[Senate Hearing 108-175]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-175

 $5.2 BILLION FOR LOW-INCOME SENIOR HOUSING NOT REACHING THE ELDERLY: 
                                  WHY?

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             JUNE 17, 2003

                               __________

                           Serial No. 108-13

         Printed for the use of the Special Committee on Aging



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                       SPECIAL COMMITTEE ON AGING

                      LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama              JOHN B. BREAUX, Louisiana, Ranking 
SUSAN COLLINS, Maine                     Member
MIKE ENZI, Wyoming                   HARRY REID, Nevada
GORDON SMITH, Oregon                 HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri            JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois        RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah                 RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina       BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska                  EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania          THOMAS R. CARPER, Delaware
                                     DEBBIE STABENOW, Michigan
                      Lupe Wissel, Staff Director
             Michelle Easton, Ranking Member Staff Director

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Larry E. Craig......................     1
Statement of Senator James Talent................................    45
Prepared Statement of Senator John Breaux........................    63

                                Panel I

John C. Weicher, Assistant Secretary, Housing/Federal Housing 
  Commission, U.S. Department of Housing and Urban Development, 
  Washington, DC.................................................     2

                                Panel II

David G. Wood, Director, Financial Markets and Community 
  Investment, General Accounting Office, Washington, DC..........    13
Cynthia Robin Keller, Vice President, Affordable Housing and 
  Development, Volunteers of America, Alexandria, VA.............    28
Tom Herlihy, Development Specialist, National Church Residences, 
  Columbus, OH...................................................    37
Lee Ann Hubanks, Executive Director, Plano Community Homes, Inc., 
  Plano, TX......................................................    45

                                APPENDIX

Testimony of Paul Hazen, President and CEO, National Cooperative 
  Business Association and Douglas Kleine, Executive Director, 
  National Association of Housing Cooperatives...................    64

                                 (iii)

  

 
 $5.2 BILLION FOR LOW-INCOME SENIOR HOUSING NOT REACHING THE ELDERLY: 
                                  WHY?

                              ----------                              --



                         TUESDAY, JUNE 17, 2003

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room SD-608, Dirksen Senate Office Building, Hon. Larry E. 
Craig, (chairman of the committee) presiding.
    Present: Senators Craig and Talent.

     OPENING STATEMENT OF SENATOR LARRY E. CRAIG, CHAIRMAN

    The Chairman. Good morning, everyone. We thank you for 
attending this Senate Special Committee on Aging hearing. In 
our daily legislative discourse, it is our fiduciary 
legislative duty to address a variety of issues. On this 
committee, we have oversight responsibility over all issues 
affecting our aging citizens. One such issue is housing. Both 
the ranking member, Senator Breaux, and I are always keenly 
interested in this. The Senator would be here this morning, but 
he is on the floor managing another important issue for 
seniors, and that is the Medicare prescription drug legislation 
that is currently on the floor of the Senate. So he will not be 
able to be in attendance this morning.
    In meeting our oversight obligation, we are charged to 
exercise constructive reviews and critiques of the Federal 
programs we have created. Today we exercise that constitutional 
responsibility and examine the bureaucratic administration by 
the Department of Housing and Urban Development and the 
meritorious and needed Section 202, Supportive Housing for the 
Elderly program.
    The most widespread and urgent housing problem facing 
elderly households today is affordability. About 3.3 million 
elderly rental households in the United States have very low 
incomes, which HUD defines as 50 percent or less of the area 
median income. The Section 202 program provides two types of 
financial support. The first type of funding provides capital 
advances grants to nonprofit organizations to purchase land and 
construct affordable rental housing exclusively for these 
households. The second type of funding, which interplays with 
the first type, is monthly support in the form of rental 
assistance payments that defray some of the operating expenses.
    However, due to a myriad of HUD requirements in the 
application process, coupled with chronic and oftentimes 
insensitive bureaucratic delays by HUD in the processing of 
grant applications and monetary commitments, the nonprofits are 
placed in untenable economic positions. Today we will listen to 
their litany of concerns.
    We will examine what I call the bureaucratic treatment of 
nonprofit organizations in the application process conducted by 
the Department of Housing and Urban Development which has 
caused the Section 202 program's overall balance of unexpended 
appropriations by the end of fiscal year 2002 to total $5.2 
billion. These unexpended funds in the only Federal program 
devoted exclusively to providing the type of most needed 
affordable housing for the elderly represent nearly 86,339 
housing units in 1,936 projects affecting needy seniors.
    We will also focus on the findings of the General 
Accounting Office report on elderly housing provided by the 
Department of Housing and Urban Development through the Section 
202 program. These findings will detail the administrative and 
planning problems encountered by the nonprofit associations who 
utilize the funding of these programs and GAO's recommendations 
for improvements.
    We will hear testimony today from two panels of witnesses. 
Our first witness is John C. Weicher, Assistant Secretary, 
Housing/Federal Housing Commission, Department of Housing and 
Urban Development.
    On our second panel of witnesses, we will be joined by 
David Wood, Director, Financial Markets and Community 
Investment, General Accounting Office; as well as Ms. Cynthia 
Robin Keller of Volunteers of America; Mr. Tom Herlihy of the 
National Church Residences; and Ms. Lee Ann Hubanks of Plano 
Community Housing, representing the umbrella association of 
American Association of Homes and Services for the Aging.
    I want to thank all of our witnesses beforehand for being 
here today. This is a most important inquiry, and I look 
forward to hearing your respective testimonies and exploring 
ways to provide better, affordable, more timely access to this 
money that ultimately produces the kind of housing that so many 
of our seniors need.
    So, with that, I turn to our first panelist, Dr. John C. 
Weicher, Assistant Secretary, Housing/Federal Housing 
Commission, Department of Housing and Urban Development. 
Doctor, welcome to the committee this morning. We look forward 
to your testimony.

