[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                     HOUSING-RELATED AGENCY BUDGETS

                          FOR FISCAL YEAR 2004

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 05, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                            Serial No. 108-7



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                            WASHINGTON : 2004
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          CHARLES A. GONZALEZ, Texas
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
DOUG OSE, California                 HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
MARK GREEN, Wisconsin                KEN LUCAS, Kentucky
PATRICK J. TOOMEY, Pennsylvania      JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
JOHN B. SHADEGG, Arizona             STEVE ISRAEL, New York
VITO FOSSELLA, New York              MIKE ROSS, Arkansas
GARY G. MILLER, California           CAROLYN McCARTHY, New York
MELISSA A. HART, Pennsylvania        JOE BACA, California
SHELLEY MOORE CAPITO, West Virginia  JIM MATHESON, Utah
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
MARK R. KENNEDY, Minnesota           ARTUR DAVIS, Alabama
TOM FEENEY, Florida                  RAHM EMANUEL, Illinois
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
TIM MURPHY, Pennsylvania              
GINNY BROWN-WAITE, Florida           BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director



                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 5, 2003................................................     1
Appendix:
    March 5, 2003................................................    67

                               WITNESSES

                        Wednesday, March 5, 2003

Garcia, Art, Administrator, Rural Housing Service, Department of 
  Agriculture....................................................    58
Lazar, Ellen, Executive Director, Neighborhood Reinvestment 
  Corporation....................................................    62
Lowe, Anthony, Administrator, Insurance and Mitigation 
  Administration, Federal Emergency Management Agency............    60
Martinez, Hon. Mel, Secretary, Department of Housing and Urban 
  Development....................................................     7

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    68
    Clay, Hon. Wm. Lacy..........................................    70
    Davis, Hon. Artur............................................    72
    Emanauel, Hon. Rahm..........................................    74
    Gillmor, Hon. Paul E.........................................    76
    Israel, Hon. Steve...........................................    77
    Matheson, Hon. Jim...........................................    79
    Turner, Hon. Michael R.......................................    81
    Garcia, Art..................................................    82
    Lazar, Ellen.................................................   100
    Lowe, Anthony................................................   117
    Martinez, Hon. Mel...........................................   122

              Additional Material Submitted for the Record

Martinez, Hon. Mel:
    Written response to questions from Hon. Wm. Lacy Clay........   152
    Written response to questions from Hon. Vito Fosella.........   144
    Written response to questions from Hon. Ruben Hinojosa.......   148
    Written response to questions from Hon. Steve Israel.........   154
    Written response to questions from Hon. Dennis Moore.........   159
    Written response to questions from Hon. Bob Ney..............   158
    Written response to questions from Hon. Patrick Tiberi.......   145


                     HOUSING-RELATED AGENCY BUDGETS

                          FOR FISCAL YEAR 2004

                              ----------                              


                        Wednesday, March 5, 2003

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 10:10 a.m., in Room 
2128, Rayburn House Office Building, Hon. Michael G. Oxley 
[chairman of the committee] presiding.
    Present: Representatives Oxley, Leach, Ney, Kelly, Shays, 
Miller of California, Capito, Feeney, Hensarling, Barrett, 
Harris, Renzi, Frank, Waters, Sanders, Maloney, Gutierrez, 
Velazquez, Watt, Carson, Meeks, Inslee, Moore, Ford, Hinojosa, 
Lucas of Kentucky, Clay, McCarthy, Baca, Matheson, Lynch, 
Miller of North Carolina, Emanuel, Scott, and Davis.
    The Chairman. The committee will come to order. And 
pursuant to the Chair's prior announcement, the Chair will 
recognize himself and the Ranking Minority Member for 5 minutes 
each for opening statements, and the chair and ranking minority 
member of the Subcommittee on Housing and Community Opportunity 
for 3 minutes each. All members' opening statements will be 
made part of the record. This is the Greenspan rule, in effect. 
You are in good company, Mr. Secretary.
    Today the committee welcomes back HUD Secretary Mel 
Martinez. I would like to note that this is the Secretary's 
third time before the committee since I have been Chairman to 
speak on the administration's budget proposals. He has also 
been before the committee on other housing topics such as 
reform of the Real estate Settlement Procedures Act. We 
appreciate all the work that you do. We truly understand that 
in these difficult times you have exhibited the type of 
leadership necessary to move the Department of Housing and 
Urban Development and Federal housing policy in the right 
direction. For that, we are all very grateful.
    Today, Secretary Martinez will explain the administration's 
fiscal year 2004 budget proposal. There are several bolded 
issues that will command the attention of this committee. It 
has always been my policy that we should have a thorough 
understanding of the issues and then let the committee work its 
will to foster a housing policy that is comprehensive, that 
maximizes the taxpayers' investment in housing and economic 
development, and that makes common sense.
    Around the country, national and local newspapers are 
running articles about housing. In some cases it is about the 
public, private, and nonprofit partnerships that make housing 
affordable. In other cases it is about expensive urban centers 
that no longer have affordable housing for those working 
families making minimum wage salaries. Or it is about rural 
areas where economies of scale do not allow for the building of 
affordable house. As always, we can do better.
    Today's witnesses, including Secretary Martinez, will 
address different perspectives of our Federal housing policy. 
The administration's housing budget proposes to, among other 
things, convert Section 8 tenant-based housing vouchers to 
State-mandated block grants with a transition period in fiscal 
year 2004 and full implementation in 2005; provide a new FHA 
product for subprime borrowers, which will assist many 
homeowners who have been locked out of the traditional mortgage 
finance markets; provide an additional $200 million for the 
American Dream Down Payment Initiative, which will assist low-
income families whose only barrier to home ownership may be 
difficulty in saving for a down payment; and enhance single-
family direct loan programs in the Rural Housing Service to 
provide more home ownership opportunities for very low-income 
families in rural areas.
    The proposed budget also plans to eliminate some programs 
that I know are important to members of this committee. This 
will be an opportunity for the Secretary to explain those 
changes as well as how the administration intends to continue 
addressing the issues through different programs. Because the 
Housing Subcommittee also has jurisdiction over the National 
Flood Insurance Program which plays a key role in home 
ownership, the administrator of the flood program will address 
its budget proposal as well.
    Let me say welcome to Secretary Martinez, to Rural Housing 
Administrator Art Garcia, Federal Insurance Administrator 
Anthony Lowe, and the Executive Director of the Neighborhood 
Reinvestment Corporation, Ellen Lazar. All of you represent 
agencies that have made a worthwhile contribution to housing 
policy and your comments today will be most helpful in 
assisting this committee in its work.
    The Chair's time has expired. I now yield to the gentleman 
from Massachusetts, the Ranking Member of the committee.
    Mr. Frank. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for your availability and your 
willingness to stay and answer questions fully as you have said 
you would do. We appreciate that. We don't always get that from 
various high-level people.
    I am seriously troubled by several aspects of the housing 
budget. First is public housing. The poorest people in this 
country live in public housing. There are people who are 
critical of public housing and say it is not very good housing, 
but they don't understand that no one lives in public housing 
under court order. People are in public housing because, as 
inadequate as it may seem to many, it is the best that those 
people who live there can afford. It is a very important 
resource. And having the public housing operators of this 
country be subjected to the fiscal storms that they have been 
suffering in the past few months is really just unconscionable.
    As you know, your Department announced that as of now, 
agencies are getting in many cases 70 percent of what they 
admittedly need to operate. We were told that could go to 90 
percent once the appropriations bills were passed. Of course, 
those appropriations bills were held up for an outrageously 
long time. But now that the appropriations bills have been 
passed, the ranking member of the subcommittee and I, as you 
know, had written to you and asked, when are we at least going 
to get the 90 percent? Now, it is a pretty sad situation when 
we are begging you to give them 90 percent, when 100 percent 
isn't enough to do what they ought to be doing. But the one 
thing you can say about the 90 percent is that it beats the 
hell out of 70 percent. And now I don't know how many weeks 
after we passed this it is still at 70 percent.
    Telling the people who run public housing and administer to 
the poorest people and people beset with problems that they are 
going to go with 70 percent, and it will take a while even to 
get them up to 90 percent, is unconscionable. In addition, we 
are told that the problem has been that there has been this 
ongoing shortfall in the operating subsidy account in 2001 and 
again in 2002. We were told the problem here is that in fiscal 
year 2002 there was this $250 million shortfall.
    What troubles me is that you have apparently decided to pay 
for the $250 million shortfall--that is the number that HUD 
gave us--by taking it from the fiscal 2003 appropriation.
    Now, the problem here is that you sent up a budget before 
there was any knowledge of the $250 million shortfall for 
fiscal 2003. You got from the committee only slightly more than 
you asked for, I believe about $70 million. And out of that 
number, you are going to take $250 million. So the problem is 
that we are going to solve the problem of the shortfall 
apparently by creating another shortfall; because public 
housing, if you were right in what you asked for fiscal 2003 
and you subtract $250 million from that, by your own numbers 
there is a shortfall.
    We should add that that shortfall is exacerbated by the 
fact that when this administration took office, it got Congress 
to abolish a $300 million program that existed in addition to 
the operating subsidy for public housing to combat drugs in 
public housing. We were told, pay for that out of your 
operating subsidy. So we now have a $300 million program that 
was abolished that is to be paid for out of an operating budget 
that is $250 million less than it used to be. If Enron had done 
that, there would be more of them in jail than there are going 
to be.
    Next we have the problem of production. The fact is that 
the housing crisis in this country in many areas has gotten 
worse. The very prosperity that was such a blessing for this 
country, and which many of us miss and hope will return, in 
some cases exacerbated the housing crisis because of the nature 
of the market, the geographic distribution, et cetera. It is in 
my judgment impossible for us to go forward in alleviating that 
without a Federal program thoughtfully designed to help housing 
production. And in fact, we had this question last year, we had 
a dispute not about whether or not to have a housing production 
program but what kind to have. We had a vote. The gentleman 
from Vermont had a proposal, and we had a vote and it was 
countered by a proposal offered by the gentlewoman from New 
York. And the proposal offered by the gentlewoman from New York 
was to authorize funding for State and local housing trusts. We 
had proposed, many of us on this side, to go with a national 
one. There was a very close vote, a one-vote margin. But the 
dispute was, should we have a new production program that goes 
entirely through the State and local trusts for production, or 
should we do a national one?
    And after this committee split on that issue of how, not 
whether, apparently--and I have read this, and perhaps you were 
misquoted, that does happen from time to time here-- you 
intervened and asked that the bill not come to the floor 
because of the possibility that the House might actually 
authorize a production program. And I think that is a serious 
problem we have.
    When this committee overwhelmingly voted--and I would not 
doubt the sincerity of the people on the other side, even if I 
could under the rules--when they voted for a program that 
allowed this money to go through the local and State housing 
trust, I am sure they did this out of a conviction that we 
should help build housing production, not simply to stave off a 
more popular proposal.
    And so when this committee divides along those lines and 
you then intervene to get the whole bill killed and with it 
kill a lot of other good proposals that I thought weren't 
controversial, I am very disappointed. So I think we have a 
very serious set of problems facing us.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    The Chairman. The Chair now recognizes the gentleman from 
Ohio, the chairman of the Housing Subcommittee, Mr. Ney.
    Mr. Ney. Thank you, Mr. Chairman.
    And I am pleased that we are having this hearing today. As 
we are aware, HUD, the Rural Housing Agency, FEMA, the 
Neighborhood Reinvestment Corporation, are all important parts 
of providing housing in the United States. And particularly, I 
am interested in the proposals proposed by HUD for reforming 
the Section 8 voucher program and of course the elimination of 
the funding for the brownfield development.
    There is no doubt, I think we all recognize, Section 8 is 
in need of reform. Right now, the program takes up about 50 
percent of HUD's budget; at the same time, not all the vouchers 
we fund are being used. We can't afford to keep operating the 
program as we have, although I want to praise the Secretary 
for--you know, we have talked, and I know the statements that 
you want to do something always to make things better.
    So the committee is going to have to consider how to reform 
the Section 8 program so that the vouchers are being utilized, 
people who need vouchers can use them even in the high-cost 
areas. And that cost of vouchers, we have got to make sure it 
doesn't grow out of control. And I am not sure what the best 
way is to do this, to be frank, but we will be willing to work 
with you and to partner with you and to work with the members 
of the committee on both sides of the aisle.
    Furthermore, of course, there is a debate about HOPE VI and 
if HOPE VI is to be continued or whether reforms are necessary. 
And again, I think it is a subject that we need to spend some 
time on to come to some conclusions of what happens with that 
program.
    And I had mentioned the brownfield, which I think is very 
important. Early this year one of our committee members 
reported his bill 239, H.R. 239--that was Gary Miller--which 
would make it easier for communities to use the brownfield 
development money. I think it would be unfortunate, after that 
being reported, to somehow be able to have legislation passed 
and then not have the money that is needed to do that.
    Despite the questions I have, I applaud the Secretary, what 
you have done to work on reform. You have been working hard to 
update the technology that HUD uses, to streamline your 
programs, and to bring greater accountability to the 
Department. There is a lot more work to be done, but I am sure 
that working together we will all face the job. So I appreciate 
your time here, Mr. Secretary. Thank you.
    Secretary Martinez. Thank you, sir.
    The Chairman. I Thank the gentleman.
    The Chairman. The gentlelady from California, Ms. Waters.
    Ms. Waters. Thank you very much. I would like to thank you 
for holding this hearing today. And Secretary Martinez, I thank 
you for your presence. You are going to be made to feel a bit 
uncomfortable here today, because you are going to hear over 
and over again from many of us about what we don't like about 
this budget. I would like to believe that if you had your 
druthers, you would give us adequate funding, you would 
advocate for it, and you would make sure that we are meeting 
the needs of our citizens for housing and particularly our poor 
citizens.
    Having said that, let me just share with you what my 
concerns are. First, starting at the poorest levels, 
homelessness. I am very, very concerned that this budget does 
not really deal with the growing homelessness that we have in 
this country. And while I think there is some reference to 
dealing with kind of the permanent homeless, in the city of Los 
Angeles, downtown Los Angeles, around our city hall and our 
government buildings and hotels, we are stepping over homeless 
bodies on the street. It is absolutely shameful. And I really 
do believe that the Federal Government must be in partnership 
with our cities to really deal with the homeless problem.
    Also, public housing. All of us are very concerned about 
the shortfall that was announced for public housing. You know, 
public housing--despite the fact there are people on waiting 
lists that need to get in, people who can't really find housing 
anyplace else--is a place where people are often blamed for the 
way the housing looks. They are blamed because the trash is not 
picked up, they are blamed because the buildings are not 
painted, they are blamed because the plumbing is not working. 
But that is really a problem of management at our public 
housing authorities. And it seems to me they cannot do the job 
unless they have the operating budget to do it. Whether it is 
the plumbing and repair or the screen doors or security, we 
must have an adequate amount of dollars to ensure that we can 
keep up these places, because we have the poorest people living 
there, with the least number of resources themselves. And so 
that is a responsibility. We cannot be slum lords. The 
government must have the kind of operating budget--and I do 
want to hear whether or not we are going to be operating with 
70 percent or 90 percent. As Barney said, we should be talking 
about 100 percent.
    Please explain to us about HOPE VI. As you know, most of us 
like that program. It has relocated approximately 41,000 
families to better housing, demolished over 51,000 distressed 
and obsolete units, and rebuilt 19,000 public and nonpublic 
housing units. So we need to know why, when we are on the track 
for doing something good, then all of a sudden we don't have 
access to those resources anymore.
    As for Section 8, we have waiting lists in many of our 
cities and certainly we do in the city of Los Angeles. I am 
not--I am not at all interested in privatizing Section 8, I am 
not at all interested in block granting Section 8. I come from 
a State where we have a $35 billion deficit. I don't want to 
block grant anything to my State, because anything that gets 
block granted, monies will be siphoned off to pay for other 
things. And so we have to be very careful about that.
    Having said that, let me also add that CDBG is a very 
important resource, the Community Development Block Grant. We 
should have a substantial increase in CDBG. Not only do we have 
CDBG that provides money for housing, but for all of those 
nonprofits out there that are doing the kind of work that is so 
desperately needed, whether we are talking about some of that 
money going to seniors or to children or to other efforts in 
the community to basically help poor people.
    And so while again I would like to believe that if you had 
your druthers, you would do it differently and you would 
advocate for more money, unfortunately you are on the hot seat. 
I mean, the buck stops with you on this one. So you have to 
tell us what you are going to say and what you are going to do 
about all of these issues that we are bringing to your 
attention today.
    I still thank you for coming. I may have to go in and out, 
but I will certainly have access to whatever information you 
are going to share, and I thank you very much.
    I yield back the balance of my time.
    The Chairman. The gentlelady's time has expired.
    The Chair would now wish to recognize Mr. Feeney from 
Florida for the purpose of introducing the Secretary.
    Mr. Feeney. Thank you very much, Mr. Chairman. It is indeed 
a great honor to introduce a very close friend of mine and 
somebody I admire a great deal, our 12th Housing and Urban 
Development Secretary here in the United States. Secretary 
Martinez was unanimously confirmed in January of 2001. He is a 
graduate of Florida State University Law School among other 
things, and, like me, he is a recovering lawyer, and practiced 
law in Orlando for about 25 years. Before becoming, Secretary, 
he was elected as Orange County's chairman, served on the 
Governor's Growth Management Study Commission, and did a 
remarkable job in central Florida. And we are so proud to have 
him as our favorite son.
    As HUD Secretary, he has worked to strengthen our 
communities by launching programs such as HUD's Center for 
Faith-Based and Community Services. He has expanded home 
ownership opportunities throughout the United States, and he is 
actively working to reform and simplify the home buying process 
to make the American dream of home ownership available to more 
Americans.
    So Mr. Chairman, it is a great delight and privilege for me 
to introduce a hometown fellow, and a good friend of mine, 
Secretary Martinez.
    The Chairman. I thank the gentleman.
    And, Mr. Secretary, welcome back. And after that high 
barrier that the gentleman from Florida set for you, I am sure 
you can equal or exceed that. So welcome back.

