[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




                    THE BUDGET OF THE DEPARTMENT OF

                     HOUSING AND URBAN DEVELOPMENT

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 26, 2001

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-11

                                _______

                  U.S. GOVERNMENT PRINTING OFFICE
72-289                     WASHINGTON : 2001

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman
                 MARGE ROUKEMA, New Jersey, Vice Chair
JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
DOUG BEREUTER, Nebraska              BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
SPENCER BACHUS, Alabama              MAXINE WATERS, California
MICHAEL N. CASTLE, Delaware          CAROLYN B. MALONEY, New York
PETER T. KING, New York              LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
BOB BARR, Georgia                    KEN BENTSEN, Texas
SUE W. KELLY, New York               JAMES H. MALONEY, Connecticut
RON PAUL, Texas                      DARLENE HOOLEY, Oregon
PAUL E. GILLMOR, Ohio                JULIA CARSON, Indiana
CHRISTOPHER COX, California          BRAD SHERMAN, California
DAVE WELDON, Florida                 MAX SANDLIN, Texas
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
BOB RILEY, Alabama                   BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           FRANK MASCARA, Pennsylvania
DONALD A. MANZULLO, Illinois         JAY INSLEE, Washington
WALTER B. JONES, North Carolina      JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                 DENNIS MOORE, Kansas
JUDY BIGGERT, Illinois               CHARLES A. GONZALEZ, Texas
MARK GREEN, Wisconsin                STEPHANIE TUBBS JONES, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL E. CAPUANO, Massachusetts
CHRISTOPHER SHAYS, Connecticut       HAROLD E. FORD Jr., Tennessee
JOHN B. SHADEGG, Arizona             RUBEN HINOJOSA, Texas
VITO FOSSELLA, New York              KEN LUCAS, Kentucky
GARY G. MILLER, California           RONNIE SHOWS, Mississippi
ERIC CANTOR, Virginia                JOSEPH CROWLEY, New York
FELIX J. GRUCCI, Jr., New York       WILLIAM LACY CLAY, Missouri
MELISSA A. HART, Pennsylvania        STEVE ISRAEL, New York
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arizona
MIKE FERGUSON, New Jersey             
MIKE ROGERS, Michigan                 
PATRICK J. TIBERI, Ohio              BERNARD SANDERS, Vermont

             Terry Haines, Chief Counsel and Staff Director
                              ----------                              

           Subcommittee on Housing and Community Opportunity

                    MARGE ROUKEMA, New Jersey, Chair
MARK GREEN, Wisconsin, Vice          BARNEY FRANK, Massachusetts
    Chairman                         NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska              JULIA CARSON, Indiana
SPENCER BACHUS, Alabama              BARBARA LEE, California
PETER T. KING, New York              JANICE D. SCHAKOWSKY, Illinois
ROBERT W. NEY, Ohio                  STEPHANIE TUBBS JONES, Ohio
BOB BARR, Georgia                    MICHAEL E. CAPUANO, Massachusetts
SUE W. KELLY, New York               MAXINE WATERS, California
BOB RILEY, Alabama                   BERNARD SANDERS, Vermont
GARY G. MILLER, California           MELVIN L. WATT, North Carolina
ERIC CANTOR, Virginia                WILLIAM LACY CLAY, Missouri
FELIX J. GRUCCI, Jr, New York        STEVE ISRAEL, New York
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 26, 2001...............................................     1
Appendix:
    April 26, 2001...............................................    49

                                WITNESS
                        Thursday, April 26, 2001

Martinez, Hon. Mel, Secretary, Department of Housing and Urban 
  Development....................................................     8

                                APPENDIX

Prepared statements:
    Roukema, Hon. Marge..........................................    50
    Oxley, Hon. Michael G........................................    52
    Barr, Hon. Bob...............................................    54
    Clay, Hon. Wm. Lacy..........................................    57
    Lee, Hon. Barbara............................................    59
    Miller, Hon. Gary C..........................................    61
    Velazquez, Hon. Nydia M......................................    69
    Martinez, Hon. Mel...........................................    72

              Additional Material Submitted for the Record

Capuano, Hon. Michael E.:
    Boston Housing Authority letter, April 27, 2001..............   121
Frank, Hon. Barney:
    National Association of Housing and Redevelopment Officials 
      letter, April 23, 2001.....................................   125
    New Bedford Housing Authority letter, March 13, 2001.........   127
Watt, Hon. Melvin:
    Greensboro, NC public housing tenants letters................   129
Martinez, Hon. Mel:
    Department of Housing and Urban Development: Fiscal Year 2002 

      Budget Summary.............................................    70
    Table on Ownership by Income.................................   120
    Written questions submitted to Secretary Martinez from 
      Representatives Roukema, Frank, LaFalce, Bachus, Gonzalez, 
      King, Lee, Gary Miller, Schakowsky, and Velazquez..........   145
    Written response to a question from Hon. Spencer Bachus......   166
    Written response to questions from Hon. Barney Frank.........   179
    Written response to questions from Hon. Henry Gonzalez.......   190
    Written response to questions from Hon. John J. LaFalce......   167
    Written response to questions from Hon. Barbara Lee..........   192
    Written response to questions from Hon. Gary C. Miller.......   170
    Written response to questions from Hon. Marge Roukema........   208
    Written response to questions from Hon. Janice Schakowsky....   194
    Written response to questions from Hon. Nydia M. Velazquez...   199

 
     THE BUDGET OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                              ----------                              


                        THURSDAY, APRIL 26, 2001

             U.S. House of Representatives,
                       Subcommittee on Housing and 
                             Community Opportunity,
                           Committee on Financial Services,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Marge Roukema, 
[chairwoman of the subcommittee], presiding.
    Present: Chairwoman Roukema; Representatives Oxley, 
LaFalce, Kelly, Bereuter, Green, Barr, Grucci, Tiberi, Cantor, 
Rogers, Sanders, Miller, Watt, Velazquez, Waters, Capuano, 
Jones, Schakowsky, Lee, Frank, and Clay.
    Chairwoman Roukema. The hearing will come to order.
    The Housing Subcommittee of the Financial Services 
Committee. I would like to greet everyone here today and 
certainly welcome our Secretary, Mel Martinez.
    But before we do that, I just wanted to, on a personal 
note, I am not smiling about this, you understand, but it is a 
great opportunity for one of our most devoted staff members, so 
we have to be congratulatory to him, but again we are going to 
miss him desperately.
    Aquiles Suarez will be leaving the committee staff this 
week. Aquiles has served very admirably on the Subcommittee for 
Housing and Community Opportunity for 5 years, and his legal 
expertise and his congenial way of bringing people together 
will be very sorely missed, and that is why I am not smiling.
    But, we should all be happy and the Nation should be happy 
that he has a new appointment and will be serving this Nation 
as a member of the staff at the White House as Special 
Assistant to President Bush on Domestic Policy Council.
    [Applause.]
    Chairwoman Roukema. Aquiles, thank you for all you have 
done, and best wishes and good luck as you serve our Nation.
    [Applause.]
    Chairwoman Roukema. All right. Thank you all for coming. 
This is the first subcommittee hearing with Secretary Martinez, 
and we want to thank you for being here today and greet you 
warmly.
    The hearing was scheduled originally for yesterday, but we 
asked for an additional day, and you were very cooperative in 
terms of rearranging your time. And I would also say that in 
that vein, we must try to keep our opening statements as brief 
as possible, so that we can provide Mr. Martinez with the 
proper time, considering his tight schedule.
    Certainly, we are looking forward to years of a warm and 
productive relationship with Secretary Martinez. He comes to us 
with a new level of experience. And I would like to note that 
he has really on-the-ground experience, as we like to say, and 
in-the-trenches experience, having served for a long period of 
time as chairman or, as many of us know, chief executive, of 
Orange County, Florida, and has been outstanding in terms of 
the kind of work that he has done in community relations in 
that capacity.
    I am very happy to have him here to be outlining to us, 
early in the process, the outlines for the budget. There are 
some items in that budget that, in my view, and in the view of 
others on the subcommittee, warrant further discussion than 
this gives the actual opportunity to discuss at an early point 
in time, not only the budget, but anticipate the appropriations 
process that we will be going through in light of some of the 
housing affordability problems that we have been focusing on, 
and many have been focusing on in our Nation today.
    The growth in the economy has created a well-known major 
dilemma for an increasing number of working class and low-
income Americans.
    Of course, we are happy for the economy, but a better 
economy has also meant higher rents in some areas, and so we 
are trying to adjust those income levels and making housing 
availability fill a wider spectrum as was originally intended.
    As we discuss the budget, I know that you share my desire--
or our desire--to move forward to address the housing problems 
in an effective manner.
    And, Mr. Secretary, I consider myself a strong fiscal 
conservative so, for my part, I do not automatically presume 
that each and every Government program that currently exists 
deserves an increase in funding merely by virtue of being 
there.
    But let us remember that the American taxpayer deserves 
consideration in this budget debate as well, and so we have to 
be as objective as possible in evaluating the priorities.
    If redirecting resources from one program to another means 
that resources are being used more efficiently and effectively, 
then we certainly will be supportive, and of course, we will 
work together with you on evaluating those programs and 
discussing the rationale.
    With that in mind, I hope that you will, in the course of 
your testimony and in your answers to our questions, deal with 
a few specific areas.
    The first is the question as to whether or not the HUD 
budget signifies an increase or a decrease from prior years, 
and if you do not hear it from our side, you will certainly 
hear it from the other side.
    You know that the expiring multi-year Section 8 contracts, 
which are then renewed for annual terms, take up an increasing 
amount of HUD's budget authority.
    And as a result, just to maintain the current Section 8 
contracts requires an increase in that budget authority. And so 
we will be wanting to probe into that in rather specific ways.
    Second, you have reduced modernization funding for public 
housing by $700 million, and the budget also, as we have looked 
at it, apparently eliminates the Public Housing Drug 
Elimination Grant Program, and that is of concern to a number 
of people.
    Finally, the HUD budget provides approximately $200 million 
for a down payment assistance fund. It is a set aside from the 
HOME Program, and I do not quite know how that is handled, but 
whether or not we should consider this a reduction in the 
program is a question that comes up, and are we supposed to 
provide localities with maximum flexibility and how can they 
use these resources.
    Those are questions that have been raised.
    Mr. Secretary, I will be pleased to assure that I will work 
with you over the coming months in developing our Nation's 
housing problems and look forward to your testimony.
    I will also make this observation, and it will come up in 
the questioning, so I will not take too much more time on it. 
But having served on a panel as recently as yesterday on the 
subject of charitable donations and those kinds of approaches 
that the President has outlined, I think we should be asking 
questions regarding how we can work with charitable 
organizations and non-profits to improve the quality of 
services through the HUD program.
    And with that, I will yield to our Ranking Minority Member, 
Mr. Frank.
    [The prepared statement of Hon. Marge Roukema can be found 
on page 50 in the appendix.]
    Mr. Frank. Thank you, Madam Chairwoman.
    I want to express, at the outset, my appreciation to 
Secretary Martinez. I know there were some scheduling 
difficulties and he accommodated us by giving us this time, and 
we appreciate that.
    And I also want to express my agreement with many of the 
points that you talked about, and I think you outlined, many, 
many important questions we have.
    The first is the need, in my judgment, for a renewed 
emphasis on housing production. Now I was pleased to see the 
Secretary of HUD made a reference in his last page to expanding 
the production of affordable housing, which would be 
accomplished by raising the limits on multi-family insurance, 
which bill I believe the Chairwoman and I are introducing.
    She has taken the lead, I was glad to support her. But I 
would point out that, in and of itself, while that is a very 
welcome thing, it is not going to deal with the problem of 
affordability much in the country, because while that insurance 
is very helpful, we have this problem.
