[Senate Hearing 108-870]
[From the U.S. Government Publishing Office]



 
                                                        S. Hrg. 108-870

                  NOMINATIONS OF: ROMOLO A. BERNARDI,
                  DENNIS C. SHEA, AND CATHY MACFARLANE

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

                                HEARING

                               before the

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

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                                   ON

                            NOMINATIONS OF:

romolo a. bernardi, of new york, to be the deputy secretary of the u.s. 
              department of housing and urban development

                               __________

   dennis c. shea, of virginia, to be assistant secretary for policy 
 development and research of the u.s. department of housing and urban 
                              development

                               __________

  cathy macfarlane, of virginia, to be assistant secretary for public 
    affairs of the u.s. department of housing and urban development

                               __________

                             APRIL 21, 2004

                               __________

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


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky                EVAN BAYH, Indiana
MIKE CRAPO, Idaho                    ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire        THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina       DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island      JON S. CORZINE, New Jersey

             Kathleen L. Casey, Staff Director and Counsel

     Steven B. Harris, Democratic Staff Director and Chief Counsel

              Mark A. Calabria, Senior Professional Staff

             Jonathan Miller, Democratic Professional Staff

               Jennifer Fogel-Bublick, Democratic Counsel

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                  (ii)



                            C O N T E N T S

                              ----------                              

                      THURSDAY, FEBRUARY 26, 2004

                                                                   Page

Opening statement of Chairman Shelby.............................     1

Opening statements, comments, or prepared statements of:
    Senator Sarbanes.............................................     2
    Senator Dole.................................................     3
    Senator Reed.................................................     4
    Senator Allard...............................................     5
    Senator Schumer..............................................     6

                               WITNESSES

James T. Walsh, a U.S. Representative in Congress from the State 
  of New York....................................................     7
Robert Dole, a former U.S. Senator from the State of Kansas......     8
John W. Warner, a U.S. Senator from the State of Virginia........     9
Hillary Rodham Clinton, a U.S. Senator from the State of New York    26

                                NOMINEES

Romolo A. Bernardi, of New York, to be Deputy Secretary, U.S. 
  Department of Housing and Urban Development....................    11
    Biographical sketch of nominee...............................    27
    Response to written questions of:
        Senators Shelby and Sarbanes.............................    47
        Senator Reed.............................................    47
Dennis C. Shea, of Virginia, to be Assistant Secretary for Policy 
  Development and Research, U.S. Department of Housing and Urban 
  Development....................................................    13
    Biographical sketch of nominee...............................    35
    Response to written questions of:
        Senators Shelby and Sarbanes.............................    55
        Senator Reed.............................................    55
Cathy MacFarlane, of Virginia, to be Assistant Secretary for 
  Public Affairs, U.S. Department of Housing and Urban 
  Development....................................................    14
    Biograhpical sketch of nominee...............................    41

              Additional Material Supplied for the Record

Letter from Richard M. Daley, Mayor, City of Chicago, to Senator 
  Paul S. Sarbanes, dated April 20, 2004.........................    60

                                 (iii)


                            NOMINATIONS OF:

                    ROMOLO A. BERNARDI, OF NEW YORK,

                         TO BE DEPUTY SECRETARY

                      DENNIS C. SHEA, OF VIRGINIA,

                     TO BE ASSISTANT SECRETARY FOR

                  POLICY DEVELOPMENT AND RESEARCH AND

                     CATHY MACFARLANE, OF VIRGINA,

                       TO BE ASSISTANT SECRETARY

                           FOR PUBLIC AFFAIRS

                       U.S. DEPARTMENT OF HOUSING

                         AND URBAN DEVELOPMENT

                              ----------                              


                       WEDNESDAY, APRIL 21, 2004

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 2:04 p.m., in room SD-538, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The hearing will come to order.
    We have three nominees to consider this afternoon, and I 
appreciate the willingness of the nominees to appear before the 
Committee today.
    Our first witness will be Mr. Romolo A. Bernardi, nominated 
to be the Deputy Secretary of the Department of Housing and 
Urban Development. Currently, Mr. Bernardi serves as HUD's 
Assistant Secretary of Community Planning and Development, 
where he oversees many of HUD's most important programs, 
including the Community Development Block Grant Program and the 
HOME Investment Partnership Program. Mr. Bernardi was the 
fifty-first mayor of the City of Syracuse, New York.
    Our second witness is Ms. Cathy MacFarlane--welcome--
nominated to be Assistant Secretary for Public Affairs for the 
Department of Housing and Urban Development. Most recently, Ms. 
MacFarlane served as Director of the Office of Public Affairs 
at the Federal Trade Commission. She has also held a variety of 
public affairs positions with the National Institute for 
Justice and the Federal Bureau of Investigation.
    Our final witness this afternoon is no stranger to the 
Senate. It is Mr. Dennis Shea, who has been nominated to be 
Assistant Secretary for Policy Development and Research for the 
Department of Housing and Urban Development. I would like to 
take a second just to welcome Mr. Shea back to the Senate. As 
we all know, he spent a lot of years working with Senator Dole 
when he was the Minority Leader and when he was the Majority 
Leader. And we are also glad to see Senator Dole, as well as 
Senator Schumer and others here today.
    I want to commend all of today's nominees for their 
willingness to take on what will surely be a difficult job. 
Over the years, HUD has consistently been plagued by problems 
of management and miscommunication. While I believe former 
Secretary Martinez and current Secretary Jackson have made 
considerable progress, a lot remains to be done.
    After we administer the oath, the nominees may make their 
opening statements. You can also feel free, at that time, to 
introduce any members of your family that are here today. But 
before we start that, I want to yield to Senator Sarbanes and 
then Senator Dole.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman. I am 
pleased to join with you in welcoming the nominees before the 
Committee today and our colleagues who are going to be 
presenting them.
    Mr. Bernardi, of course, has been here before when he was 
up to be Assistant Secretary of Community Planning and 
Development, and we are very pleased you are going to continue 
your work at HUD. The programs you have been overseeing--CDBG, 
HOME, the homeless programs--are some of the most effective and 
important at HUD. You have done a good job as Assistant 
Secretary, and as you move to the Deputy Secretary's office, 
your responsibilities will obviously grow. And I am confident 
that you are well-qualified to take on this new challenge.
    I have, Mr. Chairman, a statement by Senator Clinton, who 
is unable to be with us today, but wants it included in the 
record.
    Chairman Shelby. Without objection, it will be ordered.
    Senator Sarbanes. And I will not read it, but let me just 
say it is very effusive in its praise of Former Mayor Bernardi 
and the Assistant Secretary.
    [Laughter.]
    She appeared here before us to support your appointment 
before, and she says, ``I am happy to say that he has met my 
highest expectations.'' We are very pleased with that.
    I am pleased Mr. Shea is with us today. He, of course, 
worked here in the Senate and worked for Senator Dole as 
counsel in his office. So we welcome him back. He is familiar 
with the workings of this institution, and we look forward to 
his testimony to be the Assistant Secretary for Policy 
Development and Research.
    And Ms. MacFarlane, you have had extensive experience, both 
inside and outside, of Government, most recently with the FTC. 
In fact, I believe you may have still been at the Commission 
when the settlement with Fairbanks Capital was announced.
    Ms. MacFarlane. Yes, sir.
    Senator Sarbanes. That was a very good event and a very 
helpful agreement, and we expect the Department will benefit 
from your broad experience as we consider you to be the 
Assistant Secretary for Public Affairs.
    Mr. Chairman, I want to take just a moment to make one 
point for all of the nominees. It is extremely important, that 
this Committee and HUD work together whenever possible, and it 
should be possible all of the time. As the authorizing 
committee for most of the Department's programs, we need to 
make sure there is an ongoing exchange of information and 
ideas. We may not always agree on what policies HUD should 
pursue, but obviously the Committee and the Committee staff 
need to have timely access to important information about the 
programs run by the Department.
    I mention this because there continues to be some 
resistance at HUD to providing information, which we have 
sought as recently as 2 weeks ago, about the voucher program, 
although we had gotten similar such information in the past. We 
wanted update information on the program, and I intend, of 
course, to ask the nominees for their commitment that they will 
provide information to the Committee and to the Congress in a 
timely fashion. We need this information if we are going to do 
our oversight function, which we take seriously, and which I am 
very pleased to say that Chairman Shelby has placed high on our 
priority list in terms of exercising our oversight. And it is a 
matter of concern whenever the Department seems to be dragging 
its feet in response to reasonable requests for information, 
but I will pursue that with each of the nominees in turn.
    Thank you very much, Mr. Chairman.
    Chairman Shelby. The current Senator Dole.