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

    Secretary Martinez. Thank you, Mr. Chairman. It is a 
pleasure to be back. It is a particular pleasure to see on the 
committee some Florida friends like Congressman Feeney and the 
Congresswoman from Sarasota who is also a dear friend.
    We are delighted to be back here today to talk about the 
fiscal year 2004 budget. And I have prepared remarks, and I 
would like to make them part of the record.
    The Chairman. Without objection.
    Secretary Martinez. I am going to go through some prepared 
remarks, but I do also want to be sure in my opening comments 
perhaps I can begin to deal with some of the issues that have 
been raised by some of the members and their concerns, because 
I do think that while a lot of these things may sound 
draconian, they do have, I think, a certain amount of logic and 
a good number of them also have some pretty good answers.
    We are at a time of some great uncertainty in the world, 
and the administration continues focusing on strengthening the 
United States economy. Creating affordable housing options 
remains a critical component of the President's agenda. HUD's 
proposed $31.1 billion budget offers new opportunities for 
families and individuals and minorities seeking the American 
dream of home ownership. It offers new opportunities to 
increase the production of affordable housing and expand access 
to housing free of discrimination. It provides new 
opportunities for strengthening communities and generating 
renewal growth and prosperity with a special focus on ending 
chronic homelessness. And our budget creates new opportunities 
to improve HUD's performance by addressing the internal 
management problems that have long challenged the Department.
    I know that this particular subject is of great interest to 
the committee, and we will be talking to you a little more 
about that in the course of my testimony.
    I want to discuss, first, home ownership. The President has 
committed this Nation to creating 5-1/2 million new minority 
homeowners by the end of the decade. Several new and expanded 
proposals for the fiscal year 2004 budget will increase the 
availability and production of affordable homes and help more 
families to know the security of home ownership.
    As a first step, HUD proposes to fund the American Dream 
Down Payment Initiative at $200 million. The initiative will 
help approximately 40,000 low-income families with a down 
payment on their first home. We also reach out to low-income 
families hoping to make the move into home ownership by 
allowing them to put up to a year's worth of their housing 
choice vouchers assistance towards a home down payment.
    To promote the production of affordable single-family homes 
in areas where such housing is scarce, the administration is 
proposing a tax credit of up to 50 percent of the cost of 
construction of a new home or rehabilitating an existing home.
    HUD is committed to helping families to understand the home 
buying process and how to avoid the abuses of predatory 
lending. The fiscal year 2004 budget will expand funds for 
counseling services from 40 million to 45 million. This will 
allow us to provide 550,000 families with home purchase and 
home ownership counseling and about 250,000 families with 
rental counseling.
    Our budget also strengthens HUD's commitment to shop the 
Self-Help Home Ownership Opportunity Program. SHOP is the key 
initiative that turns low-income Americans into homeowners by 
partnering with the Federal Government with faith-based and 
other community organizations. The program is funded at 65 
million, which will support the construction of 5,200 homes.
    Along with boosting home ownership, HUD's proposed budget 
promotes the production and accessibility of affordable housing 
for families and individuals who rent. We achieve this in part 
by providing States and localities with new flexibility and 
additional resources to respond to local needs. The Home 
Investment and Partnership Program is a major tool for helping 
communities meet housing affordability needs.
    As reflected in this year's program assessment, the HOME 
Program is successful because it is well managed and its 
flexibility insures local decisionmaking. Our budget, Mr. 
Chairman, provides a 5 percent or $113 million increase over 
the amount the administration proposed for the HOME Program in 
the fiscal year 2003, which I believe is a real shot in the arm 
to those who believe that housing production is an essential 
part of what must be done in America's housing strategy. HOME 
will make nearly $2.2 billion in funds available to State and 
local grantees to help finance the cost of land acquisition, 
new construction, rehabilitation, down payment, and rental 
assistance.
    To ensure greater flexibility within the Section 8 Housing 
Choice Voucher Program, and to empower States to make decisions 
based on local needs, we propose converting the voucher program 
to a State-run block grant called Housing Assistance for Needy 
Families. Turning over administration of the program to the 
States is the appropriate way to ensure the best service for 
needy families while improving its management by putting it 
closer to the people that it is intended to serve.
    Our budget includes legislative proposals that would 
substantially improve living conditions within public housing 
communities by giving public housing authorities new ability to 
leverage private capital. The Public Housing reinvestment 
initiative would authorize HUD to replace public housing 
subsidies for development or portions of development with 
project-based voucher assistance. Our budget also adds a 
partial loan guarantee that will cover up to $1.7 billion in 
loans. This financial restructuring will allow VHAs to secure 
private financing to rehabilitate or replace aging properties 
on a property-by-property basis, as other affordable housing 
owners do.
    The Public Housing Reinvestment Initiative reflects our 
vision for the future of public housing. For 10 years, the HOPE 
VI Program has been an avenue for funding the demolition, 
replacement, and rehabilitation of severely distressed public 
housing. Established to revitalize 100,000 of the Nation's most 
severely distressed public housing units, the program has 
already funded the demolition of over 115,000 such units and 
the production of another 85,000 revitalized dwellings.
    With a 2003--2002 and 2003 appropriations, we anticipate 
being able to demolish an additional 15,000 units and replace 
15,000 more. Just this week we began notifying those 
communities that have been awarded HOPE VI grants for 2003. 
With $2.5 billion already awarded but not yet spent and an 
additional $1 billion to be awarded in 2002 and 2003, HOPE VI 
will continue to serve communities well into the future.
    When HOPE VI was first created, it was the only significant 
means of leveraging private capital to revitalize public 
housing properties. But that is no longer the case. Today HUD 
has approved bond deals that has leveraged over $500 million 
just in the last couple of years. PHAs can mortgage their 
properties to leverage private capital. In Maryland and 
Alabama, PHAs are combining efforts to leverage their resources 
and assets to attract private capital. Some cities like Chicago 
are committing hundreds of millions of dollars of their own 
money to revitalize public housing neighborhoods.
    HUD is also seeking additional tools from Congress such as 
the Public Housing Reinvestment Initiative. HOPE VI has been a 
successful program that was created to serve public purpose. It 
is time to look at the future, and the future also is full of 
opportunities. And I look forward to working with the Congress 
as to how we together might like to create ways to learn from 
HOPE VI and move to new areas of opportunities for urban 
revitalization.
    Regulatory barriers through the State and local level have 
an enormous impact on the development and the creation of 
affordable rental housing. Within the 2004 budget, HUD builds 
on its commitment to work with States and local communities to 
reduce these regulatory barriers. Through the new Office of 
Regulatory Reform, HUD will spend an additional $2 million next 
year to learn more about the nature and extent of regulatory 
problems and how to reduce the effects of excessive barriers to 
rental and affordable house. The President has made it a top 
priority to reduce the cost of regulatory barriers at the 
Federal level as well, and at HUD we are committed to doing so.
    I am sorry. Were you to your break point or not? Okay.
    State and local governments depend upon HUD grants to 
support community development projects that revive troubled 
neighborhoods and spark reinvestment and renewal. In the 2004 
budget, HUD will strengthen its core grant programs by ensuring 
the grantees have even greater flexibility to address locally 
determined priorities. The CDBG program will provide $4.4 
billion in funding to meet local needs in more than 1,000 
jurisdictions. In 2004, HUD would make programs more effective 
by studying ways to reward communities that commit to results-
oriented, outcome-based performance results.
    The Chairman. Mr. Secretary, if you would suspend just a 
second. The Chair would indicate there is a vote on the House 
floor. It would be my feeling, after consultation with the 
Ranking Member, to continue the Secretary's testimony, with 10 
more minutes left on the vote. Some of our members went over to 
vote and come back, so we will try to keep this moving without 
a break. So, thank you, Mr. Secretary. You may continue.
    Secretary Martinez. Through the fiscal year 2004 budget, 
HUD will strengthen its efforts to protect the Nation's most 
vulnerable, those individuals and families who truly need 
government assistance. The budget funds services benefiting 
adults and children from low-income families, the elderly, 
those with physical and mental disabilities, victims of 
predatory lending practices, and families living in housing 
contaminated by lead paint hazards.
    I want to highlight the administration's and President's 
commitment to those who have no place to call home. Across the 
scope of the Federal Government funding for Homeless Specific 
Assistance Program increases 14 percent in the fiscal year 2004 
budget proposal. This American initiative is an important new 
element of the administration's strategy to end chronic 
homelessness within a decade. This American initiative includes 
a proposed competitive grant that would be administered jointly 
by HUD and the Departments of Health and Human Services and 
Veterans Affairs. For 2004, HUD provides $50 million for the 
housing component of this initiative, while HHS and VA will 
each provide $10 million for services such as substance abuse 
treatment and primary health care.
    To increase a community's flexibility in combating 
homelessness, the budget proposes to consolidate the current 
three competitive homeless assistance programs.
    Finally, in recognition of the effectiveness of the 
recently reactivated Interagency Council on Homelessness, the 
Department would provide $1-1/2 million to operate the Council 
in the fiscal year 2004, which represents a 50 percent funding 
increase.
    HUD has made great progress over the past 2 years in making 
the Department work better for the taxpayers and for every 
American who seeks a place to call home. HUD fully embraces the 
President's management agenda and is on target to meet its 
challenging goals of improving overall efficiency and 
effectiveness. The steps the Department has taken thus far have 
gone a long way towards restoring the confidence of the 
Congress and the public in HUD's management of its financial 
resources, and I can assure the members of this committee that 
our commitment to the highest standards of ethics, management, 
and accountability will continue in the coming fiscal year. And 
I look forward with the members of the committee in working 
towards common solutions to the problems that vex America's 
cities.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Secretary.
    [The prepared statement of Hon. Mel Martinez can be found 
on page 122 in the appendix.]
    The Chairman. And let me begin the series of questions for 
you.
    As you know, the overall HUD budget calls for a slight 
increase to 31.3 billion, up from 31.245 billion in fiscal 
2003. With some agencies all over the Federal Government taking 
drastic cuts, could you explain to this committee how the 
fiscal year 2004 overall budget numbers are actually a good 
sign that the President is committed to housing, particularly 
given the tight budget climate and the international crisis?
    Secretary Martinez. Mr. Chairman, I don't think there is 
any question that we must understand that this budget is in the 
context of what is happening around our Nation and the world. 
It is in the context of all of the priorities that our Nation 
faces. But notwithstanding that, because of the very important 
issues that were raised about a housing trust fund, it was felt 
by us that we needed to do more to encourage housing 
production, which is why we increased housing production under 
the HOME Program by 5 percent, a $113 million increase in that 
very program.
    And, you know, Ranking Member Frank might give me credit 
for things that I am not powerful enough to do. I must say to 
you that I am not sure that National Housing Trust Fund is the 
right way to approach the problem. In the HOME Program, we have 
a program that works, that has a proven track record, and in 
fact that 5 percent increase is a substantial increase. We also 
focus on the President's priority on home ownership. We move 
forward in that area aggressively with a Down Payment 
Assistance Program.
    Also in the area of homelessness, as Ms. Waters commented, 
the homeless problem in America is a serious problem. Our 
attack on the homeless issue also increases funding with the 
New Samaritan Grant Program. These are all welcomed things that 
I believe are good news in our budget, and frankly I think will 
make a real difference in programs that find ways to help 
American families where they need it the most.
    The Chairman. Mr. Secretary, as you know, the President has 
proposed an elimination of the double taxation on dividends, 
something that our committee obviously has a major interest in. 
There are some folks, however, that say that the unintended 
consequence would be loss of certain tax shelters, a possible 
loss of 44,000 new units under the first year enacted. That was 
an Ernst and Young study. Would you care to comment on the 
impact of the President's proposal, particularly on the low-
income tax credit, and ultimately on affordable housing in 
general?
    Secretary Martinez. Mr. Chairman, first of all, I should 
say that the Ernst and Young study, while it does make the 
claims that you allege, the Department of Treasury, who is 
ultimately in charge of fiscal policy and tax policy for the 
administration, has a different view of it. Their view is that 
the effect will be minimal. And I would say that in addition to 
the Department of Treasury's view of this, the Mortgage Bankers 
Association also has an analysis of the tax proposal which also 
seems to suggest little or no consequence to the low-income 
housing tax credit.
    I believe that there have been various different views of 
that. I have had people initially become alarmed by it, and as 
they have looked at it further, understand that perhaps the 
impact is not what is purported to be. So I think we must go 
forward with this tax package, which, at the end of the day, is 
going to create more jobs and is going to create more 
opportunities for America to be better housed, to move our 
economy to a stronger point; and that overall goal may be the 
overriding issue that we need to keep in sight.
    So I believe we need to continue to move this process 
forward, to allow the President's tax proposal to move forward 
so that we might see the type of robust economic recovery the 
President wants and I know the members of this committee would 
also like to see.
    The Chairman. The fiscal 2004 budget calls for elimination 
of HOPE VI. What is your view on HOPE VI? Some say it has been 
successful, others say it has not. Is the administration 
prepared to replace HOPE VI with some other method? Give us 
your thoughts on that, if you will.
    Secretary Martinez. Sure. I think it is a fair question. It 
is a program that I think by and large has been largely 
successful. There are some things about HOPE VI that have 
caused concern in a number of circles, and a number of studies 
have been done on HOPE VI, and I think all of these ought to be 
analyzed.
    The first thing I should say is that this was a 10-year 
program. It was a program that came up for reauthorization this 
year. The history of HOPE VI will tell us that while it has had 
great success in revitalizing many parts of our country, only 
14 out of 165 projects that have been funded have been 
completed. The promise of HOPE VI really remains yet 
unfulfilled. In addition to the--out of the $5 billion that 
have been funded through HOPE VI over the last 10 years, only 
2-1/2 billion have been expended. So, 2-1/2 billion remains 
unexpended, with an additional billion in this year's cycle and 
in next year's cycle still to be awarded.
    My point on this is that we are at a time when it would do 
us good to allow the projects to be completed, to move forward 
and the money to be spent out, while at the same time we 
continue to fund this year's cycle and next year's cycle with 
monies already appropriated, and then take a good look at what 
have been the lessons of HOPE VI. I know that if we were here 
under different circumstances, many would be concerned about 
the displacement of folks from the HOPE VI projects that have 
been already undertaken. That is an issue that needs to be 
addressed. We haven't dealt with that very well.
    So I think as we look to the future, that it is not an 
abandonment of a good idea, but is a time to rethink those 
things that are good about HOPE VI, while at the same time 
attempting to improve those things about HOPE VI that haven't 
worked so well, like the issue of the relocation of families 
and how many families in fact that lived in public housing, 
that lived in those projects that were then torn down, have 
been able to move back into those housing projects that have 
now been revitalized.
    So I believe that while largely it is successful, it is an 
area that remains one that we should study more closely. And it 
appeared to us that at a time when the process of HOPE VI was 
up for reauthorization was a good time to take a good hard look 
at it, learn from successes, learn from failures, and move 
forward.
    The Chairman. Our time has expired. The gentlelady from 
California, Ms. Waters.
    Ms. Waters. Thank you very much, Mr. Chairman. And you have 
raised some of the questions that I would like to ask.
    But continuing in this discussion about HOPE VI, you agree, 
we all agree it is a good program. And I am looking at the 
numbers that you have talked about, 2.5 billion I think you 
said that is left to be spent; 1 billion of that in this 
funding cycle.
    Secretary Martinez. This one and next year. Half a billion 
and half a billion. So it is correct. The prior funding cycle 
and this funding cycle, we just funded some projects.
    Ms. Waters. How many years have we been into HOPE VI?
    Secretary Martinez. Ten years.
    Ms. Waters. So what you are saying is that the grant lags 
behind the 10-year anticipated time by which we would spend all 
of the money for HOPE VI.
    Secretary Martinez. Correct.
    Ms. Waters. And, therefore, we are not asking for any more; 
we want to spend this money.
    Secretary Martinez. Right.
    Ms. Waters. But you agree, based on everything that you 
know, that HOPE VI is a good program.
    Secretary Martinez. HOPE VI is a good program.
    Ms. Waters. So shouldn't we not only speed up the granting, 
but increase it so that we can get on with the business of 
getting rid of the outdated public housing developments, create 
more housing opportunities?
    Let me tell you what I am really worried about. Go ahead.
    Secretary Martinez. May I touch on that point? Because I 
think it is very pertinent. When we look at the city of 
Chicago, Mayor Daley is doing a phenomenal job. The city of 
Chicago had some of the worst examples of what public housing 
shouldn't be. They still do. And we have moved very 
aggressively through HOPE VI to fund that city. Right now we 
had three projects going into closing this month. We have now 
learned they are not going to be able to close on them. I am 
not sure how much good it would do for us to fund Chicago with 
more HOPE VI's this year, next year, or frankly for the next 
several years, until they can get done what they have already 
had funded for them. So that is my point. It isn't that it is a 
bad program.
    Ms. Waters. But this is in the country, Mr. Secretary. We 
have dilapidated public housing all over the country. What 
about New York? What about Los Angeles? What about----
    Secretary Martinez. But what is it about the way we are 
doing HOPE VI now that entangled it and it takes so long for 
the money to get out? What I would like to see is the same 
thing you would like to see. I would like to see all of this 
money, this $2-1/2 billion, $3-1/2 billion that we still have 
in the pipeline, I would like to see that go in the ground and 
dirt turn. But I know how long it takes for these projects to 
come together, because--I am not sure that we are doing it the 
right way. I am not sure that housing authorities were ever 
intended to be developers. They were rental property managers. 
That is what public housing authorities are. Are they the best 
vehicle by which to make sure that the HOPE VI projects go 
forward?
    When you hear from people in your district and they tell 
you that they have got displaced from a HOPE VI and they don't 
have a place to go, what do we do with those people? They are 
not going to come back oftentimes to that project.
    Ms. Waters. But Mr. Secretary, that is what we expect you 
to do. We expect you, once we authorize and fund, to just get 
it done. We don't expect that they have this lag--if the public 
housing authorities are not capable of developing--and they 
probably are not, because the public housing managers, 
particularly these large public housing authorities, are not 
asked about their development experience, their construction 
experience. They are managers. So if we know that doesn't work, 
why don't we just institute a program by which we can get 
developers in there to get these projects on-line and get them 
done?
    Secretary Martinez. So just like with that issue, there are 
a number of things about HOPE VI which, while a good program, 
need to be addressed. At this time of reauthorization, with 
substantial money backlog and in a difficult budget choices 
year, doesn't it make sense for us to take a good deep breath, 
to look at the program, to see what works and what doesn't, and 
jointly between us--with proposals, but also with your input--
together fashion what HOPE VII ought to look like, HOPE VIII 
ought to look like?
    How do we continue on some sort of commitment to the 
revitalization of public housing in a way that may be yet even 
better? In addition to the fact--and I have not mentioned this 
other than in my formal comments--that we are also working with 
the private sector to find ways that public housing authorities 
can, independent of the Federal Government, go into the private 
marketplace and finance reconstruction and revitalization of 
their projects. This is a very significant thing. A substantial 
amount of dollars already is going into these kinds of private 
financing arrangements. Chicago is leading the way, 
Philadelphia is doing it, other cities are coming on board. And 
we want to encourage that as well.
    So HOPE VI is not the only way that we can revitalize 
public housing in America. The private sector dollars, through 
private financing, through ways that we are evolving into, also 
can provide a real solution to the problem.
    Ms. Waters. So what you are telling me is that some of your 
public housing authority is already going out. They are putting 
requests for proposals out for developers to come in and look 
at how they can do some of this work? Is that happening 
already?
    Secretary Martinez. It is happening, I am not sure exactly 
as you phrased it, but they are going to the private sector 
seeking bank loans so that they can then themselves rebuild 
their projects or revitalize those public housing authorities 
that need that. And so that is occurring today. But we cannot 
now do a HOPE VI with anyone other than the public housing 
authority. We would need congressional authorization for us to 
do the project in a different way.
    Ms. Waters. Well, let me just wrap this up by saying we 
need to have more discussion about that and take a look at what 
you can do given the authority that you have.
    Finally, let me just say, Mr. Secretary, I am very 
concerned about public housing developments that do not have 
enough operating money. I am very concerned that they are going 
to continue to fall into disrepair, and that it would be 
exacerbated by the fact that we have lost funding and drug 
elimination programs and other kinds of things. And it is not 
fair to blame the poor people for lack of good management by us 
and the operating dollars that we need to make these livable 
places. I certainly hope you are going to increase the 
operating expenditures from that 70 percent that you announced 
not too long ago that shocked us all.
    Secretary Martinez. Well, if I may directly answer that. I 
think within a week of that announcement going out, which was 
ill advised, which was done because we didn't have a budget, no 
budget was passed, and we were trying to take the safest course 
of action, we quickly advised the public housing authorities--
and you should be aware of the fact that it was going to be a 
90 percent funding level. And what I would say about that is 
that what we are doing is something that I am extremely proud 
of. We are in fact fixing a longstanding financial problem at 
HUD that recurrently causes the shortfalls in funding to public 
housing authorities. Next year this problem will not occur 
because we fixed the problem.
    But a funding level of 90 percent is not historically 
without precedent in public housing authorities funding. I 
would say to you that in 1999, it was only funded at 92.5 
percent. It was funded in 1996 at 89 percent. And in 2002, we 
funded it at 100 percent. In 2001, it was funded at 99 percent. 
But over the last 10 years, the history of public housing 
