokes. Then this represents a special type of project as it relates to Indian housing? Mr. Marchman. Yes, sir. indian family income Mr. Stokes. And what type of income would the typical Indian family have that puts up this type of a home? Mr. Marchman. It would probably move from a median income to a moderate. Maybe 120 percent of median. The housing authority is able to fashion the homeownership program to meet a greater range of incomes. So, they would be typically lower than what you would find in other homeownership programs. Mr. Stokes. Well, give us some idea what we are talking about? Mr. Marchman. Maybe we are talking $30, $40, to $50,000 a year. Mr. Lewis. Twenty-five to 60 maybe? Mr. Marchman. Yes. The average would be about $20,000 for a mutual help family. Mr. Stokes. I see. But this represents something that is not atypical. That the average Indian family does not have housing of this kind. Mr. Marchman. No, that is correct, sir. Mr. Stokes. The average Indian family on reservations, can you give us some idea of what their typical family income is and what kind of housing they reside in? Mr. Marchman. I will struggle with some of my statistics. I think the average would be between $5,000 to $15,000 a year. Mr. Lewis. A year? Mr. Marchman. A year. Mr. Stokes. That is income? Mr. Marchman. Yes. And most of the housing is substandard by any measure without a doubt. Mr. Stokes. Probably even when new? Mr. Marchman. Yes, sir, correct. For a variety of reasons. It is, as the Secretary mentioned earlier and I just struggle to repeat, some of the worst housing I have ever seen in 20 years in public housing is in Indian country. Mr. Stokes. I just hope, Mr. Chairman, we put this whole thing in its proper perspective because I feel very strongly about the fact that what I think is still a national disgrace is that we even have reservations in this country for people who are required to live up on a reservations and particularly in the context and history of what has happened to those people in this country. And for us to rely upon media type of bashing of a whole group of people because of the transgressions of some small group, I think, would be wrong for us to concentrate on in that manner. And I just want to put it in its proper perspective. Mr. Lewis. Mr. Stokes, if I could share with you. It is my concern that this become the norm if we are going to have federal programs that flow. Instead we are dealing with families not at $25,000-to-$60,000 of income but we are talking about $5,000 of income and the programs are delivering housing that you would not live in and I would not live in and they are reservation housing. So, you know, somewhere there is a disconnect between what our goal is and what is being delivered out there and I kind of have a sense that it is somewhere in between us and the reservation. We can discuss reservations but there are reservations of choice and that is of concern to me, I must say. At the same time, the BIA kind of stands in the middle there and HUD programs have very little to do with BIA programs and vice versa. It is hard to get through that maze, if you will, and, yet, oversight is necessary. Mr. Stokes. Thank you, Mr. Chairman. I yield back my time. Mr. Lewis. I have taken about half your time. Mr. Stokes. That is all right. Mr. Lewis. Mr. Price. home funding request Mr. Price. Thank you, Mr. Chairman. Mr. Secretary, I appreciate your returning today. Secretary Cuomo. It is my pleasure. Mr. Price. I wanted to return as well because my time yesterday, understandably, was taken with reference to disaster assistance. I do appreciate the exchange we had at that point with Mr. Stegman, as well, and the exchange we have had in the ensuing hours. I think we all have a better understanding now of the need for North Carolina and HUD to work together and clear whatever hurdles need to be cleared at OMB in order to get the kind of assistance that we need. I want to do a couple of things quickly this morning. First, I want to commend you for the decisive action that you have taken in the matter of reverse mortgages. Going after these so-called estate planners who, I understand, have cheated older Americans out of thousands of dollars for services that are available free from the government. I am one of the original sponsors of the reverse mortgage program from my time, years ago on the Banking Committee. It is a promising program and it is too important a program for its success and performance to be marred by this kind of fraudulent practice. And if we have time, I would like to return and ask you a little bit more about the extent of these problems. I want to move on to the HOME Program. The HOME Program has not been discussed or focused on in great detail in these hearings. From the standpoint of my State, in my district, I think it is one of the most important programs we have going. You said yesterday, that you regarded the HOME Program as the wave of the future in housing programs. That is certainly the way that it looks from North Carolina. It is a flexible program and it facilitates partnerships with other levels of government, with nonprofits, with the private sector, and it takes a relatively small amount of Federal money and leverages contributions from other sources. We get far more bang for the buck. It is a program that has been very important in my District and in my State and I trust across the country, where these Federal grants of minimal size leverage all kinds of participation from other players. It seems to be one of the most efficient means for public funding to provide affordable housing. Now, we are faced in our area with some decline in the availability of this assistance. I am told that in the Research Triangle area of North Carolina we have seen a decline from about $23 million in HOME funds available four years ago to just over $14 million in the current Fiscal Year. And I notice in your budget request that you really are talking about a real cut nationally in this program. Now, this budget request, overall, is an increase of about 30 percent. But this is a program which you regard as the wave of the future, which I think by all accounts is a successful program and you are proposing a cut of something like 7 percent, nearly $100 million from last year's level. I know you are in a tight situation, I know that lots of programs have taken hits, but I wonder, relatively speaking, how you would account for the funding request for HOME and, of course, I would be interested in what your original request was before OMB got a hold of it, in terms of---- Mrs. Meek. They will not tell you that. [Laughter.] Mr. Price [continuing]. What your original request was for in terms of where this program was in your overall list of priorities? Mr. Lewis. Are you asking the Secretary to give us his heart of hearts? Secretary Cuomo. Thank you very much, Congressman Price. First, thank you for the kind comments about our action on the reverse mortgage program. It is a great program and I commend you for the initiation of it. It does a lot of good for a lot of people. And as we have been discussing yesterday and today, in our zeal to bring HUD's credibility to a point higher than it has ever been before, to restorethe public trust to a point higher than it has ever been before, we have been very aggressive in making sure that the reverse mortgage program is operating and operating well. There is a whole new little industry of scam artists that are out there. They call themselves estate planners. They charge senior citizens literally for nothing. There is no value-added, no service added. They charge up to 10 percent to get a mortgage when the senior citizen could have picked up the phone and called HUD directly. So, the Department moved very quickly. What we said was, if we find one of our lenders, an FHA-approved lender doing business with one of these scam artists, we will disqualify them not just from the reverse mortgage program but they will not do any HUD business period. This was a very tough stance for the Department to take and we got that word out. And if the Congressman would like to discuss it further, it would be our pleasure. approach used for home program On the HOME program, the approach of the HOME program is, in my opinion, the wave of the future. That is what I stated yesterday. The HOME program, CDBG, the Empowerment Zone Program, and hopefully where we get with this Native American block grant, is the Federal goal, with local means. It is not a blank check. We need to measure the performance and tell the world what the performance is of that funding with local jurisdictional focus. Mr. Price. And create partnerships, bring in other players. Secretary Cuomo. And create the partnerships, private sector, public sector, partnerships. That is the approach. And that is the approach we want to follow across the Department, the HOME program does that. It manifests that basic approach. Also, we have little special pride with the HOME program, it is a program I administered in my former position as Assistant Secretary for Community Planning and Development. When we took office a little over 4 years ago, one of the main issues in the confirmation hearing of Secretary Cisneros and my confirmation hearing, was that the HOME program did not work. Too many regulations. There was no spend-out. At that time the spend-out rate was about 2 or 3 percent. Four years later, the spend-out rate is about 92 percent, and we've built 110,000 units with the HOME program. So, the approach has been vindicated. You stated that the HUD budget has gone up 30 percent. Mr. Price. I was talking about your proposals for next year. Secretary Cuomo. Right. It goes up 30 percent, that is true. It goes up 30 percent in budget authority. The 30 percent is almost exclusively to take care of the Section 8 problem. If you look at the rest of the budget besides the Section 8 renewals, it is flat at best, down a little bit. The HOME program, we put in at 1309 down from 14, a $70 million cut, after shifting $21 million to the New Native American Block Grant Program, which is in keeping with basically where the rest of the Department is after you get past the Section 8 which is where you have the 30 percent increase. I do not understand though how those numbers would get your State or any district from $23 million to $15 million. Mr. Price. Well, the $23 million to $15 million has been a four-year progression. And the $23 million is a figure from Fiscal Year 1993. Secretary Cuomo. Fiscal Year 1993. home funding in north carolina Mr. Price. That is what I am told by local housing authorities. Secretary Cuomo. Do we have a number for North Carolina for 1996, 1997, 1998 request at 27, 27, 26. So, I would be interested in looking at the situation with you because the budget numbers would not justify that. Mr. Price. Mr. Secretary, if you would yield. It may very well be, talking about credit, a lot of activity has gone on around the country, it may very well be, Mr. Secretary, that nonprofits have come in and played a role in filling that gap, leveraging the money. I am not sure that it is the case in my State but it could very well be. Secretary Cuomo. The Chief of Staff, Mike Stegman, who again is familiar with North Carolina and looks out for North Carolina in the Department, Congressman, knows the numbers on North Carolina off the top of his head. Mr. Stegman. Part of it is the entitlement part of it of which gets a lot of it. But there is also the State portion which you have applied for the non-entitlement part, and the consortia. And that is the competitive relationship with the States. So, the decline in the actual appropriation is less than the decline that you are talking about, Congressman. Mr. Price. Yes. And I was not meaning to suggest there was any particular problem in our part of the State. All I am reflecting is the view of local housing authorities and those working in nonprofits that number one, this has been a uniquely valuable resource. And, number two, that the resource has not been as available as we would have liked. And there has been this kind of decline in our portion of North Carolina. But I am really speaking to the overall commitment that nationally you are making and just asking you to reflect on that commitment relative to the other demands in this budget. Secretary Cuomo. Congressman, again, the funding for the State as a whole, $27 million, would be down to about $26 million under the proposal, which is a $1 million reduction. I would have liked to see the numbers go up. No doubt about it. The HOME program is a good approach and uses the money well. And I am proud of the way it uses the money and I would have liked to have been able to come before the Committee and suggested an increase. But as we have also heard, the balance of needs here leaves one with no good answer. Funding for the HOME program, the Section 811 housing program, the homeless, and Native Americans as we just discussed, were all tough choices made more difficult by the press and the crush of the Section 8 renewals. Mr. Price. What was your original pass back request to OMB for this line? Secretary Cuomo. With all due respect, Congressman Price, as I said to Congresswoman Meek yesterday, the conversations that we have been having at OMB and the Department we consider to ``inside the family conversations.'' And I found it best not to comment on what the actual discussions were. We stand by the Administration proposal which was the result of that process. Mr. Price. Well, we often do get those figures in the hearing context, though, and it is not an unusual request. Secretary Cuomo. No, I understand that. And I understand that there are often discussions public and private about what a Department asks for and what OMB saidand what the Department said back. I am saying my practice would be that I would prefer not to comment on the discussions and how we arrived at a conclusion. But I stand by the conclusion. Mr. Price. It is safe to assume that you would have desired more for this program? Secretary Cuomo. That is a safe assumption, Congressman. Mr. Price. I thought so. Thank you. reverse mortgages On the matter of reverse mortgages, I know we have other people who want to ask questions. Whatever information you have by way of backup to the action that you took a couple of days ago on this in terms of your estimate of the extent of this problem. Perhaps also some information about the kind of outreach you are undertaking to make certain people know about the availability of this program, so that the are less vulnerable to those who purport to have exclusive information. I think that kind of background would be helpful. I commend you for the decisive action you have taken. This is a program that can mean a lot to a lot of older people. We do not need a bunch of scam artists messing the program up for these senior citizens. Secretary Cuomo. Thank you very much, Congressman, we will get you the information today. Fee Abuses In Reverse Mortgages Information from AARP and several wholesale lenders who participate in the Home Equity Conversion Mortgage (HECM) program indicated that there were several companies charging exorbitant fees (up to 10 percent of the loan amount) for providing information on HECM's to seniors that was otherwise available for little or no charge. The Department issued a mortgagee letter, and the Secretary held a press conference denouncing and implementing procedures prohibiting such practices on FHA insured loans. Subsequently, Patriot (one of these companies) petitioned the court for a Temporary Restraining Order (TRO) and an injunction which would prohibit the implementation or enforcement of the mortgagee letter. The court granted the TRO and the hearing on the injunction is April 9. It is difficult to determine the number of borrowers affected by the abuses, because the offending companies are interrelated and distributors. An attorney for the lender in the court action stated that there were about 115 cases a month since September and 279 in the pipeline. We hope that this is most of the cases. HUD has tried to get visibility to better inform borrowers of the problem. The Secretary's Press Conference got extensive coverage, including NBC National News as part of the ``Fleecing of America'' series. AARP has also cited the problem twice in its publications, including the magazine which goes to 20 million households. Since the temporary restraining order, HUD has been more circumspect. The Elderly Homeowners' Loan Protection Act is being proposed by a bi-partisan group of Senators and Representatives to end this scam. The legislation would make permanent the actions taken by HUD against these companies. Mr. Price. Thank you, Mr. Secretary. Mrs. Meek [presiding]. The Chairman had to step out. Mrs. Meek, he wanted you to be recognized next. Mrs. Meek. Thank you so much. Thanks for coming back, Mr. Secretary. Secretary Cuomo. Thank you for having us. code enforcement issues in florida Mrs. Meek. I receive quite a few comments from the community based corporations in my district. They have some very healthy ones there and they are doing a very good job in housing. Some of the things they are concerned about, however, is that they are not able to get money for the internal code enforcement that is due when you are building or you have housing. And there are so many conditions that are very, very bad in some of these areas, particularly areas like West Perrine where the hurricane was, there has really been no sufficient clean up there, yet and down in Northwest end of my district. They are saying to me that they cannot get help from HUD in terms of trying to meet the code enforcement standards that Dade County is insisting on. Do you know anything about that? Secretary Cuomo. Congresswoman, I have not heard of that specific issue. We have many program resources that could be used to ameliorate code problems. Now, again, as we have heard, are there enough HUD funds? No. But we have programs that could be helpful. And if the Congresswoman would like it would be our pleasure to discuss HUD's resources and programs with the community groups who are having trouble doing it. delinquent fha mortgages in florida Mrs. Meek. All right. They also said that the lenders need better incentives from HUD on delinquent FHA mortgages. Maybe some kind of reward or some kind of penalty, the lenders who provide little to no assistance to the homeowners. Is that a familiar trend, have you heard about that? Secretary Cuomo. We have had some discussions about that, Congresswoman, and Assistant Secretary Nic Retsinas is here and when you chat with him, which you will later on today, I am sure he will talk to you about the reforms that we are making with FHA to ameliorate that situation. need for master community planning assistance Mrs. Meek. I also have another big problem. There needs to be, there are communities in my district and in Miami, as well, that are totally isolated, totally dilapidated because of Federalism, an example, Overton is one. When urban development came in and moved all the people out and ran these big trains through there, then there is East Little Havana that looks as bad as any third world community would look and the same with Liberty City. These are cess pools of confusion, and alienation. And they are saying and I agree with them, HUD does not think about monies for master planning. For example, Mr. Secretary, if I had myway, which I do not seem to be able to get here lately---- [Laughter.] Mrs. Meek [continuing]. I would go into Overton and try to build a community, just in that one area. And people are saying, well, you need to get a community redevelopment, what is it, trust or whatever. That is very difficult to get because of the politics there. Is there any way HUD could help communities that really want to plan and have a master community so that the sense of community which has been decimated there could be returned to some extent? Secretary Cuomo. Congresswoman, we can do it on a limited basis. We do not really have--I agree with your concern, and I wish I could say, yes, we have a planning grant program that gives grants to communities just to do planning. But we do not. We can do it on the margins. We have technical assistance funding which works in conjunction with programs where we can send in expertise and advisors to work with communities around putting together a plan for one of the programs and applications et cetera. And we have some programs that would work just like that, the homeownership zones which we discussed yesterday, large-scale redevelopment, several hundred homes. You can redo an entire area. The second round of empowerment zones, enterprise communities which is comprehensive redevelopment and got communities excited all across the country, where they came together, came up with a comprehensive plan, what their community is going to look like in the year 2020. And that planning process, in and of itself, is a product. So, homeownership zones, empowerment zones and the planning that goes around those programs and we have technical assistance that we can offer a community and it would be our pleasure to do that if you would like to. Mrs. Meek. I have one or two more questions. Mr. Lewis [presiding]. Well, you have got just one or two more moments. Mrs. Meek. All right, good. [Laughter.] drug elimination in public housing I have been really on a mission for this session and that is I am so concerned about the influx of drugs, particularly in the inner-city communities. I have gone to the floor and I have gone to various committees talking about this. I want to know if HUD is going to be able to help in any way with these drug- related communities? Most of my drug crimes are in the housing projects. Most of the drug deals are made in the housing projects and I always said the stork did not bring those deals there, they came from the outside. And we are trying so hard to stop drug selling and drug usage in the housing projects. Many times it is caused by the sons or daughters who are selling drugs right out of the projects. Now, we have all kinds of legislation in Florida about that. But you did not get much money for that this year. It is the same as last year, 1998 in your budget is the same as 1997 for drug elimination. I want this committee to know that most of this drug trade is done in the housing projects. And it is because of the way they were built at the very beginning and they still exist in Miami. And those that do not exist have been sort of--what do you do when you clean them out--you know, you are ready to tear them down and you relocate the people. But you leave those houses there. There are nothing but crack dens. That is all they are. We need a lot of help. We have--and I am sure there are other urban areas with similar problems as I have--but when I come before HUD I know that if we are ever going to stop the kind of quality of life we have in those communities, it is to fight hard in terms of the drug assistance. Now, you are not the only Secretary I am talking to about this. But I did want you to know that it is sort of concentrated in the housing projects. And you are going to need--I feel like this as I do about the Indian programs--if we have a problem let us do something about it. I mean we can philosophize forever about the need in the Indian housing and the need in the housing units. But unless we focus and perhaps have some kind of theme or initiative that goes in there, we will be back here next year with the same thing. So, I am appealing to you and to your staff, you need some hungry on your staff that are really advocates, you know, and that they see what is going on and they will keep needling you, Mr. Secretary, until they become real extreme advocates, you either get rid of them or you will listen to them. Because we have those two problems. Drugs in the housing projects and certainly I am concerned about the Indians. But the Chairman is looking at me and I have very good peripheral vision. [Laughter.] Mrs. Meek. And it is not because I look like Jada Pinkett. But he is giving me the eye. So, what I am trying to say to you, please, help us out. You are a good-looking man but I see-- Mr. Lewis. A thing of beauty is a joy forever. [Laughter.] Mrs. Meek. Do we have enough time, Mr. Chairman? Mr. Lewis. We will get back to you, Mrs. Meek. Mrs. Meek. All right, thank you. Secretary Cuomo. Congresswoman, if I may respond quickly because I know that the time is short but the issue is a very important one. I would say three things very quickly and itwill be a long conservation. It is a topic that deserves a long discussion. First, enforcement, we have drug elimination grant which is at about $290 million, which is not constant but it is a large sum of money for the Department and we heard Congressman Price about the 811 Program yesterday, these are all the tough demands. Operation Safe Home, which is an enforcement program has actually doubled in the budget this year. The one strike policy which the President announced a couple of years back is working very well getting the drug dealers out of public housing. So, the first point is we have that enforcement cluster. Second is, I think the Congresswoman is exactly right when you said part of the problem is the way we built a lot of these public housing complexes. They concentrated people with problems, isolated them on one side of town, on the other side of the tracks, literally in many cases, on the other side of the freeway, but put a wall between them and the rest of the community. And in many cases the rebuilding, the HOPE VI Program, the demolition, the renovation, gets at a part of that. [The information follows:] Demolition and Replacement of Units Through HOPE VI The HOPE VI Program has played a key role in the transformation of public housing both by driving the fast pace of demolitions across the country and encouraging innovative replacement strategies. The fiscal years 1993-1996 HOPE VI grantees will account for the demolition of approximately 35,000 public housing units. Of this number, approximately 7,600 units have been demolished so far. For the most part, the demolished units will be replaced with both ``hard'' and ``soft'' units. The 1993-1996 grantees will develop approximately 18,000 new ``hard'' units; construction has already begun on 6,615 units. Of these units, 1,206 have been completed to date. An additional 13,400 Section 8 (``soft'') replacement units have also been assigned to these grantees for a total of 31,400 replacement units. While HOPE VI has been a catalyst for the removal of thousands of obsolete and distressed public housing units across the nation, the Department's goal to demolish 100,000 units by the year 2000 will also be met in part by hundreds of non-HOPE VI housing authorities that have been encouraged to eliminate old and dilapidated units from their inventory. As of March 31, 1997, 26,300 units have been demolished since fiscal year 1993. The attached chart demonstrates the aggregate number of units (which includes HOPE VI units) to be torn down and replaced across the country between fiscal years 1993 and 2000. The chart shows that the Department anticipates replacing 99,170 of the 100,000 units town down with a mixture of new units and Section 8 certificates for an almost one-for-one replacement rate. [Page 112--The official Committee record contains additional material here.] And thirdly, I think that it is also important to remember the carrot and the stick. Yeah, all these great penalties, we will put you in jail forever, but we also have to have some incentives. And people have to feel that there is a light at the end of the tunnel and that there is a job, that there is hope for a productive life and a productive course and I think we also have to focus on that. We are not going to do it by just the enforcement efforts, just the criminal justice efforts, there has to be a positive incentive and a belief that if you do everything right and you play by the rules and you do everything you are supposed to do, that life can be better and that there is an alternative. And I think we have to do all of those things simultaneously, none of them alone will work. Mrs. Meek. Thank you, thank you, Mr. Chairman. chairman's comments on reverse mortgages Mr. Lewis. Thank you very much, Mrs. Meek. Mr. Secretary, when I left abruptly a while ago it was with news that my best friend's father passed away. You were commenting on the reverse mortgages when I came back in and I was reminded