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



                                                       S. Hrg. 107- 952


                        TANF REAUTHORIZATION AND
                         FEDERAL HOUSING POLICY

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

                                HEARING

                               before the

               SUBCOMMITTEE ON HOUSING AND TRANSPORTATION

                                 of the

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

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

 THE HOUSING PROBLEMS OF FAMILIES CURRENTLY ON TANF AND THOSE LEAVING 
    TANF FOR EMPLOYMENT, AND PROPOSALS THAT SHOULD BE CONSIDERED TO 
INCREASE THE EFFECTIVENESS OF FEDERAL HOUSING ASSISTANCE AS A TOOL FOR 
                   HELPING MOVE PEOPLE TO EMPLOYMENT

                               __________

                              MAY 1, 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

           Sherry E. Little, Republican Legislative Assistant

                 Mark A. Calabria, Republican Economist

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                 ______

               Subcommittee on Housing and Transportation

                   JACK REED, Rhode Island, Chairman

                 WAYNE ALLARD, Colorado, Ranking Member

THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan            JOHN ENSIGN, Nevada
JON S. CORZINE, New Jersey           RICHARD C. SHELBY, Alabama
CHRISTOPHER J. DODD, Connecticut     MICHAEL B. ENZI, Wyoming
CHARLES E. SCHUMER, New York         CHUCK HAGEL, Nebraska
DANIEL K. AKAKA, Hawaii

                     Kara M. Stein, Staff Director

              Tewana Wilkerson, Republican Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                              MAY 1, 2002

                                                                   Page

Opening statement of Senator Reed................................     1

Opening statements, comments, or prepared statements of:
    Senator Corzine..............................................     2
    Senator Kerry................................................    21

                               WITNESSES

Michael O'Keefe, Commissioner, Minnesota Department of Human 
  Services.......................................................     5
    Prepared statement...........................................    22
Barbara Sard, Director of Housing Policy, Center on Budget and
  Policy Priorities..............................................     7
    Prepared statement...........................................    26
Robert Rector, Senior Research Fellow, The Heritage Foundation...     9
    Prepared statement...........................................    39

                                 (iii)

 
                        TANF REAUTHORIZATION AND
                         FEDERAL HOUSING POLICY

                              ----------                              


                         WEDNESDAY, MAY 1, 2002

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

    The Subcommittee met at 2:30 p.m., in room SD-538 of the 
Dirksen Senate Office Building, Senator Jack Reed (Chairman of 
the Subcommittee) presiding.

             OPENING STATEMENT OF SENATOR JACK REED

    Senator Reed. Let me call the hearing to order, and welcome 
all of our witnesses and everyone who is here this afternoon. 
This is a hearing by the Housing and Transportation 
Subcommittee on the issue of TANF Reauthorization and Federal 
Housing Policy. This Subcommittee is very concerned about the 
housing affordability crisis facing many regions of our 
country. Statistics show a growing gap between income and 
housing costs in almost every State. It is not surprising that 
this affordable housing crisis is affecting low-income families 
the most severely. According to the National Housing 
Conference, the number of working families in the United States 
with critical housing needs grew from 3 million to 3.7 million 
between 1997 and 1999. About eight out of 10 families pay more 
than half of their income for housing.
    Nowhere in this country does the minimum wage work of one 
person come close to paying the rent according to the most 
recent 
National Low Income Housing Coalition report.
    Not surprisingly, housing is a real problem both for 
families receiving Temporary Assistance to Needy Families, 
TANF, benefits, and those who have moved from Welfare to Work. 
In only three States--Alaska, West Virginia, and Wisconsin--do 
families receive TANF benefits high enough to obtain modest 
housing with less than their entire TANF grant. High housing 
costs often leave families with insufficient income for basic 
necessities or expenses, such as funding for child care, work, 
clothing, transportation, and many other things.
    We also know that families who pay too much of their income 
for housing, or live in severely inadequate or overcrowded 
housing, move more frequently. Such moves interrupt work 
schedules, jeopardize employment, and adversely affect the 
educational progress of children. A lack of affordable housing 
can also prevent families from making moves to areas with 
greater employment opportunities or safer neighborhoods or 
better commutes.
    Affordable housing is clearly important and worthy of 
support. I believe that we need to enable States to better 
respond to critical housing needs of working families. It would 
seem self-evident that if one goes to work every day and 
collects a regular paycheck that this should be enough to 
secure a reasonable place to live and take care of one's 
family.
    It is my hope that today's hearing will allow us to explore 
how Federal housing policy can be used to help strengthen our 
Nation's welfare policy and better support families moving from 
Welfare to Work.
    Today, we will hear from two panels of witnesses. The first 
panel will consist of my colleague, Jon S. Corzine, U.S. 
Senator from New Jersey. On our second panel we will hear from 
Mr. Michael O'Keefe, Commissioner of the Minnesota Department 
of Human Services; Ms. Barbara Sard, Director of Housing 
Policy, Center on Budget and Policy Priorities; and Mr. Robert 
Rector, Senior Research Fellow of The Heritage Foundation. Each 
of our witnesses have been asked to discuss the 
interconnections between Federal housing policy and welfare 
policy, what can be done to encourage States to consider 
housing needs and TANF planning and implementation, and any 
recommendations for increasing the effectiveness of Federal 
housing programs as a tool for helping people move from Welfare 
to Work.
    Before we begin, I would also like to thank each of you for 
your written testimony, which has been shared with all of the 
Members of the Senate Banking Committee, and I would ask that 
you keep your oral comments to within a reasonable amount of 
time.
    Thank you.
    When my colleague and good friend, the Ranking Member, 
Senator Allard arrives we will ask him to make his opening 
comments. But Senator Corzine, we are delighted that you are 
here. You are a Member of the Senate Banking Committee. We 
welcome you to the Subcommittee.

              STATEMENT OF SENATOR JON S. CORZINE

    Senator Corzine. Thank you, Mr. Chairman. I hope that 
wasn't an admonition that I was going to enter a filibuster 
here. I must say that if I just said ditto to what you had in 
your opening statement, I really would embrace most of those 
themes. I appreciate this opportunity. I think this is a very 
important topic for us to be addressing as we go through this 
effort on TANF reauthorization, Welfare to Work. Providing 
access to affordable housing I think is a fundamental part, as 
you have expressed, of making sure low- 
income working families have a real shot at making that a 
reality, Welfare to Work, and it should be looked at in the 
context of reducing poverty, not just getting to work.
    While welfare reform has succeeded in moving thousands of 
families off of welfare, it has condemned many to low-wage jobs 
that keep them trapped in poverty, and that is actually one of 
the concerns that I will be expressing in a bill that Senator 
Wellstone and I will be talking about later in another hearing.
    Mr. Chairman, a lack of affordable housing is one of the 
main obstacles facing families trying to leave welfare, as you 
have suggested. Even for those families who do succeed, a lack 
of affordable housing can mean a return to the welfare rolls. 
And for those who have reached State or Federal welfare time 
limits, it can sadly lead to homelessness.
    Since 1997, welfare reform has encouraged 60 percent of New 
Jersey's welfare families to leave welfare for work. Despite 
that, these families are now earning wages that are two to 
three times the modest cash benefits of TANF, and that is a 
good thing. Families in New Jersey and across the country still 
struggle to afford housing. For example, in the year 2000, 44 
percent of all renters in New Jersey were unable to afford the 
Fair Market Rent for a two-bedroom unit, which is just shy of 
$1,000. An individual working 40 hours a week and earning 
minimum wage in New Jersey earns about $824 a month. So, you 
see the juxtaposition of $1,000 rental requirement for a fair 
market for a two-bedroom, and $824 a month in earnings. That 
just doesn't work. And I think it raises the specter of where 
we have a real problem.
    New Jersey is not alone. As you mentioned, they are one of 
nine States that actually works with TANF dollars to maintain 
efforts, but it just doesn't cut it for these low-income 
working families, and we are condemning them, I think, to a 
life of poverty.
    New Jersey uses $2 million of its Federal TANF block grant 
to provide emergency housing assistance to working families 
with income up to 250 percent of Federal poverty level. 
However, because Federal law limits housing assistance to 4 
months, the State is forced to stop its assistance after that, 
even if the family is still at risk of becoming homeless. And 
that is actually a reality in a lot of people's lives.
    New Jersey has also embarked on several innovative low-
income housing initiatives aimed at encouraging work and 
improving self-sufficiency. New Jersey Housing Assistance 
Program, for instance, provides temporary housing subsidies to 
eligible welfare recipients transitioning to work. Recipient 
families receive a housing subsidy that is reduced as their 
income increases. Savings from the reduced subsidy are placed 
in an escrow account the family may access to purchase a home, 
pay for educational expenses, or for emergency purposes.
    Despite the fact that the New Jersey Housing Assistance 
Program encourages work and creates savings, I think the sad 
part is that this only works for 350 low-income families in New 
Jersey. New Jersey cannot use its Federal TANF fund to expand 
this program because the money is not there.
    New Jersey has allocated $4 million of the block grant to 
help low-income working families utilize Section 8 housing 
vouchers. That is another positive initiative. These one-time 
funds can be used for security deposits and moving expenses. It 
can also be used for payments to landlords while repairs are 
being made to rental units to bring Section 8 standards to bear 
in some of the housing. This can make a modest difference and 
it is a helpful initiative that we support and certainly think 
we need to make sure our TANF funds are made available to 
expand these programs.
    Next week, Senator Wellstone and I will be introducing 
comprehensive TANF reauthorization legislation that, in 
addition to increasing access to education, job training, child 
care, substance abuse, and mental health counseling, will give 
States tools to do a better job to address the housing needs of 
low-income working families, many like the ones that we have in 
New Jersey, ones though that are inadequate because of 
inadequate funding.
    Specifically, I think that the Wellstone-Corzine bill 
clarifies that States can use Federal TANF dollars to provide 
supplemental housing benefits, minor housing rehabilitation, 
and emergency housing assistance to families transitioning from 
Welfare to Work, without requiring them to remain on welfare in 
order to receive these benefits.
    Our legislation also requires States to address housing 
needs in their State welfare plans. Under current law, Public 
Housing Agencies are required to enter into cooperation 
agreements with welfare agencies; however, there is no 
requirement that those agencies enter into these agreements. 
Wellstone-Corzine would require agencies to work with Public 
Housing Agencies to coordinate work-promoting services, 
implement earnings disregards, and improve employment outcomes 
for all public housing residents. Earnings disregards allow 
TANF recipients who receiving housing assistance to receive 
this assistance for up to 2 years, regardless of increases in 
income. These are the kinds of programs that encourage rather 
than penalize work.
    The Wellstone-Corzine bill also creates a $50 million 
demonstration project to create supportive housing for TANF 
families with multiple barriers to work, including both mental 
and physical disabilities. Supportive housing which integrates 
employment services and rehabilitative services has succeeded 
in helping many homeless adults find employment and permanent 
housing. These programs hold similar promise for TANF families 
with significant barriers to work.
    Mr. Chairman, as we reauthorize the TANF Program, we must 
recognize the role affordable housing plays in helping low-
income families transition from Welfare to Work, become self-
sufficient, and provide a stable, nurturing environment for 
families. I know you feel this way and I certainly urge my 
colleagues to join in the effort to ensure that working 
families have stable homes. We need to pack these kinds of 
initiatives into our welfare program.
    Mr. Chairman and Members of the Committee, I look forward 
to working with you to make this a reality.
    Senator Reed. Thank you very much, Senator Corzine.
    We also look forward to working with you with respect to 
your initiative along with Senator Wellstone. Thank you for 
your testimony today and both your knowledge and your concern 
about a very important issue.
    Let me call forward the second panel, Mr. O'Keefe, Ms. 
Sard, and Mr. Rector. Again, welcome to the Committee.
    Mr. Michael O'Keefe is Commissioner of Minnesota's 
Department of Human Services. It is Minnesota's largest 
Department with an annual budget of more than $6 billion and 
6,700 employees. Prior to joining the Department of Human 
Services in 1999, Mr. O'Keefe served as Executive Vice 
President and Chief Executive Officer of the McKnight 
Foundation in Minneapolis.
    Ms. Barbara Sard is the Director of Housing Policy at the 
Center on Budget and Policy Priorities in Washington, DC, where 
she has worked since 1997. Barbara Sard is a leading expert on 
tenant-based rental assistance and issues concerning admissions 
to subsidize housing programs and the intersection of housing 
and welfare policy.
    Mr. Robert Rector is a Senior Research Fellow at The 
Heritage Foundation where he focuses on a range of issues 
related to welfare reform.
    Once again let me thank you for your written statements 
which are incorporated within the record and I would ask if you 
could maintain a 5-minute time limit on your oral testimony.
    Mr. O'Keefe, would you begin please?

           STATEMENT OF MICHAEL O'KEEFE, COMMISSIONER

             MINNESOTA DEPARTMENT OF HUMAN SERVICES

    Mr. O'Keefe. Thank you, Mr. Chairman and Members of the 
Committee. It is a pleasure to be here today. I have submitted 
my written remarks for the record. I would like to associate 
myself with your opening remarks and those of Senator Corzine 
regarding the crisis that we face and the need to address 
affordable housing as a part of our strategy to make welfare 
reform successful.
    Minnesota is a national model for welfare reform and one 
reason we have been successful is because we have had the 
flexibility to be able to shape the program in ways that meet 
the needs of our citizens.
    Over a 3-year period of time, 75 percent of families have 
left the program to go to work or engage in other activities. 
These are good jobs, more than $9 an hour. The average income 
of people leaving welfare in Minnesota is about 175 percent of 
poverty and we have been at the top or next to the top among 
all 50 States in salary levels, as well as persistence in that 
job for people off of welfare.
    Minnesota has focused on self-sufficiency through work as 
the goal of its program not work as the ultimate goal.
    The most dramatic finding from Minnesota's pilot program, 
which was one of the early pilots authorized by the Federal 
Government, were increased marriage rates by single parents. 
There was a dramatic increase in family stability, remaining 
married, on the part of two-parent families. There was a 
decrease in domestic violence, higher rates of school 
attendance among kids, higher performance among kids and, 
interestingly enough, for two-parent families increased 
homeownership.
    Our program has been outstandingly successful against the 
goals the State has set for it. And frankly, the reasons are 
straightforward. Give a family basic financial stability and 
ensure that that stability can be relied upon, and that family 
will be stable.
    How have we done this? We worked with individuals, 
preparing individualized work plans, strategies for moving 
people into work, and we have put in place a comprehensive set 
of supports, including child care, affordable housing, 
transportation, on-the-job support, pregnancy prevention, tax 
credits, et cetera. We have a total package and a comprehensive 
strategy for dealing with poverty.
    We have been able to do this, in part, because the TANF 
money has been flexible. And that is what is critical to us in 
maintaining the success of this program.
    Housing has been a challenge. You all are far more familiar 
with the issues. I would simply say that those are echoed in 
Minnesota in terms of the number of families who cannot afford 
housing, recent leavers from welfare who cannot afford housing. 
We have addressed housing as part of our comprehensive 
strategy.
    The governor created a Cabinet Task Force which I Chair, 
which includes six other departments, to create a strategy 
across job training, child care, economic development, housing. 
The Department of Corrections is even represented on that 
panel. And we have put together a comprehensive strategy 
drawing on both State and Federal TANF dollars.
    I would like to mention some of the places where we have 
invested TANF dollars in the State of Minnesota. We put $54 
million into a program that is called the Minnesota Families 
Affordable Rental Investment Fund, which provides incentives 
for the development of low- and moderate-income rental units. 
Funds are used to write down the monthly rental rates to a 
level of typically about $350 to $400 a month, to a level which 
welfare families can afford.
    We have also expanded the supply of single-family housing 
by investing $20 million of the TANF reserve in the Habitat for 
Humanity Program in which, in combination with the free labor 
and the donated materials that are part of that program, will 
build roughly 5,000 homes, single-family homes. This is roughly 
$4,000 per home to greatly expand the supply of affordable 
housing.
    We have also invested almost $6 million in transitional 
housing for families who have been homeless or have a very 
unstable housing history. We have also taken about $2.7 million 
of that TANF money and put it toward family homelessness 
prevention and assistance. We have created a modest $3 million 
supportive housing pilot in which we are testing a supportive 
housing model for our welfare families in which a variety of 
services are available in the housing setting.
    Beyond this, using State dollars, we also have an emergency 
assistance program which is available to families once in a 12-
month period to help with housing-related crises. We spend 
nearly $20 million a year on this assistance. This involves, 
for example, helping with late rent, helping with deposits, 
avoiding utility shutoffs and making critical repairs and so 
on. This program serves about 14,000 families per year.
    For us to continue the success that Minnesota has had, we 
need more, not less flexibility in the use of TANF dollars. For 
example, we would like to be able to invest TANF in the 
production of additional rental housing for families. For your 
reauthorization of TANF, my message is very simple: Maintain 
the flexibility that we now have and give us additional 
flexibility with respect to housing.
    Also, we need flexibility to change the definition of 
short-term 
assistance so we can provide housing support. Counting housing 
dollars as cash assistance and counting that assistance against 
the 60-month limit for a family flies in the face of reason, 
given the ongoing need for subsidized housing by many families. 
Removing that constraint would be a great help.
    In addition, we would like to use a portion of the TANF 
block grant, let's say up to 10 percent, to do housing 
production. The simple shortage of affordable housing stock is 
a critical issue in our State. And it is a one-time investment 
so a very appropriate use of TANF. The ongoing operating costs 
of that housing can be borne by other programs. As I indicated, 
we have used some of the TANF money with Habitat for Humanity 
to create more housing. We have had to do this, though, 
indirectly by substituting the TANF dollars for other TANF-
eligible expenditures now covered by State money and then 
reallocating that State money in turn to housing programs. We 
have in essence refinanced Federal TANF dollars in order to 
give ourselves the capacity to implement our comprehensive 
strategies.
    To summarize, our program has been extraordinarily 
successful because we have had the flexibility to tailor 
services to individual families and to offer a comprehensive 
package of supports. It is a misconception that welfare is a 
cash support program. It is a mix of many forms of support. I 
ask that you allow States such as Minnesota to continue with 
this kind of flexibility.
    Thank you, Mr. Chairman and the Committee.
    Senator Reed. Thank you, Mr. O'Keefe.
    Ms. Sard.

