[Senate Hearing 107-]
[From the U.S. Government Publishing Office]
S. Hrg. 107- 1015
HUD'S MANAGEMENT CHALLENGES
=======================================================================
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 MANAGEMENT PROBLEMS AT THE DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT AND THE IMPACT THESE PROBLEMS ARE HAVING ON HUD'S ABILITY
TO MEET ITS MISSION OF PROVIDING DECENT, SAFE, AND SANITARY HOUSING
__________
JULY 24, 2002
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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90-605 WASHINGTON : 1998
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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
Jennifer Fogel-Bublick, Counsel
Jonathan Miller, Professional Staff Member
Sherry E. Little, Republican Legislative Assistant
Mark A. Calabria, Republican Economist
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
______
Subcommittee on Housing and Transportation
JACK REED, Rhode Island, Chairman
WAYNE ALLARD, Colorado, Ranking Member
THOMAS R. CARPER, Delaware RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan JOHN ENSIGN, Nevada
JON S. CORZINE, New Jersey RICHARD C. SHELBY, Alabama
CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming
CHARLES E. SCHUMER, New York CHUCK HAGEL, Nebraska
DANIEL K. AKAKA, Hawaii
Kara M. Stein, Staff Director
Tewana Wilkerson, Republican Staff Director
(ii)
C O N T E N T S
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WEDNESDAY, JULY 24, 2002
Page
Opening statement of Senator Reed................................ 1
Opening statements, comments, or prepared statements of:
Senator Allard............................................... 6
Senator Sarbanes............................................. 30
WITNESSES
Alphonso Jackson, Deputy Secretary & Chief Operating Officer,
U.S. Department of Housing and Urban Development............... 3
Prepared statement........................................... 30
Stanley J. Czerwinski, Director, Physical Infrastructure, U.S.
General Accounting Office...................................... 7
Prepared statement........................................... 36
Response to written questions of Senator Reed................ 51
Carolyn Federoff, President, American Federation of Government
Employees, AFL-CIO, Council of HUD Locals, 222................. 10
Prepared statement........................................... 44
Response to written questions of Senator Reed................ 55
(iii)
HUD'S MANAGEMENT CHALLENGES
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WEDNESDAY, JULY 24, 2002
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Housing and Transportation,
Washington, DC.
The Subcommittee met at 2:32 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 hearing will come to order.
Good afternoon. Let me welcome all of our witnesses to
today's Housing and Transportation Subcommittee hearing on
HUD's management challenges.
The Subcommittee is very concerned about the management
problems at the Department of Housing and Urban Development and
the impact these problems are having on HUD's ability to meet
its mission of providing decent, safe, and sanitary housing.
The Department of Housing and Urban Development's programs
affects millions of Americans every year. HUD provides rental
assistance to 5.2 million people, and mortgage insurance to 7
million homeowners. HUD has helped revitalize over 4,000
communities, and it managed about $545 billion in mortgages
last year.
Unfortunately, two of HUD's programs--the Single-Family
Mortgage Insurance Program and the Multifamily Rental Housing
Assistance Program--make up 70 percent of HUD's business and
are currently on GAO's ``high-risk'' list and considered
``extremely vulnerable'' to fraud, waste, and abuse.
GAO's concerns largely focus on issues such as staffing at
HUD. HUD currently has 9,100 employees who oversee almost the
same number of contractors, in addition to doing their own job.
A current study by HUD itself shows that HUD is understaffed by
at least 1,000 FTE's.
HUD is on the cusp of losing almost half of its career
workforce by June 2003, because of potential retirements, and I
think that is an important point to note--that half of your
present employees could walk out the door next year. And these
are the most experienced individuals, those who have been with
the programs the longest, and those who have the most knowledge
and experience of housing issues. This makes HUD's current
decisions about staffing extremely critical.
We hope to explore today what HUD's plans are for retaining
current staff, hiring new employees, and maintaining a core of
expertise to lead the Agency into the future.
HUD also continues to have problems overseeing its
thousands of contractors, especially in the FHA Single-Family
Insurance and Multifamily Housing Programs.
In addition, since 1984, HUD has had problems with its
hardware and software systems. These problems make it more
difficult for HUD's staff to do their job and properly oversee
contractors. These systems also keep track of billions of
dollars in loans and rent subsidies. If these systems fail to
meet HUD's needs, HUD will continue to have problems
maintaining oversight over those contractors who provide
services, keeping track of billions of taxpayer dollars, and
defining the number of people who are helped by their programs.
Although I understand that new managers have the right to
make management changes as long as they comply with Federal
law, I am concerned that HUD's reorganization may jeopardize
past improvements. HUD cannot afford to regress given its
tenuous footing and continuing management challenges.
That is why we have asked GAO to come here today to talk
about its findings. GAO has been a nonpartisan voice that
continues to challenge HUD to make improvements. Senator
Sarbanes, Senator Allard, and myself commissioned GAO to draft
a series of reports on HUD, the first of which is being
released at today's hearing.
We also will be hearing today from an officer of one of the
unions representing HUD employees.
This Committee wants HUD to succeed and to meet the many
challenges that it is facing. We want HUD to be able to
effectively and efficiently provide families with important
rental assistance and to help make the American Dream of owning
a home a reality for many first-time and minority homebuyers.
And that is why we are holding this important oversight hearing
today.
I must also add that this concern has been consistent over
many, many committees. I know my Ranking Member, Senator
Allard, was equally concerned about HUD's management and that
goes back several years, back to 1984 and before.
So let me just say that we are pleased and very delighted
to have Alphonso Jackson, Deputy Secretary of the Department of
Housing and Urban Development here today. Then we will hear
from Mr. Stanley Czerwinski, Director of Physical
Infrastructure of the U.S. General Accounting Office. Our third
witness will be Ms. Carolyn Federoff, who is President of the
American Federation of Government Employees, Council of HUD
Locals 222.
Each of our witnesses has been asked to discuss HUD's
management challenges, the status of the Administration's
efforts to address these challenges, and ideas for further
improvement.
When Senator Allard arrives, I will take the opportunity to
interrupt at an appropriate moment so he may give his opening
statement, and similarly, with my other colleagues. But at this
point, Mr. Jackson, let me just further add that prior to your
appointment as Secretary you were the President of American
Electric Power-Texas, in Austin, Texas.
Let me say for the record that in addition to Deputy
Secretary Jackson, we also have with us John Weicher, FHA's
Commissioner; Angela Antonelli, CFO of HUD; Vickers Meadows,
Assistant Secretary for Administration; Melody Fennel, who is
Assistant Secretary for Congressional Affairs; and Roy
Bernardi, the Assistant Secretary for Community and Planning
Development.
We thank all of you for joining us today.
Mr. Secretary, please.
STATEMENT OF ALPHONSO JACKSON
DEPUTY SECRETARY & CHIEF OPERATING OFFICER
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Jackson. Thank you very much, Chairman Reed, and thanks
to all of the Members of the Subcommittee.
I am thankful for the opportunity to appear before you
today to discuss HUD's staffing, acquisition management, and
information system challenges. I am happy to provide you with
the update of the substantial progress our Administration is
making to address these issues.
Under the leadership of Secretary Martinez, the first year
of our new Administration was largely devoted to getting the
management team in place, assessing HUD's management
environment, and formulating viable strategies and plans to
address the major management challenges and program risks that
face the Department. In formulating our strategies and plans,
we strongly considered the input on HUD's management challenges
and program risks as described by the U.S. General Accounting
Office, better known as GAO, and HUD's Office of Inspector
General.
I believe our management team and the GAO share a common
view that improvements to HUD's management of its human
capital, acquisitions, and information systems are essential to
addressing HUD's remaining high-risk program areas--the
Multifamily Rental Housing Assistance and Single-Family
Mortgage Insurance Programs--and to maintaining adequate
control over other program activities previously considered
high-risk.
The inclusion of our management challenges and program
risks in the President's Management Agenda is indicative of the
importance placed on these issues. We welcome the GAO's
independent assessment, and I am confident that they will see
that we are moving in the right direction to address our
management challenges, reduce our program risk, and improve our
program performance.
We also appreciate the advice, the counsel, and the
constructive dialogue of the HUD union.
Since coming to office, I have made it a priority to meet
with the HUD union representatives, with Ms. Federoff and the
union there at HUD, monthly to discuss issues that are of
interest to them and how we can better manage our HUD
organization.
The first area I want to discuss is human capital
management.
Human capital is HUD's most important and valuable asset.
We have taken substantial steps to enhance and to better
utilize our
existing staff capacity, and to obtain, develop, and maintain
the staff capacity necessary to support HUD's future program
delivery.
As you are well aware, decisions were made and actions
taken by HUD's leadership to undertake separate realignment of
headquarters and field activities to better use our existing
resources and to strengthen our program, and to deliver the
services better. The details of this realignment are in my
testimony and I am asking that it be submitted for the record.
Senator Reed. Without objection.
Mr. Jackson. Thank you, and I am more than happy to answer
any questions that you have about the details of this
realignment.
We have formalized our realignment structure, with the
publication of delegations of authority in the Federal
Register, and are providing current operating policies and
procedures to support staff training and ongoing operations.
In addition, the Department has taken on other positive
actions to improve HUD's human capital. For example, we have
developed a Human Capital Strategic Management Plan in February
2002, to provide an overall framework of our human capital
activities, developed a departmental succession strategy to
assess the impact of potential human capital loss and results
of skill imbalance, as you just noted.
Completed in 2001 the implementation of the new Resource
Estimate and Allocation Process, known as REAP, to use as a
baseline estimate and justify its staffing resources needs to
allocate for the proper resources.
Significant improvements in our training, including e-
training programs and their availabilities.
Expanded recruitment, retention efforts to take advantage
of the excellent programs, such as the Presidential Management
Intern Program, the new HUD Intern Program, the Legal Honors
Program, and the Senior Executive Service Candidate Development
Program to establish a pipeline from our perspective of well-
qualified employees to meet the staffing needs and the
anticipated skills shortages that will occur.
The second management challenge I would like to discuss is
acquisitions management.
HUD is heavily relying on contract services in support of
its current operations, as you just stated. HUD's contracted
services go well beyond facilities management and other routine
services to many core program functions. Given the extent and
significance of HUD's contracted services, the Department has
taken positive steps to address the acquisition challenges.
For example, the Department has reestablished a senior-
level Contract Management Review Board, we call CMRB, to review
and approve annual procurement plans for each HUD component,
and to approve all contracts over $500,000. The CMRB helps to
assure that HUD's contract resources are used to address the
Department's priority service needs.
The Department also is increasing the use of integrated
program teams to improve the quality and the timeliness of
procurement
actions. The Secretary and I recognize that small businesses
are
vitally important to job growth and the economic strength of
the country. The Secretary has challenged HUD to award at least
50 percent of its contracts to small businesses. As of June 30,
41 percent of the fiscal year 2002 contract dollars have been
awarded to small businesses, and I am particularly pleased that
women-owned businesses accounted for 21 percent, well above the
5 percent that Congress has established.
The third challenge that I would like to discuss is
information technology, as you so noted.
The adequate automated information systems are essential to
the effective administration of HUD's large, diverse, and
complex program universe. However, to be very candid and
honest, we recognize that HUD has antiquated systems that are
poorly integrated, inefficient, and inadequate for meeting many
essential program management information needs. We have taken
significant actions to address this challenge.
HUD integrated its IT capacity planning process with HUD's
Enterprise Architecture and e-Government directives from the
Office of Management and Budget. This will better assure
efficient resource use and effective business results.
HUD's Enterprise Architecture initiative is designed to
provide Department-wide documentation of HUD's current business
and technology systems to better manage HUD's current
information systems and meet future information systems needs.
HUD's Enterprise Security Program was established to
provide protection for HUD's critical infrastructure, both
physical and information systems. HUD's Office of Inspector
General recognized both substantial control improvements in
HUD's mainframe computer system.
As you can see, our efforts to meet HUD's human capital,
acquisitions, and systems challenges have been very extensive.
It will continue, and it must be strong. Our efforts to better
manage our staffing, acquisitions, and information systems is
important. We believe that we are making progress in the two
remaining high-risk program areas--our Multifamily Rental
Housing Assistance and Single-Family Mortgage Insurance
Programs. We welcome the pending independent assessment of our
progress through the GAO's biennial Government-wide review of
major management challenges and high-risk programs.
In conclusion, Mr. Chairman, I would like to say simply
that we have established a leadership meeting every month at
HUD, and in this leadership meeting, we track the progress of
each one of the President's Management Agendas and the GAO's
agenda as to what we need to be doing.
The Secretary and I hold the senior leadership responsible
for making sure that this accountability is talked about every
month in our executive management meeting. Even more
importantly, the Secretary and I firmly believe that in not
only recruiting new staff at HUD, but also we have not over the
past years trained, retrained, or empowered our employees to do
their job in an outstanding manner.
Over the last 18 months, the Secretary and I have traveled
extensively to field offices to meet our staffs. As you know,
almost two-thirds of HUD's staff is in the field and the
operations there are critical. Some of the HUD field offices,
as I have been told when I was in one city, had never seen a
HUD Secretary or a Deputy Secretary in 21 years.
We believe that the strength of this organization is in the
field and if we do not show up in the field, as well as show up
at the headquarters, we will have and continue to have serious
trouble.
I have talked during this period of time, Mr. Chairman, to
more than 1,200 HUD staff in the past 18 months, and we have
seen the morale in the field grow stronger every day.
It is my belief that as the Deputy Secretary and the Chief
Operating Officer of the Agency, that not only am I to manage
our staff here at HUD Headquarters, but also our job is to make
sure that the staff in the field realize that they are just as
intricate a part of HUD as the HUD Headquarters. And we are
making every effort to do that.
Last, the Secretary and I have made a commitment that we
will enter no city without visiting with the HUD staff, whether
it is field or regional staff; and to date, the Secretary and I
have kept that commitment.
So, I am glad to be here and I will be happy to answer any
questions that you may have.
Senator Reed. Thank you very much.
Prior to introducing the other panelists, let me recognize
the Ranking Member, Senator Allard.
STATEMENT OF SENATOR WAYNE ALLARD
Senator Allard. Mr. Chairman, thank you. I apologize for
being late. The votes that we had moved my schedule back a
little.
I want to congratulate you on holding this hearing. I
believe that oversight is one of Congress' most important
functions. I think all too often, this critical responsibility
is ignored. It is nothing glamorous, but very important.
Frequently, you do not get any credit for holding these kinds
of oversight hearings.
This hearing is a helpful way, I think, to perform our
charge. When you and I changed places, I think I had some 10
oversight hearings at that particular time. And Mr. Czerwinski
frequently showed up.
I think there were some favorable results that were
happening as a result of that. I look back at 1997, when HUD
described itself as a poster child for inept government. We had
reports coming out of the GAO and the Inspector General. And
since that time, the Department has undertaken a variety of
initiatives designed to transform the Agency. GAO has reported
that HUD has been making creditable progress toward its goal of
reform. It has reduced the number of HUD programs deemed to be
high-risk.
Although HUD has made considerable progress, Mr. Chairman,
much remains to be done. Last year, I requested that GAO
conduct a comprehensive evaluation of the Department's
progress, HUD's ability to sustain improvements and changes are
still needed.
As always, I appreciate the work that the GAO has done for
this request. In fact, today, they are releasing a report on
HUD's human capital issues as a part of my request. It is my
hope that their findings will be helpful to the Congress as we
consider authorization and appropriation matters concerning
HUD. Additionally, I believe that this body of work can be
extremely helpful to HUD. I am hopeful that they will work
closely together to identify and implement necessary
improvements at the Department. In this matter, HUD can become
a strong Agency that meets its mission with effectiveness and
efficiency.
I would like to thank our witnesses for being here today. I
am pleased that Alphonso Jackson of HUD is here to update us on
the Department's status. I know that you have had a very busy
schedule personally, and I appreciate your taking the time to
come forward with this important responsibility.
I also welcome Carolyn Federoff, the President of the
American Federation of Government Employees, Council 222.
Carolyn, your perspective as a HUD employee will be helpful as
we discuss HUD's reforms.
Finally, I want to extend a special welcome to Stan
Czerwinski of the General Accounting Office. Stan has been an
invaluable resource for me and my staff during my years as
Chairman and now as Ranking Member. I had the pleasure of
receiving testimony from Stan on a number of occasions. His
insight and expertise has been extremely helpful.
Unfortunately for this Subcommittee, I understand that Stan
is probably testifying before us for the very last time in his
current capacity. Next month, you will be Comptroller of GAO. I
want to congratulate you on that. And while I am sure that you
will be incredibly successful in your new position, we are
going to miss you here at the witness table.
Stan, thank you for your hard work on behalf of this
Subcommittee. And again, thank you, Mr. Chairman, for convening
this oversight hearing. I look forward to hearing today's
testimony.
Senator Reed. Thank you very much, Senator Allard.
As I pointed out in my opening remarks, oversight
activities are not unique to this Chairmanship. You were very
active as an oversight Chair, and we are following through with
some of the issues that collectively, we were pushing 2 and 3
years ago.
Senator Allard. Yes. Very good. Thank you, Mr. Chairman.
Senator Reed. I want to join Senator Allard in both
recognizing Stan Czerwinski, and thanking him for his valuable
testimony on many different occasions, and wishing you well in
your new position as Comptroller. And again, you will probably
not be here as you are now. Mr. Czerwinski is testifying in his
capacity as the senior GAO expert with respect to housing
programs in the U.S. Government. He will broaden that expertise
as Comptroller.
So, we will get you back here in some guise, Stan.
[Laughter.]
Please, go ahead.
STATEMENT OF STANLEY J. CZERWINSKI
DIRECTOR, PHYSICAL INFRASTRUCTURE
U.S. GENERAL ACCOUNTING OFFICE
Mr. Czerwinski. Mr. Chairman, I happen to notice that you
are on the Appropriations Committee, in my new position, I will
be working closely with Appropriations, so we will be still
talking.
Senator Reed. I have become very popular recently.
Mr. Czerwinski. Yes, you have. Mr. Chairman and Mr. Allard,
before I begin, I would like to express my appreciation for
this Subcommittee's diligent oversight. That is a theme that
you are going to hear from me during this hearing.
Your work is instrumental to improving HUD. You are asking
the right questions and we are seeing results at HUD because of
that. And I think there is evidence of that today, with the
Deputy Secretary, you, and GAO agreeing as to what the top
management challenges are.
I also wanted to mention that it is really crucial that
this oversight is bipartisan, as you have done, going back to
the leadership of Mr. Allard and now with you, Mr. Chairman. It
is very gratifying to us to see you holding this oversight
hearing. I know oversight is not glamorous, but to the GAO, it
is our lifeblood.
In my testimony today, I want to update our high-risk
assessment of HUD, then outline what we think still needs to be
done.
You may recall in the mid-1990's, GAO designated HUD as a
whole, high-risk, the only Agency in Government to be
designated that way.
In our last high-risk series of January 2001, we noted the
credible progress that HUD had made. As a result, we no longer
said that the whole Agency was at high-risk, but instead, two
major program areas. As you noted, Mr. Chairman, these two
areas comprise about 70 percent of HUD's budget--Single-Family
Mortgage Insurance and Multifamily Rental Housing Assistance.
In fairness to HUD, I want to note that HUD faces inherent
risks that most agencies in Government do not. For example, it
has about $1 trillion of exposure on the financial markets
through FHA and Ginnie Mae. Also, in carrying out its mission,
HUD relies on third parties, including about 10,000 lenders,
25,000 appraisers, and about 12,000 subsidized landlords.
We have made, and to its credit, HUD has implemented, a
number of recommendations to address deficiencies in lender and
appraiser oversight, property disposition, tenant income, and
property inspection. Yet, problems persist.
If we were to issue the high-risk report update today, we
would still find that Single-Family Mortgage Insurance and
Multifamily Rental Housing Assistance to be of high-risk. This
is, in some sense, because the programmatic fixes are really
addressing the symptoms rather than the root causes.
As you noted, at the request of this Committee, for the
past 2 years, we have been focusing on the root causes. Just to
reiterate what has already been said today, the top three root
causes that we all agree on are human capital, acquisition
management, and program and financial information systems. As
the chart to your left shows, we see those three root causes
sweeping through all of HUD's programs.
Mr. Chairman and Mr. Allard, you released our report today
on human capital. I would like to briefly summarize what that
report says. Simply said, HUD does not have the right people,
with the right skills, in the right places, to do the right
things.
As you mentioned, HUD has the additional challenge, or
maybe it is an opportunity, of having more people who are
eligible to retire than any Agency in the Federal Government.
This means that it is critical for HUD to determine the mission
that it wants the Agency to have now and in the future, decide
what skills it needs to carry out that mission, assess what
skills it has now and then match what it has with what it
needs.
I guarantee that there will be a gap. There is no question
about that. HUD then needs strategies for filling that gap.
These strategies include recruiting, retaining, and training
staff.