that my first venture in public affairs involved my own industry which is the health insurance industry in part, where suede-shoed salesmen in Southern California were going into old people's homes and selling them products on a headline and a promise that the care would be there when they needed it. As far as I am concerned, we cannot tolerate in public affairs those kinds of operatives. And, so, I, too, wanted to commend you for your reverse mortgage program. A lot of the illustrations that were in the media regarding that had to do with Southern California one more time. Secretary Cuomo. Yes. Mr. Lewis. And if this committee can be of assistance in any way, shape or form we intend to do that. I also mentioned that yesterday we will be attempting working with you and your people trying to evaluate those programs that work, and fund the ones that have delivered well and maybe be tougher on ones that have not delivered so much. I must mention to you that among those programs that have priority with me, as well as the Secretary, happens to be the HOME program where money has been leveraged. There is a significant cut there, and we will be looking at those relative priorities as we go forward. I hope we do not find ourselves testing the line item veto in that process but I will work very closely with you in connection with that. But, indeed, there is an illustration of one of those programs that has had a positive impact for, especially the poorest of the poor and home opportunity for people. native american housing program Returning to Indian housing for a moment, Mr. Secretary, as you know, a new Native American housing program was passed by the Congress last fall. That legislation requires HUD to provide block grant assistance to each of 550 Federally recognized tribes rather than the 189 housing authorities. To receive assistance, the tribes must submit housingplans for HUD's approval. In the meantime, the President has requested $485 million for this new program. I am very concerned about this level of funding for according to a May 1996 report by the Urban Institute the population of Native Americans rose by six times over the past 4 decades to over two million in 1990. There are probably some questions about family planning that relate to that, but that is another subject, I guess on another day. And 60 percent of those persons live on tribal areas or in surrounding counties. Compared to non-Indians, Native Americans are more family oriented. Thirty-seven percent are married couples with children versus 28 percent of non- Indian householders. Native Americans have a higher unemployment rate, 14 percent versus 6 percent for the rest of the country; a smaller number of workers in for-profit firms per thousand people, 225 versus 362; and a higher share of households with very low incomes, 33 percent versus 24 percent. Moreover, Indian housing conditions are much worse than housing conditions in other areas of the country. Forty percent of Native Americans in tribal areas live in over-crowded or physically inadequate housing compared with 6 percent of the U.S. population. These statistics--and they can go on and on--are startling and I think the point that in many ways my colleague, Mr. Stokes was making earlier--that an even greater concern is the statement included in HUD's justifications that it will take more than 100 years before the housing needs of the eligible Indian families can be met. You know, Mr. Secretary, I realize that there are some serious problems with the Native American housing program and I have reservations about providing substantial amounts of taxpayer dollars to tribes that are self-sufficient through gaming or other resources, particularly, after being apprised of the serious needs of other tribes. And that question is a tough political question for us to even begin to consider addressing. But I am wondering about sovereign nations in connection with all of this. We have each got a responsibility for the poorest of the poor within our countries as it were. Any comment you might have in connection with that, I would be interested in. Secretary Cuomo. Mr. Chairman, I agree with the thrust of your comments and again, I do not mean to be repetitive before the Committee but this really has been a balancing of needs with the present condition that the pie is not large enough to feed everyone who is at the table and who is hungry. The $485 million which is requested is about constant with 1997. Mr. Lewis. Correct. Secretary Cuomo. It is actually, if one were to go line-by- line because it is a consolidation, about 10 percent higher than the 1996 funding. So, constant with 1997, 10 percent up from 1996 is a major accomplishment in the Budget as we have been discussing the past 2 days. But once again, is it enough funding? We would be the first to say that the need outstrips the resources. Mr. Lewis. The population of these tribes and we know the explosion in numbers is a very real problem and I hope that we would be taking that into consideration as we look at these funding levels. I am concerned that the President's budget request may just be sufficient only to kind of ensure, possibly ensure failure of these Native American programs. And it is that item that I want us to focus on as much as we can. Secretary Cuomo. We can do good things with the funding that we have. We cannot do enough with the funding that we have. capacity of tribes to administer nap Mr. Lewis. Can you tell me do the tribes have the capacity to administer this new program given the relatively loose structure? Secretary Cuomo. I think there is a capacity issue. I think that is one of the issues that we saw, again going back to the Seattle Times, ``expose.'' Lack of capacity is a big element within that. I think when we design this program we have to take that into account and we have to have a solution to the capacity issue. And hopefully, the capacity issue will be alleviated because this program is simpler to administer than past programs. Mr. Lewis. Is there any funding that has been made available to the tribes in this request or in other HUD accounts, like CDBG, to build the capacity of tribes to administer the effective housing programs? Secretary Cuomo. We will have funding in the new block grant that can be used to build capacity. Mr. Lewis. Can the nonprofit housing community be helpful to the tribes to build their capacity in the same manner in which nonprofits operate in the urban center? Secretary Cuomo. Oh, undoubtedly. I think the best practices work, with sharing of information. Nonprofit private sector technical assistance to the tribes is going to be one of the main features of a technical assistance program. Mr. Lewis. How many nonprofit organizations work in Indian country, do you know? Secretary Cuomo. I do not know but I can get the Committee that number. Mr. Lewis. All right, for the record. I have a number of other questions regarding Indian housing that I think in view of the time and circumstance, we will ask you to respond to for the record. Secretary Cuomo. Absolutely. [The information follows:] Number of Non-Profit Organizations Working in Indian Country There are 14 non-profit organizations doing business in Indian country. The primary ones are the National American Indian Housing Council (NAIHC), the Housing Assistance Council, and Habitat for Humanity. In addition, there are nine regional Native American housing organizations with the technical capability to assist tribes. In addition, the Neighborhood Reinvestment Corporation and Fannie Mae are also involved in the provision of financial services for Indian businesses and individuals. However, very few of these organizations offer the kind of technical assistance and housing expertise that is generally available and as conveniently located to the Indian populations as the Indian housing authorities. Mr. Lewis. And I want to not take too much of Mr. Stokes' time. Mr. Stokes. Mr. Stokes. Thank you, Mr. Chairman. I have just one or two more questions. Mr. Chairman, you might clarify this for me and then I will know whether I have a question or not. But you were posing some questions relative to population control and I do not know where this comes in, in terms of HUD. Mr. Lewis. Well, HUD does not have the responsibility but the interesting note to me was that I had not, until I had looked at this material, I had not really had the sense that there has been a very sizable population growth within the tribes that has far outstripped the country. In the meantime, they live in the poorest of conditions and, so, interaction with that reality is kind of a part of our responsibility when we are looking at a shrinking discretionary pot. So, I just want it before us that the number of people to be served are increasing more rapidly than the country. It is not something that we traditionally deal with HUD about except that we do have some responsibility to see that children are housed. Mr. Stokes. I just wanted to understand, you know, from what perspective we were approaching that. Mr. Secretary, before you leave today, let me ask you, I have just seen a United States General Accounting Office report here on HUD's Fiscal Year 1998 budget request. Have you had a chance yet to see this? Secretary Cuomo. I have not, Mr. Stokes. Mr. Stokes. That is what I needed to know whether or not you had seen it. I think, Mr. Chairman---- Mr. Lewis. Mr. Stokes, maybe we will put it in the record at the end of the day. Is that okay with you? Mr. Stokes. Well, I think I would want some chance to--is someone coming over from GAO to testify on it? Mr. Lewis. Not today. This is just their preliminary information to us. Mr. Stokes. I just thought maybe we ought to have some chance to question them about some of the things in here. Mr. Lewis. Okay. We will have that opportunity. Mr. Stokes. Okay, thank you, Mr. Chairman. Mr. Lewis. Mrs. Meek. Mrs. Meek. I yield to my senior member, my time, Mr. Chairman. Mr. Lewis. He has got all the time he needs. [Laughter.] Mr. Stokes. I have run out of questions. Mrs. Meek. All right. If I may go ahead with one? Mr. Lewis. Certainly. health of FHA program Mrs. Meek. I received quite a bit of interest and inquiries regarding your FHA loan program, in terms of how healthy is that program and what do you see, how is it working? Secretary Cuomo. Well, the program--actually the FHA homeownership program from an auditing point of view, an accounting point of view is actually at one of its most healthy financial states ever. Congress had set a goal for financial health of the year 2000. We have already met that goal ahead of schedule. So, the fund, itself, is in very good financial shape. As far as the issue, homeownership, President Clinton has made it a priority for him, Secretary Cisneros worked diligently on getting a homeownership rate up. The President wants to see the homeownership rate higher than ever before. And the Department will take that as a major priority over the next coming years. Mrs. Meek. The reason why I am interested in that program is that traditionally FHA does not even lend money to people who really need it, the real low-and-moderate income families. And I am just concerned that I think you are going to increase their loan limit, are you not? You are going to increase it? Secretary Cuomo. We have a proposal to increase the loan limit, yes. Mrs. Meek. Do you think that will have any impact in terms of would it continue to be a detriment to the lower-income people? You see if you have money you can get FHA money and you can build and your people can have housing. So, I am concerned about whether or not there is a negative impact or detrimental impact from increasing the FHA program? Secretary Cuomo. Interesting point, Congresswoman. First, the FHA insures mortgages but as you correctly point out, the family, the individual needs resources to be able to make those payments because the borrower has to be in a financial position to make the payments. And if they are very low-income they may not be in the position. Having said that, the loan limits which would increase the FHA loan limit will have no impact on the lower end of the financial spectrum. You could even speculate and argue that it would have a positive impact because as you raise the FHA loan limits, the fund actually makes money on the higher end of the spectrum because it is a lower risk and if the fund was healthier, theoretically, they might be able to do even more good for the rest of the income spectrum. Mrs. Meek. Thank you. Mr. Lewis. Thank you, Mrs. Meek. Mr. Secretary, you and I had discussed the fact that we may go back to some other issues that I think most of those can be handled by your very fine staff and the time you have spent with us is very much appreciated. But I wanted to mention to you, Mr. Secretary, that over the years that Congressman Stokes and I have worked together we have shared a great interest in seeing the Federal Government play every role possible to have our agencies, for which we are responsible, look as much as possible, a good deal like America. And I must say that from my perspective, the audience today is a reflection that there is progress being made at HUD in connection with that. Those who have responsibility do reflect a different mix than even we saw not so long ago. We continue to encourage those views. It is very important that we have people of African-American descents in positions of responsibility. It is very important that, from my perspective, that women have a chance to demonstrate capability in this process. I have every sense that you understand that. But, above and beyond that, the only hole I see in the audience at this moment--and I have been looking around all day and I have not been able to find it--I do not see a Native American out there. But, in the meantime---- Secretary Cuomo. You will the next time we are here, Mr. Chairman. [Laughter.] Mr. Lewis. But in the meantime, I do appreciate your time. We are going to return to the Cabrini Green questions that are part of the Chicago Housing Authority. I think that may fall in Secretary Marchman's category. Secretary Cuomo. Yes, it does, Mr. Chairman. Mr. Lewis. But, in the meantime, Mr. Secretary, we do appreciate the time you have spent with us and look forward to a growing and continuing positive relationship. Secretary Cuomo. Thank you very much, Mr. Chairman. It has been my pleasure. Thank you. Mr. Lewis. You can stay as long as you would like. [Laughter.] Secretary Cuomo. I do not want to take too much time from the Assistant Secretary. Mr. Lewis. Okay, thank you again. [Secretary Cuomo leaves the hearing.] Mr. Lewis. Secretary Marchman, you are up, I guess. How are you, it is good to see you. Mr. Marchman. I am fine, thank you, Mr. Chairman. Mr. Lewis. We spent a little time discussing my concerns about HANO yesterday. While we did not spend as much time as we might, I must mention that Mrs. Meek's questions earlier where she was focusing upon the presence of drugs and that kind of activity within the projects, I certainly experienced that by way of exposure when visiting Desire Homes in New Orleans. And to say the least, that is a major, major challenge if we are concerned about the impact that that is having upon young people in housing programs across the country. Number of hope VI Grants Awarded Turning briefly to the Chicago Housing Authority, the President has requested $524 million for severely distressed public housing programs, HOPE VI, to secure the demolition of approximately 20,000 obsolete public housing units and the construction or rehabilitation of approximately 4,100 units, as well as to provide Section 8 rental assistance to approximately 10,000 families. The program is designed so that funds can be used in creative manners and leveraged with other forms of assistance to revitalize entire neighborhoods. How many HOPE VI awards have been made since HOPE VI began? Mr. Marchman, I will have you identify yourself for the record. Mr. Marchman. Kevin Marchman, Acting Assistant Secretary for Public and Indian Housing. There have been just over 100 awards in three different categories. There were 59 awards for the revitalization of major developments. There were 24 for grants for demolition only. And there were 35 grants for planning purposes. So, there were 118 grants awarded since 1993. Mr. Lewis. I presume that where we are talking about awards for demolition only that we are operating under, that relief of one-to-one ratios? Mr. Marchman. Yes. The temporary repeal of the one-for-one certainly did accelerate demolition applications that we have received. And in our last funding, which was the first time we funded for demolition only, it would have met some of those particular needs. Mr. Lewis. It is my understanding that in some circumstances--I do not want to be pointing fingers but I was very impressed with what we may not have done over the years. These questions have absolutely nothing to do with partisan politics. There are plenty of questions to be passed around on these issues. But as I understand it, and frankly it was an educational process for me, Desire Homes in New Orleans, for example, was built out of town but moving towards where shipbuilding was taking place. We built these units in a fashion that hopefully we would never replicate, but we brought in families down from the south to come work and live in those facilities. Not very far away and in the meantime, Desire has gone forward. Desire Homes now has a whole array of highly intense living conditions, very dense circumstances, buildings that have become nests, for the drug dealers know how to get in and get out and the law enforcement officers, in many instances, live in fear of their life if they should go in. So, taking down those units becomes a very, very important item if we are going to get a handle on the problems that we are dealing with. And fundamental to getting a handle on that involves the impact that the residents face every day and especially the children face every day. So, I am interested in how many of the awardees have signed their agreements? Mr. Marchman. From last year's allocation, fiscal year 1996, no one has signed. We have been busy reconstructing the grant agreements to include much more stringent cost protection measures. There were 34 housing authorities that have signed grant agreements for 34 implementation grants and these are under progress in one phase or another. Revitalization of Cabrini Green Mr. Lewis. I had the impression that maybe we had signed an agreement at Cabrini Green. Mr. Marchman. We have, sir. Mr. Lewis. Okay. Mr. Marchman. I hesitate on that. Mr. Lewis. Well, you said there had been none signed. So, I am kind of---- Mr. Marchman. No, no, I was speaking of last year's allocation which we have changed. Mr. Lewis. All right. Mr. Marchman. I think that there has been, just to elaborate, starts and stops to Cabrini since its inception. Mr. Lewis. So, there was a signing in 1993 I am hearing and that was one of the starts. Mr. Marchman. The grant agreement was signed in November 1994. Then we stopped the Plan in early 1995. I would be more than glad to repeat any aspect of it that you would like. Mr. Lewis. When do you expect that the Chicago Housing Authority will sign their agreement? Mr. Marchman. I would imagine we will receive the revised Revitalization Plan within the next several months. It is now combined with the process of the city for the revitalization of that Near North Side. And we expect to get underway with the Cabrini Green and the near North Development. I would hope before the summer is out. There are continuous conversations with neighborhood groups and with the residents who have been into court several times to stop the process. I think it is safe to say that if there were three developments in our overall HOPE VI portfolio, Desire and Cabrini Green have been the most challenging. Distrust by Cabrini Green Residents Mr. Lewis. I gather there is a lot of interaction between the local residents, the media and otherwise, regarding what is going on at Cabrini Green. Can youdescribe to me what that is about? Mr. Marchman. Yes, I can. At least one aspect of Cabrini Green, when first signed in 1994, the residents were promised any number of different things for their participation and their cooperation. Some of what was promised by a prior housing authority administration could not be delivered and residents are balking at that. Secondly, there is a great fear as we have seen in a lot of developments, that if Cabrini Green---- Mr. Lewis. What they were promised could not be delivered? Mr. Marchman. Could not be delivered. Mr. Lewis. Understandably, you know, when you go out to the projects and you talk to people in the neighborhood that you can just sense it, no better way, it is a lack of trust. You know, I have heard this before, ``Are you shining me on today?'' kind of stuff. Mr. Marchman. Exactly. There is great mistrust, historical mistrust between the residents of Cabrini Green, the Housing Authority and the City. The feeling is that if much demolition takes place at Cabrini Green, what is rebuilt will not be affordable to the residents of Cabrini Green. And, therefore, they have in many different ways been in contact with HUD, and with the press in order to make sure their issues get a fair hearing. Mr. Robinson. Mr. Chairman, if I may respond? Mr. Lewis. Certainly. Mr. Robinson. That feeling that exists at Cabrini Green and---- Mr. Lewis. Excuse me, Dwight. Dwight Robinson. Mr. Robinson. Dwight Robinson, Deputy Secretary. I apologize. Mr. Lewis. That is all right. Mr. Robinson. That feeling that exists that Kevin rightly speaks to, goes beyond simply Cabrini Green. It is a distrust that exists in far too many cases between the residents of public housing and the public housing authority and by extension, HUD. Because in all too many cases there have been promises made, in some cases over-promises, but promises made that people either had no ability to deliver on or no intention to deliver on. And, so, as we work through this process, it is clearly a responsibility on our part and one that I think the public housing authority under Kevin's leadership and then the leadership of the Secretary that we are mending, that needs to be developed. That trust needs to be rebuilt and the two that you point to, Cabrini Green and Desire, are at the top of the list. Mr. Lewis. Mr. Robinson, one of the most significant impressions I have had since I have had this responsibility involves the time I spent with former Secretary Cisneros, where we went out to some of these projects and especially where the receiver is concerned in Washington, D.C. I mean when those mothers look you in the eye and they say literally, for the first time, I believe in this person. You know, small steps, promises made and promises delivered. I mean if we are going to rebuild that credibility that is so fundamental it is awfully important that we work at that. Mr. Robinson. Absolutely, Mr. Chairman. And I would add that I, too, have been out to the sites and spoken to mothers in the similar circumstances, and I know both you and Mr. Stokes share that feeling. And one of the things we want to make sure we do and I know it is happening under Mr. Marchman's leadership, is the fact that we are, in fact, honest with the people that we are dealing with and make sure that they understand what it is that we are attempting to do, when we expect to do it, and how we expect to do it. Mr. Lewis. Okay. Mr. Marchman, is the entire Cabrini Green part of a redevelopment plan? Mr. Marchman. It eventually will be, Mr. Chairman. Currently we are talking about four buildings that are just south of Division Street. And let me be a little bit more expansive. What is going on in that entire north side is a revitalization. And the residents are also concerned that not only will they be moved out but they will not even be able to afford to revisit and this is part of the problem. Cabrini Green consists of some 3,600 units. And we are talking about 725 units that would be impacted by this redevelopment. Mr. Lewis. So, they are expressing the classic concern, do not tear down my building or my home or I may not be able to get back in. Mr. Marchman. Yes. Mr. Lewis. And they do not want to move? Mr. Marchman. That is exactly what we are talking about. As bad as those buildings are, I am sure you are familiar with the condition, they said this is better than nothing. Mr. Stokes. It is home to them. Mr. Lewis. It is home to them. Mr. Marchman. Right. Mr. Lewis. It should be a part of the redevelopment plan that involves those residents so that one more time, small steps, building a different kind of confidence than the history here has allowed. Mr. Marchman. And if I could add to the small steps taken since 1993. As recently as 2 weekends ago, there were meetings with the Cabrini Green residents, the Mayor's office, the planning office, and the public housing authority to see what small steps can be agreed to. But to say that there is enormous distrust between the residents and the housing authority is an understatement. And now it is more than the housing authority; it may be residents who live on the west side who are familiar with urban renewal. Many of the things which the housing authority and the city are saying in 1997 they heard back in 1967 and they are having a hard time with the concepts. hope v. leveraging plan Mr. Lewis. Before I turn to Mr. Stokes, let me ask you the big question. Mr. Marchman. I hope I have a good answer. Mr. Stokes. Are you ready? [Laughter.] Mr. Lewis. How has the $50 million HOPE VI grant been leveraged with local and state resources? Mr. Marchman. It looks to be leveraged with the overall city development plan. The mayor's office, and private developers have committed to making sure that the $50 million is leveraged. They have not finished a complete plan yet, but this is where they are headed. We felt very early on that the $50 million, as much money as that seems, would just be a drop in the bucket and would not address the total need of that neighborhood. So, I believe, once that plan is done then you will see it is leveraged. I think it is a condition of what is being planned for Cabrini Green now. Mr. Lewis. Well, Mr. Stokes, here what I am really trying to get at is that there are $50 million that are flowing in the direction of Cabrini Green and I am very interested in knowing what is the State commitment, what is the local commitment, what kinds of nonprofits are involved to make sure we leverage that to a maximum. So, that this, too, can become an illustration of a successful project rather than just repeating history here. And the committee wants to stay on top of that, we are asking our Inspector General to help us stay on top of issues like this. No small part of the design is to follow through on questions about money flows that go to communities like Chicago or like New Orleans and then how many of those dollars actually get down to providing living space for the people we, at least in this Committee, pretend that we want to serve? Mr. Marchman. I would suggest that Cabrini Green would be the prime site among maybe three or four I can think of in the country that has the absolute ability to be leveraged given its location. need for better pha directors Mr. Lewis. Mr. Stokes. Mr. Stokes. Thank you, Mr. Chairman. You know, I might say at the outset, Mr. Chairman, I share fully your concerns relative to these type of troubled housing authorities, Cabrini Green and New Orleans and others. And, you know, I have been under the same thing in my own city for a number of years with one director after another until we got the right director of the housing authority. If you do not have the right director, a person who really is concerned and committed to those people who live in public housing, it will never work. And fortunately, out in Cleveland, we are fortunate to have a woman like Claire Freeman, who is probably-- Mr. Lewis. When are you going to take me to visit one of these? Mr. Stokes. I really want you to come out there just to see what can be done when you have, not only someone who is professional and knowledgeable, but who has the commitment and desire to really do what is right by those people. Mr. Lewis. I must say, I was kind of---- Mr. Stokes. And we have something to show off out there. Mr. Lewis. I was kind of concerned that you did not want me to go near Cleveland for some reason. Mr. Stokes. Oh, listen, Mr. Chairman, we can go out