                   STATEMENT OF BARBARA SARD

                   DIRECTOR OF HOUSING POLICY

             CENTER ON BUDGET AND POLICY PRIORITIES

    Ms. Sard. Thank you for holding this very important hearing 
and thank you for inviting me to testify.
    As you reviewed, evidence shows that most families that 
manage to get a job and leave welfare still do not earn enough 
to afford decent quality housing. In addition, most do not 
receive housing assistance. Nationally, only about 30 percent 
of families on welfare receive housing assistance, so the vast 
majority are left to make do on their wages.
    Not surprisingly, as you reviewed, the combination of low 
earnings and scarce housing assistance results in housing 
problems. I will not belabor you with them again, but it is 
important to note that the housing problems among even employed 
welfare leavers appear to be getting worse.
    One issue that housing policy needs to focus on much more 
in the future than it has in the past is the growing mismatch 
between where job growth is occurring and where affordable 
housing, public or private unsubsidized, tends to be located. 
My testimony includes data on the unfortunate nonperformance of 
the tax credit and the HOME programs in this area. Welfare 
policy similarly fails to pay attention to the fact that where 
people live can be a hindrance to their getting a job, and we 
have to pay more attention to that.
    At the same time, recent evidence has shown that actually 
having housing subsidies, particularly mobile subsidies that 
help people overcome this job/housing mismatch, can lead to 
better results, can lead to more families getting off the 
welfare rolls and that when they get off they tend to stay off. 
As Mr. O'Keefe said, they tend to retain employment for longer. 
And I think most importantly for State welfare agencies, 
welfare interventions that States do initiate tend to be more 
effective. The impressive results that Mr. O'Keefe just related 
concerning the MFIP demonstration were shown to be almost 
entirely attributable to gains made by families with housing 
assistance. If you look separately at the families without 
housing assistance, you would have seen almost no change.
    That is why it is so important to consider both the changes 
in TANF legislation that Senator Corzine reviewed and that are 
also contained in S. 2116 that was filed several weeks ago by 
Senator Kerry and also to consider some parallel changes in 
housing legislation. Mr. O'Keefe has already explained why it 
is so important to classify TANF funds used as supplemental 
housing benefits as nonassistance so that the time clock 
doesn't run.
    I want to support his remarks. I also want to highlight for 
you the demonstration proposal that Senator Corzine mentioned. 
It is, in fact, very similar to the $3 million program that Mr. 
O'Keefe described that Minnesota is now implementing, with an 
important difference for national policy. It would be 
structured with an evaluation so that we would actually learn 
and be able to model future policy on the combination of 
housing and services that may work best, assuming it is shown 
to work in helping families with multiple barriers move to 
self-sufficiency.
    There are a number of proposals to improve the housing 
programs that are contained in a draft bill that Senator 
Sarbanes has circulated, and there are also some additional 
proposals that I have included in my testimony. I want to 
highlight the proposal to give a 5-year authorization to 
Welfare to Work vouchers. Experience with the allocation of 
Welfare to Work vouchers in fiscal year 1999 when 50,000 
vouchers were appropriated suggests that this type of targeted 
housing assistance can benefit families and provide positive 
incentives for interagency collaboration.
    I think that the proposed legislation goes one better than 
the program in the past because it would reward those housing 
agencies that have either committed their own resources, their 
turnover vouchers, to a Welfare to Work use in collaboration 
with welfare agencies or are using State funds, like in 
Minnesota and in New Jersey, to provide housing assistance for 
families moving to Welfare to Work. It would create an 
incentive for States to make these decisions to put their 
resources into housing and for the PHA's to do the same while 
also creating an additional source of funding, assuming the 
appropriators agree to provide this essential housing 
assistance.
    I think that it is an extremely important initiative and I 
also think it is exactly the type of incentive we need to do in 
contrast to the so-called super-waiver proposal that is 
contained in the Administration's welfare plan. That is a 
proposal that is not yet incorporated in the House legislation 
but the Administration has 
proposed including housing and homelessness programs in the 
super-waiver. Our information leads us to expect that it will 
be included and the proposal would make drastic changes in the 
balance between Congress and the Executive Branch potentially 
leading to State authority to overrule local decisionmaking, 
overriding resident participation requirements, undoing the 
carefully balanced laws and regulations that this Committee has 
set up for dealing with difficult decisions, like when to 
demolish public housing or when a waiver of targeting 
requirements could be made. So, we should not go there.
    I have included in my testimony two proposals to promote 
family formation in the assisted housing programs. You may be 
surprised to hear that I happen to agree with Mr. Rector that 
this is a problem, that there are too few two-parent families 
in the assisted housing programs and new research shows that 
there are probably fewer two-parent families proportionately in 
these assisted housing programs among comparable poor families. 
That makes one think that the rules of the Federal housing 
programs may be contributing to this problem.
    We actually have one quite similar proposal which is to 
create a rent incentive to have a second working parent in a 
household. I would suggest to you that my proposal is less 
expensive than Mr. Rector's. I think this is a record.
    With that, I would like to conclude my testimony.
    Thank you.
    Senator Reed. Thank you, Ms. Sard.
    Mr. Rector.