funding at these levels of 90 percent to 100 percent is not 
without precedent.
    The Chairman. The gentlelady's time has expired.
    Ms. Waters. Thank you very much. I appreciate that.
    The Chairman. The gentleman from Ohio, Mr. Ney, chairman of 
the Housing Subcommittee.
    Mr. Ney. Thank you, Mr. Chairman.
    Mr. Secretary, as you know, the President has proposed a 
tax reform package, stimulus package, which I support. But in 
there it eliminates the double taxation on dividends. Some 
people, however, believe the plan would have an unintended 
impact on certain tax shelters, and the Ernst and Young study 
cited a possible loss of about 40-some-thousand new affordable 
units the first year the plan would be enacted. Do you have any 
thoughts on this or maybe how it would be altered for a carve-
out?
    Secretary Martinez. I am sorry. Congressman Ney, my concern 
is that, you know, we at HUD do not lead on tax policy. And we 
are watching this situation, are greatly concerned, and are 
discussing it within the administration. I assure you that the 
President is concerned about the impact on housing policy. The 
President is very committed about increasing the availability 
of affordable housing. That is why we have the single-family 
housing tax credit proposal.
    I believe that the concerns that have been raised at this 
point, even with the Ernst and Young study which is under 
consideration and study by the administration, that the 
administration still is prepared to stand by the projections of 
the Department of Treasury, which does strongly believe that 
the impact on housing will not be what was forecasted by the 
Ernest and Young study.
    But we continue to study the situation. I know the 
administration wants very much to ensure that we don't have a 
detrimental effect on the housing supply, and so we will 
continue to study and analyze the situation. But the Department 
of Treasury will have the lead on tax policy. We at housing are 
housing advocates, and I assure you we are making sure that the 
administration hears the concerns of the industry, hears the 
concerns from people in the low-income housing credit field, 
and those concerns are being addressed in the administration.
    Mr. Ney. Thank you. I do believe it was an unintended 
consequence, not something that was planned as part of the 
overall stimulus package.
    Also, the National Housing Trust Fund campaign will be 
introducing legislation, I think it is today, to create the 
National Housing Trust Fund. According to sponsors, they call 
for surplus FHA funds to be the major dedicated source of 
revenue for that National Housing Trust Fund, which they 
estimate to be 34.124 billion between now and fiscal year 2009. 
Do you have any comments on that?
    Secretary Martinez. Yes, sir. First of all, I would say 
that we have maintained and continue to maintain that a 
National Housing Trust Fund would not be the right avenue by 
which to create a greater production of affordable housing in 
America. We believe that many States do have housing trust 
funds and they fund them in various and different ways, and 
these are very productive that work through their various and 
sundry State programs.
    We believe that our increase in the HOME Partnership 
Program, which is a very successful program, where we are this 
year going to be funding it at $2.2 billion with an increase of 
5 percent, or $1.3 million, is the right way to address a 
housing production affordability problem.
    I continue to also maintain that the needs of affordability 
can only, ultimately, be solved at the local level, by mayors, 
city council members, and others at the local decision-making 
level, rolling up their sleeves and looking at their local 
regulations and what it does to affordability. We are working 
in that vein as well.
    And so we are continuing to look at how HUD can be of 
assistance to local communities with regulatory reform. We are 
creating a clearinghouse for regulations, we are looking at how 
we can provide vehicles for people to be better informed about 
the cost of regulation and what it does to the cost of housing 
at the local level.
    So, while the Federal Government has the responsibility, 
which we believe we best meet through the HOME Program, we also 
want to work with local government as they need to address the 
issues of affordability.
    One last point I would make is that--I lost my train of 
thought. I am not sure what that last point was, but I will 
come back to it.
    Mr. Ney. It had to be a good one though.
    Secretary Martinez. I am sure it is coming. Just hang on.
    Mr. Ney. One quick--because my time is running, Mr. 
Chairman and Mr. Secretary.
    We struggled for a long time with manufactured housing. 
This is before your time at HUD. And you have requested 17 
million for implementation of the Manufactured Housing 
Standards program. That is up 31 percent from 13 million in 
2003 and more than double, 8 million actual, in 2002; and I 
think that is tremendous.
    I used to and still hear a lot of people saying, though, 
that we need to quicken the pace on implementing reforms 
enacted by Congress in the Manufactured Housing Reimprovement 
Act of 2000. It is an important resource of unsubsidized 
housing for moderate-income families, and right now they are 
having a downturn, as many people are in this country, but we 
do credit the increase.
    And I just wonder if you have any other thoughts on that 
manufactured housing. And do you think the pace is going where 
it should be, or can it be accelerated?
    Secretary Martinez. I think it probably could be 
accelerated. But at the same time, I also want you to know that 
we are working very closely with a new committee that was 
created in order to have a voice at our Department for the 
manufactured housing industry.
    I have traveled and had an opportunity to see some of their 
products, met with some of the industry leaders, and I believe 
it is a housing option that America increasingly needs to 
embrace. I think it would be good for a lot of the 
affordability problems, frankly, if we liberated some of the 
constraints on financing for manufactured housing. And so I 
look forward to continuing to work with the industry in that 
vein.
    And my brilliant thought came back to me, which is, 
frankly, that I think the proponents of a national trust fund 
really are approaching a very wrong source for funding if they 
think the FHA insurance reserve is an appropriate place to look 
for found money.
    The fact is that the so-called FHA surplus, it really is an 
FHA insurance reserve. FHA is an insurance product that has 
been a key to home ownership for poor and first-time home 
buyers in America for a long time in our history and nothing we 
should do to tamper with the solvency and the financial solid 
nature of FHA.
    I know that only a few years ago, before my time, but I 
know a few short years ago this Congress was very concerned 
about the solvency of FHA. Fortunately, through many changes 
that were made by the Congress wisely at that time and good 
management, the FHA now is in a very solvent condition. But 
ultimately, any money FHA has is a premium that it charges poor 
families in America at the time they buy a home. And we are 
working diligently to ensure that surplus, that excessive 
reserve, as some view it, does not continue to grow and is not 
more than it ought to be.
    And what we will do is to find ways in which the FHA can 
continue to serve America's neediest and also keep the premiums 
in check and work with ways that we can eliminate unnecessary 
premiums to American families.
    The Chairman. The gentleman's time has expired.
    The gentleman from Massachusetts, Mr. Frank.
    Mr. Frank. Mr. Secretary, I am impressed by your modesty. 
But maybe you and I ought to get together and correct a 
misstatement in the press--not, perhaps, for the first time.
    You said I was imputing to you more power than you perhaps 
have. I assume you meant when I said that you would intervene 
to get the bill killed.
    On January 25th of this year, the National Journal in an 
article said, Martinez opposed the fund; the measure passed in 
the committee vote. Only then did Martinez pay attention, 
calling on the VA-HUD subcommittee chairman. They got a little 
confused on the procedure though.
    Martinez stopped the markup and got another committee vote 
scheduled, successfully killing the bill. And then after we had 
that division about how to do it, it never came to the floor.
    Do you want to take the occasion now to correct this 
egregious error apparently in the National Journal?
    Secretary Martinez. I would be delighted to correct a lot 
of egregious errors in----
    Mr. Frank. Well, just one at a time. You can do the others 
on your own time.
    Secretary Martinez. I only got a C-plus from them, and one 
of my Cs came from congressional----
    Mr. Frank. But let us talk about specifics here. Is this 
wrong?
    Secretary Martinez. Yes, sir, I will talk specifically 
about----
    Mr. Frank. Is this wrong?
    Secretary Martinez. I don't know that all the ultimate 
conclusions that it raises are correct. I don't think that I 
was the person who ultimately did not allow that to come to the 
floor.
    Mr. Frank. Did you intervene to try and get the bill 
killed?
    Secretary Martinez. The first thing I would correct is that 
I didn't pay attention to it until it got passed out of 
committee.
    Mr. Frank. Did you intervene----
    Secretary Martinez. I did not favor a trust fund, sir. And 
I said that clearly at the time of----
    Mr. Frank. Mr. Martinez, I understand that. Did you ask 
that the bill be killed and not come to the floor after it 
passed committee?
    Secretary Martinez. Sir, I talked with people who were 
concerned about the bill, who agreed with my position on it; 
and I believe the bill got killed----
    Mr. Frank. And asked them not to----
    Secretary Martinez. I did not specifically ask that the 
bill be killed. No.
    Mr. Frank. It got killed.
    Ah, the passive voice. The passive voice has committed more 
errors and done more damage in this country than all the people 
ever created. And I must say I always take the passive voice as 
a nondenied denial.
    Let me ask you what you thought about the Millennial 
Housing Commission.
    Secretary Martinez. I think the Millennial Housing 
Commission had some good recommendations. I think the 
Millennial Housing Commission also had a laundry list of 
things, all of which could not be accomplished.
    But, you know----
    Mr. Frank. Were they wrong in principle, do you think?
    Secretary Martinez. I am sorry?
    Mr. Frank. Were they wrong in principle?
    Secretary Martinez. I think in principle--and I am not 
going to comment on every single recommendation made, but I 
think it was well-intended people trying to look at and 
address----
    Mr. Frank. Well, because when you were here in February of 
last year, we asked about the housing crisis, and you said, 
``The Millennial Housing Commission, I know, has been 
addressing this very issue. I look forward to hearing what they 
have to say.''
    Apparently, you were disappointed in them, because they 
said, ``The most serious housing problem in America is the 
mismatch between the number of extremely low-income renter to 
households and the number of units available to them. It has 
been more than 20 years since there was an active Federal 
housing production program designed to serve extremely low-
income households.''
    One of the principal recommendations was, quote, ``Provide 
capital subsidies for the production of units for occupancy by 
extremely low-income households.''
    I gather you disagree with that recommendation?
    Secretary Martinez. No, sir, I wouldn't disagree with the 
ultimate recommendation. I think that our response in the HOME 
Program with $113 million of new money, 5 percent increase in 
addition to the----
    Mr. Frank. Well, you think a 5 percent increase is 
adequate. Here is what they said, ``The most serious housing 
problem in America is the mismatch between the number of 
extremely low-income renters''--``despite persistence and 
growing need, it has been more than 20 years,'' et cetera.
    So your response to that, you think a 5 percent increase in 
the HOME Program--not all of which, of course, is used for 
production; it is a varied program--that seems to you an 
adequate response, to provide for the capital subsidies 
recommendation of the Commission?
    Secretary Martinez. The Commission also addresses the issue 
of local problems. It doesn't indicate----
    Mr. Frank. I understand. Why don't you talk about what I 
have asked you, and then you can raise the other things?
    I am struck by this and I am struck by HUD's criticism of 
local zoning and local regulation. I share some of those, and I 
think those who might argue that the Federal Government 
shouldn't be trying to influence local zoning decisions are 
wrong. I think that is what we have a Federal Government for.
    But I am interested whether you think, given the way the 
Millennial Housing Commission phrased this, a 5 percent 
increase is enough.
    How many units will we get out of a 5 percent increase, how 
many additional units, Mr. Secretary, that ought to be a fairly 
clear response.
    Secretary Martinez. Well, I have it here, and I am going to 
find it for you in a second.
    Mr. Frank. Another train that got derailed?
    Secretary Martinez. 2.2 billion is going----
    Mr. Frank. No. Mr. Secretary, please answer the specific 
question. You said----
    Secretary Martinez. What is your question?
    Mr. Frank. I talked about the Millennial Housing 
Commission. They say there is a growing need, in 2002; your 
response is--one of them--a $113 million increase. How many 
units nationally will we get from $113 million?
    I think it is clearly inadequate to what the Millennial 
Housing Commission said. You can disagree with that.
    Secretary Martinez. I am sure that if we are going to 
follow the recommendation of the Millennial Housing Commission, 
and if you are also an advocate of a trust fund for production 
of Federal housing, you find our budget inadequate.
    Mr. Frank. You are not answering a question--that is just a 
speech.
    I am asking you a specific question: How many units will we 
get from $113 million? Is that a hard question? I mean, did 
nobody think of that before?
    Secretary Martinez. Five thousand five hundred from that 
additional 5 percent.
    Mr. Frank. I think that is a wholly inadequate response.
    Let me just raise one last question. On the operating 
subsidy, I am puzzled. You say you have solved the problem. You 
have said that the $250 million shortfall that existed in the 
last fiscal year, you are going to take care of that by taking 
that money from the current appropriation. But the current 
appropriation, when you asked for it, didn't assume that 250 
million.
    Do we not now still have a $250 million hole? How did you 
fill that $250 million hole? You borrowed it from 2003 for 
2002. What is that going to leave us in 2003?
    Did you ask for enough in 2003? Did you ask for too much? I 
mean, how, when you got essentially what you asked for in 2003, 
are you able to take $250 million of that and fill the hole 
with 2002?
    Secretary Martinez. Sir, we believe that the accounting 
misallocations that had carried over for a number of years have 
been corrected. And I believe that for the year 2004, which is 
the current budget year that this hearing is on, public housing 
will receive----
    Mr. Frank. Mr. Secretary, please answer the question. I 
don't know why you don't want to answer the questions.
    You have said that you have solved the $250 million 
problem. You have also said that you are going to take the 
money from 2003 and give it to 2002. Does that not mean that we 
are going to have a shortfall during 2003?
    Secretary Martinez. They are going to have 90 percent 
funding. That is the problem.
    Mr. Frank. So that will be the shortfall?
    Secretary Martinez. Exactly.
    The Chairman. The gentleman's time has expired. The 
gentlelady from New York, Mrs. Kelly.
    Mrs. Kelly. Thank you.
    Mr. Secretary, you may recall that in last year's budget 
proposal, the administration suggested that HUD would 
redistribute the CDBG money. And the funding in the way the 
distribution level was done cut 35 percent out of Westchester 
County. It was the only county in the United States singled out 
for that kind of a cut or for any full--any full county singled 
out for a cut.
    That is part of my district, and following the release of 
the proposal, the county executive and I and a county 
legislator came down here, and they gave testimony about the 
impact that would have on Westchester County.
    I would like to get a better understanding from you, 
because I did not see in this year's budget any such proposal. 
And I would like to get a better understanding from you about 
whether or not this is something that HUD is still considering, 
or if this is something that I am going to have to continue to 
fight with you on.
    Secretary Martinez. You won the battle.
    Mrs. Kelly. Good. I am glad to hear that. Thank you.
    I want to ask you also about the HOPE VI program. You say 
on page 8 in your testimony that HUD is programmatically and 
financially committed to ensuring that the existing housing 
stock is either maintained in good condition or demolished.
    I am concerned about the HOPE VI program, because I have 
listened to the figures you gave in your testimony, and you 
said that there were--you demolished 115,000 units and built 
85,000 units. If my math is correct, that means 30,000 people 
were in units that got demolished that have no place to go. 
Those units were not rebuilt.
    Now, I don't know if there were trackers used on those 
people, but I do know that the people that are living in public 
housing get lost in the system sometimes, and I am concerned 
about that.
    I also am--I applaud you for the fact that you are talking 
about demolishing 15,000 units with this new budget and 
replacing that with 15,000 units.
    I would like to ask you about whether or not we need to 
give you more flexibility with that HOPE VI program to make it 
possible for you to make sure that when we demolish a unit of 
Federal housing, we are able to replace it with better Federal 
housing for the people who truly need that housing.
    Secretary Martinez. Your point is precisely what we need to 
address now that this program is up for reauthorization. The 
current program does permit local housing authorities, as they 
go about development or redevelopment of projects, to not 
replace on a one-for-one basis. Some places do.
    The District of Columbia, last year the mayor came up with 
a plan that would replace and put everybody that was in the 
project back into the project. But that is not always the case. 
And so currently local housing authorities, as they present 
their plans for HOPE VI revitalization, may or may not provide 
100 percent relocation back into that project of people who 
live there. That is one of the things we need to address, 
because I agree with you; and it concerns me that when people 
that were living in a place now are relocated in what was 
supposed to be temporary, but at the end of the day they may 
not ever be able to come back into that project.
    So while there are wonderful things that happen in 
communities, they are not always providing the kinds of number-
for-number opportunities for federally assisted housing, and 
that is a concern, so one of the reasons, among others, why it 
was prudent at this time to stop where we were on HOPE VI and 
look to how we may do it in the future.
    Mrs. Kelly. Do you need a piece of legislation that will 
help you with the flexibility? I don't know whether or not 
there is written into the legislation the flexibility that you 
need in order to make sure it is one-for-one, if we are 
demolishing one, we rebuild.
    When you talk about relocation, some of these families 
obviously have not gotten relocated from at least what I have 
been in touch with some of the Federal housing across the 
United States, and there are families that have just gone 
through the cracks. We have got 30,000 here of units that never 
got replaced. We don't know, and I am sure you probably can't 
tell us, either, whether or not all 30,000 families got 
placement somewhere in that local community.
    So, do you need a legislative--a piece of legislation here 
that would help you?
    Secretary Martinez. Yes, ma'am. First of all, Congress did 
away with the one-for-one policy many years ago, so we do not 
currently have that. Not all of the units that are demolished 
oftentimes are tenant-occupied, so that does provide some 
vehicle for them. And the people who are displaced do get 
vouchers, Section 8 vouchers, to go find housing somewhere 
else.
    So I don't think we completely drop them from the radar, 
and they are not without assistance through the Section 8 
program. But ultimately we do not have currently a policy or 
legislative authorization to do one-for-one deals. I think, 
frankly, flexibility is probably a good thing to provide local 
government, but we do need to figure out how we are diminishing 
the number of public housing units available in America as we 
go through HOPE VI. There is no question about that.
    Mrs. Kelly. There is also no question that we need more 
affordable housing. We need to be able to have people qualify 
for that. So, certainly, I am sure that this committee would be 
glad to work with you if we can develop some language that 
would give you flexibility on that HOPE VI program. I hate to 
see it--I would hate to see it end, but I think we need to 
readdress some of the major issues, as Mr. Ney was talking 
about as well. Thank you very much.
    Yield back.
    The Chairman. The gentlelady's time has expired. The 
gentleman from Vermont, Mr. Sanders.
    Mr. Sanders. I thank the gentlemen from Ohio, and thank him 
for holding this hearing, and thank you, Secretary Martinez, 
for being with us today.
    Secretary Martinez, as you know, today I am going to be 
introducing legislation to create a National Affordable Housing 
Trust Fund. I am happy to inform you that as of today we have 
160 cosponsors. Last year we had 200. We hope to top that 
number this year.
    Mr. Secretary, I am sure you will be happy to know that 
this particular legislation has been endorsed by over 4,000 
national, state and local organizations representing every walk 
of life from homeless organizations to banks, because they all 
understand that we have a major housing crisis in this country 
and we need serious legislation to address that crisis.
    The National Affordable Housing Trust Fund would triple 
affordable housing construction in the United States, paying 
attention to those people most at need, to veterans who are 
sleeping out on the streets, to children who are sleeping out 
on the streets of this great country.
    It would pay attention to the 4 million American families 
who are paying 50 percent of their limited incomes on housing. 
It would pay attention to those families who are working 40 
hours a week and sleeping out on the street.
    Now, let me address some of the issues that have come up 
already today. You say we are addressing the problem. We are 
working on the home program. Mr. Franks flushed you out, and in 
the midst of the serious housing crisis you were talking about 
building at most 5,000 units of housing. Frankly, given the 
severity of the crisis, you know and I know that that is a 
pathetic number, not serious about addressing the real crisis.
    Our proposal addresses 150,000 new housing units, you 
address 5,000. Now, you are an expert on the subject. You 
probably agree with me that 150,000 units is significantly more 
than 5,000. You say, a few minutes ago, well, I don't want the 
Federal Government getting involved in national affordable 
housing trust funds, let the local governments address the 
issue of affordability.
    I am happy to tell you that the U.S. Conference of Mayors 
strongly supports the National Affordable Housing Trust Fund, 
because they understand that with State and local governments, 
tens of billions of dollars in debt, that the Federal 
Government is going to have to play a role. So when you talk 
about local control, yeah, we have got the mayors behind us.
    You just say, well, the FHA surplus, Mr. Ney asked you a 
question about the surplus. And you say, well, we have got to 
protect the safety and soundness of the surplus. The latest 
actuarial analysis by Deloitte & Touche for 2002 projects an 
excess, let's be clear about this, an excess above the 2 
percent reserve needed for safety and soundness.
    Nobody here wants to impact safety and soundness. Their 
reserve above that level is 34 billion between now and 2009. So 
let's not fool the people. We want to preserve safety and 
soundness. Our legislation does that.
    You say, well, if we are going to use some of that money, 
let's use it to help poor people. Well, what do you think our 
legislation is doing? It is building affordable housing for the 
poorest people in this country.
    Now, Mr. Frank mentioned to you a moment ago the quote from 
the National Journal, and last year the National Journal says 
that, and I quote directly, The House Financial Services 
Committee last year drafted a bill that established a Housing 
Trust Fund. Martinez opposed the fund, but HUD was out of 
communication throughout the bipartisan drafting process and 
the measure passed at a committee vote. Only then did Martinez 
pay attention. We got behind the ``8'' ball. He admitted 
calling on Representative James Walsh, chairman of the House 
Appropriations Subcommittee. Martinez stopped the markup and 
got another committee vote scheduled, successfully killing the 
bill. After that episode, Martinez fired his head of 
Congressional Affairs and reshuffled his Congressional staff. 
With that shake-up and a lot of Republicans grateful for his 
campaign assistance, he may get a chance at redemption on the 
Hill, end of quote.
    If you want redemption, why don't you work with us not to 
kill serious legislation, but to help us solve the problem that 
is plaguing millions of Americans. Can you respond to that, 
sir?
    Secretary Martinez. The most recent national data available 
on affordability of rental housing nationwide comes from the 
2001 American Housing Survey. As of 2001 the number of 
unassisted very low income renters that pay more than half of 
their income for housing was .47 million----
    Mr. Sandlin. What was that number?
    Secretary Martinez. 4.7 million. This represents 13.9 
percent of all U.S. renters and 4.4 percent of all U.S. 