there this afternoon if you can get a plane. [Laughter.] Mr. Lewis. I will talk to Jay about that. Mr. Stokes. I do not know about that flying first. Let us for a moment kind of move toward what I am talking about. We do have to spend time talking about the bad ones. But we also have to balance that and show what is being done to show places like Cleveland and other places in the country. Give us some idea, Mr. Robinson or Mr. Marchman, what are some of our success stories? Mr. Marchman. I will jump into that one, Mr. Stokes. I can speak of two which are success stories. Cleveland is one of them. We have used Cuyahoga County Housing Authority, and what Claire has been able to do, all around the country. We have asked her to meet with housing authority executives and staff so she can tell them what sort of systems you need to put in place in order to run these housing authorities. You are absolutely correct, you need the commitment but you also need the systems behind you. Mr. Stokes. Right. Mr. Marchman. As an aside, the fellow who is running her systems, Mr. Ronnie Davis, we took him to San Francisco, and he--- Mr. Lewis. Where they need a lot of help by the way. Mr. Stokes. Yes, I am sure they do, but he is the guy to take out there. Mr. Marchman. I think that many people in San Francisco also share that thought, there is no question about that. He is currently serving as the Acting Executive Director for the San Francisco Housing Authority. And Atlanta is another good example. Techwood Homes, which is currently under construction which leverages, as the Chairman has mentioned, private sector, public sector, resident involvement to completely remake that housing authority. One of the things which we are looking at and propose legislation on is what can we do for the well-run housing authority. So much of our attention is on the poor ones, and are we able to give them more flexibility in order to pursue some of these programs. I agree with you 100 percent. It is these examples that we talked about earlier this morning which seem to do the wrong thing and get the press attention. We are really trying to make sure that the well-run housing authorities, those that have turned around like Cuyahoga, are used as examples throughout the country. Ronnie Davis is just one example of an Executive Director who is able to achieve positive results. I would ask the Deputy Secretary to add anything. Mr. Robinson. Yes. I would echo what he said and note, as you had noted earlier in the hearings, that I would be remiss if I did not add Detroit to that list. What we have been able to do working in, I think a unique partnership with city, through the auspices of the mayor's office to turn that one around, to bring it off the troubled list for the first time in many, many years. That is not to say, however, in any of the cases that there do not continue to be problems but it does say that when you focus your management effort, you get the right people, executive director very important, that you can be successful in this endeavor. Mr. Stokes. I am glad you mentioned the mayors of the cities because Detroit is a good example of a mayor who has helped begin to turn that situation around and, of course, in Cleveland we are fortunate to have good working relationship between Mayor White and Claire Freeman and the HUD officials there. And it takes all of that, everyone working together, to really turn things around. But when it is done that way, it is a beauty to see what occurs. People in Cleveland take pride in living in public housing because they have been made to feel that they are some very special people. And, so, Mr. Chairman, I do think that it would be good if we get a chance to go out and look at some of those successful ventures and see what really could be done with these troubled places if people were really committed to it. Mr. Lewis. Mr. Stokes, I think you make a very goodpoint. As you know, I have kind of started on a series of urban-centered trips around the country to look at projects firsthand. And as we do that, we should absolutely look at success stories, not just negative stories. There is enough negative to go around, obviously. But years ago when I was on a school board, I dealt with my own children where we were in, when my third child was born it turned out to be twin boys. So, all of a sudden, I was out of the apartment business. And, excuse me, Mr. Stokes, but it forced us out of the apartment business and we bought our first home in a neighborhood where obviously good education could not take place, Mr. Stokes, because they were portable buildings there, World War II buildings. And then suddenly I found myself living in that neighborhood, much, much longer than my business would have necessarily required me to stay. The reason we stayed was because fantastic things were happening with my kids at that school. And my preconceived notions were somewhat shattered and it came down to a principal who encouraged excellent teachers who made a difference. So, that director is very important in terms of our success story here. Mr. Stokes. Sure. failure of phas to sign hope vi agreements Mr. Lewis. I am interested in a couple of more questions on this subject area. Have other housing authorities failed to sign their grant agreements despite being awarded HOPE VI grants in the past? Mr. Marchman. There have been those which we have not let sign grant agreements because we found their plans inadequate. Mr. Lewis. Can you give us an indication of who some of those are? Mr. Marchman. The best case to date is the Camden Housing Authority. It has struggled as a city for years and more acutely in the last couple of years. The Memphis Housing Authority also comes to mind. One plan after another that just would have rebuilt that which we do not want. So, we have prevented some of those housing authorities' plans. In other cases, we are imposing program management. If you cannot do it as a housing authority, we will find someone to do it. Mr. Lewis. Would it make any sense to implement, let us say, a two-year requirement like the HOME program that housing authorities obligate the funds to a developer over extended period of time? Mr. Marchman. Yes, sir. We are exploring just those types of guidelines. I hope they will be reflected in legislation this year. Guidelines will not only exist for HOPE VI but for modernization as well. Mr. Lewis. You know, I was startled to learn that in Hano, for example, where there is some struggling going on in terms of reevaluating where they have been but, nonetheless, in this case, Mr. Stokes, outside of neighborhood reinvestment and some Habitat For Humanity work, absolutely no living circumstances changing, no bricks and mortar that reflect new space, et cetera and, yet, unless I am mistaken that authority has today over $150 million in their bank account. There is something wrong with that. Mr. Stokes. Right, I agree. Mr. Lewis. The Secretary ought to know about that dollar item which I almost dropped my teeth and I do not have false teeth. Clearly, HOPE VI program is directed to the most distressed sites in our country and many of which are located in urban cities and poverty stricken neighborhoods that require major redevelopment. Often the apartments, themselves, are terribly dilapidated and must be entirely demolished, rebuilt or rehabilitated with significant capital funds. The cost of revitalizing entire neighborhoods is, in these cases, beyond the means of federal housing programs. Two examples of these types of projects are Cabrini Green and Desire in New Orleans. partnerships between state and local governments If the costs of completing a total neighborhood redevelopment are beyond the capacity of Federal pocketbook, should local governments and States become partners? Mr. Marchman. No question about that, sir. No question at all. Mr. Lewis. Are you finding them to be responsive in that connection? Mr. Marchman. More and more we are. Particularly with my example of Techwood. What is being built is just not public housing but private housing as well and cities are participating. We are finding universities and colleges participating. We are finding service providers participating. It has been a long way to get there. I think, as you mentioned earlier, it is just not the residents of public housing that are distrustful of the housing authority but other institutions and groups as well. And now that that is changing, they are more than likely to be responsive to our outreach. Mr. Lewis. Should Congress consider requiring a match component for this program similar to the match required in the HOME program? Particularly when circumstances are such that it is clear that the HOPE VI grants will not be sufficient to carry out the necessary revitalization requirements? Mr. Marchman. I believe in some cases that a match can work and should work. In other cases, when it is really distressed property and there is very little hope of leveraging the dollars, it may not get done if there is a match requirement. Mr. Lewis. Mr. Stokes, that is the balance of my questions in this subject area. I think we are going to go, at least I intend to go on to more general questions from that point. First, I will turn to you for any questions you might have in this area and then maybe we will let these people have a reasonable lunch and come back this afternoon. Mr. Stokes. Mr. Chairman, I have just about exhausted my questions in this particular area. I will have some general questions too when you get to that section. But I do not think I have anything further in this specific area. Mr. Lewis. We will try to move quickly this afternoon if we can and in the meantime would you share with the Secretary both Mr. Stokes' and my appreciation for the cooperation that you have extended to us today. We will see you at 2 o'clock and good to see you. Thank you all. [The report from GAO follows:] [Pages 127 - 142--The official Committee record contains additional material here.] Mr. Lewis. The meeting will come back to order, Secretary Robinson and friends. Mr. Robinson. It's my ``neighborhood.'' [Laughter.] cost of tenant-based contract renewals Mr. Lewis. Not a bad neighborhood. We are going to proceed as expeditiously as possible. We will have probably a number of questions for the record, if you would be responsive to those. And while Mr. Stokes and I will be with you, we're going to try to move through this process and even perhaps complete today. Especially if my colleagues continue with conflicts with other meetings, it will move right along. The President has requested a total of $10.7 billion for the housing certificate fund, encompassing $9.2 billion for contract renewals, $850 million for contract amendments, $305 million to support 50,000 incremental units, $265 million to fund 34,215 units for tenant protections, and various other activities. This request exceeds the 1997 appropriation by almost $6 billion. Before getting to the issue of Section 8 contract renewals, how did HUD arrive at the average per unit cost to calculate tenant-based contract renewals? Mr. Robinson. Mr. Stegman. Mr. Stegman. Mr. Chairman, essentially---- Mr. Lewis. You need to identify yourself for the record. Mr. Stegman. I'm sorry. Mike Stegman. Essentially, we start with the average cost of the current year. Building up from that current cost, we added a two-week reserve to account for unexpected declines or changes in tenant income, or unexpected changes in rent, since the Department is accountable for paying the difference between 30 percent of income and what that rent is. We added the administrative fee of the housing authority, which again is a formula-based amount, an average. That is about $561. We inflate that. The OMB rate of inflation expected for 1998 is 2.2 percent. We then made an adjustment to that amount based on an estimate of what may occur as welfare reform begins to play out, and a certain number of children who have been receiving SSI in their households are declared ineligible. We think there are about 40,000 SSI households with disabled children that will not be eligible any longer under the welfare reform bill and so on. For 1998 our rough estimate of that was $92 per unit. So we add that to the 1998 cost. It is then weighted by the different programs, certificates, vouchers, the mod rehab. That is how we get to the average of $6,386 per unit. I might say, with all of the 2-week reserve and so on, I should bring the committee's attention to the fact that, in 1995, fiscal year 1995, we had an estimate of $8,000 per unit for renewals. The improvement in our HUDCAP system, in our estimating and in our models, allows us to really get a better and more accurate assessment, although it is still not perfect, which is why we end up with a certain amount of reserve. So that is basically how we arrived at that. Mr. Lewis. Okay. That's really what we were looking for, the two-week reserve, the administrative fee, the welfare reform factors, including--I had the same number, $92 for 1998, and an adjustment for inflation. So you're attempting to be responsive to that new world within the limits that are available to us? Mr. Stegman. We are trying as best we can. Clearly, the adjustment for welfare reform certainly would be the greatest approximation and grossest, because this is a world that is really unfolding in front of us, and it really depends on 50 different State plans, different time limits and so on. number of renewals in fiscal year 1998 Mr. Lewis. Right. Can you tell me how many certificates and vouchers will be renewed this year? Mr. Stegman. About two-thirds of the 1.8 million renewals, I think, are for tenant-based. 1.8 million Section 8 units are expiring, but that is both project-based and tenant-based certificates and vouchers. Mr. Lewis. If you will help us complete the record there, we're interested especially in knowing the numbers dedicated to elderly and disabled residents. Mr. Stegman. I have that in my book as well. What we have is 32,000 for what we call ``opt-outs'', that is, landlords that are opting out of the program, 914,000 certificates, 305,000 vouchers, roughly 47,000 mod rehab units, and that gives roughly the 1.8 million. Mr. Lewis. Can you tell me if those families face the limits of welfare reform in every instance? Mr. Stegman. I'm sorry? You're talking about---- Mr. Lewis. Whether the elderly and disabled families face the limits of welfare reform. Mr. Stegman. No, we estimate that--if I'm not mistaken-- over 20 percent of the expiring project-based Section 8 are elderly, and about 11 percent or thereabouts are disabled. That is really not a welfare reform issue. A welfare reform issue would be for legal immigrants and elderly and aged legal immigrants that may be facing termination of SSI that would affect their rent-paying ability, or their eligibility for housing. Mr. Lewis. You were focusing on the $92, you know---- Mr. Stegman. Oh, I'm sorry. I'm sorry. Essentially what we're looking at is the cost across all units, not just the elderly or the disabled, but the cost of welfare reform. It averages out to $92. Mr. Lewis. Let's make sure we complete that for the record so that it is clear. Mr. Stegman. Fine. [The information follows:] [Pages 145 - 146--The official Committee record contains additional material here.] contract renewals reserve Mr. Lewis. I know you're in the process of trying to deal with 50 different states, so we'll have to massage that as information flows to you. Last year HUD identified $1.6 billion in Section 8 reserve funds at the appropriations level, and this was passed by both Houses of Congress and signed by the President, and has continued to scrub the PHA reserve funds. When will this reconciliation process be finished? Mr. Stegman. We expect to have the latest scrub the end of March of this year, and we'll know how much additional reserves that we can contribute to the renewals. Mr. Lewis. So you're going to continue to scrub that and provide that information for the record as well? Mr. Stegman. That's correct. Mr. Lewis. On what basis did HUD determine the reserve accounts needed to maintain 50 percent of the annual budget authority? Mr. Stegman. We are revisiting that issue right now, Mr. Chairman. I think what keeps us at around 50 percent is the problem of the continuing resolution and the fact that we actually have a whole lot of obligations, even when we were not able to do renewals and so on. The question really is, how much below can you go and make sure that full renewal activity can take place quite apart from the unexpected change in income that I talked about. There is some cushion. We are re-examining that cushion, how many are at and above 50 percent, how much below 50 percent on average can we get when we scrub it all. We will have that information for you. Mr. Lewis. Relating to that, we are interested in what are the differences between the needs for the reserve accounts and the $161 million line item for contingencies, as well as the two-week reserve---- Mr. Stegman. That's right. There are a series of what some have argued are redundant contingencies, and we're looking at all of that right now. Mr. Lewis. One more point there. If the worst case scenarios do not occur, what will happen to the remaining funds? Will the unused funds remain unobligated, or in the contract reserves? Mr. Stegman. We will use everything that we can that is not needed to contribute to the renewals, but the issue of how much should remain in the reserves for contingencies is what we're currently going to be looking at. Mr. Lewis. According to GAO's budget scrub, one field office in Texas had reserve funds with considerable amounts of funding. In fact, over 70 percent of the programs had 100 percent or more of their annual budget authority in their reserve accounts. Are those findings accurate? Mr. Stegman. I don't have any information to---- Mr. Lewis. It might be behind you. Mr. Stegman. I mean, we have never seen that information. I don't have any reason to either question it or confirm it. We have not---- Mr. Lewis. Maybe you can help us with that, so we can look at it as well. Mr. Stegman. We certainly will. If it's true, it's excessive. You can quote me on that. The point is, we only received GAO's testimony on Friday. [The information follows:] GAO's Budget Scrub According to GAO's budget scrub, over 70 percent of the programs in one field office in Texas had 100 percent or more of their annual budget authority in their reserve accounts. Assuming that the GAO was referring to the Texas State Office, we disagree with that statement. Although it appears that a majority of the programs in the Texas State Office have reserves which are 100 percent or more of their annual budget authority, a large portion of those reserves have been committed to support previous contract extensions. Amounts previously committed are not available to use for 1998 expirations and must be subtracted from the HA's reserve account balances to determine the amount of reserves actually available. The Texas State Office analyzed the reserve accounts of 20 large HAs and determined that total reserves for these HAs totaled $135 million. Of this amount, $54 million of reserves was restricted to support previous contract extensions, leaving a net reserve balance of $81 million. The total annual budget authority for these HAs is $142 million; therefore the reserves as a percentage of annual budget authority is 56.83 percent, or just over the amount that HUD currently believes should be maintained. For example, the Dallas HA's voucher Program reflects reserves of $27 million; however, $12 million of that amount has already been committed to support previous extensions, leaving an uncommitted reserve balance of $15 million. Since the annual budget authority for this HA is approximately $31 million, the HA has approximately six months of funding in its reserve account, which is currently the amount the HAs are permitted to maintain. SECTION 8 CONTRACT AMENDMENTS Mr. Lewis. Section 8 contract amendments. What is HUD's justification for its $850 million request to fund Section 8 contract amendments? Mr. Stegman. Generally what we're talking about here are 20-and 30-and, in some cases, 40- year contracts, that we try to estimate what the approved rents are going to be, over a 20- , 30- and 40-year period. So when contracts that we are legally obligated to pay run out of money, that's basically what the $850 million in amendment money is for. As we go to 1-year renewals, ultimately, as these cascading renewals finally level out, where everything is basically on 1 year, we will be able to estimate much more precisely what the needs are and we will not have the need for those amendments. Mr. Lewis. Only Congress could construct such a thing. Mr. Stegman. We certainly had many hands---- Mr. Lewis. As we said yesterday, there's plenty of blame to go around in the meantime. PROJECT-BASED SECTION 8 ASSISTANCE Project-based Section 8 assistance. HUD has devoted two years and a substantial amount of its financial staff's time to identify and quantify program reserves in its tenant-based Section 8 program. This effort was fruitful, allowing HUD to reduce increases in budget authority. Do the same kinds of reserves exist in the project-based Section 8 programs? Mr. Stegman. Not in the same way. Nic, do you want to respond? Mr. Retsinas. We have our own difficulty, of course, coming up with accurate estimates in terms of a database. But in most of our cases, the project rents are set at whatever the Section 8 grants are. As we have said before, rents are often artificially inflated because of their original design, which leads us back to the familiar topic of ``mark to market'' that we're trying to make a dent in. We hope this year to make such a dent. Mr. Lewis. Are you going to, by chance, make such a dent by way of authorization? Mr. Retsinas. As you correctly pointed out yesterday, and as you predicted last year, it is a difficult task. We have certainly concluded, even though we would have wished it otherwise, that the task cannot be completed without appropriate tax legislation. The taxable implications of the financial restructuring are barriers to reform. As Secretary Cuomo pointed out yesterday, we have been working with the Treasury Department on a tax proposal. We intend to work with the authorizing committees, but clearly,. it has a substantial impact on appropriations. Mr. Lewis. Mr. Stokes, I would point out that, in our mutual interest, that while others are discussing thesethings in the newspapers, there is little doubt that there are portions of the Tax Code that do need to be addressed this year, and Section 8 kind of highlights the most delicate as well as difficult of those. So I would hope that the administration understands that there's room there where real movement--that real movement needs to take place, but also there are real people involved. Mr. Retsinas. There are, and certainly we would earnestly solicit your help in clarifying and illuminating the case, because it's important to achieving a broader public policy objective. Mr. Lewis. Correct. Mr. Retsinas. Certainly anything you could do, Mr. Chairman, and Mr. Stokes, we would appreciate. INCREMENTAL UNITS Mr. Lewis. Incremental units. HUD's fiscal year 1998 budget justification calls for an increase in Section 8 units. The President requested $307 million in budget authority to support a total of 50,300 incremental certificates. 300 of these units will fund the witness relocation program and the remaining 50,000 will be used for welfare work initiatives to address worst case housing needs and help eliminate the administrative burden PHAs have when families move between jurisdictions. Has HUD projected how many of these certificates will be used to address worst case housing needs, and how many will be used to eliminate administrative burdens? Mr. Stegman. Basically, Mr. Chairman, if you think about the challenge that awaits housing authorities in the post- welfare reform world, the incremental Sec. 8 certificates are the only mobility-enhancing tool that communities and welfare departments will have in helping families connect from kind of welfare to work. A part of that actually does relate to the issue you just mentioned, and that is the portability issue. If folks are going to use certificates where the jobs are, and move out of one jurisdiction into another, there has to be a mechanism for reimbursing the receiving and the sending housing authority, so that they don't build administrative barriers to limit mobility. We don't know exactly at this point what that trade-off is going to be, but it's very important to make sure that all housing authorities understand that if they are going to use these certificates to help connect people to work, that crosses jurisdictions, that they're not going to be penalized. Mr. Lewis. Currently I think there are policies and procedures in place at local levels that allow families to move from one jurisdiction to another, isn't that right? Mr. Stegman. There are, but the reimbursement mechanism is very cumbersome. We want to make sure there are certificates for those housing authorities that are lowering the barriers, that are really working on behalf of their families, that they are reimbursed for those certificates. Mr. Lewis. So that we reward people who are performing for people and---- Mr. Stegman. That's correct, to reward the institutions as well as families who are doing the right thing. Mr. Lewis. I think it's very important for all of us to address the authorizers in connection with this, for clearly there is impatience with the Appropriations Committee doing too much of this, and yet it is often important that both bodies recognize that there are real people involved. Mr. Stegman. We are hard at work on authorizing legislation. Mr. Lewis. Mr. Stokes, there is about five minutes left on a vote. Do you think we should go up, and then I will yield to you? Mr. Stokes. Why don't we do that. Mr. Lewis. I'm sorry, Mr. Frelinghuysen. Do you want to take over? REGIONAL MOBILITY COUNSELING Mr. Frelinghuysen. That's up to you, Mr. Chairman. Mr. Lewis. I think we can have you ask questions while we're away, so we can move right along. Mr. Frelinghuysen [presiding]. Good afternoon. It's nice to see you all. Mr. Robinson. Good afternoon. It's good to see you. Mr. Frelinghuysen. I'll try to keep myself under control. [Laughter.] Relative to regional opportunity counseling, HUD has requested a $20 million set aside for tenant protections to pay for special counseling conducted by public housing agencies, in partnership with local nonprofit agencies, to expand housing opportunities and to deconcentrate the number of families living in poverty. Is this program a new initiative and, if so, when does HUD expect to have legislation introduced to authorize it? Mr. Stegman. Regional mobility counseling is really an extension of the responsibilities that housing authorities have to provide advice and help to families, to find housing that meets the Section 8 criteria. All we're doing here is adding an element to that which provides for housing authorities operating in a metropolitan context to partner with a nonprofit that is providing a whole bundle of services. It is not, in our justification, a new program, is not a new programming activity that requires separate authorization. Mr. Frelinghuysen. Is it the same title? Mr. Stegman. I'm sorry? Mr. Frelinghuysen. Are you using the same verbiage as you have in past years, or is this under a new label? Mr. Stegman. We have been doing it--it's not a new activity. Mr. Frelinghuysen. It's a new title to us, a new description to us. Mr. Stegman. It's a new description of mobility. We have in a variety of ways been trying to provide the same kind of support to families. Mr. Frelinghuysen. If you can clarify it for the committee, whether it is a new title or not. I know we're in the business of reinventing government, but sometimes we would like to see less titles and more action. Is HUD in a position to spend the entire $20 million in fiscal year '98? Mr. Stegman. Yes. Let me just clarify. Part of the responsibilities of administrative agencies, who receive an administrative fee for administering the program, is to provide outreach and support for families using the program. That is where we see the authorization for providing this kind of assistance to families. We will take under advisement certainly your caution about whether or not it is a separate program, but that is