              STATEMENT OF SENATOR ELIZABETH DOLE

    Senator Elizabeth Dole. Thank you, Mr. Chairman, for this 
opportunity to speak about our three nominees. I think I have a 
little competition over here from Juliette.
    [Laughter.]
    Senator Elizabeth Dole. Mr. Bernardi has an excellent 
record of building stronger communities across the Nation and 
especially in the City of Syracuse. He distinguished himself as 
the Mayor of Syracuse for almost 8 years before beginning his 
work at HUD and has an impressive list of accomplishments in 
making communities more livable. This is exemplified in his 
work to remediate brownfield sites, reclaiming those industrial 
wastelands, turning them around and providing economic 
opportunity and jobs.
    The effort to renew and improve our urban communities is 
very important to me, and I appreciate Mr. Bernardi's 
background and focus on these issues. Ms. MacFarlane has also 
distinguished herself as an excellent servant of the public. 
Her assistance at the Federal Trade Commission was invaluable 
to me and to my staff as we worked to reauthorize the Fair 
Credit Reporting Act, and of course I welcome you today as a 
fellow alumnus of the Federal Trade Commission.
    And, finally, I take great pleasure in recognizing the 
third nominee and the distinguished gentleman who has come 
before us to introduce him. I cannot help but recall the 
afternoon some years ago, when my husband, Mr. Chairman, 
introduced me to a Senate Committee on my nomination for 
Secretary of Transportation. Bob said at that time, ``I regret 
that I have but one wife to give to my country's 
infrastructure.''
    [Laughter.]
    Senator Elizabeth Dole. Now, that was all right, but then 
he went on to say that he expected the Federal Highway 
Administration at DOT to use my biscuit recipe to fill 
potholes. Can you imagine?
    [Laughter.]
    Senator Elizabeth Dole. It is so tempting to exact a little 
revenge this afternoon, Mr. Chairman, but I will restrain 
myself.
    Seriously, this is a special day for both Bob and me, for 
Dennis Shea is a member of our extended family. I first met 
Dennis when he was working as Deputy Chief of Staff to my 
husband in the Republican Leader's Office, and I came to know 
him as a man of extraordinary intelligence, judgment and, above 
all, integrity. He gained a reputation throughout the Senate as 
someone who works well with people of both parties and whose 
overriding passion is finding the best policy to solve a tough 
problem.
    Dennis' imprint is on many bills passed by Congress to 
fight crime and illegal drugs, and he helped broker the 
compromise that led to the enactment of the Civil Rights Act of 
1991. Dennis handled labor issues for Bob when I was Secretary 
of Labor, and my staff and I were impressed with his deep 
understanding of the complex problems facing the working poor 
in our country, including access to affordable housing.
    Dennis grew up in Queens, New York, and this background has 
given him a deep consciousness of the challenges and 
opportunities facing our cities. The many issues he will 
confront at HUD require the compassion and balance that I know 
Dennis will bring to his new position. I recommend that all of 
my colleagues support this outstanding man's confirmation to 
serve as HUD Assistant Secretary for Policy Development and 
Research.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Reed.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you very much, Mr. Chairman and Senator 
Sarbanes, for holding this hearing, which is a very important 
process in our constitutional duties to confirm these very able 
and experienced public servants. I have had the privilege to 
work with Secretary Bernardi, and I have enjoyed it very much 
and look forward to working with Ms. MacFarlane and Mr. Shea.
    You are taking on extraordinary tasks and opportunities, 
but also challenges, particularly since your department 
represents some of the country's most vulnerable families and 
vulnerable people in our entire Nation. Many of these people 
are elderly and disabled or just do not have the luck that 
others have, and they do not have powerful lobbyists typically 
to defend them, so it falls upon you to work for them, and I 
know and hope you will.
    And, Mr. Bernardi, you particularly will have significant 
responsibilities. You will be responsible for working within 
the Administration for appropriate resources for our Nation's 
housing programs. I think all of us here will say, without 
contradiction, how important housing is and how much we need to 
do, but really it is the resources available that limits us or 
enables us to do those things, and that is a difficult fight 
you are going to have to urge.
    We have seen the current budget where there are proposals 
for cutting the Section 8 voucher program by $1.6 billion. So 
your job will be to convince people that what you believe in is 
what they should believe in, and I wish you well.
    And, also, Secretary Bernardi, you will be responsible for 
the operations of HUD and the improvements. Years ago, when I 
first came to this Committee, HUD was one of the agencies 
identified as being in serious trouble. Problems still remain, 
so we expect you to devote yourself to that.
    I had a chance to meet Mr. Shea, and I was impressed with 
his, as Senator Dole said, his intelligence, his integrity, and 
his dedication. Again, Ms. MacFarlane, I look forward to 
working with you.
    Thank you so much for be willing to serve the Nation in and 
a very important agency. Thank you.
    Chairman Shelby. Senator Allard.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Mr. Chairman, I am going to be brief. I 
have a full statement I want to put in the record.
    Chairman Shelby. Without objection, it will be made part of 
the record.
    Senator Allard. I do want to welcome Senator Dole. It is 
good to see him here, and I just want to recognize, in a public 
way, all of his fine work on the World War II Memorial. We are 
going to have a lot of veterans here, and we are going to have 
an open house in my office for him and others because I think 
we are going to be overwhelmed with veterans here coming into 
the Capitol to celebrate that time.
    Also, I just would like to say that I am glad that we have 
Alphonso Jackson confirmed. And now that we have had a 
transition of leadership, it is important that we get moving 
ahead with a number of vacancies currently at HUD. Your 
Committee has always shown a willingness to move ahead with 
those. I think we need to urge HUD and the various authorities 
to be sure and get those names to us as quickly as possible so 
we can get those vacancies filled.
    I would also just reiterate the fact that the Government 
Performance and Results Act--which is something I keep 
hammering on all of the time with everybody that comes before 
us, it is called GPRA, some people just call it the Results 
Act--this is a way of measuring performance of what is 
happening in the various agencies. I think this is especially 
important in HUD because it has revealed some problems in the 
past. It is improving, but again continue to push on this GPRA.
    And then, finally, I would just follow up that there is a 
constitutional relationship between the legislature and the 
executive branch. It is important that we maintain that 
perspective, and I would hope that each and every one of you--
when the Committee requests information--that you respond in an 
expeditious way and get the information to us. We need that to 
do our job and to represent our constituencies, so I would just 
second what has been said in that regard, and I will thank you, 
Mr. Chairman.
    Chairman Shelby. We have some special guests here. We will 
start with first on our list is former Mayor Bernardi, and 
Senator Schumer and Representative Walsh I think are here to 
introduce him or say something.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Thank you, Mr. Chairman, and thank you for 
holding a timely hearing. I am here, of course, to support the 
nomination of Roy Bernardi for Deputy Secretary, but first let 
me congratulate our other two nominees for their good work, and 
I want to particularly say, Mr. Chairman, this is a good day 
for New York.
    Mr. Shea is from Queens, Burns Street in Forest Hills. I 
correctly guessed that he was from Mary Queen of Martyrs 
Parish.
    [Laughter.]
    And I welcome him here as well. New York has always had the 
habit of sending people--people come to New York, sally forth 
around the rest of the Nation and do great things. And so 
Senator Warner, we have sent you one of our best, now that he 
is a Virginia resident.
    I want to welcome Senator Dole here as well, and my good 
colleague and a Congressman who has served Syracuse for so long 
and so well, Congressman Walsh, who got a new haircut today I 
see for this occasion.
    [Laughter.]
    Mr. Chairman, it is my honor to be here next to Roy 
Bernardi, and I support this nomination unequivocally. Roy is a 
native Syracusan, born in Syracuse and worked his way up 
through the ranks here. He served five terms as City Auditor, 
where he developed an outstanding reputation as somebody of 
integrity, and he actually overhauled municipal financial 
services, eliminated duplicative department functions and 
streamlined governmental operations, resulting in a lot of 
budget savings.
    His good work as auditor led him to his next job, which was 
Mayor, and he was really a fine and outstanding mayor at 
Syracuse. He combined the understanding that you needed to be 
fiscally responsible. In our cities upstate, we are trying to 
keep the lid on things because, comparatively, we do not want 
to pay more taxes than other places, so we can attract jobs, 
and yet at the same time New York has a real tradition of 
compassion, and Mayor Bernardi was able to do both of those. He 
was able to be fiscally responsible and yet unite the city and 
be compassionate as well, and he was an outstanding mayor.
    I will not forget, Mr. Chairman, I just had been elected 
Senator in 1999, had beaten a Senator who Roy had worked with 
of his party, and I was wondering what kind of reception I 
would get, and he opened the door for me, and we worked well 
together from the day I became Senator, which I think speaks to 
his bipartisanship, as well as his character.
    Chairman Shelby. Plus, he was a wise man, too.
    [Laughter.]
    Senator Schumer. Indeed, as you are, Mr. Chairman.
    In any case, he will make an outstanding Deputy Secreatry. 
He has all of the good qualities needed to be a Deputy 
Secretary of HUD. He understands how to run a large 
organization. He is fiscally responsible and moderate and at 
the same time is compassionate and understanding. He did an 
outstanding job as Secretary for CPD, for Community Planning 
and Development, and I think we are all very impressed with the 
job he did.
    And so, as they say, Mr. Chairman, he got his promotion to 
Deputy Secretary the old-fashioned way--he earned it. It is my 
honor to be here with him and to welcome Alice, his wife, and 
his two children, Dante and Bianca, here today.
    And I would ask unanimous consent my entire statement be 
put in the record.
    Chairman Shelby. Without objection, so ordered.
    Representative Walsh, do you have anything to add to that?

                  STATEMENT OF JAMES T. WALSH

               A U.S. REPRESENTATIVE IN CONGRESS

                   FROM THE STATE OF NEW YORK

    Reprensentative Walsh. I will try not to be repetitive, Mr. 
Chairman, but former Mayor Bernardi has certainly made his 
remark in our community, and I want to be here to support him.
    So, Mr. Chairman, Senator Sarbanes, and Members of the 
Committee, thank you for inviting me to be here with you today 
and sit with the distinguished panel here, including our 
Senator from New York, Senator Schumer, with whom I work very, 
very closely on many issues.
    Former Senator Dole, who even though I represent a city, he 
came out and visited a farm in the Eastern part of my district 
one time on a very, very cold Upstate New York day, and he did 
it very graciously, Senator Warner, also.
    I am here to support my former mayor and close personal 
friend, Roy Bernardi. He has served well as Assistant Secretary 
of Community, Planning and Development, for the Department of 
Housing and Urban Development, and as Chairman of the House 
Subcommittee for VA, HUD, and Independent Agencies, we have 
worked very, very closely since his appointment in 2001.
    Prior to joining the Bush Administration, Mr. Bernardi was 
the fifty-first mayor. And I have a special affection for 
mayors of Syracuse. My dad was the forty-eighth mayor and also 
served in the House of Representatives.
    I also had the pleasure of working with Roy on a variety of 
community issues during his tenure as Mayor and as City 
Auditor. I served on the City Council in Syracuse while Roy was 
cit auditor, and we worked very, very closely together. He was 
a promoter of urban neighborhoods, a believer in cities, and 
someone who implemented initiatives all throughout the city to 
improve the quality of life of its residents.
    Along with the men and women of the Syracuse Police 
Department, Mayor Bernardi made a remarkable change in reducing 
violent crime in Syracuse to the lowest levels in recent 
history, and this is no small accomplishment in an urban 
center.
    On a personal note, I would like to extend my 
congratulations to his wife, Alice, and the two kids, Dante and 
Bianca. I have a good friend at home who always says, ``Behind 
every successful man there is a very surprised woman.''
    [Laughter.]
    This is a solid family who offers a great deal, including 
their dad and husband, to the service of the United States of 
America. Rising to the position of Deputy Secretary of HUD is 
both challenging and exciting. The responsibilities are great, 
and sound judgment on issues dealing with national housing 
policy require a constant effort by both the Deputy Secretary 
and his team. Roy has proven over the years to listen carefully 
before making judgments on policy matters, whether local or 
national. He will reach out to others to seek their advice 
which, in my view, is a sound business practice needed to be a 
good manager. He also returns telephone calls when contacted by 
Members of Congress, which I know within this room is 
considered a high mark.
    I know this Committee will be pleased with the caliber of 
this nominee, and the others, and I extend my congratulations 
at this time to them also.
    The people of Mayor Bernardi's hometown of Syracuse are 
very, very proud of their native son.
    Thank you very much.
    Senator Sarbanes. I always thought it was a surprised 
mother-in-law that was behind every successful man.
    [Laughter.]
    Representative Walsh. There is plenty of surprise to go 
around.
    Chairman Shelby. We will next hear from Senator Dole and 
Senator Warner on behalf of Dennis Shea.
    Senator Dole.

                    STATEMENT OF ROBERT DOLE

         A FORMER U.S. SENATOR FROM THE STATE OF KANSAS

    Senator Robert Dole. It is good to be in the Committee room 
again with another Senator Dole. I never made it to the Banking 
Committee. I just did not have the intelligence and the 
seniority or I did not have any money.
    Chairman Shelby. You did not represent North Carolina.
    [Laughter.]
    Senator Robert Dole. They have a lot of banks in North 
Carolina.
    Chairman Shelby. Yes, absolutely.
    Senator Robert Dole. Charlotte is the banking capital of 
the world. New York is a close second.
    [Laughter.]
    But Wayne Allard mentioned, and I just want to mention 
because if you live I Maryland or Virginia, you are going to 
see more World War II veterans than you thought ever existed. 
We think between 2- and 300,000 will be there that day. And 
some of these men are just living long enough to be here for 
this dedication.
    Senator Allard. I could not remember the date. You can 
share the date with us maybe, Senator Dole.
    Senator Robert Dole. Yes, May 29, and there are 118,000 
seats, and the tickets are already gone for those. And now we 
are trying to find more space because some of these men are 
amputees. Some cannot walk. Some cannot see. So it is going to 
be a great day, and I appreciate Wayne mentioning it.
    But, as an aside, Dennis Shea's father was in the Navy, in 
the South Pacific. So he is one of the World War II vets, one 
of that ``Greatest Generation'' that Tom Brokaw referred to, 
which is now becoming a disappearing generation. We are losing 
about 1,200 per day. We are down to less than 5 million out of 
16.5 million.
    But I want to say a special thank you to Senator Warner, 
who helped us out. We did not ask for Federal money. We said if 
we cannot raise it, we will not build it. But he did help me 
out, when we got in a little crack, and I offered to pay the 
money back, and I think it is still pending, and I have not 
mailed the letter.
    [Laughter.]
    But, in any event, I am really here today for the purpose 
of introducing--I know it is going to be a tough hearing and a 
tough vote for all of these nominees, I can already tell, but 
Dennis Shea and I have worked together for about 15 years--
first, my Staff Counsel and then Deputy Leader of the Chief of 
Staff when I was Majority Leader and Republican Leader of the 
Senate and also in the private practice of law. So I have had 
three different areas to work with Dennis.
    But above all, I think what I would stress is integrity. He 
also watched me on ethics. Anything I wanted to check on to see 
if I could do this, I would give it to Dennis, and there were a 
lot of things I wanted to do, he would not let me do.
    [Laughter.]
    So he has told me, no, many, many times and probably for my 
own benefit. But, Dennis, I thank you for that.
    But if you are looking for someone who is willing to work, 
and who is a man of intelligence, and a man of integrity, who 
has a wife named Elizabeth, this is your nominee.
    That is my entire statement, and make it part of the 
record.
    [Laughter.]
    Chairman Shelby. Senator Warner.