    One of the great misleading phrases in our politics is 
``the rising tide lifts all boats.'' It is a good thing to have 
the economy grow. It is a good thing when the free market 
system generates a pot of wealth. And most people in this 
country will benefit from that.
    But some not only do not benefit, they are left behind. If 
you do not own a boat, the rising tide is not good news when 
you are standing on tiptoe in the water. And that is what we 
have got in many of our urban areas.
    The very prosperity that has been a great boon to most of 
us exacerbates the problem of people who live in those areas 
where housing costs are driven up. And we have got to do more 
to deal with that.
    The voucher program is a very useful program, but as I 
think both Mrs. Roukema and I have mentioned in other cases, it 
is more helpful in some areas than others. It is a function of 
your housing situation.
    And let me put this in good, free-market economic terms. As 
long as we are doing a voucher program, which is a year-by-year 
program, where there is no ability to build up the vouchers or 
make a commitment, vouchers have no effect basically on the 
supply of housing. No one is building housing based on year-by-
year vouchers.
    What we do with vouchers then in crowded areas where there 
is a shortage of housing in particular, and affordable housing 
especially, we are adding to demand without increasing supply. 
And every good free market economist knows what happens when 
you do that; you drive up prices.
    Now that does not make the voucher program a bad program 
because it adds equity, but the overall effect of the voucher 
program, absent some attention to production, is to drive up 
prices overall. And so I think the voucher program needs to be 
supplemented.
    In some parts of the country, the voucher programs are 
confederate money, not confederate flags which still fly, but 
confederate money, because you can be given a voucher in many 
communities in this country and 3-, 4-, 5-, 6 months later you 
are going to turn it back in, because you cannot find a unit to 
rent.
    So we need to address affordable housing, and the 25 
percent increase is a start, but it is not nearly enough. We 
need to put a subsidy on it.
    Second, I was pleased that the Chair raised some of the 
questions about public housing. The poorest people in America 
live in public housing. And it is true that in many cases, 
public housing was a kind of an example to some people of how 
not to do things.
    Let's always remember that it was not the poorest people 
who said: ``We have a great idea, we need housing, why not 
build some massive projects with no services and no adequate 
space and jam us all in together and see how it works?
    We did that, this society. And so, as a result, some of the 
public housing projects did not work well. But over the past 
decade, we have learned how to do public housing better and 
there are very good examples of it.
    There is elderly housing, public housing for the elderly, 
one of the most desirable things in any community, according to 
the waiting lists and the consumer demand. But family housing 
too we have done better.
    The budget unfortunately does not meet that commitment. We 
do not want to leave any child behind, but there are more 
children in public housing who have historically been left 
behind by all elements of this society.
    Now you mentioned, for instance, the operating budget in 
your statement. And you are honest about it. You say you are 
cutting the operating budget, you are cutting out, for 
instance, the Public Housing Drug Elimination program at $309 
million and you say that could be made up for out of the 
increase in the operating budget, which is $150 million.
    And you also note correctly that utility costs are going 
up. Well, the increase in utility costs and the elimination of 
the drug elimination program outweigh the increase in the 
operating budget of public housing.
    And what we are going to get, I am afraid, is less 
resources devoted to the poorest people in this country who 
live in public housing; the children, the single mothers, 
people with various kinds of problems.
    I was also, in that context, disappointed in particular 
with the disappearance of a program--maybe it is pride of 
authorship on my part--but when this subcommittee initiated, 
years ago, legislation to allow public housing authorities to 
separate disabled people and elderly people, because some of 
the people classified as disabled were emotionally ill, 
mentally ill, and they were disruptive in the elderly context, 
and we said, elderly housing by public housing authorities, if 
they want to, can separate out older people from the disabled.
    But to alleviate the negative impact on the disabled, we 
created this separate incremental voucher program, Section 8, 
for the disabled. And that is eliminated in this budget. And it 
is true, you will note, people can do that, if they want to, 
out of their other allocation, but they could before we set 
this aside.
    We did not want, when a housing authority segregated out 
elderly and the non-elderly disabled, we did not want them then 
to have to go compete with a limited number of vouchers in 
other cases.
    And as the Chair pointed out--and I will end this in a few 
seconds, Madam Chair--you keep our commitment to the Section 8 
contract, and I appreciate that. But taking that into account, 
there is a net reduction in other Section 8 vouchers. In fact, 
we get 160,000 new units for the Section 8 contracts, but then 
we lose 63,000 in tenant protection assistance, incremental 
vouchers, and the disabled.
    So those categories bother me greatly and I hope we can 
pursue them.
    Chairwoman Roukema. All right, thank you.
    I am going to recognize the Chairman of the Full Committee, 
Mr. Oxley, and the Ranking Member of the Full Committee, Mr. 
LaFalce, but then I would hope that others would refrain from 
opening comments so that we can have ample time and 
consideration of the Secretary's limited time to hear his 
testimony and have ample time to ask questions before we begin 
voting at 11:30, so let's see how well we can handle this.
    Chairman Oxley, please.
    Mr. Oxley. Thank you, Madame Chairwoman, and Mr. Secretary, 
welcome to your first appearance here before the Financial 
Services Committee, and all of us, I am sure, look forward to 
working with you on a number of initiatives and ideas as it 
comes before HUD, as well as our committee.
    All of us recognize that the cornerstone of the American 
dream is homeownership, and clearly all of us will be 
emphasizing that as we work our way through this agenda.
    The fiscal year 2002 proposed budget for HUD is the first 
official indicator of the direction of the new Administration's 
housing policy. It is a balanced package that combines new 
initiatives with sound management to allow the department to 
achieve its mission and its goals more efficiently.
    There are a number of good new initiatives. The creation of 
a down payment assistance program for first time homebuyers; 
community technology centers initiative to help communities 
create or expand technology; and the improved access initiative 
to make religious and civic organization buildings accessible 
to the handicapped, to name a few.
    And additionally, HUD has substantial responsibility in the 
area of brown fields redevelopment, an area that I have been 
involved in in my previous life. I have a long history of 
working on brown fields and now that our good friend, Paul 
Gilmore is chairman of that subcommittee, and the committee 
across the hall, as well as a Member of our Committee, we think 
the brown fields issue should be front and center for our 
respective committees.
    I know that in my own district in Mansfield, Ohio, with 
HUD's assistance, the program takes low-income families with 
children paying high rents, and transitions them to 
homeownership.
    This program, which was nominated for a HUD award, works 
with local lenders to help with down payments and closing costs 
assistance, plus credit counseling for those who need it.
    And since that program began, we have now 34 homeowners who 
used to be 34 renters just in a town the size of Mansfield, 
which is about 50,000.
    And I applaud Chairwoman Roukema's leadership in this very 
important part of our committee's jurisdiction, and I look 
forward to a productive relationship over the next several 
years with the subcommittee and with the secretary.
    And I yield back the balance of my time, Madam Chairwoman.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 52 in the appendix.]
    Chairwoman Roukema. Thank you, Mr. Chairman.
    And now the Ranking Member of the Full Committee, Mr. John 
LaFalce.
    Mr. LaFalce. Thank you very much, Madam Chair.
    Secretary Martinez, a very, very warm welcome.
    Secretary Martinez, in the last paragraph of your 
testimony, you say that your agency is committed to continuing 
a strong relationship with Congress, so that together we can 
make the Department of Housing and Urban Development an 
efficient and effective fighter on behalf of America's housing 
and community development needs.
    And I very much want to have that type of close, strong, 
working relationship too. Mr. Ventrone can tell you the 
relationship that I had with your predecessor, and I would hope 
that we could have an even better relationship.
    I am disappointed though that you and I have not met thus 
far. I think to have a good relationship, we should have a 
meeting pretty soon.
    I note one was scheduled that you had to cancel, but let's 
try to get together soon.
    I also note that in your statement, you say you want to 
focus not so much on programs, but on people. Well, it depends 
what you mean by that. If the end product is that more people 
are going to be helped, more communities are going to be 
helped, and so forth, if it means that we are not going to be 
helping developers, if we are not going to be helping people 
who, you know, skim money off of programs but are not the 
beneficiaries, then I could support that.
    But, if we are really cutting programs that are the means 
of helping people, and we are just using that slogan as an 
excuse to hide the reality, then we would have some 
difficulties with you, and some difficulties with the 
Administration.
    And that is my concern. And let me share you with why I am 
troubled by the Administration's HUD budget.
    I understand that on a purely technical basis, budget 
authority is $1.9 billion higher than under last year's bill, 
but this claim relies on the use of $3.6 billion in Section 8 
budget authority increases that I think are phantom increases, 
that do not increase spending by a single dollar, that do not 
provide rental assistance to a single new tenant, and do not 
provide any additional assistance to existing Section 8 
recipients.
    And this phantom increase was predicted 5 years ago. It 
results from the fact that there are expiring Section 8 
contracts, billions of them, and they require--the expiring 
contracts--new authority, and you are counting the new 
authority of the existing Section 8s as increases.
    I think that is misleading at best. Now--and it is not to 
say that you are the first Administration that has done this, 
OK? Past Administrations, both parties, have done this. It has 
been wrong for them too.
    But when you factor out the artificial increase, we find 
that funding for HUD in nominal terms--nominal terms--is 
actually $1.7 billion lower than last year's, a 6 percent cut.
    And when you go to real dollars in inflation adjusted 
terms, the cut is $2.2 billion, 8 percent. Mr. Ventrone, would 
you please nod in the affirmative to that also?
    I think that this claim is borne out by the details. I 
think it would reveal and $859 million cut in public housing, a 
$310 million cut in the CDBG count, a $200 million cut in HOME 
formula grants to States and localities, a dangerous $640 
million cut in Section 8 reserves, and a reduction in funding 
for incremental Section 8 vouchers by $255 million, and as a 
result, over 45,000 fewer low-income families would receive a 
voucher this year than last year.
    That is a serious concern. It does not sound to me, if 
these figures are accurate, that we would be helping people, or 
helping more people.
    I could go on and on. I will not. I will submit the 
entirety of my text, but I have prepared a State-by-State 
analysis of the major cuts in the HUD budget, totaling over $2 
billion, and copies of this chart are available for your 
perusal and the public's perusal at any time.
    I thank you very much.
    Mr. Frank. Madam Chair, before we forget, can we just get 
general leave to put in statements of others?
    I have one for Ms. Velazquez, and so I would ask unanimous 
consent that any other Member who is not here who wanted to 
submit his or her statement would be allowed to do so.
    Chairwoman Roukema. Yes, but I would also ask unanimous 
consent for that as well as in consideration of the time and 
the fact that we want to have maximum time for questions from 
every Member of the subcommittee that is here, that we ask 
unanimous consent to have your opening statements included in 
the record.
    Ms. Jones. Madam Chairwoman, does that mean that everyone 
that is here will have a chance to make inquiry of the 
Secretary?
    Chairwoman Roukema. Well, that is what we hope to do in the 
time that is available to us. That is exactly what I am aiming 
for. That is my objective.
    And if we start now, I believe we can reach that goal.
    All right.
    Mr. Secretary, thank you very much and again we greet you 
at the first of what I expect to be a number of hearings on the 
housing questions. As you can judge, this is going to be a high 
priority.
    I know it is a high priority for this Administration, and 
it is certainly a high priority for this Congress.
    Without further delay, we greet you here, Secretary 
Martinez.

