[Senate Hearing 108-]
[From the U.S. Government Publishing Office]



 
 DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND 
        INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                              ----------                              


                        THURSDAY, MARCH 6, 2003

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:03 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond and Mikulski.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

STATEMENT OF MEL MARTINEZ, SECRETARY
ACCOMPANIED BY:
        MICHAEL LIU, ASSISTANT SECRETARY, PUBLIC AND INDIAN HOUSING
        KENNETH DONOHUE, INSPECTOR GENERAL
        JOHN C. WEICHER, ASSISTANT SECRETARY, HOUSING, AND FEDERAL 
            HOUSING COMMISSIONER
        PHILIP MANGANO, EXECUTIVE DIRECTOR, INTERAGENCY COUNCIL ON 
            HOMELESSNESS


            opening statement of senator christopher s. bond


    Senator Bond. Good morning, Mr. Secretary. The hearing of 
the Senate VA-HUD Appropriations Subcommittee will come to 
order.
    As we begin our hearings on the fiscal year 2004 requests, 
it is a pleasure to welcome Secretary Martinez and other guests 
from the Department of Housing and Urban Development who have 
joined us here this morning to testify on the President's 
fiscal year 2004 budget request. This is your third visit 
before the subcommittee on HUD's budget, Mr. Secretary, and I 
hope not the last.
    As we have discussed, the Department remains a troubled 
agency plagued by a morass of program and management problems 
that, in most cases, you inherited from previous 
administrations. I think I warned you privately before you took 
it on that you were taking on a huge challenge and I know you 
have found it to be everything that I promised you it would be.
    Your committed leadership and steady hand has made a big 
difference already, and continued stability at the top can only 
strengthen and enhance the reforms that have already occurred 
within HUD. Please remember I said that, because there will be 
some comments I have later on that really point out some 
problems that you and I face together, and we have to resolve 
them because we want to see HUD be the kind of agency of which 
all of us can be proud.
    The request for fiscal year 2004 proposes $31.3 billion, an 
increase of $872 million over the fiscal year 2003 funding 
level of $30.43 billion. As was the case with the fiscal year 
2003, the Subcommittee will be facing some very difficult 
funding decisions in fiscal year 2004, including funding 
decisions for HUD. In addition, the tightness of the HUD budget 
request for fiscal year 2004 only makes these decisions more 
difficult, especially since, as always, we will have to stack 
up the funding by priorities of the many needs and priorities 
of many other agencies and programs within the jurisdiction of 
this Subcommittee, including such priorities as VA medical 
care, National Science Foundation, the Environmental Protection 
Agency and NASA, which itself faces a whole set of special 
needs as we attempt to understand what went horribly wrong with 
the reentry of the Space Shuttle Columbia.
    In addition, HUD's fiscal year 2004 budget request is tied 
to a number of very ambitious legislative recommendations and 
program changes, which if enacted, and you and we know the 
likelihood of that, would represent a landmark restructuring of 
many of the Department's most important and largest programs. I 
will highlight a few of the most important and potentially 
controversial funding decisions and legislative 
recommendations.
    First, the administration is proposing to restructure the 
various Section 8 programs by creating a new Section 8 tenant-
based voucher program that would be called Housing Assistance 
for Needy Families, or HANF. HANF would be funded at about 
$12.5 billion in fiscal year 2004 and would transition to a 
block grant program of the States in fiscal year 2005. As part 
of this proposals, the Section 8 project-based programs would 
continue to be administered by HUD through State housing 
agencies and PHAs.
    While I understand the administration's frustrations with 
the Section 8 tenant-based voucher program with its annual 
rescissions and poor cost projections, HANF does not appear to 
be the best possible replacement for the existing voucher 
program. Being a former governor and having been an advocate of 
block grants, I believe there are areas in which they can be 
very helpful, but instead we need to provide more flexibility 
in a low-income-housing program based on local decision making, 
I fear that HANF merely moves the responsibility for voucher 
administration to the States and otherwise appears to duplicate 
much of what the HOME program already is capable of doing. HANF 
likely will put new burdens on States and localities to meet 
rising housing costs as well as low-income housing needs. And 
as history tells us, block grant programs seldom receive any 
significant increased funding once the programs are 
established. I think that is particularly troubling during a 
period of time when most States and localities are facing 
increasingly difficult financial decisions and large budget 
shortfalls, and I find it unlikely that the States would be 
willing to pick up any of these responsibilities.
    In summary, in my view, HANF is premature. The fiscal year 
2003 appropriations bill created a new funding structure for 
Section 8 vouchers where PHAs receive the funding for all the 
vouchers in use and will be able to apply for any vouchers they 
need to help reach the PHA authorized level. This funding 
approach, we believe, if we worked it out in cooperation with 
my colleagues, this results in a more realistic assessment of 
Section 8 funding needs, reducing the need to go through the 
annual ritual of rescinding large amounts of unused excess 
Section 8 assistance. And as we all know, that becomes a piggy 
bank which gets raided not for use in the HUD budget but for 
everything else under the sun, and I think it is going to take 
several years for us to see if this new system will work, but I 
am optimistic that it is a better solution and will give us a 
better gauge of both the actual cost and the use of vouchers.
    As for public housing, the HUD budget request of $3.57 
billion for the Public Housing Operating Fund is roughly the 
same as the fiscal year 2003 funding. The HUD budget request of 
$2.6 billion for the Public Housing Capital Fund is some $70 
million less than the fiscal year 2003 level. I compliment Mr. 
Liu, the Assistant Secretary for Public and Indian Housing, on 
taking much needed corrective measures when it was discovered 
that the Department has been inappropriately awarding PHAs with 
additional operating funds by raiding current year public 
housing operating funds for prior year obligations. The fiscal 
year 2003 appropriations bill put a final stop to this activity 
while funding for at least one last time the existing prior 
year obligations owed to a few PHAs for fiscal year 2003. While 
not a perfect solution, I believe it is a fair solution and 
should leave all PHAs on an equal footing. I never ever want to 
see this problem again.
    I am also troubled by the Department's decision to 
eliminate all funding for the public housing HOPE VI program. I 
want to give you some history with that HOPE VI program. It 
started in the authorizing committee when we finally committed 
to tear down the very troubled almost uninhabitable public 
housing in St. Louis, and replace it with a model public 
housing program. Working through this Subcommittee we designed 
the HOPE VI program to carry on with tearing down the most 
distressed and obsolete public housing, while replacing the 
housing with new mixed income and public housing developments. 
This not only provides good housing for low-income families, 
but helps to anchor the economic and fiscal redevelopment of 
many distressed communities. Frankly, despite the fact that 
HOPE VI had problems at its inception, I think it is a program 
that works.
    The loss of this $574 million HOPE VI program is 
particularly disturbing to me because there has never been any 
real attempt to have a meaningful dialogue between the 
administration and the Congress on the future of HOPE VI. We 
have asked and asked, and we have received no discussion, no 
dialogue, which puzzles me, why the administration has failed 
to discuss the various options related to HOPE VI, eliminating 
the program, continuing it, improving it, or creating a 
substitute program.
    No matter how one views the HOPE VI program, the loss of 
$574 million will mean a huge reduction in available resources, 
both public and private, for public housing capital needs. This 
is a critical concern since HUD has identified some $20 billion 
and more in deferred maintenance and capital needs. These 
issues are further compounded by the loss of funding associated 
with the elimination of the Public Housing Drug Elimination 
program in fiscal year 2002.
    Now I know the administration is proposing a new public 
housing loan guarantee program that could possibly meet some or 
many of the goals of the HOPE VI program. We need to know more 
about the program, especially its goals and its projected 
impact. I am concerned that the $131 million price tag for the 
credit subsidy for this new loan guarantee program is paid for 
from the public housing capital fund, further eroding needed 
funds for capital and deferred maintenance needs.
    Many of these policy and funding decisions under this 
budget request further underline the need for a housing 
production program with many extremely low-income families who 
are unable to find affordable housing, and we are willing to 
continue to work to find such a program and the funding for it. 
We would welcome the opportunity to have input from your 
Department and we look forward to working on this question in a 
bipartisan basis to come up with a program that meets the 
needs.
    There are many proposals out there, most of which chase the 
elusive phantoms, and they are not the magic pixie dust that is 
going to allow us to avoid the Budget Act if we try to raid 
that money for a new housing production program.
    The HUD budget also calls for consolidating the Homeless 
Assistance Grants, as well as a revised formula for the 
Community Development Block Grant program. I have supported the 
block granting of homeless assistance for many years, so long 
as the legislation insures that HUD accountability and 
oversight are part of the process. A new formula for the CDBG 
program that better targets poor and distressed communities is 
a laudable goal. Nevertheless, part of the success of the CDBG 
program is that it is a national program that can reach all of 
our communities, and that all of the communities have a stake 
in the program. Also, I would hate to see that many of the good 
ideas in the HUD budget being lost because of the distraction 
of a food fight over the formula by which the CDBG program 
allocates funding.
    There is also a number of other HUD propositions that merit 
discussion but in the interest of time, I am only going to 
focus on a few more.
    The administration has proposed $50 million for what is 
called the Samaritan Housing Initiative. The program is 
designed as a broad interagency strategy to address 
homelessness, involving HUD, HHS and VA and is consistent with 
a 2-year innovative demonstration included in the VA-HUD fiscal 
year 2003 appropriations bill. The administration is also 
proposing $25 million for a lead-based paint abatement program. 
Again, this proposal is basically consistent with the new $50 
million lead paint abatement program that was included in the 
fiscal year 2003 bill. I am very gratified by these common 
priorities, but I am going to match these programs and raise 
them.
    The proposed FHA home ownership program for persons with 
poor credit is also a good idea. This proposal would allow 
these persons an opportunity to repair their credit and 
demonstrate their financial reliability while providing an 
opportunity for home ownership. All too often, low-income 
persons make financial mistakes while young and without 
resources. Unfortunately, these persons are often haunted by 
these mistakes and are unable to obtain housing and other 
credit as they mature and become more financially responsible. 
This is the type of program where the Federal Government can 
make a difference and provide a second chance opportunity to 
make home ownership a reality.
    I am unhappy about a number of HUD funding recommendations 
for fiscal year 2004. Most especially, I am unhappy that the 
administration continues in every HUD budget request to 
recommend eliminating the Rural Housing and Economic 
Development Program. I guess nobody listens to us up there. 
Urban areas always get the attention of Congress while rural 
areas too often are ignored and underfunded. I live in a rural 
area where the housing needs are very strong, and I trust you 
will find it in other States as well. It has been estimated 
that over the last 2 fiscal years, some 4,000 jobs have been 
created and over 8,200 persons have been trained. In addition, 
over 2,200 housing units have been constructed with some 3,700 
rehabilitated. In the last year, 367 businesses have been 
created and 1,400 existing businesses assisted. This program is 
a good program. It makes a difference with a small price tag 
and big results.
    I also feel compelled to reiterate that HUD faces many 
challenges and there is much more work to be done. As I have 
discussed already, the Department has been misleading Congress 
for some 10 years by overpaying PHAs for their operating costs 
from current year funding for prior year obligations. I 
understand this problem has been corrected and I expect it has 
been.
    However, equally or more serious, at the very end of the 
conference on the fiscal year 2003 appropriations bill, the 
House and Senate VA-HUD Appropriations Subcommittees were 
advised that HUD exceeded its stated employee levels by upwards 
of 300 FTEs, with a cost of $30 million that was not reflected 
in the HUD fiscal year 2003 budget justification and budget 
request. These hires occurred during the spring and summer of 
2002 and despite the significant impact on HUD's budget needs 
for fiscal year 2003, HUD never once made any attempt to inform 
the Congress of its decision to hire significantly more staff 
than provided for in the HUD fiscal year 2003 budget 
justifications. In addition, HUD only reported these staff 
increases when it determined that the fiscal year 2003 budget 
request for salaries and expenses could not support the added 
staff.
    In addition, there are many significant questions as to 
whether HUD comported with existing staffing requirements and 
hiring procedures, including requirements consistent with HUD's 
resource estimation and allocation process or REAP. In fact, it 
appears that some HUD offices hired significantly more staff 
than needed while other offices hired significantly less. It is 
unclear whether there was top level management controls or any 
adult supervision during this hiring spree. HUD and the 
responsible officials will be held accountable for this mess. 
In any case, a $30 million funding shortfall as well as HUD's 
failure to provide timely notice of the problem is 
unacceptable.
    The reform of HUD remains a huge and daunting challenge. It 
has been troubled and dysfunctional, but we believe it serves a 
critical role, and so we will continue to work together to 
rebuild the public confidence in HUD as it performs its many 
housing and community development needs.
    Mr. Secretary, I look forward to your testimony, and I now 
turn to my ranking member, Senator Mikulski.


                statement of senator barbara a. mikulski


    Senator Mikulski. Mr. Chairman, the public has been waiting 
with bated breath to not only talk to Secretary Martinez, but 
also to wish you happy birthday. On behalf of the Subcommittee 
and myself I am glad your birthday comes before mine. I know 
today is your birthday and we want to wish you well.
    This is a bipartisan, low-fat muffin, and I want to present 
it to you.
    This is in no way to indicate that an adequate 
appropriation is to let them eat muffins. We really do wish you 
good health.
    Senator Bond. Thank you.
    Senator Mikulski. I want to welcome Secretary Martinez, and 
in the interest of time, I will summarize my opening statement.
    For fiscal year 2004, the administration's request, which 
is a $300 million increase over last year, is only 1 percent. 
That indeed, I think is too skimpy to be able to meet the 
compelling needs facing us in the area of housing.
    My primary principle for HUD is absolutely simple. I 
believe that HUD needs to be in the community development 
business and not think of itself as just being in the building 
business. I think that HUD needs to be able to build 
communities, not only houses, communities where people can 
live, work, worship and shop, to strengthen communities, 
whether in small town U.S.A. or big town America.
    And I know, Mr. Secretary, you share my principles that 
these homes not only need to be affordable, but the 
neighborhoods have to be safe, and that whatever the Federal 
Government does, we protect both the taxpayer and the consumer 
against fraud.
    Looking at what we need to do in terms of neighborhood and 
community development, I wanted to first focus my comments on 
HOPE VI. The administration has zeroed out HOPE VI at the end 
of this year. This means that there is going to be $600 million 
cut out of community development. HOPE VI was not about 
building new housing for the poor, it was about building new 
opportunities for the poor. It was about using typical 
architecture, tearing down decrepit housing, and at the same 
time using a new empowerment architecture, insisting that the 
residents be involved in both the stake in the community as 
well as in job training, since public housing should be seen 
not only as a way of life but a way to a better life.
    We would hope as the loans have been zeroed out, we take a 
look at this because the administration does not provide 
continued funding for the program, or even suggest how to 
improve HOPE VI by simply eliminating it or taking $600 million 
out of the people development program and out of the community 
development. I think we need a vigorous conversation about HOPE 
VI and I will be asking you some questions about it.
    It is a program that needs to be reformed or if it is not 
going to stay as HOPE VI, we need to then think about how else 
we can create hope. Remember, it is not about housing, it is 
about opportunity.
    The other issue that I am concerned about is brownfields. 
Brownfields were eliminated from the budget request last year. 
With brownfields, the cleanup responsibility lies with EPA, but 
part of the economic development responsibility lies with HUD. 
In my own home State of Maryland and in the Baltimore 
metropolitan area, a study done for the Maryland Port Authority 
showed that we have 3,000 acres of brownfields in and around 
the Baltimore waterfront, in Baltimore City and east Baltimore 
County.
    What a cornucopia of opportunity to turn brownfields into 
green fields, not only from the environmental standpoint, but a 
tremendous opportunity to create new jobs, new places for work, 
and even new housing. Let us take a look at these brownfields 
and let us work with Administrator Whitman to look at not only 
large communities, but in others that we could do this.
    Third, we need to look at the funding and attitudes related 
to housing for the elderly. Most of the housing for the elderly 
was built in the 1970's and 1980's. It is old. We have many, 
many units that were built in the 1960's to the 1980's. We now 
have elderly who are now frail elderly, and the buildings 
themselves are getting decrepit. We need to look at this and 
how they are going to renew those buildings, and also look at 
the way the elderly have been aging in place at something 
called the naturally occurring retirement communities.
    Let us take a look at how with the boomers coming on line, 
what are we going to be able to do about this, and I think we 
have to have a commitment to what we offer the elderly. And Mr. 
Martinez, this could be a successful faith-based program, and I 
believe it has been, because it has been a partnership between 
the Federal Government with Catholic charities, Jewish 
charities, other faith-based organizations. I just think this 
is a great opportunity to continue the faith-based initiative 
and yet at the same time look at both the housing and the 
people who are aging in place.
    The other area that I appreciate your work on is fraud. I 
know you share with me the total frustration and outrage when 
people try to scam the consumer and scam the taxpayer. I want 
to salute you for what you have been doing in the area of 
fraud. Your approach in trying to deal with the scams and 
schemes in settlement costs for home ownership I think should 
be absolutely commended, because when people buy their home, 
they are looking at not only the price of the home, but also 
the price of the settlement, and often there are those hidden 
fees that really do gouge that home buyer, particularly that 
first-time home buyer. So kudos to you for that.
    Second, I want to thank you for your work against predatory 
lending. The way you have worked with both me in Baltimore City 
and this Committee with Senator Bond to make sure that when we 
have FHA mortgage, we are able to provide first-time home 
ownership, that we were not using them to gouge people by 
selling them houses that were bought at $15,000 and sold 72 
hours later for $85,000, with balloon payments of $100,000. So, 
congratulations.
    But you know, the schemers and the scammers are really 
scummers. Wherever you go, they think of something new. We had 
a new situation in Baltimore, and you wonder why is it in 
Baltimore, because we are pretty tough. But we now have a new 
situation where a company is buying up mortgages, and in the 
process of buying up these mortgages, what they are doing is 
essentially telling, foreclosing people who are making 
payments.
    There was an investigative report revealed on local 
Baltimore TV about this corporation sending false letters to 
home buyers telling them they were delinquent in their loan, 
that they were going to foreclose, scaring the heck out of home 
buyers, actually moving to foreclosure, and creating chaos in 
their minds, chaos in the marketplace.
    This company provides customer service but they are not the 
lender. The Community Law Center in Baltimore has gotten 90 
complaints from people being scammed by this corporation. We do 
not know whether any of these loans have FHA insurance on them, 
but they are approved as an FHA partner. I am going to give you 
more information about this. I want to discuss this with the 
Inspector General, because we want to know who is this company 
and what are they doing. How can we stop the fraud? If someone 
has been a victim, where can they go? We want to get at the 
system of the fraud, and we want to help the local consumer 
that has been once again, schemed and scammed, and get to the 
bottom of it. And I know your deep commitment on this, and I 
say thank you.
    Money is in short supply in the Federal Government, in the 
Federal checkbook and it is in shorter supply in the family 
checkbook, and we have to stand firmly against any fraud 
scheme, scam or scum. I am prepared now to hear your testimony.
    Mr. Chairman, thank you very much.


             prepared statement of senator patrick j. leahy


    Senator Bond. Senator Leahy has submitted testimony which 
he would like submitted for the record.
    [The statement follows:]
             Prepared Statement of Senator Patrick J. Leahy
    Mr. Secretary thank you for taking the time to come and testify 
before us today, as always it is a pleasure to have you before the VA-
HUD and Independent Agencies Subcommittee.
    Last year was a long and trying one where Federal appropriations 
were concerned. We had not yet finished our work on the fiscal year 
2003 bills when the President's proposal for fiscal year 2004 was 
delivered to Capitol Hill.
    I know that both Senator Bond and Senator Mikulski worked very hard 
to produce VA-HUD appropriations bill for fiscal year 2003 that met the 
needs of our Nation's most vulnerable populations and for that I thank 
them. They made the best of a very difficult situation.
    In the end however under an artificially low spending cap imposed 
by the administration it was difficult to adequately fund many 
important domestic programs. I am concerned that if we follow up on 
this fiscal year with the meager budget proposed by the 
administration--by most calculations it amounts to a mere 1.3 percent 
increase for HUD programs--we would only entrench this country's 
affordable housing crisis.
    Mr. Secretary, this administration has talked at length about the 
importance of housing and homeownership in creating stability and 
promoting wealth--but this budget does not reflect those sentiments.
    The administration's proposal to block grant Section 8 voucher 
assistance to States is particularly troubling. This program serves 
over 5 million low-income families who rely on the rental assistance to 
help maintain stable housing. One preliminary study of this policy 
estimates that over 137,000 vouchers could go out of circulation if 
this proposal is implemented.
    Most troubling is that the proposal to block grant is made in the 
wake of the bipartisan Millennium Housing Commission report that found 
the voucher program to be successful in its mission and at a time when 
voucher utilizations rates are going up.
    I doubt there is anyone on this Subcommittee who would argue that 
the Section 8 program does not have its flaws, and I am not averse to 
looking at new ways to make the system more efficient; however we 
simply do not have enough details to thoroughly evaluate this proposal. 
I look forward to seeing more details as soon as possible.
    For the third year in a row, the administration also proposes 
severe cuts to public housing. By most estimates the President has 
proposed over $2.5 billion in cuts to public housing over the last 3 
years.
    The Public Housing Capital Expenses program is recommended at $200 
million less then fiscal year 2002, and the administration suggests we 
eliminate the HOPE VI program that has helped many communities around 
the Nation revitalize.
    Last year by HUD's own miscalculations there was a $250 million 
dollar shortfall in the Public Housing Operating Fund--a shortfall HUD 
must make up by borrowing from the fiscal year 2003 allocation. Yet the 
administration proposes only a $44 million increase for this fund from 
the fiscal year 2002 level, leaving many of us to wonder how HUD will 
make up the difference.
    Mr. Secretary, it is one thing to argue the merits of expanding 
programs in this economic environment, but shouldn't at least live up 
to our current obligations?
    This budget does not do that.
    There is no question that we are facing an affordable housing 
crisis in this Nation. Nearly 5 million households in the United States 
are paying over half of their incomes to rent alone--leaving precious 
little to put groceries on the table, gas in their cars, or buy clothes 
for their kids.
    My home State of Vermont has not been immune to this trend. The 
number of homeless families being served by homeless shelters in 
Chittenden County has risen 400 percent over the last 3 years. Many of 
these families are working families.
    It is in this light that I am troubled by the priorities set forth 
in the administration's proposed budget for the Department of Housing 
and Urban Development.
    Mr. Secretary, I know you did not take on an easy task when you 
came on board at this Department, and I look forward to working with 
you throughout the year to address these concerns.
    Again, I thank you for coming before us today; I have some 
additional questions that I will submit for the record.

    Senator Bond. Thank you, Senator Mikulski. We are supposed 
to have a vote coming up, but I think we will try to move 
along. We will go to your testimony and try to get it in before 
we have to go to vote.

                       STATEMENT OF MEL MARTINEZ

    Secretary Martinez. Mr. Chairman, in the interest of time 
what I would like to do is just offer my full remarks for the 
record.
    Senator Bond. We will be happy to include them.
    Secretary Martinez. And rather than go through more 
prepared remarks, perhaps what I could do is just try to go 
through some of the things that I know are of interest to the 
Chairman and the Ranking Member.
    Senator Bond. Please.
    Secretary Martinez. First of all, let me say to both of you 
that it is a real pleasure to come before you, and it is a real 
pleasure to meet with you as your commitment and concern with 
this Department and its work, show by your depth and breadth of 
knowledge of our programs and your interest in what we do. That 
is gratifying and I understand, Mr. Chairman, that at times 
with that level of interest and knowledge also comes a little 
bit of scolding, and I am prepared for that today as well, 
because I do understand that from time to time this Department, 
as you well foretold for me at the time of my arrival in this 
city, can be a little daunting. So we will be prepared to 
discuss some of those issues with you as well.

                        PROMOTING HOME OWNERSHIP

    Let me say that our Department continues to focus on the 
issue of home ownership with our $31.3 billion budget, but we 
obviously have some things that are very important to us to 
move American families into home ownership. The American Dream 
Downpayment Initiative contributing $200 million into the HOME 
program is the cornerstone of that.
    Related to the issue of predatory lending or fraud abuse, 
and frankly of providing families with, as you so well said, 
Madam Senator, is not a way of life but a way to a better life. 
We also believe that home ownership provides that way to a 
better life, and so home ownership education is a big component 
of this budget. We have made a continuing commitment to 
increasing funding in that. In this year's budget, $45 million 
is dedicated to home ownership counseling and education.
    But we hope to bring families from our minority communities 
into home ownership and teach them skills to avoid predatory 
lenders, how to avoid bad credit, how to fix that credit, how 
to approach the whole home buying process is important.
    As you pointed out again, I am working on the issue of 
reform, we are proud of that commitment and we continue to look 
for that to occur in the late spring or early summer.
    In addition to that, we are continuing to promote housing 
Section 8 vouchers for home ownership.

                              HOME PROGRAM

    All of these we believe to be significant and important 
commitments. In the HOME program, which we believe to be a real 
hallmark for providing affordable opportunities for housing for 
many families, we, this year, are very proud of the President's 
commitment to this aspect of our work. The increase of 5 
percent, $113 million devoted to the HOME program, will enable 
us with the additional funds that have been committed by the 
Congress over many years of over $2 billion yearly, to produce 
over 1 million units of housing over the next 10 years.
    We believe that is a very substantial production program 
that will help us to continue in two veins. Number one, not add 
any more rent programs and number two, not raid and lose the 
money which is frankly, no more than the insurance reserve 
fund, in order to provide about an equal number of homes. So, I 
believe that is the right way to go.

                                  HANF

    I am willing to engage in vigorous debate over our block 
granting of Section 8. I do think it is important to look at 
this proposal as a possible way to avoid some of the pitfalls 
of Section 8 in the past. I would point out to the Chair that 
it is a flexible program where States who might not be in a 
position to undertake it, it could still be managed in the 
traditional way that we have done it in the past. But it would 
open a window of opportunity for those States who would be in a 
position to manage it, and perhaps do so in a way that is more 
direct and close to the people and perhaps in a more efficient 
way that would avoid the problem of recapture that you so aptly 
pointed out in your remarks, Mr. Chairman.

                                HOPE VI

    The issue of HOPE VI is one that I find painful to have it 
appear as something that we are not committed to. I believe 
HOPE VI has been a very successful and good program. I believe 
that while it has done a great deal that much of its promise 
remains unfulfilled.
    One of the things I would like to point is out is the 
commitment of HOPE VI over the last 10 years, and it is a 10-
year program, and OMB felt that it was a program for 10 years, 
this being the 10th year, and coming up for reauthorization 
that we should take a pause and look. The reason for that also 
is that while we have funded over 165 programs or projects, 
only 14 have been completed to date. So when I say that the 
promise remains largely unfulfilled, that is because $2.5 
billion that have already been awarded have not come out of the 
ground yet.
    In addition to that, the round of grants from this year, 
which we should be announcing, as well as the ones from next 
year, would add an additional billion dollars in grant monies 
that would be out.
    I am not being critical of those who put these deals 
together. They are complicated and by the nature of the deal, 
they leverage funds with the private sector. So they are very 
good deals and they do take time to come together. But I would 
like to just point to a chart that we prepared that would give 
you a graphic visual of exactly where the program is in terms 
of the spend-out.
    As you can see, we have the number of units that have been 
planned or funded, and on the right in the red you see the 
number of units that have been completed through today. But in 
the reinvention of the future of HOPE VI, we could look to a 
program that is going to be continuing, that is not going to 
end. I will clarify for you that those projects that have 
received the grant will continue to see that grant paid out and 
their projects will all be done. So no one who was expecting to 
do a HOPE VI because they received a HOPE VI grant will be 
disappointed, and any who are still hoping to do one can still 
enter the next round of funding.
    We are also excited, Mr. Chairman, about utilizing the 
private resources and private capital to attract private 
capital. Some cities like Chicago are committing hundreds of 
millions of dollars of their own money to revitalize public 
housing neighborhoods, and HUD is also seeking additional 
approval of Congress such as the Public Housing Reinvestment 
Initiative.
    So we look forward to continuing the discussion with you. 
Senator Mikulski mentioned the possibility of a task force; I 
think that would be helpful. I believe that in coming together 
with those who have had an interest or stake in the past, who 
have offered possibilities, who have dealt with some of the 
problems of displacement of the people and things of that 
nature, would also come up with good solutions for us on that 
issue.

                           MANAGEMENT ISSUES

    With respect to the issue of management issues of HUD, Mr. 
Chairman, I will say to you first and foremost and from the 
top, that the buck stops here. You made me well aware of what I 
was taking on and I realize that.
    And with respect to the hiring issues that have arisen, I 
am the person responsible. I am though, and I assure you, Mr. 
Chairman, that I am going to be looking into the details of how 
the hiring problems occurred. We are taking steps to ensure 
that no such lack of coordination at the top takes place in 
what traditionally has been a problem since we have 
traditionally been undermanned and that has impacted our 
program performance.
    What we did this year was to try and employ a number of 
means to reach our staffing levels. What we did is we overdid 
it, and it lacked a certain top control that we clearly 
recognize was a mistake, and that we already have and continue 
to look to correcting that deficiency in our management. But we 
do know that all the hires were from the critical hire list, so 
we are hiring people that needed to be there to perform an 
important function for HUD.
    I will be happy to answer more questions in detail on that 
issue, but I did want to let you know of my deep concern for it 
and my great commitment not only to this but other areas of 
management, to ensure that HUD does not continue to be a 
troubled agency.