                  STATEMENT OF JOHN W. WARNER

           A U.S. SENATOR FROM THE STATE OF VIRGINIA

    Senator Warner. Mr. Chairman and Members of the Committee, 
I am breathless. This is my 26th year in the Senate, and most 
of it was spent with Bob Dole, who I never met a finer man in 
my life. I mean that. You know that.
    We went to the 50th anniversary of D-Day together, and to 
Italy, where he spoke to a crowd as far as the eye could see. 
And then we went to visit his battleground, and those are 
things that bond individuals that you never forget. Bob is the 
big brother I never had in life, and it is such a privilege to 
be here today. And now you are successor Senators on the Armed 
Services Committee, and so the Dole family has been a part of 
my life.
    I have come to represent Dennis Shea, and why should I take 
more time than you took?
    Senator Robert Dole. Because you have a vote.
    Senator Warner. Oh, I have a vote. Yes. Right.
    [Laughter.]
    He could always put me down with a one-liner. But I will 
put my staff on behalf of Dennis in the record because you have 
spoken so eloquently.
    Chairman Shelby. Without objection, so ordered.
    Senator Warner. But I will just say one thing. As a young 
Senator, when I came to see Senator Dole, I had to sit out in 
his office and wait to see him out of his office. So, from now 
on, you are going to wait out in my anteroom to see me, subject 
to confirmation.
    [Laughter.]
    So, I will put the rest of it in, and it is really an 
extraordinary accomplishment, remarkable how the President and 
the Secretary of HUD can find two such eminently qualified 
individuals.
    Now, to this other lovely individual, Cathy. I have quite a 
bit to say about her. She is here with her mother and father; 
is that what I understand?
    Chairman Shelby. Right here, right.
    Senator Warner. Yes. She has been nominated to serve as 
Assistant Secretary and has over 24 years of experience in 
public relations.
    Dole could have used you.
    [Laughter.]
    Public relations, and Government Affairs and 
Communications.
    She has served two Administrations, President Ronald Reagan 
and the current one at the Federal Trade Commission, in 
substantive positions with honor and distinction. Most recently 
she served as Director of Public Affairs for the FTC and was 
instrumental in the communications outreach for the National Do 
Not Call registry. You could have got elected on that to 
anything you wanted to get elected to.
    [Laughter.]
    The Outreach and Communication Plan to promote the registry 
has been an unqualified success and something I know many have 
been grateful for, including this Senator. I do not know how 
many of your families had dinners or other family functions 
disrupted by the ill-timed phone calls, but speaking for 
myself, I can say, Ms. MacFarlane worked a minor miracle. We 
thank you.
    She has earned the confidence of two Presidents, and I 
believe she has more than the qualifications to handle this 
next assignment, and I wish you well.
    Thank you, Mr. Chairman and Members of the Committee, and 
what a privilege to be with you, dear friend.
    Chairman Shelby. I want to thank you----
    Senator Robert Dole. Can I put my statement in the record?
    Chairman Shelby. Without objection, Senator Dole's 
statement will be made part of the record.
    I want to say before Senator Dole and Senator Warner leave, 
I believe, we know Dennis Shea real well, Mayor Bernardi, Ms. 
MacFarlane, we know of your good work, and I believe you are 
going to have a lot of support on this Committee, but we still 
have got to go through a hearing.
    Thank you.
    [Laughter.]
    If the nominees will stand and raise your right hand.
    Do you swear or affirm that the testimony that you are 
about to give is the truth, the whole truth, and nothing but 
the truth, so help you God?
    Mr. Bernardi. I do.
    Mr. Shea. I do.
    Ms. MacFarlane. I do.
    Chairman Shelby. Do you agree to appear and testify before 
any duly-constituted committee of the Senate?
    Mr. Bernardi. I do.
    Mr. Shea. I do.
    Ms. MacFarlane. I do.
    Chairman Shelby. Take your seat.
    All of your written testimony will be made part of the 
record in its entirety. And we will start with you, if I can 
call you, Mayor, with your testimony, if you will sum this up 
as briefly as you can.

          STATEMENT OF ROMOLO A. BERNARDI, OF NEW YORK

                     TO BE DEPUTY SECRETARY

        U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Bernardi. I thank you, Mr. Chairman, Ranking Member 
Sarbanes, and Senator Dole, Senator Allard, and Senator Reed.
    It is a pleasure to be here. I want to start by thanking 
Senator Schumer and Congressman Walsh for their very kind 
words. It is also nice obviously to be with Senator Dole and 
Senator Warner.
    My name is Roy Bernardi, and I am the Assistant Secretary 
for Community Planning and Development at the Department of 
Housing and Urban Development, and I am here to thank you for 
inviting me to appear as President Bush's nominee for the 
position of Deputy Secretary.
    I want to express my gratitude to the President for the 
confidence that he has shown in me. For 3 years, I have had the 
pleasure of working with Deputy Secretary, at that time, 
Jackson, now it is Secretary Jackson, and I am thankful for the 
confirmation that this Committee provided for him. And I look 
forward, hopefully, to be working with him as his Deputy 
Secretary.
    It is a pleasure to be here with my two distinguished 
colleagues, Cathy MacFarlane and Dennis Shea. All of those 
wonderful words that were spoken of them, in working with them, 
I find to be nothing but more than accurate, and they are very 
good people.
    At this time, I would like to introduce, have her stand, if 
she would--she will be embarrassed--my wife, Alice, and our 
son, Dante, and our daughter, Bianca, right behind me. Without 
them, ladies and gentlemen, I do not know how it was put, in 
spite of myself, I have been able to succeed, but with Alice's 
help and the children's love and support each and every day is 
just a God-given day, and it is a pleasure.
    I take humble pride in what I am about to do. I am a first 
generation Italian-American. My mom and dad migrated to this 
country when they were teenagers. They met in an English class 
in high school, learning the language skills and the working 
skills in this country. They married and had four children. I 
have an older sister, and a younger brother and a younger 
sister, and I believe we have given them some measure of 
happiness with our successes that we have attained. I grew up 
in Syracuse's Northside. And when I went to first grade, I 
distinctly remember I spoke Italian. I did not speak English, 
and that was quite a challenge for my mom to get me back in 
school.
    As has been mentioned, I had the opportunity to be the 
Syracuse City Auditor for 20 years, and 8 years nearly as Mayor 
of the City of Syracuse, before President Bush and Secretary 
Martinez asked me to serve as Assistant Secretary for CPD, and 
it was an honor and a privilege to accept.
    I know, in nominating me, President Bush has not only 
honored me with this distinction, but also the important 
responsibilities that come with it. The Deputy Secretary is the 
Department's Chief Operating Officer, managing an agency of 
some 9,000 employees, with a budget of approximately $31 
billion. The Department is a little bit larger than what I 
handled in the City of Syracuse as mayor, but I see the same 
challenges. Obviously, they are magnified. I feel confident, 
with my experience, that I will be able to do a good job for 
the Secretary, the President, and more importantly, for all of 
the people that we serve.
    HUD's purposes are especially aimed at helping low- to 
moderate-income individuals as you know. We want to supply 
safe, decent, and affordable housing throughout no only the 
largest cities, but also in the rural areas of America. We 
administer economic development programs throughout the 
communities, to revitalize decayed neighborhoods, and improve 
the quality of life of all residents. We deal with everyone in 
the spectrum. We deal with senior citizens, persons with 
disability, people with HIV/AIDS, people that cannot afford 
housing, people that need assistance. We deal with communities 
to provide economic development to create jobs and create 
economic opportunity for a better quality of life for everyone, 
and I would look forward to working closely with Secretary 
Jackson and President Bush to achieve our goals and objectives.
    I will be committed to fostering better cooperation with 
the people who serve at every grade and with unions 
representing many of them. I will work to understand and 
improve the bargaining process. In my 3 years as Community 
Planning Development Assistant Secretary, I feel very good 
about the relationship that I have had with the career 
employees and the ability to work as a team to accomplish the 
things that were charged to us, and I hope to bring that same 
kind of commitment, that same kind of working together with all 
of the employees, all of the union and nonunion employees in 
HUD.
    Let me assure you that I also intend to work closely with 
this Committee, and its staff, and with other Committees and 
anyone and everyone that needs information, and needs our 
assistance, and needs our cooperation. I understand the 
importance of the work that I am about to undertake with your 
permission, and I know full well that it is a partnership, that 
the Administration and the legislative body must work together, 
that we all have the same goals and objectives that we want to 
obtain, and that is to help the people that are going to be 
served by the money and the over 300 programs that we have in 
HUD.
    I thank you and I would like to enter this into the record, 
if I could, Mr. Chairman.
    Chairman Shelby. Without objection.
    Mr. Bernardi. I look forward to your questions. Thank you.
    Chairman Shelby. Mr. Shea.

           STATEMENT OF DENNIS C. SHEA, OF VIRGINIA,

              TO BE ASSISTANT SECRETARY FOR POLICY

                   DEVELOPMENT AND RESEARCH,

        U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Shea. Chairman Shelby, Ranking Member Sarbanes, and 
Members of the Committee, good afternoon, and thank you for 
convening this hearing during this busy legislative session. It 
is a privilege to be here with you today, along with my 
colleagues, Roy Bernardi and Cathy MacFarlane.
    I want to thank Senator Dole or Senators Dole, and Senator 
Warner for their kind words of introduction. Serving the leader 
was an honor. It involved a lot of hard work and long hours, 
but I must say it was a lot of fun too.
    If I may have the Committee's indulgence, I would like to 
introduce two important people----
    Chairman Shelby. We have been waiting for that.
    [Laughter.]
    Mr. Shea. I think you have been introduced to them already. 
My wife, Elizabeth, is in the back, anlong with my 6-month old 
daughter, Juliette. My parents, Dennis and Molly Shea of Forest 
Hills are right behind me, as well as my Aunt Jeanne Clarke of 
Bethesda, Maryland. I do not know where--there she is.
    Chairman Shelby. Right back there.
    Mr. Shea. Great. I, too, would like to express my 
appreciation to President Bush for the honor of being nominated 
as Assistant Secretary for the Office of Policy Development and 
Research. I have been looking forward to the chance to work 
with Secretary Jackson, so I am grateful that the Senate has 
confirmed his appointment.
    As you know, the Office of Policy Development and Research 
provides advice and information to the Secretary to support the 
Department's policies and proposals. PD&R compiles information 
to monitor current housing needs and market conditions. The 
Office also carries out both short-term and long-term research 
on priority housing and community development issues. An 
important responsibility of PD&R is to conduct evaluations of 
our programs to make sure they are operating as Congress 
intended. PD&R's mission within HUD is critical to the success 
of our programs and to the achievement of Congress' goals. I 
will see to it that this mission is carried out with 
professionalism and integrity.
    In my most recent job, as the Executive Director of the 
President's Commission on the U.S. Postal Service, I was able 
to lead a small staff in developing a comprehensive report 
recommending ways to preserve universal mail service. I am 
pleased that the Commission's report has been generally well-
received and is viewed as a substantial achievement, 
particularly in light of our tight deadline and the fact that 
no commissioner or staff member, including myself, came to this 
assignment with any significant experience in postal policy.
    I believe that this experience, as well as my other 
experiences in the policy development arena, will help me be an 
effective leader of the PD&R team. I am personally honored to 
have the opportunity to join the men and women of PD&R, who, I 
must say, are among the best and brightest of the HUD work 
force.
    Mr. Chairman, let me conclude by saying that, as a former 
member of the staff of the U.S. Senate, I also have a deep 
appreciation for this institution. Congress plays the central 
role in legislating our Nation's housing policy and in funding 
the programs that the Department administers. I look forward to 
working with this Committee in an open and collaborative spirit 
to advance the goals of affordable housing, homeownership and 
strong communities that we all share.
    Thank you for your attention, and I look forward to 
answering any questions you may have.
    Chairman Shelby. Ms. MacFarlane.