 STATEMENT OF HON. MEL MARTINEZ, SECRETARY, U.S. DEPARTMENT OF 
                 HOUSING AND URBAN DEVELOPMENT

    Mr. Martinez. Well, thank you very much, Chairwoman Roukema 
and Ranking Member Frank. I am also pleased to greet Committee 
Chairman Oxley and Ranking Member LaFalce.
    Let me just say that I apologize for our not having gotten 
together, but I assure you we will correct that and look 
forward not only to a meeting, but to a very productive 
relationship, and to ensure that as we go forward particularly 
in this budget process, that we talk through the issues so that 
at least if we find areas of disagreement, we are disagreeing 
on the apples-to-apples basis and not on apples-to-oranges, 
which I fear currently may be part of the problem we have.
    In any event, I am here and very pleased to be with you 
today and look forward to our ongoing relationship in the 
months and years to come.
    And I want you to know that I am both humble and energized 
by the opportunity to serve as Secretary of the Department of 
Housing and Urban Development.
    I know that the President is, as I am, committed to 
restoring communities and to working diligently to ensure that 
the confidence of this Department is restored to the Congress, 
to the constituencies that we serve, and to the people of our 
country, as we try to operate the Department in a way that is 
efficient, that is prudent, that is clear.
    This budget I hope is a first step in restoring some 
confidence. It is what I believe to be a compassionate and 
responsible budget, and I think it tries to serve people 
effectively and tries to empower individuals and communities 
across the country.
    And one of the things I hope I can explain, as we discuss 
it this morning, is the fact that when I say we seek to serve 
people and not programs is that just because we have a program, 
it does not always mean that it is serving people as we hoped 
that it would. And that perhaps there are better ways in which 
we can deliver the services and be there for the people that 
need it.
    I think we will be measured by not how much money we spend, 
but how many families have a better home, and how many more 
people, more immigrants have a chance to buy their first home 
in America. How many children grow up in the neighborhoods that 
we would want our own children to grow up in.
    The Department of Housing and Urban Development's proposed 
budget for this year is nearly a 6.8 increase, almost a 7 
percent increase for the year 2002.
    And it includes three new homeownership initiatives to 
expand opportunities for hundreds of thousands of low-income 
and minority families.
    The American Dream Downpayment Fund will provide $200 
million to match downpayment assistance helping more than 
130,000 low-income families overcome the greatest single 
obstacle to homeownership, which is the downpayment.
    We have also proposed a tax credit which will support 
rehabilitation or construction of at least 100,000 homes for 
low-income families over the next 5 years.
    And the Administration will also seek authority to offer 
low-income families new adjustable rate mortgages called 
``hybrid ARMs,'' and these new mortgages protect new homebuyers 
from dramatic changes in market rates until they can establish 
a good economic foothold.
    Finding affordable and decent housing continues to be a 
problem for many Americans, and I know you are aware of the 
numbers which the studies have shown to be almost five million 
renter households have worst case housing needs for rental 
housing.
    This number represents an 8 percent decline over last year, 
but it is still an unacceptably high number.
    In order to expand the production of affordable housing, 
the President proposes to raise the limits for FHA multi-family 
insurance by 25 percent, and we are grateful to you, Madam 
Chairman and Ranking Member Frank, for your initiative in 
moving forward the legislation to enact that which we think 
will be a great spur to a new production of homeless 
construction.
    And this is going to be the first time that this occurs in 
nearly 10 years. The budget renews all Section 8 expiring 
contracts at a cost of $15.1 billion, and an increase of $2.2 
billion over fiscal year 2001.
    And it additionally funds 34,000 new Section 8 vouchers at 
an additional cost of about $200 million.
    And market conditions affect the utilizations of vouchers 
in different areas in different ways, but underutilization is 
ultimately a management issue and each year, we find that there 
is tremendous underutilization of the vouchers.
    We find that that is more directed to management than it is 
to market conditions in any given area. Last year alone, 
300,000 families across America were left unassisted because of 
the unabsorption of funded vouchers.
    The budget also fully funds last year's administrative CDBG 
requests of $4.4 billion. In addition to formula funding for 
CDBG, we provide $80 million in grants for a community 
technology center. This is particularly going to be focused on 
economically distressed areas.
    The Administration believes that again no child should be 
left behind, and by increasing access to information 
technologies, this Administration hopes to begin to bring 
opportunities for technology enhancement to all the children in 
our society.
    The budget recognizes the needs of our most vulnerable 
people in our society; the elderly, the disabled, the homeless, 
and individuals with AIDS. All of these HUD programs for these 
vulnerable populations either receive, sustain, or increase 
funding levels.
    The budget also recognizes the damage done by lead-based 
paint, especially to young people. We have increased funding 
for lead-based paint hazard reduction by $10 million.
    And while most of the Department's programs are funded at 
last year's historically high levels, or have received an 
increase, there have been a few reductions that have been well-
noted, and I know some of you have already discussed those in 
your remarks.
    But let me say that to restore the confidence that the 
Department should have to carry out its core mission, we need 
to be clear in what we do and the results that we anticipate.
    We eliminated the program called the ``Drug Elimination 
Program.'' It is a $309 million program. And we have taken $150 
million of that money and shifted it into the Public Housing 
Operating Fund Grants, which will allow public housing 
authorities to continue to utilize and operate those anti-drug 
efforts that have been effective, while at the same time 
forcing a certain amount of discipline so that we can avoid the 
kinds of programs that have made this program be something 
other than what I know your funding intended for it to be.
    The President's budget, in its full context--and you have 
to remember that the Administration's budget, as it relates to 
drug use or any other effort, is a budget at large--almost $19 
billion is going into the drug fighting effort.
    All of these efforts, all of these dollars, have no 
particular exception to people that live in public housing. 
Poor people are just as entitled to police protection by their 
local police as anyone else that lives in the community.
    And what we have seen in this program is a shifting of 
responsibility. We have seen that some public housing agencies, 
in an attempt to do the good things, have hired additional 
police.
    The fact is, that is a shifting of responsibility. The idea 
is that they might be operating drug treatment programs or they 
might be operating outreach to children in ways that might keep 
people from getting into the drugs in the first place.
    The fact is that housing agencies are not very good at the 
provision of law enforcement services. In fact, at times, they 
are extremely challenged to do that very simple thing that they 
are the only ones who can do, which is to be the landlords of 
public stock.
    Another reduction in our budget occurs in the Public 
Housing Capital Fund. But I want to make it very clear to you 
that the reductions in this Capital Fund will still allow 
every--the funding requests that we are making is 2.3, and that 
funding request is almost the same as what was made by the 
Administration a year ago.
    With this amount of money, we know that all the projects 
that are in the pipeline that are asked for, that are needed at 
this time, will be taken care of. What it does not do is add 
money on top of those funds that are already there, but have 
not been either spoken for or allowed to be utilized in any 
way, shape or form.
    So we are not adding money on top of money that has not 
been used. But we are not, in the cut of the Capital Fund, 
going to create any cuts in those repairs and those maintenance 
projects that public housing agencies currently need to bring 
about.
    The PHAs have a backlog of about $20 billion in repairs by 
the last studies of 2 or 3 years ago. These backlogs are not 
dealt with in this particular budget. But the fact is that the 
needed repairs, those things that are on the books, will all be 
taken care of, and there will be no housing authority which 
will not be able to do the maintenance work that they must do 
or the modernization work that they must do.
    The PHAs currently have over $5.1 billion in backlog 
funding. This budget encourages them to spend those funds to 
address their priority needs, and the Department will also make 
every effort to distribute the funds in a timely manner.
    But let me just say that we have labored mightily to 
strengthen management in the Department. This has been done in 
the past, but we still have a long way to go. We have a bright 
and dedicated work force at HUD, but for all this work, HUD 
still remains an agency with serious management challenges.
    Too much emphasis has been placed on programs rather than 
on people, and on dollars spent rather than results accrued.
    The President is openly and strongly committed to focused 
programs in an efficient Government that works, and my approach 
to the task will focus on our four governing principles.
    First of all, our mission will be to serve people and not 
programs.
    Second, we will have the discipline to stick to our 
mission. I think we at HUD must avoid mission creep.
    Third, we will be good stewards of the resources that we 
are entrusted.
    And I think fourthly, we must observe the highest of 
ethical standards. This means more than prosecuting graft. It 
means rejecting the subtler corruption of settling for good 
appearances rather than insisting on good results.
    So this also includes that public housing agencies that 
receive our funding that there must be a renewed commitment by 
our mayors and other local officials to the well-managed and 
ethically run housing authorities which, as I have come into 
this Department, I am sad to say is not always the case, but 
often we see too often the fact that public housing agencies 
are either mismanaged or tremendous amounts of corruption have 
occurred and as that happens, it does avoid the opportunity to 
deliver our services to the people in need.
    So we should not just have compassionate intentions, but we 
should also expect compassionate results and outcomes.
    I look forward to working with the Congress on the many 
issues facing the Department of Housing and Urban Development.
    You have funded two important commissions, the Millennial 
Housing Commission and the Commission on Affordable Housing and 
Health Care Facility Needs in the 21st Century. The Department 
is looking forward to the recommendations of both of these 
commissions.
    This agency is committed to continuing a strong 
relationship with this subcommittee so that together we can 
make the Department an efficient and effective fighter on 
behalf of America's housing needs.
    So thank you for having me, and I look forward to your 
questions.
    [The prepared statement of Hon. Mel Martinez can be found 
on page 72 in the appendix.]
    Chairwoman Roukema. Thank you, Mr. Secretary.
    Certainly you have laid out a good foundation for a wide 
spectrum of inquiries and questions and information, additional 
information, for this Committee.
    I am not quite sure what you outlined with respect to my 
question regarding whether or not the Section 8 contracts in 
truth did represent an increase, and we will not spend a lot of 
time on that, but I hope you will give documentation on that.
    Mr. Martinez. We will certainly do that. Let me just give 
you just a flat assurance today that it is in fact an increase.
    Chairwoman Roukema. It does.
    Mr. Martinez. There are no reductions in our Section 8 
programs.
    Chairwoman Roukema. Would you please provide the data on 
that?
    Mr. Martinez. We will do that.
    Chairwoman Roukema. I would appreciate it.
    Mr. Martinez. We will certainly do that. We would gladly do 
that.
    Chairwoman Roukema. Now I know other Members are going to 
have a lot of questions on a whole broad range of specific 
issues. But since I was perhaps the only one--no, I am sorry, 
Mark Green attended yesterday with me--conferences on the 
subject of faith-based groups and their application, their 
provisions for public service in all areas, and Mr. Green and I 
specifically were with a group that was interested in the 
housing questions.
    So I am going to ask you a couple of questions with respect 
to their concerns, these faith-based groups, and how they would 
like to become involved. And I would like to direct the 
questions to you now.
    They are particularly concerned about the Empowerment 
Zones, and I think you have made reference to that, in the 
community renewal areas, and specifically the mismanagement--
and I think you alluded to this--in housing with respect to 
these housing authorities where we have substandard homes and 
closed and vacant houses in neighborhoods that are really 
pulling down the quality of the neighborhoods. I do not know 
what you are planning to do on that and how that is related to 
your identification of mismanagement of the public housing 
authorities.
    Mr. Martinez. Well, the mismanagement issue----
    Chairwoman Roukema. And by the way, can some of these 
faith-based groups be partners in a public-private partnership 
with you in that regard?
    Mr. Martinez. Well I think you open a whole host of very 
interesting questions. And let me say first of all that as it 
relates to the whole issue of faith-based partnerships, I am 
very, very keen on this. This is something that really hits at 
who I am and where I have been.
    I was a product of a faith-based program. I was in foster 
homes for 4 years, and Catholic Charities took care of me, in 
partnership with the Federal Government. So it is an example of 
something that might have worked reasonably well for me, 
anyway.
    The fact is that we can do a lot to help revitalize our 
communities in partnership with faith-based organizations. And 
I believe that what your question is is about the utilization 
of FHA-foreclosed homes----
    Chairwoman Roukema. Yes.
    Mr. Martinez. ----which particularly become a blight on 
communities if they remain for periods of time unused.
    We now have a 2-week window when these homes go on the 
market that faith-based and community not-for-profits can apply 
to utilize these homes or to put these homes back into 
utilization and be the ones to offer them to the marketplace.
    Chairwoman Roukema. Excuse me. What do you mean by a 2-week 
window?
    Mr. Martinez. Well, these homes go into the market as 
resales so that we can put a homeowner back into the homes and 
not have them be a boarded-up blight on the neighborhood.
    At the outset of that, there is a 2-week period of time 
when community organizations can come in and apply to get the 
house and have an opportunity to forge a partnership with HUD 
and bring people back into the house.
    Chairwoman Roukema. Why such a limited period of time? That 
question was raised with me.
    Mr. Martinez. That is a very good question. And, you know, 
as we get into this whole issue, frankly on Monday, the person 
that is going to run our faith-based office arrived on the job. 
So we are delighted that the person is there, and we look 
forward to getting this program off and going.
    But it is those kinds of issues. Why 2 weeks? Why not have 
a larger period of time? Are we doing enough proactively to 
bring them to the table? And are we maybe even packaging a 
whole street or an area where we can transform a community?
    There are many good examples of things like this working. I 
harken back to Philadelphia where Kenny Gamble and Reverend 
Lusk are doing this to revitalize areas of that community. And 
these are both community and faith-based groups. So already 
things are happening.
    What we are doing is first and foremost, we are doing an 
inventory of what is in the current regulatory climate that 
artificially hinders or does not assist in creating 
partnerships with faith-based groups. One of them may be the 
fact that it is only a 2-week window. Maybe it should be 6 
weeks.
    Now there is an interest in moving these homes into 
ownership in a rapid fashion, but there may be a way that we 
can work with faith-based groups. The point is, there is much 
that can be done.
    I was encouraged by what took place here yesterday by the 
people that seemed so energized with the possibilities of what 
the President's initiative can bring forward.
    We at HUD are very committed to the program. We have a $5 
million item in our budget for our Faith-Based Initiatives 
Office and to all the programs that we will begin to put under 
there.
    The fact is that we hope that it will be something that 
will invite new partners in the revitalization of communities. 
And I often say that, you know, there are some who believe that 
Government has all the answers or those who believe Government 
has no answers, and there is really a third way, which I think 
the President was articulating, which is a way in which we can 
bring the best that Government can bring to bear while 
partnering with those in the communities that know them so well 
to bring about the best results.
    Chairwoman Roukema. Very good. Thank you. And I did note, 
and it was news to me, that there is a HUD program, an audit 
for inter-faith opportunities that is scheduled for completion 
by July 29th. So we will be looking forward to that.
    Mr. Martinez. Thank you.
    Chairwoman Roukema. That was new information for me. Thank 
you.
    Mr. Frank.
    Mr. Frank. Mr. Secretary, a couple of questions about what 
I think are really decreases in funds available rather than 
increases, and let's get specific.
    What is the estimate that HUD has for what public housing 
authorities are going to need for the rising cost of utilities?
    Mr. Martinez. The estimates that we have, Congressman 
Frank, in fact show a decrease, which is inconsistent with----
    Mr. Frank. To pay for utilities?