As Mr. Jackson noted, HUD has taken the first step with
REAP. REAP is a snapshot. It provides a picture of what the
Agency has today in terms of skills and needs. However, because
as you mentioned, Mr. Chairman, HUD could be losing about a
thousand people each year, HUD must be looking to see how it
will fill those losses. The answer to that question will
determine whether HUD as an Agency takes the shape that its
leadership and the Congress wants it to take.
As you may recall, HUD had about 50 percent more staff a
decade ago than it does today. Over that decade, HUD's
responsibilities have not diminished. Instead, HUD relies much
more on contractors. In fact, contractor reliance, as measured
by spending, has grown 62 percent within a 5-year period. This
reliance, without proper oversight and monitoring in place, can
result in significant problems and abuse.
At your request, and again, you are requesting all the
right things--we will be reporting on acquisitions this
September. We will be including concrete examples of contracts
gone wrong.
What I would like to do today is give you an interim look
at the findings of our work. The bottom line is that
contracting problems are caused by three things at HUD.
The first is inadequate monitoring. HUD's monitoring does
not hold the contractors accountable. The second cause of
contracting problems goes back to the issue of human capital.
You will see there is another theme, that these root causes are
not independent. One affects the other. Because they have fewer
people, they rely on more contracting. Because they rely on
more contracting, it exacerbates the human capital weaknesses.
What we have found is that HUD all too often lacks the right
number of employees in the right locations, with the
appropriate skills and training to oversee contractors.
Finally, HUD has no single information system to accurately
track contractor obligations, milestones, and performance. This
leads me to the third area and the final top management
priority--financial and programmatic information systems.
As you can probably guess, you have requested that study
also and we will be reporting to you by the end of the year,
but I want to give you a simple bottom-line today. In layman's
terms--HUD's systems do not talk to one another. Sadly, this is
not a new problem. We first reported it 20 years ago. As a
result, even if HUD has the right people with the right skills
in the right places, their oversight is going to be difficult
without the information they need.
For example, if a HUD employee wanted to visit or evaluate
a lender, he or she would have to get data on the lender's
address from one data system, the loan volume data from another
system, default and claim data from yet another system, and
finally, complaint information from another system.
The two key thoughts I want to leave you with on
information systems are systems integration and user needs. HUD
must make its systems compatible. In making the systems
compatible, emphasis has to be given to doing it in a way that
addresses the needs of the users to do their jobs.
I would like to close by saying that in my 5 years
directing the GAO's housing work, it has been an honor to
assist this Subcommittee. You have provided quality oversight
and that makes a big
difference.
Our teams are over at HUD every day and we see the response
at HUD because of the kinds of questions you are asking. And
again, I think this hearing is a real example of all of us
agreeing on what the major issues are.
Also, your staffs have shown professionalism and
dedication. Day in and day out, we deal with your staffs, on
both sides of the aisle. I have not seen staffs of that quality
in my 20 years in Government. It has been an honor and a
privilege to work with you.
I would like to leave you with one thought. And that is, we
would ask you to keep watching and to working closely with HUD
and please continue to ask GAO to help you do it.
Senator Reed. Thank you very much, Mr. Czerwinski, for your
excellent testimony. Again, we thank you for your service to
the Committee and to the GAO. And we look forward to working
with you in a different capacity.
I have been remiss because I should have initially asked
everyone to stay within the 5-minute time limit and that your
full statements would be made a part of the record. But,
through telepathic means, both Secretary Jackson and Mr. Stan
Czerwinski did that.
Now, we are pleased to introduce Carolyn Federoff, who is
the President of the American Federation of Government
Employees, Council of HUD Locals, 222. The Council is HUD's
largest employee union, representing approximately 6,000
employees. And she has been President since May 2001.
Welcome, Ms. Federoff.
STATEMENT OF CAROLYN FEDEROFF
PRESIDENT, AMERICAN FEDERATION OF
GOVERNMENT EMPLOYEES, AFL-CIO
COUNCIL OF HUD LOCALS, 222
Ms. Federoff. Thank you very much, and thank you for
inviting us to speak for HUD's career bargaining unit
employees.
First, I want to thank both of my fellow panelists here.
The Deputy Secretary has, in fact, invited us to meet with
him monthly to discuss employee issues, and we are very
appreciative for that opportunity. And the GAO, especially with
your leadership, has made recommendations that our employees
always eat up. They like when the GAO reports come out. They
want to be able to read them. They want to see what our Agency
is doing and what we can do better.
So thank you very much.
My written testimony, which I would like to have submitted
for the record----
Senator Reed. Without objection.
Ms. Federoff. --is a detailed look at HUD's human capital
management issues and oversight of contractors. But my oral
testimony is much more pointed.
HUD employees have been concerned for a long time with our
designation by GAO as a high-risk agency. But even without this
designation, we would be concerned for the long-term viability
of HUD programs. We believe that no administration can resolve
these issues without the sustained support of Congress.
HUD's programs are largely bricks and mortar. They are
long-term investments. This is one of the distinguishing
characteristics of the challenges that face HUD.
The programs that Congress creates have a lifespan longer
than the lifespan, or rather, the careerspan, of a Federal
employee. So that a Section 202 development that is built today
will continue to have a HUD mortgage in place in 2040, well
after the current employees at HUD have retired.
Furthermore, the nature of developments is such that they
either have problems at the very beginning of their lifespan or
they have problems at the very end of their lifespan. So it is
very important to have staff continuity, to have the sharing of
institutional memory from one generation of HUD employees to
the next generation of HUD employees. And that is crucial to
problem-solving, when problems arise.
Now all American employers at this point are facing the
impending retirement of the Baby Boom generation. So this is a
problem that is not unique to HUD. But because of the unique
programs that HUD is responsible for, that problem, in fact,
can be a crisis.
Currently, HUD only fills vacancies after they occur,
frequently months or even years after a seasoned employee has
left.
In our written testimony, we recommend no reduction in HUD
staffing ceiling. But the truth is, if 4,500 employees are
projected to, or are eligible to retire within the next 5
years, we need to hire 2,000 employees within the next 2 years.
We have to hire this staff now in order to permit mentoring and
a transfer of knowledge. We cannot replace journey-level staff
with entry-level staff.
This is a task that no administration can accomplish
without Congressional support. As stewards of the public trust,
and as HUD employees, we do not want to hear that it cannot be
done or that we have deficit budgets.
It can be done. We know this because the money is already
being spent. It is being spent on contractors. With the
knowledge, and sometimes the express approval of Congress, HUD
spends more money on contractors than it would cost to hire HUD
employees.
The Section 8 Contract Administration contracts alone,
which are part of the rental housing assistance contracts,
would cover 2,500 additional HUD staff. These contracts are
costing us $220 million a year now, and when they are in full
force, will cost us $280 million. Now the contracts replace the
need for a maximum of 1,250 staff. And this is only one example
of many examples.
We need Congress to work with HUD and stop playing smoke
and mirrors with the budget.
Our written testimony includes recommendations that would
assist recruitment and retention. It would assist the use of
retention programs, such as loan forgiveness, child care
subsidies, extend permanent positions to its interns, reform an
overly bureaucratic human resources department. But these are
Band-Aids. They will make HUD a better place to work for the
workers that remain. But we need more than Band-Aids. We need
whole blood. We need staff and we need them now.
Congress can make a difference between the long-term
success of the programs that it authorizes or it can assist in
their failure.
Thank you.
Senator Reed. Thank you very much, Ms. Federoff.
Thank you all for your excellent testimony. And I think you
have laid out in very graphic terms the serious challenges.
As Mr. Czerwinski pointed out, HUD is the most vulnerable
agency to retirements in the whole entire Federal Government.
And thinking that if even a third or a half of the retirements
take place, that will have a crippling effect on the Agency, an
Agency that is responsible for over $500 billion in mortgages.
The consequences of mismanagement are not simply that
people do not get the full services that they need and deserve.
But it could be huge financial consequences for the Federal
Government. So this is a very serious challenge.
Mr. Secretary, we all agree on the critical issues--human
capital, information technology, and oversight acquisition of
contractors. Do you think that the budget that was sent up this
year to Congress reflects the seriousness of these challenges,
reflects the potential loss of thousands of employees and the
fragility of the Agency at this point?
Mr. Jackson. Before answering, Mr. Chairman, I want to say
that I appreciate both persons' testimony because I think that
they specifically zoomed in on the points that are very
critical to us.
In answering your question, I will simply say, I think the
budget reflects that we are trying to address the needs that
the GAO and the unions have consistently told me. That is,
human capital, information technology, succession plans,
because they are critical.
As Carolyn will tell you, often I have said to her, I would
hate to see a third of our employees leave on our watch--that
is, the Secretary and my watch--because I think it would be
absolutely devastating.
I think if we go back to 1995, when we had a situation
where there was no thought, not methodically or otherwise, and
we were forced to cut HUD's staff.
The young employees that Ms. Federoff is talking about that
would have been the middle employees this year, were taken
away. In the process, it left seasoned employees. We were in a
hiring freeze. It did not occur.
But what we expected out of the employees at HUD, and I
think, under the circumstances, with my traveling in the field,
these employees have done an excellent job of maintaining HUD
as best that they could, with the limited resources. We
expected them to do the same amount of work with an increased
budget.
I do believe that if, as we have said to OMB and to GAO, we
have a budget that, if given the priorities to hire people to
do some of the job, and to terminate some of the contractual
arrangements that we have, the third-party contractual
arrangements, I truly believe that we can hire the staff that
can be trained.
I think that one of the things that Ms. Federoff said that
was so important, which I did when I was running AEP, which was
a $13 billion corporation, when we realized that we had
somebody leaving the organization, we brought someone in to be
trained by that person. That is not the way that we have
operated at HUD because of the hiring freeze. We believe now in
our process of trying to recruit and hire new staff members,
staff members who have the expertise, to give them an
opportunity to work with those persons who have this expertise
who will be leaving us within the next 3 years.
So, I would say, yes, the budget does reflect it. And the
Secretary is very concerned that we address the needs of human
capital, as has been denoted to you today, we address the needs
of information technology.
I cannot come here, as Stan can tell you, and contradict
him, I am not in the position to do that. I am in the position
to listen to him. And that is why we have periodically worked
with him, without the insistence of being told by Congress.
I just believe that Government, as when I ran the
corporation, has two functions. That is, to have the profit and
shareholders' return. I believe that the profit is saving the
taxpayers money. The shareholders' return is making sure that
the taxpayers get what they have paid for. And I believe that
with the help of GAO, with the support of Congress, as Ms.
Federoff has said, and with the union's help, that can be
accomplished, and I think the budget reflects that.
Senator Reed. Well, as I understand it, Mr. Secretary, HUD
has not asked for any additional dollars for staff in fiscal
year 2003. And going to Ms. Federoff 's point, if we are going
to make any serious transition in the face of these
retirements, you have to get the people on board now so that at
least they have a year or two to learn what they can from the
hands.
Mr. Jackson. I agree. Let me say this to you on that.
We are in the process, as Ms. Federoff knows, of hiring 400
new employees. I won't say new because some will come from
internal promotion. But we are in that process. We have also
asked OMB for another 400 next year, to get us up to the 9,100
level.
What we have decided is this, we know that we have a
shortage. But I think that REAP was the beginning. We need to
look at this systematically and thoroughly, and say, where is
it that we have serious problems of losing people, whether it
is in CPD, community development and planning, whether it is in
housing, whether it is in public and Indian housing, and begin
to replace those people systemically.
Yes, I am very concerned. I cannot say to you today we are
not. But I do also believe that in the process, it is not
necessarily from my perspective more money. I think that if
given the opportunity, as I have said on a number of occasions
to OMB, to utilize our money more efficiently--that is, to end
some of the contracting that we do--that I think we can address
these needs clearly.
Senator Reed. Thank you.
Mr. Czerwinski, you might not have a detailed knowledge of
the budget submission, but you certainly, I would suspect, have
a feel for the kind of money we are talking about--getting a
well-trained workforce in place and staying in place despite
retirements, improvements in hardware and software and computer
systems, and active oversight of contractors. That is a lot of
money, even if you are efficient and you get more flexibility,
I would suspect. Do you have any thoughts?
Mr. Czerwinski. Yes, Mr. Chairman. Ultimately, HUD may need
more money. But the key is before they can come and ask for
more money, they need to have a credible plan and a vision for
what they are going to do with it.
Let us use human capital as an example.
As we agree, REAP, is a first step, a snapshot of what is
going on today. What HUD needs to do, though, is to project
what it wants the Agency to look like, and then target the
shortages and gaps to that vision.
They need a recruiting strategy, targeting certain schools,
certain types of professions. Then, once they have that, they
have to implement it. And that is probably ultimately going to
take money. They need to have a compelling plan before, in all
fairness, they can come and ask you for that.
Senator Reed. Mr. Secretary, when can we expect to have the
details of that plan from HUD that Mr. Czerwinski said?
Mr. Jackson. Very soon. We are in the process of developing
a 5-year human capital plan because that was one of the things
that the Secretary and I initially said. We did not have one,
and again, Stan knows it. We have been discussing that, not
only with GAO, but also with OMB, and with the union. And I am
convinced that we will have that very soon for you.
Senator Reed. Let me ask, before I turn to the Ranking
Member, Ms. Federoff, if she has any comments on this line of
discussion we have had?
Ms. Federoff. Well, two comments. One is that I think the
Agency is hampered by a severe reduction in their human
resource staff in the 1990's. So that the Agency restructured
in 1995 with the goal of going from one human resource manager
or personnel specialist per 60 employees down to one to 100. I
think that loss of staff has made it very difficult for this
Administration to quickly respond to the need for a human
capital plan. I think that focusing staff in those areas would
help the Agency be more responsive.
The other item is that we would certainly support the
Deputy Secretary in giving HUD the ability to transfer dollars
that are spent on contractors to S&E. My familiarity with the
budget is that there is not that flexibility, and it would have
to be specifically authorized. And we would certainly support
that authorization.
Senator Reed. Thank you very much.
Senator Allard.
Senator Allard. Thank you, Mr. Chairman.
I would just comment on the lack of compatibility between
the various computers that we have in HUD. Of all your
testimony, I think that that is one of the things that is the
most disappointing to me. It seems to me like it is one of the
easiest things to be able to rectify.
I can understand sometimes the problems with compatibility
maybe between the IRS and maybe the CIA or something like that.
But there is an effort within the Government to try and even
make those compatible. Isn't there a relatively quick solution
to this, or is this more complicated than just what appears on
the surface?
Mr. Jackson. I will say this to you, Senator, that when I
walked into HUD after running AEP, I was absolutely not only
dismayed but also shocked that there was no interaction between
the information technology systems.
We immediately went to the point again with the help of
GAO, OMB, and I said we cannot continue this process.
We are in the process right now of planning. We have one
area that we are addressing which we call the information
technology system contract out on the streets, and we should be
getting the results back very soon.
Another thing, I think it is imperative and it is
relatively simple. But I do not think we can again do what we
did in 1995 without being very methodical, cutting people out
of the staff at HUD.
I believe that if we could do this in a very systematic
manner, we will be able to make sure we have an information
technology system within a couple of years that interacts and
talks to each other.
I must tell you that, as you have just stated, I was
absolutely shocked when I came here, having a system from a
corporation that we talked to each other all over the country.
AEP was the largest electrical company in this country. Yet, we
could talk to each other from Texas all the way to Washington,
DC. And not to have that in the Federal Government was
absolutely shocking. But we are moving expeditiously to make
sure we have that and we are working with GAO and OMB to make
sure that that is done.
Senator Allard. Mr. Czerwinski, I think that my colleague
here brought up some issues related to the budget. So, I was
thinking back on our testimony that we had the year before last
maybe. At one point in time, we had $10 billion in unobligated
dollars in HUD. Are those unobligated dollars still there, as
far as you know?
Mr. Czerwinski. There are still sizable numbers, probably
closer to $5 billion.
Senator Allard. There is still a sizable number there.
Mr. Czerwinski. Yes.
Senator Allard. You wouldn't still say necessarily as much
as $10 billion, but there is still a sizable number there.
Is there any reason why you have to ask for an increase in
HUD spending when you have unobligated dollars in HUD there?
Can't they be used for current programs? Is there any reason
why that cannot happen?
Mr. Jackson. I think that, from my understanding, the
monies designated for specific programs, once they are
allocated----
Senator Allard. Yes, but this is unobligated. I had the
impression that unobligated means that they are not necessarily
designated for any specific program.
Mr. Jackson. From my understanding last year, all
unobligated monies--not all, but most of the unobligated monies
had to be returned back to Congress. Therefore, I would say to
you, Senator, that I believe that if given that authority, as I
said previously in my testimony, I am not convinced that we
necessarily need more funds. I think that Stan spoke to that.
If we are given the right to utilize the fund in a very
efficient and effective manner, to hire and train new staff,
clearly, I think we can do a lot of it within the present
budget.
Senator Allard. So, you are telling me at the end of each
fiscal year, unobligated dollars get held in the Department?
They do not get transferred over to the next year?
Mr. Jackson. I am not sure. Let me ask that.
[Pause.]
If they are not obligated, they do not stay with the
Department. I did not think so because I know we had to return
unobligated monies last year.
Senator Allard. Stan, do you have a comment on that?
Mr. Czerwinski. My understanding, Senator Allard, is that
most of the unobligated monies are what is called no-year
budget authority. They sit until the Congress or HUD takes
action to essentially sweep them up. A certain amount is swept
up in most years. But there is also amounts that sit.
If the question you are asking is, could those monies be
used for other purposes, yes, they could, but it would take a
reprogramming authority given to HUD to do that.
Senator Allard. Does that go through the appropriations
bill or is that an authorization?
Mr. Czerwinski. Appropriations.
Senator Allard. The appropriations does that. So is the
budget request now, does that reflect recycling or reusing
those unauthorized dollars that are sitting there?
Mr. Jackson. Let me say as an answer, some of them reflect
years that, clearly, the money must be spent.
We have in Section 8 a program that is obligated for
project-based for a 30-year period of time. All the funds are
not obligated at one time, but clearly, they are going to be
spent. Those funds that are not in a situation of Section 8, I
would perceive, as Stan has said, that if they are
reauthorized, yes, we can use them.
Senator Allard. Okay. If we have a problem of not enough
dollars there, Mr. Chairman, to meet some of these needs, it
might be that we just need some simple language in there that
would allow them to handle the unobligated dollars that are
sitting there, if there is any that are sitting there. And I do
not know. How do we find out what that unobligated amount is as
we move toward the end of this budget year?
Mr. Jackson. I would be happy to submit a detailed report
to you if you would like to know that.
Senator Allard. Would you do that, Mr. Jackson?
Mr. Jackson. Yes, I would.
Senator Allard. I would appreciate it.
Senator Reed. As I understand it, the Department has to
request a reprogramming from the Appropriations Committee,
which would have to be cleared by the Office of Management and
Budget. I would be very happy to push that along if we got it
up here.
Senator Allard. Okay. Now the other area that I want to
talk a little bit about, and this shouldn't surprise any of you
because any time you have testified in front of this Committee,
I always ask you about the Government Performance and Results
Act. I think it is important that we work on it--I am glad that
the President seems to be moving in that direction for all
agencies. But the Results Act requires agencies to utilize
outcome rather than process-based management.
I was extremely pleased to see that the President's fiscal
year budget of 2003 request begins to incorporate the next
step, which is outcome-based budgeting. And this is for all of
you--would you please comment on the importance of the Results
Act for an agency in transition like HUD?
Mr. Jackson. I think it is absolutely important and
imperative. Again, I am not one to cast aspersions, but I have
so often said that, and I have said it to you, Stan, that if I
had run AEP as we have run HUD over the years, I wouldn't have
lasted 4 months as President of that company.
So, I do believe that outcome-based analysis is the most
crucial thing to know exactly where you are going. And that is
why I am pleased that we had set some processes in place to
judge that. But the President's Management Agenda specifically
sets the objectives of what we must meet to do that.
We have, as I said to Senator Allard before you came in,
put in place a monthly executive staff meeting to know where we
are. We are sharing that information on a monthly basis, not
only with OMB, but also with GAO, and we are asking for their
input. I do think that it is absolutely imperative.
Senator Allard. So, Mr. Czerwinski, this is not a new
question for you.
Mr. Czerwinski. No. Senator Allard, I was thinking back to
the start of this hearing when we talked about oversight not
being glamorous. The only thing less glamorous than oversight--
--
[Laughter.]
--is GPRA, so thank you very much for embracing that.
[Laughter.]
Of course you know, GPRA is one of GAO's mantras. The
President's current budget embraces GPRA more than any prior
budget.
Having said that, going to the question you asked; is GPRA
important for an agency in transition? Absolutely. You need to
have a vision of where you want to go, link the vision to
specific goals that are measurable, then evaluate against those
goals and measurable targets, and act accordingly. That is
really what is going to drive the budgeting.
Yes, that is crucial.
Senator Allard. Ms. Federoff.
Ms. Federoff. Well, one of the things that we need to keep
in mind when we look at results is not only risk that has been
taken, but also risk that has been avoided. I am a field
employee and there are times when a development comes in and
you work and you work it and then you just decide, no, this one
we are not going to do. It just shouldn't be done. I think that
that is also a result that should be taken into consideration
in any review of results. Not just housing units built, but are
they quality housing units? And were the ones that did not get
built, in fact, should not have been built?