  STATEMENT OF JOHN C. WEICHER, ASSISTANT SECRETARY, HOUSING/
  FEDERAL HOUSING COMMISSION, U.S. DEPARTMENT OF HOUSING AND 
               URBAN DEVELOPMENT, WASHINGTON, DC

    Mr. Weicher. Thank you, Mr. Chairman, and thank you on 
behalf of Secretary Martinez for inviting the Department to 
testify on the subject of the Section 202 Supportive Housing 
Services program. We are happy to discuss the program in the 
context of the findings and recommendations in the recent GAO 
report.
    I would like to start with the issue of timely processing, 
the pipeline problem. Section 202 has been frequently 
criticized because it takes too long to close projects after 
they are funded. Secretary Martinez has made it a priority to 
clear out the pipeline. Shortly after I became Assistant 
Secretary for Housing in the summer of 2001, the Office of 
Housing compiled a list of projects that had been in the 
pipeline for at least four years, double the processing period 
permitted under our regulations. These projects had been 
approved in fiscal year 1997 or earlier. I asked our staff to 
determine the status of each one. We learned that many had 
already been processed through initial closing and many others 
had been canceled. Having determined which projects really were 
in the pipeline, we then made it a priority to bring those 
projects to closing.
    I am pleased to say that we have cut the aged pipeline from 
48 projects to just 7, and we expect to close 6 of them during 
the remaining quarter of this fiscal year. Those are certainly 
the hardest projects to close. They have site problems or 
litigation, and as time goes by, the costs rise.
    We have funded 977 projects that were approved between 
fiscal years 1992 and 1997. More than 99 percent of those 
projects have been completed.
    For the period from 1998 to 2000, the years that were the 
focus of the GAO report, we have closed 84 percent of those 
projects, 409 out of 489. At the time of the GAO report, in 
December, we had only closed out 74 percent. We have cut the 
number that had not been closed from 127 last December to 80 at 
the end of last month.
    While cleaning out the pipeline, we have not neglected the 
timely closing of recently funded projects. In the past, HUD 
typically closed between 50 and 55 percent of projects within 
two years. For projects funded in fiscal year 2000, we closed 
60 percent. I am pleased to be able to say that two weeks ago I 
attended the grand opening of a Section 202 project that was 
funded in fiscal year 2001, Denali View in Chugiak, AK. This 
project was funded in September 2001 and is open and fully 
occupied in June 2003. It is a beautiful project, and you can 
indeed see Denali, see Mount McKinley, from their front door.
    The GAO report discusses the unexpended balances in this 
program, and the committee is focused on that issue. GAO 
observed that only a small part of the unexpended funds, about 
14 percent, about $700 million, are associated with pipeline 
projects that have exceeded HUD's processing time guideline. 
This is an indication of the progress we have made in clearing 
out the pipeline.
    As GAO reports, almost half of the $5.2 billion in 
unexpended balances consists of PRAC balances for projects that 
have been completed and are now occupied. That money is being 
spent year by year as Congress intended. For those projects 
awarded between 1991 and 1994, the unexpended balances are the 
remaining years of the original 20-year PRAC. For those 
projects awarded in later years, the unexpended balances are 
the remaining years on the original 5-year PRAC. These PRACs 
amount to $2.5 billion.
    Another quarter of the unexpended balances, $1.3 billion, 
consists of the funds Congress appropriated in fiscal years 
2001 and 2002. These projects are still within the original 
schedule for reaching timely initial closing. We anticipate 
that most of them will come to initial closing on a timely 
basis. The remainder is money for projects which have started 
construction but have not yet been completed. That category 
amounts to about $700 million.
    We will continue to work to bring projects to closing and 
to occupancy and in the process to further reduce our 
unexpended balances on projects that have not yet been 
completed.
    In its report, GAO made recommendations to the Department 
to improve the administration of the program. Overall, the 
Department concurs with the recommendations, and we have taken 
steps to implement them.
    GAO recommended that we evaluate the effectiveness of the 
current methods for calculating capital advances. We have begun 