really where the authorization is and we fully expect to be able to utilize---- Mr. Frelinghuysen. It's not the same as family self- sufficiency? Mr. Stegman. No, sir. family self-sufficiency program Mr. Frelinghuysen. Tell me, how does it differ from the family self-sufficiency program, where we have a $24 million expenditure? Mr. Stegman. The family self-sufficiency program, which is attached to both conventional public housing and tenant-based assistance, requires housing authorities to provide a range of assistance for families, preparing them basically to move from dependence to independence. It can take a whole range of activities. The money that is in the budget for that is for self- sufficiency coordinators, actual managers, if you will, of the self-sufficiency program. Mr. Frelinghuysen. And the economic development and supportive services for families, is that---- Mr. Stegman. I will ask Assistant Secretary Marchman to talk about that, but that is for training and social service support. Mr. Marchman. In that particular program we are looking to assist residents in training and to prepare them for work. To add to that, anticipating other questions about the TOP program, we are looking---- Mr. Frelinghuysen. Anticipating what? Mr. Marchman. The Tenant Opportunity Program. We are---- Mr. Frelinghuysen. You might anticipate my next question may be on measuring the performance issue. Mr. Marchman. I will do that. In this particular program, we are looking to assist residents in training and educational programs, as they get ready for work. It is an outgrowth of what we have seen from the TOP program. We believe it will help with respect to welfare reform. Mr. Frelinghuysen. How does HUD expect to measure the performance of PHAs and nonprofits that administer the program? Mr. Marchman. We would be looking for PHAs and resident groups who participate in the program, looking in terms of the programs they hope to put together and what the objectives are going to be. Are they going to target 20 percent of the population, 30 percent, and after some period of time, who has completed training programs, who has completed educational programs, who is ready to work. It is essential to the program that we move people through the system, and oft-times we have not seen that sort of measurement before. We are looking for housing authorities and resident groups to do that. We also have a PHMAP, a measurement performance system for housing authorities, to grade them in seeing how they implement these particular programs as well. flexibility and waivers for PHAs Mr. Frelinghuysen. Let me toss in a few questions of my own here. One thing I hear continually from my housing authorities is that the Department needs to be more flexible. For example, currently waivers are required to do community housing effectively. Any time this occurs, it leads me to believe that the Department or agency needs to provide more flexibility. I was wondering if you would comment on this whole flexibility issue and the whole need for waivers. I understand there's a difference between these large public housing authorities, where certain things may occur, and out in the less populated areas, where they are also performing some valuable services. My housing people tell me--and they're a very energetic and outspoken group--that they need a lot more in the way of flexibility. Would you comment on the whole flexibility issue and the waiver situation? Mr. Marchman. We are trying to put the housing system in a position that you don't have to ask for the waivers as you have had to in the past. We are looking for housing authorities to submit, at the beginning of the year, 1-year plans, what is it that you hope to do, both on the capital side as well as the service side. If those plans meet the needs, then you are able to implement those particular things. What we have seen, particularly in the cases of the service programs, is that the local HUD staff believes that they will have to approve each and every step and thereby frustrate the efforts of the housing authority. But as we move to less regulation, we are looking at the 1-year plans and 5-year plans, to see what direction the housing authority is moving in. Mr. Frelinghuysen. What's the timetable for less regulation? I mean, it sounds good, but in reality, a lot of these people have been asking for flexibility for years. You know who the good operators are, and you know who the poor performers are. Why isn't there some way to reward people for coming up with some ingenuity, some innovation, some dynamism? Mr. Marchman. Congressman, we are working on these particular issues as we speak. As we look at H.R. 2, as we look at our version of a bill, we are looking to put these things into practice. We are crafting what we think will be included in a 1-year plan. There looks to be anywhere between six and seven different items which we will be reviewing. I would hope we would have something available before the end of the fiscal year. [The information follows:] Timetable for Less Regulation Before a timetable can be completely developed the public housing reforms must become part of permanent law. The Department will move to expeditiously implement administrative provisions. The Department will work with Congress to codify and make permanent the basic statutory changes needed to continue improvements in public housing. Additionally, the Department is proposing further streamlining to substantially deregulate the PHAs plan requirements for well-managed PHAs and limit HUD approval to the areas of greatest funding or program risk. HUD approval would be required only for capital plans, demolition or disposition including disposition for homeownership, designation of housing for use by particular populations such as the elderly, and certifications that citizen participation and other processes are followed. Additional basic information, notably admissions policies including local admissions preferences, cooperation efforts with welfare and employment agencies and security plans, would be included and subject to the citizen participation process, but reviewed by HUD only for completeness in the event of a challenge. HUD would retain authority for audits, collection of essential information and enforcement of legal requirements such as rent rules and consistency of admissions preferences with local needs. A 5- year strategic plan would be required. Instead of annual updates, however, high performing PHAs that have scored at least ninety points on PHMAP for at least 3 years, would submit only one interim report to HUD. Various annual reports would be consolidated into one performance report. For smaller agencies, those with less than 250 units, the Department proposes a number of reliefs. These include: allocation of modernization funds by formula rather than competition; full fungibility between capital and operating funds; a less complicated Public Housing Management Assessment Program (PHMAP) with fewer factors; and only one interim update, instead of annual, to a 5-year strategic plan for non- troubled agencies. Additionally, HUD proposes to consolidate the Tenant Opportunity Program (TOP) and the Economic Development and Supportive Services Program (EDSS), and convert the Drug Elimination Program from a competitive to a performance-based formula program. Mr. Frelinghuysen. Keep us posted. I mean, 1-year plans are fine, but if there's a whole bureaucracy under this these plans float and sit on people's desks, you're not going to reward people for running a good ship, if they feel these plans go into one office and never come out. Mr. Marchman. I forgot the second half of your question. Mr. Frelinghuysen. Maybe my question was more of a statement than a question, so if you've forgotten it, it will be in the record. [Laughter.] Mr. Marchman. I was just going to say we look to lessen the---- Mr. Frelinghuysen. There's some great people who are involved in these public housing authorities. I do think sometimes just a few people who do things in an improper manner blacken the whole process, but in reality, I do think there's some really good people out there who would like to try something. People tell me that there's a huge bureaucratic structure that strangles their desire to innovate. Mr. Stegman. For small housing authorities, we are also talking about combining the operating funds with the capital funds, and modernization to give far more flexibility and remove burdens and restrictions, on housing authorities with less than 250 units. Also for smaller housing authorities, we will propose changing what is an application process for modernization money to a formula process that will really reduce a lot of restrictions. So, for the smaller housing authorities, we really are talking about a great deal of simplification and more flexibility. earned-income exclusion Mr. Frelinghuysen. Simplification and, hopefully, some sympathy. Moving right along, relative to the public housing operating fund, the President has requested $2.9 billion for operating subsidies. HUD calculates the housing authorities will receive approximately 93 percent of their PFS subsidy eligibility with this level of funding. Incorporated into the fiscal year 1998 operating subsidy is an earned income exclusion proposal. Can you explain the earned income exclusion? I apologize for not being here earlier, but I had two other committee meetings and only two cups of coffee and a candy bar to sustain me. [Laughter.] Mr. Stegman. The Department and housing authorities across the country have really been working very hard to think about ways that we can remove both barriers to work and provide incentives to work, and to put families that are in public and assisted housing on a par with families whose rents don't go up because they work more or go from being unemployed to employed. The proposal that is in the current Budget would provide for a simple-to-administer exclusion of $400 per worker for work-related expenses, essentially, so that before your rent is calculated, you would have this deduction, which would help level the playing field, if you will, between families who receive welfare or transfer payments and those who are working. The Department currently, as we look to authorizing legislation and so on, is really working very hard to think about what would be the most effective ways of offering incentives to work. Mr. Frelinghuysen. There's some benefits, but there are also some weaknesses. What would be some of the weaknesses for implementing the exclusion? Mr. Stegman. Well, in some cases, there are administrative burdens. The question of any given level, is it true that if we deduct $400 will it change the incentive? Is it enough? Are you giving it to families who are already working, as well as families who are not? I mean, this is a very, very difficult problem. But one of the most serious obstacles to us, quite frankly, is cost. Ultimately, if you ``incent'' work, and people have more money, they can pay more rent and everything is fine. But when you start that process, this is a proposal that costs money. Mr. Frelinghuysen. Does it affect operating subsidies? Mr. Stegman. It would. Mr. Frelinghuysen. And how much? Mr. Stegman. It's $40 million in 1998. Mr. Frelinghuysen. We got that figure out on the table, right, Mr. Chairman? Mr. Lewis [presiding]. That's right. Mr. Frelinghuysen. Does the proposal require an authorization? Mr. Stegman. I would assume this is not regulatory. Mr. Marchman. I believe any changes to the PFS is statutory. Mr. Frelinghuysen. So you're going to need to--are you going to be introducing legislation? Mr. Stegman. Well, there are two things. The current proposal in the 1998 Budget we are really dealing with as a regulatory change, the deductions from income. It is currently at OMB. We are looking longer term in our public housing reform authorizing legislation. In the authorizing legislation that goes to the Hill, a work incentives authorization will be requested. This particular change, which we think is a modest change, is being dealt with through the regulatory process. Mr. Frelinghuysen. So to move ahead with the earned income exclusion, you will or will not require---- Mr. Stegman. This earned income exclusion in the 1998 budget we're dealing with as a regulatory change. So it will not require authorization. We are exploring a wide range of work incentives that, when we make the decisions, will require authorization. Mr. Frelinghuysen. It's going to cost some money, as you said earlier. You're going to have to pay for this exclusion. Mr. Stegman. That's correct. Mr. Frelinghuysen. I would think that we would require some authority here, wouldn't we? Mr. Lewis. Income adjustments do require--they are statutory. Mr. Stegman. My understanding is the difference between deductions from income and exclusions, one is regulatory and one requires authorization. Mr. Lewis. As you expand your discussions with the authorizing committee, make sure you get to that point. Mr. Stegman. We sure will. Mr. Frelinghuysen. And would you be good enough to tell me whether the PFS calculation includes the inclusion of 20,000 units that HUD expects to demolish over the next fiscal year? Mr. Stegman. In the regulation dealing with the continuation of operating subsidies, there is a 3-year phase- out of operating subsidies following demolition. So the PFS does include funds that are involved in that phase down. That is the current regulatory practice of the Department. Mr. Frelinghuysen. So that might be described as a transition funding period for PFS? Mr. Stegman. That's correct. Mr. Frelinghuysen. And the cost of this transition period, is that amount times three or what? What's the dollar amount? Mr. Stegman. It is phased-down over 3 years, so it's full for 1 year, it goes to about half the second year, and then a third the third year. It's phased out completely in the third year. I'm not sure what the 1 year estimate is. Do we have that? We will get that to you for the record. [The information follows:] Phase-Down of Operating Subsidies Recent regulatory changes adds a provision to the PFS to provide a short transition funding period for some HAs that receive approval to demolish. This encourages and supports efforts by an HA to reduce its overhead costs in a planned and orderly manner when its inventories of units are reduced by demolition. Once demolition approval occurs, units that have been vacant for 12 months, before approval, will receive 20 percent of the allowable expense level (AEL) for operating subsidies for 12 months. Units that were not vacant 12 months prior to demolition approval would receive full AEL for 12 months, then would receive two-thirds of the AEL for the next 12 months, and finally one-third of the AEL for the last 12 months. After that point, the subsidy is eliminated. Units that are replaced by Section 8 tenant-based assistance are not eligible for transition funding. The following is an annual estimate of this phase-down cost: [Dollars in millions] Fiscal year Amount 1997.............................................................. $17.4 1998.............................................................. 19.0 1999.............................................................. 25.4 2000.............................................................. 28.9 2001.............................................................. 28.7 2002.............................................................. 17.0 2003.............................................................. 9.0 2004.............................................................. 5.1 2005.............................................................. 5.3 2006.............................................................. 5.5 operating subsidy increase Mr. Frelinghuysen. Despite the demolition of tens of thousands of obsolete public housing units, and the rent reforms included in previous appropriations measures, operating subsidies have increased or have remained at a steady level. When should we expect to see operating subsidies diminish? Mr. Marchman. I think we can begin to see operating subsidies decrease in perhaps the next year or two. I think, in 1999, they received over 2.8 billion. The issue simply is, with fewer units to manage, fewer units to operate, the costs ought to go down. The thinking also is, with newer units in the system, they will be cheaper to manage than the old stock. So I think the number goes down in 1999 and 2000. We should begin to see a difference in what it takes to operate the system. Mr. Stegman. I might add that the biggest driver in the need calculatives is the income of families in public housing. There has been a reduction, in real terms, in those incomes. Our public housing transformation initiatives--the elimination of Federal preferences, the ability of housing authorities to diversify the population--and these are related--will have as much to do with the kind of formula-driven needs of housing authorities as demolitions or anything else. rental income increase Mr. Frelinghuysen. My last question. Rental income increased slightly in fiscal year '96, making approximately $134 million available. Is this funding available because of rent reforms including in previous appropriations measures? Mr. Stegman. The rent reforms have been in existence for a very short time, because they've been authorized in appropriations which have been 1 year and have to be renewed. It is not clear that many housing authorities actually have enacted fundamental changes in their rent rules, not knowing that these are going to be permanent or not. So I would suggest that they are not a reflection of a significant change in rent rules across the country. That's one of the reasons why it is so important for us to have an authorizing bill, to make that future much more certain. Mr. Frelinghuysen. Thank you for your responses. Thank you, Mr. Chairman. Mr. Lewis. Thank you for your help, Mr. Frelinghuysen. Mr. Stokes. troubled phas Mr. Stokes. Thank you, Mr. Chairman. Secretary Robinson, how many housing authorities are there throughout the United States? Mr. Robinson. I believe the number is 3,400, is that correct? Mr. Marchman. That's correct. Mr. Stokes. Of the 3,400, how many would fall into the category of being troubled, as you would categorize it? Mr. Robinson. I'm going to refer the question to Mr. Marchman, but it's a very small percentage. Mr. Stokes. Do you know, Mr. Marchman? Mr. Marchman. Yes, sir. Currently, there are 12 large public housing authorities that we consider troubled, large being those that have 1,250 units and above. It is anticipated that at the end of this year there will be nine on that large troubled housing list. There are roughly 60, what we call the small ones, on that list, and we look for that number to go down as well. Mr. Stokes. That's out of a total of 3,400? Mr. Marchman. Yes, sir. Mr. Stokes. What is the criteria for being categorized as troubled? Mr. Marchman. Generally it's the inability to do management and maintenance on a timely basis. It is the absence of financial systems to report information. It is lack of communications with the residents and the community. It runs mostly to the issues of maintenance and management on the particular housing site. Mr. Stokes. Would it be true that, in most instances,you have the resources to be able to help those who are categorized as being troubled, provided that you can get the local help that is also required? Mr. Marchman. Yes, sir. In this year's bill we asked for some $45 million for technical assistance, and it is that money which we use to, among other things, deal with the troubled housing authority stock. welfare reform Mr. Stokes. Let me shift now to the housing and welfare reform area. A major challenge, it seems to me, in implementing welfare reform would be eliminating barriers to employment and trying to make sure there are realistic employment opportunities, with everyone wanting to work and expected to work. One problem in this regard is that people often have real difficulty finding affordable housing in areas where the good jobs are located. Does HUD have a role in this and, if so, tell us what it is. Mr. Robinson. Sure. We have a specific request in our budget, Mr. Stokes, to provide opportunities for welfare recipients who live in public housing, or in HUD housing, to have the opportunity both to move to areas where work might be, in terms of our voucher requests, the 50,000 vouchers, and secondly, as it relates to transportation. I believe there's a $10 million line item in there that is related to opportunities for transportation for people to meet a very critical need, as you point, to have the opportunity to go to where the jobs are. certificate and voucher recipient problems Mr. Stokes. Mr. Secretary, when you mention vouchers and certificates, one aspect of vouchers and certificates we have not talked about is whether or not there are any problems relative to vouchers and certificates for some of the persons who go out and seek housing. Particularly, let's say inner city residents who seek housing in suburban areas, in some cases where the suburban areas do not have many minorities and the minorities go out seeking housing. I think the record ought to show whether or not there are some problems related to vouchers and certificates. Are there? Mr. Robinson. Mr. Stokes, I would ask my colleague, Miss Forward, to perhaps speak to this, or Mr. Marchman. But let me give you my sense. Clearly, as it relates to Section 8 and the vouchers that are made available, there have been difficulties that exist across the country, as it relates to consolidation of Section 8 vouchers in particular areas, a disproportionate use, oftentimes people are discriminated against and not allowed to utilize their vouchers in particular areas. All these things exist. None of these things speak to the fact that the Department believes that the program ought to somehow be brought into a troubled status, but it speaks to what I believe is the fact that we ought to make sure we meet all of the tenets of our mission, which includes discrimination and includes making sure that these things are available across the country. Let me turn to my colleagues for a more specific response. Ms. Forward. Thank you for that question. It is something that we are proposing to address in our friends initiatives program this year. We have set aside $5 million proposed for community tension activity for those folks who are moving from inner city neighborhoods into suburban communities. There will be fair housing counselors available to help with the community, to help with the transition of those folks, and allay any concerns that might occur in the communities. So that is a pilot program that we proposed in our 1997 fair housing initiatives program, and we will test how that works in some of these communities and propose even beyond the '98 appropriations as well. Mr. Stokes. Actually, you're taking me into an area that I did want to talk about a little bit, the manner in which you answered my question. Do you have any objection, Mr. Chairman, if I move into the fair housing questions? Mr. Lewis. No objection, except that you and I should go upstairs and vote and then come right back down. Mr. Stokes. Okay. I'm sorry. I didn't realize we had a vote. Mr. Lewis. We have about three minutes, so we'll be right back. [Recess.] Mr. Lewis. The subcommittee will come back to order. Mr. Stokes. increase in fair housing complaints Mr. Stokes. Thank you, Mr. Chairman. Turning to the subject of fair housing, your budget justifications indicate that the number of housing discrimination complaints received by HUD seems to be rising steadily, from 10,945 in 1996, to an estimated 12,000 in 1997 and 13,200 in 1998. The justifications also indicate a substantial increase in all categories of complaints involving HUD programs. I would like for you to first comment on these trends, and then tell us whether we're making any progress in combating discrimination in housing; that is, whether the problem is getting worse, and are you seeing any trends in terms of the kinds of complaints you are receiving and the kinds of violations that you're finding? I know that question is rather compounded, but if you can just answer that. Ms. Forward. I will try to address all those questions, Mr. Stokes. We have recently redesigned our Title VIII program. We engaged the services of Price Waterhouse and our Title 8 has gone under a business process redesign. So the numbers that you're quoting, projected numbers, are a little bit higher than some of the numbers that I have here in front of me. What we were doing at one point, before the business process redesign, was taking in a lot of complaints that we now call ``claims'', that fell into a nonjurisdictional area, that may or may not have been exactly discrimination complaints. If you count those along with the complaints we are currently taking in, in '96 we accepted almost 11,000 complaints. I would suggest that our efforts with the Fair Housing Assistance Program agencies, or FHAP, local and state, are succeeding given we have more coming into the fold. I know that was a concern of Mr. Knollenberg's in yesterday's questioning. We have 73 agencies now, and each time an agency comes into the fold, we receive more complaints than we might have from their States. When the States are not substantially equivalent, oftentimes the complaints are just being handled by the State and folks don't find their way into the FederalGovernment process or have their rights processed under the Federal Fair Housing Act. So it's a state or locality remedy only. For example, if the State of New York were to come into the fold, then we would have a lot more complaints than we are currently receiving from complaintants in that state. So given that we don't yet have the State of New York in the FHAP program, we're close. We hope to have New York in the next few years and some of our other larger states--New Jersey as well-- where we don't have substantially equivalent laws. These states would bring in additional complaints. So it's likely complaints will increase because of the FHAP presence. I mean, this is a devolution, and we've had this program for a number of years. The State and localities have been investigating the complaints and doing the education and outreach in their communities. They know what is needed most, whether it is community tensions surrounding folks moving from inner cities to outlying communities, or whether it's lending discrimination or discrimination in residential rental or sales housing. The FHAP agencies have been doing a good job of education and outreach. But they bring to us more complaints, so we anticipate that, in 1998, we will have 80 FHAP agencies, local and States, in the fold, with a total potential pool of 120. That answers the rise, I think, in complaints. The trends we are seeing are still based on race. The predominance of our complaints are race and national origin discrimination. types of discrimination complaints Mr. Stokes. Just so the committee can get some understanding of what the complaints consist of, give us some idea. Ms. Forward. They consist of race discrimination predominantly. That is still the protected class where we receive the greatest number of complaints. National origin complaints, new immigrants, Latinos, Mexican-Americans are on the rise, as well as disability complaints--complaints by persons with disabilities. That has increased greatly, as well as families with children, complaints filed by those who have a child in the household under the age of 18. The Fair Housing Initiatives Program is a program that augments our enforcement efforts and our education and outreach efforts. Those are performed by the private, nonprofit organizations. We have had a lot of success in partnership with those organizations. They have partnered with the FHAPs in the local communities to provide education to the local communities, to provide outreach to community members, who may wish to file complaints butt who otherwise wouldn't find their way into the Federal Government process; HUD offices are hard to find throughout the country. They have a more grassroots approach. They do testing, mortgage lending testing. They have done insurance testing, and they have done residential real estate related transaction testing, where the predominance of our complaint testing has been done, and consistently have found high levels of discrimination against African-Americans, families