                           PREPARED STATEMENT

    Mr. Chairman, with that, I think I will just assure you of 
my continued desire to work with the Committee and to look 
forward to doing so as we go through this next budget cycle, 
and look forward to answering your questions.
    [The statement follows:]
                   Prepared Statement of Mel Martinez
                                overview
    Chairman Bond, Ranking Member Mikulski, Distinguished Members of 
the Committee: Thank you for the invitation to join you this morning. I 
am honored to outline the Fiscal Year 2004 Budget proposed by President 
Bush for the U.S. Department of Housing and Urban Development (HUD).
    HUD has achieved measurable success since 2001 in carrying out its 
mission and meeting the many challenges confronting a Cabinet-level 
Department. Today, HUD annually subsidizes housing costs for 
approximately 4.5 million low-income households through rental 
assistance, grants, and loans. It helps revitalize over 4,000 
localities through community development programs. The Department 
provides housing and services to help homeless families and individuals 
become self-sufficient. HUD also encourages homeownership by providing 
mortgage insurance for more than 6 million homeowners, many of whom 
would not otherwise qualify for loans.
    Supported by HUD's proposed $31.3 billion fiscal year 2004 budget, 
this important work will continue. Housing remains a critical component 
of both the President's plan to promote economic growth and his focus 
on meeting the common challenges faced by Americans and their 
communities.
    The President does not intend to change his 2004 Budget based on 
the program or agency levels included in the 2003 Omnibus bill the 
Congress adopted in mid-February. The President's 2004 Budget was 
developed within a framework that set a proposed total for 
discretionary spending in 2004, and each agency and program request 
reflected the administration's relative priority for that operation 
within that total. While we recognize that Congress may believe there 
is a need to reorder and adjust some of these priorities, the 
administration intends to work with Congress to stay within the 2004 
overall amount.
    HUD's proposed budget offers new opportunities for families and 
individuals--and minorities in particular--seeking the American Dream 
of homeownership.
    It offers new opportunities for renters by expanding access to 
affordable housing free from 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 issues that have long 
plagued the Department.
                 increasing homeownership opportunities
    Americans place a high value on homeownership because its benefits 
for families, communities, and the Nation as a whole are so profound.
    Homeownership creates community stakeholders who tend to be active 
in charities and churches. Homeownership inspires civic responsibility, 
and owners vote and get involved with local issues. Homeownership 
offers children a stable living environment that influences their 
personal development in many positive, measurable ways--at home and in 
school.
    Homeownership's potential to create wealth is impressive, too. For 
the vast majority of families, the purchase of a home represents the 
path to prosperity. A home is the largest purchase most Americans will 
ever make--a tangible asset that builds equity, credit health, 
borrowing power, and overall wealth.
    Due in part to a robust housing economy and Bush Administration 
budget initiatives focused on promoting homeownership, more Americans 
were homeowners in 2002 than at any time in this Nation's history. The 
national homeownership rate is 68 percent. That statistic, however, 
masks a deep ``homeownership gap'' between non-Hispanic whites and 
minorities: while the homeownership rate for non-Hispanic whites is 
nearly 75 percent, it is less than 50 percent for African-Americans and 
Hispanics.
    The administration is focused on giving more Americans the 
opportunity to own their own homes, especially minority families who 
have been shut out in the past. In June 2002, President Bush announced 
an aggressive homeownership agenda to increase the number of minority 
homeowners by at least 5.5 million by the end of this decade. The 
administration's homeownership agenda is dismantling the barriers to 
homeownership by providing down payment assistance, increasing the 
supply of affordable homes, increasing support for homeownership 
education programs, and simplifying the homebuying process.
    Through ``America's Homeownership Challenge,'' the President called 
on the real estate and mortgage finance industries to take concrete 
steps to tear down the barriers to homeownership that minority families 
face. In response, HUD created the Blueprint for the American Dream 
Partnership, an unprecedented public/private initiative that harnesses 
the resources of the Federal Government with those of the housing 
industry to accomplish the President's goal.
    Additionally, HUD is proposing several new or expanded initiatives 
in fiscal year 2004 to continue the increase in overall homeownership 
while targeting assistance to improve minority homeowner rates.
    As a first step, HUD proposes to fund the American Dream 
Downpayment Initiative at $200 million. First introduced in fiscal year 
2002, this program targets funding under the HOME program specifically 
to low-income families wanting to purchase a home. The fiscal year 2003 
appropriations provided for $75 million for this initiative, which will 
be sufficient to begin the program. The fiscal year 2004 budget 
provides funding to assist approximately 40,000 low-income families 
with down payment and closing costs on their homes.
    The HOME Investment Partnerships Program (HOME) plays a key role in 
addressing the shortage of affordable housing in America. As reflected 
in this year's program assessment, the HOME program is successful 
because it is well managed and its flexibility ensures local decision-
making. In 2004, a total of $2.197 billion is being provided to 
participating jurisdictions (States, units of local government, and 
consortia) to expand affordable housing, which represents a 10 percent, 
or $200 million, increase for HOME from the 2003 enacted level. The 
funds dedicated to expanding and improving homeownership will be spent 
rehabilitating owner-occupied buildings and providing assistance to new 
homebuyers. Based on historical trends, 36 percent of the 
homeownership-related funds will be used for new construction, 47 
percent for rehabilitation, and 14 percent for acquisition.
    Recipients of HOME funds have substantial discretion to determine 
how the funds are spent. HOME funds can be used to expand access to 
homeownership by subsidizing down payment and closing costs, as well as 
the costs of acquisition, rehabilitation, and new construction. To 
date, HOME grantees have committed funds to provide homebuyer 
assistance to more than 288,000 low-income households.
    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 constructing a new home 
or rehabilitating an existing home. This new tax credit targets low-
income individuals and families; eligible homebuyers would have incomes 
of not more than 80 percent of their area median.
    HUD is committed to helping families understand the homebuying 
process and how to avoid the abuses of predatory lending. Housing 
counseling has proven to be an extremely important element in both the 
purchase of a home and in helping homeowners keep their homes in times 
of financial stress. The fiscal year 2004 budget will expand funds for 
counseling services from $40 million in fiscal year 2003 to $45 
million. This will provide 550,000 families with home purchase and 
homeownership counseling and about 250,000 families with rental 
counseling.
    The fiscal year 2004 budget strengthens HUD's commitment to the 
Self-Help Homeownership Opportunity Program (SHOP). SHOP provides 
grants to national and regional non-profit organizations to subsidize 
the costs of land acquisition and infrastructure improvements. 
Homebuyers must contribute significant amounts of sweat equity or 
volunteer labor to the construction or rehabilitation of the property. 
The fiscal year 2004 budget request for $65 million triples the funding 
received in 2002, reflecting President Bush's commitment to self-help 
housing organizations such as Habitat for Humanity. These funds will 
help produce approximately 5,200 new homes nationwide for very low-
income families. Funds are provided as a set-aside within the Community 
Development Block Grant account.
    The Federal Housing administration (FHA) is the Federal 
Government's single largest program to extend access to homeownership 
to individuals and families who lack the savings, credit history, or 
income to qualify for a conventional mortgage. In 2002, FHA insured 
$150 billion in mortgages for almost 1.3 million households, most of 
them first-time homebuyers, which represents a 21 percent increase over 
the previous year. Thirty-six percent were minority households.
    FHA offers a wide variety of insurance products, the largest being 
single-family mortgage insurance products. FHA insures single-family 
homes, home rehabilitation loans, condominium loans, energy efficiency 
loans, and reverse mortgages for elderly individuals. Special discounts 
are available to teachers and police officers who purchase homes that 
have been defaulted to HUD and who promise to live in their homes in 
revitalized areas.
    HUD is proposing legislation for a new mortgage product to offer 
FHA insurance to families that, due to poor credit, would either be 
served by the private market at a higher cost or not at all. It is 
anticipated that borrowers will be offered FHA loan insurance under 
this new initiative that will allow them to maintain their home or to 
purchase a new home. The new Mutual Mortgage Insurance Fund (MMI) 
mortgage loan program is expected to generate an additional $7.5 
billion in endorsements for 62,000 additional homes.
    Through its mortgage-backed securities program, Ginnie Mae helps to 
ensure that mortgage funds are available for low- and moderate-income 
families served by FHA and other government programs such as VA and the 
Rural Housing Service of the U.S. Department of Agriculture.
    During fiscal year 2002, Ginnie Mae surpassed a total of $2 
trillion in mortgage-backed securities issued since 1970. Reaching this 
milestone means that more than 28.4 million families have had access to 
affordable housing or lower mortgage costs since Ginnie Mae's 
inception. HUD is proud of Ginnie Mae's accomplishments and its 
important role in helping to support affordable homeownership for low- 
and moderate-income families in America. HUD's role in the secondary 
mortgage market provides an important public benefit to Americans 
seeking to fulfill their dream of homeownership.
    The fiscal year 2004 budget supports five HUD programs that help to 
promote homeownership in Native American and Hawaiian communities.
    The Native American Housing Block Grants (NAHBG) program provides 
funds to tribes and to tribally designated housing entities for a wide 
variety of affordable-housing activities. Grants are awarded on a 
formula basis that was established through negotiated rulemaking with 
the tribes. The NAHBG program allows funds to be used to develop new 
housing units to meet critical shortages in housing. Other uses include 
housing assistance to modernize and maintain existing units; housing 
services, including direct tenant rental subsidy; crime prevention; 
administration of the units; and certain model activities.
    The Title VI Federal Guarantees for Tribal Housing program provides 
guaranteed loans to recipients of the Native American Housing Block 
Grant who need additional funds to engage in affordable-housing 
activities but who cannot borrow from private sources without the 
guarantee of payment by the Federal Government. Because the grantees 
have not applied for all funds appropriated in prior years, the amount 
of subsidy required in fiscal year 2004 is reduced from $2 million to 
$1 million, and the loan amount supported is reduced from $16.6 million 
to $8 million. Prior-year funds remain available until used.
    The Indian Housing Loan Guarantee (Section 184) program helps 
Native Americans to access private mortgage financing for the purchase, 
construction, or rehabilitation of single-family homes. The program 
guarantees payments to lenders in the event of default. In fiscal year 
2004, $1 million is requested in credit subsidy for 100 percent Federal 
guarantees of approximately $27 million in private loans.
    The Hawaiian Homelands Homeownership Act of 2000 established the 
Native Hawaiian Home Loan Guarantee Fund, which is modeled after 
Section 184. The fiscal year 2004 budget will provide $1 million in 
credit subsidy to secure approximately $35 million in private loans.
    Modeled after the NAHBG, the Native Hawaiian Housing Block Grant 
(NHHBG) was authorized by the Hawaiian Homelands Homeownership Act of 
2000. The fiscal year 2004 budget will provide $10 million. Grant funds 
will be awarded to the Department of Hawaiian Home Lands and may be 
used to support acquisition, new construction, reconstruction and 
rehabilitation. Activities will include real property acquisition, 
demolition, financing, and development of utilities and utility 
services, as well as administration and planning.
                  promoting decent affordable housing
    Ideally, homeownership would be an option for everyone, but even 
with its new and expanded homeownership initiatives, the administration 
recognizes that many families will have incomes insufficient to support 
a mortgage in the areas where they live. Therefore, along with boosting 
homeownership, HUD's proposed fiscal year 2004 budget promotes the 
production and accessibility of affordable housing for families and 
individuals who rent. This is achieved, in part, by providing States 
and localities new flexibility to respond to local needs.
    HUD has three major rental assistance programs that collectively 
provide rental subsidies to approximately 4.5 million households 
nationwide. The major vehicle for providing rental subsidies is the 
Section 8 program, which is authorized in Section 8 of the U.S. Housing 
Act of 1937. Under this program, HUD provides subsidies to individuals 
(tenant-based) who seek rental housing from qualified and approved 
owners, and also provides subsidies directly to private property owners 
who set aside some or all of their units for low-income families 
(project-based). Finally, HUD subsidizes the operation, maintenance, 
and modernization of an additional 1.2 million public housing units.
    HUD is proposing a new initiative--Housing Assistance for Needy 
Families (HANF)--under which the funding for vouchers, which has been 
allocated to approximately 2,600 public housing authorities (PHAs), 
would be allocated to the States. States, in turn, could choose to 
contract with PHAs or other entities to administer the program. The 
funding for both incremental and renewal vouchers will be contained in 
the HANF account.
    There are a number of advantages to providing the voucher funds to 
the States. The allocation of funds to States rather than PHAs should 
allow for more flexibility in efforts to address problems in the 
underutilization of vouchers that have occurred in certain local 
markets. The allocation of funds to the States will be coupled with 
additional flexibility in program laws and rules, to allow States to 
better address local needs and to commit vouchers for program uses that 
otherwise would go unused. In the former Housing Certificate Fund, more 
than $2.41 billion has been recaptured over the last 2 years from the 
Housing Choice Voucher program. These large recaptures have resulted in 
a denial of appropriated housing assistance for thousands of families, 
which will be avoided under HANF. The administration of the HANF 
program should run more smoothly, with HUD managing fewer than 60 
grantees compared to approximately 2,600 today.
    Allocation of the funds to the States should allow for more 
coordinated efforts with the Temporary Assistance for Needy Families 
(TANF) program, and the One-Stop Career Center system under the 
Workforce Investment Act, successfully administered by the States, to 
support the efforts of those now receiving public assistance who are 
climbing the ladder of self-sufficiency.
    HUD proposes that fiscal year 2004 be a transition year in which 
PHAs would continue to receive voucher funds directly while States ramp 
up in preparation for administering the HANF program. Up to $100 
million would be made available to assist States with this effort. In 
addition, States could apply for incremental vouchers if they are ready 
to do so, and could request waivers that would assist in the 
implementation of their programs.
    The HANF account would contain $13.6 billion in funding for voucher 
renewals and incremental vouchers. This would include funding for up to 
$36 million in incremental vouchers for persons with disabilities, 
additional incremental vouchers to the extent that funding is 
available, $252 million for tenant protection vouchers to prevent 
displacement of tenants affected by public housing demolition or 
disposition of project-based Section 8 contract terminations or 
expirations, and $72 million for Family Self-Sufficiency Coordinators.
    For fiscal year 2004, the administration proposes separate funding 
for vouchers under the new HANF account. The Project Based Rental 
Assistance Account will retain funding for renewals of expiring 
project-based rental assistance contracts under Section 8, including 
amounts necessary to maintain performance-based contract 
administrators. An appropriation of $4.8 billion is requested for these 
renewals in fiscal year 2004, which is a $300 million increase over the 
current fiscal year. In addition to new appropriations, funds available 
in this account from prior-year balances and from recaptures will 
augment the amount available for renewals and will be available to meet 
amendment requirements for on-going contracts that have depleted 
available funding, as well as a rescission of $300 million.
    It is anticipated that approximately 870,000 project-based units 
under rental assistance will require renewal in fiscal year 2004, an 
increase of about 50,000 units from the current fiscal year, continuing 
the upward trend stemming from first-time expirations in addition to 
contracts already under the annual renewal cycle. The HANF account 
funds an estimated 30,300 units in subsidized or partially assisted 
projects requiring tenant-protection vouchers due to terminations, opt-
outs, and prepayments.
    Public Housing is the other major form of assistance that HUD 
provides to the Nation's low-income population. In fiscal year 2004, 
HUD anticipates that there will be approximately 1.2 million public 
housing units occupied by tenants. These units are under the direct 
management of approximately 3,050 PHAs. Like the Section 8 program, 
tenants pay approximately 30 percent of their income for rent and 
utilities, and HUD subsidies cover the remaining costs.
    HUD is programmatically and financially committed to ensuring that 
the existing public housing stock is either maintained in good 
condition or is demolished. Maintenance is achieved through the subsidy 
to PHAs for both operating expenses and modernization costs. 
Legislation to implement a new financing initiative is included and 
enhanced in the fiscal year 2004 budget. This will allow for the 
acceleration of the reduction in the backlog of modernization 
requirements in public housing facilities across the Nation.
    The formula distribution of funds through the Public Housing 
Operating Fund takes into account the size, location, age of public 
housing stock, occupancy, and other factors intended to reflect the 
costs of operating a well-managed public housing development. In fiscal 
year 2004, HUD will increase the amounts provided for operating 
subsidies from $3.530 billion to $3.559 billion, plus $15 million to 
fund activities associated with the Resident Opportunities and 
Supportive Services (ROSS) program.
    The Public Housing Capital Fund provides formula grants to PHAs for 
major repairs and modernization of its units. The fiscal year 2004 
budget will provide $2.641 billion in this account. This amount is 
sufficient to meet the accrual of new modernization needs in fiscal 
year 2004.
    Of the funds made available, up to $40 million may be maintained in 
the Capital Fund for natural disasters and emergencies. Up to $30 
million can be used for demolition grants--to accelerate the demolition 
of thousands of public housing units that have been approved for 
demolition but remain standing. Also in fiscal year 2004, up to $40 
million will be available for the ROSS program (in addition to $15 
million in the Operating Fund), which provides supportive services and 
assists residents in becoming economically self-sufficient.
    To address the backlog of capital needs, the Department is 
including a legislative proposal in its 2004 budget called the Public 
Housing Reinvestment Initiative (PHRI) that will allow PHAs to use 
their Operating Fund and Capital Fund grants to facilitate the private 
financing of capital improvements. This initiative also will encourage 
development-based financial management and accountability in PHAs.
    These objectives would be achieved by authorizing HUD to approve, 
on a property-by-property basis, PHA requests to convert public housing 
developments (or portions of developments) into project-based voucher 
assistance. The conversion of units to project-based vouchers will 
allow the PHAs to secure private financing to rehabilitate or replace 
their aging properties by pledging the property as collateral for 
private loans for capital improvements.
    The fiscal year 2004 budget enhances this proposal, which was made 
in last year's budget request, by also proposing a guarantee of up to 
80 percent of the principal of loans made to provide the capital for 
PHRI. There was substantial interest by PHAs and others in last year's 
budget proposal; the loan guarantee should greatly facilitate the 
involvement of private lenders. The budget includes $131 million in 
subsidy for this guarantee, which would allow the guarantee of almost 
$2 billion in loans and significantly accelerate the improvement in 
public housing conditions.
    The PHRI reflects our vision for the future of public housing.
    For 10 years, the HOPE VI program has been the government's primary 
avenue for funding the demolition, replacement, and rehabilitation of 
severely distressed public housing. 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 
have leveraged over $500 million in the last couple of years. PHAs can 
mortgage their properties to leverage private capital. In Maryland, 
PHAs are forming consortiums to leverage their collective resources and 
assets to attract private capital. Cities such as 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 served its purpose. Established to revitalize 100,000 
of the Nation's most severely distressed public housing units, the 
program has funded the demolition of over 115,000 severely distressed 
public housing units and the production of over 60,000 revitalized 
dwellings. There are also more effective and less costly alternatives. 
The average cost per rebuilt HOPE VI unit is approximately $120,000, 
compared to $80,000 in HUD's HOME program. Only 20,000 new HOPE VI 
units have been completed to date. On average, 5 years pass between the 
time a HOPE VI award is made and a new unit is occupied. In contrast, 
during the same period, HUD's HOME program produced 70,000 new rental 
units with an average construction time of about 2 years. It is time to 
look to the future and pursue new opportunities, such as those I have 
noted, which can more effectively serve local communities.
    Among HUD's other rental assistance programs, FHA insures mortgages 
on multifamily rental housing projects. In fiscal year 2004, FHA will 
reduce the annual mortgage insurance premiums on its largest apartment 
new construction program, Section 221(d)(4), for the second year in a 
row--from 57 basis points to 50 basis points. With this reduction, the 
Department estimates that it will insure $3 billion in apartment 
development loans through this program, for the annual production of an 
additional 42,000 new rental units, most of which will be affordable to 
moderate-income families, and most of which will be located in 
underserved areas. Additionally, because this program is no longer 
dependent on appropriated subsidies, FHA avoids the uncertainty and the 
suspensions that have plagued the program in prior years. When combined 
with other multifamily mortgage programs, including those serving non-
profit developers, nursing homes, and refinancing mortgagors, FHA 
anticipates providing support for a total of some multifamily 178,000 
housing units.
    In addition to the extensive use of HOME funds for homeownership, 
the HOME program has invested heavily in the creation of new affordable 
rental housing. The program has, in fact, supported the building, 
rehabilitation, and purchase of more than 322,000 rental units. Program 
funds have also provided direct rental assistance to more than 88,000 
households.
    The Native American Housing Block Grant (NAHBG) and Native Hawaiian 
Housing Block Grant (NHHBG) are also used for a wide variety of 
affordable-housing activities. Several other HUD programs contribute to 
rental assistance, although not as a primary function. For example, the 
flexible Community Development Block Grant (CDBG) program can be used 
to support rental housing activities.
    Regulatory barriers on the State and local level have an enormous 
impact on the development of rental and affordable housing. HUD is 
committed to working with States and local communities to reduce 
regulatory and institutional barriers to the development of affordable 
housing. HUD plans to create a new Office of Regulatory Reform and 
commit an additional $2 million in fiscal year 2004 for research 
efforts to learn more about the nature and extent of regulatory 
obstacles to affordable housing. Through this office, researchers will 
develop the tools needed to measure and ultimately reduce the effects 
of excessive barriers that restrict the development of affordable 
housing at the local level.
                       strengthening communities
    HUD is committed to preserving America's cities as vibrant hubs of 
commerce and making communities better places to live, work, and raise 
a family. The fiscal year 2004 budget provides States and localities 
with tools they can put to work improving economic health and promoting 
community development. Perhaps the greatest strength of HUD's economic 
development programs is the emphasis they place on helping communities 
address locally determined development priorities through decisions 
made locally.
    The mainstay of HUD's community and economic development programs 
is the CDBG program. In fiscal year 2004, total funding requested for 
CDBG is $4.732 billion. Funding for the CDBG formula program will 
increase $95 million from the fiscal year 2003 enacted level, to $4.436 
billion. Currently, 865 cities, 159 counties, and 50 States plus Puerto 
Rico receive formula grant funds.
    HUD is analyzing the impact of the 2000 Census on the distribution 
of CDBG funds to entitlement communities and States. Based on this 
review, revisions to the existing formula may be proposed so that funds 
are allocated to those communities that need them the most and will use 
them effectively. Any proposals will, of course, consider measures of 
need and fiscal capacity, as well as other factors.
    Of the $4.732 billion in fiscal year 2004, $4.436 billion will be 
distributed to entitlement communities, States, and insular areas, and 
$72.5 million will be distributed by a competition to Indian tribes for 
the same uses and purposes. This budget presumes legislative changes 
proposed in fiscal year 2003 to fund CDBG grants to insular areas as 
part of the formula, and to shift administration of the Hawaii Small 
Cities program to the State. The remaining $224 million is for specific 
purposes and programs at the local level and is distributed generally 
on a competitive grant basis.
    As it did in fiscal year 2003, the fiscal year 2004 budget again 
proposes $16 million for the Colonias Gateway Initiative (CGI). The CGI 
is a regional initiative, focusing on border States where the colonias 
are located. Colonias are small, generally unincorporated communities 
that are characterized by substandard housing, lack of basic 
infrastructure and public facilities, and weak capacity to implement 
economic development initiatives. The fiscal year 2004 funds will: 
provide start-up seed capital to develop baseline socio-economic 
information and a geographic information system; identify and structure 
new projects and training initiatives; fund training and business 
advice; and provide matching funds to develop sustainable housing and 
economic development projects that, once proven, could be taken over by 
the private sector.
    HUD participates in the privately organized and initiated National 
Community Development Initiative (NCDI). The fiscal year 2004 budget 
will provide $30 million for the NCDI and Habitat for Humanity, in 
which HUD has funded three phases of work since 1994. A fourth phase 
will emphasize the capacity building of community-based development 
organizations, including community development corporations, in the 
economic arena and related community revitalization activities through 
the work of intermediaries, including the Local Initiatives Support 
Corporation and the Enterprise Foundation.
    The fiscal year 2004 budget provides $31.9 million to assist 
colleges and universities, including minority institutions, to engage 
in a wide range of community development activities. Funds are also 
provided to support graduate programs that attract minority and 
economically disadvantaged students to participate in housing and 
community development fields of study.
    Grant funds are awarded competitively to work study and other 
programs to assist institutions of higher learning in forming 
partnerships with the communities in which they are located and to 
undertake a wide range of academic activities that foster and achieve 
neighborhood revitalization.
    The fiscal year 2004 budget requests $65 million for the YouthBuild 
program. This program is targeted to high school dropouts ages 16 to 
24, and provides these disadvantaged young adults with education and 
employment skills through constructing and rehabilitating housing for 
low-income and homeless people. The program also provides opportunities 
for placement in apprenticeship programs or in jobs. The fiscal year 
2004 request will serve more than 3,728 young adults.
    The Community Renewal Tax Relief Act of 2000 authorized the 
designation of 40 Renewal Communities (RCs) and nine Round III 
Empowerment Zones (EZs), and provided tax incentives which can be used 
to encourage community revitalization efforts. Private investors in 
both RC and EZ areas are eligible for tax benefits over the next 10 
years tied to the expansion of job opportunities in these locations. 
These programs allow communities to design and administer their own 
economic development strategies with a minimum of Federal involvement. 
No grant funds have been authorized or appropriated for RCs or Round 
III EZs. Round II Empowerment Zone communities have received grant 
funding in the past, but after 4 years of funding, still have balances 
of unused funds available. Of course, all of the tax and other benefits 
associated with Zone designation remain intact. Also, both HOME and 
CDBG funds can be used for the same activities.
    The administration is deeply engaged in meeting the challenge of 
homelessness that confronts many American cities. Across the scope of 
the Federal Government, funding for homeless-specific assistance 
programs increases 14 percent in the fiscal year 2004 budget proposal. 
We are fundamentally changing the way the Nation manages the issue of 
homelessness by focusing more resources on providing permanent housing 
and supportive services for the homeless population, instead of simply 
providing more shelter beds.
    HUD is leading an unprecedented, administration-wide commitment to 
eliminating chronic homelessness within the next 10 years. Persons who 
experience chronic homelessness are a sub-population of approximately 
150,000 individuals who often have an addiction or suffer from a 
disabling physical or mental condition, and are homeless for extended 
periods of time or experience multiple episodes of homelessness. For 
the most part, these individuals get help for a short time but soon 
fall back to the streets and shelters. Research indicates that although 
these individuals may make up less than 10 percent of the homeless 
population, they consume more than half of all homeless services 
because their needs are not comprehensively addressed. Thus, they 
continually remain in the homeless system.
    As a first step, the administration reactivated the U.S. 
Interagency Council on Homelessness. Reactivating the Council has 
provided better coordination of the various homeless assistance 
programs that are directly available to homeless individuals through 
HUD, HHS, VA, the Department of Labor, and other agencies. $1.5 million 
is earmarked within the Homeless Assistance Account for the operations 
of the Council in fiscal year 2004.
    HUD and its partners are focused on improving the delivery of 
homeless services, which includes working to cut government red tape 
and make the funding process simpler for those who provide homeless 
services. The fiscal year 2004 budget continues to provide strong 
support to homeless persons and families by funding the HUD homeless 
assistance programs at the record level of $1.528 billion.
    Several changes to the program are being proposed that will provide 
new direction and streamline the delivery of funds to the local and 
non-profit organizations that serve the homeless population.
    The fiscal year 2004 budget includes funding for a new program to 
address the President's goal of ending chronic homelessness in 10 
years: the Samaritan Initiative. Funded by HUD at $50 million, the 
Samaritan Initiative will provide new housing options as well as 
aggressive outreach and services to homeless people living on the 
streets. This program is part of a broader, coordinated Federal effort 
between HUD, HHS, VA and the Interagency Council on Homelessness.
    In order to significantly streamline homeless assistance in this 
Nation and increase a community's flexibility in combating 
homelessness, HUD will propose legislation to consolidate its current 
homeless assistance programs into a single program.
    The administration is also proposing legislation that would 
transfer intact the Emergency Food and Shelter Program (EFSP) that was 
administered by FEMA to HUD. The transfer of this $153 million program 
would allow for the consolidation of all emergency shelter assistance--
EFSP and the Emergency Shelter Grant program--under one agency. EFSP 
funds are distributed to a National Board, which in turn allocates 
funds to similarly comprised local Boards in eligible jurisdictions. 
Eligibility for funding is based on population, poverty, and 
unemployment data. The Board will be chaired by the Secretary of HUD 
and will include the American Red Cross, Salvation Army, and the United 
Way, as well as other experts.
    In addition to funding homeless supportive services, the fiscal 
year 2004 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-based paint hazards.
    Nearly two million households headed by an elderly individual or a 
person with disabilities receive HUD rental assistance that provides 
them with the opportunity to afford a decent place to live and 
oftentimes helps them to live independent lives.
    The fiscal year 2004 budget will provide the same level of funding 
for Housing for the Elderly and Housing for Persons with Disabilities 
as was requested for fiscal year 2003. The effectiveness of the Housing 
for the Elderly program was evaluated this past year using the Office 
of Management and Budget's new Program Assessment Rating Tool (PART), 
and received low performance scores. The administration recognizes the 
need to improve delivery of housing assistance to the elderly (Section 
202) and will examine possible policy changes or reforms to strengthen 
performance. Funding for housing for the elderly is awarded 
competitively to non-profit organizations that construct new 
facilities. The facilities are then provided with rental assistance, 
enabling them to accept very low-income residents. In fiscal year 2004, 
$773 million plus $10 million in recaptures will be provided for 
elderly facilities. Many of the residents live in the facilities for 
years; over time, these individuals are likely to become frailer and 
less able to live in rental facilities without some additional 
services. Therefore, the program is providing $30 million of the grants 
for construction to convert all or part of existing properties to 
assisted-living facilities. Doing so will allow individual elderly 
residents to remain in their units. In addition, $53 million of the 
grant funds will be targeted to funding the services coordinators who 
help elderly residents obtain needed and supportive service from the 
community.
    The budget for fiscal year 2004 proposes to separately fund grants 
for Supportive Housing for Persons with Disabilities (Section 811) at 
$251 million. The disabled facilities grant program will also continue 
to set aside funds to enable persons with disabilities to live in 
mainstream environments. Up to 25 percent of the grant funds can be 
used to provide Section 8-type vouchers that offer an alternative to 
congregate housing developments. In fiscal year 2004, $42 million of 
the grant funds will be provided to renew ``mainstream'' Section 8-type 
vouchers so that, where appropriate, individuals can continue to use 
their vouchers to obtain rental housing in the mainstream rental 
market. The Housing for Persons with Disabilities program also received 
low performance scores when it was evaluated using the PART. The 
Department proposes to reform the program to allow faith-based and 
other nonprofit sponsors more flexibility in using grant funds to 
better respond to local needs. In addition, the reformed program would 
recognize the unique needs of people with disabilities at risk of 
homelessness, and give priority to serving this group as part of the 
administration's Samaritan Initiative to end chronic homelessness.
    One of the targeted uses of new incremental vouchers under the 
Section 8 program is for non-elderly disabled individuals who are 
currently residing in housing that was designated for the elderly. 
Disabled individuals are provided Section 8 vouchers to continue their 
subsidies elsewhere. If a sufficient number of applications for these 
vouchers are not received, the PHAs may use them for any other disabled 
individuals on the PHAs' waiting lists. In fiscal year 2004, the 
Department will allocate $36 million for the non-elderly disabled to 
fund approximately 5,500 vouchers.
    HUD will also provide $297 million in fiscal year 2004 in new grant 
funds for housing assistance and related supportive services for low-
income persons with HIV/AIDS and their families. This is an increase of 
$5 million over the fiscal year 2003 level and is based on the most 
recent statistics prepared by the Centers for Disease Control and 
Prevention. Although most grants are allocated by formula, based on the 
number of cases and highest incidence of AIDS, a small portion are 
provided through competition for projects of national significance. The 
program will renew all existing grants in fiscal year 2004 and provide 
new grants for an expected three new jurisdictions. Since 1999, the 
number of formula grantees has risen from 97 to an expected 114 in 
fiscal year 2004.
    HUD's Lead-Based Paint Program is the central element of the 
President's program to eradicate childhood lead-based paint poisoning 
in 10 years or less. In fiscal year 2004, funding for the lead-based 
paint program will increase to $136 million from $126 million provided 
in the President's request for fiscal year 2003. Grant funds are 
targeted to low-income, privately owned homes most likely to expose 
children to lead-based paint hazards. Included in the total funding is 
$10 million in funds for Operation LEAP, which is targeted to 
organizations that demonstrate an exceptional ability to leverage 
private sector funds with Federal dollars, and funding for technical 
studies to reduce the cost of lead hazard control. The program also 
conducts public education and compliance assistance to prevent 
childhood lead poisoning. The President's budget requests an additional 
$25 million for a new, innovative lead hazard reduction demonstration 
program to eliminate lead-based paint hazards in homes of low-income 
children, funded under the HOME program. This new program will provide 
creative ways of identifying and eliminating lead-based paint hazards--
methods that will serve as models for existing lead hazard control 
programs, such as replacing old windows contaminated with high levels 
of lead paint dust with new energy-efficient windows.
    Also included is $10 million for the Healthy Homes Initiative, 
which is targeted funding to prevent other housing-related childhood 
diseases and injuries such as asthma and carbon monoxide poisoning. 
Working with other agencies such as the Centers for Disease Control and 
the Environmental Protection Agency, HUD is bringing comprehensive 
expertise to the table in housing rehabilitation and construction, 
architecture, urban planning, public health, environmental science, and 
engineering to address a variety of childhood problems that are 
associated with housing.
    HUD is requesting $17 million in fiscal year 2004 to meet the 
expanded costs of its Manufactured Housing Standards Program. This is a 
$4 million increase over the current fiscal year. These funds will meet 
the costs of hiring contractors to inspect manufacturing facilities, 
make payments to the States to investigate complaints by purchasers, 
and cover administrative costs, including the Department's staff. Fees 
have been set by regulation to support the operation of this program.
                 ensuring equal opportunity in housing
    In this land of opportunity, no one should be denied housing 
because of that individual's race, color, national origin, religion, 
sex, familial status or disability. The administration is committed to 
the fight against housing discrimination, and this is reflected in 
HUD's budget request for fiscal year 2004.
    HUD is the primary Federal agency responsible for the 
administration of fair housing laws. The goal of these programs is to 
ensure that all families and individuals have access to a suitable 
living environment free from discrimination. HUD contributes to fair 
housing enforcement and education by directly enforcing the Federal 
fair housing laws and by funding State and local fair housing efforts 
through two programs: the Fair Housing Assistance Program (FHAP) and 
the Fair Housing Initiatives Program (FHIP).
    The fiscal year 2004 budget will provide $29.7 million--an increase 
of $4 million above the fiscal year 2003 level--under FHAP to support 
State and local jurisdictions that administer laws substantially 
equivalent to the Federal Fair Housing Act. The increase will provide: 
(1) an education campaign to address persistently high rates of 
discrimination against Hispanic renters (as identified by the 2000 
Housing Discrimination Study); (2) funding for a Fair Housing Training 
Academy to better train civil rights professionals and housing partners 
in conducting fair housing investigations; and (3) additional funding 
for expected increases in discrimination cases processed by State and 
local fair housing agencies as a result of increased education and 
outreach activities. The Department supports FHAP agencies by providing 
funds for capacity building, complaint processing, administration, 
special enforcement efforts, training, and the enhancement of data and 
information systems. FHAP grants are awarded annually on a 
noncompetitive basis.
    The fiscal year 2004 budget will provide $20.3 million in grant 
funds for non-profit FHIP agencies nationwide to directly target 
discrimination through education, outreach, and enforcement. The FHIP 
program for fiscal year 2004 is structured to respond to the finding of 
the 3-year National Discrimination Study and related studies, which 
reflect the need to expand education and outreach efforts nationally as 
a result of continuing high levels of discrimination.
    Fighting predatory lending is an important activity for FHIP 
agencies, as reports continue to show that abusive lenders frequently 
target racial minorities, the elderly, and women for mortgage loans 
that have exorbitant fees and onerous conditions.
    Educational outreach is a critical component of HUD's ongoing 
efforts to prevent or eliminate discriminatory housing practices. HUD 
will continue its work to make individuals more aware of their rights 
and responsibilities under the Fair Housing Act. A major study titled 
``How Much Do We Know'' emphasized the continuing need for public 
education on fair housing laws; in fiscal year 2004, FHIP organizations 
throughout the country will continue to fund a major education and 
public awareness campaign in support of study findings.
    The colonias have many barriers to fair and affordable housing in 
both rental and homeownership. Many of the residents are recent 
immigrants unaware of their rights under the Fair Housing Act. Funds 
will be targeted to FHIP agencies that provide education and 
enforcement efforts in those areas. FHIP-funded fair housing 
organizations with grants targeted to the colonias will provide 
residents with information on the Fair Housing Act and substantially 
equivalent laws and respond to allegations of discriminatory practices.
    The FHIP program will continue to emphasize the participation of 
faith-based and community partners. Recognizing the tremendous impact 
that education has on the implementation of fair housing laws, 
virtually any entity (public, private, profit, and non-profit) that 
actively works to prevent discrimination from occurring is eligible to 
apply for funds under this initiative.
    Faith- and community-based partnerships in FHIP will empower 
citizens by: (1) encouraging networking of State and local fair housing 
enforcement agencies and organizations; (2) working in unison with 
faith-based organizations; and (3) promoting a fair housing presence in 
places where little or none exists today. HUD will emphasize 
partnerships with grassroots and faith-based organizations that have 
strong ties to those groups identified in the 2000 Housing 
Discrimination Study as being most vulnerable to housing 
discrimination, particularly the growing Hispanic population.
    Promoting the fair housing rights of persons with disabilities is a 
Departmental priority and will remain an important initiative within 
FHIP. Fair Housing Act accessibility design and construction training 
and technical guidance is being implemented through Project Fair 
Housing Accessibility First (formerly called the Project on Training 
and Technical Guidance). The project, which is now in its second year, 
will provide training at 48 separate venues to architects, builders, 
and others on how to design and construct multifamily buildings in 
compliance with the accessibility requirements of the Fair Housing Act. 
During that same period, Project Fair Housing Accessibility First will 
maintain a hotline and a website to provide personal assistance to 
housing professionals on design and construction problems.
 promoting the participation of faith-based and community organizations
    HUD's Center for Faith-Based and Community Initiatives (``the 
Center'') was established by Executive Order 13198 on January 29, 2001. 
Its purpose is to coordinate the Department's efforts to eliminate 
regulatory, contracting, and other obstacles to the participation of 
faith-based and other community organizations in social service 
programs.
    The Center will continue to play a key role in fiscal year 2004 in 
facilitating intra-Departmental and interagency cooperation regarding 
the needs of faith-based and community organizations. It will focus on 
research; law and policy; development of an interagency resource center 
to service faith-based and community partners; and expanding outreach, 
training, and coalition building. Additionally, the Center will 
participate in the furtherance of HUD's overall strategic goals and 
objectives--particularly as they relate to partnership with faith-based 
and community organizations.
    On December 12, 2002, the President issued Executive Order 13279, 
``Equal Protection of the Laws for Faith-Based and Community 
Organizations.'' Its intent is to ensure that faith-based and community 
organizations are not unjustly discriminated against by regulations and 
bureaucratic practices and policies. The Order directs the Center to: 
(1) amend any policies that contradict the Order; (2) where 
appropriate, implement new policies that are necessary to further the 
fundamental principles and policymaking criteria set forth in the 
Order; (3) implement new policies to ensure collection of data 
regarding the participation of faith-based and community organizations 
in social service programs that receive Federal financial assistance; 
and (4) report to the President the actions it proposes to undertake to 
implement the Order.
    In compliance with Executive Orders 13198 and 13279, the Center 
will continue to participate in implementing HUD's strategic goals and 
objectives, as well as the following key responsibilities: conduct an 
annual Department-wide inventory to identify barriers to participation 
of faith-based and community organizations in the delivery of social 
services; initiate and support efforts to remove said barriers; widen 
the pool of grant applicants to include historically excluded groups; 
identify and reach out to faith- and community-based organizations with 
little or no history of working with HUD; work with HUD program offices 
to strengthen and expand their faith-based and community partnerships; 
and educate HUD personnel and State and local governments on the faith-
based and community initiative.
   embracing high standards of ethics, management, and accountability
    Improving the performance in HUD's critically needed housing and 
community development programs begins at home in the Department, by 
embracing high standards of ethics, management and accountability. The 
President's Management Agenda is focused on how we can better manage to 
fulfill our mission by addressing the Department's longstanding major 
management challenges, high-risk program areas, and material management 
control weaknesses. Accountability begins with clarity on the 
Department's goals, priorities and expectations for performance 
results. We have integrated the goals of the President's Management 
Agenda with our budget, our annual management operating plans, and our 
management performance evaluation processes, to better assure 
accountability and results.
    A key focus of the President's Management Agenda is to address 
deficiencies in HUD's management of its financial and information 
systems and human capital, which have hindered the Department's ability 
to properly control and mitigate risks in the rental housing assistance 
and single family mortgage insurance programs. There are no quick fixes 
for these longstanding problems, but we continue to pursue a deliberate 
and methodical improvement process that is clearly demonstrating 
progress in improving HUD's program delivery structure and performance 
results.
Financial Management and Information Systems
    A primary focus of the past 2 years has been on addressing the 
Department's most significant financial management systems deficiencies 
in the FHA, and on stabilizing and enhancing HUD's existing core 
financial management systems operating environment. The FHA Subsidiary 
Ledger Project is proceeding on-schedule as a multi-year, phased effort 
to replace FHA's commercial accounting system with a system that fully 
complies with Federal requirements, including budgetary accounting and 
funds control and credit reform accounting. A major project milestone 
was accomplished with the successful implementation of the new FHA 
general ledger system in October 2002. Enhanced funds control 
capabilities of the new system are scheduled for implementation in 
2004, and FHA will continue to adapt and further integrate its 19 
insurance program feeder systems over the next several years to achieve 
full systems compliance by 2006.
    While FHA awaits the completion of these systems improvements, they 
have been working with the HUD Chief Financial Officer on a Department-
wide effort to improve HUD's funds control. HUD's handbook on policies 
and procedures for the administrative control of funds had not been 
updated since 1984. We updated and strengthened these policies and 
procedures in a new Administrative Control of Funds Handbook issued in 
December 2002.
    With respect to HUD's core financial management system, the HUD 
Central Accounting and Program System (HUDCAPS), we have been focused 
on stabilizing and enhancing systems operations to support the 
accelerated preparation and audit of HUD's consolidated financial 
statements. We eliminated two reportable conditions from the OIG's 
fiscal year 2000 financial statement audit related to: (1) the 
reliability and security of HUD's critical financial systems, and (2) 
controls over fund balance with Treasury reconciliations. We prepared 
mid-year financial statements in fiscal year 2002 and have begun the 
preparation of quarterly statements in fiscal year 2003. Our year-end 
audit and reporting process was accelerated by 1 month for fiscal year 
2002, and we have plans for further acceleration the next 2 years to 
meet the OMB mandate for issuance of our fiscal year 2004 audited 
financial statements by November 15, 2004.
    HUD has received unqualified audit opinions on the Department's 
consolidated financial statements for the last 3 consecutive years--a 
strong indicator of financial management stability and accountability. 
However, the audit of our fiscal year 2002 financial statements was not 
trouble free. It contained 3 material weakness and 10 reportable 
conditions. Addressing these remaining internal control deficiencies is 
a high priority for the Department.
    While HUD's core financial management system, HUDCAPS, is 
substantially compliant with Federal financial management systems 
requirements, it is inefficient and expensive to maintain. We initiated 
the HUD Integrated Financial Management Improvement Project (HIFMIP) to 
study options for the next generation core financial management system 
to replace HUDCAPS. Previous HUD systems integration improvement 
efforts failed to fully meet their intended objectives due to 
inadequate planning and commitment. HUD is taking the time to properly 
plan this project. A HIFMIP Executive Advisory Committee was convened 
in January 2003--with representation from the Principal Staff of HUD's 
major organizational components, including FHA and GNMA, and an 
advisory role has been provided for the HUD OIG. A new Assistant CFO 
for Systems was hired in October 2002, and Project Manager was hired 
for HIFMIP in February 2003. The HIFMIP Vision is scheduled for 
completion by January 2004, and feasibility studies with a systems 
recommendation by July 2004.
    HUD's overall fiscal year 2004 information technology (IT) 
portfolio will benefit from our continuing efforts to improve the IT 
capital planning process, convert to performance-based IT service 
contracts, strengthen IT project management to better assure results, 
extend the data quality improvement program, and improve systems 
security on all platforms and applications. HUD is also continuing to 
pursue increased electronic commerce and is actively participating in 
the President's ``E-Government'' projects to better serve our citizens 
and realize cost-efficiencies through standardized systems solutions in 
common areas of information and processing need.
Human Capital Management
    HUD's staff, or ``human capital,'' is its most important asset in 
the delivery and oversight of the Department's mission. Effective human 
capital management is the purview of all HUD managers and program 
areas, and improvements have been geared towards meeting HUD's primary 
human capital management challenges. HUD has taken significant steps to 
enhance and better utilize its existing staff capacity, and to obtain, 
develop and maintain the staff capacity necessary to adequately support 
HUD's future program delivery. Building upon the REAP and TEAM 
management tools, a new staff resource estimation and allocation system 
implemented in 2002, HUD will complete a Comprehensive Workforce 
Analysis in 2004 to serve as the main component to fill mission 
critical skill gaps through succession planning, hiring and training 
initiatives in a Five-Year Human Capital Management Strategy.
    HUD is working to determine where application of competitive 
sourcing to staff functions identified as commercial would result in 
better performance and value for the government. We have worked with 
OMB to ensure the appropriate amount and mix of competitive sourcing 
opportunities, taking into account the workforce we have inherited, 
including the significant downsizing and extensive outsourcing of 
administrative and program functions over the past decade. HUD's 
Competitive Sourcing Plan identifies some initial opportunities for 
consideration of possible outsourcing, in-sourcing or direct conversion 
studies to realize the President's goals for cost efficiency savings 
and improved service delivery. HUD will continue to assess its 
activities for other areas where competitive sourcing studies might 
benefit the Department.
Strengthening Controls Over Rental Housing Assistance
    HUD's considerable efforts to improve the physical conditions at 
HUD-supported public and assisted housing projects are meeting with 
success. HUD and its housing partners have already achieved the 
original housing quality improvement goals through fiscal year 2005 and 
are raising the bar with new goals. However, HUD overpays hundreds of 
millions of dollars in rental housing subsidies due to the incomplete 
reporting of tenant income and the improper calculation of tenant rent 
contributions. Under the President's Management Agenda, HUD's goal is 
to reduce rental assistance program errors and resulting erroneous 
payments 50 percent by 2005. HUD has established aggressive interim 
goals for a 15 percent reduction in 2003 and a 30 percent reduction in 
2004.
    To achieve our erroneous assistance payments reduction goal, we 
have taken steps to reestablish an adequate HUD monitoring capacity in 
the field to oversee intermediary performance. Field staff is 
conducting intense, on-site monitoring reviews to detect and correct 
income verification and subsidy calculation errors. We are also working 
to provide intermediaries with improved program guidance and automated 
tools to more efficiently and effectively administer the rental 
assistance programs. Program simplification proposals are also under 
consideration, along with a pending legislative proposal for increased 
authority to perform more effective computer matching with tenant 
income data sources to enable intermediaries to perform upfront 
verifications of income used in rent and subsidy calculations. Updated 
error measurement studies will be performed on program activity in 2003 
through 2005 to assess the effectiveness of our efforts to reduce 
program and payment errors.
Improving FHA's Single Family Housing Programs Risk Management
    FHA manages its single-family housing mortgage insurance program 
area in a manner that balances program risks with the furtherance of 
program goals, while maintaining the financial soundness of the 
Mortgage Mutual Insurance (MMI) Fund that supports these programs. The 
MMI Fund is financially sound and the single-family housing programs 
are contributing to record homeownership rates, with a focus on 
homebuyers that are underserved by the conventional market. 
Nevertheless, overall program performance and the condition of the MMI 
Fund could be further improved if all lenders, appraisers, property 
managers and other participants in FHA's program delivery structure 
fully adhered to FHA program requirements designed to reduce program 
risks and further program goals.
    In the past 2 years, FHA has initiated or completed numerous 
actions to improve the content, oversight and enforcement of its 
program requirements, including consideration of alternative business 
processes. FHA developed 16 rules to address deceptive or fraudulent 
practices. This includes the new Appraiser Watch program, improvements 
to the Credit Watch program that will identify problem loans and 
lenders earlier on, new standards for home inspectors, a final rule to 
prohibit property ``flipping'' in FHA programs, and rules to prevent 
future swindles like the 203(k) scam that threatened the availability 
of affordable housing in New York City. These reforms, and the greater 
transparency they ensure, will make it more difficult for unscrupulous 
lenders to abuse borrowers. The HUD budget ensures that consumer 
education and enhanced financial literacy remain potent weapons in 
combating predatory lending.
    In addition, FHA continues to enhance its staff capacity for 
administering this program area, and continues to achieve favorable 
property disposition results through its performance-based management 
and marketing (M&M) contracts. M&M contracts have resulted in a steady 
decline in FHA's property inventory, from 36,000 homes at the end of 
fiscal year 2000 to 30,113 at the end of fiscal year 2002. The loss per 
claim on insured mortgage defaults has been cut from 37 percent to 29.5 
percent.
                               conclusion
    As we implement our proposed fiscal year 2004 budget, we will also 
judge our success by the lives and communities we have helped to change 
through HUD's mission of compassionate service to others: the young 
families who have taken out their first mortgage and become homeowners, 
the homeless individuals who are no longer homeless, the neighborhoods 
that have found new hope, the faith-based and community organizations 
that are today using HUD grants to deliver social services, and the 
neighborhoods once facing a shortage of affordable housing that now 
have enough homes for all.
    Empowered by the resources provided for and supported by HUD's 
proposed budget for fiscal year 2004, our communities and the entire 
Nation will grow even stronger. And more citizens will come to know the 
American Dream for themselves.
    I would like to thank each of you for your support of my efforts, 
and I welcome your guidance as we continue our work together.
    Thank you.