households, which is the lowest share observed in the 23-year 
history for which comparable data is available.
    Mr. Sanders. I agree with your figures. 4 million----
    The Chairman. The gentleman's time has expired.
    The gentleman may respond and then we'll move on.
    Mr. Sanders. If 4 million Americans, you have just told us, 
are paying 50 percent of their income for housing, do you think 
that building 5,000 units of housing is going to solve that 
problem?
    Secretary Martinez. No, sir, I don't. But the HOME Program, 
fortunately, does a whole lot more than that. The HOME Program, 
over the history of that program, as of February of this year 
has committed 308,500 units of rental housing, has 288,516 
home-buyer type housing, and has 140,170 units of existing home 
ownership, so a total of 737,186 are committed, 453,515 have 
been completed.
    The HOME Program is a very successful program.
    The Chairman. The gentleman's time has expired. The 
gentleman from California, Mr. Miller.
    Mr. Miller of California. Thank you, Mr. Chairman. It is 
good to have you here, Mr. Secretary.
    Secretary Martinez. Thank you, sir.
    Mr. Miller of California. Some people want to argue that 
government funding is a way to resolve all the housing needs in 
this Nation. I agree there is a need for government funding, 
but in many cases if government would get out of the way the 
housing would be provided. I was in the building industry, am 
in the building industry still, for over 30 years, and I 
support your attempts to reduce regulatory barriers that stop 
builders from being able to basically provide housing that this 
Nation needs.
    And I applaud your commitment to working with State and 
local communities, because that is where we have to go to 
resolve the problems. We have a limited available housing stock 
in this country. Nobody ever argues that.
    But yet we focus on a limited part of the housing stock. We 
talk about Section 8 vouchers, which there is a need for 
Section 8 vouchers. But in California you can't find a place to 
use a Section 8 voucher because there are no available units to 
rent. Until we deal with regulatory barriers in a move-up 
market and remove many barriers that allow people to build 
reasonably priced homes in an affordable move-up marketplace, 
we are never going to find a place to put all of these people.
    So I would like to hear a little bit on your reducing 
regulatory barriers initiative--how do you think that should be 
approached.
    Secretary Martinez. Well, we believe that it is 
unquestionably part of the problem. You know, in your home 
State I know some communities have like $118,000 in fees and 
regulatory costs before a house or any sort of a home structure 
gets constructed.
    Mr. Miller. Each year it takes more and more time to get 
your applications processed.
    Secretary Martinez. Which time in the construction business 
is money. So the more it is delayed the higher cost of 
financing and everything else that goes with it. It is 
unavoidable that that is something that we must deal with. So 
what we are doing is providing a framework for local 
governments to come to us to see how others' best practices, 
how they are eliminating regulatory barriers to have a place 
where they can all come through the Internet, to be informed, 
to find out what the barriers to building housing may be, and 
then to continue what was began under Secretary Kemp when he 
was HUD Secretary, which is to bring to date a study on 
affordability, which clearly showed that the root cause of the 
affordability crisis in America is local regulatory barriers, a 
NIMBism to construction of affordable housing.
    Mr. Miller of California. And Federal also, laws that we 
pass.
    Secretary Martinez. Sure. So the combination of the two.
    Mr. Miller of California. I would strongly encourage you to 
be very aggressive in this area because it is very needed. The 
bulk of my friends are in that industry. They are trying very 
hard to be able to provide housing. It is becoming more and 
more difficult. The other issue I would like to talk to you 
about is brownfields.
    I know you think that HUD should share in responsibility of 
redeveloping the Nation's blighted areas. You have talked about 
that and we have had personal conversations on that vein. In 
the past, the BEDI Program that HUD administers has been 
somewhat difficult to take advantage of because of the Section 
108 requirement and the obligation of CDBG funds. There has 
been talk about shifting oversight to EPA, which I strongly 
disagree with, because they only deal with States, they don't 
deal with the locals, and then the petroleum, which is probably 
80 percent of the sites that we might be able to deal with on 
there.
    I would like to hear your opinion about the benefits of 
changing the oversight about creating more flexibility, which 
we are trying to do through a bill that I have put into the 
committee and the chairman has helped, and Chairman Ney has 
also. And it is giving you more flexibility in actually being 
able to use those BEDI grants and completely redevelop these 
sites.
    Secretary Martinez. We liked your approach. We think that 
creating more flexibility and opening up more opportunities for 
us to do what we would do with that money is certainly a move 
in the right direction. It was felt by the administration that 
all of the brownfields redevelopments should be in one place. 
At least it was felt----
    Mr. Miller of California. Probably because it wasn't 
working.
    Secretary Martinez. Exactly. We were underutilizing the 
BEDI Program year after year. We were not getting out the money 
rapidly enough for it being utilized well enough. So under 
those circumstances it has been placed under EPA, where a 
tremendous commitment by the administration has, I think, more 
than doubled the funding available for brownfields 
redevelopment.
    So we look forward to the process as we go forward.
    Mr. Miller of California. The problem by shifting it, as 
you know, where you work with locals, the EPA only works with 
the States. And where you can deal with petroleum, they won't 
deal with petroleum. So we are taking and eliminating a 
tremendous number of sites that we could actually revamp and 
put into good use, and they are never going to be done. So I am 
pushing the bill, and hopefully we are going to be able to get 
that to you.
    But I would strongly--and you and I have had these 
discussions privately--encourage HUD to look at Section 108. 
Yes, we need to look at the inner city. But we need to look at 
that move-up marketplace, too, because we can talk about 
building all of the housing units that you can dream of that 
Section 8s can qualify for, but unless we move people out of 
Section 8 into the next level of independence where we can open 
up the availability of Section 8 housing, until we do that, we 
are never ever going to meet the demands of low income people 
that are placed on government.
    Secretary Martinez. Thank you.
    The Chairman. The gentlelady from New York, Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman, and I would like to 
echo some of the points that Gary Miller, my colleague, had 
mentioned, particularly on brownfields, and we have worked 
together in a bipartisan way to build more flexibility into 
that program. It is one that could benefit and rejuvenate our 
urban and rural areas, and yet all of the money was zeroed out. 
And I feel strongly, as he does, that it should continue with 
the modifications that build in more flexibility.
    But I really want to talk about public housing, because New 
York City has the largest public housing unit in the Nation, 
and it is extremely successful. It provides housing to 400,000 
families, and we have probably that many on a waiting list 
trying to get into public housing.
    It is a huge success, and over 200,000 are served by 
Section 8. So the proposed 2004 budget reductions are 
critically important to the residents that I represent. And the 
estimated $44 million reduction, building on top of the 2002 
reduction, is a total of 80 million in lost capital funding 
over the last 2 years, and this cut doesn't mean that fewer 
people are going to be served, the people are there that need 
to be served.
    So if the capital money is not there, then the units will 
fall into disrepair and maintenance will have to be cut. So 
this proposed cut is very problematic, I believe, to 
maintaining the housing stock that we have in this country. 
Many of our colleagues talked about measures to improve the 
availability of capital, but cutting the capital budget is 
going to really make it very hard for our public housing 
authorities across the Nation to provide the level of 
maintenance that is necessary.
    And then this builds on top of the well-documented $250 
million shortfall. Again, this hurts the existing units and 
operations, and then this also builds on the administration's 
successful effort to do away with the drug elimination program 
in 2002. Many people had complaints about it, but in New York 
it was a huge success. It put police officers into public 
housing, and the public housing units had a greater drop in 
crime than in the overall city.
    And as you know from the papers and elsewhere, local 
funding and State funding is not an option. New York has this 
special problem of 9/11. But localities and States across the 
Nation all are facing budget woes. And the Federal Government 
needs to be there, not only for the new housing but to maintain 
the public housing that exists.
    So my question is, would you at the very least support a 
supplemental appropriation to make up for the $250 million 
shortfall in the operating fund? The cuts with the drug 
program, and by the way when they cut the drug program, they 
said we will make up the money elsewhere. They just didn't want 
the drug program. But what happened was that those moneys were 
lost. Those moneys at least should have stayed in the public 
housing coffers for maintenance and other things.
    So we are facing a dire situation for public housing across 
the Nation, and it is very important. It has been a success and 
we want to continue it.
    Would you support a supplemental for the lost 250 million 
in operating?
    Secretary Martinez. First of all, let me say that the 2004 
budget for public and Indian housing by the Department is a 
request which is $2 billion higher than the enacted amount for 
2001 for public and Indian housing.
    The operating subsidy problem which arose as a result of 
bookkeeping problems is going to result in a funding of about 
90 percent of the operating subsidy. As I said earlier, 90 
percent operating subsidy funding levels is fairly in keeping 
with a number of other years, when like in 1999 only 92 percent 
was funded, or in 1996 when only 89 percent was funded.
    We believe that the commitment to continue to improve 
public housing is one that ought to be maintained, and the 
Department of--my Department does not have really the--as is 
traditionally the case with other HUD Secretaries and other 
administrations to agree with you and authorize a supplemental 
appropriation. That is really something that OMB has to be the 
one to ultimately make decisions on.
    Mrs. Maloney. Well, then my numbers come from the New York 
City Public Housing Authority, and they are saying that these 
cuts, that they are well over 10 percent, they have no way to 
make up for these cuts.
    And you mentioned that any request for funding will come 
from OMB. Well, OMB will listen to what you have to say on the 
HUD budget. If you support making up the $250 million 
shortfall, and if we don't make it up, then we are really 
people--poor people in public housing are the ones that are 
going to pay for it. It seems--why should they suffer because 
of a bookkeeping problem that someone confronted?
    Secretary Martinez. What I am saying is that the funding 
level of 90 percent is not without historical precedent, and in 
fact between 89 and 100 percent, somewhere in there, has been 
the funding levels over the last 10 years.
    So a funding level of 90 percent, we do not believe for 1 
year--last year we funded it at 100 percent. Next year we fully 
anticipated funding it at 100 percent once again. A 1-year 
funding shortfall in that operating subsidy of 10 percent will 
not do great harm to the programs in the way they operating 
public housing.
    Mrs. Maloney. It is more like 70 percent, according to the 
New York City Public Housing Authority.
    Secretary Martinez. No.
    Mrs. Maloney. During the boom years, that was one time. Now 
we are facing this terrible recession across the whole country, 
not just in New York. New York has the 9/11 problems on top of 
it.
    The Chairman. The gentlelady's time has expired. The 
gentleman may respond.
    Secretary Martinez. Let me be very clear. It is not a 70 
percent funding level. That has been clarified beyond any 
question, that it will not be 70 percent funding level. It will 
be 90 percent funding level.
    Mr. Frank. When?
    The Chairman. The gentleman from Texas, Mr Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary for your testimony here today.
    Recently I met with some constituents of mine who operate 
multi-family housing in Dallas, Texas. They tell me that it 
costs 20 to 30 percent more to operate Section 8 housing than 
it does market housing. Obviously that drives up costs, gives 
operators disincentives to get involved in the program and 
gives fewer housing choices to the working poor.
    Now, the administration is proposing block granting this 
program. Although I am new here, I have discovered there are 
block grants and then there are block grants.
    In your opinion, will the administration's program take 
care of this particular problem?
    Secretary Martinez. We believe, sir, that the 
administration of Section 8 at the State level with block 
granting and ensuring that the money remains available for 
funding of Section 8 and for affordable housing will be a way 
to address those very problems.
    Another problem that will be addressed with the block 
granting of Section 8 is the problem that would be of interest 
to Ms. Waters, because she mentioned the problems with, you 
know, the Public Housing Authority in Los Angeles and the fact 
that they needed more Section 8 vouchers. She will be surprised 
to know that last year we recaptured $78.2 million from the 
L.A. Housing Authority on Section 8 vouchers that they couldn't 
put out on the street.
    Our take on this is that that is a disservice to the people 
of Los Angeles, just like a 30 percent tax to do business with 
HUD is not a good service to the people of your State. We 
should in this block grant proposal facilitate the ability for 
those vouchers to get out to the people that need them, and for 
people who construct multifamily housing to want to be in the 
business, the States under the TANF proposal are handling the 
welfare of the same customer base that Section 8 deals. We 
believe that the TANF proposal will enhance the State's ability 
to deal with this population of people who need government 
assistance and that the States are now participating in their 
assistance, whether it be medical care or other needs, and we 
want to add housing to that.
    Mr. Hensarling. Mr. Secretary, if I did my math right, the 
administration is proposing block granting roughly 60 percent 
of the HUD budget, I believe, 17 billion out of roughly 31.3 
billion. If block granting is such a good idea, and this 
particular member thinks it is a great idea, why are we 
stopping there?
    Secretary Martinez. Well, sir, perhaps we shouldn't. And we 
believe that in addition to providing the States, by the way, 
with the ability to manage this program, we are also going to 
give them the management moneys available to manage it so this 
is not an unfunded mandate to the States. It is the kind of 
thing that we think would be very successful and has been 
successful in the HOME Partnership Program and a lot of other--
the CDBG Program, frankly, is one of the most successful things 
that HUD does, and that is a block grant program as well.
    So we--no, I don't know that necessarily we should end 
that. Dealing with over 2,600 individual housing authorities on 
the Section 8 program is a whole lot more complex than it would 
be to deal with the 50 governors or the 50 State entities that 
would manage the program.
    Mr. Hensarling. I am always convinced that government can 
find ways to do more with less. Two of my colleagues, I guess 
within the context of the HOPE VI program and regulatory 
relief, asked you about things that Congress could do that I 
think would help you achieve the goal of doing more with less.
    So I would like to make sure that you have an opportunity 
to tell this committee what do you think that Congress could do 
to make HUD more efficient that would actually allow us to help 
the working poor even greater?
    Secretary Martinez. Well, I tell you one thing not to do, 
is to create a new housing trust fund that would be 
administered at HUD and give us yet another new program to 
administer. But find those programs that work, like the HOME 
Program, and fund it to whatever level you think it is 
appropriate to meet the housing needs of America.
    That is the right way to do it, because that program is 
already in effect, it already works, it has an infrastructure 
through which to operate. It should not be now loaded up with 
yet another new program.
    Mr. Hensarling. Returning back to the Section 8 program in 
the remaining time that I have, your own Policy Development and 
Research Division showed an alarmingly high number of 
approximately $2 billion in subsidy overpayments.
    Now, I am new here, but $2 billion still seems like a very 
large number to me. I know that you are familiar with this 
issue and this problem, but can you tell me the steps that HUD 
is taking now to fix the problem of fraud and overpayments?
    Secretary Martinez. We are very focused on that problem. We 
have a task force working right now with the States, and we--
Congressman Sessions introduced legislation which is going to 
give us one new tool which is going to give us access to the 
new hires information. We are then going to be able to computer 
match up the information on new hires and salary levels, so 
that we can then easily and correctly verify the right levels 
of subsidy under the Section 8 program.
    We believe that that legislation will help us to make sure 
that we do not continue what has historically been, you know, 
when I came to HUD, and I see that we are mistakenly paying by 
a billion dollars a year, and nobody seems to be concerned 
about it, we have been very diligently addressing this problem 
since I arrived at HUD. I am happy to say that we are coming to 
some solutions, one of which is the legislation that 
Congressman Sessions has introduced.
    Mr. Hensarling. Thank you. This member is concerned.
    Mr. Ney. [presiding.] The Chair now goes to Ms. Velazquez.
    Ms. Velazquez. Thank you.
    Mr. Secretary, on January 15th, you issued a press release, 
and I am going to quote you: Today's correspondence to the 
PHAs' executive directors clarified that the funding level was 
a temporary estimate until HUD's requested 2003 budget is 
finalized by Congress, at which point HUD intends to fund PHAs' 
2003 budget at or near 90 percent.
    It has been 2 weeks, Mr. Secretary. Can you please tell us 
for the record when the PHAs will get their budget increases 
and if they will be retroactive?
    Secretary Martinez. Within 4 weeks. They will be funded at 
that point, because it does take time from the time of an 
appropriating budget like you have just done 2 weeks ago for us 
to be able to cycle it into our system and get the money out to 
the PHAs.
    Mr. Frank. I am distressed by that if we are talking about 
another month after the 2 weeks. They knew this was coming in 
January. I don't know why they weren't ready. So a month and a 
half after the budget passed, these are people in great 
distress. Sorry to hear that.
    Secretary Martinez. Let me make a clear answer to that. We 
are waiting for submissions of budgets from the PHAs. They have 
to submit their budgets to us so that we can then fund them. So 
our inability to fund it quicker, in many instances, relates to 
their inability----
    Mr. Frank. Well, then how did you fund 70 percent? That 
doesn't wash. If you can fund them at 70 percent--if you don't 
know what the budget is, how do you know what 70 percent is? If 
you know what 70 percent is, I will give you an easy way to 
figure out what 90 percent is. It is called arithmetic.
    Secretary Martinez. I am going to ask, with permission from 
the Chair, Mr. Michael Liu, who is Assistant Secretary for 
Public and Indian Housing, to give you the details on those 
technical aspects of how that is done.
    Mr. Ney. We will add an additional minute on to your time.
    Mr. Liu. Michael Liu, Assistant Secretary For Public and 
Indian Housing.
    This is one of the few programs where the Federal 
Government is obligated to provide dollars for the operations 
of an entity, but prior to that entity being required to submit 
to us their budgets.
    Now, that was a system put in place some years ago. We are 
working to change that system. It will require a change in 
rules and regulations. So that will take time. But currently, 
we only have the budgets for those housing authorities which 
started their fiscal year in January 1. We do not yet have the 
budgets for the housing authorities for the second, third and 
fourth quarters who start their fiscal years during that time 
frame in the future.
    Therefore, it does take time for us to be assured that we 
have the data, so that we can proceed in a reasonable fashion. 
Now, this has to change. This is not a good practice. This will 
change.
    Ms. Velazquez. Excuse me. Are those PHAs that submitted 
their budget requests to you, getting 90 percent?
    Mr. Liu. They just submitted their budgets on March 3rd. We 
will be able to process the information, and with the 
additional moneys provided by the Congress in the 2003 budget 
for an operating subsidy and a number of other items that we 
now know that we will not have to fund, we will be able to fund 
those housing authorities at or near 90 percent.
    Ms. Velazquez. Mr. Secretary, you stated that your budget 
will create 5,500 units through the HOME Program. As my 
colleagues have established, our housing crisis goes much 
deeper than that, yet your budget proposal potentially creates 
more problems than it solves.
    In fact, your proposal to block grant Section 8 opens the 
door to drastic changes to the implementation and intent of the 
program such as allowing States to impose lifetime limits 
similar to those that have been proposed in Philadelphia and 
Delaware. You claim to already be concerned about the tenants 
who have been displaced under HOPE VI. What guarantee can you 
offer that your block granting proposal will not do the same 
thing?
    Secretary Martinez. Well, clearly our block granting 
proposal is to work with the States to ensure that people are 
provided places to live, not to just allow them to throw people 
on the street.
    But I want to tell you that we recapture every year money 
from the Section 8 program. In New York, from the New York City 
Housing Authority, we have recaptured $88.9 million in Section 
8 moneys. That is moneys that we hope, with State 
administration, and Governor Pataki is very eager to look into 
the program and is supportive of it, that we could perhaps find 
better ways of getting the money to the people who need it.
    So the idea here is not either to not fund people, is not 
to not find a place for people who need a place to live, to 
have a place to live, but it is frankly more compassionate, I 
believe, to find a way that really works than to believe we are 
doing it all right the way we are doing it now, but every year 
recapture a billion dollars that doesn't go to people who need 
housing.
    Ms. Velazquez. But Mr. Secretary, you haven't answered my 
question regarding the localities, such as Philadelphia and 
Delaware where they want to impose lifetime limits on Section 
8.
    Secretary Martinez. All of the details of this block 
granting proposal have not been worked out. You have it within 
your power and the legislation that you would enact in order 
for this to become law to define the terms by which the States 
will be block granted the money.
    It is my view that those who fear that this money will be 
diverted to other uses really are misplacing a fear, because 
you just put it in the legislation, it will be for use in 
housing. If you believe that terms limits or lifetime limits or 
whatever the limits may be are inappropriate----
    Ms. Velazquez. Don't you?
    Secretary Martinez. ----then that should be part of the 
legislation.
    I believe everyone should be given an opportunity to be 
helped when they need help. I think everyone should be 
encouraged to self-sufficiency, because I don't believe anyone 
living in government dependence really finds the opportunity to 
fulfill their dreams.
    Ms. Velazquez. Let me tell you, Mr. Secretary. Some of my 
constituents on the Lower East Side of Manhattan were just 
notified of the fair market rent increase, bringing the HUD-
approved FMR for the two-bedroom apartment to $2,750. At that 
rate a family will need to earn in excess of $91,000 a year to 
achieve the accepted standard of paying 30 percent of their 
gross income on rent. Worse yet still, two parents, both 
minimum wage earners, will have to each work 13 hours a day, 
365 days a year merely to cover rent. Given these conditions, 
where do you expect low income families to live when they reach 
the end of their lifetime limits on Section 8 housing 
assistance?
    Secretary Martinez. Anyone who needs housing the Section 8 
program is there for them. Over 60 percent of the HUD budget 
goes to Section 8 housing. I am not suggesting to you that a 
family who needs rental assistance because of their life 
circumstances should not be given assistance.
    I am also going to tell you that for us to set minimum rent 
standards out of Washington for New York is not the best way 
for the Section 8 program to run, which is yet another reason 
why block granting it to the States would allow the kind of 
local flexibility to set minimum rent standards that would give 
the program the benefit that that family obviously would need 
from the program.
    Mr. Ney. The gentlelady's time has expired.
    Mr. Renzi.
    Mr. Renzi. Thank you, Mr. Chairman.
    Mr. Secretary, thanks for your testimony. And more so, I 
wanted to thank you from the people of Arizona for your 
numerous visits to Arizona.
    The focus and concentration that you provided to help 