Senator Allard. You do not think that GPRA is a good idea?
Ms. Federoff. No, I think it is a fine idea. I just think
that we have to think about results in terms of risk.
Senator Allard. Okay. Thank you, Mr. Chairman.
Senator Reed. Thank you very much, Senator Allard.
For the record, there is a memorial service for Officer
Chestnut and Detective Gibson, who gave their lives in the
defense of the Capitol on this day in 1998. It is at 3:40 p.m.
I want to ask a few more questions, then recess, if I may,
attend quickly, and return.
Let me just start our second round.
Mr. Secretary, going back to this whole issue of using what
you have rather than getting more. I understand that HUD hasn't
been able to hire the 91 full-time equivalents that you are
authorized in this year or last year's budgets, that you are
300 short. Is this a conscious decision or is this suggesting
the problems you face even if you had the resources to hire
people, which begs other questions. What do we have to do to
make this an attractive place to work?
Mr. Jackson. I think that is a very excellent question,
Senator. My answer to that is that, first, we have, during the
Department realignment, that took a substantial portion of our
time because, initially, we made some very--we made some
mistakes in the sense that we did not initially consult with
the union, which I think was absolutely a mistake. In the
process, we began to consult to make sure that we get the input
as to how best to redeploy and realign. And it took a little
longer than we had expected.
Second, we did not have at that time an Assistant Secretary
for Administration in place, nor a Director for Human
Resources.
Going back to Ms. Federoff 's statement--nor did we have in
place the ratio that I felt was necessary to address the needs
of hiring up as quickly as we wanted to. We have put that
process in place now, which will carry over to 2003. We believe
that we will reach the 9,100 without any problems.
I take full responsibility at that point for not being
cognizant of the fact that during the early part of the
process, we did not confer with the union and in the process,
that we did not have an Assistant Secretary, nor a Director of
Human Resources. In fact, we hired the Assistant Secretary this
spring and we just hired within the last month a Director of
Human Services. So, we are in the process to rectify that.
Last, we are hiring up in human resources. And I must say
that I was not really aware of that until it was brought to my
attention where we were with the union.
The union, in my case, and in the case of HUD, has been
very helpful in making sure that we understand the problems
that we are confronted with. I do believe that in the year we
will do that. But we did not do it and it was not an effort on
our part not to do it.
Senator Reed. Thank you, Mr. Secretary.
Ms. Federoff, before I recess for a brief interlude, do you
have a comment?
Ms. Federoff. Our experience with the intern program is
that we had many, many more applicants who were interested in
working for the Agency than we had positions available.
Mr. Jackson. True.
Ms. Federoff. So there is a real interest. Our concern with
the intern program is that those employees need to be extended
permanent positions as soon after their 1-year traditional
probationary period as possible, so that during their second
year, they do not spend the bulk of their time looking for
other employment.
Mr. Jackson. We agree with that.
Senator Reed. At this time, I would ask that the
Subcommittee stand in recess subject to the call of the Chair,
and I will endeavor to come back as quickly as possible.
Thank you.
[Recess.]
Senator Reed. Let me call the hearing to order and thank
you all for your indulgence in letting me get over to the floor
for that moment of silence.
I have two areas of concern I want to address. I am sure,
though, there might be other questions and the record will
remain open for a number of days. So, you might receive some
written requests for further information, Mr. Secretary.
Mr. Jackson. Thank you, Mr. Chairman.
Senator Reed. Mr. Czerwinski and Ms. Federoff.
One of the critical issues that we all agree upon is the
need for accountability of the consultants and contractors that
HUD has.
I was struck by some of the information about the single-
family program. GAO reports that HUD lost $1.9 billion in
fiscal year 2000 on the sale of foreclosed homes that it had
insured, greater losses than it had when HUD career employees
were performing the function. Although it might be appropriate
to contract out those functions, they clearly need better
oversight.
It has been 5 years since FHA implemented its new loss
mitigation program. Again, what really prompts my concern is
this has been the hottest real estate market I can remember in
my life. I know that HUD insures properties not in the most
affluent neighborhoods, but in some difficult neighborhoods.
But the magnitude of this loss is quite sobering because if the
real estate market ever started trending down, this $1.9
billion could accelerate.
It exemplifies the problem that we have talked about all
afternoon. What steps are you taking to ensure that these
contractors are doing their job and they are not causing huge
losses that we have seen in this particular program?
Mr. Secretary.
Mr. Jackson. If it is fine with you, Mr. Chairman, I will
defer that specifically to the FHA Commissioner, Mr. Weicher,
to answer for you, please.
Senator Reed. Sure. Commissioner.
Mr. Weicher. Thank you, Mr. Chairman.
We have typically had losses on our REO ranging from $1.6
billion to $2.5 billion from year to year. The reason we have
losses, that is why it is REO. It is not worth what we have
insured, and so we lose money on it.
Our loss per claim, our loss per dollar, has been dropping.
It is now down to under 30 cents per dollar. Four or 5 years
ago, and before that, it was running at least 39 cents a dollar
and on up to 45 cents a dollar. The loss per claim has been
down in the last 3 years. We are not going to break even on the
REO ever. But we are doing a better job in minimizing the
losses to the fund from year to year.
Senator Reed. Thank you, Mr. Secretary.
Mr. Czerwinski, might you comment on this whole issue of
contractor accountability in the single-family program and the
other programs, and the Secretary of the FHA's comments?
Mr. Czerwinski. Yes, Mr. Chairman. The way we look at it is
on a per-property basis. Roughly, you are talking about a
$30,000 loss per property. FHA turns over, say, 50,000, 60,000
properties a year. That is how you come up with approximately
$1.9 billion.
The key to avoiding this loss is two-fold.
The first key is loss mitigation. If you can stop the
properties from going into that process, you obviously are not
going to suffer that loss. Mr. Weicher is exactly right.
Whenever you get a property into the disposition area, you are
going to lose money. The second key is once they get in,
though, you want to minimize the loss.
There are a couple ways to do that. One is incentives to
shorten the timeframes. The longer the properties sit in
inventory, the uglier they get and the lower they sell for.
Also you want to maintain the properties because the better
they look, the more money you will get for them. In addition,
the properties that sit around, and end up contributing to
neighborhood blight.
The incentives to contractors should be to sell them
quickly and to maintain them during this process.
Mr. Jackson. We are addressing both of those issues.
Senator Reed. That is my question. And Mr. Weicher wants to
comment, too.
Mr. Jackson. We are addressing both of those.
Senator Reed. Mr. Secretary, at your discretion.
Mr. Jackson. Please.
Senator Reed. Around here, you cannot go wrong just calling
for Secretary.
Mr. Weicher. Mr. Czerwinski is right, it is important to
get the properties out quickly, and we have been doing that.
Three years ago, we had properties in inventory for 8 months on
average before we sold them. Now it is down to under 6 months
on average before we sell them.
Three years ago, our inventory was 47,000 properties. Now
our inventory is 29,000 properties and the inventory has not
gone up during the recession. And that has never happened in
the history of the Department.
We certainly want to do as good a job as we can on our REO.
We know that the property, as we own it and it is in a
neighborhood and it is not helping the people in the
neighborhood to have this. We are doing our very best to get
that property out as quickly as we can.
And if I might say, on loss mitigation, 3 years ago, we
assisted 10,000 homeowners through loss mitigation. Two years
ago, 30,000 homeowners. Last year, 50,000 homeowners. This
year, we are on track to help 70,000 homeowners, and it is an
extremely important tool in helping people stay in their homes
and help the neighborhoods they live in.
Senator Reed. Thank you. If I could just note, though,
because Secretary Weicher made the point about it. This is a
very unusual recession because the housing market has shown not
only no damage, but also it seems to be bounding along.
Mr. Secretary.
Mr. Jackson. Mr. Chairman, this is one of the areas that,
initially, when we started meeting with Stan and GAO, we told
him that we were not going to debate or argue with him about.
In fact, I could not understand why anybody was arguing.
They were absolutely correct that the approach we had taken
and the Assistant Secretary has taken on behalf of the
Secretary and myself is a very proactive approach. And so, I
will say that it was a very excellent question. But we are
really trying to minimize as much as we can. I think that Stan
was correct in conjunction with Assistant Secretary Weicher.
Ms. Federoff. With your permission, Mr. Chairman.
Senator Reed. Ms. Federoff, please.
Ms. Federoff. Thank you. Our single-family staff would like
to have another issue raised, which is that they see the
properties as a resource that can be used toward affordable
housing in this country, and is very concerned that the
contractors at this time are, in fact, not using them as a pool
of affordable housing that employees at one time were able to
do better.
So that, for example, the number of investor-owners are
increasing over time with the use of contractors, as opposed to
homeownership. And that is one of many issues that we have with
this set of contracts.
Senator Reed. Thank you very much.
Let me move to another topic because Senator Allard is here
for his second round, also.
Mr. Secretary, I understand that the Department went
through a reorganization last year, including moving the
independent Real Estate Assessment Center, the REAC, to public
housing, and the Enforcement Center to the Office of General
Counsel.
I have testimony from the GAO on REAC and the Enforcement
Center prior to this reorganization, is as follows: The
creation of the REAC and the Enforcement Center were positive
developments that yielded real results.
The GAO went on to say that the new REAC enabled HUD to
complete its first physical and financial assessment of its
inventory, while the creation of the Enforcement Center
resulted in the restoration of 41,344 housing units to decent,
safe, and sanitary conditions compared to 968 units in fiscal
year 1999.
The question is, these Centers seemed to be performing very
well, what was the need to put them into a different posture
underneath the public housing and the General Counsel's Office?
Mr. Jackson. Well, Mr. Chairman, first of all, REAC. REAC
does half of the work for housing, half for PIH.
We felt that since it was doing the work, and the initial
process was probably the correct process, but I think it had to
be outside of those areas because it had not been working
internally.
We felt that, at least from my perspective, it should, in
essence, address the issues of both of those areas. And I felt
the best way to do that was to put it in one, house it in one
of those areas. We chose Public and Indian Housing.
But in the process, the Assistant Secretary for Public and
Indian Housing, and the Assistant Secretary for Housing worked
together and they formulated, I think, a very outstanding plan
to make sure that REAC is working better now than it has worked
in the past.
The second part, as you asked, is about the Enforcement
Center. The Enforcement Center was in the General Counsel's
Office in the first place. It was taken out. It was taken out,
from my understanding, and please let me say this gingerly,
because the previous Administration was not getting the
response that they wanted. I believe you do not remove
organizations because you do not get the response. You make
them better or put the right people in place.
Right now, there has not been one step lost in the
Enforcement Center in carrying it out back under the General
Counsel. It is still doing the same exact response, but yet, it
is reporting.
I believed when I came in, and I said this, that we had a
number of people reporting directly to the Secretary through
the Deputy Secretary. I believe that we should not have had--I
forget. How many people were reporting to me?
[Pause.]
More than 30 people were reporting to me. And if I might
have the opportunity to use this example.
When I ran AEP, which was a 3,000 employee operation, a $13
billion corporation, I had two people reporting to me. They
were Executive Vice Presidents. One was Executive Vice
President for Administration. The other was Executive Vice
President for Operations. They had the responsibility.
I think that, actually, from my perspective, for a more
streamlined approach, that only the Assistant Secretaries,
except those that are authorized by Congress, should report
directly to the Deputy Secretary and the Secretary. And so, we
tried to find the best housing mechanism to make sure that we
lost none of the importance of these agencies to respond to,
and that is the approach that we took, strictly from a business
approach.
Senator Reed. Thank you, Mr. Secretary.
Mr. Czerwinski and Ms. Federoff might have a comment. Then
I will ask Senator Allard for his questions.
Mr. Czerwinski. Yes, Mr. Chairman. If I could use REAC as
an example. I believe the key is to look at what you want to
accomplish with a function such as REAC. You are talking about
the number and quality of inspections. You are talking about
the condition of the property--maintaining the property in good
shape.
You also want to consider the analysis of what REAC could
do to help landlords maintain their properties in good shape.
And finally, the landlords who have defects in their properties
need to be monitored to make sure that the corrective actions
are taken. Those are the measures of whether REAC is working or
not.
We have studied REAC extensively and reported areas where
they could do better. But overall, REAC was a significant
improvement over HUD's capability in the past, when it really
wasn't able to do much to determine the condition of these
properties.
The question becomes, with REAC responding to the Deputy
Secretary's secretary or to PIH, whether you maintain that
capability or not. Frankly, in our view, it is up to the
Secretary how he wants to organize his Agency. But he better
maintain the results in terms of the issues that we have
raised. And that is what we would ask when requiring HUD to
report its results along those lines.
The final point is that, in any organizational structure,
you have to look at what tensions and stresses there are for
independence. If REAC is going to be delivering bad news to
somebody who is an owner of the property or the owner of a
program, you have to decide what that does to the program.
If they can deliver bad news and that Assistant Secretary
can handle that bad news and correct the problems, REAC reports
it is fine. But if the capability is diminished, it is not
fine.
Mr. Jackson. I agree with Stan.
Senator Reed. Thank you, Mr. Secretary.
Mr. Jackson. I think that we have taken all of that into
consideration of the process.
What he has just stated to you, we took into consideration.
We feel deeply that it can still do that.
Let me say this to you, Mr. Chairman, and Senator Allard. I
am flexible. I believe that the tenor of a good administrator
or a good manager is to be flexible, to give an opportunity for
programs to work. If they do not, then understand that, a year
from the day, if it is not, or 2 years from the day, to admit
that it hasn't. And that is one of the reasons I think it is
important to have the oversight of not only your Committee and
the Senate and the Congress, but also GAO, because I am of the
hue at this point, I would much rather find a way to work with
GAO and work with the union than to find a way to disagree with
them.
Because our Agency that the President has appointed the
Secretary and I to run is in serious trouble, and I believe
that almost everything that has been said today by both Stan
and Carolyn, it is absolutely imperative that we all work
together to cure these
problems.
I think we have worked so far to this point very well. I am
not sure who is going to replace Stan, we have had our
disagreements, but we have disagreed on issues. We have not
disagreed and not spoken to each other. And I think, to me,
that is the most imperative thing that we have today.
I want to say this to both of the persons sitting here, and
to you. I want to see HUD work. I believe we have to run HUD as
a business. Some people think I am absolutely crazy, but the
taxpayers deserve to have a well-run Government. And in
appointing me, I think that is my task, to run it like we run a
business, and to be accountable to you, but also be accountable
to the taxpayers.
I think that without the help of GAO, without the help of
OMB, without your help, that is not going to occur because I
think people have a tendency if they are not looked at, to
slide; and I would prefer not to slide.
Senator Reed. Thank you, Mr. Secretary.
Ms. Federoff, do you have a comment on this line?
Ms. Federoff. I am glad to hear that a cooperation plan has
been put together for REAC staff working on the Office of
Housing Programs while working for the Assistant Secretary of
Public and Indian Housing. I know that employees have been
looking forward to that plan and we are glad that that is, in
fact, coming to pass.
Senator Reed. Thank you very much.
Senator Allard.
Senator Allard. Mr. Chairman, you preempted me on that last
question, which is all right.
I wasn't sure that you directly answered the question that
I am about to ask you, Stan. And that is, what are your views
concerning this realignment decision? It sounded to me like it
was favorable, but I am not sure we got a direct response on
that?
Mr. Czerwinski. Senator Allard, our view is that it really
is the Secretary's prerogative as to how he wants his Agency to
be structured. But there are functions that have to be
accomplished. We would urge the Secretary to take a look at
those realignments in the past which have worked and those
which haven't and to take that into account.
You asked about the Chief Procurement Office. That, as we
know, used to be independent. It now responds through the
Assistant Secretary for Administration.
If contract oversight works, then that structure works. If
there are problems with contract oversight, we need to think
about the structure.
One thing that we also need to think about, as I mentioned,
is the stresses and tensions that exist in an organization.
The Office of Administration accounts for about a third of
HUD's contracts. So that is an issue that the Chief Procurement
Office has to think about because they are essentially
overseeing contracts within their own office. If they can do
that effectively, it is fine. But it does complicate it.
Senator Allard. Did he answer my question, Mr. Chairman?
[Laughter.]
Senator Reed. That is why he is being promoted. He answered
it very well.
[Laughter.]
Senator Allard. You are very adept there, Mr. Czerwinski.
[Laughter.]
I have another question. I have also requested that GAO
review HUD's acquisition management practices and how the
Agency holds contractors responsible for results. And that work
is nearing completion, it is my understanding. What can you
tell us today about the results of that work and what HUD needs
to do to do better management on its acquisitions?
Mr. Czerwinski. That is a really important question because
of the increased emphasis that HUD has placed on acquisitions.
As I mentioned in my statement, there are three areas that
HUD needs to focus on.
First is the monitoring. And monitoring means getting out
there and seeing what is happening with the contractor.
Otherwise, you can be taken advantage of.
That ties into the second point, which is you have to have
people who know how to oversee and monitor contracts. And with
HUD's reliance on contracting growing, we found that some of
the people who are overseeing contracts do not have the right
skills and background or training to do that. So even if they
could get out there, they sometimes did not know what to look
for or ask.
The final area is information systems. HUD staff had to get
out there because information systems weren't giving them the
information they needed in a timely manner to assess the
contracts.
Senator Allard, this ties into the points that we made in
the hearing. We have talked about human capital. We have talked
about acquisitions. We have talked about information systems.
Really, those are not separate issues. They are all interwoven.
And they manifest themselves in different ways. But HUD needs a
whole plan to make the improvements. That is the basic message
we have on improving acquisitions.
Did I answer your question that time?
[Laughter.]
Senator Allard. You did a pretty good job, Stan.
[Laughter.]
Mr. Jackson, I wonder, would you please describe how HUD
fits into the President's Management Agenda, and how this will
help HUD transform into an effective and efficient Agency?
Mr. Jackson. There are five critical elements to the
President's Management Agenda. And the first is human capital,
information technology.
When we started the process, I will tell you that--well,
let me back up a second. The process is one of green, yellow,
and red. It is just like the stop light.
Senator Allard. Yes.
Mr. Jackson. So, you know when it is red, it means you are
not to move. And, in essence, we had inertia on our part when
we started this process some years ago.
We have moved in a number of the categories to green. Some
of the categories we are still at yellow. But we feel that
without a management structure as to denote exactly where we
need to go to improve the agencies, we are going to be in
serious trouble.
The President's Management Agenda gives us that process
that we can address the needs that are affecting HUD at this
point in time. Plus, I think that with the information that we
have been able to gain from GAO about the high-risk, and they
are working with us, we have been able to address these needs.
Now there are five, and I cannot tell you right away--I
think she's probably giving me all five here.
Senator Allard. Staff is helpful at times, isn't it?
Mr. Jackson. That is right. Human capital, e-Government,
competitive sourcing, budget and performance integration, and
improved financial performance.
The only one that we have vehemently disagreed with, and I
think we have been given some dispensation, is competitive
sourcing. We believe that we have competitively sourced too
much out already in this Agency. And therefore, it goes back to
what Stan has said, we are not able to manage and monitor our
contracts in a very efficient manner.
Second of all----
Senator Allard. Is it too much competitive resourcing or
just not enough management over which you have already
competitively laid out there?
Mr. Jackson. I think, Senator, that if we are able, as
Carolyn has said, to do the analysis that we are presently
doing, that will tell us whether we can do the job better in-
house than competitively sourcing out, whether it is single-
family or multifamily, we must look at that. That is something
that, until this year, this Agency has not been able to look
at.
OMB has given us permission to look at it. And if we find
that we can do it better by having workers under the Federal
umbrella, we should do it.
I cannot tell you right now empirically that is the case. I
will say this to you, that I believe, and my testimony, when I
was being asked during the process of my hearing, I feel today
the same way.
I think that it was a serious mistake to cut HUD of some
8,000 workers without doing an empirical and methodical study
as to how it should be done. And I think it has hurt the
Agency. I do not believe it is the responsibility of the staff
that is here now. I think that they have done everything within
their power to do the very best job that they can do.
But we go back to an issue that was raised early in this
hearing by Stan. Even if they have done the best job, do we
have enough resources to manage internally what we have? And
also, to manage externally what we have, which is competitive
sourcing?
I believe not.
Senator Allard. I think when you look at competitive, when
you compare the public sector versus the private sector, there
is one really distinct difference. The public sector doesn't
pay any property taxes. They do not pay local taxes. They are
exempt from that.
But if you bid it out, then they pay property taxes.
Property taxes go toward supporting eduction--if it is
Colorado, a big chunk of that is education. And I do not know
how you factor that in because in the way of energy saving, or
by way of trying to save that, you can just--you have your
employees there, Federal employees there who are using schools,
using the facilities, but they are not paying the property
taxes to support it.
That is why we have things like PILT. But in most cases,
like the programs that you have, the PILT is not big enough to
compensate and never really gets figured into the formula. In
certain areas they figure that in. I do not know how you figure
that in.
