[Senate Hearing 107-839]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 107-839
 
                     HUD'S FISCAL YEAR 2003 BUDGET
                       AND LEGISLATIVE PROPOSALS
=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

THE EXAMINATION OF THE PRESIDENT'S PROPOSED BUDGET AND THE LEGISLATIVE 
              PROPOSALS FOR FISCAL YEAR 2003 FOR THE U.S. 
              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                               __________

                           FEBRUARY 13, 2002

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs






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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

           Steven B. Harris, Staff Director and Chief Counsel

             Wayne A. Abernathy, Republican Staff Director

                  Martin J. Gruenberg, Senior Counsel

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administator

                       George E. Whittle, Editor

                                  (ii)








                            C O N T E N T S

                              ----------                              

                      WEDNESDAY, FEBUARY 13, 2002

                                                                   Page

Opening statement of Chairman Sarbanes...........................     1

Opening statements, comments, or prepared statements of:
    Senator Allard...............................................     8
        Prepared statement.......................................    38
    Senator Miller...............................................    10
    Senator Carper...............................................    11
        Prepared statement.......................................    38
    Senator Reed.................................................    14
    Senator Corzine..............................................    17
        Prepared statement.......................................    39
    Senator Crapo................................................    21

                               WITNESSES

Mel Martinez, Secretary, U.S. Department of Housing and Urban
  Development....................................................     3
    Prepared statement...........................................    40
Thomas L. Jones, Managing Director, Habitat for Humanity 
  International,
  Washington Office..............................................    23
    Prepared statement...........................................    41
Sheila Crowley, President and Chief Executive Officer, National 
  Low
  Income Housing Coalition.......................................    27
    Prepared statement...........................................    51
    Response to written question of Senator Sarbanes.............    59
Joseph F. Reilly, Senior Vice President, JPMorgan Chase Community
  Development Group, on behalf of the National Association of 
    Affordable
  Housing Lenders................................................    29
    Prepared statement...........................................    57

              Additional Material Supplied for the Record

Housing Wage Chart submitted by the Low Income Housing Coalition.    60
Endorsement letter submitted by Shelia Crowley...................    61
U.S. Conference of Mayors Resolution, dated June 2001............    91

                                 (iii)


                     HUD'S FISCAL YEAR 2003 BUDGET 
                       AND LEGISLATIVE PROPOSALS

                              ----------                              


                      WEDNESDAY, FEBRUARY 13, 2002

                               U.S. Senate,
      Committee on Banking, Housing, Urban Affairs,
                                                    Washington, DC.

    The Committee met at 11:10 a.m., in room SD-538 of the 
Dirksen Senate Office Building, Senator Paul S. Sarbanes 
(Chairman of the Committee) presiding.

         OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

    Chairman Sarbanes. The hearing will come to order.
    We delayed the start of the hearing, and we may be 
interrupted due to a series of votes. Oh, I can ignore those 
particular lights. Pavlov should have done his experiments here 
in the Congress.
    [Laughter.]
    He could have used real, live humans, you know. Secretary 
Martinez, we are pleased to welcome you back before the 
Committee. We appreciate your willingness to be here with us 
this morning. I know that you have a previously scheduled 
meeting with the House Subcommittee on Housing this afternoon. 
We are very mindful of that, and I want to express my 
appreciation to the panel that is going to follow the Secretary 
for their patience in staying with us.
    Hearings that we held last year showed that the need for 
affordable housing in America continues to grow. Nearly 5 
million low-income American families pay over half their income 
in rent each month, a situation which HUD itself describes as a 
worst case housing need. These numbers undoubtedly will grow as 
unemployment rises. Actually, there are more and more working 
families that are confronted with this problem. We have seen a 
decline in the number of affordable rental units and decreasing 
vacancy rates.
    There is some very helpful material in the testimony we are 
going to hear later in the morning from the National Low Income 
Housing Coalition about the extent and depth of the low-income 
housing shortage in the country. They estimate that about 14 
million households have serious housing problems, comprising 
over 13 percent of all households in the country. And of 
course, we are using this housing wage concept to measure 
affordability and to indicate the severity of the housing 
problem.
    The housing wage is the hourly wage that one must earn to 
be able to afford modest rental housing if one works full time, 
40 hours a week, 52 weeks a year. This is based on a family 
paying no more than 30 percent of their income for housing. In 
making this calculation, the Low Income Housing Coalition 
points out they use HUD's fair market rent as a proxy for 
rental housing costs. That is a standard measure and differs by 
jurisdiction. The fair market rent also represents what HUD 
says is the necessary rent to be paid to afford housing that is 
decent and safe. It is set at the 40th percentile of rental 
housing costs. In any event, the housing wage ranges from $8.50 
an hour in West Virginia to $18.33 an hour in California. In 
other words, you have to earn that hourly wage in order to 
afford this housing standard, so we can see there is a gap 
between what people earn and what housing costs them, and it 
obviously puts them in a tremendous squeeze. This disparity 
between income and housing costs is one of the reasons that the 
Committee has been so concerned about this matter.
    Mr. Secretary, I am not going to take the time to go 
through the specifics of the budget. We will do that in the 
question period. We are supportive of your stated efforts to 
expand minority homeownership. I think that is a very important 
objective.
    I might note, however, that the NAACP, the La Raza, and the 
National Hispanic Housing Council, have written to you about 
the yield spread premium problem and how the use of yield 
spread premiums really runs counter to your announced 
intentions to try to aid minority homeownership.
    Finally, let me say--and we will need to discuss this 
later--there is something of a problem that seems to have 
developed in terms of consultation and effective interchange 
between staff at HUD and staff of the Committee. The 
relationship between the Department and the Committee is a 
complex one. On one level, we discuss and debate the content of 
policy positions, budgets, legislative proposals, nominations, 
and the like, and often we are in agreement. We try hard to see 
to maximize that. Sometimes we are in disagreement. But in 
addition, the Committee has the responsibility for maintaining 
oversight over HUD's operations and to see that the Department 
carries out its programs and policies in an efficient and 
effective manner.
    In order to discharge that function, we really need a good 
interchange between Committee's staff and HUD's staff. We have 
encountered some difficulties in this regard, and I just wanted 
to raise it to your level. I am not sure it has had the kind of 
visibility at the Secretary's level that it deserves. I can do 
chapter and verse with you some other time. I will not take the 
time to do that now. We really need a commitment by the 
Department to make senior staff available to the Committee 
staff on a regular basis, so we can follow what is going on at 
HUD. Sometimes we are finding out about major changes at HUD 
through the grapevine, through outside parties and so forth, 
and I do not really think the system should work that way. It 
is not a healthy way to proceed.
    In closing, let me just note that the U.S. Conference of 
Mayors has just passed a resolution supporting the 
establishment of a housing production program which is not 
present in this budget. We will probably address that in this 
hearing. Their resolution also supports increased preservation 
of existing affordable housing and a national strategy to meet 
the needs of the homeless. I know you have a proposal on that 
and we look forward to hearing about that.
    We are pleased to have you back before the Committee. I 
know a number of my colleagues intend to join us but they may 
actually be waiting for the final vote to take place. I thought 
we had better get started, given that you have to go over to 
the House side, and we want to honor that commitment. We would 
be very pleased to hear from you.

             STATEMENT OF MEL MARTINEZ, SECRETARY,

        U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Secretary Martinez. Thank you, Mr. Chairman, very much. It 
is always good to be back with you and I assure you that before 
going into my remarks on the budget that the staff issues you 
brought to my attention are very important to me and I wish to 
deal with them forcefully and energetically. I think the kind 
of bipartisan cooperation that you and I have had during this 
past year is really very important to the success of HUD and to 
the success of the work that we do, which I always find it to 
be something that we all love to come together on. While we may 
differ on specifics of an issue, we always should be doing our 
best to keep you informed and make sure that we have the kind 
of cooperative partnership that is designed to exist.
    Thank you for the opportunity to join you this morning to 
talk about the fiscal year 2003 budget for the Department of 
Housing and Urban Development. The $31.5 billion HUD budget 
represents a funding level increase of 7 percent over 2002 
levels. By helping Americans reach the dream of homeownership 
and ensuring affordable housing opportunities for those who 
rent, strengthening and renewing communities, and preserving a 
safety net for the most vulnerable, this budget will enable HUD 
to make a tremendous difference in the lives of millions of 
Americans.
    The housing market in 2001 was extremely vigorous, and we 
entered the new year with homeownership rate at a record 
height. Because we know that homeownership gives families a 
stake in their communities and creates wealth, the HUD budget 
makes owning a home a viable option for more Americans. In his 
State of the Union Address, President Bush acknowledged our 
commitment to expanding homeownership--especially among 
minority families.
    As a first step, we have quadrupled the American Dream 
Downpayment Fund, to $200 million. This Presidential initiative 
will help an estimated 40,000 first-time homebuyers overcome 
the high cost of down payments and closing costs that are 
significant obstacles to homeownership.
    A Tax Credit for Developers of Single-Family Affordable 
Housing will promote homeownership opportunities among low-
income households by supporting the rehabilitation of new 
construction of homes in low-income urban neighborhoods, also 
in rural America.
    We are tripling the funding for the Self-Help Homeownership 
Opportunity Program (SHOP) to $65 million, as committed by the 
President last spring. That, and a lot of sweat equity, will 
make possible the construction of 3,800 more homes for 
disadvantaged Americans. SHOP is an excellent example of 
Government maximizing its resources by working with private-
sector partners like Habitat for Humanity.
    Another very exciting homeownership initiative targeted at 
low-income families will allow them to put up to a year's worth 
of their Section 8 rental voucher assistance toward a 
downpayment on a home. And because we consider it an invaluable 
tool for prospective homebuyers and renters, we have proposed 
making housing counseling a separate program. The increase in 
sub-prime lending has made financial literacy more important 
than ever, armed with the facts, a consumer is less likely to 
be victimized by predatory lending. We are funding the 
counseling program at $35 million, which represents a $15 
million increase over the previous fiscal year.
    While we consider homeownership an important goal, we 
recognize that it is not an option for everyone. So, our budget 
preserves HUD's commitment to expanding the availability of 
affordable housing for the millions of Americans who rent their 
homes.
    The Section 8 tenant-based program today assists nearly two 
million American families; our budget provides 34,000 more 
housing vouchers. The budget also dedicates $16.9 billion to 
protect current residents by renewing all expiring Section 8 
contracts.
    To encourage moderate-income rental housing production in 
underserved areas, we plan to reduce the mortgage insurance 
premium for Federal Housing Administration multifamily 
insurance.
    Three times over the last 8 years, HUD has been forced to 
shut down our multifamily mortgage insurance programs because 
of lack of credit subsidy. Last year, the shutdown stopped the 
construction of some 30,000 rental units throughout the country 
and clouded developers in uncertainty.
    We made a commitment at HUD to a comprehensive review of 
the credit subsidy program. We examined the statistical 
techniques that were used to analyze loan performance. We 
thoroughly updated and refined FHA's data and incorporated the 
major tax law changes in the 1980's that affected the 
profitability of multifamily housing. Through our review, we 
were able to lower premiums, 
create a self-sustaining program, provide the industry with 
stable financing at a much lower cost, and provide thousands of 
new opportunities for rental housing across the country. In 
fact, the program made firm commitments to insure $1.25 billion 
worth of new rental housing in just the first 4 months of the 
fiscal year. Reducing the premiums in fiscal year 2003 will 
lower the cost of building over 50,000 affordable rental 
apartments each year.
    The 2003 budget gives HUD new resources to further our 
mission of supporting the Nation's most vulnerable. This 
includes low-income families, homeless men and women, the 
elderly, individuals with HIV/AIDS, victims of predatory 
lending practices and families living in housing contaminated 
by lead-based paint. Let me highlight just a few of our 
proposals.
    To better coordinate the work of the many Federal agencies 
that reach out and provide a continuum of care to homeless men, 
women, and families, the budget calls for doubling HUD's 
funding for the newly reactivated Interagency Council on the 
Homeless. Additionally, converting three competitive homeless 
assistance programs into a consolidated grant will eliminate 
the workload and expense of administering three separate 
programs. More importantly, it will give local jurisdictions 
new discretion in how those dollars are spent and will enable 
our Department to expedite the time when the money gets out the 
door from 18 months down to between 90 to 120 days.
    HUD's Lead Hazard Control Program is the central element of 
the President's effort to eradicate childhood lead poisoning in 
10 years or less. The HUD budget will fund the program at $126 
million, a substantial increase over the previous year.
    The budget also proposes spending $251 million under HUD's 
Section 811 program to improve access to affordable housing for 
persons with disabilities. And many of the additional 34,000 
Section 8 housing vouchers will aid non-elderly, disabled 
individuals.
    In addition to addressing the Nation's critical housing 
needs, programs such as the HOME Investment Partnerships 
Program and the Community Development Block Grant (CDBG) 
Program stimulate economic development and job growth. 
Combined, these two programs will distribute an additional $200 
million in formula funding to State and local governments. We 
have proposed changing the distribution of CDBG formula funds 
by reducing the size of grants going to the wealthiest 
communities. This will help bring dollars into those areas 
where they can do the most good.
    We are excited about a brand new concept to address the 
large backlog of repair and modernization projects in public 
housing. The Public Housing Reinvestment Initiative represents 
a new way to 
leverage the value of public housing by allowing public housing 
authorities (PHA's) to borrow funds to make needed capital 
improvements. This project unlocks the value of public housing 
assets by allowing PHA's to convert public housing units to 
project-based vouchers. The PHA's can obtain loans by borrowing 
against individual properties--similar to private-sector real 
estate financing.
    Innovative thinking like this represents a departure from 
the way things were done so often the past--but being effective 
does not have to mean spending more money. Government works 
best when Government serves as a steward and facilitator, and 
measures success through results. By facilitating the 
involvement of new local partners, the Public Housing 
Reinvestment Initiative will breathe new life into public 
housing communities.
    I am proud of our budget and the way it reflects HUD's 
renewed commitment to efficiency, accountability, and the 
principles of excellence expressed through the President's 
management scorecard. When Government spends efficiently, the 
funds go much further. We reach more citizens. We help to 
change more lives.
    The people of HUD know that the American Dream is not some 
unattainable goal, because we see it achieved every day, so 
often by families who never imagined owning their own home or 
reaching economic self-sufficiency. I am very confident that 
through our budget--and the continued commitment of President 
Bush--HUD will be better able to offer citizens the tools that 
they can put to work improving their lives, and strengthening 
their communities and their country, as they travel the road to 
achieving their own American Dream.
    I would like to thank each of you for your support of my 
efforts, and I welcome your guidance as we continue our work 
together on behalf of the American people.
    Thank you.
    Chairman Sarbanes. Thank you very much, Mr. Secretary.
    First, I want to comment on the Credit Subsidy issue. We 
were quite concerned when HUD increased the premiums to 80 
basis points. It was at 50 when you did that, and now I 
understand you have brought it back down to 57 basis points. 
That seems to have provided some stability in the program, and 
I gather that those who work with the program across the 
country feel they can move ahead now on the basis of this 
change.
    As you will recall, we expressed considerable concern when 
you increased premiums. I am pleased that subsequent 
reexamination has led to this result.
    I have a couple of other programs I want to discuss right 
at the outset and that I am very anxious to ask about. Late 
last year, HUD said that there was an Anti-Deficiency Act 
violation with respect to the Outreach and Training Grant 
Program and the Intermediary Training Grant Program that 
provides technical assistance to residents of assisted housing 
properties including those undergoing restructuring. At that 
time, funding to the nonprofits, which operate the Technical 
Assistance Program, ceased, leading to layoffs of many small, 
nonprofit technical assistance providers around the country. At 
the end of the session, Congress fixed that problem by giving 
HUD $11 million to fund the contracts that may have created the 
antideficiency. I am now told that the HUD IG has tentatively 
concluded that there was no antideficiency violation in the 
first place. Yet, HUD has not released this funding.
    T the National Low Income Housing Coalition, in their 
statement, which we will hear later in the morning, and I just 
want to quote it because it is very strong:

    We cannot stress strongly enough the urgency of this 
problem. Many community-based nonprofit organizations have not 
been paid for their work, and the consequences to these 
organizations are dire. Several have laid off staff and others 
have gone into debt to maintain services in anticipation of 
receipt of money owed. These are small organizations that are 
at risk of going out of business if HUD does not pay them 
immediately.

    I do not understand why we have not been able to get that 
money out to these nonprofits so they are not operating under 
this tremendous pressure which is obviously impacting their 
ability to carry out their activities. Apparently now, with the 
IG's opinion, as I understand it, we need not have gone through 
all this, but having gone through it, having gotten the $11 
million from the Congress to deal with the antideficiency 
problem, you having gotten the funds for a number of months 
ago, why isn't that money out there?
    Secretary Martinez. Senator, first let me say that I think 
it is very sad and unfortunate that a lot of organizations who 
have absolutely no blame in any of this have been impacted 
tremendously. My heart goes out to them because I know that 
these are people that are doing good work, in our communities 
and deserve and need our support.
    Chairman Sarbanes. We want your pocketbook as well as your 
heart.
    [Laughter.]
    Secretary Martinez. I think it is important to let you know 
that we do understand the pain and we care about that and are 
concerned about that. OMB has not yet apportioned the funds 
that the Department had appropriated, but let me go back a step 
because your question is excellent and the issue needs some 
explaining.
    The Office of Multifamily Assisted Restructing was an 
entity operating outside and independent of HUD. Some time 
back, the Congress saw fit to take away their ability to 
distribute funds and put them under HUD and now they are 
completely under HUD. So as we go forward in the future, it 
will make it much easier for HUD to manage something like this.
    But the fact is, first of all, we took very seriously the 
issue of the potential Anti-Deficiency Act. We had no access to 
OMAR's records and finally had to have the help of the IG to 
obtain the records, which sometimes had to be obtained from the 
grantees themselves; we could not get them from OMAR. We 
finally obtained all the records, and the acting IG, by the 
way, because our permanent IG is pending confirmation, but the 
acting IG has been diligently working to get us the total 
picture. It now appears that there was not an Anti-Deficiency 
Act violation in the first place, which is great news, but it 
does not help the people who are out there suffering because of 
this whole problem, who did not need to suffer in the first 
place.
    The good news I can tell you is that we have been assured 
now that by February 25, we will be able to put out $550,000. 
We have a total of $1,290,000 in vouchers that have been 
requested. By February 25, we will pay $550,000 of them. The 
remainder we believe we can pay by the first week in March, the 
balance of those. So, I think we are now in the position where 
in the very near future, we will be in a position to do that. 
This will be paid from the funds. The IG report is expected on 
Thursday and the preliminary report, assuming that nothing 
changes in the IG's evaluation of the situation, from what we 
have been led to believe, which is the same as you, this should 
happen on that schedule. So help is on the way. We should, by 
February 25, begin to deal with the problem, and have all the 
vouchers that have been presented fully paid by the first week 
in March.
    Chairman Sarbanes. I do not understand what you are trying 
to get from the IG, because we gave you the $11 million to make 
up the deficiency, if there was a deficiency, so I do not think 
we have to await a determination as to whether or not there was 
a deficiency. We checked it out and OMB has told us with 
respect to these funds that they are waiting for HUD to ask for 
the money.
    Secretary Martinez. Normally, my understanding is at OMB, 
it takes about a month to apportion funds once appropriated. 
But the problem was, and the reason that delay occurred even 
after the appropriation, is that our people, in an abundance of 
caution in a situation, where if you do have an antideficiency 
violation, we did not want to compound if there was one by 
continuing to issue funds.
    The delay was caused by the need for the IG to clearly tell 
us who had gotten what funds. In other words, the funding 
problem comes by funds that are allocated for a given year and 
whether the funds have been spent for that year or not. So in 
order not to compound the violation of an antideficiency act, 
we needed to know, or it was believed that we needed to know, 
exactly where if any violation had occurred, how much had been 
paid to each grantee and how much was owed to each grantee.
    They were presenting vouchers and we needed to be able to 
verify and validate those. We were having to reconstruct OMAR's 
records while doing it, which the IG has done a great job of 
pulling together, but as you can see has taken some time to get 
done.
    Chairman Sarbanes. I see my time has expired, but we are 
going to have to pursue this. If there was no antideficiency 
violation, then these people were run through the wringer for 
no reason. Even if there were a deficiency, Congress sought to 
correct it by providing the $11 million that we had been told 
constituted the antideficiency violation. We gave you $11 
million as part of the appropriation. Now the appropriation 
bill was signed into law when?
    Secretary Martinez. On January 11, and on January 12 we 
requested the funds from OMB. So if OMB has told you that they 
have not received the request from HUD, that is in error. On 
January 12 we requested the funds from OMB, and they are then 
to be apportioned. And we have not received the apportionment.
    Their payments we are going to make in fact, to further 
complicate something that is complicated already, are not going 
to be made from the apportioned funds. They are going to be 
made from existing funds anyway because the apportioned funds 
have not been received yet.
    So the bottom line is, to these people who have been 
suffering too long through no fault of their own, we believe by 
February 25 we will have payments to them and the completed 
payments by the first week in March.
    Chairman Sarbanes. I just want to make this final point. It 
is not just the providers and the people who work for them who 
are suffering, personally or individually, but the whole 
infrastructure that we have built to try to deal with 
affordable housing issues is going to take a hit if these 
organizations go under.
    We have worked very hard to get this infrastructure into 
place, and you have as much a vested interest I would think in 
its working and continuing to function as anyone. These 
organizations are under extreme pressure and that 
infrastructure is going to start breaking down if we do not get 
the money out to these organizations to pay them for work they 
have already done and to allow them to continue their 
activities.
    Senator Allard.

