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



                                                       S. Hrg. 107- 981


           AFFORDABLE HOUSING PRODUCTION AND WORKING FAMILIES

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

                                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 AFFORDABLE HOUSING NEEDS OF WORKING FAMILIES AND THE STATE OF THE 
  NATION'S HOUSING SUPPLY FOR BOTH RENTERS AND PROSPECTIVE HOMEBUYERS

                               __________

                     MAY 15 AND SEPTEMBER 25, 2002

                               __________

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



89-139              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  PAUL S. SARBANES, Maryland, Chairman

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

           Steven B. Harris, Staff Director and Chief Counsel

             Wayne A. Abernathy, Republican Staff Director

                  Martin J. Gruenberg, Senior Counsel

   Joseph R. Kolinski, Chief Clerk and Computer Systems 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

           Sherry E. Little, Republican Legislative Assistant

                 Mark A. Calabria, Republican Economist

                                  (ii)


                            C O N T E N T S

                              ----------                              

                              MAY 15, 2002

                                                                   Page

Opening statement of Senator Reed................................     1
    Prepared statement...........................................    28

Opening statements, comments, or prepared statements of:
    Senator Sarbanes.............................................     3
    Senator Allard...............................................     7
    Senator Corzine..............................................     7
        Prepared statement.......................................    28
    Senator Carper...............................................    21

                               WITNESSES

John F. Kerry, a U.S. Senator from the State of Massachusetts....     4
    Prepared statement...........................................    29
Robert J. Reid, Executive Director, National Housing Conference..     9
    Prepared statement...........................................    31
JoAnn Kane, President and Chief Executive Officer, McAuley 
  Institute......................................................    11
    Prepared statement...........................................    37
David W. Curtis, Chairman, Housing Finance Committee, National 
  Association of Home Builders; Executive Vice President, Leon N. 
  Weiner & Associates, Inc.......................................    13
    Prepared statement...........................................    42
Sheila Crowley, President, National Low Income Housing Coalition.    14
    Prepared statement...........................................    48
Emmanuel Lane, A Working Parent--Resident of Sharing and Caring 
  Hands, Minneapolis, Minnesota..................................    51

              Additional Material Supplied for the Record

National Housing Trust Fund List of Endorsements, submitted by 
  Sheila Crowley, President, National Low Income Housing 
  Coalition......................................................    53
Letter from Theodore Cardinal McCarrick, U.S. Conference of 
  Catholic Bishops, dated April 18, 2002, submitted by Sheila 
  Crowley, President, National Low Income Housing Coalition......    91
Actuarial Review of MMI Fund as of Fiscal Year 2001, by Deloitte 
  & Touche, submitted by Sheila Crowley, President, National Low 
  Income Housing Coalition.......................................    93

                              ----------                              

                           SEPTEMBER 25, 2002

Opening statement of Senator Reed................................   103

Opening statement of Senator Sarbanes............................   104

                               WITNESSES

Christopher S. Bond, a U.S. Senator from the State of Missouri...   105
    Prepared statement...........................................   123
John Edwards, a U.S. Senator from the State of North Carolina....   108
    Prepared statement...........................................   126
Thomas M. Menino, Mayor, City of Boston, Massachusetts; 
  President, U.S. Conference of Mayors...........................   111
    Prepared statement...........................................   128
Richard H. Godfrey, Jr., Executive Director, Rhode Island Housing 
  and Mortgage Finance Corporation; Secretary & Member, Board of 
  Directors, National Council of State Housing Agencies..........   114
    Prepared statement...........................................   130
William (Bill) Picotte, President, Housing Assistance Council; 
  Executive Director, Oti Kaga, Inc., Cheyenne River Sioux 
  Reservation....................................................   116
    Prepared statement...........................................   134

              Additional Material Supplied for the Record

The U.S. Conference of Mayors, Recommendations from the Mayors 
  National Housing Forum, dated May 20-22, 2002, submitted by 
  Thomas M. Menino, Mayor, Boston, Massachusetts; President, U.S. 
  Conference of Mayors...........................................   138
Testimony of Saul N. Ramirez, Jr., Executive Director, National 
  Association of Housing and Redevelopment Officials.............   142
Testimony of Robert A. Rapoza, Executive Secretary, National 
  Rural Housing Coalition........................................   144
Letter to Senator Jack Reed from Robert J. Reid, Executive 
  Director, National Housing Conference, dated September 25, 2002   150

 
           AFFORDABLE HOUSING PRODUCTION AND WORKING FAMILIES

                              ----------                              


                        WEDNESDAY, MAY 15, 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. The Subcommittee will come to order.
    Good afternoon. I would like to welcome everyone to today's 
Subcommittee hearing on affordable housing production and 
working families.
    One out of every seven American families spends more than 
half of their total income on housing, or lives in a severely 
inadequate unit. Although the number of families with critical 
housing needs held more or less steady between 1997 and 1999, 
the number of working families with critical housing needs grew 
from 3 million to 3.9 million. About 80 percent of these 3.9 
million families paid more than half of their income for 
housing. The other 20 percent lived in severely inadequate 
housing.
    The Center for Housing Policy has found that when it comes 
to rental housing, a janitor can only rent a one-bedroom 
apartment on 30 percent of his income in six out of 60 
metropolitan areas, while retail salespeople can afford a one-
bedroom apartment in only three out of 60 metropolitan areas. 
For two-bedroom apartments, the situation is even worse. The 
same problem exists for teachers, police officers, and licensed 
practical nurses in too many high-cost metropolitan areas.
    Recently, in an article in The Washington Post, reporter 
Peter Whoriskey pointed out that the rapid escalation of 
housing prices in the Washington area has largely been caused 
by a huge increase in employment opportunities without a 
similar increase in the number of new dwellings. For example, 
the number of jobs in Fairfax County during the 1990's 
increased three times as fast as the supply of homes--roughly 
166,000 new jobs compared with 56,000 new units of housing.
    Simply put, in too many places across America, there aren't 
enough homes for the number of families who need them.
    In preparing for this hearing, we heard about a family that 
has been living in a Fairfax County homeless shelter. The 
family has a mom and dad and two children, a boy and a girl. 
The mom has worked for the Department of Veteran's Affairs for 
9 years and makes over twice the minimum wage. The dad held a 
seasonal job with Fairfax County until the job ended. They were 
living in a townhouse in Alexandria, Virginia, that cost $950 a 
month, until the dad lost his job. He now has found work at a 
local military installation as a chef and the family is trying 
to find a new home. However, because of the age of their 
children, they are being told that, in Virginia, this means 
that they have to rent a three-bedroom apartment. This family 
is playing by the rules, but they still haven't been able to 
find housing and have been looking since early January.
    However, critical housing needs are not just concentrated 
in urban areas. Only 1.6 million of those with critical housing 
needs live in central cities. Another 1.5 million live in the 
suburbs and about 660,000 families live in non-metropolitan 
areas.
    In many cases, working families have the worst of both 
worlds. They have too much income to qualify for the limited 
housing assistance available, but too little to benefit from 
the favorable tax treatment given to homeowners. For too many, 
a job does not guarantee a family a decent place to live at an 
affordable cost.
    Thus, it is our hope today that by holding this hearing of 
the Senate Banking Committee's Subcommittee on Housing and 
Transportation that we can learn more about the affordable 
housing crisis that is affecting many working families in and 
around the country and come up with some solutions that might 
help mitigate these problems.
    Let me give a brief overview of the hearing before I 
recognize the Chairman of the Committee, Senator Sarbanes.
    Today, we will hear from three panels. The first panel will 
consist of my colleague, Senator John Kerry, the former 
Chairman of this Subcommittee and one of the great advocates 
for housing policy in the United States and a great champion on 
these issues.
    In our second panel, we will hear from Mr. Emmanuel Lane, a 
resident of Sharing and Caring Hands in Minneapolis, Minnesota. 
Mr. Lane participated in our hearing in Minneapolis with 
Senator Wellstone and he too has a story of working hard, but 
still not being able to find appropriate housing for his 
family.
    Finally, on panel three, we will be hearing from: Mr. 
Robert J. Reid, Executive Director, National Housing 
Conference; Ms. Sheila Crowley, President of the National Low 
Income Housing Coalition; Ms. JoAnn Kane, President and Chief 
Executive Officer of McAuley Institute; and Mr. David Curtis, 
Chairman, Housing Finance Committee of the National Association 
of Home Builders.
    Each of our witnesses has been asked to comment on the 
affordable housing needs of working families; the State of the 
Nation's housing supply for both renters and prospective low-
income homebuyers; and to highlight any proposals that should 
be considered as part of the legislation to increase the 
production of affordable housing for working families.
    Before we begin, I would also like to thank each of the 
witnesses for their written testimony, which will be shared 
with all Members of the Committee, and ask that our witnesses 
try to adhere to a 5-minute limit.
    Let me recognize the Chairman of the Banking Committee, 
Senator Sarbanes.
    Mr. Chairman.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Chairman Reed. I 
apologize at the outset to the witnesses because I am, 
regrettably, not going to be able to stay. But, obviously, I 
will read the testimony with great care.
    Mr. Chairman, I wanted to come, at the outset at least, to 
thank you for holding this hearing on the very important 
subject of affordable housing production and working families.
    This is but the latest in a series of hearings on the 
issues of housing and transportation that you have held as 
Chairman of this Subcommittee since taking over in the middle 
of last year. I very much appreciate the obvious effort and 
thoughtfulness that you and your staff have put into this 
endeavor.
    Today's hearing is a logical outgrowth of the full 
Committee hearings we have held since late last year on the 
issue of the HUD budget and housing needs. Throughout these 
hearings, we have heard again and again there is a shortage of 
decent, affordable housing in stable neighborhoods.
    The National Housing Conference, whose Executive Director, 
Robert Reid, and the National Low Income Housing Coalition, 
whose President, Sheila Crowley, will both be testifying later, 
have done studies highlighting this problem specifically among 
working families. And we see that for many Americans, the 
problems are getting worse.
    Obviously, there are a number of steps that must be taken 
to address this problem. I am working on legislation to help 
make vouchers more effective. Many families today cannot make 
use of their vouchers and turn them back in. This is 
administratively inefficient and highly discouraging and I am 
hopeful that we can put together a Voucher Improvement Act 
which will help to deal with this problem.
    But vouchers alone are not enough. In many markets across 
the country, we need more affordable housing, particularly for 
extremely low-income families, many of whom constitute the 
working poor. Indeed, affordable housing is an absolute 
necessity if we are going to move people not just off welfare 
and into work, but also out of poverty.
    In this regard, I want to especially recognize the work of 
our colleague, Senator John Kerry, who, as you pointed out, was 
on this Subcommittee for a number of years. Senator Kerry has 
authored the National Affordable Housing Trust Fund Act, 
legislation that is designed to get us back into the business 
of building affordable housing in a significant way. And as a 
Member of the Finance Committee, Senator Kerry has continued 
his efforts by trying to link welfare to housing more closely, 
an effort which many of us support.
    So, John, I want to thank you for the initiatives you are 
taking.
    Finally, Mr. Chairman, I also want to say a word about 
JoAnn Kane, who is on your last panel, who has served as 
President and Chief Executive Officer of the McAuley Institute 
since 1984.
    The Institute is located in my State, in Montgomery County, 
and JoAnn Kane brings 28 years of field experience and an 
extensive knowledge of housing and neighborhood development 
lending to her position.
    Under her direction, the McAuley Institute provides 
technical information and training, lending and financial 
services to over 100 nonprofit organizations and resident 
lenders annually. And during her 17-year tenure, McAuley has 
provided services to nearly 2,000 nonprofit housing development 
projects across the country. It is a record to be proud of and 
I am delighted that she will be on your concluding panel here 
this afternoon.
    Thank you very much.
    Senator Reed. Thank you very much, Chairman Sarbanes.
    Now, I would like to recognize our colleague from 
Massachusetts, Senator John Kerry. Senator Kerry has been a 
distinguished public servant and patriot, beginning as a naval 
officer in Vietnam and continuing as a State officeholder in 
Massachusetts. And now, as a Senator from Massachusetts, he 
brings a special passion and expertise to the area of housing 
policy. We welcome his testimony.
    Senator Kerry.

                   STATEMENT OF JOHN F. KERRY

         A U.S. SENATOR FROM THE STATE OF MASSACHUSETTS

    Senator Kerry. Mr. Chairman, thank you very much for the 
privilege of testifying before the Subcommittee, and thank you 
for holding this hearing. I am thrilled that you are the 
Chairman of this Subcommittee now because I know of your own 
deep commitment and understanding of the issue, and I think we 
could not be in stronger hands in trying to move the agenda 
forward.
    I thank the Chairman, Senator Sarbanes, and Jonathan 
Miller, for carrying me for all those years.
    I would just ask consent that my full text be placed in the 
record.
    Senator Reed. Without objection.
    Senator Kerry. Mr. Chairman, there is just no way to 
overstate the seriousness of this issue now and the way in 
which it is growing in its importance to the country.
    I know there is an attitude among some of our colleagues 
that they say, jeez, housing--most people kind of sweat it out. 
People have to travel. That is the American way. You get on the 
subway. You do what you do. You struggle, and families work 
their way upward. It is sort of the upwardly mobile route.
    There are a lot of people who have a completely laissez 
faire market-oriented approach to this, that the market's going 
to take care of it, you will earn more income, and one day, you 
will buy a nice house. And therefore, they say the Government 
really has no role to play.
    I think September 11 reminded us, did not teach us, but it 
reminded us of an important concept. Which is that there are 
some things that only the Government can do.
    That is just the nature of the beast.
    It happens that affordable, low-income housing is one of 
those. The reason is the market cannot take care of it. It just 
doesn't take care of it because all of the market instincts 
move away from building something that people cannot afford to 
buy. That is just a law of the marketplace. That is why years 
ago, we designed subsidy, low-interest loan, no-interest loan, 
grants, various programs to make up for the lack of response 
from the market.
    As far back as Roosevelt, the country decided that shelter, 
that affordable housing was a national priority. Why? Not 
because of some do-gooder, moral interventionist attitude, but 
because it makes sense for all of us.
    Kids who do not have housing are kids who are on their way 
to delinquency, to learning disorders, to chronic unemployment. 
They are going to be the problem children of a community. And 
if our communities want to build the fabric of family values, 
about which we hear so many speeches, you have to understand 
the connection of housing to education, to nutrition, to health 
care, to stability, to a whole series of values that we think 
are important in the United States of America.
    The fact is that we are going backward in this country 
today. The U.S. Government for the last 15 years or so has 
pulled back from an involvement in the creation of housing. And 
we have learned lessons. People who think that housing means 
those terrible old cinder block, brick warehouse, sky-rise, 
without a tree around them, boxes that just housed human 
beings.
    We have learned--that is not what people are talking about 
today. We have learned the concept of ownership. We have 
learned the concept of mixed housing. We have learned how to 
blend environments, how to deal with jobs, and all the kinds of 
other ingredients that make it work.
    But the fact is that we have about five million American 
households now living in what we consider to be worst-case 
housing needs. Since 1990, the number of families in the worst-
case have increased by 12 percent. That is 600,000 more 
American families that cannot afford a decent place to live.
    We have actually declined in the available stock of 
affordable housing because we went down by about 900,000 units. 
And from 1996 to 1998, there was a 19 percent decline in the 
number of affordable housing units. So that is a dramatic 
reduction of 1.3 million affordable housing units.
    As everybody knows, there is an increased pressure in 
communities all across the country for housing. Teachers, 
janitors, social workers, police officers, and other full-time 
workers are having enormous trouble finding an affordable, even 
modest two-bedroom apartment in any major city across the 
Nation.
    Increasingly, people cannot live where they work, or near 
where they work, even. You have people spending an hour and a 
half, 2 hours commuting, both ways, and they get home and they 
are very frazzled and they are supposed to take care of the 
family and take care of other kinds of things, including civic 
responsibility.
    We now know that a lot of current affordable housing 
providers are deciding to opt-out of Section 8, and that is 
going to further limit affordable housing. We have more than 
40,000 to 60,000 units of existing Section 8 housing that could 
be converted to market-rate apartments or condos. Within the 
city of Boston, Mr. Chairman, more than 16,000 of the 22,000 
Section 8 units are eligible for conversion.
    We have decreased Federal spending on critical housing 
programs such as the Public Housing Capital Fund, the Elderly 
Housing, the Public Housing Drug Elimination Grants, and so 
forth. If we had reserved just 1 year's tax cut for the 
wealthiest 1 percent of Americans, we could have taken care of 
every single public housing capital backlog that we face today.
    These are the choices.
    Mr. Chairman, what I am trying to offer is an ongoing, 
funded, stream of revenue. Let's be honest with each other, and 
I will try to wrap it up quickly, we all know that we are not 
going to have a whole lot of money. Nobody believes we are 
going to kind of cut a deal on a zero-sum game. We are going to 
take money out of X or Y to put it into this.
    We do not have enough constituency. I understand that 
reality. But surely, Mr. Chairman, those people who buy homes, 
who are currently contributing--I am talking about affordable 
homes, under the FHA program--who are currently contributing as 
we make a risk-based assessment on what the insurance cost may 
be, which is completely competitive with the rest of the 
marketplace now because Secretary Cuomo lowered the rate.
    We have a $26 billion fund, according to Deloitte & Touche, 
which we could use to create housing. And I would ask the 
Members of this Committee, what better way to do housing than 
to have housing itself which produces the surplus, produce 
further housing?
    I know the Ranking Member and others have asked, if these 
people are paying that excess, maybe they should get it back or 
something. Well, you have to find the revenue somewhere. They 
are not being gouged. It is a competitive rate. And if in their 
accession to the American Dream of getting a home, a fair 
payment happens to result on a risk-based analysis in a 
surplus, that surplus should go back into housing.
    It is a very simple concept. And I simply ask my 
colleagues--if they are not going to do it from there, where 
are they going to do it from? How are we going to address this 
need so that we have less families in extreme circumstances 
than we do today, so kids can have stable homes, schools can 
have stable school districts.
    Ask any teacher about the difficulties of 10 kids who are 
in a classroom one day and they are gone several weeks later 
and they are replaced by 10 more kids. And you try to bring 
that classroom together.
    This is an education issue. It is a health care issue. It 
is an equity issue. It is a stability in our communities issue. 
It is a race issue. It is a fairness issue. We should find a 
way to fund it. And I hope this Committee will do that.
    Thank you, Mr. Chairman.
    Senator Reed. Thank you very much, Senator Kerry.
    Senator Allard and Senator Corzine have joined us. I 
wonder, Senator Kerry, do you have time for questions?
    Senator Kerry. Sure. I can stay.
    Senator Reed. Senator Allard, do you want to give your 
opening statement?
    Senator Allard. Mr. Chairman, just a brief statement.
    Senator Reed. Senator Allard.

                COMMENTS OF SENATOR WAYNE ALLARD

    Senator Allard. First of all, I want to thank you for 
holding this hearing. I appreciate the opportunity to learn 
more about the affordable housing issue.
    Many of us realize that there is an affordable housing 
problem out there. I hope that in this hearing we do not focus 
so much on the fact that there is a problem, but on the 
solutions to this problem. That might vary a little bit 
depending on the States that we represent. The definition of 
affordable housing may vary a little bit depending on the 
community which you come from.
    Now, I am particularly interested in learning how we can 
make it easier for the private market to provide affordable 
housing, how we can preserve the existing stock of affordable 
housing, what incentives we can provide for nonprofits, and how 
we can reduce the red tape that is driving up the cost of 
housing. I think this is a local, State, and Federal 
partnership.
    How can we get more power to the State and local levels? 
Our line-up of witnesses has knowledge of many aspects of 
affordable housing. I am hopeful that they will be able to 
offer proposals to preserve and increase the supply of 
affordable housing throughout this great country.
    Again, I would like to thank all of the witnesses for being 
here to testify. It is not easy to come to Washington to share 
your views and thoughts with us, but we do appreciate it.
    Thank you, Mr. Chairman.
    Senator Reed. Thank you, Senator Allard.
    Senator Corzine, do you have a statement?

               COMMENTS OF SENATOR JON S. CORZINE

    Senator Corzine. Thank you, Mr. Chairman. I have a formal 
statement I would include in the record.
    Senator Reed. Without objection.
    Senator Corzine. I want to compliment you on having this 
hearing and I particularly want to compliment Senator Kerry for 
his views on the National Affordable Housing Trust Fund.
    This is a serious issue, the shortfall of affordable 
housing. I think New Jersey is probably a lot like 
Massachusetts in the number of people who are left out of 
affordable housing, that decline that you talked about in 
affordable housing and the 12 percent increase in demand shows 
up readily in my State. It is also showing up in the budget of 
the State of New Jersey because the lack of affordable housing 
means that temporary housing is being financed for many 
homeless at as much as $2,000 a month per family in motel 
rooms. It is a serious problem in this transitioning of 
families from Welfare to Work.
    I do not think we have a more silent but serious problem in 
this society than this particular issue. We need to get those 
resources that I think are being supported in part by the kind 
of Government programs of subsidization for people who can 
afford housing. We have to use those resources, I think, to 
make sure that those who are left out, have a chance to go. And 
so, I compliment Senator Kerry on the issue.
    Thank you.
    Senator Reed. Thank you, Senator Corzine.
    Let me note that there is a vote in progress now, 
approximately 7 or 8 minutes left to table the Lieberman 
Amendment. What I would suggest is perhaps one question apiece, 
if you want it.
    Senator Allard. I have no questions, Mr. Chairman.
    Senator Reed. I have one question, and at the conclusion, 
we will recess briefly, we will vote, come back, and have the 
second panel.
    First, let me commend you, John, for your eloquence and 
your passion on this issue, and for your leadership again. You 
preempted my line of questioning by talking about objections to 
using the FHA fund. I, frankly, as a cosponsor and a strong 
supporter, think it is a reasonable place to go. But might you 
elaborate on some arguments that it is not available for use, 
that the FHA fund is not available, or any other thoughts that 
you have on using the FHA fund.
    Senator Kerry. Mr. Chairman, thank you very much.
    Mr. Chairman, it is really a constructed argument. For 
years, guess where the money was going? Straight into the 
general treasury. Nobody even raised an issue about it. It 
wasn't until I said, wait a minute. Housing is producing a 
profit. Housing should produce housing. And all of a sudden, 
people started to find reasons why, oh, gosh, it cannot go to 
housing.
    If it can go to the general treasury, it in effect is 
available for anything. What was it doing? Well, it was 
available for a tax cut or it was available for military 
spending or it was available for any other choice we made. So 
it is simply bogus to suggest that we do not have the ability 
to designate where this goes.
    Second, let me say one other important thing, that I think 
is important. The Federal Government is making this FHA program 
available. This is a Federal program. We are helping people to 
get into homes. If by helping people to get into homes we turn 
a surplus and it is at a competitive market rate, and we can 
produce money that helps more people get into homes, how in 
God's name do you stand up and say, that is not rational, or an 
effective way to do something?
    We are giving people an advantage--because they cannot get 
that mortgage, necessarily, cannot get the insurance, because 
they fall in between it.
    So, we are making homeownership available, and by making 
homeownership available, we then go one step further and make 
maybe rental available and hopefully, maybe even homeownership.
    It is not a question of capacity. It is a question of will 
power.
    Senator Reed. Thank you very much, Senator Kerry.
    Senator Corzine, do you have a question?
    Senator Corzine. That is more than enough of a question for 
me.
    Senator Kerry. Thank you very much.
    Senator Reed. Senator Kerry, thank you very much again for 
your leadership.
    Senator Kerry. I appreciate it. Thank you, Mr. Chairman. It 
has been a privilege.
    Senator Reed. We stand in recess until approximately 3:15 
p.m., as we go vote.
    Thank you very much.
    [Recess.]
    Senator Reed. Let me call the hearing back to order.
    I will call the third panel now: Mr. Reid, Ms. Kane, Mr. 
Curtis, and Ms. Crowley. Because of the traffic congestion and 
everything else, Mr. Lane, our second panel, might be delayed. 
But if you could take your seats we will begin.
    [Pause.]
    Thank you for joining us. Let me introduce our panel.
    Mr. Bob Reid, who has been Executive Director of the 
National Housing Conference since 1993, is our first witness 
who will testify on this panel. Mr. Reid has enjoyed a 45-year 
business career that has included tenures as Executive Vice 
President of the Gold Dome Bank in New York, Chief Executive 
Officer of the Home Owners Warranty Corporation, and Vice 
President of the Allstate Insurance Company.
    Ms. JoAnn Kane has served as President and Chief Executive 
Officer of McAuley Institute since 1984. Under Ms. Kane's 
direction, McAuley provides technical information and training, 
lending, and financial services to over 100 nonprofit 
organizations and residents annually. During Ms. Kane's 17-year 
tenure, McAuley has provided services to nearly 2,000 nonprofit 
housing development projects in 48 States and the District of 
Columbia.
    Mr. David Curtis is currently Chairman of the Housing 
Finance Committee of the National Association of Home Builders, 
Vice President of the board of directors of the Federal Home 
Loan Bank of Pittsburgh, Executive Vice President of Leon N. 
Weiner & Associates, a multifaceted real estate development 
firm, and President of Arbor Management, a multifamily 
residential management company, with a portfolio of more than 
4,400 units in 52 properties throughout the Mid-Atlantic and 
New England States.
    Ms. Sheila Crowley is the President and Chief Executive 
Officer of the National Low Income Housing Coalition, where she 
leads a membership dedicated solely to ending the affordable 
housing crisis in America. She joined the staff of the National 
Low Income Housing Coalition in December 1988, after 25 years 
of experience in Richmond, Virginia, in organizational 
leadership, direct service policy advocacy, and scholarship on 
homelessness and housing issues.
    We look forward to the testimony of each of the witnesses, 
and I would ask Mr. Reid to begin.

                  STATEMENT OF ROBERT J. REID

                       EXECUTIVE DIRECTOR

                  NATIONAL HOUSING CONFERENCE

    Mr. Reid. Thank you, Mr. Chairman. Thank you for quoting 
extensively from some of our reports in your opening remarks.
    I would like to say, over the past 4 years, we have done 
extensive research on the housing needs of working families 
across the Nation. Our first report was issued in June 2000, 
which documented the need of 13 million families, finding that 
3 million of them were full-time working families. We updated 
the first research with 1999 data and published our second 
publication, ``Paycheck to Paycheck: Working Families and the 
Cost of Housing in America.''
    That report showed that after 2 years, there were still 13 
million families with critical housing needs. Notable, though, 
was the fact that the number of low- and moderate-income 
working families had grown from 3 million to 3.9 million, a 30 
percent increase.
    As the Chairman mentioned, Paycheck examined five 
occupations in 60 housing markets, the major housing markets, 
and we measured their income against the cost of housing. The 
five occupations were: Janitor, retail sales clerk, licensed 
practical nurse, elementary school teacher, and police officer, 
very representative occupations for low- and moderate-income.
    I would draw your attention to the two charts which 
illustrate the plight of janitors and retail sales clerks in 
two representative cities. They illustrate the multiple of 
salaries needed to afford 
either rental or homeownership.
    We have recently published the third report in the series: 
``Housing America's Working Families: A Further Exploration.''* 
I would ask that the full text of this report be included in 
these hearings.
---------------------------------------------------------------------------
    *Held in Committee files.
---------------------------------------------------------------------------
    Senator Reed. Without objection.
    Mr. Reid. This report documents that rising housing cost is 
the primary culprit affecting both renters and homeowners 
equally. It also substantiates the fact that critical housing 
needs are not just an urban problem, four out of 10 working 
families with critical housing needs living in the suburbs, 
equal to the number in urban areas. The other two out of 10 are 
in rural and nonmetro areas.
    Housing needs are most critical in 24 of the highest hot 
high-cost areas--Boston, Chicago, Los Angeles, New York, and so 
forth. I believe the need has been well-documented and makes 
the case that affordable housing has to be a much higher 
priority in this Nation.
    So what about solutions?
    This past year, NHC convened a series of roundtables with 
local housing professionals and with community leaders in 
Minneapolis-St. Paul, New Orleans, Portland, and Seattle. We 
published an overview of these roundtables in a report called: 
``Four Windows: A Metropolitan Perspective on Affordable 
Housing Policy in America, 2001.''* I would ask that this 
report be included in the record of these proceedings, Mr. 
Chairman.
    Senator Reed. Without objection.
    Mr. Reid. The report makes clear that the absence of 
sufficient Federal funding has fostered, by necessity, a level 
of creativity that, for example, has enabled or encouraged 
local communities to establish levies for housing, housing 
trust funds, tax-based sharing, and regional planning.
    The demand for new affordable housing exists across a wide 
range of incomes and record numbers and is not being satisfied 
by the private market.
    In all the roundtables, there prevailed a common view that 
we must encourage and reward local and State efforts to produce 
and preserve affordable housing. The challenge is to fashion 
the right kind of incentives that will encourage communities to 
do this.
    The National Housing Conference recommends two actions. 
First, additional resources be provided for our proven tools--
CDBG, HOME, Low-Income Housing Tax Credit, and so forth. 
Second, focus attention on State and local efforts and explore 
ways to make the production and preservation of affordable 
housing more appealing through the use of incentives.
    Mr. Chairman, this concludes my remarks and I would be 
happy to answer questions.
    Senator Reed. Thank you very much, Mr. Reid. Thank you not 
only for your testimony, but also for abiding by our informal 5 
minutes. I appreciate that very much.
    Ms. Kane.

                    STATEMENT OF JOANN KANE

             PRESIDENT AND CHIEF EXECUTIVE OFFICER

                       McAULEY INSTITUTE

    Ms. Kane. Thank you, Mr. Chairman. I want to thank you for 
your invitation today and to particularly thank you for your 
leadership on this issue. I have been in the field quite a 
while and it has been a long time looking for this bright spot.
    The McAuley Institute is a women's housing intermediary 
headquartered in Silver Springs, Maryland. We provide technical 
assistance and financial resources for startup nonprofit 
housing development groups and faith-based organizations across 
the country.
    I believe that there are two emphases needed in Federal 
housing policy. First, we need a large infusion of resources 
for housing production in order to meet the Nation's affordable 
housing crisis. And second, we need more housing for families 
who are devastated by domestic violence and for people who are 
homeless, for those living with HIV/AIDS and those leaving 
welfare.
    To meet these challenges, I would offer five directions.
    First, Congress should enact a National Housing Trust Fund, 
as Senator Kerry so eloquently described today. The resources 
in that trust fund must be sufficient to provide a minimum of 
1.5 million units over 10 years. I believe that a trust fund 
would be the right choice to dedicate resources to expand our 
Nation's affordable housing infrastructure. Trust funds have 
been dependable, effective tools in the development of our 
national infrastructure for many decades, and it is a choice 
that would channel substantive benefits to the economy, family 
stability, and quality of life.
    Second, community-based nonprofits make unique 
contributions to the creation of affordable housing. And as Bob 
noted, we need production-focused legislation to streamline the 
financing process to help nonprofit developers become even more 
productive.
    In response to Senator Allard's request for information 
about streamlining the process, we have had some good success 
here in Washington, DC, making things run smoothly and we would 
be happy to share more on that.
    At the same time, we must protect funds for existing 
programs that make the work of community nonprofits possible. I 
am talking about the HOME and CHDO technical assistance funds, 
the community development financial institution's fund, rural 
housing economic development at HUD, and USDA housing programs, 
all 
frozen or slated for cuts in the Administration's budget.
    To illustrate these points, I would like to tell you about 
one organization that we work closely with and have invested in 
for 6 years. We have given them pass-through funds for 
technology. We have supported the staff and board on strategic 
planning, housing development, and now homeownership 
counseling.
    The HUD CHDO technical assistance funding makes this kind 
of hands-on assistance possible with groups like S.A.F.E. in 
West 
Virginia.
    S.A.F.E. began by renovating a former school building to 
create transitional housing for 31 domestic violence survivors 
and homeless women with children. The organization has grown to 
assist hundreds of women working to support their families. It 
is the county's largest housing developer and after the 
hospital, its largest employer.
    Recently, the McDowell County Commissioner asked S.A.F.E. 
to provide relocation for a thousand households to be affected 
by an Army Corps of Engineer flood protection project. But just 
last week, we received a heartbreaking call from S.A.F.E.'s 
Director, Sharon Yates, who reported that the flood that struck 
her area the week before had taken 2,000 homes.
    Now there is a looming deficit of 3,000 homes in this, one 
of the poorest counties in the country. Ironically, one of the 
many public and private partners S.A.F.E. has worked with has 
been HUD's Rural Housing and Economic Development Program, 
whose $25 million funding is proposed for elimination next 
year.
    Third, we would recommend that all housing programs 
incorporate the collaborative community planning processes as 
modeled by the successful Continuum of Care programs. In your 
draft legislation reauthorizing the McKinney-Vento homeless 
programs, we strongly support your position in favor of the 
continuum of care process and your proposal for new funding for 
permanent housing for the chronically disabled and homeless 
families.
    In my experience, decisions made in collaboration among 
public officials, community stakeholders, and expert nonprofit 
providers out perform a narrow block grant approach.
    Fourth, we believe that the Congress should encourage the 
development of innovative combinations of housing assistance 
and support services. Senate 2116, the Welfare Reform and 
Housing Act, introduced by Senator Kerry, would authorize $50 
million in demonstration of such programs for TANF recipients 
facing multiple employment barriers. Research by MDRC has shown 
significantly higher employment and earnings rates for welfare 
recipients receiving both housing and other support services.
    Last, the Senate should act on the VAWA housing assistance 
provision which recently passed the House as part of the Child 
Abuse Prevention and Treatment Act. The Committee should also 
consider a bill similar to that introduced by Representative 
Janice Schakowsky, H.R. 3752, a measure which would authorize 
the production of transitional housing with appropriate 
services for battered women.
    McDowell County is but one example, and my written 
statement contains additional examples of nonprofit groups 
using innovative partnerships. Housing reform stressing 
community partnerships like that of S.A.F.E.'s, along with an 
emphasis on a highly-targeted production program, will go a 
long way toward meeting the housing needs of the Nation.
    Thank you.
    Senator Reed. Thank you for your excellent testimony.
    Mr. Curtis.

                  STATEMENT OF DAVID W. CURTIS

              CHAIRMAN, HOUSING FINANCE COMMITTEE

             NATIONAL ASSOCIATION OF HOME BUILDERS

                    EXECUTIVE VICE PRESIDENT

               LEON N. WEINER & ASSOCIATES, INC.

    Mr. Curtis. Thank you, Mr. Chairman. I am very pleased to 
be here representing the 205,000 member firms of the National 
Association of Home Builders, to discuss the affordable housing 
needs of working families.
    The crisis in affordable housing, including housing for 
working families, has been well documented, addressed by you 
and other panel members, and is certainly well known to the 
Committee.
    To address the crisis, NAHB believes that some solutions 
can be found in improvements to existing programs, but that, 
ultimately, new production programs are needed.
    With regard to homeownership, NAHB supports the creation of 
a homeownership tax credit, which is included in the 
Administration's 2003 budget. The proposal, modeled after the 
Low-Income Housing Tax Credit Program, is designed to encourage 
construction and substantial rehabilitation of homes for sale 
to low- and moderate-income families in economically distressed 
areas.
    Senators Kerry and Santorum have a legislative draft of 
this tax credit that will be introduced to the Senate soon, and 
we urge your support for that proposal.
    On the multifamily side, the NAHB proposes the 
establishment of a new rental housing production program that 
would produce 
between 60,000 and 70,000 units annually to meet the needs of 
households having incomes between 60 and 100 percent of the 
median. These households are not eligible for housing 
assistance through most of the current Federal housing 
programs. Our program is designed to produce mixed-income 
housing, which has proven to provide greater financial 
stability and community acceptance than developments that 
concentrates on very low- and low-
income households. The program focuses primarily on working 
families, although a portion of each property would be set 
aside, up to 25 percent, for very low- and extremely low-income 
households.
    The financing mechanisms would be through low-interest 
rates available through Ginnie Mae guaranteed lower floater 
securities.
    Interest rate subsidies or buy-downs would be used to 
achieve additional affordability, and a minor modification to 
the existing voucher program would ensure that very low- and 
extremely low- 
income households could be served.
    We believe that the program could be administered by the 
State housing finance agencies. The program would require only 
a small amount of Federal Government subsidy per development 
and would provide for ongoing maintenance and future capital 
improvements by building in adequate reserves to ensure the 
long-term viability of each property.
    Concerning existing programs, NAHB strongly supports a 
proposal introduced in the Senate last year requiring HUD to 
index FHA multifamily insurance limits each year to the annual 
construction cost index. Indexation will help stabilize the 
program and give builders and lenders confidence that it may be 
utilized in their communities over the long-term.
    NAHB also recommends giving HUD's Secretary greater 
latitude to raise mortgage limits in areas where construction 
costs are inordinately high, up to 170 percent on a project-by-
project basis.
    Both indexation and adjustments upward for high-cost areas 
will make FHA multifamily programs more workable throughout the 
country, and these proposals are also supported by the National 
Association of Realtors.
    The FHA Single-Family Mortgage Insurance Program provides 
Federal support for homeownership, particularly for first-time 
homebuyers. NAHB supports a proposal introduced by Members of 
this Committee to permanently extend what is referred to as the 
downpayment simplification process. This simplified method of 
maximum mortgage calculation has a proven track record which 
results in greater loan-to-value loans, making homeownership 
more attainable.
    Often overlooked in housing affordability are layers of 
excessive regulation that dramatically increase the cost of 
production. NAHB supports a proposal to require Federal 
agencies to conduct a housing impact analysis and to 
promulgating new rules if it would have an economic impact of 
more than $100 million on housing affordability. The impact 
statement would have no effect on the content of the rule, but 
is simply designed to raise public awareness of the cumulative 
effect of regulations on housing affordability.
    Finally, the NAHB believes it is essential that Congress 
modify the Low-Income Housing Tax Credit Program in order to 
ensure its continued viability. The program has provided a key 
part of the financing for nearly all of the affordable rental 
housing over the last decade, and in October 2000, the Internal 
Revenue Service issued five technical advice memoranda that 
threatened the ability of the program to continue to provide 
affordable housing.
    The so-called TAMS take aggressive position aimed at 
reducing eligible basis which lowers the amount of the credits 
and the equity financing a project received.
    NAHB supports legislation that would provide certainty for 
tax credit allocations. H.R. 3324 and its companion 
legislation, S. 2006, specifically identify costs that qualify 
as includable in basis. The legislation will ensure that 
quality affordable housing will be maintained and that investor 
and lender confidence will be restored.
    That concludes my statement, which is a good thing because 
the red light is on.
    Thank you.
    [Laughter.]
    Senator Reed. That is not terminal.
    [Laughter.]
    Mr. Curtis. Good. Thank you.
    Senator Reed. Ms. Crowley.