Mr. Jackson. I am not sure how you do that, either. But I
might be able to answer you this way. When I was running the
utility company, I paid a lot of taxes.
Senator Allard. Sure you did.
Mr. Jackson. I mean an awful lot of taxes. I personally
paid an awful lot of taxes. I did not like paying the taxes.
So, I feel that if that is the basic reason, because they pay
taxes, I think that is important. I also think that efficiency
and how we run our Government and how we can give our
constituents the best service is very important. I believe that
you and I will probably agree, if we can do it better, more
efficient, at a cheaper price, we should do it. Especially in
today's era, we should do it. But if it is clear that it is a
wash, whether we do it publicly or privately, then I would say,
yes, and it can be done just as efficiently privately, to do it
privately, because I do think that there are benefits.
Senator Allard. Thank you.
Thank you, Mr. Chairman.
Senator Reed. I have one other area I would like to explore
and offer Senator Allard a chance----
Senator Allard. I am finished.
Senator Reed. If you are finished, then I will close the
hearing.
OMHAR was created in 1997 to bring a market approach to the
Mark-to-Market Program, the entrepreneurial skills. People who
are business-oriented rather than bureaucratically oriented,
perhaps. At the request of HUD, OMHAR was put under the Office
of Housing. GAO has reported that OMHAR's private-sector
partners are seeing some significant problems due to the
transition to the Office of Housing. Specifically, these
partners cite delays in issuing guidance in the new legislative
provisions, delays in completing certain restructurings,
attrition in OMHAR staff, and quoting from the GAO briefing,
``indecisiveness.'' Every decision is contingent on approval
from the Office of Housing.
Mr. Secretary, could you comment on that?
Mr. Jackson. Again, if it is okay, I would like to defer to
Mr. Weicher to comment on that.
Mr. Weicher. Senator Reed, we have met with Stan and his
staff on a bi-monthly basis, as you all have requested them and
us to do. We are one under the staff ceiling for OMHAR at this
point. The ceiling is 85. We have 84 on board. We brought on a
director this spring, Charles Williams, known as Hank Williams
for reasons that escape me. He doesn't carry a guitar or
anything like that.
[Laughter.]
But it is his name. We left him with the ability to make
some hiring decisions once he came on board, rather than
filling every vacancy immediately. So for a little while, we
were down to 80, 79.
The deals have been going at the rate of 20 to 30 a month
through the period since OMHAR was brought within the Office of
Housing. We expect an increase because of some of the
legislative authority that you gave us at the end of the year,
we expect a one-time increase to about 30 to 40 per month for
the next few months.
We are continuing to do deals at a steady basis and Hank,
Mr. Williams, is very much on top of the job and getting
comfortable.
Senator Reed. Well, it is my understanding that OMHAR has
authorized 91 full-time workers and they have been waiting for
permission to hire up to that level, even though there is 84 on
the job now.
Mr. Weicher. The REAP process concluded that the OMHAR's
appropriate staffing level was 85, and as we have done
elsewhere in the Department, we operated within those staffing
constraints.
Senator Reed. I am told, Mr. Secretary, 91. Let's sort this
confusion out.
Mr. Czerwinski, might you comment on this since it is a GAO
briefing finding?
Mr. Czerwinski. Yes, Mr. Chairman. My comments are
consistent with what I have said all along. The key is having
oversight of some areas that are important. And the success of
OMHAR is obviously very important.
The first step is establishing a baseline as to what
everybody agrees should be the number of deals completed by
OMHAR each month. The second should be the number of people
that OMHAR needs to make the deals happen. Once we establish
what the right number of deals is, then we can say whether the
transition is working or not.
Historically, OMHAR had been running, and Secretary Weicher
can elaborate because he probably works more closely than I do
with this, probably at a plateau of around 30 to 40 deals per
month.
At the transition, you would probably expect to see that
going down, and it has. The question becomes, will it come back
up. Will it stay back up?
In terms of people on board, there is an allocation that
HUD has. There is also an estimate that REAP has. Those are
verifiable numbers. We just need an agreement as to what HUD
will staff that office at, and then it is up to them to do it.
Senator Reed. Thank you. Actually, I have heard comments
about OMHAR and a lack of decisiveness through New England
housing people. So this is an issue, I think, not just--it
might be coincidental, but I have been hearing the same thing.
Let me conclude by thanking everyone for their very candid
and thoughtful testimony. I think this has been a very useful
hearing.
Let me also say, Senator Allard asked somewhat facetiously
if you answered his question. Well, here is what I think you
said vis-a-vis all these reorganizations. Is that taking these
quasi-independent agencies and putting them back underneath
some part of HUD raises the issue that, in fact, they have to
bring bad news to people who are responsible for the bad news
and have to take corrective action. That is also difficult.
The question is whether that would inhibit REAC and the
Enforcement Center from pulling their punches. Now, I think
what the Secretary said is you recognize that, explicitly
recognize that. You are watching for that and you are going to
do everything you can to prevent that from happening.
Mr. Jackson. Yes.
Senator Reed. But if it begins to happen, then I think we
have to question again the reorganization.
Mr. Jackson. I would agree with you.
Senator Reed. Is that the answer?
Mr. Jackson. I would agree with you, Senator.
Senator Reed. Thank you.
Mr. Jackson. I would agree with you. During the
realignment, redeployment, reorganization, I had to make some
decisions where I had put one specific area under an area.
Clearly, I had made a mistake. It was my understanding that we
had the authority to do it. But it was brought to my attention
that we did not. I had no problems removing it or putting it
back.
And in one area, we had the authority, but I felt just what
you just said, that it might be inhibited from doing the kind
of job that it should do, and I decided that it wasn't the best
fit.
Mr. Czerwinski. Mr. Chairman, I think you stated my answer
very well. What I would say is that the key to making that work
is oversight. And holding hearings just like this, where we can
establish what the criteria are, what the performance levels
should be, and then seeing whether it has happened.
As I mentioned in the short statement, that is what we are
here to help you with. I would encourage you to ask our staff
to go in and keep looking and reporting back to you, and then
we will have this kind of dialogue.
Senator Reed. Thank you very much.
Again, let me thank all of you. It is apparent, I think,
from today's hearing that we are at a critical crossroads. HUD
has made progress in management. But there are some significant
challenges ahead. The potential retirement of half the
workforce, trying to get computer systems that talk to each
other, getting a budget that supports your plans to go forward,
and fundamentally, getting a plan that clearly outlines the
human capital needs, the computer needs, and the oversight
needs of the contractors.
Time is running out because the departure of retirees could
be taking place in the next few months to the next 2 years, and
the need to get on top of these programs are essential.
So, I thank you for your candid and thoughtful discussion,
Mr. Secretary, Mr. Czerwinski, and Ms. Federoff.
If Members of the Subcommittee have additional questions of
the witnesses, I will ask them to submit them no later than
July 29. And the witnesses, I would hope, could respond within
10 days to any written questions.
Thank you again.
The hearing is adjourned.
[Whereupon, at 4:20 p.m., the hearing was adjourned.]
[Prepared statements and response to written questions
follow:]
PREPARED STATEMENT OF SENATOR PAUL S. SARBANES
Mr. Chairman, I very much appreciate your calling this hearing. I
have often said that oversight is a crucial function of the Congress,
and I think it is very important to do a review of the agencies to make
sure that they are meeting their responsibilities in an efficient and
effective way.
This is particularly true in the case of HUD, which has had ongoing
management problems for many years. Having said that, I also want to
note that, according to the GAO, HUD was on a positive trajectory with
regards to its management and oversight functions. One of the things we
emphasized to both Secretary Martinez and Deputy Secretary Jackson is
the need to keep that positive momentum going. I think it is
appropriate, now that the new leadership has been in place at HUD for
over a year, to assess exactly what direction things are moving.
Let me start by just making a few observations. HUD provides a
broad array of services to millions of Americans, from rental
assistance, to economic development opportunities, to capacity building
for nonprofits, to mortgage insurance for homeowners. We ask HUD to do
a lot, but we provide it with far too few resources. We need to work
together to make sure that HUD is making the best use of the resources
it does get; once we accomplish that, it will become easier to advocate
for more funds going forward.
For that reason, it is very important to keep an open dialogue
among the Department, its employees, and the Committee. Unfortunately,
that has not always been the case. For example, I was concerned that
the Committee found out about HUD's reorganization plan late last year
from outside parties. Even after finding out about it, the Department
was slow in briefing our staff on the new plans.
I am also concerned about the resistance from the Department with
regards to meeting requests for information from the General Accounting
Office. The Committee's oversight role is a serious responsibility; the
GAO is our partner in this job. HUD must be cooperative in providing
information as needed. I hope that the GAO witness, Mr. Czerwinski,
will address this very important issue.
Mr. Chairman, there are two other issues I want to raise briefly.
We have to make sure that all the old Intermediary and Outreach
Technical Assistance Grants (ITAG and OTAG) owed to small nonprofits
working with residents around the country are paid. We were assured by
the Secretary in February that these would be paid once it was
determined that no Anti-Deficiency Act violation occurred. In fact,
there was no violation, but, as of late last week, not all payments had
been made.
In addition, the Department should get the program up and running
again. The OTAG and ITAG programs are important tools in helping
assisted housing residents get organized to participate in the
restructuring or purchase of their projects. Without this technical
assistance money, residents will not be able to play the role forseen
for them by the Congress.
Finally, Mr. Chairman, I want to emphasize the importance of
getting the Office of Multifamily Housing Assistance Restructuring
(OMHAR) fully staffed up. This Committee moved in an expeditious
fashion to pass legislation to ensure that OMHAR and the Mark-to-Market
Program would be reauthorized, in no small part because the GAO
testified about the importance of maintaining the good staff that has
been put together. We also agreed to put the Office under the
supervision of the Assistant Secretary of Housing. However, we
maintained its distinctive and somewhat independent character and
authority in order to make sure that it could continue to do its work.
I am concerned that the OMHAR is being stifled in its
efforts to use its flexibility to retain and hire staff, and to get its
work done in a timely manner.
Once again, Mr. Chairman, thank you for holding this hearing. I
look forward to working with you and the leadership at HUD in ensuring
that the Department continues to improve its management, and the
delivery of its services.
----------
PREPARED STATEMENT OF ALPHONSO JACKSON
Deputy Secretary & Chief Operating Officer
U.S. Department of Housing and Urban Development
July 24, 2002
Chairman Reed, Ranking Minority Member Allard, and Subcommittee
Members, I thank you for the opportunity to appear before you today to
discuss HUD's staffing, acquisition management, and information systems
challenges. I am happy to provide you with an update of the substantial
progress our Administration is making to address these challenges.
Under the leadership of Secretary Martinez, the first year of our
new Administration was largely devoted to getting our management team
in place, assessing HUD's management environment, and formulating
viable strategies and plans to address the major management challenges
and program risks still facing the Department. In formulating our
strategies and plans, we strongly considered the input on HUD's
management challenges and program risks from the U.S. General
Accounting Office (GAO) and the HUD Office of Inspector General.
I believe our management team and the GAO share a common view that
improvements to HUD's management of its human capital, acquisitions,
and information systems are essential to addressing HUD's remaining
high-risk program areas--the Multifamily Rental Housing Assistance and
Single-Family Housing Mortgage Insurance Program areas--and to
maintaining adequate controls over other program activities previously
considered high-risk.
The inclusion of our management challenges and program risks in the
President's Management Agenda is indicative of the importance placed on
these issues. As part of GAO's Biennial Performance and Accountability
and High-Risk Series Review for 2003, HUD already has provided the GAO
with several reports that highlight our progress in addressing our
management challenges, including our implementation of the President's
Management Agenda. We welcome the GAO's independent assessment, and I
am confident that they will see that we are moving in the right
direction to address our management challenges, reduce our program
risk, and improve our program performance.
Human Capital Management
Human capital is HUD's most important asset. We have taken
significant steps to enhance and better utilize our existing staff
capacity, and to obtain, develop, and maintain the staff capacity
necessary to adequately support HUD's future program delivery.
Effective human capital management is the purview of all HUD
managers and program areas. We view our human capital management
challenges as consisting of: (1) The need for strategic Human Capital
Planning to link and align our staffing with our mission, goals, and
organizational objectives. (2) Staff shortages and skill gaps as a
result of downsizing initiatives during the 1990's. (3) A maturing
workforce with about half of the workforce eligible for retirement over
the next 5 years. (4) The need for increased use of technology to
support organizational improvements and accomplishment of goals and
objectives.
To meet these challenges, we have taken or we have planned a number
of significant actions.
Management and Staffing Realignments
The first issue I would like to address is the realignment of
management and staffing that the Department already has undertaken.
HUD's June 1997 management reform plans were intended to realign
the Department along functional lines, with the separation of outreach
from program administration, and the placement of greater reliance on
automated tools, processing centers and contracted services. These
planned reforms were intended to enable the Department to better
utilize a reduced staffing capacity to more efficiently and effectively
deliver and oversee HUD's major program activities.
We found that the planned organizational and operational changes
were implemented with varying degrees of success. Some of the intended
organizational and process changes were never formally
institutionalized with the need for delegations of authority and the
issuance of current written policies and procedures to support staff
training and ongoing operations. In addition, some of the 1997
organizational and staffing realignments have proven to be an
ineffective use of HUD's human capital.
As a result, decisions were made and actions taken to pursue
separate realignments of headquarters and field activities to better
use our existing resources. At headquarters, we reduced the reporting
relationships with the Secretary by 40 percent, including the following
actions:
The Departmental Enforcement Center (DEC) was placed under the
direction of the General Counsel to consolidate our legal resources
in support of a strong program enforcement effort. HUD's program
enforcement efforts were previously under the Office of General
Counsel prior to the creation of a separate DEC.
The Real Estate Assessment Center (REAC) was placed under the
direction of the Assistant Secretary for Public and Indian Housing
(PIH), in order to improve REAC's working relationships with
program staff and program partners and strengthen accountability
for resource use and results.
The Office of the Chief Procurement Officer (OCPO) and Office
of the Chief Information Officer (OCIO) were placed under the
direction of the Assistant Secretary for Administration/Chief
Information Officer, to streamline HUD's organizational structure
and improve service delivery to HUD's program and administrative
components. The former CIO is now HUD's Chief Technology Officer.
The Office of Field Policy and Management (FPM) was
established as an independent office reporting to the Deputy
Secretary, with responsibility for oversight of HUD's field
management and assistance to program Assistant Secretaries in
meeting program goals at the field office level.
Our field office realignment and redeployment efforts included the
following:
Substantial numbers of staff in the outreach function were
redeployed to understaffed program delivery and oversight
functions, where there is a critical need.
New regional management positions were created to give HUD's
field operations greater operational control over the
administrative budget resources they need to pursue their operating
and program goals, and to strengthen the local focus on workload
management to meet national performance goals.
All program decisions continue to be exercised by program
directors and managers under the direction of their respective
program Assistant Secretary.
We have formalized our realigned structure, with publication of
delegations of
authority in the Federal Register, and are providing current operating
policies and
procedures to support staff training and on-going operations. These
adjustments to HUD's operating structure will enable us to more
efficiently and effectively utilize our available resources to
strengthen our program delivery and oversight.
Human Capital Strategic Management Plan
A Human Capital Strategic Management Plan was developed in February
2002 to provide an overall framework for our human capital activities.
An important part of this plan is our Senior Executive Steering
Committee, chaired by the Assistant Secretary for Administration, which
is currently developing a 5-year plan to focus on: (1) staffing
requirements; (2) organizational de-layering; (3) supervisor to
employee ratios; and (4) front-line service delivery. This Committee
also will make recommendations regarding the need for new or revised
policy guidance to support the Department's new human capital
strategies.
Staffing Needs and Allocation of Resources
HUD's past management of its human capital was hampered by the lack
of a system or process for estimating and justifying its staffing
resource needs, and allocating the staffing resources available. In
2001, HUD completed the implementation of a new Resource Estimation and
Allocation Process (REAP), with input from all of HUD's managers. The
REAP was developed in conjunction with the National Academy of Public
Administration.
The baseline outputs of the REAP were used to assist in making
decisions on redeploying HUD's existing staff resources to address
priority program staffing needs in the field. The deployment of
resources in the prior Administration left us understaffed to perform
critical program delivery and oversight functions, while too many staff
were devoted to outreach efforts. REAP was useful in helping to
identify the critical staff shortages.
We are now in the process of completing the first quarterly
validation of the REAP staffing estimates through an assessment of
actual staff time reporting via the implementation of the companion
process to the REAP, the Total Estimation and Allocation Mechanism
(TEAM). REAP and TEAM information will help HUD's management determine
our staffing level request to Congress as part of our fiscal year 2004
budget.
Our fiscal year 2003 budget submission did not request the full
staffing levels supported by the REAP for several reasons. First, we
wanted to allow time for HUD managers to complete the initial TEAM
validation process and to further analyze REAP and TEAM data. TEAM was
not in place when the fiscal year 2003 budget was submitted to the
Congress. It has since been completed and is operational. Second,
although the REAP methodology supported a significant increase in
staffing requirements (with a total level of 10,600 FTE's), it was not
realistic to assume that the Department could implement that amount of
an increase at the same time that the redeployment of existing staff
was also taking place. Now that our redeployment of existing staff is
completed, we have turned our attention to expediting our hiring and
orientation processes to assure that we can fully utilize the staffing
ceilings
already approved by the Congress. This is the highest priority for our
new Assistant Secretary for Administration and Director of Personnel,
who were just recently added to our management team.
Succession Planning
HUD has developed a Departmental Succession Planning Strategy,
which includes procedures for workforce analyses. As a part of the
Department's Succession Planning Strategy, we examined the top nineteen
occupations in the Department in relation to continued need and
potential retirements over a 5-year period. An assessment was further
conducted in relation to HUD's four core program disciplines--in the
Office of Housing, Office of Public and Indian Housing, Office of
Community Planning and Development, and Office of Fair Housing and
Equal Opportunity--to assess the impact of potential losses over the 5-
year period, and resulting skills
imbalances. However, critical staffing needs exist throughout HUD's
programs and the focus will be on the entire Department. The
Presidential Management Intern Program (PMI), the new HUD Intern
Program, the Legal Honors Program, and the SES Candidate Development
Program (SES CDP) are being utilized to establish a pipeline of well-
qualified employees to meet staffing needs and anticipated skills
shortages.
Training and Development
Training and development of HUD employees is a Departmental
priority. The HUD Training Academy has been enhanced and energized to
move forward with a new vision for the Department's training program,
which is focused on investing in the power and potential of HUD
employees. Agency specific technical training and career advancement
training are readily available to all employees. Several other
initiatives are in place to build a new HUD culture, focused on the
value of training and continuous professional development. For example:
The new ``HUD Leadership and Management Curricula'' was
launched in April 2002, and features 38 courses, which provide a
comprehensive training program for supervisors, managers, and
executive leaders.
The ``Operation Brain Trust Initiative'' was launched in
December 2001 to utilize HUD's subject matter experts as
``Professors'' to develop the supervisors, managers, and
professionals of tomorrow through the experience of HUD's leaders
today.
The ``HUD Virtual University'' is a new ``e-learning''
initiative that provides on demand training, 24 hours a day--7 days
a week--365 days a year, with access to online technical coaches
and experts for a curriculum that includes 1,600 web-based courses
available at the desktop of every HUD employee.
HUD's Program Assistant Secretaries have also been focused on the
provision of updated program handbooks, guidance and training for HUD's
monitoring staff
and program intermediaries. These are further examples of our
commitment to
developing and to maintaining a competent HUD workforce and program
delivery
structure.
Technology Support
The Department is acquiring an integrated human resources and
training system entitled the HUD Integrated Human Resources and
Training System (HIHRTS). HIHRTS replaces 17 existing systems and will
support workforce planning, succession planning, forecasting, and
identification of staff competencies.
Performance Management
HUD had already been recognized for its progress in linking and
aligning its staffing with its mission, goals, and organizational
objectives, and we have continued and enhanced that process. Those
linkages are made in HUD's Budget Submissions and Annual Performance
Plans. We further use a management planning process that links field
office and headquarters operating goals and other performance goals
with the Department's strategic goals and objectives under the
Government Performance and Results Act. It is important that HUD's
managers and staff know their contributions to HUD's mission
objectives, and are held accountable for that performance. We assess
progress against our Management Plan goals quarterly, and annual
accomplishments are factored into staff performance evaluations and
awards.
Acquisitions Management
HUD is heavily reliant on contracted services in support of its
current operations. HUD's contracted services go well beyond facilities
maintenance and other routine services to many core program functions.
Given the extent and the significance of HUD's contracted services,
HUD's acquisition management challenges consist of: (1) Assuring that
our contract funding goes toward meeting our priority needs in a
cost-effective manner. (2) Committing sufficient business area
expertise to develop adequate statements of work to govern contractor
performance. (3) Maintaining a sufficient procurement capacity to
timely process quality procurement actions. (4) Providing adequate
oversight of contractor compliance and performance.