                   STATEMENT OF ROBERT RECTOR

                     SENIOR RESEARCH FELLOW

                    THE HERITAGE FOUNDATION

    Mr. Rector. Thank you very much for the opportunity to come 
here and testify today.
    You may not be surprised that I see these issues in a 
somewhat different light. Let me outline what I regard as the 
central lessons from welfare reform and how they might apply to 
public housing.
    In 1996, the Congress reformed the Aid to Families with 
Dependent Children Program and replaced it with a new program 
called Temporary Assistance to Needy Families. When we did 
that, there was a universal prediction from what might be 
called the left side of the political spectrum that this was a 
disastrous bill which would throw millions of additional 
children into poverty even in good economic times. The reality 
is that everything that was said about that Act and all the 
predictions that were made have been completely overturned by 
events, and the Act has been, in a totally unprecedented way, 
successful in reducing poverty. We might want to review why 
that was accomplished and what that might mean for housing 
programs.
    The pre-reform Aid to Families with Dependent Children 
Program, the essential element of that program was that it gave 
aid unconditionally. If you were in need and you walked into 
the office, we gave you assistance, cash assistance. There was 
no requirement that the individual undertake any type of 
activity in order to get that aid.
    The key to the 1996 reform was national requirements that 
said this aid will no longer be unconditional. We want to give 
people 
assistance but we are essentially going to require that when a 
recipient comes to get assistance, we will require, as a 
condition of receiving that aid, that they have to undertake 
some type of constructive activity leading toward self-
sufficiency, whether it is supervised job search training or 
community service work. As a result of that change, you have 
seen absolutely dramatic response in human behavior.
    The AFDC and TANF case load has dropped by 50 percent. The 
employment rate of single mothers, particularly the most 
disadvantaged single mothers, has increased by 50 to 100 
percent. Absolutely unprecedented changes. Nothing like that 
has ever happened in any kind of recorded data that we have. 
But more importantly, if you look at the chart which I have 
provided here, this is black child poverty. The percentage of 
black children that live in poverty from 1970 up to the present 
time, you can see on this chart that black child poverty from 
1970 to about the mid-1990's actually went up slightly. It goes 
up and down a little bit with recessions, but the overall trend 
is either flat or rising slightly. All of a sudden, in the mid-
1990's, something dramatic happens. The black child poverty 
rate, for the first time in U.S. history, drops by a third, and 
is now at the lowest point ever in U.S. recorded history, ever 
in history. I have a similar chart for poverty among single 
mothers, it looks exactly like this. So the least that we can 
conclude is that something rather positive seems to have 
happened there in the mid-1990's. The only thing unusual that 
happened there was welfare reform.
    Changing aid from an unconditional aid system to one that 
basically brings out the better angels in people's natures says 
we want to aid you but we are going to require that you also 
take steps to aid yourself.
    Now the problem that I see in assisted housing is that 
assisted housing is basically stuck in the mode that AFDC was 
in before reform. It is completely unreformed by these 
principles. Aid remains almost totally unconditional and the 
population receiving aid very closely resembles the pre-reform 
AFDC population. Half the households in assisted housing are 
families with children, and of those families with children, 87 
percent are single-parent families. It looks an awful like old 
AFDC.
    Moreover, if you look at the chart that I provided in my 
testimony, you can see that although there is slightly more 
employment in assisted housing than there was in the old AFDC 
program, still a third of families with children that are 
getting assisted housing perform no work at all, no employment 
during the course of a year, and half of them are working less 
than a thousand hours during the course of a year. Only about a 
quarter of them are working full time, full year. Clearly, if 
we are interested in raising these families' incomes above 
poverty or in increasing their ability to afford housing, one 
of the most important things we have to do is get the hours of 
work up because they are simply too low.
    The type of reform we have in TANF has been dramatically 
successful in increasing the hours of work, and I think if you 
applied the same thing in housing, you would get similar 
results.
    Again the key to TANF was requiring that able-bodied 
recipients consistently undertake constructive activities, job 
search training, or community service work as a condition for 
getting aid. This has been widely misunderstood. People think 
that we have insisted that people get private jobs and if they 
could not get a private sector job, we threw them off. No one 
did that in TANF. We said if you cannot find a private sector 
job, that is okay, but we want you to be engaged 30 or so, 40 
or so hours a week in some type of activity. When you do that, 
the case load moves very rapidly off and into employment. This 
has been a huge success in TANF and there is no reason that we 
shouldn't apply the same principle into public housing.
    The overwhelming importance of marriage to the well-being 
of children. Some 80 percent of long-term child poverty in the 
United States occurs in broken or never-married families. 
Seventy-five percent of total means-tested Aid to Families with 
Children goes to single-parent families, and children that are 
raised without a father in the home are multiply disadvantaged 
in terms of all sorts of outcome, virtually every outcome that 
we in this room would be concerned with. For example, a child 
raised without a father is three times more likely to end up in 
jail as an adult.
    Unfortunately, the means-tested aid programs including 
housing programs profoundly discriminate against marriage. How 
do they do that? It is in the very nature of the means test 
itself. A means-tested program says if you have zero earnings 
in this household, we give you fairly high benefits. The more 
earnings you have, the more the benefit comes down. That is not 
just in housing, it is 
in food stamps, it is still in TANF, it is in the earned income 
tax 
credit. When you take these programs, and most beneficiaries 
get more than one program, what you have is a fairly profound 
set of financial messages that say, the best way to get a lot 
of welfare is to have little earnings in this household. And 
what is the best way to have little earnings in the household? 
It is certainly to not have an employed husband in the 
household. When you look at mothers that have children out of 
wedlock and look at the fathers of those children, 75 percent 
of those men are employed and their average earning is around 
$17,000 a year. What that means is that if the mother married 
that father, she would lose most of her public housing 
assistance or TANF assistance, her Medicaid assistance, and so 
forth. This is really not a very good incentive system.
    What we should do is find a way to begin to adjust these 
policies so that that very severe bite against marriage is 
reduced. I think we can all conclude that the children would be 
better off if we did.
    I think that what we have here, looking at welfare reform 
in 1996, is a fundamental change in the nature of which aid was 
given and that the principles that we have now put in place in 
TANF also belong in all the other programs that we use to 
assist families with children.
    Thank you.
    Senator Reed. Thank you, Mr. Rector.
    I am one who supported the Welfare Reform Act. Nice to hear 
you applaud President Clinton's bold initiative. Thank you very 
much, unexpected perhaps, thank you very much.
    Mr. O'Keefe, you are actually responsible for implementing 
the TANF. It strikes me that one of the factors, in addition to 
requiring individuals to work, was the significant flexibility 
to the States, a significant increase in resources and child 
care and support as you have and for housing assistance, a 
whole array of services, that might be just as dispositive of 
the success of TANF. What is your view?
    Mr. O'Keefe. Certainly, Mr. Chairman. That is certainly our 
view as well. I don't need to rerun the 1996 debate about 
whether AFDC works or not. We had 20 years of understanding 
that it was not working well. What we need to do is celebrate 
the success of welfare reform. My message to you is we should 
not screw it up. Rather, we have to build on our success. It is 
the package of support that works. If you add up the total 
package of support for a very low-income family, it includes 
cash support, food stamps, Medicaid assistance, child care 
subsidies, housing subsidies, as well as the earned income tax 
credit; in Minnesota we have both Federal, as well as a State 
tax credit. Within the total package, the cash portion is not 
huge. Minnesota, for example, part of the child care subsidy is 
linked to the individual's participation in a work program, in 
a work training program, through their cooperation with MFIP, 
our welfare program. That combination in Minnesota seems to be 
doing the job. I do not understand the need to link all other 
elements with requirements that you do x,y,z, a,b,c if we are 
already doing the job with the package that has been assembled.
    To us, it is the ability to assemble this package, to 
target the package and to include in it not only job training 
but also chemical dependency treatment, mental health 
treatment, whatever is an issue for the recipient. The goal is 
to package a set of services in a way that meets the needs of 
the individual and moves that individual off of welfare into a 
job, part-time or full-time, as that individual is capable. 
That, to our mind, is the core of the success.
    Senator Reed. Mr. O'Keefe, you have been looking at some of 
the results of your housing program, which in your testimony 
indicates that it has produced increases in steady employment. 
And you attribute that, I assume from your testimony, to the 
fact that you have stated that having access to a home, a 
rental unit, or even a house, over time, helps with the issue 
of employment. Can you comment on that?
    Mr. O'Keefe. Mr. Chairman, Ms. Sard helped me with that 
point when she noted that our evaluation of our pilot program, 
to which I referred on the marriage issue, also very powerfully 
suggested that a stable housing situation is a key to success.
    Senator Reed. Some of this is the classic chicken-and-egg, 
which comes first, a stable living arrangement, support, 
training, and a job, or a job and all those other things?
    Let me ask you a question which is prompted by one of our 
hearings held in Minnesota. We were up there about 2 weeks ago, 
Senator Wellstone and I, and we had a witness, Emanuel Lane, 
who was a very impressive individual. He had served in the U.S. 
Marine Corps for 3 years, he works more than 40 hours a week, 
he drives a bus. He celebrated the birth of his fifth child, 
his first son, just a few days before we arrived, 
coincidentally, and he is living in a homeless shelter with his 
family for many of the reasons that Ms. Sard alluded to. Out in 
the country where they could live with their relatives, there 
were no jobs; where the jobs were, there was no housing. He was 
in a rental situation.
    Here is someone who is certainly working, does not have a 
home of his own, and his family is being helped along, but 
again, it is the issue of what comes first. I do not know if 
you want to elaborate on that, but I was particularly impressed 
about Mr. Lane, since you would think that in a country like 
this, if you have served in the military and you have a family 
and you are married, and you are husband and wife together, you 
should at least be able to get a home. And he is getting about 
minimum wage.
    I guess the other way to look at this problem is, if we 
simply took away all of the support systems, which are 
extensive, and just asked and required people to work at 
minimum wage, do you think they would be able to find homes in 
Minnesota?
    Mr. O'Keefe. Mr. Chairman, they would not be able to find 
homes in our metropolitan area. As you suggested, in some rural 
communities, they would be able to, but the dilemma they would 
face there is that they wouldn't be able to find a job. So that 
is absolutely correct; you cannot put together a package of 
supports at a minimum wage.
    Senator Reed. Ms. Sard, in your work, you have been dealing 
with this whole issue of how to make TANF work better. I guess, 
just on the general point, your advice with respect to housing 
and the whole issue of the work requirement, or whatever, 
please?
    Ms. Sard. I would like to address the points that Mr. 
Rector made about work requirements. My central message is that 
there are very few people in Federally-assisted housing who are 
neither working nor on TANF nor elderly or disabled. I used HUD 
data, and HUD data shows that there are only about 11 percent 
of HUD-assisted households in all three of the major rental 
assistance programs that fall outside of those categories.
    You might say, oh, why do I say 11 percent and he says 30 
percent? These are some of the differences, I think, in our 
numbers:
    First is that Mr. Rector is using Current Population Survey 
numbers, not HUD numbers. My advisers, the data experts--I am 
no expert on the Current Population Survey, but I would suggest 
that there is probably a lot of inaccuracy in trying to project 
from Current Population Survey answers about ``I am not working 
this month,'' to ``I have not worked for an entire year.'' It 
certainly doesn't tell you what they are going to do the 
following year.
    Second is that the 30 percent in Mr. Rector's chart 
includes households with children that are headed by an elderly 
or disabled person. I know that this is surprising and somewhat 
counterintuitive to many people, but about 10 percent of the 
families with children in HUD-assisted households have an 
elderly or disabled head of household, so we wouldn't expect 
those people to be working.
    Third, many of these families--probably most--that aren't 
either elderly or disabled are already on TANF, and they are 
subject to TANF work requirements, and I think Mr. Rector said 
he is not trying to add different requirements than TANF. He 
was, I think, trying to target other people. Those are the same 
people.
    Finally, some of these people are potentially the second 
parent in a HUD-assisted household, so one parent might be 
working, while the second parent is not.
    Yes, there are some people in Federally-assisted housing 
that are probably not working as much as we would like to see 
them work, as they would probably like to see themselves work.
    Is a work requirement the right answer? I think it is not 
the right answer, at least at this point in our knowledge. We 
know that many of these people have multiple disabilities--not 
formal disabilities--I should say barriers to work. The 
evidence we have from a few studies cited in my testimony is 
that HUD-assisted households tend to have more personal 
barriers to work than other welfare families.
    That means that if you are going to help them work, it is 
going to cost money; it is going to take skill, and if you are 
going to require them to work 35 hours a week, it is going to 
cost a great deal for child care.
    And you are going to be taking the scarce resources of 
housing programs to do that, unless you find some other money, 
or you are going to be taking the time of housing agency staff, 
and I think you would be undermining other housing program 
goals in very significant ways.
    There are positive incentives that we could try instead. 
There is some interesting evidence in some recent studies by 
the Manpower Demonstration Research Corporation, that suggests 
that families in assisted housing feel that the rent increase 
they would experience is a significant disincentive to work, 
particularly to move from part-time to full-time work, which is 
part of the problem that Mr. Rector is underlining.
    We could fund the earned income disregard for Section 8 
families in order to help overcome that, and we could make sure 
that housing authorities implement the disregard for public 
housing tenants, which has already been enacted, but is, as 
evidence shows, not being implemented very well.
    One of the provisions that Senator Corzine mentioned in his 
bill would help get welfare and housing agencies together to 
collaborate in the implementation of that requirement.
    Senator Reed. If you would allow me, I would like to ask 
one question of Mr. Rector. Mr. Rector, part of your testimony 
is the suggestion that perhaps, at least for the sake of 
encouraging more marriage, that we overlook means testing in 
terms of access to public housing. I guess Ms. Sard's comments, 
too, about the disregard for income, so that people do not have 
a disincentive to limit their hours of work or work part-time 
rather than full-time, that would, I presume, lead to a 
significant increase in cost to the Federal budget and to local 
housing authorities, et cetera.
    Mr. Rector. It doesn't automatically, because this is not 
an entitlement program. But the general principle of what you 
are saying is, yes, correct. Therefore, I do not think you 
could do it just flat out across the board.
    What I think you should do is probably experiment with it 
and see what effect it has. Really, you are right; in order to 
remove the marriage penalty that exists in the means-tested 
welfare system, you would effectively have to say that any 
mother can get married and she will get the same benefits, 
irrespective of the earnings of her husband.
    Now, you have a neutral system. Well, boy, that is about 
$100 billion in that sentence right there, so you cannot just 
do that flat off. But I do think that we can look at and try to 
find ways to change at the margin or ways to change in the 
experiments, and see what results would occur.
    And it is not just in housing; it is even worse in 
Medicaid. In Medicaid, as I said, half these mothers are 
actually cohabiting with the father at the time of birth. They 
are romantically involved; the guys have jobs, but Medicaid 
pays for 90 percent of those out-of-wedlock births, and if the 
guy marries the mother, most likely he does not have medical 
insurance. So, we have a very nice wedding present; they are 
going to lose the Medicaid, and we are going to hand them about 
a $6,000 bill.
    We need to look and find the places where the system is 
most anti-marriage, and try to reduce those penalties there.
    Senator Reed. Thank you, Mr. Rector.
    Let me now yield to Senator Corzine.
    Senator Corzine. Thank you, Mr. Chairman.
    This has been very interesting testimony. One of the things 
that I thought I heard Mr. O'Keefe say is that you really had 
to substitute, gerrymander the books, essentially, to get 
housing benefits to your TANF recipients. You had to use monies 
from other areas of the State budget to fund the housing 
elements of your comprehensive program at the exclusion of 
using your welfare block grants or TANF block grants. Did I 
hear that right?
    Mr. O'Keefe. Senator Corzine, in Minnesota, we do not 
gerrymander the books.
    Senator Reed. We are from Rhode Island and New Jersey.
    Senator Corzine. You obviously do not understand New Jersey 
politics.
    Mr. O'Keefe. What is allowed is what is called 
supplantation, in which the Federal TANF dollars can be used to 
pay for eligible existing State services that are currently 
funded with State dollars. By refinancing those legitimate 
State services with TANF dollars, we can free up, for example, 
State child care monies. We can then, in turn, allocate those 
State dollars to housing, to our activity for which we could 
not use the TANF money directly. That is how we have managed 
this.
    Other States have done this as well, some solely to relieve 
their budgets, and not put that freed-up money into a self-
sufficiency strategy. We have kept it within our self-
sufficiency strategy.
    Senator Corzine. Mr. Rector, do you accept the premise that 
housing is one of those issues that does work to get to the 
self-sufficiency objective of the 1996 welfare reform efforts?
    Mr. Rector. No, I wouldn't. I would say that housing 
programs, as they are currently structured, work in the 
opposite way in the sense that they, like the AFDC, give a 
reward for nonworking, and that the aggregate effect of them is 
probably to reduce work effort, rather than increase it, just 
as that was the case with AFDC.
    Senator Corzine. So, you and Mr. O'Keefe have a different 
view about whether this is a part of the foundation that has 
led to the kinds of----
    Mr. Rector. I would agree. I guess I disagree with him very 
strongly. In essence, when you look at, for example, never-
married mothers, where employment has surged by 100 percent in 
the last 5 years, what was the change there? Was it in housing 
programs? Was it in food stamps? No.
    The change was in the nature of the welfare program that 
most of those mothers were getting, where we said we want to 
aid you, but we are going to require that you engage in some 
kind of activity on a daily basis from here on in. The firmer 
you are with that principle, the more mothers get up and get 
into the labor force, which is ultimately very good for them 
economically.
    Senator Corzine. Would you feel the same way with regard to 
child support, Medicaid?
    Mr. Rector. Child support is paid.
    Senator Corzine. Excuse me. Child care.
    Mr. Rector. Most mothers using child care would be using 
the child care because they are engaged in some type of 
constructive activity. I do think that the next stage of 
welfare reform is essentially to take the principles that we 
have in TANF and apply them to very similar programs, of which 
I would say assisted housing is one and food stamps is another.
    Medicaid is a much dicier question, because you are running 
a substantial risk that the family will not be on Medicaid then 
if you do that, and I do not think we should try that at this 
time. But vis-a-vis food stamps and public housing, all the 
objections that you would have to work requirements in those 
programs are the same ones that were raised against work 
requirements in AFDC, and they were wrong.
    It is a challenge. I mean, I am clearly asking you to do 
something dramatically different in these programs, but the 
lessons that we have over in cash assistance show that when you 
are asking and demanding that the recipient make the best 
efforts themselves, they have a lot more to deliver that people 
imagine.
    It is not enough to say that a lot of these people are 
working. If you work 100 hours a year, guess what? You are 
going to be very, very poor.
    Part of the reform is not just to get people nominally 
working, but get the number of hours of work during the year up 
a lot. That is the best way out of poverty.
    Senator Corzine. Would either of the other witnesses want 
to comment on, particularly, the housing issue, since that is 
the focus of our efforts here today, and how that relates to 
whether one moves from not only welfare, but also to a self-
sufficient stage of how an individual might operate in the 
economy.
    Ms. Sard. Just a few points, thank you.
    Contrary to Mr. Rector's assumption, the actual studies 
that we have show that families with housing assistance who 
leave welfare are employed at a higher rate and remain employed 
more steadily when they have housing assistance. So the 
evidence, I think is not conclusive; it is not absolutely 
definitive, but it is there, it is recent studies. He may not 
be familiar with them. I suggest that he look them over.
    It is true that for families remaining on welfare, housing 
assistance can appear to be pulling them back and keeping them 
there. But when what social scientists call regression analyses 
are done that control for families' personal barriers to work, 
because their demographic characteristics show generally lower 
education, less work experience, et cetera, you neutralize the 
role that housing assistance is playing as a causal factor.
    So, I do not think the evidence suggests at all that 
housing assistance is contributing to a problem. I think it 
shows that housing assistance is contributing to the solution, 
so you don't need to impose work requirements on housing 
programs.
    Under the TANF block grant, there was the good fortune of 
an excellent economy, which, I would suggest, cannot be 
disentangled from work requirements, leaving a lot of extra 
money around to provide these additional supports that help 
families work.
    Nobody is identifying a source of these additional supports 
to help the individuals work, who may not be working 
sufficiently in the housing programs. There is also the HUD 
data I referred to earlier on the relatively few individuals 
not working who could be expected to work. Again, I do not know 
that we should try to make policy from Mr. Rector's data that I 
do not think is terribly reliable.
    HUD's data show that for families that are working at all, 
1 hour, their average annual earnings are above full-time 
minimum wage. The figures are about $11,000-$12,000 a year. 
That wasn't in my testimony, and I would be happy to submit 
that if the Committee would like.
    Mr. O'Keefe. Senator, just one brief comment. In Minnesota, 
we package the food stamps with the cash assistance, under a 
waiver we have from the Department. These supports are a 
package and we in effect deal with families across programs. 
The Chairman referred to this as one of those chicken-and-egg 
questions and it truly is. It is a question on which gentlemen 
and women can disagree. But it strikes me that if you actually 
spent some time working with welfare families, with a woman 
with a couple of children, that her ability to interview for a 
job, her ability to find, to be prepared, her ability to attend 
to her own education and training is tremendously undercut by 
the fact that she doesn't know where she and her children are 
sleeping every night. Without a whole lot of research, that 
strikes me as a fundamental.
    The evidence from our pilot evaluations suggests that, 
indeed, for those families that have financial stability, which 
includes housing stability as part of that package, single 
parents have had increased marriage rates, two-parent families 
have stayed married at a much higher rate than the AFDC control 
group. Kids have done better in school, and so forth. It is 
obvious that if you stabilize a family unit then it is capable 
of taking care of itself and moving forward.
    Senator Reed. Thank you, Senator Corzine.
    Just a few comments or questions. It seems to me listening 
to you particularly, Mr. O'Keefe, that you have been using TANF 
money which we all envisioned as welfare family support money 
to build houses, to subsidize rents, to do things that should 
properly be in housing programs. It seems to me we have to 
concentrate on TANF reauthorization but we also cannot lose 
sight of the fact that we are under funding traditional housing 
subsidy programs. Again, is that an accurate impression based 
on the Minnesota experience?
    Mr. O'Keefe. That is accurate. We have been able to use 
TANF money for a whole range of flexible, fill-in kinds of 
investments. For example, for a rural family, if they either do 
not possess a car or their car breaks down, they are stuck. The 
mother cannot get her children to child care, cannot get to the 
community college, cannot get to a job, and drops out of the 
program. We have used some of that money to give counties 
flexible money to create a loan fund, for example, to allow 
welfare families to purchase a car, obtain loan funds so when 
the car breaks down, they get some money, they are lent some 
money to repair the car and then they can get back on their 
feet.
    So, yes, we have used flexibility to create a broad set of 
strategies toward self-sufficiency because it is self-
sufficiency that we believe are the goal of the program.
    There are quite inadequate housing resources available. You 
are absolutely right that we have a crisis with respect to 
affordable housing for welfare recipients, as well as for the 
working poor.
    Senator Reed. This follows from your comment. If you did 
not have to devote these resources to housing, there are many 
other issues that you could deal with in the context of 
bringing more people in for better education. You probably have 
a list of things you want to do that you think would be very 
helpful in getting people to work even, but you have to devote 
resources to housing. Is that accurate also?
    Mr. O'Keefe. Mr. Chairman, we are not a greedy State 
looking for more resources but we could free up those dollars, 
we could use additional investments in child care; we are very 
short on child care. Let me underline that the President's 
proposal to increase the work requirement is going to cause a 
concomitant increase in the need for child care, and there is 
no proposal to help increase those funds. That is another 
severe shortage.
    Transportation, affordable housing, and child care are the 
weak links, in my mind, in welfare reform.
    Senator Reed. Ms. Sard, any comments?
    Ms. Sard. I completely agree. That is why I wanted to 
emphasize I think the tangible thing in front of you that can 
possibly get done this year, as well as building toward others 
is for Congress to enact the authorization for Welfare to Work 
vouchers, so that structure is in place. And for the 
appropriators who hopefully will be funding some number of new 
vouchers, the Administration proposed 34,000 new vouchers in 
their budget. If about a third of those were set aside as 
Welfare to Work vouchers and the legislation--the Sarbanes 
bill--were enacted, you would see some additional housing 
resources and the change that allows TANF funds to be used for 
rental assistance more easily. You would see some more 
resources going for housing assistance. And you would see some 
more program cooperation happening at the local level between 
housing and welfare agencies.
    Senator Reed. Thank you.
    Mr. Rector, your comments with respect to putting a work 
condition on specific to TANF, what relation in your mind does 
this have to increased resources for housing programs in 
general of more resources for public housing, more resources 
for subsidies, separating the two issues?
    Mr. Rector. I do not think they separate. I would make a 
couple points here. One is that when we did the TANF reform, we 
were told by the Center of Budget and Policy Priorities and a 
lot of other people that it would cost a lot more money to do 
that, but the reality is that the reform itself generates so 
much earnings that it effectively pays for itself. So what has 
happened in TANF reform, for example, over the last 5 years is 
as the need for cash assistance has gone down, that has more 
than paid for all the day care that you need.
    Similar things, although I wouldn't predict it would be 
exactly the same, you would expect a similar response within 
housing. If you put a work requirement forward, you are going 
to have higher earnings, rental payments will go up, that will 
generate some kind of surplus that can be used for ancillary 
services. That is essentially what has happened within TANF and 
that is what would happen under the President's projected work 
requirements as well.
    I cannot tell you exactly down to the decimal point, and it 
would be silly to make that prediction, but you have to 
generally recognize that that role is valid, if somewhat 
flexible. Also, I just want to say in terms of the gentleman 
from Minnesota, that he certainly has big plans for Federal tax 
dollars. I simply make the overall point here that as a Nation, 
we spend $430 billion on means-tested assistance for low-income 
people; that is cash, food, housing, and medical care. Of that 
assistance, 75 percent is Federally-funded. But the State 
contribution is almost totally limited to Medicaid. When you 
set Medicaid aside, this system of aiding poor people is 85 
percent Federally-funded. So when I listened to his long 
laundry list of things he would like to do, I would just ask 
him whether he is going to Governor Ventura and ask him for a 
tax increase in Minnesota to pay for all those things. Or 
whether he simply wants you to pay for them from the Federal 
Government.
    Senator Reed. The last time I checked, we authorized him to 
spend all this money. We gave them and told him to do it 
because they are American citizens, as well as Minnesota 
citizens.
    Ms. Sard, you have a comment.
    Ms. Sard. If I may, I would like to respond to Mr. Rector's 
earlier remark. I think that his point about savings due to 
increased earnings is one of the many ways in which it is 
inaccurate to extrapolate from TANF to housing. Usually it is 
true that families have some increase in earnings, but stay in 
the housing programs. Then there would be some savings. But if 
you really succeed and the families make enough that they move 
out, which is what you hope will really happen, because we are 
only providing housing assistance to one out of four eligible 
families, then another family fills that slot. It is not like 
welfare where it is an entitlement. People work, the case load 
goes down.
    We are not going to see, I hope, a reduction in the number 
of Federal housing units or vouchers. So if we succeed at this 
process, we, in fact, maintain our costs because we bring into 
the housing program a family that needs the rent subsidy, and 
which hopefully can use the rent subsidy to stabilize, increase 
their income and move on.
    We are not going to get the subsidies, the savings internal 
to the program to pay the kind of costs that the support 
services are 
likely to entail that would be needed for these households.
    Another point I should make, HUD's data indicate that the 
group that we should perhaps be the most concerned about--those 
households with zero income--which is about two-thirds of the 
11 percent I mentioned, that they actually have the shortest 
stay in the assisted housing programs of any group of 
households. They are up and out on their own in a little over 2 
years. I do not know why that happens. I do not know if those 
are people who are evicted, or what happens but we know they 
are not there for a long time.
    So it is a question whether it is worth a whole lot of 
retooling of how housing programs operate to deal with a 
problem that is somewhat ephemeral on an individual level.
    Senator Reed. Thank you all very much. This has been a very 
interesting hearing. One hope I have is that it certainly made 
us aware is an important part of TANF's reauthorization 
although it might not be a very explicit discrete article 
within the bill. Unless we think constructively and creatively 
about housing, we are not going to advance our goals of getting 
people off welfare into jobs and keeping them there.
    We will keep the record open for 10 days. If there are 
additional questions for the witnesses, I would ask my 
colleagues to submit them before Monday, May 6, and the record 
will remain open for 10 days.
    With that I thank the witnesses and the hearing is 
adjourned.
    [Whereupon, at 4:20 p.m., the hearing was adjourned.]
    [Prepared statements submitted for the record follow:]