    Mr. Martinez. Yes, sir. What we do at HUD----
    Mr. Frank. Well then can I ask why----
    Mr. Martinez. Let me finish, if I may.
    What we have done at HUD, which is what we are mandated to 
do, is that we follow Department of Energy indicators as we 
prepare our budget on what utility costs are going to be for 
the coming year.
    The recent rise in utility costs were not part of the 
Energy Department's forecast that we were provided as we were 
preparing the budgets. So there is clearly disconnect, because 
I think you and I both know that utility prices are going up.
    Mr. Frank. Yes. So----
    Mr. Martinez. So let me say also----
    Mr. Frank. Let me--when I asked you what HUD's estimate is, 
this is a serious problem. Because I have to say when the 
budget comes to the New Bedford, when they get the utility bill 
at the New Bedford Public Housing Authority, I do not think 
they can say, ``I am sorry, but the Energy Department told HUD 
this was not going to happen, and here is a note from my 
teacher.''
    Here is the problem. You say on page 3, accurately here, 
``the $150 million increase in the operating budget can be used 
by local housing authorities to fund their needs, including the 
rising costs of utilities.'' So you agree there are going to be 
rising costs?
    Mr. Martinez. Well----
    Mr. Frank. The problem is that you also say that money can 
be used to pay for the Public Housing Drug Elimination Program, 
which is $309 million. If you assume half of the Public Housing 
Drug Elimination Program, that takes up all of that money, and 
there is nothing left for utilities. In other words, you are 
using a $150 million increase to pay for the Public Housing 
Drug Elimination Program, minus $309 million, and whatever we 
get in increase in utilities, which is why I do not think it is 
a real increase.
    Mr. Martinez. Congressman, you are correct in that it is 
not a real increase, because we had $309 million and we are 
only funding an additional $150 million.
    The utility cost--I mean, I know it does not make a whole 
lot of sense. But, you know, I am new to the ways of 
Washington, and I have to tell you, it is perplexing to me why 
the Department of Energy would tell us and why we would be 
mandated to follow their guidelines in preparing our budget.
    The fact is that we are constrained from----
    Mr. Frank. All right, I appreciate that, Mr. Secretary, and 
I think they did a good job raising you in that foster care, so 
this is not about you personally. I give them a lot of credit.
    I would note, by the way, that the ability of Catholic 
Charities to work with the people on foster care and get 
Federal help pre-existed. We do not need this new program to 
have that happen. So you are proof that we do not need a new 
program.
    So it is not you personally. But what you are acknowledging 
is that the HUD budget for public housing, unrealistically 
through means beyond your control, assumes a decrease in an 
area where we know there is going to be an increase.
    Mr. Martinez. Well let me say----
    Mr. Frank. But by the time you get through with the $150 
million taking care of some of that, and then you get into the 
Public Housing Drug Elimination Program, that is going to be a 
real decrease for everything else in the Public Housing 
Program.
    Mr. Martinez. We have this year, with current funds, funded 
$105 additional million of dollars without additional 
appropriation to deal with the utility costs for the current 
year.
    Mr. Frank. I understand that, Mr. Secretary. All I am 
saying----
    Mr. Martinez. What I am saying to you is if we did it this 
year, we will try to do it again next year, as the need arises 
and as----
    Mr. Frank. So in other words, you are telling me that you 
think we may very well need a supplemental budget for public 
housing?
    Mr. Martinez. No, no, no. I did not ask for----
    Mr. Frank. Out of other funds. But here is the point. You 
say you found more. I mean, where is it going to come from?
    You are acknowledging that, because of the Energy 
Department, not yourself, you have in effect underfunded 
utility costs for public housing, which means that the $150 
million you cite is an increase and will in fact not be an 
increase if they were to do even half of the Public Housing 
Drug Elimination Program, and then you would have nothing left 
for utilities.
    Mr. Martinez. No. I am not going to concede to you that the 
estimates from the Department of Energy are completely wrong. 
They may or may not be wrong. We will see. They are 
projections.
    Mr. Frank. Excuse me, but you are the one who brought them 
up.
    Mr. Martinez. No. What I am saying is that we used what 
they gave us.
    Mr. Frank. Do you think they are right or wrong?
    Mr. Martinez. At this point, Congressman, I am not sure. 
And the fact is----
    Mr. Frank. What are----
    Mr. Martinez. ----that what we did, when the problem arose 
a few months ago in California particularly and in the West 
Coast, we responded to it.
    We have directed $105 million to help housing authorities 
in problems with utilities.
    Mr. Frank. I want to move on to one other subject. But I 
think the predictions are that we are going to need some more 
money.
    Chairwoman Roukema. Your time has expired.
    Mr. Frank. You gave yourself some additional time.
    The second one has to do with the Section 8s. The 
additional number of units you mention in your budget 
submission is 97,000 total housing certificate fund, 2002 
versus 2001, 97,000.
    The problem is that 160,000 more units have to be given, 
according to your budget submission, for the Section 8 contract 
renewal. That is, to just continue our commitment on the 
existing ones, the contract renewal, takes 160,000 units.
    In fact, that makes a decrease of 63,000, which is in your 
budget submission:
    Tenant protection assistance: minus 10,000;
    Incremental vouchers: minus 45,000;
    Non-elderly disabled: minus 8,000.
    You forgot to fill it in, but it is in the next column.
    In other words, the total increase is 97,000, but 160,000 
of those units go to the Section 8 contract renewal, which 
means that, for example, with regard to the disabled, there are 
no units set aside for them, and they are going to have to 
compete with other units in a decreased pool once you take out 
the Section 8 contract renewals.
    Mr. Martinez. Congressman, although we did not include any 
additional units for the disabled, we will find a way to fund 
them for them. We are receptive to their needs and want to work 
with them on that.
    But let me say that additional Section 8 vouchers is not 
the key crucial problem in the Housing and Urban Development 
Department. We have a huge unabsorption rate. There are 
millions of vouchers--not millions I should say--but we 
estimate about 300,000 families, about $2 billion of unused 
vouchers last year alone.
    Mr. Frank. Mr. Secretary, on that I agree with you.
    Chairwoman Roukema. We must conclude this.
    Mr. Frank. Well I just want as much time as the Chairwoman 
had.
    I just want to say, Mr. Secretary, that I agree with, and 
that is why the absence of a housing production program for 
affordable housing is a very significant issue.
    Mr. Martinez. Because, you see, that is a simplistic answer 
to the problem. The problem really is rooted in the 
mismanagement of the largest housing authorities who do not do 
a good job.
    Mr. Frank. Oh, I think you are being very unfair to them. 
The economics are the problem here.
    Mr. Martinez. No. We find that even in the most 
economically difficult areas, like in New York, not a low-rent 
market, their public housing authority in New York utilizes all 
of their vouchers. So they are a good example of how good 
management in a difficult market can make them work.
    Mr. Frank. That is very unfair to housing authorities that 
are trying very hard with unrealistic rent levels in Boston and 
San Francisco and elsewhere.
    Chairwoman Roukema. We will have to go on now. And I would 
like to ask all of the Members of the subcommittee to be very 
mindful of the time limits, and I am going to be very strict 
with respect to the time.
    And now we have Chairman Oxley. Chairman Oxley, are you 
ready for your questions?
    Mr. Oxley. Yes, Madam Chairwoman.
    Chairwoman Roukema. All right. Thank you.
    Mr. Oxley. Thank you, Madam Chairwoman.
    Mr. Secretary, one of the areas of the proposed budget on 
HUD deals with the elimination of the Public Housing Drug 
Elimination Program, which as you know provides local grants to 
housing agencies to help reduce drug activity in the public 
arena.
    I was a long-time Member of the now-defunct Committee on 
Drug Prevention chaired by Charlie Rangel, and we had numerous 
hearings in regard to the anti-drug programs. And I understood 
that $19 billion is now being spent at the Federal level 
overall in drug enforcement and drug interdiction and the like.
    Obviously the question occurs: Why, in a period where we 
continue to have difficulties with drug abuse, in many cases 
new drugs are being found and used illicitly, that obviously 
HUD comes into potential criticism for elimination of that 
particular program and what was the thinking behind that, and 
what were the policy goals?
    Mr. Martinez. Mr. Oxley, when I first heard of this 
program, it was something I thought I would be very supportive 
of. I have a long history in my career in local government of 
fighting drugs and working with people not just in the 
enforcement end, but in the treatment end and trying to find--
working with youth and things of that nature to try to 
eradicate communities from the blight of drugs.
    What I found upon review is that this is a program that in 
one place miscasts the agency in the role of law enforcement 
and misplaced its responsibility.
    I find an agency where we have management challenges in 
grant administration. What this new program has done--you know, 
an agency also that has gone from 50 to about 350 programs in 
the last 10 years or so. As the number of programs has 
proliferated, our ability to properly manage them has 
decreased.
    And as we have done that, we now find that in this Drug 
Elimination Program there are grants going out to things that 
are really far afield from the intent of Congress and far 
afield I would say from the fight on drugs. Things like foreign 
travel. Things like computers; renovating of kitchens for 
kitchens that never existed.
    But it is not about only thinking that, because it has been 
poorly administered or maybe misguided in some places that not 
some good things have occurred, and probably some good things 
in some places have taken place. But what I believe is 
important is that we focus HUD on its core mission so that we 
can do that which only HUD can do and do it very well.
    And then we have the Department of Justice, the Drug Czar, 
local law enforcement, and all of the tentacles of our Federal 
Government as it relates to the drug fight that are really 
better equipped to bring about the types of improvements in the 
lives of people as it relates to drug use that really we see 
are more effective.
    The fact is that I personally do not think that it is 
appropriate to believe that--and, you know, I hear this comment 
often made, ``Well, the police do not even go into the housing 
projects.'' You know, they just do not even go there. Well, why 
do they not go there? And why should they go there? And should 
not we expect that even the poorest in our communities be given 
the same level of law enforcement protection that people in the 
nice neighborhoods would have?
    So what I would say is that we need to focus on stronger 
partnerships with local law enforcement, working with community 
groups, of faith-based organizations to ensure that we do not 
have addiction and that we have programs to help people out of 
addiction.
    In addition to that, I have directed our Legal Department, 
our General Counsel's Office in cooperation with the Department 
of Justice to pursue aggressively our one strike you are out 
policy where we move people out of public housing if they are 
involved in drug use or drug abuse in their units.
    The fact is that there is a myriad of things that we can 
do. But just another program and $309 million is not 
necessarily the smart way to go about it.
    There are clearly good things that have been done with this 
money. There are clearly a lot of misuses of this money. And 
bottom line, one less program to administer.
    If the Congress is inclined--and I know many of you, 
Congressman Frank may be very much inclined to want to restore 
the funding--I would plead with you to restore it as part of 
the grants to local housing authorities and not as a separate 
program. Give us one less program to administer. Because if it 
falls as general grants, some of the silly things that have 
been done with this program would not be done. It would be a 
much easier program to police and to administer from our 
standpoint.
    Mr. Oxley. Well, in fact if I could just close with that. 
It is interesting. The HUD IG report, which I have looked at, 
provides a number of examples of how the funds were misused. A 
creative wellness initiative, where funds were spent ``to 
provide cosmic cycle updates on the spiritual awakening and 
transformation of the global world body,'' whatever that is.
    Mr. Martinez. We stopped that grant, by the way.
    Mr. Oxley. And another $860,000 to the National Institute 
for Medical Options to provide programs of God, God as typing.
    I rest my case and I yield back.
    Chairwoman Roukema. Thank you. I thank the Chairman. Again, 
we have to be very mindful of our time limits, but I do 
appreciate the question and Secretary Martinez's ample answer.
    Yes. Now we have Congresswoman Barbara Lee.
    Ms. Lee. Thank you, Madam Chairwoman.
    Good morning, Mr. Secretary.
    Mr. Martinez. Good morning.
    Ms. Lee. Good to meet you.
    Mr. Martinez. Thank you.
    Ms. Lee. As you may know, my congressional district 
includes Oakland and Berkeley, California. The Bay Area is 
experiencing a very serious affordable housing crisis. The 
economic surge, particularly in the high tech industry, has 
made the situation even worse so that at every income level, 
people are experiencing this in a very painful way, and there 
is a critical housing shortage.
    Last year, the Congressional Black Caucus conducted a 
housing summit, and I would like to forward to you some of 
those recommendations. Unfortunately, Northern California is 
really only the epicenter of this crisis, and the Nation is 
beginning to feel the same kinds of circumstances that we are.
    One of the recommendations that came out, of course, of the 
summit was the creation of new housing. And you were quoted 
somewhere as saying that you really did not want to consider 
the addition of new housing production at this time.
    And I am wondering if you said that for a reason or what 
your reason was, whether you believe that we did not need more 
affordable housing production, or you were unsure about the 
best way to produce more housing.
    Mr. Martinez. The answer to that is, Congresswoman, I am 
very much aware of the critical need for additional housing, 
and the numbers obviously are clear. We have worst-case housing 
scenarios where people across the United States, and more 
acutely than anywhere probably in your district, and 
neighboring to your district.
    My answer was based on two facts. Number one, the 
Millennial Commission on Housing is currently meeting, and I 
would like to know what ideas they are going to bring to the 
table. That will be happening in the next budget cycle, and I 
would prefer to defer until their study comes back and brings 
some new ideas to the table of how we might best approach the 
problem of production.
    In the meantime, we are doing some things. We are not just 
content with the level of housing currently available. The FHA 
multi-family insurance increased by 25 percent for the first 
time in almost 10 years, by the way, we think is going to 
generate additional housing construction.
    But another thing--and this is much too subtle, and it is 
not a new program, but the fact is that it just might work. We 
at HUD need to be better generators of production even within 
the current programs that we have.
    As we look to the HOME program or the HOPE 6 programs, 
these are homes that we currently have available that might 
increase production. And the fact is that oftentimes we find 
the private sector development industry unwilling to partner 
with HUD or move ahead in affordable projects because of the 
difficulties in dealing with our agency and the intractability 
of it.
    Ms. Lee. But Mr. Secretary, let me just ask you then about 
the $3 billion from FHA and Ginnie Mae in terms of their net 
profit. What is the problem with reinvesting that $3 billion 
into new housing production?
    Mr. Martinez. Well, I would differ with you. The FHA does 
not create a profit as such. These are premium payments, and so 
it is a question of how much is an appropriate premium that 
should be paid into the fund.
    But there clearly are, you know----
    Ms. Lee. OK. It is my understanding it is a surplus, not a 
net profit.
    Mr. Martinez. Correct. And it is a question about how much 
the surplus really is. But in any event, I think that there 
need to be new ideas on the table of how we generate the kinds 
of production program that will be effective.
    Good things have been done in the past on housing from the 
Federal level. But I personally would prefer to give us a 
year's time where we can bring in some new ideas into HUD, some 
management reform, some things that hopefully will make us work 
a little smarter, a little better before we are given a new 
program to administer.
    So my hope was that in combination with the things that we 
are currently doing to improve the circumstances and weighing 
for the Millennium Commission report and giving this new 
Administration a year under our belt that we would be in a much 
better position to look at a production program.
    Ms. Lee. So, Mr. Secretary, what happens with this surplus 
or profit or additional money that is sitting out there?
    Mr. Martinez. Well, the surplus for FHA is an insurance 
fund. And it is simply there in the event that we should have a 
horrible downturn in the economy and there should be a huge 
number of foreclosures and the FHA insurance would be tapped. 
And so this is a reserve fund for that.
    At some point, a humongous reserve is unnecessary, but I am 
not sure that it is money that is just readily available today. 
The GAO is still doing studies on the amount of that surplus.
    We currently have a 2 percent limit--I am sorry, a 2 
percent premium. It might be better to have a reserve of 3 
percent. That might be a safer, more prudent way to go. That 
would reduce our surplus somewhat.