Our actions to address these acquisition management challenges
include the following:
Contract Management Review Board--The Department has
reestablished a senior-level Contract Management Review Board
(CMRB) to review and approve annual procurement plans for each HUD
component, and to approve all contract actions over $500,000. The
CMRB helps to assure that HUD's contract resources are used to
address the Department's priority service needs. The CMRB also
ensures the acquisition strategy is based on competition, is
performance-based to the greatest extent practicable, and treats
small businesses fairly and gives them a chance to compete.
Integrated Program Teams--The Department is increasing the use
of Integrated Program Teams (IPT's) to improve the quality and
timeliness of procurement actions. IPT's are groups of management,
technical, and contracting experts assembled to accomplish a
mission-critical procurement objective. HUD uses IPT's to plan the
acquisition strategy, establish the contracting milestones, develop
the statement of work, manage the contracting process through
contract award, and monitor the contractor's performance.
Performance-Based Contracts--One of the President's management
objectives is to increase the use of performance-based service
contracts to 20 percent of service contract awards in fiscal year
2002. HUD is fostering a partnership between its contracting and
program personnel to increase the use of performance-based service
contracts, and is providing classroom and ``just-in-time'' training
on the development of performance-based statements of work. In
addition, the Department has established an IPT--consisting of
information technology (IT), program, and contracting staff--to
convert existing IT systems development and maintenance contracts
to performance-based. These efforts are beginning to show results:
As of June 30, 2002, 16 percent of new service contracts were
performance-based.
Small Business Utilization--The Secretary and I recognize that
small businesses are vitally important to job growth and the
economic strength of the country. The Secretary has challenged HUD
to award 50 percent of its contract dollars to small businesses. To
achieve this demanding goal, the Department sponsors small business
fairs and other outreach programs to publicize HUD's contracting
and subcontracting opportunities. Through these and other efforts,
the Department is well on its way to achieving this goal. As of
June 30, 41 percent of fiscal year 2002 contract dollars have been
awarded to small businesses, and I am particularly pleased that
women-owned small businesses have accounted for 21 percent of the
Department's total fiscal year 2002 awards--far surpassing the 5
percent goal established by Congress.
Other Acquisition Improvement Efforts--HUD has hired a new
Chief Procurement Officer to lead our acquisition improvement
efforts. We have also approved a 50 percent increase in staff
resources devoted to contract award and administration and
increased training and development of the acquisition workforce as
required by the Clinger-Cohen Act.
These changes are collectively expected to improve both customer
service and contractor performance and to reduce the Department's
overall cost of operation.
Information Systems Management
Adequate automated information systems are essential to the
effective administration of HUD's large, diverse, and complex program
universe. However, we recognize that HUD has antiquated systems that
are poorly integrated, inefficient, and inadequate for meeting many
essential program management information needs. Most of HUD's systems
support is provided through contracted services.
HUD's major information systems challenges are to: (1) Properly
prioritize Information Technology (IT) capital investments to meet
HUD's most critical business needs. (2) Adequately plan systems
development to assure effective systems integration and operation. (3)
Provide sufficient business area support for the systems development
efforts. (4) Improve contractor performance and HUD's systems project
management. (5) Maintain a secure systems environment.
Our efforts to address these challenges include the following:
IT Capital Investment Planning
We have continued to refine and institutionalize HUD's IT
Investment Management (ITIM) Process. Efforts were taken to seamlessly
integrate HUD's ITIM, or IT capital planning process, with HUD's
Enterprise Architecture (EA) and e-Government directives from the
Office of Management and Budget, to better assure efficient resource
use and effective business results. The IT capital planning process was
enhanced to incorporate an EA assessment of proposed projects during
the selection of IT projects for upcoming fiscal years. The scoring of
initiatives is linked to HUD's e-Government Strategic Plan, the
President's Management Agenda, material weakness and high-risk issues,
and other Departmental priorities.
HUD is also pursuing a performance-based, outcome-oriented
infrastructure contract called HUD IT Services (HITS) that is expected
to provide improved services and innovative solutions. Award is
currently scheduled for November 2002. The
selected HITS vendor will partner with HUD to specify, design, acquire,
maintain, and support the IT infrastructure, ensuring that enterprise
architecture considerations, standards, and policies are followed.
Enterprise Architecture
HUD's Enterprise Architecture (EA) initiative is designed to
provide Department-wide documentation of HUD's current business and
technology systems architecture baseline, as a basis for both better
managing HUD's current information systems and better meeting future
information systems needs. HUD has recently completed a refreshment of
the baseline EA in the Enterprise Architecture Management System. The
EA team is completing work on the significant Single-Family Housing
segment of the target architecture for future systems development in
this high-risk
program area.
Project Management
We have taken actions to improve IT systems project management and
correct past problems of projects not being completed on time, cost
overruns, and unlimited project scope. Through the IT capital planning
process, HUD conducts quarterly control reviews of every IT project,
requiring projects with significant cost or schedule variances to
develop recovery plans to get back on track. HUD also provided IT
Investment and Project Management training to over 100 IT project
managers and plans to offer this training as an online course later
this year. HUD instituted project management reviews at the highest
levels to focus executive attention on projects needing direction. As
previously discussed, IPT's or Integrated Procurement Teams were
created to manage and implement the transition of IT support contracts
to performance-based contracts.
Systems Security
We established HUD's Enterprise Security Program to provide
protection for HUD's critical infrastructure, both physical and
information systems. This entails developing and implementing effective
security procedures, security awareness and training, disaster
recovery/contingency planning, and monitoring compliance and
effectiveness of security procedures, policies and standards.
Significant accomplishments have been made. The HUD Office of Inspector
General's audit of HUD's fiscal year 2001 Consolidated Financial
Statements recognized both substantial control improvements in HUD's
mainframe-computing environment, and considerable strides to improve
software configuration management for both mainframe and LAN-based
client/server applications. OCIO is responding to the Government
Information Security Reform Act through security self assessments,
developing and reporting on an overall HUD security plan, and providing
a strategic Five-Year Plan for Security.
As you can see, our efforts to meet HUD's human capital,
acquisitions, and systems challenges have been extensive. Our efforts
to better manage our staffing,
acquisitions, and information systems have a direct relationship to the
excellent progress we are making in addressing HUD's two remaining
high-risk program areas--our Multifamily Rental Housing Assistance and
Single-Family Housing Mortgage Insurance Program areas. We welcome the
pending independent assessment of our progress through the GAO's
biennial Government-wide review of major management challenges and
high-risk programs.
That concludes my testimony. I look forward to working with you to
address the continuing management challenges facing HUD, and I thank
you for your on-going support of the Department.
PREPARED STATEMENT OF STANLEY J. CZERWINSKI
Director, Physical Infrastructure
U.S. General Accounting Office
July 24, 2002
Mr. Chairman and Members of the Subcommittee: We are pleased to be
here today to discuss the high-risk program areas and management
challenges facing the Department of Housing and Urban Development
(HUD). HUD's programs affect the lives of millions of Americans. HUD
makes housing more affordable for about 4.8 million low-income
households by insuring loans for owners of multifamily rental housing
and providing rental assistance. It helps to revitalize America's
communities by assisting over 4,000 localities through its community
development programs. It encourages homeownership by providing mortgage
insurance for about 7 million homeowners who otherwise might not have
been able to qualify for their loans--managing about $500 billion in
insured mortgages and $604 billion in guarantees of mortgage-backed
securities. To accomplish its missions, HUD relies on the performance
and the integrity of thousands of mortgage lenders, contractors,
property owners, public housing agencies, communities, and others to
administer its
programs. Effective oversight and strong management are critical to
ensure that HUD's reliance on these third parties results in the
effective and efficient stewardship of Federal funds and the
accomplishment of the Department's mission and program goals.
For many years, HUD has been the subject of criticism for
management and oversight weaknesses that have made its programs
vulnerable to fraud, waste, abuse, and mismanagement. In 1997, HUD
undertook the 2020 Management Reform Plan, a complex and wide-ranging
effort designed to, among other things, refocus HUD's mission,
strengthen accountability, and eliminate fraud, waste, abuse, and
mismanagement from its programs. In January 2001, we recognized the
credible progress that HUD had made in improving its management and
operations, and we reduced the number of HUD program areas deemed to be
high-risk to two of its major program areas--Single-Family Mortgage
Insurance and Multifamily Rental Housing Assistance.\1\ These program
areas comprise about two-thirds of HUD's budget. The current
Administration has placed improving HUD's management among its highest
priorities and has set a goal to remove the high-risk designation from
all HUD programs by 2005. This is therefore an appropriate time to
review HUD's progress
toward addressing these high-risk program areas and the challenges it
faces in sustaining the progress that has been made as HUD moves toward
its goal to become a high performing Agency that provides quality
service to its customers.
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\1\ U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Housing and Urban Development, GAO- 01-248
(Washington, DC: January 2001).
---------------------------------------------------------------------------
My testimony today discusses the major management challenges we see
facing HUD, as well as the progress HUD has made over the past few
years addressing its challenges, and the steps it is continuing to take
to address them. First, my testimony discusses the challenges HUD faces
improving accountability and control over its high-risk program areas.
Second, it addresses the challenges that HUD faces that cut across all
its program areas--especially its efforts to improve accountability and
control over its high-risk program areas--in the areas of: (1) managing
human capital, (2) managing acquisitions, and (3) improving
programmatic and financial management information systems. My testimony
today draws on a body of work, including recent reports we have issued
on various HUD programs, our work on HUD's Human Capital Management
that is being released today at this hearing,\2\ our assessment of
HUD's strategic and performance plans, and a series of assignments we
have ongoing at the request of this Subcommittee. It also draws on work
we have done on management reform initiatives and performance-based
organizations across both the Federal and private sectors. In summary:
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\2\ U.S. General Accounting Office, HUD Human Capital Management:
Comprehensive Strategic Workforce Planning Needed, GAO-02-839
(Washington, DC: July 24, 2002).
HUD's Single-Family Mortgage Insurance and its Multifamily
Rental Housing Assistance Program areas are at high-risk of waste,
fraud, abuse, and mismanagement. In January 2001, we reported that,
while HUD had made credible progress addressing its management
deficiencies, significant weaknesses in these two program areas
remained--areas comprising about two-thirds of the Department's
budget. To correct weaknesses in its Single-Family Mortgage
Insurance Programs, we reported that HUD needed to improve, among
other things, its oversight of lenders and appraisers. To ensure
the integrity of its Multifamily Rental Housing Assistance
Programs, HUD needed to take actions, including ensuring that
providers of rental housing maintain housing that is in decent,
safe, and sanitary condition. The President's Management Agenda
contains initiatives to address these and other weaknesses; and HUD
has developed plans, including goals and timetables, for taking
action on them. In addition to our ongoing reviews of HUD's
programs, we plan to review these plans and monitor HUD's progress
in the months ahead. We will report on the results of our review in
January 2003, when we will assess HUD's progress as part of our
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Performance and Accountability and High-Risk Series update.
Human Capital Management--and the need for a strategic
approach to managing HUD's staff--is the most pressing crosscutting
management challenge facing HUD. HUD downsized its staff from about
13,500 to 9,000 over the last decade, and its human capital
challenges are exacerbated by demographics that suggest that by
August 2003, about half of its professional workforce will be
eligible to retire. HUD has begun the initial stages of workforce
planning; it has completed its resource estimation and allocation
process, which estimates the staff needed to handle the current
workload in each office, and a detailed analysis of HUD's potential
staff losses due to retirement. However, the Department does not
have a comprehensive workforce plan. Elements that we have reported
are necessary for comprehensive workforce planning--but are missing
from HUD's workforce planning--include, among other things, an
analysis of what work its staff should be doing; the knowledge,
skills, and abilities needed by the staff to do this work;
the appropriate staff deployment across the organization, and the
strategies for
identifying and filling gaps. Without more comprehensive workforce
planning, HUD is not as prepared as it could be to recruit and to
hire staff needed to pursue its mission.
Effective acquisition management is of increasing importance
because, as HUD downsized its staff, it relied more and more on
outside contractors to accomplish its mission. Over a 4-year period
HUD's spending on outside contracting increased about 62 percent,
and HUD officials have estimated that the total number of
contractor staff assisting in delivering HUD services may nearly
equal its own. HUD has made progress in the past few years
improving its acquisition management practices; but it faces the
challenge of ensuring that, where it relies on contractors to
perform its mission, it will hold these contractors accountable for
results. Successfully meeting that challenge affects the successful
delivery of HUD's programs, the effective deployment of its staff,
and its ability to ensure the integrity of its Single-Family and
Multifamily Rental Housing Assistance Programs. Holding the
contractors accountable for results requires processes and
practices in place to effectively monitor contractors' performance,
an acquisition workforce with the right workload, training, and
tools to carry out its mission, and programmatic and financial
management information systems that support HUD's
efforts to ensure accountability in its acquisitions.
Responsive programmatic and financial management information
systems are critical to HUD's ability to meet its mission, deliver
key services, and establish sufficient management control over its
programs and operations. Concerns about the weaknesses in HUD's
programmatic and financial management information systems are not
new--we first reported some of HUD's current problems in 1984--and
our recent work shows that these weaknesses continue to adversely
impact the Department's ability to monitor and effectively ensure
the integrity of its Single-Family Mortgage Insurance and
Multifamily Rental Assistance Programs. For example, to oversee
lenders in HUD's Single-Family Mortgage Insurance Program, staff at
the Department's Homeownership Centers must collect and manually
compile information from multiple systems to target high-risk
lenders--increasing the likelihood that problems will go unnoticed.
In addition, concerns about the ability of HUD's financial
management systems to effectively support the timely preparation
and audit of the Department's annual financial statements are long-
standing; and as of today, HUD is still in the early stages of
developing a plan for resolving them. Accordingly, developing a
plan to substantially improve programmatic and financial management
information systems to meet the Department's needs and comply with
Federal financial system requirements is crucial to HUD's efforts
to successfully address its high-risk program areas.
HUD's High-Risk Areas: The Single-Family Mortgage Insurance and
Multifamily Rental Housing Assistance Programs
HUD's Single-Family Mortgage Insurance and its Multifamily Rental
Housing Assistance Program areas, comprising nearly two-thirds of the
Department's budget, are at high-risk of waste, fraud, abuse, and
mismanagement.\3\ In January 2001, we reported that, various factors,
including a strong economy, had resulted in the accumulation of capital
reserves of about $16.6 billion on HUD's Federal Housing Administration
(FHA)-insured home loans. However, we also reported that the FHA lost
about $1.9 billion during fiscal year 2000 on the sale of foreclosed
homes that it had insured. In addition, we found other problems with
HUD's management of its single-family program. For example, HUD was
experiencing significant problems with the performance of contractors
responsible for maintaining and selling the single-family properties
HUD acquires through foreclosure. We found most of these contractors
had trouble securing and maintaining properties in proper condition--
and HUD eventually terminated the contractor responsible for about 40
percent of the properties. If HUD's acquired properties are not
properly secured and maintained, they can contribute to a
neighborhood's decay, particularly as they age.
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\3\ GAO - 01-248.
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Overall, we identified several opportunities wherein HUD could
strengthen FHA's Single-Family Mortgage Insurance Program, including
strengthening the integrity of the single-family loan origination
process, promoting better monitoring of lenders, appraisers, and
contractors, and implementing effective human capital policies to
ensure that sufficient staff with the right skills are available to
carry out the FHA's mission.
For HUD's Multifamily Rental Housing Assistance Programs, we noted
that HUD continued to face challenges in ensuring that only eligible
families occupy housing units; that those families are paying the
correct rents; and that providers of rental housing maintain housing
that is in decent, safe, and sanitary condition. More recently, we have
reported that HUD's field offices frequently did not follow the
Department's procedures for ensuring that owners of HUD-assisted
multifamily properties are correcting physical deficiencies identified
in inspections by HUD's Real Estate Assessment Center (REAC). Our
analysis focused on approximately 500 properties that REAC determined
were in substandard condition and that HUD's field offices subsequently
classified as repaired. On the basis of our site visits to a sample of
these properties, we estimated that for about half of the properties
covered by our analysis, at least 25 percent of the deficiencies that
REAC classified as ``major'' or ``severe'' had not been corrected. This
problem occurred because HUD staff were classifying the properties as
repaired, without obtaining required repair plans and certifications of
repairs from the owners and because some owners and managers reported
completing repairs that had not been made.\4\
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\4\ U.S. General Accounting Office, HUD Multifamily Housing:
Improved Follow-up Needed to Ensure That Physical Problems Are
Corrected, GAO - 01- 668 (Washington, DC: June 21, 2001).
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Overall, our January 2001 report concluded that, to address this
high-risk area, HUD must continue its efforts to develop adequate
information systems that ensure that: (1) correct rental housing
subsidies are paid and (2) complete actions on our recommendations
aimed at improving the quality of contractors' physical inspections of
the condition of public and multifamily housing.
HUD has been addressing its high-risk challenges and the
recommendations of our earlier reports. HUD's 2020 Management Reform
Plan has resulted in major changes throughout the Department as it
worked to resolve its management challenges. In reviewing the progress
of the plan in October 2001, we noted that some of HUD's initiatives
were achieved relatively quickly and are producing results.\5\ For
example, the consolidation of some of its oversight and processing
functions into
several new centers--as part of HUD's efforts to consolidate and
streamline its operations--had perhaps been the most successful. The
new REAC enabled HUD to complete the first physical and financial
assessments of its assisted housing inventory, while HUD reported that
the creation of its Departmental Enforcement Center resulted in the
restoration of 41,344 housing units to decent, safe, and sanitary
conditions in fiscal year 2000, compared with 968 in fiscal year 1999.
Other efforts to improve the efficiency of HUD's operations and
improving accountability, met with more limited success, and were
hampered by inefficient distribution of staff and
of workload, a lack of resources for program monitoring, problems with
contractor
performance and its oversight of contractors, and weaknesses in
programmatic and financial management information systems.
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\5\ U.S. General Accounting Office, HUD Management: Progress Made
on Management Reforms, but Challenges Remain, GAO - 02-45 (Washington,
DC: October 31, 2001).
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The current Administration took office in January 2001, saying it
was dedicated to maintaining HUD's progress, and placing improved
management among the Department's highest priorities. Eighteen months
ago, Secretary Martinez came before this Committee and said:
``My first priority will be for HUD to continue to put its
own house in order, so we have the institutional fortitude to
provide the housing and community renewal opportunities needed
by so many families and so many neighborhoods. The Department
of Housing and Urban Development must be healthy itself, if we
are to deal with the challenges before us. And while former HUD
Secretaries Kemp, Cisneros, and Cuomo have built a foundation
for strength, there are a great many areas of institutional
weakness that must be addressed. GAO and the HUD Office of
Inspector General have identified similar program and
management areas needing the most improvement, including: The
Federal Housing Administration's single-family mortgage
insurance risk; the impact and continuing evolution of HUD's
2020 management reform effort; and the failure to integrate
financial and information systems.''
According to HUD's most recent performance plan, the Department is
using our reports and those of its Inspector General as a ``roadmap''
for making management improvements. In August 2001, the Administration
unveiled the President's Management Agenda, including a set of HUD-
specific initiatives to strengthen management of HUD's programs by,
among other things, improving FHA's management of risks throughout the
mortgage insurance process, improving the performance of public housing
agencies and providers of multifamily housing, and reducing overpaid
rent subsidies. The plan contained specific goals and timetables to,
for example, eliminate most if not all fraud in the appraisal process,
increase the percentage
of HUD-assisted public housing units meeting physical standards, and
reduce over-
payment of rent subsidies by at least one-half. The plan also
establishes a goal of removing our high-risk designation from all HUD
programs by 2005.
To further its efforts to improve its management, HUD also recently
undertook a series of organizational realignments. According to HUD,
these efforts are designed to streamline its organization, establish
clear lines of responsibility and reporting, and more effectively
administer its programs. One of the more prominent realignments
involved moving HUD's REAC, responsible for physical and financial
inspections of public housing and assisted multifamily properties. The
REAC, which formerly reported to the Deputy Secretary, now reports to
the Assistant Secretary for Public and Indian Housing. In addition, the
Department's Enforcement Center, which formerly reported to the Deputy
Secretary, now reports to HUD's General Counsel. Similarly, the Chief
Procurement Officer, which formerly reported to the Deputy Secretary,
now reports to the Assistant Secretary for Administration. In
addition, Regional Directors in the field have been given additional
discretion to
redeploy staff to address workload imbalances. According to HUD
officials, to more
effectively administer HUD's programs, other centers and offices are
being studied
for elimination or consolidation.
As I discussed earlier, clearly the creation of the REAC and the
Enforcement Center, to name two, were positive developments that
yielded real results.\6\ And it is worth noting that at the time HUD
established these centers, it did so because it believed that the
Office of Public and Indian Housing and the Office of Housing--the
offices within HUD that were originally responsible for these
activities--were not effectively carrying out these functions. The
Secretary, as the leader of his organization, has the prerogative to
align the organization as he sees fit, consistent with his vision and
management style. But it is important that the progress made to date
not be jeopardized. For example, regardless of how REAC is aligned, HUD
must continue to make progress improving the physical condition of
public and assisted multifamily housing properties. Ultimately the
success or failure of any organizational decision will be viewed in
that light.