              PREPARED STATEMENT OF SENATOR JOHN F. KERRY

    Mr Chairman, I want to take this opportunity to thank you for 
holding this important hearing on Temporary Assistance for Needy 
Families (TANF) reauthorization and Federal housing policy. You have 
been a leader in the Senate on housing issues, and I look forward to 
working with you on this critical issue. I very much appreciate the 
opportunity to discuss the Welfare Reform and Housing Act (S. 2116) 
that I introduced earlier this year. The bill contains measures for 
States to help improve 
access to adequate and affordable housing for families eligible for 
TANF benefits. I am very pleased that Senators Corzine and Wellstone 
have included provisions from my legislation in their overall TANF 
reauthorization bill and look forward to working with them to enact 
this legislation during the 107th Congress.
    It is essential that low-income families struggling to make the 
transition from Welfare to Work have access to affordable, quality 
housing. Families with housing affordability problems are often forced 
to move frequently, which disrupts work schedules and jeopardizes 
employment. Many of the affordable housing options are located in areas 
that have limited employment opportunities and are located far from 
centers of job growth. Furthermore, high housing costs can rob low-wage 
workers of a majority of their income, leaving insufficient funds for 
child care, food, transportation, and other basic necessities.
    Maintaining stable and affordable housing is critically important 
to holding down a job, yet an alarming number of low-income families do 
not have access to affordable housing. The data from Massachusetts is 
shocking: In order to afford a two-bedroom unit at the fair-market rent 
established by the Department of Housing and Urban Development (HUD), a 
minimum-wage worker would have to work 105 hours per week; in 1995, 
2,900 poor families used private homeless shelters, while in 2000 the 
number grew to 43,000--with a majority of these families being low-wage 
workers who had once been on welfare. Lack of affordable housing is not 
a problem exclusive to Massachusetts. The Brookings Institution found 
that nearly three-fifths of poor renting families nationwide pay more 
than half of their income for rent or live in seriously substandard 
housing. Nationwide, there are only 39 affordable housing units 
available for rent for every 100 low-income families needing housing. 
And for the fourth year in a row, rents have increased faster than 
inflation. We must address the issue of affordable housing during 
reauthorization of the welfare law because many low-income families 
have hit this formidable roadblock on their path to employment.
    Though access to affordable housing is often left out of the 
discussion of welfare reform, it is crucial that we address this issue 
during our reauthorization of the welfare reform law this year. The 
welfare reform legislation will not allocate considerable new funds to 
increase affordable housing opportunities; however, modifications to 
the TANF statute can be made to address the problem by other means. 
That is why I introduced the Welfare Reform and Housing Act. This 
legislation will address the housing issue in the context of welfare 
reform in six major ways:
    First, the measure will make it simpler for States to use TANF 
funds to provide ongoing housing assistance. TANF-funded housing 
subsidies provided for more than 4 months would be considered ``non-
assistance'' instead of ``assistance.'' By considering these subsidies 
as non-assistance, States that want to implement housing assistance 
programs using TANF funds will not have to work within the constraints 
of current Health and Human Services rules surrounding assistance 
subsidies.
    Second, the bill would encourage States to consider housing needs 
as a factor in TANF planning and implementation. My legislation would 
direct the Department of Health and Human Services to work with the 
Department of Housing and Urban Development to gather increased and 
improved data on the housing status of families receiving TANF and the 
location of places of employment in relation to families' housing. 
States will be required to consider the housing status of TANF 
recipients and former recipients in TANF planning.
    Third, the legislation would allow States to determine what 
constitutes minor rehabilitation costs payable with TANF funds. It is 
now permissible to use TANF funds for minor rehabilitation but there is 
no guidance from HHS on what types or cost of repairs are allowable, 
making it difficult for States to determine the extent to which using 
TANF funds in this area is permissible. By allowing States to define 
what constitutes ``minor rehabilitation,'' more States with similar 
needs will follow suit. A recent study of the health of current and 
former welfare recipients found that nonworking TANF recipients were 
nearly 50 percent more likely than working former recipients to have 
two or more problems with their housing conditions. Research has shown 
that poor housing conditions often can cause or exacerbate health 
problems.
    Fourth, the bill would encourage cooperation among welfare agencies 
and agencies that administer Federal housing subsidies. By improving 
the dialogue between Public Housing Agencies and State welfare 
agencies, the two groups will be able to enter into agreements on how 
to promote the economic stability of public housing residents who are 
receiving or have received TANF benefits.
    Fifth, the legislation would authorize HHS and HUD to conduct a 
joint demonstration to explore the effectiveness of a variety of 
service-enriched and supportive housing models for TANF families with 
multiple employment barriers, including homeless families.
    Finally, the bill would clarify that legal immigrant victims of 
domestic violence eligible for TANF and other welfare-related benefits 
are also eligible for housing benefits. The proposal would ensure that 
abused immigrant women seeking protection under the 1994 Violence 
Against Women Act that are also eligible for other Federal benefit 
programs have access to Federal housing programs under Section 214 of 
the Housing and Community Development Act.
    Recent proposals made by the Administration and some Members of 
Congress aim to increase work requirements for families receiving TANF 
funds. Therefore, it is important that we are committed to ensuring 
that low-income families have a fair chance at employment. We have made 
progress addressing many barriers to work for low-income families such 
as child care, job training, and transportation. But, in order to fully 
support families make the transition to work, we must address the 
shortage of adequate, affordable housing. The Welfare Reform and 
Housing Act brings housing into the welfare reform dialogue and aims to 
help ameliorate the housing problem so that low-income families leaving 
welfare have a chance to succeed in the workforce.
    Mr. Chairman, I look forward to working with you, Senators Corzine 
and Wellstone, and the Members of the Senate Finance Committee to 
include this legislation in the TANF reauthorization bill that is 
expected later this year. Mr. Chairman, thank you again for the 
opportunity to testify at this hearing today.

                               ----------
                 PREPARED STATEMENT OF MICHAEL O'KEEFE

          Commissioner, Minnesota Department of Human Services
                              May 1, 2002

    Chairman Reed and Members of the Subcommittee, I am Michael 
O'Keefe, Commissioner of the Minnesota Department of Human Services. We 
oversee programs that address the health and welfare needs of 
Minnesotans, including the Temporary Assistance for Needy Families 
(TANF) Program. I also Chair the Self-Sufficiency Cabinet Task Force 
for Governor Ventura; this is the primary vehicle the Administration 
has used to develop strategies and policies aimed at helping low-income 
Minnesotans become self-sufficient, looking at job training, tax 
credits, child care, and affordable housing, as well as welfare.
    My remarks today will be focused on how we in Minnesota see the 
relationship between welfare reform and housing, and the success we 
have had in working on these two issues together.
Minnesota is a National Model for Welfare Reform Because
We Have Used the Flexibility in TANF to Build a Comprehensive
Set of Supports that Help Working Families Escape Poverty
    Minnesota has one of the most successful welfare reform efforts in 
the country. Our program, the Minnesota Family Investment Program 
(MFIP), is aimed not just at moving families off welfare, but moving 
them out of poverty. The evaluation of our welfare pilot program drew 
national attention for improvements in earnings, income, poverty, and 
child and family well-being. The Federal Government has twice cited 
Minnesota as a leader among the States in job retention and 
advancement.
    We have carefully evaluated our efforts and tracked how families 
are faring under welfare reform in Minnesota. We measure our success 
not by case loads going down--which they have--but by people going to 
work and becoming self-sufficient. Some evidence of our success:

 Going to work: Over a 3-year period, three-quarters of 
    families on welfare either left welfare or went to work.

 Getting good jobs: Those families that left welfare for work 
    were working 40 hours a week and earning over $9 an hour.

 Getting out of poverty: Working families off welfare have 
    incomes 75 percent above the Federal poverty level.

 Improving family and child well-being: The independent 
    evaluation of the MFIP pilot found several important impacts on 
    family and child well-being--A decrease in domestic violence; fewer 
    behavioral problems among children; better school performance and 
    engagement by children; increased marriage by single parents and a 
    large increase in marital stability by two-parent families.

    Our success is the result of well over a decade of planning, 
researching, and hard work by some very visionary and dedicated people 
in Minnesota. But our vision of welfare reform may have never come to 
fruition without the flexibility provided in the Federal welfare reform 
legislation in 1996. That law allowed us to take the program we had 
been piloting and expand it statewide, to put in place our idea of how 
to reform welfare in Minnesota.
    Minnesota has used this flexibility to pursue our goal of moving 
families into work and out of poverty. We do this by working 
individually with each family to get them prepared for work, by 
focusing on moving people into jobs that will pay them a decent wage, 
and by providing a comprehensive set of supports for working families. 
We are particularly proud of the supports for working families we have 
put in place using the flexible TANF funds, including:

 Expanding tax credits for low-income working families.

 Expanding child care assistance.

 Funding innovative transportation initiatives, particularly 
    subsidized loan programs to help working families buy cars.

 Funding for local areas to target public health nurse home 
    visiting to teen parents and TANF participants who might benefit 
    from this alternative intervention.

 Flexible funding for counties to use to meet the needs of the 
    hardest to employ participants, including intensive case management 
    efforts, projects focusing on participants with mental illness, and 
    on comprehensive, multidisciplinary assessments.

    Most germane to the topic of today's hearing, we have used the 
flexibility provided under TANF to invest in housing strategies to help 
families making the transition from Welfare to Work.

Housing is a Critically Important Need for Families Making the
Transition from Welfare to Work
    I Chair a cabinet-level Task Force on Self-Sufficiency for Governor 
Ventura, representing his strong commitment to helping all Minnesotans 
become self-sufficient. The purpose of this group is to ensure that we 
focus broadly on self-sufficiency for families, not narrowly on 
specific programs or services, and that we work across agencies and 
programs in considering all the many ways that Government impacts low-
income families.
    When we started our work in 1999, we decided to get out and talk to 
people in the field--the front-line workers who work directly with 
participants--to learn from them the issues and problems we should 
address. We found that lack of affordable housing was an issue brought 
up over and over again. Job counselors, staff in community agencies, 
wherever I would go and whoever I would listen to, would talk about how 
housing problems were impacting the families they were working with. 
Homeless families who could not look for work because they were in a 
full-time search for an apartment they could afford. Families who moved 
frequently or were doubled up with others. Parents who had gone to work 
but could not make ends meet because the cost of a decent apartment had 
skyrocketed. Suburban areas and communities in greater Minnesota that 
had good jobs available but no place to house the needed workers.
    We surveyed families on welfare and asked about their housing 
situations. We found that many pay more than they can afford, move 
frequently, and some are concerned about the quality of their housing. 
Specifically:

 Over half (52 percent) paid more than 30 percent of their 
    income for housing; 22 percent paid more than two-thirds.

 Over half (53 percent) moved at least once in the last year; 
    19 percent had moved multiple times.

 Twenty-two percent (22 percent) did not think their housing 
    was suitable due to overcrowding or safety concerns.

 Thirty-six percent (36 percent) shared housing with others.

    Subsidized housing can be a solution to these problems, but 
subsidies are in short supply. Only 40 percent of single-parent 
families on welfare in Minnesota have a housing subsidy, and only about 
a quarter of those who have left assistance have a subsidy. This is 
unfortunate, because we also learned from the evaluation of the MFIP 
pilot that families living in subsidized housing had much stronger 
employment and earnings outcomes than families that lived in 
unsubsidized housing. This is an important finding because housing 
subsidy programs are generally considered to have disincentives to work 
built in to them: When you go to work your rent goes up. The evaluation 
results suggest some interaction of the economic incentives in MFIP and 
the housing programs--perhaps the MFIP work incentives offsetting the 
disincentive to work in housing programs--created the right incentive 
for these families. Perhaps more important, the researchers found that 
the families in subsidized housing moved less often, for example, were 
more stable in their housing. This stability--the confidence that they 
have a place to live that they can afford--may go a long way toward 
building the confidence needed to succeed in the workplace.

Minnesota Has Used the Flexibility in TANF to Address the
Affordable Housing Crisis
    We concluded, looking across the broad range of needs for low-
income families, that housing was one of the most critical unmet needs. 
It also presented some of the biggest challenges for us in how to 
address the problem. First, housing has historically been the purview 
of the Federal Government. Over the last 20 years, the Federal 
Government's investment in the production of new housing is 
significantly less compared to 30 years ago. The historical Federal 
role leaves some State policymakers unwilling to take on the 
potentially costly solutions to this problem. Second, this is a 
multifaceted problem requiring multiple solutions. While more subsidies 
would certainly help, it doesn't solve every problem. Supply of low- 
and moderate-income housing is also a problem that needs a direct 
response, and homeless families and those families with multiple and 
complex barriers to employment also require more creative 
interventions.
    Given our high priority on housing and our belief that the problem 
requires multiple solutions, we have used TANF funds for several key 
investments:

Rental Housing Production
    We invested $54 million into the Minnesota Families Affordable 
Rental Investment Fund (MARIF) to provide incentives for the 
development of low- and moderate-income rental units. The MARIF Program 
is producing two types of housing: Supportive housing for families 
facing the greatest barriers to self-sufficiency and mixed-income 
housing near transit and other services in suburban communities 
experiencing job growth and in nonconcentrated neighborhoods in central 
cities. The MARIF funds are used to write down monthly rents to the 
lowest possible level, typically $350 to $400, affordable for families 
leaving welfare. In a number of projects, local housing agencies have 
assigned project-based Section 8 vouchers to the development, creating 
extremely affordable housing and enabling families to pay only 30 
percent of their income for rent. In mixed-income projects, between 10 
percent and 20 percent of the units are MARIF units. Three State 
agencies, the Housing Finance Agency, the Department of Human Services, 
and the Department of Economic Security work together to assist 
developers of MARIF projects in making connections with employment and 
training service providers, local social services agencies, county 
welfare offices, and other organizations that provide assistance to 
MFIP families. The strategy to invest in increasing rental housing 
makes sense given the one-time nature of the TANF reserve funds we had 
available; we were able to leverage these funds for the long-term 
benefit of low-income families in 
Minnesota.

Expanding Supply of Affordable Single-Family Homes
    We invested $20 million of TANF reserve in Habitat for Humanity, to 
support--in combination with the volunteer work and donated materials 
that are the hallmark of Habitat for Humanity--the building of 
approximately 5,000 homes for current or recent MFIP families and 
families at risk of coming on welfare. Like the investment in rental 
supply, this strategy gives Minnesota a lasting benefit from a one-time 
investment.

Targeted Subsidies for Families Making the Transition from Welfare to 
        Work
    We invested an additional $250,000 of TANF in subsidies for 
families on welfare and making the effort to transition to work. This 
was provided through the Rental Assistance for Family Stability (RAFS) 
Program, which provides a subsidy of $250 a month for each family. RAFS 
was begun in the 1990's as a response to the growing concern about 
affordable housing for families trying to make the transition off of 
welfare.

Transitional Housing
    We invested $5.8 million in transitional housing for families who 
have been homeless or have an unstable housing history. This funding 
provides up to 4 months of transitional housing and case management 
supports to help the family stabilize and move into permanent housing. 
State funds are regularly used to provide capital funding for 
transitional housing.

Family Homeless Prevention and Assistance Program (FHPAP)
    We have used $2.7 million in TANF for homelessness prevention 
activities and services to homeless families. These services are 
delivered by community-based agencies and counties.

Supportive Housing Pilot
    We are using $3 million in TANF to test a supportive housing model 
for MFIP families with multiple barriers to employment. The concept is 
to use a housing site as the focal point for integrating services for 
families. Two sites are testing this approach, one in St. Paul and the 
other in Mankato. The program is for families who are homeless and who 
have one of the following conditions: Mental health problems, chemical 
health problems, or HIV/AIDS.
    In addition to these special investments, Minnesota makes emergency 
assistance available to low-income families once in 12 months to help 
with housing related crises. We spend nearly $20 million a year on 
emergency assistance. Payments are made to help families avoid 
evictions, pay first and last months rent, avoid utility shut-offs, 
make critical repairs, etc., for over 14,000 families a year.

Minnesota Needs More--Not Less--Flexibility in TANF and
More Production of Rental Housing for Families with Children
    The evidence is that Minnesota's welfare reform has been very 
successful. We want to keep it that way and make it even more 
successful. Minnesota's strategy with respect to housing and family 
self-sufficiency is consistent with the growing body of evidence that a 
family's success in moving out of poverty and sustaining employment may 
depend on stable, affordable housing. Building on our success in 
Minnesota requires help from the Federal Government in two areas: TANF 
reauthorization and housing programs.
    For TANF reauthorization, my basic message is simple: Maintain and 
expand the State flexibility provided in the 1996 Federal law. This 
flexibility has been the key element of the success of welfare reform. 
The flexibility to use TANF funding for supports for low-income working 
families has resulted in a revolution in our 
national policy for low-income families. As I have said, it has helped 
Minnesota in our effort to create a comprehensive set of supports for 
working families, and particularly important in our efforts to address 
the affordable housing gap and how it impacts families making the 
transition to work.
    There are three specific areas of TANF flexibility that relate to 
our work on housing issues:

 Overall Flexibility to Keep Minnesota's Antipoverty Program on 
    Track: We are very concerned that proposals to dramatically 
    increase the TANF work participation rates will force Minnesota to 
    abandon our successful approach to reform. The proposal moving 
    through the House of Representatives would require States to push 
    most families into work very quickly, and require us to divert 
    funding into work experience or subsidized work programs. This 
    would dramatically change what we have done in Minnesota. Why does 
    this matter in the context of housing issues? Because one of the 
    best ways to address the affordable housing crunch is to help 
    families increase their income so they can afford suitable housing 
    for their family. As I said earlier, Minnesota has focused on 
    moving families into good jobs and has demonstrated success at 
    increasing income and decreasing poverty. We can see the results in 
    housing for families. At a baseline measurement of families on 
    MFIP, over half spent more than 30 percent of their income on 
    housing. Two years later, only about one-third spent that much of 
    their income on housing. This was not because more were getting 
    subsidies or sharing housing; it was because families went to work 
    and increased their income.