                  STATEMENT OF SHEILA CROWLEY

                           PRESIDENT

             NATIONAL LOW INCOME HOUSING COALITION

    Ms. Crowley. Thank you very much, Mr. Chairman. I am very 
pleased to be invited to testify today on behalf of the 
National Low Income Housing Coalition, and on behalf of the 
National Housing Trust Fund Campaign and the over 2,300 
organizations and elected officials from every State who have 
endorsed the National Housing Trust Fund.
    We had a surge of endorsements since I submitted my written 
testimony yesterday, and I would like to offer the most up-to-
date list of endorsers of the trust fund for the record.
    Senator Reed. Without objection.
    Ms. Crowley. Thank you. Also, I have a letter here from the 
U.S. Conference of Catholic Bishops from Cardinal McCarrick, 
sent to every Senator, asking for support for the trust fund.
    Senator Reed. Without objection.
    Ms. Crowley. We are very grateful to you, Senator Reed, for 
championing the National Affordable Housing Trust Fund Act of 
2001 so vigorously, and we deeply appreciate the outspoken way 
you have taken on this campaign.
    We also are very pleased with Senator Kerry for coming 
today to testify on this, and we are pledged to continue to 
build support for S. 1248 this session and, if necessary, its 
successor bill in the 108th Congress.
    This is one of the many hearings in both the Senate and 
House that have thoroughly documented the depth and breadth of 
the critical housing problem we face in the United States. 
Congress does not lack evidence that we have a serious housing 
problem and there is little disagreement that something needs 
to be done, and I think we have heard that today. The opening 
statement of Senator Allard certainly confirmed that.
    It is our position that the most serious housing 
affordability problem and housing shortage is experienced by 
people who are extremely low income. That is, in HUD jargon, 
people with incomes at or below 30 percent of the area median.
    Meaning is often assigned to the term, extremely low 
income, that somehow implies it does not include working 
people. And I think we need to be very clear that that is 
erroneous.
    A full-time, minimum-wage worker earns $10,700 a year. In 
the District of Columbia, an extremely low-income family has 
income of $18,390 or less a year. These are the wages that are 
earned by workers in the service economy--retail clerks, day 
care workers, home health aides, hotel and restaurant workers, 
janitors, security guards, all the people whose daily labor is 
essential to the functioning of our economy.
    In the District, 30 percent of area median income, if one 
works full-time, and you break that down, is $8.84 an hour. The 
hourly wage required to afford the fair market rent for a two-
bedroom rental unit in the District is $18.13 an hour.
    In all jurisdictions in the country, the difference between 
what low-wage earners can earn and what the rental housing 
market can demand is unbridgeable without Federal intervention. 
We need to do several things.
    First, we must increase low-wage workers' purchasing power 
in the housing market with more housing vouchers and 
improvements to the housing voucher program, and we support 
Senator Sarbanes' forthcoming legislation.
    Second, we must preserve as much as possible the existing 
housing that we have that is affordable to extremely low-income 
households, including public and subsidized housing. We support 
Senator Jeffords' Preservation Matching Grant bill and we urge 
Senator Kerry to include preservation as an eligible activity 
in the trust fund bill.
    Third, we need a renewed Federal commitment to building 
housing that is affordable for the lowest-income families. The 
National Housing Trust Fund Act creates a dedicated source of 
funds for the production and the rehabilitation of affordable 
housing, primarily rental housing for extremely low-income 
households.
    In the course of discussing this bill, in nearly every 
Senate office and most House offices, we have found 
considerable interest and great support. And indeed, at this 
point, there are 27 cosponsors in the Senate and as of today, 
176 cosponsors in the House.
    We have also heard all the arguments against it. And so, I 
would just like to take a moment to raise these arguments and 
then to 
respond to them. One argument is that we do not need another 
program and many will advocate that we simply should add to 
existing programs.
    What we need is a sharp increase in the level of housing 
funding that is targeted to serve the lowest-income households. 
And the National Housing Trust Fund is a new source of funding 
more than it is a new program, and it would be used to augment 
existing production programs that cannot or do not serve these 
households.
    A significant infusion of funds is required that is 
unlikely to be forthcoming within the constraints of the 
current appropriations process. So the trust fund idea moves us 
into much broader thinking about housing funding.
    The second argument, one that you raised with Senator 
Kerry, is that the excess FHA revenue does not exist. This is, 
in fact, the most frequent objection that we hear and it is 
only in the highly idiosyncratic language of Federal budgeters 
that it is possible to say that the money doesn't exist.
    What they are really saying is that it is being used for 
other purposes and, thus, not available for this use, or that 
S. 1248 is not budget-neutral and calls for spending without 
providing offsets.
    These are policy decisions that can be changed. And the 
latest analysis by Deloitte & Touche, which is attached to my 
written testimony, tells us that the FHA program will generate 
by 2008 $26 billion more than is required to maintain the 
safety and soundness of the program.
    Another argument that we have just discussed as well is 
that any excess FHA revenues should go back to FHA-insured 
homeowners. Once objectors have accepted the notion that there 
are extra funds, this is the next issue they raise.
    It is important to know that the distributive nature of the 
FHA single-family program was eliminated by Congress in 1990 as 
part of the reform needed to prevent the program's financial 
demise.
    HUD's Secretary now has the authority to reduce premiums 
and, indeed, premiums were reduced significantly in the year 
2000. FHA-insured homeowners are receiving an important Federal 
benefit and they are paying a fair price for it.
    The use of the FHA revenue will harm the FHA program. That 
is another argument. S. 1248 protects the FHA program more than 
current law does, by raising the capital adequacy ratio or the 
level of required reserves from 2 to 3 percent. The projected 
$26 billion excess that would go into the National Housing 
Trust Fund assumes the higher ratio.
    The Deloitte & Touche analysis includes other projections 
that are based on several other economic scenarios. And even in 
the worst-case scenario, the ratio remains well above 3 
percent.
    Another argument is that it is not appropriate to use funds 
from the FHA Single-Family Program to fund multifamily housing 
production. It is not the goal of the program.
    This could be a legitimate policy argument if the funds 
were, indeed, sitting idle. But they are not. They are going 
into the Federal Treasury and funding other Federal priorities.
    Then the final argument is that we cannot afford it. This 
is the least convincing argument of all. Of course, we can 
afford new investment in rental housing production if we decide 
it is a priority. We have made housing a national priority at 
several points in the past when we faced housing shortages, and 
we can do so again.
    Not only can we afford to do this, but also more 
importantly, we cannot afford not to. The consequences of 
failing to act are serious. Good housing is fundamental to 
healthy human development, and housing instability has adverse 
effects on employment success, school achievement, health 
status, and family well-being.
    Thank you for the opportunity to testify today.
    Senator Reed. Thank you very much, Ms. Crowley, for that 
excellent testimony.
    We have been joined by Senator Carper. Do you want to make 
an opening statement now?
    Senator Carper. No, thank you, Mr. Chairman.
    Senator Reed. Let me begin the questioning.
    First, let me thank you all for excellent testimony. I 
think you have illustrated the problem extremely well and you 
have pointed out some possible solutions. Also, you have 
refuted in great degree some of the arguments against Senator 
Kerry's proposal.
    Bob, I was particularly moved by your charts, since my 
father was a janitor. That story is compelling information to 
me. It does sketch out a very bleak picture for working 
families. And as Ms. Crowley pointed out, very low income are 
not welfare recipients. They are working families.
    I wonder, in your roundtables which you have conducted, 
what ideas have been advanced for dealing with this production 
shortfall, some that we might have discussed this afternoon and 
others?
    Mr. Reid. Well, one of the things that was pretty 
consistent in all of the roundtables--and incidentally, since 
we published this, we have had an additional one in San Diego, 
is the problem they had with NIMBY-ism, and they came up with--
one of the solutions which was that one of the ways to combat 
NIMBY-ism is to have better design and better ways to do truly 
mixed-income housing. And this seems to be a problem in many of 
the high-cost areas because the 60 percent income limit 
certainly makes it very, very difficult for them to get any 
meaningful mixed income.
    So, they plead for the fact that they need higher income 
limits, without neglecting the poor, and let me add here that 
this is not a zero-sum game, and nobody suggested that it was 
because in every case we are talking about additional 
resources, not reallocation of resources. But they need some 
more flexibility on Federal programs. There was a lot of 
talking about layering and being more efficient in combining 
various Federal and State programs.
    The mixed-income issue came up time and time again, the 
ability to really do mixed-income housing. And again, they are 
talking about getting up to beyond the 60 percent. Most of them 
talked about up to 100 percent.
    Mr. Reid. Thank you. I want to raise the issue you 
mentioned.
    A lot of commentators would suggest that this is not a 
resources problem. It simply is more efficiently reallocating 
Federal resources or getting rid of some of the road blocks, 
zoning, et cetera. From your observations and your work, can 
you confirm that this is a resource problem that can be aided 
by smarter zoning, et cetera?
    Mr. Reid. Obviously, there is always room for improvement 
every place. And these people in these roundtables admit that 
many of their problems are local, zoning, outmoded codes, and 
things like that. But the fact remains when you look at the 
extent of the problem, the number of families in all of these 
communities, they need a tremendous increase in amount of 
resources. I do not care how much efficiency you bring into the 
system, there is only so much. Actually most of these 
localities in our experience are operating pretty efficiently. 
They just need more resources.
    Senator Reed. Thank you.
    Ms. Kane, again, thank you for your testimony on behalf of 
the McAuley Institute. I also have a sense of, at least 
attenuated affiliation. McAuley Institute was started by the 
Sisters of Mercy.
    Ms. Kane. That is correct. We are the national housing 
corporation of the Sisters of Mercy.
    Senator Reed. Well, they were my teachers when I was in 
grammar school.
    Ms. Kane. Another fabulous job.
    [Laughter.]
    Senator Reed. So, you already have me persuaded. I am 
convinced.
    [Laughter.]
    In your testimony, you talked at some point about a 
particularly vulnerable population. That is, those individuals 
who are leaving welfare and searching for housing.
    Ms. Kane. Yes.
    Senator Reed. Could you elaborate a bit on that, your 
observations and the special needs that might be encountered by 
this population?
    Ms. Kane. Well, we have been fortunate that a number of our 
colleagues and constituents that we have been working with have 
been observing those who have successfully begun to get jobs 
and then begin to move onto that next step in self-sufficiency.
    And there are two major issues before them. One is the cost 
of housing and the other is health care, both of which, in 
combination, create an economic problem, as well as a health 
problem for that family. They are detailed in our written 
testimony, Senator. Some things that we are suggesting to 
include in the TANF reauthorization bill are a demonstration of 
housing with service models for families facing multiple work 
barriers and a provision to treat housing support as 
``nonassistance,'' similar to how child care is treated.
    Senator Reed. It is in your written testimony. We can 
certainly go back.
    If I could bring another aspect to your testimony. You 
talked about research presented by Jens Ludwig about the effect 
of education, stable housing, and education. Is that something 
that you are prepared to comment on? If you are not, just 
indicate, because we can go right back into the testimony.
    Ms. Kane. That one, I do not recall, sir.
    Senator Reed. All right.
    Ms. Kane. On education and housing?
    Senator Reed. I believe so, yes.
    [Pause.]
    Ms. Kane. It was something in our written testimony which 
my fine staff was working on while I was in Chicago this 
morning. Our written testimony sites a study by Ludwig, of 
Brookings, as finding that affordable housing is as cost-
effective as reducing class size from 22 to 13 in improving 
education levels.
    Senator Reed. I understand. It is a hectic pace, and not to 
worry.
    Let me again thank you, not only for your testimony today, 
but also for the efforts of the McAuley Institute to reach out 
to many other nonprofits throughout the country and try to give 
them the tools and the perspective to advocate and work for 
better housing.
    Thank you so much.
    Ms. Kane. Well, we have been fortunate on those connections 
on health care and education, as you pointed out, Senator, to 
have our colleagues working in educational institutions and 
health care that support those nonprofits and give us that 
extra edge when we are working with very low-income people.
    Senator Reed. Thank you very much.
    Mr. Curtis, again, let me thank you for your testimony. It 
was extremely well done. You had several proposals. Could I ask 
you, on that list, what do you believe from your perspective 
and the homebuilders perspective is the single most important 
thing that we can do, or the two things that we should do?
    Mr. Curtis. First of all, I would like to reiterate the 
importance of supply. Therefore, we think we need a new 
production program.
    And kind of piggybacking off of what Mr. Reid said--I want 
to say that I also agree that there is an absolute lack of 
resources. It is not a matter of trying to be more efficient.
    I can tell you stories about housing sponsors. One group 
that I know had to go to stitch together eight different 
funding resources to make feasible a job for 14 units.
    So housing providers are very, very efficient and there is 
a lack of resources, a great lack of resources.
    One area that is relatively well provided for is roughly 
the range of incomes between, I will say 40 to 45 percent and 
60 percent, because that is what is serviced primarily by the 
Low-Income Housing Tax Credit Program.
    I think what the panel would agree on is that, for the very 
low incomes, those people at 30 percent and below and even 40 
percent and below, there is relatively almost no resources. And 
the same is true for somewhat higher-income families, earning 
between 60 and 100 percent.
    Our program is designed to address both of those needs in--
again picking up on what Bob talked about, getting the benefits 
of a mixed-income community because we believe that the 
families earning between 60 and 100 percent of median can be 
served relatively efficiently with a very shallow subsidy.
    We would propose that, in order to get the benefits of a 
mixed-income community, we include persons and families, again, 
up to 25 percent of the development, through the use of 
vouchers, who are very low and extremely low.
    So, we think that, if you are asking me for my number one 
choice, I think that would be it--a new production program that 
really makes a difference for all of those that are not served 
and that you spoke so eloquently about.
    On the much more simple side, I think that the fixes to the 
multifamily insurance programs are very easy and really need to 
be done. There is really no basis that I can think of for 
having increased the limits by 25 percent last year and then 
keeping them static so that you have the bump and then 
everybody's sitting on the hot seat, wondering whether the 
program is going to be usable into the future.
    Senator Reed. Thank you very much.
    I want to turn to Senator Carper, but Ms. Crowley, you 
emphasized, I think, when you spoke about the very low income, 
that is 30 percent or below of the area median income, that 
there is a real critical shortage there. Is that the most 
glaring area, the gap that you see?
    Ms. Crowley. Yes. Technically very low income is at 50 
percent of area median income, and extremely low income is at 
30 percent of area median income. I think the statute defines 
very low income, and extremely low income is defined in 
regulation.
    There is two very important analyses that we have offered 
to the Committee. One is referenced in my testimony. They are 
both done using the American Housing Survey 1999 data. One was 
done by Katherine Nelson, who is with the Office of Policy 
Development and Research at HUD.
    Clearly, when you look at her analysis, what we see is, 
over the past decade, an increase in the number of rental 
housing units that are affordable to people at 50 percent of 
area median income and above, and we have seen a severe decline 
in the number of units that are available and affordable to 
people at 50 percent and below. And then when you get to below 
30 percent, that is where the most acute decline is.
    So that is one way of looking at the American Housing 
Survey data. Then the other is one that the National Low Income 
Housing Coalition has done which we have submitted in previous 
testimony. It looks at the number of people, number of 
households within the given income range. Then the number of 
units that are, in fact, available and affordable for them. And 
in the under 30 percent of area median income, that is where 
the number of households far outstrips the number of actual 
physical units of housing. And as you go up the income scale, 
in fact, you get to where there are more units than there are 
people.
    Now does that mean that there is some sort of surplus out 
there? No. People are living in these units and in some cases, 
people are paying far more than what is affordable for them to 
be able to--far more than the standard of affordability of 30 
percent.
    Our thesis is that if you produce more housing that is 
affordable to the extremely low-income people, then in fact, 
you free up a lot of housing in the rest of the market and you 
would have a lot more housing available for other higher-income 
people.
    Senator Reed. Thank you very much.
    Senator Carper.

              COMMENTS OF SENATOR THOMAS R. CARPER

    Senator Carper. Thanks, Senator Reed.
    Boy, one of you looks awfully familiar. David Curtis. I 
think I have seen you before. How are you?
    Mr. Curtis. Doing well, Senator. How are you?
    Senator Carper. Good.
    Let me ask the other panelists--is he doing okay?
    [Laughter.]
    He is no stranger around here. He testifies on a pretty 
regular basis. Thank you for coming.
    Tip O'Neill used to say that all politics is local. Let me 
just start off with a local question involving the HOPE VI 
project over in Wilmington. Can you give me just an update? How 
are we doing there?
    Mr. Curtis. Yes. The demolition is done and we are 
scheduled to begin producing the new Village of East Lake in 
July. So it is good news on that front. It has been long in 
coming, but it is a very worthwhile project. We appreciate your 
asking.
    Senator Carper. You bet. I have not been fortunate enough 
to hear all of your testimonies. But I would like to ask--
sometimes when I arrive late at a hearing--this is my fifth 
hearing today--sometimes when I miss the testimony, I ask the 
witnesses, where do you agree? Where do you agree on your 
advice to us?
    Let me just start with Ms. Crowley over here. Where did you 
all agree that you can give us some common advice?
    Ms. Crowley. There is universal agreement on two things. 
One is that we have a severe housing affordability problem. Two 
is that what we need is new Federal resources to build more 
housing, a new Federal production program. Nobody disagrees on 
that.
    Senator Carper. Did you agree on the form that the 
resources should take? Appropriations? Tax credit? Did you 
agree on that?
    Ms. Crowley. No.
    Senator Carper. Okay.
    Ms. Crowley. Some of us are calling for a National Housing 
Trust Fund. Other people would call for other ways.
    Senator Carper. Is that the Kerry approach?
    Ms. Crowley. Yes. And then, other people would call for 
funding within existing programs.
    Our feeling is that the trust fund is the approach that is 
going to generate the most resources in the current 
environment, and that more resources are needed. So, we would 
advocate for that.
    Senator Carper. Just refresh my memory. What is the source 
of the funds for the trust fund?
    Ms. Crowley. The source of the funds for the trust fund at 
this point are excess revenue produced by the FHA's Single-
Family Insurance Program. And then much smaller amounts for the 
Ginnie Mae program.
    The FHA program is one that has been earning money far in 
excess of what is required to secure the safety and soundness 
of the program for several years. That money at this point has 
been absorbed into the Federal Treasury and is supporting other 
Federal priorities. Our argument is that these are Federal 
housing dollars that are being produced by a Federal housing 
program and could be redirected into other Federal housing 
priorities.
    Senator Carper. But when you take those different revenues 
that are now going into the Treasury and you pull them into a 
housing trust fund, any idea how much money that adds up to on 
an annual basis?
    Ms. Crowley. The latest projections from Deloitte & Touche, 
and the Executive Summary of the Deloitte & Touche review is 
attached to my written testimony, but the latest projections 
from Deloitte & Touche are that between now and 2008, there 
would be $26 billion in excess of what is required to maintain 
the program safely at the 3 percent capital adequacy ratio, 
which is what Senator Kerry's bill calls for. Current law is 2 
percent. So that would make the program even more secure than 
it is under his bill and we would still have in excess of $2 
billion.
    Senator Carper. I do not know, Mr. Chairman, do we have to 
provide an offset? Would OMB or CBO come to us and look for an 
offset for that money?
    Senator Reed. I would not be surprised, given the way OMB 
operates. They are looking for an offset.
    Senator Carper. Okay. Good. Thank you very much.
    David, you were asked a question I was going to ask. The 
Chairman said, of all the things you were recommending, what 
would be the most important? And you indicated what that might 
be. Would you share with me maybe another idea or two that you 
think are especially meritorious from the ones that you 
presented?
    Mr. Curtis. Sure. I will start with another simple idea. 
And that is, the simplification of the downpayment calculation 
for the FHA single-family program. This was a pilot 3 years 
ago. I think it started in Alaska and Hawaii and it has been 
national for the last 3 years. It sunsets December 31, 2002. 
Very noncontroversial, I think. All we need to do is to extend 
it permanently. Easy for me to say, right?
    Then the other thing that I spoke on, that it may not be 
exactly the purview of this Committee, relates to the Low-
Income Housing Tax Credit Program, and these technical advice 
memoranda that have come out from the IRS. They really are 
threatening the ability of the program to function 
productively, because what is happening is that the IRS is 
seeking to shrink the basis that is eligible for the tax 
credit.
    This oftentimes forces those projects into a situation 
where they are infeasible. And once again, there is legislation 
in the House and a companion bill in the Senate that seeks to 
simply clarify on a no-nonsense basis what is eligible to go 
into the tax credit basis and what is not, so that you do not 
have to hire an army of accountants and tax advisers to try to 
figure out--for example, as I went through, whether the roof is 
part of the basis or not.
    Senator Carper. Senator Reed likes to hire armies. I like 
to hire navies.
    Senator Reed. Navy pilots.
    [Laughter.]
    Senator Carper. What role does the Federal Home Loan Banks 
have in this broader issue?
    Mr. Curtis. Well, the Federal Home Loan Bank System has 
been involved in something called mortgage partnership finance, 
which is an alternative to single-family mortgage financing 
through the other GSE's that we think provides a synergy by 
connecting the traditional lender, the individual member bank 
with their customers, and therefore providing more efficiency 
and hopefully, lower-cost loans.
    The system is also looking to see whether there is 
something that can be done in the construction lending area. 
The Pittsburgh Bank has been a leader in starting a program 
called Banking On Business, through which we provide low-
interest, even forgivable, loans to promote new business 
enterprises in economically-distressed areas.
    So there is a lot that the Federal Home Loan Bank System 
can do. And there is no shortage of good ideas on this panel, 
in answer to your earlier question. As Sheila said, the 
agreement is that we have a drastic shortage. We have a housing 
affordability crisis. We need more resources. We need it from 
everybody, including the Federal Home Loan Bank System. There 
are lots of good ideas. We need to sort through those that we 
need to pick and hopefully, rely on the help of people like you 
to help us get some funding.
    Senator Carper. Good.
    So, Ms. Kane, you were in Chicago today, did you say?
    Ms. Kane. Yes.
    Senator Carper. Getting around. Did you see my wife there? 
That is where she is today.
    Ms. Kane. There were a lot of us moving.
    [Laughter.]
    Senator Carper. I missed your testimony. I apologize for 
that. But the question that I asked earlier of the other 
panelists would simply be extended to you, in terms of where 
you saw consensus, where you saw agreement among the witnesses, 
where you find it.
    Ms. Kane. Well, I heartily agree with what Sheila was 
saying for McAuley Institute's perspective, but I think for 
everyone, that we agree that production is hugely necessary.
    I would say an area that I would pick up that Bob and I 
would look at as well as that there is an important role for 
nonprofits in the delivery of that production system.
    So, I wouldn't say that perhaps that is full consensus, 
but----
    Senator Carper. You say an important role?
    Ms. Kane. I believe so, yes.
    Senator Carper. All right.
    Ms. Kane. Where we see an ability, there is the ongoing 
issue of affordability and the attachment to resources. The way 
that you can continue to work to lower the cost of that 
housing, such as some of the groups that we are working with in 
the border area, where they are using innovative building 
techniques and ways to make it more affordable.
    They still need the resources to do it, but the nonprofit 
organizations continue to look at innovative ways of both 
packaging and providing extra subsidies out of that platform.
    Senator Carper. Good.
    Mr. Reid, where are you from?
    Mr. Reid. Well, I live here, but I am from Missouri, 
originally.
    Senator Carper. Okay.
    Mr. Reid. But I am easy to show.
    [Laughter.]
    One of the things that we think, being realistic, is that 
the Congress or no Administration in the foreseeable future is 
going to write a big blank check in the amount of funds that we 
really do need to get this job done.
    When you really put the numbers to it and look at it, it is 
so astounding that you think you are trying to do a Marshall 
Plan, which, in fact, we may be needing, as a matter of fact.
    One of the things we need to look at is how we can better 
leverage the resources that are there. We need a lot more 
resources. We are all in agreement on that. There is no 
substitute for that.
    One of the areas that we have been looking at and working 
with people more on is employer-assisted housing. The more that 
we can get the major employers into the game and understanding 
that it is in their interest, that it is also a problem for 
them when they cannot get employees that are reasonably close 
to their place of 
employment and do not have a decent place to live. So employer-
assisted housing I think is a very important issue that you can 
look at here.
    When it comes to incentives, I mentioned that a lot of the 
barriers to building the housing, once you have the resources, 
they are local. These are not Federally-mandated. These are 
local issues. As you said, all politics is local. And zoning, 
NIMBY-ism, all of those things. But the Federal Government does 
have the ability to be a tremendous incentivizer to help those 
local communities, ``do the right thing.''
    So, I think that is another important area. And the other 
thing is that we have supported Congressman Frank's first shot, 
you might say, across the bow, saying we need a $15 billion 
increase in the HUD budget, knowing that he is not going to get 
it. But on the other hand, I think what he is trying to do is 
to make a statement that we cannot keep operating on a marginal 
basis--``a billion here, a billion there,'' to quote the late 
Senator Dirksen. But, unfortunately, it is not going to work 
any more with a billion. It is going to be 15 here, 20 here, 40 
here, 50 there.
    Senator Carper. Good. Well, that is very helpful.
    Thank you, Mr. Chairman.
    Mr. Curtis. May I make one other comment?
    Senator Carper. You sure can.
    Mr. Curtis. Okay. Thank you. Senator, you have had me 
changing hats so often, that I just want to follow up on one 
more thing, putting my Federal home loan----
    Senator Carper. Who is the Vice Chairman now of the 
Pittsburgh Home Loan Bank Board?
    Mr. Curtis. That is me.
    Senator Carper. That would be you. Okay.
    Mr. Curtis. Right.
    Senator Carper. He is going through all the chairs.
    Mr. Curtis. Senator Reed was kind enough to identify that 
earlier. And when you asked me the question, how can the 
Federal Home Loan Bank System be involved, my mind in this 
panel is 
focused on new products.
    But I would be remiss, my friends back at the bank would be 
disappointed with me if I did not just highlight that last 
year, the Federal Home Loan Bank System as a whole celebrated a 
milestone of having given a billion dollars to affordable 
housing in this country, all communities, urban, rural, 
throughout the entire 50 United States and some other 
possessions, I think. And so that has been a tremendous boon to 
those of us who try to provide affordable housing in this 
country.
    Senator Carper. Well, some of that money, some of that 
billion dollars has even found its way to Delaware. And for 
that, we are very, very grateful. Grateful for your 
stewardship, for your willingness to serve as the Chairman, and 
now the Vice Chairman of our regional Home Loan Bank Board.
    Mr. Chairman, thank you. And to our witnesses, thank you.
    Senator Reed. Thank you very much, Senator Carper.
    I would just, if I may, take one quick round. I want to 
ask, Ms. Crowley, we have talked about what we have to do. But 
it might be helpful to briefly give your opinion of how we got 
here. What are the forces that have driven us to this position?
    If others want to elaborate on that, I would be very 
pleased to hear it. Also, give each and every one an 
opportunity to express that one thought that, on the way home, 
you will say, boy, I wish I had said that. I was thinking about 
it, but I wish I said that.
    We have heard the testimony. It has been excellent 
testimony. So if you think about the one or two things that has 
not been said and should be said on this topic, you will have 
your opportunity.
    But Ms. Crowley, why don't you begin and give us an idea 
of, from your perspective, how did we get here in terms of this 
housing crisis?
    Ms. Crowley. Thank you, Mr. Chairman.
    I would like to refer back to Senator Kerry's comment about 
the nature of the market and where the market plays and who the 
market attends to, and that there is always going to be a role 
as--there has been a role for many years, for Government 
intervention in market failure for housing for extremely low-
income people.
    I think that it is not a stretch to say that, if you look 
at the trajectory of the Federal housing production programs 
and the investment by the Federal Government in housing and how 
that declined precipitously in the late 1970's and the early 
1980's, that there is some culpability there.
    I recently had the good fortune of meeting Secretary Carla 
Hills, who was HUD's Secretary during the Ford Administration. 
And it was Under Secretary Hills' tenure that we had our peak 
investment in Federal housing production for extremely low-
income people at 500,000 units that year. That far exceeds 
anything that we have even gotten close to now.
    So, I think that at least one significant factor has to be 
the sizable Federal disinvestment in housing and that we need 
to return to the Federal Government taking that responsibility.
    Senator Reed. Thank you very much.
    Anything that, Mr. Curtis, you would like to add, I will go 
down the panel. But also that final thought that you wish you 
had said. Here is your chance.
    Mr. Curtis. I would echo what Sheila said. I know that, I 
do not have it in front of me, but a survey of Members of 
Congress some 4 or 5 or 6 years ago, graphically showed why we 
are in this situation. It had 30 items, issues, listed in area 
of importance. And housing was 29th.
    When I was growing up, it was food, clothing, and shelter. 
Somehow, another 26 items got to be more important than the 
shelter part, and we need to correct that.
    As far as things that I have forgotten to say, I think the 
most important thing is to thank you, as my compatriots have, 
for holding this hearing and allowing us the opportunity to 
come and speak on what is a very important issue and problem.
    Senator Reed. Thank you very much.
    Ms. Kane, any final thoughts?
    Ms. Kane. I must also agree. The devastating cuts to the 
HUD budget have definitely contributed to it. But as a result 
of that, I think there is also some systemic issues that relate 
to the complexity now.
    In response to that, we have fragmented the system in 
hundreds of ways. You see that in our testimony. Each of us 
goes to certain pieces, and as much as we want to look at an 
umbrella of it, this issue has been sliced so thin, that a lot 
of our best thinking and activity is spent in repatching it 
together.
    I think that is one problem now that exacerbates the deep 
budget cuts and the abdication of the Federal position. And 
anything that we can do that, once we look at resources, it is 
also a simple approach. We are talking about housing as a 
right.
    The fact that, again, we divide up our communities into 
some who need more than others--for instance, when we look at 
those who need a great deal of care and how much of some of the 
problems of duly diagnosed, who come from the fact that we have 
totally eliminated care for the mentally ill in a substantive 
and meaningful fashion.
    So, I would like to weave together again the part that 
housing really builds our communities and if we can make it 
simple and we can put the right dollars there, we will be 
successful.
    Senator Reed. Thank you very much.
    Mr. Reid.
    Mr. Reid. I always go back, because I am older than 
everybody else on this panel, to a statement that Franklin 
Roosevelt made in, I think it was his second inaugural address, 
where he said, ``one third of this country is ill-fed, ill-
clothed, ill-housed.''
    Interesting, he said housed.
    Now, we are down to one-seventh. I guess my question is, as 
the richest country in the world, in the history of the world, 
are we satisfied? Are we going to live with one-seventh and 
declare victory?
    Senator Reed. I hope the answer to that is no. And because 
of your efforts, we are at least moving forward in the right 
direction.
    I thank you all for your testimony. It was excellent.
    Our other witness, Mr. Lane, has been apparently, 
unavoidably delayed because of the confusion and the traffic 
around the Capitol today with the police ceremony.
    Without objection--and I see none--his statement will be 
made part of the record.
    Again, I thank you all and this hearing is adjourned.
    [Whereupon, at 4:14 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
                PREPARED STATEMENT OF SENATOR JACK REED
    One out of every seven American families spends more than half of 
their total income on housing, or lives in a severely inadequate unit. 
Although the number of families with critical housing needs held more 
or less steady between 1997 and 1999, the number of working families 
with critical housing needs grew from 3 million to 3.9 million. About 
80 percent of these 3.9 million families paid more than half of their 
income for housing. The other 20 percent lived in severely inadequate 
housing.
    The Center for Housing Policy has found that when it comes to 
rental housing, a janitor can only rent a one-bedroom apartment on 30 
percent of his income in six out of 60 metropolitan areas, while retail 
salespeople can afford a one-bedroom apartment in only three. For two-
bedroom apartments, the situation is even worse. The same problem 
exists for teachers, police officers, and licensed practical nurses in 
too many high-cost metropolitan areas.
    In a recent article in The Washington Post reporter Peter Whoriskey 
pointed out that the rapid escalation of housing prices in the 
Washington area has largely been caused by a huge increase in 
employment opportunities without a similar increase in the number of 
new dwellings. For example, the number of jobs in Fairfax County during 
the 1990's increased three times as fast as the supply of homes--
roughly 166,000 new jobs compared with 56,000 new units of housing--
according to county and State statistics.
    Simply put, in too many places across America there aren't enough 
homes for the number of families who need them.
    In preparing for this hearing, we heard about a family that has 
been living in a Fairfax County homeless shelter. The family has a mom 
and dad, and two children, a boy and girl. The mom has worked for the 
Department of Veteran's Affairs for 9 years and makes over twice the 
minimum wage. The dad held a seasonal job with Fairfax County until the 
job ended. They were living in a townhouse in Alexandria, Virginia, 
that cost $950/month until the dad lost his job. He now has found work 
at a local military installation as a chef and the family is trying to 
find a new home. However, because of the age of their children, they 
are being told that in Virginia this means that they have to rent a 
three-bedroom apartment. This family is playing by the rules but they 
still haven't been able to find housing and have been looking since 
early January.
    However, critical housing needs are not just concentrated in urban 
areas. Only 1.6 million of those with critical housing needs live in 
central cities. Another 1.5 million live in the suburbs and about 
660,000 families live in nonmetropolitan areas.
    In many cases, working families have the worst of both worlds. They 
have too much income to qualify for the limited housing assistance 
available, but too little to benefit from the favorable tax treatment 
given to homeowners. For too many, a job does not guarantee a family a 
decent place to live at an affordable cost.
    Thus, it is our hope today that by holding this hearing of the 
Senate Banking Committee's Subcommittee on Housing and Transportation, 
we can learn more about the affordable housing crisis that is affecting 
working families around the country and come up with some solutions 
that might help mitigate the problem.
    Each of our witnesses has been asked to comment on affordable 
housing needs of working families; the state of the Nation's housing 
supply for both renters and prospective low-income homebuyers; and to 
highlight any proposals that should be considered as part of 
legislation to increase the production of affordable housing for 
working families.
    I want to thank all of our witnesses for testifying today. We 
appreciate the time and effort you have taken.
    It is apparent from today's testimony that Congress and the 
President must make a significant and sustained commitment to creating 
more affordable housing for hard-working families.
    As the new Chair of the Housing and Transportation Subcommittee, I 
look forward to working on achieving this critical objective, to create 
more affordable housing for working families in the United States. No 
one should have to live without a roof over their head in this country. 
A safe, decent, and stable home should not just be the American Dream, 
it should be the American commitment.

                               ----------
              PREPARED STATEMENT OF SENATOR JON S. CORZINE

    Mr. Chairman, I want to thank you for holding this hearing on the 
affordable housing crisis impacting our Nation's low- and middle-income 
working families. The theme of this hearing bridges the issues and 
concerns the Subcommittee has addressed in recent hearings on 
homelessness, the Section 8 program, and the housing needs of families 
transitioning off of welfare. I strongly believe that without an 
increase in affordable housing production, we will fail to resolve 
these pressing issues.
    As Senator Kerry mentioned in his testimony, increasing the 
production of affordable housing is one of the most critical needs 
facing working families in our country. I am an original cosponsor of 
his legislation to create a National Affordable Housing Trust Fund, 
legislation that should be at the top of our housing agenda.
    Mr. Chairman, in 1999, approximately one out of seven American 
families spent more than half their income on housing. Housing cost 
increases in our country, and particularly in my State of New Jersey, 
are far outpacing wage increases. In New Jersey, an individual would 
have to earn $17.87 an hour--roughly $40,000 a year--in order to earn 
enough to afford the Fair Market Rent for a two-bedroom dwelling. This 
is the equivalent of three minimum wage salaries.
    There lack of affordable housing in New Jersey is so severe that 
the State finds itself paying as much as $2,000 a month to temporarily 
house families transitioning from Welfare to Work. As population growth 
continues to outpace housing production and vacancy rates decline, this 
shortage will only worsen.
    Clearly, something must be done immediately to address the housing 
shortage.
    Federal housing assistance programs are currently operating at a 
maximum. In New Jersey, families wait up to 3 years to receive a 
Section 8 voucher. Even when they receive that voucher many are unable 
to find housing.
    Despite the fact that we have several programs that invest 
resources in new housing production and housing rehabilitation, 
including Section 202 Elderly Housing, the HOME program, and Hope VI, 
funding for housing production has stagnated and actually decreased 
over the last 20 years.
    We must find ways to provide new funding sources to finance the 
construction and rehabilitation of affordable housing for our Nation's 
working families. The National Affordable Housing Trust Fund represents 
a workable solution that would finance the construction of 1.5 million 
homes for low-income families by 2010 through FHA mortgage insurance 
reserves.
    Mr. Chairman, the production of affordable housing is critical to 
the well-being of our Nation's working families and crucial to 
residents of my State, particularly those trying to achieve economic 
self-sufficiency. If we expect to end homelessness, improve the Section 
8 program, and help families' transition from Welfare to Work, we must 
address the affordable housing crisis now.
    The needs are real, and they need real solutions--not more lip 
service about ``compassion.'' I look forward to working with you toward 
that end.