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\6\ HUD's 2020 Management Reform Plan created several new centers
to consolidate, among other things, HUD's single-family mortgage
insurance activities, Section 8 program financial management support,
and the processing, reviewing, and awarding of categorical and formula
grants for the Office of Public and Indian Housing. These centers were
discussed in greater
detail in our October 2001 report.
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We are now beginning to address these realignment issues as we
assess the progress HUD and other Federal Agencies have made as part
our Performance and Accountability and High-Risk Series. In making our
determination of high-risk at HUD and other Federal agencies, we will
consider the corrective measures that agencies have planned or have
underway to resolve their management challenges, as well as the status
and effectiveness of these actions. Some of the key factors we will
consider in making our high-risk determination at HUD include the
extent to which HUD has demonstrated commitment to resolving its
management deficiencies, strengthened controls to address its
management deficiencies, proposed appropriate corrective action plans
for its remaining management challenges, implemented effective
solutions that will be substantially completed in the near term, and
implemented solutions that get to the root cause of its management
deficiencies.
We will review the current status of HUD's Single-Family Mortgage
Insurance and its Multifamily Rental Housing Assistance Program areas
and the actions taken to address weaknesses. At that time, the Agency
must have demonstrated concrete results, with a clear path toward
addressing any remaining problems. To conduct our assessment of high-
risk, we will review, among other things, HUD's strategic plans, annual
performance plans and reports, accountability reports, and audited
financial statements. This information will be supplemented by relevant
GAO reports, Inspector General reports, and other independent analysis.
Finally, the ultimate determination will be based on the independent
and objective judgment of GAO analysts.
HUD Faces Crosscutting Management Challenges
As HUD works to improve accountability and control over its high-
risk program areas, it will find that it faces several issues that cut
across its efforts to improve its programs. I would like to turn now to
these management challenges and discuss with you, HUD's progress and
challenges in the areas of: (1) human capital management, (2)
acquisition management, and (3) programmatic and financial management
information systems. Successfully addressing these challenges will help
determine whether HUD can sustain the progress of its management reform
efforts, address its high-risk program areas, and make progress toward
its goal of becoming a high-performing organization.
Human Capital Is The Most Pressing Management Challenge Facing HUD
Human capital permeates virtually every effort to improve HUD's
programs, including its ability to oversee the performance of housing
authorities and property owners, acquire needed systems, and
successfully execute and monitor contracts. Insufficient staffing and
inefficient distribution of workload affects HUD's ability to operate
efficiently and ensure the accountability of its programs. It increases
HUD's need to hire contractors to perform activities and affects its
ability to oversee contractors and hold them accountable for
performance. HUD has the opportunity to develop a strategic human
capital management approach to ensure that the Department has the right
staff in the right numbers with the right skills in the right places
and that HUD can continue to meet its mission and goals in the future
as large numbers of experienced employees retire. As we have previously
reported,\7\ a comprehensive workforce plan should be linked to the
accomplishment of an
Agency's mission and include the following elements:
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\7\ GAO - 02- 45.
The kind of work its staff should be doing now and in the
future.
The knowledge, skills, and abilities needed by staff to do
this work.
The capabilities and developmental needs of the current staff.
The appropriate staff deployment across the organization.
Any gaps that exist in knowledge, skills, and abilities.
An approach for filling the gaps in the knowledge, skills, and
abilities of staff through recruiting and hiring.
While HUD has begun to do workforce planning by identifying the
resources required to do its current work, the Department does not have
a comprehensive workforce plan. HUD's most significant workforce
planning activity to date has been its Resource Estimation Allocation
Process (REAP). The purpose of REAP was to systematically estimate the
number of employees HUD needs to do its work based on its current
workload and operations and HUD used the results to estimate staffing
level ceilings for the Department's fiscal year 2003 proposed budget.
HUD's workforce planning effort is currently focused on responding to
major human capital deficiencies that the Office of Management and
Budget identified in a 2001 evaluation conducted as part of the
President's Management Agenda. This effort is focused on specific
initiatives, such as reducing the number of HUD managers and
supervisors, and does not consider many of the elements that we have
endorsed as necessary for comprehensive workforce planning.
In the absence of a comprehensive workforce plan, HUD faces myriad
human capital challenges ensuring that it has the right mix of staff
with the requisite knowledge, skills, and abilities appropriately
deployed across its organization. In July 2001, we reported that HUD's
Homeownership Centers, responsible for carrying out FHA's Single-Family
Mortgage Insurance Program, faced staffing and workload imbalances and
lacked an adequately standardized training curriculum. It also faced
skill mix difficulties--for example, managers at the Centers said that
it was a challenge for their staff to shift from performing insurance
endorsements and property disposition activities to monitoring
contractors that now do this work for HUD. In our survey of HUD
managers for our January 2001 report, over 70 percent stated that staff
training needed to be increased in the areas of information systems,
technical skills, and other areas.
Without a comprehensive workforce plan, the Department will not be
as prepared as it could be to recruit and hire staff needed to pursue
its mission. During the 1990's, HUD underwent considerable downsizing,
reducing its staff from around 13,500 to about 9,000 by March 1998. The
need to recruit and hire is exacerbated by the upcoming wave of
potential retirements that HUD faces. More than 80 percent of HUD's
workforce is in the core professional grades--GS 9 through 15; and, by
August 2003, half of this workforce will be eligible to retire. HUD has
done little outside hiring in the last decade and some vacant positions
have gone unfilled while others have been filled through lateral
transfers, promotions, or the upward mobility of administrative staff
into professional positions. HUD is delegating more hiring authority to
its regional directors and has established an internship program that
may help address some staffing shortages. However, the internship
program is in the early stage of its development and does not address
the needs for hiring at the mid-level ranks of Government that could be
disproportionately affected by the impending wave of potential
retirements.
Acquisition Management Challenges Remain
A second crosscutting challenge area for HUD is its management of
acquisitions. As you know, Mr. Chairman, by design HUD relies on the
performance and integrity of thousands of intermediaries such as
mortgage lenders and public housing agencies to fulfill its mission.
But as HUD has downsized its own staff over the past few years, its
reliance on private contractors has increased substantially. This
reliance, as measured by contracting obligations, grew by more than 62
percent from fiscal year 1997 to fiscal year 2000; and HUD officials
have estimated that the total number of contractor staff assisting in
delivering HUD services may nearly equal its own. As a result,
effective management of acquisitions is crucial to HUD's success in
meeting its mission and addressing its high-risk Single-Family Mortgage
Insurance and Multifamily Rental Housing Assistance Program areas.
Ineffective oversight of contractors adversely effects HUD's ability to
carry out its mission and to deliver key services and exposes HUD's
programs to the additional risk of fraud, waste, abuse, and
mismanagement. HUD faces the challenge of ensuring that, where it
relies on contractors to perform its mission, it will hold these
contractors accountable for results. Holding the contractors
accountable for results requires processes and practices in place to
effectively monitor contractors' performance, an acquisition workforce
with the right workload, training, and tools to carry out its mission,
and programmatic and financial management information systems that
support HUD's efforts to ensure accountability in its acquisitions.
HUD has undertaken a number of actions over the past few years to:
(1) improve the processes and practices in place to effectively monitor
contractors' performance, (2) improve the training and professional
development of it acquisition workforce, and (3) improve its
contracting information systems. While progress has been made, our
recent and ongoing work suggests that HUD is still experiencing
difficulties in each of these areas and thus faces continued challenges
in its ability to hold contractors accountable for results. For
example:
To improve monitoring, HUD provided guidance to its employees
to incorporate more systematic methods into its monitoring efforts,
including the use of risk-based assessments to focus HUD's staff
efforts. In fiscal year 2000--around $600 million of the almost
$1.3 billion in contracts were for contracts supporting HUD's
single-family and multifamily housing programs. On the single-
family side, we have reported numerous problems over the past few
years in HUD's oversight of its contractors handling the marketing
and management of HUD's single-family properties,\8\ as well as
those performing oversight of lenders and appraisers.\9\ More
recently we have been examining property management contracts in
HUD's multifamily housing program. From our ongoing work, it
appears that few of
the staff overseeing HUD's multifamily housing program property
management
contracts use monitoring plans or employ risk-based strategies to
determine the
necessary level and frequency of monitoring. We have observed that
oversight and monitoring of contractors are largely remote--
consisting mainly of e-mails, telephone calls, and reviews of
contractors' progress reports--and site visits to properties by HUD
staff do not occur routinely. Our ongoing work indicates that,
absent a systematic approach to monitoring and with a limited
amount of on-site monitoring occurring, HUD's ability to
effectively monitor contractors' performance and identify and
correct problems may be limited.
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\8\ U.S. General Accounting Office, Single-Family Housing: Stronger
Measures Needed to Encourage Better Performance by Management and
Marketing Contractors, GAO/RCED-00-117 (Washington, DC: May 12, 2000).
\9\ U.S. General Accounting Office, Single-Family Housing: Stronger
Oversight of FHA Lenders Could Reduce HUD's Insurance Risk, GAO/RCED-
00-112 (Washington, DC: April 28, 2000); U.S. General Accounting
Office, Single-Family Housing: Weaknesses in HUD's Oversight of the FHA
Appraisal Process, GAO/RCED-99-72 (Washington, DC: April 16, 1999).
To improve the training and professional development of its
acquisition workforce, among other things, HUD created full-time
Government Technical Representatives (GTR) \10\ to help oversee
contracts, provided this staff with new training, and required that
their training and qualifications be formally certified. However,
HUD's progress in strategically managing its acquisition workforce
has been slow. For example, we recently learned that HUD's managers
were not aware of 143 staff members who were performing the GTR
function and had not received the appropriate training. Our work
suggests that HUD's training records are poorly maintained, making
it difficult for its managers to know which staff have received
training and thus where to focus scarce resources. HUD has not yet
used the results of its REAP study to remedy disparities that it
has identified in the contracting workload within the Office of the
Chief Procurement Officer, and a plan to identify critical skills
and career paths for its acquisition workforce has been in draft
for over 2 years. Like HUD's overall human capital challenges,
HUD's ability to hold its contractors accountable for performance
depends, in no small part, on its success in building an
acquisition workforce with the right workload, training, and tools
to carry out HUD's mission.
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\10\ The Government Technical Representative acts as the
Contracting Officer's representative concerning the technical and
performance aspects of a contract. He or she is responsible for
ensuring that the contractor is using the most efficient and cost-
effective methods and is also the principal judge of contractor
performance, including the quality and timeliness of work and products.
To improve its contracting information systems HUD implemented
a single system--HUD's Procurement System--to track contract
obligations, milestones, and contractor performance. However, our
ongoing work suggests that this System does not adequately support
HUD's managers or acquisition workforce because the data it
contains are not complete, accurate, or consistent. As a result,
Mr. Chairman, staff overseeing contractors in HUD's multifamily
program reported relying primarily on spreadsheets and other
informal systems they have created and maintained in order to
monitor contract milestones and task orders. These informal systems
are not subject to HUD's internal controls, audits, information
security protocols, or other standards and thus expose HUD's
contract activity to
internal control weaknesses and the potential for waste, fraud,
abuse, and mismanagement. In addition, HUD's managers do not have
reliable information on the number of active contracts it is
managing or the amount of funds that have been obligated for them,
and cannot readily determine how much money HUD has spent overall
on its contracting activities. Finally, performance data that would
assist in evaluating contractor performance is not systematically
tracked in HUD's Procurement System, although the System allows
such activity. HUD's ability to manage and monitor its acquisition
activities is limited by weaknesses in its programmatic and
financial management information systems, which are needed to
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ensure accountability in its acquisitions.
At this Subcommittee's request, Mr. Chairman, we are continuing our
work on HUD's acquisition management and will be reporting to you on
the results of this work in September 2002. We are examining potential
improper payments at HUD, including in its multifamily housing
acquisition activities, and will be issuing our report on this subject
later this year.
Programmatic and Financial Management Information Systems Challenges
Are of Long-Standing and Continuing Concern
Finally, Mr. Chairman, the effectiveness of HUD's programmatic and
financial management information systems continue to raise concerns.
Responsive programmatic and financial management information systems
are critical to HUD's ability to meet its mission, deliver key
services, and establish sufficient management control over its programs
and operations. As our work has shown, ineffective programmatic and
financial management information systems adversely impact HUD's
programs and operations and its staff 's ability to effectively monitor
its programs, recipients, and contractors. They also limit HUD's
ability to collect accurate information to report on program results
and effectively manage its operations. Concerns about the ability of
HUD's financial management systems to effectively support the timely
preparation and audit of the Department's annual financial statements
are long-standing, and as of today, HUD is still in the early stages of
developing a plan for resolving them. Accordingly, developing a plan to
acquire and implement programmatic and financial management information
systems that meet the Department's needs and comply with Federal
financial system requirements is crucial to HUD's efforts to
successfully address its high-risk program areas.
Mr. Chairman, concerns about the effectiveness of HUD's
programmatic and financial management information systems are not new.
We have reported that HUD lacks the programmatic and financial
management information systems necessary to ensure accountability over
its programs since 1984. This February, for the eleventh year in a row,
HUD's Inspector General cited the lack of an integrated financial
management system in compliance with Federal financial system
requirements as a material weakness in its audit of the Department's
financial statements. HUD is aware that its programmatic and financial
management information systems pose serious challenges and has taken
steps to address them. For example, HUD has undertaken extensive
efforts to modernize both HUD's and FHA's programmatic and financial
management information systems, improve financial reporting, institute
a more rigorous planning and review process over its information
technology capital investments, and bring FHA's systems into compliance
with Federal financial systems requirements. HUD is preparing to obtain
contractor assistance to help analyze its current status and develop
plans for improving the Department's financial management systems and
providing the needed support to its programs.
Our recent work and that of the Department's Inspector General has
shown however, that despite efforts to improve its programmatic and
financial management information systems, serious challenges still
exist. HUD's systems do not today fully support its programs--including
its Single-Family Mortgage Insurance and Multifamily Rental Assistance
Programs--nor effectively support the timely preparation and audit of
the Department's annual financial statements. For example:
To oversee lenders in HUD's Single-Family Mortgage Insurance
Program, staff at the Department's Homeownership Centers must
collect and manually compile information from multiple systems and
sources in order to target high-risk lenders for review and to
identify and investigate potential fraud cases. As we reported in
October 2001, this creates a greater risk of error and increases
the likelihood that problems will go unnoticed.\11\
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\11\ U.S. General Accounting Office, Single-Family Housing: Current
Information Systems Do Not Fully Support the Business Processes at
HUD's Homeownership Centers, GAO - 02- 44 (Washington, DC: October 24,
2001).
To review and approve applications for mortgage insurance on
multifamily properties, HUD uses, in some cases, an expedited
process where lenders, rather than HUD, underwrite the loans.
However, our ongoing work on HUD's Multifamily Accelerated
Processing Program suggests that HUD's system for tracking the
status of multifamily loan applications does not allow it to
reliably track and record several key processing steps in the
accelerated approval process. As a consequence, HUD's field staff
develop and maintain spreadsheets and other informal systems to
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monitor the status of HUD's actions.
HUD's efforts to ensure that only eligible families occupy
housing units and that those families pay the correct rents--a key
component of its strategy to address its high-risk program areas--
were, according to HUD's Inspector General, impeded by limitations
in its information systems. In particular, the Inspector General
reported that the lack of complete, current, consistent information
on tenants and rents limited HUD's ability to effectively conduct
computerized income matching--a strategy that has been used to
identify and deter tenants who underreport their incomes and to
address some of the causes of the estimated $2 billion in
overpayments and errors on rent subsidy calculations. For this and
other reasons, the Inspector General raised concerns about the
effectiveness of HUD's income matching program.\12\
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\12\ Office of Inspector General, Audit of U.S. Department of
Housing and Urban Development (HUD) Financial Statements for Fiscal
Years 2001 and 2000, 2002-FO - 0003 (Washington DC: February 27, 2002).
HUD continues--due in large part to deficiencies in its
financial management systems--to rely on extensive ad hoc analyses
and special projects to develop account balances and necessary
disclosures for the Department's annual financial statements,
according to HUD's Inspector General. These extensive efforts
indicate that HUD's financial management systems cannot currently
provide the day-to-day information needed by its managers to
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effectively manage and monitor the Department's programs.
HUD needs high-quality software for the systems it uses to
support its financial management needs, as well as its Single-
Family Mortgage, Multifamily Rental Housing Assistance, and other
program needs. In September 2001, we reported that HUD's success or
failure in acquiring software depends largely on specific
individuals, rather than on well-defined and disciplined software
acquisition management practices. Until this is strengthened, HUD
is exposed to a higher risk that software intensive acquisition
projects will not consistently meet mission requirements, perform
as intended, or be delivered on schedule and within budget.\13\
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\13\ U.S. General Accounting Office, HUD Information Systems:
Immature Software Acquisition Capability Increases Project Risks, GAO -
01-962 (Washington, DC: September 14, 2001).
Mr. Chairman, we are continuing to review HUD's progress in
improving its financial management systems and plan to report to you on
these issues by December 2002.
In conclusion, Mr. Chairman, HUD's management reform efforts over
the past few years resulted in major changes throughout the Department
as it worked to resolve its management challenges. HUD has been moving
forward over the past few years and has made credible progress, and the
current Administration has reaffirmed an emphasis on and commitment to
improving management at the Department. However, despite this progress
and renewed commitment, HUD still faces considerable challenges in
ensuring that its continuing management reform efforts will amount to
the sustainable improvements in performance needed to resolve
weaknesses in its high-risk program areas. Successfully addressing the
crosscutting challenges in the areas of human capital, acquisition
management, and programmatic and financial management information
systems can help determine whether HUD can sustain the progress it has
made, meet its challenges, and make progress toward its goal of
becoming a high-performing organization.
This concludes my prepared statement. I will be happy to respond to
any questions you or the other Members of the Subcommittee may have.
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PREPARED STATEMENT OF CAROLYN FEDEROFF
President, American Federation of Government Employees
AFL-CIO, Council of HUD Locals, 222
July 24, 2002
Chairman Reed and Subcommittee Members, my name is Carolyn
Federoff, and I am President of the American Federation of Government
Employees, Council of HUD Locals. We represent approximately 6,500
bargaining unit employees throughout the Department of Housing and
Urban Development. Thank you for providing us with an opportunity to
present the views of HUD's employees on those areas that GAO continues
to identify as ``high-risk,'' including HUD's staffing crisis and its
oversight of HUD's contractors.
In addition to gathering input directly from HUD's employees, we
have also reviewed GAO's reports on HUD's designation as ``high-risk''
and the Government-wide human capital management crises. Our testimony
is presented in two parts, the first focusing on human capital
management, and the second on HUD's oversight of its contractors in the
single-family and rental housing assistance programs. Nonetheless, it
should be noted that we believe that GAO's focus on improvements
needed in the single-family and rental housing assistance programs is
integrally related to and exacerbated by HUD's Human Capital
Management.
Summary
Because of the impending retirement of the Baby Boom generation,
every American employer faces the potential for a human capital crisis.
HUD, however, faces a crisis imposed by both demographics and politics.
Both Agency management and Congressional critics have, in their turn,
starved the Agency for needed staff. HUD programs are designed to be
implemented and to operate over long periods of time--in FHA programs,
an average of 30 to 40 years. These time periods exceed the normal
career span of most workers. Setting these programs in motion
necessitates a commitment to ensure quality staff will be available
over the life of the program. Additionally, it is unacceptable to
merely plan to contract the work out; contractors still need quality
oversight by employees who are familiar with the program from inception
to close.
HUD will need to recruit. But it will also have to work hard to
retain the employees on board. The results of a recent Office of
Personnel Management survey reveal a HUD workforce whose morale is
generally below that of their private sector counterparts. Only 47
percent of responding employees are satisfied with the organization,
compared to 63 percent in the private sector. Issues fueling
dissatisfaction include lack of involvement with decisions affecting
work, lack of information received from management and lack of training
received for the job. (See attached copies of HUD intranet.)*
We offer the following recommendations to help HUD meet its
staffing challenges and its obligation to preserve the public trust:
The Agency has averaged 300 FTE below ceiling for the last
several years. Rather than taking the staff away, Congress must
insist that ceiling be met.
The Agency contracts out because of a lack of staff and
without regard to cost. Congress should insist that the Agency only
contract out when it is cost-effective and will provide equal or
better service. Congress must also provide budget authority to hire
more staff when it is cost-effective, and should reject arbitrary
contracting out quotas.
The Agency largely eliminated its Human Resources capacity in
the field in 1995. Lack of access to Human Resources professionals
adversely impacts field managers and supervisors. This staff should
be restored.
HUD's Human Resources staff is overly bureaucratic, failing to
explore innovative ways to recruit and retain staff. The Agency
needs to empower Human Resources staff to find solutions, not
roadblocks.
HUD has little or no data about its staff--it cannot provide
retention data for past intern programs, nor even provide a
quarterly list of employees being hired into or leaving the
bargaining unit. It needs to restore its ability to retrieve hard
staffing data on a monthly basis.