with children, and Latinos. There have been recent studies in the greater Washington area, one published only a few weeks ago by the Greater Washington Fair Housing Council on discrimination in rental and sales housing. I don't know if any of you read have about that, but I can supply copies for you. It was widely publicized in The Post. That was a Northern Virginia study, and there was one actually on Capitol Hill, where high levels of discrimination against minorities were found, again African-Americans and Latinos. What they found in the Northern Virginia study a few weeks ago is that discrimination against African-Americans had gone down a little bit from the years prior. However, the discrimination against Latinos had increased in Northern Virginia. The Capitol Hill study showed a wide range of types of discrimination against African-Americans, in terms and conditions, and the number of units they were shown, the types of units and the prices of units. I can provide those studies for you. They're very informative on our efforts to target enforcement and where we would need to geographically target our resources. That is a key component of the FHIP program as well. They serve areas where there are no FHAP agencies, where there is no local HUD office, perhaps; those are communities that have fair housing problems, have a minority population, but don't have the resources they would need to support a fair housing group; and that's where FHIP groups can partner with us and help us with our enforcement effort, since we can't be everywhere. Mr. Lewis. If you could supplement the record on that, we would appreciate it. [The information follows:] [Pages 162 - 179--The official Committee record contains additional material here.] Mr. Stokes. Now, the Chairman was saying you could supplement the record, and we would appreciate receiving those additional materials. Ms. Forward. I would be happy to. Mr. Stokes. But this is the area in which you are requesting a $9 million increase, is that correct? Ms. Forward. Yes, sir. Mr. Stokes. So, you are going to address what you have just told us about. [The information follows:] Fair Housing Initiatives Program The fiscal year 1998 Budget increase of $9 million will be used to address the following: Fair housing education in communities experiencing heightened tension arising in connection with persons seeking to expand their housing opportunities. Such tensions have been evident in communities where HUD recently settled litigation alleging racial segregation in public housing and communities which were the site for new group homes for persons with disabilities. There are numerous advantages to utilizing FHIP to address community tensions: permitting multiyear projects assures long- term effectiveness; the wide pool of entities eligible to apply for these funds will allow both private and public organization to propose projects that address community tensions; these issues are best addressed at the community-based level but may require governmental support as well; grantees can leverage their receipt of FHIP funding to gain support from other sectors of the community; projects which promote coordinated efforts between the public and private sectors will enhance their effectiveness since public groups have wide ranging reach while private groups have extensive experience in providing fair housing education and with working with victims of discrimination and local housing providers; this use of FHIP funding supports other HUD programmatic thrusts such as consolidated planning and vacancy reduction in public housing. Multiyear enforcement projects for more communities, targeting the continuing problems of discrimination in the rental and sales markets, such as demonstrated by the recent rental audit in Greater Washington area, which revealed that Blacks and Hispanics face discrimination more than two out of five times when they try to rent an apartment. The advantage of funding multiyear projects is that grantees have long-term support for addressing fair housing issues, ensuring that fair housing complaints can be fully investigated and processed through litigation or other administrative avenues. fair housing in-house activities Mr. Stokes. Now, in addition to FHIP and FHAP, HUD has its own in-house fair housing activities, does it not? Ms. Forward. Yes, it does. Mr. Stokes. As distinct from FHIP and FHAP? Ms. Forward. That is exactly right. Mr. Stokes. In light of what appears to be the type of increased workload that you have just described, what, in your budget, addresses the in-house activities? Ms. Forward. Well, as I mentioned, our business process redesign of our Title VIII program provides that we handle all of the complaints where there are no substantially equivalent agencies, nor a FHAP office. That is not in every jurisdiction in America, so we handle those complaints ourselves. We have in this past year undergone a study so that we could improve the effectiveness of our complaint processing, given that we are under congressional mandate to process complaints within 100 days. We have become more timely as a result. We have just rolled out our new business process redesign which will tell us that if we continue on the track that we are on, we will be processing complaints within the 100 day time frame, well within it. These are some of the measures that we have taken given the downsizing and limited resources. It is also screening the complaints more carefully so that we will be accepting complaints of discrimination as opposed to some landlord/tenant claims or folks that find their way to us that may not exactly have a discrimination complaint. So, we are scrubbing down the complaints a little bit better. A big piece of this is technology. We have invested a lot in our computer system so that we can have paperless files. We do not have to rewrite our final investigative reports or our interviewer notes at several different stages. We can take laptops out into the field when we investigate, when we interview parties to a complaint, and then plug it right into our final investigative reports Aogram. This is proving to be very successful and we are very excited about being able to process complaints more effectively, efficiently and timely, and to improve service to our customers. Mr. Stokes. I guess the bottom line if I would try to sum up, the sum and substance of your testimony would be that discrimination in America is still a very expensive past time. Ms. Forward. Unfortunately, I think it is. Mr. Stokes. Thank you, Mr. Chairman. public housing capital fund Mr. Lewis. Thank you, Mr. Stokes. I will spend a few moments on the public housing capital funds. The President has requested $2.5 billion for the public housing capital fund, a fund which merges the development and modernization programs into a single comprehensive formula- driven program based on need. GAO has reported that the current unobligated balance of modernization funds is $925 million, a decrease over past years. However, some public housing authorities, for some of them the pipelines have actually increased. Can you tell me why? Mr. Marchman. Those particular housing authorities are troubled. We have withheld our approval of further expenditures out of those funds until they have in place necessary systems. I believe that New Orleans and Washington, D.C. are among the four that are mentioned in the GAO report. Mr. Lewis. Okay. The HOME program has a two-year time frame in which participating jurisdictions must obligate their funds for capital programs. Would such a time frame be appropriate for public housing authorities and would you explain your response? Mr. Marchman. Yes. Such a time line would be appropriate. We are currently looking at time lines for the modernization program. After a particular period of time, either you will lose the money or lose the ability to spend the money yourself. Mr. Lewis. HUD has the authority to withhold or recapture modernization funds from authorities that have not obligated them. Several authorities have unobligated balances that date back more than several years. I mean are these authorities troubled. I think of that pool of money at HANO I was worried about. Mr. Marchman. HANO is perhaps the best example of that. Mr. Lewis. Has HUD considered recapturing these funds? Mr. Marchman. Not to date, but we are---- Mr. Lewis. Should we? Mr. Marchman. We should consider it, in some cases, yes. Mr. Lewis. I certainly think that we should and as we address the question of rewarding those who produce results versus those who do not, I think that message was delivered to the Secretary, but I think all of us would believe that serving people might be in a priority way addressed by such a path. Would private management development companies be more efficient and effective spending the funds, than troubled public housing authorities? Mr. Marchman. Yes, sir. In some cases we will have that happen. Mr. Lewis. Should public housing authorities with large backlogs of funds, which have been designated as troubled or near troubled, continue to receive their annual allocation orshould they be spending down what they have before we give them more funds? Mr. Marchman. It would be my opinion that they should be spending down what they have. We should exclude them from the formula allocation for giving them more funds. tenant opportunity program Mr. Lewis. Well, we will just watch that with care. Last year, the subcommittee decreased funding for the tenant opportunity program, noting that the program had suffered from wasteful spending practices and allegedly fraudulent activities. Has HUD investigated the allegations which surfaced about this program and, if so, what were the results? Mr. Marchman. The staff is currently finishing up their review of the program. What we have found is that the recipients of the TOP programs were, in many cases, ready to expend the funds and sometimes did not have the capacity to manage them well. I believe that the recommendation that will come to me would be to change the nature of the tenant opportunity program to combine it with the EDS program to work on welfare reform. capital fund set-aside Mr. Lewis. Another set aside within the capital fund is $45 million set aside for technical assistance, intervention funds and lease adjustments. How much of the set aside is dedicated to each of these categories and what kinds of technical assistance is provided under Section 6(j) of the U.S. Housing Act of 1937? Mr. Marchman. I am not sure I can remember exactly what has been set aside from each. But specifically the money set aside for assistance to troubled housing authorities, this is the money with which we, as you mentioned yesterday, paid for the Campus Affiliates program. This is where we have independent contractors come to help work out systems for housing authorities. In some cases, technical assistance funding will help housing authorities move their modernization pipelines along as well. Mr. Lewis. Okay. Let us make sure that is correct. Mr. Marchman. I will get that to you. Mr. Lewis. Okay. Which housing authorities have received this type of assistance and what level of spending has been provided to them? Mr. Marchman. Again, I do not know if I can, off the top of my head, say for sure. But housing authorities, such as New Orleans, Chicago, District of Columbia, San Francisco, and maybe half a dozen more. Mr. Lewis. I have a couple of other questions for the record that I would like to have you address. [The questions of Mr. Lewis follows:] [Pages 184 - 185--The official Committee record contains additional material here.] Mr. Lewis. Taking myself recently close to home, last year HUD and Mayor Willie Brown announced that the San Francisco housing authority was in extremely bad shape and they were launching a joint recovery effort. I am concerned about reports that permanent professional leadership is not in place. We had some discussion of that this morning, that maybe HUD's helping out. Would you elaborate a bit on that? Mr. Marchman. We look to make a decision with respect to the permanent management of the San Francisco Housing Authority in the next several weeks. In fact, I think it is the end of this month in which staff, HUD central staff, the Housing Authority staff and the mayor's office, and his housing departments are going to put together a six-month plan for the next six months and it will be based on that information of the program management. So, I hope that will be resolved in the next several weeks. Mr. Lewis. Mr. Stokes, Catlin Rose lives right across the Bay from that location. Do you know who Catlin Rose is? Mr. Stokes. No, I do not. Mr. Lewis. She is my granddaughter. Mr. Stokes. Is that right? Mr. Lewis. I want one more granddaughter. Mr. Stokes. Isn't that nice. We will have to go out and take a trip and see her, too. [Laughter.] Mr. Lewis. I note that HUD entered into a similar partnership with the city of Philadelphia in 1993, and significant taxpayer dollars have been expended in that housing authority. What has been accomplished with the authority and is the authority off HUD's troubled list? Mr. Marchman. No, it is not off the troubled list. They have improved their expenditure of the modernization program. They were once what we call moderately troubled, Mod Trouble. We have seen improvement at the agency in terms of its systems. I think they struggle primarily with a very old housing stock. But, no, they are not off the list. Mr. Lewis. Will you update the record so that we really are up to speed relative to Philadelphia? Mr. Marchman. I will do that. [The information follows:] Philadelphia Housing Authority The current Public Housing Assessment (PHMAP) score for the Philadelphia Housing authority (PHA) for the fiscal year ending March 31, 1996, is 48.90 percent. Although PHA remains classified as a troubled housing authority, this year's PHMAP score is an increase of 39 percent from the previous PHMAP score of 35.15. PHA will submit its PHMAP certification for its fiscal year ending March 31, 1997 to the HUD field office shortly. On January 14, 1997, the Office of Inspector General released an Assessment of Progress Report on PHA that indicates some progress in maintenance delivery for scattered sites, expediting obligation and expenditure of the modernization pipeline, obligating funds in accordance with the implementation schedule, improving staff training and professionalism, and increasing safety and security. However, there are remaining concerns in the areas of routine maintenance and high vacancies. It is anticipated that a new Memorandum of Agreement (MOA) with PHA will be executed by May 1, 1997. The new MOA will reflect actions to address the recommendations provided in the Inspector General's Assessment. Mr. Lewis. Shall I just keep moving along here? Mr. Stokes. Sure, Mr. Chairman, go right ahead. cdbg program Mr. Lewis. Community planning and development, CDBG. In 1996, Congress appropriated $4.370 billion to HUD to make grants to cities, counties and States for the purpose of developing viable urban communities by providing decent housing and a suitable living environment and by expanding economic opportunities principally for persons of low- and moderate- income. Activities are limited to those which carry out one of the following broad national objectives. Benefit low- and moderate-income persons; aid to the prevention or elimination of slums or blight; meet other particularly urgent community needs. Would you tell me what are the percentage of funds used for each of these categories and how many jobs were created that benefit low- and moderate- income persons? Mr. Robinson. Mr. Chairman, let me introduce you to, if you do not already know, Assistant Secretary Howard Glaser who will answer that question. Mr. Lewis. Howard, welcome to the Subcommittee. Mr. Glaser. Mr. Chairman, it goes to the issue really of performance measurement for the Community Development Block Grant program which is one of our highest priorities. To go directly to your question withpercentages, approximately 94 percent of the funds are spent to benefit low- and moderate-income persons with a relatively minor distribution for the other areas, for removing slums and blight and a very small percentage, about half a percent for dealing with imminent threat to urgent public health and safety issues. The CDBG is a relatively unique program in certain ways. We talked about the HOME program and CDBG in these hearings as models for the Federal role, where the Federal Government sets clearly broad parameters, like the ones that you suggested, but allows the local governments to set specific goals as to what they want to accomplish in a variety of areas. Whether they seek to produce jobs, or to remove slum or blight, is their own local decision. On the other hand, while it is a flexible program, as the Secretary said earlier today, it is not a blank check to the communities. And we have worked very hard over the last four years to introduce performance measurement into the program and to link funding to performance. Four years ago, we probably could not have told you how CDBG money is spent in any given area, in a city, in a district or in a county. Today, we are well on our way to being able to do that. Through the consolidated planning system and now an automated reporting system linked to the Federal Government, communities lay out, in advance, their priority spending for the HOME program and the CDBG program together and then draw the money down as they actually begin to spend money on those accomplishments. We can provide you with some examples of what is right now a work in progress, as a matter of fact. I brought with me, just as an example, a draft for the State of California which gives you an example of what we could not have done four years ago. Mr. Lewis. Interesting State. [Laughter.] Mr. Glaser. Interesting State and it was on top of the pile, alphabetically. [Laughter.] Mr. Glaser. And if you want to know what is happening, for example, in Rancho Cucamonga, California, you turn to page 41 and you will see that they are doing an economic development loan program for local businesses. This is just a sample of the kind of thing that we can do. We can provide additional information on that for you. Mr. Lewis. We are interested though in items, you know, information such as the retention rate of those jobs, what the average income is for people who are so employed, et cetera. Mr. Glaser. Jobs is really the number one tracking item for us. And just to give you an example, from a recent year, with $411 million used specifically for job creation activities approximately 115,000 jobs were produced. I think the interesting thing is that of those jobs, 89 percent were still in existence 4 years later. And 96 percent of the jobs were full-time, and 90 percent were over the minimum wage. And, largely those are small business. Mr. Lewis. That was 90 percent? Mr. Glaser. Yes, 90 percent were over minimum wage. The bulk of that money also goes to small businesses, small business development. And 99 percent of the assisted businesses with that piece of money had under $6 million in annual gross revenue, and over 50 percent had fewer than five employees. That is, we think, a typical figure. There have only been a couple of really academic studies done on this. One has been done by PD&R, and one by the Urban Institute and they bear out those figures. use of cdbg funding Mr. Lewis. Could you give us an illustration of some of the particularly urgent community needs that were cured by these funds? Mr. Glaser. There, again, it is a local decision how they use the funds. There has been more emphasis in the last few years on using the funding for economic development. We introduced regulations a couple of years ago to make it easier to use the funds for economic development. So, we see an increase in revolving loan funds for small businesses. The more traditional use of the funds gets to some of what they call urgent needs, if we are using that terminology. Sewer systems, public infrastructure, and improvements to water supplies all fall into that category most often. Mr. Lewis. I am very interested in your scrubbing that for us so that we can get an idea of how communities are using those funds. I know that there is a variety and mix, but as the pool shrinks we have to look more closely. I have been involved, for example, in local YWCA drives. But I am not really certain the Federal Government ought to be involved in YMCA drives when there are people, you know, who are affected in other ways, their housing needs and otherwise. I do not want to, by any matter or means, separate one category from another but I would like to know what these funds are being used for. Mr. Glaser. It would be helpful to us if the Committee wants to give us some categories they are particularly interested in because since they are so broad, we can come up with some preset categories that work but if there are someparticular areas, we can scrub it in a way that helps you. Mr. Stokes. Would the Chairman yield? Mr. Lewis. Sure. Mr. Stokes. I have the same concerns that the Chairman has. And the Chairman perhaps may be thinking about the fact that a few years ago we found that certain communities were getting CDBG grants that really did not need the money. And they were utilizing the money for things like band uniforms, and things of that nature, which are not economic development in nature or job producing in nature. Has the Department done much to eliminate that type of thing over the years? Mr. Glaser. We have improved our monitoring in the field through this performance system. Under the consolidated plan-- these are formula grants so the city does get them upfront. Before the cities can draw down their money, they must tell the Department what they are going to do. We do not direct them on what they should do but they do need to tell us and we then approve the consolidated plan in advance; so, we have an opportunity to see before the funds are drawn down what they are going to be used for and to ensure that they are consistent with the statutory purposes for the funding. And we have weeded out some things here and there that had been the subject of abuse before. [The information follows:] [Pages 190 - 208--The official Committee record contains additional material here.] Mr. Stokes. Thank you, Mr. Chairman. cdbg set-asides Mr. Lewis. Several initiatives and demonstrations that are requested as set-asides in CDBG, in that account, deal with welfare reform and its impact upon HUD's low-income housing programs including Moving-To-Work, Bridges-To-Work, 50,000 new certificates and vouchers aimed at families who are moving toward self-sufficiency. This was touched on by Mr. Stokes earlier but would you describe the differences between each of these programs for the record, so that we have some clarification of your response? Mr. Glaser. If I might defer to Mike Stegman on that, although those are funded through CDBG they are demonstration programs and operate through PD&R. Mr. Stegman. Mr. Chairman, the 50,000 incremental certificates are not a set-aside from the Community Development Block Grant request. As to Bridges-To-Work, we have $10 million that is a follow-up to a demonstration that is already underway. The Rockefeller Foundation and the Department have been jointly funding this with $8 million from the Department and $5 million from Rockefeller and matching funds from the localities to create partnerships that train, support and help people get to jobs in the outlying growing economy in the metropolitan area. The $10 million is to expand that six-site demonstration and, as a matter of fact, even though it is only $10 million, it will be used in conjunction with the $100 million urban jobs mobility initiative that is contained in the Department of Transportation's budget. This is truly an administration initiative that crosses departments. But, essentially, if you were to look at the 50 largest metropolitan areas in the country, you would see more than 20 of them with unemployment rates in the suburban rings of under 3 percent. There is more of a commitment to invest in work force development, in recruiting, and retaining employees. These partnerships are designed to support, train and help people connect to work while living in the inner cities. So, that is what Bridges-To-Work is. We are also---- Mr. Lewis. Is HHS involved in that? Mr. Stegman. HHS is not directly involved in Bridges-To- Work but may be indirectly. The Department of Labor is involved and maybe HHS is, because essentially the job training partner is receiving funds and these are experienced nonprofit organizations that are receiving funds from other agencies. The value-added is Transportation and HUD in these partnerships. Basically, we are trying to deal with two kinds of problems. One is the spatial mismatch--and that is what Bridges-To-Work is all about, that is what Moving To Opportunity is all about--how to connect people to where the jobs are, with the right kinds of support and help. But we are also involved very much in human capital development and in-place economic development strategies. The Jobs-Plus demonstration is an effort to connect public housing residents to work in the local community. And we are carrying out a demonstration, again, jointly funded--by HUD dollars, with support from the Rockefeller Foundation, the Manpower Development Research Corporation and lately Chase Bank has joined the partnership--to put together state-of-the-art saturation job training, changing the culture of public housing developments so that every able-bodied adult will be engaged in learning and work and connecting to the world of work with jobs. The Jobs-Plus demonstration for the first time would allow HUD under Congressional authorization to change rent rules, remove the work disincentives to work, and combine that with job training and support for public housing families. Mr. Lewis. I just have a couple of more questions in this area. Mr. Stegman. Sure. homeownership zones Mr. Lewis. In 1996, HUD initiated a new homeownership initiative using Section 108 loan guarantee programs as its statutory authority. To start the program HUD directed $30 million from EDI, Economic Development Initiative Program, to the initiative in spite of what appears to be questionable authority. Therefore, the Congress knows very little about these programs and what it's designed to accomplish. So, I have a series of questions in connection with that, like what is the purpose of the initiative and who is it designed to assist, are families with certain income levels targeted and so forth? Mr. Glaser. I will address that, at least in part, Mr. Chairman. The basic concept behind Homeownership Zones is that nothing can transform a neighborhood like homeownership. Homeownership on a scale that is not simply scattered through the neighborhood but blocks and blocks of homeowners. These are activities which are done now under the Economic Development Initiative and other programs that HUD has but not on a scale that often brings a real impact to a community because of the pressures, the local pressures on spreading these funds out. And all the Homeownership Zones Program really does, through the Economic Development Initiative as the source of funding, is to give communities an incentive to bundle together thingsthat they would otherwise be doing through the program. The types of communities that this is targeted to are the same ones that are eligible under statutory authority for the Economic Development Initiative--highly distressed communities, communities with over 20 percent poverty and indications of need such as poor housing stock. That is where we are with it. We did do a competition last year which was based on some of the successes that we have seen in the country. Last year, I had the opportunity with Mr. Stokes to do the opening of Bicentennial Village, which has used some of those disparate sources to do what we hope to encourage through the Homeownership Zone program. We are seeking specific appropriations this year for the program based on the kind of success that we have seen in communities around the country. Mr. Lewis. Are any of those funds designated for Indian tribes? Mr. Glaser. These funds would not be designated for Indian tribes. Mr. Lewis. Okay. Last year, Congress agreed to reallocate $20 million from the Nehemiah Housing Program to fund a second round of Homeownership Zones to targeted areas. This initiative has even