                               ----------
                  PREPARED STATEMENT OF JOHN F. KERRY
             A U.S. Senator from the State of Massachusetts
                              May 15, 2002

    Mr. Chairman, I want to take this opportunity to thank you for 
holding this important hearing on affordable housing 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 National Affordable 
Housing Trust Fund Act of 2001 that I introduced last year. I look 
forward to working with you, Chairman Sarbanes, and others to enact 
this legislation during the 107th Congress.
    Today, our Nation is facing an affordable housing crisis. For 
thousands upon thousands of low-income families with children, the 
disabled, and the elderly privately-owned affordable housing is simply 
out of reach. Recent changes in the housing market have further limited 
the availability of affordable housing across the country, while the 
growth in our economy in the last decade has dramatically increased the 
cost of the housing that remains.
    The Department of Housing and Urban Development (HUD) estimates 
that more than five million American households have what is considered 
worst-case housing needs. Since 1990, the number of families who have 
worst-case housing needs has increased by 12 percent--that is 600,000 
more American families that cannot afford a decent and safe place to 
live.
    At the same time, there has been a tremendous decline in the 
available stock of affordable housing. Between 1993 and 1995, there was 
a decline of 900,000 units of affordable housing available to very low-
income families. From 1996 to 1998, there was a 19 percent decline in 
the number of affordable housing units. This amounted to a dramatic 
reduction of 1.3 million affordable housing units available to low-
income Americans.
    The lack of available affordable housing has also increased the 
cost of existing housing. The cost of affordable housing has increased 
above the rate of inflation for the fourth consecutive year in 2000. On 
average, a person needs to earn more than $11 per hour just to afford 
the median rent on a two-bedroom apartment in the United States. There 
is not one metropolitan area in the country where a minimum-wage earner 
can afford to pay the rent for a two-bedroom apartment. Just to afford 
a two-bedroom apartment in Boston, you must earn at least $35,000 a 
year. Teachers, janitors, social workers, police officers, and other 
full-time workers are having trouble affording even modest two-bedroom 
apartments in major cities across the Nation.
    This problem is only getting worse. Many current affordable-housing 
providers are deciding to opt-out of their Section 8 contracts or are 
prepaying their HUD-insured mortgages. These decisions have and will 
further limit the availability of affordable housing across the 
country. For example, over the next 5 years, the Commonwealth of 
Massachusetts could see a dramatic reduction of available affordable 
housing units as Section 8 contracts expire. More than 40,000 units of 
the existing 60,000 Section 8 housing units could potentially be 
converted to market-rate apartments or condominiums. Within the city of 
Boston, more than 16,000 of the 22,000 Section 8 units are eligible for 
a conversion.
    Despite the fact that more families are unable to afford housing, 
we have decreased Federal spending on critical housing programs such as 
the Public Housing Capital Fund, Elderly Housing, and Public Housing 
Drug Elimination Grants since fiscal year 1995. The return to deficit 
spending let alone the disappearance of what were once budget surpluses 
makes it almost impossible for any significant increases in the HUD's 
budget over the next decade. So, we are left with a question of 
choices. HUD's budget for fiscal year 2002 is only $30 billion. Had we 
reserved 1 year's tax cut for the wealthiest 1 percent of Americans we 
could have taken care of all the public housing capital backlog that we 
face today. The question is, what do we do today to face--and to 
finance--this mounting challenge?
    We know we can no longer ignore the lack of affordable housing and 
the impact it is having on families and children around the country. I 
believe it is time for our Nation to take a new path--one that ensures 
that all Americans, especially our poorest children, have the 
opportunity to live in decent and safe housing.
    And the good news is that it is within our means to take those 
steps today.
    I wrote legislation establishing a National Affordable Housing 
Trust Fund to produce 1.5 million units of affordable housing over the 
next 10 years using excess revenues from the Federal Housing 
Administration (FHA) and the Government 
National Mortgage Association (GNMA). The goal of my legislation is to 
create long-term, affordable, mixed-income developments in areas with 
the greatest opportunities for low income families. Seventy-five 
percent of the trust fund assistance will be given out, based on need, 
through matching grants to States. This will help ensure that new 
rental units are built for those who need assistance most: Extremely 
low-income families, including working families. A portion of the frust 
fund will also be used to promote homeownership for low-income 
Americans.
    The National Affordable Housing Trust Fund bill is cosponsored by a 
bipartisan group of 26 Senators. Similar legislation has been 
introduced in the House of Representatives and currently has 174 
cosponsors, including 20 Republicans. The trust fund has been endorsed 
by more than 2,200 community organizations around the United States in 
an effort led by the Low Income Housing Coalition.
    Funding for the trust fund would be drawn from excess revenue 
generated by the FHA and the GNMA beyond the amounts necessary to 
ensure their safety and soundness. These Federal housing programs 
generate billions of dollars in excess income, which currently go to 
the General Treasury. It is time to stop taking housing money away from 
Federal housing programs and to start putting in new money to produce 
affordable housing. According to current projections, approximately $26 
billion will be available for the trust fund between now and 2008.
    Because of the positive effect that the affordable housing trust 
fund would have on America's children, my legislation was included in 
the Act to Leave No Child 
Behind, a comprehensive proposal by the Children's Defense Fund to 
assist in the nurturing of our Nation's children.
    We also must do everything we can to preserve the existing 
affordable housing units from opt-outs and prepayments so housing 
remains available for low-income families, the disabled, and the 
elderly. That is why I have worked with Senator Jim Jeffords to 
introduce the Affordable Housing Preservation Act, which will provide 
Federal matching grants to States that provide non-Federal funds for 
the preservation of affordable housing. The bill allows flexibility in 
determining how to achieve the goal of preservation, within guidelines 
that promote long-term solutions built upon cooperation among State, 
local, nonprofit, and private-sector participants. This will help 
provide some much needed long-term stability for affordable housing in 
our country.
    I support a proposal by Chairman Sarbanes to develop thrifty 
vouchers--these are vouchers that are designed to provide rental 
assistance to extremely low-income families in units that separately 
receive a capital subsidy. For example, if 25 units of a 100-unit 
building were built using funds from the National Affordable Housing 
Trust Fund so that there is no debt service on those units, a Public 
Housing Authority could allocate 25 project-based thrifty vouchers to 
that building so they can serve the extremely low-income residents. The 
vouchers are ``thrifty'' because they pay only up to 75 percent of the 
payment standard since they do not have to support debt service 
payments on a mortgage. Until the trust fund passes, the thrifty 
vouchers can be used with HOME or CDBG funds.
    We need to bring housing resources back up to where they belong and 
begin again the production of affordable housing in the United States. 
Everyone here knows that decent housing, along with neighborhood and 
living environment, play enormous roles in shaping young lives. Federal 
housing assistance over the past generation, has benefited millions of 
low-income children across the Nation and has helped in developing 
stable home environments. However, recent changes in the housing 
market, along with the potential decline in Federally-subsidized 
housing units in the near future, clearly show that we need to take 
additional steps to both produce and maintain affordable housing units. 
Otherwise, many more children and their families will live in 
substandard housing or become homeless. These children are less likely 
to do well in school and less likely to be productive citizens. They 
deserve our best efforts and require our help.
    Mr. Chairman, thank you for this opportunity to testify.

                               ----------
                  PREPARED STATEMENT OF ROBERT J. REID
            Executive Director, National Housing Conference
                              May 15, 2002

    Mr. Chairman and Members of the Subcommittee on Housing and 
Transportation, I want to thank you for the opportunity to appear 
before you today on the challenge of expanding the supply of affordable 
housing in this Nation. My name is Bob Reid. I am the Executive 
Director of the National Housing Conference (NHC) and its research 
subsidiary the Center for Housing Policy. NHC was founded in 1931 and 
is the Nation's oldest and most broadly-based nonpartisan advocate of 
affordable housing. Its member corporations and organizations represent 
all elements of those who produce, finance, and preserve affordable 
housing.
One Out of Every Seven American Families has a Critical Housing Need
    Over the last 4 years, the Center for Housing Policy has conducted 
extensive research on the housing needs of working families across the 
Nation. Our first report, Housing America's Working Families, which was 
published in June 2000, and based on 1997 American Housing Survey (AHS) 
data, found that over 13 million families had a critical housing need-- 
either they spent more than 50 percent of their income on housing or 
they lived in a seriously substandard unit. The most disturbing 
discovery in that report was that despite unprecedented economic 
prosperity, about 3 million households were working families with 
critical housing needs. These families earned between $10,700 a year 
(the equivalent of a full-time job at minimum wage) and 120 percent of 
the area median income.
    We updated Housing America's Working Families* in July 2001 and 
published Paycheck to Paycheck: Working Families and the Cost of 
Housing in America.* That report used 1999 AHS data and found that one 
out of every seven American families (13 million) still had a critical 
housing need. Notable in the research contained in that report, 
however, was the fact that low- and moderate-income families made up 
28.5 percent of the total number of working families with critical 
housing needs, compared to 23 percent previously, increasing from 3.0 
million to 3.9 million families. Paycheck to Paycheck also provided an 
occupational wage analysis examining whether working families that earn 
the prevailing wages for five selected occupations (teachers, retail 
salespeople, licensed practical nurses, police officers, and janitors) 
were able to pay reasonable costs for housing in the communities in 
which they live. We found that in the 60 largest housing markets across 
the country, retail salespeople and janitors were virtually shut out as 
potential homebuyers, and that individuals working in these same 
occupations were having great difficulty finding rental housing they 
could afford. While teachers, police officers, and nurses fared 
slightly better according to our findings, there was still ample 
evidence to underscore the fact that a larger and more economically 
diverse number of American families were unable to locate decent 
affordable housing for their families. To illustrate this point in more 
detail, we have attached two charts which illustrate the plight of 
retail salespeople and janitors in Providence, RI, and Denver, CO. 
Individuals in these occupations, according to our research, would need 
to pay multiples of their current salary to afford either a one- or 
two-bedroom rental unit or a median-priced home. Janitors, retail 
salespeople, and workers in other occupations we examined faced similar 
difficulties in many of the largest housing markets in this country.
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    *Held in Committee files.
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    Today, I am pleased to present to the Subcommittee the findings 
from our latest report, just released, Housing America's Working 
Families: A Further Exploration.* I would ask that the full text of 
this report be included in the record of these proceedings.
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    *Held in Committee files.
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    This report contains new and important findings on the housing 
needs of working families, including the following:

 One out of every seven American households (13 million) 
    continues to have a critical housing need. This includes 3.9 
    million households who work the equivalent of a full-time job.

 Rising housing costs are the primary culprit, affecting 
    homeowners and renters in nearly equal numbers.

 Critical housing needs are not just a ``city problem.'' While 
    four out of 10 working families with critical needs live in urban 
    areas, another four out of 10 live in suburban areas, with the 
    remainder living in nonmetropolitan areas.

 Geography matters. Low- and moderate-income working families 
    with critical housing needs are more likely than not to live in the 
    more than two dozen metropolitan ``hot spots,'' where high prices 
    reflect the lack of affordable housing. These areas had monthly 
    housing costs in the range of $735 to $1,167 in 1999, and include 
    such places as Boston, Chicago, Honolulu, Los Angeles, New York, 
    Trenton, Seattle, and Washington, DC.

 These high-priced markets exact other costs from working 
    families. Families are more likely to have longer commutes and are 
    more likely to share housing or other expenses than families in 
    lower-cost markets. They also are more likely to avoid high housing 
    costs by living in crowded conditions and, to a lesser extent, 
    living in poorer quality housing.

 Families with chronic housing needs tend to be more often 
    supported by a single worker than any other group.

 Racial and ethnic minorities are over-represented among 
    working families with chronic critical housing needs, making up 
    more than half (53 percent), compared with 42 percent of families 
    with temporary critical needs, and 29 percent of families without 
    any critical housing needs.

 Nearly a fifth (19 percent) of working families with chronic 
    housing needs are 
    female-headed families with children. Although having children does 
    not distinguish working families with chronic needs from those with 
    temporary needs, the number of children does. More than a third (36 
    percent) of families with children who have chronic housing needs 
    have three or more children, compared with 25 percent of families 
    with children whose housing needs are temporary.

    Taken together, the findings in these reports elevate our concerns 
about the housing needs of low- and moderate-income working families. 
This group is growing in numbers, yet it's been for the most part, 
overlooked by existing housing programs. NHC believes that housing 
policies (and resources) geared to the circumstances of working 
families need to become part of our overall commitment to decent, 
affordable housing for all Americans. Addressing the housing needs of 
these families, however, should not be viewed as part of a zero sum 
game. Families at or near the bottom of the income ladder--who are 
either out of the labor market or only marginally employed--continue to 
have the highest incidence of housing needs.
Affordable Housing Funding Must Become a Higher Priority
    NHC's research over the past 4 years underscores and brings into 
sharper focus what those of us in the housing community have known for 
years. This Nation does, indeed, have an affordable housing problem of 
crisis proportions. That said, it is more than unfortunate that this 
crisis is not well known and not well understood. News reports that 
trumpet record homeownership rates, increased housing starts and the 
overall strength of the private housing industry in an uncertain 
economy at best muddy the waters and at worst provide decisionmakers 
like yourselves with a false sense of security that all is well in 
America as it relates to housing. Our research indicates that all is 
not well.
    Far more troubling than this, however, is the ongoing refrain here 
on Capitol Hill that ``this will be a tight budget,'' and ``there is 
little or no room for increased domestic spending,'' and ``there is no 
political support for increased funding for Federal housing 
incentives.'' In fact, over the period of the last several years, we 
have, in a very real sense, painted ourselves into a corner such that 
marginal (and totally inadequate) increases in Federal spending for 
housing have been and may yet this year be viewed as a ``victory.''
    The National Housing Conference believes that the time has come to 
reach a new political consensus with respect to housing. This new 
consensus should be based upon an understanding and appreciation of the 
depth and breadth of the housing needs faced by American families. For 
far too long, housing policy at the Federal level has been formed by 
longstanding skepticism over failed housing initiatives, mismanagement 
at HUD and, more on the local level, the larger and less well- 
defined concerns often referred to as NIMBY-ism. The consensus that I 
am referring to must be based on a common belief that 13 million 
families with critical housing needs is unacceptable. This new 
consensus must stimulate a heightened sense of 
urgency and foster the political will necessary to address the housing 
needs of American families. We have the tools and we know what to do; 
now we must act.
    With our Nation battling terrorism and with national security 
concerns on everyone's mind, elevating housing will not necessarily be 
the most popular thing to do. However, NHC's members believe that 
national security, in its most basic form, begins in our homes and in 
our communities. In times of national crisis, we draw strength from our 
families and the stability that comes from a decent home and suitable 
living environment. Viewed in this manner and given the breadth of the 
current need for affordable housing that I noted earlier, housing, even 
in these troubled times, can and should be seen as a more important 
domestic priority and much more connected to our overall security 
interests here at home.
    As I mentioned, it is our contention that we are not lacking 
workable programs or housing expertise. What we need quite simply are 
more resources to either 
directly fund or leverage the dollars necessary to produce more 
affordable housing or preserve the current supply of affordable 
housing. The Federal dollars necessary to support many of the 
affordable housing programs we now have are simply not there in 
sufficient amounts to meet current needs.
Four Windows: A Metropolitan Perspective on
Affordable Housing Policy in America, 2001
    This past year, the NHC convened a series of roundtables with local 
housing professionals and community leaders in Minneapolis-St. Paul, 
New Orleans, Portland, and Seattle. We published an overview of these 
roundtables in a report called Four Windows: A Metropolitan Perspective 
on Affordable Housing in America, 2001.* I also would ask that this 
report be included in the record of these proceedings. In conducting 
these roundtable discussions, we were most impressed by the level of 
creativity and ingenuity that has been used in the effort to meet local 
needs for housing. In some respects, the absence of sufficient Federal 
funding has fostered (by necessity) a level of creativity that has 
enabled or encouraged local levies for housing in Seattle, a Housing 
Trust Fund in San Diego, tax-based sharing in Minneapolis-St. Paul, and 
regional planning with respect to housing in Portland. While these 
communities and many others are attempting to find new ways to meet 
local housing needs, leaders in these communities will tell you that 
the demand for new affordable housing across a wide range of incomes 
exists in almost record numbers. The demand for new affordable housing 
in these and many other communities around the country is not being 
satisfied by the private market. In the main, the private sector 
provides a product for those whose incomes enable them to enjoy the 
freedom and security that comes with the ability to buy or rent at the 
high end.
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    *Held in Committee files.
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    During these roundtables there were several common themes with 
respect to the role of the Federal Government in housing that should be 
explored in greater detail by this Committee, including:

 Federal conventions and standards create unintended 
    consequences in delivering housing assistance.

 Despite the Federal Government's stated intent to give the 
    States and localities considerable discretion in designing programs 
    and directing resources, Federal policies and regulations do 
    sometimes unnecessarily limit localities' ability to deal with 
    local issues.

 Even where direct Federal expenditures are not involved, 
    Federal policies can fail to take into account variations in State 
    and local circumstances.

    In specific response to your question about the need for more 
production of affordable housing for working families, we found that at 
all four roundtables there prevailed a common view that, as a Nation, 
we must encourage and reward the local and State efforts to produce and 
preserve affordable housing. After all, it is local tax, planning and 
zoning decisions that really determine what is done or not done about 
affordable housing. And it is precisely in those communities where 
affordable housing for working families is most needed that the most 
opposition to such housing exists.
    The challenge, it was generally agreed, is to fashion the right 
kind of incentives that will encourage those communities to recognize 
and support the production and preservation of affordable housing. 
Proven tools to create affordable housing exist, such as inclusionary 
zoning, local levies, trust funds, employer support, regional 
strategies, and other revenue raising techniques. Participants urged 
that we find ways to reward and support these absolutely necessary 
activities while recognizing the importance of local diversity and 
creativity. Federal and State incentives to 
localities to promote affordable housing could include challenge 
grants, funding 
formulae, consolidated plan improvements, and tax benefits.
    In summary, NHC is recommending that two actions be taken. First, 
that additional resources be provided for proven tools and programs 
that we currently have, including HOME, CDBG, and Section 8, etc. 
Second, we hope this Subcommittee will focus attention on State and 
local efforts to promote affordable housing and explore ways to make 
these activities more appealing through the use of incentives.
    Mr. Chairman, this concludes my testimony. I would be happy to 
answer any questions you or other Members of the Subcommittee may have, 
and NHC welcomes the opportunity to continue to assist you in the work 
of this Subcommittee.




                    PREPARED STATEMENT OF JOANN KANE
        President and Chief Executive Officer, McAuley Institute
                              May 15, 2002

    Mr. Chairman and Members of the Committee, thank you for inviting 
me to share our ideas about the affordable housing needs of working 
families and possible solutions. As President of McAuley Institute, a 
women's housing intermediary, I would like to address some special 
concerns of women working to support their families on small incomes. 
Mr. Chairman, I would also like to express my gratitude for the 
leadership you have shown, as well as the dedication, knowledge, and 
openness of your staff.
    McAuley Institute, through technical assistance and financial 
resources, attempts to bring compassionate business acumen to the 
development of emerging, nonprofit housing development groups, most of 
them led by women working to improve conditions in their communities. 
Founded in 1983 by the Sisters of Mercy, McAuley is a faith-based 
institution headquartered in Silver Spring, Maryland. We have regional 
offices in Houston, Austin, and Raleigh.
    Overall, I believe two emphases are needed in Federal policy. 
First, we need a large infusion of resources for production to meet the 
Nation's current affordable housing crisis. And second, we need to pay 
attention to the more nuanced housing needs of special populations like 
battered women and people who are homeless, those living with HIV/AIDS 
and those leaving welfare. Women and minorities make up a 
disproportionate share of these groups, and their plight is rooted in a 
history of racism, sexism, and segregation. Federal leadership is 
warranted because the marketplace, State and local governments often 
lack either the will or the capacity to adequately respond.
    In my testimony, I would like to make five specific recommendations 
and also highlight some of the successes that McAuley Institute has 
been a part of, through our nonprofit partners, at the grassroots 
level.
Need for Production for Extremely Low-Income Families
    First, we believe that a trust fund would be the right choice to 
dedicate resources to expand our Nation's affordable housing 
infrastructure. We believe that the Congress should enact a national 
housing trust fund targeted to extremely low-income people and 
sufficient to build, rehabilitate, or preserve 1.5 million units over 
10 years. We appreciate Senator Kerry's introduction of S. 1248 that 
would create such a trust fund.
    Even on a scale of 150,000 units a year, it will take many years to 
assure a safe, decent affordable house for all. The shortage of units 
that are both affordable and available to extremely low-income 
households (those with income less than 30 percent of the area median) 
is 5.3 million. In 1999, of the 4.9 million households HUD defines as 
having ``worst-case housing needs,'' slightly more than half were women 
or women-headed. So 1.3 million were elderly households, including 62 
percent women or women-headed; 1.8 million were households with 
children, 51.4 percent of them headed by women.
    The social benefits of affordable housing opportunities are really 
astounding. Jens Ludwig, a Brookings Institute fellow and a Georgetown 
University professor, cited research at a conference last month 
indicating that the impact of housing vouchers on children's reading 
tests was equivalent to that of reducing the class size from 22 to 
15.\1\
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    \1\ The reference was to Section 8 vouchers under the Moving to 
Opportunity demonstration, which combines a voucher, choice of 
location, and employment support. In the same program, significant 
improvements are being documented in health, mental health, and 
parenting according to Ludwig.
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    Some object to a trust fund on the face of it, but this Nation has 
long recognized the appropriateness of dedicating related revenues for 
such purposes as road building, airport operation, and old age 
security. For affordable housing, we should look to the FHA and Ginnie 
Mae surpluses or the tax subsidies that now drive the over-production 
of McMansions and second and third homes. Assistant Secretary for 
Housing and FHA Commissioner John Weicher acknowledged in testimony 
before this Subcommittee last month that these surplus receipts do 
indeed exist. Unless the excess not needed to guarantee FHA solvency is 
captured for another housing purpose, such as a trust fund for 
extremely low-income households, these surpluses will continue to 
accumulate in the General Treasury and be expended for nonhousing 
purposes. FHA borrowers last year received a share of the surplus 
through reduced premiums. In addition, since they have already 
benefited from a Federal program that enabled them to become 
homeowners, it is only fitting that the surplus, largely attributable 
to a strong economy, now be ``recycled'' to reach the millions of needy 
families who receive no Federal housing assistance.
Assuring the Community's Voice in Homeless Planning
    My second recommendation, Mr. Chairman, is that all housing 
programs require transparent community planning processes such as one 
employed by Continuum of Care programs. In your draft legislation 
reauthorizing the McKinney-Vento homeless programs, we strongly support 
your position in favor of the Continuum of Care process and your 
proposal for new funding for permanent housing for the chronically 
disabled and homeless families. We strongly believe that decisions made 
in collaboration among public officials, community stakeholders, and 
expert nonprofit providers are preferable to the vagaries of a block 
grant program.
    About 1 percent of the U.S. population is likely to experience 
homelessness at least once during a year, according to a 2000 Urban 
Institute study. Persons in families, usually mothers and children, 
make up one-third of those homeless on any given night. We understand 
that your bill will propose an increased authorization level and a 
permanent national set-aside for permanent housing for the chronically 
disabled and the homeless families. This is important because it is 
unbelievable that any child ever spend one night without a roof over 
her head. Families, mostly mothers and children, are the fastest 
growing segment of the homeless population, and affordable, permanent 
housing is ultimately what they need. At the same time, an emphasis on 
permanent housing for the chronically disabled is important because, 
over the long-term, those most susceptible to recurring bouts of 
homelessness are disabled persons who need ongoing medical and other 
supportive services.
    Mr. Chairman, I know you have been a visitor at McAuley Village in 
Providence, Rhode Island, whose Executive Director, Sr. Dolores 
Crowley, served on our board of directors at McAuley Institute. McAuley 
Village is an excellent example of how comprehensive, individualized 
services, along with safety and security, and help young single parents 
achieve self-sufficiency. With an average residency of 21 months, 60 
percent of McAuley Village's residents have found jobs in such fields 
as engineering, nursing, banking, and cosmetology. Some have started 
their own businesses and others have bought their own homes.
Meeting the Housing Needs of Domestic Violence Survivors
    About half of homeless women are fleeing domestic violence, 
bringing me to our third recommendation. Women fleeing a batterer or 
sexual predator need not only a place to live, but also a sanctuary for 
protection. To meet their particular needs for security, privacy, and 
personal support, the Senate should act on the VAWA housing assistance 
authorization, at $25 million, which recently passed the House as part 
of the Child Abuse Prevention and Treatment Act (H.R. 3839) and is now 
pending before the Senate Committee on Health, Education, Labor, and 
Pensions. This provision, originally passed as part of VAWA 2000 but 
never funded, provides for support services and up to 12 months of cash 
assistance for transitional housing for domestic violence survivors in 
danger of becoming homeless.
    To go a step further, the Committee should consider drafting a 
companion bill to the Domestic Violence and Sexual Assault Victims' 
Housing Act (H.R. 3752) introduced by Representative Jan Schakowsky. 
This measure would authorize $50 million for housing, including 
construction, and the appropriate services for battered women. This 
measure would provide a continuum between emergency shelter and 
independent living, either in the form of transitional housing 
production or financial assistance for security deposit, first month's 
rent and transitional rent assistance. The legislation has bipartisan 
support. Women need both full funding of McKinney programs plus a new 
initiative to address the particular needs of all women escaping 
domestic violence.
Supporting the Link Between Housing and Employment for TANF Leavers
    Fourth, we believe Congress should act to make housing available as 
a support service for those who recently or soon will be expected to 
leave welfare. Although housing assistance can greatly increase the 
ability of families to become gainfully employed, only 30 percent of 
welfare recipients receive any form of housing subsidy. The Manpower 
Demonstration Research Center's evaluation of the Minnesota Family 
Investment Program, found the greatest impact on employment and 
earnings to be among families that received housing assistance in 
addition to other TANF benefits and services. Their employment rates 
were 18 percentage points higher and quarterly earnings 25 percentage 
points higher.
    Senator Kerry's bill, S. 2116, the Welfare Reform and Housing Act 
(S. 2116) would give flexibility to States to treated housing 
assistance as a work support, or ``nonassistance'' under TANF, in the 
same manner as child care and transportation assistance paid with TANF 
funds are now. In addition, S. 2116 would authorize a $50 million HHS -
HUD demonstration of innovative ``housing with services'' programs for 
TANF recipients facing multiple employment barriers, including 
homelessness, unstable and precarious housing.
    Iowa Department of Human Services data show that 52 percent of 
recent welfare leavers had insecure housing arrangements 2 years later. 
Of the leavers, 24 percent were unable to pay the rent or mortgage, 19 
percent were doubled up and 8 percent were homeless. Under such 
precarious circumstances, obtaining and keeping steady employment 
becomes extremely difficult. The demonstration program would address 
not only the housing situation but also through appropriate services, 
health and mental health and skill deficits facing some of those who 
remain on welfare.
    An example of such a housing and services approach is provided by 
one group McAuley works with in Philadelphia. The Women's Community 
Revitalization Project (WCRP), builds housing and manages services for 
women who have numerous obstacles to self-sufficiency--limited fluency 
in English, education deficits, lack of work experience, physical 
disability, the lack of constructive children's activities, and traumas 
left from domestic violence and crime. (Domestic violence is a factor 
in the need for assistance by nearly half of all TANF cases.) In this 
eastern part of North Philadelphia, approximately 70 percent of 
residents receive public benefits and the remainder support their 
families on less than $16,000 a year.
    The WCRP, like some other nonprofit groups, does not take a 
developer's fee. This allows the group to rent units for as little as 
$150 per month. Four years after becoming WCRP tenants, only 30 percent 
of the women remain on public assistance. Such success comes from 
services tailored to each individual. Many of the social, education, 
and employment services already exist in the community, but others like 
child care are provided in conjunction with the housing and case 
management. Frequently, WCRP staff are called on to assist in crises 
arising from illness, domestic violence, loss of employment or economic 
support, child abuse, suicide attempts, and conflicts between tenants. 
The case manager also helps resolve potential lease violations before 
they occur. As a result, the program has experienced very low eviction 
rates. WCRP encourages tenants to join the WCRP board, advisory 
committee, and other committees that play a role in management.
    WCRP's model is similar to a variety of approaches that could be 
tested and evaluated as part of the demonstration authorized in S. 
2116. The proposal would also allow up to 10 percent of funds for 
testing approaches that would promote housing stability, employment 
retention, and responsible parenthood among noncustodial parents. While 
such a demonstration and treatment of housing as a work support are 
issues that can be addressed under welfare reform reauthorization, 
there are changes in housing programs that this Committee should 
consider to facilitate the movement of TANF recipients to economic 
independence:

    Authorization and appropriation of Welfare to Work vouchers linked 
    with PHA workforce programs. Experience with the 50,000 vouchers of 
    this type appropriated in fiscal year 1999 suggests that, in 
    addition to helping families, the program provided positive 
    incentives for cooperation between PHA's and workforce investment 
    agencies.
    Provision of funds to help families with vouchers move closer to 
    jobs. To obtain housing in areas where more jobs are available than 
    where they currently live, TANF recipients who also receive 
    vouchers often need assistance to become familiar with new 
    communities and identify willing landlords. Housing search 
    assistance costs up to $3,000 per family, but the PHA's currently 
    do not get additional administrative fees for this purpose from 
    HUD. PHA's unable to use all their allocated voucher funds should 
    be permitted to use a portion for the one-time costs of housing 
    search assistance. Additional funds should be made available for 
    those that have no other funds to use for such assistance.
    Modification of the Family Self-Sufficiency Program so it is able 
    to reach more than the 1.5 percent of eligible TANF families that 
    it now enrolls. FSS is a HUD-administered employment and savings 
    incentive program for low-income families that have housing 
    vouchers or live in public housing. Earnings held in escrow may be 
    used for downpayments toward homeownership. Families that live in 
    project-based Section 8 units are not currently eligible for FSS. 
    Congress should amend that restriction and clarify that HUD may 
    provide funding for multiple FSS coordinators to PHA's with large 
    public housing FSS programs.
    Clarification that legal immigrant victims of domestic violence 
    eligible for TANF and other welfare-related benefits are also 
    eligible for housing benefits under Section 214 of the Housing and 
    Community Development Act. When the welfare law was passed in 1996, 
    Congress in an apparent oversight failed to extend the same 
    eligibility to housing assistance, as it did for other benefits, 
    for abused immigrants who have filed a petition for permanent 
    residence or related relief under the 1994 Violence Against Women 
    Act (VAWA).
Sustaining the Role of Nonprofits
    McAuley's final recommendation is that Congress recognize the 
unique ability of nonprofits to develop affordable housing by 
encouraging the participation of nonprofit developers in any housing 
production legislation. Nonprofits could become even more productive 
and efficient if Federal policy helped streamline the financing process 
and eliminate duplicative paperwork.
    While the private market and tax policy encourage private 
developers to build larger and more expensive units, nonprofits are 
dedicated to long-term affordability, often for the lowest income 
families in a community. One nonprofit McAuley has worked with, 
Bickerdike Redevelopment of Chicago, is virtually the only developer of 
affordable housing in the city's changing West Town according to a 
recent study by the University of Illinois at Chicago. Long-term 
affordable housing is only 7.4 percent of the present stock of this 
once economically and ethnically diverse neighborhood not far from the 
Loop.
    Another example of the growing sophistication of these groups is 
S.A.F.E. (Stop Abusive Family Environments) in southern West Virginia, 
which McAuley has worked with for at least 6 years, helping the staff 
and board on strategic planning, project development, resource 
development and, now, homeownership counseling. (Our assistance has 
been funded under a HUD CHDO TA contract.) S.A.F.E. began by renovating 
a former school building to create transitional housing for 31 domestic 
violence survivors and homeless women with children. Now the 
organization has not only helped hundreds of women working to recover 
from trauma and support their families, but has also grown to become 
the county's largest housing developer and, after the hospital, its 
largest employer.
    S.A.F.E. has become a certified Community Housing Development 
Organization (CHDO) under the HOME Partnership Investment Act. Having 
built both homeownership and rental units, S.A.F.E. and a partner have 
created a low-downpayment mortgage product that will foster 
homeownership in a county whose median income is only $19,000.
    Recently, the McDowell County Commissioner asked S.A.F.E., through 
resources S.A.F.E. would need to leverage, to provide for the 
relocation of 1,000 households to be impacted by an Army Corps of 
Engineers flood protection project. But just last week, we received a 
heart-breaking call from S.A.F.E's Director, Sharon Yates, who reported 
that the flood that struck her area the week before had taken 2,000 
homes in addition to the five lives known lost. Suddenly, the looming 
housing shortage units has tripled to 3,000. Meanwhile, one of the many 
public and private partners S.A.F.E. has worked with, HUD's Rural 
Housing Economic Development (RHED) Program, stands to loose its 
funding, $25 million in fiscal 2003.
    Funding must be protected for programs on which nonprofits like 
this depend to do their work--programs like the HOME Investment 
Partnerships, CHDO TA, the Community Development Financial Institutions 
fund, (CDFI), and USDA housing programs. Like RHED, most of these are 
cut or provided no increase in the Administration's budget request for 
fiscal 2003. The budget request would zero out RHED. The request for 
CDFI is $68 million, or 15 percent less than fiscal year 2002 and 42 
percent less than fiscal year 2001. The request for the USDA Section 
515 Rural Rental Production Program is $60 million, or 47 percent below 
the current $114 million. HOME would remain at the same level, but the 
Administration would continue to cut the amount for technical 
assistance to nonprofit developers. HUD offered no funding for CHDO TA 
in its recent Super NOFA. The line item it comes from (for technical 
assistance and management information systems) has fallen from $22 
million in fiscal year 2001 to $12 million requested for next year.
    The nonprofit sector in housing and community development started 
to blossom only after 1987 passage of the National Affordable Housing 
Act which established and legitimized CHDO's. HOME-funded technical 
assistance has helped nonprofits become more sophisticated. The 15 
percent HOME set-aside for CHDO's helped open the eyes of State and 
local officials to the effectiveness of nonprofits. In 1986, the year 
prior to HOME's enactment, Low-Income Housing Tax Credit was adopted 
and made a significant source of funds available to nonprofit 
developers.
    In the past 15 years, there has been a tremendous growth in the 
number of CHDO's and CDFI's. Nonprofits have produced over 550,000 
units, or one-third of the subsidized housing stock according to the 
National Congress of Community Economic Development. Nonprofits have 
succeeded, where others have not tried, in getting prices down so that 
units are affordable at less than 50 percent of median 
income. Units such as WCRP's rent for as little as $150 per month. We 
also know from the GAO and elsewhere that nonprofits provide a quality 
product tailored to the particular needs of poor populations, including 
disabled and elderly persons and large families. Often this work is 
done under challenging environmental and political circumstances.
    Because we are charitable, tax exempt organizations, nonprofit 
intermediaries, and developers have been able to bring billions of 
dollars from an array of sources to the task of affordable housing. 
Without nonprofits, these charitable contributions from foundations, 
community institutions and businesses would not be available for 
housing. The Nation's socially conscious investors would find other 
uses for the funds they put now into affordable housing. Nonprofit 
housing developers also have used the Community Reinvestment Act, Home 
Mortgage Disclosure Act, and Fair Housing laws to hold financial 
institutions accountable for serving and investing 
equitably in low-income and minority areas.
    In addition, community-based nonprofits have learned to collaborate 
with institutional partners like hospitals and universities to develop 
housing and link it to human services and employment. These 
partnerships have resulted in larger-scale development than community 
organizations would be able to produce on their own.
    Nonprofit organizations are maintainers as well as builders of 
affordable housing. According to NCCED, they manage 59 percent of the 
housing they produce. Because they are mission-driven, this stock is 
more likely to be maintained in sound condition and kept affordable for 
the long-term. The nonprofit housing organizations also tend to provide 
a range of services, including health, recreation, social services, and 
crime prevention. We found this to be particularly so among women-led 
community development organizations in our 1999 study, Women as 
Catalysts for Social Change. Nonprofit organizations, particularly 
those led by women, emphasize community planning and organizing to 
strengthen residents' influence with Government and private 
institutions. Nonprofits help empower residents to advocate for the 
benefit of the community.
    Besides drawing capital into poor areas for housing and economic 
development, nonprofits like S.A.F.E. not only incubate small 
businesses but also become significant employers themselves, all the 
time helping to develop skills and careers for community residents. 
Nonprofits have become an engine of social and economic change in areas 
the private sector has written off. S.A.F.E. has brought $2 million in 
investment into a county that, once the richest in West Virginia, is 
now the fifth poorest in the Nation.
    We need more CHDO's nationally, particularly in the many areas 
where none now exist. One unofficial estimate is that only 20 percent 
of communities which could use community development organizations have 
them. Many of these places are outside the largest urban centers. Many 
are in rural areas and small cities and towns, especially in the South. 
Often these are places where there is little interest by the private or 
public sectors in building affordable housing or supporting community 
development. The 15 percent set-aside for CHDO's in the HOME program 
will continue to be an important means of getting Federal support to 
new organizations in such areas.
    In our experience, great potential arises daily out of faith 
communities, neighborhood organizations, and even individuals who 
become inspired to do something for their neighborhoods. At McAuley 
Institute, we do not have the staff to meet all the requests we get for 
technical assistance from people like this who want to start a new 
housing nonprofit. At times requests have outsized our capacity by a 
factor of seven to one.
    Nonprofits encourage human ingenuity as people in communities 
struggle to solve real problems with very little financial capital. In 
places like San Juan, Texas, Proyecto Azteca has been trying to meet 
and improve deplorable housing conditions for Mexican immigrants, 
mostly farm workers, who earn $4,500 to $13,500 a year. In 1992, 
McAuley made Proyecto its first loan from our CDFI-supported loan fund 
and we have continued to provide, pass-through grants and hands-on CHDO 
TA for project, organizational and resource development. Since 1992, 
Proyecto has supervised the construction of over 160 self-help homes by 
the people who eventually purchased them. Production has grown from 
five to over 35 houses per year.
    Recently, the organization has experimented with a new housing 
model known as ``cascarones,'' or shell houses. The strategy is 
consistent with the self-help philosophy and a culture in which people 
are accustomed to buying only as much of a product that they can afford 
at the time. At $10,000 per unit, the cascerones are affordable to low-
income families who then may finish them according to their needs and 
financial ability. Proyecto Azteca's goal is to offer houses that even 
the lowest-income colonia residents can afford. Like S.A.F.E., Proyecto 
has developed an affordable mortgage product with another housing 
organization and hopes to become a CDFI itself.
    The cascarones strategy also helps Proyecto stretch its resources 
further in the face vast housing needs along the border, including the 
need to install water and sewer facilities, roads and drainage. As a 
CHDO, Proyecto has depended on HOME and USDA funds. For Proyecto, one 
difficulty with HOME is that funds may be used to buy land but not buy 
down leased property. Most of their clients own the structures on land 
leased from landlords.
Conclusion
    In summary, Mr. Chairman, we hope that America's low-income working 
families will see the fruits of the spotlight that this Committee, the 
Millennial Housing Commission and others have thrown on our frayed 
affordable housing infrastructure. A dedicated source for investment in 
large-scale production will be critical to repair the gap. The 
nonprofit developers are ready and able to help as partners in this 
endeavor and, at the same time, to minister to the whole range of human 
frailties and obstacles that confront certain subgroups of those who 
are inadequately housed.