to examine how Section 202 development cost limits compare with 
other objective indicators of local construction costs, and we 
anticipate this evaluation will be completed next year.
    GAO recommended that we make the necessary changes to our 
cost calculation methods based on this evaluation so that 
capital advances adequately cover the development costs. The 
Department will be discussing this recommendation with Section 
202 program stakeholders this summer, and we will complete the 
evaluation prior to making any changes in the current methods.
    GAO recommended that we provide regular training to ensure 
that all field office staff are knowledgeable and are held 
accountable for adhering to current processing procedures. 
During fiscal year 2002, the Department provided training to 
field staff for the first time in 10 years. Subject only to 
resource limitations, we are committed to continuing to 
implement an effective training program. Our next training will 
include technical processing training for field staff to assure 
that there is consistent processing nationwide.
    GAO recommended that we update our handbook to reflect 
current processing procedures. We have initiated the process of 
consolidating and updating the Section 202 program handbooks. 
We hope to complete this process by the end of fiscal year 
2004, and that will allow the Department to incorporate any 
changes to the program that are a result of the meeting with 
the 202 stakeholders and the completion of the cost limits 
study.
    GAO recommended that we improve the accuracy and 
completeness of information entered in the Development 
Application Processing system by field office staff and expand 
the system's capabilities to track key processing stages. 
During fiscal year 2002, there was an intensive effort to 
verify the accuracy of the information in the system, and the 
Department is committed to expanding its capabilities.
    In addition, the Department has taken other steps to 
improve our program delivery. We have strengthened the 
structure of the program by tightening the selection criteria 
for new projects. I describe these changes in detail in my 
prepared statement. We have drafted regulations to implement 
the mixed finance provisions of the American Homeownership and 
Economic Opportunity Act of 2000. These regulations are now 
being reviewed at OMB.
    We have issued a notice to implement other provisions of 
the American Homeownership and Economic Opportunity Act of 
2000, permitting existing Section 202 loan projects to 
refinance their mortgages, a priority for both the Department 
and the stakeholders. These procedures were announced last 
summer.
    Of course, we have established a management plan goal 
focusing on the reduction and elimination of the aged pipeline.
    I want to assure the committee, I want to assure you, Mr. 
Chairman, that the Administration and the Department are 
committed to the ongoing viability of the Section 202 program, 
and we are committed to working with you, with the nonprofit 
organizations that sponsor these projects, and with the elderly 
persons who need these apartments to make sure that Section 202 
remains a successful program and a viable housing resource for 
the elderly.
    Thank you, and I will be glad to answer your questions.
    [The prepared statement of Mr. Weicher follows:]

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    The Chairman. John, does your time allow you this morning 
to stay until the next panel testifies? What I would like to do 
is have you all at the table because I would like to have you 
respond possibly to some of their testimony. Does your schedule 
allow that? That would probably take another 20 minutes, 30 
minutes.
    Mr. Weicher. I can make myself available for that, Mr. 
Chairman.
    The Chairman. I would appreciate that if you could.
    So, with that, I will withhold questions until the next 
panel, and then we will bring you all to the table, and I will 
ask questions of all of you, because I would like to have you 
hear their testimony if you would, please. John, thank you very 
much.
    Now let me call our second panel: Mr. David Wood, Director 
of Financial Markets and Community Investment, General 
Accounting Office; Cynthia Robin Keller, Vice President of 
Affordable Housing and Development, Volunteers of America; Tom 
Herlihy, development assistant, National Church Residences, 
Columbus, OH; and Lee Ann Hubanks, Executive Director, Plano 
Community Homes.
    We are going to ask that you adhere to the 5-minute rule, 
and your full statements will become a part of the record.
    Mr. Wood, we will start with you. Thank you.