    Senator Bond. Thank you very much, Mr. Secretary. Senator 
Mikulski has agreed that she would go ahead and vote, and she 
has a couple of other responsibilities this morning. I am going 
to ask some questions and adjourn temporarily until she 
returns, and I have asked her since she has some commitments, 
to take all the time she needs when she comes back, and then I 
will pick up from there.
    First, I appreciate your willingness to work with us on 
HOPE VI. Surely everybody understands the program has been 
around and there are obviously ways that it can be improved or 
changed, and I am not resistant to that. But as I believe 
Senator Mikulski very clearly indicated, we both have a strong 
commitment that this is a vitally needed part of so many 
communities in this country. And yes, there are a lot fewer 
completed than planned. It takes a long time, as you well know, 
to get these things out of the grand. Maybe they could be doing 
a better job, but from what I know of the projects, they spend 
about 2 or 3 percent in the first year, and then they really 
take off over time.
    So if there are problems, let us figure out how to proceed, 
whether you can revise the program or a new program. As I said, 
I am skeptical about a loan program that is structured to 
replace it, but we will work together.

                                 HIRING

    With respect to the problems in hiring, the personnel 
problems, we will look forward to discussing those with you 
privately, which I believe would be more appropriate, but 
clearly, that one, we have had a couple of thoughts like that 
in some of the other departments this committee is fortunate 
enough to fund, and for the life of me, I cannot understand why 
people cannot count. I know it is complicated, but there are 
basic math skills that are needed.

                                  HANF

    Let me go back to your proposal for block granting for 
needy families. I have expressed my concerns. Clearly you 
recognize and we recognize that there has been some problems in 
the Section 8 program. Why should we convert it to a block 
grant program to the States? Would States be required to 
maintain the current Section 8 subsidy requirements in 801 of 
30 percent? Why would this be good for Section 8 residents? So 
maybe you can share some of your thoughts on this.
    Secretary Martinez. Mr. Chairman, I think that those are 
all good questions, and questions we should address as we go 
forward in implementing legislation for something like this.
    First of all, let me say that I find it troubling that what 
I think is basically a retail program should be managed from 
Washington. The fact that a fair market grant in a given 
community somewhere in America would have to have that fair 
market grant adjusted by an approval from Washington sometimes 
delays that process by 5 or 6 months, which is inevitably built 
into the bureaucracy of the Housing Authority and that of our 
own Department, and those things occur.
    In addition to that, I believe that dealing with over 2,600 
housing authorities on this particular program, versus dealing 
with 50 States, would ease the way we manage and the way we 
handle programs.
    In addition to that, I believe by giving the States the 
local flexibility in the utilization of the housing vouchers, 
that a full utilization of our vouchers would be achieved. I, 
like you, am terribly troubled by the recurring problem with 
recapture because unfortunately, we find year after year that 
that money, as you all pointed out, is not necessarily just 
spent on housing and it is----
    Senator Bond. Almost never. It gets raided. Everybody sees 
the pot of money and it goes to whatever happens to be hot at 
the time.
    Secretary Martinez. And so you know, I feel like, in any 
event, however we can fix that problem and put more money in 
the hands of the people who really need it, which is the intent 
of the Congress at the time that you appropriated it. So all of 
those reasons coming together, in addition to the fact, Mr. 
Chairman, that the intent of the welfare plan which the States 
are administering, would be a nice conduit for this program to 
also fit with.
    The population of folks that the States are dealing with on 
the welfare roles or in their medical needs also have housing 
needs, and now we would put all of that together. It has had a 
good reception from a number of governors. I think that wound 
ensure that the money would be preserved for housing, that it 
would be preserved in the program, much like we now have it. I 
think all the safeguards that we would want in terms of 
eligibility or whatever else, I think would be built into the 
authorizing framework to make it a successful program.
    But you know, I know from your experience as a former 
governor and your strong knowledge of the program, that I would 
really look forward to a dialogue on this on the shortcomings 
of this proposal, and perhaps I could persuade you on helping 
us to make it better rather than just legislating that it does 
not work.

                               SECTION 8

    Senator Bond. Clearly, we have to do some things about 
Section 8. We included, as I said, a change in the approach. 
The House had one view, we had a different view. I think what 
we came up with should be workable, we want to work with you to 
find out whether it is, because there is certainly enough 
problems in the area, and we have to see how this new fund 
works.
    And I would like your comments on the approach we took for 
fiscal year 2003 and what steps HUD has taken to assure that 
HUD has adequate and reliable information to the numbers of 
vouchers as well as the number of additional vouchers that are 
likely to be used to obtain housing. We found this information 
in the past has not been reliable.
    Secretary Martinez. Mr. Chairman, I appreciate the new 
approach that has been taken. I think it is a step in the right 
direction and should help us to a fuller utilization of the 
Section 8 vouchers.
    What I would like to do with the Chair's permission is to 
liberally rely on my Assistant Secretaries when you have 
specific questions, and I ask Assistant Secretary Liu to step 
up and perhaps address some of those.
    Senator Bond. All right. Mr. Liu.

                        STATEMENT OF MICHAEL LIU

    Mr. Liu. Good morning, Mr. Chairman. First of all, we 
welcome the fiscal year 2003 reforms as passed by Congress for 
the Section 8 program, and we think it is a step in the right 
direction for budgetary reform. As the Secretary has mentioned 
and I think as you have alluded to, there are still things that 
can be done so the program can make things work.
    Specifically as to what we are doing as to implement the 
fiscal year 2003 proposals, I can assure you that when we first 
heard of the possibility, we started working to improve our 
reporting requirements because right now we have been faced 
with situation where under the best of circumstances they are a 
year, sometimes a year and a half old, which has compounded our 
problems. We are working toward refining existing systems, so 
we are not talking any new systems, but working with the 
existing systems to gather information on Section 8, to 
streamline the release of information and usage on a much more 
current realtime basis, and we are moving forward on that.
    Senator Bond. I look forward to working with you on that.
    I do have to go for the vote but let me raise one more 
thing, and that would be in GAO's report, the GAO asserts that 
errors in determining the amount of rental income from the 
Section 8 program has resulted in estimated excess of some $2 
billion, or 11 percent of the funding in fiscal year 2001. $2 
billion would be enough to pay for a new affordable housing 
production program. If that figure is accurate, the loss means 
that we really are missing some opportunities to utilize it. 
What are you doing to reduce that error rate, that overpayment?
    Secretary Martinez. Mr. Chairman, we have focused on this 
issue, and I would ask Assistant Secretary Liu to address the 
specifics.
    Mr. Liu. We have aggressively worked to not only have 
legislation introduced to get new hires that we need, and 
hopefully that will pass. But not waiting simply for the 
legislation we have aggressively been trying to get agreements 
signed with States around the country to keep better track of 
wage and hiring information, which is key to our being able to 
keep track of the truth in terms of what is being required.
    Senator Bond. Has the IRS given you any help in that?
    Mr. Liu. We have talked to the IRS.
    Senator Bond. The Committee will stand in recess until 
Senator Mikulski returns, and I will be back shortly 
thereafter.

                                HOPE VI

    Senator Mikulski [presiding]. The Subcommittee will 
reconvene with the concurrence of Senator Bond, and I have a 
bipartisan responsibility I must attend to as close to 11:00 as 
I can.
    As you can see, we have many commitments, Mr. Secretary, 
and we know you do as well. Senator Bond is voting and in the 
interest of your time and ours, I am just going to proceed.
    I am going to start off my questions with HOPE VI, and we 
have had many private conversations on the topic. And second, I 
also want to thank you and your staff for supporting the study 
which resulted in a report on lessons learned on HOPE VI. They 
have completed study one, which I think raises some very 
significant issues related to the program, but also contains 
some suggestions, which I think will maximize this very great 
opportunity that I know you and I are committed to.
    Second, there has been always the issues of relocation, 
where do they go, what happens to them?
    And number three, is the focus now on buildings only, or 
also on the human development services. And remember, the goal 
is public housing, not a way of life but a way to a better 
life, and I think we should focus on that.
    Now, could you tell us what you are thinking about in terms 
of HOPE VI, where do you want it to go once it is zeroed out? 
We are very concerned. This is $600 million that we could use.
    Secretary Martinez. Senator, I think the reason we are in 
this situation is that because of whatever issues did arise 
within the administration, that the process of developing an 
alternative did not keep pace with the budgetary cycle which 
required us to not fund it.
    Let us say that our concern on HOPE VI is that we are 
studying this and we are looking to have many resources come 
together, people in the academic community who have looked at 
HOPE VI, in addition to practitioners in the development 
projects, mayors who have tried to revitalize urban areas, and 
pull together the best of all of that thinking as to how we 
should reauthorize a HOPE VI, or whatever we arrive at. We 
think that the mission of HOPE VI is not over.
    I think what has occurred is that we had a 10-year program 
with a substantial amount of money. With this chart I would 
like to go through where they are in terms of the opportunity 
and the spend-out, and again, it is not to be critical but only 
to point out to you that we do have a moment here to take a 
breath as we go forward into the future.
    But as you see, in Chicago, there are people there that are 
doing a terrific job in revitalizing parts of that city, but 
you can see that there is still the signs where the spend-out 
is not----
    Senator Mikulski. Mr. Secretary, my bifocals are not 
working.
    Secretary Martinez. Let me give you a little help, if I 
might, just to be casual if I may.
    Basically we are looking at Chicago for instance; they have 
been awarded this much, they have only spent this little bit 
here so they still have a number of projects, they are going to 
be deferred to later.
    Senator Mikulski. Let us go to St. Louis and Baltimore.
    Secretary Martinez. Baltimore actually has spent well over 
50 percent of what they have been granted, so that is the good 
news, and St. Louis has a little bit less.
    Senator Mikulski. So Mr. Secretary, we have spent a 
billion?
    Secretary Martinez. Baltimore has been the best relative to 
what was awarded.
    Senator Mikulski. Let us look ahead to October 1, 2003, for 
the fiscal year. Where will we be with this? You indicated that 
there is money funded that local communities still will be 
completing their project on that is the completion owe money I 
got to complete it, so it is not like when it comes to October 
1, it stops.
    Secretary Martinez. All of these projects, we will still 
bring them to completion.
    Senator Mikulski. And then they----
    Secretary Martinez. At that point HUD would have to go 
through one more round of communities out there who today would 
be anticipating the possibility of doing a HOPE VI or trying to 
put a deal together or maybe some that were in the running this 
year but did not quite get to allocation, so next year there 
would be one more cycle of HOPE VI grants that we could issue, 
all of whom I hope is, and our challenge is to work with the 
communities who are doing a good job but who still have 
problems.
    Senator Mikulski. Let us move on, because I do have to go. 
Here is what I am going to say. First of all as I understand 
HOPE VI, we spent a total, since the program was created a 
decade ago, over a billion dollars, and the results show there 
are successes here as well as lessons learned. I do not want to 
give up on the HOPE VI framework. I think what you have just 
said is you are asking for the opportunity to pull together a 
group of people who know the most about HOPE VI, which is the 
advocates who have had criticism, academics like the Urban 
Institute who have done studies on it, and the mayors who have 
to run it. And I think what you are asking for as we have this 
small window, is the opportunity to pull together a task force 
that could bring forth either a HOPE VI reform package or a new 
building on lessons learned, a new framework for legislation.
    Secretary Martinez. I would love to pull that kind of thing 
together. I would also seek the authority to also commit a 
funding package to go with it.
    Senator Mikulski. I understand that and also that there is 
the authorization issue as well.
    Secretary Martinez. Correct. Something has to happen this 
year in any event.
    Senator Mikulski. I would like to talk about a timetable. 
First of all, we asked HUD for a report that was due in June 
2003 on the status of severely distressed units, we want to 
know what is left out there and the need.
    There is a second need that is not related directly to HOPE 
VI but it is also important, and that is the backlog on public 
housing capital repair. That is both regular public housing--
but I understand there is a huge backlog. I also do not know if 
it includes the housing for the elderly. Remember when I said 
that most of this housing was built in the 1970's and 1980's.
    Secretary Martinez. The 202's would not be included.
    Senator Mikulski. So that is a whole other issue there.
    Secretary Martinez. Right.
    Senator Mikulski. So really this is the program that was 
initiated by President Ford, it gained momentum under President 
Carter, it was one of the really signatures of the Reagan 
Administration, so this is really a bipartisan effort among the 
seniors.
    I do not know that we want this to go to a commission, that 
requires presidential appointments and executive directors, et 
cetera, but I am going to ask you internally that you pull 
together a task force among the categories of stakeholders that 
you have just enumerated, and we will work with you on this to 
say where do we go next. And then bring this to the authorizers 
and we appropriators to see if we can do something this year so 
when the money in the pipeline runs out, we have a new 
framework. I really do not believe that President Bush, who I 
believe is a real conservative, wants to in fiscal year 2004, a 
presidential election year, have a program that just sputters 
out.
    So much has been done on a truly bipartisan basis, let us 
now look at the new framework based on needs both of residents 
and the distressed housing, and also on the lessons learned and 
where we might need to be placing emphasis on human capital. So 
I really extend my hand to you in partnership to work on this. 
The only outcome I am interested in is to keep the framework, 
physical architecture that develops human capital, and people 
have a way of moving to a better life, just like welfare to 
work.
    Secretary Martinez. Alright.