                               ----------
                 PREPARED STATEMENT OF DAVID W. CURTIS
                  Chairman, Housing Finance Committee
                 National Association of Home Builders
                        Executive Vice President
                   Leon N. Weiner & Associates, Inc.
                              May 15, 2002

Introduction
    On behalf of the 205,000 members of the National Association of 
Home Builders, I want to thank you for inviting us to speak about the 
housing affordability issues facing our country. My name is David 
Curtis, and I am a builder from Wilmington, Delaware. I currently serve 
as Executive Vice President of Leon N. Weiner & Associates, Inc., a 
Wilmington-based home building, development, and property management 
firm. The Weiner organization and its affiliates have developed and 
constructed more than 4,500 homes and 9,000 apartments, as well as 
several hotels, office buildings, and retail facilities.
Background on the Affordable Housing Needs of Working Families
    The Center for Housing Policy released two reports recently as part 
of a series the Center is publishing concerning the housing needs of 
America's working families. The first, Paycheck to Paycheck: Working 
Families and the Cost of Housing in America, was published in June 
2001. The most recent report, Housing America's Working Families: A 
Further Exploration, was released in March 2002.
    These reports focus on the characteristics and housing cost burdens 
of working families, defined as those earning between the equivalent of 
a full-time minimum wage job ($10,712) and 120 percent of area median 
income. The Center is focusing on this group because there are signs of 
persistent and worsening housing affordability for them in all parts of 
the country, including cities, suburbs and rural areas, despite general 
economic prosperity.
    Workers in municipal jobs, such as teachers and police officers, 
and in the services sectors, such as janitors, licensed practical 
nurses, and salespeople, fall into this group of people and are a large 
and growing component of many local economies. The growth in such jobs, 
however, is not matched by the growth in the supply of affordable 
housing, creating an increasingly difficult situation for both renters 
and homeowners.
    According to the March 2002 report, in 1999, there were 13 million 
American families that had a critical housing need, which is defined as 
paying more than 50 percent of their income for housing or living in 
severely inadequate housing. This is a decline of less than 1 percent 
from 1997. The proportion of low- to moderate- 
income working families with critical housing needs rose from 23 
percent in 1997 to 29.4 percent in 1999, going from 3 million to 3.9 
million families.
    For low- to moderate-income working families experiencing critical 
housing needs, eight out of 10 pay more than 50 percent of their income 
for housing. The other 20 percent of these families live in severely 
inadequate housing. And the problems of low- and moderate-income 
families with critical housing needs are geographically widespread--1.7 
million of these families reside in central cities, 1.5 million live in 
the suburbs and another 656,000 live in nonmetropolitan areas.
    The report also states that housing cost burdens overall are 
worsening, with 38 percent more renters and 22 percent more homeowners 
having a critical housing need in 1999 compared to 1997.
    The June 2001 report conducted an in-depth look at rental and 
homeowner affordability for low- and moderate-income working families, 
using five typical service- 
related occupations in 60 different metropolitan areas. The report 
finds that in not one of these areas could renters afford a two-bedroom 
unit without paying considerably more than 30 percent of their income 
for rent, and often two earners in the household were required to pay 
for housing costs. And on the homeownership side, the report found that 
unless a household had two earners, it would not be able to purchase a 
median priced home in two-thirds of the metropolitan areas examined. 
The report also points out that many of these households will be forced 
to remain renters for the indefinite future, putting further pressure 
on the affordable rental housing stock.
    The Joint Center for Housing Studies of Harvard University's ``The 
State of the Nation's Housing'' 2001 report had similar findings 
regarding increasing housing 
affordability stresses low- and moderate-income families. This report 
also discusses the imbalance between the supply of affordable units and 
the growing demand for them. The report states that although 1.6 
million rental units were constructed during the 1990's, 1.25 million 
units were removed.
    The ``State of the Nation's Housing'' report also points out that 
the limited production of units affordable to low- and moderate-income 
households is likely to cause the critical housing needs problem to 
spread further to moderate-income families. While Federal housing 
programs, such as housing vouchers and tax credits, can provide housing 
for very low-income households and still be profitable to owners, the 
report states that increasing land costs have made rental units for 
moderate-income households barely profitable.
    The report concludes by saying that housing affordability, which is 
already a critical problem for very low- and low-income households, is 
beginning to affect more moderate-income households, too, and that it 
is likely to worsen over the next decade. The report cites the growing 
pressure to restrict growth and land development, exclusionary zoning 
practices, and high land costs as hampering the production of new 
affordable units and that these factors will make it increasingly 
difficult to help even moderate-income families.
NAHB Recommendations
    NAHB appreciates that Congress and the Administration must 
reconcile significant demands on the budget every year, but especially 
this year because of the need to expand homeland security and defense 
in light of the September 11 attacks. That being said, we believe there 
are a number of steps that can be taken to improve existing housing 
programs to produce more affordable rental housing and to help low- and 
moderate-income households become homeowners. However, we believe that 
it is necessary to consider some new programs as well, particularly 
related to multifamily rental housing, because if we continue to delay 
addressing current needs, it will be even more difficult to resolve 
these problems in the future.
Housing Impact Analyses
    Layers of excessive and unnecessary regulation imposed by all 
levels of government--Federal, State, and local--can add 20 to 35 
percent, or thousands of dollars, to the cost of a new home, making it 
difficult or even impossible for families to achieve homeownership or 
find affordable rental housing. The housing industry needs sensible, 
appropriate, and balanced regulations and guidelines at all levels of 
government. NAHB believes the elimination of unnecessary barriers to 
the production of affordable housing should be a critical element of 
our national housing policy.
    It is NAHB's position that Federal agencies (with some limited 
exceptions) should be required to conduct a housing impact analysis for 
any new proposed and final rule, if that rule will have an economic 
impact of $100,000,000 or more on housing affordability. Agencies 
should be required to prepare an initial housing impact analysis for 
each proposed rule and have it published in the Federal Register at the 
same time as the proposed rule, including an invitation to the public 
to comment. The initial impact analysis should contain a description of 
the reasons an agency is taking the action; the objectives and legal 
basis for the rule; and, an evaluation of the extent to which the rule 
would increase the cost or reduce the supply of housing or land for 
residential development. The initial analysis should include a citation 
of any Federal rules that may be duplicative or conflict with the 
proposed rule.
    Each final housing impact analysis should contain a statement of 
the need for and objectives of the rule; a summary of the significant 
issues, analyses, and alternatives to the proposed rule raised during 
the proposed rule public comment period; a description and estimate of 
the extent to which the rule will impact housing affordability or an 
explanation of why no such estimate is available. The agency should be 
required to make the final housing impact analysis available to the 
public and to publish it in the Federal Register.
    We also believe that, no later than 1 year after enactment of the 
housing impact analysis requirement, the Secretary of HUD should 
publish model initial and final housing impact analyses in the Federal 
Register. The model analyses should define the primary elements of 
housing impact analyses to instruct other agencies on how to implement 
the requirement.
    NAHB believes that housing impact analyses will greatly help in 
reducing the number of regulatory barriers to the production of 
affordable housing, and we urge you to consider it as an important 
element of future housing policy.
A New Multifamily Rental Production Program
    As we discussed earlier, despite the Nation's general prosperity, 
there continues to be a critical shortage of affordable rental housing 
for both low- and moderate-income households. NAHB believes that the 
establishment of a new rental housing production program that produces 
60,000 to 70,000 units annually should be a top housing priority for 
the Administration and Congress this year. As described in the reports 
we cited, there is a need for a new multifamily rental housing 
production program that would meet the affordable housing needs of 
households with incomes between 60 and 100 percent of area median 
income (AMI), America's ``working poor.'' These households are not 
eligible for housing assistance through most current Federal housing 
programs.
    NAHB has developed an approach different from several current 
proposals, including the new HOME production program contained in H.R. 
3995. Our program is designed to produce mixed-income housing, which 
has proven to provide greater financial stability and community 
acceptance than developments that concentrate very low- and low-income 
households. The program focuses primarily on the working poor, although 
a portion of each property (up to 25 percent) is reserved for very low- 
and extremely low-income households.
    There are several ways in which this program could work. Our 
proposal relies primarily on the low-interest rates available through 
Government National Mortgage Association (Ginnie Mae) guaranteed lower 
floater securities, which carry very low rates of interest. The 
securities could be issued by a variety of entities, including 
developers, private lenders, housing finance agencies, and local 
governments. Ginnie Mae would guarantee the timely payment of principal 
and interest to investors, which would further lower financing costs. 
Underlying loans could be backed by the Federal Housing Administration 
(FHA) or the Rural Housing Service (RHS), or could be conventional 
loans (use of the latter would require a change in Ginnie Mae's 
charter).
    Interest rate subsidies or buy-downs could be employed to achieve 
additional affordability. To further reduce debt coverage requirements, 
developers may also use sources of equity and soft-second debt such as 
tax credits, HOME, the Federal Home Loan Bank System's Affordable 
Housing Program, and State housing trust funds.
    The only Federal budget dollars required would be for any credit 
subsidy needed for Ginnie Mae's participation, interest rate subsidies 
or buy-downs, and a marginal increase in the cost of rental assistance 
vouchers for those units serving very low- and extremely low-income 
households. The program would require only a small amount of Federal 
Government subsidy per development and would provide for ongoing 
maintenance and future capital improvements by building in adequate 
reserves from monthly cash flow at a level sufficient to rehabilitate 
the development in year 2020. A minor modification to the existing 
voucher program rent payment standard would ensure that very low- and 
extremely low-income households could be served. The program would work 
in all areas of the country, including urban and rural areas.
    The program also provides incentives to owners through deferral of 
profits and by making the recognition of any gains contingent on 
property performance (both financial and physical) throughout the 40-
year period that the units must be held in the affordable housing 
stock. There should be no exit tax on noncash appreciation of the 
property when an owner sells the property. However, if the property is 
sold after 40 years, 50 percent of the equity appreciation should be 
returned to the Federal Government to produce additional affordable 
housing.
    The program could be administered by State housing finance 
agencies, which already administer the tax credit program, HOME, CDBG, 
and other housing loan and grant programs. Centralized administrative 
elements could be handled by HUD, which already performs similar 
functions for many of the programs listed above.
    In looking at how a new production program might work, NAHB 
believes we need to tackle affordability problems at all income levels. 
We urge you to take a close look at our proposal as you consider how to 
address this issue.
Federal Housing Administration (FHA) Multifamily Programs
    NAHB is a strong supporter of the FHA Multifamily Mortgage 
Insurance Programs. We have worked with HUD and Congress over the years 
to bring improvements to the programs, which are critical to addressing 
the Nation's affordable housing needs.
Indexing the Loan Limits to Inflation
    NAHB applauds Congress and HUD for increasing the FHA multifamily 
mortgage loan limits by 25 percent last year. The increase has already 
assisted in opening up markets previously unable to use the programs 
because the loan limits were too low. However, NAHB believes that, 
without an indexation for inflation, any gains realized from the 25 
percent increase will be quickly lost.
    We believe that the FHA multifamily mortgage loan limits should be 
indexed to inflation, as measured by the annual construction cost index 
published by the Bureau of the Census of the Department of Commerce. 
Indexing the loan limits will help stabilize the programs and give 
builders and lenders confidence that they will be able to use the 
programs in their communities every year, even as construction and land 
costs rise over time.
Increasing the High-Cost Limits
    NAHB also strongly believes that housing needs in high-cost markets 
where the base loan limits are too low must be addressed. Currently, 
the law gives the Secretary of HUD the discretion to increase the base 
limits by up to 110 percent in geographic areas where construction 
costs are very high. The Secretary is also able, at his discretion, to 
approve an increase of up to 140 percent for individual projects in 
high-cost areas. However, there are a number of high-cost urban 
markets, such as New York, Boston, San Francisco, Chicago, and Los 
Angeles, where construction costs are significantly higher than in 
other areas of the country, and the high-cost factors have not been 
sufficient to allow use of the FHA Multifamily Mortgage Insurance 
Programs. NAHB conducted an analysis of those five high-cost urban 
areas, which demonstrates that, even with the recent 25 percent 
increase and current high-cost factors, costs exceed the current 
limits.
    NAHB supports an increase in the maximum high-cost factor from 110 
percent to 140 percent in geographic areas and an increase in the high-
cost factor from 140 percent to 170 percent on a project-by-project 
basis. NAHB believes that indexing the loan limits to inflation and 
increasing the high-cost factors together will greatly improve 
effectiveness of the FHA Multifamily Mortgage Insurance Programs. 
Markets previously unable to use the program would be able to start 
increasing the supply of much-needed new affordable housing for low- 
and moderate-income families.
FHA Single-Family Mortgage Insurance
    NAHB is also recommending some improvements to the FHA Single-
Family Mortgage Insurance Programs that increase the efficiency of 
FHA's programs and enable these programs to make homeownership 
attainable for more families.
Downpayment Simplification
    The FHA simplified downpayment procedure was first implemented as a 
successful pilot for residents of Alaska and Hawaii, and then was 
expanded nationally 3 years ago via a series of temporary extensions. 
The most recent extension of the 
authority for the simplified method of calculation is scheduled to 
terminate on December 31, 2002.
    The Senate Banking Committee Chairman Paul S. Sarbanes (D-MD) 
recently 
introduced S. 2239, the ``FHA Downpayment Simplification Act of 2002,'' 
and this legislative provision is also contained in H.R. 3995. NAHB 
supports making the simplified downpayment calculation method permanent 
and urges Congress to enact this measure.
    The strength of the Mutual Mortgage Insurance Fund has improved 
each year since 1998 when this provision was temporarily enacted. This 
procedure actually offers a simplified method of maximum mortgage 
calculation. The simplified method results in greater loan-to-value 
ratio loans than permitted under the previous calculation method.
    The simplified calculation multiplies a loan-to-value percentage 
times the lesser of the appraised value or the sale price. By contrast, 
the former system required that the acquisition cost first be 
determined, then two calculations were performed: One in which the 
acquisition cost was multiplied by a tiered series of percentages; and 
a second in which the appraised value was multiplied by a factor. Under 
the former system, the maximum mortgage was the lesser of the two 
products.
Hybrid ARM Adjustments
    NAHB supports a technical change in the National Housing Act, which 
would make hybrid adjustable-rate mortgages (ARM's) available at 
competitive rates and terms for FHA borrowers who otherwise would not 
be able to obtain funding under conventional hybrid ARM programs.
    The FHA-insured ARM has been a valuable tool for expanding 
homeownership opportunities. Last year, FHA obtained authority to 
insure a hybrid ARM, a mortgage that has a fixed rate of interest in 
the early years of the loan before switching to annual adjustments over 
the mortgage's remaining term. Unfortunately, the current law caps the 
initial adjustment for FHA-insured 5 -1 hybrid ARM's to 1 percent, 
which makes the FHA-insured hybrid 5 -1 ARM less attractive to 
investors than conventional hybrid ARM's that carry a 2 percent initial 
adjustment cap. This means that, under normal market conditions, 
lenders will not offer FHA-insured 
hybrid ARM's due to unfavorable pricing in the secondary market. A 
change in the interest rate adjustment limit, therefore, is needed to 
allow FHA to offer a product that is attractive to secondary market 
investors.
Ginnie Mae Guarantee Fee
    NAHB urges Congress to repeal the increase (from 6 to 9 percent) in 
the Government National Mortgage Association (Ginnie Mae) guaranty fee, 
which is scheduled to take effect in fiscal year 2004. A guaranty fee 
increase of even three basis points would represent a heavy tax on 
affordable housing and would decrease homeownership opportunities for 
thousands of families each year. The increase would be passed along in 
financing charges, generally to borrowers who could least afford 
additional mortgage financing costs. There is no financial basis for a 
guarantee fee increase because Ginnie Mae operates at a profit and has 
done so throughout its existence.
Tax-Related Housing Programs
The Low-Income Housing Tax Credit Technical Advice Memoranda
    The NAHB believes it is essential that Congress modify the Low-
Income Housing Tax Credit (LIHTC) Program in order to ensure its 
continued existence. The LIHTC program has provided a key part of the 
financing for nearly all of the affordable rental housing built in the 
last decade. The credit provides equity financing that reduces lower 
mortgage amounts, providing reduced debt service and, therefore, more 
affordable rents for households with incomes at or below 60 percent of 
area median income.
    In October 2000, the Internal Revenue Service (IRS) issued five 
technical advice memoranda (TAM's) that threaten the ability of the 
LIHTC program to continue to provide affordable housing. The TAM's take 
aggressive positions aimed at reducing the eligible basis, which lowers 
the amount of tax credits or equity financing a project receives. The 
TAM's have the effect of reducing credits for many projects by 25 
percent or more. In addition, uncertainty over future IRS actions is 
reducing the prices paid for the credits, further reducing the 
effectiveness of the LIHTC program.
    NAHB supports legislation that would provide certainty for tax 
credit allocations. In the House, Representatives Nancy Johnson (R-CT) 
and Charlie Rangel (D-NY) sponsored H.R. 3324, and the Senate companion 
legislation S. 2006 is sponsored by Senators Bob Graham (D-FL), Orrin 
Hatch (R-UT), Jim Jeffords (I-VT), Robert Torricelli (D-NJ) and John 
Kerry (D-MA). This bill introduces the concept of ``development cost 
basis'' and then specifically identifies costs that qualify as 
includable in basis. The identified costs are: Site preparation costs, 
State and local ``impact'' fees, reasonable development fees, 
professional fees related to basis items, and construction financing 
costs (but not financing costs to acquire land). This legislation will 
ensure that quality affordable housing will be maintained and that 
investor and lender confidence will be restored. This will increase 
private investment and allow more housing to be built for each tax 
credit dollar.
A New Single-Family Homeownership Tax Credit
    NAHB believes a new program is needed to create homeownership 
opportunities for low- and moderate-income individuals who currently 
lack decent housing opportunities. Therefore, NAHB supports the 
creation of a housing tax credit called the ``Renewing the Dream'' 
homeownership tax credit that is included in the Administration's 
fiscal year 2003 budget. The proposal, modeled after the Low-Income 
Housing Tax Credit Program, is designed to encourage new construction 
and substantial rehabilitation of homes for sale to low- and moderate-
income families in economically distressed urban and rural areas.
    The proposed homeownership tax credit would provide an annual 
Federal tax credit of $1.75 per capita or a minimum of $2 million per 
State. This credit would be allocated to developers that construct or 
rehabilitate owner-occupied homes in census tracts with incomes at or 
below 80 percent of area or statewide median income. Developers would 
be allocated tax credits through a competitive allocation process 
administered by State agencies. The credits would be claimed over a 5-
year period. Tax credits could be used for up to 50 percent of the 
development cost of each home and could be sold to investors to provide 
financing for the construction or rehabilitation of the homes.
    Senators Kerry (D-MA) and Santorum (R-PA) have a legislative draft 
of the homeownership tax credit that will be introduced in the Senate 
soon. This legislation will significantly reduce the cost of homes for 
low-income individuals and will provide the necessary financial 
incentives for builders to build and rehabilitate in low-income areas 
where costs are high. We urge you to support this proposal.
The Single-Family Mortgage Revenue Bond Program
    Two bills, S. 677 and H.R. 951, entitled The Housing Bond and 
Credit Modernization and Fairness Act, have been introduced in Congress 
to address problems impairing the effective operation of The Single-
Family Mortgage Revenue Bond (MRB) Program administered by State 
housing finance agencies. The MRB program is an important source of 
mortgages for low- and moderate-income households, financing over 
106,000 mortgages in 2000. Nationally, the average income among the MRB 
purchases was $34,200 (approximately 68 percent of the national median 
income) and half the median income of conventional purchasers. In 2000, 
21 percent of the MRB purchasers were minorities; about 60 percent of 
the loans were in urban areas; and, 20 percent of the loans helped 
families in rural areas. The bills include three provisions:
    First, the bills repeal the Ten Year Rule, which was enacted in 
1988 and requires States to use MRB mortgage payments received after 
the original MRB has been outstanding for 10 years to retire the bonds 
rather than to make new mortgages. It is estimated that by 2005, State 
housing finance agencies will lose more than $12 billion--140,000 
mortgages--in mortgage authority because of the Ten Year Rule.
    Second, the bills would provide an alternative means of 
establishing the MRB purchase price limit. Currently, the statute 
requires purchase prices to be no higher than 90 percent of the average 
area sales price. The current limits have not been raised since 1994, 
which is the last time the Internal Revenue Service (IRS) published 
safe harbor purchase price limits. Although State housing finance 
agencies are permitted to publish their own purchase price limits, many 
do not because of the difficulty of compiling accurate data. The bills 
would allow States to determine purchase price limits at levels three 
and one half times the MRB qualifying income.
Low-Income Housing Tax Credit Program Income Limits
    S. 677 and H.R. 951 also address an income-eligibility issue 
related to the Low- 
Income Housing Tax Credit Program. The bills would give State housing 
finance agencies the flexibility to use the greater of the area or 
statewide median income in determining qualifying income levels for tax 
credit developments located in rural areas. This change would help 
provide more affordable rental housing in rural areas, where incomes 
typically are too low to support the development of new rental housing.
Conclusion
    In conclusion, Mr. Chairman, we believe that, in response to the 
identified housing needs of working families, measures are needed to 
increase the supply of affordable multifamily rental housing and to 
help low- and moderate-income families 
become homeowners. We believe that this will require the development of 
some new programs, particularly one designed to spur the production of 
rental units for working families in the 60 to 100 percent of median-
income range. While the FHA Multifamily Mortgage Insurance Programs are 
extremely important, these programs alone do not have the capacity to 
produce the number of units needed to meet current and future demand. 
The Low-Income Housing Tax Credit Program has done a good job of 
producing affordable rental housing for very low-income households, but 
there are no Federal programs to assist working families whose incomes 
fall between 60 and 100 percent of median.
    However, recognizing that resources will continue to be tight in 
the near future, we also feel it is important to improve the FHA 
Multifamily and Single-Family, Low-Income Housing Tax Credit, and 
Mortgage Revenue Bond Programs. Since these programs have proven track 
records, Congress can be confident that the changes we are recommending 
will produce results immediately. Equally important is the need to 
eliminate unnecessary barriers and burdensome regulations that prevent 
the production of affordable housing--we urge you to consider enacting 
a housing impact analysis requirement.
    Thank you for the opportunity to be here today.

                  PREPARED STATEMENT OF SHEILA CROWLEY
            President, National Low Income Housing Coalition
                              May 15, 2002

    Chairman Reed and Members of the Subcommittee, I am Sheila Crowley, 
President of the National Low Income Housing Coalition. I am pleased to 
be invited to testify today on behalf of our members who include 
nonprofit housing providers, homeless service providers, fair housing 
organizations, State and local housing coalitions, public housing 
agencies, private developers and property owners, housing researchers, 
local and State government agencies, faith-based organizations, 
residents of public and assisted housing and their organizations, and 
concerned citizens. I am also representing the over 2,200 organizations 
and elected officials from every State who have endorsed the 
establishment of the National Housing Trust Fund. We are especially 
grateful to you, Senator Reed, for championing S. 1248, the National 
Affordable Housing Trust Fund Act of 2001, so vigorously.
    It is an honor to follow the testimony of Senator John Kerry, the 
sponsor of S. 1248, and to add further evidence of the soundness of his 
proposal. The National Housing Trust Fund Campaign pledges to continue 
to build support for S. 1248 this session and, if necessary, its 
successor bill in the 108th Congress. The 27 cosponsors of the S. 1248 
including Senator Kerry and the 175 cosponsors of H.R. 2349, the 
companion bill in the House, are just the start of the number of 
Senators and Congressmen that we intend to convince to vote to 
establish the National Housing Trust Fund.
    This Subcommittee and the full Committee have had several hearings 
on the housing affordability crisis that have thoroughly documented the 
depth and breadth of the housing problem we face in the United States. 
Under Senator Allard's leadership in the last Congress, the 
Subcommittee also held hearings that came to the same conclusion. In 
the House, the Subcommittee on Housing and Community Opportunity of the 
Financial Services Committee has been quite active in its analysis of 
the affordable housing crisis, with a series of hearings in 2001 and 
this year. At the National Low Income Housing Coalition, we are very 
gratified that our data on the gap between housing costs and income are 
cited virtually every time Members of Congress come together to discuss 
the housing problem. My point is that Congress does not lack evidence 
that we have a serious housing problem, and there is little 
disagreement that something needs to be done. What remains is to reach 
consensus about what needs to be done and the role of the Federal 
Government in its implementation.
    Let me add documentation of the problem for the record today. It is 
the position of the National Low Income Housing Coalition that the 
housing affordability and housing shortage problem is most severe for 
the lowest income people. In HUD's 
jargon, these are extremely low-income households or those with incomes 
at or less than 30 percent of the area median. On a national basis, the 
number of rental housing units affordable for people in this income 
range has dropped precipitously in the last decade, while the number of 
rental housing units for other low-income people whose incomes exceed 
50 percent of the area median income, but are still less than 80 
percent of AMI, actually grew. Between 1991 and 1999, the number of 
rental units affordable to extremely low-income households declined by 
940,000 units or 14 percent of the total rental stock affordable to 
people in this income range.\1\
---------------------------------------------------------------------------
    \1\ Nelson, K. (2001, May 3). ``What do you know about shortages of 
affordable rental housing?'' Testimony before the House Committee on 
Financial Services, Subcommittee on Housing and Community Opportunity.
---------------------------------------------------------------------------
    People often assign meaning to the term extremely low income that 
somehow implies that it is a category that does not include working 
people. Let's be very clear. A full time minimum wage worker makes 
$10,700 a year. In the District of Columbia, an extremely low-income 
family has income of $18,390 or less a year. In Providence, RI, it is 
$16,230. In Denver, CO, it is $19,500. In Boston, MA, it is $21,480. 
These are not unusual wages. These are the wages earned by the workers 
in the service economy. These are retail clerks, day care workers, home 
health aids, hotel and restaurant workers, janitors, bus drivers, 
security guards, nursing home staff--all the people whose daily labor 
is essential to the functioning of our economy. The notion that 
extremely low-income families are somehow different from working 
families is erroneous.
    In the District, 30 percent of area median income if one works full 
time breaks down to $8.84 an hour. The hourly wage required to afford 
the fair market rent for a two-bedroom rental unit in DC is $18.13. In 
Providence, extremely low income is $7.80 an hour or less, while the 
two-bedroom housing wage is $12.50 an hour. For Denver, the respective 
numbers are $9.37 an hour vs. $17.17 an hour. In Boston, $10.33 an hour 
is the upper limit of the extremely low-income category, while the 
housing wage is $20.21 an hour.\2\ In all these cases, as it is in all 
jurisdictions in the country, the difference between what low-wage 
earners can earn and what the rental housing market can demand is 
unbridgeable without Federal intervention. Telling people to get better 
paying jobs so they can afford to pay the rent is hardly the answer. 
There will always be a demand for people to make up this segment of the 
workforce.
---------------------------------------------------------------------------
    \2\ National Low Income Housing Coalition. (2001) Out of reach 
2001: America's growing wage-rent disparity.
---------------------------------------------------------------------------
    The position of the National Low Income Housing Coalition is that 
there is no single solution to the affordable housing crisis, but 
rather multiple approaches are required. First, we must increase low-
wage workers' purchasing power in the housing market with more housing 
vouchers. But more vouchers must be in conjunction with improvements to 
the housing market's response to voucher holders and reducing barriers 
to successful voucher use. Imagine being on the waiting list for a 
voucher for several years, all the while struggling to maintain a home 
that costs an excessive portion of your income. Finally, you rise to 
the top of the voucher waiting list and are issued a voucher. You spend 
weeks searching for a suitable home to rent with a voucher, only to 
come to the end of your time limit without finding any place. You have 
to turn the voucher back and start over again at the end of the line. 
In many communities, the voucher program has become an exercise in 
social Darwinism, rather than an intervention in the mismatch between 
what low-income 
people earn and what housing costs. Therefore, we are very supportive 
of Senator 
Sarbanes' forthcoming voucher improvement bill.
    Second, we must preserve as much as possible the existing housing 
we have that is affordable to extremely low-income households, 
including public and subsidized housing, as well private market, 
unsubsidized housing. We support S. 1365, Senator Jefford's 
preservation matching grant bill, and we urge Senator Kerry to add 
preservation as an eligible activity of the National Housing Trust 
Fund. We also are very concerned about the precipitous loss of housing 
that is affordable to the extremely low-income people through HOPE VI 
and other public housing demolition or revitalization efforts.
    Third, we advocate a renewed Federal commitment to building housing 
that is affordable for the lowest-income families. Although there has 
been lots of discussion about ``new production'' proposals by all sorts 
of housing advocacy and industry groups, the only proposal that has 
actually become legislation in the Senate is Senator Kerry's National 
Affordable Housing Trust Fund Act. This bill will create a dedicated 
source of funds for the production and rehabilitation of affordable 
housing, primarily rental and primarily for extremely low-income 
households. S. 1248 warrants serious review by this Committee.
    The National Low Income Housing Coalition and our many partners 
from across this country have been working hard to educate Members of 
Congress and your constituents about the need for and the merits of a 
National Housing Trust Fund. This campaign has generated great optimism 
and support, as evidenced by the over 2,200 endorsements we have 
received to date. I would like to place in the record the latest list 
of endorsers, as well as a letter from Cardinal Theodore McCarrick, the 
Archbishop of Washington, on behalf of the U.S. Conference of Bishops, 
which was sent to each Senator and to each House Member urging support 
of the National Housing Trust Fund.
    In the course of discussing this bill in communities across the 
country and with nearly every Senate and many House offices, we have 
found great interest and considerable support. We have also heard all 
the arguments against it. I would like to use my time today to raise 
and then respond to these arguments.

    1. We do not need another program. We may not need another housing 
program, but we do need a sharp increase in the level of housing 
funding that is targeted to serve the lowest-income households. A 
National Housing Trust Fund is a new source of funding more than it is 
a new program. The National Housing Trust Fund will augment existing 
production programs that cannot or do not serve these households. Given 
the severity of the housing shortage, a significant infusion of funds 
is required that is unlikely to be forthcoming in the current 
appropriations process. A trust fund with dedicated sources of funding 
is more likely to provide the level of funding required.
    H.R. 3995, which Chairwoman Roukema has introduced in the House, 
acknowledges the need for rental housing production for extremely low-
income households by creating a more deeply-targeted component of the 
HOME program. This is a concept that deserves consideration. However as 
proposed, H.R. 3995, does not provide for new funding, but rather uses 
recaptured Section 8 funds. We strongly object to this redirection of 
Section 8 funds, and much prefer the approach suggested in Senator 
Sarbanes' bill that will improve the voucher program so that there are 
no longer any funds to recapture because all are being used for their 
intended purpose.

    2. The Federal Government has failed at housing programs for the 
lowest-income households. First of all, we disagree that all housing 
programs are failures, but we do agree that mistakes were made. Lessons 
learned are reflected in the design of the National Housing Trust Fund. 
First, the National Housing Trust Fund will not recreate economic 
segregation. Trust fund dollars are to be used in conjunction with 
other funds to support the production of housing affordable to 
extremely low-income households in mixed-income developments and low-
poverty areas. Second, housing produced by trust fund dollars must 
remain affordable for 40 years and not be subject to loss to the 
affordable housing supply as much of the privately-owned, publicly-
subsidized housing is today. Third, the National Housing Trust Fund 
does not favor one housing sector over another. Public housing 
authorities, nonprofit organizations, and for-profit companies are all 
potential developers and operators of housing produced through the 
National Housing Trust Fund. Funds are to be awarded on the basis of 
merit to those entities that can best demonstrate their capacity to get 
the job done.

    3. Production funding for extremely low-income households is 
insufficient; operating subsidies are also required. We agree. In 
response to criticisms that the National Housing Trust Fund proposal 
and S. 1248 have weak operating subsidy provisions, the National 
Housing Trust Fund Campaign convened a committee of housing experts to 
develop a new approach. The result is the ``thrifty production 
voucher'' proposal that is under consideration in the House as part of 
H.R. 3995 and is expected to be in Senator Sarbanes' voucher 
improvement bill. We urge Senator Kerry to add thrifty production 
vouchers to the operating subsidy options in S. 1248.

    4. The excess FHA revenue does not exist. This is the most frequent 
objection we hear. It is only in the highly idiosyncratic language of 
Federal budgeteers that is possible to say that this money does not 
exist. What they are really saying is that it is being used for other 
purposes and therefore not available for this use, or that S. 1248 is 
not budget-neutral and calls for spending without providing offsets. 
These are policy decisions that can be changed, not evidence that funds 
do not exist. Indeed, it is precisely these kinds of objections that 
argue for creating a dedicated source of revenue that makes clear how 
these particular funds should be used. According to the latest 
actuarial review of the FHA Single-Family Insurance Program by Deloitte 
& Touche, the FHA program will generate by 2008 $26,383,000,000 more 
than is required to maintain the safety and soundness of the program. 
The Executive Summary of the Deloitte & Touche report is attached to my 
written testimony, as is the HUD press release that accompanied the 
report in which Secretary Martinez announces the continued health 
program.
    Please note that it is our position that the National Housing Trust 
Fund should not rely solely on the FHA and Ginnie Mae programs as the 
dedicated sources of revenue. Indeed, these are insufficient to meet 
the goal of 1,500,000 homes in 10 years. There are 280 State and local 
housing trust funds across the country, funded by a wide range of 
sources. We see the FHA and Ginnie Mae as making some, but not all, of 
the contributions to the trust fund. We are interested in working with 
you to identify other appropriate sources of dedicated revenue streams.

    5. Any excess FHA revenue should go back to FHA-insured homeowners. 
Once 
objectors have accepted the notion that there are extra funds, the next 
argument is that they should be redistributed to the insured homeowners 
who must be overcharged for their homeowners' insurance. The 
distributive nature of the FHA Single-Family Program was eliminated by 
the Congress in 1990 as part of the reform to the program needed to 
prevent its financial decline and to put the program on sound financial 
footing going forward. The HUD Secretary does have the authority to 
reduce premiums and, indeed, the premiums were reduced in 2000. FHA-
insured homeowners are receiving an important Federal benefit, that is, 
access to homeownership that otherwise would not be available to them, 
and are paying a fair price for this service.

    6. This use of FHA revenue will harm the FHA program. This is yet 
another argument against the use of the FHA revenue for a National 
Housing Trust Fund. S. 1248 protects the FHA's programs more than 
current law does by raising the capital adequacy ratio, or the level of 
required reserves, from 2 percent to 3 percent. The projected $26 
billion excess that would go into the National Housing Trust Fund 
assumes the higher ratio. The Deloitte & Touche analysis also includes 
projections based on several other economic scenarios. Even in the 
worst-case scenario, the ratio remains well above 3 percent.

    7. It is not appropriate to use funds from the FHA Single-Family 
Program to fund multifamily housing production, because such proposals 
are beyond the goals of the program. This could be a legitimate policy 
argument, if the funds were sitting idle. But they are not; they are 
going into the Federal Treasury and funding other Federal priorities. 
Our argument is that funds earned by one Federal housing program are 
appropriately used to support other Federal housing priorities. This is 
simply a decision to make rental housing production for extremely low-
income families and individuals a Federal priority again. Having said 
that, we are open to being persuaded that other sources of funds may be 
more appropriately dedicated to the National Housing Trust Fund and 
welcome any and all suggestions that Members of the Subcommittee and 
others may have.

    8. We cannot afford it. This is the least convincing argument of 
all. Of course, we can afford new investment in rental housing 
production if we decide it is a priority. We have made housing a 
national priority at several points in the past when we faced housing 
shortages and we can do so again. Housing has historically received bi-
partisan support and indeed, the peak year of subsidized rental housing 
production of 500,000 units was during the Ford Administration.

    Not only can we afford to do this, more importantly, we cannot 
afford not to. The consequences of failing to act are serious. Good 
housing is fundamental to healthy human development. We have growing 
evidence that housing instability has adverse effects on employment 
success, school achievement, health status, and family well-being. 
Excessive housing cost burdens are the primary cause of housing 
instability. Housing instability means frequent moves, family 
disintegration, staying with relatives, lack of a permanent address, 
inability to hold onto possessions, and in the most serious cases, 
falling out of the housing system altogether and become homeless. Once 
homeless, regaining stable housing is even more difficult.
    Because most of us enjoy good housing that we can afford in 
neighborhoods of our choice, we take housing for granted and find it 
difficult to empathize with people with housing problems. However, we 
all tacitly know how central our housing is to our physical and 
emotional well-being, to our ability to fulfill our family obligations, 
and to our capacity to do our jobs. Imagine not having a regular and 
safe home. How well would any of us do at what is expected of us in the 
absence of the security, respite, comfort, and sanctuary that our homes 
provide?
    Thank you for the opportunity to testify today. We are looking 
forward to working with the Committee on S. 1248, the National 
Affordable Housing Trust Fund Act.