    It is not found money. It is part of what makes FHA work in 
the event that the economy----
    Ms. Lee. Then you say we do not have any resources for 
housing production, affordable housing production at this 
point?
    Mr. Martinez. That is my impression.
    Chairwoman Roukema. Congresswoman, we recently--when was 
the hearing? Back on March 20th we had a hearing on this 
subject and CBO--it is a good question that you are asking, and 
we will go back and review what CBO said. But CBO has stated it 
is not a surplus.
    Mr. Frank. If the gentlewoman would yield.
    Chairwoman Roukema. Yes, Congressman Frank.
    Mr. Frank. But it was also clear from the three agencies 
that were there that it is a significant amount of money 
extremely unlikely to be called upon. They said that it was a 
very sound fund, and the possibility that--there is just not 
any likely degree of downturn that would wipe it out. So there 
is money available.
    Mr. Martinez. I would agree that it was a sound fund.
    Chairwoman Roukema. It is something that we can as a group 
review again, and we would like your advice on that, 
particularly based on what the CBO analysis is as well.
    Mr. Martinez. And I think it would be very prudent for us 
to have a thoughtful discussion.
    Chairwoman Roukema. Good question.
    Mr. Martinez. Because it is a very, very--you know, it 
could be a dangerous thing to do.
    Chairwoman Roukema. Which is why we had the hearing.
    Mr. Martinez. And I would like to have the Federal Housing 
Commissioner confirmed and on board so that I could have the 
benefit of that person's advice as well as we go forward into 
that field.
    Ms. Roukema. Very good.
    Ms. Lee. Madam Chairwoman.
    Ms. Roukema. Yes.
    Ms. Lee. I am just saying, I thank you for responding. And 
I just think that wherever we can develop new affordable 
housing where production can be created, we should do that. And 
we should not allow these resources to just sit.
    Ms. Roukema. Well, it is, if not controversial, there are 
wide differences of opinion. But it is appropriate for us to 
review that again.
    All right. Thank you.
    Now we have the Vice Chairman of the subcommittee, Mr. Mark 
Green.
    Mr. Green. Thank you, Madam Chairwoman.
    And Mr. Secretary, let me join with others in welcoming you 
here. I very much look forward to working with you. I think 
there are going to be a lot of things that we can work on very 
closely together.
    I was also delighted to hear of your personal support for 
the faith-based initiative in housing. My own opinion is that 
the housing sector is probably the sector that most lends 
itself to working with the faith-based community.
    In the State of Wisconsin, our Housing Finance Authority 
has been working closely with the charitable sector for 14-, 15 
years to great success. And so I am thrilled about it, and I 
think it presents wonderful opportunities for all of us.
    Given the brief time, I will ask you two specific 
questions. The first one deals with FHA loan limits. You 
recently announced your support for increasing multi-family FHA 
loan limits. I applaud you. I think that is the right approach 
to take and perhaps overdue.
    Would you also support a mechanism that would allow for 
adjustments in those loan limits as inflation changes?
    Mr. Martinez. Well, I think that would be prudent. I think 
that one of the problems we had is by not moving those loan 
limits for 9 years that we have had in a situation, as 
Congresswoman Lee was pointing out in her community where not 
only the land costs have gone up astronomically, but 
construction costs have also gone up significantly.
    So I think they should be market-adjusted and I think they 
should be area-adjusted as well. I think they should be 
sensitive to the different market needs in different parts of 
the country.
    Let me just say on a personal note, in moving from Orlando, 
Florida to the Washington area, one knows that market prices 
are different as it relates to housing across the country. 
Trust me.
    Mr. Green. You are learning the hard way. I think that is 
good news. I look forward to working with you on that.
    And then the second area of interest that I have personally 
is in the development of some kind of housing impact analysis, 
new rules and regulations, and even legislative proposals, what 
would you think of a proposal that would require agencies to 
consider the impact on housing affordability when they are 
writing new regulations?
    Mr. Martinez. Oh, I think that would be very good idea. I 
think that we can always see regulations as a good thing, but 
at the same time they can have very unintended consequences, 
including increasing the price of housing. So I would think 
that would be a great idea.
    Mr. Green. Another area where we could work closely 
together.
    Mr. Martinez. Absolutely.
    Mr. Green. Thank you, Mr. Secretary.
    Mr. Martinez. Thank you very much. I appreciate that.
    Mr. Green. Thank you. Thank you, Madam Chairwoman.
    Ms. Roukema. I thank the Vice Chairman.
    Now we have Congressman Michael Capuano.
    Mr. Capuano. Thank you, Madam Chairwoman.
    Mr. Secretary, thank you for coming today. And I want to 
start out before I go the other way congratulating you on some 
of the programs that you propose.
    I like the HOME stuff, home ownership stuff. I like the 
HOPWA stuff. I like the AAM changes. I like the lead paint 
stuff. I like the FHA limits.
    Mr. Martinez. Thank you, sir. I appreciate it.
    Mr. Capuano. That is about it. The rest of this----
    Mr. Martinez. Well, there would not be a discussion if we 
did not have some disagreement I suppose.
    Mr. Capuano. Well, we've got lots more. I was stunned 
earlier when I saw the initial budget proposal, the three-page 
document that we got in the Budget Committee, all of three 
pages. It was great, very informative, very thorough. And I am 
even more stunned today. I did not think that was going to 
happen, but I am.
    You told us a little bit about yourself, and I have read a 
little bit about you, and I appreciate how far you have come in 
your situation.
    My mother still lives in elderly public housing. She does 
today. My brother lives in a three-family home with three 
generations on each and every floor. I live in a two-family 
home. So that is who I am.
    And I do not even know where to begin. The drug elimination 
stuff, I do not disagree, if you want to roll it into a 
different grant, that is administrative stuff. If you think 
there is stuff in there that has been done wrongly, you should 
chase every one of them, and you should come to us and say we 
do not like this, this, and this about what has happened with 
the drug elimination grant. And my guess is most of us would 
probably agree with you and chase those guys who did things 
wrong, maybe add some requirements.
    But to simply cut out $300 million of money that goes for 
the most part--let's be serious--to hire public housing police 
is insane, especially when you want to look at the budget as a 
whole. They cut out millions of dollars for the COPS program. 
You had better talk to the people at the Justice Department if 
you want to talk in general.
    I do not know about your neighborhood. In my neighborhood 
and everyplace I have ever known, many local cops will not go 
into public housing property, or if they do, it is their last 
priority. That is why we need public housing police officers.
    That is just the beginning of it. We get into other things 
like the public housing capital improvements, a $700 million 
cut. It is not just poor people that some people do not care 
about. I understand that. I understand there are philosophical 
disagreements. But we are also talking about money that--you 
did a good job on HOPWA.
    Guess what? Some of that money goes to rehab, the HOPWA 
programs that have been built in the past. Some of that money 
goes to rehab some of the senior housing that we talk about. 
Some of that money goes to rehab some of the disabled housing 
we talk about.
    And yet there is nothing here that somehow tells me we are 
going to get it. What I am hearing today is that somehow, OK, 
well, they did not spend the money. I know that you have done 
capital projects in the past. You do not do them in a year, and 
in a public agency, you do not say, well, I might maybe get the 
money. So, therefore, right now I am going to bid out. I am 
going to plan and then bid out a project that I do not have 
idea if we are going to have the money for 2 years from now, or 
3 years from now, and then get it done.
    It takes years. And if you are a smart, good public 
manager, you do not put a single pen to paper until you know 
that money is there. That is why that money is not spent. And 
to cut the program this year. I understand you will not see 
public housing capital cuts this year, but you will in 2 years 
and 3 years and 4 years and 5 years, when there are no programs 
or no plans that have been in the pipeline during that period 
of time.
    So we talk about that. I want to talk about the unused 
vouchers. Mr. Frank and I come from a similar area. We abut 
each other. Guess what? I do not disagree with you that some of 
those are administrative problems. I think you should fix them. 
I think you should come to us and say we have administrative 
problems. They are not getting them out. Great. I will fight 
with you, alongside with you, to get every one of those 
vouchers out. And anybody who is not doing their job, together 
we will go get them.
    But there are a lot more problems than just that. At least 
in my district. Guess what, landlords do not want anything to 
do with Section 8 housing anymore, because they do not like the 
annual renewals. They are not sure they are going to be able to 
have it next year. Are they are going to have to get new 
tenants next year, or within a few months? Number one.
    Number two, the rent levels in my district are 
astronomical, and we did take some steps last year to address 
that, but not near enough. Landlords, why should they rent to 
people, why should they take a Section 8 certificate when they 
are not sure the program is going to be there next year, when 
they can get more money on the outside, and now this year you 
come and you reduce your reserves?
    They are not even sure you are going to have the money next 
month, never mind next year. If I were a landlord and I was 
dealing with a lot of Section 8 people, I would not be 
anxiously involved either unless I had some big heart and I did 
not care about the bottom line.
    And the last thing I want to talk about is the budget.
    Chairwoman Roukema. Excuse me, Mr. Capuano. You have some 
30 seconds left.
    Mr. Capuano. Yes. And I intend to use them, Madam 
Chairwoman.
    Chairwoman Roukema. Do you want to use that time for 
yourself----
    Mr. Capuano. Oh, yes I do.
    Chairwoman Roukema. ----or do you want Mr. Martinez to be 
responsive?
    Mr. Capuano. Well, I might ask him a question in a minute. 
We will get there. It is a long question, but we will get 
there.
    Ms. Roukema. Well, I am sorry, but your time will have long 
run out.
    Mr. Capuano. Well, but it has not yet, Madam Chairwoman. I 
just took 10 more seconds answering your question. And, you 
know, we will do whatever you want, but I thought that I was 
allowed to use my time as I chose.
    Ms. Roukema. You have 33 more seconds.
    Mr. Capuano. Thank you, Madam Chairwoman. I appreciate 
that.
    Mr. Martinez, you talk about budgeting. I guess the 
conclusion--I will just jump to the conclusion. We will jump 
the rest of the issues, because as I said, there are too many 
of them.
    You talk about administration and management issues. I do 
not have any problem with addressing all of your concerns in 
administration. If you have them, bring them to our attention. 
We will work together to try to straighten them out. And guess 
what? When you cut these kinds of monies--$700 million for 
capital, $300 million for drug elimination, $40 million for 
disabilities, not talking about utilities, and you add $150 
million, that does not work.
    And guess who gets hurt? The very same people that your 
rhetoric says you want to help. People get hurt, not programs. 
If you want to get at bad administration, come to us, ask for 
the help. We will be happy to do it. And I guess for a 
question, I guess you should respond to that.
    Mr. Martinez. Well, I am not sure what your question was, 
but I will try to respond to all of it. And I admire your 
passion. I think that it is great.
    Ms. Roukema. If you can take less than 5 minutes.
    Mr. Martinez. I will be very brief in my response. I will 
try my best. I will try to come back to you with more specific 
responses.
    I think that if I thought, as I know you do, that somehow 
what I have done with this budget is going to cause your 
mother's house to be somehow unmaintained in the coming year or 
at any point in the future, that I would be equally passionate.
    The fact is, I am certain that the cut of $700 million in 
the capital fund in this year's budget will have no impact on 
future maintenance for the foreseeable future. And if more 
money were to be needed at some point down the road, I would be 
the first one to be here asking you for it.
    The fact of the matter is that we have a study from Apton 
Associates that tells us that $2.3 billion request, that is 
enough to meet all of the current year needs for housing 
authorities across the country.
    That is not to mention the over $5 billion unspent, 
unaccrued, not in the pipeline funds that are still in the fund 
for public housing maintenance into the future. It would take 
them, at $2.3 billion a year, almost 3 years to absorb what is 
already there plus what is coming from the year 2001 before 
they would get to the need that you anticipate that is now 
going to be somehow a dire emergency.
    The fact is that we just need to have a better explanation 
to you of what we are doing, because it is not going to have 
the dire consequences that I think you anticipate.
    Ms. Roukema. All right. Thank you.
    Congresswoman Kelly.
    Mrs. Kelly. Thank you, Madam Chairwoman.
    Mr. Secretary, I understand that there may be as many as 
719 FHA-insured 203K rehab loans in the New York City area that 
are currently in default.
    Apparently the properties were sold to a number of non-
profit organizations involved in fraud activity, and most of 
the rehab work was just really never completed.
    Furthermore, 3 days before the change in Administration, 
the former HUD secretary entered into a Memorandum of 
Understanding in response to the issue. I am concerned about 
that. So I want to know what the department is doing to address 
the immediate problem in New York.
    Mr. Martinez. Congresswoman Kelly, this is a serious 
problem. And it is a shame that through this fraudulent 
activity, which just is out-and-out horrible fraud, it has had 
a devastating impact on the affected families and the 
neighborhoods surrounding them.
    And we are going to try to, number one, do better in the 
policing of these types of incidents where fraud is so rampant. 
But the entire issue is under comprehensive review by the 
Department. I am trying to decide whether we want to live by 
that Memorandum of Understanding and the component parts of it. 
It was a last-minute action by the prior Administration.
    We are looking to detail a senior project leader to New 
York to the HUD field office to work full time on this issue 
with the local staff, the local staff being the most familiar 
with the situation, and we are going to try to keep a very 
close eye on where we should go with this problem and finding a 
resolution for it.
    There is no question but that this kind of fraud has 
created tremendous hardship on a number of people, and it is a 
huge and expensive problem. It was anticipated at a very 
significant number for us to try to work out of this problem. 
It probably is going to be even larger yet. And unfortunately, 
it was fraud that went on for several years before it was found 
out. And, of course, now the problem is to account for the 
seriousness of the problem and the payoff, which is going to be 
very substantial.
    Mrs. Kelly. I wonder if you would be good enough to try to 
describe a little bit more about what your department is going 
to do to move forward to try to prevent further fraud in that 
area.
    Mr. Martinez. Well, more careful policing of these grants. 
I mean, I am being told that our staff at HUD--and this is the 
professional staff at HUD--has been dealing with this in a very 
serious way and trying to find what went wrong here and how 
could that not ever happen again.
    My greatest fear is that it would happen on my watch, 
frankly. And with a department as vast as this, there is no 
question that these things do happen from time to time.
    But I am not sure if the Memorandum of Understanding will 
do what is right for the affected families and also in terms of 
public policy.
    So it is a very complicated question, and I am afraid at 
this point I am still not ready to make decisions on how we are 
going to approach it.
    Mrs. Kelly. If every one of these properties was foreclosed 
and conveyed back to the department, do you have any estimation 
of how much the potential losses to HUD would be?
    Mr. Martinez. It is over $140 million is our estimate of 
it. And that may ultimately be the answer to the problem. But 
$140 million.
    Mrs. Kelly. Over $140 million?
    Mr. Martinez. Over $140 million.
    Mrs. Kelly. Just in New York alone?
    Mr. Martinez. Just that one problem.
    Mrs. Kelly. I personally have been approached by many, many 
people, because we need more affordable housing for not only 
seniors, but for the young people of the Nation. And this kind 
of fraud is extremely damaging to our whole housing structure.
    I would hope that your department would get on top of this 
and do something as quickly as possible to rectify the 
situation, and I am pleading for especially New York, but for 
everyone else in the Nation, because this has been a fairly 
widespread problem, as I understand it. I am not sure we even 
know the depth of it.
    Mr. Martinez. No, we do not. And it is $140 million of 
funds that could go to so many good things, as Congresswoman 
Lee was speaking earlier, the FHA fund. This is where that 
money will ultimately be coming from.
    So it is for these kinds of things that we need to have 
that reserve.
    The bottom line is that this Department--you know, when I 
am talking about management, that sounds so unsexy. You know, 
to talk about managing the Department well, how is that helping 
people? Well that does not sound good, because a new program 
does, and cutting drug elimination.
    I mean, look. I am a drug fighter. I mean, I know what a 
blight it can be on communities. But we have got to do it 
effectively. It is not good enough to throw money at a problem 