The Agency is currently relying of interns to meet hiring
needs. These interns are on 2-year appointments. Although the
Agency has verbally expressed an intent to extend permanent
positions to these employees, most will feel compelled to look for
other jobs in the last year of their appointment, because of
student loan debt. To retain these employees, the Agency should
extend permanent positions to the interns after 1-year (the
standard probationary time period for new employees).
To help recruit and retain staff, the Agency should negotiate
with the union for quality programs such as loan forgiveness and
child care subsidy, and effectively implement programs already
negotiated such as telecommuting.
We are pleased to testify that Secretary Martinez, through Deputy
Secretary Jackson, has worked with us on several of these issues. He
has expressed a commitment to reject costly contracting out, provided a
management directive supporting implementation of telecommuting, and
directed his staff to investigate loan forgiveness. We hope to be able
to testify next year that, with open Congressional support, the
Administration has made progress toward achieving the recommendations
set forth above.
Human Capital Management:
GAO's Four Human Capital Cornerstones and HUD
In its report ``A Model of Strategic Human Capital Management,''
GAO sets forth four Human Capital Cornerstones (GAO-02-373SP).* GAO
intends these Cornerstones to provide guidance in assessing an Agency's
Human Capital strategy. For each Cornerstone, there are two Critical
Success Factors. The GAO report sets forth examples of behavior it
identifies as Level 1, 2, or 3 in connection with each Critical Success
Factor. Level 1 is the worst, while Level 3 is the optimum according to
GAO. We address each of the four Cornerstones at they apply to HUD
separately:
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*Held in Committee files or available at the GAO website.
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Leadership: The Agency has a Human Capital Crisis Because Throughout
the 1990's
HUD Devalued Human Capital and Human Capital Resource Managers
HUD goes through organization charts the way a person with a cold
goes through Kleenex. On some level, this constant shifting devalues
human capital. But between the years of 1994 and 1998, the Agency
actively undertook reforms that exacerbated the human capital crisis
and precipitated the virtual elimination of human capital resource
management at HUD. We offer two examples from many:
In 1995, the Agency reorganized the Office of Administration,
severely slashing HUD's Human Resource Departments in the field by
consolidating ten personnel departments into three. The goal was to
reduce the ratio of HR staff to HUD staff from 1:60 to 1:100. Access to
personnel specialists became more difficult for managers, supervisors,
and employees. Personnel records have been poorly maintained. Also in
1995, the magic 7,500 number was the focus of much attention. As
confirmed by GAO and HUD IG reports, this number might as well have
been drawn from a hat; the Agency had no basis for believing this was
the optimum number of staff. The contracting out problems we face today
are a direct result of this baseless FTE goal.
Comparison to the GAO Critical Success Factors Table (GAO-02-373SP
at p. 10) demonstrates that with regard to its staff, the Agency was at
Level 1--the Agency viewed the employees as ``costs to be cut rather
than as assets to be valued.'' The Agency was below Level 1 with regard
to the role of the Human Capital Function--human capital management was
so severely reduced that it could not even be described as a support
function.
It is our opinion that the past devaluation of the Human Capital
Function is critically interfering with the current Administration's
ability to evaluate and address the Human Capital crisis at HUD. Among
other things, it interferes with recruitment and retention. For
example, the Agency has consistently been 300 FTE below ceiling for
several years. Despite what we generally agree are good efforts to
recruit and hire staff, Agency projections indicate that we will
continue to be below ceiling at the end of this fiscal year.
Additionally, we have proposed, and the Administration has expressed
interest in, several retention strategies such as a loan forgiveness
program. Lack of adequate Human Resource staff has delayed rapid review
and implementation of this and other retention programs.
Agency managers, supervisors, and employees need a commitment from
the Congress and the Administration to rebuild the Human Capital
Management Function at HUD. We need Human Resource employees to
evaluate staffing needs, actively recruit, create retention strategies,
and to otherwise assist employees, their supervisors and managers in
the accomplishment of HUD's mission.
Strategic Human Capital Planning: No Data To Drive Human Capital
Decisions
Agency management has little or no data with which to make Human
Capital decisions; they no longer receive staffing lists, information
on accessions and separations, nor retention rates for special hires;
and estimates of needed staff are suspect.
It was not always so. Attached are excerpts from the last ``Monthly
Staffing List'' of which I am aware. It is dated September 1990 and
covers Region I.* It is an example of the kind of data that used to be
routinely available and provided to field
managers and union representatives. It includes a summary of staff on
board, hires, separations, and projections for the coming month. It
discloses the total number of employees authorized versus those
actually appointed in each office and each program area. It provides
information on total number of permanent, temporary, part-time, and
summer help. The sample page is a detail from the Office of Counsel,
showing total number of staff, vacancies, temporary appointments (EXC
APPT NTE 08 -11-91), and duty stations other than Boston (D/S:
Manchester). The total report includes similar pages for each program
area in Region I.
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*Held in Committee files.
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Sometime shortly after 1990, the Agency stopped providing the
Monthly Staffing List. With the loss of this single report, managers in
Region I no longer had the information necessary to firmly determine if
staff turnover continued to be 17 percent, or one in six, as it had
been the previous year. They would no longer clearly know that their
ceiling had increased 20 positions since last year, or that they were
46 employees, or 10 percent, under ceiling. Having this data helped
managers focus on potential problem areas in Human Resource management,
such as retention issues and recruitment needs. But this data no longer
exists, or is no longer shared.
We suspect that it simply no longer exists. During the past 6
months, we have asked HUD's Labor Relations staff to please provide
quarterly reports on accessions and separations from the bargaining
unit. We just want to know who has joined HUD and who has left during a
quarter. Labor Relations has been unable to meet our request, because
the information systems do not support this simple retrieval of
information.
The fundamental lack of data hampers this Administration's ability
to address the Human Capital crisis. We continue to make decisions in
the dark.
For example, the union has raised concerns with the dependence on
intern programs to meet hiring needs. Based upon anecdotal evidence, we
are concerned that interns may have lower retention rates than other
employees hired under traditional civil service authorities. To explore
this, we have asked the Office of Human Resources to provide data
comparing the retention rates of the last major intern program that
occurred in 1989 and 1990, to the retention rates for other employees
hired through traditional means during the same time period. The Agency
has been unable to provide this data. The Agency is putting all of its
hiring eggs in one basket without sufficient knowledge of the strengths
or weaknesses of that basket.\1\
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\1\ The union is also without hard data. Nonetheless, based upon
our interviews with interns, we believe critical to the retention of
interns is their knowledge that they will be offered permanent
positions well in advance of the expiration of their 2-year term. At
the end of their first year (the standard probationary period for civil
service employees), the Agency should decide and inform interns which
of them will be offered permanent positions. Faced with thousands of
dollars of student loan debt, after their first year, interns will be
forced to actively seek other employment. We can only stem the tide by
timely extending permanent positions.
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At Congressional direction, the Agency is working toward better
estimation of staffing needs. But employees, supervisors, and managers
remain unconvinced that accurate estimations will be produced by either
REAP or TEAM--Resource Estimation and Allocation Process and Total
Estimation Allocation Mechanism. REAP was intended to provide a
benchmark for staffing needs, while TEAM is intended to periodically
update the benchmark. However, despite hours of review, many of us
cannot understand what REAP has actually measured--does it measure what
staff should be doing, or what staff are actually doing? The process
for both REAP and TEAM asked staff to record what they are actually
doing. It seems obvious that we would have enough staff to do that
which staff are doing. But the question remains, do we have enough
staff to do that which we are supposed to do by law, rule or
regulation? Do we have enough staff to protect the public's interest
and deliver the mission of the Agency? We remain unconvinced that REAP
or that TEAM achieve this.
To this Administration's credit, the Deputy Secretary has
specifically advised managers to provide staffing projections based
upon REAP or any other supportable evidence. To our knowledge, REAP is
being used as a floor, not a ceiling. But we urge Congress to also
consider REAP as a floor.
Comparison to the GAO Critical Success Factors Table for this
cornerstone (GAO-02-373SP at p. 11) indicates that the Agency is at or
below Level 1--Agency managers and supervisors lack fundamental
information that can help them determine human capital needs and
strategies for effective recruitment and retention, much less how human
capital approaches link to organizational performance objectives.
Agency managers, supervisors, and employees need a commitment from
Congress and the Administration to rebuild sources of data concerning
human capital resources at HUD. Additionally, we need wide spread
sharing of data, so that managers, supervisors, and union
representatives can hone in on problems before they become crises.
Acquiring, Developing, and Retaining Talent:
Bureaucracy Persists in HUD's Approach to Human Resource Management
As employees of HUD, we can commiserate with HUD's clients about
HUD's proclivity for bureaucracy; we are its daily victims, driving
down employee morale. Although the 1994 HUD program reorganizations
included strategies to focus HUD employees on results not processes, on
finding solutions not red tape, Human Resources has not consistently
adopted this same strategy. Managers, supervisors, and employees too
often hear, ``it can't be done that way.'' The ``can't do'' philosophy
is at striking odds to the ``can do'' philosophy HUD employees endeavor
to apply to HUD's programmatic work.
A small example: Some Human Resource offices have advised
supervisors that they may not authorize the accumulation of credit
hours for travel.\2\ They cite restrictions on the use of overtime for
travel, equating credit hours to overtime despite the fact that credit
hours are specifically excluded from the definition of overtime. [See 5
U.S.C. Section 6121(6).] Being able to authorize employees to
accumulate credit hours helps supervisors better accomplish the
Agency's mission while preserving resources; if a field review takes 6
hours, and travel will take 4, a supervisor can authorize the employee
to accomplish the work in one 10-hour day, rather than ordering the
employee to take 2 days and authorizing the use of scarce travel
dollars for hotel and per diem. These simple solutions, however, are
withheld from Agency supervisors and employees.
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\2\ ``Credit hours'' are hours ``in excess of an employee's basic
work requirement and which the employee elected to work so as to vary
the length of a workweek or workday.'' See 5 U.S.C. Section 6121(4).
Most employees at HUD work under a flexible work schedule established
under 5 U.S.C. Section 6121.
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Comparison to the GAO Critical Success Factors Table for this
cornerstone (GAO-02-373SP at p. 12) indicates that the Agency is at or
below Level 1--the Agency has yet to explore the range of tools and
flexibilities available under current laws and regulations.
Agency managers, supervisors, and employees need a commitment from
this Administration that it will bring to Human Resources the same
``can do'' spirit other areas of HUD are encouraged to display. Working
together, we can craft solutions that meet HUD's mission and employees'
needs.
Results-Oriented Organizational Cultures: The Human Capital Crisis
Makes
It Less Likely Employees Will Focus On Results Rather Than Processes
The GAO has identified ``empowerment and inclusiveness'' as key
components of a results-oriented organization. The Agency took steps to
empower and include supervisors and employees in the 1994
reorganization. Program employees were specifically authorized to
remove impediments to the accomplishment of organizational goals when
the employee could determine that an alternative process would meet
both client and Agency needs.
Comparison to the GAO Critical Success Factors Table for this
factor (GAO-02-373SP at p. 13) indicates that in the mid-1990's, the
Agency hovered between Levels 2 and 3--the Agency was lessening its
reliance on standardized approaches and was encouraging employees,
supervisors, and managers to work together toward innovation and
problem-solving.
Before a person can run, however, he must first be able to walk.
Similarly, before employees can innovate and explore alternative
processes, they must first be adept at the current process,
understanding the whys and wherefores. When they understand why a rule
is in place, they can better craft a solution that meets the Agency's
and client's needs simultaneously.
HUD's Human Capital crisis threatens this capability. Daily, we are
losing the employees that know the whys and wherefores. Our programs
typically include 40-year commitments between HUD and the client. Even
if programs are eliminated, they are only eliminated as to future
clients. Our relationship to current clients continues for that
program. We need staff expertise for a period of time greater than the
normal career of any one employee. Succession planning must be the
norm, not the exception for an Agency such as HUD.
Additionally, the nature of HUD's programs tends to result in an
ebb and flow of problems; if there is a problem, it is likely to
manifest itself either at the beginning or at the end of its 40-year
term. For example, the problems associated with a new development will
either happen shortly after it begins renting up (for example, problems
with projected market-share, etc.) or will happen toward the end of its
involvement (for example, tenants need alternative affordable housing
options, development has physical problems associated with its age,
etc.).
Succession planning at HUD is hard! Making sure that we always have
the quality and quantity of staff to be results-oriented is hard! It
takes commitment from both Congress and the Administration.
HUD clients deserve nothing less.
HUD's Continuing ``High-Risk'' Designation in the Single-Family
And Multifamily Rental Housing Assistance Programs Relate
Directly to HUD's Human Capital Crisis
In its January 2001 report entitled ``Major Management Challenges
and Program Risks'' (GAO - 01-248) (hereinafter January 2001 Report),*
GAO identifies the need for improvement to reduce HUD's Single-Family
Mortgage Insurance risk and to
effectively and efficiently use HUD's Multifamily Rental Housing
Assistance Programs. We believe that HUD's Human Capital crisis has
directly contributed to these program problems. The lack of human
capital has prompted HUD to contract out work without regard to cost,
effectiveness, or efficiency. Continued loss of staff capacity has lead
to poor contractor oversight. We will consider examples of this in each
of these programs.
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*Held in Committee files.
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Contracting Out Single-Family Mortgage Insurance Work:
Employee Warnings Go Unheeded
The GAO report briefly describes the downsizing history of Single-
Family Housing; in 1994, the Agency began to consolidate its single-
family function, culminating in the 2020 Management Reform Plan
establishment of four Homeownership Centers. This consolidation reduced
the total staff dedicated to single-family programs by about 50
percent. Some of this reduction was achieved through increased
efficiencies or program changes. A significant portion was accomplished
through contracting out. (January 2001 Report at p. 15.)
The Office of Single Family always had a high level of contracting
out, and most of this contracting out was appropriate. For example,
when a bank foreclosed on a property and returned the title to HUD for
the mortgage insurance proceeds, HUD became the property owner. As
such, we became responsible for being a good neighbor, keeping the yard
and house maintained while new owners were found. HUD employees agree
that this was a positive use of contractor dollars. But even then, GAO
and the HUD IG reported that HUD lacked staffing resources and travel
funds to monitor its contractors. (See, for example, GAO/RECD-98-65.)
Unfortunately, HUD was not always a good neighbor.
How did HUD respond? Instead of increasing contractor oversight,
HUD contracted out more functions. Previously, HUD would market the
properties, seeking always to use this resource to further multiple
objectives such as promoting safe neighborhoods and the affordable
housing for working Americans (for example, the Officer Next Door
Program), while working to maximize return on the sale of the
properties.
In 1999, HUD contracted out this marketing function. The result? In
January 2001, GAO reported a projected cost of $997 million over 5
years (at p. 14). Six months later, GAO reported that fiscal year 2000
year cost alone was $390 million, for a projected 5-year cost of $1.9
billion or twice as much as the original 5-year projection. (See GAO -
01-590 at p. 3.) In exchange for the high expenditures, HUD has seen a
mere net increase of \1/2\ percent in the recovery of sales (January
2001 Report at p. 18). We have also seen an increase in the number of
for-profit investor owners. Prior to 1999, we understand that HUD sales
to owner-occupants averaged 65 percent. Since 1999, it has generally
decreased and is now as low as 34 percent in Cincinnati. This is not a
result of poor contractor oversight. This is the result of contracting
out. The contractor does not have the same incentive to pursue policy
objectives as HUD employees have. Monetary incentives cannot replace
commitment to the mission.
Despite contracting out and downsizing, HUD employees have been
vigilant in protecting, or seeking to protect, the mission of the
Agency. HUD employees advised the HUD IG of the ``flipping'' scandal
reported by GAO in its report at page 20. HUD employees continue to
report issues to the HUD IG about duplicate payments to contractors,
vandalism of HUD properties, and interference with their ability to
report fraud, waste, and abuse directly to the IG. Employees recognize
that a change of administration results in delays in responding to the
issues identified by employees. But it has now been 18 months, and
employees want to know when their voices will be heard. Single-family
employees are experiencing serious morale problems because of the loss
of program integrity and job satisfaction.
Contracting Out Multifamily Rental Housing Assistance Oversight:
No Benefit for Tenants or Taxpayers, Only State and Private
Bureaucracies
The January 2001 GAO report states that ``to ease staffing
shortages caused by staff reductions,'' HUD contracted for third-
parties to administer project-based Section 8 housing assistance
payments contracts (at p. 36). GAO indicates that the estimated cost
was $200 million annually. This contract was awarded solely because of
staffing shortages and without regard to cost. In fact, before even one
contract was signed, HUD's IG reported that the Agency's cost
projections were faulty and the contracts ``could adversely affect the
integrity of the Section 8 program.'' (See HUD IG 99-PH-163-0002, at p.
17.)
HUD has awarded 41 of 52 available contracts. With incentives,
these contracts cost $220 million annually--$20 million more than
originally estimated. If the remaining contracts are awarded, the cost
will increase by $61 million, or 40 percent more than originally
estimated.
But whether the cost is $200 million or $281 million, it is far in
excess of the cost of hiring staff to meet the staffing shortages
fueling these contract awards. According to inflated staffing figures
rejected by HUD's Inspector General, HUD would need 1,400 staff to do
this work (IG Report at p. 16). HUD's Office of Budget reports an
average cost per HUD employee in 2002 is $88,000. This would put the
maximum cost at $123 million, or less than half the cost of these
contracts.
Finally, the real tragedy of these contracts is borne by Section 8
tenants and families waiting for Section 8 subsidies. The cost of these
contracts comes from the Section 8 budget. This $158 million would fund
an additional 31,200 Incremental Vouchers in the fiscal year 2003
budget. And in exchange for a loss of Section 8 funds, current Section
8 tenants are left to work with multiple bureaucracies, including HUD,
the contractor, and in some instances, a subcontractor.
The January 2001 GAO report focuses on the challenge HUD faces in
closing the gap between the number of households eligible to receive
housing assistance and the availability of assistance (at p. 27).
Congress needs to step to the plate and provide HUD with the means to
close the gap; Congress needs to provide HUD with the funding to hire
the staff necessary to forego the Section 8 Contract Administration
contracts.
There will be mounting pressure for Congress to allow this wasteful
spending to continue. Contractors in their States are making ludicrous
amounts of money under these contracts. For example, MassHousing
(formerly the Massachusetts Housing Finance Authority) makes $13
million annually to replace the work done by 20 staff in HUD's Boston
Office. Rather than bowing to the pressure of contractors, Congress
should consider the 2,220 families in Massachusetts that could be
receiving rental assistance in 2003, and the 31,200 nationwide.
Conclusion
Frequently with Congress' support, HUD has maintained a history of
ineffective human capital management. Consequently, the crisis that
faces all American employers with the impending retirement of the Baby
Boom generation is exacerbated at HUD. And because HUD's programs are
implemented and operated over a 30- to 50-year period, HUD needs time
for departing staff to mentor new staff. We cannot replace journey-
level experienced staff with entry-level staff. It takes years to learn
the programs sufficiently that employees can take educated risks to
meet
client needs while meeting HUD's program objectives. This level of
expertise cannot be replaced by contractors. Even if it could be
replaced by contractors, it defies explanation to replace it at costs
far in excess of hiring staff.
Finally, to compete against the rest of the marketplace hungering
for workers to replace Baby Boomers, HUD must think and act
innovatively and flexibly by offering programs such as loan
forgiveness, child care subsidies, and telecommuting; HUD must empower
its employees by providing them with information, training, and
involvement in the decisionmaking process. HUD must show that it is a
responsive employers. And Congress must support HUD in these endeavors.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
FROM STANLEY J. CZERWINSKI
Multifamily Housing
Q.1. There have been some recent changes to the Public Housing
Assessment System (PHAS). Can you explain why HUD has chosen to
adjust the standards for public housing so that they are lower
than those for assisted housing?
A.1. In 1997, as part of its 2020 Management Reform Plan, HUD
instituted a new approach for evaluating public housing
authorities' overall performance and for helping them improve
their performance. HUD began collecting data for all four PHAS
indicators in 1998, and for fiscal year 1999, it computed, for
each housing
authority, as core for each indicator, as well as a total PHAS
score. HUD used these scores to test the system but not to
classify housing authorities' performance. HUD planned to
implement PHAS fully; however, the Congress directed HUD to
conduct further testing and to obtain an independent evaluation
of PHAS.
HUD is currently revising PHAS, attempting to make it more
responsive to the concerns of residents and the public housing
industry, before implementing it fully. The current system is
considered an interim system, effective for public housing
authorities with fiscal years ending between September 30, 2001
and September 30, 2002. As a result of these discussions with
stakeholders regarding their concerns and possible solutions,
and after further consideration by the Department, HUD made two
interim scoring changes. First, under the Physical Condition
Indicator all five areas--site, building exterior, building
systems, common areas, and dwelling units--will be inspected,
and the information will be captured in the system. But for
assessment purposes, the Physical Condition score will be
derived only from the deficiencies observed in the building
systems and dwelling units. These two indicators were selected
because they have the greatest impact on residents' living
conditions. Second, HUD made some minor changes to the
Financial Condition Indicator. During the interim period HUD
expects to give extensive consideration to potential
improvements to PHAS, which should result in further changes.