                COMMENTS OF SENATOR WANYE ALLARD

    Senator Allard. Mr. Chairman, thank you.
    I would ask unanimous consent that my full statement be 
made part of the record.
    Chairman Sarbanes. It will be included in the record.
    Senator Allard. I apologize for being tied up and not being 
here to hear Secretary Martinez's opening comments, but I am 
pleased with a number of initiatives that you have in the 
budget. As you know, success is measured by the number of 
people that we help achieve self-sufficiency, not necessarily 
by how much money is appropriated. I think you have made a 
conscientious effort to meet the demands of your Department 
with a very responsible budget, and I commend you for that.
    I know that you have combined some programs in order to 
bring efficiency and also to increase flexibility. I think that 
is desirable. I am particularly pleased with what you are doing 
in the way of the Self-Help Homeownership Opportunity Program. 
In other words, these are self-help type programs which I 
strongly support. I believe that you do, too, Secretary 
Martinez.
    So let me just move forward with some questions that I 
have. The Administration proposed consolidation of three of 
HUD's homeless assistance programs. Can you elaborate on this 
proposal?
    Secretary Martinez. Yes, sir. The proposal for a 
consolidated formula funding is something we believe will serve 
communities in a better way. It is an allocation amount for 
cities, counties, and State governments using a formula 
approach. However, there would be no automatic entitlement to 
the funds by any unit of government. Each eligible recipient 
would be required to evidence their performance in spending 
these funds has met the strong performance standards HUD would 
lay out before a grant would be disbursed.
    So, we would be looking at the timeframe that funds are 
getting to the recipients or the necessary people that are 
involved, the evidence of objective programs in reducing the 
number of chronically homeless people in the communities. In 
other words, we are making that a goal. We are enacting that 
goal by asking the communities to look at how well they do at 
that. Evidence on performance in creating permanent supportive 
housing units targeted to homeless people. Progress in creating 
all components of a true continual care system, and objective 
performance in developing and implementing communitywide and 
Statewide homeless management information systems.
    So these are some of the things that we are incorporating 
into that grant program which we hope is going to be a new and 
improved way of doing things. We look forward to a discussion 
on this. This is an idea that we believe will work. We want the 
input of the Congress on it as to how you view it and the 
community of people who help people that are homeless.
    Senator Allard. I commend you for trying to bring some 
innovation. As you know, I usually like to ask a question on 
the Government Performance and Results Act. I think this is 
very important. Since this is your first budget, I am anxious 
to hear your comments as to how you think that provision has 
impacted this budget and how you anticipate it will impact 
future budgets.
    Secretary Martinez. Well, I think the Government 
Performance and Results Act is very important, too. We take it 
very seriously. It dovetails into a lot of the management 
agenda that the President has advanced and which we are taking 
very seriously in this 
Administration.
    Tying the performance of programs to the funding and 
funding to performance I think is something that will lead us 
to better understand what works and what does not work, and to 
insist on outcomes I think is also very important.
    We are, in this year's annual performance plan, including 
an interim adjustment to HUD's strategic plan that will help 
better align the strategic plan with this Administration's 
priority, and this will form the basis for a broad series of 
consultations with the stakeholders and Congress as we develop 
a new strategic plan. We look forward to working closely with 
the Congress as we develop that. And you will have an 
opportunity as we put that in place of seeing how performance 
squares with the hope and the funding.
    Senator Allard. I would like to hear your view on how the 
Manufactured Housing Program reforms are being implemented.
    Secretary Martinez. I met recently with some 
representatives of the industry who came to see us, and the 
implementation is moving forward. We have been a little delayed 
in the naming of a person to run the office. We have also had 
some discussions on the issues of the fees that would be paid 
in order to fund the new guidelines implementation. The bottom 
line is that it has been slowly getting started, but we are 
moving forward and we are working closely in consultation with 
the industry who is so interested in seeing that this takes 
place.
    There are a lot of issues tied to financing opportunities 
for people who choose this type of housing, and we want to make 
the system work. At this point, it has not all happened nearly 
as fast as I thought it would a year ago when we took the 
reins. This is one of those areas where the progress has been 
rather slow.
    Senator Allard. I would encourage you to move it along as 
quickly as you can, because I think manufactured housing is one 
alternative out there for affordable housing. With the passage 
of the 2000 Reform Act, I think there is assurance that there 
will be some quality premanufactured homes out there, and I 
have seen some projects that are just remarkable.
    Secretary Martinez. It is a very good thing.
    Senator Allard. I see that my time has expired, Mr. 
Chairman. Thank you.
    Chairman Sarbanes. Thanks, Senator Allard.
    Senator Miller.

                COMMENTS OF SENATOR ZELL MILLER

    Senator Miller. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being with us and thank you for the job that you 
do. I apologize. I have a question and I am going to listen to 
the answer and then I have to get back because we have a farm 
bill on the floor, and you know how important that is.
    Here is my question. As you know, we have been trying to 
get some data on which PHA's were not spending their capital 
funds in a timely manner. Where is the hang-up in getting this 
information? Why is it so hard to get information on which 
PHA's had unexpended balances that were not spent within the 
regulated--the required timeframes and even the amount of those 
balances? Why can't we get that information?
    Secretary Martinez. Senator Miller, I am just being told 
that that information has been put together and was delivered 
this morning. It is amazing how having a deadline of a hearing 
can make some things happen.
    [Laughter.]
    Secretary Martinez. I am delighted we are able to tell you 
that today we were able to pull that together, and you should 
have it.
    Senator Miller. Thank you very much.
    Secretary Martinez. Maybe you will want to look at it over 
lunch.
    Senator Miller. Thank you very much. I call that good 
timing.
    Secretary Martinez. Yes, sir. Thank you very much.
    Chairman Sarbanes. Senator Carper.

              COMMENTS OF SENATOR THOMAS R. CARPER

    Senator Carper. Thank you, Mr. Chairman. And, Mr. Secretary 
welcome today. Thank you very much for your testimony. I hope 
you are doing well.
    Secretary Martinez. Thank you. Yes, sir.
    Senator Carper. I would be doing better if this mike would 
stay put. In any event, first a question about your request for 
public housing capital funding. Could you just walk me through 
it? It is a little confusing. My sense is that you want to 
reduce the amount of money that would be budgeted for capital 
funds by allowing PHA's to mortgage public housing facilities. 
And I just want to try to understand how that might work.
    Secretary Martinez. What it is, we took, instead of a 
funding level of last year at 2.8, we took it down to 2.4. And 
the point in that was not only to reduce because there still is 
a great backlog of unspent funds and really more importantly, 
the point was to try to come up with a new way in which public 
housing can get at this backlog of improvements that are needed 
to public housing by freeing up the market system, by allowing 
them to privately finance.
    The concept is that they can now identify by unit the 
funding stream that comes, so that unit, and a project can be 
itself the subject of private financing for the refurbishment 
and reconstruction. They can then pledge a Section 8 or they 
can become a project-based project, and the stream of funding 
that comes to them can be a guarantee against the financing 
that they obtain. We think this is going to free up housing 
authorities to improve projects and to do a far better job than 
they have done in the past of bringing to standards a lot of 
these projects that are in such bad condition.
    Senator Carper. What if it does not work?
    Secretary Martinez. If it does not work, then we need to be 
there and continue to provide the funding. So, I would be very 
amenable to raising that back up to the level of where it has 
been in the past. It is not intended to be a cut but an 
encouragement to those that voluntarily seek to do it, after 
HUD approves the plan to make sure that it is financially 
sound, to give them this option to improve their housing stock.
    Senator Carper. I am intrigued by the notion, and I am a 
person who likes to figure out what works to solve our problems 
and not be doctrinaire about it. If this works and it is 
helpful to meeting the capital needs of our housing 
authorities, then we should give it a shot. I want to go back 
to my question of what if it does not work. What if it does not 
work in 2003?
    Secretary Martinez. Well, it would be my assessment that 
the small reduction is not going to have an impact on any 
current year problems that there should be. But if it does not 
work, and if we really see a problem developing, I would be 
very willing to work with the Congress to see about providing 
some additional assistance if that was to be necessary. As I 
say, it is not intended to be a punitive thing. It is only 
intended to be an encouragement to move in this direction and 
see if we can make it work.
    Senator Carper. My concern, and I appreciate what you just 
said, is hopefully it will work. If it does not work in 2003, I 
do not want us to have to wait until 2004 to come back and fix 
it.
    Secretary Martinez. I would be willing to work with you 
midyear to see. I do not think it is going to come to that, 
because I think this will work. I think this is a very exciting 
possibility for us to go beyond the amounts that we would 
appropriate and give local housing authorities the flexibility 
of picking a project that they want to go fix and then go ahead 
and fixing it.
    Senator Carper. In addition to the roughly $400 million 
that we are talking about for capital funding, I understand 
that another maybe $55 million in the capital fund is now to be 
used or would be used for something called the Resident 
Opportunities and Supportive Services Program, a program that 
has traditionally been funded I think out of CDGB funds. I do 
not know if you are familiar with it, but it sounds like this 
could be another $55 million that would not be available to use 
for general capital but would be used for the Resident 
Opportunities and Supportive Services Program.
    Secretary Martinez. But this would be a transfer from CDBG 
funds. It would not be from public housing funds. Well, a 
little confusion here. I guess it is being transferred out of 
the capital fund.
    Senator Carper. Historically it has been funded out of 
CDBG, but as I understand it, it would be funded under your 
budget proposal, out of the capital funds, which would mean the 
$417 million reduction would be more like $472 million.
    Secretary Martinez. Correct. I am sorry.
    Senator Carper. I just wanted to put that on the table and 
say that caught my eye and it is a matter of some concern.
    The other thing I want to get to is with respect to self-
sufficiency in housing and in welfare. In the State of Delaware 
during the time I was Governor, we decided to try an experiment 
by limiting the amount of time that people could be in public 
housing, receive assisted housing. And we did not do it to be 
mean or punitive, but we felt that there is only so much 
housing stock for low-income housing, and there are a lot of 
people on waiting lists. The idea that people would move into 
public housing and stay there forever was not what the original 
intent was. The idea is to help people through a period of time 
in their lives and then to try to ensure that they have the 
skills and the earning power to go out and rent or buy a house 
or apartment on their own.
    We have been doing this experiment now for a couple of 
years. It is a demonstration model. We will have an opportunity 
during the time that you serve as Secretary and the time I 
serve as a Senator to find out how it is working and to learn 
lessons there, and other housing authorities around the country 
where similar experiments are taking place. So this is 
something I have a lot of interest in, and we have a sense of 
ownership on the issue.
    My understanding, and somewhere in your budget, I know you 
are interested in encouraging people to move out of public 
housing, to be self-sufficient. Just take a couple of minutes 
and talk about what you are proposing. I just want to better 
understand it.
    Secretary Martinez. Certainly. I think your proposal is 
very intriguing and it is one that I share your passion for. I 
think that anytime you can bring someone into self-sufficiency, 
we are doing a lot for them, and sometimes people need a push. 
I think that welfare-to-work and welfare reform proves that in 
a great way.
    I recall being on the housing board of a local housing 
authority years ago, and I thought it was sad that there would 
be three generations of people who have been using public 
housing. And I think that sometimes that would not be a good 
way to have that kind of multi-generational issue.
    But I think we need to proceed carefully in this. I think 
it needs to be on a pilot basis. I am intrigued by what 
Delaware is doing. I remember you bringing this to my attention 
during my confirmation hearings. It is a concept that Assistant 
Secretary Michael Liu, who is our Assistant Secretary for 
Public and Indian Housing, is very closely looking at. We are 
trying to find a way that we can do a control experiment with 
this ourselves so we can pilot it in some communities and just 
see how it goes.
    Again, it is not out of mean spiritedness, but it is out of 
a sense of compassion for those that are on a waiting list 
looking to get into public housing that we really need to give 
people the encouragement to move on into self-sufficiency and 
out of public housing.
    It needs to also be applied with great care to those that 
are disabled, and to the elderly. It is not for everyone. There 
are people for whom a safety net is always going to have to be 
there, but there are many who can be encouraged to move. So, I 
share your interest in this and look forward to working with 
you on it.
    Senator Carper. Thank you. My time has expired. Could I 
just make one last quick statement? I think one of the reasons 
why welfare reform has been, by most people's judgment, a 
terrific success--not for everybody, but for most people--is 
that case rolls are down by half, and people who have gone to 
work are better off. Under the old rules in welfare, people 
were better off when they stayed on welfare. And the reason why 
people stayed on welfare in some cases for a long time is 
because that was the smart thing for them and their families. 
They were literally better off.
    What we have done is change the rules. All of our States 
and here at the Federal level as well, so that people are 
actually materially better off going to work, and we provide 
the support, child care, and transportation, finding jobs, and 
earned income tax credit to ensure that they are actually 
better off when they go to work, and it has changed behavior in 
remarkable ways.
    We need similar kinds of approaches with respect to public 
housing, not to just throw people out, but to change the 
incentives so that the people would be better off. One of the 
exciting things that we are doing in our State is when somebody 
actually goes to school or gets a better job and their earning 
power goes up, instead of their rent payment going up, that 
money goes into an escrow account, and it builds up in an 
escrow account, and it can be accessed later on so that when a 
person who moves out of public housing, the money is available 
in the escrow account to pay for a security deposit on an 
apartment, or downpayment or closing costs on a house. That is 
the kind of thing that we need to do.
    Secretary Martinez. We are going to look at your experiment 
and see how it is faring and what we can learn from it.
    Senator Carper. Thank you. Mr. Chairman, I have a statement 
that I would ask unanimous consent that it appear in the 
record.
    Senator Reed [presiding]. Without objection.
    Senator Carper. Thanks so much.
    Senator Reed. Welcome, Mr. Secretary. Thank you for joining 
us.
    Secretary Martinez. Thank you, Senator Reed.