          STATEMENT OF CATHY MacFARLANE, OF VIRGINIA,

         TO BE ASSISTANT SECRETARY FOR PUBLIC AFFAIRS,

        U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Ms. MacFarlane. Chairman Shelby----
    Chairman Shelby. Do you want to introduce anyone?
    Ms. MacFarlane. Yes, sir. I would like to introduce my 
father, Joe MacFarlane, and my mother, Mary MacFarlane. I also 
have numerous friends which I would like to just thank for 
being here.
    Chairman Shelby, Ranking Member Sarbanes and distinguished 
Members of the Committee, thank you very much for inviting me 
here to appear before you today with my colleagues, Roy 
Bernardi and Dennis Shea.
    I am honored that President Bush and HUD Secretary Alphonso 
Jackson nominated me to be Assistant Secretary for Public 
Affairs at HUD, and I am very grateful for the confidence that 
they have shown in me.
    The responsibility of directing the public affairs of a 
Federal agency is a serious one, but not a new one to me. 
During my tenure as Director of the Federal Trade Commission's 
Office of Public Affairs, the Do Not Call registry was 
authorized by Congress, as Senator Warner noted, and the task 
of educating the American public about how to stop 
telemarketers from contacting them became our responsibility. 
Together with a staff of seven of the finest PR professionals 
in the Federal Government, we reached out to every newspaper, 
radio station, and broadcast outlet in the country. Six months 
after the Do Not Call registry was launched, more than 55 
million people had registered. And a recent Harris Poll survey 
indicated that the Do Not Call registry was recognized by 92 
percent of the American public.
    If confirmed, I intend to make certain that the good news 
about HUD's programs reached the eyes and ears of the people 
who most need to benefit from them. Every day HUD assists low-
income families find safe and affordable shelter, they help 
first-time homebuyers make their dream of homeownership a 
reality, and they provide a means for individuals to move from 
Government dependence to self-sufficiency. HUD's programs are 
carried out by the executive branch, but we understand that 
they are written here, in Congress. And legislation enacted by 
Congress has opened the doors to homeownership for millions of 
Americans.
    I am honored to be the nominee for Public Affairs. With the 
support of the Committee, I look forward to assisting in the 
important work of keeping America informed about the Federal 
Government's housing and community development policies.
    Mr. Chairman and Senators, thank you for your courtesy in 
listening to my remarks, and I would be happy to take your 
questions.
    Chairman Shelby. Thank you.
    Mr. Bernardi, 2 years ago, the General Accounting Office, 
GAO, testified before one of our Subcommittees and said that 
``human capital is the most pressing management challenge 
facing HUD.'' More specifically, GAO offered its opinion that 
HUD did not even have an analysis of what its staffs should be 
doing and what skills the staff needed to accomplish their 
responsibilities.
    How much progress, sir, has HUD made in strengthening its 
human capital over the last 2 years, and do you have any 
thoughts on what HUD can do to improve the productivity of its 
staff ?
    Mr. Bernardi. Mr. Chairman, HUD established a Human Capital 
Steering Committee back in 2002. Presently, we are in the 
process with a REAP report to ascertain not only the number of 
individuals, but also what tasks need to be performed and the 
individuals that have to perform them.
    Quite candidly, I think that we are in the process of 
reevaluating the total number of employees that have been 
appropriated to us. That is 9,177. About half of the HUD 
workforce is eligible for retirement. That is a major concern. 
We need to make sure that as these people leave that we provide 
the opportunity for middle management and people coming into 
the program to be able to spend time so that we do not lose 
that systemic knowledge that they have regarding the various 
programs.
    As the Deputy Secretary, if I am so confirmed, I will make 
sure that each of the departments at HUD is staffed with the 
necessary personnel, with the expertise that they will need, to 
carry out their duties and functions.
    Chairman Shelby. OMB, Office of Management and Budget, has 
rated the Community Development Block Grant program, ``as 
ineffective.'' More specifically, OMB states that the program 
suffers from unclear purpose, loose targeting requirements, and 
a lack of results. This is the largest program under your 
direction within the Office of Community Planning and 
Development, CPD.
    What can you tell the Committee you see as some of the 
sources of OMB's concern? Do you agree with those? And, if not, 
why not? And could you also tell us what you have done during 
your time at CPD to address some of these issues. These are not 
new issues.
    Mr. Bernardi. Senator, the Community Development Block 
Grant program is the flagship program in Community Planning and 
Development. It is budgeted at $4.6 billion, and I am sure, as 
you are all aware, that money goes, on a formula basis, to over 
1,100 entitlement communities to all 50 States, and the 50 
States provide those dollars to the small towns and villages 
that dot our country that are not entitlement communities.
    It is a very flexible program. There is so much good that 
is done with that program. You can use it for housing, you can 
use it for brownfields, you can use it for homelessness, public 
services, public facilities. You can build a recreation center. 
And it is that beauty of the program that leaves the 
discretion, if you will, and the prioritization of how that 
money is spent at the local level. Obviously, there are 
national objectives that have to be adhered to. So it is a 
difficult program in which to be able to have performance 
measurements.
    Now, with OMB giving us a very low PART score, unlike the 
score we received in the HOME program, where we received a very 
high score, but the HOME program is a very targeted program. It 
deals with people. It provides that $2 billion-plus to people 
who are at 80 percent or less than median income, and the 
average is 34 percent of median income. So that is really 
targeted. It is a little easier to gauge your results.
    Having said all of that, sir, we are in agreement with OMB. 
We have implemented performance measurements here at 
headquarters, into the field, and with the communities. We 
would like the communities themselves to indicate to us what 
kind of performance measurement system, in conjunction with us, 
they would like to use, so that at the end of the day we can 
indicate that the dollars that are going to their communities, 
not only where they have been spent, but have they also 
received the maximum value.
    Having said that, be assured that we are looking to make 
sure that the communities will be able to provide for us 
performance measurements that we can use in the next budget 
process.
    Chairman Shelby. Mr. Shea, I want to touch on another point 
raised by GAO. HUD, over the last 10 years or so, has been 
increasingly reliant on outside contractors to perform many of 
its responsibilities. I know this is not an issue solely in the 
research area, but it does seem that most of the research 
produced by HUD is conducted by outside parties. GAO has raised 
the issue of HUD's ability to effectively monitor its 
contractors.
    Could you detail for the Committee, and if you want to do 
it for the record you could do that, your relevant experience 
in monitoring and evaluating contract performance because you 
are going to have to do some of that in the future.
    Mr. Shea. Yes. I had, in my most recent experience, Mr. 
Chairman, as the Executive Director of the President's 
Commission on the Postal Service, I was involved in making 
decisions on nine procurements. We procured nine outside 
contracts to assist the Commission in performing its work, and 
these were done on a pretty fast-track basis.
    And I think, in that capacity, I was pretty clear in 
evaluating what contracts were successful, and there are a 
couple of contracts that I do not think the performance was up 
to snuff, and I registered that sentiment to the people who 
performed the work for us. So, as you know, PD&R contracts out 
a lot of its research.
    Chairman Shelby. Sure.
    Mr. Shea. And PD&R is currently aggressively pursuing 
opportunities to find small businesses to contract out----
    Chairman Shelby. I am not necessarily against contracting 
out, but they just have to be monitored in what you pay them 
for.
    Mr. Shea. If confirmed, that will be one of my priorities: 
To ensure that we have strong systems in place to monitor 
contract performance. Currently, PD&R has systems in place 
under the general deputy assistant secretary for PD&R. She has 
done a wonderful job, Darlene Williams, in making people 
accountable within the office for the contracts that they are 
charged with monitoring.
    So this will be a priority for me, to make sure we are 
actually getting bang for the buck and that we are also making 
sure that the contract money is spent out to different vendors 
who are able to perform the work.
    Chairman Shelby. Ms. MacFarlane, you know where you are 
going. You know you have been nominated by the President, and 
you are accepting that job. You have a challenge over there as 
far as PR. Would you share briefly some of your thoughts on how 
you are going to improve the public perception.
    Ms. MacFarlane. Chairman Shelby, I am very much in favor of 
what I call transparency. I think it is very important for an 
agency to show their hand, show their cards, and explain 
exactly what every aspect of that means. I believe that if HUD 
did that, that we could have the public understand a bit better 
than they currently do some of the programs and the reasons for 
the aspects of the programs that are currently being 
challenged.
    Chairman Shelby. You have a lot of experience, and you have 
the confidence of President Bush, and you are going to have our 
help everywhere we can give it to you because we want you to 
succeed, all three of you to succeed.
    Senator Sarbanes.
    Ms. MacFarlane. Thank you, Senator.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Mr. Chairman, I have a letter from Mayor Daley of Chicago 
in support of Mr. Bernardi, and I would like to have that--
    Chairman Shelby. It will be made part of the record.
    Senator Sarbanes. And in part he says, commenting about his 
work at HUD, he says he has ``worked in partnership with cities 
such as Chicago to help us address many difficult issues, 
including the creation of affordable housing, expansion of 
economic development opportunities, and the reduction of 
homelessness.''
    Mr. Bernardi, I want to ask you about the Section 8 
vouchers. It is the largest affordable housing program operated 
by HUD. It consists of almost 2 million families, including 
many children, elderly, and disabled people, in achieving 
affordable and stable housing. Recently, HUD briefed our staff, 
as well as a number of public housing authorities that 
administer the voucher program, regarding the Department's 
policy on renewing these vouchers in the current fiscal year, 
the year we are in right now. And we understand, from a number 
of the public housing authorities, that the proposed policy, if 
finalized, may result in a number of people losing their 
voucher and thereby losing their affordable housing.
    Now, Congress, of course, when they passed the fiscal year 
2004 HUD appropriations bill, it was clear that we intended 
that every voucher in use should be funded and that nobody 
should lose their assistance.
    And Secretary Jackson was quoted in the Dallas Morning News 
on April 15, as saying in response to these concerns expressed 
by the public housing authorities, ``We are not going to remove 
one person that is already on the Section 8 program.''
    I have difficulty squaring the promise of Secretary Jackson 
and the clear intent of the Congress, in enacting the 2004 
appropriations legislation, with the apparent outcome of this 
proposed policy. I am interested in how you can square them. I 
am actually more interested in some commitment or understanding 
that nobody is going to lose their affordable housing under the 
Section 8 program.
    Mr. Bernardi. Senator Sarbanes, the budget for 2004 is 
$16.4 billion. As you indicated, through the Appropriations 
Act, Congress mandated to us that that would be the amount of 
money that we would use for the Section 8 voucher program, as 
well as the project based.
    That is a substantial increase every year. One of the 
conditions that we have at HUD is that, in the 2004 budget, 
about $23 billion of our $31 billion, goes to maintain assisted 
rental housing. That is a significant increase and a 
significant task for all of us.
    Back in 1998, approximately a third of our budget was for 
the Section 8 voucher program. That is now up over 51 percent. 
In the 2004 budget, the public housing authorities, the 2,500 
public housing authorities, are going to receive the amount of 
money from their August 1, 2003 allocation, with a, as I 
understand it--this is not my area--but as I understand it, 
with a cost-of-living index added to that.
    Our Budget people and our people in Public and Indian 
Housing have indicated to us that no voucher will be lost, that 
there will be sufficient resources to provide for the 
individuals that are presently in the system.
    Now, speaking as the Assistant Secretary for Community 
Planning and Development, and trying to look at the big 
picture, obviously, we would all like to spend--and I know 
Senator Reed and I had this conversation on homelessness--and 
we would all like to spend additional dollars, but it is going 
to be very, very difficult.
    And just jumping to 2005, if I may, Senator, we have 
budgeted $16.9 billion and I remember, I believe, in your 
statement that you indicated that that is $1.6 billion less 
than what we would need. Well, that would take us to $18.5 
billion. And the appropriators provide us with a set amount of 
money. We have to live within those parameters. In this 
particular case, in 2004, we are doing what the Congress 
mandated us to do.
    Senator Sarbanes. I am not clear from that answer whether, 
in 2004, what is your response to these public housing 
authorities that say they are going to have to cut back because 
of the nature in which you are proposing to allocate the money?
    Mr. Bernardi. Again, our numbers indicate that there are 
sufficient dollars in the 2004 budget to meet the vouchers that 
they presently have. Now, some housing authorities--and some 
have--if they are overvouchering, if they are going out putting 
additional people onto the list without paying attention to the 
budget that they have to live under, we all have to live under 
a budget, there are going to be some difficulties, obviously, 
in certain areas, but as I understand it, there will be the 
sufficient resources to provide for the vouchers through 2004.
    Senator Sarbanes. Well, the Center on Budget and Policy 
Priorities, which does good analytical work, estimates that 
under HUD's interpretation, that you have given to the public 
housing authorities, HUD will be left with almost $200 million 
in unused fiscal year 2004 voucher funds at the very same time 
that some public housing authorities will be forced to 
terminate assistance.
    Mr. Bernardi. If there is money----
    Senator Sarbanes. I take it you are assuring me that that 
is not going to happen; is that right?
    Mr. Bernardi. What I can indicate to you, Senator, is that 
if there are additional dollars left in the program, it is 
because all of the vouchers have not been used. And I believe 
Secretary Liu has indicated that we will look at housing 
authority individually to see ways in which we can assist in 
the event that there is a difficulty. But if they overvoucher, 
if they go out, and they have 10,000 vouchers, and they offer 
them to 12,000 people, then we are going to have a problem.
    Senator Sarbanes. Well, they are authorized for a certain 
amount of vouchers.
    Mr. Bernardi. That is correct.
    Senator Sarbanes. Are you going to provide the money for 
the authorized amounts?
    Mr. Bernardi. That is what we hope, that is what we plan to 
do. That is what our budget indicates, but we cannot provide 
dollars for vouchers that are not authorized. And in some 
instances, and I think we understand some areas are going out 
and issuing more vouchers than they have resources for.
    Senator Sarbanes. Well, this is a very, very important 
issue.
    Mr. Bernardi. Absolutely.
    Senator Sarbanes. And the Secretary himself is now quoted 
as saying that no one is going to be cut off, we are not going 
to remove one person that is already on the Section 8 program, 
and we expect HUD to deliver on that.
    You have the money to do it.
    Mr. Bernardi. Each and every year, I believe, approximately 
250,000 people are off of the program. So we do not anticipate 
that anyone will be without a voucher who presently has one 
this year.
    Senator Sarbanes. Well, we are going to watch that very 
closely. I wonder, Mr. Chairman, if I could ask one more 
question.
    Chairman Shelby. You go ahead.
    Senator Sarbanes. As I mentioned in my opening statement, 
we have had an ongoing problem with HUD in getting the data and 
information we need to evaluate the Department's proposals and 
budgets. There is no reason that I can see why a request from 
many of our offices for data that the Department has readily 
available should not be handled in a timely manner.
    Now, on occasion, we use this data to actually criticize 
the Department, it all depends, but we need the information in 
order to have a rational dialogue, and discourse, and it does 
not help anyone at HUD to be an obstacle to ensuring that we 
have proper information on which to base decisions.
    So, I am anxious to obtain from each of you a commitment to 
work closely with the Committee and its staff so that these 
requests for information are met on a more timely basis. It has 
been a problem, and it ought not to be a problem. And if it 
continues, it, of course, cannot help but contribute to 
increased tension and worsening relationships between the 
Committee and HUD.
    Could I hear from each of you on this issue?
    Mr. Bernardi. Sure, Senator. Secretary Jackson has 
indicated to me, and I feel the same way--and someone mentioned 
that I return my phone calls--I look forward to providing any 
and all information that you need. Rest assured, however, that 
if we give you information, we want it to be correct 
information. We want to make sure that whoever provides us this 
information, whether it is internally to HUD or outside, that 
the information is valid, that the information is as accurate 
as it can be, and then provide it to you.
    Senator Sarbanes. Ms. MacFarlane.
    Ms. MacFarlane. Senator, I would like to echo exactly what 
Mr. Bernardi said, I too will work with you.
    Senator Sarbanes. Mr. Shea.
    Mr. Shea. Yes, Senator, I will echo what Cathy and Roy 
said. I will work very closely with this Committee--if Jonathan 
or Steve gives me a call I will return the call promptly.
    Senator Sarbanes. We need the information too, along with a 
return of the call.
    Mr. Shea. I will work cooperatively. Sure; understood.
    Senator Sarbanes. Mr. Chairman, thank you very much.
    I want to say that Mr. Shea is another example, I think, of 
the quality of the people that Senator Dole when he was Leader 
had around him, and I think it is one of the reasons he had 
such an effective leadership.
    Ms. MacFarlane, you have done a nice job over at the 
Federal Trade Commission. I am familiar with some of your work 
there, and I wish you well at HUD. HUD has some good programs 