 Flexibility to Extend the Definition Short-Term Assistance to 
    Provide Housing Supports that Stabilize Families: TANF regulations 
    make it difficult to provide ongoing housing support to working 
    families. All housing supports that extend beyond 4 months are 
    considered ``assistance'' under TANF regulations, even if the 
    family is working and not receiving TANF cash benefits. The 
    ``assistance'' label means the 60-month time limit clock runs on 
    the family and that States must collect detailed information on 
    every family every month. These rules act as a disincentive for 
    States to use TANF funds for housing. TANF policy needs to 
    recognize that helping families stabilize their living situations 
    often takes more than 4 months. States should have the flexibility 
    to fund programs that seek to stabilize housing for families making 
    the transition to work without being limited to 4 months.

 Flexibility to Use a Portion of the TANF Block Grant for 
    Housing Production: States should be allowed to use a portion of 
    their TANF block grant--say up to 10 percent--on housing 
    development. Current TANF law prohibits use of TANF funds for 
    building of any sort. We believe that increasing the supply of low- 
    and moderate-income housing is critical to the success of welfare 
    reform, and States should have the option of using the flexible 
    TANF funds to help in this effort.

    Because of inflexible rules around ``assistance'' and the 
prohibition on housing development, Minnesota has had to indirectly 
fund some of its housing initiatives using TANF to supplant State 
funding in other areas. When we began to consider how to invest our 
TANF reserve, the Ventura Administration established a principle that 
we would supplant when the State funds were going to be redirected to 
additional services or supports for the TANF target population--low-
income families.
    If our recommendations above were taken we would not need to 
supplant to fund our housing initiatives. If that kind of flexibility 
is not granted, we would be concerned about proposals to restrict 
supplantation that did not take into account the differing ways States 
have used supplantation. I certainly understand and support those in 
Congress who have criticized States that have used TANF to fund areas 
unrelated to the purpose of TANF. However, I hope that in the effort to 
stop this kind of misuse of funds, you will consider leaving enough 
flexibility for States like Minnesota to continue to address critical 
housing needs using TANF funds.
    As for Federal housing policy, there is renewed attention in 
Congress to the problems of housing families with very low and 
extremely low incomes. A number of bills have been introduced which, 
using different approaches, create a new rental production program for 
the lowest-income households.
    In the face of a worsening housing problem in the 1990's, the State 
of Minnesota significantly increased its investment in affordable 
housing production and homeless prevention and assistance efforts. 
Congress too took a critical step to respond to the crisis when it 
increased the caps on housing bonds and credits in 2000.
    However, the most difficult developments to fund are the ones 
serving the lowest-income families and individuals, whether they are 
supportive housing projects, mixed-income developments, or family tax 
credit projects. The scarcest and most critical resources are the 
subsidy funding needed to write down rents to affordable levels and the 
operating subsidy needed to serve households with incomes under 
$15,000. A new Federal rental production program for extremely low-
income families is the single most important housing initiative 
Congress could take to support families moving from Welfare to Work.
    Thank you, Mr. Chairman and Members, for the opportunity to bring 
Minnesota's views to this important topic today.

                               ----------
                   PREPARED STATEMENT OF BARBARA SARD

   Director of Housing Policy, Center on Budget and Policy Priorities
                              May 1, 2002

    I appreciate the invitation to testify today. I am Barbara Sard, 
Director of Housing Policy for the Center on Budget and Policy 
Priorities. The Center is a nonprofit policy institute in Washington 
that specializes both in fiscal policy and in programs and policies 
affecting low- and moderate-income families.
    Reauthorization of the Temporary Assistance to Needy Families 
(TANF) Program this year provides an important opportunity to focus on 
the role that housing strategies can play in strengthening welfare 
reform policy and supporting working families. Housing-related issues 
too often are ignored when TANF-related policies are discussed. Yet 
unstable or inadequate housing is frequently a significant barrier to 
employment, and the high cost of housing can impose a serious burden on 
low- 
income families struggling to transition from Welfare to Work. While 
the connection between affordable housing subsidies, housing location 
and employment has not been adequately studied, there is a growing body 
of research suggesting that welfare reform successes are greater among 
families with assisted housing than among other low-income families.\1\ 
These findings suggest both that welfare policy should include housing 
assistance as a strategy for success and that housing policy should 
better promote successful employment outcomes.
---------------------------------------------------------------------------
    \1\ For details on the research findings, including those discussed 
later in this testimony, see Barbara Sard and Margy Waller, Housing 
Strategies to Strengthen Welfare Policy and Support Working Families, 
Center on Budget and Policy Priorities and The Brookings Institution 
Center on Urban & Metropolitan Policy, April 12, 2002, available on the 
internet at: http://www. cbpp.org/4-15-02hous.pdf.
---------------------------------------------------------------------------
    This testimony will cover the following areas:

 What we know about the housing problems of families that leave 
    welfare.

 How the lack of affordable housing in areas with access to 
    jobs compounds these problems.

 Effects of housing problems on children.

 Evidence that housing assistance and location can support 
    welfare policy goals.

 Current policy proposals for housing strategies to strengthen 
    welfare reform policy and support working families, including: S. 
    2116, which would make a number of modest housing-related changes 
    in the TANF statute. Senator Sarbanes' draft ``Housing Voucher 
    Improvement Bill of 2002,'' which includes a number of changes in 
    housing law to promote work. Appropriations issues. Whether work 
    requirements on assisted housing residents would be helpful. 
    Proposals to promote two-parent families in assisted housing. The 
    Administration's ``superwaiver'' proposal.

Families Leaving Welfare for Work Still Experience Housing Problems
    Housing affordability is a real problem for families currently 
receiving TANF benefits, as well as for families that have recently 
moved from Welfare to Work. In only three States are TANF benefits high 
enough for families to obtain modest housing with less than their 
entire TANF grant. (The three States are Alaska, West Virginia, and 
Wisconsin.) In every other State, modest rental housing costs--as 
reflected in HUD's Fair Market Rents--exceed the entire monthly TANF 
grant.
    Most families that leave welfare for work do not earn enough to 
afford decent-quality housing and do not receive housing assistance. 
Studies indicate that the average total monthly income of households 
that previously received welfare benefits and have at least one working 
member is $1,261 (in 2002 dollars), which falls below the Federal 
poverty level for a family of three.\2\ A family with this income would 
have to pay 58 percent of its total income to rent a two-bedroom unit 
at the Fair Market Rent in jurisdictions with rental costs at the 
national median.\3\ In the 14 jurisdictions with Federally-financed 
studies on the earnings of recent welfare leavers, modest housing costs 
would consume 52 to 129 percent of estimated average monthly 
earnings.\4\ (See Appendix A.) Housing subsidies can help families 
leaving welfare for work close the gap between what they earn and the 
cost of rent and other necessities.
---------------------------------------------------------------------------
    \2\ The median total income of welfare-leaver households is based 
on 1999 data from the National Survey of American Families, adjusted 
for inflation to 2002, and includes earnings and benefits for all 
household members in households with at least one employed member. See 
Pamela Loprest, How Are Families That Left Welfare Doing? A Comparison 
of Early and Recent Welfare Leavers, Urban Institute, April 2001.
    \3\ The housing cost used in this calculation ($727 per month) is 
the estimated median fiscal year 2002 two-bedroom national Fair Market 
Rent (FMR), as calculated by the National Low Income Housing Coalition, 
Out of Reach, 2001. It is based on HUD's 2002 FMR's weighted by the 
number of renter households reported by the 2000 Census. The Fair 
Market Rent is the estimate issued annually by the Department of 
Housing and Urban Development of the cost of decent, modest housing in 
each area.
    \4\ These percentages are based on median wages of employed welfare 
leavers, derived from median quarterly earnings in the last quarter of 
the first year after leaving welfare, as reported in studies financed 
by the U.S. Department of Health and Human Services (found at http://
aspe.os.dhhs.gov/hsp/welf-ref-outcomes01/appb.htm). These median 
earnings figures are adjusted for inflation to 2002, and compared with 
the 2002 State FMR's calculated as discussed in note 3 above. The 
calculations assume that families pay no more than 30 percent of income 
for rent and have no income other than the earnings of the welfare 
leaver.
---------------------------------------------------------------------------
    Nationally, only about 30 percent of families receiving monthly 
income from the Temporary Assistance to Needy Families (TANF) Program 
also receive Federal housing assistance. This percentage varies across 
States from about 12 percent to 50 percent. (Federal housing assistance 
usually allows families to pay 30 percent of their income for rent and 
utilities, with the remaining cost paid by the Government subsidy.) 
Relatively few TANF families receive housing assistance because Federal 
housing programs serve only about one-quarter of eligible households 
and because few States invest significant resources in low-income 
housing programs.
    Not surprisingly, the combination of low earnings and scarce 
housing assistance results in housing problems. Nearly three-fifths of 
working poor renters with children who do not receive housing 
assistance face serious housing problems--that is, they pay more than 
50 percent of their income for housing or live in seriously substandard 
housing, or both.\5\ Among unsubsidized poor renter families with at 
least full-time, year-round minimum-wage earnings in 1999, some 36 
percent spent more than half of their income on housing.
---------------------------------------------------------------------------
    \5\ As used here, a family is characterized as ``working poor'' if 
it has annual earnings of at least $2,575 (equivalent to quarter-time 
year-round work at the minimum wage) and total income below the Federal 
poverty line.
---------------------------------------------------------------------------
Housing Problems of Welfare Leavers Appear to be Getting Worse
    There is some evidence that the housing problems of families 
leaving welfare are getting worse. An Urban Institute study found that 
families that left welfare between 1997 and 1999 were more likely to 
report an inability to pay a mortgage, rent, or utility bill than 
families leaving welfare between 1995 and 1997. Of the more recent 
group of welfare leavers, nearly 1 in 10 reported being forced to 
double up with others because of an inability to afford the cost of 
housing.\6\
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    \6\ Loprest, n. 2 above.
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    One reason housing problems may be getting worse for welfare 
leavers is that the number of rental units affordable to poor families 
(defined as requiring the family to pay no more than 30 percent of its 
income for housing costs) has declined, from 85 units for every 100 
poor families in 1987 to 75 units for every 100 such families in 
1999.\7\ The number of units that are both affordable to these 
households and available for them to rent is even lower: In 1999, there 
were only 39 such units for every 100 poor renters.\8\ The situation 
likely has not improved much since 1999. In 2000, rents increased 
faster than inflation for the fourth consecutive year, and the recent 
brief recession is unlikely to have reduced rent levels significantly.
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    \7\ The term ``poor households,'' as used here, actually refers to 
households considered to be ``extremely low-income'' as that term is 
defined in Federal housing programs. These are households with incomes 
at or below 30 percent of the area median income, as adjusted by HUD. 
This income level is roughly equivalent to the Federal poverty line. 
Nearly all TANF recipients and most leavers have incomes below this 
level.
    \8\ Nelson, Kathryn P., Office of Policy Development and Research, 
HUD, Testimony before the House Committee on Finance Services 
Subcommittee on Housing and Community Opportunity, May 3, 2001. Units 
were considered ``available'' if they were vacant and available for 
rent or occupied by poor families. Affordable units occupied by higher-
income families were considered unavailable.
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    Private market forces are mostly responsible for the reduction in 
the number of affordable rental units, but Federal housing policy has 
contributed as well. Between 1995 and 1998, the number of households 
receiving Federal rent subsidies declined as a result of the demolition 
of public housing, the expiration of Federal subsidy contracts for more 
than 120,000 privately-owned units, and the lack of Federal funding for 
any new housing vouchers. While the Low Income Housing Tax Credit 
(LIHTC) and the HOME block grant--the two current Federal subsidies for 
the production and rehabilitation of rental housing--add more than 
100,000 units of decent-quality rental housing per year, households 
with incomes below about 45 percent of the area median income generally 
cannot afford these units unless they have additional rental subsidies 
such as vouchers. (Note: In late 2000, Congress enacted a 40 percent 
increase in LIHTC funding.)
    Congress did fund about 213,000 new housing vouchers for the 4 
years from 1999-2002, including 50,000 vouchers for Welfare to Work 
rental housing assistance in 1999. The number of new vouchers being 
funded declined in fiscal year 2002, however, and is lower this year 
than the number funded in any year between 1983 and 1994.

Lack of Affordable Housing with Access to Jobs Compounds the Problem
    Lack of housing subsidies or other assistance can prevent families 
from moving in some circumstances when doing so could improve their 
economic prospects. Such circumstances include moves to areas with 
greater employment opportunities, as well as moves to areas where 
parents feel safe enough to go to work and leave older children 
unattended or to return from work at night on public transportation. 
Studies of the Chicago, Cleveland, Detroit, Milwaukee, and Los Angeles 
metropolitan areas have found that welfare recipients who live closer 
to employment opportunities are more likely to be employed. Living in 
lower-poverty, less-disadvantaged neighborhoods also may improve the 
chances of being employed, due to better information about job 
opportunities or other factors.
    A growing share of employment opportunities are located not in 
cities, where TANF recipients are increasingly concentrated, but in the 
suburbs. Between 1992 and 1997, job growth in the suburbs of the 
largest central cities was more than double that in the cities 
themselves. In about a quarter of the cities, the number of jobs fell 
while the number of jobs in the surrounding suburbs increased. This 
decentralization of employment affects cities in all parts of the 
country, although about 20 percent of cities have bucked the trend. 
Cities with some of the most slowly 
declining TANF caseloads in the Nation--Los Angeles, Richmond, 
Hartford, and Washington, DC--actually lost jobs from 1992-1997. 
Unfortunately, a number of factors--including lack of affordable 
housing, discrimination, and inadequate public transportation--can make 
suburbs largely inaccessible to low-income families in central cities 
or rural areas.
    Rental housing vacancy rates are lowest in the portions of 
metropolitan areas outside of the core central cities. In every region 
of the country in 1999, suburbs had lower vacancy rates for units with 
rents affordable to families with housing vouchers than cities or rural 
areas did. Not surprisingly, a recent study by Abt Associates found 
that the tighter the housing market, the lower the percentage of 
families that succeeded in renting housing with vouchers, and the 
longer the successful families took to find housing. In the fall of 
2000, some 61 percent of the families that received vouchers in very 
tight housing markets succeeded in finding a unit to rent, compared to 
80 percent in loose markets.\9\
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    \9\ Finkle, Meryl and Larry Buron, Study on Section 8 Voucher 
Success Rates, U.S. Department of Housing and Urban Development, 
November 2001.
---------------------------------------------------------------------------
    Thus, there is a need for additional rental housing that is located 
in job-growth areas and is affordable to working poor families, or at 
least affordable to those fortunate enough to have housing vouchers. 
Yet, our current housing production programs are doing little to meet 
this need, in part due to Federal law and in part due to State and 
local decisionmaking. A substantial majority of units developed with 
Low Income Housing Tax Credits are built in central cities or rural 
areas and not in the metropolitan suburbs where most job growth is 
occurring and where half of the population now lives. An analysis of 
the location of family sized tax credit units in comparison with job 
opportunities in 12 metropolitan areas shows that tax credit units are 
poorly located in relation to centers of job growth. In addition, HOME-
assisted rental units are more likely than Section 8 vouchers, but less 
likely than public housing units, to be located in high-poverty 
neighborhoods.\10\
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    \10\ The Urban Institute, Expanding The Nation's Supply of 
Affordable Housing: An Evaluation of the HOME Investment Partnership 
Program, U.S. Department of Housing and Urban Development, Office of 
Policy Development and Research, March 1999. Based on 1998, 40 percent 
of all public housing units, 22 percent of HOME-assisted rental units, 
15 percent of project-based Section 8 units, and 9 percent of Section 8 
certificate and vouchers were located in census tracts that were more 
than 40 percent poor according to the 1990 census. By comparison, 15 
percent of all unassisted renters with incomes below the poverty line 
lived in such high-poverty areas. Jill Khadduri, Mark Shroder, and 
Barry Steffen, Can Housing Assistance Support Welfare Reform, Fannie 
Mae Foundation, forthcoming.
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Lack of Decent, Affordable Housing is Harmful to Families
    There is no question that the demand for affordable housing far 
exceeds the supply and that much of the current stock of affordable 
housing is concentrated in areas at a distance from the centers of job 
growth. As a result, many families may face a Catch-22 situation. If 
they live in housing they can better afford, they may not be able to 
get or keep a job; but if they move closer to work, their housing costs 
may rise to the point where they have difficulties affording 
necessities, including work-related expenses.
    In addition, families that pay too much of their income for housing 
or live in severely inadequate or overcrowded housing may have to move 
frequently. A recent study in Ohio found that 42 percent of families 
that had recently left welfare and paid more than half of their income 
for housing moved in the 6-month period after leaving welfare. (Some 38 
percent of the recent welfare leavers in the study paid more than half 
their income for housing.) In contrast, roughly 8 percent of the 
general population moves in a 6-month period. Frequent moves may 
interrupt work schedules and jeopardize employment.
    Lack of stable housing also can have other negative consequences:
    Children may be affected adversely. A number of the studies 
demonstrate that 
frequent moves can undermine school performance, reduce skill 
development, and increase the risk of dropping out. Inadequate housing 
also has been linked to increased rates of asthma and respiratory 
disease, lead poisoning, and poor nutrition, which can retard a child's 
physical and intellectual development. Conversely, housing assistance 
that helps families move from high-poverty to low-poverty neighborhoods 
can have positive impacts on children. Some studies indicate it can 
contribute to improved educational outcomes, eventual increases in 
employment, and reduced involvement in violent crime as victim or 
perpetrator.
    Health can be affected adversely. A recent study by the Manpower 
Demonstration Research Corporation indicated that poor housing 
conditions can cause or exacerbate welfare recipients' health problems. 
In addition, the Task Force on Community Preventive Services of the 
Centers for Disease Control recently recommended housing voucher 
programs as a public health strategy to improve household safety by 
enabling families to move to less violent neighborhoods.