  STATEMENT OF DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND 
COMMUNITY INVESTMENT, GENERAL ACCOUNTING OFFICE, WASHINGTON, DC

    Mr. Wood. Thank you, Mr. Chairman. I appreciate the 
opportunity to be here today.
    My statement addresses the two principal topics covered in 
our report to you and Ranking Member Breaux: first, the 
relative importance of the Section 202 program in meeting the 
housing needs of the low-income elderly, and, second, the 
timeliness with which projects move through the planning and 
approval process.
    According to the 2001 American Housing Survey, nationwide 
there were about 3.3 million elderly renter households with 
very low incomes. About 1.3 million of the households received 
some type of Government housing assistance. We estimate that 
the 202 program was responsible for assisting about 20 percent 
of those households.
    However, despite its exclusive focus on very low-income 
elderly renters, the 202 program serves only about 8 percent of 
target households. More than half of the very low-income 
elderly renter households did not receive any form of 
Government housing assistance. HUD considers the large majority 
to be rent burdened because they pay more than 30 percent of 
their incomes for rent. Accordingly, it is important that 
Section 202 projects are developed in a timely manner.
    HUD's development approval process is directed at 
completing specific plans needed to start construction. Among 
other things, project sponsors must prepare and HUD field 
offices must review architectural plans and detailed cost 
estimates. The agency's goal is generally to complete these 
steps within 18 months of selecting the projects for funding. 
However, HUD's field offices may extend this period by up to 
six months. HUD headquarters has to approve any further 
extensions.
    We specifically looked at all 494 projects that were 
selected for funding in fiscal years 1998 through 2000. We 
found that more often than not, the projects took longer than 
HUD's 18-month guideline. Specifically, we found that as of 
December 2002, 132 projects, or about 27 percent of the total, 
had met the 18-month guideline. Another 140 projects, about 28 
percent, had been processed within 24 months. One hundred 
twenty-seven projects were still pending, including 11 that 
were funded in 1998 and 34 that were funded in 1999. All 
together, 73 percent of the projects did not meet HUD's 18-
month guideline.
    To explore the potential reasons for this, we surveyed HUD 
field office staff as well as selected program sponsors and 
consultants. We also looked at HUD headquarters' oversight of 
the program. We identified a number of factors that can affect 
project timeliness.
    The first concerns the amount of funds that HUD makes 
available for each project called the capital advance. HUD's 
policy is for capital advances to fund the total development 
cost of modestly designed projects that meet minimum property 
standards and applicable codes. However, about 90 percent of 
sponsors and consultants and nearly two-thirds of HUD's field 
offices reported that capital advances were often or even 
always insufficient. In such cases, sponsors must either seek 
additional funding from other sources, redesign their projects 
to lower costs, or both. These activities take time.
    A second factor was variation in the procedures that HUD's 
field offices used to approve projects for construction. At the 
time of our review, HUD's field office staff was relying on 
out-of-date program handbooks that did not reflect streamlining 
steps the agency adopted in 1996. Further, most field office 
staff had not received any formal training on Section 202 
projects. Last year, HUD offered the first formal training on 
the program in at least 10 years.
    Third, we found that to monitor projects, HUD headquarters 
relies on an automated system with limited ability to track 
projects through each stage of development.
    Finally, our survey identified some factors outside of 
HUD's control, such as inexperienced project sponsors and local 
government permitting and zoning requirements, that can prolong 
project development.
    As a result of our work, we made the recommendations that 
Dr. Weicher just discussed, and HUD outlined its plans for 
acting on them. As in all such cases, we will be tracking the 
agency's actions as part of our normal follow-up procedures.
    That concludes my prepared statement. I will be happy to 
take any questions.
    [The prepared statement of Mr. Wood follows:]

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    The Chairman. David, thank you very much for that 
testimony.
    Now let me turn to Cynthia Keller, Volunteers of America. 
Cynthia, welcome to the committee.

 STATEMENT OF CYNTHIA ROBIN KELLER, VICE PRESIDENT, AFFORDABLE 
 HOUSING AND DEVELOPMENT, VOLUNTEERS OF AMERICA, ALEXANDRIA, VA