                  PUBLIC HOUSING--ELDERLY/MINIMUM RENT

    Senator Mikulski. I am very concerned about the issues 
related to the elderly housing and we would welcome your ideas 
on what we are doing and can do about housing for the elderly 
as well as in public housing.
    Another issue with which I am concerned is public housing 
minimum rent. As I understand it, there are many residents that 
are going to be affected by this change. Could you tell me why 
HUD should determine minimum rents and not the local public 
housing authorities?
    Secretary Martinez. Senator, for a long time, housing 
authorities have, for the most part, determined a minimum rent, 
and in fact today out of the 4 million families that are 
currently receiving Federal assistance, only 250,000 will be 
affected by this new minimum rent proposal, which is only about 
8 percent of the families that are currently served by public 
housing.
    So the idea is that, at a time when it is felt that a 
minimum rent of $50 would be something that all families who 
reside in public housing should be contributing, that it is 
appropriate to set out a place where all should go. What occurs 
often times is that if there is not some clarity on this, that 
on the one hand maybe minimum rents will go beyond $50, which 
is not appropriate in many cases, or that folks who next door 
may be making their $50 contribution have a neighbor who is 
equally able to make it or even better off and yet does not 
make it.
    So our goal is to try to insure that there is some equity 
in this. Most housing authorities have a minimum rent fee today 
of $25 to $50. Over 50 percent of housing authorities have a 
$50 minimum rent, and so we believe that this is trying to 
create a little equity in public housing.
    And also, this is teaching a certain responsibility because 
as you have said, it is not a way of life and there is no such 
thing as free rent. So if people have a sense of obligation to 
pay in some amount of their money for rent, it can begin to 
lead them to a path of self sufficiency and out of the public 
housing morass and into a life of their own.
    Senator Mikulski. As you know, there are advocates who are 
very troubled by this. And local public housing authorities are 
troubled. I know Mr. Grazziano and the Baltimore folks are also 
troubled by this, and I would ask, number one, that you take a 
look at this decision and number two, consult with the local 
public housing authorities and see what they think about it.
    And the thing we do not want to do with any of these 
policies is penalize the poor. I understand the need for 
responsibility, we encourage responsibility, but where there is 
some unexpected hardships like illness, they may not be able to 
pay.
    Secretary Martinez. Let me also say, I did not point this 
out, Senator, but the elderly and the disabled, of course, are 
exempt from the $50 rent, so it is only for the rest of the 
population.

                                 FRAUD

    Senator Mikulski. Let us go now to issues of fraud. I would 
like to bring up the issue that I talked about earlier.
    Secretary Martinez. Could I ask the Inspector General to 
join me?
    Senator Mikulski. Yes.
    First of all, I do find it commendable what you have been 
doing. We have had prosecutions, we have had indictments, and 
even jail sentences as well as FHA reform.
    I am not going to name the company but we will share it 
with you privately, but it is a Utah based loan server. And 
what they do is they send false letters to home buyers telling 
them they were delinquent on their loans, that they were going 
to be foreclosed on their loans, and to send them money, when 
there was nothing wrong with the loan. People panicked and of 
course as you know, people will do anything not to lose their 
home.
    What the TV station has identified, because people went to 
TV and the community law center, this company provides customer 
services but again, they are not the lender. The Community Law 
Center in Baltimore has received 90 complaints from the one 
same company. We do not know if any of these loans have FHA 
insurance on them. We do know that it is an approved FHA 
partner.
    And so my questions would be number one, to ask both the 
Department and the FHA to look into this and Mr. Donohue, for 
you to look into this particular company to stop this, to 
identify what they are doing and to stop it, and to see if this 
is even going on in other parts of the country, because I do 
not believe they are a national company. And then we need to 
know if someone has been a victim, where should they go to get 
help. Do you want to comment, any of you, on this?
    Secretary Martinez. I have also Housing Commissioner 
Weicher.
    Senator Mikulski. It just seems with flipping when we close 
3 loopholes and the scammers and the scummers find 5 more. That 
is what a predator is.

                      STATEMENT OF KENNETH DONOHUE

    Mr. Donohue. Senator, we became aware of some of these 
tactics in the midwest United States, and we have also seen, 
just to add to, we have seen additional types of activities of 
this sort. Such as global operations used to identify and 
target mortgages facing foreclosure, soliciting financing that 
involves high fee structures and charges that add to the cost 
of the loan and the price of the mortgage. We have found 
entities that pray upon mortgages that----
    Senator Mikulski. Can you just tell me what we are going to 
do on it?
    Mr. Donohue. We are aware of it, we are opening an 
investigation with regard to this matter, specifically to the 
matter at hand in Maryland.
    Senator Mikulski. To the general issue or to this company 
as well?
    Mr. Donohue. We are looking at the general issue and we are 
going to take a specific look at the matter that you have 
raised.
    Senator Mikulski. Thank you very much. And I want to here 
more of your testimony, but I do have this obligation with 
Senator Frist. And I want to thank you for listening. Did you 
want to add something, Mr. Weicher?

                      STATEMENT OF JOHN C. WEICHER

    Mr. Weicher. Senator, simply that if these are FHA loans, 
and you indicated that that has not been established, if they 
are FHA loans, we do have the ability to intervene. We have 
loss mitigation requirements in the event borrowers are in fact 
delinquent. And we certainly have the ability to prevent 
foreclosures when borrowers are not delinquent.
    Senator Mikulski. And I do not know if they are 
foreclosing. I just think they are sending scare letters. They 
are not a lender, they are providing so-called customer 
services, but they send scare letters and accept payments when 
there is no payment to be accepted. These are when loans are 
current, when loans are current.
    Mr. Weicher. If that is happening, I am not a lawyer, but 
to me that sounds like fraud and we would be certainly 
interested in sanctioning that entity insofar as it has FHA 
approval, and we would be certainly working with the IG.
    Senator Mikulski. What I would like to suggest is that at 
the conclusion of this hearing, my staff present to you what we 
currently know about this, and second, I would ask that you 
contact the Community Law Center in Baltimore, they are 
energetic lawyers who have gotten 90 complaints from people. So 
they have kind of a documentation staff there, and someone 
could then see that.
    If someone has received one of those, what should they do 
and where should they go? Or do you want to think about that 
and tell us?
    Mr. Donohue. If I may. I would think that if it is a matter 
with regard to a violation of Federal law, I think they should 
contact us, or speak to the appropriate HUD Field Office--we 
work very closely in Baltimore with the FBI and U.S. attorney's 
office, any means to get that information to us or contact 
directly is fine.
    Senator Mikulski. Well, what I would like you to understand 
is the specific method, and I would like you to really think 
about this, because we do need a method for them to either come 
to the Community Law Center or they come to you. So please 
think about it, so we can let these 90 people know, but I have 
a feeling that there are others out there.
    Mr. Chairman, thank you. I hope we pursue this. And then 
second, where we are on all of these aspects related to 
predatory lending. And if they know we are on it, then it tends 
to have a chilling effect. So thank you very much.
    Secretary Martinez. You are very welcome.

                     PUBLIC HOUSING OPERATING FUND

    Senator Bond. Thank you very much, Senator Mikulski. I 
think that your questions covered a number of the questions I 
had, so I am going to try to move on, and Mr. Secretary, I 
would also like to discuss with you in private what internal 
steps you have taken to ensure that the public housing 
operating fund over-expenditure does not happen again. We will 
talk about that in a one-on-one conversation.

                       FAITH-BASED ORGANIZATIONS

    With respect to faith-based organizations, I understand HUD 
is revising a number of the regulations to make it easier for 
faith-based organizations to participate in HUD programs, 
including enhanced eligibility for grants. I strongly support 
the role of churches and other faith-based organizations in 
making our communities strong and safe, but there have been a 
number of news reports that infer that HUD is trying to divide 
churches and faith-based organizations with expanded access to 
Federal funds including grants to build churches where a church 
is involved with community issues.
    What programs are involved, and is their truth about this 
providing grants for church construction, and how would you 
deal with this constitutional potential problem here?
    Secretary Martinez. Mr. Chairman, we have embraced the 
President's call to level the playing field for faith-based 
organizations to insure the full participation of the faith 
community in a lot of our programs and to insure that the 
regulations and other rulings of the game are fair, even, no 
matter what the program may be. We are in the process of 
finalizing some regulations which we hope will not have the 
conclusions that I think some of those news reports have 
reached.
    We believe that if there is a building related to a church 
but not the church itself, which may be involved in a social 
service of some sort, that perhaps some funding for 
accommodating that work could be done, but we are going to try 
to be very clear that we stay away from any direct funding of 
church buildings, things of that nature. Houses of worship are 
different from places where social services may be rendered.
    So we are looking very carefully at these regulations, they 
are not final. As we go forward, I think the caution that you 
have raised certainly needs to be kept in mind.
    Senator Bond. I think it is important to steer that path 
very carefully, and I certainly endorse wholeheartedly the 
President's initiative.

         PUBLIC HOUSING REINVESTMENT LOAN GUARANTEE INITIATIVE

    Your budget request for new public housing loan guarantee 
program and $131 million in credit subsidy, according to the 
budget representation, this program will leverage some $2 
billion in loans and accelerate capital improvements. That 
sounds like a fairly complex program for most PHAs.
    How quickly do you think you could get it up and running, 
what do you think the cost of the actual per unit basis will 
be, and how will it compare with HOPE VI, what kind of tax 
credits are expected to be part of any financing? Mr. Liu?
    Mr. Liu. Mr. Chairman, we certainly are excited about the 
public housing reinvestment loan guarantee initiative. We 
appreciate the concept of loan guarantees which was proposed by 
the chairman last year, because we think that credit 
enhancement has to be a key component for this concept of 
utilizing private sector debt financing to work.
    We are building this program on the experience over the 
past 4 or 5 years where similar deals without credit 
enhancement have gone forward. Over the past 4 or 5 years and 
really mainly in the past 2 years, we have raised over $500 
million through the debt markets, over 80 transactions of 
various sources, where capital fund grants have been used as 
either equity and/or as leveraged capital for bond deals, 
loans, and other situations.
    We have done some analysis of cities where this tool might 
be used, and per unit costs ranged from $17,000 to $55,000. 
This is really in line with what we are doing now in 
rehabilitation and modernization use of the capital fund at 
this point in time. So we think that the program can be up and 
running fairly quickly. In fact, we have proposals already at 
the door from public housing authorities that are interested in 
being first in line should the concept move forward.

                                  FHA

    Senator Bond. All right, thank you. Let me turn now to an 
FHA question. According to the GAO 2003 high risk report on 
HUD, the FHA single family mortgage insurance program remains a 
high risk area because of continued weakness in the insurance 
process, evidence of fraud, and a variety of challenges that 
HUD faces in implementing correcting action. What steps are 
being taken by HUD to address these concerns?
    Secretary Martinez. The FHA Commissioner, Mr. Weicher, is 
going to address that, Mr. Chairman.
    Mr. Weicher. Yes, Mr. Chairman. We have taken a number of 
actions to address the problems of fraud and lender 
incompetence in our programs. Senator Mikulski alluded to our 
flipping rule. We have a series of rules in process, literally 
a dozen rules to address fraudulent or deceptive practices in 
FHA loans.
    We established a program called Credit Watch where we track 
the loan performance of individual lenders to see how their 
loans are performing the first couple of years after 
origination, compared to other lenders in the market area. We 
know that if they are bad loans, the problems arise the first 
couple of years.
    We originally set a threshold of 3 times the default rate 
for the market area as being grounds for sanction. We are in 
the process of lowering that quarter by quarter from 3 to 2\3/
4\, 2\1/2\, and by next fall, next October, it will be double. 
We are chasing out, removing their ability to do business with 
us, those lenders who show early default rates in excess of 
their market by a substantial amount unless they can provide 
some evidence that there is a reason for that.
    We are in the process of extending that to appraisers, 
because you cannot really have a predatory loan without a bad 
appraisal, or corrupt appraisal. We have issued advance notice 
of proposed rule making on that program, we received comments, 
and we are in the process of developing a rule to put that into 
place.
    We are moving on these and it shows up in the overall 
performance of the FHA funds as you alluded to in your opening 
remarks. We are having fewer claims, fewer losses, and that is 
one significant reason why our reserves are increasing.
    Senator Bond. Okay. Let me ask you on your risk management, 
you launched a demo in 2002 known as the 2001 Accelerated Claim 
Disposition Program to reduce foreclosure losses. On October 31 
last year, you awarded Salomon Brothers Realty a 70 percent 
equity interest in a joint venture to dispose of 5,100 
nonperforming loans. HUD said this would help restructure the 
mortgage notes to improve performance. What is the status of 
that particular program?
    Mr. Weicher. This is the Section 601 demonstration 
authorized by Congress in, I believe, the 2000 Appropriations 
Act. We have, as you described, conducted that auction and made 
that transaction with Salomon Brothers, and we are in the 
process of providing loans to--and these are loans which have 
gone into default but which we have not had to foreclose and 
take title.
    We pay a claim on the loan to Salomon Brothers. Salomon 
Brothers in turn takes the responsibility for management of the 
loan. There are a couple of purposes to this. One is that it is 
more cost effective for us to sell the notes than to proceed to 
foreclosing, taking title and funding the property ourselves. 
The other is the private sector has more ways of avoiding a 
foreclosure than we do, the private sector can take it down on 
a partial basis and write down in ways that we cannot.
    In conversations we have had with Salomon Brothers, they 
have indicated that over 70 percent of the families in these 
homes want to work with them on work-out programs. If they are 
able to make that work, then many of those families will remain 
in their homes, and they could not have remained in their homes 
if they had gone to claim with us, gone to foreclosure with us, 
and I think that is going to strengthen the communities, as 
Senator Mikulski stressed in her opening remarks, by keeping 
stability, keeping people in their homes.

                        ASSET CONTROL AREA DEMO

    Senator Bond. Thank you. In last year's appropriations 
bill, we directed HUD to enter into contracts and agreements 
under the Asset Control Area demonstration program to design 
and promote home ownership. What is the current status of that?
    Mr. Weicher. We did, in fact, issue new procedures for the 
program on September 15 of last year. We actually issued two 
sets of procedures, one, the program as prescribed specifically 
by statute, and a second based on our experiences in the 
program under our pilot authority. We put together a program 
which seemed to us likely to work significantly better. We 
received a number of comments on the programs and a number of 
expressions of interest from individual communities.
    We have received applications under the pilot program from 
Baltimore, Camden, Cleveland and Hartford. We have received 
expressions of interest and have had conversations with 
Rochester, Chicago and Los Angeles. All of those except 
Baltimore and Camden participated in the earlier program. We 
have revised our proposed procedures in light of conversations 
we had with many of these groups and we sent out letters saying 
we are ready to accept your application, we sent those out in 
late February and we expect that program will be fully 
operational soon.
    Senator Bond. Why did it take so long?
    Mr. Weicher. We met the September 15 deadline. We then 
received comments from local organizations on a wide variety of 
issues, issues they wanted to have addressed, and we have been 
working to address those issues so we have a consistent program 
that would work.
    Secretary Martinez. One thing I would point out is that 
some of these programs that we have inherited, while well 
intended, sometimes do not have the built-in tools for us to 
properly monitor them like you would want us to do. So I think 
we wisely stopped the program when we felt that it just could 
not be managed in a way that would ensure good oversight and 
then restart them. I understand we may have taken a little 
longer than we should have in restarting it, but we put it back 
on track and allowed the communities to participate in them.
    But the program we had which was littered with fraud and 
problems, since we have reinitiated it after stopping it for 
only 90 days, I think is really being successful and is, in 
fact, fulfilling the promise of what it was intended to do, and 
we look forward to the same with this particular program.

                  INTERAGENCY COUNCIL ON HOMELESSNESS

    Senator Bond. Mr. Secretary, you soon will be coming to the 
end of your term as Chairman of the Interagency Council on 
Homelessness. Our thanks for working with this Committee on 
resuscitating the Council, and hopefully you will continue to 
play a strong role.
    Can you tell us what you think the Council accomplished 
during your chairmanship, and I would just ask you to address 
the efforts of the council, whether agencies such as VA and HHS 
have come forward with adequate resources.
    Secretary Martinez. Clearly the revitalization of the 
Council on Homelessness by this administration, I think is one 
very important step and milestone in the fight to end 
homelessness in America. We have taken the approach of 
attacking the chronic population as a way of attacking 
homelessness in general.
    By dealing with the chronic population, the interagency 
council's focus on the chronic population, a program designed 
to deal with that population, and encouraging others to jump on 
that band wagon, has been one of the real successes of the 
program. We have cities now like Chicago who are embracing the 
concept of ending homelessness, ending chronic homelessness as 
a step to ending homelessness.
    The Council was able to pull together the resources and the 
interests of HHS and VA, along with HUD, to do the Samaritan 
Grant program. We think this is an innovative approach which is 
going to allow us to deal with that chronic population in a way 
that allows them to be helped not just with shelter, but also 
with medical needs and the VA with all the programs that they 
do. The Samaritan program has a contribution of $10 million and 
$10 million from each of those two other departments, with HUD 
contributing $50 million from our budget.
    We want a greater and fuller partnership because we do know 
that the chronic population oftentimes lacks medical care, has 
addiction problems and things of that nature.
    Senator Bond. I have seen the figures on the addiction 
problem, and I would call Mr. Mangano forward to give us a 
brief update, if you would please. Welcome.