and they should get out across the--I mean, the public housing 
program, for example, is always taking a hit and getting 
negative press, and yet in many communities across the country 
there is very good public housing and it is meeting a very 
important need. The same thing about the HOPE VI program which 
gets some criticism. On occasion it may be deserved, but there 
are cities in our country where the HOPE VI has helped to 
actually transform the communities.
    So we count on you to get this message out there. You were 
very good at the FTC in getting the message out, so I hope you 
will be able to do as well over at HUD.
    Ms. MacFarlane. Thank you, Senator.
    Senator Sarbanes. Mr. Chairman, let me just say I intend to 
support these nominees and I welcome a hearing where we have 
been able to start off on that premise in the beginning and 
carry it all the way through.
    Chairman Shelby. Quality nominees.
    Senator Sarbanes. That is right.
    Chairman Shelby. They are quality nominees. I think we know 
that.
    Senator Sarbanes. I agree with that.
    Chairman Shelby. Senator Allard, thank you. And thank you 
for the work that you and Senator Reed do in the housing area 
on this Committee.
    Senator Allard. Thank you, Mr. Chairman. I agree with 
Senator Sarbanes that we do have a number of worthy programs 
out there, but just like anything else, you have got a few bad 
actors. We have businesses, say--I am a veterinarian. We have 
got a few bad actors that tend to reflect negatively on the 
profession. Physicians, lawyers, we all have our bad actors. I 
think the challenge with HUD is being able to ferret out those 
individuals that are not responsible and are not accountable.
    You have come, Mr. Bernardi, out of a position where you 
have had to hold people accountable. Have you had an 
opportunity to think about things that you can implement in HUD 
that would bring about more accountability in the process as a 
Deputy Secretary?
    Mr. Bernardi. Yes. The fact of the matter is that you can 
always improve communication, that your correspondence can 
always be crisper, if you will. The fact of the matter remains 
that it is the relationship that you develop with the staff. 
There are only a few of us. There are many career employees. I 
encountered that same situation in the city of Syracuse. And 
overwhelmingly those individuals are dedicated public servants 
who want to do a good job. So the relationship that we need to 
continue to develop with our deputy assistant secretaries and 
our program directors in making sure that every program is 
working at the maximum possible level.
    The Government Performance and Results Act, Senator, that I 
know that you are keenly involved with, at HUD we have a 
strategic plan and we have an annual performance that we, each 
and every year, provide information to the Congress as to how 
we are doing with our strategic plan. Are we meeting our goals 
and objectives? Because in the final analysis, that is how we 
will be judged.
    We also have program performance reports. Along with the 
President's management agenda and the Results Act, as Deputy 
Secretary, if I am so appointed--if I am so confirmed, I should 
say, my goals and objectives are to make each and every office 
there the best that it can possibly be.
    The Chairman indicated about CDBG and performance results. 
We need to drive our budget with performance. We need to 
indicate to you when we come here, we are looking for resources 
and programs that we would like to change, we have to be able 
to provide you the necessary measurements so that you can 
support what we would like to do. I look forward to that 
relationship.
    There are many, many challenges as Deputy Secretary. There 
are over 300 programs at HUD and I am trying to get my arms 
around most of them. I enjoyed CPD, and being Assistant 
Secretary of that department was just absolutely wonderful, 
dealing with the programs such as CDBG, HOME, the homeless 
program, and the HOPWA program. Those are good programs. You 
are able to bring happiness to the face of people around the 
country.
    But, sir, I look forward to managing with strong ethics, 
making sure that everyone provides the necessary energy and 
expertise that is needed.
    Senator Allard. Mr. Shea, I think perhaps you were around 
when they passed GPRA, the Government Performance and Results 
Act. I have always liked the idea because it gives us an 
opportunity as policymakers to look down very quickly and see 
what is actually happening within the agency, and if the 
programs are not working then it gives us an opportunity to go 
back and visit with the agencies; what they can do to make 
things better. Do you have any thoughts about GPRA and how we 
measure and improve performance in HUD?
    Mr. Shea. As you know, Senator, I am currently serving as a 
consultant at the Department, and when I first walked in the 
door, the first thing I picked up was the 5-year strategic plan 
and the annual performance plan to read, to get my hands around 
what the Department is doing, what it intends to do in the 
future. I am pleased to say that PD&R, the office for which I 
have been nominated, takes one of the lead roles in drafting 
the Results Act, or GPRA, documents for the Department. We will 
continue to do so, and I find a great utility in those 
documents and in the Act.
    Senator Allard. Ms. MacFarlane, I think you have a chore 
here for public relations. I think that with the regional 
offices you have an opportunity to reach out to communities and 
work with public relations. But have you any thoughts on how 
you can deal with some of the public relations issues as they 
come up in HUD?
    Ms. MacFarlane. Yes, Senator. I too have been a consultant 
but have been able to observe what the regions talk about on 
conference calls and the field offices. What I proposed to Mr. 
Jackson is that when the assistant secretaries or Mr. Jackson 
are traveling to an area on an invited opportunity, that we 
extend the trip and we visit the communities where HUD has 
placed money. We invite the press to visit those committees 
with us, and then we hold town hall meetings afterwards so that 
we can reach the community and let them know what opportunities 
there are, along with some of the other partners in the 
industry who also assist with low-income and moderate-income 
housing.
    Senator Allard. Mr. Chairman, I see my time has expired. If 
I could just have a moment----
    Chairman Shelby. Good ahead.
    Senator Allard. --and I will be finished after the first 
round here. I do not know what your plans are.
    I am a strong supporter of helping people get into their 
first home. I hope that you can strengthen those programs. I 
think that we have some volunteer programs out there where you 
build in sweat equity, where people build their own homes, by 
volunteering their time. I hope that you will take time to try 
and stimulate those kind of programs, and encourage them to 
flourish. I have also worked and carried legislation called the 
American Downpayment Act, which is to help people over this 
downpayment hump that first-time homebuyers you run into. I 
think it will be helpful too.
    But again, I think those kind of programs have to be 
monitored very closely and see that they are managed properly. 
I would give you an opportunity to comment any further on those 
programs if you want. If not, then we can just move forward.
    Mr. Bernardi. I would like to say a few words, if I may. 
The American Dream Downpayment program, there is $161 million 
that is available. It is going to be going out the door this 
month, as a matter of fact. President Bush signed that at HUD 
and I believe you were there yourself, sir, back on December 
16. That is to help first-time homebuyers. For the 2005 budget 
we have a $200 million request. It is through the HOME program, 
and Senator, as you indicated, HOME received a very high mark. 
It is well-managed. It will go to the people that need it the 
most. It will increase homeownership and give those people that 
do not have the opportunity to own their home downpayment, 
closing cost assistance. So I feel very good about that.
    Our supportive housing opportunity program, our sweat 
equity program, our SHOP program, in 2005 we are asking for $65 
million. It is budgeted at $25 million here in 2004. I was with 
some of the good Senators--Senator Reed, I guess I just missed 
you here in Washington. We did the house that Congress built. 
And to see the faces of these people that are going into those 
homes.
    Right now they are required to do 200 hours of sweat 
equity. We are looking to lower that a little bit. The fact 
remains it is very difficult for them to spend 200 hours on 
their own home when they are building numerous homes. But with 
Tom Jones with Habitat for Humanity and the Housing Assistance 
Council, they receive the bulk of those dollars and we provide 
anywhere from 2,200 to 2,500 homes for low-income individuals, 
and it is a great program.
    Senator Allard. Thank you, Mr. Chairman.
    Chairman Shelby. I will call on Senator Reed. He has been 
very patient and he knows a lot about housing.
    If you are required to spend 200 hours on your own home and 
you cannot do it, could there be some way they could help on 
other homes and people would help them, as long as you get bona 
fide credit?
    Mr. Bernardi. Yes.
    Chairman Shelby. Just a thought. I do not know.
    Mr. Bernardi. They have indicated--they being Habitat and 
the Housing Assistance Council, that that has been a very 
difficult provision, and we are going to be reducing that to 
100 hours, 50 hours for the husband or for the individual. They 
do so many builds now where they do a number of builds at the 
same time that that provision is very difficult to meet.
    At the same time, because of an increase in costs over the 
years, instead of $10,000 on a particular unit we are going to 
be able to go up to $15,000. We would like to do that. I have 
been working very closely with the individuals in those 
organizations. They also would like us to take the SHOP 
program, move it up earlier in the year so that we could grant 
the awards in May and June as opposed to October and November 
so they have the building season in front of them.
    I tell you that to let you know that we are working to try 
to improve that program and all of our programs.
    Chairman Shelby. Thank you.
    Senator Reed, thank you.
    Senator Reed. Thank you, Mr. Chairman.
    Secretary Bernardi, let me return again to the issue of 
CDBG. Senator Sarbanes touched upon it. In the fiscal year 2005 
briefing that you gave to staff you talked about the four 
proposals developing for the formula, and the first indication 
of changes that we received was back in the 2004 budget 
submissions where there was some discussion without any details 
really about perhaps changing. There was a sidebar that made 
the comparison between Cleveland and three other cities and 
said, Cleveland gets as much even though they seem to be in the 
same category, which led many people to observe that there is 
perhaps a movement to change formula B which relates to the age 
of infrastructure and other factors, which is particularly 
important to cities like Syracuse, Providence, Philadelphia, 
Patterson, New Jersey, and other places.
    First of all, do you have details on these four formula 
proposals?
    Mr. Bernardi. We are just in the process of completing the 
study that PD&R has done in conjunction with CPD and with OMB's 
input as well. You are correct, there is formula A and formula 
B, and the entitlement community takes the one obviously that 
provides the most amount of resources. That study will be 
available, I believe, in a few months and we plan to provide 
that. I cannot get into too much detail.
    There are four alternates. Obviously with the 2000 census 
there is an awful lot of change that has taken place over the 
last 10 years, and I can candidly indicate to you that it is 
not as targeted a program as it once was. So it will be up to 
Secretary Jackson and the Administration to make a 
determination as to whether or not to seek change to that 
formula. There are four alternative proposals that I have 
looked at in a rough draft. But then again, we are not going to 
do this in a vacuum. We will make sure that every member, that 
the entitlement communities, the States and any interest groups 
that are out there have an opportunity to take a look at this 
and give their input.
    But any time you change a formula of that size, as you well 
know, there are winners and losers. But we want to make sure, I 
think, in the final analysis--I know Secretary Jackson does and 
I feel very strongly on this--that we do it in a way that is 
equitable and provides for the individuals that our programs 
are geared to, and that is low- and moderate-income.
    Senator Reed. I think you understand this is a vital 
concern to everyone, both the potential winners and the 
potential losers, so as soon as you can get those details I 
would appreciate it and I assume my colleagues would also. We 
will take you up on your invitation to work closely with you in 
trying to look at these.
    Mr. Bernardi. Happy to do it, Senator.
    Senator Reed. I know OMB has rated the CDBG program is 
ineffective, but it is not just--there is an implementation 
problem that might be at the heart of it rather than a formula 
problem, so I would hope you would look at that too.
    Mr. Bernardi. With CDBG we are able to provide numbers for 
number of units that are rehabilitated, and at the same time 
number of jobs that are created. But rightfully so, OMB wants 
to go deeper than that. They want to know if you are using that 
money for public services, and public facilities, exactly who 
does it benefit. As I mentioned earlier, working with the 
communities and with ourselves we are going to put together 
performance measurements. I believe there is $10 million within 
the CDBG budget for 2004 for a demostration that will allow 
communities to competitively utilize that money to create the 
kind of system or systems that we are going to need to measure 
progress.
    Senator Reed. Thank you, Mr. Bernardi.
    Mr. Shea, first of all let me say, Juliette expressed 
feelings that we have all had at one time or another in this 
room but we did not have the license to do it, and I am glad 
she is here today. Congratulations.
    Mr. Shea. Thank you very much.
    Senator Reed. Your office just recently released a study, 
Trends in Worst Case Needs For Housing, and it underscored that 
the trends are getting much, much worse. The report indicated 
that the number of renter households with worst case needs rose 
by 210,000 to 5.7 million in 2001. In this great country that 
is of concern to all of us.
    The point I would make though is that this report typically 
issues every 2 years, and we had to wait 3 years for this 
recent report, so we only have 2001 data. I hope you can commit 
to us that you would be to issue this report on the regular 2-
year basis.
    Mr. Shea. Let me just say, Senator, that the report did say 
that the percentage of individuals with worst-case needs in 
1999 was the lowest ever recorded. There was a slight uptick 
from 1999 to 2001, but statistically insignificant. But the 
report did emphasize that there is a need for more affordable 
housing.
    Yes, I can commit that we will get a second or a follow-up 
worst-case needs report out in the near future. I cannot commit 
to you to a specific timeframe, but I know you expressed a 
concern last year in getting the report out on a timely basis. 
I can assure you that we will get it out on a timely basis for 
more updated figures.
    Senator Reed. Thank you, Mr. Shea.
    Ms. MacFarlane, congratulations on your success at FTC. You 
have an important story to tell at HUD, and as Senator Sarbanes 
and my colleagues said, there are good things to tell and I 
wish you well in telling that story.
    Ms. MacFarlane. Thank you, Senator.
    Senator Reed. Thank you, Mr. Chairman.
    Chairman Shelby. I just want to tell all of you, you bring 
a lot of experience, Secretary Bernardi, Mr. Mayor, your 
experience at HUD. Mr. Shea, his experience in the Senate, 
practice of law, working with the Majority Leader. Ms. 
MacFarlane with the FTC. At HUD, you can make a difference over 
there, and I believe you will. We are going to move these 
nominations as soon as we possibly can, we assure you. We 
congratulate all of you.
    Mr. Bernardi. Thank you.
    Ms. MacFarlane. Thank you, Mr. Chairman.
    Mr. Shea. Thank you.
    Chairman Shelby. The hearing is adjourned.
    [Whereupon, at 3:20 p.m., the hearing was adjourned.]
    [Prepared statements, biographical sketches of nominees, 
response to written questions, and additional material supplied 
for the record follow:]
              PREPARED STATEMENT OF HILLARY RODHAM CLINTON
               A U.S. Senator from the State of New York
                             April 21, 2004
    Thank you very much, Mr. Chairman. I am very sorry I was not able 
to personally attend this hearing to endorse the nomination of Roy 
Bernardi to Deputy Secretary at the U.S. Department of Housing and 
Urban Development. Two years ago, I had the pleasure of appearing 
before this Committee to support his appointment as Assistant Secretary 
for Community Planning and Development and I am happy to say that he 
met my highest expectations.
    Roy Bernardi has truly dedicated his career to public service. For 
the past 30 years, he has worked to improve the overall management of 
the Government while ensuring the delivery of much needed services. 
From his start as elected City Auditor, to his two-terms as Mayor of 
Syracuse, and his service as the President of the New York State 
Conference of Mayors, Mr. Bernardi has championed improving the quality 
of life of New Yorkers. His experiences in New York made him uniquely 
qualified to serve as the Assistant Secretary for Community Planning 
and Development of HUD, where he provided strong leadership and worked 
to improve the delivery of important HUD services to communities 
throughout our Nation. He has been a strong supporter of providing 
Federal assistance to the many financially strapped municipalities in 
our Nation that depend on CPD programs, which provide funding for 
community and economic development, homeless assistance, and housing 
for people with AIDS.
    In New York, I have had the pleasure of working closely with 
Assistant Secretary Bernardi to provide HUD assistance to many of the 
distressed cities in Upstate New York, to improve communication between 
Federal, State, and local government on behalf of HUD empowerment zones 
and renewal communities in our region and to deliver vital HUD funding 
to help rebuild Lower Manhattan. I admire Roy because he has always 
brought people together to work on behalf of community-based solutions 
and has always helped people seek a better life for themselves and 
their children. One example of his extraordinary leadership that comes 
to mind is when 
Assistant Secretary Bernardi went out of his way to convene a special 
meeting of renewal communities in Upstate New York, in March 2002. He 
spent the entire day working closely with mayors and local community 
development officials to help them fully understand the benefits of a 
Federal renewal community program. Over one hundred and fifty people 
attended this hands-on session and the results have proven to be 
invaluable.
    I am convinced that his experience as Assistant Secretary for 
Community Planning and Development, coupled with his impressive record 
as a public servant of Syracuse, has prepared him to serve as Deputy 
Secretary of HUD. I commend the President for the selection of this 
nominee and highly recommend him to this Committee, and ask that you 
act favorably on his nomination.








