                               ----------
                  PREPARED STATEMENT OF EMMANUEL LANE
         A Working Parent--Resident of Sharing and Caring Hands
                         Minneapolis, Minnesota
                              May 15, 2002

    My name is Emmanuel Lane. I am married and I am the proud father of 
five children. In fact, my wife gave birth to our first son 6 weeks 
ago, Monday, April 9. Unfortunately, despite the fact that I am working 
full-time, my family is homeless. I am here today to share my story in 
the hopes of providing a greater understanding of the situation facing 
many people in Minnesota and across the country.
    I want to take some time quickly to thank Mary Jo Copeland and 
Patrick Ness. Mary Jo Copeland is the Founder and Director of Sharing 
and Caring Hands. Patrick Ness is the Housing Manager at Mary's Place. 
Both have been inspirational in my involvement with the issue of 
affordable housing. My family has been staying at Mary's Place 
transitional housing since January 28, 2002. The time spent in this 
transitional housing unit has benefited my wife and I, as well as our 
family. Here we have rested our spirits and begun saving money to put 
toward a house. A hundred families like ours do this everyday at Mary's 
Place. Everyone needs shelter, but unfortunately even working families 
cannot afford it. We did not want to be homeless. Thankfully Mary Jo 
Copeland built a transitional housing unit to house families like ours. 
Mary's Place has played a vital role in my family's, and many other 
family's, struggle to find affordable housing. Mary Jo now has a new 
vision and is trying to build a children's home in Eagan, Minnesota. 
The children's home will house up to 200 lost and abused kids.
    As I mentioned I am married and have five children. My oldest child 
is 10 years old and my youngest child is officially 6 weeks and 2 days 
today. I am a former U.S. Marine. I served in the Marines from 1983 to 
1987. I worked in social services at Catholic Charities from 1990 to 
2000. I left Catholic Charities to take a job as Youth Manager at the 
Division of Indian Work. My wife also worked full-time at the Division 
of Indian Work. My wife and I, and our four children had been living in 
a one-bedroom apartment in Minneapolis for close to 3 years. We were 
very crowded, but given our income, this was all that we could afford. 
Our landlord was sympathetic to our situation and allowed us to live 
there in spite of concerns about over-crowding. However, when our 
landlord sold the building in July 2001, our new landlord said that he 
simply could not risk it, and asked us to be out in 30 days. My wife 
and I looked for another apartment in Minneapolis, rents for three-
bedroom apartments averaged $1,100/month. We simply could not afford 
this.
    My wife and I decided to move to Mankato. My wife's aunt worked for 
the county there and she had been able to find housing through a grant 
program. My family stayed with her for a couple of weeks, however, we 
left because we were afraid of causing trouble for her because there 
were so many of us in her house. I then applied for assistance through 
the Homeless Veteran's Program in Mankato. The Veteran's Program gave 
us a voucher to stay in a motel for 1 month while I continued to look 
for an apartment and work. We were lucky and we received a rent 
subsidy, so we were able to rent an apartment and only pay 30 percent 
of our income. Unfortunately, I was unable to find work earning more 
that $7.50/hour. This was clearly not going to be enough to support my 
family.
    In December 2001, my brother told me that the school bus company 
that he was working for was looking for drivers. I applied for a job 
and got a full-time work driving for this company. At first I commuted 
every morning from Mapletown (a small town about 20 minutes south of 
Mankato where we were living). This meant getting up at 4:00 a.m., 
arriving in Minneapolis at approximately 6:00 a.m. Driving until the 
break at around 11:00 a.m., then picking the kids up after school. I 
also took an additional shift driving kids who participated in after-
school events. I usually would arrive home in Mapletown around 9:00 
p.m. We realized that this was putting too many miles on our car, so I 
began staying with my brother during the week and then driving back to 
my family on the weekends.
    My wife and I decided that this separation was not working because 
our kids are so young and they need both parents. My wife and kids 
moved back to Minneapolis in January. We stayed briefly with different 
relatives, but all of our relatives were in apartments that were 
already over-crowded. On January 28, 2002, we moved into Mary's Place. 
I am working to save money to try to find a place for my family.
    I hope that my story helps to demonstrate the kinds of struggles 
facing working families.
    Thank you.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


           AFFORDABLE HOUSING PRODUCTION AND WORKING FAMILIES

                              ----------                              


                     WEDNESDAY, SEPTEMBER 25, 2002

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

    The Subcommittee met at 2:35 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. The Subcommittee will come to order.
    Good afternoon. I would like to welcome everyone to today's 
Subcommittee hearing on Affordable Housing Production and 
Working Families.
    Although there are a number of Federal programs that are 
encouraging the production of affordable housing, they are 
falling short of meeting the housing needs of our country's 
hardest-working families. Despite incredible demand, cuts in 
these programs which began in the 1980's have allowed only a 
limited number of units to be produced. In addition, housing 
price increases over the last two decades have outstripped 
income growth, making homes too expensive for many working 
families.
    One out of every seven American families spends more than 
half their total income on housing or lives in a severely 
inadequate unit. That is 15.5 million families, both homeowners 
and renters.
    Working hard and playing by the rules is currently not 
enough to allow a family to have decent, safe, and affordable 
housing.
    For the fourth year in a row, the National Low Income 
Housing Coalition, in its Out of Reach Report, shows that there 
is no place in the United States, urban or rural, where the 
minimum wage is enough to afford the standard rent for a two-
bedroom apartment. A worker would have to earn $14.66 per hour, 
far more than the minimum wage of $5.15 per hour, just to 
afford the median market rent, let alone save for a downpayment 
on a home.
    In my own State of Rhode Island, where the minimum wage is 
slightly higher than the national at $6.15 per hour, a worker 
still has to work 86 hours in order to afford a two-bedroom 
home. This problem is affecting both our middle- and lower-
income families. Teacher, police officers, and nurses are 
struggling to afford housing in high-cost areas.
    Simply put, in too many places across America, there are 
not enough homes for the number of families who need them and 
those that are available are too expensive for middle- and 
lower-income families.
    Too often, working families have the worst of both worlds--
they have too much income to qualify for the limited housing 
assistance available, but too little to benefit from the 
favorable tax treatment given to homeowners.
    In addition, families who are paying too much in rent are 
not able to save up money for the downpayment on a house. 
Critical housing needs are not concentrated in urban areas. All 
regions of the country have experienced increases in critical 
housing needs. Only 1.6 million of those with critical housing 
needs live in central cities. Another 1.5 million live in the 
suburbs and about 660,000 families live in rural areas.
    Thus, it is our hope today that by holding this hearing, we 
will continue to highlight the urgent need for production of 
affordable housing for working families and continue to build 
consensus that something needs to be done to address this 
critical issue.
    Today, we will hear from two panels of witnesses. The first 
panel will consist of my colleagues, Senator Christopher 
``Kit'' Bond of Missouri, and Senator John Edwards of North 
Carolina. Our second panel will consist of Mayor Thomas M. 
Menino of Boston, who is also President of the U.S. Conference 
of Mayors. Mr. Richard H. Godfrey, Jr., Secretary of the 
National Council of State Housing Agencies and also the 
Executive Director of Rhode Island Housing and Mortgage Finance 
Corporation. Finally, Mr. Bill Picotte, who is President, 
Housing Assistance Council; and Executive Director, Oti Kaga, 
Inc. of the Cheyenne River Sioux Reservation.
    Each of our witnesses has been asked to testify about the 
impact of the affordable housing shortage, strategies for 
increasing or stimulating affordable housing production, and 
any proposals that should be considered as part of Federal 
legislation to encourage the production of affordable housing 
for working families.
    Now before I recognize Senator Sarbanes for his opening 
statement, let me say all the statements have been received for 
the record and we would ask all of our witnesses to try to 
adhere to a 5-minute time limit.
    Thank you very much.
    Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Mr. Chairman, I will be very brief, out 
of deference to our colleagues who are here and we are very 
much interested in hearing from them, and I know that they 
have, as we all do, pressing schedules.
    Also let me commend you for holding another hearing on this 
critically important issue of affordable housing.
    I think that this effort to develop a consensus on this 
issue is extremely important. We have to act on this. It is a 
pressing crisis all across the country, hidden, to some extent, 
but becoming more and more manifest. I appreciate the fact that 
you referred to the recent report of the National Low Income 
Housing Coalition, Out of Reach.
    Every year they come out with this report and they have now 
structured this concept of the housing wage, how much would one 
have to earn in order to afford a minimal level of rental 
housing. And of course, what they are now telling us--actually, 
there is no city or county in the Nation where one minimum 
wage-earner can afford to rent a modest, two-bedroom apartment. 
In three-quarters of the States, a family needs to have more 
than two full-time minimum wage-earners in order to pay the 
rent.
    That gives you some sense of the gap between what people 
are earning and what is needed in order to obtain affordable 
housing. It is very important that we are focusing on this. I 
very much appreciate the concern and the initiatives which both 
Senator Bond and Senator Edwards have taken on this issue.
    I am also pleased that we have this very distinguished 
panel to follow, with Mayor Menino, the very able Mayor of 
Boston, who heads up this year the Conference of Mayors.
    Mr. Godfrey, from your own State, we know of the quality of 
the Rhode Island program.
    And Mr. Picotte, we are delighted that he is here with us 
today. I know that Senator Johnson has taken a particular 
interest in trying to address the housing question on the 
Indian reservations, and it is an issue that he has been 
following very closely. In fact, we have held some other 
hearings that he helped to initiate on that very important 
question.
    Thank you very much.
    Senator Reed. Thank you, Senator Sarbanes.
    Let me recognize Senator Bond, who has long been a leader 
on this issue and now serves on the Appropriations Committee, 
where he continues to provide extraordinary leadership.
    Senator Bond.

                STATEMENT OF CHRISTOPHER S. BOND

           A U.S. SENATOR FROM THE STATE OF MISSOURI

    Senator Bond. Chairman Reed and Chairman Sarbanes, thank 
you very much for giving me the opportunity to comment on the 
affordable housing needs of low-income families, especially 
extremely low-income families.
    You have outlined in your opening remarks why this is such 
an important issue, and while this Nation has made substantial 
progress through its housing programs, clearly we all agree 
that there is still much that needs to be done, especially for 
the extremely low-income families, those at or below 30 percent 
of the median income. In part, to help focus the debate on the 
need for housing production for extremely low-income families, 
and to give us a starting point, I have recently introduced 
with Senator Collins, S. 2967, the Affordable Housing Expansion 
Act of 2002. I ask that a summary of the provisions of the 
legislation be included, along with my full written statement, 
as part of the record.
    Senator Reed. Without objection.
    Senator Bond. You will be relieved to know I will give a 
briefer summary.
    [Laughter.]
    The Affordable Housing Expansion Act of 2002 would 
establish a new block grant program to be administered by HUD, 
who would allocate funds annually through a block grant to 
State housing finance agencies to develop mixed-income housing. 
These Federal block grant funds would be targeted solely to the 
development of very low-income and extremely low-income housing 
units within mixed-income housing. Our formula would allocate 
on a per-capita basis with no State receiving less than $6 
million. States also would have to contribute a 25 percent 
match. Up to 20 percent of these block grant funds could go to 
preserve existing low-income multifamily housing and for the 
rehabilitation needs of low-income multifamily housing.
    I know there is a difference of opinion as to the entity to 
administering the housing production program, a lot of 
different ideas on it. I chose to use State housing finance 
agencies. I have seen the effectiveness of the Missouri Housing 
Development Corporation. I served on it in a prior life. I have 
worked with housing finance agencies across the country and I 
have seen their effectiveness in administering the low-income 
tax credit program. I think State housing finance agencies know 
the local housing markets within their States and they have the 
experience and funding sources to ensure effective use of 
Federal housing funds.
    Also, the question of funding has been one of the 
roadblocks that has long hampered the consideration of a new 
housing production block grant program for extremely low-income 
families. The question of funding is a difficult issue. While a 
housing production program needs to be a priority for this 
Nation, I know in my work with Senator Sarbanes' colleague from 
Maryland, Senator Mikulski, on the VA-HUD Independent Agencies 
Appropriations Subcommittee, there are a number of other very 
important and pressing needs, including the need for increased 
funding for veterans' medical care, EPA water and wastewater 
infrastructure needs, science research space, and emergency 
response.
    Nevertheless, I believe we should look at reserving any 
``excess'' Section 8 funds, up to $1 billion a year, for the 
production of low-income housing. To me, this is a credible 
source of funds, especially since every year, we go through the 
frustration of seeing Congress and the Administration, both 
parties raiding the excess Section 8 funds, rescinding a 
billion dollars or more a year to pay for other program 
priorities. Some of them may be in HUD, VA, and EPA, but they 
can just as well be some place else. This is a honey pot that 
is taken out of housing to be used elsewhere. I think we should 
keep it in housing. And contrary to popular belief, these 
Section 8 funds can be rescinded so that not a single family 
will lose any housing or housing assistance. They are not 
necessarily funds that come because people cannot find housing.
    The Affordable Housing Expansion Act of 2002 also provides 
new authority for low-income housing production under Section 8 
and the Public Housing program. Under the Section 8 program, 
the bill provides new authority for a ``Thrifty Voucher'' 
program that will allow the use of Section 8 project-based 
assistance for new construction, substantial rehab and 
preservation of affordable housing for extremely low-income 
families, and I believe the Chairman has worked on that effort 
in the past.
    This bill also would authorize a new loan guarantee program 
that will allow public housing agencies to rehabilitate 
existing 
public housing or develop off-site public housing in mixed-
income developments. This is an important tool we have included 
in the appropriations bill. It would allow Public Housing 
Agencies to be more aggressive in addressing the over $20 
billion backlog of public housing capital needs.
    The Act I am proposing is the first step toward addressing 
a growing shortage of affordable housing for very low-income 
and for extremely low-income families. As noted, HUD's most 
recent report in 1999 on worst-case housing needs concluded 
that the shortage of affordable housing has worsened. In 
particular, the number of affordable housing units available to 
extremely low-income renters dropped at an accelerated rate 
from 1997 through 1999.
    As has been stated, I believe, the report found a record of 
5.4 million families that have incomes, 50 percent of the 
median income or below, and pay at least 50 percent of their 
income in rent. These worst-case housing needs have become 
increasingly concentrated among families with very low incomes 
and extremely low incomes.
    Further, we have lost 200,000 units of Section 8 project-
based units to rent increases, as well as to decisions by 
owners of the housing not to renew, and in many areas such as 
my State, families with vouchers simply cannot find housing in 
tight rental markets. The Council of Large Public Housing 
Agencies in 2000 found that the average turn-back rate for 
vouchers was 19 percent, that means for every five vouchers put 
out, one holder came back and could not find housing even with 
a 6-month extension. In addition, the survey found that it took 
the average voucher holder 85 days to find housing. And while 
voucher utilization is improving, some 892 PHA's in 2000 and 
715 in 2001 had voucher utilization rates of below 90 percent. 
Finally, as families age and people live longer lives, we are 
beginning to face a new crisis of a lack of affordable housing 
for seniors.
    The bill I am proposing should provide additional needed 
tools to allow States and communities to develop this needed 
housing. Decisions would be driven by local choice and need, 
particularly where there is little or no housing for families 
and seniors at the low end of the economic scale. These 
families need to be served and the cost to build affordable 
housing is small compared to potential cascading social and 
economic cost from failure to provide it.
    One final issue. I know the Subcommittee has concerns 
regarding HUD's new legal position that would support the 
ability of certain Section 8 project owners to opt-out of 
Section 8 contracts where an owners has prepaid the mortgage on 
a multifamily housing project insured prior to 1980. I do as 
well. I have asked for and am awaiting a response from HUD on a 
number of related questions, but absent clear evidence from HUD 
in support of its legal interpretation, I am deeply concerned 
that HUD's new position is contrary to both policy and law. 
HUD's position is also creating substantial uncertainty in the 
housing marketplace and I hope that we can convince them to 
rethink that position.
    I thank you, Chairman Reed, and Senator Sarbanes. We look 
forward to working with both of you. I would be happy to try to 
answer any questions you might have.
    Senator Reed. Thank you very much, Senator Bond. And 
likewise, I look forward to working with you and thank you for 
your attention to this very critical issue for all of our 
constituents.
    Senator Sarbanes. Mr. Chairman, can I say----
    Senator Reed. Absolutely.
    Senator Sarbanes. --that we strongly share your views on 
the HUD issue that you raised right at the end of your 
testimony. We have been in touch with them, as I know you have. 
I think it is bad policy and, as you suggest, there are serious 
questions whether even legally they have the authority to 
undertake what they seem to be trying to do.
    Senator Reed. Thank you.
    Senator John Edwards of North Carolina, with a passion and 
an advocate for people, as a lawyer, and he continues that. 
This is one of those issues which he is particularly concerned 
about.
    Thank you for joining us, Senator.
    Senator Bond, if you have to leave----
    Senator Bond. I received one of those blackberry messages. 
I am not sure whether it is timely or whether it is an hour 
late. But they told me that I was needed. I apologize to my 
colleague from North Carolina. I will look forward to reading 
his testimony.
    Thank you.
    Senator Reed. Thank you, Senator.
    Senator Edwards.

                   STATEMENT OF JOHN EDWARDS

        A U.S. SENATOR FROM THE STATE OF NORTH CAROLINA

    Senator Edwards. Thank you to both the Chairmen. Thank you 
for holding this very important series of hearings on housing 
in America. I am grateful for the opportunity to be here today 
to talk generally about the need for increased rural housing, 
and to talk more specifically about legislation I have 
introduced, the Rural Rental Housing Act.
    Of course, this problem of the shortage of affordable 
housing is also a problem for families in our cities and it is 
a serious problem that we have to address. But today, my focus 
will be on the problem as it exists in rural America.
    There is nothing more important to a good life in America 
than a good home. And there is no problem in rural America 
larger than the shortage of affordable housing. For working 
families in rural America today, the shortage of affordable 
housing is becoming a crisis.
    About 2.6 million rural households live in housing that 
either has serious structural problems or doesn't have indoor 
plumbing, heat, or electricity. In North Carolina, my State, 
the problem is even bigger. As many as one in 10 people in five 
of North Carolina's rural counties live in inferior housing.
    The rural housing shortage is also part of a bigger problem 
in rural America. In America's economy today, rural areas are 
falling behind. They do not have the access that they need to 
technology, to lending, and to investments that will create 
good jobs. As a result, while Americans in rural areas have 
always been poorer than Americans in cities, that gap has grown 
larger since 1979. In many rural North Carolina counties, 20 
percent or more of the people live below the poverty line.
    Rural areas cannot address their housing problems alone, 
but Washington has turned its back on the problem. Federal 
investment in rural rental housing is at its lowest level in 
more than 25 years. This year, the Administration's budget 
provided zero dollars for building rental homes in rural 
America--zero.
    More generally, as the Millennial Housing Commission said 
in its recent report, and I am quoting, ``Rural housing needs . 
. . are often neglected by major Federal housing programs. . . 
.'' That is the truth.
    So the shortage of affordable housing in rural areas is a 
crisis for working families and it is a crisis that we in 
Washington are not addressing.
    Mr. Chairman, let me talk briefly about how my legislation 
addresses this problem.
    Owning a home is a central part of the American Dream, but 
the reality is that many working families cannot afford to buy 
a home. These people still need and deserve a decent roof over 
their heads. One in five rural renters pays more than 50 
percent of their income for housing. For a typical working 
family, that is not sustainable.
    So, we have to do something to address the shortage of 
rural rental housing that is affordable.
    That is what this bill is about. The Rural Rental Housing 
Act would create a $250 million Federal fund to build or 
rehabilitate rental housing that addresses urgent local needs. 
The fund would work in a smart innovative way. Rather than 
creating a new bureaucracy, we would say that people closer to 
the grassroots, not people here in Washington, would make the 
decisions about how these funds are spent. Rather than having 
one agency dictate how the funds are spent, we would encourage 
partnerships among private developers--banks, States, and 
nonprofits. Rather than limiting Federal funds to a few 
projects, we would stretch Federal dollars by requiring 
substantial amounts of matching funds from the State and local 
levels. And we would focus the funds on the people who need the 
help the most.
    Let me give one example of how this program would work.
    Shelby, North Carolina, which is in the western part of our 
State, has a population of about 20,000 people. Charles Place 
is a 40-unit affordable housing complex for the elderly in 
Shelby. It is a good, dignified place for an elderly person to 
retire--nice, one-bedroom apartments, open common spaces, and 
nice landscaping.
    Thanks to a partnership among lots of different entities, 
these apartments are available at a reasonable rental rate that 
people can afford--less than $300 a month. That is the kind of 
housing that this legislation would support.
    There is no question that the Rural Rental Housing Act is 
only one part of the solution to the problem of affordable 
housing facing rural America. There is much more that we need 
to do. But this Act is a solid step on the road to making sure 
that Americans who live in rural areas enjoy all the 
opportunities and all the promises of life in our great 
country.
    I look forward to working with both the Chairmen on this 
issue. I thank you for your focus on an issue that is 
critically important to all of America. And thank you for 
allowing me to testify.
    I ask that my entire statement be made a part of the 
record.
    Senator Reed. Without objection, thank you very much, 
Senator. And thank you for your particular concern about rural 
housing. That is an issue that is noted, but sometimes not 
followed up on, as you intend to do.
    Senator Edwards. Thank you very much, Mr. Chairman.
    Senator Reed. Let me now call the second panel to the dias.
    I welcome our second panel, beginning with Thomas M. 
Menino, the Mayor of Boston, since 1993. Tom has done a 
remarkable job in Boston. It is one of the great cities of 
America, right up there with Providence, Rhode Island.
    [Laughter.]
    We appreciate what you have done. We also appreciate the 
fact that you are now serving as the President of the U.S. 
Conference of Mayors. You took it upon yourself to ensure that, 
in addition to homeland security, housing was one of the major 
issues that the mayors would address this year in going 
forward. We thank you.
    The second panelist is Mr. Richard H. Godfrey, Jr., 
Executive 
Director of the Rhode Island Housing and Mortgage Finance 
Corporation. Richard also serves as the State Housing 
Commissioner and the Executive Director of the Rhode Island 
House Resource Commission.
    Let me tell you from first-hand experience, there is no 
better housing administrator in the United States than Richard. 
His colleagues and he have done great work in Rhode Island to 
give people the opportunity to live decently and afford their 
shelter.
    Thanks, Richard.
    Finally, we are joined by Bill Picotte. He has been a 
Member of the Housing Assistance Council Board of Directors 
since 1993 and currently serves as its President. He is also 
Executive Director of Oti Kaga, Inc., a nonprofit housing 
development corporation that he founded in 1993. He is a Member 
of the Board of Directors of the National Rural Housing 
Coalition and also a Member of the Cheyenne River Sioux Tribe.
    Thank you, Bill, for joining us and we look forward to the 
testimony of all our panelists.
    Let me now recognize Chairman Sarbanes.
    Senator Sarbanes. Thank you very much.
    Mr. Chairman, can we get Baltimore included on that list 
with Boston and Providence.
    [Laughter.]
    Senator Reed. I think there are a lot of similarities. The 
big bay. I think they fit.
    [Laughter.]
    Senator Sarbanes. Mr. Godfrey, I am sure you would agree 
with me, after having heard those very laudatory remarks from 
Senator Reed, that you have an outstanding Senator from Rhode 
Island here with really terrific perceptions about what 
realities are.
    [Laughter.]
    I am going to apologize to this panel. I am not going to be 
able to stay, unfortunately. I do want to in particular, 
though, commend Mayor Menino for putting the affordable housing 
issue on the top of the agenda for the U.S. Conference of 
Mayors. I think that is an enormously important contribution 
and I think it is providing some impetus for our efforts here 
to try to develop some consensus thinking on the affordable 
housing issue.
    Of course, this session of Congress is coming to a close, 
but we have the next one not too far in the future. And that 
will still be during your term as President of the Conference 
of Mayors. Maybe we can use that as an incentive to try to move 
things along, so it can happen on your watch. That would be a 
nice accomplishment.
    We know the energy and effort you are putting into this and 
before I departed, I wanted to express my appreciation to you.
    Mayor Menino. Thank you, Mr. Chairman.
    Senator Reed. Mayor Menino, all the statements are a part 
of the record. If you would like to summarize, that is 
perfectly appropriate. Please go ahead.

                 STATEMENT OF THOMAS M. MENINO

              MAYOR, CITY OF BOSTON, MASSACHUSETTS

              PRESIDENT, U.S. CONFERENCE OF MAYORS

    Mayor Menino. Thank you.
    Senator Reed, Senator Sarbanes, thank you both for being at 
our conference in May to address the Mayors of America. Both of 
you could be suburbs of Boston, if you want, Providence and 
Baltimore.
    [Laughter.]
    We will accept you.
    [Laughter.]
    Mr. Chairman and Members of the Committee, thank you for 
inviting me to speak about the shortage of workforce housing 
that too many American families face today. As Mayor of Boston 
and President of the U.S. Conference of Mayors, this issue is 
at the top of my agenda because strong cities must meet the 
diverse needs of their housing markets.
    And Senators, despite our best efforts at the local level, 
we cannot do it alone. We need a real group of partners and 
Washington must be a better partner. We need our national 
leadership to: Expand the supply of housing for working 
families, seniors and the needy; make homeownership a more 
attainable goal, particularly in communities of color, and; 
preserve the stock of reasonably priced housing we have now--
from public housing to assisted living.
    Despite, or maybe because of, the strength of the housing 
economy across our country, working families and people of all 
ages, at different income levels, are struggling to keep a roof 
over their heads. So the time has come to give this national 
issue the real attention it deserves.
    This evening, mayors from across this country will be 
arriving in Washington for our first ``Lobby Day.'' And one 
issue that will be at the top of everyone's agenda is the need 
for more housing.
    Too many families are falling through the cracks. According 
to the National Low Income Housing Coalition study, Out of 
Reach, for the fourth year in a row, there is no jurisdiction 
in the United States where a minimum-wage job provides enough 
income for a household to afford a two-bedroom apartment.
    Just think about that.
    From State-to-State and from city-to-city--the story is the 
same. The situation in Boston is indicative of the situation in 
many communities throughout this country. In Boston, the 
average two-bedroom apartment costs $1,600 a month. To afford 
that, you need to earn at least $64,000 per year. If you are 
working a job that pays the Federal minimum wage, that means 
you have to work 72 hours per week--and use 100 percent of your 
earnings to pay the rent.
    And for many families, public assistance is no assistance. 
In Boston, a family of four has to earn under $28,250 to 
qualify for public housing--and under $33,900 to be eligible 
for the HOME program and Low-Income Housing Tax Credits.
    As we go through these issues, Mr. Chairman, housing is one 
of those issues that affect us in so many different ways. I 
look at it as it affects a family in health and education 
because the infant mortality rate in people who do not have 
permanent housing are up tremendously.
    Education--if a kid doesn't have a stable home life and 
lives in a shelter, they are not able to be educated. They go 
from school to school during the course of the year.
    It is no wonder that over the past decade in our country, 
homelessness has more than doubled. And more than 80 percent of 
the people in our shelters are working mothers with children. 
Meanwhile the average wait for people with emergency housing 
needs is 21 months. The Boston Housing Authority has over 
15,000 families on its waiting list.
    Mr. Chairman, in Boston, I believe I am doing my part. I do 
not mind being the leader--but I do not want to be the loner. 
We have permitted more than 5,000 new units in the last 2 years 
and I have dedicated $30 million in city funds for housing 
creation. And in the 28 cities and towns around Boston, they 
have created 471 units.
    Just think about that, about the affordability of workforce 
housing. They talk about it in suburbia, but they do not want 
to do it.
    The cities need housing. We need a national housing agenda 
and we need it now. Delay carries a high price--cities like 
Boston risk becoming a place where only the very rich and the 
very poor can afford to live.
    I should add that the housing crisis is not just a problem 
on the two coasts, as many believe. Studies have shown housing 
costs rising dramatically in States such as Minnesota and 
Colorado. And I recently received an invitation to speak in 
North Carolina on this issue, so the problem is clearly 
expanded beyond what we think of as the high-cost communities.
    So the time is right to invest in housing. It is also the 
perfect medicine for a sluggish economy. Remember, when you add 
up all the building costs, people buying appliances and 
furniture, housing counts for one-fifth of our Gross Domestic 
Product. It puts people to work, builds stronger communities, 
and strengthens families.
    How much housing do we need? The National Housing Coalition 
predicts that by 2010, we will need an additional 11 million 
housing units.
    To make housing available to everyone, we have to reverse 
some troubling trends: First, between 1997 and 1999, we lost 
more than 200,000 affordable units. In the absence of any new 
production, we have to preserve all our assisted units. Second, 
homeownership is at 67.9 percent. But for African-Americans and 
Latino families, it is only 45 percent. Third, the number of 25 
to 34 year-olds living with their parents has reached record 
numbers. We need to give young people a chance to jump-start 
their lives. Fourth, funding for assisted housing for seniors 
remains flat, despite the fact that they are the largest 
growing segment of our population.
    To move forward, we must create a national strategy--that 
is why in May, I convened the Conference of Mayors National 
Housing Summit. We met for 2 days with some of the best minds 
in the housing business and we reached out to new partners 
including labor, seniors, and leaders in the public health and 
business communities. We concluded that this new strategy 
should include:
    One, establishing a strong housing production program, such 
as a National Affordable Housing Trust Fund--based on the 200 
funds established in communities across this country, including 
Boston. Last week, Los Angeles Mayor Hahn created a $100 
million housing trust. I applaud the efforts of Senators Kerry, 
Bond, and Edwards, who along with Representative Sanders and 
others, have filed strong proposals for this.
    Two, at the same time, we need to provide incentives to 
builders. One way to do this is to provide a tax credit for the 
development of homeownership housing as the President has 
proposed.
    Three, we should work to expand employer-assisted housing 
programs for working families. In Boston, we have Citizens 
Bank, which you are familiar with, which has done that.
    Senator, for the record, I would like to submit a copy of 
our comprehensive National Housing Policy, as approved by the 
mayors at our Annual Meeting this spring. It is our hope that 
this document will add to the long-needed debate on how to 
provide every American with safe, decent, and affordable 
housing.
    I see the red light is on. Mayors do not have red lights.
    Senator Reed. In Boston, no one pays attention to red 
lights.
    [Laughter.]
    Mayor Menino. Well, I pay attention. So, I just want to 
tell you, this is one of those issues, Senator, you know it, 
you are one of the experts. I have been with you at several 
forums. It takes you 2 or 3 years to get it done, to get 
through all the politics of it. But it is the most important 
issue that we face in America today.
    More and more families come to me out in the neighborhoods 
of our city and say, how can I afford to live in these 
apartments?
    I had a family in Brighton. A year and a half ago, they 
were paying $750 a month rent. Today, they are paying $1,500 
for that same apartment--two bedrooms, and the gentleman makes 
$1,900 a month. His whole take-home is going to pay for that 
rent.
    We have to get into the production business. HUD several 
years ago turned out hundreds of thousands of units per year. 
Now it is a mere trickle.
    It is time for us to realize also that housing is an 
important part of our economic stimulus package. Like I said, 
it creates jobs. People have to buy appliances, all those 
things.
    So, Senator, I ask you to work with us and we will work 
with you as we go forward in this housing crisis.
    Senator Reed. Let me thank you, Mayor Menino. If you have 
additional comments, we would be happy to hear them because you 
are right on target and your experience is not hypothetical.
    Every day, you go through the cities and the neighborhoods 
of Boston and you encounter people, as I do in Rhode Island, 
and it is the same refrain over and over--I cannot find a place 
to live. I cannot afford the place I am living in. And one 
major avenue of redress is production. I hope we can do 
something.
    Let me join with Senator Sarbanes and reiterate my initial 
compliment because you have taken this issue, which was out 
there, everyone sensed it, and you made it a major plank in the 
effort of our mayors.
    One of the things that troubles me is that this issue is so 
obvious to all of us when we go home, it just doesn't translate 
here in Washington to get effective action. So your presence 
here today, your leadership with the mayors, is absolutely 
extraordinary and I thank you for that.
    Mayor Menino. Thank you, Mr. Chairman.
    Senator Reed. I do not know what your schedule is like, Mr. 
Mayor. If you have to depart, then you certainly go with our 
thanks and our appreciation. If you would like to stay, I will 
have Mr. Godfrey and Mr. Picotte testify and then we will have 
questions.
    Mayor Menino. Thank you very much.
    Senator Reed. Thank you very much.
    Mr. Godfrey, please.

              STATEMENT OF RICHARD H. GODFREY, JR.

          EXECUTIVE DIRECTOR, RHODE ISLAND HOUSING AND

                  MORTGAGE FINANCE CORPORATION

             SECRETARY & MEMBER, BOARD OF DIRECTORS

           NATIONAL COUNCIL OF STATE HOUSING AGENCIES

    Mr. Godfrey. Thank you, Chairman Reed.
    I want to echo the thanks to Mayor Menino for his 
leadership on this issue. It really has moved housing to the 
fore, as it should be. Thank you.
    I speak today on behalf of the 50 State housing finance 
agencies. State housing finance agencies administer many of the 
housing production program funds right now across the country, 
including the Low-Income Housing Tax Credit, the HOME funds, 
and the issuance of MRB's.
    I want to thank the Members of the Senate who sponsored and 
cosponsored S. 677, which is the Housing Bond and Credit 
Modernization and Fairness Act. This is a critical bill because 
half of the bond cap which Congress recently enacted will be 
wiped out unless the 10-year rule is repealed. So, I want to 
thank all of you who have cosponsored that bill and I urge the 
leadership to get it passed this year.
    We do confront in our country right now an affordable 
housing crisis. You acknowledged that one in seven families has 
a severe housing problem. Sixteen million families spend more 
than half of their income on housing or live in substandard 
housing. Indisputably, those hardest hit have the least income.
    Of the 16 million families with severe housing problems, 80 
percent are very low income. Steady losses of affordable 
apartments exacerbate the problem. A million fewer apartments 
are affordable now to extremely low-income families than were 
in 1991.
    We need a Federal production program right now. The private 
sector is not meeting the need. Rents that families can pay are 
not sufficient to support the production and operation of 
rental housing without substantial subsidies. In Rhode Island, 
for example, over the past 3 years, we have seen rents for a 
typical two-bedroom apartment go from $613 a month to $854 a 
month.
    Unfortunately, it will take $1,500 in rent to stimulate the 
start of new construction in the private sector. So going from 
$600 to $1,500 is just a burden that families cannot bear, so 
the private sector cannot meet this need. We need the Federal 
intervention right now. Existing Federal housing resources are 
not sufficient. Demand for housing far outstrips supply. One-
third of the families eligible for housing assistance can get 
it.
    Meanwhile, we have seen HUD's budget shrink by about two-
thirds in real dollars since 1976. Funneling more resources 
into existing programs will not solve the problem. HUD's 
programs were not designed to be major producers of new 
housing. We have not had a major production program in HUD 
since the demise of the Section 8 program in the early 1980's.
    Even the housing credit, the greatest single producer of 
affordable rental housing today, was not designed to serve 
extremely low-income families.
    While States consistently serve families earning 
considerably less than the 60 percent of average median income, 
State HFA's, such as Rhode Island, and across the country, are 
finding it extremely difficult to meet those lowest income 
needs.
    In Rhode Island, we recently convinced the legislature to 
commit State funds to be able to subsidize those rents which we 
can get with the tax credit program to reach the lowest-income 
families. The legislature appropriated $10 million this year, 
and we are using it with the tax credit program. It increased 
affordability, but it did not increase supply, and we need 
increased supply.
    We believe the best solution can be achieved without 
designing a new program. All that is needed is a Federal 
commitment of new flexible funds allocated through State HFA's 
which can then leverage the entire panoply of other funds out 
there.
    We recommend that rental production funds be administered 
by the States for at least four compelling reasons:
    First, at the State level, we are in the best position to 
judge where the needs are greatest. Housing needs in cities, 
suburbs, and rural areas do not exist in isolation. We can work 
with the local governments to meet those needs. We have the 
ability to marshal other resources, as we have done, for 
example, with welfare agencies using TANF funds.
    Second, any funds which the Federal Government provides we 
assume would be not sufficient. If we divide it up in greater 
than 50 parts, we lose the economy of scale. Housing production 
is very expensive. We need to be able to marshal and put those 
funds in the best places.
    State housing finance agencies have proven their ability to 
administer sophisticated multifamily financing programs. We 
possess the underwriting and, more importantly, the asset 
management capability, to assure that these developments and 
these apartments will be available over the long run.
    We have a many-decade record of responsibility and 
effectiveness in administering tens of billions of funds. We 
are the only point where Federal, State, and local resources 
can be brought together in one place to meet that need.
    Any new production program should leverage and should 
expand the current housing programs. It should be integrated 
with the existing allocation plans and funding systems. And it 
is essential that any income, rent, and other rules be flexible 
enough to ensure compatibility with the housing credit and with 
other Federal housing programs.
    Finally, HUD regulation must be kept to a minimum. Several 
Members of Congress, the Millennial Housing Commission, and a 
number of housing groups, including the Senators you heard from 
here today, have put forward proposals for meeting the rental 
housing need.
    You have seen Senator Kerry's National Housing Trust Fund, 
along with Senator Bond's Affordable Housing Expansion Act. We 
urge you to take these programs and move forward with a Federal 
production program. We urge it to be administered by the 
States, but we need action now.
    Thank you very, very much.
    Senator Reed. Thank you very much, Richard.
    Mr. Picotte.

              STATEMENT OF WILLIAM (BILL) PICOTTE

             PRESIDENT, HOUSING ASSISTANCE COUNCIL

               EXECUTIVE DIRECTOR, OTI KAGA, INC.