and mandate another thing for HUD to manage without the fact 
that we really need to look at the outcomes. Sometimes the 
outcomes are very ugly at HUD. We need to do better. I agree.
    Mrs. Kelly. Thank you very much.
    Ms. Roukema. Secretary Martinez, I would like to join Mrs. 
Kelly in that statement. But I wonder if you would follow up 
with some written documentation for us and give us some 
information as to who will be in charge of this kind of a 
reform within the Department.
    Mr. Martinez. I will do that.
    Chairwoman Roukema. Thank you.
    Congressman Watt.
    Mr. Watt. Thank you, Madam Chairwoman.
    Thank you, Mr. Martinez, for being here. I guess I should 
give a presumption to anybody named Mel, and I will give you 
that presumption.
    I want to talk about the impact of Section 8 vouchers. And 
I am a little concerned that you have the attitude that the 
only problem with Section 8 vouchers and the non-use of Section 
8 vouchers is mismanagement or lack of management of housing 
authorities.
    And I want to assure you I am aware that there are housing 
authorities that mismanage, so I am not defending 
mismanagement.
    But I do want to give you a different perspective on this, 
and I give you the perspective, because I think we have decided 
as a matter of national public housing policy that Section 8 
vouchers are the greatest thing since sliced bread. And in some 
communities they are.
    Typically, they are communities such as some of the 
communities in my Congressional District, where population 
growth is not there, where basically people are moving out and 
demand is being reduced. People who own housing use Section 8 
vouchers as a good deal.
    But in communities--and I have some of those communities in 
my Congressional District. In fact, the week before last, I 
methodically went through the district talking about the impact 
of Section 8 vouchers and got differing impacts. I got 
communities that the population is declining or not growing. 
There is oversupply of housing as a result, and all of those 
owners are out there actively seeking to use Section 8 
vouchers.
    Then I represent the City of Charlotte, which is a high 
growth area like Ms. Lee's area out around Oakland. And the 
population is booming. You cannot build housing quick enough to 
respond to the demand that is out there.
    And to take a Section 8 voucher to a community like that 
where there is no excess supply is just to insult the owner of 
that property, because they can get a lot more in the private 
market than they can get than the Section 8 voucher is valued 
for.
    So the impact in Charlotte is just the opposite of what it 
is in Winston-Salem or Greensboro or Davidson County in my 
Congressional District. And basically, the impact in Charlotte 
is this. Section 8 vouchers can only be used in vulnerable 
transition minority communities.
    You go into any white community in Charlotte, there is 
nobody taking Section 8 vouchers. So Section 8 vouchers are 
having the effect of further segregating an already segregated 
community.
    People are coming out of public housing under the HOPE 6 
renovations. They are downsizing. They are coming out of public 
housing. They are taking Section 8 vouchers and they are going 
into basically vulnerable minority communities that are 
struggling to maintain the character of a community.
    And those people are not racist, but they are not classist, 
but they are saying, look. You are dumping people out of public 
housing on us in disproportionate numbers, people who have no 
history of even owning a lawnmower. They are not going to 
maintain the grass in this community. The landlord's not going 
to maintain it, because he does not give a damn. He is an 
absentee landlord.
    So you have got to understand, Mr. Martinez--and I do not 
have a question--but this is not only about mismanagement of 
the Section 8 voucher program. This is a serious problem that 
can only be addressed in some areas by supplementing the 
Section 8 vouchers to make it possible for this adverse effect 
not to occur.
    And that is all the point I want to get across to you. I do 
not have a question. I just want you--but if you are going to 
characterize this as just a mismanagement problem, I think you 
are doing public housing agencies throughout this country a 
severe disservice.
    Mr. Martinez. No. Let me clarify that. Because I do not 
believe it is just a mismanagement problem. But when we look at 
the absorption of Section 8 vouchers, and when we see those 
that do not absorb their Section 8 vouchers and utilize them, 
what I am told--and I am new to the Department--what I am told 
by the staff is that, year after year, some of the same, 
extremely large housing authorities around the country are the 
ones that seem to have--that are also a management headache in 
a number of ways, are also the ones that return back unused 
vouchers.
    Mr. Watt. But there is an explanation for that that is 
different than the one you are giving, and that is that those 
are the communities that in some areas are tremendous growth 
areas, and the impact that I just described to you----
    Mr. Martinez. I will give you the statistical evidence 
rather than the anecdotal evidence. That is not to say that 
that is the whole problem.
    I think you have identified correctly the gamut of 
problems. And I think that what you are suggesting in terms of 
potential answers is also correct. We need to look at it 
holistically. And, you know, Section 8 vouchers, while it is a 
national program and we fund it out in formulas throughout the 
country, it may not be for every community.
    Ms. Roukema. Excuse me.
    Mr. Martinez. We have programs that sometimes work very 
well some places and not as well in others.
    Ms. Roukema. Excuse me. We are over 2 minutes overtime 
here. But if there is further discussion of this or if you want 
to submit Secretary Martinez something for the record, and 
certainly you and Mr. Watt can continue this on a personal 
level.
    Let me see now. Congressman Gary Miller.
    Mr. Miller. Thank you, Madam Chairwoman.
    Secretary Martinez, it is really good to have you where you 
are at, and I am looking forward to the obstacles and goals 
ahead of you to be accomplished.
    Mr. Martinez. Thank you.
    Mr. Miller. It is amazing. I agree with many things that my 
colleagues on the other side said. Mr. Frank, I could not agree 
with you more about the lack of energy policy by the Clinton 
Administration and how that is negatively impacting affordable 
housing in this Nation. I think you are right on that point.
    You mentioned housing production. And I think we do need to 
emphasize housing production. The problem is that many people 
want to resolve this issue of affordability and supply through 
Government subsidies. And I do not believe that is the proper 
answer.
    Also, I think Mr. Frank was right on when he said vouchers 
have no effect on providing housing. Vouchers only add to the 
demand rather than supply.
    Another comment was made by one opening colleague 
suggesting that developers skimming off the top on HUD is a 
huge problem. And perhaps in Government programs that is true. 
However, I believe that is not true in the private sector. I 
think that I am the only Member of this subcommittee who ever 
entered into a contract with HUD. I did a lot of HUD work in 
the 1970s.
    And I recall that my partner was called into the HUD 
director's office in Los Angeles and told that if we wanted to 
do more HUD work, he wanted one-third of our profits in advance 
prior to us receiving the contract. And that is the last HUD 
program we ever got contracted for.
    So a lot of things need to be done with HUD. And I think 
the greatest obstacle to providing affordable housing that we 
face today is Government. The average sales price of a home 
today, 35 percent of that sales price is the cost of 
Government. For example, for a $100,000 home, $35,000 of the 
total cost of that home is directly associated with Government.
    And Mrs. Lee, I recognize the problem in the San Francisco 
Bay Area. I was a developer there in 1985, and the average cost 
of a home we sold was $200,000, and $75,000 of that sales price 
was directly associated with Government. And we did some work 
in the Bayview Area. Do you know where that is at? It's in the 
redevelopment area. The cost of a home attributed to Government 
was even higher than that when you were associated with the 
redevelopment agency. There is a huge problem, and the problem 
we face today is Government.
    Mr. Secretary, I have a couple of questions for you, and I 
think they are very important. What would you think about a 
Federal law that requires all agencies to consider the impact 
on housing affordability at all levels when writing 
regulations? Furthermore, should property rights be better 
defined in law, and should we look at the impact on the 
fairness of applications of Endangered Species Act as it 
applies to affordable housing?
    Mr. Martinez. Well, let me say, then, in the early 1980s, I 
was asked by the Mayor of Orlando to head an affordable-housing 
task force--how do we make more housing affordable in our 
community?
    What we did is we found a detailed list--a laundry list of 
things that--actions by Government that add to the cost of 
housing.
    We came up with some recommendations and ways in which we 
could peel off some of those regulations and peel off some of 
the mandates and requirements which would then lower the price 
of a home.
    We thought those were very, very positive and good ideas 
then.
    I would still believe that those would be very good ideas 
today.
    So, from my own local experience, I assure you that those 
would have a very important effect----
    Mr. Green. Those do need to be----
    Mr. Martinez. ----lowering the cost of housing.
    Mr. Miller. I think you have a huge task before you, and I 
believe you are sufficiently prepared to accomplish that task.
    I would like to go over a few statistics on HUD's history 
and where I think we have gone wrong and what we have to 
correct in the future.
    FHA mortgage insurance paid out almost 77 claims worth $6 
billion in 1998.
    Those costs were passed on directly to consumers in higher 
premiums.
    In 1997, single-family homes stayed in the Federal 
inventory for an average of 5.4 months.
    In 1998, it went to 6.6 months, and the last time I checked 
it was still increasing.
    In 1996, there were 25,000 single-family homes inventoried 
by HUD.
    In 1998, it increased to 40,000. In 1999, it was 50,000.
    The HUD single-family inventory was valued at $1.9 billion 
in 1996.
    In 1998, it increased to $3.3 billion. Fifteen percent--and 
this is really what bothers me--15 percent of HUD's property is 
held in inventory for more than 12 months.
    The private sector only has about 2 to 3 percent that is in 
inventory for more than 12 months.
    In 1996, the average loss on a piece of property from HUD 
was $28,000.
    In 1998, it increased to $31,000. In June of 1999, it was 
$32,470, and, if you multiply that by 50,000 properties in 
inventory by the average loss of $32,470, that is $1.6 billion.
    This is just not a theoretical problem for my district, and 
I dealt specifically with the city of Pomona, who has over 200 
boarded-up homes.
    The biggest problem I have had with HUD in the last 3 years 
is their effort to put non-profits out of business.
    The problem non-profits face is the vague and ambiguous 
requirements placed upon them by HUD.
    I am not chastising you. I am trying to encourage you to 
resolve these.
    I went to the HUD office in Santa Ana 2 months ago with 
several non-profits, and they thought I was just a member of 
the non-profit groups, until, about an hour into the meeting, I 
told them who I was.
    Out of 300 non-profits in California, they were proposing 
to put over 200 of them out of business.
    One of them was a non-profit controlled by the city of 
Pomona--which the Board of Directors was the President of 
Pomona First Federal Savings and Loan--the Mayor of the city, 
the City Council members, the Planning Director, Economic 
Development Director, and business leaders who went there for 
no other purpose rather than to clean up the HUD inventory in 
Pomona.
    HUD was going to put them out of business, and I think this 
is something you need to address.
    If we are going to provide affordable housing in these 
States, we need to look at streamlining Government and getting 
Government out of the way, in many cases, and let the private 
sector do their job.
    Mr. Martinez. Congressman, you know, you have outlined a 
little bit of my agenda.
    It gives me kind of a spinning feeling as I sit here 
listening to all that you would like for me to fix, and I will 
try to do it in the next few months if I can.
    The fact of the matter is that HUD did not get in this mess 
overnight. It is not going to get out overnight, either.
    But, as I look to the question of how do we get more 
production--and should we have a new production program right 
now and let's tap into the FHA fund and fund it and move ahead, 
and we have another program.
    Then, see, you can walk away, and you can go home and say 
we did something good. We just put another billion dollars into 
a new production program.
    Then, there will be a hearing a year from now, 2 years from 
now.
    Someone in my place will be trying to figure how to answer 
your questions about what went wrong with the program.
    We will be talking like we are today with the 203 issue in 
new York.
    The fact is that I believe this agency needs some time to 
catch its breath.
    There are $30 billion we are throwing at the problem this 
year as we did last year.
    By the way, the increases that this Department received in 
the last couple of years, I believe, are unsustainable as a 
prudent matter of Federal budgeting, but also as an absorption 
matter, 16-, 19-percent increases.
    So, when you talk about these modest reversals in some of 
the programs, like the Capital Fund, those need to be 
contrasted versus what we received last year, which was a very 
substantial increase.
    We are taking this budget back to a sustainable level, 6.8, 
I think, as it relates to 4 percent in the rest of Government.
    We are doing pretty well, but I believe, if we are going to 
be able to address these issues, that, if we do, it is not out 
of a lack of caring that we do not want a new program.
    It is out of a need to manage what we have got well, so 
that we can see the results of what we are trying to do that we 
are not doing very well, and then judge the results of what we 
have done, not by the new program that we got, not by how much 
money we threw at the problem, but what results we got.
    Mr. Miller. Absolutely.
    Chairwoman Roukema. I am sorry. We are almost 3 minutes 
over time. But, certainly you can continue this conversation 
with Secretary Martinez. He is going to be forwarding to us a 
considerable amount of documentation, and this will be 
included. Thank you.
    Now we have Congresswoman Stephanie Jones.
    Ms. Jones. Thank you, Madam Chairwoman.
    Secretary Martinez, it is nice to see you again.
    Mr. Martinez. Thank you.
    Ms. Jones. I enjoyed seeing you at the WOW Program for the 
Congressional Black Caucus Foundation.
    But, I am troubled, and I am a former prosecutor, so I am 
going to cross-examine you a little bit.
    I would like short answers to my questions, please. Now, I 
want to talk about the Drug Elimination Program.
    In Cuyahoga County, Ohio, which is my congressional 
district, the Drug Elimination Program has been significant in 
reducing crime and activity in public housing.
    In fact, I think, when it was created in the Reagan 
Administration, the purpose was because there was concentrated 
living in public housing.
    You agree with that, right? Concentrated. Densely 
populated.
    Mr. Martinez. It was begun as an $8 million program to a 
few targeted housing----
    Ms. Jones. But, no, answer my question. It is densely 
populated living, is that correct?
    Mr. Martinez. I cannot answer----
    Ms. Jones. Public housing.
    Mr. Martinez. Well----
    Ms. Jones. Yes or no?
    Mr. Martinez. I am telling you that public----
    Ms. Jones. Yes or no?
    Mr. Martinez. In some places, public housing has densely 
populated----
    Ms. Jones. High crime rate, yes or no?
    Mr. Martinez. In some places, yes. In some places, no.
    Ms. Jones. Drug elimination only went to communities where 
it was a high crime rate, densely populated, to reduce 
programs, yes or no?
    Mr. Martinez. In public housing areas where the population 
is elderly, they have no drug problems, and they do not have 
the----
    Ms. Jones. You have not been to Cleveland. You have not 
been to New York. In public housing where there's elderly, 
people come in and prey on the elderly and sell drugs, Mr. 
Martinez.
    What country have you been in in the last 10 years?
    My next question----
    Mr. Martinez. May I answer your last----
    Ms. Jones. No, no, no, you cannot.
    Mr. Martinez. I do not get to answer?
    Ms. Jones. I am going to keep going. No.
    Mr. Martinez. I do not get to answer?
    Ms. Jones. No.
    Mr. Martinez. OK, that is fine.
    Ms. Jones. The purpose of the Drug Elimination police 
officers, Mr. Martinez, was such that the police officers could 
get to know the residents. Do you agree with that statement?
    Mr. Martinez. Do you want me to answer all questions or 
just the ones you choose for me to answer?
    Ms. Jones. I am running the questioning. You are answering, 
and you answer my questions and do not get smart with me, 
because I am not getting smart with you, sir.
    Mrs. Kelly. Madam Chairwoman, point of order.
    Ms. Jones. You are here to answer my questions, and----
    Chairwoman Roukema. I am sorry. I am sorry. I have never, 
ever in my 20 years on this committee heard this kind of 
response to members of the panel. I am sorry.
    Ms. Jones. I have never heard this kind of response to 
Members of Congress.
    Chairwoman Roukema. Excuse me?
    Ms. Jones. I asked him a question. He is trying to make 
jokes----
    Chairwoman Roukema. I think you----
    Ms. Jones. ----out of my questions, and I do not appreciate 
it.
    Chairwoman Roukema. I beg your pardon. I did not hear any 
jokes.
    Ms. Jones. Look at his face.
    Chairwoman Roukema. If you want an answer, let him answer.
    Ms. Jones. I am telling him when I want an answer, Madam 
Chairwoman.
    Chairwoman Roukema. All right.
    Ms. Jones. You cannot run my questioning. Out of all 
respect to you, I am asking the questions, and I am getting the 
questions I want answered. Now, when you want to do your 
questions, then you do yours, but you cannot run mine.
    Now, my question is the purpose of police officers on the 
beat was so that the neighborhood people could get to know the 
law-enforcement folks, is that a fair statement?