                 COMMENTS OF SENATOR JACK REED

    Senator Reed. Let me first deal with an issue that is 
outstanding. Last October I sent a letter along with my 
colleagues, Senator Allard, Congresswoman Roukema, Congressman 
Frank, with respect to the termination issues in Section 8 
project-based contracts. I understand from your office that you 
did not receive the letter. That is subject to another hearing, 
Treasury-Postal.
    Secretary Martinez. I am afraid it was an anthrax problem, 
Senator, unfortunately. It is like the dog ate my homework 
excuse, I know, but it is true.
    Senator Reed. It is never happened in my office, Mr. 
Secretary, but anyway, let me go on with the substance of the 
question, which is more important, and your response. We have 
had some indications that landlords were not following proper 
notice provisions in terminating project-based contracts. And 
as a result, we asked for your comments and your action with 
respect to this whole process of terminating a Section 8 
project-based contract and giving enhanced vouchers in the 
process of that termination.
    Specifically, I am curious today whether HUD plans to 
publish regulations implementing the statutory provisions on 
Section 8 contract terminations and enhanced vouchers. This is 
required under Public Law 10674. Those regulations would be 
very helpful.
    Secretary Martinez. Senator, we are going to have to reply 
to your letter more formally. I am afraid that I am not 
prepared today to tell you where we are on that. I apologize 
for the delay in response, and we will get back to you 
immediately on that.
    Senator Reed. Thank you very much, Mr. Secretary.
    Mr. Secretary let me turn now to the issue of homelessness. 
First, the goal of the Administration to end homeless in the 
United States in 10 years is a laudable one, certainly one we 
support. But it seems that to do that we would need on the 
order of about 200,000 units of supportive housing. And yet the 
funds, the renewal of existing permanent housing subsidies have 
been significantly diminished in this budget.
    Furthermore, in addition to HUD, HHS has to provide 
resources for the support of service. Now, I know you have 
revived the Interagency Council and that might be an 
appropriate coordination device. But the issue I think is, do 
we have the resources to meet this great goal that we all 
share? Or are we essentially, and when we talk about outcomes, 
setting up a lot of these programs for failure? You know, we 
can rearrange the chairs on the deck and we can talk about 
streamlining, but if they do not have money to keep shelters 
operating, they are never going to be able to reduce 
homelessness. It is a major concern that I have, and I wonder 
if you would comment upon this.
    Secretary Martinez. Let me clarify that our goal is to look 
at chronic homelessness as the one that might be something we 
can end. Obviously, there is going to be always people who fall 
hard on their luck who as a result of circumstances will be 
homeless for a period of time. But the population that 
typically is burdened with additional problems--mental illness, 
addiction--those are people that if we find a way to treat and 
to get into supportive situations, we might be in a position to 
get them out of this cycle. That is what our goal is. I know it 
is a lofty one, but I think in trying, we might move the ball 
forward significantly even if we do not achieve the complete 
goal in the end.
    I do not think it is a question of resources. I think it is 
a question of connectivity between the delivery of services. I 
believe there is a great need for people that are homeless to 
be able to access governmental services that now seem to not be 
available to them, whether it be veterans' services, whether it 
be just plain old welfare assistance, whether it be Medicare. 
These are things that oftentimes the homeless population, 
because of the nature of their lives, they do not have an 
established address. They do not have a forwarding number. 
There are things like this that can be a real hindrance on how 
they go about obtaining additional services.
    It seems to me that what we can do best is to attempt first 
of all to realize the full potential of all the things that are 
being done for homeless Americans, and then begin to think 
whether or not additional resources might be a part of the 
answer. I believe we need to take this step first. That is why 
reenacting the Interagency Council, the President did this some 
months ago. We now have an Executive Director coming on board 
in March, and I look forward to the work of this interagency 
task force or interdepartmental task force to see what we can 
do to improve the condition now, given the programs that we 
already have, but knowing full well that there is great 
duplication and there is also a tremendous lack of coordination 
which has always been there, but which we need to try to 
address before we throw in the towel and say the only answer is 
more money.
    Senator Reed. Well, I do not think the only answer is more 
money, but the answer certainly involves money. Let us take one 
particular aspect, that is the Shelter Plus Care Program. Your 
budget proposal for this fiscal year 2003 underfunds this 
program by my count about $93 million. The budget would require 
homeless assistance providers to shut down existing permanent 
housing programs for as many as 15,000 people with severe 
disabilities.
    You show a small increase on paper for the program. But the 
reason is because many of the programs that are operating on 
the Shelter Plus Care receive 5 year funding, which was several 
years ago. All of that is coming due now or much of that is 
coming due. Simply increasing last year's appropriation a bit 
is not going to cover these renewal contracts that are coming 
up. In fact, the burden is about $193 million if you are going 
to renew all existing programs. You have $100 million in this 
line item.
    It seems to me, again, of course you can coordinate better, 
you can be efficient, you can connect people to the VA. But if 
you are going to tell programs that are now funding housing 
that they do not have money, those housing units will 
evaporate.
    Secretary Martinez. I would agree with you. And the intent 
I do not think is to cut the funding in those kinds of programs 
but to I think maintain a fairly level funding level.
    I believe that the emergency shelter program, there is some 
confusion there in that the 2003 budget request does not 
contain any funds for renewal of Shelter Plus Care vouchers 
because the 2003 vouchers were forward funded and fully covered 
in the 2002 appropriations. So there is no need in the 2003 
budget to reflect what we understand was already funded in the 
2002 budget. So the question really will arise again in 2004, 
and in the 2004 budget, we will take care of any funding needs 
for this program. So our intent was not to cut, and I do not 
think that we have cut.
    Senator Reed. So there is $93 million that you already have 
available from the 2002 budget, which you are prepared to 
commit to the Shelter Plus Programs?
    Secretary Martinez. That is correct.
    Senator Reed. And the $100 million in this year's budget 
will cover all other contracts that will become renewable this 
year?
    Secretary Martinez. That is right.
    Senator Reed. And that will take you forward to 2004?
    Secretary Martinez. Yes. Then at that time, we will need to 
fund it again. But 2002 funded it for this year as well.
    Senator Reed. Let me make the point, though, assuming that 
you are accurate, and which I do, is that simply keeps us in 
the business of the present level of homeless shelters?
    Secretary Martinez. Correct.
    Senator Reed. It does not address or does not move the ball 
forward in terms of the thousands of other chronically homeless 
which this Administration has indicated that they want to see 
in shelters within 10 years?
    Secretary Martinez. That is correct. We are not addressing 
any additional funding needs this year. We are first going to 
look and see where we are and what resources we have available 
that are not currently being utilized by the homeless 
population.
    Senator Reed. Let me ask one other question, Mr. Secretary. 
Just so I am sure, I know we funded units last year, but could 
you go back and see whether that money was used to discharge 
obligations that were incurred last year and not obligations 
that are upcoming, so that we are both sure of what we are----
    Secretary Martinez. I will be glad to give you some 
clarification Senator, so that we can be on solid footing about 
that.
    Senator Reed. Thank you.
    Now let me turn to another issue which was raised by 
Senator Carper's questions. That is the $417 million cut from 
the capital fund. The justification seems to be that PHA's in 
the future will be able to rely less on HUD's funding as a 
result of this initiative, your new approach to funding capital 
needs. But this is a program that might not be undertaken by 
all PHA's throughout the country. Yet the PHA's reductions in 
capital funding applies to every PHA in the country. I think we 
find ourselves in the situation where some might not avail 
themselves of this new, innovative technique. In addition, some 
PHA's might require 18 months to 2 years to become involved in 
this program. In the meantime, there has been a significant 
diminution of resources for public housing capital funds, and 
it seems that could be a real problem this year. It goes back 
to what Senator Carper was saying. What happens this year when 
PHA's come to you and say we need money for capital funds? We 
are not involved in this new approach to funding. We do not 
have to be. Give us the money. And you say we do not have the 
money.
    Secretary Martinez. We believe that the availability of 
these funds from the private sector is going to actually 
improve the condition of public housing. I do understand your 
concern, share your concern, and I think it is something that 
we just will have to keep a very close eye on as the year 
progresses. I am prepared to work with you and other Members 
should we come into a situation where a shortfall exists.
    Senator Reed. Let me ask another question, Mr. Secretary. I 
understand in addition to the cut, there has been $120 million 
from the capital fund earmarked for this new initiative. Is 
that correct?
    Secretary Martinez. It is available for the initiative. It 
is not earmarked, but it is available. That doesn't take it out 
of circulation, if you will.
    Senator Reed. So it can be used for traditional capital 
funding?
    Secretary Martinez. That is correct.
    Senator Reed. Thank you, Mr. Secretary.
    Let me just recognize Senator Corzine, and if there is time 
available in your schedule and there are additional questions, 
we will have a second round.
    Senator Corzine.

              STATEMENT OF SENATOR JON S. CORZINE

    Senator Corzine. Thank you, Senator Reed.
    Welcome, Secretary Martinez. I apologize for being late. We 
had more hearings in one morning than I think is manageable, 
and I do not want to cover ground that you have already 
covered. I suspect you would think that I will ask another 
question about the Drug Elimination Program and how the funds 
that were supposedly allocated or at least available in other 
areas, whether those have been used. I would like to hear your 
response on that. I continue to be very troubled by the on-the-
ground information that I get feedback on from some of the 
public housing authorities in New Jersey that were dependent on 
those and how they are feeling squeezed with regard to those 
needs.
    Also, I would love to hear your comments with regard to 
empowerment zones, and particularly second-level grants, which 
is going to hit hard at a number of communities in New Jersey 
that had expected some grants to flow on a continuous basis, 
made plans, brought businesses into--particularly Cumberland 
County, which is one of our poorer rural communities--Vineland, 
Millville, and Bridgeton are important communities that are 
struggling with very high unemployment rates and were making 
real progress, and zeroing out the grants is an extraordinarily 
troubling issue for those local communities.
    I am sure you are going to hear from Congressman Lo Biando 
on the House side and a number of other of my colleagues about 
this. I would love to hear your comments on why you have taken 
this program in the direction you have. I am obviously 
interested in the specifics, but that may need to be 
communicated specifically. But it is an extraordinarily 
important issue for us.
    And then I also find it uneasy that with Congress in the 
business of reauthorizing TANF this year, that there is no 
comment with regard to housing issues and the welfare-to-work 
needs that clearly will need to be addressed within that 
program, the subsidies that I think will be necessary to make 
sure that people can fully utilize their welfare-to-work 
programs and then whether you have looked at the family self-
sufficiency program and some of the issues that are associated 
with that that will necessarily be taken up in that. I think 
that will be enough for the moment.
    Secretary Martinez. Yes, sir. I appreciate the menu. Can I 
pick and choose? Let me say on the empowerment zone issue, 
Senator, that as you know, empowerment zone has had several 
rounds. The initial round was a series of tax credits and there 
are grants, and those all have happened and taken care of. Then 
round two, which created a series of direct grants. It has been 
our experience that the grant program has not worked nearly as 
successfully as the programs involving tax credits and those 
types of business incentives. That is just the empirical 
evidence on the ground. But the more interesting point----
    Senator Corzine. I would certainly encourage you to come to 
Cumberland County with me and you would see where those grants 
have been very effectively used and brought new jobs.
    Secretary Martinez. I do not know specifically the 
Cumberland County situation at this moment, and I would be 
happy to discuss it with you. And I know the other Members of 
Congress might also be interested in that. But as a whole, 80 
percent of appropriated funds from these empowerment zones have 
not been utilized to date. We are more than halfway through the 
program. It stands to reason that if we still have 80 percent 
already appropriated funds remaining that in the balance of the 
time that the program will have spanned out that the totality 
of the funds that are already available may never be spent 
anyway. So that is the approach we are taking. In other words, 
not funding additional dollars for a program where the 
currently appropriated dollars have not been utilized to the 
extent of 80 percent.
    Senator Corzine. As you can well imagine as a former 
business person, though, that if you had bonded, if you had 
gone to the banks under the projections that you were going to 
receive grants and it had been indicated that those were going 
to occur, then for them not to, you leave individual 
communities that maybe have used those effectively high and 
dry.
    Secretary Martinez. Senator, I would have to say to you, 
not knowing the circumstances, but just again from my own 
business experience and yours, that I find it difficult to 
understand how private markets would fund and finance on the 
expectation of future appropriations. In my experience in local 
government, I could never get bonding or financing for anything 
that depended on a future appropriation. Typically, those 
streams of funds did not lend themselves to credit, I have to 
wonder how they might have done that.
    The bottom line is that the real success in this program 
comes from the tax credit side of it, not from the grant side. 
There are very specific guidelines that each of these programs 
presented of how they would spend the funds. I would be pleased 
to work with you on the local situation to see what we can be 
of help with. But do understand that there is still a 
substantial amount of money that is available to these 
empowerment zones through the already appropriated funds.
    Senator Corzine. Well, it might bite differently in 
different spots. I think that one needs to be careful that the 
general rule does not end up impacting something that has 
already been committed and built upon I think is the case 
there.
    Secretary Martinez. We should look at that with you and try 
to be of help where we can. Regarding drug elimination, the 
Congress funded a $250 million increase to operating fund 
which, in other words, we do not call the funding drug 
elimination grant dollars. We call them part of the operating 
fund. But I believe between what we attempted to do through our 
budget and what Congress ultimately did, that pretty much a 
dollar-for-dollar restoration of that program or of that 
funding is available to public housing authorities so that they 
can carry out any existing programs that were worth pursuing 
and that were worthwhile.
    We are working in a variety of ways with other agencies of 
the Federal Government to take a very strong look at the drug 
issues in public housing. As you know, the President has just 
announced a very strong national effort on the issue of drugs, 
emphasizing the treatment options. I think in a cooperative 
way, we are going to find that there is going to be help 
available to public housing authorities in this area and in a 
way that is going to maybe be even more effective.
    Senator Corzine. At some point I would appreciate it if 
your staff could show me whether the funds that were allocated 
are still going to fund the same activities with regard to drug 
elimination activities and security and public housing 
authorities.
    Secretary Martinez. The unspent balances on those accounts, 
and we can be very specific to any housing authorities in your 
area, will tell us that there are still probably funds 
available that they have not already tapped that could continue 
the programs that they have existing.
    Senator Corzine. As I suggested the last time, I would love 
to take you up to New Jersey and visit some of these public 
housings and we can go to Cumberland County at the same time.
    Secretary Martinez. We should do that. I am going to be in 
New York tomorrow as a matter of fact, it is not too far. But 
we should do that and I will make it a point to maybe get with 
your office and find a time when we can meet you on your turf 
and then we can see some of these issues and try to deal with 
them on a very individual basis.
    Senator Corzine. Thank you. And TANF reauthorization and 
the family self-sufficiency program?
    Secretary Martinez. Let me have a moment if I could.
    Senator Corzine. Sure.
    [Pause.]
    Secretary Martinez. I am told that we are working with OMB 
on whether the programs can be expanded and enhanced, so we are 
actively working on that.
    Senator Corzine. Maybe we should follow up with your staff 
and see how this works.
    Secretary Martinez. Yes, sir.
    Senator Corzine. We are going to be working substantially 
in the TANF reauthorization efforts this year, and I think 
housing is such a key part of making sure that people who do go 
from welfare to work are not impinged in their ability to 
continue to live.
    Secretary Martinez. We will work with you on that, sir.
    Senator Corzine. I have one second round question.
    Senator Reed. Thank you, Senator Corzine.
    Mr. Secretary, let me say first I agree with your 
observation that as a local elected official that no financial 
institution will lend to a public entity based upon 
appropriations going forward because of the uncertainty of the 
appropriations process. But isn't that essentially what your 
proposal for public housing capital fund is? These entities 
will go out to the financial markets, and ask to borrow money 
to replace their capital expenditures. Part of what these banks 
will look at is how much revenue will be coming into these 
institutions.
    And frankly, looking at your budget, and not just this 
year, but looking ahead, I think most bankers would be very 
skeptical at the kind of revenues that would be flowing from 
the Federal Government to public housing authorities. As a 
result, I think right now we can at least look with a rather 
significant skepticism at your proposal to replace appropriated 
public housing capital funds with private lending.
    Secretary Martinez. Well, Senator, Section 8 has been a 
very dependable revenue stream, and I think the private 
financing sector is used to funding Section 8 projects. So, I 
think it is something they can relate to, something they can 
understand and something that would lead--I mean, we are led to 
believe by the financial world that there is great interest in 
this and that they will do that.
    Do not forget, you have still an asset that can be 
collateralized. In other words, there is a unit there, and so I 
believe that will lend itself to an opportunity for financing. 
You raise a good point.
    Senator Reed. You do have an asset, Mr. Secretary, but I do 
not know how many financial institutions would like to 
foreclose and operate public housing with the kind of revenue 
streams that might be forthcoming from this Administration and 
succeeding 
Administrations.
    Secretary Martinez. I think there has been a very ironclad 
commitment to the Section 8 program and to maintaining the 
vouchers and to not leaving anyone high and dry that has the 
opportunity for a voucher. So, I think from that standpoint 
that it should work. We hope it will.
    Senator Reed. Let me just raise another issue, Mr. 
Secretary, and that is, with respect to the independent 
appraisal review process for appraisers, we have been informed 
that the independent appraisal review process has been stopped 
by your Administration. I understand that the FHA is doing its 
own reviews, but only in response to specific complaints. In 
the past, because of the HUD IG and the GAO, we have been 
persuaded that there is a need for independent review of these 
appraisers. And can you tell us why this was faulted?
    Secretary Martinez. Senator, the system was not identifying 
risky loans. FHA's default and claim rates were actually lower 
on the loans identified as risky by REAC than for FHA loans as 
a whole. The system was not cost effective. In 2 years, they 
identified 33 appraisers who were removed from FHA appraisers' 
rosters. And in our own field reviews, the FHA had identified 
85. So, we are satisfied with REAC's work in general in FHA 
multifamily projects and public housing. But the appraisal 
system really was an exception. What we are doing is continuing 
to conduct appraisal and field reviews on an individual loan 
basis, following up on complaints from homebuyers and Members 
of Congress. And that is how we came about identifying 85 
appraisers that were removed from the rosters over the last 2 
years.
    We are also developing a new approach called Appraiser 
Watch. FHA will identify appraisers with high rates of default 
and foreclosure and will then monitor their performance. The 
FHA may then remove these appraisers from the FHA's roster if 
there is not a good reason for the high default rate.
    So, we are planning to issue an Advanced Notice of Proposed 
Rulemaking to establish this Appraisers Watch and this is going 
to be somewhat parallel to the Credit Watch system, which has 
been very successful in monitoring lenders. That is the 
approach we are taking and the reason for the change.
    Senator Reed. Thank you, Mr. Secretary.
    Senator Crapo.

                 COMMENTS OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman.
    I apologize for being late but was unavoidably detained. 
And because I have not been able to be here for the rest of the 
hearing, I will not ask any questions at this point.
    Thank you.
    Senator Reed. I see that Senator Corzine has departed. And, 
Mr. Secretary, I understand you have an appointment over on the 
House side.
    Secretary Martinez. Yes, sir.
    Senator Reed. Thank you very much for your testimony.
    Secretary Martinez. Great being with you. And, Senator 
Reed, I should point out that there is a significant funding 
increase for lead-based paint. You did not bring it up, but I 
wanted to bring it up with you.
    Senator Reed. Mr. Secretary, I have learned a great deal 
from this hearing. I have learned first about appraisal. I have 
learned about many things, but the most important thing, other 
than an increase in lead, is I have heard that a cut in the 
budget is not a reduction but an encouragement.
    [Laughter.]
    That is something that I will treasure. Senator Sarbanes 
has just returned. He might have additional questions. But let 
me commend you for the increase in the lead program.
    Secretary Martinez. Thank you. I know it is important to 
you.
    Senator Reed. I appreciate very much the effort, but we 
both understand we have still a long way to go to make sure we 
protect children.
    Secretary Martinez. It is a still issue and it is still out 
there.
    Senator Reed. Mr. Chairman.
    Chairman Sarbanes. Mr. Secretary, I am not going to detain 
you, because I know you have to get across the Hill. I know you 
are still working on the yield spread premium issue.
    Secretary Martinez. RESPA reform, yes, sir.
    Chairman Sarbanes. Well, we held a hearing in January, 
which I thought was very revealing. In fact, we sent the 
transcript of it to you as well as the statements of witnesses. 
Subsequently, a number of groups have weighed in on this issue. 
As I indicated in my opening statement, both Hispanic and 
African-American groups have written to you about what yield 
spread premiums do to potentially minority homeowners. So, we 
think the decisions that confront you are extremely important. 
I mean, it is very clear people should not be lured into a 
higher interest rate and then the broker who steers them into 
the higher interest rate gets paid additional for that. It 
seems to me that is intolerable and we have to get at this 
issue. I do think that having the availability of private suits 
is an important discipline in this activity. But I just want 
you to know we are very much focused on that issue and we will 
be in close touch with you about it.
    Secretary Martinez. Senator, I would be happy at your 
pleasure to discuss it more in detail either here or in 
private. And I also would like to assure you that our process 
of RESPA reform is continuing aggressively. I believe, frankly, 
that what we have done so far and what we plan to do will be 
considered about as pro consumer and as transparent as this 
process has ever been in its history. So, I am looking forward 
to bringing----
    Chairman Sarbanes. Are the consumer advocates involved with 
you in that process?
    Secretary Martinez. Yes, sir, they are. They are invited to 
participate, and we are taking their input, and look forward--
--
    Chairman Sarbanes. One of the things that concerns me is, 
as I understood it, we were moving toward maybe getting some 
consensus resolution of this issue when HUD issued its 
clarification.
    Secretary Martinez. If there had been any possibility of 
that occurring, Senator, I would not have. I mean, I practiced 
law long enough that if the court does not have to rule, it 
does not. And I was not looking forward to intervening. I only 
did it when I felt it was necessary because there was no 
progress being made. But I believe that we are continuing to 
keep the consumer groups involved and continue to look forward 
to their participation in what I believe will be very sweeping 
RESPA reform, which I think will be good for consumers, well 
beyond the issue of YSP, by the way.
    Chairman Sarbanes. This predatory lending issue has really 
gained a lot of salience, as you know. In fact, it is even 
being covered on national television programs.
    Secretary Martinez. I know.
    Chairman Sarbanes. It is certainly an issue. This Committee 
since I have taken the Chairmanship, has focused very intently 
on and intends to continue to do so, and we look forward to 
working with you in order to resolve the matter.
    Secretary Martinez. I am very proud of the work we have 
done in that, Senator, and participating with the Baltimore 
Task Force, and the work we have done there I think has been 
very historic. We will continue to work closely with you and 
participate in any way we can. I would like to take the 
experience of Baltimore to the national scale, because it is 
desperately needed. I believe the statements that I have made 
and I know you have made as it relates to the industry and the 
need for the industry to pay close attention to their business 
practices is important. And so, I am with you on that, and I 
look forward to working with you closely on that issue.
    Chairman Sarbanes. I hope when we look at the hard text we 
are still together. Let's see how it goes.
    Secretary Martinez. I have faith we will.
    Chairman Sarbanes. Thank you very much for coming today, 
and we wish you well as you go over to the House side.
    Secretary Martinez. Thank you.
    I need the help.
    [Pause.]
    Chairman Sarbanes. If the panel would come forward, let us 
be prepared to move on. The hearing stands in recess.
    [Recess.]
    Chairman Sarbanes. The hearing will come to order.
    First, we are very pleased to have this panel, and we very 
much appreciate their steadfastness and their patience in 
hanging in here with us. I think I will introduce each person 
as they speak instead of doing them all at once.
    Tom, I understand you have another engagement.
    Mr. Jones. Yes, I am sorry.
    Chairman Sarbanes. That is all right. We understand that. 
Is anyone else in a comparable situation?
    [No response.]
    First, we will hear from Tom Jones, who now for a decade 
has served as Managing Director of the Washington Office of 
Habitat for Humanity International. He has served as Pastor of 
large Presbyterian congregations here in Washington, 
Louisville, Orlando and Miami, Florida, and in the academic 
world has been vice president of a theological seminary and 
faculty member of two seminaries. He has earned a Bachelor of 
Arts, Master of Divinity, Master of Theology, Doctor of 
Ministry degrees, and he is doing this wonderful work now with 
Habitat, and we are very pleased to have him here today and we 
looking forward to hearing from you.