                CHEYENNE RIVER SIOUX RESERVATION

    Mr. Picotte. Good afternoon, and thank you, Chairman Reed, 
for holding this important series of meetings.
    My name is Bill Picotte, and I am Executive Director of Oti 
Kaga, Incorporated, located on the Cheyenne River Sioux Indian 
Reservation in north central South Dakota. I am also President 
of the Board of Directors of the Housing Assistance Council, as 
you said. My testimony today focuses on housing production in 
rural areas, and I have submitted a longer statement for the 
record.
    Senator Reed. Thank you very much.
    Mr. Picotte. Let me tell you a little bit about the 
Cheyenne River. The family poverty rate for the Cheyenne River 
Sioux Indian Reservation is 41 percent. Median family income is 
$15,800. That is median income, and that may be something that 
is difficult to grasp in a metro area like this, where median 
income is $50,000 or higher. The homeownership rate for the 
Cheyenne River Sioux is 52 percent, that is compared to 67 
percent nationally. Our Housing Authority's Indian Housing Plan 
currently documents a need for 1,747 housing units, including 
1,104 for new rental units, and 309 new homeownership units.
    To help with this need, Oti Kaga develops both single-
family and multifamily housing. We also provide loan packaging 
for USDA programs and housing counseling services. Essentially, 
we are engaged in affordable housing production, the focus of 
today's hearing. We use low-income housing tax credits and the 
USDA Rural Housing Service's Section 502, 504, and 515 
programs. We also use HUD Section 184, the HOME programs, and 
the Affordable Housing Program of the Federal Home Loan Banks, 
along with partnering with the Enterprise Foundation and other 
resources.
    Production of new units is not the only way to meet housing 
needs, but it also is an essential tool, especially in rural 
areas. Both substandard quality and affordability are major 
problems in rural housing, especially for low-income people. 
Approximately 5.5 million nonmetro households pay more than 30 
percent of their monthly incomes for housing and more than 2.4 
million pay over half their incomes for housing. Substandard 
housing also still exists, especially in rural areas in central 
cities. 6.9 percent of nonmetro units are either moderately or 
severely inadequate.
    To help meet these needs, Federal programs are vital. 
Federal housing assistance has played an important role in the 
production of affordable rural housing since the mid-1930's. 
Yet, according to a methodology developed by the HAC, only 7 
percent of nonmetro households receive some type of Federal or 
other publicly-supported housing assistance. One successful 
production approach is that of the Rural Housing Service. After 
producing over 3 million units since 1950, USDA programs have 
been sharply reduced in recent years. A primary example is the 
Section 515 rural rental housing program.
    In fiscal year 1994, Section 515 funded 11,542 units of 
affordable rural rental housing, but in fiscal year 2001 the 
program funded only 1,621 units, an 86 percent reduction. The 
larger Section 502 single-family loan program has also seen 
deep cuts. These programs need to be maintained and restored.
    Several Federal housing programs have also been affected by 
a shift in emphasis to indirect subsidies such as loan 
guarantees. One significant result is a reduction in the number 
of low-income households served.
    HUD programs are also very important to housing production 
in rural America. The CDBG and HOME programs are vital. So is 
the HUD Rural Housing and Economic Development Program, which 
this year had a $25 million appropriation. Oti Kaga has won 
three RHED grants since its inception, which help our local 
nonprofits with both bricks-and-mortar gap funding and capacity 
building dollars. The funds are highly competitive and go 
directly to community groups. The Bush Administration has twice 
proposed eliminating the program, but the Congress--let by the 
Senate VA-HUD appropriators, including Senators Bond and 
Johnson--have wisely rejected that approach. Doubling the 
program money to $50 million would be a much better idea.
    A number of production strategies would be helpful. 
Increasing funding for the current RHS programs--and for HUD 
programs serving rural areas--is vital, as the Millennial 
Housing Commission recommends. But there are also other very 
worthy ideas for new legislation. They include: Enactment of 
Senator Edwards' Rural Rental Housing Act; Passage of the 
National Housing Trust Fund proposal; Enactment of Senator 
Bond's affordable housing production bill; Enactment of the 
President's homeownership tax credit proposal; and expansion of 
self-help housing.
    Rural rental housing may face the biggest crisis. 
Restoration of the Section 515 program is key and HAC has 
estimated that $100 million would cover the development of at 
least one new Section 515 project in each State. Portfolio 
maintenance requires approximately $50 million a year and $25 
million is needed for equity loans to owners who wish to 
prepay. In short, $175 million would cover minimal essential 
activities, and $350 million would begin to replenish the 
program to its former strength.
    Production of new units will not solve all rural housing 
problems. Financial aid, such as vouchers and funding for rehab 
are very important. But for millions of rural residents with 
limited incomes, those solutions are simply not available. On 
Cheyenne River, we need production of at least 1,700 new homes. 
Vouchers won't help that situation, since we do not have very 
many livable empty units waiting to be rented or bought--as a 
matter of fact, vacancy rates are essentially zero--we need 
production. Rural America needs production. Additional units of 
safe and affordable housing are very much needed, and Federal 
funding is essential to make new production happen.
    I want to thank you for inviting me today. I appreciate it.
    Senator Reed. Thanks very much for your excellent 
testimony.
    We have a rare opportunity. We have two individuals of 
great experience. Rhode Island is a little different than the 
Cheyenne Sioux Reservation.
    Mr. Picotte. I think there is Indian gaming there.
    Senator Reed. No, no.
    Mr. Picotte. Not yet.
    [Laughter.]
    Senator Reed. That is another committee.
    [Laughter.]
    Mr. Godfrey. That is right.
    Senator Reed. We are a small, compact city-state, 
essentially, so we see the issues in perspective in the lens of 
cities and suburbia.
    You, obviously, have a great perspective in rural America. 
Let me ask a series of questions and use this expertise as well 
as I can.
    Generally, starting with Richard Godfrey, what is the 
biggest roadblock for working families to attaining affordable 
housing today in the cities, suburbs, rural areas?
    Mr. Godfrey. The biggest roadblock is just the lack of 
supply. There is just not enough units being produced. The 
private market cannot meet the demand. As the economy grows, as 
new workers are added to the economy, we have seen overcrowding 
in Rhode Island increase 34 percent over the past decade. That 
means families are just crowding into existing units because 
there are no new units being produced. There are no starter 
homes being produced. In fact, we are seeing our starter homes 
being torn down to build big mansions because there are just so 
many building restrictions and lack of available land.
    So, really, the private-sector production program is 
broken. We need Government intervention to fix it.
    Senator Reed. Thank you.
    From your perspective, Mr. Picotte?
    Mr. Picotte. I really must agree with Mr. Godfrey on 
Cheyenne River and Indian country. I think in rural America, in 
general, the lack of available units, is the biggest problem. 
And once those units are available, it is often a question of 
affordability.
    Senator Reed. You have all referenced the various 
production proposals that are encapsulated in legislation by 
Senator Kerry, Senator Bond, and Senator Edwards. Can you 
comment generally about these production ideas? Which one do 
you think would have the most impact, would be the first choice 
of housing advocates?
    Mr. Godfrey. I think that the most flexible program is the 
key. I think, certainly, we are very pleased that Senator Kerry 
has put forth a trust fund program because I think it has 
raised the level of debate on that issue. But it does keep back 
a 25 percent set-aside for HUD. And I think really the best 
place for these programs to be distributed and administered is 
at the State level.
    I think we also need flexibility in terms of targeting. 
Certainly I know that Senator Bond has in his bill some 
requirements that have mixed-income developments. That is 
certainly a goal that we all aspire to. But mixed-income 
developments do not work in every neighborhood. You might have 
trouble renting up one group of units or another. In some 
neighborhoods, you might have trouble attracting the lowest-
income populations. In other neighborhoods, you may have 
trouble attracting the higher-income populations. Government 
intervention to force income mixing does not always work. So, I 
think that we would support a program that allows the greatest 
amount of flexibility and allows the States to decide on their 
own where that money should be targeted.
    Mr. Picotte. Chairman Reed, I think that each of the 
proposals that the panel talked about has its own unique 
ability to produce housing.
    Personally, I am particularly intrigued with the 
Homeownership Tax Credit. I founded Oti Kaga with the hope that 
increasing homeownership on the reservation would increase 
personal wealth on the reservation and give people the ability 
to improve their economic conditions, putting equity into a 
home as opposed to throwing money away on rent. So, I have very 
high hopes for that proposal myself.
    Senator Reed. I am just curious, Mr. Picotte. Financial 
institutions, are they actively engaged? I know Mayor Menino 
mentioned Citizens Bank, which is a major bank-holding company 
in the Northeast and they are active. A lot of our financial 
institutions are partners in affordable housing efforts. One 
would hope that they would do more if we did more. But, 
nevertheless, is that similarly the situation on the 
reservation?
    Mr. Picotte. Yes. Currently, I work with Wells Fargo Bank, 
Citibank. I know that Bank of America has been very active in 
housing production, and several other financial institutions 
like that. I am sure that a lot of them have involvement 
somewhat. But those are the ones that I have worked with.
    Senator Reed. Great. Now one of the issues that Mayor 
Menino raised, and something that I find consistently, is the 
issue of the widespread impact of housing problems. It is not 
just a shelter issue. It is an education issue, a health care 
issue, an employment issue, and you go down the whole roster of 
human concerns. If you have people in good, decent, affordable 
housing, a lot of those concerns can be addressed. Without good 
housing, few of them can be reached.
    Let me start with Mr. Picotte. Is that the experience that 
you have seen, that this undermines other important social 
issues?
    Mr. Picotte. Oh, very much so. Particularly, Mayor Menino 
mentioned children's education. He addressed health. I think 
that those two things are particularly affected by not having 
affordable, decent, safe housing.
    I would reflect his statement.
    Senator Reed. Richard.
    Mr. Godfrey. Senator Reed, you are absolutely right. In 
fact, the other day I was with Mayor Abodesian in Warwick. And 
in one of their school districts, they had a 60 percent 
turnover in their students. That is, of the number of children 
who started the year, 60 percent of them had moved out of the 
school district over the course of the year. That was a direct 
result of housing instability. How can you expect the kids in 
Warwick to learn when you have that kind of a turn-over? As you 
know, you do not generally think of Warwick as being a place 
that has that kind of a crisis. But it is a crisis.
    Certainly, the over-crowding which is occurring, and in 
Rhode 
Island, over the past 10 years, we have seen housing over-
crowding increase 34 percent. We know that is not happening as 
much in the suburbs, so we have to assume that it is in the 
cities that housing over-crowding is just about doubling. That 
overtaxes an already aging housing stock, which exacerbates the 
problems of lead paint and other housing-related health issues. 
So, not surprisingly, we are seeing that run through the entire 
theme.
    Senator Reed. For the record, Warwick is a suburban 
community, not a central-city community.
    Mr. Godfrey. That is right.
    Senator Reed. So it is surprising when you see that kind of 
volatility in their school populations.
    We talked about private financial institutions. But Fannie 
Mae and Freddie Mac are out there. Just in general, and Mr. 
Godfrey, we will start with you, how can we get those two 
institutions more actively engaged? They are engaged. I know 
that, in fact, Fannie Mae has just opened up an office in 
Providence and is reaching out. But can we do more there to get 
a partnership going?
    Mr. Godfrey. Fannie Mae and Freddie Mac are both private 
sector, market-driven entities. Even though they are 
Government-sponsored enterprises, they really respond more to 
Wall Street than they do to Main Street. And they really have 
done very little about meeting those with greatest housing 
needs. They have filled the niche in terms of assuring a 
secondary market for homeowners. But, generally, none of those 
homeowners are the ones who are entry-level, first-time 
homebuyers, or in the lower incomes.
    Fannie Mae--they have filled the niche. We have a secondary 
market in housing in the United States that is the leader in 
the world. But they really do not serve any affordable housing 
needs.
    Fannie and Freddie do not take any housing risks.
    So, obviously, first-time home-buyers, people with marginal 
incomes, they are not being served by enterprises which are 
driven by Wall Street.
    Senator Reed. Mr. Picotte.
    Mr. Picotte. Chairman Reed, I do not really have very much 
experience with Freddie Mac, personally. But as far as Fannie 
Mae goes, they invest in the tax credit properties that I 
develop through the syndicator, Enterprise Social Investment 
Corporation, a subsidiary of the Enterprise Foundation. I work 
with them on several issues. I am currently working with the 
South Dakota partnership office to develop a mortgage program 
for Cheyenne River in, I guess, cooperation with our 
initiative, my organization's initiative, to become a CDFI.
    So, we do work with them. I think they are taking more 
interest in Indian country in general, and I appreciate the 
effort.
    Senator Reed. Thank you.
    Mr. Godfrey, you mentioned in your testimony the housing 
credit and bond volume caps. How will these increases affect 
positively housing? Can you elaborate essentially on the bond 
caps?
    Mr. Godfrey. The 10-year rule prohibits recycling of 
mortgages. We have worked very hard. Most of the State housing 
finance agencies have worked very hard to get those mortgage 
revenue bonds. And as Congress originally intended, as soon as 
the mortgage is repaid, we refinance that and try to preserve 
that volume cap wherever we can.
    The 10-year rule says you cannot recycle your bond money 
for more than 10 years. Whereas the program started in 1986, 
many of us have seen those mortgage funds recycled two or three 
times and now we cannot. Those bonds have to go away. So that 
by eliminating the 10-year rule, we could preserve that volume 
cap and move forward.
    Many of the States, mostly the larger States--in Rhode 
Island, we see other constraints on the mortgage system other 
than the 10-year rule. But certainly in the larger States, 
where volume cap is taken for a lot of other purposes, a number 
of homeowners are being prevented from entering the market 
because of those rules.
    Similarly, S. 677 does address some of the rural housing 
issues. The tax credit program does not work in some of our 
rural States because the way that HUD issues their median-
income levels does not allow sufficient rental levels to 
produce new rental housing.
    So the bill would allow some relief there in terms of 
justifying those changes in the rents and allowing the tax 
credit program to serve more rural housing needs. And it really 
has been our rural coalition of States that has been pushing 
for that change.
    Senator Reed. Mr. Picotte, you mentioned the several 
programs that you use in your activities on the reservation. 
One of them I think is the Section 515 program. Could you 
comment on how effective this is? In general, how effective are 
these programs? What changes you might suggest based on your 
experience?
    Mr. Picotte. Well, we have used Section 515 now for the 
last 4 or 5 years to produce--currently, we have 51 units under 
management, another 26 in the development pipeline. But, for 
now, for Oti Kaga, it has been really the only way that we can 
find to meet our mission through the use of Section 515 funds.
    Originally, our very first tax credit project was a 10-unit 
project done with single-family detached housing under the 
lease purchase provisions of Section 42 of the IRC. But after 
the implementation of NAHADSA, I did not have access to Indian 
HOME funds any more, and I do not have access to State home 
funds in the State of South Dakota.
    Our challenge was to produce housing with the resources 
that we had and we found the Section 515 program to be an 
effective way to provide housing. Just by way of example, we 
rented up our Falcon Apartments project in February. I had over 
200 families apply for those 16 units. So it is very important 
that my organization produce housing. But 515 is definitely one 
of the ways that we have been able to utilize resources to do 
that.
    Senator Reed. The 502 program, could you comment on that?
    Mr. Picotte. The 502 has been somewhat helpful, but it is 
rife with regulations. In Indian country, certainly we take 
advantage of it when we can. But we find that, more often than 
not, because of economic conditions on the reservation, 
people's credit histories do not allow them to participate in 
that program, with the strictures there. Sometimes it is still 
a question of affordability, even with the subsidized interest.
    Senator Reed. Well, I want to thank both of you gentlemen 
for your excellent testimony, for your responses to questions, 
and for your commitment and dedication to helping people find 
affordable, decent housing throughout the country.
    Again, I think it was a good opportunity to get 
perspectives from a metropolitan orientation and from a very 
rural orientation, and I thank both of you.
    It is readily apparent from today's testimony that Congress 
and the President must make a significant and sustained 
commitment to creating more affordable housing for hard-working 
families. Both Mr. Godfrey and Mr. Picotte indicated that the 
real constraint is that there is no production.
    If you have a Section 8 certificate, you cannot find a 
rental unit. If you have a family that is willing to move up 
for first-time homeownership, they cannot find the house. 
Unless we make the commitment, not just rhetorically, but in 
real resources, we are not going to solve this problem.
    I would also suggest that we have come a long way from the 
rate of production we had a decade or two decades ago. So this 
is not something novel. Ten years ago, 20 years ago, we were 
producing lots of housing with these same programs that we are 
talking about today. We can do it again, and we have to do it 
again.
    As the Chair of this Subcommittee, I look forward to 
working with you to achieve this critical objective, and to 
working with my colleagues, Senator Bond, Senator Edwards, 
Senator Sarbanes, and Mayor Menino and his colleagues.
    No one in our country should have to live without a roof 
over their head. A safe, decent, and stable home should not 
just be the American Dream--it should be our commitment.
    Again we recognize and today's testimony bears out the fact 
that providing good, safe, decent, dependable housing might go 
a long way in addressing issues of education and health care, 
of employability, all the issues that we struggle with here 
every day.
    I thank you for participating today.
    The hearing is adjourned.
    [Whereupon, at 3:37 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]

               PREPARED STATEMENT OF CHRISTOPHER S. BOND
               A U.S. Senator from the State of Missouri
                           September 25, 2002

    Mr. Chairman and Members of the Subcommittee, thank you for 
inviting me to testify on the affordable housing needs of low-income 
families, especially extremely low-income families. This is an 
important issue, and while this Nation has made substantial progress in 
homeownership rates and in housing programs for low- 
income families, there is still much to be done especially for 
extremely low-income families, those at or below 30 percent of medium 
income.
    In part, to help focus the debate on the need for housing 
production for extremely low-income families, I introduced, with 
Senator Collins, S. 2967, the Affordable Housing Expansion Act of 2002. 
I ask that a summary of the provisions of the legislation be included 
with my written statement as part of the record. Mr. Chairman, I praise 
your strong efforts in support of affordable housing for low-income 
families. Both you and Senator Sarbanes have sponsored similar 
legislation in S. 1248, the National Affordable Housing Trust Fund Act 
of 2001, as well as S. 2721, the Housing Voucher Improvement Act of 
2002.
    The Affordable Housing Expansion Act of 2002 is intended to begin 
to meet the long-term housing needs of very low- and extremely low-
income families. In particular, this legislation would establish a new 
block grant program to be administered by the Department of Housing and 
Urban Development (HUD). Under this program, HUD would allocate funds 
through a block grant to State housing finance agencies for the 
development of mixed-income housing. These Federal block grant funds 
would be targeted solely to the development of very low-income and 
extremely low-income housing units within mixed-income housing. The 
funds would be allocated on a per capita basis with no State receiving 
less than $6,000,000. Each State housing finance agency would have to 
submit an affordable housing expansion plan to HUD that ensures the 
funds are allocated to meet the low-income housing needs in both the 
rural and urban areas of each State. States also would have to 
contribute a 25 percent match. Moreover, each State housing finance 
agency could use up to 20 percent of these block grant funds to 
preserve existing low-income multifamily housing and for the 
rehabilitation needs of low-income multifamily housing.
    I know that there is some differences of opinion as to what entity 
should administer a Federal housing production program. I believe there 
are any number of good ideas on this issue. I chose to use State 
housing finance agencies, in part, because of effectiveness of the 
Missouri Housing Development Corporation in administering housing 
programs in Missouri, including the low-income housing tax credit 
program. Moreover, I support the use of State housing finance agencies 
because these entities know the local housing markets within their 
States and have both the experience and funding sources to ensure the 
effective use of Federal housing funds.
    In addition, the question of funding has been one of the roadblocks 
that has long hampered the consideration of a new housing production 
block grant program for extremely low-income families. This is a 
difficult issue. While a housing production program needs to be a 
priority for this Nation, the VA-HUD Appropriations Subcommittee has a 
number of other important and pressing funding needs of great 
importance and interest, including the need for increased funding for, 
among other things, VA Medical Care, EPA water and wastewater 
infrastructure needs, and science research.
    Nevertheless, I believe we should look at reserving any ``excess'' 
Section 8 funds, up to $1 billion a year, for the production of low-
income housing. This is as a credible source of funds for this housing 
block grant program, especially since every year the Congress and the 
Administration rescind a billion dollars and more to pay for other 
program priorities, including programs within HUD, VA, and EPA, among 
others. And contrary to popular belief, these Section 8 funds can be 
rescinded so that not a single family will lose any housing or housing 
assistance.
    The Affordable Housing Expansion Act of 2002 also provides new 
authority for low-income housing production under the Section 8 program 
and the Public Housing program. Under the Section 8 program, the bill 
provides new authority for a ``Thrifty Voucher'' program that would 
allow the use of Section 8 project-based assistance for new 
construction, substantial rehabilitation and preservation of affordable 
housing for extremely low-income families. Because the cost of these 
vouchers is capped at 75 percent of the payment standard, these 
vouchers will need to be used in conjunction with other housing 
assistance programs, such as the HOME program, the Community 
Development Block Grant program or Low-Income Housing Tax Credit 
program, to be successful. This new Section 8 authority is 
substantially the same as legislation included by Chairman Reed and 
Senator Sarbanes in S. 2721.
    The bill also would authorize a new loan guarantee program that 
will allow public housing agencies to rehabilitate existing public 
housing or develop off-site public housing in mixed-income 
developments. The long-term debt of these loans would be tied to the 
prorata share of funds under the Public Housing Capital and Operating 
Funds that would be allocated to the units that are rehabilitated or 
constructed over a maximum of 30 years. This tool will allow Public 
Housing Agencies to address more aggressively the over $20 billion 
backlog of public housing capital needs.
    The Affordable Housing Expansion Act of 2002 is an important first 
step toward addressing a growing shortage of affordable housing for 
very low-income and extremely low-income families. While homeownership 
rates have grown and the cost of housing has skyrocketed, many very 
low-income and extremely low-income families are being left behind 
without the availability of affordable rental housing. This is 
unfortunate, and the social and economic costs to the Nation are 
dramatic.
    In particular, HUD's most recent report on worst-case housing 
needs, A Report on Worst-Case Needs in 1999: New Opportunity Amid 
Continuing Challenges, concluded that the shortage of affordable 
housing has worsened. In particular, the number of affordable housing 
units available to extremely low-income renters dropped between 1997 
and 1999 at an accelerated rate. As we have seen in this economy, as 
rents continue to rise faster than inflation, the cost of rental 
housing at the low end of the housing market has increased, resulting 
in the further erosion in the supply of rental units that are 
affordable and available without Government subsidies.
    In addition, this report found a record high of 5.4 million 
families (some 600,000 more families with worst-case housing needs than 
in 1991) that have incomes below 50 percent of median income and pay at 
least 50 percent of their income in rent. The worst-case housing needs 
have become increasingly concentrated among those families with 
extremely low incomes.
    Further, since that time, we have lost some 200,000 units of 
Section 8 project-based units to rent increases, as well as to 
decisions by owners of the housing not to renew their Section 8 
contracts. In addition, many families with vouchers simply cannot find 
housing in tight rental markets. For example, a recent survey conducted 
by the Council of Large Public Housing Agencies (CLPHA) in 2000 found 
that the average turn-back rate for vouchers was 19 percent, which 
means that almost 1 in every 5 vouchers holders returned their vouchers 
unused despite time extensions granted to voucher holders for housing 
searches that can be as long as 6 months. In addition, this survey 
found that the average time needed by voucher holders to find housing 
was 85 days. And while voucher utilization is improving, some 892 PHA's 
in 2000 and 715 PHA's in 2001 had voucher utilization rates of below 90 
percent. Finally, as families age and people live longer lives, we are 
beginning to face a new crisis of a lack of affordable housing for our 
seniors.
    The Affordable Housing Expansion Act is designed to provide 
additional, needed tools that will allow States and communities to 
develop new affordable low-income and mixed-income housing. This would 
help fill a gap in the housing needs of the Nation that would allow 
these lowest-income families to begin to climb the housing ladder to 
homeownership. Decisions would be driven by local choice and need and 
start to meet the burgeoning need for new low-income housing in tight 
markets where there is little or no housing for families and seniors at 
the low end of the economic scale. These families need to be served and 
the cost to build affordable housing is small compared to potential 
cascading social and economic costs to both communities and families--
it is a simple equation--homes equal stable environments in which 
children are educated and people can obtain jobs. Jobs and homes 
represent the tax base of any community and educated children are the 
future of our Nation.
    This is important legislation. The private sector is not making the 
needed investment to meet the low-income housing needs of the present 
and future, and existing Federal programs are not addressing those 
families in the most need--extremely low-income families. The Federal 
Government must show the leadership and make the needed investment to 
partner with State and localities, as well as public and private 
entities in the low-income housing infrastructure of the Nation. This 
bill is designed to start to meet this need and focus the debate on the 
importance of low-income housing production to the current and future 
housing needs of this Nation.
    One final issue. I know that the Subcommittee has some concerns 
regarding HUD's new legal position that would support the ability of 
certain Section 8 project owners to opt-out of Section 8 contracts 
where an owner has prepaid the mortgage on a multifamily housing 
project insured prior to 1980. I am waiting for a response from HUD on 
a number of related questions, but, absent clear evidence from HUD in 
support of its legal interpretation, I believe that HUD's new position 
is contrary to both the policy and law. Also, unfortunately, HUD's 
position is creating a lot of uncertainty in the housing marketplace 
and the issue may have to be resolved in the courts.

                             *  *  *  *  *

                AFFORDABLE HOUSING EXPANSION ACT OF 2002
    (Introduced by Senator Christopher S. Bond and Senator Susan M. 
                                Collins)

Title I--Production of New Housing for Extremely Low-Income and
Very Low-Income Families --
 Establishes a $1 billion block grant program beginning in 2003 
    that would allocate funds to State housing finance agencies on a 
    per capita basis according to the population of the State. No State 
    would receive less than $6 million.

 Allows funds to be used for acquisition, new construction, 
    reconstruction, or moderate or substantial rehabilitation of 
    affordable housing; permits funds to be used for rehabilitation 
    needs and preservation of existing assisted low-income housing 
    (although no more than 20 percent of the funds can be used for 
    rehabilitation and preservation); allows conversion of existing 
    housing to housing for the elderly or for persons with 
    disabilities.

 Requires States to meet a 25 percent matching requirement to 
    ensure accountability and to leverage additional funds.

 Requires housing developed to be low- and mixed-income housing 
    with at least 30 percent of the assisted units targeted to 
    extremely low-income families (families at or below 30 percent of 
    medium income); remaining assisted units would be targeted to very 
    low-income families.

 Rents for assisted units are modeled after the low-income tax 
    credit program only with deeper targeting--extremely low-income 
    families would pay no more than 25 percent of 30 percent of medium-
    income and very low-income families would pay no more than 25 
    percent of 50 percent of medium income.

 Authorizes a new multifamily risk-sharing mortgage insurance 
    program to help underwrite housing assisted under this title.

Title II-- Section 8 Housing Production --
Thrifty Vouchers
 Establishes a ``Thrifty Voucher'' Housing Production Program 
    that targets Section 8 project-based assistance for new 
    construction, substantial rehabilitation and preservation with 
    eligible families defined as ``extremely low-income families'' 
    (those at or below 30 percent of adjusted income).
 Limits assistance to 25 percent of units in a building while 
    limiting the cost for a unit at 75 percent of the payment standard 
    or fair market rent (really is operating costs, utility costs, and 
    reasonable return on operating costs). Initial rent term would be 
    15 years with renewals through at least year 40. The premise is to 
    use anticipated Section 8 project-based funds to capitalize the 
    cost of new construction, substantial rehabilitation and 
    preservation while subsidizing these costs over some 40 years plus. 
    Thrifty Vouchers could be used in conjunction with low-income 
    housing tax credits, HOME, CDBG, or the (Title I) ``Bond'' Housing 
    Production Block Grant program.
 New Thrifty Vouchers would be distributed under the formula 
    used for the HOME program.
Reallocation of Vouchers
 New Section 8 provision would provide for the reallocation of 
    Section 8 funds where a PHA fails to utilize at least 90 percent of 
    allocated Section 8 tenant-based assistance, and then 95 percent 
    after 16 months from notice on failure to meet the 90 percent 
    utilization requirements. Allows PHA's to challenge for a new 
    survey of market rents in an area for an increased rent payment 
    standard or fair market rent. Provides for a reallocation to 
    another PHA, State or local agency, or non-profit/for-profit 
    capable of administering Section 8 assistance upon a finding that a 
    PHA has failed to meet these performance requirements. Upon a 
    finding that there is a lack of eligible families for Section 8 
    assistance in an area, HUD may reallocate Section 8 assistance to 
    other needy areas.
Preservation of Section 8 Assistance on HUD-Held and -Owned Properties
 New provision that requires HUD to maintain existing Section 8 
    project-based assistance for any HUD-owned or HUD-held multifamily 
    projects upon disposition, except where HUD determines the project 
    is not viable. (Mirrors Bond provision carried in annual VA-HUD 
    Appropriations Acts for the disposition of HUD-owned or HUD-held 
    multifamily projects that serve elderly or disabled families.)

Title III--Public Housing Loan Guarantee Program--
 Establishes a new HUD loan guarantee program for public 
    housing agencies for the rehabilitation of a portion of public 
    housing or the development of off-site public housing in mixed-
    income developments. Long-term debt is tied to the prorata share of 
    funds under the Capital and Operating Funds that would be allocated 
    to the units rehabilitated or constructed over a maximum of 30 
    years.
                               ----------
                   PREPARED STATEMENT OF JOHN EDWARDS
            A U.S. Senator from the State of North Carolina
                           September 25, 2002
    Mr. Chairman, thank you for holding this important series of 
hearings on housing in America. I am grateful for the opportunity to 
appear before you today to talk generally about the need for increased 
rural housing, and to talk more specifically about legislation I have 
introduced, the Rural Rental Housing Act.
    There is nothing more important to a good life in America than good 
housing. And there is no problem in rural America larger than the 
shortage of affordable housing. For working families in rural America 
today, the shortage of affordable housing is becoming a crisis. About 
2.6 million rural households live in housing that either has serious 
structural problems or does not have indoor plumbing, heat, or 
electricity. In North Carolina, the problem is even bigger. As many as 
one in 10 people in five of North Carolina's rural counties live in 
inferior housing.
    The rural housing shortage is part of a bigger problem. In 
America's economy today, rural areas are falling behind. They do not 
have the access they need to the technology, lending, and investment 
that will create good jobs. As a result, while Americans in rural areas 
have always been poorer than Americans in cities, but the gap has grown 
bigger since 1979. In many rural North Carolina counties, 20 percent or 
more of the people live below the poverty line.
    While rural areas aren't able to address their housing problems 
alone, Washington has turned its back on the problem. Federal 
investment in rural rental housing is at its lowest level in more than 
25 years. This year, the budget provided zero dollars for building 
rental homes in rural America--zero. Rural rental housing production 
financed by the Federal Government has been reduced by 88 percent since 
1990. In addition, while 28 percent of the urban poor have access to 
Federal housing subsidies, only 17 percent of very low-income rural 
renters get help.
    Although the rural population is 22 percent of the Nation's 
population, only 12 percent of HUD's Section 8 funds reach 
nonmetropolitan areas. This is due in part to the lack of decent 
housing in rural areas. HOME and CDBG also neglect smaller communities 
by mostly funding larger ones. Rural counties also fared worse with 
Federal Housing Administration (FHA) assistance on a per capita basis 
as well, getting only $25 per capita versus $264 in metro areas. Our 
veterans in rural areas are no better off: Only 11 percent of Veterans 
Affairs housing programs reach nonmetropolitan areas.
    In its recent report, the Millennial Housing Commission noted this 
funding disparity by pointing out that ``rural housing needs . . . are 
often neglected by major Federal housing programs. . . .'' The 
Commission recommended that the Congress provide additional funding for 
programs in rural areas. It also mentioned that States, too, must ``pay 
special attention to the needs of rural areas.'' The Commission is 
right.
    We know that there is a real scarcity of rural housing--and this 
scarcity is even greater when it comes to rural rental housing.
    All of us recognize that owning a home is a central part of the 
American Dream. But the reality is that many people cannot afford it, 
and these people still need and deserve a decent roof over their heads. 
One out of every three renters in rural America pays more than 30 
percent of his or her income for housing; 20 percent of rural renters 
pay more than 50 percent of their income for housing.
    To address the shortage of rural rental housing, I believe that the 
Federal Government must come up with new solutions. We cannot simply 
throw money at the problem and expect the situation to improve. 
Instead, we have to work in partnership with the State and local 
governments, private financial institutions, private philanthropic 
institutions, and the private and nonprofit sectors to make headway. We 
must leverage our resources to increase the supply and quality of rural 
rental housing for low-income households and the elderly.
    Senator Jeffords, Senator Leahy, Senator Wellstone, and I have 
proposed a new solution. Our Rural Rental Housing Act would create a 
flexible source of financing to build or rehabilitate rental housing 
based on local needs. We demand that Federal dollars be stretched by 
requiring State matching funds and by requiring the sponsor to find 
additional sources of funding for the project. We are pleased that more 
than 70 housing groups from 26 States have already indicated their 
support for this legislation.
    Let me briefly describe what the measure would do. We propose a 
$250 million fund to be administered by the U.S. Department of 
Agriculture (USDA). The fund will be allotted to States based on their 
share of rural substandard units and of the rural population living in 
poverty, with smaller States guaranteed a minimum of $2 million. We 
will leverage Federal funding by requiring States or other nonprofit 
intermediaries to provide a dollar-for-dollar match of project funds. 
The funds will be used for the acquisition, rehabilitation, and 
construction of low-income rural 
rental housing.
    The USDA will make rental housing available for low-income 
populations in rural communities. The population served must earn less 
than 80 percent area median income. Housing must be in rural areas with 
populations not exceeding 25,000. Priority will be given to very low-
income households, those earning less than 50 percent of area median 
income, and to very low-income communities or in communities with a 
severe lack of affordable housing. To ensure that housing continues to 
serve low-income populations, the legislation specifies that housing 
financed under the legislation must have a low income use restriction 
of not less than 30 years.
    The Act promotes public-private partnerships to foster flexible, 
local solutions. The USDA will make assistance available to public 
bodies, Native American tribes, for-profit corporations, and private 
nonprofit corporations with a record of accomplishment in housing or 
community development. Again, the Act stretches Federal assistance by 
limiting most projects from financing more than 50 percent of a project 
cost with this funding. The assistance may be made available in the 
form of capital grants, direct, subsidized loans, guarantees, and other 
forms of financing for rental housing and related facilities.
    Finally, the Act will be administered at the State level by 
organizations familiar with the unique needs of each State, not by 
creating a new Federal bureaucracy. The USDA will be encouraged to 
identify intermediary organizations based in the State to administer 
the funding. These intermediary organizations can be States or State 
agencies, private nonprofit community development corporations, 
nonprofit housing corporations, community development loan funds, or 
community development credit unions.
    Non-profit organizations, public bodies, and the other eligible 
intermediary organizations are well-versed in combining funding sources 
to finance housing for low-income families. In fact, it is almost 
impossible to find a housing project which is funded purely by Section 
515 funds any more. Most rural rental housing projects have multiple 
sources of funding.
    An example of a project which would clearly benefit from Rural 
Rental Housing Act funding is one sponsored by the nonprofit 
organization Southern Maryland Tri-County Community Action Committee, 
in Calvert County, Maryland. This high rent area has such strong demand 
for Low-Income Housing Tax Credit funding that it only has one funding 
round per year, rather than the usual two. The Community Action 
Committee received approval from the County to build 104 units of 
affordable rental housing. The land is available, but the funds are 
not.
    Out of the 104 scheduled units, the Committee has only been able to 
find funding to build 28 units, through patching together funds from 
the Section 515 program, the State housing finance agency, tax credits, 
and the Affordable Housing Program of the Federal Home Loan Bank. 
Because the incomes served by this project are so low in comparison to 
the surrounding area, ranging from 21 percent ($17,000) to 33 percent 
($30,000) of the area median income, tax credits alone are not an 
option to build the remaining units.
    With additional Federal funds through the Rural Rental Housing Act, 
to match tax credits or State funds or even conventional bank 
mortgages, the Committee would be able to finance the remaining 76 
units of affordable housing that are desperately needed. You may have 
seen the recent articles in The Washington Post outlining the serious 
lack of housing in Calvert County, where even those families with valid 
Section 8 vouchers cannot find housing. Federal funding, matched by 
local, State, and private funds, is needed to begin to address this 
problem. In many rural areas, the local government does not have access 
to a Federal funding stream to 
finance rental housing. In most States, there is a long line for HOME 
and CDBG funds. Small, isolated poor communities must compete with 
central cities, larger towns, and suburbs for Federal block grant 
funding.
    The Rural Rental Housing Act would provide an additional source of 
funding, devoted exclusively to rural America, for rental housing 
development, acquisition, and rehabilitation. By providing another 
tool, target to our small towns and farming communities, the Rural 
Rental Housing Act provides an additional tool, or resource, to finance 
rental housing for rural families.
    The Rural Rental Housing Act is not meant to replace, but to 
supplement, the Section 515 Rural Rental Housing program, which has 
been the primary source of Federal funding for affordable rental 
housing in rural America from its inception in 1963. Section 515, which 
is administered by the USDA's Rural Housing Service, makes direct loans 
to nonprofit and for-profit developers to build rural rental housing 
for very low-income tenants. Our support for Section 515 has decreased 
in recent years--there has been a 73 percent reduction since 1994--
which has had two effects. It is practically impossible to build new 
rental housing, and our ability to preserve and maintain the current 
stock of Section 515 units is hobbled. Fully three-quarters of the 
Section 515 portfolio is more than 20 years old.
    The time has come for us to take a new look at a critical problem 
facing rural America. How can we best work to promote the development 
of quality rental housing for low-income people in rural America? My 
colleagues and I believe that to 
answer this question, we must comply with certain basic principles. We 
do not want to create yet another program with a large Federal 
bureaucracy. We want a program that is flexible, that fosters public-
private partnerships, that leverages Federal funding, and that is 
locally controlled. We believe that the Rural Rental Housing Act of 
2001 satisfies these principles and will help move us in the direction 
of ensuring that everyone in America, including those in rural areas, 
have access to affordable, quality housing options.
    There is no question that the Rural Rental Housing Act is only one 
part of the solution to the problem of affordable housing facing rural 
America. There is more we need to do. But I do believe this Act is an 
important step on the road to making sure Americans who live in rural 
areas enjoy all the opportunities and promise of life in our great 
country. Mr. Chairman, I look forward to working with you on this bill 
and this issue in the future.
    Thank you.