    Mr. Martinez. Yes, ma'am.
    Ms. Jones. And so for you to terminate the Drug Elimination 
Program across the country without having really looked in-
depth to the impact that it has had in communities, where there 
was a high crime rate and improvement, is irresponsible.
    For you to terminate these programs in the Administration--
--
    I wanted you to take back to the Administration our 
frustration about the Drug Elimination Program in light of the 
elimination of the COPS Program as well. Could you do that for 
us, please, Mr. Martinez?
    Mr. Martinez. I will do so.
    Ms. Jones. OK. Now let me ask you about the reduction to a 
2-month reserve for HUD programs.
    What was the rationale for the reduction of 2-month 
reserves?
    Mr. Martinez. The rationale was that 2-month reserve was 
not necessary, that 1-month reserve was adequate in light of 
the fact----
    Ms. Jones. Adequate for what purpose?
    Mr. Martinez. Adequate to never have a problem in being 
able to administer the program and payments being made timely.
    This program has gone from a fiscal year to a calendar 
year.
    We will not be running into the year-end budgetary 
problems, which it was intended to avoid.
    So, in fact, that reserve--and I think this is widely 
acknowledged to be correct--is not a necessary reserve to be 
maintained at a 2-month level, but that, at 1-month level, it 
would be very adequate to meet the needs of the people in 
public housing that would be depending on the payments, so that 
they would never have a problem of them being timely made.
    Ms. Jones. So your financial advisor at HUD said adequate 
to meet the standard for determining whether you have a 2-month 
reserve or a 1-month reserve was to be adequate to meet the 
needs of----
    Mr. Martinez. No, because----
    Ms. Jones. ----residents. That is the financial standard.
    Mr. Martinez. No, it is not just a financial standard. I 
think the----
    Ms. Jones. What is the financial standard for reserves 
then?
    Mr. Martinez. This reserve was there because it was feared 
that, when the budgeting was coming at a fiscal year, that 
there would be a discussion at the end of the fiscal year and 
that the budget would not be completed, and that at that point 
the public housing agencies would not get their funds on time.
    In fact, what has occurred, when this has happened, is that 
the Congress has gone ahead and funded the payments for public 
housing Section 8 anyway.
    The problem has never arisen. In addition to that, it has 
now gone to a calendar year.
    So, therefore, the year-end budgetary problem does not 
arise, because you have an additional 3 months until the 
beginning of the calendar year before the problem would ever 
come to pass anyway.
    Ms. Jones. And that is what your financial person said----
    Mr. Martinez. No, ma'am.
    Ms. Jones. ----is the standard for reserves? That is the 
question I am asking you.
    What is the standard for maintaining the reserve in 
accounts such as Section 8?
    Mr. Martinez. It was a prudent timeframe that would allow 
us to always be able to meet the payments without ever coming 
to a problem where we would not have those payments available.
    Ms. Jones. Mr. Martinez, I mean no disrespect to you at 
all.
    We only have 5 minutes. I had specific questions I wanted 
answered. In your past questioning, you did not answer the 
specific questions of others. I was trying to direct your 
examination, and I mean no disrespect. If you think I did, 
please forgive me, but I represent the 11th Congressional 
District of Ohio. I needed questions answered for my 
constituents and my colleagues. Thank you very much.
    Chairwoman Roukema. Congresswoman. All right.
    Mr. Martinez. I hope I have answered them. If I have not 
adequately answered----
    If you would submit them in writing in any way you would 
like, I will try to do my best to answer them politely.
    Ms. Jones. I would like to meet with you, sir. Thank you.
    Mr. Martinez. If you felt that I was, in my facial 
expressions, meaning some disrespect to you, I sincerely----
    Ms. Jones. I did.
    Mr. Martinez. ----apologize. I did not intend for that----
    Ms. Jones. Thank you.
    Mr. Martinez. ----to be the impression.
    Ms. Jones. And I accept the apology.
    Chairwoman Roukema. Thank you, Secretary.
    Now we have Congressman Grucci, please.
    Mr. Grucci. Mr. Secretary, welcome.
    Mr. Martinez. Thank you, sir.
    Mr. Grucci. Thank you for taking time out of your schedule 
to be with us and talk about these very important issues.
    I am not a prosecutor, so I am not going to prosecute you 
here today.
    Mr. Martinez. Thank you very much.
    Mr. Grucci. I do have a couple of concerns about affordable 
housing that you and your agency may be able to address as you 
go through the restructuring of your Department.
    But, first, I would just like to take a moment to say that 
the law-enforcement agents in my communities, where we have HUD 
housing and we have downtrodden communities, they do respond.
    They respond adequately. They respond properly, and they 
respond effectively in eradicating the crime and bringing the 
perpetrator to justice.
    Probably that may be one of the reasons why we do not have 
a voucher system that does not get fully utilized, because the 
communities are being addressed in both the need for affordable 
housing and the ability to keep those affordable-housing areas 
safe for the inhabitants.
    What I would like to bring to your attention, sir, in the 
form of a statement--and embedded in that statement are a 
couple of questions--is that affordable housing on Long 
Island----
    Let me just start by saying the housing stock on Long 
Island in New York is at a premium.
    We have a very tight housing market. It is a very desirable 
area.
    We do have areas and pockets of poverty and pockets that 
need help, and it becomes increasingly more difficult to find 
affordable housing when: a, you live on an island, and b, the 
island is a desirable place to live.
    So, there have been some requests by agencies, like the 
Long Island Housing Partnership and the Association of Long 
Island Housing Agencies, for some additional help in the area 
of trying to encourage affordable housing to take place, either 
through existing housing stock, by landlords, and so forth.
    One of the things that came to my attention was that this 
subcommittee successfully, in 1996, I believe it was, was able 
to bring the income limit caps for the HUD HOME Program to 80 
percent of the median income.
    It was, I guess, done as a compilation of about 43 
different regions, including the one that I live in, Suffolk 
County.
    That has changed, from my understanding, and making it more 
difficult now for affordable housing to be started or to be 
able to continue.
    I hope that you take a look at that and see if there are 
ways that we might be able to make adjustments in areas where 
we do have very high costs of living and the pricing of homes 
are very high.
    Mr. Martinez. I think that is a very good point, and I 
think it is an issue that arises in certain areas of the 
country that are very peculiarly afflicted like that.
    I think we need to try to find a way that our policies and 
our programs can better address those areas.
    I think, frankly, one of the things that I see that is 
developing, like in San Francisco, is where the private sector 
is also getting involved in partnerships.
    We want to look to those and see how we can utilize the 
resources of the private sector--or the resourcefulness of 
them, so that we can better provide additional stock of housing 
that is affordable.
    Mr. Grucci. I thank you for that. There are two other 
points that I would like to make before my time expires.
    While everyone is very concerned, and rightly so, about the 
issue of lead and the removing of lead in the facilities, it 
does cost and cause a burden to be placed on the landlords, 
further exacerbating the situation of the--not wanting to bring 
Section 8 housing online, because, as my colleagues have 
pointed out earlier, in the private sector, you can get 
significantly more money for those rentals.
    Mr. Grucci. My request would be is that, if there is in 
that funding that you have talked about, the ability for local 
housing agencies to be able to be given one-time grants to be 
able to effectually remove the lead-based paints in the homes, 
so that it does not become an additional burden on those who 
would be willing to provide the affordable housing, and lastly 
to encourage more of the affordable housing to be done in 
places like former strip malls or previously developed areas, 
and change them into affordable housing development areas.
    Could there be some sort of incentives given to the private 
landlords, things like security deposits or brokers' fees, to 
help encourage them to not only build the units, but to rent 
them?
    These are thoughts that I would like to leave with you as 
you go through the process of redesigning, redeveloping, and 
trying to advance your agency.
    I do believe that you are the conscience of America in HUD.
    You certainly address the compassionate side of the 
compassionate conservative, and I applaud you for your efforts 
and your continuing effort here.
    Mr. Martinez. Thank you. I think your ideas are good, and 
we should be looking for creative private solutions to a lot of 
these problems.
    A lot of the governmental ones have been tried, and they do 
not always work very well, so I appreciate your input. Thank 
you.
    Mr. Grucci. You are welcome. I yield back the remainder of 
my time.
    Chairwoman Roukema. Thank you. I appreciate that.
    Congressman Clay.
    Mr. Clay. Thank you, Madam Chairwoman.
    Welcome, Mr. Secretary.
    Mr. Martinez. Thank you.
    Mr. Clay. Just to let you know a little about the area that 
I represent, I represent St. Louis, Missouri and part of St. 
Louis County, an older industrial community with some severe 
affordable-housing needs.
    Today, I just wanted to hear some of your views on 
transitioning public housing tenants to home ownership. That is 
the first question.
    Mr. Martinez. I think that there--You know, one of the 
things that I remember from being a public housing official is 
that--local official, it was so sad to see multi-generations 
living in what really should have been, perhaps, a temporary 
help to move on to something else.
    Well, I think whatever we can do to move people into home 
ownership, for those who can--understandably there may be some 
who never can--but to work with them to facilitate their 
learning the skills that it takes to gather the equity 
necessary to put a down payment on a home, and things like 
that.
    I think it was a very exciting and potentially transforming 
source of opportunity.
    I think that, when we create more homeowners, we are really 
creating even better citizens.
    I think that this is the opportunity to really live out the 
American dream that we would hope we can bring to many more 
American families.
    I think that the faith-based initiatives provides those, 
and I do not want to take too much of your time; I will be 
quick.
    A good opportunity to involve faith-based organizations in 
home-ownership training--I know it is being done in some 
places--expanding that, I think, it would be a great 
opportunity to do that as well.
    Mr. Clay. And you are willing to devote some of the 
Department's resources to that effort?
    Mr. Martinez. Absolutely.
    Mr. Clay. OK, let me ask you another question. The Council 
on Large Public Housing Authorities has written that the 
Administration's budget would devastate public housing and that 
the Administration proposes public housing residents, our 
Nation's poorest, bear the brunt of the largest cuts in the HUD 
budget.
    Do you agree with their assessment, that public housing 
bears the brunt of your proposed cuts?
    Mr. Martinez. Unfortunately, I think that they are 
perceiving it as that way.
    But, I think, first and foremost, the conclusion they 
reach, I think is 100-percent wrong. It does not provide a 
catastrophic budget to public housing agencies.
    I think they have misconstrued the reductions in the 
Capital Fund for some type of reduction in what they are going 
to be getting in the streamline of funding that they are 
anticipating for their modernization programs.
    Mr. Clay. A final question. You have justified draconian 
cuts in the public housing Capital Funds used to repair aging 
units on the grounds that there is a backlog of unspent funds.
    Yet, the 1998 Public Housing Bill set strict ``Use It or 
Lose It'' rules.
    If your only concern was unspent funds, why didn't you 
simply propose tightening up the time limits on those rules 
instead of slashing the funding?
    Mr. Martinez. Let me say that what you refer to, draconian 
cuts, are within a very, very small number, the same identical 
funds that Secretary Cuomo asked of you last year when he 
presented his budget.
    So, I think that we are within a whisker of the same level 
of request, so I do not think that it would be draconian in any 
measure.
    But, also, let me say that I believe that the public 
housing authorities will have----
    What I am asking here is not that we are going to pull back 
unspent funds. These are unencumbered. They are not being used 
for any one purpose or not assigned to any one project.
    There is an accumulation, Congressman, believe me, that 
will take more than 3 years before they could get to those 
funds.
    So, the bottom line is that no repairs are going to go 
undone. No needs are going to go unmet by this reduction at 
this time.
    Mr. Clay. Well, are you trying to accelerate the use of 
those funds?
    Mr. Martinez. We are accelerating how we get them to them 
so that this can become a more quick absorption. Absolutely.
    We are working on that. We have found a lot of things that 
need to be done better at HUD, and I am working hard at it.
    Let me just say, also, for all of your knowledge, that I am 
doing this at this point still alone.
    There is not a single other member of this Administration's 
team at HUD that is confirmed yet, so we are doing the best we 
can, but there is a lot to be done.
    Mr. Clay. Thank you for that response.
    Mr. Martinez. Yes, sir.
    Mr. Clay. Thank you, Madam Chairwoman.
    Chairwoman Roukema. I thank you, Mr. Clay. Those are very 
interesting and informative questions, and we will have to 
continue working on that. Now we have--I mean, in the total 
budget picture----
    Mr. Martinez. Yes.
    Chairwoman Roukema. Yes.
    Congressman Barr.
    Mr. Barr. Thank you, Madam Chairwoman.
    Mr. Secretary, it is a pleasure having you here.
    I know I speak for other Members of the subcommittee in 
welcoming you, and looking forward to working with you over the 
coming year-and-a-half or a little over a year-and-a-half that 
we have remaining in the 107th Congress.
    I would also like to extend to you an invitation to visit 
Georgia.
    If we can get you down to Georgia--and I know you will be 
visiting down there--to get you outside of Atlanta, at least--
--
    Mr. Martinez. Yes.
    Mr. Barr. ----for part of your time. We have some 
outstanding public housing authorities, not just in my 7th 
District, but other districts as well.
    I do meet with those public housing authorities on a fairly 
regular basis, and I hear from them, both the good, the bad, 
and the ugly, dealing with HUD.
    One of the things that I do hear is appreciation for the 
CDBG grant monies.
    I know those are being requested to be fully funded at the 
same level with no cuts. We appreciate that very much.
    With regard to the Drug Elimination Program, I have heard 
from housing authorities on that and look forward to working 
with you.
    I know that you share our concern that we want to keep 
drugs out of public housing projects.
    We want to have at least as low a crime rate as we do in 
other areas, and I certainly presume that the President and you 
will be working to explore ways to do that.
    Mr. Martinez. Yes.
    Mr. Barr. I am heartened that, even though you are removing 
the funds from the existing program--and I have read a lot of 
the material with the abuses in that program, such as using 
funds for gun buy-back programs, which was not authorized by 
Congress, and I presume certainly not supported by this 
Administration.
    I was glad to see, though, the additional $150 million that 
you are proposing to move into the Operating Fund, and that, as 
you have indicated here today, public housing authorities will 
be able to use whatever portion they receive of that money for 
the Drug Elimination-type Programs if they choose.
    Mr. Martinez. Correct.
    Mr. Barr. Is that----
    Mr. Martinez. And that is absolutely correct, and it is my 
intention.
    My intent is that that would be available to them to use 
for those programs that work, and there are programs that work 
out there.
    They should still be funded through that $150 million that 
we put into the budget.
    Mr. Barr. Thank you. Just a little bit ago, I stepped out 
to meet with Mr. Chuck Snyder, President and CEO of National 
Cooperative Banks.
    I know that they have been in touch with you and certainly 
hope that you will be working with them to explore ways through 
cooperative efforts to, not only continue rent-subsidy 
programs, but, as much as possible, move into the area of home 
ownership, which is much better than just rent and, in many 
respects, such as working through cooperative banks, can be 
done basically at the same price--or the same monthly amount of 
money as rentals.
    Mr. Martinez. Correct.
    Mr. Barr. With regard to support for first-time home 
buyers, do you share my concern that it is not simply a matter 
of making funds available, but also setting up programs to work 
very carefully, very comprehensively, and over the long term 
with first-time home buyers in these programs to ensure that 
they truly do understand the responsibilities of home ownership 
and all that goes with it.
    With regard to the programs that the President is proposing 
to fund for first-time home buyers, will there be both funds 
and attention paid to working with those people to ensure that 
they do understand their obligations, in a very broad sense, 
with regard to home ownership, and will facilities be made 
available to work with them?
    Mr. Martinez. Congressman, you are correct. A very 
important component of home ownership is--becoming a 
knowledgeable homeowner is--becoming a person who understands 
the financial responsibilities as well as maintenance and other 
issues.
    We will be working with community groups, and particularly 
the faith-based organizations and communities, to help us carry 
out the homeowner education programs.
    They are an important part of what HUD will do in the 
future.
    Mr. Barr. Good.