Housing Assistance and Location Can Support Welfare Reform Goals
    There is a growing, although not conclusive, body of evidence that 
housing assistance, particularly housing vouchers that enable families 
to choose where they live, can help families stay off welfare once they 
leave the rolls. A number of studies also suggest that housing 
assistance can help welfare recipients become and remain 
employed, often outweighing other potentially detrimental factors in 
families' lives. While under Federal housing programs, families' rents 
generally increase if their 
incomes rise, well-designed welfare programs can offset this financial 
disincentive to work by disregarding part or all of a family's 
increased earnings. This research suggests that as policymakers 
struggle to find the tools to improve job retention, they should give 
more attention to housing strategies.

Housing Vouchers May Help Families Leave and Remain Off
The Welfare Rolls
    Among families that left welfare in Cuyahoga County, Ohio 
(Cleveland) in 1996, households with housing voucher assistance were 16 
percent less likely to return to the welfare rolls in the following 
year than families without housing assistance. Based on detailed 
analysis of actual residential and job locations, the researchers 
attributed this result to the fact that families with housing vouchers 
were more 
likely to be employed closer to their homes and to have shorter and 
more direct commutes; they also had access to more job openings than 
families without housing assistance or that lived in public or project-
based Section 8 housing. In the Moving to Opportunity Demonstration in 
Baltimore, families that used vouchers to move to low-poverty areas 
were only one-third as likely to be receiving welfare 3 years later as 
families that remained in high-poverty areas. (Interim data from the 
other four sites in the Moving to Opportunity Demonstration have not 
replicated this finding.) Analysis of data from a program in Chicago 
found that families using vouchers to move to areas with a greater 
number of educated residents were about one-third less likely to 
receive welfare than similar families that used vouchers to move to 
areas with fewer educated residents.

Former Welfare Recipients Appear More Likely to Succeed in the
Workplace if They Have Housing Assistance
    This is an important issue, since only about 75 percent of welfare 
leavers are employed in the year after leaving welfare. Of a national 
sample of families that left welfare in 1997-1999 and were interviewed 
in 1999, leavers with housing assistance were significantly more likely 
to be working than their counterparts without housing assistance (68 
percent compared with 58 percent).\11\ Employment among recent welfare 
leavers in Massachusetts was higher among families with housing 
subsidies than among those without housing assistance, even though the 
former group had greater barriers to work. (They generally had been on 
welfare longer, had larger families, and were almost twice as likely to 
be minorities.) A study of welfare leavers in Los Angeles County found 
that families with housing assistance were more likely to be employed 
in each quarter in the first year after leaving welfare than families 
without housing assistance. Families with vouchers were somewhat more 
likely to remain employed than families with other kinds of housing 
assistance, as well as families that did not receive housing 
assistance. Families with vouchers that stayed off welfare also had 
higher average earnings.
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    \11\ Zedlewski, Sheila Rafferty, The Importance of Housing Benefits 
to Welfare Success, The Brookings Institution Center on Urban & 
Metropolitan Policy and The Urban Institute, April 2002. The survey was 
limited to families with incomes below 200 percent of the Federal 
poverty level. The education and mental health status of leavers with 
housing assistance was lower, on average, than of leavers without 
housing assistance, but the differences were not significant. Comparing 
families with incomes below 100 percent of the poverty level, leavers 
with housing assistance faced significantly higher personal challenges 
to employment--such as low-education levels, poor mental or physical 
health, and lack of recent work experience--yet also were more likely 
to be employed than leavers without housing assistance (58 percent 
compared with 52 percent). The difference in employment levels, 
however, was not statistically significant for this lower-income group.
---------------------------------------------------------------------------
    One study that covered a period prior to the recent changes in the 
welfare system also found a substantially higher rate of employment 
among Chicago families that used vouchers to move to low-poverty 
suburbs than among Chicago families that used vouchers to move within 
the city. After 5 years, 64 percent of the families in the study that 
moved to the suburbs were working, compared with 51 percent of those 
using their vouchers to move within the city of Chicago. It is not yet 
clear whether these results will be replicated in other ongoing 
demonstrations.

Welfare Interventions are More Effective When Combined
With Housing Assistance
    An evaluation of the Minnesota Family Investment Program (MFIP), 
widely considered to be one of the country's most comprehensive welfare 
reform strategies, found the greatest positive impacts occurred among 
families that received housing assistance in addition to other welfare 
benefits and services. This study is significant because, taken as a 
whole, the gains it found--including reductions in poverty, increases 
in employment and earnings, and even increases in marriage--are among 
the strongest ever documented for a welfare reform undertaking in the 
United States. Most of MFIP's success was due to the substantial 
increases in employment and earnings it generated among families 
receiving housing assistance (primarily Section 8 vouchers); families 
without housing assistance had little or no gains.
    Eligibility for full MFIP services (including generous financial 
incentives) boosted the employment rates of long-term welfare 
recipients living in public or subsidized housing by 18 percentage 
points. This was more than double the gain in employment rates for 
long-term welfare recipients not living in public or subsidized housing 
who were eligible for the same services and financial incentives. In 
fact, nearly all of the gain in earnings that MFIP produced occurred 
among families living in public or subsidized housing. Quarterly 
earnings increased an average of 25 percent among the families eligible 
for full MFIP services that lived in public or subsidized housing. 
Earnings increased only 2 percent, an amount that was not statistically 
significant, among families eligible for full MFIP services that did 
not live in public or subsidized housing.
    In addition, the National Evaluation of Welfare to Work Strategies 
(a comparison of human capital development and quick labor market 
attachment programs in seven sites) found that families with housing 
assistance were more successful in sustaining employment than other 
recipients who received the same services but did not have housing 
assistance. Unlike the Minnesota demonstration, the different 
approaches to employment tested in these seven sites did not include 
additional financial incentives. While the better outcomes for families 
with housing assistance were not as significant as the MFIP results, 
the NEWWS demonstrations further substantiate that housing assistance 
may enhance the success of welfare interventions.

Current Policy Proposals for Housing Strategies to Strengthen Welfare
Policies and Support Working Families
    While TANF reauthorization legislation is not primarily about 
housing, there are a number of ways to modify the TANF statute to make 
it easier to address the housing needs of families with children and to 
encourage States to consider addressing housing-related barriers to 
work. It also is important to increase the work promoting services 
available to low-income families that receive housing assistance; many 
of these families face greater barriers to work than other families 
that receive TANF assistance. Helping these families make a successful 
transition to work furthers States' welfare reform goals while also 
advancing HUD's strategic objectives. (Families whose employment and 
earnings levels rise generally pay more for rent and are more likely to 
give up their Federal housing subsidies, making scarce resources 
available to other needy families.)

Housing-Related Changes in the TANF Statute
    S. 2116, the Welfare Reform and Housing Act recently introduced by 
Senator Kerry, contains six provisions that would make modest but 
important changes in the TANF statute and (in one respect) in housing 
law. The bill would:

 Make it simpler for States to use TANF funds to provide 
    supplemental rental assistance by considering these housing 
    subsidies ``nonassistance.'' Nine States and several counties in 
    two additional States have committed Federal TANF and/or State 
    maintenance-of-effort funds to provide housing subsidies 
    principally to families moving from Welfare to Work.\12\ Many of 
    these jurisdictions were unable to implement the types of housing 
    programs they wanted--particularly the ongoing rental assistance to 
    working-poor families--due to HHS rules that consider any TANF-
    funded housing subsidy that is not short-term as ``assistance,'' 
    even if families are working and not receiving TANF cash benefits. 
    Any form of ``assistance,'' including a TANF-funded housing subsidy 
    provided for more than 4 months, counts against the family's 
    Federal lifetime TANF time limit and also triggers various data-
    gathering and reporting requirements, as well as the obligation of 
    families to assign their right to child support to the State. Thus, 
    ongoing receipt of rental subsidies by a poor family that has 
    worked its way off cash welfare benefits can threaten the family's 
    ability to receive cash assistance at a future point if the family 
    subsequently loses its job (perhaps in a recession) and falls on 
    hard times. TANF-funded supplemental housing benefits for families 
    not receiving cash welfare benefits should be categorized as 
    ``nonassistance'' to facilitate States' use of TANF funds to serve 
    working families. (At a minimum, States should have the option to 
    categorize such benefits as ``nonassistance.'')
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    \12\ Connecticut, Kentucky, Maryland, Michigan, Minnesota, New 
Jersey, North Carolina, Pennsylvania, Virginia, and the counties of 
Denver, Los Angeles, and San Mateo have committed TANF or State 
matching funds to provide housing assistance to low-income families for 
periods of 9 months or longer. See The Increasing Use of TANF and State 
Matching Funds to Provide Housing Assistance to Families Moving from 
Welfare to Work and the 2001 Supplement, available at: http://
www.cbpp.org/2-17-00hous.pdf and http://www.cbpp.org/12-3-01hous.htm.

 Allow States to determine what constitutes ``minor 
    rehabilitation'' costs payable with TANF funds. It is now 
    permissible to use TANF funds for ``minor rehabilitation'' but 
    there is no HHS guidance on what types or cost of repairs is 
    allowable, making it difficult for States to determine the extent 
    to which using TANF funds in this area is permissible. Several 
    States have recently allocated TANF funds to rehabilitate rental 
    housing for TANF-eligible families, focusing particularly on 
    mitigating lead paint hazards in housing with children under six 
    and on handicap accessibility. By allowing States to define what 
    constitutes ``minor rehabilitation,'' more States with similar 
    needs are likely to follow suit. (An alternative approach would be 
    to direct HHS and HUD to issue guidance on what constitutes ``minor 
---------------------------------------------------------------------------
    rehabilitation'' and is a permissible use of TANF funds.)

 Provide funds to HHS to conduct a joint HHS/HUD demonstration 
    project for families with multiple barriers to work that combines 
    housing assistance with 
    services. Such a project would explore the effectiveness of a 
    variety of models for combining housing with services for TANF 
    families that have multiple barriers to work, including homeless 
    families. A portion of the funds could be used for noncustodial 
    parents of children receiving TANF benefits, such as homeless 
    fathers or those recently released from prison. Funds could be used 
    to provide not only housing assistance, but also employment 
    services designed to increase parents' earnings and help support 
    their children. This is an important component of efforts to 
    determine the most effective strategies for the hardest-to-serve 
    families.

 Clarify that legal immigrant victims of domestic violence 
    eligible for TANF and other welfare-related benefits are also 
    eligible for housing benefits. This proposal would ensure that 
    abused immigrant women seeking protection under the 1994 Violence 
    Against Women Act (VAWA) that are eligible for other Federal 
    benefit programs also have access to Federal housing programs.

 Encourage States to consider housing needs in TANF planning 
    and implementation, and improve data collection on families' 
    housing status. States would identify whether families' living 
    arrangements (such as doubling up or homelessness), housing costs 
    and housing locations pose barriers to work as part of an effort to 
    address the primary housing-related problems experienced by TANF 
    families. To assist States in planning and implementing policies 
    that take into account families' housing situations, States need 
    better data on the housing status of families receiving TANF than 
    most States currently have, as well as on the location of places of 
    employment in relation to families' housing. This proposal also 
    would direct HHS to work with HUD to develop a procedure for 
    interagency data matching or other uniform data collection protocol 
    to determine the housing status of families receiving cash 
    benefits.

 Encourage cooperation among welfare agencies and agencies that 
    administer Federal housing subsidies. As a parallel to the current 
    requirement in Section 12(d)(7) of the U.S. Housing Act (42 U.S.C. 
    Sec. 1437j(d)(7)) that Public Housing Agencies (PHA's) seek to 
    enter into cooperation agreements with welfare agencies, this 
    provision would direct States to cooperate, directly or through 
    counties, with PHA's to promote the economic self-sufficiency of 
    public housing residents and voucher program participants that 
    currently or recently received TANF benefits. Some PHA's have 
    reported that despite their attempts to collaborate with welfare 
    agencies to improve services to families assisted by both agencies, 
    welfare agencies often did not respond to their overtures. Efforts 
    to spur more productive interagency collaboration could be helpful.

    For States to take full advantage of any enhanced flexibility to 
address the housing needs of families moving from Welfare to Work, they 
will need to have sufficient resources. The Administration has proposed 
freezing funding for the TANF block grant over the next 5 years, and it 
has also suggested imposing stringent new work requirements that would 
force States to devote substantially more resources to 
costly workfare programs. If States' resources get consumed by the 
costs of running workfare programs on a greatly expanded scale, they 
have less left to provide work supports, including housing assistance, 
for low-income working families that are no longer receiving cash 
assistance and are struggling to get by on low wages. Congress should 
be sure to provide additional funding for TANF above a freeze level (as 
well as resources needed to meet any additional work requirements), if 
it expects States to continue innovating and providing a wide range of 
work supports to ensure that families succeed in moving from Welfare to 
Work and then stay employed and off welfare.
Proposals to Revise Housing Programs to Support Working Families
    Senator Paul Sarbanes has circulated a draft bill entitled ``The 
Housing Voucher Improvement Act of 2002'' that contains several 
provisions designed to promote employment.\13\ The bill includes the 
following work-related provisions.
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    \13\ As the title of the bill implies, the primary role of the 
draft bill is to increase voucher utilization and success rates and 
enhance the mobility potential of housing vouchers, through provisions 
not discussed in this testimony. Such measures also are likely to 
promote employment among families with children.

 Authorization of Welfare to Work Vouchers. In the fiscal year 
    1999 VA-HUD Appropriations Act, Congress funded 50,000 Welfare to 
    Work vouchers for current and recent TANF recipients for whom the 
    lack of affordable housing or housing location is a barrier to 
    work. The program has never been authorized and new vouchers have 
    not been allocated beyond the initial 50,000. Experience with this 
    program suggests that such targeted housing assistance can benefit 
    families and provide positive incentives for interagency 
    collaboration. In addition to facilitating appropriations for 
    additional target end vouchers, the proposed program authorization 
    would give preference to receive the new vouchers to PHA's that 
    have committed their own resources to an interagency Welfare to 
    Work Program or that are collaborating with welfare or workforce 
    investment agencies in operating a State- or locally-funded 
    program. As a result, this provision would encourage PHA's to 
    allocate a portion of existing vouchers that become available 
    through turnover to families leaving welfare for work and also 
    would provide an incentive to States to allocate TANF or other 
    funds for this purpose. In addition, the provision would strengthen 
    requirements that PHA's, welfare and workforce investment agencies 
---------------------------------------------------------------------------
    collaborate in program implementation.

 Expansion of the Family Self-Sufficiency Program. The Family 
    Self-Sufficiency (FSS) Program is a HUD-administered employment and 
    savings incentive program for low-income families that have housing 
    vouchers or live in public housing. FSS promotes the goals of 
    welfare reform, but fewer than 1.5 percent of the families that 
    currently receive income from TANF and are potentially eligible for 
    FSS are participating in the program. The number of public housing 
    families enrolled in FSS is particularly low, only 7,000. In 
    addition, families living in units with project-based Section 8 
    subsidies are not eligible for FSS. This proposal would clarify 
    that HUD may provide funding for multiple FSS coordinators to PHA's 
    with large public housing FSS programs (as HUD now does for PHA's 
    with large voucher FSS programs), and amend the FSS statute to make 
    families with project-based Section 8 subsidies eligible. Many 
    nonprofit owners as well as some for-profit owners are interested 
    in offering this asset-building program to their tenants. But since 
    not every owner will choose to set up an FSS program, the statute 
    would be amended to allow families in project-based Section 8 
    housing to participate in a local PHA's Section 8 FSS program, at 
    the PHA's discretion. While these changes will have some cost, it 
    should be modest.

 Flexibility to Use Resident Opportunities and Self-Sufficiency 
    (ROSS) Funds to Serve Section 8 Families. ROSS is currently the 
    single largest HUD competitive grant program to promote the self-
    sufficiency of HUD-assisted tenants. ROSS funds, however, may not 
    be used to assist Section 8 families, despite the fact that more 
    than twice as many families with children live in housing assisted 
    under the tenant-based or project-based components of the Section 8 
    program as live in public housing. Until fiscal year 2001, grantees 
    under ROSS and its predecessor, the Economic Development and 
    Supportive Services (EDSS) Program, could choose to use up to one-
    fourth of their grant funds to serve Section 8 families. ROSS funds 
    now are restricted to use only for public housing tenants and 
    residents of housing assisted under the Native American Housing 
    Assistance and Self-Determination Act of 1996 (NAHASDA). HUD has 
    restricted the use of these funds pursuant to Section 34 of the 
    U.S. Housing Act, adopted as part of the Quality Housing and Work 
    Responsibility Act of 1998. (EDSS never had statutory 
    authorization.) Section 34 authorizes grants only to serve public 
    housing tenants and residents of housing assisted under NAHASDA. It 
    is not clear why Congress made this change, and it may have been 
    simply an oversight. This proposal would amend Section 34 to allow 
    ROSS grantees to serve Section 8 families.