RESPONSE TO A WRITTEN QUESTION OF SENATORS SHELBY AND SARBANES 
                     FROM ROMOLO A. BERNADI

Q.1. Do we have your commitment that HUD will provide all 
information requested by any Member of the Committee regarding 
program operations, management, and other information relevant 
to the Committee's oversight activities, as soon as such 
information is available, without delay?

A.1. Yes, you have my commitment.

         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 
                     FROM ROMOLO A. BERNADI

Q.1. In July 2002, then-Deputy Secretary Jackson testified at a 
Housing Subcommittee hearing I chaired regarding attempts to 
improve HUD management. And in response to my written questions 
from his nomination hearing, Secretary Jackson elaborated on 
the progress of HUD's management initiatives. However, most of 
these initiatives were enacted in 2002, but in the January 2003 
report from the U.S. General Accounting Office (GAO) on HUD 
management, Major Management Challenges and Program Risks (GAO-
03-103), GAO was still concerned that important management 
challenges have not been fully addressed. To quote from its 
2003 report: ``many of HUD's strategies for resolving problems 
in its high-risk program areas represent new initiatives in 
early stages of implementation, and evidence shows that 
significant problems remain.''

 Beyond the HUD management initiatives enacted in 2002 
    that Secretary Jackson cited in his written response to my 
    question for his nomination as Secretary, what are your 
    plans to address HUD's management challenges, if you are 
    confirmed? Please elaborate.

A.1. HUD needs to continue to improve the management of its 
human capital, information systems, and acquired services in 
order to improve the delivery and results of its core programs, 
particularly the high-risk rental housing assistance and single 
family mortgage insurance programs. The President's Management 
Agenda (PMA) is addressing HUD's management challenges and 
high-risk programs through five governmentwide initiatives to 
improve Government performance, a sixth HUD-specific initiative 
to correct HUD program weaknesses, and a seventh initiative to 
improve HUD's program delivery by enabling increased 
participation by faith-based and community organizations.
    HUD's major management challenges and high-risk program 
areas are longstanding issues requiring sustained effort to 
address. A discussion of the nature and plans on each of the 
PMA initiatives addressing the HUD management challenges and 
high-risk program areas identified by GAO follows below. If 
confirmed as Deputy Secretary, I will make, as my highest 
priority, implementation of the comprehensive corrective action 
plans HUD has put in place to address these important issues. 
At the same time, it is important to stress that the efforts 
made to date under the leadership of Secretary Alphonso Jackson 
have already yielded significant results.
    Strategic Management of Human Capital. This PMA initiative 
is directed at improving HUD's most important asset, its 
``human capital.'' Significant steps have been taken to better 
utilize HUD's existing staff capacity and obtain, develop, and 
maintain the capacity necessary to adequately support HUD's 
future mission-critical program delivery. A 5-Year Human 
Capital Management Strategy has been developed with 
implementation plans to ensure that: HUD's organizational 
structure is optimized; succession strategies are in place to 
provide a continuously updated talent pool; performance 
appraisal plans for all managers and staff link to HUD's 
mission goals and objectives; skills gaps are assessed and 
corrected; and human capital management accountability systems 
are in place to support effective management of HUD's human 
capital.
    As Deputy Secretary, I would strive to complete and support 
the workforce analyses and planning process to address critical 
staffing and skill gaps in HUD's core program areas and 
occupations. Addressing those gaps would be accomplished 
through targeted training and development, controlled hiring, 
and realignment where necessary.
    Expanded Electronic Government and Financial Performance. 
While HUD is pursuing increased electronic commerce and 
actively participating in governmentwide ``e-Gov'' projects, 
this PMA initiative is also focused on more fundamental, HUD-
specific needs to: Improve the information technology (IT) 
capital planning process; complete a systems modernization 
blueprint or enterprise architecture to guide future systems 
development; convert to performance-based IT service contracts 
and strengthen IT project management to produce better results; 
and provide a secure systems environment for all platforms and 
applications. In addition, HUD is continuing its efforts to 
improve financial performance and eliminate material 
weaknesses.
    HUD has already established measures for tracking its 
participation and performance on fifteen major e-Government 
projects that support PMA objectives to simplify the delivery 
of services to citizens, enable the agency's business processes 
to be more efficient, and reduce costs through integration and 
elimination of redundant systems.
    It has received an unqualified or ``clean'' audit opinion 
on HUD's consolidated financial statements for the last 4 
consecutive fiscal years (2000-2003), and it has reduced the 
number of material weaknesses from 5 to 3 to 2 over the past 3 
years, with plans to eliminate the remaining 2 in fiscal year 
2005 and fiscal year 2006.
    Having served as a HUD program Assistant Secretary, I would 
serve as Deputy Secretary to improve program management 
participation in IT investment decisions and project management 
to better assure HUD's IT systems efficiently and effectively 
fulfill the information needs of HUD programs and program 
participants. Completing the HUD Integrated Financial 
Management Improvement Project (HIFMIP) to better manage HUD 
financial systems projects and fulfill unmet financial 
reporting and internal control needs would be one of my 
priorities.
    Improved Acquisition Management. HUD acquires over $1 
billion in contracted services and goods each year. As part of 
an overall strategy to improve HUD's acquisitions management, 
actions are being taken to ensure that HUD's centralized 
contracting management information system contains reliable 
data on the number of active contracts, the expected cost of 
the contracts, and the types of goods and services acquired, 
and that its financial management information systems provide 
complete and reliable obligation and expenditure information on 
HUD's contracting activities across the Department. Other 
aspects of HUD's acquisitions management improvement strategy 
are being addressed through the human capital management 
strategy, which incorporates actions to enhance HUD's 
procurement staff capacity and improve guidance and training 
for HUD's acquisition officials. Given the significance of 
contracted services to the delivery of HUD programs, improving 
HUD's procurement capacity and acquisition management skills 
and information systems would be among my highest priorities as 
Deputy Secretary.
    Reduced Rent Subsidy Overpayments. HUD has developed a 
comprehensive plan for reducing the estimated $2 billion in net 
annual rental housing assistance overpayments. Establishing an 
adequate field monitoring capacity, with provisions for 
improved guidance, training, staffing, and action on monitoring 
results, is a key component of the strategy. Significant 
actions to date include: The Office of Public and Indian 
Housing's (PIH) conduct of over 700 Rental Integrity Monitoring 
(RIM) reviews at PHA's managing over 80 percent of PIH funding; 
PIH implementation of the Upfront Income Verification (UIV) 
System using State wage data; and the Office of Multifamily 
Housing's increased monitoring through the expanded use of 
Performance-Based Contract Administrators (PBCA's). These 
actions contributed to an estimated 30 percent reduction in the 
rental assistance payment errors attributed to program 
administrator performance in fiscal year 2003. The recent 
Congressional enactment of HUD's legislative proposal for 
increased computer matching and data-sharing authority to allow 
upfront verification of tenant income in all rental assistance 
programs has the potential to reduce the estimated payment 
error by over one-half. As Deputy Secretary, effective 
implementation of this new computer matching authority would be 
among my highest priorities.
    Improved FHA Risk Management. Several new risk management 
rules have been completed or proposed to protect both the FHA 
fund and homebuyers from predatory lending practices like 
property flipping. Under the new ``Appraiser Watch'' process, 
appraisers with poor performance records are now automatically 
targeted for monitoring, or even disqualified from program 
participation, when they hit unacceptable performance 
thresholds. FHA is also implementing a measure of the 
effectiveness of its targeted compliance monitoring efforts, 
which are proving to be more effective in identifying problems 
and protecting FHA through increased indemnifications and 
sanctions. FHA's new automated underwriting system, the 
Technology Open To Approved Lenders (TOTAL) Scorecard, will 
improve the automated underwriting process to increase lender 
efficiency and decrease losses to the FHA fund through more 
consistent, objective evaluations of the credit worthiness of 
borrowers, and better integration of the automated underwriting 
systems usage into FHA's existing processes and workflow. FHA 
also believes that the objectivity and broad availability of 
the TOTAL Scorecard will increase homeownership opportunities 
for minority families. As Deputy Secretary, I will continue to 
pursue efforts to reduce FHA's financial risks while promoting 
increased homeownership goals for first-time and minority 
homeowners and other underserved areas.