                      STATEMENT OF PHILIP MANGANO

    Mr. Mangano. The first thing I would like to say, Mr. 
Chairperson, is that it is really the personal and professional 
commitment and support of Secretary Martinez that has eased the 
revitalization of this council in this inaugural year of its 
existence, and I would say personally it has eased my own 
Baptism into the Federal Government. So I am very thankful to 
both Secretary Martinez and to his staff and even as I look at 
his staff here, every one of them has made a contribution to 
the well being of the council over the last year.
    In the council, as Secretary Martinez indicated, we have 
developed some themes, and one of the key themes we have 
developed is prevention of homelessness. That has been 
something that has been absent from Federal policy around 
homelessness in the past. So what have we really engaged in for 
the last 20 years? We have moved people out of homelessness, 
but more people have fallen in, and that has been the 
continuous saga. So a lot of the attention of this 
administration is on prevention and especially on, as Secretary 
Martinez indicated, the President's initiative and the 
Secretary's initiative to end chronic homelessness.
    We know that the research indicates that 10 percent of the 
population consumes over 50 percent of the resources, and our 
hope is that by focusing on that population and ending that 
population's homelessness, there will be additional resources 
to address the homelessness of other populations of homeless 
people as well.
    We are also looking to increase the access to mainstream 
resources on behalf of homeless people. A GAO report in 1999 
indicated that the resources that are targeted for homeless 
people in the Federal budget are really insufficient, but that 
there are hundreds of billions of dollars of resources 
available in the mainstream programs. So we have been working, 
again, with HUD and HHS and VA and Labor and SSA, to ensure 
that better access is available to mainstream programs for 
homeless people.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Bond. Thank you. We appreciate your good work on 
it.
    Mr. Secretary, anything you want to add? I have a few more 
questions but I am going to submit them for the record.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
           Questions Submitted by Senator Christopher S. Bond
                 housing assistance for needy families
    Question. Under the proposed funding formula and out-year 
estimates, how many vouchers would each State be able to fund under 
this formula? How does this compare to current year voucher use? How 
does this compare to the number of voucher contracts currently 
authorized for PHAs in each State assuming that tenants have no income?
    Answer. Under HUD's proposal, the State would receive funding 
sufficient to at least cover all vouchers currently under lease through 
PHAs within the State. HUD believes that even more families will be 
assisted due to the ease with which States can utilize the funding. 
Full utilization will also help justify increases in funding.
    HUD expects that lease-up and utilization of funds will increase as 
a result of the HANF reforms.
    Under HUD's proposal any family currently receiving voucher rental 
assistance would continue to receive such assistance through 2009. HUD 
also anticipates States being able to serve even more families, both 
through efficiencies and additional funding.
    Question. The administration is proposing to restructure the 
various Section 8 programs by creating a new Section 8 tenant-based 
voucher program that will be called the Housing Assistance for Needy 
Families program or HANF. HANF would be funded at some $12.5 billion in 
fiscal year 2004 and would transition to a block grant program to the 
States in fiscal year 2005.
    HANF does not appear to be the best possible replacement for the 
existing voucher program. I have concerns that the funding levels may 
be inadequate to meet future voucher use and will burden States at a 
time when States are already facing significant budget shortfalls. 
Also, while we have not seen the proposed legislation, after the 
requirement that States maintain the rental subsidy for existing 
voucher holders, this program looks a lot like the HOME program.
    Why should Congress convert the Section 8 program to a block grant 
program for States? What is the advantage for States? Why would this be 
good for Section 8 residents? What is HUD's responsibility under this 
proposed program? When will the legislation be submitted?
    Answer. HUD and Congress share concerns that this key program is 
not functioning efficiently to the detriment of both needy families and 
the taxpayer. The tenant-based assistance program now provides rental 
and homeownership assistance to more than 1.8 million families. Despite 
this success, during the past several years, billions of dollars of 
funds appropriated for tenant-based assistance have remained unspent, 
and as a result several hundred thousand families have not been 
provided housing assistance made available by Congress.
    The advantages to providing tenant-based housing assistance through 
a State-administered block grant are:
  --increasing program flexibility so that funds are used promptly and 
        effectively to assist needy families;
  --facilitating greater program responsiveness to local markets and 
        needs by delegating decision-making, such as setting rents, 
        closer to the communities and families affected, by their 
        elected officials;
  --allowing flexibility at the State level for reallocation of funds 
        or other actions that may be necessary so that program funds 
        are expended promptly; and
  --improving government support of self-sufficiency efforts by 
        assisted families, by facilitating greater coordination with 
        the TANF program and other State programs.
    States would have control of the funding to directly address the 
housing needs of their low-income citizens. States would have the 
flexibility to ensure that the funds work effectively in their local 
housing markets. States would have the ability to reallocate the funds 
or take other actions that may be necessary so that program funds are 
expended promptly and meet the needs of low-income families in an 
efficient manner. States will also be able to better coordinate housing 
assistance with other State-run assistance programs to more effectively 
target resources and achieve self-sufficiency for those in need.
    The program would be more flexible and would work more effectively 
in local housing markets in increasing housing opportunities for low-
income families. Program rules would be greatly simplified, increasing 
landlord participation in the program. The program would be able to 
react much more quickly to fluctuations in local rental markets to 
ensure the subsidy is sufficient to allow families to find housing with 
the tenant-based assistance. Economic self-sufficiency and 
homeownership efforts by assisted families would receive greater 
support through better coordination with other State programs. Under 
the HANF program the Secretary will establish performance standards for 
States, including the improved living conditions for elderly and 
disabled families; the effectiveness of voucher assistance in helping 
families move toward homeownership and self-sufficiency; and the extent 
to which State or local governments remove barriers to affordable 
housing.
    HUD is responsible for establishing performance standards for 
States that include funds utilization, financial management, number of 
families served, quality of housing, reduction of homelessness, 
improved living conditions for elderly and disabled families, the 
effectiveness of voucher assistance in helping families move toward 
homeownership and economic self-sufficiency, and the extent to which 
State or local governments remove barriers to affordable housing. HUD, 
also, is responsible for ensuring that States are administering the 
program in accordance with Federal law and program regulations and will 
review the State's performance report. Further, HUD will make such 
reviews and audits that are necessary to determine whether the State is 
carrying out the housing assistance activities and objectives in a 
timely and effective manner, and whether it has met any performance 
standards established by HUD for the program.
    The legislation was introduced in the Senate on April 29, 2003.
    Question. Will States be required to maintain the current Section 8 
subsidy requirement that families pay no more than 30 percent of 
adjusted income?
    Answer. The legislation proposes to greatly simplify the current 
income and rent calculations by eliminating the dozens of statutory and 
regulatory exemptions and deductions. HANF proposes that a family will 
not be required to pay more than 30 percent of gross income. They may 
elect to pay more, if they so choose.
                       section 8 certificate fund
    Question. As you know, the VA-HUD Fiscal Year 2003 Appropriations 
bill created a new funding structure for Section 8 vouchers where PHAs 
receive funding for all vouchers that are currently in use and for any 
vouchers that can be used up to a PHA's authorized level through a 
reserve fund maintained by HUD. This funding approach should result in 
a more realistic assessment of Section 8 funding needs and reduce the 
need to go though the annual ritual of rescinding large amounts of 
unused, ``excess'' Section 8 assistance.
    I would like your comments on this approach to funding Section 8 
vouchers. Also, what steps is HUD taking to ensure that HUD has 
adequate and reliable information on the number of vouchers in use as 
well the number of additional vouchers that are likely to be used to 
obtain rental housing?
    Answer. The funding methodology for vouchers introduced in the VA-
HUD Fiscal Year 2003 Appropriations bill provides an improved method of 
providing public housing authorities PHAs with the appropriate level of 
funding required to manage the voucher program and meet current and 
future leasing requirements. The methodology also provides the 
Department current leasing and cost data to be used as a management 
tool necessary for efficient and effective program management in the 
following ways:
  --significantly reduced program recaptures;
  --realistic budget estimates provided to the Congress;
  --improved funds control by the Department;
  --timely identification of PHAs with poor utilization, to better 
        target technical assistance resources; and
  --early identification of the cost impact related to program policies 
        for use in shaping future program policy decisions.
    The Department has developed a data collection tool for PHAs to 
report monthly cost and lease-up levels. The data will be collected via 
internet transmission from PHAs and used by the Department to determine 
PHA renewal funding levels, administrative fees, and additional 
requirements from the Central Reserve. The first submission from PHAs 
requests actual data for the prior 6 months. Thereafter, the PHA is 
required to report to HUD quarterly. Renewal funding will be based on 
more current lease-up and costs identified by the PHA to ensure that 
the appropriate level of funding is provided to the PHA.
    Prior to using the data to determine funding levels, the data will 
be reviewed using a series of quality control edits for accuracy and 
reasonableness. PHAs that do not comply with the data collection effort 
will have funding provided based on prior year leasing and costs. As 
per the law, failure to report on the administrative fee reserve 
balance will also prevent the PHA from receiving an administrative fee.
    The data collection effort has been reviewed and approved by OMB as 
meeting the requirements of the Paperwork Reduction Act. To date, the 
following has occurred:
  --PHAs have received advance notification of the new requirements.
  --A PHA Focus Group was convened to test the data collection effort.
  --Based on the comments of the Focus Group, FAQs have been developed 
        to assist PHAs with reporting.
  --A help desk has been established to assist PHAs.
  --The website will be launched into production the week of March 24, 
        with the results used to determine funds required for contracts 
        expiring April 30, 2003.
  --PHA industry groups have been consulted.
    This data collection effort is the first step taken by the 
Department to ensure that the requirements of the Act are met. The 
Department will continue to work toward full automation in the coming 
year.
    Question. As you know, my staff recommended that HUD update all 
Section 8 information as early as last October 2002. Identify all 
requests to PHAs for Section 8 utilization information in the last 7 
months. (In the past much of this information has been unreliable.)
    Answer. PHAs traditionally provide data on utilization to HUD with 
their year-end statements. PHA fiscal year ends cover the four calendar 
quarters. Therefore, HUD receives year-end information each quarter for 
a subset of PHAs.
    The data collection tool described in the previous question 
requires that all PHAs provide data to HUD each quarter. This provides 
HUD with the updated information on utilization for the entire PHA 
inventory. The first data requested from PHAs was in March 2003, 
covering the period of July 2002 through January 2003. Going back to a 
6-month period provides HUD with some historical information that can 
be used in trend analysis. The next update will be requested in May 
2003, covering the period of February through April 2003. As you can 
see from the timeline, HUD's database of PHA information will be 
approximately 45 days behind, a major improvement over data 
approximately 12-15 months old.
    HUD will continue on a cycle of quarterly requests for updates 
until the final automated system is complete that will require monthly 
updates from PHAs.
                 section 8 rental subsidy overpayments
    Question. According to GAO's most recent evaluation of HUD's Major 
Performance and Accountability Challenges, errors in determining the 
amount of rental assistance under HUD's Section 8 program has resulted 
in estimated excess rental payments of some $2 billion or 11 percent of 
the funding for the program in fiscal year 2001. Two billion dollars 
are enough to pay for a new affordable housing production program and 
is an unacceptable level of loss for this program. This has been a 
recurrent problem that has been repeatedly identified over then last 4 
years and longer. What is HUD doing to reduce this fraud and abuse and 
recover these losses? What has HUD done in the last 12 months? In the 
last 6 months? How much money has been saved?
    Answer. Under the President's Management Agenda, HUD has 
established a goal for reducing both the frequency of calculation/
processing errors and the amount of overpayments by 50 percent by the 
year 2005 with interim goals of 30 percent by 2004 and 15 percent by 
2003. These goals apply to all HUD's rental assistance programs, 
including Section 8 and public housing.
    The Department's comprehensive plan for reducing all types of 
errors and improper payments is carried out through the following 
Rental Housing Integrity Improvement Project (RHIIP) initiatives: (1) 
statutory and regulatory simplification, including the Housing 
Assistance for Needy Families (HANF) proposal which reduces complex 
income requirements to a simple formula (up to 30 percent gross 
income); (2) increased HUD monitoring of program processing by HUD 
intermediaries, using risk-based targeting indicators; (3) increased 
use of automated sources of tenant income data to address the problem 
of unreported tenant incomes well as a legislative proposal for access 
to the National Directory of New Hires Data Base (HR 1030); (4) new 
Fact Sheets, guidebooks, training and technical assistance for HUD 
staff and program intermediaries; (5) stronger performance incentives 
and sanctions; (6) increased IG investigation of serious tenant fraud 
cases; and (7) an ongoing quality control program.
    With respect to RHIIP initiatives for regulatory and statutory 
simplification, the HANF legislation proposes to greatly simplify the 
current income and rent calculations by eliminating the dozens of 
statutory and regulatory exemptions and deductions. HANF proposes that 
a family not be required to pay more than 30 percent of gross income. 
Under the proposed HANF program procedures will simplify and streamline 
the rent calculation process and greatly contribute to reducing the 
subsidy error. Also, with HANF, States will be motivated to use their 
own and new hires database to verify tenants' reported income.
    Those RHIIPs initiatives implemented during the last 12 months are: 
(2) increased HUD monitoring of program processing by HUD 
intermediaries, using risk-based targeting indicators; (4) new Fact 
Sheets, guidebooks, training and technical assistance for HUD staff and 
program intermediaries; and (7) an ongoing quality control program. 
Those initiatives implemented during the last 6 months are: (1) 
statutory and regulatory simplification, including the HANF proposal 
which reduces complex income requirements to a simple formula (up to 30 
percent gross income); (3) increased use of automated sources of tenant 
income data to address the problem of unreported tenant incomes well as 
a legislative proposal for access to the National Directory of New 
Hires Data Base (HR 1030); (5) stronger performance incentives and 
sanctions; and (6) increased IG investigation of serious tenant fraud 
cases.
    The Quality Control Program (7) is the Department's approach for 
measuring the extent to which the above-mentioned goals are met. The 
measurement of 15 percent error reduction will be reflected in the 
fiscal year 2003 Performance and Accountability Report.
                    public housing operating funding
    Question. As I previously stated, Mr. Liu, the Assistant Secretary 
for Public and Indian Housing, deserves a lot of credit for taking much 
needed corrective measures when senior HUD officials discovered that 
the Department has been inappropriately awarding PHAs with additional 
operating funds by raiding current year public housing operating funds 
for prior year obligations. The VA-HUD Fiscal Year 2003 Appropriations 
bill put a final stop to this activity while providing up to $250 
million in funding for one last time for existing prior year 
obligations owed to a few PHAs for fiscal year 2003.
    Nevertheless, how could this overspending happen and how could it 
happen without the awareness of the senior officials in the Department 
and OMB?
    Answer. There are four main reasons why HUD overspending happened:
  --HUD failed to develop a new accounting system to track the Interim 
        Formula and should not have implemented the Interim Rule prior 
        to doing so. Further, the legacy system had been neglected for 
        at least a year (2000-2001). So the lack of a system to track 
        the interim formula made it very difficult to manage the 
        program.
  --No system and poor quality data meant that setting accurate funding 
        levels, or proration levels, were set with old data, causing 
        the level to be inappropriately high, which is what caused the 
        shortfall.
  --Culture among PIH staff was such that setting accurate funding 
        levels was never imperative due to the common practice of using 
        next year's funding to make up for any shortfall. Such 
        decisions were apparently made without consulting senior 
        management.
  --Funding levels for each fiscal year had been established based on 
        data at least a year old. HUD has changed this practice and 
        will not commit to funding levels until all PHA budgets are 
        submitted, accepted, and analyzed with regard to current 
        appropriated amounts.
    No senior officials outside of PIH knew about or had any role in 
the over commitment of funds.
    Question. Identify all HUD officials that knew about this 
overspending and all corrective measures taken against these 
individuals.
    Answer. The Deputy Assistant Secretary and Office Director managing 
the Operating Subsidy program are no longer in a management capacity, 
nor are they involved with the operating subsidy program. No office 
outside of PIH knew about or had any responsibility for the overage.
    Question. What steps have you taken to ensure that this type of 
mistake does not happen again?
    Answer. The Department has taken sound steps to ensure that the 
amounts provided in appropriations acts for a specific year will be 
spent only for that year's subsidies and that the commitments being 
made to PHAs never exceed the amounts provided by Congress. First, the 
Department has increased the number of resources available for this 
program, both in the terms of Federal employees and contractors and has 
created a separate task force to help specifically re-engineer this 
program in terms of business process and policy.
    In addition, the Department has created a new budget collection and 
accounting tool, which captures that data in a format that allows for 
easier data analysis, ad-hoc reporting, and program oversight. This 
collection tool is currently being used for the collection and 
processing of the fiscal year 2003 data. Enhanced data and quality 
control checks are being used to ensure accuracy of the data. Full use 
of actual budget data will be used in the determination of the final 
proration factor--which will never be set again until HUD has collected 
all current year budgets and compared total eligibilities with current 
year funding.
    Question. What steps has the Department taken in corrective 
measures against the staff who are responsible for these errors? Have 
staff been demoted? Have any of the responsible staff received bonuses 
for their work in the last year?
    Answer. The Deputy Assistant Secretary and Office Director managing 
the Operating Subsidy program are no longer in a management capacity, 
nor are they involved with the Operating Subsidy program. None of the 
staff has received a bonus.
                       faith-based organizations
    Question. I understand that HUD is revising a number of regulations 
to make it easier for faith-based organizations to participate in HUD 
programs, including enhanced eligibility for grants. While I strongly 
support the role of churches and other faith-based organizations in 
making our communities strong and safe, there have been a number of 
news reports that infer that HUD is planning to provide churches and 
faith-based organizations with expanded access to Federal funds 
including grants to build churches where a church is involved with 
community issues.
    What programs are we talking about and is there is any truth that 
HUD is looking to provide grants to churches for church construction? 
This would be very controversial and how is HUD dealing with the 
constitutional issues?
    Answer. HUD has proposed a rule that would eliminate unwarranted 
barriers to faith-based organizations in eight HUD programs. The public 
comment period closed March 6, 2003, and HUD is currently reviewing the 
comments and preparing a final rule.
    The eight programs affected by the rule are HOME Investment 
Partnerships; Community Development Block Grants; Hope for 
Homeownership (HOPE 3); Housing Opportunities for Persons with AIDS; 
Emergency Shelter Grants; Shelter Plus Care; Supportive Housing; and 
YouthBuild.
    The proposed rule clarifies that HUD funds may not be used for the 
acquisition, construction, or rehabilitation of structures to the 
extent that those structures are used for inherently religious 
activities such as worship, religious instruction, and proselytization. 
Where a structure is used for both eligible activities and inherently 
religious activities, HUD funds may not exceed the cost of the portion 
of the acquisition, construction, or rehabilitation attributable to 
eligible activities. HUD has at no time intended that its funds be used 
to acquire, construct, or rehabilitate sanctuaries and other structures 
used principally for worship, and it will clarify this intent further 
in the final rule.
                         public housing hope vi
    Question. The Public Housing HOPE VI program has been eliminated 
under HUD's Budget Request for fiscal year 2004. This program was 
created in large part by this Subcommittee in response to the need to 
address the approximately 86,000 units that were termed severely 
distressed by the National Commission on Severely Distressed Public 
Housing in 1992. However, this program has done much more than just 
respond to distressed public housing, it has been tremendously valuable 
in turning this distressed housing into mixed income and public housing 
developments as well acting as an economic anchor for the redevelopment 
of distressed communities.
    And while it may be time to move on and build on the successes of 
the HOPE VI program, I am concerned that we have not had a meaningful 
dialogue on what we have accomplished and need to do next.
    The Department has eliminated the program in the Budget Request, 
including the funding of some $574 million which is critical funding 
needed to address the backlog of some $22 billion in capital needs. 
What does HUD believe is the next step?
    Answer. The Department is preparing to launch a review initiative 
that will consist of a series of meetings with industry experts in the 
field of affordable housing. It is intended to seek advice from a wide 
range of experts and stakeholders about the state of the program and 
its future. We are currently working on the details, including meeting 
topics and participants. Second, the Department has executed a 
Cooperative Agreement with the Urban Institute to investigate 
alternative ways to maximize the amount of private capital that can be 
leveraged using Federal funds, investigate more efficient ways to 
deliver Federal funds, investigate ways to accelerate project 
completion and the construction of units, and assist in the development 
of a new definition for severely distressed.
    Question. How does HUD currently define severely distressed public 
housing and how many units meet this definition now?
    Answer. At this time, there are many ways to define severe 
distress. HUD has had to work with five different definitions of severe 
distress as provided in Sections 18, 24, and 202 of the 1937 U.S. 
Housing Act, the HOPE VI appropriations and the Commission of Severely 
Distressed Public Housing. Even the National Commission on Severely 
Distressed Public Housing acknowledged the difficulty in identifying, 
specifically, distressed projects and opted to only estimate the total 
number of distressed units nationwide rather do an inventory. We 
believe that a standard definition of severe distress must be agreed 
upon prior to an evaluation of the entire remaining inventory. The 
Department is currently working with the Urban Institute to assess, 
among other things, the various definitions and establish one standard 
that can be used Department-wide to analyze the entire inventory. 
Therefore, the Department does not have a mechanism to review the 
entire public housing inventory and determine how many units are 
severely distressed at this time.
    Question. What criteria did the administration look at in 
determining this program had outlived its usefulness?
    Answer. The Department provided Congress a report, ``HOPE VI: Best 
Practices and Lessons Learned, 1992-2002,'' on June 15, 2002 which 
provided a comprehensive, factual, and balanced view of the program. 
The report provided information about what has been accomplished and 
what questions still remain to be answered. On balance, the Department 
believes that it has provided sufficient funds for the HOPE VI program 
to achieve its goals. HOPE VI has funded grants to relocate 57,000 
families, demolish 77,000 units and build 85,000 of which 45,000 are 
public housing (as of March 31, 2003; fiscal years 1993-2001 grants). 
We believe the funds already provided, in conjunction with other public 
housing programs, have more than addressed the 86,000 severely 
distressed public housing units identified by the Commission. Our 
report correctly points out, however, that grantees have been slow to 
spend funds and rebuild housing. Of the $4.5 billion awarded in the 
past 10 years, PHAs have only spent $2 billion. Only 17 of 165 grants 
have built all their planned units. In addition, it is important to 
remember that PHAs have more tools available to them today than 10 
years ago. For example, we now have regulations in place to guide 
mixed-finance developments and PHAs may use capital funds for 
accelerated modernization. As of March 31, 2003, the Department has 
received requests to allow PHAs use Capital funds to collateralize and 
pay debt service on nearly $933 million, of which $482 million has been 
approved. Furthermore, the Department believes that the Public Housing 
Reinvestment Initiative (PHRI) is intended to provide a financing tool 
for housing authorities to prevent developments from becoming severely 
distressed. It's another development tool to assist PHAs in addressing 
the backlog and accrual needs. It's time to reassess how to move 
forward and find new, creative ways to revitalize public housing.
                      public housing capital fund
    Question. HUD is proposing some $70 million less in Public Housing 
Capital Funds for fiscal year 2004 than fiscal year 2003. In addition, 
the fiscal year 2004 funding request is some $200 million less than the 
fiscal year 2002 enacted level. These reductions are especially 
troubling when considered in conjunction with the administration's 
recommendation to eliminate the HOPE VI program and the fact that 
public housing throughout the country has a capitalization backlog of 
over $20 billion. These funding levels will likely result in deferred 
maintenance and deferred capital investment. How does HUD justify these 
reductions in funding?
    Answer. For fiscal year 2004, the amount of the Public Housing 
Capital Fund accrual is estimated to be approximately $2.2 billion. 
However, the Department is requesting approximately $2.6 billion for 
the Public Housing Capital Fund, which is approximately $400 million 
more than fiscal year 2004 estimated accrual needs of $2.2 billion. 
Further, public housing agencies (PHAs) are encouraged to use other 
vehicles to address needed improvements. For example, PHAs are already 
permitted to leverage their Capital Funds to finance additional amounts 
needed to make improvements to existing public housing. Such tools have 
already leveraged approximately $800 million in the last few years. In 
addition, the Department proposes the Public Housing Reinvestment 
Initiative (PHRI) that will provide PHAs with further opportunities to 
address the physical condition of public housing.
    Question. In addition, the HUD Fiscal Year 2004 Budget requests 
authority for a new Public Housing loan guarantee program and includes 
$131 million in credit subsidy from the Public Housing Capital Fund. 
According to HUD budget representations, this program will leverage 
some $2 billion in loans and accelerate capital improvements. This 
sounds like a fairly complex program for most PHAs. How quickly do you 
expect this program to get up and running? What do you expect the 
actual cost of this program to be on a per unit basis? How will it 
compare to HOPE VI? Will tax credits be expected to be part of any 
financing package?
    Answer. It is also important to keep in mind that PHRI is voluntary 
for PHAs. No PHA will be forced to make use of this new tool. For those 
who do choose to participate, PHRI can be up and running in a matter of 
months. HUD is giving this initiative the highest priority and will 
begin preparations even as the proposal progresses in Congress. HUD has 
already had broad discussions with PHAs, their representatives, and 
others who would be involved, including potential lenders. Many PHAs 
have provided substantial expressions of interest in pursuing PHRI. 
Indeed, many are asking whether there is any way under current law to 
implement it. Unfortunately, there is not.
    The ``cost'' of PHRI is simply the credit subsidy of $131 million, 
which comes from public housing capital funds. These funds are set 
aside to cover any losses resulting from the 80 percent loan guarantee 
and are based on a credit reform analysis by the Office of Management 
and Budget. Otherwise, PHRI is not designed to produce any budgetary 
impact. Rather, public housing subsidies are merely converted into 
Section 8 subsidies to facilitate financing. While PHAs, with HUD 
review and approval, have issued debt secured by public housing capital 
funds, these transactions are not property-based. Thus, the debt 
service coverage they require limits the amount of debt a PHA can 
issue. Borrowing under PHRI would not be limited to that degree.
    Both PHRI and HOPE VI are programs designed to aid PHAs with 
renovating public housing stock, however, the operation and focus of 
these two programs are different. HOPE VI is a competitive grant 
program directed at enabling PHAs to revitalize severely distressed 
developments, while PHRI is a voluntary loan guarantee program that 
enables PHAs to access conventional financing to address their backlog 
of capital repair needs.
    Under the HOPE VI application process, PHAs are scored on their 
ability to leverage private and public sector financing in the form of 
tax credit equity, loans, or other grants which will augment their HOPE 
VI request. The total financing package together with HOPE VI is the 
amount necessary to address revitalization needs which often encompass 
an array of public housing and community service projects.
    PHRI provides PHAs the ability to access adequate mortgage 
financing based on projected and specific cost and income analysis for 
targeted properties. The 80 percent loan guarantee provides the credit 
enhancement lenders seek before making investments.
    HOPE VI rewards some PHAs for seeking private/public sector 
leveraging; PHRI provides the means to leverage a PHA's greatest 
asset--its housing stock and thus addresses required repairs across the 
entire inventory of public housing.
    The loan guarantee is structured to permit private financing raised 
through PHRI to be supplemented by other resources including tax 
credits. However, in many instances, tax credits would not be required 
for PHRI to finance sufficient capital needed to address backlog needs. 
There may be instances where tax credit equity may be necessary to 
enable a PHA to cover the debt service associated with the financing 
required to address the current and long-term capital needs of selected 
properties.
    Question. Doesn't this proposal just shift the cost of public 
housing from the Public Housing Operating and Capital Funds to the 
Section 8 Fund? Why not tie the costs for loan repayments to the Public 
Housing Capital and Operating Funds?
    Answer. When a PHA obtains capital financing using the PHRI loan 
guarantee, PHAs voluntarily select properties to be converted from 
public housing contracts to project-based voucher funded contracts. For 
PHAs that choose to participate in this program, PHAs could commit 
capital and operating funds for initial expenses during the first year 
of the project-based voucher contract. After the first year, the 
reliance will be on the income and financing stream made possible by 
the PHRI.
    There are currently tools to access Capital Funds to undertake 
modernization projects, namely the Capital Fund Bond Financing Program. 
This has been a very successful leveraging mechanism, which has 
generated close to $500 million in bond financing for approximately 20 
PHAs. But even this successful program will take many years to address 
the estimated $18 billion backlog of capital needs. PHRI has the 
potential to reach a wide variety of public housing developments in a 
project-specific manner. It can be a powerful mechanism to help 
identify those developments most in need of additional assistance.
    PHRI and the associated loan guarantee is a more feasible property-
based financing tool that is more typical of multifamily rental 
financing. In these financial transactions, the rents from the property 
and a mortgage on the property are pledged as security for a loan. 
Additionally, the Section 8 contract, subject to annual renewals, 
provides security with which lenders are more familiar.
                                staffing
    Question. While the Congress was finishing up the fiscal year 2003 
Omnibus Appropriations bill, the House and Senate VA-HUD Appropriations 
Subcommittees were advised that HUD exceeded its stated employee levels 
for fiscal year 2003 by upwards of 300 FTEs with a cost of some $30 
million that is not reflected in the HUD Fiscal Year 2003 Budget 
Justifications and Budget Request. These hirings occurred during the 
Spring and Summer of 2002 and, despite the significant impact on HUD's 
budget needs for fiscal year 2003, HUD never once made any attempt to 
inform the Congress of its decision to hire significantly more staff 
than provided for in the HUD fiscal year 2003 Budget Justifications. In 
fact, HUD only reported these staff increases when it determined that 
its Fiscal Year 2003 Budget Request for Salaries and Expenses could not 
support these added staff.
    There also are significant questions as to whether HUD comported 
with existing staffing requirements and hiring procedures, including 
requirements consistent with HUD's Resource Estimation and Allocation 
Process (REAP). It also appears that some HUD offices hired 
significantly more staff than needed while other offices hired 
significantly less staff than needed. This clearly raises questions as 
to whether there were top level management controls on this hiring 
spree.
    Has HUD reviewed these hiring actions?
    Answer. Yes, a thorough review of the hiring actions has been 
completed and a Corrective Action Plan has been developed. This Plan is 
being submitted to the House and Senate Subcommittees under separate 
cover.
    Question. To what extent do these hiring decisions comport with 
personnel requirements?
    Answer. HUD has undertaken a thorough review of all hiring actions 
and has determined that there were no violations of any Federal civil 
service laws, rules, regulations, and merit system principles.
    Question. To what extent do these hiring decisions comport with 
REAP?
    Answer. REAP was not used as a basis for hiring. The Corrective 
Action Plan requires that each program bring their individual offices 
into alignment with REAP analyses as well as achieve an overall REAP-
based ceiling. This Plan has been submitted to Congress under separate 
cover.
    Question. What steps is HUD taking to ensure that similar hiring 
binges do not occur in the future?
    Answer. Yes, a thorough review of the hiring actions has been 
completed and a Corrective Action Plan has been developed. This Plan is 
being submitted to the House and Senate Subcommittees under separate 
cover.
    Question. Are the responsible officials being held accountable for 
this hiring problem and in what way?
    Answer. Yes, responsible parties are being held fully accountable. 
Corrective actions are in place to ensure over-hiring is not repeated. 
The Corrective Action Plan will freeze all program offices who are 
currently over ceiling. The programs will need to align their offices 
with the REAP analyses.
                       lack of affordable housing
    Question. There is a lack of affordable housing in many communities 
throughout the country, especially for extremely low-income families 
(those at or below 30 percent of median income). Vouchers do not work 
well in these communities and housing is too expensive to build to 
assist many of these low-income families. While I support a block grant 
production program to address these needs, I am willing to look at 
other approaches such as tax options, interest rate buy-down approaches 
and loan guarantees or a combination of these approaches. I do not 
think the proposed HANF proposal will work as currently proposed or 
funded. How would you get at this need for affordable housing for 
extremely low-income families?
    Answer. The Department is confident that the HANF program will work 
but remains open to consider other options towards addressing the lack 
of affordable housing in communities.
               gao high risk--fha single family insurance
    Question. According to GAO's January 2003 High Risk Report on HUD, 
the FHA single family mortgage insurance programs remain a high-risk 
area because of continued weaknesses in the mortgage insurance process, 
evidence of fraud and the variety of challenges that HUD faces in 
implementing corrective actions. What steps is HUD taking to address 
these concerns?
    Answer. The Department is attacking these weaknesses on two fronts: 
adopting technological advances to limit HUD's exposure to fraud and 
misrepresentation and engaging in substantial rule-making to protect 
HUD and the borrowers it serves from predatory lending practices.
    In May 2002, HUD completed a business process reengineering effort 
on its Single Family Mortgage operations. From this work, HUD 
identified a number of tools that can be employed to limit exposure, 
including those that provide estimates of the property's appraised 
value and alert lenders and the Department of recent property transfer, 
i.e., ``flipped'' properties. In addition, to combat identity theft, 
HUD has been studying various kinds of name and social security number 
verification tools that can be obtained directly from the Social 
Security Administration.
    Predatory lending practices affect FHA's insurance risk and 
contribute to community deterioration. To combat such practices, HUD 
has published a number of rules to reduce the possibility that 
unwitting and unsuspecting homebuyers and homeowners will become 
victims of unscrupulous lenders abetted by appraiser collusion. Soon, 
FHA will no longer insure properties re-sold within 90 days, and will 
require additional evidence of the property's appraised value if the 
resale (within 1 year) price exceeds a certain threshold. FHA has also 
published rules that will make the lender equally accountable for the 
quality of the appraisal, and require that appraisers meet specific 
qualification standards in order to make appraisals for FHA insured 
mortgages.
                  fha single family mortgage insurance
    Question. I am concerned that FHA single family mortgage insurance 
tends to take the highest risk of default despite currently exceeding 
actuarial requirements. What is the current rate of default on FHA 
single family mortgage insurance? How does this compare to the private 
market? At what point does a downturn in the economy put the Mutual 
Mortgage Insurance Fund at risk of failing to meet its actuarial floor?
    Answer. FHA's total default rate reached 5.276 percent in March 
2003. At the same time, FHA's claim rate was an annualized 1.246 
percent, which is only slightly above its 10-year average of 1.08 
percent. FHA has a higher default rate than the conventional market, 
but a lower default rate than the subprime market. Compared to the 
conventional market, FHA serves borrowers with lower incomes, poorer 
credit histories, and fewer assets. FHA's capital ratio has continued 
to grow as the share of first-time and minority homebuyers with FHA-
insured purchase mortgages has increased.
    In pursuit of its mission to serve first-time and minority 
homebuyers, FHA reached out to riskier borrowers. These borrowers are 
more vulnerable to temporary economic setbacks and are more likely, 
compared to less risky borrowers, to go in and out of default. To 
assist these borrowers to avoid foreclosure, FHA offers incentives to 
servicers who practice loss mitigation. By providing borrowers with 
forbearance and tailored repayment plans, loan modifications, and soft 
second mortgages, servicers assist borrowers to remain in their homes. 
Last year, they helped over 68,000 homeowners--up from 50,000 the year 
before.
    While these families are in the loss mitigation program, they are 
counted as defaults. So FHA's default rate appears higher. But the 
claim rate has not risen commensurately. Most loss mitigations are 
successful--two-thirds result in the owner catching up on the mortgage 
and staying in the house. The program is cost effective--FHA spends 
about $1,400 per loss mitigation effort, and saves approximately 
$30,000 every time and avoids a foreclosure.
    As reported in the Actuarial Review of FHA's Mutual Mortgage 
Insurance (MMI) Fund for fiscal year 2002, the performance of the FHA's 
books of business, measured by the economic value of the MMI Fund, is 
affected by changes in economic variables. Higher mortgage interest 
rates raise initial and ongoing payment burdens on household cash flows 
and claim risks of new originations while decreasing the risk of claims 
on older loans with below-market interest rates. Lower mortgage 
interest rates have the reverse effect and tend to accelerate 
refinancing of earlier originations while increasing insurance claims. 
Faster average house price growth facilitates the accumulation of home 
equity, which tends to reduce the likelihood of a claim. It also 
contributes to greater mobility and household asset portfolio 
rebalancing, leading to greater turnover of housing and refinancing, 
thereby increasing prepayment rates. Faster income growth reduces the 
relative burden of mortgage payments on household cash flows over time, 
reducing the risk of claims as mortgages mature.
    FHA's actuaries projected that under 5 economic scenarios 
(baseline, low house price appreciation, high interest rates, high 
unemployment/low personal income, and using 2001 selected loss rates) 
the Fund will exceed the capital ratio target of 2 percent.
                          asset control areas
    Question. Under the Fiscal Year 2002 Supplemental Appropriations 
Act, HUD was required to enter into new contracts and agreements under 
the Asset Control Area Demonstration program no later than September 
15, 2002. This is an important program designed to promote 
homeownership in distressed communities. What is the current status of 
this program?
    Answer. On September 15, 2002, via written correspondence, HUD 
informed former Asset Control Area (ACA) program participants of the 
terms of the revised ACA program. At that time, former participants 
also received a chart comparing the Congressionally mandated Program 
(i.e., Program A which tracks to Section 602) to Program B which tracks 
to requirements delineated in Section 204(g). They were asked to submit 
an application for the previous demonstration program, Program A, or 
Program B, the revised ACA Program. Although HUD is fully prepared to 
implement both programs, the feedback received from most of our former 
participants indicated that Program B was the preferred program; 
however, several former participants requested further policy changes 
to make this program more effective.
    From the end of October 2002 to December 2002, HUD held numerous 
conference calls and meetings with former program participants to 
discuss their additional recommended changes for the ACA Program. We 
were asked to consider revising: (1) our demolition policy; (2) the way 
we administered the Officer and Teacher Next Door Program in 
conjunction with the ACAs; (3) the resale price/the percentage of 
allowable net development costs; (4) the Census data used to determine 
revitalization areas (i.e., use 2000 data); and (5) our definition of 
eligible buyers for the purpose of disposing of multi-use and mixed-use 
properties; and (6) the requirement for all properties to be sold to 
income eligible buyers (i.e., participants wanted to be allowed to 
administer a lease purchase program).
    During this period, HUD continued to maintain a good rapport with 
former participants, and offered assistance with our newly expanded ACA 
application process. Likewise, potential new program participants were 
given information about the new ACA Program and encouraged to apply. As 
a result, HUD received seven applications from new and former ACA 
program participants. While the HOCs reviewed these applications and 
worked with participants to obtain missing documents needed to complete 
the application process, the headquarters' ACA team developed 
operational procedures to accommodate the suggested policy changes.
    In February 2003, former and potential program participants 
received a letter indicating the final terms of the new ACA Program 
with the changes highlighted. HUD offered broader latitude in each of 
the six areas identified above. Currently, HUD is reviewing all six 
applications and requesting additional documents as required. 
Concurrently, HUD is requesting that specific areas be identified for 
the proposed ACAs. Contract language is being modified to incorporate 
recently agreed to changes. Other concurrent actions include final 
internal review of draft regulations, completion of an OMB-required 
Front End Risk Assessment, and updates to HUD's internal standard 
operating procedures.
      fha multifamily and single family contractor accountability
    Question. GAO has indicated that HUD has poor control over its FHA 
multifamily and single family contractor payment accountability. Please 
provide an assessment of FHA versus private sector costs associated 
with single family and multifamily asset control. In other words, what 
is the per unit cost in the private sector versus FHA of foreclosed 
housing, both single family and multifamily? Please identify the 
individual costs associated with all units in the FHA foreclosed 
multifamily housing inventory. What steps has HUD taken to reduce costs 
in the last 2 years? What savings have been achieved?
    Answer. Multifamily.--The Secretary is required by statute to 
manage and dispose of HUD-held mortgages or HUD-owned multifamily 
properties in a manner, that among other goals, preserves certain 
housing so that it can remain available to and affordable by low-income 
persons; preserves and revitalizes residential neighborhoods, maintains 
existing stock in decent, safe and sanitary condition; minimizes the 
involuntary displacement of tenants, and minimizes the need to demolish 
multifamily housing.
    Because of these statutory objectives to maintain and preserve low-
income housing resources, the Department's multifamily disposition 
program is significantly dissimilar to private sector objectives at the 
time of default or foreclosure of private sector rental housing. 
Because of the statutory mandates, the Department undertakes repairs to 
preserve occupied mortgagee-in-possession or HUD-owned multifamily 
properties. Further, it requires purchasers of many properties, either 
at foreclosure or HUD-owned sales, to repair and maintain properties as 
affordable rental housing resources via recorded deed restrictions. All 
of these actions have a significant impact on the value of these 
properties at foreclosure or HUD-owned sales and consequently the 
ultimate return to the Department of the defaulted amount of the FHA 
insured mortgage or HUD debt.
    The preservation and maintenance of these properties is 
accomplished through the use of area-wide property management service 
contracts. These contracts are procured on a national, competitive 
basis. Contracts are awarded on the basis of experience and competency 
to perform the required management tasks and reasonable price.
    The Department's oversight of managed contracts is conducted in 
several ways. Upon the Department's operational takeover of a property, 
the property is assigned to a property management contractor. The 
property manager performs a repair needs assessment and develops an 
operational budget for the property. One of the Department's two 
multifamily property disposition centers performs an analysis of the 
repair assessment and the operational budget and approves, modifies or 
rejects the proposals, as appropriate. Thereafter, the management and 
operation of the property is dictated by the approved repair plan and 
the operating budget for the property.
    At the property level, the property manager is required to obtain 
competitive quotes or bids, as required, to engage in any contracting 
for services or repairs. Accurate and complete records for all 
contracting services are required to be maintained by the property 
managers. All activities must be within the approved budget for the 
property. Finally, the Department's property disposition centers have 
an oversight contractor whose services include the comprehensive and 
detailed review and oversight of the property managers' maintenance and 
management of the properties. The oversight contractor performs on-site 
reviews of operational activities/expenditures performed by the 
property managers against file records and site inspections of actual 
work performed.
    The Department has taken a very aggressive position on expediting 
the processing of foreclosure and HUD-owned property sales. By reducing 
the time in the foreclosure process, where most properties are not 
making mortgage payments, the Department is able to obtain whatever 
value remains on the property at the foreclosure sale and eliminate 
additional expenditures if the Department is mortgagee-in-possession. 
Similarly, expediting the sale of HUD-owned properties, the Department 
is able to curtail at an early date funds that may have to be expended 
on the property above rental income. This management strategy for the 
foreclosure/HUD-owned inventory has reduced the HUD-owned inventory 
from approximately 60 properties to 26 properties over the last 2 
fiscal years.
    The Department does not track private sector foreclosure or lender 
owned inventory sales. Because there was no Departmental involvement in 
those transactions, we would have no authority to obtain any of that 
information. Further, because the Department's foreclosure and HUD-
owned inventory sales are required to meet numerous statutory goals and 
objectives versus private sector unrestricted transactions, the 
comparison would be difficult, if not impossible to assess two 
dissimilar transactions.
    Single Family.--HUD has been able to increase the net return that 
we realize on the sale of HUD properties over the past 3 years. In 
fiscal year 2000, single family property sales numbered 80,628 at a 
total value of $4.343 billion (average sales price of $53,865) 
representing a recovery rate of 62.9 percent. In fiscal year 2001, 
single family property sales numbered 63,581 at a total value of $3.708 
billion (average sales price of $58,319) representing a recovery rate 
of 66.8 percent. In fiscal year 2002, single family property sales 
numbered 59,736 at a total value of $3.801 billion (average sales price 
of $63,630) representing a recovery rate of 71.2 percent.
    There is no publicly available source of information on asset 
disposition costs of private sector institutions, such as Fannie Mae 
and Freddie Mac. Moreover, even if daily holding costs were made public 
for these institutions, it would be difficult to compare them to FHA 
holding costs without knowing exactly what cost items were included. In 
other words, there is no single agreed-upon definition of holding costs 
in this context.
    The Department has done a number of things to be proactive in its 
sales program. First, HUD has been offering sales incentives to 
encourage owner-occupant purchasers to buy its properties. HUD and its 
Management and Marketing Contractors perform outreach to communities to 
encourage their participation in our sales program.
    HUD has established performance standards and developed tighter 
management controls for its management and marketing contractors to 
ensure that compliance with contract requirements are adhered to. 
Property conditions have improved since implementation of these 
standards.
    Question. Please identify over the last 5 years, the number of 
foreclosed FHA multifamily housing units and the loss per year per 
unit. Please identify over the last 5 years, the number of foreclosed 
FHA single-family housing units and the loss per year per unit per 
State. Please identify over the last 5 years, the number of foreclosed 
FHA multifamily housing units and the loss per year per unit.
    Answer. The Department has provided the chart below that indicates 
by calendar year, the net loss based on number of foreclosed units 
where HUD has become the property owner.