        STATEMENT OF THOMAS L. JONES, MANAGING DIRECTOR

               HABITAT FOR HUMANITY INTERNATIONAL

                       WASHINGTON OFFICE

    Mr. Jones. Mr. Chairman, thank you. I do apologize. At 2:00 
p.m. we are doing a signing of an MOU with EPA about ways that 
we might reclaim some brown fields to build some Habitat homes 
and other low-income housing. So, we are going to do that event 
with EPA administrators in Northern Virginia.
    Mr. Chairman, on behalf of Habitat for Humanity 
International, again I want to express appreciation to you and 
to your other distinguished colleagues for the vital part that 
you play and for the commitment you have for working together 
toward our goal that every person have a decent place to sleep 
every night. And especially we want to thank you and your 
colleagues for the ways you demonstrate your support for self-
help housing as a way for persons to achieve the American Dream 
of homeownership regardless of economic standing.
    Thank you for the way you not only support that in your 
leadership but also for what you and your colleagues are 
actually doing as witnessed in the program that the Senate 
approved called ``The Houses the Senate Built.'' I was thinking 
as I sat here earlier that today as a result of what all of you 
Senators did last year in building two Habitat houses in 
Capitol Heights, two families, the Spencers and the Williams, 
now live in those houses, own their own homes. Last night their 
kids did their homework in their own bedrooms. They got up this 
morning and had breakfast together in their own homes as a 
result of this way that you and your colleagues are leading by 
doing.
    Today, I am glad to say that 60 U.S. Senators have now 
agreed and formally made relationships with Habitat for 
Humanity affiliates across the country to build Habitat houses 
this year as a continuing part of the Houses the Senate Built. 
Mr. Chairman, in 
addition to your personal commitment, I am glad to report that 
every Member of your Housing Subcommittee has agreed to do 
this, and four other Members of your parent Committee already 
are on board and are doing the Houses the Senate Built this 
year. And I know your strong influence will prevail and you 
will have all of your colleagues before long, not only on this 
Committee but also in the whole Senate lined up to do this.
    And I must, if I may have a personal privilege--which is 
the way we Presbyterian clergy do it--to say thank you to you 
for training Amy Randel and sending her to us, and for the 
great job she is doing in serving our whole society right now.
    It is a real honor to appear at the same hearing with 
Secretary Martinez and with our other colleagues here who are 
involved in our attempt to provide opportunities for everyone 
to have a decent place to live. Truly Secretary Martinez and 
the Administration he represents have focused attention on a 
commitment to homeownership, particularly to narrow the gap for 
minorities and low-income persons. And like you, they too have 
walked their walk by building Habitat houses with Habitat 
homeowner partners in various parts of the country in this past 
year, and we are appreciative.
    Mr. Chairman, Habit for Humanity is now starting its 26th 
year. It took us the first 24 years to build the first 100,000 
houses worldwide. At that time we took a commitment to build 
the second 100,000 houses in 5 years. That is a huge 
commitment, which will be achieved only as all of the sectors--
the public and the private, organized labor, the nonprofit work 
together. And so far, this is happening. At the present time, 
Habitat for Humanity is now building a house someplace in the 
world about every 26 minutes. In the United States, there are 
1,628 Habitat affiliates in all 50 States. The average Habitat 
homeowner in the United States is in the below 50 percent of 
median income. Just over 71 percent of all Habitat homeowners 
in this country are minorities of African-American, Hispanic, 
and Native American backgrounds.
    Habitat for Humanity houses are still built by volunteers 
primarily, sold at no profit, and with a no-interest long-term 
mortgage that each family can afford. But the recent huge 
success of Habitat in this country has roots in two very 
important Federal programs--one called SHOP, Self-Help 
Homeownership Opportunity Program, and one called Capacity 
Building for Habitat for Humanity. As you know, I believe, 
Habitat does not use Government funds to build houses. But we 
do depend upon and appreciate very much the partnership with 
Government through which we do what we call ``setting the 
stage.'' Land and infrastructure and capacity building. When 
the stage is set, we have found that motivates the private 
sector to raise the funds and the resources, to build the 
houses.
    The SHOP Program is important in ways that my words cannot 
completely describe. SHOP was enacted by you, the Congress, in 
1996. These funds can be used only for land and infrastructure. 
They are available only to national and regional nonprofits who 
can reach a certain threshold. They are there in order that 
nonprofits might do more of what they do well. There is a 
complete accountability to the Congress through HUD by the 
national and regional groups. This does not increase Government 
bureaucracy. The Government funds are used as seed funds, and 
all of the houses built must include the self-help component, 
or ``sweat equity.''
    Up until now, for every $10,000 of Government funds, a 
house has to be produced. Both HAC, Housing Assistance Council 
and Habitat, the two biggest users of SHOP, have realized from 
experience that we do need to raise that to at least $15,000 
and hopefully with a waiver that the HUD Secretary could make 
for very high cost places. Land and infrastructure costs are 
going up. The average of both HAC and Habitat now is about 
$22,000 per unit.
    When the mandated deadlines for Habitat for fiscal year 
2001 are met, and they will be, Habitat, through its use of 
SHOP funds, will have resulted in the building of 7,382 homes, 
all for homeownership, serving over 26,000 persons, almost 
17,000 of whom are children, now achieving the American Dream, 
living in their own home. We strongly support and appreciate 
the Administration's significant increase for SHOP.
    Our Habitat experience each year since its inception is 
that when we make the first announcement about the SHOP funds, 
we have over 40 percent more Habitat affiliates requesting 
funds than we have funds to grant. We have not been able to 
meet the needs of some affiliates because of the large cost of 
land in some places. By increasing the threshold from $10,000 
to $15,000 and doing the waiver, we are confident these funds 
will be used, they will be used efficiently and effectively, 
and they will result in more Habitat and other homes for 
homeownership for persons who perhaps in no other way could own 
their own homes.
    Mr. Chairman, every time that we do this, that we put a 
family in their own home for homeownership, they are taken 
permanently off your annual worry list to provide housing in 
other ways. Many Habitat affiliates need land and 
infrastructure to set the stage. Many need other forms of 
capacity building, and thus there is the program called 
Capacity Building for Habitat for Humanity. We support the 
Administration's request for $5 million, and then can greatly 
increase production if even more could be made available.
    In our written testimony there is some information about 
the proposed tax credit for homeownership. We have huge hope 
for this. It is supported by the Administration. It is 
supported by many of our colleagues in both the private and 
public sectors. We think it will really revolutionize 
productivity for Habitat for Humanity. This has happened in 
Florida where they have a corporate tax credit which can be 
used for low-income housing.
    As a result of the combination of that and the SHOP 
program, some affiliates in Florida are our largest producers. 
The Jacksonville affiliate recently built 200 houses in 1 year, 
and will by the year 2005 be building 500 houses a year by the 
combination of these two programs.
    Mr. Chairman, in many ways, a home is the cornerstone of 
life, of what we call sustainable development. And 
homeownership is still the dream for most families regardless 
of economic standing. Together we can and we will make it 
possible for more and more persons to achieve that dream with 
all of its benefits of self-worth and dignity and equity-
building and the like. Together, we will persevere until we 
have eliminated substandard housing from the face of the Earth. 
And all of us will do it together, because it is right.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Thank you very much. I am going to ask a 
couple of questions and then excuse you so you can get to your 
EPA meeting.
    Mr. Jones. Thank you, sir.
    Chairman Sarbanes. Since this brown fields transfer 
presumably will help to address one of the problems you have 
specified here in terms of acquiring land at a reasonable cost. 
This Committee has been focusing a lot of attention on 
predatory lending, I think as you are aware. And not just on 
yield spread premiums, though that is our current focus. But we 
held a hearing earlier this year back last summer and went over 
a number of the abuses that were taking place and so forth. 
What has Habitat run into in this regard? I know Habitat 
homeowners get a zero percent mortgage, don't they, generally 
speaking?
    Mr. Jones. Yes. Always.
    Chairman Sarbanes. Always. Okay. But I have heard reports 
of Habitat homeowners being refinanced out of their zero 
percent mortgages into high-rate mortgages, in the end maybe 
even resulting in foreclosures. Could you touch on that a 
little bit?
    Mr. Jones. Yes, sir. As you can imagine, Habitat homeowners 
in many cases are very vulnerable. When a less than moral 
person comes to them with cash in hand, it is a temptation 
difficult to refuse. So, we have taken several steps. One is we 
have supported and continue to support the kind of leadership 
that you and your Committee have given in terms of any 
legislation that alleviates this temptation.
    We also have taken other steps. We have 1,628 affiliates. 
Each has its own 501(c)(3) nonprofit status, its own locally 
elected board. So, we do not have legal control over these 
local affiliates, but we have urged them and worked with them 
through our legal office, our program offices, and in other 
ways. And we are now at the point where most of these 
affiliates are doing what we call ``soft'' second mortgages. 
These are second mortgages which are paid off, not in money, 
but in longevity. So the second mortgages have to be handled 
before predatory lenders can begin to deal with them.
    We have also attempted to work with our affiliates and the 
affiliate boards. What happens in Habitat is that you develop a 
relationship when you build this house as the homeowner does 
``sweat equity,'' you get to know them, and usually they do not 
let each other down. And you really put that relationship in 
concrete, so to speak, when they sign this 15, 20, or 25 year 
mortgage with the local Habitat board.
    And so, we are encouraging them to do more and more 
counseling about this, even before they become homeowners. We 
are doing everything we can to work in terms of supporting 
legislation and supporting the second mortgage concept because 
Habitat homeowners would naturally be vulnerable.
    Chairman Sarbanes. I know you wrote to the Fed when they 
were considering the HOEPA regulations, urging a provision 
whereby a lender could not refinance a mortgage with a 
subsidized interest rate without demonstrating that such 
refinancing would be in the best interests of the borrower. 
Unfortunately, the Fed said they wanted to consider that 
provision further.
    Mr. Jones. It was not in the final rule.
    Chairman Sarbanes. But that would certainly address the 
situation that you ran into, would it not?
    Mr. Jones. It would. We support that not only from the 
standpoint of Habitat for Humanity but also from all of our 
colleagues who work with low-income persons.
    Chairman Sarbanes. Thank you. We appreciate your coming.
    Mr. Jones. I apologize for leaving.
    Chairman Sarbanes. No, you are going to do good work, I 
guess I should say the Lord's work.
    We will turn to Sheila Crowley, another Former Staff Member 
of this Committee along with Amy Randel who is now working with 
Habitat and, as Tom said, doing a very fine job for them. 
Sheila actually worked with this Committee in 1996 and 1997 as 
a Social Work Congressional Fellow. She is now the President 
and CEO of the National Low Income Housing Coalition. She is on 
the Board of the National Housing Trust, the technical 
assistance collaborative. She has a PhD from Virginia 
Commonwealth University, and we are very pleased to have her 
back with the Committee.
    We will be happy to hear from you.

                  STATEMENT OF SHEILA CROWLEY,

             PRESIDENT AND CHIEF EXECUTIVE OFFICER,

             NATIONAL LOW INCOME HOUSING COALITION

    Ms. Crowley. Thank you very much, Senator Sarbanes. It is 
an honor to be invited here today, and it was especially 
wonderful to be invited by you as the Chairman. Thank you for 
having me.
    Chairman Sarbanes. I quoted good parts of your statement. I 
am going to quote them again.
    Ms. Crowley. I noticed that.
    [Laughter.]
    Chairman Sarbanes. We will include the full statements in 
the record, for you, Mr. Reilly, and Mr. Jones, of course, so 
if you could go ahead and summarize your statements, please do 
so.
    Ms. Crowley. I will. I have made specific reference to many 
parts of the HUD budget. I am not going to use this time to go 
over those. But there are several issues we urge the Committee 
to take a careful look at.
    I do want to thank you for your attention to the problem of 
the OTAG grantees. Many of our affiliates at the State and 
local level are in the position of really being in pretty bad 
shape right now. I thank you on their behalf for pressing HUD 
on that. The HUD budget proposal of 2003 is only meaningful if 
we ask ``in comparison to what?'' Compared to what many of us 
feared with the return of the Federal budget deficit, the 
President's proposal is a relief. Compared to the 2002 HUD 
appropriations bill, the President's proposal is remarkably 
similar. Compared to HUD's budget in the last year of the Ford 
Administration, the 2003 HUD budget proposal is a shadow of its 
former self. Compared to the housing needs of extremely low-
income Americans, the budget proposal is wholly inadequate and 
compared to what the total Government could afford to invest in 
low-income housing, if addressing critical housing problems 
were a real and not a rhetorical priority, the President's 2003 
HUD budget proposal is unacceptable.
    You did go over the numbers that I provided about the 
extent and depth of the affordable housing crisis. The National 
Low Income Housing Coalition's analysis of the American Housing 
Survey data ultimately boils down to what we see as about 14 
million households that are extremely low income. Some are 
renters, some are homeowners, some are homeless. They are all 
people with incomes under 30 percent of the area median income 
and they have severe housing problems. They pay over half their 
income for their housing. Just to make sure we have some 
perspective on that, 30 percent of the area median income in 
the District of Columbia is $18,390 a year. These are the 
people who work in hotels, these are cashiers, these are day 
care workers, these are the people upon whom we depend upon to 
do their jobs so that we can do our jobs.
    The affordable housing crisis can be invisible because so 
many of these people are holding on by their fingertips and 
their plight only becomes visible if they lose their grip and 
they slip into homelessness. The disparity between income and 
housing costs has serious implications for a whole range of 
other social policy objectives and I was glad to hear Senator 
Corzine ask the Secretary about what HUD is doing on welfare 
reform.
    To quote a Hudson Institute Report about welfare reform in 
Wisconsin, ``It is no longer the case that success in the labor 
market guarantees success and stability in the housing 
market.'' Unfortunately, the proposed HUD budget makes no 
mention of the role of housing in welfare reform, nor does the 
proposed HHS budget address housing in its plans for 
reauthorization this year. It is an absolute certainty that 
housing stability is essential to family stability. It is the 
bedrock upon which families thrive. And failure to address the 
issue of affordable housing is antifamily. Some of us can 
remember before there was contemporary homelessness, and there 
were lots of poor people in 1970, but there was a small surplus 
of housing they could afford. Today, there is a severe 
shortage.
    Between 1991 and 1999, we lost a million units of housing 
affordable to extremely low-income Americans. That is a 14 
percent decline. The sharp Federal disinvestment in low-income 
housing 
assistance began in the late 1970's. Had we continued to fund 
low-income housing assistance at the level authorized in the 
1970's, it is safe to say we could have prevented much of the 
homelessness of the 1980's and 1990's and the housing shortage 
we are experiencing today would not be as severe.
    So mindful of these data, the proposed 2003 HUD budget has 
serious shortcomings. Most of the increase that is called for 
will simply allow housing programs to stay current; it is not a 
real 
expansion of programs. The President does propose to expand the 
housing vouchers by 34,000. We appreciate the emphasis on 
homeownership and the programs that he is offering to that 
goal. The President's goal to end long-term homelessness is 
laudable but it is an empty promise because there are no 
resources in this budget to actually house people.
    Solving the affordable housing crisis is well within the 
capacity of American ingenuity and resolve. We know what needs 
to be done. We have to improve people's incomes. We have to 
expand vouchers. We have to preserve the current assisted and 
public housing and finally we must build new housing. What is 
most disappointing about the President's 2003 HUD budget is its 
failure to address housing production in the face of such 
overwhelming need.
    I will close by talking about the National Housing Trust 
Fund Campaign, the National Low Income Housing Coalition, and 
our partner organizations, some 1,900 of them now across the 
country, are calling for the establishment of a National 
Housing Trust Fund. Mr. Chairman, I would like to enter this 
list of endorsers of the National Housing Trust Fund into the 
record.
    Chairman Sarbanes. It will be included in the record.
    Ms. Crowley. The National Housing Trust Fund should be 
capitalized with dedicated sources of revenues sufficient to 
produce and preserve 1.5 million homes for the lowest-income 
households in the next 10 years. We look forward to a debate on 
S. 1248, the National Affordable Housing Trust Fund Act, in the 
Banking Committee this year.
    Thank you again, Senator Sarbanes, for the opportunity to 
represent the members of the National Low Income Housing 
Coalition at this important hearing.
    Chairman Sarbanes. Thanks. Next we will hear from Joseph 
Reilly. Mr. Reilly has been with JPMorgan Chase Community 
Development Group since 1989. The group provides financing for 
affordable housing and other community development projects in 
a number of States; New York, New Jersey, Connecticut, 
Delaware, Maryland, Pennsylvania, Washington, DC, and Texas, as 
well, as I understand it. Prior to joining Chase, Mr. Reilly 
had several positions with the New York City Department of 
Housing Preservation and Development, including 2 years as 
Director of its Vacant Building Program, New York City's 
largest public/private initiative designed to finance the 
rehabilitation of the City's vacant housing stock. Currently, 
he serves on the boards of the Low Income Housing Fund, the 
Community Development Trust, and the Enterprise Social 
Investment Corporation.
    Mr. Reilly, we are looking foward to hearing from you.