    One final issue that I would very much appreciate your 
looking into and getting back to me, that is with regard to the 
$50 minimum rent issue that was part of the reform legislation.
    In many areas not only is the $50 minimum rent not being 
charged, but the participants are getting money back from the 
public housing authority, because the utility subsidy is more 
than $50.
    I would appreciate--I presume you have not had a chance----
    Mr. Martinez. I don't have.
    Mr. Barr. ----to explore that in great detail. I would 
appreciate the views of the Administration as to whether or not 
we need to revisit that to ensure that a $50 minimum rent 
really is a $50 minimum rent.
    We might need to explore a legislative fix to that area, 
but would you look into that----
    Mr. Martinez. We will look into it, certainly, yes, sir.
    Mr. Barr. ----and get back to me?
    Mr. Martinez. We will get back to you.
    Mr. Barr. I appreciate that, thank you.
    Chairwoman Roukema. Thank you, Mr. Barr. That was an 
excellent point. I think we are all getting an education here 
today.
    Mr. Martinez. Yes, yes.
    Chairwoman Roukema. We are teaching each other, or learning 
from each other, hopefully.
    Now, Congresswoman Waters.
    Ms. Waters. Mr. Martinez, I welcome you here today.
    Mr. Martinez. Thank you.
    Ms. Waters. But I feel a little bit sorry for you, because 
they sent you up here with some fuzzy numbers and a budget that 
does not add up for you to defend.
    I do not even know if you are responsible for putting any 
of this stuff together, but you need to take the message back 
that we understand that the Administration proposed a funding-
year budget 2002 for the Department of Housing and Urban 
Development of approximately $30.4 billion, claiming $1.9 
billion, or 7 percent increase, over the $28.5 billion provided 
in funding year 2001.
    However, the Administration budget actually cuts HUD 
funding by $1.715 billion.
    This is a 6 percent cut. In real inflation-adjusted terms, 
the cut is $2.15 billion.
    That, sir, is an 8 percent cut. The Administration's claim 
that HUD's budget goes up by $1.9 billion relies on counting as 
high spending a $3.63 billion increase in Section 8 budget 
authority that does not increase spending or outlays by a 
single dollar.
    This phantom increase should be deducted from an accurate 
budget.
    These phantom Section 8 budget authority increases do not 
increase outlays by a single dollar.
    They do not serve a single new tenant or increase 
assistance for a single tenant and were previously funded by 
the 1997 bipartisan budget agreement.
    Factoring out this phantom increase, the Administration 
budget is a $1.715 billion net cut.
    I will not go into further details except to ask you to 
examine that so that, when you are asked to defend it, you will 
not be put in a position of trying to defend something that you 
are not able to defend.
    Specifically, I want to talk about cuts. The principal 
budget cuts are in four areas, as was mentioned and been talked 
about, public housing, Section 8 reserves, CDBG special purpose 
grants, and the HOME Program.
    The budget finds increment funds, incremental Section 8 
vouchers for 44,300 fewer families than last year and zeros out 
new vouchers for the disabled.
    The budget flat-funds a number of programs, funding year 
2001 levels, including elderly housing, disabled housing, 
homelessness, CDBG formula grant, and Native American housing.
    Very controversial, $700 million reduction in modernization 
funding, that is, the Public Housing Capital Fund for public 
housing authorities.
    HUD justifies the reduction because these housing 
authorities currently, they say, have a $6 billion backlog.
    Let me tell you why this bothers us so much. I think it was 
mentioned by our Ranking Member here that, you know, this 
solution to the housing needs of low-income people was not 
designed by low-income housing people.
    So, we stack these people on top of each other in these 
public housing units.
    We say, when we get disgusted about the crime and the 
problems, that it is their fault.
    Well, if we do not fix up these places, how are they 
supposed to have any pride in where they are living?
    We have got public housing units in America that have not 
been modernized.
    As a matter of fact--Mr. Clay is gone--but I can tell you, 
even looking at St. Louis, when the Pruitt Eigo just got so run 
down and so bad, they had to blow that thing up.
    There are a lot of others in America that need to be just 
destroyed. They are so bad.
    So, we have real problems with that, and the other thing 
that we have a lot of problems with, Mr. Secretary, is this: We 
are working very, very hard to do something about the 
elimination of drugs and crack cocaine in our communities.
    When we have a so-called conservative Administration that 
comes along and not only reduces the amount in police programs, 
such as the COPS Program, but then you pull out the money in 
areas like public housing projects to deal with the problem of 
drugs, you have no credibility.
    This Administration does not have any credibility in 
eliminating funds to deal with the problems of drugs in public 
housing.
    That bothers us a lot. I am not going to even talk about 
the housing crisis in America or in California and the amount 
of cuts that we have to endure with this budget.
    But, I want you to know, because my L.A. Housing Authority 
people said please, please, please let them know that we are 
very much concerned about the $700 million reduction in public 
housing Capital Fund and the proposed elimination of the $310 
million in public housing Drug Elimination Program.
    It is one thing to talk about how you are going to help all 
these new homeowners.
    First of all, I want you to know that many of the people 
that you are talking about who are working for minimum wages, 
who have not been the beneficiaries of this so-called well-
performing economy prior to the downsizing that we see, are not 
even going to be able to afford, even with so-called assistance 
for down payment, to talk about getting into homes.
    We have got to do something about getting poor people and 
working people into homes and giving them some support and job 
training, and all of that, to get them in the position of being 
homeowners.
    But, I do, having said all that----
    Chairwoman Roukema. Excuse me. Excuse me.
    Congresswoman Waters, you are a minute over time, so I will 
let you summarize and give the Secretary an opportunity to 
respond.
    Ms. Waters. OK. I did not expect any answers to all of 
that.
    But, I am curious, with this so-called home ownership, 
American dream-type stuff you are talking about, what is this 
Hybrid ARMs Program?
    You are not bankers. You are talking about you are going to 
seek authority and offer low-income families new adjustable 
rate mortgages.
    How do you plan to do that? You know, I would be just happy 
if you were to enforce CRA so that the banks and the lending 
institutions that are in business to do this would do the right 
thing, but just tell me how you are going to do that?
    Mr. Martinez. We cannot enforce CRA. That comes under 
Treasury--or the Fed, I guess.
    But, the Hybrid ARMs is a new financing--I mean, is a 
financing mechanism that is available to the market in general.
    We are trying to bring that available to low-income 
families as well.
    It will help them by stabilizing their mortgage rate for a 
period of time until they can get economically sound or get the 
foothold in their new home and keep the new home as to avoid 
foreclosures and to make mortgage financing more available to 
poor people, frankly.
    Ms. Waters. I am sorry, where is this program? How do you 
do it?
    Mr. Martinez. It is an FHA program.
    Ms. Waters. It is an FHA program?
    Mr. Martinez. Right, it is under FHA insured home 
mortgages.
    Chairwoman Roukema. Excuse me. This, evidently, is 
something that we would want to have you respond in writing and 
give us some amplification on it.
    Mr. Martinez. Sure.
    Chairwoman Roukema. Yes, Mr. Frank.
    Mr. Frank. Can I just say I think--I guess a lot of Members 
will have written questions, which we will be submitting.
    Chairwoman Roukema. Yes.
    Mr. Frank. I must tell you at first I thought the Hybrid 
Arms was a new housing project of mixed income. It was 
``Welcome to the Hybrid Arms.''
    Mr. Martinez. It is really a pitcher for the Red Sox, 
actually.
    Chairwoman Roukema. All right, thank you.
    Finally, last, but certainly not least, Mr. Bereuter.
    Mr. Bereuter. Thank you, Mrs. Chairman.
    Mr. Secretary, welcome.
    Mr. Martinez. Thank you.
    Mr. Bereuter. Congratulations on your appointment. I think 
anybody that takes on the Secretaryship of HUD is courageous. I 
place you in that category.
    Mr. Martinez. I particularly feel that way today, sir.
    [Laughter.]
    Mr. Bereuter. Two things I want to mention I hope you will 
look at: the status of the Executive Branch appointments to the 
Indian Land Title Status Commission, which will make the Loan 
Guarantee Program for our Indian reservations work across the 
whole country; second, to ask you to consider a Technical 
Corrections Bill to present to us sometime this year on public 
housing.
    I have a couple of things to call to your attention. I will 
start first by saying I am a former employee of HUD, one year 
right after the Army, I worked in the San Francisco office for 
the 10-State region.
    I want the agency to do its job. Under the guise of 
administrative efficiency, the program structure was changed in 
HUD during the last Administration to a linear structure with 
program staff, such as the CDBG grant staff--and I will give 
you this in writing--public housing staff, the multi-family 
housing management staff, the single-family housing staff, the 
fair housing and equal opportunity staff, the legal staff, in a 
field office answering to a person at headquarters and working 
independently of other field staff offices.
    In some cases, these program staff now answer to different 
offices scattered throughout the country.
    When a mayor or local government official wishes to resolve 
a problem that involves more than one program, there is no 
single office in the field that they can hear their appeal or 
concern.
    So, I think this movement to elevate these decisions from 
field offices to the central region is a very bad decision.
    It further confuses the issue to people. To further confuse 
the issue, people, now known as community-builders, were added 
to the structure for purposes of working with mayors and 
community leaders.
    Among many that work with HUD, this is viewed as a huge and 
very expensive public-relations ploy.
    At the Nebraska field office, approximately 50 staff had 
five community-builders with no secretarial delegations of 
authority and/or program responsibility.
    Very questionably, these community-builders were brought 
into HUD at grades of GS-13 through GS-15.
    I now understand the community-builders that were hired 
from within the agency are going to get promoted retroactively 
to GS-15.
    I think this is one example of significant grade-creep that 
has occurred in the agency without corresponding work 
responsibilities.
    One other example of this egregious abuse of public funds 
is a 26-person field office, Salt Lake City, where ten of the 
staff are community-builders, four at the GS-15 level, four at 
GS-13 level, one at GS-12, and one at GS-9.
    Fifteen of the staff are single-family housing staff, but 
they report to an office in Denver.
    Mr. Secretary, in a slightly different vein, I want to 
comment about HUD's relations with small housing authorities.
    For example, my State has over 100. Most of them have less 
than 60 units, mostly for elderly housing.
    I think the Department must find a way to reduce the 
enormous administrative burden these part-time executive 
directors face.
    They have been forced to buy expensive consulting services 
and computer programs to run their, in some cases, 20-unit 
public housing entities.
    By the way, they are extremely well-run and well-
maintained.
    I believe we have to give the Department some flexibility. 
I believe we have done that to some extent.
    But, the Secretary, in the past, has not exercised that 
flexibility.
    If HUD cannot find a way to reduce their oversight, then I 
think we should take a fairly dramatic step and forgive the 
debt and turn them over to the community or state.
    Mr. Martinez. You touched on three excellent management 
problems at HUD.
    The State of West Virginia, I was there a week or so ago as 
I was speaking to the people of West Virginia--that work at the 
HUD office in West Virginia.
    If you have a public housing issue in West Virginia, you 
have to go to Baltimore to get it resolved.
    The people of West Virginia had no one at the HUD office 
there that can deal with the public housing issue. That is a 
real problem.
    I think our drug elimination grant issue that--the housing 
authorities you are speaking of--these small housing 
authorities--they could not tap into the Drug Elimination 
Program effectively.
    So, now, under the general grant application that we will 
have available, they might have a better opportunity to come 
into that money for whatever uses they might need, given their 
local situation.
    So, I think you have just touched on three very serious 
management issues--the community-builders program roundly 
criticized, tremendous morale problem that it created for HUD, 
10 percent of the personnel resources devoted to that program.
    By June, I hope to have some fixes in place that I intend 
to implement.
    That is not to mention, by the way, the other personnel 
allocation issues that we have at HUD--tremendously high top-
end in some of our field offices with few or none in the 
clerical areas to do simple things like opening the mail.
    So, there are a number of challenges, and I appreciate your 
remarks in terms of those three.
    Mr. Bereuter. Thank you, Mr. Secretary. I can see you are 
on top of some of these issues already.
    I look forward to seeing a Technical Correction Bill from 
you, or Madam Chairwoman, that we ought to advance one sometime 
this year for the public housing authorities, particularly 
those small ones that I think need some flexibility and some 
relief. Thank you.
    Ms. Waters. Madame Chairwoman.
    Chairwoman Roukema. Yes.
    Ms. Waters. I would like unanimous consent to introduce a 
young lady who is with me.
    Today is ``Take Your Child To Work Day.'' Boys and girls, 
her name is Anabelle Wright from Benjamin Tasker Middle School, 
she is in the seventh grade. She wants to be a lawyer. She has 
been sitting here with us during most of this hearing.
    Chairwoman Roukema. Oh, well, thank you. We are very happy 
to see this young woman. I hope it has been an inspiration.
    [Laughter.]
    Chairwoman Roukema. Yes? I hope we have not discouraged 
you. Actually this was an excellent hearing for you to attend 
and hear.
    We have a wonderful new Secretary of HUD, and, as you can 
see, we have a lot of questions on a bipartisan basis and on a 
partisan basis, and this is how democracy works under our 
system.
    Mr. Frank. And the test on all this will be tomorrow at 
10:00 o'clock.
    Chairwoman Roukema. I am sorry, I did not hear you. Oh, the 
test will be tomorrow.
    No, we are not going to--we will let you have an oration, 
OK, let you talk back. OK.
    Ms. Waters. Thank you very much.
    Mr. Watt. Madam Chairwoman.
    Chairwoman Roukema. Yes, Mr. Watt.
    Mr. Watt. I ask unanimous consent to submit for the record 
copies of a number of letters from tenants in public housing 
communities from my Congressional District in support of the 
Drug Elimination Program, some of which are addressed to----
    [The letters referred to can be found on page 129 in the 
appendix.]
    Chairwoman Roukema. Yes, I certainly would approve of that, 
and, before I end, of course, we will do the usual 30-day 
program for including written questions.
    Ms. Waters. Excuse me, Madam Chairwoman. I would like 
unanimous consent also to submit my statement for the record.
    Chairwoman Roukema. Well, yes. When you were not here, I 
had asked unanimous----
    That unanimous consent had already been granted. I would 
just like to summarize this by stating for the Secretary that 
we are most grateful for your generous time commitment here and 
for the way that you handled the questions and the insights 
that you have given us, and for the open-minded approach to the 
questions that have been raised.
    I certainly appreciate that. I would also point out that we 
will have follow-up hearings.
    I think you made reference to a June date when you will 
have----
    Mr. Martinez. Yes.
    Chairwoman Roukema. ----more information on a number of the 
questions that were raised here, including Mr. Bereuter's.
    So, we will, without question, have follow-up hearings on 
the technical corrections or other pieces of legislation that 
we will be looking at.
    I think that Mr. Bereuter put it very well with one word, 
your courageous commitment to this office.
    I really would like to underscore that and say ditto, it is 
a courageous commitment.
    But, I think you must also recognize that the attendance at 
this hearing is graphic evidence of the intense high-profile 
bipartisan interest that this Congress has on the subject of 
housing, whether it is the delivery of service or the housing 
availability for all members of our society and, of course, the 
reforms that have been outlined here.
    There are questions of reforms in the Department, and, as 
you get your staff in place, and your assistants and deputies 
in place, I am sure we will be hearing back from you on 
reforms, but also we do want housing affordability to be 
available to all members of our society in a fiscally 
responsible way.
    Mr. Martinez. Yes. Thank you.
    Mr. Frank. Madam Chairwoman.
    Chairwoman Roukema. Yes, Mr. Frank.
    Mr. Frank. I want to say to the Secretary again I 
acknowledged at the outset I know that he accommodated us in 
his schedule.
    I do want to assure him, on behalf of all the Members, that 
we all realize that any differences that exist--and there are 
obviously some--are policy differences, not personal. We 
appreciate his goodwill on this.
    Mr. Martinez. Thank you.
    Chairwoman Roukema. Thank you, Mr. Frank.
    I would say, for all Members, that, as is our procedure, 
without objection, the hearing record will remain open for 30 
days for Members to submit written questions and to have the 
responses placed in the record.
    With that, this hearing is adjourned.
    [Whereupon, at 12:22 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             April 26, 2001


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