fewer parameters and nothing is known about how it operates. So, a series of questions in connection with that. What are the criteria you intend to use to determine which areas are awarded one of these grants? When do you intend to issue the notice of funding availability, the NOFA? Are these funds leveraged with non-Federal resources and a question about HOPE VI, as well. Mr. Glaser. On the last question, private leverage is a significant component. It was in the first round by statute and will be again in the second round. In truth, we are seeking private developers to step to the plate who are looking for a little extra incentive to do work in a community that they would not otherwise be into. We are doing development work on the NOFA now. I think we are probably at least 60 days away from issuing a NOFA. We want to see how the process of the first round went and we are seeking input from a number of private sector partners that have been involved in Secretary Cisneros' original Homeownership Initiative, including the National Association of Homebuilders, mortgage bankers and a number of national designers. We will be seeking their input as we design the second round. And we will be glad to advise the committee on how that is going. [The information follows:] Private Sector Input on NOFAs for Homeownership Zones HUD consulted with a panel of expert advisors in making selections for the first round of Homeownership Zone grants announced on April 8, 1997. They represented the different key disciplines in large scale urban development projects. Two represented the planning/architecture field: Peter Calthorpe, Calthorpe Associates, Berkeley, CA; and M. David Lee, Stull and Lee, Inc., Boston, MA. Two were home builders: James Irvine, The Conifer Group, Portland, OR; and Joseph Singer (retired), Jupiter, FL. Two represented the lending community: Michael Mantle, Bank of America Community Development Bank, Walnut Creek, CA; and Michael Pitchford, Nations Bank, Charlotte, NC. They provided outstanding advice on such matters as quality of design, reasonableness of costs, and strength of financial commitments. In addition, HUD has consulted with this same group for advice on developing the Homeownership Zones program. Mr. Lewis. Mr. Frelinghuysen. cdbg operating expenses Mr. Frelinghuysen. Just a couple of cleanup questions here. On Community Development Block Grants, can you give me the figures on what the overall figure is relative to communities spending money for capital purposes versus operating? What you would consider to be operating expenses? Mr. Glaser. There is a limit, a statutory limit, on the amount of money that cities can spend on planning and administration. That cap, I believe, is 20 percent of the great amount. While some communities typically go right up to the cap if they are that cap is waived in some cases, such as disaster assistance, where you can use more money. But this is probably a pretty good yardstick for the amount of the annual funds that go to services, versus capital or pass-throughs to local organizations to do programmatic work. Mr. Frelinghuysen. So it is fair to say that you would not find more than 20 percent unless there was some sort of a federal disaster that would have required that? Mr. Glaser. Correct. field offices Mr. Frelinghuysen. I understand the ranking member has made reference to the March 18th GAO. I am still recovering, Mr. Chairman, from the last March 27th GAO report. And so I would like to ask some basic questions relative to the progress made from last year. I would like to know for the record--and you do not need to give it to me orally here--based on last year's GAO report, which was entitled ``Limited Progress Made on HUDReforms,'' give me the ten major reforms accomplished to date by Housing and Urban Development. And within that component, assuming you consider these to be reforms--certainly, I would--how many programs were merged? How many programs were eliminated? In a more specific nature, how many field offices do you currently have? How many field offices does HUD currently have? Mr. Stegman. We have a total of 81 offices across the country. Mr. Frelinghuysen. And how many did you have two years ago? Mr. Stegman. Eighty-one. Mr. Frelinghuysen. So that is not an area where we have seen any consolidation or elimination. Mr. Stegman. There has been a change in the number of employees. The Deputy Secretary can talk to that. But there have not been any office closures. Mr. Robinson. I was under the impression you wanted us to provide you a written response to the question in general. Mr. Frelinghuysen. One of the benefits of serving on this committee is that I still want at some point in time into the record what you consider to be the ten major reforms accomplished to date. Mr. Robinson. I understand. I did not intend to be non- responsive. Mr. Frelinghuysen. But I would like to know your oral response relative to this specific. Mr. Robinson. About the number of offices? Mr. Frelinghuysen. Yes. Mr. Robinson. We currently have 81 field offices within HUD's structure. We have, however, significantly over the past 4 years changed the relationship that these offices have to the organization, and have plans that exist over time to continue that change. First and foremost, of course, we eliminated our regional structure and recreated what we call Secretary's Representatives in the field. Secondly, we have consolidated our operations in a number of areas, most notably in our single-family operation, and developed first in the Denver, Colorado, office a single-family home ownership center. We are in the process of unveiling two additional centers which will continue the consolidation of single-family and change dramatically the relationship that the offices have to that particular program. We are with our legislation suggesting that we see even more consolidation as it relates to our other program areas, and that will be reflected in the way we utilize our offices across the country. And then lastly, I would point out that we have, in changing the relationship that the offices have to the Department, had a downsizing in our organization at the Washington level, and increased our overall ability to be responsive to decision makers and other constituents on the ground in the field. And so we will see a dramatic increase in that as we go forward. We began that under Secretary Cisneros. Secretary Cuomo has made that one of his top priorities, and we will be moving forward in that regard. Mr. Lewis. And with that succinct response, we have one minute to code. Mr. Robinson. Oh, I am sorry. consolidation of hud programs Mr. Frelinghuysen. Thank you, Mr. Chairman. Where is the department in its efforts to consolidate more than 20 existing programs into three performance-based programs? Mr. Robinson. Well, Mister---- Mr. Frelinghuysen. FRE-LING-HUY-SEN. [Laughter.] Mr. Robinson. Mr. Congressman. [Laughter.] Mr. Frelinghuysen. Mr. Frelinghuysen. Four syllables, like a Chinese name: FRE-LING-HUY-SEN. Mr. Robinson. I apologize, Mr. Frelinghuysen. Mr. Frelinghuysen. That is all right. That is fine. Mr. Robinson. We have, in fact, as you know, over the past several years made various proposals in terms of reducing and changing the programs that we have had. We expect to continue those efforts with the legislation that has been discussed here, H.R. 2 and our own independent legislation, including legislation that we expect to present as it relates to affordable housing or FHA housing. All of these efforts are aimed at consolidating and reducing the number of programs. And while we have been unsuccessful to this point to get specific legislation, we have made a number of administrative changes reflected in both FHA and PIH, as well as in CPD, in terms of consolidating our efforts. So while we will document specifically programs that have been consolidated and reduced, to you in writing, I believe our efforts can be documented and, given the fact that we have not achieved legislative closure, meet the goals that have been set out not only by the GAO but by Secretary Cuomo and formerly by Secretary Cisneros. Mr. Frelinghuysen. So where do we stand relative to the whole movement towards three performance-based programs? I mean, have we started in that direction? Mr. Robinson. Well, there is no question we have proceeded in that direction. It is not necessarily clear that we will end up with three performance-based programs as was laid out in the document. I believe you are referring to blueprint one. What is clear is that the trend is in that direction, and our proposals consistently have been aimed at both consolidation and reducing programs. Mr. Frelinghuysen. We like to see a general direction. And you certainly have the right to change your goals, but at some point in time this committee was sort of assured this is the direction in which we were going. Mr. Robinson. And I intend to relay that we are on that path, and we believe that we have consistently made proposals in that direction. Mr. Stegman. I just wanted to mention that for the last 2 years we have proposed, and would propose again, the consolidation of the McKinney homeless program into a single fund. We have, and our Budget reflects, the creation of a public housing capital fund consolidating our modernization program, the development program, and a variety of smaller capital programs. Assistant Secretary Marchman talked about a consolidation of the social service funds for public housing, along with the Tenant Opportunity Program we will be proposing. So there is a substantial amount of consolidation that is being proposed and that has been included in authorizing legislation that has not been enacted, and we will continue to move in that direction. Mr. Frelinghuysen. I think it is fair to say that at a certain point in history here in the last couple of years, there was a certain amount of momentum anticipation that we were literally going to see some reinventing of HUD. And you are telling me that we are part of the way there but we are not---- Mr. Stegman. Well, I am telling you that we are saying that authorizing legislation is very critical to us this year to really move us along. Mr. Frelinghuysen. Well, I know sometimes people say you need authorization. Certainly, we would like to be involved in that process. But in reality, sometimes things can move ahead without any. Mr. Robinson. And that was the point I was making. Mr. Frelinghuysen. Well, I want to see the specifics. Mr. Robinson. Sure. overhead costs Mr. Frelinghuysen. And I would like specifically to know if you would make some comments relative to the whole issue of overhead costs in administering your program, what you have done to lower those costs and, if you would be good enough to provide a breakdown for the committee on a program-by-program basis, how you address the overhead issue, maybe some general comments on the overhead costs. Mr. Robinson. Congressman Frelinghuysen, we have in fact consistently over the past 4 years reduced the operating costs of the Department. I would point out that our operating cost is in the range of about 3 percent of our Budget. We have reduced the total number of employees that work at the department by about 20 percent over that period of time. We continue to project in our current legislation and Budget a glide path that will take us down to 7,500. And we have done some very intensive work with Secretary Cuomo to refocus our priorities so as to match up not only the fact that we are reducing our overhead and reducing our number of employees, but in fact matching that up with program revisions. And that will be reflected in our legislative package. Mr. Frelinghuysen. Well, I think it is admirable and courageous that you are reducing your payroll and you are trying to minimize overhead. But for the record, if you can give us a breakdown by program I would like to know what the specific overhead costs are. Mr. Robinson. Sure. We can do that. [The information follows:] [Page 516--The official Committee record contains additional material here.] tenant notification of contract expiration Mr. Frelinghuysen. Going back briefly to Section 8 renewals, current law requires that tenants be notified a year before their Section 8 contracts are due to expire. Since we have now gone to annual renewals, is there a need to change this requirement, or how do you propose that this issue be addressed? Mr. Retsinas. As we move toward annual contracts, clearly, technically speaking, every year there is a risk if Congress does not appropriate sufficient funds that the Section 8 contracts will not be renewed. To date, the Administration and the Congress have agreed that at a base we ought to renew the contracts that we have. The particular provision was put into place because historically the Federal Government used to enter long-term contracts. Some contracts were as long as 40 years, 20 years, and 25 years. As those contracts have come up, under terms of the assistance from the Federal Government, owners had the option to renew the contract or not. So, yes, I think it is an area we need to look at. We need to balance honesty--which is, yes, we cannot guarantee appropriations will be there next year--with some sense of proportion. I do not know what that balance is. I think we need to think through together that language, because none of us wants to over-promise. I certainly would not want for the Congress to make a commitment that you cannot keep because you only appropriate year to year. That is a problem we have to deal with, so we ought to be thinking together of some language. number of section 202 units in 2002 Mr. Frelinghuysen. Lastly, Mr. Chairman, an issue I visited yesterday: housing for the disabled, but most particularly today relative to senior housing. I know you are proposing a reduction in the 202 program from $645 million to $300 million. And then you are planning level funding at $300 million? Mr. Retsinas. Essentially, yes. Mr. Frelinghuysen. Until, basically, the year 2002. Can you provide for the record how many units you plan to fund in fiscal year '98? Mr. Retsinas. I can provide it for the record, and I can tell you right now. Mr. Frelinghuysen. Well, tell me right now, and how many you did last year. Mr. Retsinas. About 8,500 in fiscal year '97. We are currently in the process of soliciting applications. We have funding for 8,500. Under the fiscal '98 budget, if you were to approve it at the level we requested, it would be approximately 3,800. Mr. Frelinghuysen. How does it go from 8,500 to 3,800? Mr. Retsinas. Less money. Mr. Frelinghuysen. That remarkable drop? Mr. Retsinas. Oh, sure. From $645 million---- Mr. Frelinghuysen. All right, 654, all right. Mr. Retsinas [continuing]. To 300, yes, absolutely. Mr. Frelinghuysen. So on an annual basis, would you anticipate somewhere in the neighborhood of 3,800? Mr. Retsinas. Yes, sir. Mr. Frelinghuysen. All right. Thank you, Mr. Chairman. increase in fte Mr. Lewis. All right, Mr. Frelinghuysen. Among other things, Mr. Frelinghuysen has asked what I described as the David Hobson question, since he was not able to be here today in part, but also because of his interest. Just to visit that for a moment, for fiscal year 1998 the requested appropriation is $1,005,826,000 to support 9,961 full-time staff. It is suggested that I should be the first to congratulate you all for submitting a budget that reflects a decrease in 486 staff positions, FTEs--almost 500 of them--but has a budget that reflects an increase of $28,986,000. Mr. Robinson. The reason for that, sir, is because under that line item we have our multifamily enforcement program. The $50 million that we are requesting there falls into that line item. youthbuild program Mr. Lewis. Yes. Thank you. Youthbuild: How many organizations currently operate HUD-funded Youthbuild programs? Mr. Glaser. Mr. Chairman, on Youthbuild we currently have made 294 grants to date. We are currently awarding an additional 41 grants in 1997, for a total of 335. There are currently 235 organizations operating in the Youthbuild program. Mr. Lewis. And the number of people? Mr. Glaser. The number of participants that are involved is approximately 5,353. I am including what we anticipate having from the current 1997 round of funding. Mr. Lewis. What is the average cost? Well, I guess I can divide that and figure it out, but tell me the average cost per participant. Mr. Glaser. We would have to figure that out for you. We also have to look at--if I can do it quickly--not just the participants, but the units that are constructed. And the unique thing about Youthbuild is it brings together two needs. One is for low-income housing availability, rehabilitation especially in distressed communities; and the second is the need for good jobs for young people and an opportunity to work. The young people are trained in the construction trades, and then put to work in their own communities building housing. So the two pieces fit together. So the number of units which we need to have, the full equation is about 3,000 units; 5,353 participants in the program working on it. It's approximately about $20,000 per trainee, and I think some additional money for the hard costs for the unit itself. Mr. Lewis. I have questions like what was the demand for Youthbuild funding in 1996? Mr. Glaser. I will have to come back to you with the exact number. The demand, without question, is exceeding the capacity that we have had in the past. Communities have really taken to this program. Mr. Lewis. I have got some follow-on questions that are similar that you can provide for the record. Mr. Glaser. All right. [The information follows:] Demand for Youthbuild Funding in 1996 HUD received 412 applications in response to our 1996 Notice of Funding Availability. A total of 29 grants was funded under this round. Mr. Stokes. Mr. Chairman, before you leave that, can I just go to one question? Mr. Lewis. Sure. Mr. Stokes. In the past, Youthbuild has been funded under the CDBG. You are proposing in this budget to fund it separately. Tell us what the reason is? Mr. Glaser. We are trying to minimize the amount of set- asides that have come out of CDBG in prior years. CDBG has been used for all sorts of reasons. And over the years the amount of set-asides has gone up and the total amount of funding that actually goes to the communities through CDBG has tended to go down. It has eroded the CDBG program. This year, for the first time, we hold the line on the amount of money that actually goes to the communities. One of the ways we did that is we took the Youthbuild program out of the CDBG and requested it as a stand-alone program. Mr. Stokes. Thank you, Mr. Chairman. habitat for humanity Mr. Lewis. Thank you, Mr. Stokes. The budget requests a set-aside within the CDBG, that account, for $10 million for a grant to Habitat for Humanity, to acquire land and to finance the costs of infrastructure improvements. In 1996 a grant of $25 million was made for these programs. HFH plans to leverage this grant with private donations that will reach between $75 million and $100 million. The result is that 2,800 homes will be built and sold to low- income working families at an average cost of $40,000. How many local Habitat affiliates requested this money, and was the $25 million sufficient to cover the applications? Mr. Glaser. We will have to come back to you on that answer. Mr. Lewis. All right. For the record, then. [The information follows:] Number of Habitat Affiliates That Requested Funds Habitat International had requests for applications from more than 700 affiliates. This is more than half of the total 1,300 affiliates at that time. Of these, 336 applications were actually submitted and contained requests for $51.4 million in funds. Habitat International approved 257 applications for $23 million, and 10 applications totaling $2 million and on the ``waiting list.'' Habitat has indicated to HUD that they now receive approximately six calls a week from affiliates inquiring into the availability of funds. ncdi Mr. Lewis. And there are some additional questions relative to Habitat. You may note for your own interest that the Congress is taking quite an interest in Habitat for Humanity, and you will see a deal of activity surrounding that in the near term. I hope both Mr. Stokes and I will participate in some of that, as we look at the shining city on the hill and other programs. The budget requests a $10 million set-aside within CDBG to provide NCDI to build the capacity of community-based development corporations and housing development organizations. What has NCDI agreed to accomplish with these funds? Mr. Glaser. NCDI is a consortium of organizations that provides assistance to Community Development Corporations (CDCs) in 23 cities to increase their capacity to plan and carry out neighborhood improvement projects and to pay for related things. Funds from HUD and other funding organizations have leveraged additional funds more than 10 times the original investment. We have tried to privatize, or to join with the private sector, on things like how to build a revolving loan fund, how to do infrastructure work locally and how to put a financing package together to do it. NCDI is one of the organizations we use to do so. Mr. Stegman. And with NCDI, our $10 million is matchedby eight or nine foundations and some private sector contributors, to really strengthen the capacity of proven community development corporations to get them to that next level so that they can go from building individual units to really more neighborhood development work, larger-scale work. More of them are in economic development. More of them are in now not just building one unit at a time. It is trying to get the scale for the proven community development corporations. Mr. Lewis. There are a number of follow-on questions that I have for the record in that category. Mr. Stegman. Fine. hopwa Mr. Lewis. Briefly, I want to touch on HOPWA, and then turn to Mr. Stokes if he has additional questions. The President has requested $204 million for Housing Opportunities for Persons with AIDS, funding in 1998. This request represents an increase of $8,000,000 over 1997. The number of eligible jurisdictions has grown each year as the HIV/AIDS epidemic continues to spread. The budget assumes incremental funding will continue to be required to keep pace with the number of jurisdictions that become eligible for assistance under the formula programs. How many persons are assisted under these funds, and is it more cost-effective to assist people in their homes? Mr. Glaser. This level of funding will provide some sort of housing assistance to approximately seventy thousand people, I do not know that we have studied the cost-effectiveness, but clearly the total social cost of treating people in their homes is less than what it would be to go into facilities. People are often unable to make that move, and prefer to remain in their own homes. One of the issues that you have raised is making changes to the HOPWA formula. It has also come up in staff discussions at HUD is an issue that we would like to have further discussion about. Mr. Lewis. Some of the very early funding for questions that surround the problems that face people with AIDS came in this Committee when I was a brand-green member on the Committee. And I would be interested in your expanding on the record to hear what some of that history has been, and how effective we have been in meeting the challenges of clearly what is an endemic and endless epidemic. Mr. Glaser. I want to clarify the record. That 70,000 figure is an annual figure, not a cumulative figure. Just to be sure on that. Mr. Lewis. Annual. All right. Mr. Glaser. I would like to come back to that issue for the record at a later time. Mr. Lewis. If you would. [The information follows:] [Pages 222 - 231--The official Committee record contains additional material here.] homeless programs Mr. Lewis. The Secretary and I have talked personally about homeless assistance grants and problems surrounding the homeless. Because we had a very extensive personal discussion relative to the homeless and some of the past public policies that have impacted this whole subject area, after consulting with the Secretary I would appreciate it if you would expand on that for the record, as well. We do want to spend some time focusing, but maybe it would be better done in the record. Mr. Glaser. We are working with the Congress. We certainly have made some significant changes over the past four years in the way that we deliver our homeless programs, and we have gone to what we call the continuum of care which took a number of separate initiatives which were not linked to each other. We had situations where communities were competing against themselves, in essence, and coming up with an irrational system of emergency housing, transitional housing, and permanent housing. Just because we put the money out there for emergency housing, especially early on in these programs, communities tended to come in for emergency housing when there really might have been permanent or transitional housing needs. What the continuum of care did, really, is revolutionize that process by saying to a city, ``Come together with all your non-profits; assess your needs, the assets you have; and then come to us to fill in the gaps.'' And that is how we use the funds, to fill in the gaps in this continuum of care, to move people off the streets and into permanent housing. And it has been successful, certainly, in terms of the process; and in terms of the outcome, as well. We at one point tripled the amount of funding for the program compared to what we had in 1992. A Columbia University study indicated that we have been serving up to 14 times as many people through HUD programs with a three-fold increase in funding. The funding level has come back down again a little bit at this point, and we have asked for the same funding this year as we had last year. The remaining issue for us really at this point with homelessness is to move away from the competitive system, which from a management point of view takes up an incredible amount of staff time not only for us at HUD but also for the local communities, and move to a performance-based formula grant in which communities would receive a grant that is like CDBG and HOME, based on the performance that they are actually accomplishing. The number of homeless persons they are serving is the amount of money that they would receive under the performance-based formula. Mr. Lewis. I think it is important that the Committee hear more of that. Clearly, the problem is complicated by a cottage industry that has kind of expanded out there, wherepeople are interacting and responding, in part because the money is there. But fundamentally reviewing the public policy implications, how we got where we are and so on, is very important. And so I will appreciate that. Mr. Frelinghuysen. Mr. Frelinghuysen. I think most of us are familiar with the terminology ``continuum of care.'' The definition of ``homeless,'' does that include individuals who are mentally ill? I am just wondering whether those who are advocates on behalf of the mentally ill, those who are advocates on behalf of people with developmental disabilities, are they into this mix, or are they excluded in some way? This gets back to the whole issue of the disabilities community. I mean, are they eligible? Mr. Glaser. They are very much in the mix, but in a different way than they were, again, when we first started going down this path of homeless assistance when we treated it as though it was simply an issue of not having a place to live. When you look at the sub-populations and the reasons for people being homeless, mental illness is one of the major concerns, particularly with some of the social policies of the late '70s and early '80s. So that is a discrete category that is eligible and gets quite a lot of special attention through the homeless programs. Mr. Frelinghuysen. Thank you, Mr. Chairman. empowered and enterprise zones Mr. Lewis. Thank you, Mr. Frelinghuysen. Questions about empowerment zones and enterprise communities: The President has said that he plans to grant $1 billion to 100 communities within a second round of the EZEC program; yet HUD's budget request only mentions $200 million for this program: $100 million in fiscal '98, and $100 million in 1999. Where will the remaining $800 million come from? Mr. Glaser. The remaining $800 million will come from other agency appropriations. In the