      STATEMENT OF JOSEPH F. REILLY, SENIOR VICE PRESIDENT

           JPMORGAN CHASE COMMUNITY DEVELOPMENT GROUP

                        ON BEHALF OF THE

       NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS

    Mr. Reilly. Thank you, Mr. Chairman.
    During the 24 years, I have been involved in affordable 
housing and community development, I have seen the issues from 
a variety of perspectives. As you mentioned, I spent 6 years 
working for a faith-based organization, another 6 years working 
for the New York City Department of Housing Preservation and 
Development, and for the past 12 years I have worked for 
JPMorgan Chase, where I currently manage a staff of 40 
professionals who finance affordable housing and commercial 
real estate projects in areas served by our bank. Over the past 
5 years, JPMorgan Chase has provided over $2.6 billion in 
community development financing. We continue to seek new and 
innovative ways to provide financing which will strengthen the 
communities we serve.
    While much has been done to solve the problems American 
families are facing in finding decent affordable housing, much 
remains to be done. Many high cost areas like New York suffer 
from a profound shortage of both rental housing and 
homeownership opportunities, not only for very low-income 
families but also for low- and moderate-income families. We 
have a growing crisis that requires the ongoing attention of 
policymakers, and both short-term and long-term measures to 
achieve our national goal of a decent home in a suitable living 
environment for all Americans.
    The good news is that during the past decade, our industry 
has experienced a significant strengthening in learning how to 
produce decent, affordable housing for low- and moderate-income 
families and communities. For-profit and nonprofit developers, 
lenders, investors, community leaders, and government at all 
levels have learned to collaborate as partners in devising new 
solutions and creating financing strategies for producing 
affordable housing in thousands of communities.
    We have built the infrastructure necessary to have a major 
impact on housing needs, and coped with the often conflicting 
requirements of many Federal, State, and local subsidies we 
need to do our work. We have learned over the years how to do 
it right--how to build affordable housing for rent and 
homeownership that contains a mix of incomes, housing that is 
built with the discipline of the private market and leverages 
public resources responsibly, housing that is of high quality 
and lasting value, housing that stays affordable over the long 
run, housing that people are proud to call home.
    Insured depository institutions like JPMorgan Chase are an 
important part of this community. The U.S. Treasury Department 
documented that, from 1993 to 1998, the amount of mortgage 
lending to low- and moderate-income communities and borrowers 
by CRA-covered lenders rose 80 percent. In 1998 alone, the 
Treasury reported at least $135 billion in mortgages to these 
borrowers, made by insured depository institutions.
    As good as these solutions are, they come nowhere near 
meeting the need. The public, nonprofit, and for-profit 
organizations that have mobilized and partnered to provide 
affordable housing face three major constraints in our ability 
to deliver more decent, affordable units.
    First, Federal funds are often encumbered by well-meant 
legislative and regulatory constraints that impair needed 
flexibility to meet community needs. Sometimes, something gets 
lost in the translation of housing policy when it is regulated 
into practice. And inevitably, the more tightly the subsidies 
are targeted to those most in need, the greater the financing 
gap and the harder it is to make the deal economically viable.
    Second, we could finance more affordable housing if we had 
more resources. There is no magic to the provision of 
affordable rental housing. Affordable housing can only be built 
if public subsidies fill the gap that exists between what 
families can afford to pay and the costs associated with the 
construction, operation, and maintenance of decent, affordable 
housing.
    Federal programs such as HOME, CDBG, and the Low Income 
Housing Credit have played valuable roles in helping to fill 
that gap, but rarely do it alone. For example, many housing 
credit deals in low-income communities require additional 
subsidies to fill financing gaps. But funding levels for all 
Federal programs have failed to keep pace with rapidly growing 
need, and these programs come with complex requirements that 
slow, or even discourage, development of new units.
    Unfortunately, over the past decade the focus at the 
Federal level has shifted to demand-side subsidies, which do 
not increase the supply of affordable units. In addition, there 
is an aging housing stock of affordable units that needs new 
roofs, new mechani-
cals, and new systems to remain viable.
    Third, in some States there is a scarcity of permanent 
financing for multifamily affordable housing. Affordable 
housing developments often involve subordinated debt and low-
income housing tax credits that make multifamily mortgages 
``nonconforming'' for sale to the secondary market. Smaller 
projects also have difficulty attracting the required permanent 
financing.
    In the short run, the more we can simplify the regulations, 
the processes, and the paperwork of Federal assistance, the 
more we will increase the efficiency of the programs and 
private sector participation. Simple, flexible funding sources 
that have had real impact with maximum efficiency include the 
Affordable Housing Program of the Federal Home Loan Banks and 
the Community Development Financial Institutions' fund. A 
streamlined, permanent loan product, which made 
``nonconforming'' affordable housing loans more attractive to 
investors, would also be extremely helpful.
    In the long run, the Federal Government can be a catalyst 
for attracting more private capital to affordable housing by 
providing a stable, predictable source of capital that would 
not be subject to the annual appropriations process, in keeping 
with the long-term nature of community development.
    It is also clear that the homeownership opportunities for 
low-
income families and communities are not keeping pace with the 
rapidly growing need. The President's Budget proposes a tax 
credit for developing affordable homes that builds on the 
success of the Low Income Housing Credit and would do much to 
alleviate the shortage of affordable homeownership 
opportunities in our neediest communities. NAAHL has endorsed 
the single-family tax credit and asks Congress to enact it as 
soon as possible. Similarly, the proposed quadrupling of the 
American Dream Downpayment Fund will help many low-income 
homebuyers achieve their own home, while the proposed increase 
in housing counseling funds will help those struggling to keep 
their homes.
    I want to thank everyone and thank the Chairman for having 
the opportunity to speak here today. I appreciate the 
opportunity.
    Chairman Sarbanes. Thank you very much, sir, for a very 
strong statement. I was struck by two things you said, and I 
just want to underscore them. One, we have built an 
infrastructure, a public/private infrastructure and, as you put 
it, We have learned over the years how to do it right--how to 
build affordable housing for rent and homeownership that 
contains a mix of incomes, that is built with the discipline of 
the private market and not just public resources in a 
responsible way, that is of high quality and lasting value, 
that stays affordable over the long run, and that people are 
proud to call home.
    I think that is extremely important. That is one of the 
reasons I had that perhaps sharp exchange with the Secretary 
about the OTAG and the ITAG funding for these community-based 
nonprofit organizations, because their part of this 
infrastructure, it is hard to get them up and going and it is 
very easy for them to fall down and in effect go by the 
wayside.
    We are extremely concerned about that but I think your 
point is well taken, that we have this structure in place and 
we have the vessels. We need to figure out how to put more 
liquid, more resources into them. That is why I think the 
Housing Trust Fund idea holds a lot of prospects. We are going 
to have to examine that. What is your own view on the Housing 
Trust Fund idea?
    Mr. Reilly. I think a long-term sustainable source of 
financing to encourage the development of affordable housing is 
an important thing to have. I think it probably would be best 
that there are sources that address the needs at various levels 
of income because there are shortages at very low-, low-, and 
moderate-income levels.
    Chairman Sarbanes. You mentioned the CRA. How important a 
player do you think CRA is in this picture?
    Mr. Reilly. I think that CRA has encouraged lenders to be 
more active in community development activities.
    Chairman Sarbanes. My understanding is that it has made 
some lenders finally aware of the fact that actually they can 
do well by doing good, that there is in effect a market there 
that is profitable if they can get into it. And some of the 
financial institutions--yours is one of them--have been pretty 
active in that field, is that not the case?
    Mr. Reilly. We feel that we are one of the national leaders 
in community development, financing community development pro-
jects, both residential and commercial. We feel very strongly 
that we are a leader in that field.
    Chairman Sarbanes. Ms. Crowley, I would like you to take 
just a couple of minutes and walk us through this housing wage. 
I did a little bit of this with the Secretary this morning but 
you have spelled it out well in your statement, and I think we 
really should get it on the record. So if you would just take 
us through it step-by-step, the concepts, how they came about, 
and then give us some of the figures, I think that would be 
helpful.
    Ms. Crowley. Sure, I would be happy to do that. The housing 
wage is a measure that was developed by Cushing Dolbeare who is 
the founder of the National Low Income Housing Coalition, and 
the coalition has been issuing reports based on this for about 
10 years now. The housing wage is what you have to earn on an 
hourly basis, if you work full time, that is 40 hours a week, 
52 weeks a year, and you pay no more than 30 percent of your 
income for your housing, in order to be able to afford the fair 
market rent. The fair market rent is the only measure of rental 
housing cost that is available on a jurisdiction-by-
jurisdiction basis across the country.
    So using the fair market rent allows us to really analyze 
this problem in a very specific way down to the jurisdiction 
level. The fair market rent is the figure that HUD generates 
that is used to determine whether this is a fair price to pay 
for the rental housing that HUD subsidizes. And at the moment, 
for most jurisdictions, the fair market rent is at the 40th 
percentile of rental housing costs, so in a given community, 40 
percent of the rental housing will cost less than the fair 
market rent, and 60 percent will cost more than the fair market 
rent.
    Essentially, that means that we are talking about some 
modest rental housing that has to meet certain quality 
standards. We are talking about what it costs to get decent 
housing. That is why we use those measures and those variables. 
When you work that out and begin to aggregate that up to the 
State and national level, what you see is an enormous gap 
between what the housing wage is and what real wages are.
    Chairman Sarbanes. Let me ask this question. Where does the 
30 percent of income for housing figure come from? You have 
explained the fair market rent, as the 40th percentile of 
rental housing costs. Where do we get the figure, that the 
reasonable percentage of your income to devote to rent would be 
30 percent?
    Ms. Crowley. It is a generally accepted standard in the 
housing industry. When you calculate what it is you could 
afford for a mortgage or for rent, that is what the standard 
is. It is codified in the rent structure and the percentage of 
income that we charge to people who are receiving housing 
assistance.
    So through the Section 8 program in public housing, et 
cetera, what we say is that 30 percent is the standard of 
affordability. Then we subsidize up to what the fair market 
rent is. It is important I think to note at the beginning of 
this effort of doing housing subsidies that, in fact, we 
determined that 25 percent of your income was the reasonable 
percent to pay for your housing, and over time that has been 
allowed to go up.
    Chairman Sarbanes. To 30 percent?
    Ms. Crowley. Yes.
    Chairman Sarbanes. Why don't we carry through with the wage 
figures? We are trying to see how much income you would have to 
earn so that 30 percent of that income would give you enough 
money to have a house at the fair market rent, is that right, 
not a house but a rental at the fair market rent?
    Ms. Crowley. When you aggregate it up on the national 
basis, it is $13.87 an hour. It ranges from $8.50 an hour in 
West Virginia to $18.33 an hour in California. In some 
jurisdictions, San Francisco being the most severe problem, it 
goes up to $33 an hour. This map, which we appreciate the 
Committee using to illustrate the extent of the housing crisis, 
we developed this year because we were told there was an 
opinion within the Administration that if you had two minimum 
wage earners in a household, then you could afford to pay rent 
anyplace in the country.
    The dark States are those States where even if you have two 
full time minimum wage earners in your household at the 
prevailing minimum wage in that State--some States have a 
higher minimum wage than the Federal minimum wage--even if you 
have two of them, you cannot afford to pay the housing wage. 
There are three States; New York, New Jersey, and Hawaii where 
three full time minimum wage jobs are insufficient to pay the 
housing wage.
    Chairman Sarbanes. That is a range from $8.50 an hour in 
West Virginia to $18.33 an hour in California.
    Ms. Crowley. That is right.
    Chairman Sarbanes. In California, you could have two 
workers at the minimum wage and still be way below what you 
need in order to afford the fair market rent.
    Ms. Crowley. I was in California recently visiting my 
daughter, who is a renter in San Diego, and it is really 
astounding what the housing market is like out there and how 
extraordinarily difficult it is for people to find just a 
reasonable place to live, and not have to pay very high 
percentages of their income for their housing. Consequently, 
they have lots and lots of people doubled up, living in 
garages, and things like that.
    Chairman Sarbanes. I want to very quickly run through some 
of these comments you have toward the close of your statement. 
And Mr. Reilly, if you want to at any point come in on these, 
we would be happy to hear from you.
    Combining the competitive programs under HUD's McKinney-
Vento Homeless Assistance Programs--what are your thoughts?
    Ms. Crowley. I think the evolution of the McKinney Homeless 
Assistance Programs over time at HUD means that it makes sense 
at this point to put that out as one source of funding for 
communities to make some decisions about how best to spend 
them. We have to maintain the expectation that today we will 
focus that on permanent housing as the Congress has directed in 
the last year, that 30 percent has to go into permanent 
housing.
    Our concern about this proposal, and listening to the 
Secretary's discussion about it, makes it sound a lot like a 
block granting of the McKinney funds, which as you know has 
been something that people have had very strong feelings about 
for many years. So, we want to guard against that.
    It is the opinion of the National Low Income Housing 
Coalition, and many of our colleagues who are doing low-income 
housing development, as well as homeless service delivery, that 
maintaining a Federal responsibility and a Federal oversight 
over homeless service delivery is essential, and that devolving 
that to the community level in many ways accepts homelessness 
as a permanent condition, which we do not think it should be.
    Chairman Sarbanes. We also have this continuum of care 
concept. We do not want to lose that in any way, do we? Isn't 
that an important aspect of dealing with the homeless?
    Ms. Crowley. Actually, I think it is. I think that getting 
rid of the narrow confines of the categorical programs, would 
help make the continuum of care work better. I have sat on a 
local continuum of care decisionmaking board, and you spend a 
lot of time trying to fit square pegs into round holes. And it 
will allow the programs to be more tailored.
    Chairman Sarbanes. I wanted to actually have an exchange 
with the Secretary on the capital funds for public housing, 
which has been reduced again in this budget. And they are now 
floating the idea of allowing the housing authorities, in 
effect, to take mortgages out on the public housing, which 
presumably then would raise capital with which they could 
upgrade the public housing.
    On the surface, it looks like a way to draw in additional 
capital. How would you service the mortgage? You would have to 
build the cost of servicing the mortgage either into the rents, 
or you would have to give some grant year-by-year from the 
Federal Government in order to service the mortgage. Wouldn't 
that be the case?
    Ms. Crowley. As far as I understand it. But I do not begin 
to understand precisely what it is that they are proposing. I 
think we should experiment with things; we should not always 
keep things the same. We should experiment and I think that 
those are really important questions that have to be answered.
    I think that cutting the capital fund in anticipation of 
something that may or may not pan out is rather premature. And 
in any event, the backlog on repairs and modernization of 
public housing is much greater than what the capital fund has 
been funded for anyway. So if the Congress wants to consider 
allowing HUD to try this, we should look at that carefully, 
figure out what the ramifications are. But it should not be in 
lieu of funding the capital fund at the level that is required.
    Chairman Sarbanes. You could voucher someone out of public 
housing, then make the unit available for unassisted housing. 
Do you understand that that is part of the proposal?
    Ms. Crowley. That they would make public housing available 
for----
    Chairman Sarbanes. In other words, you could say to 
somebody, we will give you a voucher. You can go somewhere 
else. Once that was done, since their housing need had been 
met, the unit would become available to rent it to someone who 
does not need assisted housing. If that is the case, it would 
be a way of in effect over time doing away with the public 
housing stock, particularly in the better neighborhoods which 
would in many ways perhaps have an appeal to be converted over 
from public housing into unassisted housing.
    Ms. Crowley. My reaction to that is that most public 
housing authorities have waiting lists for people looking for 
housing assistance. And so to then go into something that is 
going to make very scarce resources available to people who do 
not need housing assistance seems to me to be not really 
meeting what their mission is. I think, as you point out, it 
has the potential of ultimately loss of public housing stock.
    Chairman Sarbanes. What kind of production programs do you 
think we most need?
    Ms. Crowley. We most need a production program that is 
going to provide rental housing for extremely low-income 
people. There are all sorts of other rationales for doing a 
production program for other kinds of housing and other 
segments of the eligible population, but the data are very 
stark that over the last 10 years, the loss of housing that is 
affordable to extremely low-income people has been precipitous, 
while at the same time we have, in fact, seen an increase in 
the number of units that are affordable to people in the upper 
tier of the eligible group.
    So if we are making decisions about where the most serious 
priorities are, that is where funds should be directed. But 
there is certainly room for doing a variety of other things if 
you decide to put sufficient funding into that. But our 
position, and the position of the National Housing Trust Fund 
campaign, is that that is where the most serious unmet need is, 
extremely low-income households and rental housing.
    Chairman Sarbanes. Can we get at that need through a kind 
of hand-me-down process in housing, or doesn't that work? If, 
for one reason or another, you cannot provide the additional 
production at that level, you provide it at a level somewhat 
higher. But then the housing that those people were in gets 
passed down and becomes more available.
    Ms. Crowley. The traditional filtering down concept? We 
have actually begun to talk about a filtering up process. There 
is so much housing that is occupied by people who cannot afford 
that housing, that if you simply build more housing that is 
affordable to people in that income range, you are going to 
ease the gap for people at that level but you are not going to 
do anything to solve the problem for people at the lowest end. 
So, we really think that if you begin to build housing 
affordable to, the lowest possible income end, then, in fact, 
what will happen is that you will free up housing for people 
higher up.
    Mr. Reilly. I think you also have to be concerned about the 
quality of the housing that filters down. I think that we need 
to be very conscious of the quality of housing.
    If you just say, whatever is left over will be the low-
income housing, the lowest-income housing, I think we should be 
concerned about what the quality of that is, which is going to 
leave you with a financing gap then as well--which is that 
housing which filters down needs to be brought up to a certain 
standard. And in order to do that, I look at this map and I 
see, here is how you quantify what the gap is.
    The overlay here should be, at some point, here's what the 
housing cost is in that area, what it costs to build in that 
area, and here's how many units you need. You put it all 
together and you figure out what the gap is.
    But if you are going to have the lowest-income housing 
going to be whatever is left over, bring it up to some certain 
standard, you are going to have to finance that anyway. And 
people based on their incomes are not going to be able to 
afford that anyway, so you are going to have to subsidize it 
from that perspective.
    Ms. Crowley. What we hear from the nonprofit development 
world--and I will defer to Mr. Reilly on his assessment of 
this--is that developing housing for the extremely low-income 
people is something that they cannot do, because they do not 
have the resources to be able to do that. And so the other 
programs that are available target the low-income housing tax 
credit-eligible group, the HOME eligible group, and those 
people.
    The whole idea behind the Housing Trust Fund is to create 
not a program, but a new source of capital that will be 
specifically dedicated to the production of housing for those 
people for whom there are no resources at this point, and that 
those resources be coupled with the other resources so that you 
can create a full range of mixed income housing in any given 
community.
    Chairman Sarbanes. You have been very helpful, and the 
statements--we appreciate the obvious work and care that has 
gone into them. We will stay in close touch with you as we 
proceed to work on this budget.
    Thank you all very much.
    The hearing stands adjourned.
    [Whereupon, at 1:45 p.m., the hearing was adjourned.]
    [Prepared statements, response to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF SENATOR WAYNE ALLARD
    I would like to thank the Chairman for convening this hearing. I 
appreciate the opportunity to learn more about the Administration's 
fiscal year 2003 budget and legislative proposals for the Department of 
Housing and Urban Development.
    During my tenure as Chairman and Ranking Member of the Subcommittee 
on Housing and Transportation I have consistently stressed the 
importance of outcome-based management. I am extremely pleased to see 
that the Administration's budget proposal for fiscal year 2003 begins 
to incorporate this principle.
    I would like to highlight several key passages from the budget:

          Increases in spending are assumed to reflect high priorities 
        and reductions reflect low priorities. This is because everyone 
        takes for granted that more Government spending will translate 
        into more and better Government services . . . The assumption 
        that more Government spending gets more results is not 
        generally true and is seldom tested . . . The initiative to 
        integrate budget and performance has an important purpose--to 
        improve programs by focusing on results. Dollars will go to 
        programs that work; those programs that do not work will be 
        reformed, constrained, or face closure. . . Good intentions and 
        good beginnings are not the measure of success. What matters in 
        the end is completion: performance and results.