revitalize some of the poorest sections of our State, 
particularly our barrios in South Phoenix, which I know you are 
aware of and have visited, and particularly on your watch, I 
want you to know that we got some figures in this week. We had 
a visit from the tribal chairman of the White Mountain Apache, 
a community of almost 5,000 Native Americans, and as the 
representative of the largest Native American population in 
America, I want to thank you for White Mountain and the success 
that we have seen there under our Section 184 program. We have 
built, in the last 24 months, over 300 homes in a community of 
less than 5,000 people.
    And what I need help on, I need to understand and be 
taught, since I am just a snot-nosed freshman, is how we move 
the success that we see at White Mountain and the Apache to the 
Navajo Nation, how we are able to better communicate the 
programs, the success stories, home ownership, and I know the 
credit subsidies that we are seeing at White Mountain up to the 
Navajo Nation, which is the largest of our Native American 
populations, and would be interested in your comments in that, 
along that line.
    Thank you, sir.
    Secretary Martinez. Congressman Renzi, I had the privilege 
of meeting with the President of the Navajo Nation this week, 
and they came to talk to us about some of the programs that 
they are doing within their property and also to talk about how 
we might work with them more closely in the future. We do have 
a very aggressive Indian Housing Program at HUD. We are proud 
of the work that has been done over--on a bipartisan basis over 
many administrations.
    We look forward to working with them to improve what is 
probably the most substandard housing of any Americans, which 
is the Native Americans, and we need to continue to work with 
them, just like we have done with the Colonias Initiative, 
which is part of what you mentioned in your State. We also need 
to work with our Native American people to make sure that safe 
and decent housing is not just a dream but a reality for every 
American.
    Mr. Renzi. Thank you.
    Mr. Ney. The gentleman, Mr. Scott.
    Mr. Scott. Mr. Secretary, good to have you. I want to ask 
you questions about HOPE VI. I am really baffled by this 
administration's approach to HOPE VI and your willingness to 
pull the plug on such a worthwhile program. And I have heard 
you speak about self-sufficiency and compassion, and I am here 
to tell you this. This conservative compassionism is being 
misplaced if you do away with this program with a meanness that 
is just--aching at the hearts of many people across this 
country.
    This HOPE VI Program embodies all of the basic conservative 
economic principles that you advocate, that this administration 
does; self-sufficiency, privatizing.
    Let me just tell you about my State of Georgia and the 
success that we have had. Our Atlanta Housing Authority has 
reduced its work force by 53 percent because of HOPE, the very 
things that you are advocating. It has increased the number of 
families that are served by 17 percent. It has privatized the 
management of 100 percent of all of its properties, got 
government all of the way out of it.
    It has leveraged over $184 million in Federal grants, 
including three HOPE VI grants totaling 113 million. It is $2.5 
billion in terms of local economy. When Ms. Waters asked you 
the question, and you commented, and you said that the housing 
authorities were not meant to be developers, well, in Atlanta 
our housing authority under Renee Glover's directorship of HOPE 
VI has attracted private investment to the tune of more than 
leveraging over $150 million. It has become the gold standard. 
And for you to pull the plug on this program, it is like 
cutting a man's legs off from underneath him at the kneecaps 
and then condemning him for being a cripple. It is just 
downright mean.
    I have a lot of respect for President Bush. I have been 
supportive of him on many of his programs. But I am asking this 
administration to don't pull the plug, don't cut these folks' 
legs off. It is too valuable a program.
    Now, many of us in this committee are working on 
legislation to reinstate HOPE VI. We realize that it is 
sunsetted. I want you--you seem to be a very compassionate 
person. You are the head of an agency that is probably the 
spear carrier for that phase of the administration's approach 
called conservative compassionism, and you are a very honorable 
man, and I would like for you to take the leadership in 
conveying to this administration, as the Housing Secretary, 
don't pull the plug on this. Work with this committee. Work 
with us to help us reinstate HOPE VI.
    And if he has any questions, all he has to do is come to 
Atlanta, Georgia, to see the model of how this works. Could you 
do that?
    Secretary Martinez. Well, first of all, let me say that I 
have no quarrel with what you say about HOPE VI. I know Renee 
Glover has done a fabulous job in Atlanta, and I took the 
President there last June. We were there. We saw what HOPE VI 
has done in some of the areas of Atlanta. I can't remember now 
the name of the specific project we visited, but we were there. 
We have seen the----
    Mr. Scott. Centennial Homes, I think.
    Secretary Martinez. Probably was. Atlanta still has $140 
million that they haven't spent of current HOPE VI funding 
moneys. We have got to find a better mechanism to do it. I 
don't think the argument, Mr. Scott, is in any way with the 
validity over HOPE VI program or the good things that it has 
done. What I believe we must do is to find a way in which we 
can ensure that the displacement issues, ensure the way in 
which it is administered in many ways is as successful as we 
can make it.
    It is up for reauthorization. We are in a difficult budget 
cycle. We do have a lot of unspent money still in the program. 
This frankly was felt to be an area where we could take a good 
look at where we are and where we might want to go before we 
just fund more money, where money has already--where money has 
not come out of the pipeline.
    So I don't disagree with you. I appreciate the passion that 
you exhibit for a program that helps families. I have seen it 
in my own community in Orlando, Florida. It is a good thing. 
But it breaks my heart when I see that Hampton Park in Orlando, 
that so darn few people that used to live at Orange Villa, 
which is what it used to be called, are now moving into Hampton 
Park.
    Something isn't right about that equation. So we can work 
with it to ensure its future success, but I agree with many of 
the things that you have said, and I will work with you as we 
look to the future and how we might come up with something even 
better than the current HOPE VI.
    Mr. Scott. I appreciate that.
    Mr. Ney. The time of the gentleman has expired.
    The gentlelady from West Virginia, Mrs. Capito.
    Mrs. Capito. Thank you, and welcome, Mr. Secretary. Thank 
you for your testimony. I have a question on the block granting 
to the States for the new program, the new initiative. I met 
with some housing authority members several weeks ago and they 
have great concern about this.
    The question they asked me is, if the money is block 
granted to the States instead of directly from HUD, will the 
State then be entitled to 10 to 15 percent of administrative 
costs and would that then translate to fewer dollars actually 
being in the hands of those who need housing? In your 
statement, you mentioned that $100 million would be available 
to assist States with the effort in the transitional. Is that 
$100 million on top of what we are appropriating, what we would 
appropriate in that program, or is that in fact administrative 
costs?
    Secretary Martinez. It is an additional $100 million in 
order to transition the program. Housing authorities currently 
receive a management fee for managing the Section 8 Housing 
Program. If the management of Section 8 housing were to then be 
with the States, the management fee for the Section 8 program 
should be with those that are managing the program.
    Mrs. Capito. It is reasonable to assume, though, that the 
housing authorities then would not have any kind of management 
fee involved in that as well? Would it be----
    Secretary Martinez. If they are not managing Section 8, 
they then would not have the management fee that goes along 
with the management of Section 8. So that is correct.
    Mrs. Capito. I had another question about the elimination 
of the brownfield initiative. In my State of West Virginia this 
has been an important initiative. Can you explain why the 
program was eliminated, and if this--does this involve shifting 
all of the brownsfields responsibility to the EPA, and how do 
you feel about that?
    Secretary Martinez. That is precisely what it means. It is 
shifting the responsibilities to the EPA. Not having been a 
Washington bureaucrat for too long, I did learn one thing, 
which is you always try to hold on to what you got, but you 
don't always succeed.
    So it is now with the EPA. It was a $25 million program 
with HUD, so it is not a very large program and in fact 
difficult to utilize, as we pointed out earlier. The 
administration has funded in excess of $220 million for 
brownfields remediation, and a very strong commitment has been 
made, far in excess of what was being budgeted traditionally 
for brownfields remediation. So the commitment is there. The 
shifting of priorities does put it under EPA, where all 
brownfields programs would then be housed in one entity.
    Mrs. Capito. Finally, I just kind of have a general 
philosophical question. I have kind of heard the repeating 
theme of money being left on the table, whether it is at the 
housing authority level, that is meant for well-intended 
programs and meant to provide the housing that we so 
desperately need.
    How much money is really left on the table? I mean, I know 
you can't say percentage wise, but is this a large problem?
    Secretary Martinez. It is a large problem, particularly in 
the Section 8 program where every year over a billion dollars 
in recaptures comes back, meaning that whether it was L.A. With 
78 million, or whoever, which one it may be, many housing 
authorities cannot get the money out the door on the Section 8 
voucher program.
    It is a problem sometimes in the spend-out rate of other 
programs, and in HOPE VI it has been a problem. We have funded 
and funded and funded programs in places like Chicago, but very 
little has come out of the ground. New Orleans, because of 
horrible mismanagement by the New Orleans Housing Authority, is 
just now under Federal Government management and beginning to 
see the first things come out of the ground for what had been 
HOPE VI's for many years.
    The unfortunate part, particularly in New Orleans, is that 
the demolition took place, but the rebuilding hasn't taken 
place. So in other words, it exacerbates a difficult housing 
problem for people who live in public housing.
    Mrs. Capito. Thank you.
    Finally, I would like to applaud your increase in funding 
for the housing counseling initiative. Our State is very 
pleased with that and thinks that it will go a long way towards 
future hope ownership for many West Virginians.
    Secretary Martinez. I appreciate it. I also want to point 
out, which I failed to mention in my opening remarks, that the 
voucher program for the 2004 year budget request, which we are 
on here today, we are requesting more than a $990 million 
increase over the 2003 budget allowances.
    Mrs. Capito. I yield back.
    Mr. Ney. The gentleman from North Carolina, Mr. Watts.
    Mr. Watts. Thank you, Mr. Chairman. And welcome, Secretary 
Martinez. Appreciate you being here today. I am sorry I have 
had to be in and out, but we are in the middle of a markup in 
Judiciary, and I have been getting a running summary of your 
comments about HOPE VI.
    And I won't go as directly at you as my colleague 
Representative Scott did because it sounds to me from the 
summary of what I have heard of what you have had to say you 
believe HOPE VI has served a useful purpose and that it is a 
program that is worth continuing. That, I would have to say, is 
contrary to some language in the President's statements that 
seem to suggest that it, the HOPE VI Program, has achieved its 
objective, and I am happy to see that you have tempered that.
    I don't think I have ever seen quite as much Democratic 
support for continuation of what was a Republican program. HOPE 
VI was a Republican program. I mean it. So it is not as if this 
is one of the programs that we are defending from our own 
bosom, this is one of you all's programs that happens to have 
worked very well despite some of its shortcomings.
    So I am not going to dwell on that. It seems like you are 
going to take a pause, you are going to try to keep this 
program going in some form. What I am interested in is in what 
form and when we might get some specifics on this new proposal 
that the President says he wants to replace HOPE VI with.
    Because if we are going to have any kind of continuity 
here--the funds run out this year. We need to have--if we are 
not continuing HOPE VI in its current form, we need to have 
whatever is right behind it ready to go and gear it up, and I 
haven't seen any specifics on it. The couple of things I have 
seen on it suggest that there might be an 80 percent guarantee, 
Federal guarantee of development. You might be able to pledge 
Section 8 vouchers as security for the loan. But it seems to me 
that until we have details on the specific plan that you are 
talking about as a successor to HOPE VI, we can't move forward 
in doing our job of trying to evaluate and shape that in a way 
that helps you make it better than what HOPE VI was.
    So my question to you is when are we going to get these 
kind of specifics? Do you have a working group working on those 
specifics now? When can we expect the fleshed out details of 
what you are planning or what you all would like to replace 
this with?
    Secretary Martinez. We have been internally studying the 
issue for some time. Senator Mikulski suggested yesterday 
perhaps a task force that would also include some of the people 
in the housing field who have commented on HOPE VI, who have 
written analyses of it. Some of it was greatly supportive, but 
also with some improvements or criticisms or commentary on it.
    So I think we will continue to evolve and think on it. In 
addition----
    Mr. Watts. How long?
    Secretary Martinez. Well, I understand--what she would like 
to do is have it be before markup. I think that is probably a 
good time frame to think about. But I also will tell you this 
on the way that the program operates is that no one was 
applying for a HOPE VI right now. It is going to be effective, 
because the cycle will come over next year. We will still have 
another funding cycle to go and 50 percent of the money is 
still to be realized. So----
    Ms. Waters. I understand that. But that was always the 
plan. I mean even you all say in your comments about HOPE VI 
that you expected at least a 5-year--I mean, most of these 
things are massive projects. So for you to come and say that a 
criticism of the program is that people are being methodical 
and they are moving the moneys through the pipeline and doing 
this in a way that doesn't create more distressed public 
housing but revitalizes communities, that is a long-term 
project.
    Secretary Martinez. One of the things we have done actually 
in the grant process is to ensure that these grantees that are 
getting grants have got a program ready to go. In the past I 
think oftentimes grants were made to people who had an idea and 
a dream, but hadn't really pulled the deal together.
    Now, we are asking communities----
    Mr. Watts. We put that in the legislation that we drafted 
yesterday.
    Mr. Ney. The gentleman's time has expired.
    Secretary Martinez. That I think is a key factor. We want 
to work with you. We want to talk with you about whatever 
legislation it is that you are planning. We have our own set of 
ideas that are germinating within the Department. There are 
people out there in the academic community and others who have 
had, over time, analyzed the issue of HOPE VI.
    So I look forward to a continuing dialogue on this and 
Congress will have the timing to dictate how it will handle it 
in the future.
    Mr. Ney. The gentleman's time has expired. The gentleman 
from New Jersey, Mr. Garrett.
    Mr. Garrett. Thank you. Just before I begin, you know, I 
appreciate your comments with regard--and I am on the same page 
as far as turning some of those decisions back, the block grant 
approach. I was in another hearing in a different agency, and I 
raised the same sort of questions on their responsibilities. 
And I said, why aren't we turning more of this over back to 
them, the local decision makers? And fortunately the answers 
weren't quite the same. It is like, well, we can make those 
decisions a lot better here. And we are more confident here in 
Washington making some of these decisions. And I think whether 
it is that other issue or it is the housing issues, it is the 
people who are going to either benefit or suffer from it that 
are going to be able to make the decision best, and people on 
the State level are going to hear about it the first on a daily 
basis more so than us folks here. So I am on the same page.
    I want to turn away from what you have been talking about, 
the HOPE and Section 8 issues, just ask you a couple of other 
questions. A while back, back in 1992, Congress passed some 
legislation concerning the government-sponsored enterprises, 
the GSEs, Fannie Maes and Freddie Macs, and this legislation 
required that HUD review all of their new programs that Fannie 
Mae and Freddie Mac considers before they go forward and 
implement them.
    Now, my understanding just looking over the materials here 
and yesterday, in the past decade, despite a number of new 
products, and I just have about a dozen of them, I don't know 
whether there is more, they have--in none of those cases did 
Fannie Mae or Freddie Mac come before HUD for approval.
    And as far as I can see here HUD has never exercised any 
statutory authority in this regard. I know you want to--you are 
charged with implementing the law, following the law. What is 
it that HUD is going to do to ensure that a meaningful and 
mandatory preclearance mechanism is not only is established, 
but is carried on?
    Secretary Martinez. Well, sir, I think I will comment to 
you by saying that this is but a number of other issues that I 
have faced at HUD that had long lingered without attention, 
just like the accounting problem with the operating subsidy for 
public housing. We are correcting it and fixing it. The issue 
of the GSE and new product preauthorization was never addressed 
by HUD. No one ever drafted the regulations or addressed how 
that should be done or created a mechanism for the GSEs to even 
do that.
    We have been engaged in that process. We are moving forward 
on it. We anticipate having some sort of a preproduct approval 
process, which will be forwarded to OMB for OMB's review and 
approval. We are diligently working at it. We believe it is our 
responsibility. We believe we are legislatively mandated to do 
it. We have to find a way to do it in a way that is--this is 
not an easy thing to do.
    We have to make sure that as we do it we are not 
interfering with these very successful entities' ability to do 
business. But we are just looking at new products, how you 
define new products, how far does that cover? These are all 
very, very difficult issues. We are dealing with them. We are 
coming up with a mechanism.
    Our Housing Commissioner, John Weicher, I will be happy to 
have him brief you in more detail on this if you like. But we 
are taking this responsibility seriously, I believe for the 
first time HUD has ever taken that responsibility seriously.
    Mr. Garrett. I appreciate that. Calvin Coolidge is famous 
for saying, you can't do everything at once but you can do 
something at once. On this case, HUD hasn't done anything at 
once on this whole issue for the last 10 years. So I will echo 
the comments from the other side of the aisle, and from the 
other size of the dais of just how long they are asking for. 
Can you give us some sort of a time frame as to when we should 
anticipate that the process will be up in place? I will welcome 
your time afterwards to--after the meeting to maybe get a more 
detail briefing on it.
    Secretary Martinez. The number one issue we have to deal 
with, also by statutory mandate, is the issues of the GSEs' 
housing goals. We are dealing with it immediately, because it 
is something that we must do during this calendar year.
    After that is ascertained, and we have dealt with that 
issue, then the issue of product approval will be coming on 
line for us to put out a mechanism for product approval.
    Mr. Garrett. If I----
    Secretary Martinez. That would be sometime towards the end 
of this year, beginning of next year.
    Mr. Garrett. Okay. And just in the few seconds that I have 
left, just quickly, GSEs have been granted substantial 
government involvement and support in the years. The quid pro 
quo was a limitation on where Fannie Mae and Freddie Mac may be 
restricted to the secondary market. Do you have--and that if 
GSEs seek to enter new lines of business--do you have an 
opinion or comment on a limitation of their competition into 
the private market in some of the other areas that they are 
speaking of?
    Secretary Martinez. I believe that the GSE charter is clear 
on what--I don't know how clear it is, but we hope it is 
clear--and defining their lines of business and the things that 
they should be doing. They should be in the secondary mortgage 
market. They should not be in the primary mortgage market. I 
think by charter that is their role, and that is how they 
should be defined.
    Mr. Ney. The time of the gentlemen has expired. Mr. Clay of 
Missouri.
    Mr. Clay. Thank you, Mr. Chairman. Mr. Secretary, let's go 
back to the HOPE VI issue, maybe kind of follow up with Mr. 
Scott as well as Mr. Watt's questions. If we have HOPE VI 
projects that are currently in one phase or another, if the 
program is zeroed out, what will happen to those projects, or 
have you all reached a conclusion on that yet?
    Secretary Martinez. It is--sir, the idea here was not to 
tamper with or kill the program. The idea was that this program 
came up this year for reauthorization. We are talking about 
going forward on what we do in the future. Anyone who got a 
HOPE VI it is fully funded. Anyone who has applied for a HOPE 
VI this year and got a grant is fully funded. Anyone who hopes 
to get a HOPE VI in the next year's cycle and is successful 
will also be fully funded. There is complete funding for all 
HOPE VI that have been awarded in the past or are being awarded 
this year or would be awarded next year. Nothing----
    Mr. Clay. You are talking about orderly phaseout of this 
program, if it is zeroed out?
    Secretary Martinez. My hope is, in keeping with what I said 
to Congressman Scott, it is not a phaseout, but an evolution of 
what we go to in the future.
    Mr. Clay. Okay, Mr. Secretary. The Section 8 program 
provides rental assistance to 5 million low income persons, 
including 1.2 million families with children, over a quarter of 
a million elderly families, and approximately the same number 
of disabled families.
    During a time of economic downturn, why are they facing 
extensive cuts and also dramatic boosts to their rents? Also 
the second part of the question is why is the Section 8 block 
grant program being taken away from the local administrators?
    I come from a background of 17 years in the State 
legislature in Missouri, and I don't have faith in the States 
being able to administer block grants for housing. They have no 
expertise in housing, so to speak, and I just don't see it 
being workable. I mean, can you comment on that?
    Secretary Martinez. Sir, this is a flexible program. If 
there are States that have don't have the expertise, the 
capacity or the desire to do it, we would continue to do the 
program just as it is being done today.
    The program today, though, is not really fully managed at 
the local level. It is managed with oversight from HUD. It is 
managed out of Washington in many ways. For instance, a fair 
market rent, if we were going to set a fair market rent for St. 
Louis, some local dislocation created a higher market rent, 
people weren't able to utilize their vouchers, St. Louis' 
housing authority would to have to come to Washington to get it 
changed to that fair market rent, and it would take 6 months 
for that to happen. In the meantime people are not being served 
back home.
    So this is not intended in any way to minimize the 
importance to the people who are receiving assistance from 
HOPE--from the Section 8 program. Quite the contrary, it is a 
way to provide them with a better service, with providing them 
with full utilization of the vouchers that the Congress year 
after year authorizes but are unfulfilled.
    Mr. Clay. Yeah. But I just don't see how it is going to 
make the program more efficient to let the States administer 
these block grants. I just don't see it.
    Secretary Martinez. Well, right now if you think that the 
housing authorities of America are a picture of efficiency, you 
are looking at a different picture than I am.
    In addition to that, I would suggest to you that the TANF 
program, the welfare program, that is being administered by the 
States, my read on it, what I hear on it, is that they are 
doing a very successful job of it.
    Mr. Clay. TANF is one thing, housing is another. And I 
mean, this is an indictment on HUD itself then, is what you are 
saying; if it takes 6 months to turn around, then that talks 
about the lack of efficiency of HUD also?
    Secretary Martinez. Yes, sir. I am here to tell you that it 
concerns me daily.
    Mr. Clay. What about streamlining the process then?
    Secretary Martinez. Sir, we are streamlining as fast as we 
can streamline.
    Mr. Clay. That method is to turn it over the States and 
allow them----
    Secretary Martinez. In often cases, that is the better way 
to do it.
    Mr. Clay. You know and I know that States are in a heck of 
a financial fix now, and you and--and they will look at this as 
somewhat of a money grab for them. They will find a way to come 
up with administrative costs and to use that block grant as 
they see fit.
    Mr. Clay. And that is not--I don't see it as being 
efficient at all, Mr. Secretary.
    Secretary Martinez. Well, Mr. Lowe behind me tells me that 
33 States administer the program now. And so I just don't 
believe, sir, that your fears are well-founded, but that is why 