first round---- Mr. Lewis. A small amount of money. Mr. Glaser. Yes. I think the Department of Transportation is a big player there. I am not sure who else is. USDA has a significant piece. In the first round, all of the money came through HHS Title XX dollars in one lump sum. In this second round, we have proposed going to individual agency contributions. HUD's contribution would be $100 million in the first year, and $100 million in the second year. Mr. Lewis. All right, you just responded to that. Why do you need funds in FY '98, if the process to implement the program is likely to extend to '99? Mr. Glaser. We believe the process will be done in 1998. I saw this morning the statement by Judy England-Joseph in which she suggested that we would not get the money out the door until 1999. I absolutely don't think that's true. It took us, the first time around, in a major start-up program which required that regulations be written; and distributed to the communities and packages together, about 10 months to get that package out. We have had a lot of experience and it's all in place now. In essence, the NOFAs are similar. I don't anticipate seeing more than about a 120-day time limit. And we would obligate the funds on day one, as we did in the first round of empowerment zones. I also think it is important, for the credibility of the competition, to have the dollars in hand when we actually conduct the competition. Communities are not going to want to put forth the effort to put their strategic plans together, as they did in the first round, if they don't know that the money has actually been appropriated for the fiscal year. Mr. Lewis. I'm sorry, Mr. Hobson, but Mr. Frelinghuysen has asked your questions already. [Laughter.] This initiative would require authorization, wouldn't it? Mr. Glaser. Yes, it would. Mr. Lewis. So, one more time, that's an additional reason we need authorization. HUD recently reported that five communities are being notified that they could be dropped from the program if they don't improve their performance. What specific problems are a part of that communication? Mr. Glaser. There were five communities that received notification last week. We went through a fairly extensive process, using HUD site visits, and with 20 universities around the countries who did research on site. We used Price Waterhouse and GAO reports as well, and reports from the states and cities themselves. The major problems in the five cities is simply that there has been no progress, and no progress for different reasons. Sometimes it's simply a failure of the locality, the city, to make it a priority; in other cases, they have gotten kind of bollixed up with tensions between the community and city hall that they've been unable to resolve, whereas in a large majority of the programs, in the other 72 cities, they have resolved those tensions and are spending their money and doing good work. We have HUD and joint agency teams going out this week, as a matter of fact, to each of the five cities to review their progress and put together a plan of action that will get them off of that list over the coming months. This is an investment that we have made and we want to see it work. The purpose here is not punitive but to send a warning signal that some action needs to be taken. Mr. Lewis. Mr. Stokes. administration of HOPWA program Mr. Stokes. Thank you, Mr. Chairman. Just a couple of questions. To go back for a moment to the HOPWA program, where I understand you are currently serving about 70,000 people--is that correct? Mr. Glaser. A year. That's correct. Mr. Stokes. In any of the communities where the HOPWA program is being funded, are there problems relative to the program not being effectively administered? Mr. Glaser. Not that I'm aware of. I'm not aware of any administrative problems with the HOPWA program. It has not come to our attention. continuum of care Mr. Stokes. Let me ask you about the continuum of care program. I believe that a recent evaluation of the program found it was allowing HUD programs to serve considerably more people without a proportionate increase in funding; is that correct? Mr. Glaser. Without question. That was the Columbia University study. It demonstrated that up to 14 times as many people are being served with about twice as much funding. Mr. Stokes. Are you going to need further legislative changes in order to put this strategy totally into effect? Mr. Glaser. We will. As we referenced earlier, the key move for us to make now is to formally consolidate thedifferent pieces. It's not just a good idea from a policy point of view, but also for HUD's own management. We will be seeking legislation very shortly, as we have in the past, to go to a performance-based formula system. Mr. Stokes. Thank you. Mr. Chairman, I think I've exhausted my questions. Mr. Lewis. We're getting close, Mr. Stokes. Mr. Hobson. funding for domestic violence shelters Mr. Hobson. I have two questions--unless I think of some more. No, I won't do that. Over the past several years there has been an increased national awareness about domestic violence and abuse, and recently I became concerned about the adequacy of services for domestic violence victims in my district, particularly the availability of shelters. Because of the demographics of my district, many families dealing with domestic abuse are desperate and really don't have anyplace else to go. I went out and visited a couple of places and talked to them about their problems. The Department of Housing and Urban Development, and Health and Human Services and Justice, all provide funding for domestic violence programs to state and local governments, but there doesn't seem to me to be any funding sources available for the construction of shelters, the actual brick and mortar. When I went to one of these in my district, it took them about eight years to find funding sources to get people out of terrible situations that they were existing in. And when they got the funding sources, it mainly came from a group of loans and private philanthropies. If you look at the funding sources for these, they must have put a board together because--I mean, there are so many different little sources here and there to try to fund these things. I guess my question is, what are we going to do about it? Are there CDBG or emergency shelter grant dollars available for construction or renovation of domestic violence shelters, or are there other programs which we could tap? In my district, when I go around and visit these places, many of them are substandard, and they have existed that way for a long time. Their funding is just a hodge-podge of little bits and pieces. It's a real problem. Do you have any answer for that? Mr. Robinson. Mr. Hobson, I'll have my colleague, Mr. Glaser, answer the specifics in relation to the CDBG. But let me just say this in general. Many of our programs, for the most part, have moved to a leveraging circumstance. I don't believe that you can point to more than a handful today that are programs where HUD goes in, from start to finish, and goes through the program. Most of them, in my experience, have taken us to a point where, when I go to a closing, I'm sitting on the rostrum with 35 different people all putting in a little bit to get the project done. Mr. Hobson. I don't mind leveraging. It's just that somehow there's no leverage for real estate in these things. The operating budgets are all leveraged. I like leverage to a degree, but there is a thing called negative leverage that happens, too. You know, I knew these HUD programs when we made money in HUD. That's how old I am. I used to be an old mortgage banker a long time ago. I would just like to have somebody look at this, because it's a real problem in these communities. And it's in all districts, not just my district. Mr. Robinson. I understand. Mr. Glaser. Congressman, on the specifics of the question, there are two ways to do that. The Community Development Block Grant program can be used for acquisition and rehabilitation and construction for domestic violence shelters, and are used that way in a number of communities. When I was flipping through the California Consolidated Planning Summary today, I was surprised at how many groups are doing this--the House of Ruth is one that does that, apparently, throughout the State. Also, the supportive housing program, which is under the homeless programs, can do the same, including construction and acquisition. We would be pleased to send our folks out to meet with you, and if your staff wants to give us the information, we can put a technical assistance team together and see what kind of resources we can put together for you. services of real estate licensees Mr. Hobson. Thank you. I have one other question. The realtors generally show up to see me because I still have a real estate license, and so they discuss some of their problems with me. One you might suspect--and I don't know if anybody has asked about this already, so if it's repetitive, just say so. This is the right of real estate licensees to receive fees for a full range of real estate-related services, basic requirements such as written disclosure--has somebody asked this already? Mr. Robinson. No, sir. Mr. Hobson. They want to develop controlled business arrangements or affiliated settlement service arrangements, designed to provide greater choices to consumers of real estate related services, and undue entanglement by HUD in the compensation arrangement of employees. There has been a lot of chances since the days when everything was separate out there. When I first started out, nobody wanted to do it. The banking business wanted to do a HUD mortgage and that's why mortgage bankers even came into existence, because nobody wanted to fool with the paperwork. That's all changed. Everybody is in it today and everybody is providing a range of services. But there are problems, and I understand the problems. But what are we going to do to address the overall situation? You've probably looked at it. Mr. Retsinas. Very much so. It is under an act that was passed by the Congress in 1974, the Real Estate Settlement Procedures Act. Congressman, in your question you went right to the nub of the issue. It's 1997, not 1974. In 1974, this Act was promulgated for a very good purpose, which is to prevent kick- backs. The Congress wanted to avoid, in 1974, the situation where someone who buys a home and--Perhaps only once or twice in a lifetime--is being referred to someone inappropriately. So RESPA is essentially an anti-kick back statute. Twenty-five years have passed, and the mortgage transaction business is fundamentally different than it was in 1974. We, as administrators of this Act, apply those regulations to a very different world. Indeed, last year we promulgated a rule on control business arrangements that essentially said under what situations it would be appropriate to receive a fee. It is a very controversial issue. The Congress, last year, decided to require us to hold off on the implementationof that rule, until July of this year. I wish I could say that I had comfort that we were closer to the fundamental issue, but it is now March. We are prepared to go forward with the rule, but the difficulty is really the underlying statute. It's a hard one to deal with; but that's what the rules spell out, what are appropriate responsibilities, what is appropriate compensation. If I were to indicate what is the key issue, it ought to begin with disclosure, disclosure, disclosure. Then the consumer could make an informed choice. But in the mortgage transaction business, there are all kinds of fees and transactions that are not readily---- Mr. Hobson. I have to tell you--and I don't want to prolong this--but I have been on both sides of this issue. I have been a builder and I've been a mortgage banker. I have also been a ``consumer of lenders''---- [Laughter.] I've been a ``borrower'', okay? I've been a borrower. Most borrowers have no idea what is going on in this transaction. They show up, and when you look at the volume of paper, they're told ``you sign here, here and here, here's what your monthly payment is, and if you have any questions, it's done. We'll talk about it later.'' You can't find anybody to talk to. Now, anybody who tells you the normal situation is different than that ought to go through it. But we have to find a way to protect those people, many times against their own lack of interest in doing that, until they have a problem, and at the same time make these transactions so that they're financially sound. That's not easy to do, but you need to help us, too, in this statute, to get it right, and to work with the people in the industry that are responsible to get it right. I think you've got people scared enough. They're frightened enough so that reasonable people can come together on this. We need to get moving on this, and we'll try to help you out. Mr. Retsinas. We would appreciate that. Mr. Hobson. I'll try to help you, and I'm sure the chairman will. Mr. Lewis. We appreciate that very much, Mr. Hobson. I'm going to ask just a couple more questions, and then I would ask the Inspector General to come up for a few moments. We're getting close to the end of this. I couldn't help but think--just a minor item that an average homeowner would wonder about, and they probably don't have any idea. What is this mortgage insurance premium that they're paying, and who tells them that they're going to have to pay that premium? There are items like that---- Mr. Hobson. I'll give you another one. I had this years ago in the mortgage business. Show up and don't have your insurance with you, your certificate for your insurance that you picked up, and figure out which one you get. I know who you get, and you know who you get. implementation of GPRA Mr. Lewis. In the area of policy development and research, the 1996 budget proposes an appropriation of $39 million for research, policy analysis, and for work supporting HUD's transformation plan. This proposal represents an increase of $5 million. The increase is to accelerate the development and implementation of useful performance measures, including measures of programmatic outputs, customer services, quality, intermediate and long-term socio-economic outcomes. How long do you believe it will take before the performance measures can be implemented? Mr. Stegman. Mr. Chairman, under the GPRA legislation, we are now actually required to adopt performance measures in all of our major core programs and we are doing that. The most difficult areas to deal with are the more flexible programs that give local communities the broadest choice in how to spend the money. And we will be spending a good deal of our developmental money working with our program offices, with our CFO, and our customers in the Community Development Block Grant area and areas that provide the most flexibility to define outcomes include those in our information systems. All of our programs now have performance measures. But we are trying to get them less process-oriented and more geared to end products, if you will, and outcomes of what you are buying for the money, not just that you are receiving technical assistance or counseling 100 families. We want to move to where we can actually measure the jobs, measure the actual purposes. And this is going to be a gradual process. If we have the $5 million, we are going to make substantial improvements moving from process to kind of outcome measurement in some of our key areas. Some of it involves new data collection, quite frankly. Mr. Lewis. I frankly commend the movement in this direction that the line that suggests that that which you do not measure, you do not know very much about or get much result from. I am interested in knowing if you are going to be using people in the private sector who have got experience in terms of this kind of measurement. Mr. Stegman. We are. We actually just went out for the first time with the competition to bring on, under contract, organizations and firms that actually have been involved in the private sector in the development of performance indicators and measures. We have not had that certainly as a part of our research policy contract. HBCUs, HSIs, and Community Outreach Programs Mr. Lewis. Beyond administering the R&D budget this office is responsible for a number of university programs including the Section 107 grants which provide funding to three university programs, historically black colleges and universities, hispanic serving institutions and the Community Outreach Partnership programs. Would you describe each of these programs and some of the community involvement work that the universities have undertaken? Mr. Stegman. Absolutely. Let me just start by saying that you would not have seen the kind of partnership in HANO with the role that Tulane and Xavier are playing if we did not have an office of University Partnerships with the President of Tulane. A great university came to see a Secretary of Housing and Urban Development. The idea that we now have a door through which these large major institutions, anchor institutions, can come to HUD to talk about how they can partner with their neighborhoods, with their communities, with their housing authorities, would never have happened without a small $7.5 million program for Community Outreach Partnerships Centers. We now have partnerships with about 60 universities that are bringing students, faculty and resources to the table with community-based organizations leveraging dollars in a variety of ways, providing direct services, helping them develop economic development strategies, doingpre-development work in real estate, helping them learn how to use the low-income housing tax credit, you name it. That is what this little $7.5 million a year program does. As to work study programs, there were two. One of the work study programs has been in existence, with bipartisan support, since the 1970s, funded at about $3 million a year, for disadvantaged students to get support for graduate education in housing and community development and planning. Two years ago, with substantial support and leadership of your own, for the first time, a work study program was funded for Hispanic serving institutions. We now have a partnership with a number of these institutions. It is focused largely on community colleges and we have never had that kind of partnership before. And, in reality, it is community colleges that work most closely, in many cases, with communities and private sector employers for work force development. So, we have that program now for the first time. It has been funded and a second round of funding is underway right now. [The information follows:] FY 1996 Grantees--Hispanic-Serving Institutions Work Study Program (each will receive funding to assist eight students) Compton Community College, Compton, CA. Fresno City College, Fresno, CA. Los Angeles Harbor College, Wilmington, CA. Los Angeles Trade Technical College, Los Angeles, CA. Ranch Santiago College, Santa Ana, CA. Otero Junior College, La Junta, CO. Miami-Dade Community College, Miami, FL. St. Augustine College, Chicago, IL. Hudson County Community College, Jersey City, NJ. Northern New Mexico Community College, Espanola, NM. Bronx Community College, Bronx, NY. Hostos Community College, Bronx, NY. Fiorello LaGuardia Community College, Long Island, NY. Colegio Universitario del Este, Carolina, PR. Southwest Texas Junior College, Uvalde, TX. Mr. Lewis. It is dangerous to have members sit around and listen because now he has a question about historically black colleges. So, Mr. Hobson, you are recognized for three seconds. [Laughter.] Mr. Hobson. Since I have the oldest one in my district, I would like to know what ones are getting? Just put it in the record, which schools. [The information follows:] 1996 Historically Black Colleges and University Grantees The following Historically Black Colleges and Universities received funding under this program in 1996: Amount Philander Smith College....................................... $300,000 Johnson C. Smith University................................... 300,000 Albany State University....................................... 300,000 Howard University............................................\1\ 640,028 North Carolina Central University............................. 300,000 Elizabeth City State University............................... 300,000 Jackson State University...................................... 300,000 N.C. A&T State University..................................... 300,000 Wiley College................................................. 300,000 Xavier University of Louisiana................................ 300,000 Texas Southern University..................................... 300,000 Coppin State College.......................................... 300,000 Langston University........................................... 300,000 Alcorn State University....................................... 300,000 Stillman College.............................................. 300,000 St. Philip's College.......................................... 300,000 Talladega College............................................. 300,000 University of the District of Columbia.......................\2\ 389,169 Norfolk State University...................................... 300,000 St. Augustine's College....................................... 300,000 Kentucky State University..................................... 253,794 Spelman College............................................... 200,000 -------------------------------------------------------------- ____________________________________________________ Grand Total............................................... 6,929,197 \1\ Includes $90,000 in Community Development Work Study funds and $250,028 in Research and Development funds. \2\ Includes $89,169 from the Department's Office of University Partnerships for Community Development Work Study Program. \3\ Includes $429,197 in non-HBCU funds (see footnotes \1\ and \2\). --------------------------------------------------------------------------- multifamily insurance Mr. Lewis. Thank you, David. Multi-family housing, GI, SRI insurance funds, the President's budget requests $81 million in credit subsidy to support the origination of multi-family mortgages. In addition, $71 million exists in carryover funds as part of the baseline. Is there an effort on the part of the Department to create a multi-family insurance program that is self-sustaining and does not require credit subsidy? Mr. Retsinas. Yes, there is; Understanding that particularly when we are trying to deal with the worst case, that is those most in need, it becomes very, very difficult to design programs that can truly be self-sustaining. We have made some progress. As a matter of fact, the credit subsidy levels are significantly down in terms of overall levels and even for individual programs, in part because we found other sources of funds. Each individual program has a particular credit rate assigned to it. There are a couple of exceptions, but for most of those programs, the rate has turned to neutral, that is not positive. We are making progress but the difficulty is if we are dealing with the worst case, we are, by definition, dealing with the riskiest. So, the efforts to make it self-sustaining will be difficult. Mr. Lewis. We are interested in those questions that surround negative subsidy and the risk and so forth, so, if you will help us out. Mr. Retsinas. If you will identify the particular program, we will do that, Mr. Chairman. Mr. Lewis. Okay. HUD's budget reflects the introduction of three new multi- family products using existing legislative authority, mortgage insurance for small projects, pool insurance for loans originated by non-traditional community lenders and loan consortia, and mortgage insurance for mixed-income housing. Has HUD estimated the level of credit subsidy necessary to satisfy the requirements, credit reform for each of these new products? Mr. Retsinas. Yes, we have. They generally track the credit rates of the programs under which they are authorized. In some cases, particularly the case having to do with mixed income-- and I can walk through a couple of them if you like--that rate has been adjusted because of the risk involved. But let me give you an example. The one that is literally off the ground is really expedited processing for small projects. We have found historically one of the greatest credit gaps that exists in this country are the single owners of small properties-- properties of under 20 units--who have serious capital needs but lenders are less likely to respond to those needs. So, we have designed a program--we are literally in the middle of training right now, and we hope to have it underway in April--that will allow an expedited processing of the FHA insurance for those small properties. It will be capped. No one project could exceed 20 units or $1 million whichever is less; so, it is essentially aimed at small projects. The mixed income is an initiative that we believe is consistent with the HOPE VI effort, as my colleague, Assistant Secretary Marchman indicated before. A number of those HOPE VI developments involve market rate housing. In a couple of areas, particularly Atlanta and St. Louis, we have been involved with FHA insurance on the market rate units. That has provided a challenge because it is a different kind of underwriting. This program would give us a capacity to deal with market rate limits on a broader scale. It will be limited of the number of units, but that is the direction that we think is appropriate. Mr. Lewis. Additional illustration for the record will be helpful, just so we understand where we are going. Mr. Retsinas. Yes, sir, I will be happy to. [The information follows:] [Pages 243 - 270--The official Committee record contains additional material here.] fha single family insurance Mr. Lewis. How many, in the area of single family programs, how many home buyers utilize the FHA single family insurance program just this last year? Mr. Retsinas. In Fiscal Year 1996 we did about 800,000 insurance endorsements. And 17 percent were for refinancing, the rest were purchase originations, about 663,000 and of those we had an all-time high level of 73 percent for first-time home buyers about a half a million first-time home buyers. Mr. Lewis. What do you think about this year? Mr. Retsinas. Whatever interest rates are going to do. [Laughter.] We basically expect essentially sort of a flattening. Obviously as a function, it is highly interest-rate sensitive. But we have been, in answer to the question from one of your colleagues, we have found that---- Mr. Lewis. Is not the Fed meeting just this next week? Mr. Retsinas. Yes, it is March 25th. And we will be watching that closely, as will all Americans. Mr. Lewis. Indeed. Okay. I do not want to ask those questions. [Laughter.] I have a number of questions here that will be responded to for the record. Mr. Retsinas. I will be happy to respond to them. fha fund Mr. Lewis. Addressing the increasing FHA loan limit, the President has proposed increasing the maximum mortgage amount for single family FHA insurance loans to equal a conforming loan limits on Fannie Mae and Freddie Mac. If Congress were to authorize this change, what would the maximum mortgage amounts for single family FHA insured loans become and did HUD propose the increase you might describe? Mr. Retsinas. The increase would go to the conforming loan limit which is around $214,000, which is the Fannie and Freddie conforming loan limit, if the Congress were to approve that legislation. The administration has proposed that for three different reasons. One is that it would be an expansion of homeownership opportunities. That is to say, particularly in high-cost areas, the current ceiling which is 75 percent of the conforming loan limit or around $160,000. In some areas, in high-cost areas that level---- Mr. Lewis. Like this one? Mr. Retsinas. I do not want to say but there are---- [Laughter.] Mr. Retsinas [continuing]. Certain coasts; those two coasts where housing prices are so high that $160,000, indeed, does not address the needs of the classic FHA first-time home buyer, which is the municipal worker and the like. That is one reason. The second reason is it produces money. The FHA single family program is a revenue raiser. Our estimates are that even with a modest use of the program that is we expect that if this program were to be adopted, an increase in FHA origination of less than 