----------------------------------------------------------------------------------------------------------------
                                                           Net profit or
                                                               (loss)                           Income or (loss)
                     Calendar year                        acquisition plus        Units             per unit
                                                           holding costs
----------------------------------------------------------------------------------------------------------------
1998...................................................     ($208,484,235)              5,693          ($36,621)
1999...................................................       (93,221,230)              3,833           (24,321)
2000...................................................      (102,336,898)              3,166           (32,324)
2001...................................................      (148,544,223)              4,418           (33,623)
2002...................................................      (135,544,682)              2,621           (51,715)
2003 Year to Date 5/1/2003.............................      (165,551,410)              1,571          (105,380)
----------------------------------------------------------------------------------------------------------------

    The Department has provided the chart below that indicates the 
number of foreclosed FHA Single-Family housing units, the average loss 
per year, per unit and per State.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                               1998                            1999                            2000                            2001                            2002
              State              ---------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Units acquired  Avg. loss/unit  Units acquired  Avg. loss/unit  Units acquired  Avg. loss/unit  Units acquired  Avg. loss/unit  Units acquired  Avg. loss/unit
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
AK..............................              79         $26,506              79         $32,059              82         $38,493              72         $33,443              76         $39,231
AL..............................             723         $15,106             802         $17,955             890         $20,968           1,072         $22,059           1,441         $24,196
AR..............................             745         $18,793             757         $19,622             780         $20,946             836         $21,303             858         $21,969
AZ..............................           1,311         $11,529           1,192         $15,179             953         $17,150           1,008         $13,737           1,481         $16,831
CA..............................          22,666         $42,741          19,002         $38,687          14,398         $33,215           9,210         $24,645           6,243         $18,683
CO..............................             418         $14,210             526         $15,098             423         $21,381             393         $21,763             696         $27,693
CT..............................           1,101         $66,540             971         $56,236             811         $49,870             630         $43,929             552         $33,893
DC..............................             289         $54,354             292         $54,365             265         $62,230             204         $60,564             149         $38,596
DE..............................             104         $36,380             134         $35,813             138         $37,108             145         $31,193             131         $25,102
FL..............................           7,366         $23,200           7,119         $24,231           6,671         $22,983           5,564         $18,588           5,504         $16,958
GA..............................           2,360         $16,720           2,038         $18,333           1,878         $18,230           1,971         $18,101           2,748         $21,213
GU..............................               0         ( \1\ )               2         ( \1\ )               0         ( \1\ )               5         $77,786               7         $81,262
HI..............................             194         $84,520             295         $92,765             466         $91,216             363         $81,530             247         $64,306
IA..............................             129         $14,785             113         $13,162             139         $19,907             163         $21,231             292         $23,774
ID..............................             249         $22,456             309         $25,340             358         $25,873             381         $25,265             532         $26,835
IL..............................           2,852         $42,198           2,978         $39,844           2,952         $39,612           2,375         $35,842           3,047         $30,595
IN..............................           1,027         $23,053           1,251         $23,864           1,377         $25,842           1,669         $29,106           2,453         $32,121
KS..............................             441         $19,500             487         $19,598             431         $20,516             378         $20,533             621         $21,327
KY..............................             168         $19,739             241         $19,974             270         $22,861             316         $22,571             459         $27,077
LA..............................             842         $20,118             835         $20,889             824         $21,024           1,054         $20,842           1,228         $23,280
MA..............................             422         $56,825             426         $44,347             295         $41,358             191         $34,367             176         $24,620
MD..............................           3,143         $41,193           4,104         $44,518           3,775         $49,429           3,452         $43,663           3,449         $33,650
ME..............................             127         $47,637             125         $44,582             152         $43,105              94         $34,124             103         $31,210
MI..............................           1,246         $16,113           1,067         $17,001           1,057         $19,269           1,215         $22,235           1,859         $26,593
MN..............................           1,091         $17,585             759         $14,441             436         $12,417             292         $12,006             291         $16,040
MO..............................           1,206         $22,170           1,281         $21,754           1,155         $21,027           1,084         $20,365           1,496         $22,989
MS..............................             537         $15,281             557         $16,865             615         $18,082             669         $21,033             793         $20,740
MT..............................             102         $17,966             143         $22,004             133         $25,359             132         $25,963             184         $26,462
NC..............................             760         $16,345             737         $17,675             817         $18,458             882         $21,545           1,462         $25,575
ND..............................              85         $22,443              95         $21,352              96         $22,158              88         $23,646             110         $25,275
NE..............................             147         $13,187             152         $14,669             176         $18,043             190         $19,353             338         $21,644
NH..............................              72         $37,819              78         $35,476              43         $29,850              22         $22,414              31         $19,272
NJ..............................           1,721         $53,531           2,031         $52,850           2,301         $50,446           2,010         $43,931           1,871         $35,393
NM..............................             206         $20,758             338         $25,517             419         $26,800             513         $28,110             622         $29,784
NV..............................             859         $14,383           1,129         $20,249           1,126         $26,376           1,152         $25,020           1,440         $23,627
NY..............................           3,207         $49,408           3,380         $52,135           3,967         $51,535           3,452         $47,229           3,520         $43,040
OH..............................           1,571         $26,331           1,489         $28,046           1,661         $30,333           1,781         $32,275           2,312         $34,653
OK..............................             825         $18,946             929         $15,857             863         $19,535             914         $18,842           1,083         $21,884
OR..............................             102         $21,663             180         $19,409             249         $26,599             343         $27,874             555         $27,799
PA..............................           2,026         $37,809           2,272         $38,554           2,435         $41,183           2,252         $40,126           2,643         $36,158
PR..............................             103         $15,503              76         $15,532             152         $16,167             112         $12,689             159         $10,632
RI..............................             235         $56,414             203         $44,728             202         $45,307             101         $33,135              72         $14,335
SC..............................             553         $22,313             536         $20,958             564         $20,547             489         $20,700             583         $23,186
SD..............................              84         $30,553              82         $26,116              86         $21,780              54         $26,628              59         $27,282
TN..............................           1,504         $17,153           1,694         $17,693           1,620         $19,892           1,893         $20,685           2,562         $24,386
TX..............................           5,261         $18,700           5,257         $17,565           4,714         $16,360           4,214         $16,921           5,675         $21,602
UT..............................             192         $17,209             391         $24,689             530         $30,079             749         $29,030           1,365         $36,083
VA..............................           3,377         $28,653           3,003         $28,846           2,670         $29,281           2,089         $22,937           1,738         $21,378
VI..............................               0         ( \1\ )               5         ( \1\ )               8         $47,907               7         $64,722               4         $72,287
VT..............................              32         $61,037              25         $50,990              29         $42,263              15         $39,634              16         $41,273
WA..............................             596         $26,862             715         $24,015             790         $29,490             799         $27,887           1,356         $29,268
WI..............................             189         $23,057             170         $24,562             242         $26,600             257         $24,182             289         $27,558
WV..............................              77         $17,610              74         $20,245              63         $26,111              77         $25,655              89         $25,669
WY..............................              88         $18,515             133         $20,098             126         $23,521             121         $20,924              96         $19,662
                                 ---------------------------------------------------------------------------------------------------------------------------------------------------------------
      TOTAL.....................          74,008         $32,166          73,059         $31,311          67,591         $31,380          59,514         $28,430          67,166         $26,151
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ No sales.

                               itag/otag
    Question. The HUD IG was required to audit all recipients of 
technical assistance under the Mark-to-Market program and determine 
whether each recipient was in compliance with the required uses of such 
assistance. Under Section 1303 of the fiscal year 2002 Defense 
Appropriations Act, HUD is prohibited from providing any additional HUD 
funding for 4 years to any recipient who misused such technical 
assistance. The HUD IG has identified some 10 instances of abuse. What 
steps has HUD taken in response to these determinations?
    Answer. The IG published its report on March 31, 2003, and the 
Department is in the process of implementing the required sanctions 
specified in Section 1303 of the Defense Appropriations Act of fiscal 
year 2002.
                   new york disaster assistance funds
    Question. NY/NYC was provided some $3.5 billion in CDBG Disaster 
Assistance funds for economic rebuilding efforts in response to the 9/
11 terrorist attacks on New York City. The Empire State Development 
Corporation (ESDC) was charged with the administration of these funds. 
What steps has HUD taken to ensure these funds have been used in a 
manner consistent with the funding agreements?
    Answer. HUD is taking a number of steps to ensure that the 
Community Development Block Grant disaster funds for New York are used 
in a manner consistent with the funding agreement, appropriations 
statutes, and waivers and alternative requirements granted and 
established for the use of those funds.
    HUD program staff conducts management/compliance reviews of ESDC 
and Lower Manhattan Development Corporation (LMDC) approximately every 
6 months. Reviews of ESDC were conducted in May 2002 and January 2003, 
and a review of LMDC was conducted in October 2002; the next review of 
LMDC is planned for late April 2003. In addition, HUD program staff 
maintains almost daily contact with the grantees either on-site or via 
telephone and e-mail to provide oversight and technical guidance, and 
HUD monitors grantee expenditures through HUD's Line of Credit Control 
System. HUD reviews independent audits of the grantees, as well. 
Grantees submit quarterly progress reports to HUD via a web-based 
Disaster Recovery Grant Reporting system that are used in HUD's 
submission of quarterly reports to the Appropriations Committees.
    Also, HUD's Office of the Inspector General submits its reviews of 
those grants to the Congress in its semi-annual reports.
                          cdbg formula funding
    Question. I understand that HUD is looking to revise the CDBG 
funding formula to allocate more funds to poorer communities and those 
in distress. What sort of issues is the Department looking at while 
performing this analysis?
    Answer. The Department is committed to doing a CDBG formula study 
of the effects of adding all the 2000 Census data and considering 
options to change the formula factors to ensure that the formula 
continues to be highly targeted to need and community distress. The 
first phase will be done shortly, probably in spring of 2003. The 
second component, which is more complex, will be done in the fall. The 
second phase is more complex because HUD must develop a basis to 
explore how effectively the targeting is working for the vast majority 
of grantees. All aspects of the current formula will be considered, 
possible new factors and combination of factors as well as how the 
basic formula is constructed. In developing the CDBG dual formula and 
assessing the effect of the 1980 and 1990 Census on how the formula 
allocated funds, the Department has compared per capita allocations to 
CDBG jurisdictions relative to a broad-based measure of community need. 
This measure includes indicators of social, economic, and housing 
needs. The study currently underway will be similar to those done 
periodically since the mid-1970's. In addition, this year's study will 
consider the effect of the revisions to the definitions of metropolitan 
areas, since they affect CDBG eligibility and the distribution of 
funds.
             rural housing and economic development program
    Question. The HUD Budget request again eliminates the Rural Housing 
and Economic Development program. This is a small $25 million program 
that makes a tremendous difference for small, rural communities. It has 
been estimated that over the last 2 fiscal years, some 4,000 jobs have 
been created and over 8,200 persons have been trained. In addition, 
over 2,200 housing units have been constructed with some 3,700 units 
rehabilitated. In the last year, 367 businesses have been created and 
1,400 existing businesses assisted. This is a good program that makes a 
difference with a small price tag and big results. Since this program 
works and HUD has expertise different from the RDA, why eliminate this 
program?
    Answer. There will be $100 million available in fiscal year 2004 
for the Rural Strategic Investment Grant Program in USDA pursuant to 
Section 6030 of the Farm Security and Rural Investment Act of 2002, 
Public Law 107-171. This new program will ``provide rural communities 
with flexible resources to develop comprehensive, collaborative and 
locally based strategic planning processes; and will implement 
innovative community and economic development strategies that optimize 
regional competitive advantages.'' These are activities that clearly 
mirror those in HUD's program. HUD's fiscal year 2004 Budget proposal 
to terminate the Rural Housing and Economic Development Program 
reflects the existence of duplicative HUD and U.S. Department of 
Agriculture (USDA) efforts and the fact that USDA has far greater 
resources in this area.
    In addition, USDA manages a portfolio of rural housing grant 
programs and economic development grant programs. USDA's current rural 
development portfolio vastly exceeds HUD's Rural Housing and Economic 
Development Program in terms of programs and services from budgets to 
staffing. The rural housing grant programs are the Rural Housing 
Assistance Program, the Rural Housing Voucher Program, and the Mutual 
and Self-Help Housing Program. The economic development grant programs 
are the Rural Development Enterprise Program and the Rural Business 
Opportunity Program.
                   section 8 project-based assistance
    Question. I remain concerned about the administration's 
longstanding commitment to Section 8 vouchers to the detriment of 
preserving Section 8 project-based housing especially in tight rental 
markets. Over the last 3 years, how many projects and units have opted 
out of the Section 8 project-based program with the tenants converting 
to Section 8 tenant-based assistance?
    Answer. During the past 3 fiscal years, Section 8 opt-outs are 
estimated at:

------------------------------------------------------------------------
               Fiscal year                   Contracts         Units
------------------------------------------------------------------------
2000....................................             254          10,256
2001....................................             224           9,496
2002 (prelim) \1\.......................             169           7,487
------------------------------------------------------------------------
\1\ The Office of Housing is currently conducting its annual
  verification survey of potential opt outs. Results of the survey may
  vary from the estimated, fiscal year 2002 numbers shown above.

    Question. How many of these projects have been elderly projects or 
designated for persons with disabilities? How many projects and units 
have opted to stay in the program? How many of these projects have been 
elderly projects or designated for persons with disabilities? How many 
projects and units have opted to stay in the program?
    Answer. Within these totals, opt outs of projects targeted to the 
elderly or disabled were:

------------------------------------------------------------------------
               Fiscal year                   Contracts         Units
------------------------------------------------------------------------
2000....................................              30           1,519
2001....................................              41           1,201
2002 (prelim) \1\.......................              20             876
------------------------------------------------------------------------
\1\ The Office of Housing is currently conducting its annual
  verification survey of potential opt-outs. Results of the survey will
  be available in late spring, and may vary from the preliminary figures
  shown above.

    During fiscal years 2000-2002, 10,742 contracts (782,427 units) 
were processed for renewal and are still active. This includes 4,347 
contracts and 318,804 units targeted for the elderly or disabled.
                          homeless assistance
    Question. HUD Budget Request indicates that HUD will be submitting 
a legislative proposal to block grant or consolidate the McKinney-Vento 
homeless assistance grant program. I support this approach assuming 
there is adequate oversight and accountability. Nevertheless, since the 
current programs work much like a block grant, what significant changes 
will the Department be proposing?
    Answer. Our current homeless programs are all competitive, with the 
exception of the Emergency Shelter Grant (ESG) program. The proposed 
consolidation of the competitive programs is intended to make the funds 
more flexible and get the available funds to the communities that need 
them more efficiently. The new program will serve all homeless 
population, not just particular ones. The program will have a single 
menu of eligible activities not different menus of activities for 
different projects. The new program will emphasize and provide more 
permanent housing and will allow new emphasis on homelessness 
prevention efforts.
    Question. When can we expect this proposed legislation for our 
consideration?
    Answer. The Department is currently developing legislation which 
will be submitted to Congress in the coming weeks.
                             mark-to-market
    Question. The Section 8 Mark-to-Market program was enacted to 
provide a mechanism to reduce the cost of oversubsidized, expiring 
Section 8 contracts to market rents while preserving this housing as 
affordable, low-income housing. How much Section 8 funding has actually 
been saved since the beginning of the program?
    Answer. Section 8 savings from the beginning of the program to 
March 1, 2003 are approximately $180 million. The Present Value of the 
future stream of savings from M2M restructures already completed is 
$1.4 billion.
    Question. How many projects have been preserved with Section 8 
project-based contracts?
    Answer. As of March 1, 2003, 1,579 properties with a total of 
131,551 units have been preserved through the Mark-to-Market program.
    Question. How many projects have been removed from the Section 8 
inventory by owners who opted out of their Section 8 project-based 
contracts?
    Answer. Since fiscal year 1999, 74 properties, with a total of 
4,157 units in the Mark-to-Market program, have opted-out of Section 8 
project-based contracts.
                  native american housing block grants
    Question. The Native American Housing Block Grant fund has been 
largely flat funded at some $650 million since its inception. How many 
low-income units have been preserved with these funds? How many new 
units are created each year with these funds?
    Answer. The Native American Housing Assistance and Self-
Determination Act of 1996, as amended (NAHASDA), provides funds through 
the Native American Housing Block Grant (NAHBG) Program to Indian 
tribes or their tribally designated housing entities (collectively 
``grant recipients''). Grant recipients assist eligible low-income 
Native American families through NAHASDA's six affordable housing 
activities. Beginning in fiscal year 1998, the first year that funds 
were appropriated under the IHBG Program, through fiscal year 2001, the 
4 years for which data is available, grant recipients have provided 
assistance designed to preserve the viability of, on average, 53,463 
units each fiscal year. This information differs from the information 
previously reported due to the collection of more accurate data 
obtained from the Annual Performance Reports (APR) submitted by grant 
recipients.
    The unit count includes moderate or substantial rehabilitation, and 
modernization and operating assistance related to units currently in 
management. It does not include other eligible affordable housing 
activities under the NAHBG, such as down payment and buy down 
assistance, minor rehabilitation of under $5,000, housing services, 
housing management services, crime prevention and safety, and model 
activities. The total does include Section 8-type programs operated by 
a grant recipient.
    Using the 4 years of NAHBG funding data available, on average, 
2,536 units have been created each year. Fiscal year 2002 figures are 
incomplete as of this date because grant recipients' fiscal years vary 
from tribe to tribe, and APRs are not required to be submitted until 90 
days after the end of a grant recipient's fiscal year. The Department 
will submit information on the first two quarters when it becomes 
available.
    Under the NAHBG Program, grant recipients are involved in a much 
wider variety of programs and projects, often using innovative, 
leveraged and mixed financing. Unit totals are not currently available 
to track these initiatives and projects.
                  puerto rico public housing authority
    Question. What is the current status of the Puerto Rico Housing 
Authority (PRPHA)? This has been the most troubled PHA in the country 
over the last decade. I know there has been a lot of progress made. 
What is the status now?
    Answer. The PRPHA has been making steady progress during the past 2 
years in procurement and other areas. Examples of the progressive 
initiatives that PRPHA has taken are as follows:
  --The PRPHA received a clean audit for the first time for fiscal year 
        ending June 30, 2002.
  --The procurement review of December 2002 showed significant 
        improvement and no major procurement deficiencies.
  --Management decisions to comply with OIG recommendations in Report 
        00-AT-201-1801 are closed.
  --Management decisions to comply with recommendations in OIG Report 
        00-AT-201-1003 are closed with the exception of those coded J 
        and recommendations 1A and 1B. For these, the termination date 
        was extended to August 2003.
  --The PRPHA began implementation of a 2-year pilot project to 
        transfer management of public housing projects to four 
        municipalities. This new initiative is in partnership with 
        municipalities to determine new alternatives for management of 
        public housing. All partners signed a Memorandum of 
        Understanding on February 28, 2003. Four contracts have been 
        signed with the Municipalities of Caguas, Carolina, Manati, and 
        Guaynabo.
  --In July, HUD will be providing on-site training and program reviews 
        to these four municipalities. The PRPHA completed the 
        negotiations with Management Agents by the first week of May as 
        scheduled. Report on negotiations and recommendations on 
        contracts with Management Agents should be reviewed by the Bid 
        Board and the PRPHA Board of Directors in their meetings the 
        end of June and beginning of July for appropriate action. To 
        date, two contracts have been cancelled and management of those 
        areas reorganized at substantial savings to PRPHA. Preliminary 
        agreements have been reached with four other Management Agents 
        for renegotiated contracts with lower management fees.
  --Executed an agreement to return to PRPHA control of the HOPE VI 
        Program that was put under receivership by HUD on July 6, 2001.
              financial management and information systems
    Question. IT has been a priority for Congress to the extent that 
recent VA-HUD Appropriations bills have segregated IT funds to ensure 
the funds are not raided for other purposes. What is the status of 
HUD's IT systems and when will they be fully up and running and 
compatible?
    Answer. The administration requested and Congress has approved a 
change in the mechanism for funding the Working Capital Fund (WCF). 
This change was important for a number of reasons, including the need 
to begin funding the maintenance of existing systems and the 
development of new Department-wide systems from a central account 
rather than the previous process of taxing those program offices which 
had the authority to transfer funds to the WCF. A number of HUD 
programs could not legally transfer funds without specific authority in 
annual appropriations bills.
    The Appropriations of the central WCF activities then leaves 
program offices with the authority to transfer funds to the WCF only 
for the activities which directly benefit the program and especially 
the grantees. In doing this we have ensured that program funds are not 
raided to pay for Department-wide activities and that central 
activities and systems, such as the central accounting system HUDCAPS 
is adequately funded through the review and approval process in 
appropriations acts. Hence this segregation of IT funds between central 
activities and program specific activities, in the administration's 
view, will work to strengthen the distinct functionalities of each.
    The IT plan called for by Report language in the 2003 
Appropriations Act which was submitted to the House and Senate 
Appropriations staff on December 15, 2002 and again on March 19, 2003. 
Specifically cites the status of each IT project that is under 
development. A third submission which will include the information in 
the OMB 300 submissions and the full life cycle costs and timeframe for 
each major project (about 40) will be submitted to the Congress mid-
June, 2003.
                                 ______
                                 
               Question Submitted by Senator Conrad Burns
   elimination of the rural housing and economic development program
    Question. Does the Department of Agriculture Budget compensate for 
the elimination of the HUD Rural Housing and Economic Development 
Program? If so, why?
    Answer. There will be $100 million available in fiscal year 2004 
for the Rural Strategic Investment Grant Program in USDA pursuant to 
Section 6030 of the Farm Security and Rural Investment Act of 2002, 
Public Law 107-171. This new program will ``provide rural communities 
with flexible resources to develop comprehensive, collaborative and 
locally based strategic planning processes; and will implement 
innovative community and economic development strategies that optimize 
regional competitive advantages.'' These are activities that clearly 
mirror those in HUD's program. HUD's fiscal year 2004 Budget proposal 
to terminate the Rural Housing and Economic Development Program 
reflects the existence of duplicative HUD and U.S. Department of 
Agriculture (USDA) efforts and the fact that USDA has far greater 
resources in this area.
    In addition, USDA manages a portfolio of rural housing grant 
programs and economic development grant programs. USDA's current rural 
development portfolio vastly exceeds HUD's Rural Housing and Economic 
Development Program in terms of programs and services from budgets to 
staffing. The rural housing grant programs are the Rural Housing 
Assistance Program, the Rural Housing Voucher Program, and the Mutual 
and Self-Help Housing Program and the Rural Business Opportunity 
Program.
                                 ______
                                 