we propose legislation. Ultimately you will dispose. And so we 
believe it is a better way to do it, but--and I am telling you, 
it is not just inefficiencies of HUD; it is inefficiencies in 
the housing authorities locally. And we have to acknowledge 
that. That is a problem. I mean, here, there and everywhere 
there are issues with housing authorities. I am not saying 
that--I mean, the evidence is there. The underutilization of 
the vouchers is a pretty good darn evidence. When you look at a 
billion dollars that gets recaptured or maybe more that doesn't 
go back to housing that you have identified as having to go out 
this year, $990 million we are asking for new vouchers, I can 
tell you right now that you can award that $990 million in new 
vouchers, and none of that money will be going to someone that 
needs a place to live, because you will recapture more than 
that amount every year.
    Mr. Clay. And the local housing authorities will come back 
to me and say it is because of bureaucratic red tape.
    Mr. Ney. The time of the gentleman has expired.
    Secretary Martinez. Well, maybe if the States administer 
it, we would eliminate the red tape on both ends of the 
equation.
    Mr. Ney. Mr. Shays from Connecticut.
    Mr. Shays. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    I have four issues I want to talk about: Section 8, CDBG, 
brownfields, and HOPE VI, and we are going to try to get 
through them all.
    First, I want to say to be Secretary of HUD in a Republican 
administration is kind of like being Secretary of Defense in a 
Democratic administration. It is a challenge, and I know it is 
a challenge. But HUD is hugely important, and I bristle when I 
think that the Department of Agriculture has nearly 100,000 
employees, HUD has about 10,000 employees, and the Department 
of Agriculture is like perfect. But because it is Republican to 
the core, we think--and it is farmers--that they can do no 
wrong. And I am tired of HUD getting dumped on when there are 
other agencies that need to be looked at with the same kind of 
look. And I wonder why the Department of Agriculture needs 
100,000 employees. There is no good reason.
    Now, in terms of this issue of Section 8, there is a real 
reason why vouchers don't work: Because you need to put down a 
deposit, first month, second, last month. You need to have a 
security deposit, and people don't have--in a place like where 
we live, they don't have $3,000 if they are poor. So there is a 
reason. And so I would like to ask you, would you object to 
taking some of that Section 8 voucher money and allow it to be 
for deposits?
    Secretary Martinez. No. That seems perfectly reasonable. I 
think that would help people to get into safe and decent 
housing. I hate to make policy here today without----
    Mr. Shays. I understand.
    Secretary Martinez. ----the people behind me, but as a 
notion, it sounds fair to me.
    Mr. Shays. Okay. In terms of CDBG, Republicans--I believe 
in block grants with all my heart and soul, but the problem is 
when we get a block grant, we never increase it like CDBG; we 
find ways to then take a little from it. And I understand why 
Democrats get concerned. We sometimes put a lot of categorical 
grants, then we give this big block grant, but it is 70 percent 
of all the categorical grants. I wish that as Republicans we 
simply transferred all those categorical grants as a unit 
without a cut and made people assured that we would, like a 
categorical grant, keep increasing them. And I just say it to 
you because block grants make sense, but we I think as 
Republicans lose credibility because we don't protect them. And 
CDBG is a program that hasn't grown, and yet it is what enables 
a community to do so much.
    Brownfields, I don't understand why we are eliminating 
them. I don't understand. It is the Department of Housing and 
Urban Development. These brownfields grants have enabled us to 
clean up and leverage tons of money, and why would we eliminate 
it? Don't we want businesses to come in so they can pay taxes 
and we have a more complete community?
    Secretary Martinez. Well, it is not only elimination, sir. 
It is transfer to the EPA where the program is not only 
continuing, but enhanced. EPA is funding over $200 million for 
brownfield redevelopment and remediation. Twenty-five million 
at HUD was deemed by OMB to belong better with a larger program 
at EPA where it could all be administered in one place. So that 
is really the genesis of that.
    Mr. Shays. Okay. Then we just need to make sure that, in 
fact, it is not a transfer with less money.
    Secretary Martinez. I believe it is a transfer with a 
substantial additional amount of money.
    Mr. Shays. But I hope that HUD doesn't lose its name and 
spirit of its name. It is urban development as well, and this 
is a key program for urban development. I am not sure that EPA 
is focused on urban development.
    The last thing. I will----
    Secretary Martinez. If I may, just on the issue of CDBG, 
just wanted to tell you that we do have in this year's budget a 
request for $96 million in addition to the 2003 appropriated 
amount for the CDBG program.
    Mr. Shays. Okay.
    Let me talk about HOPE VI. I will fight to my death on this 
program. It has enabled us to tear down old, dilapidated 
housing, warehoused housing for the poor, and it has enabled us 
to--as you come into the city of Stanford in the major part of 
the Fourth Congressional District, we have the poorest of poor 
living with low income, living with middle income, living with 
upper middle income, and they can have whatever unit comes 
next, and it is absolutely awesome. And poor kids see rich folk 
go to work, and they see people who have a hope and a future. 
They are not warehoused. I just hope and pray that we rethink 
what we are doing with HOPE VI.
    And I am confused by your statement, 100,000 established--
on page 10--established, HOPE VI has served its purpose. I 
don't understand why it stopped. Established to revitalize 
100,000 of the Nation's most severely duressed public housing 
units. The program has funded the demolition of over 115 
severely distressed public housing units and the production of 
over 60,000 revitalized dwellings. Why stop? And if the money 
isn't getting spent well, why not fix it?
    Secretary Martinez. It isn't that--I mean, I believe that 
it is getting spent well for the most part. It is not being 
spent out fast enough. And it needs to be continued. I mean, in 
other words, we are not stopping the program; we are not going 
to continue--I mean, we are going to continue to monitor and 
pay out as communities pull their deals together. Half of--I 
mean, half of--$2.5 billion remain unspent. We want to see 
these units come out of the ground. And so my----
    Mr. Ney. The gentleman's time has expired.
    Secretary Martinez. And so my point today has been to 
request that we all work together towards what the future of 
HOPE VI is.
    Mr. Shays. Thank you. It is a great program, Mr. Secretary, 
and I hope you save it.
    Mr. Ney. The time of the gentleman has expired.
    The gentleman from Illinois Mr. Emanuel.
    Mr. Emanuel. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here. And I want to 
continue on a line of questioning from others, including my 
colleague from Connecticut. Other people have talked about 
their local government experience. So, you know, when I lived 
back in Chicago, I served at the appointment of Mayor Daley as 
vice chairman of the Chicago Housing Authority, which actually 
did the plan of revitalization; it was the sponsor of it in the 
board to get it done, the plan you come and talk to and have 
seen.
    Now, there are difficulties with local housing authorities. 
As you know, what we are doing now in Chicago is not a project, 
but the entire public housing is being revitalized. We have 
torn down 100 buildings, replacing 24,000 units; 8,000 of them 
are for seniors, the very thing that your plan talks about on 
the HOPE VI, what the Congressman from Connecticut talked 
about. By ending it, you would cripple the plan that you 
praised, by doing what you are doing to Section 8. And in 
Chicago we have, in fact, made massive use of Section 8, 
exactly the plan of transformation. You would take out from the 
Chicago plan the very vehicles we have used to transform the 
public housing. It is the largest expansion--not expansion, the 
largest recreation of public housing into mixed units anywhere 
going on in the country, and the vehicles we have used to do 
that have been the bonding authority you talked about, Section 
8, and the HOPE scholarship.
    And my goal, I would hope, is what you would do is not end 
it as a successful program. I don't understand why you would 
end a successful program since it has taken down 100,000 units. 
If you are unhappy about the money getting out, put an 
incentive clause so PHAs move those dollars out quicker. You 
don't end a success. And if you are unhappy about Section 8, 
you reform it.
    You are abdicating the responsibility that has been given 
rather than giving guidance and incentive. I have worked on 
this, spent 4 years of my life on a housing authority doing 
this, worked with your predecessor, worked with you at one 
point on this, and you are going to cripple what is a model in 
Chicago or other housing authorities, close to 20 of them come 
to look at and try to repeat.
    And as I say, I have been on the ground. We can all talk 
out here in Washington. I have been on the ground actually 
doing this, trying to work through Section 8, trying to move 
families, used HOPE VI, and you are going to cripple what 
Chicago is doing.
    Secretary Martinez. Sir, I think that what Mayor Daley is 
doing in Chicago is remarkable, and I commend you for your part 
in it. And I believe that if more cities aggressively pursued 
the issues of housing like Mayor Daley is doing, that we would 
have a much better America. So I have no quarrel with the 
approach that Terry and your----
    Mr. Emanuel. I will convey it directly to him.
    Secretary Martinez. Please do. I was there about a month 
ago----
    Mr. Emanuel. I know.
    Secretary Martinez. ----and I conveyed it myself.
    I just think that the vehicles for private financing that 
are being used by Chicago are a real key to the future success 
of what we will do to revitalize America's cities. I also 
believe that what HOPE VI has done--and Chicago is a good 
example of what we are talking about. Much has been done. Much 
needs to be done. And still a great deal of money remains 
unspent on projects that are already in the pipeline in 
Chicago. So, you know, you, I believe, are well familiar with 
how the administration might operate, and you know that there 
are competing interests every time the President puts a budget 
together. So at a time of tremendous national need, we felt 
like HOPE VI is an area where we should take a look at where we 
have been and where we are going while still maintaining the 
commitment to continuing to see through all the projects that 
are out there now.
    Mr. Emanuel. But what you will do--look, you know, you 
yourself have said it was a success.
    Secretary Martinez. It is.
    Mr. Emanuel. Okay. You don't end a success. There are still 
a lot of failed buildings. Those buildings fail the residents, 
and they fail the taxpayers. But HOPE VI was a bipartisan 
initiative. It is succeeding. Do not end it. You are making a 
mistake. And the greatest program that you model and just 
praised, you would be crippling it, I am telling you up front, 
having worked on it endless hours at hearings, with residents, 
with taxpayers, the HOPE VI.
    The Section 8 has been overall a net plus. It has its 
problems. Block grant isn't the way to do it. I would be more 
than willing to work with you on types of reforms on how to do 
it because it doesn't adequately meet the ability of people to 
move away from the actual geographic area where they live in 
public housing. Eighty percent of the people who use Section 8 
end up going within a three-block radius of the public housing 
because of the other services that are available there. We need 
to ensure that Section 8 is a tool that can get away from 
physically where the public housing has been geographically 
physically isolated from the rest of the city. We don't want 
them within a three-block radius of that area. And Section 8 
has the right goal. It is not exactly a strong enough bus 
ticket to get away, but you don't end it by block-granting it 
because States are not in the capacity to deal with it. You 
would be hurting Chicago, another example you hold up as a 
model.
    Secretary Martinez. But you would have the flexibility in 
Chicago to keep the program at the city level. I mean, it 
doesn't mandate that it go to the State. It gives the option 
that it go to the State. If it doesn't make sense for Chicago, 
then that is the way it should be. If it makes sense for 
another place, they would then have the option to do it. So it 
doesn't tell you that you must do it that way; it gives the 
option for it to be done that way.
    Mr. Emanuel. Mr. Chairman, do I have 1 more minute, or 
should I end?
    Mr. Shays. No. I think we need to end and let other 
Members.
    Mr. Emanuel. I appreciate it.
    Mr. Shays. If we get a second round, we could recognize 
you.
    Let me just say, Mr. Capuano has the floor, and based on 
the Members who are here, it is Mr. Davis and then Ms. Carson. 
So, Mr. Capuano, you have the floor.
    Mr. Capuano. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary. There are many things in your 
budget that I like, and I always like to emphasize that as 
well, because I know in these hearings many of us tend to argue 
about the things we don't like. I like the home ownership 
opportunity stuff. I like some of the increases that I see in 
the HOME and other things. There are several things here that I 
like. So it is not everything that I don't like, and I want you 
to know that going forward.
    Secretary Martinez. Thank you, sir.
    Mr. Capuano. I liked your answer on the brownfields grants, 
although I have some concerns what is relative to the EPA's 
mission versus your mission. I would prefer to see it split for 
that very reason. I actually think that HUD has a better idea 
what to do in urban areas than the EPA does, but that is 
something we will work out.
    I want to associate myself with everything that has been 
said about HOPE VI. I am one of the many people that my 
district has benefited from it. You have heard all the 
arguments. I don't think it is helpful to repeat them, but I 
want to make it as clear as I can that everything I have heard 
here about HOPE VI I totally agree with plus some.
    I also want to very clearly associate myself with the 
things that Mr. Shays had said earlier about the Section 8 
certificates. I am really tired about hearing about how the 
Section 8 certificates are not used. I don't know why they are 
not used in other parts of the country. I know why they are not 
used in Boston. And all the reasons you just heard are exactly 
it. Particularly in one of the most expensive, if not the most 
expensive, housing market in the continental United States, it 
really makes it difficult. And the fact that we can use any of 
them sometimes amazes me. So I think that when HUD realizes 
that there are differences in different areas, I think we will 
have a much more productive discussion on the matter.
    But I do want to take a minute to talk about some things 
that I don't think have gotten fully blown out today, namely--
well, a couple of things in particular. The Section 108 CDBG 
loans and the empowerment zones. Both of those items produce 
more private capital in their respective areas than they do 
Federal money. Now, I was under the impression that that was a 
good thing, to generate private investment in areas that would 
not necessarily get them and to accomplish things that would 
not otherwise be done, particularly since I have been hearing 
from the administration rumblings about some liking towards the 
concept of smart growth, though I have some problems with the 
way that concept is sometimes utilized. I understand the idea 
of trying to build in some of the holes we have in some of the 
urban areas, and both of those programs do it. And to eliminate 
empowerment zones or to eliminate the Section 108 loans I think 
cuts off private money that is otherwise unattainable for many 
urban areas, and I guess I just don't understand what the 
thinking is on it.
    Secretary Martinez. On empowerment zones, let me say the 
mission was the grant program, which was not very successful 
and didn't work well. We continue to encourage through the Tax 
Code for investment in those types of areas that you mentioned, 
and I think that is the most successful part of the empowerment 
zone program. So, I mean, we believe in them, we continue in 
them, but the grant program was just felt to not be the 
particularly most successful part of it. And so we continue to 
encourage the economic development that comes from empowerment 
zones and the tax credits that are given, and many places find 
it very successful.
    Mr. Capuano. If empowerment zones are working, again, as my 
colleague said, in another program, if it is working, why mess 
with it? And empowerment zones were working, are working, and I 
think deserve our support.
    Secretary Martinez. We have new tax credits in this budget 
for $11 billion, so we are with you on that.
    Mr. Capuano. I understand that, but tax credits are one 
thing, they don't come up front. This is upfront money that has 
to be matched up. And the same with the 108 loans.
    I want to talk a minute, too, about the public housing 
cuts. It just seems to me just continuous that we are going to 
walk away from public housing, which amazes me on some levels. 
I understand, I have all the same concerns that anybody has 
relative to some of the past history of public housing, but we 
got rid of the Drug Elimination Grant program. I didn't like 
that. I think it was a mistake. Now this year we are trying to 
get rid of the HOPE VI program, which we have already talked 
about; again, another huge mistake. But we are also cutting the 
capital fund, we are also cutting the operating fund, which are 
amazing to me.
    Is there any concern whatsoever? Do you think that we are 
ever going to get to the bone of public housing, or are we just 
going to every year cut deeper and cut further and just totally 
get rid of public housing? What is the general long-term policy 
goals on this issue?
    Secretary Martinez. I don't think there is any change in 
the policy goals in respect to public housing, sir. I believe 
that the operating subsidy funding levels of this year are 
consistent with funding levels of other years, you know, in the 
range of what has been done in the past. And I don't believe 
that the capital fund funding this year is inappropriate, given 
where we are in the budget cycle.
    Mr. Capuano. I don't disagree that there is no change in 
policy, because it is to cut further and further and further 
and just ignore our public housing. I don't think there is a 
change in policy. I guess I am just wondering what is the long-
term goal if you are here for 100 years and the administration 
is here for 100 years, to just get rid of public housing, let 
it all crumble and fall around the areas of all the people that 
live there now?
    Secretary Martinez. Well, I can assure you I won't be here 
for 100 years, but I don't think that that is the goal, no.
    Mr. Capuano. One last comment. All right. I won't.
    Mr. Shays. If you would like to make a comment after others 
have gone. We have Ms. Harris--Ms. Harris, excuse me--and then 
Mr. Davis and then Ms. Carson.
    Ms. Harris. Thank you, Mr. Chairman.
    Welcome, Secretary. Thank you for your testimony this 
morning.
    It is clear that the administration is poised to create a 
robust commitment to expand affordable housing opportunities 
for low-income families. Your budget proposal contains several 
landmark initiatives that will extend the dream of home 
ownership to tens of thousands of families and individuals 
across the United States. For example, HUD's American Dream 
Down Payment Initiative would empower families and individuals 
to overcome the most significant obstacle that faces potential 
home buyers, and that is the down payment.
    I strongly support this innovative proposal, and thus I 
plan to introduce the American Dream Down Payment Act in the 
upcoming days. The act will fully implement the initial 
commitment that Congress made to this idea by providing $75 
million in funding for fiscal year 2003. By providing 
communities throughout America with $200 million grants in 
fiscal years 2004 and 2005, and it will enable 40,000 families 
to receive an average subsidy of $5,000 annually. This 
initiative will be administered as a part of HUD's home program 
while preserving the home program's flexibility. States will 
have the authority under the act to creatively design the 
package of down payment assistance that best meets local needs.
    Secretary Martinez, could you please comment further on 
this proposed legislation, the assistance that it will provide 
to low-income families and individuals, and to minorities in 
particular?
    Secretary Martinez. I so much appreciate your focus on 
this, and I appreciate very much your willingness to sponsor 
this American Dream Down Payment Initiative. I believe at the 
end of the day that the way we are going to make America's 
needy families successful in this country is by providing them 
the opportunity to become a part of the American dream, and 
that comes through home ownership. That will give people the 
economic empowerment to be in control of their own lives and to 
become self-sufficient.
    All we can do to bring families that might be today holding 
a Section 8 voucher, that might be today part of that HOPE 
program that we talk about, and all of us concerned about how 
we better address them is to give them that opportunity to own 
a home, and you do that through the American Dream down 
payment, giving them a little help with the down payment so 
they can become home owners; and then, in addition to that, 
with the increase in home ownership education and counseling 
that is in this budget as well. We have more than almost 
doubled, more than doubled, the money that was in the budget 
for--when I came to HUD for home ownership education and 
training. People need the skills to know how to buy a home. 
Immigrant families, people to whom English is a second language 
are now the largest minority in America. We need to teach them 
the ways of the American financial system and how they, too, 
can taste the dream of home ownership.
    So I thank you for your support and commitment to what I 
believe is the vitally most important thing we are doing at 
HUD, providing home ownership.
    Ms. Harris. Thank you, Secretary.
    I would like you to comment further. Some State and local 
government housing authority--advocacy groups oppose the 
American Dream Down Payment Initiative. The National Council of 
State Agencies objects to what they view as this initiative to 
disparagement of the HOME program. They claim that it will 
duplicate and dilute existing efforts. What is the 
administration's response to that criticism?
    Secretary Martinez. I really think their concerns are 
misplaced and misguided. The fact of the matter is that this 
$200 million is over and above current funding levels for the 
HOME program. Many HOME programs around the country already do 
down payment assistance. The President's goal is to ensure that 
at a minimum $200 million of what goes in the HOME program is 
going to be devoted to down payment assistance, the greatest 
tool that we can provide families that are seeking to buy their 
first home and families who are seeking to move into home 
ownership.
    So I believe that their concerns are really not 
appropriate, particularly in light of the fact that this is all 
new money funded on top of what already is a very substantial 
increase in the HOME budget, over 5 percent.
    Ms. Harris. And in closing, Mr. Chairman, the expansion of 
opportunities for low-income families is one of my top 
priorities to my constituents, and, in fact, my district has 
relied heavily on HOPE VI grants in the past. There is a 
stellar example in Manatee County where they received about $21 
million to revitalize the public housing side, and it is really 
extraordinary. And now I am working--I have been working with 
several other communities, counties to receive that.
    So just let me echo, while I recognize that HOPE VI has had 
its concerns that need to be addressed, I just wanted to state 
for the record, too, that we have been pleased with what has 
actually occurred within our district.
    Secretary Martinez. Thank you.
    Mr. Shays. Thank you.
    The Chair will recognize Mr. Davis next and then Ms. 
Carson. And, Ms. Carson, you are going to get an extra minute 
because you are so patient.
    Mr. Davis.
    Mr. Davis. Thank you, Mr. Chairman.
    Mr. Secretary, let me try to cover some ground that has not 
been covered in the last couple of hours. One----
    Secretary Martinez. You are going to have a challenge on 
your hands.
    Mr. Davis. I do indeed, and I will try to live up to that.
    Secretary Martinez. Yes, sir.
    Mr. Davis. One of the things that strikes me as someone who 
represents a district that has a large rural component is that 
the Rural Housing and Economic Development Program is 
eliminated altogether. Now, when you have spoken on this 
previously, including your testimony to the Senate yesterday, 
the response that you have given and that others in the 
administration have given is that, well, the elimination of the 
RHED is not so bad because the USDA Rural Housing Program will 
pick up the slack.
    Let me tell you one concern I have of that, Mr. Secretary. 
Let me tell you the facts as I understand them, and I am sure 
you will correct me if I am wrong. The program, the RHED 
Program, as I understand it, targets capacity building. It 
provides a vehicle for not-for-profits, for example, to put 
money into building low-income housing. It also provides some 
money for developers to put into low-income housing, whereas 
the Rural Housing Program that is within USDA is basically yet 
another form of a lending program.
    Now, my concern is that at the end of the day, if we are 
serious about the problem of community capacity building, if we 
are serious about the problem of expanding housing 
opportunities, then we need to not simply put more resources 
into programs that transfer money to consumers. That is an 
important part of it. But we need to also make sure that we are 
giving developers an incentive to build certain kinds of 