    As I have noted at previous hearings, Government agencies should be 
judged by results, not by the size of their budgets or the number of 
new programs. The success of HUD will be determined by how many people 
it helps to achieve self-sufficiency, not by how much money it spends.
    I am pleased with a number of initiatives in the budget. In 
particular, I would like to praise the Administration for its focus on 
homeownership. Through a number of proposals, this budget will help 
boost the national homeownership rate beyond its current record level. 
Not only does this emphasis help more families achieve the American 
Dream of homeownership, it also makes important strides in moving 
families toward self-sufficiency.
    Also, the Administration proposes to combine several of the 
homeless assistance programs to eliminate duplication and increase 
flexibility. I have long advocated such an approach and am pleased to 
see its inclusion.
    I believe that the funding proposal for the SHOP also is a step in 
the right direction. I am a strong supporter of ``self-help'' programs, 
and organizations like Habitat for Humanity provide a clear example of 
how successful this model can be. This program is a standard of how the 
Administration is prioritizing funding for programs that have proven 
successful.
    I would like to conclude by welcoming the witnesses to today's 
hearing. Their comments will be helpful as the appropriations process 
moves forward, and as the Banking Committee considers the 
Administration's legislative proposals.
    In particular, I would like to welcome Secretary Martinez back to 
the Banking Committee. I have enjoyed working with you on housing 
matters over the past year, and I look forward to continuing that good 
work this year.
    Again, thank you to all of the witnesses for being here today. I 
look forward to your testimony.
                               ----------
             PREPARED STATEMENT OF SENATOR THOMAS R. CARPER
    Thank you Mr. Chairman for holding this important hearing.
    At the end of last year, the Senate Banking Committee held hearings 
on housing and community development needs looking forward to HUD's 
fiscal year 2003 budget. The conclusion of those hearings was clear, 
there is simply not enough affordable housing in this country.
    Why is this important? It is important because unstable and 
unavailable housing makes it harder for people to move from welfare-to-
work, for children to learn and perform well in school; for employers 
to hire and retain workers; and for communities to maintain stable and 
vibrant neighborhoods.
    The lack of affordable housing goes well beyond the very low-income 
families that we traditionally think of when we think of assisted 
housing. Housing is a major issue for America's working families. Dave 
Curtis, a fellow Delawarean who testified last year before this 
Committee on behalf of the National Association of Homebuilders, spoke 
about the problems ``workers in municipal jobs, such as teachers and 
police officers, and in the services sector such as janitors, [and] 
practical nurses . . .'' have in finding both affordable rental and 
homeownership opportunities.
    I look forward to hearing from Secretary Martinez about how HUD's 
budget 
addresses the problems of affordable housing. I also look forward to 
the testimony of the other witnesses.
    I hope that the Secretary will also address an issue concerning the 
continuing 
crisis in the Outreach and Technical Assistance Grant (OTAG) and 
Intermediary Technical Assistance Grant (ITAG) funds. In the 2002 
appropriations process, Congress appropriated over $11 million in order 
to correct a possible Anti-Deficiency Act violation made by HUD. This 
alleged violation resulted in the suspension of critical technical 
assistance funds, leading many nonprofits to layoff workers or even 
close their doors. In Delaware, the funding freeze has affected the 
important work of the Delaware Housing Coalition, as well as the 
Greenfield Manor Resident Council. I look forward to hearing the 
Secretary's explanation concerning these funds.
                               ----------
              PREPARED STATEMENT OF SENATOR JON S. CORZINE
    Thank you, Mr. Chairman, for holding this hearing on HUD's proposed 
budget for fiscal year 2003. I want to thank Secretary Martinez for 
joining us here today to outline the agency's goals for fiscal year 
2003 and beyond. I also welcome the other witnesses who will be joining 
us, and thank them as well for their testimony.
    Mr. Chairman, now, more than ever before, we need a strong Federal 
commitment to increasing affordable housing for all Americans, most 
specifically for low-income families and those who have recently lost 
their jobs.
    The Administration's proposal has some good elements about it. One 
of them is the creation of 34,000 new housing vouchers. I also think 
that the proposal to end chronic homelessness over 10 years and the 
goal to provide physical improvements to our existing public housing 
units are good measures.
    Overall however, this budget falls short of meeting what I believe 
is HUD's core mission--fulfilling both the short- and long-term housing 
needs that America's families, our communities and frankly, our 
economy, rely on.
    While it is praiseworthy that the Administration seeks to end 
homelessness, their budget proposal contains little new money for 
homeless programs--it merely consolidates existing programs.
    Furthermore, the Administration espouses the need to physically 
improve public housing; its budget actually cuts $441 million from the 
Public Housing Capital Fund, the program which funds public housing 
repairs and rehabilitation.
    And Mr. Chairman, once again this Administration does not appear to 
be committed to reducing crime and drug-related activities that plague 
public housing 
developments. I consider zeroing-out the Public Housing Drug 
Elimination Program, a program aimed at improving the safety at public 
housing developments, particularly troublesome. Now, more than ever, 
our communities need more resources to maintain security, not less.
    Mr. Chairman, as you are aware, Congress is reauthorizing Temporary 
Aid to Needy Families (TANF), our Nation's welfare program this year. 
The President's housing budget is completely silent on the specific 
housing needs that face welfare recipients. Only 30 percent of TANF 
families receive housing subsidies, however, modest housing costs more 
than 100 percent of TANF benefits in 47 States, including New Jersey. A 
key initiative of the President's budget is helping individuals achieve 
self-sufficiency. Yet, the President has not allocated any resources 
for new welfare-to-work vouchers or any additional funding for the 
Family Self-Sufficiency (FSS) Program.
    Mr. Chairman, this budget has very negative implications for New 
Jersey, which has the third highest housing costs in the country. This 
proposal does little to impact the dilemma faced by individuals who 
reside in high-cost States, like New Jersey, who still face 
skyrocketing housing cost--even during the midst of a recession.
    And this proposal completely eliminates grant funding for Round II 
Empowerment Zones, a program that has contributed mightily to the 
economic development of Cumberland County, New Jersey.
    Secretary Martinez, I hope that we can use this opportunity to 
discuss these concerns and that we can gain a better understanding of 
HUD's, and your, commitment to improving access to decent, affordable 
housing for all American families.
    Thank you, Mr. Chairman.
                   PREPARED STATEMENT OF MEL MARTINEZ
      Secretary, U.S. Department of Housing and Urban Development
                           February 13, 2002
    Chairman Sarbanes, Ranking Member Gramm, Distinguished Members of 
the Committee, thank you for the opportunity to join you this morning 
to outline the proposed fiscal year 2003 budget for the Department of 
Housing and Urban Development (HUD).
    The $31.5 billion HUD budget represents a funding level increase of 
7 percent over fiscal year 2002. By helping Americans reach the dream 
of homeownership, 
ensuring affordable housing opportunities for those who rent, 
strengthening and 
renewing communities, and preserving a safety net for the most 
vulnerable Americans, this budget will enable HUD to make a tremendous 
difference in the lives of millions of Americans.
    The housing market in 2001 was extremely vigorous, and we entered 
the new year with homeownership at a record high. Because we know that 
homeownership gives families a stake in their communities and creates 
wealth, the HUD budget makes owning a home a viable option for even 
more Americans. In his State of the Union Address, President Bush 
acknowledged our commitment to expanding homeownership--especially 
among minorities.
    As a first step, we have quadrupled the American Dream Downpayment 
Fund, to $200 million. This Presidential initiative will help an 
estimated 40,000 first-time homebuyers overcome the high downpayment 
and closing costs that are significant obstacles to homeownership.
    A Tax Credit for Developers of Single-Family Affordable Housing 
will promote homeownership opportunities among low-income households by 
supporting the rehabilitation or new construction of homes in low-
income urban and rural neighborhoods.
    We are tripling funding for the Self-Help Homeownership Opportunity 
Program (SHOP) to $65 million, as committed to by the President last 
spring. That, and a lot of sweat equity, will make possible the 
construction of an additional 3,800 homes for disadvantaged Americans. 
SHOP is an excellent example of Government maximizing its resources by 
working with private-sector partners like Habitat for 
Humanity.
    Another exciting homeownership initiative targeted at low-income 
families will allow them to put up to a year's worth of their Section 8 
rental voucher assistance toward a home downpayment. And because we 
consider it an invaluable tool for prospective homebuyers and renters, 
we have proposed making housing counseling a separate program. The 
increase in subprime lending has made financial literacy more important 
than ever; armed with the facts, a consumer is far less likely to be 
victimized by predatory lending. We are funding the counseling program 
at $35 million, which represents a $15 million increase over the 
previous fiscal year.
    While we consider homeownership to be an important goal, we 
recognize that it is not an option for everyone; therefore, our budget 
preserves HUD's commitment to expanding the availability of affordable 
housing for the millions of Americans who rent their homes.
    The Section 8 tenant-based program today assists nearly two million 
families; our budget provides an additional 34,000 housing vouchers. 
The budget also dedicates $16.9 billion to protect current residents by 
renewing all expiring Section 8 
contracts.
    To encourage the production of moderate-income rental housing in 
underserved areas, we plan to reduce the mortgage insurance premium for 
Federal Housing Administration (FHA) multifamily insurance.
    Three times over the last 8 years, HUD has been forced to shut down 
our multifamily mortgage insurance programs because of lack of credit 
subsidy. Last year, the shutdown stopped the construction of some 
30,000 rental units throughout the country and clouded developers in 
uncertainty.
    We made a commitment at HUD to a comprehensive review of the credit 
subsidy program. We examined the statistical techniques that were used 
to analyze loan performance. We thoroughly updated and refined FHA's 
data and incorporated the major tax law changes in the 1980's that 
affected the profitability of multifamily housing. Through our review, 
we were able to lower premiums, create a self-sustaining program, 
provide the industry with stable financing at a much lower cost, and 
provide thousands of new opportunities for rental housing across the 
country.
    In fact, the program made firm commitments to insure $1.25 billion 
worth of new rental housing in just the first 4 months of the fiscal 
year. Reducing the premiums in fiscal year 2003 will lower the cost of 
building over 50,000 affordable rental apartments each year.
    The 2003 budget gives HUD new resources to further our mission of 
supporting the Nation's most vulnerable. This includes low-income 
families, homeless men and women, the elderly, individuals with HIV/
AIDS, victims of predatory lending practices, and families living in 
housing contaminated by lead-based paint. Let me highlight just a few 
of our proposals.
    To better coordinate the work of the many Federal agencies that 
reach out and provide a continuum of care to homeless men, women, and 
families, the budget calls for doubling HUD's funding for the newly 
reactivated Interagency Council on the Homeless. Additionally, 
converting three competitive homeless assistance programs into a 
consolidated grant will eliminate the workload and expense of 
administering three separate programs. More importantly, it will give 
local jurisdictions new discretion in how those dollars are spent.
    HUD's Lead Hazard Control Program is the central element of the 
President's 
effort to eradicate childhood lead poisoning in 10 years or less. The 
HUD budget will fund the program at $126 million, a substantial 
increase over the previous year.
    The budget also proposes spending $251 million under HUD's Section 
811 program to improve access to affordable housing for persons with 
disabilities. And many of the additional 34,000 Section 8 housing 
vouchers will aid non-elderly, disabled individuals.
    In addition to addressing the Nation's critical housing needs, 
programs such as the HOME Investment Partnerships Program and the 
Community Development Block Grant (CDBG) Program stimulate economic 
development and job growth. Combined, these two programs will 
distribute an additional $200 million in formula funding to State and 
local governments. We have proposed changing the distribution of CDBG 
formula funds by reducing the size of grants going to the wealthiest 
communities. This will help bring dollars into those areas where they 
can do the most good.
    We are excited about a brand-new concept to address the large 
backlog of repair and modernization projects in public housing. The 
Public Housing Reinvestment Initiative represents a new way to leverage 
the value of public housing by allowing public housing authorities 
(PHA's) to borrow funds to make needed capital improvements. This 
project unlocks the value of public housing assets by allowing PHA's to 
convert public housing units to project-based vouchers. The PHA's can 
obtain loans by borrowing against individual properties--similar to 
private-sector real 
estate financing.
    Innovative thinking like this represents a departure from the way 
things were done so often in the past--but being effective does not 
have to mean spending more money. Government works best when Government 
serves as steward and facilitator . . . and measures success through 
results. By facilitating the involvement of new local partners, the 
Public Housing Reinvestment Initiative will breathe new life into 
public housing communities.
    I am proud of our budget and the way it reflects HUD's renewed 
commitment to efficiency, accountability, and the principles of 
excellence expressed through the President's management scorecard. When 
Government spends efficiently, the funds go much further. We reach more 
citizens. We help to change more lives.
    The people of HUD know that the American Dream is not some 
unattainable goal, because we see it achieved every day, so often by 
families who never imagined 
owning their own home or reaching economic self-sufficiency. I am 
confident that through our budget--and the continued commitment of 
President Bush--HUD will be better able to offer citizens the tools 
that they can put to work improving their lives, and strengthening 
their communities and their country . . . as they travel the road to 
achieving their own American Dream.
    I would like to thank each of you for your support of my efforts, 
and I welcome your guidance as we continue our work together on behalf 
of the American people.
    Thank you.
                               ----------
                 PREPARED STATEMENT OF THOMAS L. JONES
   Managing Director, Habitat for Humanity International, Washington 
                                 Office
                           February 13, 2002
    Chairman Sarbanes, Ranking Member Gramm, and Members of the 
Committee, thank you for the opportunity to represent Habitat for 
Humanity International. I am Tom Jones, the Managing Director of the 
Washington Office of Habitat for 
Humanity International for the past 10 years. The Washington Office is 
a part of the Executive Office of Habitat for Humanity International, 
located in Americus, 
Georgia. The Washington Office serves as Habitat for Humanity 
International's presence in the Nation's Capital. We are privileged to 
represent Habitat for Humanity International with Congress and the 
Administration, professional and industry groups, international groups 
and foreign embassies, other nonprofits, labor unions, business 
corporations, and NGO's.
    On behalf of Habitat for Humanity International, I am deeply 
grateful for the 
opportunity to testify before the Senate Banking Committee. The Members 
of this Committee have shown their commitment to expanding housing 
opportunities for families seeking to improve the quality of their 
lives by passing meaningful legislation and holding hearings, such as 
this one, to determine the appropriate level of Federal spending on 
housing needs. Many Members of this Committee have actively 
demonstrated their support for self-help housing and homeownership by 
building alongside Habitat for Humanity volunteers and homeowners to 
construct simple, 
decent Habitat homes. In fact, The Houses the Senate Built program has 
now recruited 60 U.S. Senators, including Senator Sarbanes, every 
single Member of the Housing and Transportation Subcommittee, and 
Senators Bayh, Johnson, Bennett, and Crapo to build homes in their own 
States during this year. Our hope is that this partnership with the 
Senate will place the issue of affordable housing at the forefront of 
the Nation's agenda and raise the awareness of the American public that 
access to affordable, decent, and safe housing is an opportunity every 
person and family should have.
    Secretary Martinez has also reiterated this conviction and shown 
his unwavering commitment to homeownership, particularly for minorities 
and low-income persons--who fall far behind the Nation's historic 
homeownership rates. It has been an honor to work with the Secretary on 
several Habitat builds and he and his staff have put in countless hours 
on their most recent Habitat project, The House the HUD Secretary 
Built, in Southeast Washington, DC. Habitat for Humanity is 
firmly committed to working with the Secretary and the Department and 
with other housing groups, such as the Homeownership Alliance, to 
increase homeownership opportunities for low-income families and to 
enable more minorities to take advantage of the Nation's most vigorous 
housing market in history.
    Habitat for Humanity has spent the past 25 years building 
affordable homes for homeownership in partnership with families who do 
not qualify for mortgages in the conventional market. Supported by 
private donations, Government partnerships to ``set the stage,'' 
volunteer labor and homeowner's ``sweat equity,'' the homes are sold 
for no profit and financed by zero-interest, long-term mortgages that 
each family can afford. The average Habitat house selling price was 
$48,585 in 2000. In September of that same year, we built our 100,000th 
house worldwide, providing shelter for more than half a million people. 
We have now built over 120,000 homes worldwide, with over 42,000 homes 
built and renovated in the United States, by 1,628 affiliates located 
in all 50 States. Habitat is operating in 84 countries worldwide with 
nearly 500 international affiliates. We have been named the 15th 
largest homebuilder in the United States, in units completed, according 
to Builder Magazine. The national foreclosure rate for a Habitat home 
is about 1 percent.
    Our homeowner families are typically first-time homebuyers who earn 
wages below 50 percent of the area median. Just over 71 percent of 
Habitat homeowners are minority and almost half are single parents 
raising school-aged children. Homeowners contribute 300-500 hours of 
their own labor in the building of their house and other Habitat homes. 
By partnering with Habitat, families are able to move from substandard, 
deteriorating, overcrowded, and unsafe housing, sometimes even 
homelessness, into their very own homes they purchase with an 
affordable mortgage and build with their sweat of their brows. 
Homeownership impacts the lives of its homeowners beyond the building 
of a house: families gain substantial financial 
equity, stability for their children, an enhanced sense of pride, 
safety and dignity, and a legacy to pass to their children.
    Homeownership, particularly in areas blighted by disinvestment and 
economic distress, can be the key to community transformation, one 
house at a time. Homeowners are more likely to maintain their 
properties and be committed to the overall health of their 
neighborhoods. Stable housing attracts economic development, favorably 
impacts school systems, and promotes active community organizations. 
While it may not be an option for every family, homeownership is one of 
the most important building blocks for stronger communities and 
families.
    The success of Habitat for Humanity in creating homeownership 
opportunities for thousands of Americans who would otherwise never have 
the chance to own their own home is, in part, due to the generous 
support of Congress and the Administration. Since 1996, Congress has 
appropriated funding for the Self-Help Homeownership Opportunity 
Program, commonly known as SHOP, and the Capacity Building for Habitat 
for Humanity Program, part of the Section 4 Capacity Building funds 
that benefit other housing and community development organizations. To 
date, funding received by Habitat for Humanity for SHOP alone will 
change the lives of over 26,000 people--including almost 17,000 
children--who would not become homeowners otherwise. We are deeply 
grateful for this funding and pleased that the 
Administration has announced a significant increase in the SHOP 
program. The success of the SHOP program speaks for itself and we urge 
Congress to consider SHOP as an essential piece of the Nation's overall 
strategy to expand homeownership to low-income households.
Self-Help Homeownership Opportunity Program (SHOP)
    Congress originally authorized the SHOP program in 1996. It is a 
competitive grant program, administered by HUD, providing funds to 
nonprofit, self-help housing organizations to ``set the stage'' for 
building homes below prevailing market rates; money can only be used to 
purchase land and fund infrastructure expenses, such as streets, 
utilities, water and sewer connections, and environmental clean-up. For 
every $10,000 SHOP award, on average, one home must be constructed. 
SHOP families invest 250-500 hours in sweat equity and earn below 80 
percent of the area median income. SHOP funds have been used to 
complement the work of Habitat affiliates in every State, making it 
possible for our larger affiliates to build multi-lot Habitat 
neighborhoods, for fledging, all-volunteer-run affiliates to establish 
regular building programs, and for every affiliate in-between to 
overcome the largest obstacle to house building--land and 
infrastructure expenses.
    Habitat for Humanity competes with other nonprofit housing 
organizations for the use of SHOP funds and our affiliates, in turn, 
compete for the funds awarded to Habitat for Humanity International 
(HFHI). Historically, our affiliate's requests have exceeded available 
funds by over 40 percent. In the past round of fiscal year 2001 SHOP 
awards, our affiliates requested $28 million from an available $11 
million award from HUD. HFHI anticipates requests to exceed $30 million 
from affiliates for the fiscal year 2002 round of funding, yet to be 
awarded from HUD. It is our firm belief that the infusion of even more 
Federal money into the SHOP program will result in a substantial 
increase in requests from affiliates. In fact, the most common request 
we receive in the HFHI/Washington Office from local affiliates all over 
the country is regarding additional funding for SHOP. The cost of land 
and site development has increased so much that affiliates receiving 
SHOP awards in each of Habitat's eight regions far exceeds the average 
SHOP award; nationally, the combined average of land and infrastructure 
expenses is $21,720. This amount must be raised by affiliates before 
house construction can even begin.
    The success of the SHOP program can be measured by numbers of homes 
produced: With the inclusion of the fiscal year 2001 awards, when 
mandated deadlines are met, SHOP funds will result in a total of 7,382 
homes. This translates into 26,132 Americans whose lives have been 
changed--over 16,551 of whom are children--living in their own home. 
For every $10,000 investment, the dream of homeownership becomes a 
reality. SHOP can also be measured by the amount of private resources 
leveraged. Habitat affiliates and other self-help housing groups raise 
an additional 4 to 10 times the amount of the initial investment of 
$10,000 to construct each house.
    The other large user of the SHOP program is the Housing Assistance 
Council (HAC), a national nonprofit technical assistance organization. 
In five SHOP competition rounds since 1996, HUD has awarded $37 million 
to the Housing Assistance Council. HAC conducts its own competitions 
and has passed this funding on to 137 local nonprofits in 40 States, 
helping 4,368 low-income families build self-help homes using sweat 
equity, mostly in rural areas. Two thousand four hundred fifty of those 
homes are fully or substantially complete, with the rest in various 
stages of development. The families are all first-time homebuyers and 
put an average of nearly 1,000 hours of sweat equity into their houses. 
In most of the local programs, the homebuilding families work together 
in groups of 8 to 10. They learn about their homes by building them and 
develop a community by working together.
    Some of the local groups that are using HAC's SHOP program include 
Colorado Housing Inc., Community Action Commission of Fayette County 
(based in Ohio), Florida Low-Income Housing Associates, Interfaith 
Housing of Western Maryland, Proyecto Azteca (based in the Texas 
colonias), Self-Help Enterprises (in rural 
California), Self-Help Housing Corporation of Hawaii, and Southern 
Maryland Tri-County Community Action.
    Habitat for Humanity and the Housing Assistance Council recommend 
the following proposal to enhance the effectiveness of the SHOP 
program: Increase the current limit of $10,000 per unit to at least 
$15,000 per unit to more accurately reflect the actual cost of 
acquiring and developing land, and enable the HUD Secretary to 
determine a higher average, via a waiver, for housing in particular 
geographic regions where elevated land costs and infrastructure 
improvements make the cost of acquisition too costly for affordable 
housing development. According to our data, the national average per 
unit cost to ``set the stage'' for building a Habitat house is $21,720 
($10,217 for land and $11,512 for infrastructure). Data from HAC 
reveals similar land and development costs of $22,000 per unit. In some 
regions of the country, the cost of land and site development is so 
astronomical that additional resources of 4 to 10 times the amount of a 
SHOP award is needed before construction on the house can commence, 
creating serious obstacles for affiliates and other self-help housing 
developers in the area. Consider the cost of land and site development 
for the following Habitat affiliates:

 Southern Santa Barbara County Habitat for Humanity--
    $112,500.00
 Habitat for Humanity of Northern Virginia--$83,333.00
 Arundel, Maryland Habitat for Humanity--$28,111.00
 Metro Denver Habitat for Humanity--$35,000.00
 Greater Portland, Maine Habitat for Humanity--$47,000.00
 Bend, Oregon Habitat for Humanity--$34,250.00
 Habitat for Humanity of Suffolk, New York--$38,700.00

    The Housing Assistance Council also reports that many of its users 
of SHOP funds have very high land and site development costs. Some 
examples include:

 Burbank Housing Development Corp., California--$40,000.00
 Peoples' Self-Help Housing, California--$50,889.00
 Colorado Rural Housing Development Corp.--$20,265.00
 Self-Help Housing Corp. of Hawaii--$86,765.00
 Interfaith Housing of Western Maryland--$36,306.00
 Rural Development Inc., Massachusetts--$25,600.00
 SE Wisconsin Housing Corp.--$32,091.00

    It is our hope that HUD and Congress will support raising the 
maximum SHOP award to at least $15,000, as we strongly believe this 
change will make SHOP even more competitive and attractive to 
affiliates and other self-help housing groups, who will work even 
harder to find the additional private resources necessary to pursue 
their building programs.
Capacity Building for Community-Based Housing Groups
    Capacity Building is the key to increasing the organizational 
strength of community-based nonprofits. The Capacity Building for 
Habitat for Humanity Program, as part of Section 4 Capacity Building 
funds which benefit notable groups such as LISC and the Enterprise 
Foundation, enable Habitat affiliates to impact communities on an even 
more significant scale by jumpstarting house production. Habitat 
affiliates essentially operate as local Community Development 
Corporations (CDC's), with their own elected board and 501(c)(3) 
nonprofit statuses. Many affiliates have no paid staff and must rely on 
the good will and hard work of volunteers. Thus the challenge for 
Habitat for Humanity is to provide technical assistance, training, 
information, and motivation to increase local building capacity.
    The Capacity Building for Habitat for Humanity Program, in its 
fifth year of funding, has been used to:

 Provide local volunteers with the skills, training, and 
    knowledge for developing resources through fundraising and securing 
    gifts-in-kind from the private sector--including faith-based 
    organizations, businesses, foundations, civic clubs, labor unions, 
    individuals, and others.
 Foster new local, regional, and State official partnerships 
    with organizations and groups such as college and university campus 
    chapters, faith-based groups, civic clubs, prisons, professional 
    groups, including realtors, bankers, homebuilders, unions, local 
    government, labor, etc. to enhance the productivity of local 
    affiliates.
 Recruit and train local volunteers in communication skills and 
    in ways to use media opportunities to raise awareness and the 
    public conscience to eliminate substandard housing and to provide 
    opportunities for every American to achieve the dream of 
    homeownership.
 Recruit persons for local board membership who have the 
    leadership skills and the diversity needed and to provide board 
    development opportunities.
 Provide funding on a diminishing basis for affiliates to hire 
    first-time staff or staff for new positions that contribute to the 
    affiliate's growth, so that more people are working at the local 
    level to make housing happen.
 Provide training opportunities via electronic, web-based 
    communication to result in securing resources, understanding new 
    methods of construction, discovering sources for training and 
    technical advancement, etc.
 Focus efforts on the special housing needs and challenges in 
    Rural Areas, Native American Indian communities, the Colonias, and 
    other populations traditionally underserved by current housing 
    programs and resources.

    Within the context of requirements and regulations established for 
Capacity Building for Habitat for Humanity funds, HFHI also conducts 
training and development of local affiliates at the local level, 
working with groups of 30-40 affiliates through its affiliate support 
system; at the State level in all 50 States; through its eight regional 
offices; and nationally. The program includes conferences, training 
events, specialized technical assistance instruction, and provision of 
leadership at every possible level. Because the majority of Habitat 
affiliates are located in rural locations, a major focus is on the 
unique rural needs for training and technical assistance. Likewise, 
special focus is made on training and assistance for crucial urban 
areas where housing needs are so great and which present unique 
challenges, calling for specialized training and technical assistance.
    Like the SHOP program, the success of the Capacity Building for 
Habitat for Humanity program is measured by the increase in numbers of 
families housed. In the first round of the Capacity Building grant 
program, 60 Habitat affiliates built 1,976 homes over the course of the 
3 year grant--67 percent more houses than they built in the 3 years 
prior to the grant. In addition, affiliates must match every Capacity 
Building dollar with $3 of private, nongovernmental funds and increase 
their building capacity by a minimum of 15 percent. This requirement 
has also been far surpassed; affiliates participating in the 1998 
program alone have raised $146 million in private funds to match the 
$4.5 million in Capacity Building dollars. It is our hope that Congress 
will support the Administration's request of $5 million for the 
Capacity Building for Habitat for Humanity Program, as it is crucial to 
the building efforts of our local affiliates.
Single-Family Homeownership Tax Credit (SFHTC)
    While not a part of the HUD budget request, it is important to 
mention that the Administration has made a significant housing proposal 
to promote affordable 
single-family housing development. Habitat for Humanity strongly 
supports the Administration's goal to increase homeownership and 
affordable housing production through a Single-Family Homeownership Tax 
Credit, modeled after the highly successful Low Income Housing Tax 
Credit. The proposed credit of up to 50 percent for the costs of 
constructing new homes for homeownership or rehabilitating existing 
properties for families in low-income urban and rural neighborhoods 
will enable our local affiliates and other housing developers to bridge 
the gap between the cost of developing affordable housing and the price 
that low-income homebuyers can pay for a home.
    The proposed tax credit will enable thousands of low-income renters 
to become first-time homeowners, increase the numbers of homeowners 
among African-American, Hispanic, and other minority families, and help 
to stabilize rising house prices due to an increase in the production 
and supply of affordable housing. The Single-Family Homeownership Tax 
Credit is more than a tool to expand homeownership to thousands of 
families; it is a catalyst for neighborhood revitalization and 
community development. The availability of a new tax credit for 
homeownership, in addition to other housing programs for low-income 
families, will expand the range of housing options for families and 
ultimately result in more families climbing the 
ladder to wealth and savings.
Conclusion
    Mr. Chairman, Habitat for Humanity believes that now more than 
ever, our Nation must invest in those sources we value the most--
family, home, faith, and community. These are the building blocks of 
great nations. To provide stable, affordable, decent homes for more 
families is perhaps one of the greatest investments the Federal 
Government can make to ensure the health and wealth of our Nation. It 
is our hope that as you review the Administration's fiscal year 2003 
proposal for funding for housing programs for those in this country who 
can least afford adequate shelter, that you would support additional 
resources to enable low-income families to move from rental households 
into homeownership and capacity building assistance for front-line, 
community-based housing providers.
    Thank you for this opportunity to testify.
    
    
    
    
    
    
    
    
    