    Ms. Keller. Thank you. Mr. Chairman, I have been involved 
in the 202 program for approximately 20 years. On behalf of our 
organization, I want to express our sincere appreciation for 
your interest and concern for the Section 202 elderly program 
and for inviting us to be here today.
    Volunteers of America is one of the Nation's largest and 
most comprehensive nonprofit, faith-based service organizations 
and is of the Nation's leading nonprofit providers of 
affordable housing. We currently have 151 Section 202 and 
Section 811 programs in operation, and we have an additional 24 
facilities in various stages of development.
    The problems we face as a nonprofit human organization and 
as a Nation in attempting to provide more and better facilities 
to house and serve America's seniors will be severely 
compounded by the expected rapid growth in the Nation's aging 
population in the coming decades and by the lack of adequate 
public policy and resources to meet that growth.
    Clearly, as a Nation we have a problem of extraordinary 
scale and urgency as the housing and social services programs 
and funding we have in place today will not keep pace with the 
situation. Therefore, it is so important that programs that we 
have in place like the Section 202 Elderly Housing operate in 
an efficient and expeditious manner.
    We are concerned, as our members of this committee, about 
the amount of pipeline time it takes from receiving 
notification from HUD that the Section 202 funds have been 
awarded to the actual time of construction start. On average, 
our experience shows that the process takes between 2 and 2-1/2 
years.
    In 1996, HUD issued Notice 96-102. The purpose of the 
notice was to make significant changes in the way that the 202 
development processing was administered. Although one of the 
specific goals was to decrease the processing time, one of the 
changes in the notice actually had the effect of increasing 
processing time and increasing the cost to build the project. 
This change was the requirement that owners could not apply for 
additional funding from HUD for the project. As David said, our 
experience is the same. Approximately 90 percent of the 
facilities that we develop require additional money due to 
insufficient funding allocated at the time of the award. HUD 
will grant waivers to the requirement but only if the sponsor 
first demonstrates they have attempted to get funding from 
other sources prior to requesting additional monies from HUD.
    Typically, the most common source of the additional funds 
is CDBG or HOME funds obtained either from the local 
municipality, the State, or both. State and local 
municipalities receive their CDBG and HOME funds from HUD. If 
sufficient funds are not available from those sources, the 
sponsor can try to obtain funds from the Federal Home Loan Bank 
or private foundations. Funding from the latter sources are 
quite difficult to obtain, and many private foundation grants 
are incompatible with the 202 program requirements.
    All of the barriers to capital availability are intensified 
in the case of affordable housing development for the elderly 
due to the fact that the 202 program doesn't permit repayment 
of secondary financing until after the 40-year term of the HUD 
grant. This creates a barrier to obtaining supplemental funding 
when it is needed.
    After the sponsor has tried the additional sources and 
still has insufficient funds to build the facility, the sponsor 
can request a waiver of HUD Notice 96-102 from the local 
office. In most instances, the local office will then request 
amendment money from HUD headquarters. The added processing 
time creates increases in the cost of the facility because of 
the financing search.
    During this time, the sponsor is often forced to purchase 
the site out of their own resources, due to the fact that the 
sellers are normally not willing to continue to extent the 
option on the property. When a site has to be purchased, we 
incur costs such as insurance, property taxes, and interest on 
the funds used to purchase the site. Unfortunately, these costs 
are not reimbursable from HUD funds and can amount to several 
thousands of dollars. Therefore, for nonprofit sponsors, this 
understandably is a huge incentive to close on the loan as 
quickly as possible.
    We at Volunteers of America encourage this committee to 
consider the following issues and suggested courses of action 
that will greatly assist in reducing processing time.
    Recommendation 1, which you have also heard today, is in 
the future provide adequately funding to build the project at 
the time of the award. This can be done by ensuring that the 
high cost factors used in calculating the award are realistic. 
Currently, in our experience, only the North Carolina and 
Minnesota HUD offices have sufficient funds at the time of the 
grant to build the facility. Perhaps these offices could be 
consulted on their methods of determining the high cost factor. 
We believe the outcome would decrease the processing time by 6 
to 12 months.
    Recommendation 2, which we believe could happen almost 
immediately, would be to eliminate the requirement to seek 
funds from outside sources for the shortfall. You could allow 
local HUD offices to grant waivers to the 96-102, which would 
allow sponsors to receive amendment funds without first 
applying to outside agencies who receive their funds in most 
cases from HUD. The processing time, in our opinion, would 
decrease by 3 to 6 months.
    Also, another recommendation which you have heard today is 
to provide additional HUD staff and training for the local 
staff. HUD headquarters offered training for the first time in 
August 2002. Approximately one person from each office was 
trained. While there has been some improvement in the uniform 
interpretation of the regulations, many offices are in need of 
additional training and staffing. With adequate staff, the HUD 
in-hour grant processing could decrease from 11.8 months, which 
is what the average of our portfolio is, to 2 months from the 
time it reaches HUD. This is the amount of time that HUD Notice 
96-102 recommends, thereby clearing up most of the perceived 
pipeline issues.
    We believe the HUD Section 202 program is one of the finest 
affordable housing programs that Congress has created. The 
program is fair, it is managed well once it is developed, and 
reaches those low-income elderly age 62 and over in an 
effective way.
    We appreciate the opportunity to bring you our ideas and 
perspectives and want to assure you and all members of the 
committee that we are strongly committed to helping resolve the 
issues before the growing demand for elderly housing and 
supportive services spirals out of control. Mr. Chairman, we 
are confident that sound solutions can be found and implemented 
in a way that is fiscally responsible and fair to all parties.
    We appreciate your commitment to the cause and look forward 
to working with you throughout the process. Thank you.
    [The prepared statement of Ms. Keller follows:]

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    The Chairman. Thank you very much, Cynthia.
    Now let us turn to Tom Herlihy, National Church Residences.