 A Requirement that States and Counties, in Planning Areas to 
    Target for Housing Production Using Federal Housing Block Grant 
    Funds, Consider Parents' Access to Employment and Consult with 
    Social Service Agencies. Housing opportunities close to areas of 
    employment opportunities and public transportation are important to 
    enhancing the prospects of low-income people to find and to retain 
    employment. This provision would require that jurisdictions, in 
    awarding Federal housing block grant funds for housing development, 
    consider housing location in relation to employment opportunities 
    for current and recent TANF recipients. In addition, the provision 
    would require States and counties to solicit comments from agencies 
    that administer TANF and workforce development programs to inform 
    their housing planning, and to submit these agencies' comments and 
    their responses along with their proposed Consolidated Plans to 
    HUD.

 Authority to Receive Earmarked Grants from Other Sources to 
    Offset Rent Increases for Section 8 Families Due to Earnings and 
    for Working Spouses or Parents that Join Tenant Households. The 
    1998 housing law authorized a 2-year phased disregard of increases 
    in earnings in calculating rents for families that have vouchers or 
    live in units with project-based Section 8 subsidies and that 
    previously were unemployed or recently received TANF benefits. No 
    funds have been provided through the appropriations process for 
    this purpose, however, so this earnings disregard for Section 8 
    recipients has not been implemented. Only public housing residents 
    and disabled voucher tenants receive the benefit of the disregard 
    in calculating their rent. Similarly, if a working adult joins a 
    family, the family's rent is increased because all of the 
    additional income is counted. Just as the lack of an earnings 
    disregard for Section 8 families may be a disincentive to work, the 
    lack of any disregard of the income of a reuniting parent or spouse 
    may discourage family formation. This proposal would amend the U.S. 
    Housing Act to allow PHA's and owners administering project-based 
    Section 8 subsidies to receive other funds--including TANF funds--
    to provide an optional disregard for increases in earnings in 
    calculating the rent of Section 8 families. It also would create an 
    optional disregard of a household's increased earned income in 
    calculating rent of public housing or Section 8 tenants when 
    spouses or parents rejoin these households. PHA's and owners that 
    received funds from TANF or other public or private entities to 
    cover the costs of these disregards would be allowed to provide the 
    disregards.

Implications for HUD Appropriations
    Realizing positive results from these work-related amendments to 
the housing statutes generally will require additional appropriations. 
More funding for vouchers will be needed. (Note: A portion of 
incremental vouchers could be earmarked for use as Welfare to Work 
vouchers; it may make sense to set aside about a third of new vouchers 
for this purpose, which would ensure that other new vouchers are 
available for PHA's to serve elderly, homeless, or disabled individuals 
on their waiting lists, as well as working families without prior 
history of welfare receipt.) In addition, Congress should increase the 
amounts allotted for FSS coordinators within the overall appropriations 
for the public housing operating subsidy and the Section 8 Certificate 
Fund, and make any necessary adjustment in the total amounts 
appropriated for each of these accounts in anticipation of additional 
families participating in the escrow savings feature of the FSS 
program. The appropriation for ROSS, which has generally been a set-
aside within a larger account such as the Community Development Block 
Grant or the Public Housing Capital Fund, should be increased so 
services to public housing families are not reduced in order to serve 
Section 8 families. (In the last few years Congress has appropriated 
$55 million for ROSS.)
    Finally, fiscal year 2003 VA-HUD Appropriations Act should fund the 
already- 
authorized earnings disregard for Section 8 families. Public housing 
residents who were previously unemployed or recently received TANF 
benefits do not face an immediate rent increase when they go to work 
and increase their income. For a 2-year period, their increase in 
earnings is disregarded when their rent obligation is calculated. (In 
the second year, half the earnings increase is disregarded.) Congress 
authorized this earnings disregard for families that have vouchers or 
live in units with project-based Section 8 subsidies in QHWRA, but 
never funded it, despite the fact that 70 percent of families that 
receive both welfare and housing assistance are served by these housing 
programs rather than by public housing. The lack of an earnings 
disregard for these housing assistance recipients may weaken welfare 
reform efforts and also may diminish the impact of TANF-funded earnings 
disregards.\14\
---------------------------------------------------------------------------
    \14\ In a study of perceived barriers to work among public housing 
families, nearly half cited a rent increase as their major concern, 
more than were concerned about child care, safety, loss of other 
benefits or any other problem. Cynthia Miller and James A. Riccio, 
Making Work Pay for Public Housing Residents: Financial-Incentive 
Designs at Six Jobs-Plus Demonstration Sites, Manpower Demonstration 
Research Corporation, January 2002.
---------------------------------------------------------------------------
Should Work Requirements Be Imposed on Families Living in
Public or Section 8-Assisted Housing?
    Some may argue that rather than authorizing and funding these 
improvements in Federal housing programs to promote work, Congress 
should simply impose work requirements on assisted tenants. For the 
reasons explained below, a proposal imposing work requirements on 
assisted tenants would create administrative burdens far out of 
proportion to the gain to be achieved, as there are few able-bodied 
heads of households receiving housing assistance who are not already 
working or subject to work requirements in another program such as 
TANF. Furthermore, if the goal is actually to promote work rather than 
to terminate housing assistance to vulnerable families and 
individuals--some of whom may then slip into homelessness--the proposal 
would be quite costly to implement and would be likely to interfere 
significantly with effective implementation of other housing program 
requirements and goals.
    Based on HUD data from the fall of 2000, some 89 percent of the 
heads of households receiving HUD-funded housing assistance are either 
elderly, disabled, working or subject to work requirements under TANF. 
Many of the remaining 11 percent of HUD-assisted families with a 
nonelderly, nondisabled head of household who are neither working nor 
receiving TANF are likely to face severe barriers to work, such as poor 
physical and mental health, limited literacy or work experience, or a 
history of substance abuse or involvement in the criminal justice 
system. Overcoming these barriers will be neither easy nor cheap and 
will require comprehensive services skillfully delivered. Few housing 
agencies currently have the in-house expertise or existing partnerships 
with other service providers to help such individuals enter and remain 
in the workforce. To impose work requirements on such individuals 
without funding to provide the services they need would be ineffective. 
It also could cause many of them to become homeless. To require PHA's 
to divert already inadequate resources from housing maintenance, 
eligibility, and rent determination or other 
essential functions to enforce work requirements for this relatively 
small number of households would undermine the primary mission of the 
housing programs.
    Imposing work requirements on housing assistance recipients is 
impractical for another reason as well. The majority of the small 
fraction of such households who report having no current income live 
either in private units rented with the help of a Section 8 voucher or 
in a development that receives a Section 8 project-based subsidy. It is 
unlikely that Congress would, or legally could, impose obligations on 
private owners with existing project-based Section 8 contracts to 
administer work requirements. While Congress could require owners to 
agree to administer work requirements as a condition of renewing their 
project-based Section 8 contracts, such a requirement would likely 
discourage many owners from continuing to administer Section 8 
subsidies. Similarly, while Congress could impose the obligation to 
enforce work requirements on PHA's administering voucher programs, such 
requirements also would be likely to discourage owner participation. 
Assuming that work requirements would have to be enforced through 
reduction or termination of the housing subsidy, such requirements 
would put owners at risk of increased turnover in their units. 
Increased turnover imposes additional uncompensated maintenance and 
tenant selection costs and reduces rent payments while units are 
vacant. At a time when about 30 percent of households receiving new 
vouchers are unable to use them, imposing new Federal requirements that 
would further reduce owner participation in the voucher program would 
be counterproductive. This suggests that the current practice of 
imposing work requirements and the obligation to deliver work-related 
services through TANF and related programs, rather than expecting 
housing programs to take on this new role, is the appropriate course of 
action.

Family Formation Issues in the HUD-Assisted Housing Programs
    Perhaps to a greater extent than is true of other poor families, 
families with children in HUD-assisted housing tend to have only one 
parent in the home. It would often be better for children to live with 
both parents. There are certain Federal admissions and rent policies 
that discourage two-parent families in Federally-assisted housing. The 
two policy changes recommended below could increase the proportion of 
children in assisted housing that live with both parents (or a parent 
and spouse) without substantially interfering with other housing policy 
objectives.

 Reduce the Financial Disincentive to Having a Working Spouse 
    or Parent Join a Family in Federally-Assisted Housing. In Federal 
    housing programs, rent is generally based on income. If a 
    household's income increases, its rent increases as well. Tenants 
    generally pay at least 30 percent of their ``adjusted'' income for 
    rent. (Families in the voucher program may pay more.) There is no 
    ``adjustment'' to income for an additional adult in a household; 
    each adult's gross income is counted, with rare exceptions. 
    Currently, PHA's are permitted to adopt policies that disregard 
    income of public housing tenants in particular situations, but they 
    do not receive Federal reimbursement for the costs of such optional 
    disregard policies. No optional income disregards are permitted in 
    the Section 8 programs.
    These rent policies create a financial disincentive to add a 
    working parent or spouse to a tenant family. To reduce this 
    financial disincentive, Federal law could require a PHA or owner to 
    disregard some or all of the income of a newly admitted spouse or 
    parent for a limited period of time in determining the family's 
    rent. Alternatively, Federal law could make such a policy optional 
    in the Section 8 program like it now is in the public housing 
    program, and provide reimbursement to agencies for the additional 
    costs. It is possible that over time such a policy would increase 
    total household income and rent payments, and therefore would not 
    require additional Federal funding.

 Promote Sensible Policies on Exclusion of a Second Parent from 
    Federal Housing. To reduce the barriers to married and two-parent 
    families in Federally-assisted housing programs, Federal law could 
    be changed to alter how agencies review criminal history and 
    subsequent behavior, in order to balance safety concerns with 
    consideration of the best interests of the children. PHA's and 
    private owners that administer HUD subsidies are allowed to screen 
    out any applicants with a history of drug-related or violent 
    criminal activity or other nonviolent criminal activity that would 
    adversely affect other residents or employees, regardless of how 
    long ago the criminal activity occurred or the applicant's 
    subsequent behavior. Current Federal policy makes no distinction in 
    screening policies based on marital or parental status. If a spouse 
    or parent of the children was not part of the household when the 
    family initially received housing assistance, due to incarceration 
    or other reason, that spouse or parent is subject to the same 
    screening process as a new applicant if he or she seeks to join the 
    household. Given the substantial level of past involvement with the 
    criminal justice system among the poor, particularly among African-
    American males, this pro-safety policy has a broad exclusionary 
    effect. PHA's and private owners of HUD-assisted housing could be 
    directed to consider subsequent behavior, participation in formal 
    rehabilitation programs, and other evidence of mitigating 
    circumstances before deciding whether to admit or deny admission to 
    a spouse or parent of a current resident. (Such consideration is 
    now permitted but not required.) If, after this more thorough 
    screening process, a PHA or owner decides that a parent or spouse 
    seeking to join a tenant household would be likely to pose a risk 
    to other tenants or agency employees, it could and should deny 
    admission. The minor amount of additional work entailed is 
    appropriate to enable more children to live with two parents.

The Administration's ``Superwaiver'' Proposal is Not the Appropriate
Response to the Need for Better Coordination Between Welfare and
Housing Programs and May Reduce the Housing Resources Available to
Families Moving from Welfare to Work
    A final important issue concerning housing policy and welfare 
reform is raised by the ``superwaiver'' proposal in the 
Administration's welfare reauthorization plan. The ``superwaiver'' 
would constitute an unprecedented transfer of authority from Congress 
to the Executive Branch to establish funding priorities, set funding 
levels, and fix program parameters, and could diminish the housing 
resources available to families moving from Welfare to Work.
    The Administration's ``superwaiver'' proposal would grant sweeping 
authority to the Executive Branch to waive, at a governor's request, 
most provisions of authorization and appropriations laws related to a 
range of low-income and other domestic programs, including Federal 
housing and homeless programs.\15\ Executive Branch officials could 
override nearly all provisions of law governing how these programs 
operate. They also could override Congressional appropriations 
decisions by redirecting funds that Congress appropriated for one or 
more of these programs to other covered programs, including programs in 
other Federal departments. Of particular relevance to housing programs, 
Executive Branch officials could move Federal funds and program control 
from the local agencies or elected officials in whom Congress has 
invested such authority to the governors.
---------------------------------------------------------------------------
    \15\ Housing and homelessness programs are listed among the covered 
programs in the Administration's plan, but are not referenced in the 
versions of the superwaiver proposal included in comparison welfare 
reauthorization bills approved on April 18 by subcommittees of the 
House Ways and Means Committee and the House Education and the 
Workforce Committee. The 
programs included in the current House bills all fall under the 
jurisdictions of the two House subcommittees that have acted on the 
TANF reauthorization legislation. When the legislation moves to the 
House Rules Committee--where the Ways and Means Committee and the 
Education and the Workforce Committee bills will be combined and other 
changes can be made--programs outside the jurisdiction of these two 
committees are expected to be added.
---------------------------------------------------------------------------
    The potential inclusion of low-income housing programs under the 
superwaiver poses a thorny set of issues, since States generally do not 
operate the principal housing programs. Inclusion of these programs in 
the superwaiver thus could enable a governor to seek to gain control 
over Federal housing resources currently directed to local public 
housing authorities and to alter the uses of these funds. A State 
might, for example, seek to sell off a public housing project located 
in what has become prime real estate and use the proceeds from the sale 
to launch or expand homeownership assistance programs geared more 
toward moderate- or middle- 
income constituencies.
    Alternatively, a State could seek to take and redirect a portion of 
the resources used to support rental housing vouchers that are 
``turning over.'' (``Turn-over'' vouchers are vouchers that become 
available when a current voucher-holder leaves the program. Currently, 
when a voucher becomes available, the public housing authority reissues 
the voucher to a poor family or individual who has been on the local 
waiting list for a voucher.) A State could seek to take control of a 
portion of the resources that become available when vouchers turn over 
and to transfer these resources to programs providing employment- or 
marriage-related services. The State might seek to use the transferred 
resources to substitute for State funds being provided for such 
services. Or the State could seek to use some of these Federal housing 
resources to substitute for State funds being used for homeownership or 
rental assistance programs or for community-based residential services 
for severely disabled people. Other types of waivers involving the 
housing programs might entail overriding Federal statutory requirements 
that target a substantial majority of housing vouchers on families with 
incomes below 30 percent of the area median income (which is roughly 
equivalent to the poverty line) and shifting more of the vouchers to 
families at higher-income levels.
    A loss of public housing units, a reduction in the overall number 
of housing vouchers, or a shift in rental housing resources toward 
higher-income families would increase the shortage of affordable 
housing for families moving from Welfare to Work. In addition, the 
superwaiver proposal is not likely to be effective in accomplishing 
these modest goals, and threatens to disrupt the overall framework and 
local governance of housing programs and to diminish scarce housing 
resources available to poor families.
    This kind of far-reaching authority is not what is needed to 
improve the housing situation of families transitioning from Welfare to 
Work. Rather, what is suggested here are more modest changes in the 
TANF statute and in housing programs that can be accomplished through 
the Federal legislative process. These include incentives such as 
authorization of a new Welfare to Work Housing Voucher Program that 
would encourage housing and welfare agencies to collaborate in 
comprehensive efforts to assist families to get jobs and remain 
employed, in order to qualify for additional targeted Federal housing 
resources. Housing, welfare, and workforce agencies also would be 
encouraged to consult with each other in better-coordinated planning 
efforts at the State and local levels.



                  PREPARED STATEMENT OF ROBERT RECTOR
            Senior Research Fellow, The Heritage Foundation
                              May 1, 2002
Introduction
    Before I begin, let me first thank the Committee for the 
opportunity to speak 
before you today. While I serve as Senior Research Fellow on Welfare 
and Family Issues at The Heritage Foundation, I must stress that the 
views I express are 
entirely my own, and should not be construed as representing the 
position of The Heritage Foundation.
    The traditional War on Poverty was launched in the mid-1960's. War 
on Poverty Programs (cash and food and housing) focused on providing 
material support and largely ignored the behavioral causes behind 
poverty. The welfare reform of 1996 recognized that this old style 
welfare system had failed. The reform changed the nature of cash aid: 
In the future welfare would continue to provide material support but it 
would also seek to transform behavior in a positive way.
    To understand the lessons of welfare reform for assisted housing 
programs, six points are critical:

    1. The pre-reform Aid to Families with Dependent Children (AFDC) 
Program gave aid permissively and unconditionally. Those in need of aid 
were given material support and little was required of them.

    2. When the Temporary Assistance to Needy Families (TANF) Program 
replaced AFDC, aid became conditional: Recipients were required to 
undertake constructive activities leading to self-sufficiency as a 
condition of receiving assistance.

    3. Because of this change, welfare reform has resulted in 
unprecedented drops in dependency and child poverty.

    4. Public housing remains unreformed. Current housing programs are 
very similar to the old AFDC program. Some 87 percent of families with 
children receiving housing aid are single-parent families. Aid is given 
to able-bodied individuals unconditionally; there is no requirement 
that the recipient undertake constructive activities leading toward 
self-sufficiency and prosperity.

    5. Requiring able-bodied recipients to work or undertake 
constructive activities has been the key to the success of the TANF 
Program. The same principle should be applied to housing programs.