                               ----------
                 PREPARED STATEMENT OF THOMAS M. MENINO
                  Mayor, City of Boston, Massachusetts
                  President, U.S. Conference of Mayors
                           September 25, 2002

    Mr. Chairman and Members of the Committee, thank you for inviting 
me to speak about the shortage of workforce housing that too many 
American families face today. As Mayor of Boston and President of the 
U.S. Conference of Mayors, this issue is at the top of my agenda 
because strong cities must meet the diverse needs of their housing 
markets.
    Senator, despite our best efforts at the local level, we cannot do 
it alone. We need a real group of partners and Washington must be a 
better partner. We need our national leadership to: Expand the supply 
of housing for working families, seniors and the needy; make 
homeownership a more attainable goal, particularly in communities of 
color; and, preserve the stock of reasonably priced housing we have 
now--from public housing to assisted units.
    Despite, or maybe because of the strength of the housing economy 
across our country, working families and people of all ages, at 
different income levels, are struggling to keep a roof over their 
heads.
    So the time has come to give this national issue the real attention 
it deserves.
    This evening, Mayors from across the country will be arriving in 
Washington for our first ``Lobby Day.'' And one issue that will be at 
the top of everyone's agenda is the need for more housing.
    Too many families are falling through the cracks. According to the 
National Low Income Housing Coalition study, Out of Reach, for the 
fourth year in a row, there is no jurisdiction in the United States 
where a minimum wage job provides enough income for a household to 
afford a two-bedroom apartment.
    From State-to-State and city-to-city--the story is the same. The 
situation in Boston is indicative of the situation in many communities 
throughout the country. In Boston, the average 2-bedroom apartment 
costs $1,600 a month. To afford that, you need to earn at least $64,000 
per year. If you are working a job that pays the Federal minimum wage, 
that means you have to work 72 hours per week--and use 100 percent of 
your earnings to pay the rent.
    And for many families, public assistance is no assistance. In 
Boston, a family of four has to earn under $28,250 to qualify for 
public housing--and under $33,900 to be eligible for the HOME program 
and Low-Income Housing Tax Credits program.
    But what about people--such as teachers, secretaries, police 
officers, restaurant workers, and countless others--who earn too much 
to qualify for public assistance, but not enough to afford an average 
market rate apartment?
    It is no wonder that over the past decade, homelessness has more 
than doubled. And more than 80 percent of the people in our shelters 
are working mothers and children. Meanwhile, the average wait for 
people with emergency housing needs is 21 months. The Boston Housing 
Authority has over 15,000 families on its waiting list for public 
housing.
    Mr. Chairman, we are doing our part in Boston. We have permitted 
more than 5,000 new units in the last 2 years and I have dedicated $30 
million in city funds for housing creation. But the problem simply goes 
far beyond any one city's ability to address it.
    We need a national housing agenda and we need it now. Delay carries 
a high price -- cities like Boston risk becoming a place where only the 
very rich and the very poor can afford to live.
    I should add that the housing crisis is not just a problem on the 
two coasts, as many believe. Studies have shown housing costs rising 
dramatically in States such as Minnesota and Colorado. And I recently 
received an invitation to speak in North Carolina on this issue, so the 
problem is clearly expanding beyond what we think of as the high-cost 
communities.
    So the time is right to invest in housing. After all, it is also 
the perfect medicine for a sluggish economy. Remember, when you add up 
all the building costs, people buying appliances, and furniture, 
housing counts for one-fifth of our Gross Domestic Product. In 
addition, it puts people to work, builds stronger communities, and 
strengthens families.
    How much housing do we need? The National Housing Coalition 
predicts that by 2010, we will need an additional 11 million housing 
units.
    To make housing available to everyone, we have to reverse some 
troubling trends:

 Between 1997 and 1999, we lost more than 200,000 affordable 
    units. And in the absence of any new production, we have to 
    preserve all assisted units.
 Homeownership is at 67.9 percent. But for African-Americans 
    and Latino families, it is only 45 percent. We need to close the 
    racial gap.
 The number of 25 to 34 year olds living with their parents has 
    reached record numbers. We need to give young people a chance to 
    jump-start their lives.
 Funding for assisted housing for seniors remains flat, despite 
    the fact that they are the largest growing segment of our 
    population. We need to provide for our senior citizens, not squeeze 
    them out of their homes.

    To move forward, we must create a national strategy--that is why in 
May, I convened the Conference of Mayors National Housing Summit. We 
met for 2 days with some of the best minds in the housing business and 
we reached out to new partners including labor, seniors, and leaders in 
the public health and business communities. We concluded that this new 
strategy should include:

 Establishing a strong housing production program, such as a 
    National Affordable Housing Trust Fund--based on the 200 funds 
    established in communities across the country, including Boston--to 
    provide a steady revenue stream to assist low-income workers. Last 
    week, Mayor Hahn of Los Angeles hosted the leadership of the mayors 
    at a briefing on his housing $100 million housing trust fund. I 
    applaud the efforts of Senators Kerry, Bond, and Edwards, who along 
    with Representative Sanders and others, have filed strong proposals 
    for housing production. But it is important to cities and to the 
    U.S. Conference of Mayors that any housing trust fund proposal be 
    funded with new money and that it provide cities with direct access 
    to funds. Let's cut out the overhead and the middlemen.
 At the same time, we need to provide incentives to builders. 
    One way to do that is to provide a tax credit for the development 
    of homeownership housing as the President has proposed. Any housing 
    package must be a bipartisan package and the Administration has put 
    forward a good idea for adoption.
 We should work to expand employer-assisted housing programs 
    for working families. In Boston, companies like Citizens Bank, 
    which Chairman Reed knows well, are starting these programs. We 
    should look at new incentives to expand these efforts.

    Senator, for the record, I want to submit a copy of our 
comprehensive National Housing Policy as approved by the mayors at our 
Annual Meeting this spring. It is our hope that this document will add 
to the long needed debate on how we provide every American with safe, 
decent, and affordable housing.
    It is time to go beyond the tired housing policies of the past. 
Back then our policy was to throw up 30 story buildings that were 
neighborhood eyesores. Well, times have changed, and most of those 
buildings are being demolished.
    Many cities, including Boston, know that the best way to build 
housing is to create mixed-use developments and design the buildings so 
that they compliment and strengthen the neighborhood.
    In the last few months, Democratic and Republican mayors have 
worked with the leaders in Washington to pass the education bill and we 
reached an agreement to secure critical resources for Homeland 
Security. We can--and we should--use this spirit of bi-partisanship to 
create more homes and apartments that working families, seniors, low-
income workers, and the disabled can afford.
    Housing is not a luxury; it is a fundamental right. This issue 
deserves national attention. Mayors and our coalition partners stand 
ready to work with you to help more American families attain this 
right.
    Mr. Chairman, thank you for your continued leadership on these 
issues.

                               ----------
             PREPARED STATEMENT OF RICHARD H. GODFREY, JR.
                           Executive Director
         Rhode Island Housing and Mortgage Finance Corporation
                 Secretary & Member, Board of Directors
               National Council of State Housing Agencies
                           September 25, 2002

    Chairman Reed, Senator Allard, and Members of the Subcommittee, I 
am Richard Godfrey, Executive Director of the Rhode Island Housing and 
Mortgage Finance Corporation. Thank you for this opportunity to testify 
on behalf of the National Council of State Housing Agencies (NCSHA).
    NCSHA represents the Housing Finance Agencies (HFA's) of the 50 
States, the District of Columbia, the Commonwealth of Puerto Rico, and 
the U.S. Virgin Islands. I am a Member of NCSHA's Board of Directors 
and serve as its Secretary.
    State HFA's allocate the Low-Income Housing Tax Credit (Housing 
Credit) and issue tax-exempt private activity bonds (Housing Bonds) to 
finance apartments for low-income renters and mortgages for lower-
income first-time homebuyers in nearly every State. They administer the 
HOME Investment Partnerships (HOME) program in 40 States to provide 
both rental and homeownership assistance for low-income families. Many 
State HFA's administer other Federal housing programs, including 
Section 8 and homeless assistance.
    State HFA's have helped more than 2.2 million lower-income families 
buy their first home with a Mortgage Revenue Bond (MRB) mortgage. HFA's 
have financed more than 2 million rental apartments for low- and 
moderate-income families, including more than 1.4 million apartments 
for low-income families with the Housing Credit. They have provided 
another 220,000 low-income families homeownership and rental housing 
help through HOME.
    State HFA efforts to finance homeownership and rental housing 
received a boost from Congress' recent passage of a near 50 percent 
increase in the Housing Credit and Bond volume caps. However, these 
increases were not enough even to restore the purchasing power these 
programs had lost to inflation since Congress imposed the caps in 1986. 
Demand for Housing Credits and Bonds still outstrips their supply in 
virtually every State.
    The availability of scarce Bond financing is severely threatened by 
the MRB Ten-Year Rule. The rule requires HFA's to use MRB mortgage 
payments to retire the MRB, rather than make new mortgages to lower-
income families, once the MRB has been outstanding for more than 10 
years. This arbitrary and obsolete rule puts increased pressure on the 
already inadequate Bond cap by forcing States to use new Bond authority 
to finance MRB mortgages, rather than recycling old authority into new 
mortgages. In 3 more years, the rule will have wiped out the equivalent 
of the Bond cap increase you and so many in Congress worked so hard and 
long to enact.
    The Housing Bond and Credit Modernization and Fairness Act, S. 677, 
repeals the MRB Ten-Year Rule and makes other important changes in the 
MRB and Credit programs to assure that their usefulness in all parts of 
the country, particularly in very low-income, predominantly rural, 
areas. Seventy-six Senators have cosponsored S. 677.
    I encourage you, Mr. Chairman, and Senator Sarbanes, to join them 
in cosponsoring this important bill. I ask all Members of the 
Subcommittee to communicate to the Senate Leadership and Finance 
Committee Chairman Baucus (D-MT) and Ranking Member Grassley (R-IA) the 
urgent need to include S. 677 in a viable tax bill this year.
    Thank you, Mr. Chairman, for your strong and consistent leadership 
on affordable housing matters. NCSHA commends you for holding this 
hearing to shine light on our Nation's affordable housing shortage and 
possible solutions.
    Over the last several years, Members of Congress, the Millennial 
Housing Commission (MHC), housing industry groups, and other housing 
advocates have recognized the critical need for increased production of 
affordable housing, particularly for our Nation's very low- and 
extremely low-income renters. Many have presented proposals for 
increased Federal investment to meet this need. Now is the time to 
identify and combine the best elements of these proposals in an 
effective response to our Nation's affordable rental housing shortage.

A Pressing Need for Affordable Housing Persists Throughout the Nation
    There is an ever-growing consensus, supported by academic research, 
newspaper reports, and the personal experience of millions of low-
income families, that our Nation confronts an affordable housing 
crisis. According to the 1999 Annual Housing Survey, one in seven 
American families has a severe housing problem, meaning they spend more 
than half their income on housing or live in substandard housing. That 
is 15.5 million families, both homeowners and renters.
    This crisis extends from the very poor to the solidly working 
class. Yet indisputably, those families hardest hit are those with the 
least income. Of the 15.5 million families with severe housing 
problems, 80 percent are very low income, earning 50 percent of their 
area's median income (AMI) or less. Nearly 60 percent have extremely 
low incomes, earning 30 percent of AMI or less.
    In its much anticipated, recently released report on Federal 
housing policy, the Millennial Housing Commission concluded:

          The most serious housing problem in America is the mismatch 
        between the number of extremely low-income renter households 
        and the number of units available to them with acceptable 
        quality and affordable rents. This is a problem in absolute 
        terms, with 6.4 million extremely low-income households living 
        in housing that is not affordable. And it is a problem in terms 
        of severity, in that extremely low-income households make up 
        only 25 percent of renters, but 76 percent of renter households 
        with severe housing affordability problems.

    The Commission found that even if all rental apartments affordable 
to extremely low-income households were appropriately located, the 
right size, of good quality, and available, the Nation would still have 
a shortage of 1.8 million apartments 
affordable to them. Many apartments affordable to extremely low-income 
families do not meet these conditions, making the real supply gap much 
larger.
    According to the National Low Income Housing Coalition's just-
released report on housing affordability, Out of Reach 2002, the 
average hourly wage of workers in extremely low-income households is 
$8.37 an hour. Yet, the ``housing wage,'' the average hourly wage 
necessary to afford a two-bedroom home at the nationally weighted fair 
market rent (FMR), is $14.66.
    This means that a worker earning the Federal minimum wage, $5.15 an 
hour, would need to work an average of 114 hours per week in order to 
earn enough money to rent a two-bedroom apartment at the FMR. Last 
year, more than 2 million workers in the United States earned the 
Federal minimum wage or less.
    There is no State or county in the country where a minimum wage 
worker can afford a two-bedroom apartment at the FMR. Seventy-five 
percent of the States have a housing wage of more than twice the 
prevailing minimum wage. Ninety percent of all renter households live 
in these States.
    Extremely low-income families undoubtedly have the most acute 
housing needs. Since frequently homeownership is not an option for 
them, more Federal resources must be concentrated on producing rental 
housing affordable to these vulnerable families.
    Though very low- and extremely low-income families have the most 
acute needs, the need for quality affordable housing extends to low- 
and even middle-income families. According to the Commission's report, 
housing affordable to families earning between 60 and 100 percent of 
AMI plummeted between 1985 and 1999, dropping by 2.3 million units, or 
20 percent.
    The steady losses of affordable apartments exacerbate the 
affordable housing shortage. According to HUD's 2001 report on worst-
case housing needs, there were almost a million fewer apartments with 
rents affordable to extremely low-income families in 1999 than there 
had been in 1991. Between 1997 and 1999 alone, the number of apartments 
affordable to extremely low-income families declined by 750,000, or 13 
percent. More than 100,000 assisted units have been converted to market 
rate housing due to owners opting out of Federal housing assistance 
programs. The threat of further losses looms as contracts on hundreds 
of thousands of units expire each year.

Substantial New Federal Resources Are Needed
    Substantially more Federal resources must be devoted to producing 
and to preserving affordable rental housing, especially for those with 
the least income. Rents these families can afford to pay simply are not 
sufficient to support the production and operation of rental housing 
without substantial subsidies. Existing Federal resources are not 
sufficient. Demand for subsidized housing far outstrips supply. Only 
one-third of families eligible for rental housing help receive it.
    Meanwhile, today's HUD budget is a third of what it would have been 
had it kept pace with inflation since 1976. The HUD budget has remained 
flat in nominal terms over the last 27 years. It has barely grown from 
$29.2 billion in 1976 to $30 billion in 2002, losing nearly two-thirds 
of its purchasing power. During the same period, total Federal 
discretionary budget authority has grown from $194 billion to $635 
billion, a three-fold increase.
    Increased funding for existing HUD programs is essential. However, 
funneling more resources into these programs alone will not solve the 
affordable rental housing shortage. Existing HUD programs were not 
designed to produce new rental housing on any significant scale. In 
fact, one of the only HUD programs actually producing new affordable 
rental housing today is the HOME program. Despite its achievements, 
HOME is not the best vehicle for delivering new Federal rental 
production resources.
    HOME funding is allocated among more than 600 State and local 
government 
recipients. Many of them do not receive funding allocations sufficient 
to make meaningful investments in rental housing production.
    HOME funding also is used to help finance the entire range of 
affordable housing activities, including downpayment assistance, 
mortgage assistance, home improvement and rehabilitation, tenant-based 
assistance, lead-based paint abatement, reconstruction, rental 
rehabilitation, rental production, and acquisition. This further 
reduces HOME funding availability for rental housing production.
    Even the Housing Credit--the single greatest producer of affordable 
rental housing today--was not designed to serve extremely low-income 
families without additional subsidies. In 2001, 45 States allocated 
some portion of their Credits to apartments for families earning 50 
percent of AMI or less. In 18 of these States, more than half of the 
apartments allocated Credits in 2001 were dedicated to families earning 
50 percent of AMI or less. Nearly half of all of the States allocated 
some portion of their Credits to apartments targeted to families 
earning 30 percent of AMI or less.
    While States consistently serve families earning considerably less 
than the 60 percent of AMI Federal income limit, State HFA's in Rhode 
Island and across the country are finding it increasingly difficult. 
There are not sufficient subsidies to combine with the Credit to meet 
the large and growing need among very low- and extremely low-income 
families. It is especially difficult to reach such families in areas 
with very low AMI's.

Utilize the Proven State Housing Delivery System
    We believe the affordable rental housing shortage can be solved 
without designing a complicated new program or delivery system. The 
delivery system already exists in State HFA's. All that is needed is a 
Federal commitment of new flexible funds allocated through State HFA's 
to leverage Bonds, Housing Credits, and other resources to reach 
underserved families, particularly those with very and extremely low 
incomes.
    Any new funding Congress is able to appropriate for this purpose 
almost certainly will be insufficient to meet the need. Therefore, it 
is essential that whatever limited funds that Congress makes available 
be delivered through an established and integrated system that 
facilitates their coordination with other resources and targets them to 
where they are most urgently needed. This system is already in place at 
the State level.
    NCSHA recommends that any new rental production funds be 
administered by the States for at least four compelling reasons:
    First, only statewide government is in a position to judge and to 
allocate the assistance to the most pressing needs, wherever they exist 
in each State, in amounts sufficient to make a difference. Housing 
needs in cities, suburbs, and rural areas do not often exist in 
isolation from one another.
    Moreover, housing needs, job and commercial development, 
transportation burdens, health care availability, human services 
demands, and other neighborhood 
development requirements flood across city and county political 
boundaries, sometimes across broad areas of a State. These interrelated 
needs cannot be addressed as fairly, effectively, or efficiently by a 
proliferation of individual subdivisions acting alone. States can work 
with local governments to recognize and address these needs.
    States are uniquely positioned. They are close to real local issues 
and housing needs, but have enough perspective to bring a State and 
regional focus to problems that cannot be solved within individual 
municipal boundaries. States are in an unparalleled position to ensure 
that funding is applied where it is most needed and integrated with 
other public investments in our physical, economic, and human 
infrastructure.
    States have the ability to bring together State agencies and 
resources in ways the Federal Government and local communities cannot. 
For example, State HFA's have partnered with welfare agencies to use 
Temporary Assistance to Needy Families (TANF) funds to provide housing 
assistance to families attempting to make the transition from welfare 
to work. They have teamed up with State health and human services 
agencies to obtain Medicaid waivers to cover the cost of services in 
HFA-financed assisted living. They work with State departments of 
mental health and retardation to provide quality housing linked to 
supportive services for people with mental illness and retardation.
    State HFA's also successfully partner with local governments, 
nonprofits, the private sector, resident and community groups, and 
service providers to address the diverse housing challenges they 
confront. Through comprehensive and coordinated State, regional, and 
local planning, State HFA's can assure that housing is developed where 
it is most needed and in sustainable communities with access to jobs, 
transportation, schools, health care, and other services.
    Second, the funds potentially available for any new production 
program under any reasonably anticipated budget scenario will be too 
scarce to be divisible among more than the 50 States, if relative needs 
in all parts of each State are to be considered and prioritized 
adequately, and the funds marshaled to meet them. Dividing into more 
than 50 parts whatever additional housing funding Congress provides 
would dilute those funds in many places to amounts too little to be 
effective or meaningful.
    The programs such as HOME and CDBG that divide limited resources 
between hundreds of local communities simply are not conducive to large 
scale, expensive production activities. This fractionalization makes 
these programs very popular among a broad base of local governments, 
but distributes funds without regard to consideration of or 
prioritization among statewide or even regional needs and in shares 
frequently too small to address whatever needs exist even in the county 
or city receiving them. State level administration is the only possible 
way to bring always-too-scarce Federal assistance to bear in the most 
comprehensive, coordinated, cost-effective fashion on the most pressing 
multifamily production problems, wherever they exist in each State.
    Third, only the State government has the capacity in every State to 
administer sophisticated multifamily financing. State housing agencies 
possess statewide focus, sophisticated finance, underwriting, and asset 
management capacity, and a multidecade record of responsibility, 
effectiveness, accountability, and success in administering tens of 
billions of dollars of housing assistance. They are investment grade 
rated.
    States are the only point in the entire Federal system where all 
Federal and State housing resources--Housing Bonds, Housing Credits, 
HOME, Federal Home Loan Bank advances, FHA insurance, and State--
provided funds--can be accessed in one place and brought to bear on 
housing needs.
    Fourth, Federal oversight capability can be more effectively 
concentrated on 50 entities than on programs spread among hundreds of 
States and municipalities, a point which HUD itself recently recognized 
in limiting to the States the delegation of contract administration on 
its 850,000 unit Section 8 project-based portfolio. We expect that HUD 
will supervise the proper use of funds it allocates, but eschew 
prescriptive regulations or micromanagement of State administrators.
    Any new production vehicle should leverage and expand the reach of 
the current housing programs and be integrated with existing State 
housing plans and funding systems. It is essential that any income, 
rent, or other rules be flexible enough to ensure compatibility with 
the Housing Credit and other Federal housing programs, for the 
combination of this new funding with them will almost always be 
necessary to reach extremely low-income families.
    We propose that new rental production funds be allocated by State 
HFA's, subject to a State allocation plan, modeled on and coordinated 
with the Housing Credit qualified allocation plan. The plan, developed 
with extensive public input, including from local governments and 
nonprofits, would identify the State's priority rental housing needs 
and strategies for using the funds to address them.
    States should be empowered to use funds for a wide range of 
activities, including project-based assistance, new construction, 
rehabilitation, and preservation. Funds should not be encumbered with 
program set-asides.
    Finally, it is essential that States have the flexibility they need 
to tailor innovative solutions to their unique and varied housing 
problems. HUD regulation must be limited to that which is necessary to 
assure nondiscrimination and accountability for the use of funds to 
achieve the goals Congress has set. Irrational and unnecessarily 
burdensome rules, regulations, and reporting requirements frustrate 
State HFA's and their partners, smother creativity, and delay results.

The Solution is at Hand; The Time to Act is Now
    Members of Congress in both Houses and from both sides of the aisle 
have long recognized the need for increased production of affordable 
rental housing. The Congressionally-mandated Millennial Housing 
Commission report confirms this need.
    Several Members of Congress, the Commission, and a number of 
industry groups, including NCSHA, have put forward proposals for 
addressing this need. Many of these proposals, particularly Senator 
Kerry's National Housing Trust Fund Act of 2001 (S. 1248) and Senator 
Bond's Affordable Housing Expansion Act of 2002 (S. 2967), contain many 
of the essential elements outlined in this testimony, including State 
administration, deep income targeting, and flexible program rules.
    We are confident that legislation incorporating these elements 
would attract broad bipartisan support. We urge you to move forward and 
pledge our full support.

                               ----------
              PREPARED STATEMENT OF WILLIAM (BILL) PICOTTE
                 President, Housing Assistance Council
  Executive Director, Oti Kaga, Inc., Cheyenne River Sioux Reservation
                           September 25, 2002

    Thank you for the opportunity to submit testimony to the 
Subcommittee on affordable housing production, and thank you, Chairman 
Reed, for holding this important hearing. My name is Bill Picotte, and 
I am Executive Director of Oti Kaga, Inc., a nonprofit housing 
development organization located on and serving the Cheyenne River 
Reservation in north central South Dakota. I also am President of the 
Board of Directors of the Housing Assistance Council (HAC), a national 
nonprofit group working to create more affordable housing throughout 
rural America.\1\ My testimony focuses on housing production in rural 
and nonmetropolitan areas.
---------------------------------------------------------------------------
    \1\ HAC has just published an issue of its magazine, Rural Voices, 
that is devoted to rural housing production. The issue and other 
information on rural housing are available on HAC's web site, 
www.ruralhome.org.
---------------------------------------------------------------------------
    First let me say something about our own situation in South Dakota. 
That will set a context for my comments on the national scene. The 
family poverty rate for the Cheyenne River Sioux Indian Reservation is 
40.9 percent, compared to 11.6 percent statewide and 10.0 percent 
nationally. Median-family income for the reservation is $15,797, 
compared to $27,602 statewide and $35,225 nationally. Per capita median 
income for the reservation is $6,405, compared to $10,661 statewide, 
and $14,420 nationally. Yes, those are median incomes, something that 
may be difficult to grasp in a major metro area where the median 
household income is $50,000 or higher. The homeownership rate for 
Cheyenne River is 51.6 percent, compared to 66.1 percent statewide, and 
67 percent nationally. The Cheyenne River Housing Authority's Indian 
Housing Plan currently documents a need for 1,747 housing units, 
including 1,104 new rental units, 309 new homeownership units, 
supportive services, student, transitional, homeless, elderly, and 
essential personnel housing.
    These statistics demonstrate the extreme poverty and housing need 
faced by our residents. To help alleviate some of these conditions, Oti 
Kaga has undertaken development of both single-family and multifamily 
housing; loan-packaging services for Rural Development programs; a loan 
program; and housing counseling services. Essentially, we are engaged 
in affordable housing production, the focus of today's hearing.
    Founded in 1995, Oti Kaga, Inc. views housing development as a 
fundamental 
approach to improving economic conditions on the Cheyenne River 
Reservation, in Indian country generally, and in all of rural America. 
We have used numerous production programs including Low-Income Housing 
Tax Credits; the USDA Rural Housing Service's Section 502, 504, and 515 
programs; the HUD Section 184 and HOME programs; the Affordable Housing 
Program of the Federal Home Loan Bank; and aid from the Enterprise 
Foundation, Fannie Mae, and other sources. To help with production, we 
have also established two loan funds. One provides small loans to our 
Sections 502 and 504 applicants for credit check fees, appraisal fees, 
and other costs associated with applying for these programs. Then our 
Homeownership Assistance Program (HAP) Loan Fund provides loans to 
Section 502 and 184 loan applicants for downpayment and closing cost 
assistance. Oti Kaga also provides loan-packaging services for the 
Section 502 and 504 programs through our ``Increasing Access to Rural 
Development Programs'' project, which is funded by the USDA and the 
Housing Assistance Council. And we offer credit counseling and 
homebuyer education.
Housing Conditions and Need in Rural America \2\
---------------------------------------------------------------------------
    \2\ Portions of this and the following sections are drawn from 
Lance George, ``Why Rural America Needs Affordable Rural Housing,'' 
Rural Voices, Summer 2002.
---------------------------------------------------------------------------
    Production of new units is not the only way of meeting housing 
need, but it is also an essential tool, especially in rural areas. The 
level of need is shown in data from the 2001 American Housing Survey, 
as compiled and analyzed by the Housing Assistance Council. For most of 
the 20th Century, substandard quality was the primary housing problem 
in rural areas. But today sharply higher and increasing housing costs 
have made affordability rather than poor conditions the major problem 
in rural housing, especially for low-income people. While housing costs 
are lower in nonmetro areas than in cities, incomes are also lower. As 
a result, many rural households find it difficult to meet basic housing 
expenses. Among the 23 million nonmetro households, approximately 5.5 
million, or 24 percent, pay more than 30 percent of their monthly 
incomes for housing costs and are considered cost burdened. Of these 
nonmetro cost-burdened households, more than 2.4 million pay more than 
half their incomes toward housing costs.
    Most cost-burdened households have low incomes, and a 
disproportionate number are renters. In fact, renters are 35 percent of 
nonmetro cost-burdened households while they comprise less than one-
quarter of all nonmetro households. Research by the National Low Income 
Housing Coalition, supported in part by the Housing Assistance Council, 
shows that nowhere in the United States can a household afford a two-
bedroom apartment at the fair market rent with income at the Federal 
minimum wage. Even in very rural places, minimum wage incomes place 
fair market rents out of reach.
    There have been many gains in rural housing quality, largely 
because of Federal programs. But substandard housing still exists in 
the United States, especially in rural areas and central cities. The 
frequency of housing inadequacy among nonmetro units is slightly higher 
than for all housing units. Approximately 1.6 million, or 6.9 percent, 
of nonmetro units are considered either moderately or severely 
inadequate. Fully 12 percent of low-income households in nonmetro areas 
live in physically inadequate housing, and poor housing conditions are 
disproportionally more common among renters and minority households 
than among owners and whites.

Current Programs
    Federal housing assistance has played an important role in the 
production of low- and moderate-income rural housing since the mid-
1930's. Yet, according to a methodology developed by the Housing 
Assistance Council, only 7 percent of nonmetro households receive some 
type of Federal or other publicly-supported housing assistance.\3\ One 
little known but successful production approach is that of the USDA 
Rural Housing Service (formerly the Farmers Home Administration). After 
having successfully produced over 3 million units since 1950, the USDA 
rural housing programs have been sharply reduced in recent years. (See 
the following chart.) The role and impact of these programs in 
production has been dramatically transformed. A primary example is 
USDA's Section 515 rural rental housing program, which serves the 
poorest households.
---------------------------------------------------------------------------
    \3\ The number of rental households receiving assistance is 
estimated from those households who report their income as part of 
their rental lease, pay a lower rent because the Government is paying 
part of the cost of the unit, or live in a building owned by a public 
housing authority. These estimates include Federal, State, and local 
Government assistance. Data on Government subsidized owners in the AHS 
are limited. The number of homeowners who receive public mortgage 
assistance is estimated from those households who indicate they 
obtained a mortgage through a State or local government program that 
provides lower-cost mortgages or have a primary mortgage from the USDA 
Rural Housing Service. This methodology is assumed to provide an 
underestimate of the number of subsidized owners.
---------------------------------------------------------------------------
      
    
    
      
    In fiscal year 1994, Section 515 funded 11,542 units of affordable 
rural rental housing, but in fiscal year 2001 the program funded only 
1,621 units--an 86 percent reduction. The larger Section 502 single-
family loan program has also seen deep cuts. These programs need to be 
maintained and restored.
    Making the rental shortfall worse is the fact that much of the 
current subsidized rental housing stock is at risk of loss. Many owners 
of rental developments with subsidized mortgages from USDA or HUD are 
seeking to opt-out of the subsidy programs by prepaying their mortgages 
and converting their apartments to market rate rentals. Likewise, 
landlords can opt-out of HUD's Section 8 rental assistance program in 
search of higher rents and fewer Government regulations.
    Several Federal housing programs have also been affected by a shift 
in emphasis to indirect subsidies such as loan guarantees and tax 
incentives. One significant result of these policies has been a 
reduction in the number of lower-income households served. The USDA 
Section 502 homeownership loan program has recently shifted its 
emphasis from direct loans to loan guarantees. In fiscal year 2000 just 
3 percent of Section 502 guaranteed loans served very low-income 
households as opposed to 44 percent of the program's direct loans.
    HUD programs are also very important to affordable housing 
production in rural America. The CDBG and HOME programs are vital. And 
let me cite one much smaller HUD initiative that was created by the 
U.S. Senate. This is the HUD Rural Housing and Economic Development 
Program, which this year has a $25 million appropriation. Oti Kaga has 
competed for and won three RHED grants, which help local nonprofits 
with both bricks-and-mortar gap funding and capacity building dollars. 
The funds are highly competitive and go directly to community groups. 
The Bush Administration has twice proposed eliminating this program, 
but the Congress--led by the Senate VA-HUD appropriators including 
Senators Bond and Johnson--has wisely rejected that approach. Doubling 
the program money to $50 million would be a much better idea.

Strategies and Legislative Ideas
    A number of production strategies and proposals are appropriate. 
Increasing funding for the current RHS programs--and for HUD programs 
serving rural areas--is vital (as the Millennial Housing Commission 
recommends \4\). But there are also other very worthy ideas for new 
legislation. They include:
---------------------------------------------------------------------------
    \4\ See Millennial Housing Commission, Meeting Our Nation's Housing 
Challenges, May 30, 2002, p. 71.

 Enactment of Senator Edwards' Rural Rental Housing Act (S. 
---------------------------------------------------------------------------
    652).

 Passage of the National Housing Trust Fund proposal (H.R. 
    2349).

 Enactment of Senator Bond's affordable housing production bill 
    (S. 2967), which would create a $1 billion housing block grant 
    program.

 Enactment of the President's homeownership tax credit proposal 
    (H.R. 5052).

 Expansion of self-help housing.

 Increased (or restored) staffing for the Rural Housing Service 
    to allow more effective use of the programs.

 Passage of the Kelly Sanders amendment to provide Federal 
    matching funds to State and local housing trust funds.

    Rural rental housing may face the biggest crisis. To help meet the 
crisis restoration of the USDA Section 515 program is key. The Housing 
Assistance Council has estimated that $100 million is required to cover 
the development of at least one new Section 515 project in each State. 
Necessary portfolio maintenance requires approximately $50 million per 
year. A minimum of $25 million is needed for equity loans to owners who 
wish to prepay. In short, $175 million would cover minimal essential 
activities under Section 515. We believe that the program should be 
funded at $550 million, and suggest that the Congress begin by 
appropriating $350 million for fiscal year 2003.
Conclusions
    Production of new units will not solve all rural housing problems. 
For rural Americans who can find decent existing homes, financial aid 
to make costs affordable may be the best solution; for others, 
affordable existing homes can be made decent with more rehabilitation 
funding. But for millions of rural residents with limited incomes, 
those solutions are simply not available. On Cheyenne River we need 
production of at least 1,700 new homes. Vouchers will not help, since 
we do not have many liveable empty units waiting to be rented or 
bought. We need production. Rural America needs production. Additional 
units of decent, affordable housing are very much needed, and Federal 
funding is essential to make new production happen.
    Thank you very much.

                                APPENDIX
    Oti Kaga Projects developed to date include the following:

Tipi Tokaheya

    A four-unit renovation project developed with Rural Development 
Section 502 funds.

Elk View Homes

    A ten-unit single-family, detached, lease/purchase project 
developed with LIHTC, Indian HOME and Affordable Housing Program funds. 
Construction was completed in late 1998.

South Main Apartments

    A twenty-unit multifamily housing project developed with LIHTC, 
Rural Development Section 515 (including 100 percent rental 
assistance), and Affordable Housing Program funds. Construction was 
completed in November 1999.

Falcon Apartments

    A sixteen-unit multifamily housing project developed with LIHTC, 
Rural Development Section 515 (including 100 percent rental 
assistance), and Affordable Housing Program funds. Construction was 
completed in February 2002.

Blackhawk Apartments

    A fifteen-unit multifamily housing project developed with LIHTC, 
Rural Development Section 515 (including 100 percent rental 
assistance). Construction is scheduled for completion in December 2002.

                     THE U.S. CONFERENCE OF MAYORS
         Recommendations from The Mayors National Housing Forum
                            May 20-22, 2002

Introduction
    On May 20, 2002, the U.S. Conference of Mayors (USCM) sponsored a 
National Forum to develop and advocate for a comprehensive housing 
policy for the Nation. Led by USCM President Mayor Thomas M. Menino of 
Boston and USCM Community Development and Housing Committee Chair Mayor 
Willie Brown of San Francisco, a group of mayors and public and private 
sector housing leaders, called for housing to be made a national 
priority.
    The Forum participants reaffirmed the importance of housing to the 
vitality and stability of our Nation's cities. They referenced well-
documented findings showing the increasing difficulty people are having 
finding safe, decent, and affordable housing. They agreed that while 
housing has not received the national attention and resources it 
deserves, it is intricately linked to national priorities, such as 
education, public safety, and health care.
    As Mayor Menino stated, ``From the need for young families to find 
their first home, to the special housing and service needs of senior 
citizens and households with disabilities, to the shelter challenges of 
the poor and homeless, the issue of housing affects the lives of 
everyone in our society. Therefore, we must work together to preserve 
the housing we have and produce the housing we need.''
    Housing helps promote neighborhood stability, improved educational 
opportunity, employment stability, and helps owners save for their 
futures. Housing serves as an economic generator and springboard which 
fosters solutions for many other national and local priorities.
    Housing, however, has not kept pace with the needs of the residents 
in most urban markets. Despite an all-time high homeownership rate in 
America of over 68 percent, the rate in cities is only 50 percent and 
even lower for minority and low- and moderate-income households. More 
than 14 million families spend more than half their income on housing. 
Clearly, in many markets, housing costs are growing faster than 
incomes.
    The U.S. Conference of Mayors calls for a comprehensive national 
housing policy that addresses the variety of housing challenges in our 
urban communities, including homeownership, rental housing, public 
housing, special needs housing, and homelessness issues.
    Some of the challenges include:

Rental Housing
 In 2000, rents increased faster than overall inflation for the 
    4th consecutive year and vacancy rates dropped in more than half of 
    the 75 largest metropolitan areas.

 More than 6 million families spend more than half of their 
    incomes for rent.

 Almost 2 million low- and moderate-income working families pay 
    more than half of their income on rent or live in severely 
    inadequate housing.
Homeownership
 More families build wealth by owning a home than stocks or 
    other investments, as yet homeownership remains out of reach to 
    more than half of all minority families and low-to-moderate income 
    residents.

 Moderate and middle-income families increasingly struggle to 
    afford a median-priced home in more than three-quarters of our 
    Nations' 60 largest housing 
    markets.

 The lack of supply of affordable homes often limits housing 
    choices and drives the cost of housing beyond the reach of many 
    families.

Public Housing
 More than 1.3 million families call public housing home. More 
    than one-third of these are seniors over the age of 62. The rest 
    are disabled and single mothers with children. Another 3.3 million 
    live in private, subsidized apartment or receive vouchers to rent 
    apartments.

 With the stock of public housing and subsidized apartments 
    falling far short 
    of the need, the waiting lists for public housing have grown to 
    about one million households. In some large cities, families must 
    wait 10 years or more for an available unit.

 While the need grows dramatically, the gap between supply and 
    demand widens. No significant new public housing has been built in 
    the past 25 years.

Special Needs
 1.4 million elderly and 2 million people with disabilities pay 
    more than 50 percent of their incomes for housing or live in 
    substandard housing.

 Section 811 funding for the disabled has declined by nearly 
    $100 million in the past decade, from $387 million to $271 million.