  STATEMENT OF TOM HERLIHY, DEVELOPMENT SPECIALIST, NATIONAL 
                CHURCH RESIDENCES, COLUMBUS, OH

    Mr. Herlihy. Senator Craig and committee members, thank you 
for the opportunity to be here this morning. National Church 
Residences has approximately 225 properties in 25 States. 
Approximately 150 of those are 202 facilities, and the 
remainder for the most part are low-income housing tax credit 
facilities. I would just like to echo that it is a very good 
program, but I would like to go into a few items that do cause 
delays in the developing process.
    First of all, I would like to refer over to the board at 
Steps 6, 7, and 8. One of the initial delays coming right out 
of the block is the application and review period from when we 
apply for funds to the time that we receive the funds. We have 
just recently submitted 12 applications just on last Friday for 
funding in this program. This is one application of which we 
submitted 12 in 10 different States. I believe one of the 
things that could be done to improve the program would be to 
decrease the review period. Right now it is approximately six 
to seven months. If you took a review of the different State-
run tax credit programs, they typically review those and award 
funds within a three to four-month period. Also, approximately 
a third to 50 percent of this application covers information 
that is basic information on the sponsor and so on, and it is 
not necessarily site-specific. When these applications are 
turned in to the individual field office for their review, I 
believe they are somewhat burdened by having to review these, 
just as we are somewhat boggled by the amount of information 
that we have to provide.
    Perhaps if we split the application process into possibly 
two steps where you had basic information that is sponsor-
provided that would be provided to HUD, and that could be done 
at once at one field office, or perhaps once you attained a 
certain score, then that score would be held for a number of 
times. So in the application process, all we would be 
submitting would be site-specific information. That would 
facilitate their ability to review in a quicker process.
    Second of all, something that could cause a delay is just 
the nature of the zoning process, and that really has nothing 
to do with whether the project is funded through HUD or whether 
it is a private development process. The local zoning process 
is often very cumbersome. It is typically a two-step process 
where we go before the planning commission first, and then 
after their approval and review, then we go to city council. 
Even if property is properly zoned, it is not uncommon that 
elderly housing is sometimes what they refer to as a 
conditional use. That means that you just can't apply for a 
building permit; you still have to go through the planning 
commission and city council review process.
    It is not uncommon that the zoning process takes 
approximately four months. It is also very difficult for us to 
begin that process prior to the time when we are awarded the 
funds. It is typical that we have to have the property 
surveyed, and we would have to have engineering plans for some 
of the site plan review type stuff, and so that would preclude 
us from being able to initiate that process prior to the award 
of funds. So part of it is just the sequence of activities that 
we have to go through, and we have to take those in the proper 
order.
    There have also been times, since it is a conditional use, 
where we are in essence kind of burdened by having to do some 
type of development that otherwise we wouldn't count on. A good 
example is a recent facility that I am working on right now. I 
had to install 450 feet of 6-foot-wide concrete sidewalk all 
the way across my property, and there are no sidewalks at 
either end that it adjoins to. It is just an example of a local 
requirement that we could be forced to do.
    I have also encountered delays in part due to the Davis-
Bacon wage rates. If you would refer to Steps 9, 10, and 11, 
what the delay is, what is caused there is at times I have 
submitted a firm application and had the project in for final 
review. This is after we have building plans and everything 
complete at the point where we are ready to pull a building 
permit. At that point, we have a budget that we have worked on 
based on what the current Davis-Bacon wage rates are, and then 
once we have submitted the application for review, if there is 
a new wage decision which increases the labor rates 
significantly, then automatically our project is over budget. 
If we were right at the point where we basically can't pull 
anything else out of the building, we are forced to request for 
additional funds at that point. If that happens right prior to 
our initial closing, it can cause a substantial delay. It would 
be very beneficial if somehow we could lock in a wage rate at 
the time that the project is awarded perhaps for a 2-year 
period or something like that within the timeframe that we 
could reasonably expect to develop the project.
    Last of all, I would just like to go into purchasing the 
land. That is a burden sometimes. Somewhat it is made more 
difficult by the process of these do take some time, and when 
we negotiate an option to purchase and control the site that is 
for an anticipated closing that is approximately a year and a 
half off, it puts us in a very poor bargaining position to 
attempt to negotiate land to purchase for that far off.
    That is all I have at this time. Thank you.
    [The prepared statement of Mr. Herlihy follows:]

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    The Chairman. Well, Tom, thank you.
    Ms. Hubanks, before I turn to you, let me turn to my fellow 
Senator from Missouri, Jim Talent, who has just joined us, for 
any opening comments he would like to make.