Q.2. You have looked at the Public Housing Assessment System
and concluded that it is generally a good system. In GAO's
view, should HUD implement this system?
A.2. We believe that having a system for objectively assessing
the physical and financial condition of public and assisted
properties is an essential step for HUD to adequately address
its high-risk program areas. The interim PHAS assessment system
should provide a broader and more reliable basis for evaluating
housing authorities' performance than did the prior Public
Housing Management Assessment Program (PHMAP). As a result,
full implementation should increase the potential for PHAS to
identify the authorities' problems. In addition, we believe
that HUD should continue to evaluate PHAS and make improvements
to arrive at a final public housing assessment system that all
parties agree will identify and provide for the correction of
long-standing problems at public housing authorities.
Q.3.a. The Department's workforce study shows that the OMHAR
needs 91 full-time workers to do its work, yet it only has 80
employees currently. There seemed to be some confusion at the
hearing about OMHAR's staffing levels and HUD's REAP study
results. What was the number of staff recommended by the REAP
study for the OMHAR?
A.3.a. The Resource Allocation Estimation Process study, issued
in July 2001, assessed the staffing needs for all departments
in HUD. The study recommended that OMHAR have a staffing level
of 91 full-time equivalent personnel to carry out its
operations.
Q.3.b. How many positions are currently filled?
A.3.b. For fiscal year 2002, HUD authorized OMHAR a staffing
level of 85 full-time equivalent personnel. As of July 2002,
OMHAR had 82 full-time staff.
Q.3.c. What is the appropriate number of deals that should be
restructured per year?
A.3.c. The number of deals that will be restructured in coming
years will be based largely on the number of expiring Section 8
contracts with above market rents. OMHAR estimates that the
number of Section 8 contracts expiring with above-market rents
will be 570 in fiscal year 2003, 211 in fiscal year 2004, and
85 in fiscal year 2005. However, the number of completed
restructurings in a year may not equal the number of expiring
above market Section 8 contracts in a given year because of the
length of time it takes to process the restructurings, owners
that opt-out of the program, or other factors.
From July 2001 through June 2002, OMHAR completed 413
restructurings, or an average of 34 completed restructurings
per month. OMHAR did experience a decline, however, in
completed restructurings during the past year because,
according to HUD, some restructurings were delayed until
guidance was issued on new Mark-to-Market legislation. HUD
estimates that the number of completed restructurings will
increase now that guidance on the new legislation has been
issued and the delayed restructurings can be processed.
Human Capital
Q.4. Was there a contract proposal for HUD to go beyond the
REAP study to identify the number of people actually needed for
future mission needs? What happened to that proposal?
A.4. HUD awarded a contract to develop a strategic workforce
plan that proposed to analyze future workforce requirements,
the skills and competencies of the HUD workforce, and the skill
gaps and changes in skills needed in the workforce. In May
2001, the HUD Secretary issued a memorandum terminating the
contract for this strategic workforce planning and integrating
the planning activities with the ongoing REAP studies. A HUD
official told us that the contract was terminated due to budget
constraints and that the work would be done in-house as
resources became available. As we recommended in our July 2002
report on HUD's Human Capital Challenges (GAO-02-839), we
believe that it is essential that HUD move forward in assessing
future workforce requirements, the skills and the competencies
of its workforce, and the skill gaps and changes in skills
needed in the workforce.
Financial Management
Q.5. We understand that GAO is currently undertaking a review
of improper payments at HUD. Can you briefly discuss the
implications of improper payments and the general types of
circumstances that result in such payments?
A.5. Improper payments include errors, such as duplicate
payments and calculation errors; payments for unsupported or
inadequately supported claims; payments for services not
rendered or to ineligible beneficiaries; and payments resulting
from fraud and abuse. Such payments are often the result of
poor or inadequate internal control.
As you know, internal controls serve as the first line of
defense in safeguarding assets and in preventing and detecting
fraud, abuse, and errors. Heads of agencies are required to
establish a system of internal control consistent with our
Standards for Internal Control in the Federal Government.\1\
During our analysis of various Federal entities' payment
processes, we identified common internal control weaknesses
that sharply increase the Government's vulnerability to
improper payments, including weaknesses in the review and the
approval processes, lack of procurement training, and
ineffective monitoring of operations, such as contractor
performance.
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\1\ Standards for Internal Control in the Federal Government (GAO/
AIMD-00-21.3.1), was prepared to fulfill our statutory requirement
under the Federal Managers' Financial Integrity Act of issue standards
that provide the overall framework for establishing and maintaining
internal control and for identifying and addressing major performance
and management challenges and areas at greatest risk of fraud, waste,
abuse, and mismanagement.
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As stated in our Standards for Internal Control in the
Federal Government, transactions and other significant events
should be authorized and executed only by persons acting within
the scope of their authority. However, although the review of
transactions by persons in authority is the principal means of
assuring that transactions are valid, we found that certain
review and approval processes were inadequate in all agencies
reviewed.
Effective management of an organization's workforce--its
human capital--is also essential to achieving results and is an
important part of internal control. Training is key to ensuring
that the workforce has the skills necessary to achieve
organizational goals. However, we found that a lack of or
inadequate training contributed to the weak control environment
at several agencies.
Monitoring to assess the quality of performance in the
course of normal operations is another essential component of
an organization's internal control structure. Program and
operational managers, including contact managers, should
monitor the effectiveness of control activities as part of
their regular duties. We found ineffective monitoring systems
at several of the agencies we reviewed.
Given the billions of dollars in payments made by the
Federal Government each year to recipients nationwide and
abroad, deficiencies in controls raise the risk that erroneous
or fraudulent payments could make their way through agencies'
processes without being prevented or detected.
Acquisition Management
Q.6. What mechanisms does HUD have in place to allow it to
evaluate contractor performance?
A.6. HUD has two basic mechanisms to evaluate contractor
performance; the first is the ongoing oversight of the contract
and the second occurs when the contract is closed-out.
First, HUD staff serving as Government Technical
Representatives (GTR's) and Government Technical Monitors
(GTM's) play a crucial role in evaluating the performance of
contractors on an ongoing basis throughout the life of a
contract. The GTR is often the Department's primary point of
contact with a contractor and is the principal judge of
contractor performance, including the quality and timeliness of
work and products. GTM's assist, on a part-time basis, the
GTR's on the day-to-day technical oversight of the contractors'
performance.
The second mechanism that HUD has in place to evaluate
contractor performance occurs when the work under the contract
is completed and it is administratively closed. When a contract
is closed-out, HUD's GTR's complete a ``Contractor
Performance'' form that scores the contractor on categories
such as quality of performance, cost control, and timeliness.
The scores for these categories are then averaged to obtain a
performance score. HUD retains a copy of the form in the
official contract file. Additionally, HUD's centralized
contracting system was modified to track contractor
performance; beginning January 2000, the Deputy Secretary
required that HUD would begin entering contractor performance
data in the system for all new contracts over $1 million.
Our past and ongoing work on HUD's contracting practices
suggests HUD's mechanisms for evaluating contractor performance
may not be sufficient to ensure that contractors are held
accountable for results. For example, few of the staff
overseeing HUD's multifamily housing program property
management contracts use monitoring plans or employ risk-based
strategies to determine the necessary level and frequency of
monitoring and that the amount of on-site monitoring is
limited. Absent a systematic approach to monitoring and with a
limited amount of on-site monitoring occurring, HUD's ability
to effectively monitor contractors' performance and identify
and correct problems is impaired. In addition, although HUD's
centralized contracting system has the capability to track
contractor performance, by and large it is not being
effectively utilized for this purpose.
Q.7. It sounds like GAO is planning to highlight acquisitions
management as a new management challenge. Why do you believe
this is so significant?
A.7. Acquisition management is a significant issue at HUD
because as the Department has downsized its own staff over the
past few years, its reliance on contractors has increased
substantially. This reliance, as measured by contracting
obligations, grew by more than 62 percent from fiscal year 1997
to fiscal year 2000; and HUD's officials have estimated that
the total number of contractor staff assisting in delivering
HUD's services may nearly equal its own. As a result, effective
management of acquisitions is crucial to HUD's success in
meeting its mission and addressing its high-risk Single-Family
Mortgage Insurance and Multifamily Rental Housing Assistance
Programs areas. Ineffective oversight of contractors adversely
effects HUD's ability to carry out its mission and to deliver
key services and exposes HUD's programs to the additional risk
of fraud, waste, abuse, and mismanagement.
Reorganization
Q.8. Do you have any concerns that putting the oversight
function under the control of the program function may
compromise the independence of REAC?
A.8. REAC is responsible for centralizing an standardizing the
way HUD evaluates the condition of the housing portfolio. One
of REAC's key responsibilities is to monitor and assess the
physical condition of properties and Public Housing Authorities
in which HUD has a financial interest. To do this, HUD
established a specific standard for conducting physical
inspections: The Uniform Physical Condition Standards (UPCS).
Independent HUD contractors perform the physical inspections.
According to PIH and REAC officials, neither the inspections
protocol nor the use of contractors will be changed under the
realignment.
As I stated in my testimony, the creation of REAC was
clearly a positive development that has yielded real results.
And, it is worth noting that at the time HUD established these
centers, it did so because it believed that the Office of
Public and Indian Housing and the Office of Housing--the
offices within HUD that were originally responsible for these
activities--were not effectively carrying out these functions.
The Secretary, as the leader of his organization, has the
prerogative to align the organization as he sees fit,
consistent with his vision and management style. But it is
important that the progress made to date not be jeopardized.
For example, regardless of how REAC is aligned, HUD much
continue to make progress improving the physical condition of
the public and assisted multifamily housing properties.
Ultimately the success or the failure of any organization
decision will be viewed in that light.
Q.9. How many assets overseen by REAC are FHA assets? How many
are public housing?
A.9. REAC assesses the physical condition of about 30,000
multifamily housing properties that are subsidized and/or
insured by HUD. REAC also assesses the financial condition for
over 20,000 of these properties. In addition, REAC is
responsible for assessing the performance of about 3,300 public
housing authorities (PHA's). As part of the PHA's assessment,
REAC conducts an independent physical inspection of each
authority's properties. In total, there are about 14,000 public
housing properties.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED
FROM CAROLYN FEDEROFF
Human Capital
Q.1. Could you discuss the union's position on the REAP study?
A.1. We believe the methodology of REAP results in an
underestimation of Agency staffing needs.
The REAP study does not accurately reflect the work that
should be done in accordance with HUD's Handbooks, regulations,
and policies. The methodology used by the REAP consultants
leads us to believe that they studied what people actually do,
not what they should be doing. Therefore, if a Handbook states
that a field review will be done every 3 years, but due to
staffing constraints the office only conducts reviews every 5
years, the REAP study would report staff needs based upon the
practice of conducting field reviews every 5 years.
The value of the REAP study remains in establishing at
least this as a benchmark--a uniform standard of staffing for
every office. This benchmark can help identify the inequity in
staffing between offices. However, it is our opinion that REAP
does not fully address the issue of staffing needs.
Q.2. Does it provide adequate information for the hiring of new
staff ?
A.2. REAP provides useful information for hiring new staff, but
it is not complete information.
As set forth above, REAP can provide useful information to
determine staffing inequities between offices. The Agency can
use REAP to determine which offices are understaffed relative
to each other. However, because REAP only captures what people
actually do and not what they should be doing, REAP does not
fully capture staffing needs. We believe REAP underestimates
staff needs.
Q.3. What has the current Administration's response been to
filling the 300 FTE positions still open?
A.3. In the past month, the Agency has announced a ``hiring 9/
30'' initiative. It is our understanding that this is an effort
to fill remaining vacancies. The union is aware that the Agency
is canceling flextime options and is introducing mandatory
overtime for its Human Resources staff through September in
order to complete the initiative.
Earlier this year, the Agency embarked on an aggressive
hiring program for interns. As stated in my earlier testimony,
the union is concerned that these employees have been brought
into temporary positions, as opposed to permanent positions.
Regardless of whether an employee is brought in as temporary or
permanent staff, all employees serve a probationary period.
However, employees brought in as permanent focus only on their
performance during the first year. Employees brought in as
temporary, including interns, are forced to also focus on
securing employment after their term ends. This creates an
incentive to leave Government service.
Our goal should be to foster career incentives. In an
Agency where programs are designed to last decades, our hiring
and retention strategies should similarly be designed to last
decades.
Q.4a. Your testimony talks about HUD's inability to provide
union officials with simple data about the HUD staff, such as
retention data for past intern programs or a listing of the
employees being hired into or leaving bargaining units. Why is
this data important?
A.4a. There are different reasons for seeking this data. First,
and most basic, our union has a statutory obligation to
represent bargaining unit employees; we need to know who is in
and out of the bargaining unit to meet this responsibility.
Second, deductive reasoning is a generally accepted means
of decisionmaking. Just as the oversight committee holds
hearings to collect facts before making decisions, the Agency
should collect human resource facts before making decisions. My
statements above concerning the potential problems of an
internship program are based upon an understanding of human
nature. They are not, however, supported by any independent
data. The Agency has participated in internship programs
before; we believe that it would be better to assess the
results of previous intern hiring programs to determine: (1) if
the Agency should rely so heavily on the program this time, and
(2) how the program can be structured to be more successful.
But the Agency lacks the basic data to engage in deductive
reasoning on Human Resources issues. Other areas where data
would be useful include: Determining which locations or program
areas have high turnover, and assessing the causes and cures;
reviewing supervisory to staff ratios; comparing staff
resources between offices; and more.
Q.4b. Why is this type of data not available?
A.4b. We cannot say for certainty that it is not available, or
that it is not used. All we can say with certainty is that
information that was generally available to field management
and union representatives 10 years ago is no longer made
available. When we request the kinds of information we
routinely received 10 years ago, we do not receive it. For
example, on April 3, 2002, we requested quarterly reports
showing all additions to and deletions from the bargaining
unit. More than 5 months later, we have yet to receive the
information. Field management no longer has access to regional
staffing reports.
Q.4c. What would HUD need to do to obtain this data?
A.4c. We suspect that as HUD has contracted out its Human
Resources data systems, it has failed to include in the work
specifications requirements for report and data generation. HUD
should review these contracts and rewrite the work
specifications to include this basic data generation (for
example, changes to the bargaining unit and staffing reports),
and to include the ability to search the system for more
sophisticated data information on an as needed basis (for
example, success of past intern programs).
Acquisition Management /Contracting
Q.5. How does contracting out HUD's functions affect employee
morale?
A.5. Terribly. Poor performance and /or the high cost by
contractors affect employee morale on three levels:
As employees: It says to employees that even bad
contractors are better than Federal employees. It
identifies us as the enemy of good Government.
As housing professionals: Poor performing contractors
betray our commitment to the mission of the Agency--decent,
safe, and sanitary housing, strong neighborhoods and
communities, and equal access to housing.
As taxpayers: High-cost contractors waste our tax
dollars. We pay taxes, too, and knowing the profound waste
of taxpayers' dollars is galling.
Over time, employees respond in one of two ways: They
either leave because they care too much, or they stay and, to
survive, decide they must care less. HUD creates minimalists--
employees who do the minimum to survive.
We do not want to be minimalists. We want to be valued, and
we want our programs to be vital and valuable. Bad contracting
adversely affects employee morale.
Q.6. What are the downsides to contracting functions out? What
are the benefits?
A.6. The answer to this question could involve a dissertation--
the downsides range from the obvious to the subtle. But in an
effort to keep it simple, we will set forth a few of the
downsides, with suggestions of where contracting is beneficial:
The adverse impact on employee morale is described
above.
Contracting out entire functions leaves the Agency
susceptible to crises in the event of contractor failure.
Crisis was narrowly averted when a Single-Family M&M
contractor failed early in the program only because the
Agency still had knowledgeable staff available to pick up
the pieces. With each passing year, there are fewer and
fewer trained employees to step in where Single-Family M&M
contractors fail. We recommend that no more than 60 percent
of a function be contracted out, so that the Agency
maintains a pool of trained employees.
HUD programs are designed to last decades, but
contracts are for 3 to 5 years. Turnover in contractors is
as detrimental to HUD programs as a high turnover of HUD
staff. Institutional knowledge is valuable when working
with long-term programs. Contractors should be reserved for
instances when the Agency has a short-term quantifiable
project. For example, it is reasonable to use contractors
to build a database--to review HUD files, extracting
information for keying into a database system.
Contractors experience a learning curve, just as HUD
employees do. It takes approximately 3 to 5 years for a new
HUD employee to move to the journey-level of their
position. It is reasonable to assume that it would take
contractor staff a similar amount of time. In the Section 8
Contract Administration contracts, HUD staff have been
providing training and guidance to contractor employees--
but rather than paying HUD for the training, HUD pays the
contractors as though the contractors were fully performing
their duties! Employees report that in some instances, work
has been returned by the contractor for completion by HUD,
and HUD paid the contractor as though the work had been
performed. Contracts must be written so that any guidance,
even that provided as part of the oversight process, come
at a cost. (This may seem harsh, but if a HUD employee
performing a monitoring review of a contractor finds that
the contractor needs guidance on the proper method of doing
something, then it stands to reason that the contractor has
failed to do it properly. Therefore, the contractor should
forfeit some remuneration for either failing to do the work
correctly in the first place or for receiving instruction
from a HUD employee on how to do it right the next time.
This is doubly true if the work was returned to HUD for
completion by HUD.)
HUD should not contract out functions involving the
oversight of clients to whom HUD has delegated independent
or significant autonomous authority. For example, in
Multifamily Housing, the Agency increasingly relies on the
MAP process. In this process, the mortgagee conducts the
appraisal, mortgage credit, and other technical reviews.
Currently, HUD's technical staff review and approve this
work in determining the maximum insurable mortgage. The
Agency has listed the HUD technical staff as staff whose
work can be contracted out. Contracting out this work would
result in no actual HUD oversight of the technical data
underlying the determination of maximum insurable mortgage.
(We would be very happy to discuss at greater length the
MAP process and the potential parallels to the former ``Co-
Insurance'' program.) A similar situation is possible in
the single-family
direct endorsement process, where HUD is contracting out
the quality assurance review of mortgagees approved for
direct endorsement of FHA single-family insurance. In
essence, this results in a contractor overseeing a
contractor.
Contracting can result in a release of business
sensitive data to industry competitors. For example, for
several years the Agency used ``delegated processing'' for
the review of documents related to mortgage insurance
processing. The usual contractors were
almost always HUD clients--so that on some deals they were
seeking mortgage insurance and in other deals they were
reviewing the mortgage insurance deals of their
competitors. If any of them submitted a request for
information under the Freedom of Information Act for the
details of their competitors' proposed deals, we would deny
the request under the business sensitivity exception;
however, as HUD contractors, they had full access to their
competitors' information. The Agency should not engage in
contracting that includes this potential.
By law, the contractors cannot make policy judgments,
because policy judgments are inherently governmental. Yet
in some instances, being responsive to client needs
requires judgment about policy objectives. This is one of
employees' chief complaints about the administration of the
Single-Family M&M contracts. Single-family homes in HUD's
portfolio are a potential affordable housing asset that
could be used to further the mission of the Agency. But
this involves policy judgments that contractors cannot
engage in. It is noteworthy that the percentage of owner-
occupied sales of HUD homes has decreased dramatically
since the M&M contracts.
It is reasonable to contract out the care and the
maintenance of single and multifamily homes coming into
HUD's portfolio. HUD does not employ groundskeepers,
plumbers, and other persons
capable of providing this service.
Q.7. What is the best way to determine which jobs should be
contracted out and which should be performed in-house?
A.7. The best way to determine which jobs should be contracted
out and which should be performed in-house are:
The contract must be cost-effective. The cost-
effectiveness must include the cost of monitoring
contractors, as well as providing training and guidance to
contractors by HUD staff.
Core functions--functions directly related to the
delivery of HUD programs--should not be contracted out more
than 60 percent, to ensure sufficient trained HUD staff
remain in the event of contractor failure.
Jobs involving the oversight or monitoring of the
implementation of HUD programs, expenditure of HUD funds,
or processing and approval of FHA mortgage insurance should
not be contracted out. These are instances where HUD is
already relying on an intermediary between HUD and the
delivery of service to the intended beneficiary of the HUD
program. It is not reasonable to insert yet another
intermediary in the form of a contractor.
Contracts that result in the release of business
sensitive data should be avoided, in order to preserve
competition in the mortgage insurance industry.
We strongly believe, however, that if HUD conducted real
cost-benefit analyses, most of the work currently contracted
would be brought back in-house. HUD's contracting out is not
cost-effective.
Q.8. Your testimony described the problem of improper payments
to contractors. Please elaborate on this issue.
A.8. These problems have arisen in the Single-Family Home
Ownership Centers. The best source for information on these and
other problems in the HOC is AFGE Local 2032, President Irene
Facha. You can reach Ms. Facha in Philadelphia at 215/656-0637
x0139.