    
                  PREPARED STATEMENT OF SHEILA CROWLEY
                 President and Chief Executive Officer,
                 National Low Income Housing Coalition
                           February 13, 2002
    Chairman Sarbanes and Members of the Committee, it is an honor to 
be asked to testify today on the fiscal year 2003 HUD budget and the 
degree to which the President has addressed the critical housing needs 
of families and individuals in the United States through his budget 
proposal. I appreciate the opportunity to be here today with Secretary 
Martinez and the other witnesses you have called.
    I am Sheila Crowley, President and Chief Executive Officer of the 
National Low Income Housing Coalition, representing our members across 
the country who share our goal of ending the affordable housing crisis 
in America. Our members include nonprofit housing providers, homeless 
service providers, fair housing organizations, State and local housing 
coalitions, public housing agencies, private developers and property 
owners, housing researchers, local and State government agencies, 
faith-based organizations, residents of public and assisted housing and 
their organizations, and concerned citizens.
    An assessment of the fiscal year 2003 HUD budget proposal is only 
meaningful if we ask ``in comparison to what?'' Compared to what many 
people feared the fiscal year 2003 HUD budget proposal would be with 
the return of the Federal budget deficit, the President's proposal is a 
relief. Compared to the fiscal year 2002 HUD 
appropriations bill, the President's proposal is remarkably similar, 
with a few variations in either direction. Compared to the HUD budget 
in the last year of the Ford Administration, the fiscal year 2003 HUD 
budget proposal is a shadow of its former self. (See Appendix A.) 
Compared to the housing needs of low-income Americans, the President's 
fiscal year 2003 HUD budget proposal is wholly inadequate. Compared to 
what the Federal Government could afford to invest in low-income 
housing if 
addressing critical housing problems were a real, not a rhetorical, 
priority, the President's fiscal year 2003 HUD budget proposal is 
unacceptable.
    I would like to use the time you have provided me today to make the 
case for increased Federal investment in low-income housing. In my 
written statement, I address a series of specific policy issues that 
are part of the budget proposal, which we recommend that the Committee 
carefully examine. Briefly, these include the OTAG-ITAG crisis, use of 
Interest Reduction Payments for preservation of assisted housing, 
transfer of the Emergency Food and Shelter Program from FEMA to HUD, 
renewals in the Shelter Plus Care, Section 811, and Section 202 
programs, combining the three competitive programs under McKinney-Vento 
Homeless Assistance Programs, reduction of capital funds for public 
housing, defunding of HUD's Rural Housing and Economic Development 
Program, redistribution of CDBG formula, and voucher utilization.
The Affordable Housing Crisis
    The extent and depth of the low-income housing shortage is well-
documented. While some may make different assertions about causality, 
anyone who has seriously examined the numbers agrees that we have an 
acute problem. Anyone who reads a daily paper is confronted with 
article after article about some aspect of the housing crisis--
skyrocketing rents, growing numbers of homeless families, Federal 
housing assistance waiting lists closed because they are too long, 
owners of assisted housing opting out of the Section 8 program, 
demolition of public housing, former welfare recipients struggling to 
pay rent on below poverty level wages, families living in unhealthy and 
unsafe housing because it is all they can afford, vacant property 
abandoned by owners who cannot pay the taxes, and so on. These stories 
and many more like them have crossed my desk in the last few weeks.
    Let us run by the numbers again. The National Low Income Housing 
Coalition's analysis of the 1999 American Housing Survey data shows 
that there are 15,500,000 households in the United States who pay more 
than half of their income for their housing, live in severely 
substandard housing, or both. The majority of these households--11 
million--have extremely low incomes, that is, incomes at or below 30 
percent of the area median. Because the American Housing Survey only 
counts people who are housed, to get a true picture of the number of 
extremely low-income households with severe housing problems, we must 
add the estimated 2,000,000-3,000,000 homeless families and individuals 
to this number. That takes us to around 14 million very poor households 
with serious housing problems. These include both renters and 
homeowners, and comprise over 13 percent of all households in the 
country.\1\ Imagine what would happen if 13 percent of households in 
America did not have clean water or did not have access to basic 
transportation. Imagine what we would do if this many people in our 
country contracted a serious illness that the private health care 
system could not treat. In many ways the true extent of the affordable 
housing crisis can be invisible because so many people hold on by their 
fingertips and their plight only becomes visible if they lose their 
grip in this very dangerous game of musical chairs.
---------------------------------------------------------------------------
    \1\ Cushing N. Dolbeare. (2001). Low-income housing profile. 
National Low Income Housing Coalition, www.nlihc.org.
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    Another way to frame the problem is with the use of the measure of 
unafford-
ability that we call the housing wage, which Senator Sarbanes and many 
others have cited to illustrate the severity of housing 
unaffordability. Using readily available data and standard assumptions 
about housing and labor, we determine the hourly wage that one must 
earn to be able to afford modest rental housing if one works full time 
(40 hours a week for 52 weeks a year) and pays no more than 30 percent 
of income for housing. We use HUD's fair market rent as the proxy for 
rental housing cost because it is the only housing measure that is 
standardized jurisdiction-by-jurisdiction, and because it represents 
what HUD says is the necessary rent to be paid to afford housing that 
is decent and safe. In most places that is the 40th percentile of 
rental housing costs in that jurisdiction, meaning 40 percent of the 
rental housing is priced at the fair market rent or less and 60 percent 
of the rental housing is above the fair market rent.
    Although the housing wage is best understood as a local estimate of 
housing costs, we can aggregate the data to the State and national 
level. The housing wage ranges from $8.50 an hour in West Virginia to 
$18.33 an hour in California. In response to an assertion by an 
Administration official last summer that if a family had two minimum 
wage earners, it could afford rental housing anywhere in the country, 
we showed in our 2001 housing wage analysis that in 33 States and the 
District of 
Columbia that even two full time minimum wage earners is insufficient 
and in three States--New Jersey, New York, and Hawaii--even three jobs 
at the prevailing minimum wage is not enough.\2\
---------------------------------------------------------------------------
    \2\ Jennifer Twombly et al. (2001). Out of reach: The growing 
disparity between wages and rents in America. National Low Income 
Housing Coalition. www.nlihc.org.
---------------------------------------------------------------------------
    The disparity between income and housing costs has serious 
implications for policy objectives that some may not associate with the 
housing crisis. Across the political spectrum, welfare policy analysts 
are calling attention to the impediment to 
success of welfare reform created by the lack of housing that is 
affordable to former welfare families. To quote a Hudson Institute 
report about welfare reform in Wisconsin, ``Success in the labor market 
and success in the housing market are inextricably linked. Although an 
employed parent is more able to afford decent housing and a parent 
living in stable housing is more likely to be able to find employment, 
it is no longer the case that success in the labor market guarantees 
success and stability in the housing market.'' \3\ Unfortunately, the 
proposed HUD budget makes no mention of the vital role that housing 
assistance plays in welfare reform, nor does the proposed HHS budget 
address housing in its provisions for TANF and plans for its 
reauthorization this year.
---------------------------------------------------------------------------
    \3\ Rebecca Swartz et al. (2001). Making housing work for working 
families. Madison, WI: The Hudson Institute.
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    Housing stability is essential to family stability, which is 
essential to child well-being. Families with high housing costs burdens 
are often excessively mobile. That means that children move from school 
to school, getting further behind academically and socially with each 
move. High housing cost burdens mean parents have to work many extra 
hours leaving them less time for parenting duties. The stress of 
homelessness, frequent moves, choosing between paying the rent or 
buying food, and the resultant feelings of powerlessness and despair 
inhibit parenting capacity and leave children vulnerable to abuse and 
neglect. Housing is the bedrock upon which families thrive and failure 
to address the lack of affordable housing is antifamily.
    It is not just low-income families who are adversely affected by 
the lack of affordable housing choices. Disabled people who rely on 
Supplemental Security Income have the most acute housing cost burdens. 
On a national aggregate, they must pay 98 percent of their income for a 
one bedroom rental unit, making independent living without additional 
assistance a virtual impossibility.\4\
---------------------------------------------------------------------------
    \4\ Ann O'Hara and Emily Miller. (2001). Priced out in 2000: The 
crisis continues. Boston, MA: Technical Assistance Collaborative.
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    People of a certain age can remember the time before the onset of 
contemporary homelessness. There were lots of poor people in 1970, but 
there was a small surplus of housing that they could afford.\5\ Over 
the past two decades, we have experienced a steady erosion of the 
housing stock that is affordable to the lowest-income people. The sharp 
Federal disinvestment in low-income housing assistance that began in 
the late 1970's \6\ correlates with the rise in homelessness in the 
1980's. Had we continued to fund low-income housing assistance at the 
level authorized in the mid-1970's, it is safe to say that we could 
have prevented much of the homelessness at the end of the 20th century 
and the housing shortage we are experiencing today would not be as 
serious.
---------------------------------------------------------------------------
    \5\ Jennifer Daskal. (1998). In search of shelter: The growing 
shortage of affordable rental housing. Washington, DC: Center on Budget 
and Policy Priorities.
    \6\ Cushing N. Dolbeare. (2001). Changing priorities: The Federal 
housing budget 1976-2006. National Low Income Housing Coalition. 
www.nlihc.org.
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    This is not to say that there has not been affordable housing 
development. The Low Income Housing Tax Credit has produced over 
1,000,000 units of rental housing. The HOME program has been used for 
over 10 years to produce yet more houses and provide additional rent 
assistance. But the American Housing Survey data clearly show that 
there has been a precipitous drop in the number of units affordable to 
the lowest-income households, while there has been an increase in the 
numbers of affordable homes for families in the upper tier of the low-
income eligible population. Between 1991 and 1999, there was a 14 
percent decline in the number of units affordable to extremely low-
income renters, nearly a million units.\7\
---------------------------------------------------------------------------
    \7\ Kathryn P. Nelson. (May 3, 2001). What do we know about 
shortages of affordable rental housing? Testimony before House 
Committee on Financial Services, Subcommittee on Housing and Community 
Opportunity.
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    It is important to translate what extremely low income means in the 
real lives of ordinary people. The official definition is family income 
at 30 percent or less of the area median. In Washington, DC, that is 
$18,390 a year. These are people who make up the workforce on which all 
of us depend to do their jobs so we can do ours. These are day care 
workers, hotel staff, cashiers, health care aids, wait staff, office 
cleaners, receptionists, and other essential members of the workforce.
    In light of these data, the proposed fiscal year 2003 HUD budget 
has serious shortcomings. Most of the proposed increase will simply 
allow HUD to stay in place. The only thing that the President's 
proposal does to expand housing choices for those with the most serious 
housing problems is to call for 34,000 new housing vouchers. While the 
proposals to expand downpayment assistance and to add a Low-Income 
Homeownership Tax Credit are laudable, they do very little to ease the 
affordable housing shortage for the lowest-income people. While the 
declaration to end long-term homelessness in the budget blueprint is an 
important statement, in the absence of new investment in housing 
production, it is an empty statement.
What Should We Do?
    Solving the affordable housing crisis is well within the capacity 
of American ingenuity and resolve. We know how to build the best 
housing in the world. We have nonprofit, for-profit, and public housing 
sectors that stand ready to produce, preserve, and rehabilitate enough 
housing for all American households. What is needed is the political 
will to advocate for renewed Federal investment.
    There are three basic ways to end the affordable housing crisis and 
a comprehensive strategy must include all three. One, we must improve 
the ability of low-income people to compete in the housing market by 
improving their earning capacity and passing living wage ordinances and 
increasing the minimum wage, or by subsidizing the differences between 
what they can afford and what housing costs through housing vouchers. 
Although more housing vouchers each year has become a key symbol of 
forward movement, the number of new vouchers each year has been 
miniscule compared to the need. Further, problems with voucher 
utilization in many communities indicate that simply adding more 
tenant-based assistance is not enough.
    The second thing we need to do is preserve the viable publicly 
assisted housing we have, both Section 8 project-based and public 
housing. We have lost over 150,000 units of assisted housing in the 
last 6 years through opt outs and prepayments. \8\ Public housing is 
lost to demolition and disposition, as well as HOPE VI. We should 
eliminate poor quality housing, but we cannot afford to continue to 
lose this housing stock in the absence of a commitment to replace it.
---------------------------------------------------------------------------
    \8\ National Housing Trust. (2002). ``Summary of opt out data and 
summary of prepayment data.'' Washington, DC: Author.
---------------------------------------------------------------------------
    Finally, we must build new housing. The need for renewed Federal 
investment in the production of housing affordable for the lowest-
income households is widely recognized and should be a Federal 
priority. Despite the relative cost effectiveness of vouchers over 
production, when there is an absolute shortage of physical units such 
as exists now, production fulfills important policy objectives.\9\ What 
is most disappointing about the President's fiscal year 2003 HUD budget 
is its failure to address production needs in the face of such 
overwhelming need.
---------------------------------------------------------------------------
    \9\ U.S. General Accounting Office. (January, 2002). Federal 
housing assistance: Comparing the characteristics and costs of housing 
program. Washington, DC: Author.
---------------------------------------------------------------------------
    The National Low Income Housing Coalition and 1,900 partner 
organizations across the country are calling for the establishment of 
national housing trust fund capitalized with dedicated sources of 
revenue sufficient to produce and preserve 1,500,000 homes for the 
lowest-income households. Housing trust funds are a proven approach to 
funding affordable housing programs as evidenced by the over 200 State 
and local jurisdictions that have established housing trust funds in 
the last 15 years. Most recently, Los Angeles established a housing 
trust fund capitalized with a range of funding sources identified by 
the mayor totaling $100 million in 10 years. We look forward to a 
debate on S. 1248, the National Affordable Housing Trust Fund Act, in 
the Banking Committee this year.
Policy Issues of Concern
The Continuing OTAG-ITAG Crisis
    Despite clear direction by Congress to do so last December, HUD has 
yet to release funds to pay outstanding invoices to OTAG and ITAG 
grantees as well as the Corporation for National and Community Service 
for their work to preserve the assisted housing stock. We cannot stress 
strongly enough the urgency of this problem. Many community-based, 
nonprofit organizations have not been paid for their work and the 
consequences to these organizations are dire. Several have laid off 
staff and others have gone into debt to maintain services in 
anticipation of receipt of money owed. These are small organizations 
that are at risk of going out of business if HUD does not pay them 
immediately. The damage to these organizations is obvious. HUD should 
be keenly worried about the damage it does to the Department's 
credibility, especially given the Secretary's promise to make HUD more 
efficient and effective. Most critical, however, is the damage that 
will be done to residents, many of whom are elderly and disabled, when 
their housing is jeopardized. We urge the Committee in the strongest 
possible terms to demand that HUD make these payments in accordance 
with what Congress explicitly directed HUD to do.
Interest Reduction Payments
    Section 531 of the HUD Multifamily Housing Reform provisions of the 
1998 HUD-VA Appropriations Act provides that HUD may take 
``recaptured'' Interest Reduction Payments (IRP) from the termination 
of Section 236 mortgages and convert such funds into grants for the 
capital costs of rehabilitation to owners of certain projects. Adopted 
over 4 years ago, the provisions of Section 531 have unfortunately 
never been implemented by HUD. Meanwhile, millions of dollars of 
``recaptured'' Interest Reduction Payments have been building up. There 
is a provision in the fiscal year 2003 proposed HUD budget that appears 
to indicate that these funds should now become available. These IRP 
recaptured funds are a precious resource for the long-term preservation 
of the low-income housing. We ask that the Committee direct HUD to 
assure that prepayment recaptures can be used to help recapitalize and 
assist in the financing of HUD insured and assisted housing stock.
Transfer of the Emergency Food and Shelter Program from FEMA to HUD
    The Administration proposes to shift responsibility for the 
Emergency Food and Shelter Program from FEMA to HUD. We urge the 
Committee to oppose this move. This program has been one of the most 
effective means to distribute funds to needy families ever devised by 
the Federal Government. Administered by a national board of social 
service and faith-based organizations, these funds are spent quickly, 
effectively, and preventively to keep millions of people from losing 
their homes. Given HUD's poor track record of administering funds in a 
timely fashion, we have serious questions about the efficacy of such a 
transfer.
Renewals of Shelter Plus Care, Section 811, and Section 202
    A lingering unresolved policy issue is the future of housing 
subsidies begun under specific programs that then must be renewed each 
year within the total funds provided for these programs. It is 
essential that we assure sufficient funds for renewal of housing 
assistance provided through the Shelter Plus Care, Section 811, and 
Section 202 programs. For example, while the President's fiscal year 
2003 HUD budget request does include a $10 million increase for the 
Section 811 program for people with disabilities, it is expected that 
renewal of expiring tenant-based rent subsidies under the Section 811 
program will cost $32 million in fiscal year 2003. The absence of 
separate funding to account for upcoming rent subsidy renewals in the 
Shelter Plus Care, Section 811, and Section 202 programs results in 
actual program funds being reduced. We urge that renewals for these 
programs be shifted to the Housing Certificate Fund and considered 
along with all other rental subsidy renewals.
Combining the Three Competitive Programs in HUD's McKinney-Vento
Homeless Assistance Program
    We applaud the move to make these funds more flexible and giving 
local service delivery systems discretion in how best to use these 
funds in their individual communities. However, we continue to object 
in the strongest possible terms to the block granting of McKinney-Vento 
Homeless Assistance Programs and trust that is not what HUD has in 
mind.
Reduction of Capital Funds for Public Housing
    While we appreciate the attempt to encourage public housing 
agencies to experiment with new ways of solving old problems, we do not 
think that the capital fund should be reduced unless and until there is 
evidence that such an experiment is successful. Rather than reduce 
capital funds for public housing, we would urge HUD to help public 
housing agencies to spend their capital funds more efficiently. Public 
housing is publicly owned physical structures and the taxpayers have 
the right to expect that the responsible agencies maintain them in good 
repair and plan for their long-term use. For example, an appropriate 
use of new public housing capital funds would be to retrofit elderly 
housing to accommodate the changing physical and 
social needs of residents to allow them to ``age in place.''
Defunding HUD's Rural Housing and Economic Development Program
    This is a small, but important, program that improves the capacity 
of nonprofit housing providers to develop affordable housing, in rural 
areas. The argument that a rural program at HUD is duplicative of USDA 
programs ignores the fact that all formula-based programs administered 
by HUD provide funds to rural areas. Cutting this program is penny wise 
and pound foolish.
Redistribution of CDBG Formula
    The President proposes to alter the CDBG formula so that the 
wealthiest communities will receive less money that then will be 
redirected to assist the Colonias. We certainly agree that the Colonias 
need and deserve an infusion of funds for a host of essential services, 
but it is unnecessary to take money that would help poor communities 
that happen to be in wealthier jurisdictions to help other poor 
communities. We can afford to do both if we only choose to.
Voucher Utilization
    Finally, we look forward to working with the Committee in shaping 
legislation to improve voucher utilization and to continue to expand 
the creative use of tenant-based assistance. HUD is implementing a 
``use it or lose it'' approach, which will redistribute housing 
vouchers from underutilizing communities to those that can use them 
effectively. This a good short-term approach to maximizing the value of 
housing vouchers. But the poor people in need of housing assistance in 
those communities that lose housing vouchers are the real losers. This 
brings us back to the fundamental housing problem that the President's 
fiscal year 2003 housing budget fails to address--investment in new 
rental housing production for extremely low-income families.
    Thank you for the opportunity to represent the members of the 
National Low 
Income Housing Coalition at this important hearing.


                 PREPARED STATEMENT OF JOSEPH F. REILLY
   Senior Vice President, JPMorgan Chase Community Development Group
                              On Behalf of
         the National Association of Affordable Housing Lenders
                           February 13, 2002
    Good morning, my name is Joseph Reilly, and I am a Senior Vice 
President in the Community Development Group at JPMorgan Chase. During 
the 24 years I have been involved in affordable housing and community 
development, I have seen the issues from a variety of perspectives: A 
faith-based organization, the Northwest Bronx Community and Clergy 
Coalition; New York City's Department of Housing Preservation and 
Development; and now with JPMorgan Chase, where I manage a staff of 40 
professionals who finance affordable housing and commercial real estate 
projects in areas served by our bank. Over the past 5 years, JPMorgan 
Chase has provided over $2.6 billion in community development 
financing. We continue to seek new and innovative ways to provide 
financing which will strengthen the communities we serve.
    While much has been done to solve the problems American families 
are facing in finding decent, affordable housing, much remains to be 
done. Many high-cost areas like New York suffer from a profound 
shortage of both rental housing and homeownership opportunities, not 
only for very low-income families but also for low- and moderate-income 
families. We have a growing crisis that requires the ongoing attention 
of policymakers, and both short-term and long-term measures to achieve 
our national goal of a decent home in a suitable living environment for 
all Americans.
Much Has Been Accomplished Over the Past Decade
    The good news is that during the past decade our industry has 
experienced a significant strengthening in learning how to produce 
decent, affordable housing for low- and moderate-income families and 
communities. For-profit and nonprofit developers, lenders, investors, 
community leaders, and government at all levels have learned to 
collaborate as partners in devising new solutions and creative 
financing strategies for producing affordable housing in thousands of 
communities.
    We have built the infrastructure necessary to have a major impact 
on housing needs, and coped with the often conflicting requirements of 
the many Federal, State, and local subsidies we need to do our work. We 
have learned over the years how to do it right--how to build affordable 
housing for rent and homeownership that contains a mix of incomes, that 
is built with the discipline of the private market and leverages public 
resources responsibly, that is of high quality and lasting value, that 
stays affordable over the long run, and that people are proud to call 
home.
    Insured depository institutions like JPMorgan Chase are an 
important part of this infrastructure. The U.S. Treasury documented 
that, from 1993-1998, the amount of mortgage lending to low- and 
moderate-income communities and borrowers by CRA-covered lenders rose 
80 percent. In 1998 alone, Treasury reported at least $135 billion in 
mortgages to these borrowers, made by insured depository institutions.
Three Major Constraints
    As good as these solutions are, they come nowhere near meeting the 
need. The public, nonprofit, and for-profit organizations that have 
mobilized and partnered to provide affordable housing face three major 
constraints in our ability to deliver more decent, affordable units.
    First, Federal funds are often encumbered by well-meant legislative 
and regulatory constraints that impair needed flexibility to meet 
community needs. Sometimes, something gets lost in the translation of 
housing policy when it is regulated into practice. And inevitably, the 
more tightly the subsidies are targeted to those most in need, the 
greater the financing gap and the harder it is to make the deal 
economically viable.
    Second, we could finance more affordable housing if we had more 
resources. The past decade has confirmed that there is no magic to the 
provision of affordable 
rental housing. Affordable housing can only be built if public 
subsidies fill the gap that exists between what families can afford to 
pay and the costs associated with the construction, operation, and 
maintenance of decent, affordable housing.
    Federal programs such as HOME, CDBG, and the Low Income Housing 
Credit have played valuable roles in helping to fill that gap, but 
rarely do it alone. For example, many housing credit deals in low-
income communities require additional subsidies to fill financing gaps. 
But funding levels for all Federal programs have failed to keep pace 
with rapidly growing need, and these programs come with complex 
requirements that slow, or even discourage, development of new units.
    Unfortunately, over the past decade the focus at the Federal level 
has shifted to demand-side subsidies, which do not increase the supply 
of affordable units. In addition, there is an aging housing stock of 
affordable units that needs new roofs, new mechanicals, and sometimes 
new systems to remain viable, at the same time that communities are 
seeking to replace the old public housing units with mixed-income, 
affordable housing.
    Third, in some States there is a scarcity of permanent financing 
for multifamily affordable housing. Affordable housing developments 
often involve subordinated debt and low-income housing tax credits that 
make multifamily mortgages ``nonconforming'' for sale to the secondary 
market.
To Do: Short-Term Ways To Leverage More Private Capital
    The more we can simplify the regulations, processes, and paperwork 
of Federal assistance, the more we will increase the efficiency of the 
programs and private sector participation. Simple, flexible funding 
sources that have had real impact with maximum efficiency include the 
Affordable Housing Program of the Federal Home Loan Banks and the 
Community Development Financial Institutions' Fund. A stream-
lined, permanent loan product, which made ``nonconforming'' affordable 
housing loans more attractive to investors, would also be extremely 
helpful.
To Do: Long-Term
    The Federal Government can be a catalyst for attracting more 
private capital to affordable housing by providing a stable, 
predictable source of capital that would not be subject to the annual 
appropriations process, in keeping with the long-term nature of 
community development.
    It is also clear that homeownership opportunities for low-income 
families and communities are not keeping pace with rapidly growing 
need. The President's 
budget proposes a tax credit for developing affordable homes that 
builds on the success of the Low Income Housing Credit and would do 
much to alleviate the shortage of affordable homeownership 
opportunities in our neediest communities. NAAHL has endorsed this 
Single-Family Tax Credit and asks Congress to enact it as soon as 
possible. Similarly, the proposed quadrupling of the American Dream 
Downpayment Fund will help many low-income homebuyers achieve their own 
home, while the proposed increase in housing counseling funds will help 
those struggling to keep their homes.
    Thank you very much for the opportunity to be here today.

 RESPONSE TO WRITTEN QUESTION OF SENATOR SARBANES FROM SHEILA 
                            CROWLEY

Q.1. Time limiting housing assistance was discussed at the 
hearing we held on February 13, 2002. Does time limiting 
housing assistance make sense? Please explain why or why not.

A.1. Placing time limits on receipt of housing assistance, that 
is, duration of time that one's rent will be subsidized above 
30 percent of household income, is an idea that mistakenly 
equates housing assistance with welfare and seeks to impose 
recent policy changes made to welfare on housing programs, The 
problem begins with the inaccuracy of the comparison between 
the two. Time limits are imposed on receipt welfare to 
motivate/force welfare recipients to go to work and earn income 
in lieu of welfare payments. The presumption is that by going 
to work, the welfare recipient will improve, or at least not 
worsen, her household's economic well-being.
    We cannot make the same presumption about housing 
assistance. We have ample data to document that the cost of 
market housing is so far above the wages of the majority of 
working low-income people that they (1) have acute 
affordability problems, (2) are at high risk of housing 
instability, and (3) need housing assistance themselves. The 
people who are receiving housing assistance are the lucky one 
third of the eligible population, who are able to bridge the 
gap between their income and housing costs only because they 
receive housing assistance.
    Unless a household receiving housing assistance can improve 
its income to minimally the level of the housing wage in its 
jurisdiction, then termination of housing assistance will have 
a significantly adverse effect on the household's economic 
well-being. 
Indeed, if a household was able to earn the equivalent of the 
housing wage, in most jurisdictions, it would long since have 
become ineligible for housing assistance.
    Time limiting welfare is only feasible in a low 
unemployment economy, in which there is a real possibility that 
employment will follow welfare. Time limiting housing 
assistance is only feasible when there is a surplus of housing 
that is affordable to the lowest-income households, so that 
they have somewhere to go. At a time when we have an acute 
shortage of housing affordable for the lowest-income 
households, ending their housing assistance means that most 
will acquire huge housing costs burdens, be forced to double 
up, or end up homeless, The most likely scenario with time 
limiting housing assistance is that most families will cycle 
out of public or assisted housing into less stable housing 
circumstances and homelessness and back onto housing assistance 
waiting lists.
    Discussion of time limits on housing assistance seems to be 
disconnected from an understanding of the nature of the 
affordable housing crisis.
































































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