              STATEMENT OF SENATOR JAMES M. TALENT

    Senator Talent. Well, Mr. Chairman, I want to thank you for 
holding yet another extremely relevant hearing. This is an 
issue that I encounter all the time in Missouri. It is one of 
the reasons I am so interested in what you all have to say. I 
am going to ask some questions, Mr. Chairman, related to 
something that I think we are all learning about how we should 
best provide services to people who need services, and that is, 
to the extent that the Government can push control down to some 
kind of integrated and local boards or local control mechanisms 
and have standards of accountability that measure performances 
rather than trying to measure so much the kinds of inputs that 
you have been talking about Mr. Herlihy, you know, in other 
words, what is the overall performance of boards or providers 
or developers in this case, how can we measure that and fund 
based on that rather than up front try and regulate everything 
people put into projects would--in other areas of social 
service, for example, that really speeds up and energizes this 
kind of work. So I will probably be asking questions along 
those lines.
    But I am mostly here to listen, Mr. Chairman, and, again, 
thank you for holding this hearing.
    The Chairman. Well, thank you very much for joining us.
    Now let us turn to our last witness on this second panel, 
Lee Ann Hubanks, Executive Director, Plano Community Homes. 
Welcome.

    STATEMENT OF LEE ANN HUBANKS, EXECUTIVE DIRECTOR, PLANO 
                COMMUNITY HOMES, INC., PLANO, TX

    Ms. Hubanks. Thank you. Thank you for the opportunity to 
testify today. My name is Lee Ann Hubanks. I am the Executive 
Director of Plano Community Homes in Plano, TX. We currently 
operate 299 HUD Section 202 units and have another 60 in 
development. I am also here representing the American 
Association of Homes and Services for the Aging. AAHSA 
represents more than 5,600 mission-driven, nonprofits serving 
more than 1 million seniors each and every day, including the 
majority of HUD Section 202 sponsors.
    Plano Community Homes has been building HUD Section 202 
housing since it was established in 1983. We have also applied 
for additional grant monies to make the development process 
viable due to inadequate capital advances. We have full-time 
service coordinators and transportation on each of our housing 
campuses. We have over 300 seniors on our waiting list and have 
been working with the city of Plano, the Collin County 
Committee on Aging, and the Plano Housing Authority, which has 
about 1,500 households on its waiting list, to reach creative 
solutions in our own communities for our community's housing 
needs.
    On behalf of AAHSA, I would like to share with the 
committee some specific recommendations for making the Section 
202 development process more efficient. We concur that we need 
to increase the number and training of HUD staff so the 
development processes can move as efficiently as possible. 
Whenever there is a slowdown during the initial stages of the 
development process, it affects the cost and/or availability of 
the land. If HUD staffing or training levels are insufficient, 
the property is at risk. This in turn can put the entire 
project at risk. If land needs to be renegotiated because we 
miss opportunities, we must start back a square one and make 
our way through zoning issues and possible local opposition to 
affordable housing.
    Second, we feel that we need to set adequate total 
development cost limits. These were increased substantially 
years ago but have remained static these last years. Given the 
strength of the real estate market, HUD needs to pay better 
attention to real-world development costs. Inadequate 
development costs inevitably lead to the time-consuming 
necessity to secure other resources. HUD's total development 
cost limits should be routinely reviewed and appropriately 
amended.
    To implement the optional ability to leverage mixed 
financing sources like low-income housing tax credits and 
private activity bonds and use them in conjunction with Section 
202 funds to build projects that are both larger and house a 
mixed-income population.
    In addition, to provide technical assistance funds for site 
control and pre-development costs. Today, we are desperately 
looking to secure a piece of land to build 60 more Section 202 
units. The current market rate for land in Plano is 
conservatively $4 to $6 per square foot. Under our cost 
constraints, the Section 202 program cannot afford land valued 
at greater than approximately $2.50 per square foot. Grants 
providing for up-front land purchase or land options would be a 
tremendous help.
    Last, HUD should publish sample seed money costs as part of 
the annual Notice of Funds Availability. The NOFA could then 
act as a real-world guidance to nonprofits, especially those 
new to the Section 202 development program, on what resources 
are actually needed by successful applicants before any funds 
from HUD will be available. For example, AAHSA members report a 
wide range of up-front costs, ranging anywhere from $50,000 to 
$100,000. The range is often attributable to local zoning and 
permit fees, land purchase options, environmental reviews, the 
Minimum Capital Investment required in the NOFA, and traffic 
impact studies. Depending on the locale, there may be numerous 
other up-front costs associated with a Section 202 development.
    We are committed to the 202 program. I have been doing this 
for almost 20 years, and it is a fabulous program. On behalf of 
all of the members of the American Association of Homes and 
Services for the Aging, I would like to thank you again for the 
opportunity to testify today, and I would be happy to answer 
any questions that I could.
    [The prepared statement of Ms. Hubanks follows:]