housing, and that we are giving not-for-profits the incentive 
to do this kind of work. So can you address that concern of 
mine, Mr. Secretary?
    Secretary Martinez. Yes, sir. First of all, I reiterate 
that the Office of Management and Budget views this program as 
belonging with rural housing, and that is why it is every year 
not funded and always funded through the--well, it gets funded 
by Congress back into HUD. But in any event, this little thing 
goes back and forth every year, one of the interesting things 
that I have come to learn about Washington.
    In fiscal year 2004, the President's request includes a new 
Rural Strategic Investment Program for the Department of 
Agriculture which closely mirrors the Rural Economic 
Development Program established by Congress and HUD. This new 
program was authorized in the Farm Security and Rural 
Development Act of 2003, and it funds it at a level of $85 
million, which is a first-time funding. So I believe that the 
same programs that are existing through this program at HUD 
would be mirrored at the Department of Agriculture with a far 
larger funding level than what is at HUD.
    Mr. Davis. So do you take issue with the premise then that 
the actual purpose of the RHED is different from the purposes 
of the Rural Housing Program in the USDA? I understand the 
funding commitment is matched, but the nature of the program.
    Secretary Martinez. I think the Rural Strategic Investment 
Program now in the Department of Agriculture will provide the 
variety of opportunities for programs that are now under HUD.
    Mr. Davis. And what kind of a funding increase is that 
program?
    Secretary Martinez. With that kind of a funding increase as 
well. So I don't believe what you are seeing at HUD is going to 
disappear; it is going to be funded at $85 million at 
Agriculture is what it really boils down to.
    Mr. Davis. Before I move on, I would just reiterate the 
concern that I think that the nature of the two programs is 
different, and I think that they both serve important parts of 
the mission. There is a similar concern that I have that 
relates to the Section 502 program. And while there is an 
increase in the program, there seems to be a shift from direct 
loans to guaranteed loans.
    Now, the problem that I have with that, Mr. Secretary, is 
that the guaranteed loans, number one, serve people who are at 
a higher income bracket, around 37,000 to 40,000, as opposed to 
the 17,000 to 20,000 served more by direct loans. The second 
problem that I have is that if you look at the characteristics 
of people who benefit from the guaranteed program, they tend to 
be more urban. The people who benefit from the direct loan 
program under 502 tend to be more minorities, and they tend to 
be more rural.
    So my concern is that, as with the first matter I raised, 
the administration is shifting its strategies and saying that 
we are getting the same bang by putting more money into another 
area, but the nature of the programs are different. And I am 
particularly concerned with Section 5012 that some of the 
neediest people are going underserved. The increase that this 
budget recommends is a relatively small increase over a period 
of time.
    Secretary Martinez. Well, sir, I am afraid that I can't 
comment beyond what I have said to you on that, but if you 
would like, I would be happy to try to provide you a more 
comprehensive written response to your request on that issue. 
But I am really not that knowledgeable about rural programs, so 
it is difficult for me to try to equate one thing with the 
other.
    Mr. Davis. I would just make one point about that; that I 
would hope that you would change that, Mr. Secretary, because I 
do think that in rural America housing is a very important 
need.
    Secretary Martinez. It is, but unfortunately, the way the 
government has been envisioned, it puts a huge component of 
housing for rural America at the Department of Agriculture, not 
at HUD. And while I work with Secretary Veneman from time to 
time, and we do joint things and try for our local offices to 
work together and benefit families, for instance, our down 
payment assistance with Section 8 vouchers has been utilized 
for people to purchase houses under the Rural Housing Program, 
I am just not conversant enough to give you an accurate answer 
to the question that you have raised.
    Mr. Davis. Okay. I think my time has expired, Mr. Chairman.
    Mr. Shays. Thank you, Mr. Davis.
    Ms. Carson, you have the floor and then Mr.----
    Ms. Carson. I promise you, Mr. Chairman----
    Secretary Martinez. I am going to need a break at some 
point.
    Mr. Shays. Let me just say, I was going to first say while 
I still had the chair, you have reported yourself 
extraordinarily well. You are a credit to the administration, I 
think, and you have been very generous with your time. If I 
could be certain as to how many more, we would be happy to give 
you a break and come back, or we could just go through. Would 
you like a break right this second?
    Secretary Martinez. I would like to break and then come 
back if there is more than one.
    Ms. Carson. Well, I am going to be very brief.
    Mr. Frank. But we do have more than one, and the Secretary 
has been extremely generous, and we are grateful for the time. 
So why don't you take a break and come back.
    Mr. Shays. Should we come back in 5 minutes?
    Mr. Frank. We have three more possibly, I think.
    Mr. Shays. We are going to come back in 5 minutes.
    Ms. Carson. Are you going to break before me?
    Mr. Shays. But you are going to get 6 minutes as long as I 
have that chair just to make up for it.
    Ms. Carson. But I got to yield to Mel Watt.
    Mr. Shays. We are going to have a 5-minute break. Trust me 
on that one.
    [Recess.]
    Mr. Shays. The committee will reconvene. And we move on to 
the gentlelady Ms. Carson.
    Ms. Carson. Thank you very much, Chairman Ney. In deference 
of time, Mr. Chairman, I would like to yield 1 minute of my 7 
minutes to the Honorable Mel Watt, please.
    Mr. Shays. I wasn't good in math, but I think we can yield 
that 1 minute of the 6-1/2 minutes. Compromise is the art here.
    Mr. Watt. Mr. Secretary, I just had one other question I 
meant to ask you. You all last year put a $20 million cap on 
HOPE VI grants, and I am wondering whether you will at least 
look at the idea of putting some exception language into the 
next round, because there are some projects if we are going to 
terminate this program or if you are not going to terminate the 
program.
    Secretary Martinez. We still have one more round 
regardless. We will take a look at that. The fact that we 
felt--I felt, frankly, very personally about this, that it 
would only enhance the ability of the grants to be spread out a 
little more throughout America. And when you look at----
    Mr. Watt. I understood the rationale for it. I just wanted 
to know if you would look at the possibility----
    Secretary Martinez. Okay.
    Mr. Watt. ----of putting some exception language in that 
for compelling reasons.
    Secretary Martinez. You wouldn't have any specific area in 
mind where that might be?
    Mr. Watt. Yeah, I got a specific area.
    Secretary Martinez. You might let us know about that, too, 
so we could at least take a look at what it is you are trying 
to accomplish.
    Mr. Watt. Yes, sir. I would be delighted. And I have 
bipartisan interest in it.
    Ms. Carson. Excuse me. I am reclaiming my time.
    Thank you very much, Mr. Secretary. I will be very brief. I 
will be like Brillcream, just a little dab will do me.
    My question is concerning the Public Housing Drug 
Elimination Program that has been dropped. You were out in 
Indianapolis and saw what a great job we have done with public 
housing there, et cetera, et cetera. I hope you had a chance to 
go around and look at some of them.
    Secretary Martinez. Yes, ma'am.
    Ms. Carson. Crime dropped 60 percent. You eliminated the 
drug elimination program to the police, the COP program. How do 
we respond to that? The cities are strapped for resources. And 
then I was wondering, can I drop--see, I am being very nice. I 
have a request for a waiver here, so--because I am nice, I want 
you to look at that.
    Secretary Martinez. Thank you very much. We will be glad to 
look at a waiver. We sign a lot of those, so I will be happy to 
take a look.
    We put $250 million into the Operating Subsidy Grant 
Program, which was supposed to take the place of drug 
elimination monies. What it did is it freed it up for the local 
authorities to then do as they saw fit with that money, so that 
they could then devote it to drug elimination programs or do 
something else with it. Many housing authorities felt like 
there were other ways that they could do the same thing. So we 
freed up the opportunity for people to do different things with 
it, and as you know, it was a program that had a lot of 
challenges in it.
    And one of the things that I also think is important to 
keep in mind is the continuing obligation of local government 
to provide public safety in places of public housing. I don't 
think it is the obligation of the landlord in public housing to 
be the policeman on the beat as well. Whatever the city is, 
Indianapolis or whoever, they continue to share a 
responsibility for law enforcement, for providing the kinds of 
drug programs that are going to help a person out of addiction. 
All of these things really are community resources that need to 
be attacked on a communitywide basis.
    So I believe that we are continuing to look at the problem. 
I understood your concern, but most of the funding was restored 
as in that large grant to the housing authorities.
    Ms. Carson. Okay. I am going to draft you a letter to save 
time, and concerning FHA 30 percent foreclosure. I heard 
Congresswoman Harris discuss this first-time homebuyer where 
you give them a down payment. My concern is how are they going 
to pay for the house after that? Indianapolis outranks any 
other place in the country, 6,000 foreclosures. Home ownership 
is ideal, but we have got to find out what is going on that 
people are losing their homes.
    Secretary Martinez. Well, a lot of times that comes from 
predatory lending. We need to work at that.
    Ms. Carson. That is my point. You hit it right on the head.
    Secretary Martinez. Absolutely. We are working diligently 
on that. We are also doing things at FHA to avoid the flipping 
of properties and a lot of abuse that came as a result of that. 
We are taking this issue very seriously. We understand how they 
harm people who are at the place where they don't need harm. 
They need help.
    And so I understand what you are saying, and we are working 
with the FTC in enforcement of predatory lending. We did a 
major case which I believe may have touched Indianapolis or 
Indiana this past year, and we are looking forward to more and 
more enforcement actions as we tried to eradicate predatory 
lending.
    I am also reforming the Real Estate Settlements and 
Procedures Act in a way that is going to make consumers more 
empowered to fully understand the closing process and better be 
able to shop for the lowest price so they don't get in the 
closing process, number one, know what they are buying, and 
number two, what they are paying for, in a way that reduces 
also the costs hopefully by about $700 per transaction, which 
is going to be good for needy families and consumers that are 
out there trying to get a mortgage.
    Mr. Shays. Mr. Gutierrez.
    Mr. Gutierrez. Thank you very much.
    Mr. Secretary, welcome.
    Secretary Martinez. Thank you.
    Mr. Gutierrez. I was hoping we could talk for a minute 
about a local issue in Chicago, and it is in regards to your 
Section 514 Technical Assistance Program for tenants and the 
audits by HUD's Inspector General. There is in particular an 
organization, Tenants United for Housing. They are a not-for-
profit organization serving tenants in my district in Chicago, 
and it is a recipient of HUD's Outreach in Training Grant. One 
of the buildings that they helped work on is 1170 West Erie, 
which is called Northwest Tower. You see it from the Kennedy 
Expressway. We saved it from gentrification. It was financed 
under HUD, and when the owner wanted to go bankrupt, the 
tenants bought it and organized it. So it is a pretty good 
organization. And I guess we have a problem with their funding, 
and it has to do with $6,900.
    Now, they were given a no tag grant of $800,000; they 
received $434,423, and the Inspector General found that they 
had $6,900 in ineligible costs. That is to say that--they had a 
conference which they were approved for; HUD approved 
expenditure of $6,900 for a conference in September and 
October, but then September 11th and the tragedy of September 
11th occurred, and they didn't have the conference. And then 
HUD froze the money for everybody. Just froze it. So it is kind 
of hard to get. Give the money back, put in your next waiver. 
You usually say you made a mistake, and here is your money 
back.
    So the IG came out, and it just seems to me since they have 
done such a great job, and since they got 434,000, and nobody 
is disputing the $6,900, and they are dying to give it back in 
terms of the receipts, it has never been an argument. And I 
guess it totals, what, about 1-1/2 percent of the total money 
that they received. So they got $434,000, never a problem. Then 
their last $6,900 there was a problem, and they are dying to 
give it back, and they have been calling me. And I know they 
want to give it back, but they are frozen out.
    Now, some people who the Inspector General had a problem 
with, not only was ineligible but other costs, continued to 
receive money after it was not frozen. So I just thought if we 
could just look at the $6,900--look, we shouldn't--1-1/2 
percent is 1-1/2 percent too much. But given what it represents 
in its totality and when it happened, maybe we could take 
another look so that they can go out there and do the splendid 
work that they have been doing. What do you think?
    Secretary Martinez. I think you raise a perfectly good 
legitimate point. My problem is, as often is the case, is that 
I am constrained in what I can do by the legislation that 
directed the audit by the IG in the first place. That audit--
and I have received a draft report from the IG, and it doesn't 
make a determination as to whether or not grantees who have 
very technical violations--it says that if there is a 
violation, it shall terminate funding. That is the way the 
statute reads.
    My hopeful interpretation of it is that I will be given the 
discretion to make judgments in a situation like this as 
opposed to some other that might be a very egregious violation.
    So we are trying to make sure that we get, first of all, 
the final report from the IG before we proceed, but then, in 
addition to that, the legal interpretation of what latitude I 
have, because right now the argument is made that I have no 
latitude and that I must withhold any further funding. I assure 
you that I am one who is, you know, a benevolent judge. And I 
believe that, if given the opportunity, a case like this will 
be funded.
    So I will look at it particularly closely in the one that 
you have brought to my attention, but for all of them actually, 
to see that we do what is right and find the latitude, actually 
ensure that we don't fund those who maybe have abused the 
privilege of the grant, but certainly continue to fund those 
who are doing a good job and maybe had a very technical 
violation.
    Mr. Gutierrez. Because they haven't received anything, and 
so now they are looking at obviously they have had to terminate 
most of their employees. My understanding, and I know you will 
check into this, Mr. Secretary, is that you do have the 
discretion, and that the statute is you can--may proceed. I 
know you can do one or the other. But it just seemed--and maybe 
the law is so tightly wound, but if you take a look at it, I 
just think it is a great group of people. Again, I am not 
willing to excuse 1-1/2 percent of anything, but it is the last 
1-1/2 percent they ever got.
    Secretary Martinez. You are a good advocate. You made a 
compelling case. The question really boils down to whether I 
have the legal authority to take that into account or not.
    Mr. Gutierrez. I appreciate that.
    Mr. Ney. The gentleman's time has expired.
    Mr. Miller of North Carolina.
    Mr. Miller of North Carolina. Thank you.
    To follow up on the line of questioning that you just had, 
my understanding is that the statutory term is recapture the 
funds, any funds that have been misspent, not to terminate 
funding.
    Secretary Martinez. It is both terminate funding and 
recapture funds.
    Mr. Miller of North Carolina. Okay. So it is your 
understanding that the statute requires you to terminate all 
funding if there is any violation however de minimis it may be?
    Secretary Martinez. My understanding is--well, first of 
all, I have not concluded what my ultimate understanding is 
going to be because I don't have a final legal opinion on it. 
Some are suggesting that that is the case, that I have no 
latitude whatsoever. We are hoping that there will be some 
latitude found so that I can do what would be the right thing 
to do, what I believe to be the intent of Congress. But when 
the language says shall, that usually is mandatory language, 
and we need to be very cautious that I am acting within the 
legal authority that the statute gives me.
    Mr. Miller of North Carolina. Mr. Secretary, I would urge 
that you hurry with that determination, because while these 
groups have had their funding suspended, they are having to lay 
off the people who do their work; those folks are finding other 
jobs, and the ability to complete their work, they are losing 
that ability altogether while their funding is suspended.
    Secretary Martinez. I understand, and I just ask you to 
please understand my position as well. I have an Inspector 
General that operates independent of my jurisdiction, if you 
will. He is a Presidential appointee. He has his own set of 
responsibilities. I have to get a final report from the 
Inspector General, and once I get that report, then I will be 
quick to make a determination. I assure you that it is not 
going to just languish on my desk, but I don't have the final 
report from the IG, and until I do, I just cannot do anything 
about it.
    Mr. Miller of North Carolina. I also understood, Mr. 
Secretary, that the statute required that any action would come 
after a final report; is that not correct?
    Secretary Martinez. That is correct.
    Mr. Miller of North Carolina. I am sorry? You have 
suspended funding now, but you haven't gotten the final report?
    Secretary Martinez. The IG has instructed us--have done 
individual reports. And based on the individual report from the 
IG, and interpreting the law as being mandatory, we have 
suspended funding for the time being.
    Mr. Miller of North Carolina. Okay. My understanding is 
that the IG, the Inspector General's conclusion is that there 
is not any kind of widespread pattern of abuse.
    Secretary Martinez. That is not the case. The IG report 
found that out of the 47 grant--out of the 40 grantees, about 
30 had violations of some sort of another. As I say, some are 
trivial, but a good number of them are not trivial.
    Mr. Miller of North Carolina. Well, but we are not talking 
about fraud. We are talking about recordkeeping, we are talking 
about not having receipts.
    Secretary Martinez. I don't know that I am in a position to 
characterize the nature of the violations. I do believe, 
though, that some would be fraud while others might be very 
technical in nature.
    Mr. Miller of North Carolina. Okay. What opportunities do 
these agencies have to challenge, to have due process, notice 
and opportunity to be heard to challenge this really draconian 
measure of losing funding and the programs are drying up and 
blowing away?
    Secretary Martinez. You know, let me say that what you 
raise are interesting points and interesting issues. I am 
charged with administering congressionally passed legislation, 
and what I have to do is to make sure that I am true to my 
obligations under the law so I am not in violation. So I am 
going to have to be very careful about what I do. And the 
statute does not seem to provide a great deal of latitude in 
all of these issues. So what we are doing is taking a very safe 
approach, which is to make sure that we are not back here on 
hearings before you about why we didn't enforce the law; and in 
the meantime, the process--the due process that we will 
administer is whatever due process the Congress passed in its 
statute.
    I mean, I don't create the laws; I enforce them. So my role 
is to provide whatever due process is provided for in the law, 
but I cannot create due process where none may exist. They 
certainly have a chance to challenge, they have a chance to 
appeal it. I mean, common sense will prevail in all of this. 
But I believe that, you know, we always should look at the 
statute and see if this is something we want to live with going 
forward or whether changes ought to be made in how it reads.
    Mr. Miller of North Carolina. Do those agencies have any 
opportunity to challenge the suspension of funding before it 
was suspended or to challenge the findings of the audit before 
their funding was suspended?
    Secretary Martinez. I don't feel that I have enough of a 
legal opinion to give you on that, but I would say that 
whatever is provided by statute we will do to the fullest. And 
I will interpret the law in any way that I can in the light 
most favorable to the applicants and to the grantees to give 
them every benefit, obviously, of due process. But ultimately, 
if it is found by the conclusions of the IG that either fraud 
or serious misdeeds have been committed, then we will enforce 
the law and ensure that Federal money is not being misspent.
    So I am afraid I cannot answer for you more fully at this 
point.
    Mr. Ney. The time of the gentleman has expired.
    The gentleman from Massachusetts.
    Mr. Frank. I just wanted to follow up only because of this, 
because I want to make clear I agree with the Secretary. We are 
dealing with an excessively rigid statute, but I should make 
clear, this is an Appropriations Committee invention. This was 
not done here. And it is relevant because I think that when we 
talk about not legislating appropriations bills, there are 
reasons for this. This is an example. And I don't mean by this 
to agree exactly with how it is being interpreted.
    I will say this: We had an earlier problem with some of 
these groups, the outreach groups. I spent a lot of time, Mr. 
Weicher was helpful, the Secretary too. I was frustrated it 
took longer than it should have, but we about cleaned up that 
situation. These are groups of, people should understand, hard-
working volunteers. And I agree with the gentleman from North 
Carolina. I don't think we are talking about people trying to 
steal any money. I am pretty sure we are talking about hard-
working people, not always fully funded for lawyers and 
accountants, and I think they were being somewhat excessively 
harshly treated. We were able to work out with this committee, 
with the Secretary, and we had most of the things resolved, and 
then an excessively rigid enactment came from the 
appropriators.
    Now, there may be more flexibility in how we do it, but I 
have been urging people that we all ought to be asking the 
appropriators to relax, because while, there is room for some 
flexibility in administration, I do believe in this case the 
greater part of the problem is from a statute that the 
appropriators adopted without any consultation, I believe, with 
any of our staff, certainly not on the housing side either way. 
And I would be glad to work with the Secretary. And I again 
appreciate, Mr. Secretary, your very generous use of your time 
and your willingness to respond, as you have, to all the 
questions. But I would be willing to work, and I would hope on 
both sides we could here in this committee, and the Secretary, 
to try to get the appropriators to give a little of the 
flexibility. I think what the gentleman from North Carolina was 
asking for substantively we would all agree makes sense. And to 
the extent that the appropriations language might interfere 
with some of that, I hope we can get it changed.
    Secretary Martinez. Absolutely. Yes, sir. I think your 
sentiments and mine are the same. I want to do right by these 
folks to the extent that that is possible. But I am also going 
to be constrained by what the statute language is.
    Mr. Ney. The Chair notes that some Members may have 
additional questions which they will want to put in writing. 
Without objection, the record will remain open for 30 days for 
Members to submit their questions in writing to the witnesses 
and for the responses to be part of the record.
    Mr. Ney. Without objection, I also want to thank the 
Secretary for his time and also his answers to the questions.
    Secretary Martinez. Thank you very much, sir.
    Mr. Ney. We will call up the second panel.
    I would also note, we have conferred with the Ranking 
Member. And if the panelists would so choose, the witnesses 
would so choose, you can capsulize your statements. There are, 
I would assume, a few questions. It is up to your discretion 
whether to take the full 5 minutes or to capsulize your 
statements and submit for the record.
    The second panel, I would like to introduce the panelists. 
Mr. Art Garcia. And Mr. Garcia was appointed by President Bush 
to serve as the Administrator of the Rural Housing Service in 
the U.S. Department of Agriculture. Prior to coming to 
Washington, Mr. Garcia enjoyed a career in banking while also 
serving as president of the Hispanic Bankers Association, as 
chair of a PBS affiliate in Albuquerque, as a member of the 
City of Albuquerque Library Board. I want to welcome Mr. 
Garcia.
    Mr. Anthony Lowe was appointed Administrator of the 
Insurance and Mitigation Administration on March 2002. Mr. Lowe 
is responsible for overseeing the National Flood Insurance 
Program, the Hazard Grant Mitigation Program, and all 
initiatives aimed at eliminating and reducing the risks this 
Nation's communities face for natural disasters.
    Welcome, Mr. Lowe.
    And the last witness is Ellen Lazar, the Executive Director 
of the Neighborhood Reinvestment Corporation, a public 
nonprofit organization chartered by Congress in 1978. The 
principle purpose of the Corporation is to revitalize older 
urban neighborhoods by mobilizing public, private, and 
community resources at the neighborhood level.
    Welcome, Ms. Lazar.
    And we will begin with Mr. Garcia.