Q.2. President's Management Agenda highlights ``strategic 
management of human capital'' and ``electronic government'' 
(encompassing improved information systems) as 2 of 5 
governmentwide reform initiatives. The President's Agenda also 
includes a specific initiative regarding HUD management and 
performance, citing among other things ``weak information 
systems and controls, staff misallocation, and the retirement 
of many experienced employees.'' The GAO and many housing 
groups have indicated that HUD's information technology systems 
continue to have severe problems, despite additional 
Congressional appropriations provided specifically to correct 
HUD's deficiencies.

 What are your plans to correct these information 
    system deficiencies? Please elaborate.

A.2. The bottom line is this: HUD has to improve its IT 
systems. The Department has to ensure that the diverse 
operating platforms can talk to each other. Data has to be 
accessible and managers have to be able to use it in a timely 
and efficient manner. Important steps have been taken that I 
will influence, if confirmed. For example, HUD has made 
important progress in implementation of an Enterprise 
Architecture (EA) program and the Capital Planning and 
Investment Process (CPIC). These two initiatives help ensure 
that information systems are in alignment with HUD's business 
and that systems are reviewed and approved based on cost, 
schedule, and performance.
    The EA program has developed a target architecture that 
serves as a blueprint for modernization of HUD systems in the 
future. The EA program now reviews all requests for information 
technology services.
    HUD'S CPIC process governs decisions on the use of the 
Working Capital Fund by selecting investments to receive 
funding, tracking the achievement of project cost/schedule/
performance goals through quarterly control reviews, and 
evaluating the success of the investments through post-
implementation reviews.
    Both of the above programs are helping direct better 
investment decisions for HUD and are leading to more efficient 
and effective delivery of information technology systems.

Q.3. The GAO's November 2002 report, HUD Management: Actions 
Needed to Improve Acquisition Management (GAO-03-157), March 
2004 report, HUD Single-Family and Multifamily Property 
Programs: Inadequate Controls Resulted in Questionable Payments 
and Potential Fraud (GAO-04-390), and a number of other GAO and 
HUD Inspector General Reports have clearly demonstrated that 
HUD relies heavily on contractors to carry out its programs, 
and it is essential that these contractors are held accountable 
by HUD for their performance. These previous reports have shown 
how deficiencies in these areas--the lack of properly trained 
and equipped staff, poor information systems, and insufficient 
oversight of contractors--negatively affects the performance of 
HUD programs.

 What are your plans to improve oversight of HUD 
    contractors? Please elaborate.

A.3. Because we are improving our information systems, because 
managers are better trained and because Secretary Jackson has 
made this a priority for himself, HUD is taking the right steps 
to improve oversight of HUD contractors. HUD now uses and 
enters contractor performance data in to the National 
Institutes of Health Contractor Performance System (CPS) 
Implementation and training was completed in early 2003.
    In December 2003, HUD implemented the HUD Procurement 
System (HPS) Version 3.6 which addressed GAO recommendations.
    HUD established, in early 2004, an Acquisition Workforce 
Council (AWC) that will focus on training and development of 
HUD's acquisition workforce.
    As indicated in my comments on acquisition management in 
response #1, the Department is making significant progress to 
ensure that HUD's centralized contracting management 
information system contains reliable data on the number of 
active contracts, the expected cost of the contracts, and the 
types of goods and services acquired, and that its financial 
management information systems provide complete and reliable 
obligation and expenditure information on HUD's contracting 
activities across the Department.
    Further, the Department has taken strong action to deal 
with HUD IG and GAO concerns about management of single and 
multifamily housing.
    Multifamily Housing: On February 27, 2003, the HUD 
Multifamily Property Disposition oversight contract with 
Management Solutions of America Inc. (MSA) was modified to 
require additional monitoring of work completed by HUD's 
Property Management contractor.
    Specifically, this modification requires that, prior to a 
site visit, the Oversight Contractor (currently MSA) generate a 
report listing all purchaser orders and contracts issued for 
the site over the previous 6 months. The Oversight Contractor 
will select a sample of 15 percent of these actions on which to 
review invoices as follows: (1) 5 percent of those actions 
issued in the previous 30 days but not yet shown as paid for 
the type of work that, in the judgment of the contractor is 
likely to be still going on; (2) 5 percent of those actions 
issued in the previous 90 days and shown as paid; and (3) 5 
percent of those actions issued during the first 90 days of the 
6-month period.
    The actions selected shall be for varying types of 
requirements (including supply purchases), varying dollar 
levels, and varying vendors. The Oversight Contractor shall 
then request the property management contractor to provide, via 
overnight mail, copies of the invoices where they have been 
received, relevant contract documents, and evidence of 
competition (or justification as to why 
competition was not obtained) if the purchase order is over the 
micropurchasing level. The contractor will not include major 
construction projects in the sample as that work is inspected 
by HUD's architectural and engineering contractors.
    Once on-site, the Oversight Contractor will, for actions 
where the invoices have been processed, compare the item bought 
against the associated contract document (with specifications) 
and invoice to ensure that what was purchased per those 
documents was received. For actions/orders where the work is 
still on-going, the contractor shall review the work against 
the contract document (with specifications) and determine if 
work is being performed as procured. The Oversight Contractor 
will take at least one digital photograph of each work product 
reviewed and additional digital photographs as needed to 
illustrate problems identified by the contractor during its 
review.
    Also, while on-site, the Oversight Contractor shall review 
the site's rotation lists for purchases of less than $2,500 and 
provide written comments as to the adequacy of those lists for 
the area in which the site is located and kinds and volume of 
purchases being made.
    The Oversight Contractor will identify in its written 
report the results of its entire site visit, which actions were 
reviewed, and any problems identified with those actions. The 
contractor shall also identify any situations where it appears 
the PM contractor placed repetitive purchase orders in order to 
avoid HUD approval levels set forth in the PM Contracts.
    The MFPD Centers have been routinely requiring the 
Oversight Contractor (MSA) to follow the revised scope of work 
as outlined above since it was approved on February 27, 2003.
    Single Family Housing: For single family housing, the 
current Management and Marketing (M&M) contracts expire July 
31, 2004. The Department is currently in the process of 
awarding new performance-based contracts to manage, market, and 
sell its single family properties throughout the United States 
owned by or in the custody of HUD. Award on these contracts are 
expected by July 2004. Contract requirements include a 
provision to allow electronic monitoring of the contractors 
working files, as well as on-site and physical property 
inspections.
    Staff training on management controls over the Management 
and Marketing (M&M) contractors is scheduled for June 15-17, 
2004 for HUD Real Estate Owned staff, both in headquarters and 
at the four Homeownership Centers (HOC's). The purpose of the 
training is to provide direction to the HOC and headquarters' 
staff on improved monitoring responsibilities involved with the 
implementation of the new M&M contractors. The core issues to 
be discussed are: Contract administration (which includes 
start-up related activities, transition activities, GTR 
approval standards and procedures requiring GTR action and 
review); contract monitoring and management controls; systems 
controls and access; financial controls on disbursements, sales 
closings and collections; and regulations and notices.
    The Department is currently in the process of procuring for 
the services of property maintenance of the occupied 203k 
properties in New York City. HUD previously terminated the task 
order with ARCO for these services, and hired NHG (National 
Housing Group) on an interim 8a sole source contract, whose 
options run out in September. A revised performance-based 
statement of work will be issued prior to June 2004.
    A contract which provides expanded financial support 
services to the four HOC's will be awarded by September 2004. 
This contractor works closely with the HOC REO staff that 
monitors activities conducted by HUD's M&M contractors and 
closing agent contractors, including monitoring of 
disbursements made for pass-through expenses, monthly 
contractor fees, and real estate property taxes, and 
researching and resolving inconsistencies resulting from sales 
closings, as necessary. The reprocurement will be one 
competition for four separate 8a set-aside contracts for each 
of the HOC's.
    In addition to the above training, a contractor was hired 
by the Office of Single Family Asset Management to review and 
analyze its procedural functions. The Real Estate Owned 
operation was reviewed in each of the four HOC's, headquarters, 
and the National Servicing Center in Oklahoma City, OK. The 
staffing allocated to the Real Estate Owned operation and the 
internal control procedures necessary for the Office of Single 
Family Asset Management to maintain programs and procedures to 
protect the integrity of the FHA mortgage insurance funds, as 
well as achieving its program objectives, were reviewed by this 
contractor. The contractor will provide the Office of Single 
Family Asset Management with a final report which will contain 
its findings and recommendations for improvement, if necessary, 
in functional, staffing and/or internal control areas. The 
final report is due in June 2004.
    HUD recently awarded a contract to conduct operational, 
management, and performance reviews of each of the current M&M 
contract areas and any subsequently awarded M&M contract areas, 

including a consolidated review of each M&M contractor of those 
contractors having multiple areas. The purpose of these reviews 
is to analyze and assess the performance of the M&M 
contractors. The reviews will be conducted at all M&M office 
locations on a monthly basis. The contractor will develop and 
maintain a risk-based methodology for selecting on-site reviews 
of M&M contractor compliance, with property specific and 
overall program support 
activities that includes a statistically valid file/item 
sampling methodology. The contractor will perform a monthly 
review of all relative activities performed by all of the M&M 
contractors and report its findings to the respective HOC and 
headquarters. The contractor will also maintain a national web-
based database file previously developed for and owned by HUD 
that is compatible with HUD's current operating environment 
that can be used to perform detailed analysis of the results of 
the reviews at various levels of risk. A monthly risk analysis 
report will be furnished to headquarters and the respective HOC 
on the M&M contractors 
reviewed that summarizes the current performance of the M&M 
contractors for each area of risk.

Q.4. Secretary Jackson has informed me that HUD and the 
Association of Federal Government Employees (AFGE) have agreed 
in principle to a student loan repayment program to address 
HUD's strategic human capital needs, but had not funded it. He 
also mentioned that the program is in departmental clearance.

 In light of the fact that many Federal agencies and 
    the Senate have successfully implemented and funded student 
    loan repayment programs, why has HUD not allocated funds 
    for its proposed student loan repayment program to address 
    the need HUD has itself identified as a significant part of 
    its strategic human capital needs? Please elaborate.
 Is the proposal still in departmental clearance? When 
    can it be expected to be approved? When can we expect to 
    see it fully funded? Please elaborate.

A.4. The Department believes that a student loan repayment 
program is an important component of its human capital needs 
strategy. HUD'S Student Loan Repayment Policy has completed the 

departmental clearance process. Comments are being reviewed 
currently. Comments will be shared with AFGE. Upon agreement 
HUD will prepare a supplement to the AFGE agreement and will 
insert Student Loan Repayment Policy into the HUD handbook.
    Three hundred fifty thousand dollars has been identified 
for fiscal year 2004 to support this program.

Q.5. As a part of its HUD's strategic human capital planning, 
it implemented the Resource Estimation and Allocation Process 
(REAP) to determine appropriate staffing levels, and followed 
that initiative with periodic Total Estimation and Allocation 
Mechanism (TEAM) measurements of staffing needs.

Q.5.a. To what extent has HUD implemented and used the results 
of REAP and TEAM to determine staffing levels and locations?

A.5.a. Both REAP and TEAM have been implemented. REAP 
establishes a staffing baseline that is used for budget 
formulation and execution, strategic planning, and management 
and organizational analyses. TEAM validates the REAP baseline 
on a regular basis by capturing and reporting actual workload.
    REAP and TEAM were the underlying systems used to develop 
the staffing requests in the fiscal year 2003, 2004, and 2005 
Budgets and was the basis for the fiscal year 2002-2004 
staffing plans. REAP is now used by the Appropriations 
Committees to allocate workyears and associated funding by 
Office in HUD's Appropriation Acts.

Q.5.b. What factors, if any, impede application of this 
process? How accurate is REAP and TEAM in its estimation of 
actual staffing needs?

A.5.b. There are no impediments to REAP and TEAM, but both must 
be updated on a regular basis to reflect organizational 
changes, changes in program content, and the implementation of 
the Strategic Plan. The original REAP baselines were developed 
in 2000-2001. HUD is currently completing the first round of 
updates of the original studies. This update covers 
approximately 80 percent of the Department's FTE's. The 
remaining programs will be restudied by the end of this 
calendar year. REAP ``refreshes'' will be conducted 
approximately every 2 years for every HUD program or sooner if 
required by changes in programs, functions, processes, or 
organizational structure.
    REAP establishes a baseline of staffing needs based on 
current program requirements; TEAM measures actual staff usage 
and work performed and compares them against the REAP baseline 
by function, location, and programs for possible adjustment or 
updating. To date, TEAM reports demonstrate that REAP estimates 
of workload are accurate to within the 95 percent confidence 
limits. This result validates the accuracy of the methodology 
developed by HUD and the National Academy of Public 
Administration (NAPA).