10 percent, it would raise over $200 million in new revenues for the government. That is the second reason. And the third reason it would lead to a healthier FHA insurance fund. The FHA insurance fund has historically been able to cross-subsidize, that is use the income from the less risky and allow us to assist and reach out to the more risky. Those are the three reasons that the proposal was put forward. Mr. Lewis. Recognizing the areas of the country that are largely affected, one would ask, do you intend to introduce authorizing language that will enable these changes? Mr. Retsinas. Yes, we do and it would require authorizing language. Mr. Lewis. Does it make sense to limit this type of proposal to certain high-cost areas? Mr. Retsinas. That is something that is worth considering. In many cases, certainly. The actual amount of FHA insurance is limited more by the ability of the borrower to repay than by the loan limit: Which becomes really the limit. Mr. Lewis. Well, is the FHA insurance fund adequately capitalized? Mr. Retsinas. Well, according to the requirements of Congress it is more than adequately capitalized. Congress has suggested that we reach a capital ratio of 2 percent in the year 2000. Last week we released the audit from Fiscal Year 1996, the current capital ratio was 2.54 percent. So, according to that standard, it is adequately capitalized. proposed legislation to eliminate fraud and abuse Mr. Lewis. Just to show that we are going to keep this all in the family, I would now ask Susan Gaffney, the Inspector General, to come and join the family. Let the record show that we have already spent a good deal of time trying to get a handle on how we, as a committee, can get a better understanding of the difficulties of a HANO, what appear to be very real problems with monies that are appropriated by this Subcommittee, along with the other body, with major questions that are out there as to how much of that money actually gets down to the people that we all want to serve and, if not, why not? I would expect that the Inspector General will be of great assistance, both to those in HUD, who have similar concerns, but also to this Committee as well. So, Ms. Gaffney, do you have any suggestions for legislation which would enhance HUD's ability to combat waste, fraud and abuse? Ms. Gaffney. We have compiled 20 legislative proposals, which would add enforcement capability to HUD; and we are now proposing a series of adjustments to the Native American Housing Assistance and Self-determination Act, which was discussed in the Seattle Times articles. We believe strongly in self-determination but we also believe that, in the Act's accountability aspects, there could be some tightening up that would help a lot as the Act is implemented. I think another thing that you could do to help the fight against fraud, waste and abuse is consider what the Office of Inspector General has been doing over the past years and what we need to be doing, and whether we are doing everything we need to be doing. increase in ig staff Mr. Lewis. Well, frankly, have the very strong impression that there is a lot of work to be done here. That the budget requests an increase to pay the cost of hiring 49 new investigators for the Office of Investigation to operate the operations of the Safe Home Initiative. Why would you need that kind of increase in staff? Ms. Gaffney. When Operation Safe Home started in 1994, we had 100 special agents, criminal investigators. Operation Safe Home started because Secretary Cisneros asked what are the major abuses, wrongdoing that undermine HUD programs? Why do you not target them? We answered that drugs and gangs, as Mrs. Meek said this morning, are destroying our $90 billion investment in public housing. And that, generally, law enforcement was not addressing that. So, we said that was the first priority and that our agents would get involved. We are now devoting 50 of our 100 special agents to doing nothing but violent crime. When we started Operation Safe Home, all of those 100 agents were doing white collar crime. We had never been involved in drugs and gangs before. So, what that meant was that our capability on white collar crime was being reduced by 50 percent. What has happened this year and next year if we get these additional agents is that we will be back to where we were in 1994 in terms of capability on the white collar crime aspect. Mr. Lewis. The answer is obvious, but could you use more investigators and auditors effectively? Ms. Gaffney. Absolutely. We cannot keep pace. You have been very helpful in demonstrating to me a couple of things. We have major task forces under way that are looking into significant allegations, but we are still in a reactive mode. We are not equipped or staffed to do white collar crime analysis trends. We are in a position where, for instance, we went into Camden, New Jersey, and did a major audit of both the public housing and CDBG funding. We said for instance, that there were absolutely no controls over CDBG funding in the City of Camden. No controls at all. No records, no one knew how it was being spent. You would think under a circumstance like that, that we would send a team of agents in, right---- Mr. Lewis. Correct. Ms. Gaffney [continuing]. To find out who took the money. We had no agents left to send in. Now, we are doing a major audit of HUD contracting and we have 30 auditors assigned. I have absolutely no doubt that we are going to find big problems in HUD contracting. You know, HUD staffing keeps going down and down. And the answer is not as easy as contracting out. We still have to oversee all those people who are in business to make money. And if we were doing this right, we would not just assign 30 auditors whose focus is management, not fraud. We would also have a complement of agents working right with them. But we do not have the agents to assign. operation safe home Mr. Lewis. It occurs to me that first the Department has responded in a number of ways that indicates they are very serious interest in measuring the results we are getting at the other end of this delivery system. And there is no doubt in my mind that an Inspector General can be very helpful in connection with that effort. But, also, where there really are serious indications of fraud and abuse there are other agencies where federal monies are crossing state lines, the Federal Bureau of Investigation clearly is a tool that can be used effectively. I certainly had that impression when I visited HANO. Tobacco and Firearms has an interest in crime and can be of assistance there. In the final analysis, I hope you would be focusing upon ways and means of helping us be assured that that which we appropriate gets to where we had hoped it would go in the first place. How many fraud probes have you conducted through that program known as Operation Safe Home? Ms. Gaffney. I would expect at this point we probably have done 60 or 70 at public housing authorities. Mr. Lewis. Have we had any indictments returned? Ms. Gaffney. I think there have been a few, but the problem with the fraud probes as we have done them is that they have essentially been audit exercises and that is not the way that one really gets to criminal referrals. At Camden, for instance, our audit resulted from one of these probes. So, we uncovered problems. But I do not think the audit focus alone is the way to get at wrongdoing. Mr. Lewis. It is broader than that and, indeed, a totally different approach---- Ms. Gaffney. Let me give you an example of where it does work. We knew we were going to have agents undertaking violent crime work. And, we knew, with respect to the illegal taking of money out of multi family insured housing, that there is a civil statute--called the equity skimming statute, essentially. And you do not have to prove intent. All you have to do is prove that an owner or an agent was taking money out of a project when it was in a non-surplus cash position. The auditors can do that. Because they do not have to bother about intent. So, we have engaged something like 25 percent of our audit staff in doing those cases and we have had enormous success. Mr. Lewis. Mr. Hobson mentioned before he left that he is very interested in seeing the State Attorney Generals are involved and seeing how they can cooperate with our agencies. I would mention that currently a question is developing in my own office that swirls around a thing called methamphetamines. It would appear as though this is, you know, the drug of choice among many of our young people, and that the delivery is being exercised by a combination of gangs in places like California et cetera. But it is a huge problem that is going to, if it is not already across the country, certainly is beginning to impact many of our facilities that are public facilities. Ms. Gaffney. I should tell you that our thought in doing Operation Safe Home was always leveraging the resources of other law enforcement agencies and the extent to which that has happened with respect to violent crime in public housing is almost unbelievable. And it is largely attributable to the Attorney General, who has truly engaged the U.S. Attorneys in bringing in all the Federal and local law enforcement agencies and saying, okay, now we are going to focus on public housing. This never happened before. The problem is that to get that kind of engagement, wehave to do our part. We have to have people to carry our fair share or the other agencies do not engage. Mr. Lewis. I can tell you, Ms. Gaffney, that my communication up to this point with this HUD Secretary indicates rather clearly that we are on the same wavelength in connection with these concerns. I mean we are going to do what we can. First, we have addressed earlier the need for help from the authorizing sides of this process. But efforts like Operation Safe Home are not insignificant efforts, they are very, very important. For, in the final analysis, it addresses that underlying presumption that Mr. Stokes and I share, that is that we do expect these monies that we appropriate to get to the people that we would hope to serve. Mr. Stokes, do you have any additional comments or questions? role of ig in crimefighting efforts Mr. Stokes. Thank you, Mr. Chairman. Ms. Gaffney's testimony just raises one or two little questions in my mind and I would like her to clarify them for me. In terms of the violence, tell me how you get into it and what you do? Ms. Gaffney. We go to the United States Attorney. The U.S. Attorney typically calls in the housing authority, the local police, the State police, the FBI, the DEA, the HUD OIG. Now, the work involved often falls on the HUD OIG because we are the people who care most. The rest of the law enforcement people care about law enforcement but they are not focussed on public housing. That is our focus. Mr. Stokes. Sure. Ms. Gaffney. So, we do the leg work and we get these folks together and we start an education process. And it involves the residents and the housing authority management and all these different forms of law enforcement. The law enforcement people break off and do a law enforcement plan which typically involves undercover work for six to nine months, or sometimes 12 months; a series of law enforcement operations which are then buttressed by management improvements at the housing authority, resident involvement and follow-up law enforcement, security. Our intention is a holistic approach so we do not have the typical situation of a big raid but 2 months later, you have the same condition. You see, to law enforcement, public housing is just the projects. They do not get it. Mr. Stokes. That is right, you are right. Ms. Gaffney. They do not understand our tremendous Federal investment. Mr. Stokes. Right. Ms. Gaffney. So, we are educating; we are bringing the two sides together and in the best of all possible worlds, if we do this right, in the end, we will not need to be there. Because local law enforcement and the housing authorities will understand that they have to be allies and they have to get this done. Mr. Lewis. Mr. Stokes, dwelling on the positive, which you mentioned earlier today, one of the very positive items that we experienced at HANO, it got my attention because I heard that this guy who is living in Desire Homes or his office is in Desire Homes, had just come back from the FBI Academy. Well, those people are not selected lightly and here is a guy who is living, essentially living on the facility, who is the head of law enforcement there, but who is playing basketball with these young people, and the presence makes a very, very big difference. And I think we can learn from that and it is a learning process without any question Mr. Stokes. Sure. That is why I wanted to get clarification as to your role in terms of violence in these public residences. And I applaud you for the approach that you are taking. I think it is absolutely necessary. You know, if we are really going to ferret out waste, fraud and abuse, the single thing that hurts Federal programs or any type of governmental programs that are aimed towards helping the poor in our society, the dispossessed, the disadvantaged, are the ripoffs that take place. Ms. Gaffney. Oh, absolutely. Mr. Stokes. You know, whether it be through the agencies administering it or whether it be through the contractors or whoever. And there is a tendency throughout government to do that. You know, the whole welfare reform movement came about because all of us understand that there is a lot of waste, fraud and abuse in that program. And there is waste, fraud and abuse in any government program. And taxpayers and the recipients of programs are both entitled to have the money go where it is supposed to go. Ms. Gaffney. Mr. Stokes, I do not think this country understands. They think they are being ripped off by poor people. They do not understand that they are being ripped off by wealthy people. Mr. Stokes. That is right. You are absolutely right. Right on target. Adjourment Mr. Lewis. This is only the first step of our process for the 1998 fiscal hearings for this Committee and we will be with you from this date forward all the way through conference and hopefully a bill the President can sign. But in the meantime, I think it was a very excellent couple of days and the Secretary will be relieved to know we are not going to ask him back tomorrow. [Laughter.] Mr. Lewis. In the meantime, Ms. Gaffney, thank you very much for your help and we look forward to working with you. Ms. Gaffney. Thank you, Mr. Chairman. Mr. Lewis. Thank you all. [Pages 278 - 1081--The official Committee record contains additional material here.] I N D E X ---------- DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Page Baldwinsville Project............................................ 67 Brownfields: EPD and Initiative........................................... 86 EPD Efforts in Florida....................................... 89 Funding for Initiative....................................... 83 Need for Guidelines for Funding.............................. 87 Redevelopment Grants......................................... 88 Buyouts, Timeframe............................................... 78 Carryover, 1996.................................................. 63 Certificates: Disabled..................................................... 53 Incremental Certificates and Welfare Reform.................. 50 Recipient Problems........................................... 158 Community Development Block Grants: Benefits to Low-and Moderate-Income Persons.................. 187 Direct Use of Funds for Persons With Disabilities............ 55 Homeownership Zones.........................................85, 210 Private Sector Input on NOFAs............................ 211 Operating Expenses........................................... 211 Section 108.................................................. 72 Set-Asides................................................... 209 Uses......................................................... 188 Use of Funding for Disabled.................................. 55 Use Money in Florida......................................... 73 Continuum of Care................................................ 234 Contract Renewals: Averting a Crisis............................................ 8 Cost of Section 8 Contracts.................................. 64 Increase in Request.......................................... 2 Outlay Trend................................................. 85 Renewals and Tax Policy Proposals............................37, 38 Reserves..................................................... 147 Tenant Notification of Contract Expiration................... 217 Cuomo, Andrew: Biography.................................................... 24 Opening Remarks.............................................. 5 Statement of................................................. 11 Disabled: Certificates................................................. 53 Direct Use of CDBG Funds for Persons With Disabilities....... 55 Rental Assistance for........................................ 52 Use of CDBG Funding.......................................... 55 Disaster Relief: North Carolina............................................... 56 Status of Funding for........................................ 58 Domestic Violence, funding for................................... 235 Downsizing: Integrity and HUD............................................ 10 Drug Elimination Grants.......................................... 109 Empowerment Zones and Enterprise Communities....................84, 233 Fair Housing Activities: Equal Split of FHIP and FHAP Monies.......................... 68 Discrimination Complaints.................................... 160 Fair Housing Index........................................... 162 Fair Housing Initiatives Program (FHIP)...................... 180 Increase in Complaints....................................... 159 In-House Activities.......................................... 180 Purpose of FHIP Funding to States............................ 69 State Laws: Equivalent to the Fair Housing Act........................... 69 Pending Local Review/Legislative Action...................... 70 Not Equivalent to the Fair Housing Act....................... 70 Family Self-Sufficiency Program.................................. 151 FHA Program: Health of Program............................................ 116 Increase in Loan Limit....................................... 271 Multifamily Insurance........................................ 240 Single Family Insurance...................................... 271 Florida: Code Enforcement Issues...................................... 107 Delinquent FHA Mortgages..................................... 108 Need for Master Community Planning Assistance................ 108 Use of Preservation Funding in Jacksonville.................. 74 Government Performance Results Act (GPRA)........................ 238 Habitat for Humanity............................................. 219 NCDI......................................................... 219 HOME: Approach Used for Program.................................... 105 Funding in North Carolina.................................... 105 Funding Request.............................................. 103 Homeless Programs: Effect of Mounting Policies.................................. 82 Policies..................................................... 232 HOPE VI.......................................................... 46 Demolition/Replacement of Units.............................47, 110 Failure of PHAs to Sign HOPE VI Agreements................... 125 Number of Grants Awarded..................................... 118 Partnerships Between State and Local Governments............. 126 Housing: Effect of Welfare Reform..................................... 46 Importance to Americans...................................... 4 Status of Reducing Backlog of Substandard Housing............ 45 Housing Opportunities for Persons with AIDS (HOPWA).............. 220 HUD: Actions Against Bad Landlords................................ 51 Actions Against Rick Marshal................................. 42 Balancing the Budget......................................... 7 Consolidation of Programs.................................... 213 Downsizing and Integrity..................................... 10 Field Offices................................................ 212 GAO Report on Budget Request................................. 127 GAO's Budget Scrub........................................... 148 Increase in FTE.............................................. 218 Implementation Plan for Trigger Mechanisms................... 63 Introduction of Principal Staff.............................. 5 Priorities of.................................................7, 26 Overhead Costs............................................... 214 Review of Investments........................................ 3 1998 Congressional Justifications............................ 278 Indian Housing: Balance Between Oversight and Overregulation................. 93 Capacity of Tribes to Administer NAP......................... 115 Complicity of HUD Officials.................................. 100 Funding for Indian Housing Programs.......................... 95 Housing Assistance from BIA and HUD.......................... 101 BIA Programs which Assist in Housing......................... 101 HUD Action to Stop Abuses.................................... 99 HUD Interaction with BIA..................................... 94 Indian Family Income......................................... 102 Number of Nonprofit Organizations Working in Indian Country.. 115 Number of Homes Built without Violation...................... 99 Oversight Responsibilities to Protect Indians................ 92 Tulalip Tribe--Seattle Times Article..................... 91 Impact of Article........................................ 97 Tulalip Tribe Case........................................... 96 Inspector General: Increase in Staff............................................ 273 Operation Safe Home.......................................... 274 Report on Rental Assistance Payments......................... 59 Role of IG in Crimefighting Efforts.......................... 275 IRS and Income Matching.......................................... 61 Justifications, timely submission of............................. 90 Lead-Based Paint Abatement....................................... 84 Legislation: Elimination of Fraud and Abuse............................... 272 Need for to Stop Abuses in Public Housing.................... 44 Public Housing Reform Bill--H.R. 2........................... 65 Proposals for Bad Landlords.................................. 41 Lewis, Jerry: Welcoming Remarks............................................ 1 Livingston, Bob (Chairman), Introduction of...................... 6 Marshal, Rick: Cost of Defaults............................................. 43 Default Payments to.......................................... 43 HUD Actions Against.......................................... 42 Investigations of............................................ 42 Reason for Disbarment........................................ 43 Manufactured Housing............................................. 66 Mispayment of Subsidy Issue...................................... 62 Native American Housing Program.................................. 113 Capacity of Tribes to Administer NAP......................... 115 Operation Safe Home.............................................. 274 Operating Subsidies: Earned Income Exclusion...................................... 154 Effect of Reduction.......................................... 45 Phase-down of Operating Subsidies............................ 156 Operating Subsidy Decrease............................... 156 Reduction in Request......................................... 44 Oversight vs. Overregulation..................................... 77 Policy Development and Research: Hispanic-Serving Institutions Work Study Program 1996 Grantees................................................... 239 Historically Black Colleges and Universities, 1996 Grantees.. 240 Outreach Program............................................. 239 Portfolio Reengineering.......................................... 65 Preservation Program: Allocation of Funds to Jacksonville Office................... 76 Elimination of Program....................................... 50 Use of Preservation Funding in Florida....................... 74 Property Insurance: Promulgation of.............................................. 68 Public Housing: Capital Fund................................................. 181 Set-Aside................................................ 182 Clinton Terrace, Washington Post Article..................... 39 Drug Elimination Grants...................................... 109 Failure of PHAs to Sign HOPE VI Agreements................... 125 Flexibility and Waivers for PHAs............................. 152 HANO--Funding for............................................ 78 Need for Better Directors.................................... 123 Need for Legislation to Stop Abuses.......................... 44 Partnerships Between State and Local Governments............. 126 Philadelphia Housing Authority............................... 186 Reform Bill.................................................. 65 Rental Income Increase....................................... 156 Residents and SSI Loss....................................... 46 Revitalization of Cabrini Green.............................. 119 Distrust by Cabrini Green Residents...................... 120 Timetable for Less Regulations............................... 153 Troubled PHAs...............................................49, 157 Status of Detroit PHA.................................... 71 Public's Trust, Restoring........................................ 9 Real Estate Licensees, Services for.............................. 236 Regional Mobility Counseling..................................... 150 Reverse Mortgages................................................ 107 Chairman's Comments.......................................... 113 Fee Abuses................................................... 107 Section 108 and CDBG Programs.................................... 72 Section 202/811: Need for Additional Funding.................................. 55 NOFA......................................................... 54 Number of 202 Units in 2002.................................. 217 Section 8: Averting a Crisis............................................ 8 Contract Amendments.......................................... 148 Contract Renewals............................................ 2 Cost of Contracts............................................ 64 Incremental Units............................................ 149 Outlay Trend................................................. 85 Project-Based Section 8 Assistance........................... 148 Reserves..................................................... 147 Tax Policy...................................................37, 38 Tenant Notification of Contract Expiration................... 217 Stokes, Louis: Welcoming Remarks............................................ 4 Tax Policy: Congressional Action......................................... 39 Section 8 Renewals...........................................37, 38 Tenant Opportunity Program (TOP)................................. 182 Tulalip Tribe: Assistance from BIA and HUD.................................. 101 BIA Programs which Assist in Housing..................... 101 Case......................................................... 96 Complicity of HUD Officials.................................. 100 HUD Actions to Stop Abuses................................... 99 Indian Family Income......................................... 102 Number of Homes Built Without Violation...................... 99 Seattle Times Article........................................ 91 Impact of Article........................................ 97 Vouchers: Displacement of Families..................................... 49 Recipient Problems........................................... 158 Welfare Reform: Effect on Housing Programs................................... 46 Incremental Certificates..................................... 50 Making it Work............................................... 9 Youthbuild Program.............................................218, 219