    6. Finally, marriage is critical to the well-being of children. 
Like all means-tested aid programs, assisted housing programs impose 
strong financial penalties on low-income parents who marry. This is a 
foolish policy: Such antimarriage penalties should be reduced.
Lessons from Welfare Reform
    Nearly 6 years ago, President Bill Clinton signed legislation 
overhauling part of the Nation's welfare system. The Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 
104 -193) replaced the failed social program known as Aid to Families 
with Dependent Children (AFDC) with a new program called Temporary 
Assistance to Needy Families (TANF). The reform legislation had three 
goals: (1) to reduce welfare dependence and increase employment; (2) to 
reduce child poverty; and (3) to reduce illegitimacy and strengthen 
marriage.
    At the time of its enactment, advocacy groups passionately 
denounced the welfare reform legislation, predicting that it would 
result in substantial increases in poverty, hunger, and other social 
ills. Contrary to these alarming forecasts, welfare 
reform has been effective in meeting each of its goals.

 While critics of welfare reform unanimously predicted that the 
    reform would throw at least one million additional children into 
    poverty, in fact, 2.3 million fewer children live in poverty today 
    than in 1996.

 Decreases in poverty have been greatest among black children. 
    Black child poverty has declined by a third and is now at the 
    lowest point in U.S. history.

 Poverty among single mothers has also been cut by a third and 
    is now at the 
    lowest point in U.S. history.

 The employment rate of single mothers has increased 
    dramatically. The employment rate of never-married mothers is up 
    nearly 50 percent. Employment among single mothers who are high 
    school dropouts is up by two-thirds, while employment among young 
    mothers (aged 18 to 24) has nearly doubled.

 Hunger among children has been almost cut in half. According 
    to the U.S. Department of Agriculture (USDA), there are nearly 2 
    million fewer hungry children today than at the time welfare reform 
    was enacted.

 Welfare caseloads have been cut nearly in half.

 The explosive growth of out-of-wedlock childbearing has come 
    to a virtual halt. The share of children living in single-mother 
    families has fallen, and the share living in married-couple 
    families has increased, especially among black families.

Who Gets Credit: Welfare Reform or the Economy?
    Some would argue that the positive effects noted above are the 
product of the robust economy during the 1990's, rather than the 
results of welfare reform. However, the evidence supporting an economic 
interpretation of these changes is not strong.
    Historically, periods of economic growth have not resulted in 
lower-welfare caseloads. From 1950 to 1990, there were eight periods of 
economic expansion, yet none of these periods of growth led to a 
significant drop in AFDC caseload. Indeed, during two previous economic 
expansions (the late 1960's and the early 1970's), the welfare caseload 
grew substantially. Only during the expansion of the 1990's does the 
caseload drop appreciably. How was the period of expansion during the 
1990's different from the eight prior expansions? Clearly, the answer 
is welfare reform.
    Another way to disentangle the effects of welfare policies and 
economic factors on declining caseloads is to examine the differences 
in State performance. The rate of caseload decline varies enormously 
among the 50 States. If improving economic conditions were the main 
factor driving caseloads down, then the variation in State reduction 
rates should be linked to variation in State economic conditions. On 
the other hand, if welfare polices are the key factor behind falling 
dependence, then the differences in reduction rates should be linked to 
specific State welfare policies.
    A Heritage Foundation paper, ``The Determinants of Welfare Caseload 
Decline'' examined the impact of economic factors and welfare policies 
on falling caseloads in the States.\1\ This analysis showed that 
differences in State welfare reform policies were highly successful in 
explaining the rapid rates of caseload decline. By contrast, the 
relative vigor of State economies, as measured by unemployment rates, 
changes in unemployment, or State job growth, had no statistically 
significant effect on caseload decline.
---------------------------------------------------------------------------
    \1\ Robert E. Rector and Sarah E. Youssef, ``The Determinants of 
Welfare Caseload Decline,'' The Heritage Foundation, Center for Data 
Analysis Report, CDA99-04 May 11, 1999.
---------------------------------------------------------------------------
    A recent paper by Dr. June O'Neill, former Director of the 
Congressional Budget Office, reaches similar conclusions.\2\ Dr. 
O'Neill examined changes in welfare caseload and employment from 1983 
to 1999. Her analysis shows that in the period after the enactment of 
welfare reform, policy changes accounted for roughly three-quarters of 
the increase in employment and decrease in dependence. By contrast, 
economic conditions explained only about one-quarter of the changes in 
employment and dependence. Substantial employment increases, in turn, 
have led to large drops in child poverty.
---------------------------------------------------------------------------
    \2\ June E. O'Neill and M. Anne Hill, ``Gaining Ground? Measuring 
the Impact of Welfare Reform on Welfare and Work,'' Manhattan Institute 
Civic Report, No. 17, July 2001.
---------------------------------------------------------------------------
    The economic boom of the 1980's was long and sustained, but did not 
result in substantial or enduring declines in poverty among single 
mothers or black children. But since the mid-1990's there has been a 
sustained and unprecedented drop in the poverty rates for these two 
groups. Clearly, the difference has been welfare reform.
    Overall, it is true that the health of the U.S. economy has been a 
positive background factor contributing to the changes in welfare 
dependence, employment, and poverty. It is very unlikely, for example, 
that dramatic drops in dependence and increases in employment would 
have occurred during a prolonged recession. However, it is also certain 
that good economic conditions alone would not have produced the 
striking changes that occurred in the late 1990's. It is only when 
welfare reform was coupled with a growing economy that these dramatic 
positive changes occurred.

Unfortunate Similarities Between Aid to Families with
Dependent Children and Subsidized Housing
    Prior to welfare reform, the old AFDC Program provided aid 
predominantly to single mothers with children. AFDC provided one way 
hand-outs: Recipients were not required to engage in any significant 
activities in order to receive aid. It was widely recognized that this 
system promoted idleness, single parenthood, and poverty. Consequently, 
the AFDC system was radically reformed and replaced with the new TANF 
Program. Under TANF, recipients would be required to engage in 
constructive activities aimed toward self-sufficiency as a condition of 
receiving aid. These activities could include: Supervised job search, 
training and community service work. As the new ``constructive 
activity'' requirement took effect, welfare caseloads plummeted, 
employment of single parent soared, and child poverty fell in an 
unprecedented manner.
    In many respects, current Government housing programs closely 
resemble the pre-reform Aid to Families with Dependent Children 
Program. Nearly half of the households in subsidized housing are 
families with children. Some 87 percent of the subsidized households 
with children are single-parent households. As with pre- 
reform AFDC system, aid is generally given as an unconditional, one-way 
handout; recipients are not required to engage constructive activities 
as a condition of receiving assistance.
    Thus, current housing programs replicate most of the elements that 
led to failure in the pre-reform AFDC system. Housing programs are 
permissive rather than expectant and demanding. Housing gives a ``hand 
out'' rather than a ``hand up''. In order to help recipients to help 
themselves the highly successful principles of the TANF reform should 
now be applied to subsidized housing.
Applying Work or Activity Requirements to Housing Programs
    The key to the success of welfare reform has been the establishment 
of work or activity requirements for TANF recipients. As recipients 
have worked more, their incomes have risen and more have escaped 
poverty.
    The lessons from TANF are applicable to public housing. While 
parents in subsidized housing do maintain higher levels of employment 
than parents in the pre-reform AFDC system, these employment levels are 
still far lower than they should be. The Census Bureau's Current 
Population Survey for 2000 indicates that 30 percent of householders 
with children receiving housing aid did not work at all during the 
course of the year. Over half worked less than 1,000 hours during the 
year. Overall, only a quarter of parents worked full-time through the 
year (2,000 hours). An important element in reducing poverty and 
increasing family income must be to increase the amount of work 
performed in these families.



    Applying the lessons from welfare reform, ``work requirements'' 
should be established in housing assistance programs. However, it is 
important to clarify here a common misunderstandings about work 
requirements in TANF. The TANF Program does not directly demand that 
recipients obtain formal employment in the private sector or 
government, and TANF does not penalize those who fail to obtain 
employment. Instead, the TANF Program encourages recipients to obtain 
employment; those recipients who claim they cannot find employment are 
required to undertake other constructive activities: Supervised job 
search, training, or community service. Once a recipient obtains real 
employment the other required activities are proportionally reduced.
    The impact of this system on employment is profound. Once 
recipients are 
required to be continuously active rather than idle, they have a strong 
incentive to obtain employment. The indirect result is a surge in 
actual employment and a drop in poverty.
    This principle should now be incorporated into housing programs. As 
a general rule, able bodied, nonelderly recipients in public housing 
and project-based Section 8 housing should be required to work a 
substantial number of hours per week. Recipients who are unable or 
otherwise fail to maintain the required level of formal employment 
should be required to participate in job training, supervised job 
search, or community service work. Those who are employed for only a 
few hours each week should supplement their employment with 
participation in these other constructive activities. Participation in 
work activities under the Temporary Assistance to Needy Families (TANF) 
Program should be countable toward the housing work requirements and 
the TANF and housing work programs should be closely coordinated.

Specific Work Promotion Policies in Subsidized Housing
    However, housing programs are often more decentralized than TANF. 
Also, it is not desirable to evict housing tenants every time a 
shortfall in an activity requirement occurs. These differences mean 
that the rule of ``requiring employment or constructive activities'' 
will need to be applied somewhat more flexibly in housing than is TANF. 
With this caveat in mind, the following requirements should be 
established for able-bodied, nonelderly recipients in Section 8 and 
public housing.

 In selecting new able-bodied, nonelderly heads of household 
    for entry into the Section 8 and public housing programs, priority 
    should be given to those with the best record of prior employment. 
    Specifically, within those income ranges currently selected for 
    participation in the housing programs, priority should be given to 
    those able-bodied applicants that have the strongest record of 
    prior employment. This rule would mean that housing programs, in 
    general, would reward work. (The requirement would apply to able-
    bodied, nonelderly applicants only; disabled and elderly 
    individuals should be exempt from this requirement and should not 
    have their participation in housing programs reduced because the 
    new work requirement.)

 Able-bodied nonelderly heads of household who reside in 
    Section 8 and public housing should be required to engage in 
    employment, supervised job search, training or community service 
    work for a minimum of 35 hours per week. The various activities 
    could be combined to meet the 35-hour requirement. Recipient who 
    had been employed and then lost employment would be expected to 
    immediately engage in supervised job search, training, or community 
    service; this would create a strong impetus to regain employment as 
    soon as possible.

 When undergoing annual recertification, residence by current 
    tenants should not be automatically extended. Instead, able-bodied, 
    nonelderly heads of household should be placed in a selection pool 
    along with similar new applicants. Priority in selecting residents 
    for the next year from within this pool should be given to those 
    applicants with the best record of employment and/or other 
    constructive activity. It is important to note that this system 
    would not penalize those cannot find formal employment since they 
    would be given credit for performing other 
    constructive activity. The system would, however, send the very 
    strong message 
    that idleness would not be tolerated for able-bodied individuals 
    within assisted housing.

 These requirements would result in an increase in employment 
    among public housing and Section 8 tenants. This, in turn, would 
    result in an increase in rents paid and decrease in costs to the 
    Public Housing Authority. The PHA's could use the surplus funds 
    generated by the increase in rents to pay for ancillary services 
    such as day care.

 PHA's could contract with other organizations such as local 
    TANF offices to help in the implementation of these work rules.

 These work rules should be implemented incrementally; the 
    onset of implementation could be delayed until fiscal year 2004 
    when the current recession will have fully passed.

Subsidized Housing and Marriage
    A second important goal of welfare reform is to increase healthy 
and stable marriages. Today, nearly one third of all American children 
are born outside marriage, one child every 35 seconds. The collapse of 
marriage is the principal cause of child poverty and a host of other 
social ills. A child raised by a never-married mother is seven times 
more likely to live in poverty than a child raised by his biological 
parents in an intact marriage. And a child born and raised out-of-
wedlock is 1700 percent more likely to become dependent on welfare than 
is a child raised by an intact married couple. Overall, nearly 80 
percent of long-term child poverty occurs among children from never-
married or broken families.
    Children of never-married mothers are 24 to 78 percent more likely 
to suffer from emotional and behavioral problems when compared to 
children from two parent families. Children in single-parent homes are 
more likely to abuse drugs and more likely to end up in jail; they 
perform more poorly in reading, spelling, and math are more likely to 
repeat grades and eventually to dropout of school. Finally, children 
living with nonmarried mothers are up to 33 times more likely to suffer 
from serious physical child abuse than are children with a married 
mother and father.
    The growth of single-parent families has an enormous impact on 
Government. Indeed, the modern welfare state, as it relates to 
children, has grown up largely as a support system for single 
parenthood. At present Federal and State governments spend some $150 
billion per year in means-tested aid for single-parent families. In 
subsidized housing, some 87 percent of the aid to families with 
children goes to single-parent families.
    But the collapse of marriage is not inevitable. In nearly half of 
all out-of-wedlock births, the mother is actually cohabiting with the 
father at the time of birth. In 
another 30 percent of cases the mother is romantically involved with 
the father 
although they do not live together. These nonmarried fathers, on the 
average, earn around $17,000 per year; very few have drug or alcohol 
problems or they are abusers. In most cases, the couples look favorably 
on marriage as an institution. Yet, in general, these couples will not 
enter into marriage and will not sustain their relationships.
How Welfare and Housing Programs Discriminate Against Marriage
    In many respects, the failure of millions of low-income couples to 
enter and sustain marriages is a result of the barriers that the 
welfare system erects against marriage. Marriage has eroded and out-of-
wedlock childbearing has soared, in part, because subsidized housing, 
Temporary Assistance to Needy Families (TANF), Food Stamps, Medicaid, 
and other means-tested welfare programs discriminate against and 
penalize marriage.
    Penalties against marriage are inherent in the structure of all 
means-tested aid programs. In these programs, benefits are 
incrementally reduced as a recipient's earnings increase; this is 
generally termed the benefit reduction or marginal tax rate on 
earnings. (For example with a benefit reduction rate of 50 percent, a 
beneficiary might be given $5,000 in aid if annual earnings are zero, 
$2,500 in aid if earnings are $5,000, and no aid if earnings are 
$10,000.)
    While it is widely recognized that this type of means-tested 
program discourages work, it is less commonly understood that means-
tested aid also discourages marriage and rewards single parenthood. 
Subsidized housing and other means-tested welfare programs penalize 
marriage because a single mother will suffer a substantial reduction or 
even elimination of benefits whenever she marries an employed male. 
However, if the couple remains unmarried, the father's earnings will 
generally not be counted in determining the mother's welfare benefits 
and the value of those benefits will not be cut. As a result, low-
income couples can maximize their combined income by remaining 
unmarried, but will suffer a serious income loss from marrying.
    In the case of subsidized housing, the typical single mother 
receives a subsidy worth about $5,000 per year; if she marries (or 
cohabits with) a male with earnings, the value of the rent subsidy will 
be reduced. The more the male earns the greater the loss of housing 
aid. If the mother marries a male with earnings around $18,000 per year 
(a typical sum for unmarried fathers), the housing subsidy will be 
completely eliminated. Thus, in general, low-income couples can 
maximize their welfare income by remaining unmarried.
    The antimarriage incentives implicit in subsidized housing programs 
are intensified by the fact that most recipients receive aid from more 
than one means-tested program. Each individual means-tested program 
(such as TANF, Food Stamps, Housing, or Medicaid) contains its own 
antimarriage incentives; these incentives are additive and become very 
severe when multiple programs operate together.
    For example: The typical single mother on Temporary Assistance to 
Needy Families receives a combined welfare package of various means-
tested aid benefits worth about $14,000 per year. Suppose this typical 
single mother receives welfare benefits worth $14,000 per year while 
the father of her children has a low-wage job paying $18,000 per year. 
If the mother and the father remain unmarried, they will have a 
combined income of $32,000 ($14,000 from welfare and $18,000 from 
earnings.) However, if the couple marry and live together, the father's 
earnings will be counted against the mother's welfare eligibility. 
Overall, welfare benefits will be nearly eliminated and the couple's 
combined income will fall substantially.
    The public is dismayed by the antimarriage bias of welfare 
programs. A 1999 Roper poll found that 56 percent of national adults 
found that ``welfare programs that encourage single-parent families and 
teenage pregnancy'' were a ``very serious'' problem. Another 27 percent 
found this a ``somewhat serious'' problem. Only 4 percent concluded 
that the problem was ``not serious at all.''
    Public housing officials should recognize that the existing bias 
against marriage has extremely harmful long-term consequences for 
children and society. The penalties against marriage implicit in 
current housing programs should be substantially reduced. This could be 
accomplished by altering the treatment of husbands' earnings in 
determining rents and eligibility. Housing program rules for married 
couples with children could be altered so that the first $1,000 in a 
husband's earnings each month would be ignored or ``disregarded'' in 
determining the married couple's eligibility for subsidized housing, 
and the couple's monthly rent payment. Under this system, a single 
mother could marry without incurring an overwhelming cut in her housing 
subsidy.

Conclusion
    It is widely recognized within both political parties that the 1996 
welfare reform has been highly successful. But Government housing 
programs have not been reformed. These programs continue to operate in 
the same manner as the pre-reform Aid to Families with Dependent 
Children Program. In current housing programs, able-bodied individuals 
are given benefits, but are not required to work or to undertake 
activities aimed at self-sufficiency. This nondemanding and permissive 
system is harmful to recipients and to society.
    Government housing programs should be restructured according to the 
current principles of welfare reform. First, able-bodied recipients 
should be required to be fully employed or to undertake activities 
leading to employment. Second, healthy marriage should be encouraged 
not penalized.
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