Q.6. In response to my question regarding funding the 
commitment to end chronic homelessness and the Samaritan 
Initiative, then-Acting Secretary Jackson stated that the 
Administration has provided sufficient resources to meet the 
commitment. However, in order to meet the goals the 
Administration has set, the budget for supportive housing would 
have to be $100 million a year ($1 billion over the decade) to 
fund 15,000 units a year (150,000 a year). The Samaritan 
Initiative is authorized and proposed to be funded at $50 
million a year.

 How do you reconcile those numbers? Please elaborate.

A.6. The Samaritan Initiative will be a dedicated program 
targeted to the chronically homeless. HUD proposes $50 million 
for Samaritan to provide permanent housing for this population. 
It is important to note that Samaritan is by no means the only 
resource that will be used to end chronic homelessness. In 
addition to the Samaritan Initiative, HUD's proposed 
consolidated homeless assistance program, requested at a 2005 
funding level of $1.282 billion (including $25 million for the 
proposed ``Prisoner Re-entry'' program), will be a significant 
resource in ending chronic homelessness. Communities will be 
able to tap into these funds to house chronically homeless 
persons. In addition to the targeted homeless assistance 
programs, communities will be able to use HUD's mainstream 
housing programs (including HOME, Section 8, and public 
housing) to help end chronic homelessness. Finally, HUD is not 
the only housing resource that communities will tap to achieve 
this important goal. Resources from States, localities, and 
organizations committed to providing affordable housing, such 
as Fannie Mae, will also be used to end chronic homelessness.

RESPONSE TO A WRITTEN QUESTION OF SENATORS SHELBY AND SARBANES 
                      FROM DENNIS C. SHEA

Q.1. Do we have your commitment that HUD will provide all 
information requested by any Member of the Committee regarding 
program operations, management, and other information relevant 
to the Committee's oversight activities, as soon as such 
information is available, without delay?

A.1. Yes, you have my commitment.

         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 
                      FROM DENNIS C. SHEA

Q.1. The first major report of the year from the office you are 
nominated to head, HUD's Office of Policy Development and 
Research, was ``Trends in Worst Case Needs for Housing,'' which 
documents the significant challenges that too many of America's 
working families experience in finding an affordable place to 
live. It states, ``Worsening shortages of housing affordable 
and available to extremely low-income renters . . . show that 
the underlying gap between demand and supply continues.'' The 
report indicates that the number of renter households with 
worst case needs rose by 210,000 to 5.07 million in 2001, and 
that ``there were only 42 units affordable and available for 
every 100 families with extremely low-incomes,'' an astounding 
deficit of almost 5 million units. In my own State of Rhode 
Island, one of every two renters is unable to afford the two 
bedroom HUD Fair Market Rent levels.
    Furthermore, the gap between demand and supply is going to 
increase. Based on the most recent Census data, demographic 
trends indicate that the United States will grow by 30 million 
households by 2025 and at the current annual rate of the loss 
of units, we will lose another 15 million units also by 2025. 
Combined with the 5 million deficit indicated by the Worst Case 
Needs report, this means that we will need to build at least 50 
million units by 2025--almost 2.5 million units a year--just to 
keep up with demand. We are not building at that rate, 
especially for rental housing affordable for low-income and 
minority families.
    In light of these trends, what policy development and 
research initiatives do you believe are important to address 
the upcoming demand for housing, especially regarding rental 
housing for low-income and minority families?

A.1. As you point out, HUD's ``worst case needs'' reports have 
historically highlighted the need for a greater supply of 
affordable housing for low-income households. In the future, 
this overall need will be compounded by the unique challenges 
of meeting the housing needs of the elderly, who will make up a 
larger portion of the population, as well as the disabled and 
the homeless.
    The latest ``worst case needs'' report released by the HUD 
Office of Policy Development and Research indicated that the 
percentage of households with worst case needs in 1999 stood at 
4.72 percent, the lowest percentage ever recorded. While this 
percentage increased slightly to 4.77 percent in 2001, the 
latest ``worst case needs'' report indicated that this increase 
was not statistically significant. Since 1977, the percentage 
of U.S. households with ``worst case needs'' has hovered around 
5 percent, with the highest percentage recorded in 1983 (6.03 
percent).
    Working closely with the private sector and our State and 
local partners, the Federal Government clearly has an important 
responsibility to help respond to the need for more affordable 
housing. PD&R is uniquely positioned to assist in this effort 
by providing sound research and objective information to guide 
policymakers in their decisionmaking. Historically, PD&R has 
achieved this mission by examining housing and demographic 
trends through surveys and reports, including ``worst case 
needs'' analyses and funding for the American Housing Survey. 
We intend to continue this legacy through an aggressive 
research agenda that is tightly focused on key housing issues 
with high policy relevance. Some of our current research 
priorities include:

 Affordable Housing. PD&R has a number of projects 
    underway or under consideration that will examine ways to 
    expand affordable homeownership and rental opportunities. 
    These include support for the goal of ending chronic 
    homelessness in 10 years; studying ways of closing the 
    minority homeownership gap and creating 5.5 million more 
    minority homeowners by 2010; and critical support to FHA in 
    the operation of its single family and multifamily 
    insurance programs, including the introduction of new 
    products to expand affordable housing opportunities.
 Program Evaluations. Improving the operation of HUD's 
    current programs is a key PD&R priority. Examples of 
    current and proposed program evaluations include improving 
    the delivery of Section 202 and Section 811 housing and 
    evaluating the formulas for distributing HOME and CDBG 
    funding. PD&R plays a key role in monitoring and evaluating 
    the Low Income Housing Tax Credit program and will continue 
    to do so, if I am confirmed.
 Reducing Regulatory Barriers. Working with HUD's 
    Affordable Communities Initiative, PD&R is helping States 
    and communities to reduce regulatory barriers that increase 
    the cost of housing without improving the value to the 
    residents or to their communities. By working 
    collaboratively with developers and community groups, 
    communities will be able to reduce delays and unnecessary 
    costs, which constitute a barrier to affordable housing.
 Housing Technology. PD&R's Division of Research and 
    Technology has helped shine the spotlight on innovative 
    technologies that not only make American housing safer and 
    more durable, but also more affordable. In addition, PD&R 
    is sponsoring continuing research to improve the quality of 
    manufactured housing.

    Finally, to remain effective, PD&R needs the continuing 
support of Congress to provide funding for research and program 
evaluation.
    I look forward to working together with you and the other 
Members of the Senate Banking Committee to expand opportunities 
for affordable housing. If confirmed, I hope to elevate PD&R's 
role in ensuring that the Department's policy decisionmaking 
process is informed by sound research. You have my assurance 
that, if given the opportunity to lead PD&R, the Office will 
continue to make affordable housing, particularly housing for 
low-income households, a key focus of its research and policy 
development efforts.

Q.2. In early April 2004, HUD released proposed new affordable 
housing goals for Fannie Mae and Freddie Mac, based largely 
upon recommendations and data from HUD's Office of Policy 
Development and Research.

Q.2.a. Do you believe that these proposed goals are rigorous 
enough to help address the need for affordable housing in many 
of the high housing cost communities across the Nation? Why or 
why not?

A.2.a. The Department is proposing higher goals than those in 
effect for 2004, and yes, I believe that the proposed goals are 
rigorous enough to help address affordable housing problems in 
all communities across the Nation. HUD's proposed higher 
housing goals for Fannie Mae and Freddie Mac for the 2005-2008 
period were published in the Federal Register on May 3, 2004. 
Specifically, HUD is proposing to raise:

 the low- and moderate-income goal from 50 percent in 
    2004 to 52 percent in 2005, 54 percent in 2006, 56 percent 
    in 2007, and 57 percent in 2008;
 the special affordable goal from 20 percent in 2004 to 
    22 percent in 2005, 24 percent in 2006, 26 percent in 2007, 
    and 28 percent in 2008; and
 the underserved areas goal from 31 percent in 2004 to 
    38 percent in 2005, 39 percent in 2006 and 2007, and 40 
    percent in 2008. A portion of the proposed increase in the 
    underserved areas goal between 2004 and 2005 reflects the 
    incorporation of data from the 2000 census on the 
    prevalence of underserved (low-income and/or high-minority) 
    areas.

    In addition, HUD is proposing to establish home purchase 
subgoals for the GSE's to increase homeownership among American 
families, especially lower-income families and families in 
underserved areas.
    In the past, the GSE's have generally lagged the market in 
funding mortgages for families in owner-occupied and rental 
properties targeted by the housing goals. In 1992, Congress 
said that one factor that HUD should take into account in 
setting the goals was the ability of the GSE's to lead the 
market, and the Department has done so in proposing the goals 
for 2005-2008. That is, the Department has proposed to increase 
the goals in steps, so that by the year 2008 the goals are set 
at the upper end of the estimated range of the goal-qualifying 
shares of mortgages originated in the primary mortgage market.
    HUD is confident that the higher national housing goals 
proposed for the post-2004 period can only be met by GSE 
support of affordable housing in all parts of the country, 
including communities with high housing costs. I support the 
Department in this effort and believe that the proposed goals, 
if implemented, will help respond to the need for affordable 
housing in these communities.

Q.2.b. On Monday, April 19, at the Mortgage Banking 
Association's Secondary Market Conference, representatives from 
Fannie Mae and Freddie Mac alleged that HUD's proposed goals 
were too rigorous, and may even force them to reduce annual 
purchases of moderate or high-income mortgages.
    Do you think there is any merit to Fannie and Freddie's 
argument that the proposed goals may be too rigorous? Why or 
why not?
    What effect, if any, do you think that the proposed goals 
will have on the purchases of moderate or high income 
mortgages? Please elaborate.

A.2.b. HUD has undertaken detailed analyses of the primary 
mortgage market and presented the results of such analyses in 
Appendix D of the proposed rule for 2005-2008 and in the 
regulatory analysis accompanying the proposed rule. These 
analyses demonstrate that there are many mortgages in the 
categories targeted by the housing goals that have not been 
purchased by the GSE's in the past. There have been ample 
opportunities for both Fannie Mae and Freddie Mac to increase 
their purchases of targeted loans and improve their overall 
goal performance. And projections indicate that there will be 
an ample number of such mortgages in the period covered by the 
proposed rule. Thus, there should be no need for the GSE's to 
curtail their purchases of mortgages for higher-income families 
or families living outside of underserved areas, as defined by 
the Department. The Department's regulatory analysis also 
demonstrates that the GSE's have earned a high return on equity 
(ROE) on their purchases of both targeted and nontargeted 
mortgages. This suggests that they will not be curtailing their 
regular business in order to meet the housing goals.

Q.2.c.1. Unlike every other goal established by HUD, which are 
proposed to be increased over the course of the next 4 years, 
the Special Affordable Housing Multifamily Goal is set at 1 
percent of Fannie and Freddie's volume of mortgage purchases.
    Do you think it is appropriate to have the multifamily goal 
able to be changed, as are the other housing goals? Why or not?

A.2.c.1. HUD has increased the minimum multifamily special 
affordable subgoal several times in the past. For Fannie Mae, 
the subgoal was $1.29 billion annually for 1996-2000 and $2.85 
billion annually for 2001-2004, and the Department is proposing 
to raise this subgoal to $5.49 billion annually for 2005-2008. 
For Freddie Mac, the subgoal was $0.99 billion annually for 
1996-2000 and $2.11 billion annually for 2001-2004, and the 
Department is proposing to raise this subgoal to $3.92 billion 
annually for 2005-2008. Thus, for both GSE's the proposed 
subgoals for 2005-2008 are approximately four times the 
subgoals that were established for 1996-2000. These changes 
have been made in order to reflect the overall growth in the 
multifamily mortgage market and the increased capacity and 
expertise of both GSE's in purchasing multifamily mortgages.

Q.2.c.2. Should the multifamily goal be set as percentage of 
volume or as a specific dollar amount? Why or why not?

A.2.c.2. As discussed in Chapter 3 of the regulatory analysis, 
HUD has considered alternative formulations of this subgoal, 
but has set it in terms of a minimum dollar volume of such 
mortgage purchases. Comments were invited regarding 
alternatives in the 2000 rule, and commentors generally 
supported the dollar-based approach followed in the past by the 
Department.
    The Department believes it would not be feasible to 
establish these subgoals as a percentage of all units currently 
financed by the GSE's, because their total mortgage volume 
varies greatly between years, especially when refinance waves 
take place in the single-family mortgage market, as seen in the 
past few years. I share the Department's view that the dollar-
based subgoals have helped ensure that the GSE's play at least 
a minimal role in the special affordable portion of the 
multifamily mortgage market.


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