 In 2001, both hunger and homelessness rose sharply in major 
    American cities. 
    Requests for emergency food assistance climbed an average of 23 
    percent and request for emergency shelter assistance increased an 
    average of 13 percent in 27 cities surveyed by the U.S. Conference 
    of Mayors.

Preservation
 More than one million Federally-subsidized housing units are 
    at risk due to a expiration of Federal subsides and use 
    restrictions; aging deterioration, need for debt restructuring; and 
    local real estate market conditions.

 Millions of private, unsubsidized properties that provide 
    affordable rents also are at risk. Almost one million of 
    unsubsidized affordable housing have been lost over the past decade 
    due to disrepair, to abandonment, or to the gentrification of 
    neighborhoods.

 Between 1997 and 1999, more than 200,000 unsubsidized rental 
    units affordable to extremely low-income families were lost from 
    the stock.

Rental Housing
    Rental housing for all income groups is essential to create 
neighborhoods of choice and stimulate the economic growth of our 
Nation's cities. Therefore, Congress should provide an array of tools 
and resources to leverage the private sector to produce and to preserve 
an adequate supply of rental housing to meet each city's 
priorities.
    As part of this comprehensive strategy, Federal programs should 
place a very high priority on achieving both mixed-income developments 
and mixed-income neighborhoods.
    Congress should create a new rental housing production program to 
serve the needs of working families with incomes up to 100 percent AMI. 
Adjustments for high-cost areas should be allowed.
    The Conference supports the creation of a National Housing Trust 
primarily, but not exclusively, designed to meet the needs of the very 
low income, for example, 30 percent AMI or below, through the 
production and preservation of rental housing.
    Cities must receive a direct allocation of funds under both the 
workforce production program and the National Housing Trust Fund.
    Current Federal programs supporting rental housing production, for 
example, CDBG, HOME, LIHTC must be fully funded and redesigned to work 
together easily to meet a more diverse array of local housing 
challenges.
    Federal programs, including nonhousing programs, should provide 
significant incentives for regional fair share housing agreements and 
production consistent with smart growth principles.
    States should allocate existing housing resources in accordance 
with city priorities, for example, qualified allocation plans for LIHTC 
should reflect city priorities.
    States should create a set aside of all Federal and State housing, 
social services and transportation funds to provide cities with 
additional funds to implement targeted comprehensive neighborhood 
revitalization strategies.
    Cities should reduce the regulatory costs of housing production and 
rehabilitation by streamlining building codes, inspection and the 
permit process, as well as by adopting ``smart codes.''
    Congress should eliminate the volume cap for mortgage revenue bonds 
which fund the production and preservation of affordable housing.
    Create a National Housing Opportunities Corporation to give 
technical assistance and support to suburban communities to develop 
affordable housing.
    Expand the Low Income Housing Tax Credit Program to create mixed-
income developments.
    Encourage Fannie Mae and Freddie Mac to create national employer-
assisted housing programs to support homeownership by working families.

Homeownership
    Homeownership is the primary vehicle to improve individual economic 
well being and create wealth for households and neighborhoods.
    Public and private sector should promote regional planning and 
implementation that develops and retains a diverse housing stock.
    Public and private sector should continue to fund homeownership 
education and outreach, credit counseling programs, bi-lingual credit 
counseling, and financial 
literacy programs.
    Congress should expand the Community Reinvestment Act (CRA) to 
cover entities currently not included by the Act such as marketing 
companies, expand CRA regulations to local operations when the 
financial institution is not locally owned and expand rating to include 
comprehensive community development activities.
    Congress should expand CDBG and HOME funding.
    Congress should relax CDBG and HOME regulations that limit the use 
of the funds for new construction to give local government's more 
flexibility.
    Congress should pass the Community Homeownership Tax Credit.
    Public and private sector should develop a secondary market for 
lenders to nontraditional borrowers who have had appropriate counseling 
and a seasoned performing loan.
    Congress should continue to support homeownership through existing 
policies such as the mortgage interest deduction, mortgage revenue 
bonds, and passage of predatory lending regulations.
    Local governments should develop policies and programs which result 
in homeownership land use opportunities such as land banking, military 
sites reuse, brownfield reuse, and in-fill housing.
    Congress must fund comprehensive strategies such as the 
homeownership zone, Empowerment Zones, and Enterprise Zones.
    FHA should extend the amortization period to 40 years.
    FHA should provide mortgages for accessing homeownership and home 
repairs to borrowers with lower credit scores and nontraditional credit 
histories.
    Public and private sectors should aggressively target education of 
the elderly population of their opportunities to access financing for 
home repairs.
    Public and private sectors should develop programs to support 
construction management of repair projects for elderly residents.
    Enact predatory lending legislation.
    Create incentives for local PHA to utilize homeownership Section 8 
programs.
    Over the next decade reduce disparity of homeownership rates 
between white and nonwhites by 50 percent.
Public Housing
    Public Housing continues to play a significant role in the ability 
of cities to maintain a diverse population and respond to the needs of 
a wide range of citizens. The program should be preserved, expanded, 
and redefined.
    Congress should enact legislation which funds the development of 
150,000 units of public housing annually for the next 10 years in a 
form which encourages income diversity and fosters healthy urban 
neighborhoods. All public housing developments should be wired to 
facilitate access to today's technology.
    Mayors should facilitate cooperative activities between public 
housing authorities and public school systems in their communities. 
Congress should authorize and fund specific programs aimed at enhancing 
both educational activities and housing environments of public housing 
children.
    Congress should adopt legislation that ensures public housing 
operating and capital subsidies are allocated in a manner that is 
predictable, objective, and consistent with actual need. Funds should 
continue to be made available directly to PHA's.
    Conventional public housing and Section 8 should be considered 
complimentary and not competitive programs. Each should be adequately 
funded and cities should be permitted to use funding for the two 
programs interchangeably as local needs dictate from time to time, 
including the capacity to increase the use of project-based Section 8 
beyond current levels.
    HOPE VI should be reauthorized for an additional 10 years and 
funded at levels recommended by the Commission on Severely Distressed 
Public Housing--$1 billion per year.
    Congress should enact legislation which provides maximum housing 
choice for senior citizens and persons with disabilities including 
opportunities to remain at home with necessary assistance.
    Congress should enact legislation which establishes a valid and an 
appropriate 
method of assessing pubic housing authority performance and should 
mandate maximum flexibility for PHA's who perform well under the 
system.

Special Needs Housing Recommendations
    More than 3.5 million households have special needs for housing 
with supportive services. Special needs housing includes the elderly, 
the disabled, the homeless, HIV/AIDS victims, battered women, the 
mentally ill, and many others. The long-term solution for much of the 
special needs housing problem is to expand the supply of affordable, 
permanent housing. In the short term, however, transition housing with 
special services is needed to stabilize these households and to allow 
them to progress to more permanent solutions.
    A Special Needs Coordinator should be appointed in every city to 
coordinate and optimize existing funding streams for special needs 
populations, including Medicaid, CDBG, tax exempt financing and other 
sources.
    Mayors should charge the department leaders to develop 
collaborative programs 
between sectors: Housing and education, housing and health services, 
housing and 
children's services, and so forth.
    Section 202 funding should be expanded to $760 million annually for 
new construction and rental assistance.
    Two hundred fifty million dollars should be appropriated for 
modernization of up to 32,000 units of elderly housing, with a priority 
for accessibility and the delivery of supportive services.
    Fifty million dollars should be appropriated to preserve elderly 
housing, permitting nonprofit organizations to purchase elderly housing 
projects with expiring Section 8 contracts.
    Senior citizen housing should include Service Coordinators. 
Seventy-five million dollars should be appropriated to provide Service 
Coordinators in 21,000 units of 
elderly housing and provide for the ability to fund Service 
Coordinators through PRAC contracts.
    Section 811 funding for the disabled should be increased to prior 
levels at $400 million.
    McKinney Act homeless assistance grants should be increased to $1.8 
billion.
    Encourage mayors in each city to dedicate 10 percent or more of all 
housing units in projects supported with locally administered Federal 
funds--CDBG, HOME, etc.--for homeless and special needs populations, 
under a competitive application process.
    The Section 811 program for disabled housing should be streamlined 
to permit smaller scale projects and more flexible use of funds for 
purposes like capital grants, services, tenant support, and so forth. 
The model for this type of flexibility is in the McKinney Act homeless 
programs.
    Homeless housing renewals should be mainstreamed through the HUD 
Housing Certificate Fund. Permanent housing created through the 
McKinney Act homeless programs--Shelter Plus Care, the Supportive 
Housing Programs, the SRO Program--should be renewed through the 
mainstream HUD Housing Certificate Fund, rather than through renewals 
of the McKinney Act programs.

Preservation
    Mayors support exit-tax relief to existing owners to encourage the 
transfer and long-term preservation of affordable rental housing to 
preservation entities.
    Mayors oppose the S. 236 ($300 million) recession and encourages 
HUD to make these funds available per Title V of the fiscal year 1998 
Appropriation Act to rehabilitate HUD-assisted properties.
    Mayors encourage States to award bonus points in their QAP or tax 
credits award process or to create set-asides for long-term 
preservation of HUD-assisted Low Income Housing Tax Credit properties.
    Small unassisted properties (less than 30 units) are below the 
radar screen, but are being lost at alarming rates.

 HUD should conduct a needs assessment to determine the scope 
    of the problem and create a sketch of the owners.

 HUD should develop programmatic responses from the data.

 In conjunction with the needs assessment, engage the GSE's 
    (Fannie Mae and Freddie Mac) in developing financing products and 
    outreach to the ownership community.

 Mayors advocate increased funding for CDBG and HOME for 
    subsidized loans and grants to create long-term affordability for 
    these small rental properties.

    HUD should appoint a dedicated leader who has the overall 
responsibility for 
preserving the affordable rental housing inventory and reporting to 
cities and other municipalities on at least an annual basis on the 
status of the inventory in all communities in the United States.

                   TESTIMONY OF SAUL N. RAMIREZ, JR.
                           Executive Director
      National Association of Housing and Redevelopment Officials
                           September 25, 2002

    Good afternoon, my name is Saul Ramirez. I am the Executive 
Director of the National Association of Housing and Redevelopment 
Officials (NAHRO). NAHRO is the Nation's oldest and largest 
organization that represents the interests of housing and community 
development agencies seeking adequate and affordable housing and strong 
communities. NAHRO's membership administers more than 3 million housing 
units for 7.6 million people.
    I would like to thank Chairman Paul Sarbanes, Ranking Minority 
Member Phil Gramm, and the other distinguished Members of the Senate 
Committee on Banking, Housing, and Urban Affairs for allowing me to 
offer written comments on proposals to increase the production of 
affordable rental housing in communities across the country.
    There is a critical lack of affordable rental housing in this 
country. The Millennial Housing Commission wrote in its 2002 report, 
Meeting Our Nation's Housing Challenges, that while the ``addition of 
150,000 units annually would make substantial progress toward meeting 
the housing needs of ELI households . . . it would take annual 
production of more than 250,000 units for more than 20 years to close 
the gap.'' These numbers do not even account for those households who 
are lower- 
income but earn more than 30 percent of the area median income. In 
fact, in speaking to the rental housing needs of lower-income 
households in general in their 2002 State of the Nation's Housing 
report, the Joint Center for Housing Studies of Harvard University 
states that most recent construction and substantial rehabilitation 
projects have done little to expand the supply of affordable housing. 
In addition, preservation of existing units is in jeopardy, and ``the 
ongoing losses of affordable rental housing will place even greater 
cost pressures on lower-income and working-class households.''
    In response to this need there have been a number of proposals 
offered, including those offered by Senator Bond and Senator Edwards. 
NAHRO believes strongly that additional resources must be allocated to 
this area, and appreciates the interest of the Subcommittee in hearing 
from a variety of stakeholders as to the most generative approach. 
NAHRO has worked with many of these agencies on this issue, and 
believes that all proposals offered have been well intentioned and 
passionately represented. It is also true that NAHRO has concerns with 
each of the proposals, in that NAHRO must be able to show its members 
that any program proposed is one that they would be able to implement 
effectively. To holistically address these factors, I would like to 
talk about the key principles that NAHRO believes must be included in 
any production proposal under consideration.

Production Requires Funding at the Local Level
    The issue of how the funding is distributed is one on which 
proposals vary widely. Senator Bond's bill would send the funding only 
to State housing finance agencies, which would then be responsible for 
allocating it through a competitive process. The rural rental housing 
bill authored by Senator Edwards would provide the funding through 
intermediaries, which may be States or other entities with the 
appropriate capacity, but does not specifically include local 
jurisdictions. Negotiating contracts for the production of housing 
units is complicated and time-consuming, and should not have the 
additional layer of regulations and mandates that States would impose. 
NAHRO believes that funding must go directly to the local communities 
working to address these issues. One of the successes of the HOME 
Investment Partnership Program is its ability to get funding on the 
ground where it is needed, and NAHRO sees this program as a model in 
this regard for how any new production program should operate. NAHRO 
also recognizes the assistive role of the State in channeling funding 
to smaller communities, and therefore proposes a formula allocation, 
with 60 percent of the funding at the local level and the remaining 40 
percent going to states to serve smaller communities. It is worth 
noting that while the original National Housing Trust Fund legislation 
(S. 1248) called for funding States and intermediaries, the most recent 
version on the House side included the same 60/40 split as recommended 
by NAHRO.

Production Must Result in a Net Increase in Units
    It is clear that worst-case housing needs continue to escalate for 
households at the lowest end of the income scale. Further, the most 
recent Out of Reach report released by the National Low Income Housing 
Coalition shows that rental housing in America is largely unaffordable 
even for those approaching the median income of a given community. This 
environment means that, given the resources currently available for the 
creation of affordable units, having both capital and operating 
subsidies involved is virtually unavoidable. NAHRO recognizes that in 
certain markets this is in fact a requirement for feasible development. 
However, it is important that any new production program that provides 
a capital subsidy be able to stand on its own to a large extent, 
resulting in a net increase in units rather than a shifting of 
resources.
    NAHRO has worked diligently with its members to assess what type of 
targeting would allow for both project feasibility requirements to be 
met and affordable housing to be provided to those most in need. NAHRO 
believes strongly that any new production program should address this 
need through the development of opportunities that are targeted fully 
at those earning 50 percent of the area median income (AMI) or less, 
with the ability to go up to 80 percent with proper waiver authority. 
While bills such as Senator Bond's and Senator Kerry's call for deeper 
targeting, with 30 percent and 75 percent of funds respectively set 
aside for households at 30 percent of AMI or lower, NAHRO has deep 
concerns about the efficacy of this 
approach, and believes that less restriction will result in more 
affordable units 
ultimately being provided.

Rental Contributions Must Work for Everyone
    NAHRO recognizes and appreciates the current trend in mixed-income 
housing development. In creating opportunities for mixed-income and 
mixed-use development, NAHRO believes it is critical to ensure the 
affordability of all units for the households they are targeted to. The 
Millennial Housing Commission in its own production proposal for 
extremely low-income households recognized that a contribution greater 
than 30 percent of a household's income might be both necessary and 
feasible. NAHRO supports this flexibility, and simultaneously urges 
caution. Proposals such as Senator Bond's would ensure affordability 
for the targeted households, with the maximum proposed rent estimated 
at 40 percent of area median income. In the development of a capital 
production program, NAHRO encourages Congress to craft a program not 
fully reliant on operating subsidies, affordable for both the tenant 
and the owner.

Production Requires Consistency
    We are all aware of the challenges in funding any capital project 
with a series of funding streams, which must be accessed competitively, 
each with different timelines, and all wanting to know that the other 
funds are secured. It is crucial that any new production program not 
add to this tension, but rather provide some consistency of funding and 
effort that communities can then build upon. The bills authored by 
Senators Bond and Edwards differ on this point, with Mr. Bond 
recommending an up-front planning process at the State level, and Mr. 
Edwards outlining a competitive application process.
    NAHRO appreciates the elements of competitive processes that have 
shown themselves successful in other arenas, such as the Continuum of 
Care, but has also seen how this process jeopardizes capital projects 
unnecessarily. Even now, NAHRO is advocating along with the Millennial 
Housing Commission for changes to the HOME and Low-Income Housing Tax 
Credit (LIHTC) program which would allow them to work together more 
seamlessly. NAHRO recommends that any new production program be a block 
grant, a consistent source of funding around which communities and 
States would develop a planning process to govern distribution.

Funding for Production Must Be Significant
    NAHRO appreciates the competing interests which face Congress in 
allocating what are becoming scarce resources for nondefense related 
spending. However, NAHRO believes strongly that the funding for any new 
production program must come from new Federal appropriations, rather 
than a realignment of current resources. This is especially so when the 
current resource is actually not available, such as recaptures from the 
Section 8 program. NAHRO applauds Senator Bond for including a section 
on the reallocation of unused Section 8 budget authority in S. 2967, 
and we believe it indicates the Senate appropriators and authorizers 
are 
serious about keeping unused Section 8 funds within the Section 8 
program rather than forfeiting them to a rescission or other housing 
programs. However, HUD estimates that by fiscal year 2003 the balance 
in that account is expected to be $0. NAHRO encourages Congress to 
ensure a net increase in affordable housing units by requiring that 
this funding does not diminish existing housing and community 
development funding levels. In order to significantly impact the need 
for rental units across the country, NAHRO urges Congress to authorize 
and appropriate $1 billion in new Federal funding for housing 
production. This figure is one which has been agreed on by a number of 
stakeholders, and is included in Senator Bond's proposal for fiscal 
year 2003. Senator Edwards' bill, which speaks only to the needs of 
rural America, proposes $250 million annually be appropriated.

Production Must Be Viewed with a Large Lens
    It is not only the production of new units that is vital to meeting 
the needs of rental households across the country. In fact, as Senator 
Bond's report illustrates, the creation of new units without the 
preservation of existing affordable housing stock is folly. We will 
never be able to fill the gap with the sand pouring out the other side. 
For this reason NAHRO believes that any new production program must 
provide local communities with maximum flexibility, and allow for not 
only acquisition and new construction but rehabilitation and 
preservation efforts as well. While the bill authored by Senator Bond 
recognizes this, in setting a maximum of 20 percent of funding for 
rehabilitation and preservation it unnecessarily limits the ability to 
projects to maximize on the local landscape and meet local needs. The 
exclusion of preservation from the bill authored by Senator Edwards is 
hopefully an oversight, as one of the biggest challenges facing rural 
communities is the preservation of existing Section 515 projects under 
the Rural Development Agency.

Affordability Must Be a Long-Term Commitment
    The current crisis in the preservation of affordable housing units 
should speak for itself. With thousands of units leaving the inventory 
of affordable housing stock monthly, it is crucial that any new 
production program expands and protects the affordability of new units. 
While Senators Edwards and Bond propose terms of 30 and 40 years, 
respectively, NAHRO believes Congress should go further. Along with the 
Millennial Housing Commission, NAHRO endorses a fifty (50) year 
affordability period for new units.
    Again, we appreciate the opportunity to provide written comments to 
the Committee, and we look forward to an active partnership in the 
development of a new affordable rental housing production program.

                               ----------
                     TESTIMONY OF ROBERT A. RAPOZA
         Executive Secretary, National Rural Housing Coalition
                           September 25, 2002

    Mr. Chairman and Members of the Senate Subcommittee on Housing and 
Transportation, my name is Robert Rapoza. I am Executive Secretary of 
the National Rural Housing Coalition. The National Rural Housing 
Coalition (NRHC) has been a national voice for rural low-income housing 
and community development programs since 1969. The Coalition is 
comprised of approximately 300 members nationwide. Through direct 
advocacy and policy research, the Coalition has worked with Congress 
and the Department of Agriculture to design new programs and improve 
existing programs serving the rural poor. The Coalition also promotes a 
nonprofit delivery system for these programs, encouraging support for 
rural community assistance programs, farm labor housing grants, self-
help housing grants, and rural capacity building funding. We have 
testified before the Committee before and appreciate this opportunity 
to submit this statement for the record.
    Thank you for holding this series of hearings on affordable housing 
production. The National Rural Housing Coalition is a strong supporter 
of USDA's housing programs for low-income families, as well as the 
legislation introduced by Senator John Edwards, S. 652 the Rural Rental 
Housing Act of 2001.

The Need for Affordable Housing in Rural America
    The need for affordable housing is especially strong in rural 
areas. In fact, a disproportionate amount of the Nation's substandard 
housing is in rural areas. Rural households are poorer than urban 
households; pay more of their income for housing that their urban 
counterparts.
    Renters in rural areas are the worst-housed individuals and 
families in the country. Thirty-five percent of rural renters are cost-
burdened, paying more than 30 percent of their income for housing 
costs. Almost one million rural renter households suffer from multiple 
housing problems, 60 percent of whom pay more than 70 percent of their 
income for housing.
    There are also a number of obstacles to improving homeownership in 
rural areas including high rates of poverty and poor quality of 
housing. According to a 1999 Economic Research Service report, the 
poverty rate in rural America was 15.9 percent, compared to 13.2 
percent in urban areas. In addition, the income gap between urban and 
rural households has grown since 1979. In fact, the median income in 
rural America is about the same today as it was in 1979, although 
incomes have increased in urban and suburban areas overall.
    Minorities in rural areas have much higher rates of poverty with an 
average of 34.1 percent compared to urban minorities at 28.1 percent. 
More than 1.6 million low-income rural households live in moderately to 
severely inadequate housing. These are units without hot or cold piped 
water, and/or have leaking roofs, walls, rodent problems, inadequate 
heating systems, and peeling paint, often lead-based.
    Rural households are less likely to receive Government assisted 
mortgages. For example, although the rural population is 22 percent of 
the Nation's population:

 Only 6 percent of FHA assistance goes to nonmetro areas. On a 
    per-capita basis, rural counties fare worse with FHA, getting only 
    $25 per capita versus $264 per capita in metro areas.

 Only 11 percent of Veterans Affairs housing programs reach 
    nonmetro areas and per capita spending in rural counties is only 
    one-third that of metro areas.

    In addition:

 Only 12 percent of Section 8 funds go to nonmetro areas.

 There is no set-aside for rural areas under the HOME program, 
    which means that most of HOME funding ends up in participating 
    jurisdictions, in metropolitan areas.

 Although the CDBG has the State and Small Cities Block Grant 
    program, there is a significant problem for rural areas from a 
    targeting standpoint in that States may award grants to communities 
    with populations up to 50,000. This means that small rural 
    communities must compete with larger jurisdictions for funding.

    Rural residents also have limited access to mortgage credit and the 
secondary mortgage market. The consolidation of the banking industry 
that accelerated throughout the 1990's has had a significant impact on 
rural communities. Mergers among lending institutions have replaced 
local community lenders with large centralized institutions located in 
urban areas. Aside from shifting the locus of loan-making, this has 
resulted in the diminishment of a competitive environment which, in the 
past, encouraged rural lenders to offer terms and conditions that were 
attractive to borrowers. Because of the gap left by traditional 
lenders, rural households are often prime targets for predatory 
lenders.

Federal Rural Housing Programs
    The Rural Housing Service (RHS), formerly Farmers Home 
Administration, of the U.S. Department of Agriculture, administers a 
range of direct loans, grants and related assistance to low-income 
rural families. The RHS is the only Federal agency devoted to improving 
housing conditions in rural America. RHS programs have been reduced in 
years and as a result there is tremendous demand for assistance. Any 
revitalization of Federal housing production should include the 
existing housing programs of RHS.

Section 502 Single-Family Direct Loan Program
    Every year, RHS makes about $1 billion in loans to low- and very 
low-income families to acquire, rehabilitate, or construct their own 
homes. To qualify for the direct loan program, borrowers must have very 
low or low incomes but be able to afford mortgage payments. The average 
income of households assisted under Section 502 is $18,500. About 9 
percent of households have annual incomes of less than $10,000. Since 
its inception, Section 502 has provided loans to almost two million 
families.
    The Section 502 direct loan program is the most cost-effective 
housing program in the Federal Government. The cost to the Government 
per house under the Section 502 direct loan program is only $10,000.
    However, this effective program has also received severe cuts in 
recent years. Funding was available for 132,000 units in 1976, but 
because of funding, production has dropped by 89 percent to fewer than 
15,600 units. Currently funded at $1.1 billion, the President's budget 
cuts this program by 13 percent to $957 million in program level.
    In many rural communities, the only housing option available to 
low-income families is Section 502. Therefore, it is not a surprise 
that there is a backlog of $5 billion and 80,000 loan requests in RHS 
offices across the country.
    As one way to widen the effectiveness of Section 502, USDA has 
expanded its cooperation with nonprofit housing organizations. Under 
the Mutual and Self-Help Housing Program, for example, with the 
assistance of local housing organizations, groups of families eligible 
for Section 502 loans perform approximately 65 percent of the 
construction labor on each other's homes under qualified supervision. 
This program, which has received growing support because of its proven 
model, has 
existed since 1961. The housing organizations involved receive funding 
for technical assistance through the Section 523 program. The average 
number of homes built each year over the past 3 years has been 
approximately 1,500.

Section 514 Loan and Section 516 Grant Farm Labor Housing Programs
    Migrant and seasonal farmworkers are some of the Nation's most 
poorly housed populations. The last documented national study indicated 
a shortage of some 800,000 units of affordable housing for farmworkers.
    Farmworker households are also some of the least assisted 
households in the Nation. Some 52 percent of farmworker households' 
incomes are below the poverty threshold, four times the national 
household poverty rate, and 75 percent of migrant farmworkers have 
incomes below the poverty line. Yet little more than 20 percent of 
farmworker households receive public assistance; most commonly food 
stamps, rarely public or subsidized housing.
    There are only two Federal housing programs that specifically 
target farmworkers and their housing needs: Sections 514 and 516 of the 
Housing Act of 1949 (as amended). Borrowers and grantees under Rural 
Housing Service Sections 514 and 516 receive financing to develop 
housing for farmworkers. Section 514 authorizes the Rural Housing 
Service to make loans with terms of up to 33 years and interest rates 
as low as 1 percent. Section 516 authorizes RHS to provide grant 
funding when the applicant will provide at least 10 percent of the 
total development cost from its own resources or through a Section 514 
loan.
    Nonprofit housing organizations and public bodies use the loan and 
grant funds, along with RHS rural rental assistance, to provide units 
affordable to eligible farmworkers. These funds are used to plan and 
develop housing and related facilities for migrant and seasonal 
farmworkers. Most local programs are for seasonal workers--those in 
home-based States that work in the fields for most of the year. Lack of 
decent housing overall the limited availability of long-term subsidies 
for operating costs limits the utility of the program for migrant 
farmworkers.
    Current funding for Sections 514 and 516 totals $37 million in 
program authority. This amount provides about 700 units of housing. The 
estimated need is two to three times the appropriated level.
    In recent years, Congress and the Administration have worked to 
gradually increase funding for farmworker housing. However, to really 
begin to address this problem, Congress should provide additional 
funding for farmworker housing programs and address the overall need 
for rental housing assistance in rural America.

Section 515 Rural Rental Housing Program
    Today's hearing is a step in the right direction for assisting 
rental housing in rural America. Unfortunately, the Federal 
Government's current investment in rural rental housing is at its 
lowest level in more than 25 years. In fact, this year is the first 
time that the Administration's budget included no funding for rural 
rental housing production. Over the last 15 years, the Congress and 
Administrations of both parties have engaged in unwise budget cutting 
of rural rental housing. Spending has declined from over $500 million a 
year to $114 million in fiscal year 2002. As a result, there is little 
production of new rental housing in rural areas.
    Renters, like homeowners, in rural areas live in difficult 
situations. Thirty-five percent of rural renters are cost-burdened, 
paying more than 30 percent of their 
income for housing costs. Almost one million rural renter households 
suffer from multiple housing problems, 60 percent of whom pay more than 
70 percent of their income for housing.
    Moreover, poor rural renters do not fair as well as poor urban 
renters in accessing existing programs. As noted, HUD has done little 
to pick up the slack as only 17 percent of very low-income rural 
renters receive housing subsidies, compared with 28 percent of urban 
poor. Overall, only 12 percent of HUD's Section 8 assistance gets to 
rural areas.
    Historically, the Agriculture Department's rural rental housing 
program has been the key tool for improving the quality and quantity of 
rental housing in rural areas. The Section 515 is an invaluable tool 
for rural rental housing production, repair, and preservation for very 
low- and low-income families. Under Section 515 nonprofit and for 
profit entities can receive 1 percent loans for acquisition, 
rehabilitation, or construction of rental housing and related 
facilities. For much of the history of Section 515 loan term was for 50 
years. Recently, in a cost cutting move, the term of the loan was 
reduced to 30 years. Most Section 515 loans have gone to for-profit 
entities that combine the subsidized loan, rental assistance, and tax 
subsidies to 
finance the housing.
    The portfolio contains 450,000 rented apartments in Section 515 
developments. The delinquency rate is a low 1.6 percent. The average 
tenant income is little more than $8,000 which is equal to only 30 
percent of the Nation's rural median household income. Sixty percent of 
the tenants are elderly or disabled and one-quarter are minority.
    Section 521 rental assistance is used in conjunction with Section 
515 to help families who cannot afford even their reduced rent. In 
recent years, mostly in response to an escalating number of expiring 
contracts, appropriations for rental assistance have gone up. Despite 
the fact that the current appropriations stand at $701 million (fiscal 
year 2002), the funds are insufficient. Although about 50 percent of 
the 450,000 Section 515 households receive rental assistance, almost 
90,000 Section 515 households who need assistance do not receive it. 
The need for rental assistance is projected to increase to $937 million 
by 2006.
    As Congress considers future policy for housing it faces two 
challenges regarding rural rental housing. The first is to maintain the 
existing stock of Section 515 units. The second is to increase the 
production of affordable rental housing units in rural communities.

Preservation of Section 515 Housing
    The current portfolio of Section 515 units represent an important 
resource to low-income families in rural America. At a time of 
declining Federal resources for rental housing, it is hard to envision 
a time in which Federal policy will finance the development of a large 
number of rental housing developments. So, it is important to preserve 
the existing stock.
    In 1987, Congress enacted legislation to regulate rural rental 
housing principally financed under Section 515. This legislation placed 
a low income use restriction on Section 515 and also established 
financial incentives to owners to maintain their properties for low-
income housing. In general, at the end of the initial 20 year use 
restriction, an owner could seek an incentive to extend long-term low-
income use, or sell the project to a nonprofit organization or public 
body that would operate the housing for low-income use.
    A principal source of financing for incentives was the Section 515 
and the use of these funds for equity loans authorized under Section 
515. However, as Congress and Administration reduced funding for 
Section 515, USDA reduced preservation funding to only about $5 million 
per year.
    Roughly two-thirds of the Section 515 portfolio is regulated under 
the 1987 Act. The lack of adequate funding for incentives has raised a 
great concern among the owners. For the most part, the law limits their 
options to seeking incentives or selling to a nonprofit organization or 
public body.
    The demand for incentives is estimated at approximately $100 
million for equity loans alone. But cuts in Section 515 have limited 
the ability of USDA to implement a good preservation program.
    In response to the growing concern about the lack of preservation 
resources, S. 2801, the Agriculture Appropriations bill for fiscal year 
2003, recommends an 
increase in Section 515 from $114 million to $120 million. The 
recommendation includes $50 million for new construction, $50 million 
for repair, and $20 million for preservation. The bill also includes 
increased funding for debt forgiveness related to preservation and 
increases the reimbursement to nonprofit organizations for activities 
related to acquiring properties for preservation purposes. However, 
this is only a small, first step.
    Unfortunately there continue to be attempts to weaken the Section 
515 program. The most recent attempt is an amendment proposed by 
Representatives Bob Ney (R-NE) and Mike Ross (D-AR) as part of H.R. 
3995, the Housing Affordability for America Act. This bill has 
currently passed the Financial Services Committee and is awaiting floor 
action. The amendment would immediately end the low income use 
restriction on certain Section 515 housing developments, displacing up 
to 300,000 low-income households nationwide.
    Vouchers proposed under this amendment are not a viable option for 
rural areas, where other decent and affordable housing is simply not 
available. The cost of vouchers is estimated at $1.5 billion. Although 
the amendment as it was originally offered in Committee did not require 
appropriations to be available before owners could prepay, or that 
owners must take the vouchers held by their Section 515 tenants, the 
language was changed to include both of these requirements. While this 
provision is an improve over the original Ney-Ross Amendment, it does 
little to preserve a stock of affordable housing in rural America. A 
better approach, which the Senate Agriculture Appropriations bill 
takes, is a substantial increase in Section 515 with an allocation for 
incentives for equity loans, as well as enhanced tools for nonprofit 
organizations and public bodies to acquire projects.
    As I mentioned earlier, the existing Section 515 program contains a 
strong infrastructure to address the needs of the tenants and property 
owners. What lacks is funding for the program. I urge you to reject 
this amendment as part of any Senate legislation or upcoming conference 
agreement. We also urge the Committee to work to increase the 
preservation resources available under Section 515.

Rural Rental Housing Act (S. 652)
    The National Rural Housing Coalition supports of the Rural Rental 
Housing Act (S. 652) sponsored by Senator John Edwards and co-sponsored 
by Senators Jim Jeffords, Paul Wellstone, and Patrick Leahy. This 
legislation proposes a $250 million Federal matching grant program for 
low-income households and the elderly. The funds may be used on a 
flexible basis to provide various forms of assistance. It is a new 
important tool for increasing production of rural rental housing.
    The Rural Rental Housing Act is an initiative of the National Rural 
Housing Coalition. Rural housing practitioners met in 1997 and 1999 to 
address the growing lack of resources for financing housing in rural 
areas and to come up with a plan of how to improve the situation.
    The practitioners concluded that a new rural multifamily housing 
delivery system is evolving. Providers continue to build successful 
projects using financing tools and housing programs that are currently 
available, including Section 515; they have found, however, that 
managing the various components required to make a project viable is 
difficult, time-consuming, and staff-intensive. Providers stressed that 
governmental subsidies are necessary if lower-income households are to 
be housed.
    As part of their commitment to housing, these providers formed the 
idea of the Rural Rental Housing Act. This program would build on the 
strength of nonprofits and other organizations at the community level 
and match it with a new commitment on the Federal level. This Federal 
funding would encourage the continuation of the State and local 
partnerships already forming, and add a critical Federal 
financing piece to make housing feasible for lower-income Americans.
    USDA would administer the program, as well as have the authority to 
delegate administration to intermediaries. Funds will be allotted on a 
State-by-State basis, to provide a dollar-for-dollar match of project 
funds. The grants will be for the acquisition, rehabilitation, and 
construction of low-income rental housing. USDA will make assistance 
available to public bodies and Native American tribes, as well as 
private nonprofit and for-profit corporations with a record of 
accomplishment in housing or community development. Federal assistance, 
available in the form of capital grants, direct subsidized loans, 
guarantees, and other forms of financing, would be typically available 
to finance up to 50 percent of project cost. The legislation specifies 
that housing financed under the legislation must have a low income use 
restriction of not less than 20 years.
    Qualified intermediary organizations include: States or State 
agencies; private nonprofit community development corporations; 
nonprofit housing corporations; community development loan funds; and 
community development credit unions. Funds that are allotted to 
intermediaries may be used to provide technical assistance and 
financing to housing organizations, for the acquisition, 
rehabilitation, and construction of housing. The intermediaries are 
responsible for matching the USDA funds on a dollar-for-dollar basis.
    The population served must be households with incomes of 0 percent 
to 100 percent of the area median income. Priority for assistance will 
be given to extremely low-income (0 percent--30 percent of area median 
income) and minority households. Housing must be in rural areas with 
populations not exceeding 25,000, outside of urbanized areas. Priority 
for assistance will be in low-income communities or in communities with 
a severe lack of affordable housing.
    The added value of this proposal is the flexible financing it 
brings and the partnerships it creates. A variety of financing tools 
may be used to match the Federal funds, including loans, grants, 
interest subsidies, annuities, and other forms of assistance. The 
proposal would encourage partnerships among Federal agencies, State and 
local governments, private financial institutions, private 
philanthropic institutions, and the private sector, including nonprofit 
organizations.
    Nonprofit organizations, public bodies, and the other eligible 
intermediary organizations are well-versed in combining funding sources 
to finance housing for low-income families. In fact, it is almost 
impossible to find a housing project that is funded purely by Section 
515 funds anymore.
    An example of a project that would clearly benefit from Rural 
Rental Housing Act funding is one sponsored by the nonprofit 
organization Southern Maryland Tri-County Community Action Committee, 
in Calvert County, Maryland. This high-rent area has such strong demand 
for Low-Income Housing Tax Credit funding, that it only has one funding 
round per year, rather than two, during which all of the funds are 
immediately spoken for. The Community Action Committee received 
approval from the County to build 104 units of affordable rental 
housing. The land is available, but the funds are not.
    Out of the 104 scheduled units, the Committee has only been able to 
find funding to build 28 units, through patching together funds from 
the Section 515 program, the State housing finance agency, tax credits, 
and the Affordable Housing Program of the Federal Home Loan Bank. 
Because the incomes served by this project are so low in comparison to 
the surrounding area, ranging from 21 percent ($17,000) to 33 percent 
($30,000) of the area median income, tax credits alone are not an 
option to build the remaining units.
    With additional Federal funds through the Rural Rental Housing Act, 
to match tax credits or State funds or even conventional bank 
mortgages, the Committee would be able to finance the remaining 76 
units of affordable housing that are desperately needed. You may have 
seen the recent articles in The Washington Post outlining the serious 
lack of housing in Calvert County, wherein even those families with 
valid Section 8 vouchers cannot find housing. Federal funding, matched 
by local, State, and private funds, is needed to begin to address this 
problem. In many rural areas, the local government does not have access 
to a Federal funding stream to finance rental housing. In most States, 
there is a long line for HOME and CDBG funds. Small, isolated poor 
communities must compete with central cities, larger towns and suburbs 
for Federal block grant funding.
    Mr. Chairman and Members of the Committee, once again we thank you 
for holding this hearing and we look to you for continued support of 
the efforts of affordable rural housing development.







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