            Questions Submitted by Senator Pete V. Domenici
                          samaritan initiative
    Question. Mr. Secretary, HUD's proposed fiscal year 2004 budget 
includes a $50 million request for the President's ``Samaritan 
Initiative'' to move toward ending chronic homelessness over the next 
decade. This proposal builds on efforts by this Subcommittee in recent 
years to push the Federal response on homelessness in this very 
direction--setting a minimum threshold within McKinney-Vento for 
permanent supportive housing, ensuring stable funding for Shelter Plus 
Care renewals and pushing greater Federal interagency collaboration for 
funding of services to chronically homeless individuals. Your budget 
proposal includes a reference to an unspecified commitment for $10 
million each in fiscal year 2004 from both HHS and the VA toward 
services funding as part of the Samaritan Initiative.
    Can you identify for the Subcommittee from where within the budgets 
of HHS and the VA these funds will be coming?
    Answer. HHS funds will come from both the Substance Abuse and 
Mental Health Services Administration (SAMHSA) for substance abuse 
treatment, mental health and related supportive services and from the 
Health Resources and Services Administration (HRSA) for primary health 
care services. VA funds will come from its Medical Care appropriation 
to enable local VA facilities to address the specific needs of 
chronically homeless veterans.
    Question. What role do you envision the Interagency Council on 
Homelessness playing in allocating these funds?
    Answer. The funds being requested for the Samaritan Housing 
Program, if approved, would be included in the applicable 
appropriations bills of HUD, HHS and VA and, therefore, would become 
the responsibility of these agencies to administer. However, there is 
no question that all three agencies would actively collaborate among 
themselves as well as consult with the Interagency Council on 
Homelessness to ensure that the program was established and operated in 
a coordinated and effective manner.
                  section 811 housing for the disabled
    Question. Mr. Secretary, the administration is requesting $251 
million for the Section 811 program for people with disabilities for 
fiscal year 2004. This represents an $8 million reduction from fiscal 
year 2003 funding. However, according to estimates included in your own 
budget proposal, renewal of all expiring 811 ``mainstream'' tenant-
based rent subsidies will cost $42 million in fiscal year 2004 ($10 
million more than in fiscal year 2003). In addition, renewal of 
expiring 811 project-based subsidies (known as PRACs) are estimated to 
cost $8 million ($2 million more than in fiscal year 2003). This 
appears to increase the proposed reduction to the 811 program to at 
least $18 million if measured in terms of production of new units for 
people with disabilities. Further, this renewal burden associated with 
the 811 program is expected to continue growing in the coming years, 
consuming an ever greater percentage of the program, severely 
undermining 811's role as a production program.
    The administration's budget contains an unspecified proposal to 
fold Section 811 into the Samaritan Chronic Homeless Initiative. This 
appears to be at odds with the targeting requirements for Section 811 
that have been established by Congress, i.e. to direct resources to 
non-elderly people with severe disabilities that need housing related 
supports to live in the community. While this can include people with 
disabilities experiencing chronic homelessness, it also includes 
individuals that are in transition from institutional settings (nursing 
homes, psychiatric hospitals) or adults living with aging parents that 
can no longer provide care at home.
    Does HUD have an estimate of the reduced number of new production 
units and new vouchers under the 811 that would result under the 
administration's budget?
    Answer. The estimates included in the Department's Budget reflects 
that the number of Section 811 units awarded in fiscal year 2004 would 
be 1,749. The number assumed to be awarded in fiscal year 2003 is 
1,804. That is about a 3 percent decrease in the number of units 
awarded with the same level of appropriations. However, these estimates 
do not include additional units that may be awarded using recaptures 
from prior years or from revised estimates of the amount of new 
appropriations needed for renewals. We have found that in many cases, 
higher than expected balances remain on contracts approaching 
expiration. These additional funds can be used to offset the impact of 
renewal costs.
    Question. Does HUD have a plan to deal with the rising burden 
associated with renewal of project-based and tenant-based subsidies 
under the 811 program?
    Answer. Within the amounts that are made available in future years, 
the Department is committed to maximizing the level of assistance 
available to eligible families. The Department has underway an 
aggressive and comprehensive effort to move greater numbers of projects 
to completion and occupancy as quickly as possible. This effort is also 
identifying amounts that can be recaptured from projects that cannot 
make reasonable progress so that these funds can be applied to 
additional awards. Over the next few years, these efforts should 
increase the pace by which additional units are brought into service. 
Ultimately, however, additional funding will be required each year to 
continue the current level of newly constructed units and, at the same 
time, renew expiring contracts.
    Question. What measures might be taken to account for this 811 
renewal burden as Congress has done for Shelter Plus Care?
    Answer. Renewal of expiring rental assistance contracts is an 
integral aspect of the Section 811 housing program as it is for the 
Shelter Plus Care program. In both cases, funding of renewals is 
priority within the amounts appropriated in the account.
    Question. Can you please describe for the Committee how HUD's 
proposal for integrating 811 into the Samaritan Initiative would impact 
current targeting requirements for 811?
    Answer. The Department has a pending budget request of $50 million 
for the Samaritan Housing Program in fiscal year 2004, in addition to 
the $251 million requested for the Section 811 program. For the fiscal 
year 2004 Section 811 grant awards, the Department is proposing a 
preference for applications that address those disabled fitting the 
profile of people at risk of homelessness. This effort to prevent 
homelessness is intended to complement the Samaritan program's focus on 
addressing the critical needs of those experiencing chronic 
homelessness. The details on how the new preference will be 
incorporated into existing Section 811 selection criteria will be 
developed in the next several months based on discussions with all 
interested parties.
                     metropolitan statistical area
    Question. Mr. Secretary, although New Mexico is considered one of 
the Nation's poorest States, there is an odd problem in the Santa Fe 
and Los Alamos areas with regard to qualifying for HUD assistance. HUD 
currently combines these two New Mexico cities into one Metropolitan 
Statistical Area or MSA. Although at one time this practice was a 
benefit to both communities, it has now become a hindrance to their 
ability to receive HUD assistance in meeting actual local housing 
needs.
    As it is today, Los Alamos County median income is over twice as 
high as Santa Fe County, about $82,000 to $40,000. This disparity 
clearly has negative impacts in both counties for housing assistance 
when Fair Market Rents (FMR) are calculated and then averaged for this 
single MSA.
    By artificially raising median incomes in one county, Santa Fe, and 
lowering it in the other, Los Alamos, neither community has housing 
assistance targeted to their real incomes.
    One solution, as has been attempted in the State of New York, is to 
remove the distortion be separating the affected communities from their 
shared MSA. I am attempting to do just that through a piece of 
legislation introduced a few weeks ago.
    Do you believe that such a legislative fix would adequately solve 
this dilemma?
    Answer. Separating the counties of Los Alamos and Santa Fe from a 
shared MSA would reduce the distortions in income and rent calculations 
for HUD programs. Currently, Santa Fe County benefits from the higher 
income and higher rents of Los Alamos County. More people could be 
served in Santa Fe County with lower FMRs, and lower income limits will 
ensure that the needy receive housing services. However, in Los Alamos, 
the reverse will occur. A substantially higher FMR for Los Alamos will 
mean that there will be fewer people served.
    HUD follows the OMB definition of metropolitan areas. New OMB 
definitions will be released this summer, and the Department will bring 
the issue to their attention.
                  section 811 housing for the disabled
    Question. Would separating Los Alamos and Santa Fe from a shared 
MSA remove the distortions and allow more people to receive the 
assistance they need?
    Answer. No. Breaking out the two areas would have no impact in the 
Section 811 distribution. Allocations are done by State or State 
portion within a field office jurisdiction; consistent with the 
requirements of 24 CFR 791 and the Section 202 and 811 program 
requirements. Second, the allocations for Section 811 are not done 
separately for metropolitan versus non-metropolitan areas. Third, and 
more importantly, given the level of funding in total, New Mexico's 
``fair share'' in fiscal year 2002 would have been only 10 units (based 
on the minimum number of units set aside for each office). However, 
since the New Mexico Office is not a Multifamily Program Center, its 
development functions are under the jurisdiction of the Ft. Worth 
Office. Under the Ft. Worth Office's jurisdiction, the sponsors 
applying to develop Section 202 and Section 811 units in New Mexico had 
the ability to compete for 45 units of assistance in fiscal year 2002 
rather than the 10 units if New Mexico was advertised separately.
                            nahasda funding
    Question. Mr. Secretary, I serve a State with over 20 Indian tribes 
including 19 pueblos and the Navajo Nation. Many of their members live 
in substandard housing due to economic circumstances facing the tribes. 
Providing adequate housing for low-income individuals and families is 
one of the primary tenets of your Department. It is also one tool the 
Federal Government has for meeting the spirit of its trust 
responsibility for the tribes.
    One powerful tool in our belts is the Native American Housing 
Assistance and Self-Determination Act of 1996, otherwise referred to as 
NAHASDA. NAHASDA has been a great boon to the Indian people through its 
consolidation of prior housing programs and allocation of block grants 
to the tribes.
    That tool, however, seems dulled of late. While the program has led 
to heartening developments in Indian country, many still wait for 
adequate housing. It is estimated that over 200,000 housing units are 
required to meet current needs. While funding for this program is 
high--at a requested $646.6 million--it has not increased in many 
years. Inflation and population growth have eaten away at the real 
value of this money. Perhaps in this round of appropriations we can do 
something about that.
    First, is it fair to say that the real money value of the NAHASDA 
funds has decreased due to its stagnation and the pressures of 
inflation and population growth?
    Answer. Yes, it would be fair to say this.
    Question. In order to combat this situation, would appropriating 
$700 million for fiscal year 2004 begin to address some of the 
desperate housing needs in Indian Country?
    Answer. The NAHASDA program has made significant improvements in 
its program delivery and tracking of accomplishments. Grant recipients 
assist eligible low-income Native American families residing on Indian 
reservations, in the Pueblos, in Alaska Native Villages, and in other 
traditional Indian areas. Using NAHASDA's six affordable housing 
activities, Indian tribes and their tribally designated housing 
entities (TDHE) create housing opportunities for eligible low-income 
Native American families.
    Beginning in fiscal year 1998, the first year that funds were 
appropriated under the NAHBG Program, through fiscal year 2001, the 4 
years for which data is available, grant recipients have provided 
assistance designed to preserve the viability of, on average, 53,463 
units each fiscal year. The unit count includes moderate or substantial 
rehabilitation, and modernization and operating assistance related to 
units currently in management.
    Using the 4 years of NAHBG funding data available, on average, 
2,536 units have been created each year. Under the NAHBG Program, grant 
recipients are involved in a much wider variety of programs and 
projects, often using innovative, leveraged and mixed financing. These 
activities stretch NAHBG dollars and result in increased housing 
assistance for Native American families.
    The 2004 Budget request provides sufficient funding to implement 
the administration's goals to address the housing needs in Indian 
country.
                                 ______
                                 
               Questions Submitted by Senator Mike DeWine
                outreach and technical assistance grants
    Question. Mr. Secretary, I am very thankful for all the great work 
that your organization has done. As I am sure you are aware, the 
Outreach and Technical Assistance Grants (OTAG) have played a valuable 
role in permitting housing organizations to hold many community 
outreach events including regional and State-wide meetings of housing 
organizations, HUD, local officials and non-profit developers to stay 
informed about HUD program and coordinate their efforts to preserve and 
improve housing in their local communities.
    I understand that several organizations have not passed their 
audits of this program and that this is not uncommon. As a result of 
these findings, HUD has suspended the work of these organizations and 
is delaying issuing a Notice of Fund Availability on the basis that the 
audit findings are not resolved.
    I am concerned that HUD's delay in resolving these audits is 
jeopardizing the future of this valuable program. What are your 
intentions for the program and how do you plan to deal with this 
situation?
    Answer. The consolidated audit report was published on March 31, 
2003, and the Department is currently implementing the management 
decisions associated with these findings.
    Regarding the future funding of Section 514 Grants, the Department 
has committed to perform a Comprehensive Management Review of the 
administration of the Section 514 Grant process, including the 
deficiencies identified by the Inspector General in the recent audit 
reports. After this review is completed and appropriate program 
safeguards are incorporated into the program, the Department will be in 
a position to consider new opportunities for funding under Section 514.
                             gse oversight
    Question. Mr. Secretary, Congress passed legislation in 1992 
requiring that HUD review all new programs that Fannie Mae and Freddie 
Mac are considering before they enter into those programs. In the past 
decade, that law has been all but ignored. I know you are committed to 
full implementation of laws duly passed. What are you doing to ensure 
that a pre-clearance mechanism is established?
    Answer. The Federal Housing Enterprises Financial Safety and 
Soundness Act of 1992 (FHEFSSA) mandated that the Department review the 
GSEs' activities for approval in all instances that meet the statutory 
definition of a new program. As I stated during the recent budget 
hearing, I take this responsibility seriously. It is my belief that the 
Department must provide the level of new program oversight envisioned 
by Congress when it enacted FHEFSSA in order to ensure that new 
programs initiated by the GSEs are consistent with their charters and 
public mission. To achieve this objective, I have directed my staff to 
thoroughly review the Department's current regulatory procedures in an 
effort to promote more efficient and effective regulation.
                                 ______
                                 
           Questions Submitted by Senator Barbara A. Mikulski
                 new lead-based paint abatement program
    Question. In the Public Law 108-7, the Committee created a new lead 
based paint abatement program and appropriated $50 million for the 
program. Please provide the following information in regards to this 
program:
    How is the Department collecting the data required to determine 
which areas meet the criteria for ``highest lead based paint abatement 
needs'' as set forth in the Public Law 108-7?
    Answer. The Department is requiring that all applicants for these 
grants report to HUD the total number of documented cases of lead-
poisoned children from the most recent calendar year for which data are 
available and the number of pre-1940 rental units within the relevant 
jurisdiction. HUD will be working with the CDC and Prevention to 
conduct quality control on the data submitted by applicants on lead 
poisoned children. The Department will also compare reported numbers of 
units to 2000 Census data for quality control. HUD will publish these 
data in its progress report to the Committee on March 1, 2004 or 
earlier, as required. In addition, HUD will publish in the Notice of 
Funding Availability data from the U.S. Census showing the 100 areas 
with the highest number of pre-1940 rental units.
    Question. How many jurisdictions qualify for grants under this 
program?
    Answer. Approximately 100 areas are eligible for grants. These 
areas are identified in an Appendix to the NOFA.
    Question. When will the Department issue a NOFA for this program? 
When does the Department expect to make awards?
    Answer. The NOFA will be published in May 2003. The Department 
expects to make awards no later than September 2003.
    Question. How will the Department monitor the outputs and outcomes 
of grant awards?
    Answer. The Department will track both expenditures and number of 
units made lead safe through its web-based data system, which helps the 
Department ensure compliance with the terms and conditions of the grant 
agreement. In 2004, HUD will also be conducting another national survey 
of the prevalence of lead-based paint in U.S. housing to measure the 
impact of this program and other lead hazard control efforts in 
reducing the number of units with lead-based paint hazards. Previous 
HUD studies showed that the number of housing units with lead-based 
paint declined from 64 million in 1990 to 38 million in 2000 (See 
Jacobs et al., ``The Prevalence of Lead-Based Paint Hazards in U.S. 
Housing,'' Environ Health Perspect 110:A599-606, October 2002). In 
addition, HUD will be working with the CDC to quantify the decline in 
the number of lead poisoned children through the National Health and 
Nutrition Examination Survey, which showed that the number of lead 
poisoned children declined from 890,000 in the mid-1990's to 434,000 in 
1999-2000.
          housing opportunities for persons with aids (hopwa)
    Question. Of the $290,000,000 appropriated to the HOPWA program, 
how many of the funds are expected to renew existing grants? How many 
grants does this represent?
    Answer. HOPWA competitive programs constitute 10 percent of program 
funds. In fiscal year 2003, HUD has available $28.811 million to award 
for HOPWA projects to be selected under the criteria published in the 
Department's SuperNOFA. As required by the Appropriation Act, HUD will 
give priority to the selection of competitive grants that provide 
permanent supportive housing and meet all program requirements. 
Selections will be made later this year after the receipt of 
applications and completion of the Department's review of these 
applications. It cannot be determined which winning applications will 
renew existing grants until the competitive process is completed.
    HOPWA competitive grants are funded for up to a 3-year operating 
periods. As such, many projects operate for their intended 3-year use 
period and are likely to seek additional funding to continue program 
operations. Beginning in fiscal year 2001, the Appropriation Act 
required that HUD give priority to the renewal of existing projects 
that meet program requirements. In fiscal year 2002, the renewal 
requirement specified that projects that provided permanent supportive 
housing receive priority in the selection process. In those 
competitions, HUD established the review criteria in the Department's 
SuperNOFA process. At the completion of these prior competitions, most 
of the available funding was awarded to renew existing projects, for 22 
of 25 projects selected in 2001, and for 14 of 28 projects selected in 
2002. In 2001, 3 new projects were selected and in 2002, 11 new 
projects were selected for funding along with three transitional 
housing projects that receive funding to continue those efforts.
    There are nine grantees operating under fiscal year 1999 awards and 
21 grantees operating under fiscal year 2000 awards, which would 
constitute the likely groups of applicants for renewal requests. Based 
on prior experience, HUD does not expect that all of these projects 
will seek renewal funding in this period or qualify for selection under 
the published criteria as projects that provide permanent supportive 
housing, since some involve transitional housing activities.
                         hopwa renewed grantees
    Question. Please provide a list of these grantees, and a brief 
explanation of what each grant is being used for.
    Answer. The list of these grantees with brief descriptions of their 
existing grant is listed below:
Housing Opportunities for Persons with HIV/AIDS (HOPWA)
1999 Competitive Grants--9 Grants Not Yet Renewed
            California
    City of San Jose, Department of Housing.--$1,346,000, ``Shared 
Housing Assistance Placement and Supportive Services'' (SHAPSS) in 
collaboration with the AIDS Resources Information & Services of Santa 
Clara County and Health. Services include: transitional housing, 
roommate referral service, tenant based rental subsidies and supportive 
services, serving 80 clients and 15 families.
            Colorado
    Del Norte Neighborhood Development Corporation.--$959,330, to 
rehabilitate a 15-bed single-room occupancy (SRO) facility in Denver. 
Project serves very-low income homeless persons living with AIDS, 
dually or triply diagnosed with substance abuse and/or mental illness 
issues. Services are individually tailored including group and 
individual counseling, transportation assistance, food bank access, HIV 
education, daily meals, and self-sufficiency training, which are 
coordinated with the Colorado AIDS Project.
            Delaware
    Delaware HIV Consortium.--$934,487, for the acquisition, 
rehabilitation and operation of a housing facility in collaboration 
with the Connections Community Support Programs, Inc., to develop and 
operate ten units of permanent housing with intensive supportive 
services with a primary focus on the needs of women with co-occurring 
substance use and/or mental health disorders.
            District of Columbia
    Safe Haven Outreach Ministries.--$1,286,000, to support 46 units of 
transitional housing for dually and multiply diagnosed homeless adults. 
This program will convert a public housing building, into one- and two-
bedroom units. On-site substance abuse counseling, basic medical care, 
mental health treatment, case management, assistance with daily living 
and job readiness training which will stabilize 256 homeless 
individuals with permanent housing, while clients with former criminal 
justice issues will receive assists in reentry supports.
            Idaho
    Idaho Housing and Finance Association.--$1,299,837 for rental 
assistance, will provide low-income persons with long-term rental 
assistance in 45 units of short-term rental and utility assistance, 
case management, dental and psychiatric services. The project will 
expand the existing supportive service delivery system, assisting 384 
persons living with AIDS and their families throughout the State of 
Idaho.
            Massachusetts
    Community Healthlink, Inc.--$1,236,000, to establish and operate an 
eight-unit residence for pregnant homeless women also challenged with 
substance abuse issues. Services and support will focus on preventing 
neonatal transmission of HIV and provide prenatal care otherwise not 
accessible for homeless women. This project will serve an estimated 48 
persons with current needs due to homelessness, pregnancy and substance 
abuse and enable them to transition to more stable and independent 
living.
    Justice Resource Institute (JRI).--$1,256,815, for tenant-based 
rental assistance program, with scattered-site rental subsidies to 
access housing for low-income and homeless individuals and families 
with HIV/AIDS. The program will assist 95 persons and their families.
            New Hampshire
    State of New Hampshire, Department of Health and Human Services, 
Office of Community Support and Long Term Care.--$520,448 in 
conjunction with three service organizations will provide housing and 
services to 90 persons and 35 families, and an additional 75 persons 
will only receive supportive services.
            Pennsylvania
    Asociacion de Puertorriquenos en Marcha, Inc.--$1,193,511, to 
continue La CASA (Community AIDS Services Advancement), a program of 
rental assistance, counseling and other services for clients in the 
Latino neighborhood of north Philadelphia, serving persons with HIV/
AIDS and their families through 20 units of tenant based rental 
assistance, security deposits, housing counseling, case management, 
medical monitoring, emergency child care, and transportation within a 
bilingual/bicultural setting.
Remaining 2000 Competitive Awards by State
            Alaska
    Alaska Housing Finance Corporation.--$572,600, to provide housing 
and comprehensive support services to 100 households, such as case 
management, employment services, treatment and transportation, 
especially in addressing needs to access health care in rural areas. 
State agencies and community-based organizations have committed over 
$2,000,000 in resources.
            California
    Salvation Army, Southern California Division.--$927,888 to support 
operating costs and supportive services at a 45-unit transitional and 
permanent housing program for families affected by HIV/AIDS. The 
project will adjust to changes in service needs and help maintain 
families as they transition to permanent housing.
    County of Sacramento, Department of Human Assistance.--$1,300,142 
for a collaborative of human service agencies from both the Homeless 
Continuum of Care and the HIV Services Continuum in Sacramento. This 
project will complete the continuum of care by addressing an 
underserved population of persons who are homeless and avoid 
traditional shelter programs. The City committed 120 tenant-based 
Section 8 permanent housing for clients who successfully complete the 
programs.
    San Francisco Redevelopment Agency.--$1,370,000 to improve the 
current housing conditions for underserved homeless persons living with 
HIV/AIDS in the City and County of San Francisco, by assisting persons 
with support in getting a job or returning to work. In addition, many 
clients may also need support to address homelessness, mental health 
and substance use issues, serving 125 households with access to 10 
units of service-enriched SRO housing units.
            Colorado
    Colorado Division of Housing.--$1,370,000 to provide rental 
assistance and short-term rent payments and related services in areas 
outside the Denver metropolitan area. Nonprofits will offer about 50 
units of tenant-based rental assistance and assist 487 households with 
short-term rent payments to prevent homelessness. An estimated 537 
individuals and their families will receive some form of housing 
assistance.
            Georgia
    City of Savannah, Bureau of Public Development.--$1,197,572 to 
expand on collaborations with Union Mission, Inc. and six other project 
sponsors with the Savannah-Chatham AIDS Continuum of Care in a one-stop 
service and medical center for persons living with HIV/AIDS that will 
streamline the intake process for housing services and expand substance 
abuse treatment to 20 persons receiving housing assistance.
            Hawaii
    Gregory House Programs.--$1,030,000 to continue the supportive 
housing programs and allow for a continuum of services for persons with 
multiple diagnoses who are living in the Honolulu metropolitan area. 
The project uses two housing components: 40 units of tenant-based 
rental assistance and operational costs for an 11-bed transitional 
housing facility.
            Illinois
    AIDS Foundation of Chicago.--$1,362,846 to direct assistance to 
underserved racial and ethnic minority communities that have been 
impacted by AIDS and poverty. The Renaissance Care Network assists an 
underserved population of African-Americans who reside in the greater 
Roseland area of Chicago. HOPWA funds will be used to lease 21 
scattered site apartments and an array of supportive services relating 
to HIV counseling, testing, outreach, parenting, child care, substance 
abuse and mental health.
            Kentucky
    Kentucky Housing Corporation.--$1,320,000 to support more than 490 
persons by establishing a substance abuse treatment network that covers 
all 120 Kentucky counties. The project is an expansion and renewal of 
the 1997 HOPWA grant in short-term housing assistance which will reach 
231 homeless or low-income persons with chemical dependencies in 
connection with substance abuse treatment services.
            Maine
    The AIDS Project (TAP).--$1,333,286 to continue a program and 
expand services to underserved persons in rural areas in the remaining 
areas of the State where no HOPWA funds have previously been available. 
Assistance creates a range of housing options, including 63 units of 
tenant-based rental assistance, 39 units of emergency shelter, 42 units 
of short-term rent, mortgage and utility assistance as well as 192 
security deposits to obtain housing.
            Maryland
    Health Care for Homeless (HCH), Inc.--$1,301,703 to assist an 
underserved population of medically fragile HIV/AIDS homeless persons 
in Baltimore with difficult challenges. The Project will connect 
housing support for 180 clients with a new level of intensive case 
management and comprehensive services to address the needs for the 
homeless or those at risk of homelessness and medically fragile.
            Massachusetts
    Cambridge Cares About AIDS (CCAA).--$1,326,917 to support the Bay 
State Supportive Housing Alliance program fill gaps in housing services 
through 24 units of transitional housing for 24 months to individuals 
and families living with HIV/AIDS across eastern Massachusetts. Eighty-
two persons will be assisted with specialized substance abuse treatment 
efforts and related supportive services.
            Mississippi
    South Mississippi AIDS Task Force.--$935,500 to construct and 
operate Client House, an emergency shelter and transitional housing for 
low income and homeless people living with AIDS and their families. The 
facility will house 12 individuals and 2 families in Biloxi and will 
serve the southern six counties of the State. The project is being 
coordinated with the Mississippi Department of Health and 25 
organizations that provide related supportive services for clients.
            New York
    Church Avenue Merchants Block Association, Inc. (CAMBA).--
$1,080,000 to renew the multiple diagnoses initiative program Housing 
Start. The project provides scattered site apartments in Brooklyn for 
40 low-income homeless persons living with HIV, who have mental illness 
or chemical addictions or both. The project will link HIV, substance 
abuse, mental health services, treatment education, health care, 
intensive independent living skills training and other supportive 
services with housing assistance to maximize independent living and 
self-determination.
    Housing Works, Inc.--$707,177 to address the needs of women who are 
exiting the criminal justice system, with 12 units of transitional 
housing and a range of supportive services to reinforce behavioral 
changes, that will reintegrate 75 women into the community pending 
release or recently released from incarceration. A minimum of 20 of 
these women will receive support such as security deposits and moving 
expenses into permanent housing, linked to a full range of medical, 
clinical, psycho-social, case management services.
    The Fortune Society.--$1,274,875 to develop Coming Home Program to 
meet the needs of underserved primarily African American and Latino 
homeless persons who are released from jails and prisons, with 
extensive substance abuse issues. The program will assist 125 clients 
with support in permanent housing, after emergency, transitional, 
supported permanent and independent permanent housing in addition to 12 
beds for emergency and transitional housing in West Harlem that will 
continue as a permanent resource for the target population.
    Center for Children and Families.--$1,278,906 to continue New York 
City's first system-wide housing assistance program for homeless HIV 
and multiple diagnosed minority youth from 18-24 years old in the Times 
Square area. An estimated 270 youth will be assisted with overnight 
shelter and other support. This program involves the operation of a 
number of specialized facilities, such as Safe Space, a 24-hour drop in 
center, and using two mobile units which canvass for homeless youth on 
the streets.
            Pennsylvania
    Family Health Council of Central PA, Inc.--$367,040 to establish a 
program that links health to housing for clients in a 14 county region 
of south and central Pennsylvania through eight area AIDS sponsors. 
These providers will deliver rental assistance support to an estimated 
150 clients, especially women in rural areas of the State.
            Texas
    Bexar County, Department of Housing and Human Services.--$1,320,000 
to target an underserved population of women with children. Twenty-
eight families who are homeless or at risk of becoming homeless will be 
housed in an acquired and rehabilitated building that consists of eight 
units of transitional housing. Residents will receive treatment and 
family services intended to help stabilize women in housing, help 
address health concerns, and when able, move to permanent housing.
            Vermont
    Burlington Housing Authority.--$471,392 to continue a program of 
rental assistance and support services for residents of an 11-unit 
supportive housing. A wide range of supportive services is available to 
residents, with a combination of public and private funding.
            Wyoming
    Wyoming Department of Health.--$588,191 to expand services on a 
statewide basis through the use of a short-term rent payments program 
to respond to client requests. Funds will allow the State and its 
sponsors, the Wyoming AIDS Project and Casper Housing Authority to 
continue to meet supportive service needs and address short-term 
housing assistance of 175 low-income persons.
                national homeless data analysis project
    Question. Please provide a status report on the national homeless 
data analysis project, including an accounting of how the $11,000,000 
will be spent, and estimated future costs of this project.
    Answer. Congress has directed HUD to improve the collection of data 
on the extent and nature of homelessness locally and nationally. HUD 
has set October 2004 as the goal for each Continuum of Care (CoC) to 
implement a Homeless Management Information System (HMIS). HUD is 
providing $4.1 million in technical assistance to CoCs to help ensure 
they are able to meet this goal. HUD is also undertaking a $3 million 
3-year effort to: (1) develop data and reporting standards; (2) develop 
an 80 jurisdiction national sample; and (3) collect and analyze 
homeless data from the sample and all CoC systems for an Annual 
Homeless Assessment Report (AHAR) to Congress. While implementing a 
HMIS is a complex, time-consuming, and costly process, CoCs have been 
making progress in meeting the 2004 goal. In spring 2002, 25 percent of 
the CoCs reported they had implemented or were upgrading or expanding 
their HMIS, 51 percent indicated they were selecting software and 
hardware, 22 percent were meeting and considering implementation, and 2 
percent had not started to consider a HMIS.
    Concerning the fiscal year 2003 funding targeted for additional 
HMIS technical assistance requirements: HUD is currently assessing the 
nature of community needs for HMIS technical assistance and will 
prepare a request for proposals in the near future.
    Currently HUD does not have a reliable estimate on the total costs 
for CoCs to implement and operate a HMIS. In 2001, 49 dedicated HMIS 
projects were funded, totaling $13 million and in 2002, 83 projects 
totaling $25 million were funded. Nearly all of these were 3-year 
grants. We expect a significant number of communities to apply for 
funds in the 2003 competition. In addition, CoCs are using a variety of 
public and private sources in addition to Supportive Housing Program to 
fund their HMIS. We will conduct further analysis of the HMIS costs 
after awarding the 2003 Continuum of Care competitive grants.
  fiscal year 2003 technical assistance for homeless assistance grant 
                                program
    Question. Please detail how the Department will spend the 
$6,600,000 for technical assistance appropriated to the homeless 
assistance grants program.
    Answer. Of the $6.6 million appropriated for homeless technical 
assistance, $3.6 million is being made available through HUD's 2003 
SuperNOFA process for technical assistance on the national level. The 
remaining $3 million is being distributed to HUD's field offices for 
award at the local level to winning technical assistance providers.
    As announced in the fiscal year 2003 SuperNOFA, the $3.6 million 
national technical assistance funding is focused on the following 5 
types of activities: (1) facilitating the exchange of information 
between community organizations to assist them to develop and implement 
a community-wide discharge plan for individuals exiting publicly funded 
institutions; (2) improving the ability of eligible applicants to 
develop and operate permanent housing for chronically homeless persons; 
(3) developing materials on effective grant administration for grantees 
and sponsors; (4) improving the ability of eligible grantees and 
sponsors in reaching out to and enumerating chronically homeless 
persons; and (5) improving the ability of grantees and sponsors in 
coordinating services available through mainstream resources with 
current housing units available for homeless persons.
                      technical assistance in cdbg
    Question. Why doesn't the Department request funds for the 
technical assistance (TA) in the CDBG account?
    Answer. While CDBG TA has not been funded since fiscal year 1999, 
the President's Budget requested $7.5 million in 2000, $15 million in 
2001, nothing in 2002, $3 million in 2003 and $3 million in 2004. HUD 
strongly believes that it needs TA to support the $4.4 billion CDBG 
program.
    Question. What need do CDBG grant recipients have for TA?
    Answer. CDBG grant recipients need TA for training in basic CDBG 
implementation as well as in specialized areas as local performance 
measurement. Instead of requiring individual grantees to develop ways 
to address an issue or a training program, HUD could be providing 
methods already proven to be successful. These funds would be provided 
through contracts or grants and would not be used to pay HUD staff 
travel or training.
    In fiscal year 2004, TA would address new homeownership assistance, 
affordable housing, timely expenditure of funds, particularly by 
States, training programs for grantees staff to ensure better 
understanding of accountability requirements, data enhancements, faith-
based community groups, energy enhancement, and meeting lead-based 
paint safety requirements.
    In addition, some of these funds will be used to implement any 
revisions to the Consolidated Plan Improvement Initiative, as required 
by the President's Management Agenda, HUD's charge is to streamline the 
Consolidated Plan and make it more results-oriented and useful to 
communities in assessing their own progress in addressing the problems 
of low-income areas.
    Question. Has the Department received specific requests for CDBG 
technical assistance?
    Answer. Over the past 3 years, HUD has received a steady stream of 
requests from CDBG grantees for base level technical assistance (TA) 
because of considerable staff turnover at the local level as well as 
requests from stakeholders for TA to address such emerging issues as 
lead based paint hazards and housing and economic development issues 
within the colonias.
                         neighborhood networks
    Question. What is the status of the Neighborhood Networks program 
in public housing?
    Answer. In the 4 years since HUD introduced the Neighborhood 
Networks (NN) Centers program, the Centers' services and programs have 
expanded widely. Local partners, such as educational institutions and 
nonprofits offer tutoring, mentoring programs and other needed 
services. The program was developed to serve residents of public 
housing who often lack the skills necessary to become economically 
self-reliant. The Centers were designed to give these individuals an 
educational opportunity practically at their doorstep. Learning how to 
use a computer is the core of the Neighborhood Networks' philosophy 
because computers have become a gateway to knowledge and employment.
    The NN Centers are typically located on-site or near a Public 
Housing facility. The Centers are equipped with computers and Internet 
access. They help lower-income residents reach their goals and achieve 
economic self-sufficiency through access of education and job training; 
help children become better students; provide parents and adults access 
to job skills; and assist senior citizens to remain independent.
    Question. How many grants have been awarded? What is the average 
grant award amount?
    Answer. Fiscal year 2002 as well as fiscal year 2003 Appropriations 
Acts appropriated $15 million from the Public Housing Capital Fund and 
$5 million from the HOPE VI program to establish or expand existing 
Public Housing NN Centers.
    In fiscal year 2002, 78 grants were awarded to PHAs to operate 
centers across the country. The average award amount is $168,743. The 
fiscal year 2002 HOPE VI funding has not been awarded at this time, but 
will be by September 30, 2003. The Department anticipates the award of 
approximately 28 grants to HOPE VI sites.
    Question. How is the Department monitoring the outcomes of the 
program?
    Answer. For the fiscal year 2003 Notice of Funding Availability 
(NOFA), the Department developed a reporting requirement of performance 
measures and outcomes known as the Logic Model. Applicants are required 
to address their previous results, and present proposed program 
outcomes, outputs, benchmarks, and performance indicators. If the 
applicant is a successful awardee, then the applicant is required to 
report semi-annual against their work plan the achievement of these 
performance measures.
                  communities served under brownfields
    Question. How many communities have been served over the life of 
the Brownfields program? What activities does the HUD Brownfields 
program fund that are not eligible under the EPA Brownfields program?
    Answer. Since 1998, HUD has awarded 108 Brownfields Economic 
Development Initiative (BEDI) grants to 85 communities. In some cases, 
additional communities may be served through those applications, such 
as when a county receives a BEDI grant for the redevelopment of 
multiple sites in a number of communities within the county.
    The 2002 Small Business Liability Relief and Brownfields 
Revitalization Act expanded the funding that EPA can provide to support 
the assessment and cleanup of brownfields properties. The authorities 
granted to EPA under the new law, however, are limited to property 
characterization, assessment, and cleanup. The law permits recipients 
of EPA's grants or loans to use funds to conduct planning but only when 
associated with property assessment and cleanup. In addition, the law 
permits a recipient of an EPA grant or loan to purchase insurance, but 
again, only for activities associated with the characterization, 
assessment or remediation of a brownfields site. EPA has given out 
approximately 400 grants, and their funds can be used for site 
beautification projects, known as greenspace.
    HUD's objective regarding brownfields is to assist projects whose 
focus is the end of the redevelopment process, i.e., projects with 
plans by identified parties that will return contaminated sites to 
productive economic use, as differentiated from assessment and cleanup 
which are the beginning phases of the overall redevelopment process.
    Because BEDI grants may currently be used only in conjunction with 
Section 108 guaranteed loans, BEDI may support any activities eligible 
for assistance under the Section 108 Loan Guarantee program, provided 
those activities are undertaken in connection with the redevelopment of 
a brownfields site. Communities may seek BEDI assistance for a wide 
range of redevelopment activities, including the acquisition, 
demolition, clearance or preparation of a brownfields site; 
installation of infrastructure; construction or rehabilitation of 
housing, commercial or industrial buildings; business loans and job 
training to attract or expand businesses; and the establishment of 
public facilities such as child care and community centers (the full 
scope of eligible activities that may be supported with BEDI funds is 
provided at 24 CFR Sec. 570.703).
    The Department did not request funding for the Brownfields Economic 
Development Initiative in fiscal year 2004, but the Department will 
continue to support the redevelopment of brownfields through the 
Community Development Block Grants program.
    The following table depicts the activities eligible under the 
respective EPA and HUD authorizing legislation:

------------------------------------------------------------------------
            Activity                      EPA                 HUD
------------------------------------------------------------------------
Assessment......................  Yes...............  Yes.
Remediation.....................  Yes...............  Yes.
Acquisition.....................  No................  Yes.
Construction and Rehabilitation.  No................  Yes.
Business Attraction or Expansion  No................  Yes.
Housing.........................  No................  Yes.
Clearance and Demolition........  Only If Integral    Yes.
                                   to Remediation.
Public Facilities...............  Only If Integral    Yes.
                                   to Remediation.
------------------------------------------------------------------------

    Although BEDI may also finance site characterization, assessment 
and remediation activities, between 2000-2002, just 9.1 percent of 
funds provided by BEDI grants and associated Section 108-guaranteed 
loans were used for this purpose. Indeed, BEDI grantees have 
demonstrated considerable success in accessing EPA resources for site 
characterization, assessment and remediation, with nearly 82 percent of 
BEDI funds allocated to sites that have received EPA brownfields 
assistance for the early phases of redevelopment.
                         hanf funding proposal
    Question. The new funding method adopted in the fiscal year 2003 
appropriations bill will mean that local agencies will have to draw 
funds from their reserves, and possibly from the new central fund, in 
order to have sufficient money to pay rent to owners when additional 
families succeed in locating units. This could require fairly quick 
action by HUD. If owners do not receive timely payments, they are 
unlikely to agree to participate in the program. What will HUD do to 
ensure that housing agencies can access the necessary funds quickly, so 
that owners can be paid on time?
    Answer. HUD has implemented a data collection tool that requires 
PHAs to submit updates to leasing and cost activities quarterly. This 
current data will be used as the basis to fund expiring contracts on a 
quarterly basis and provide PHAs with the appropriate level of funding.
    There will be times when a PHA must use reserves and/or require 
additional funding from the Central Reserve. HUD is well aware of the 
importance of providing this funding to PHAs in a timely manner and is 
prepared to do so. HUD also has the responsibility to ensure that the 
funding required, up to the authorized level, is made available to PHAs 
within 30 days of a request. HUD has developed a PIH Notice that 
outlines procedures for PHAs to request access to reserves and/or 
additional funding. The notice is going through an internal clearance 
process and should be issued in the very near future.
    Question. Is HUD planning to issue guidance to housing agencies 
explaining the new funding method adopted for fiscal year 2003? If so, 
when do you anticipate the guidance will be issued?
    Answer. HUD notified all PHAs by letter and e-mail of the changes 
in the funding methodology resulting from the fiscal year 2003 
appropriations and requirements of PHAs. HUD has also developed an 
implementation notice that outlines the changes in more detail. The 
notice is in internal clearance and should be issued in the very near 
future.
                        unused budget authority
    Question. For housing agencies with fiscal years ending 6/30/02, 9/
30/02 and 12/30/02, what percentage of total allocated budget authority 
was used, and what was the dollar amount of unused budget authority?
    Answer. See table below.

----------------------------------------------------------------------------------------------------------------
                                                2003          2006          2009          2012          Total
----------------------------------------------------------------------------------------------------------------
Table allocated BA used (percent).........          89.7          95.6          96.3          92.1          94.0
Unused BA.................................  $149,506,470  $287,272,551  $107,281,709  $149,018,101  $693,089,101
----------------------------------------------------------------------------------------------------------------

                 housing assistance for needy families
    Question. Does HUD anticipate recapturing the full amount of unused 
BA before the end of fiscal year 2003? If not, why not?
    Answer. The recapture process in August 2003 will recapture all 
unused budget authority from fiscal year 2002 and prior appropriations 
that have accrued to PHAs' program reserves. However, a month reserve 
amount for all PHAs will be excluded from recapture. In addition, funds 
provided to Moving-to-Work agencies units under litigation and certain 
special fees intended for future years will also be excluded from 
recaptures. Funds provided to Moving-to-Work agencies are excluded from 
recaptures pursuant to the legal agreement between HUD and the agencies 
involved.
                                reserves
    Question. How much of the BA recaptured during fiscal year 2003 
will be needed to replenish PHA reserves?
    Answer. PHA program reserves are replenished at the end of each PHA 
fiscal year. The fiscal year 2003 appropriation allows for the 
replenishment of reserves up to the authorized level of units due to 
increased costs from the Central Fund.
    The estimate to replenish reserves, based on the cost per unit 
currently provided by PHAs, is approximately $200 million.
                          voucher utilization
    Question. What steps is HUD planning to take this year to continue 
to encourage PHAs to increase the percentage of vouchers they are 
using?
    Answer. The Department proposes the Housing Assistance for Needy 
Families (HANF) initiative as a means to reform and improve the voucher 
program. HANF will provide tenant-based housing assistance through 
State-administered block grants. This initiative will simplify current 
income and rent calculations by eliminating dozens of statutory and 
regulatory exemptions and deductions. Implementation of HANF will:
  --provide for the program flexibility and oversight so that funds are 
        used promptly and effectively to assist needy families;
  --facilitate greater program responsiveness to local markets and 
        needs;
  --provide for the administrative decision-making closer to the 
        communities and families affected, by their elected officials;
  --provide for additional program flexibility to address local needs;
  --allow flexibility at the State level for reallocation of funds or 
        other actions that may be necessary so that program funds are 
        expended promptly; and
  --improve government support of self-sufficiency efforts by assisted 
        families, by facilitating greater coordination with the TANF 
        program and other State programs.
    Question. Is HUD continuing to notify agencies that fail to use at 
least 90 percent of their vouchers (or budget authority) that if they 
do not improve substantially HUD will reallocate some of their vouchers 
to another agency?
    Answer. The Department is reviewing procedures related to the 
reallocation of vouchers and will determine if reallocation will be 
conducted this summer. However, budget reform made by Congress in 
fiscal year 2003 may negate the necessity to do so.
    Question. Has HUD reduced the number of vouchers allocated to any 
agencies due to poor performance during this fiscal year? If so, please 
provide details on the agencies and number of vouchers affected. Have 
these vouchers been reallocated to other agencies?
    Answer. HUD has not reallocated vouchers from under-performing 
agencies in fiscal year 2003.
                      study on voucher utilization
    Question. HUD has commissioned a study on how high-performing 
agencies have improved voucher utilization that the study contains more 
recent data on voucher utilization than HUD has provided to Congress, 
and that it has been ready to be issued for 6 months. When this study 
will be made public? Please provide the Committee with a copy of the 
study.
    Answer. The report is being finalized now and should be sent to the 
printer in the next few weeks.
                          voucher utilization
    Question. HUD's budget request assumes that the average cost of 
vouchers in fiscal year 2004 will be $6,468, including administrative 
fees, yet the average cost of the requested incremental vouchers is 
$6,545. Please explain the discrepancy. The Congressional Budget Office 
in its March baseline estimates that the average cost of vouchers in 
fiscal year 2004 will be $6,842. Please explain the discrepancy between 
the administration's estimate and CBO's.
    Answer. In fiscal year 2004, up to $36 million are requested for 
non-elderly disabled vouchers as a set-aside that might result in 
approximately 5,500 units depending on the region or area where they 
will be utilized. There is a cap on the funding of $36 million that can 
be used for the non-elderly disabled vouchers. However, there is no 
floor or ceiling on the number of units that can be awarded from the 
amount set-aside for this purpose. The estimate of 5,500 units is just 
an estimate to provide some context and should not be viewed as an 
absolute final number. It should not be used to calculate a per unit 
cost of $6,545. The dollar amount is the only limiting factor for non-
elderly voucher set-aside. The average per unit cost of $6,648 was 
calculated based on the PHA's latest year-end financial statements and 
the actual cost of approximately 2 million units was taken into 
consideration. In addition, the local and regional inflation factor was 
used to project cost for fiscal year 2004.
    The Department does not know the assumptions used by CBO to 
calculate the PUC, therefore, we are unable to address the discrepancy 
between HUD & CBO.
    Question. In HUD's budget justifications, page A-16, the 
administration says it is requesting renewal funding for 1,935,649 
vouchers. This is only 90.9 percent of the 2,130,000 vouchers that 
require renewal in fiscal year 2004. Using the administration's cost 
estimate of $6,468 per voucher and including the central fund, 
approximately 94.7 percent of vouchers can be supported by the total 
budget request of $13.047 billion for voucher renewals. Yet HUD's 
Fiscal Year 2002 Performance and Accountability Report states that 
voucher utilization reached 94 percent that year, and the Budget 
Justifications submitted by HUD to Congress in February 2003 indicate 
that HUD anticipates continued improvement in voucher utilization, to 
95 percent and 96 percent respectively, in fiscal years 2003 and 2004. 
Can you explain these discrepancies?
    Answer. The 2.1 million vouchers identified represent the entire 
inventory of authorized vouchers projected in fiscal year 2004. Not all 
vouchers in the inventory require renewal funding in fiscal year 2004 
because existing budget authority exists as a result of a long-term 
contract, or new budget authority is available for vouchers awarded for 
tenant protection actions and/or incremental vouchers. Further, a 1-
month reserve will be available to PHAs to cover increases in cost or 
lease up to the authorized level.
    The renewal estimate provided in the budget is based on a leasing 
level of approximately 96 percent, and includes funding requirements 
for increased costs and additional leasing. This leasing level is 
consistent with leasing projected in the fiscal year 2002 Performance 
and Accountability Report.
    Question. Of the total requested appropriation of $13.607 billion 
for HANF, some $12.535 billion represents new budget authority. The 
remaining $1.072 billion is assumed to be carried over from recaptures 
of voucher appropriations from prior years. Based on the most current 
information available, what is HUD's current expectation of the amount 
of carry-over funds that will be available in fiscal year 2003?
    Answer. The only amounts expected to carryover are $1.072 billion, 
which is already assumed in the fiscal year 2004 Budget. All other 
funds are expected to be committed for specific purposes or used to 
meet the fiscal year 2003 rescission.
                   severely distressed public housing
    Question. Please detail how the Department is complying with Senate 
direction to ``submit a report by June 15, 2003, on the number and 
location of severely distressed public housing units that are in need 
of substantial revitalization or demolition''?
    Answer. At this time, the Department does not have a mechanism to 
review the entire public housing inventory and determine how many units 
are severely distressed. Even the National Commission on Severely 
Distressed Public Housing acknowledged the difficulty in identifying 
specifically distressed projects and opted to estimate the total number 
nationwide rather than do an inventory. Furthermore, a standard 
definition of severe distress needs to be agreed upon prior to an 
evaluation of the entire inventory. HUD has to work with 5 different 
definitions as provided in Sections 18, 24, and 202 of the 1937 U.S. 
Housing Act, the HOPE VI appropriations and the Commission of Severely 
Distressed Public Housing. The Department is currently working with the 
Urban Institute to assess, among other things, the various definitions 
and establish one standard that can be used Department-wide.
                                hope vi
    Question. During the fiscal year 2004 budget hearing, Secretary 
Martinez indicated that the Department would be convening an ``internal 
work group'' on HOPE VI, to consider reauthorization. Please provide a 
status report on this work group.
    Answer. The Department is coordinating the Public Housing and 
Community Development Resources Review Initiative. As part of this 
initiative, the Department is convening experts who will provide input 
on the type of revitalization program that is needed given the current 
public housing stock and 10 years of lessons learned from HOPE VI and 
other affordable housing programs.
    The HOPE VI Review Initiative convened on May 28 and June 12, 2003. 
A final meeting is scheduled for June 19, 2003. In addition, HUD 
officials will continue to draw on information from a wide variety of 
sources.
    The Department also contracted with the Urban Institute to write a 
lessons learned report on HOPE VI and the revitalization of distressed 
public housing. This report will be used along with the information 
collected from the HOPE VI Review Initiative and other sources to 
examine alternative methods of public housing revitalization.
                  interactive web-based lead database
    Question. This Subcommittee provided $3.5 million in fiscal year 
2002 for the development of an interactive, web-based lead database 
that utilizes ``real time'' information and mapping capabilities to 
provide local, State, and Federal Government officials, public and 
private organizations, health care providers and families with easy 
access to childhood lead poisoning prevention data and educational 
information, and to facilitate multi-disciplinary collaboration to 
further childhood lead poisoning prevention efforts. The Committee is 
aware of, and delighted with HUD's goal of having the Lead-Safe Homes 
data system fully operational by February 2004. In light of additional 
funding provided for abatement of lead in homes, how do you plan to 
expand the current pilot program from three cities to a nationwide 
interactive web-based database so their abatement funds are used most 
efficiently?
    Answer. HUD believes this database will help local jurisdictions 
target their resources to those areas in greatest need. The data are 
most helpful if they are provided at the level of the individual 
housing unit and not restricted to only the block or census tract 
level. In Boston and Chicago, unit-specific data have been provided, 
although in Baltimore, unit-level data have been restricted, reportedly 
due to local authorities' concerns about confidentiality of medical 
records. The Fiscal Year 2003 Appropriations Act provides that the lead 
hazard reduction demonstration program funds can be used for 
inspections, risk assessments, interim controls, abatement, and 
temporary relocation of families during the hazard control work. Since 
explicit language was not provided in the Act, expansion of the 
database may not be an eligible expense for grantees under this 
program. For the existing lead hazard control grant program, the cost 
of database development is an eligible expense and HUD will develop 
incentives to encourage its grantees to enter their data into this 
system. Additional resources could also be provided through the use of 
local matching funds.
    Question. Do you see expansion as a slow process, adopting 
information from a limited number of cities at a time? Do you envision 
rapid expansion once you feel the system is capable of handling data 
from numerous cities around the county?
    Answer. Because the development costs associated with the pilots 
have already been covered, we can achieve significant economies of 
scale by expanding the project to other cities. Once the database for 
the pilot cities is released and fully operational, HUD expects that 
jurisdictions will recognize its value in short order. Several other 
jurisdictions have expressed interest, such as Philadelphia, Milwaukee, 
Providence, and the States of Maryland and Massachusetts. The expansion 
of the database is likely to proceed most rapidly in those communities 
at highest risk. However, the expansion of the database is likely to be 
slower if it is dependent on the resources of State and local 
governments, given their current financial status. Rapid expansion 
could be facilitated by additional appropriations for those communities 
at greatest risk.
      interagency investment in childhood lead poisoning reduction
    Question. How does HUD plan to accomplish interagency investment in 
ending childhood lead poisoning by 2010?
    Answer. At the Federal level, the President's Task Force on 
Environmental Health and Safety Risks to Children coordinates all lead-
based paint activity among the different agencies. On April 18, 2003 
the President signed an Executive Order extending the Task Force for 2 
years. HUD also serves on the CDC Childhood Lead Poisoning Prevention 
Advisory Committee as an ex-officio member. At the State and local 
level, HUD has been encouraging the creation of strategic plans to 
eliminate childhood lead poisoning by 2010. Such plans are under 
development in: Detroit; Philadelphia; Rochester, NY; Milwaukee; and 
the State of Rhode Island. ``Summit conferences'' to develop such local 
plans either have been or will be held shortly in Cleveland and 
Chicago. Both HUD and the Centers for Disease Control and Prevention 
are requiring their respective grantees to develop local plans to 
achieve the 2010 goal.
    Question. What other agencies does HUD envision partnering with to 
fulfill the goal of eradicating childhood lead poisoning?
    Answer. Partnering agencies include, but are not limited to, the 
following: Centers for Disease Control and Prevention, Environmental 
Protection Agency, Office of Management and Budget, Departments of 
Justice, Energy (weatherization), Agriculture (rural housing), Defense, 
Treasury, National Institute of Environmental Health Sciences, Center 
for Medicaid and Medicare Services, Office of the Public Health 
Service, and the Consumer Product Safety Commission.
                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy
                      homeless funds in burlington
    Question. Mr. Secretary, I want to raise a concern I have with the 
Continuum of Care program that I hope you can address. It has come to 
my attention that several years ago the Department made a significant 
change in the way it evaluates these grants which has dramatically 
impacted one of Vermont's neediest communities.
    In 1997 the Department began using the Community Development Block 
Grant (CDBG) formula to establish a level of ``Pro-Rata'' need--a base 
level of funding for each community. Before this time Burlington, and 
the Chittenden County Continuum of Care, often received over $1 million 
to run a variety of homeless programs. The need was great and the 
programs were widely praised--receiving Best Practices Awards from the 
U.S. Conference of Mayors and from HUD.
    Based on the new formula Burlington's pro rata need was estimated 
at a fraction of what the funds they had been receiving--and HUD 
awarded more points to projects that fell within that arbitrary number. 
The result was a drastic decline in the number of projects that were 
funded and in the total amount of money they received--from $1.6 
million in 1996 to $350,000 in 2002. The result has been a slow but 
painful erosion of their system of care in the county. This happened at 
time when the area was seeing a 400 percent increase in the number of 
families seeking assistance.
    My question to you is this: Can HUD show any data, or have you 
collected any information, that demonstrates a link between community 
development needs, as evaluated by the CDBG formula, and the homeless 
needs in each individual community?
    Answer. Prior to 1994, HUD did not have an objective measure to 
assess the need for competitive homeless program assistance, a 
statutory selection factor. Individual projects were asked to provide 
narratives about the particular homeless sub-population they intended 
to serve in their community. As a result, there was no ability for HUD 
to assess the need for homeless assistance of one community relative to 
another. At the same time, a significant number of communities began 
submitting applications, making this relative determination of need 
even more difficult. For instance, prior to 1994, fewer than 1,000 
projects were submitted to HUD annually for competitive funding. In 
1994, 2,655 applications were received.
    Beginning in 1994, HUD instituted its pro rata need approach to 
provide a more objective and fair measure of need. HUD examined Census 
and other data on homelessness to determine how need would be measured. 
As there were no readily available and reliable direct measures of 
homeless need, HUD turned to the Congress for direction. In creating 
the Stewart B. McKinney Homeless Act of 1987, Congress stipulated that 
HUD's only homeless assistance formula program, Emergency Shelter 
Grants, be allocated using the factors contained in the Community 
Development Block Grant (CDBG) program. The CDBG factors prescribed by 
Congress are: population, poverty, housing overcrowding, growth lag and 
age of housing. Given this direction from Congress and no other readily 
useable measures of homeless need, HUD uses the CDBG factors in 
determining pro rata need in Continuum of Care competition.
    In 2001, Congress directed HUD to review the pro rata need approach 
used for HUD's competitive homeless assistance programs. In April 2001, 
HUD sponsored a conference on this subject and invited representatives 
from numerous national organizations; Federal, State and local 
officials, including Congressional staff; homeless providers; homeless 
advocates and academics. At the conclusion of the conference, there was 
overall agreement that the current approach which utilizes the only 
current available data for determining need for McKinney-Vento funding 
was working well. This approach will be improved prospectively as we 
receive national HMIS data in fiscal year 2005.
    Question. Is HUD currently collecting information and data about 
homeless populations in order to determine how best to approach these 
complex problems or how best to allocate funds?
    Answer. With direction from Congress, HUD is working to improve the 
collection of data on the extent and nature of homelessness locally and 
nationally. HUD has set October 2004 a goal for each Continuum of Care 
to implement a Homeless Management Information Systems (HMIS). HUD is 
providing financial and technical assistance to Continuums to meet this 
goal.
    It is noteworthy that the State of Vermont and the Chittenden 
County Continuums are collaborating on a State-wide HMIS. It is our 
understanding that planning and implementation of this system are on 
course for meeting the 2004 national implementation goal. In fact, the 
State of Vermont has been a leader in suggesting innovative proposals 
for enhancing the HMIS initiative. These efforts will contribute to 
better understanding homelessness and how to address it.
    Question. Secondly, have you heard from other rural States, such as 
Vermont, that are facing similar problems with their funding formula, 
and has the Department ever considered the need for a small State 
minimum in this program?
    Answer. There are two key provisions in pro rata need to help 
ensure communities can more fully address their local homeless needs.
    The first protects communities that have existing HUD-funded 
projects. HUD assures that if the cost of operating such projects for 1 
year exceeds the community's pro rata need amount, HUD will provide an 
upward adjustment to that amount to ensure that all such projects can 
fully operate.
    The second provision allows each community to receive additional 
funding by requesting as its number one priority, a new permanent 
housing project. This provision has been in place for a number of 
years. Unfortunately, Chittenden County has consistently declined to 
request this bonus funding. Had they requested a fundable project in 
2002, the continuum's pro rata need would have doubled from $226,000 to 
$452,000. We are hopeful that the continuum will fully exercise its 
options in 2003.
    The State of Vermont, which administers a Continuum of Care system 
covering the remainder of the State, receives significant assistance 
through HUD's Continuum of Care process. For instance in December 2002, 
the State's Continuum was awarded over $1.2 million in homeless 
assistance. As a result, the combined Continuum of Care funding award 
amount in 2002 for Vermont was approximately $1.4 million.
                                 ______
                                 
             Questions Submitted by Senator Robert C. Byrd
                     public housing operating fund
    Question. The U.S. Department of Housing and Urban Development 
recently revealed a $250 million funding shortfall in the Public 
Housing Operating Fund for Fiscal Year 2002. The January 18, 2003, 
edition of the National Journal cites a Housing and Urban Development 
official saying that an internal problem with HUD's system for 
estimating costs had led to the shortfall.
    Yet, despite the Department's admission that the funding shortfall 
is a result of their own error, the Department has refused to request 
additional funding in fiscal year 2004 to rectify the situation. 
Instead, the Department of Housing and Urban Development has 
significantly reduced subsidies to public housing authorities, 
threatening the housing of the nearly 3 million people who currently 
occupy public housing.
    Why, specifically, is the Department of Housing and Urban 
Development experiencing a funding shortfall?
    Answer. In 2001, HUD changed its funding formula, in part to 
redirect some funding from large to small PHAs. At the time, however, 
HUD did not change its reporting and accounting systems to support this 
change. This failure led to inadvisable management practices. For 
example, HUD used 1999 data for 2001 funding due to an inability to 
access 2000 data.
    Unfortunately, the previous system made it difficult to forecast 
future funding streams correctly and to set percentage funding levels 
responsibly, resulting in some years in significant funding shortfalls. 
For example, in 1998 (a 100 percent funding year), there was a $102 
million shortfall, leading to a 92.5 percent funding level the next 
year. In short, poor accounting systems and practices led, in some 
years, to the setting of inappropriately high funding percentages, 
which in turn led to funding shortfalls.
    Over the past decade, HUD's practice at the operational level has 
been to automatically dip into future years' appropriations to 
compensate for any shortfalls. This is an unacceptable and 
irresponsible practice, which had apparently been going on for some 
years without the knowledge HUD's senior management or Congress. Upon 
senior management's discovery and confirmation of the problem, HUD took 
action to inform the appropriations and authorizing committees of both 
House and Senate of the practice and the resulting $250 million 
shortfall.
    Question. Why is the administration not requesting additional 
funding to cover this shortfall, thus, choosing to make the residents 
of public housing suffer for the Department's mistake?
    Answer. When the Department discovered the $250 million funding 
shortfall in the Public Housing Operating Fund for fiscal year 2002, it 
did have many conversations and meetings with all appropriate parties. 
One of the outcomes of these discussions was the inclusion of language 
in the 2003 Appropriations Act, which provided the Department with $250 
million to cover the funding shortfall in the Public Housing Operating 
Fund. While the remaining 2003 funding will not cover 100 percent of 
the eligibility needs for the public housing industry, historically the 
Department has funded PHAs at less than 100 percent, including a 
funding level of 89 percent in 1996. PHAs should be able to accommodate 
this level of funding through efficiencies and economies in their 
operations and, where needed, by utilizing reserves and other funding 
sources available to them.
    Question. What specific actions is HUD undertaking to ensure such a 
shortfall does not occur again?
    Answer. The Department has taken the following actions to ensure 
that a shortfall does not occur again in this program. Specifically, 
the Department has:
  --implemented a new interim Operating Subsidy system that will enable 
        HUD to provide more timely and accurate funding to PHAs;
  --enhanced its internal controls and managerial reporting system; and
  --put in place new managerial staff and have added support staff to 
        ensure that appropriations enacted in 2003 and beyond for this 
        program are managed in a responsible manner.
    Question. Since HUD has announced an intended funding cut in the 
operating subsidies provided to public housing authorities, I have 
received letters from numerous constituents expressing concern about 
this proposal and outlining the ways it would adversely effect the 
residents of public housing in West Virginia. Public housing 
authorities will have to postpone maintenance and renovation of 
apartments, eliminate many tenant services, and possibly closing 
housing units.
    What do you believe the repercussion to public housing will be by 
reducing the operating fund subsidy to public housing as HUD intends?
    Answer. HUD did not intend that the funding level of 70 percent 
announced in Notice 2003-1 would be the final level. After 
Congressional action was completed on HUD's fiscal year 2003 
appropriations, HUD did provide full funding to PHAs for their fiscal 
year 2002 subsidy eligibility and is now funding fiscal year 2003 
eligibility at 90 percent.
    Question. What level of funding is required in fiscal year 2004 to 
ensure that public housing authorities are not financially penalized 
for HUD's mistake?
    Answer. In fiscal year 2002, the Department experienced a $250 
million funding shortfall in this program. The shortfall occurred 
because of system and business process problems that prevented the 
Department from timely tracking and accounting for PHA eligibility and 
program funds. To cover the shortfall, Congress provided funds in the 
fiscal year 2003 Appropriations Act. To ensure that shortfalls do not 
occur again and to address issues with the accounting systems, the 
Department has enhanced its internal controls, management oversight, 
and business procedures for this program. These enhancements will 
ensure the proper and timely accounting of PHA eligibility and funds 
administration.
    For fiscal year 2004, the administration requested $3.574 billion. 
This amount should fully satisfy fiscal year 2004 operating subsidy 
requirements. No portion of the request will be used for prior fiscal 
year shortfalls.
                           empowerment zones
    Question. In 1999, Huntington, West Virginia, and Ironton, Ohio, 
were together designated a Round II urban Empowerment Zone. This 
program is encouraging significant economic development in the 
designated region.
    In President Bush's budget proposal for fiscal year 2004, the 
success of the Empowerment Zone program is recognized and abundantly 
praised. In fact, the budget states:

    ``The Empowerment Zone initiative helps revitalize city 
neighborhoods by attracting business development and providing 
employment opportunities to residents of empowerment zones. Empowerment 
Zone principles include a strategic vision for change, a community-
based partnership, providing economic opportunity and sustainable 
community development.''

    The budget continues:

    ``E[mpowerment] Z[one]s are helping to stimulate billions of 
dollars in private investment, reviving inner city neighborhoods and 
supporting jobs, and helping families move from welfare to work.''

    Yet, the President's budget provides no funding for this program.
    Why is there no funding provided in the President's budget for 
Empowerment Zones, when the administration has nothing but commendation 
for the program?
    Answer. The administration is very supportive of the Empowerment 
Zone program. Accordingly, HUD is sponsoring three workshops across 
America in Jacksonville, FL; Memphis, TN; and Tucson, AZ to train local 
leaders on how to let businesses know about the $22 billion in Federal 
tax incentives available to them. Empowerment Zones have over $6 
billion in incentives targeted towards them. This is far more than the 
limited grant funds that Congress has appropriated to local leaders in 
the past. It delivers funds directly into businesses' hands without 
passing through State and local governments. Round II EZs will continue 
to have access to their cumulatively appropriated funds of $360 
million.
    Additional funding was not recommended for two reasons. First, 
there are HUD and Congressional concerns regarding the slow expenditure 
of previously appropriated funds. As of January 31, 2003, $212 million 
in funds remained unspent and an additional $30 million in fiscal year 
2003 funds had yet to be allocated. As the program entered its sixth 
year, 63 percent of the funds remain unused. Second, there is a higher 
priority assigned to the multi-billion tax credits that are available.

                          SUBCOMMITTEE RECESS

    Secretary Martinez. Mr. Chairman, I appreciate the 
opportunity to meet with you to discuss the hiring issue. We 
know that is important to you.
    Senator Bond. And we have lots of things, as we indicated. 
We appreciate your willingness to work on these legislative 
proposals. As you noted, we do have some questions about them 
and some skepticism on a few of them, but we know that there is 
lots of progress being made.
    Well, thanks to you and all who participated, and we will 
recess the hearing. Thank you, sir.
    [Whereupon, at 11:36 a.m., Thursday, March 6, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
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