STATEMENT OF ART GARCIA, ADMINISTRATOR, RURAL HOUSING SERVICE, 
                   DEPARTMENT OF AGRICULTURE

    Mr. Garcia. Thank you, Mr. Ney.
    Thank you very much for the opportunity to testify today. A 
year ago, working in the financial services industry, I never 
dreamed that I would be before----
    Mr. Ney. Turn the mike on there.
    Mr. Garcia. Okay. Thank you. Again, thank you for the 
opportunity to testify. I have been Administrator of Rural 
Housing--my name is Art Garcia--for a little less than a year. 
A year ago I never dreamed that I would be before such a 
distinguished body, but the American dream does come true, and 
I am grateful to be here.
    I would like to submit for the record my written testimony 
and provide a brief summary of that testimony.
    We have a proposal in the administration, $5.67 billion for 
our program. Of that we are utilizing 4 billion in guaranteed 
loans and direct loans to assist 49,000 families gaining the 
dream of home ownership. Of that, 2.5 billion will be utilized 
in the Loan Guarantee Program to allow 31,000 families to 
achieve the American dream; $1.4 billion will be utilized to 
allow 18,000 families to get direct loans from the U.S. 
Department of Agriculture to attain home ownership.
    The 2000 census shows that 13 percent of rural America is 
minorities. In 2002, the rural housing portfolio of loans, 
guarantees, and grants totaled 24 percent minority usage in 
rural America, but we say that is not good enough. To further 
the President's initiative on minority home ownership, we have 
stood up and made a Five-Star Commitment, a five-point 
commitment to increasing minority home ownership in rural 
America, and to do that we are lowering the fees in our 
guarantee program. We are doubling the number of participants 
in our self-help program; that is, the grantees. We are 
increasing our participation with minority lenders, promoting 
credit counseling with FDIC and other partners as well, and 
setting goals and monitoring our activities.
    I wanted to go back for a moment and talk about our 504 
program where we are providing 66--or proposing 66.5 million to 
help 12,000 families have better homes by providing sanitary 
homes for existing homes, by providing disability facilities 
for homes, and the ability for Americans to have a better way 
of life.
    We also believe that we have to do this with fiscal 
responsibility, and we are proud of the leveraging that we have 
done within our program. In 1996, 8 percent of our single 
family loans were leveraged. In the year 2002, 55 percent of 
our loans are leveraged with other funds from other sources. In 
doing this, we have expanded the taxpayers' tax dollars by 12 
percent and have added $120 million to our ability to help 
families by helping 2,000 more families with that money.
    We also have a Multifamily Housing Program that we are very 
proud of. We are proposing in the 2004 budget $70.8 million for 
rehab and repair of 5,900 units. We are proposing 100 million 
for new construction under the 538 guarantee program. We 
project that that will provide 2,400 new apartments for rural 
America, and also 14 million for our farm labor, both on-farm 
and off-farm program, to provide livable conditions for farm 
workers who often face the worst living conditions and who are 
the fuel of the agricultural industry in America.
    An investment in 100 multifamily units from Rural Housing 
Service puts back into the community. Its contribution to the 
community is $5.3 million in income to that community in the 
year of construction and 2.2 million thereafter. It provides 
112 jobs for construction year, and 46 jobs thereafter to 
maintain the facility. And it provides to a small local 
community 630,000 in government revenue, local government 
revenue, in the year of construction, and 384,000 in revenue 
thereafter.
    Coupled with our 515 program, we are proposing 740 million 
for our Rental Assistance Program. This is to renew over 42,000 
new contracts. The rental assistance contract covers 5 years 
for a tenant, so it allows through rental assistance stability 
for an apartment complex, stability in that people stay for a 
long time and in a much more livable complex.
    In this Multifamily Housing Program, we help Americans who 
have an average income of around $8,000 a year. They are the 
most neediest. What we need to do in our administration, what 
we propose, is to find new ways to stretch the dollars, to find 
new partners to protect tenants. And that is our 
administration's position, to protect the tenants that are in 
our facilities. And we are also proposing or beginning work on 
a study to see how we can make the 1962 version of the 515 
program--make it more relevant to 2002, 2003, and beyond.
    So, we are proposing and we are beginning work on a study 
to make our program better.
    Finally, in our Multifamily Housing Program, we have taken 
the recommendations of this committee, and we are improving our 
technology. We have now installed a third generation of our 
multifamily information system, and our management system is 
now more capable to track rental assistance, capable to track 
our inventory, and gives us a much better streamlined way to 
make sense of managing our program.
    Finally, our community facility program brings more than 
brick and mortar houses to a community. It helps us to complete 
the picture by bringing fire, rescue, libraries, et cetera, to 
a community. We are proposing 250 million in direct loans, 210 
million in guarantees, and 17 million in grants.
    I know I am running short on time, so I will cut my 
comments, but I want to make a few more comments. With these 
community facilities, we are proposing that we will do 140 new 
or improved health care facilities for rural America, 130 new 
or improved fire and rescue facilities for rural America, and 
50--create 50 new child care facilities for rural America.
    I want to end by stating, first of all, that we are very 
proud of our community, of our loan service center in St. 
Louis, we have been very active there, and that we are managing 
and servicing over 470,000 loans in that facility. That 
facility has been very active in working with the National 
Industries for the Blind to help provide statements in Braille. 
We have been working with the TDD phone system and e-mail for 
the visually impaired. Eleven percent of our staff there is 
bilingual, so we help those who are unable to speak English and 
are experienced on how we do this in our facility. And we are 
very active in the Work to Welfare Program, where we have taken 
many people from the roles of welfare and put them to work in 
our loan center.
    Again, I thank you for the opportunity to speak today, and 
we will stand ready to answer any questions.
    Mr. Ney. Thank you.
    [The prepared statement of Art Garcia can be found on page 
82 in the appendix.]
    Mr. Ney. And all witnesses, extra material or statements 
will be, without objection, entered into the record.
    Mr. Lowe.

    STATEMENT OF ANTHONY LOWE, ADMINISTRATOR, INSURANCE AND 
 MITIGATION ADMINISTRATION, FEDERAL EMERGENCY MANAGEMENT AGENCY

    Mr. Lowe. Thank you very much. My name is Anthony Lowe. I 
am the Federal Insurance Administrator as well as the Director 
of the Mitigation Division of the Emergency Preparedness and 
Response Directorate, Department of Homeland Security.
    Chairman, Ranking Member Frank, members of the committee, 
on behalf of the National Flood Insurance Program administered 
by the Department of Homeland Security, I welcome and 
appreciate the opportunity to appear today before the Committee 
on Financial Services. I will focus my testimony today on the 
issues of risk reduction as they relate directly to the 
National Flood Insurance Program as well as its modernization 
program.
    Before doing so, however, I want to particularly thank this 
committee, the Chairman, the Ranking Member Frank for your 
leadership for reauthorizing the National Flood Insurance 
Program. Through your efforts we were able to maintain service 
to 4.4 million policyholders and our stakeholders that rely on 
the National Flood Insurance Program for protection from flood 
losses.
    I am also happy to report that the National Flood Insurance 
Program, the largest single-line insurance company in the 
world, is debt free.
    As you may recall, in June of 2001, after Tropical Storm 
Allison battered the Gulf Coast and East Coast states, we had 
to borrow $660 million from the Treasury to pay for losses that 
exceeded our reserves. We have repaid that debt, with interest, 
as of October of 2002. The true payoff, however, was the 30,000 
victims of Allison who had their claims paid off through the 
National Flood Insurance Program, rather than relying on 
disaster relief.
    The National Flood Insurance Program stands once again on 
solid financial ground as we begin a new era in emergency 
management that began on March 1 of this year. That day, 22 
Federal agencies were consolidated in the Department of 
Homeland Security that serves a clear mission, to protect our 
citizens from all hazards, from terrorist attacks to natural 
disasters.
    Applying our collective expertise and resources in DHS to 
all hazards that face our Nation is the expectation of the 
President, Secretary Ridge, and the American people. In fact, 
this is the mission of Secretary Ridge, a mission that 
Secretary Ridge made clear last week to the National Emergency 
Management Association, namely that DHS serves an all-hazard 
mission and that the Department is an all-hazard agency.
    As you know, the Homeland Security Act of 2002 was budget-
neutral for the necessary start-up costs for the new 
Department. With the authorization and approval of Congress, 
each agency moving into DHS was asked to make a one-time 
contribution from its unobligated balances from fiscal year 
2002.
    The National Flood Insurance Program was no exception. We 
also contributed funding for start-up costs from unobligated 
funds. Those remaining balances from fiscal 2002 were from the 
Flood Mitigation Assistance Program.
    Many of our stakeholders and partners, including the 
Association of Flood Plain Managers, have voiced concern about 
this transfer of funds and whether it signals a shift in 
national priorities or in our commitment to serve those at risk 
in the Nation's flood plains.
    While the creation of DHS is an enhancement to our mission 
to protect people and property from floods and other natural 
hazards, as well as man-made, I want to assure this committee 
and the NFIP's partners and stakeholders and those at risk from 
flooding that our commitment to save lives and property under 
the NFIP is unwavering.
    First, all eligible and pending FMA mitigation projects 
that States submitted at the time of the transition will be 
funded with the balance of fiscal year 2002 and 2003 funds as 
well as any additional funds necessary from 2003 and 2004 
appropriations.
    Second, the President's 2004 budget request for the 
Department of Homeland Security accounts for the administrative 
needs of the Department, so ours was a one-time contribution.
    Third, the traditional 2-year overlapping cycle for the 
development of funding of FMA projects should minimize any 
significant impact on projects that are ready to be implemented 
in fiscal year 2003.
    In addition, for fiscal year 2003, Congress provided $150 
million for the Predisaster Mitigation Grant Program. The 
increased funding for predisaster mitigation offsets the 
reduction in the Hazard Mitigation Grant Program, HMGP. The 
remaining FMA funds, coupled with the increased funding for 
predisaster mitigation and the continued HMGP funding, will 
also provide multiple opportunities to fund mitigation projects 
and address our highest priorities, including repetitive lost 
properties.
    To implement this competitive program, we are developing a 
national evaluation system where the benefit-to-cost ratio will 
be primary.
    I want to talk a little bit about map modernization as 
well, mitigating and insuring the----
    Mr. Ney. Excuse me. I just want to note your time has 
expired. But if you want to summarize.
    Mr. Lowe. I will close.
    Again, I appreciate my opportunity to testify before this 
committee.
    Mr. Ney. Of course, anything you want to submit for the 
record has already been approved.
    Mr. Lowe. Thank you.
    [The prepared statement of Anthony Lowe can be found on 
page 117 in the appendix.]
    Mr. Ney. Move on to Ms. Lazar.

  STATEMENT OF ELLEN LAZAR, EXECUTIVE DIRECTOR, NEIGHBORHOOD 
                    REINVESTMENT CORPORATION

    Ms. Lazar. Thank you. Good afternoon, Chairman Ney, Ranking 
Member Frank.
    My name is Ellen Lazar. I am the Executive Director of the 
Neighborhood Reinvestment Corporation and would like to ask 
that my full testimony be submitted for the record.
    I am pleased to brief you this afternoon on Neighborhood 
Reinvestment and the NeighborWorks network's outcomes in fiscal 
year 2002 and our plans for fiscal year 2004. Before I do so, I 
would like to take this opportunity to talk about our history 
and how the NeighborWorks system, working in over 2,300 
communities across this country, is able to achieve significant 
impact.
    Neighborhood Reinvestment developed from a 1972 effort by 
the Federal Home Loan Bank Board and HUD to encourage lending 
in declining neighborhoods. The Bank Board identified a model 
for community-based lending and community revitalization in 
Pittsburgh, named Neighborhood Housing Services.
    By 1978, the model's success in stimulating private sector 
investment led Congress to establish Neighborhood Reinvestment 
as a public nonprofit corporation.
    There are three interrelated components of the 
NeighborWorks system: the Neighborhood Reinvestment 
Corporation, the NeighborWorks network, and Neighborhood 
Housing Services of America, which we call NHSA.
    Neighborhood Reinvestment supports the NeighborWorks 
network through an integrated approach, combining flexible 
grants, technical assistance, regular oversight reviews and 
training. These activities build the productivity and strength 
of the NeighborWorks network and the broader community 
development field.
    Neighborhood Reinvestment founded the NeighborWorks 
network, 226 community-based nonprofits active in more than 
2,300 communities, which operate in our Nation's largest 
cities, suburban areas and rural areas. NeighborWorks 
organizations are partnerships of local residents, lenders and 
local governments. Each organization is a 501(C)(3) corporation 
and has a local board of directors that sets priorities, raises 
funds and oversees service delivery. These organizations 
address a wide range of community concerns, including home 
ownership, rural activities and multi-family rental housing.
    To meet the secondary market needs of NeighborWorks 
organizations, NHSA works with Neighborhood Reinvestment to 
replenish the revolving loan funds and capital pools of network 
organizations.
    One example of the power of the NeighborWorks system is the 
NeighborWorks Campaign for Home Ownership, which is the largest 
initiative of its kind to bring families of modest means into 
the economic mainstream. Over the past 10 years, the Campaign 
has assisted more than 60,000 families to become homeowners. We 
have provided more than 350,000 individuals with home buyer 
education and counseling services. We have invested more than 
$5 billion in distressed communities. The Campaign for Home 
Ownership has achieved these outcomes by establishing 
aggressive goals and high standards for production and service 
delivery.
    Over the next 5 years, the Campaign will create 50,000 new 
homeowners, 59 percent of whom will be minority households; 
assist 50,000 families to preserve home ownership and improve 
their homes; and reach a half a million families through home 
buyer education.
    In fiscal year 2002, Congress provided Neighborhood 
Reinvestment with an appropriation of $105 million; and the 
NeighborWorks network achieved new levels of production, 
including generating nearly $1.7 billion in direct investment 
to targeted communities, making available affordable housing 
opportunities for nearly 70,000 families, providing home buyer 
education and counseling services to over 68,000 families, and 
leveraging $15.80 in other investments for each dollar Congress 
appropriated to Neighborhood Reinvestment.
    For fiscal year 2003, Congress funded us at the President's 
request of $105 million. I look forward to reporting our 
outcomes to you next year.
    For fiscal year 2004, we are requesting an appropriation of 
$115 million. Most notably, we will assist the NeighborWorks 
network to leverage nearly $2.2 billion in direct total 
investment, use each dollar Congress appropriates to leverage 
$18 from other sources, assist nearly 79,000 families to obtain 
and maintain safe and affordable rental and homeownership 
housing, provide homeownership counseling and financial 
literacy training to nearly 84,000 families, and disburse 69 
percent of our congressional funding in the form of grants.
    Mr. Ney. I wanted to note that time is expiring.
    Ms. Lazar. Let me close by thanking the committee for the 
opportunity to brief you on our work. The congressional support 
is a valuable asset to more than 2,300 communities across this 
country, and your continued support is vital to building 
healthy, strong and safe communities.
    [The prepared statement of Ellen Lazar can be found on page 
100 in the appendix.]
    Mr. Ney. I want to thank all of the witnesses.
    I do have several questions. First of all, we appreciate 
you coming to the Hill. It is important that we have a dialogue 
and continue to do this.
    Due to the nature of time, the first panel ran so long I am 
going to submit my questions to you. They are important to me 
and I think important to the committee, but I am going to 
submit them to in writing to you, and I will yield to Mr. 
Frank.
    Mr. Frank. I didn't have time to write them down, so I have 
got to ask them.
    On rural housing, I am very concerned about the 515 
program. I agree it has been a very valuable program. I am 
afraid that through a combination of the law, the Court 
decisions we have seen and the appropriations process, we are 
losing the units. I think they are a very valuable asset.
    What is the plan that you have to deal with the 
preservation issue? And if we don't change policy and if we 
were to continue the level of appropriation for the next year 
that is asked for, what is the future of this inventory?
    Mr. Garcia. I agree, Ranking Member Frank, that our 515 
program is a national asset. We certainly hear you, and we 
certainly are putting together plans that will preserve----
    Mr. Frank. Right now, what does it look like? What is your 
estimate? My sense is that, with the appropriation being asked 
for and some legal issues that we have got----
    Let me be clear. I think we probably have lost what we 
might have thought were the rights of some people to stay in 
the program. But my understanding is that there are people who 
are in this program who would be willing to stay with the right 
incentives, and we are not giving ourselves enough money and 
offering enough money to do that. So if you would do a 
projection forward, what is your projection? How many units are 
we likely to lose?
    I am told, for instance, that we have 100,000 units subject 
to prepayment, which is about nearly a quarter of the 
inventory, better than 20 percent of the inventory. We are now 
losing more units than we are creating. Is that accurate?
    Mr. Garcia. Yes, sir.
    Mr. Frank. What are we doing about it?
    Mr. Garcia. First of all, we are seeking out faith-based 
and nonprofits where we can come in and say, somebody wants to 
prepay out of our program. What we do is we help to facilitate 
the nonprofits and these faith-based agencies who want to stay 
in our program long term and help facilitate the purchase from 
the faith-based to the people who are looking to get out of our 
program. That is one of things that we----
    Mr. Frank. That is very promising. Do we put any money in 
for that, or do they? The problem we have, I guess, is this: 
these are people who got the subsidies and in some cases, 
because of market forces, the housing is now worth a lot more 
than it used to be. Are we asking these nonprofits, faith-based 
and others, to come in and pay a high market price but then run 
them at a subsidized rental level or a limited rental level?
    Mr. Garcia. No, sir. What we are doing is we are financing 
the equity in the property.
    Mr. Frank. With Federal funds?
    Mr. Garcia. With Federal funds. Exactly. So it makes much 
more sense.
    Mr. Frank. I agree. So we are losing--it is a cooperative 
arrangement, so that we buy down, in effect, the market value 
so that they can then keep it.
    How much have you asked for in the fiscal 2004 budget for 
that purpose?
    Mr. Garcia. $70.8 million.
    Mr. Frank. $70.8 million. I thought some of that was for 
rehabbing existing units physically? Is that all for purchase, 
for facilitating the purchase of units for preservation 
purposes?
    Mr. Garcia. On our figures for----
    Mr. Frank. I was told that, in 2004, the funds requested 
for the rental housing account were $71 million, $70.8. How 
much of that would go for the program you just talked about?
    Mr. Garcia. Okay. About $70 million for rehab and $50 
million for--70 percent for rehab.
    Mr. Frank. Of the $70 million? That is about $50 million 
for rehab. So that leaves us $20 million for facilitating the 
purchase. What is the per-unit cost of trying to preserve a 
unit with this system? Do we know? What percentage of the 
100,000 units that are out there that are at risk, how many of 
them would we save with $20 million?
    Mr. Garcia. Okay. About 15,000 per unit per rehab and for 
equity.
    Mr. Frank. It can't be the same for rehab and for equity.
    Mr. Garcia. Combined. I am sorry. That is combined.
    Mr. Frank. You said we have got $20 million in the fiscal 
2004 budget for preservation in the legal sense, as opposed to 
the physical rehab.
    Mr. Garcia. Right.
    Mr. Frank. How many units will we save with $20 million?
    Mr. Garcia. Apparently, we do not have the information, but 
we will be glad to submit that back to you.
    Mr. Frank. Well, Mr. Garcia, I am glad you value the 
program. But, to be honest, how in the world did you come up 
with that number if you didn't know how many units that is 
going to save? Is that what OMB gave you and you were happy to 
get it?
    Mr. Garcia. I don't have that information. We will submit 
that.
    Mr. Frank. I am unimpressed that this is as high a priority 
as it ought to be, when you can't give me those numbers. I 
think preservation of these units ought to be--from the 
efficiency standpoint--I think you get the best bang for the 
buck with this kind of preservation.
    You want to bring the faith-based in, et cetera. I am not 
impressed by what seems to be a lack of attention to this.
    Thank you, Mr. Chairman.
    Mr. Ney. I will talk with the ranking member. Maybe we 
ought to do additional hearings on rural housing.
    Mr. Frank. On the preservation thing, I would be glad to do 
that.
    Mr. Ney. The Chair notes that some members may have 
additional questions for this panel which they may wish to 
submit in writing. Without objection, the hearing record will 
remain open for 30 days for members to submit written questions 
to these witnesses and place the response in the record.
    Thank you for coming to the Hill.
    [Whereupon, at 1:30 p.m., the committee was adjourned.]


                            A P P E N D I X

                             March 5, 2003


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