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    The Chairman. Thank you very much. We appreciate your 
testimony.
    Tom, if we could get you to move a little this direction, 
Cynthia, move a little this direction, we are going to get a 
chair and ask Dr. Weicher to come and be seated then, and we 
will proceed with our questioning. Again, Doctor, we appreciate 
your willingness to stay. Actually, there is another chair 
coming there that will probably--it might seat you a bit 
higher.
    Again, let me thank all of you for your testimony and your 
involvement in this program, and as we analyze it based on the 
work that GAO did and obviously the testimony already of Dr. 
Weicher and the work that is underway as a result of the audit 
and their review of programs and their commitment to them.
    Doctor, let me first ask you this question: I have here the 
application book. I find that in itself daunting. Is it really 
necessary that we ultimately require that much information? 
This is not a staged involvement here, but Tom brought an 
application that is a product of this book's requirements. 
Let's put the chart back up, if we could, the 18-month process 
chart. Obviously, when Congress appropriates money for these 
programs, recognizing the need that we believe is out there, 
and, of course, a backlog that was clearly demonstrated that 
you have already spoken to that you have come a long way toward 
reducing in a significant way. In fact, let's just put all the 
charts back up because that backlog is demonstrated there.
    Let's talk about the 18-month process and the application 
itself and the adequate funding necessary to do that. Could you 
respond to those questions? Are you examining them, looking at 
them, reviewing them? Is 18 months a reasonable time to assume? 
I know that you are dealing with issues that were 4 and 5 years 
in pipelines. That is totally unacceptable as far as I am 
concerned. But 18 months appears to be a long period of time 
when we deal with properties and money values and obvious 
needs.
    Mr. Weicher. Well, Mr. Chairman, first, if I may say that 
four and five years is totally unacceptable to the Secretary 
and to the Department and to the Administration as well, and 
that is why we have made it a priority and have, I think, 
largely succeeded in eliminating the backlog of the aged 
pipeline, as I referred to it.
    With respect to the application process, we intend--I 
mentioned in my statement that we plan to meet with 
stakeholders during this summer to talk about the GAO 
recommendations and their other concerns, and we intend to take 
a look at the concerns that they raise, and that would 
certainly include the application process in the handbook.
    May I say that these projects are complicated, and we 
recognize that it can be daunting when you first begin to try 
to apply for a Section 202 project. We do have a demand for 
funds by prospective project sponsors that is well in excess of 
the funds that are appropriated annually by Congress. We try to 
make sure that we select projects which meet needs and which 
are a good prospect to be completed within the 18 or the 24-
month period, including the 6-month extension allowable in the 
field.
    The Chairman. Let me understand again. In the GAO study 
released in May, obviously we all focused on the $5.2 billion 
in unexpended funding. It is my understanding that it breaks 
approximately this way: about 48 percent is tied to units that 
are already occupied, and that is rental assistance money. Is 
that correct?
    Mr. Weicher. Yes, that is correct, Mr. Chairman. As I 
mentioned, from 1991 to 1994, Congress appropriated project 
rental assistance on a 20-year basis, and so those projects 
have a good half and more of the original 20-year contract 
money still unexpended. Beginning in 1995, Congress established 
the project rental assistance contract on a 5-year basis. Those 
projects since then have 1, 2, 3, 4, and for the newest 
projects 5 years of rental assistance. Those balances also--all 
of those balances for both groups of projects spend out year by 
year as the project is occupied and as Congress intended.
    The Chairman. That money is obviously appropriated, it is 
in the treasury, you draw on it to meet these commitments. Is 
that the process that works?
    Mr. Weicher. That is correct, Mr. Chairman. That is 
correct.
    The Chairman. The balance, 52 percent, then would be money 
appropriated for the purpose of the actual construction itself, 
I mean the development of the facility.
    Mr. Weicher. The rental assistance contracts associated 
with those projects which have not yet been completed and 
occupied.
    The Chairman. So it is a combination of both.
    Mr. Weicher. It is a combination of both.
    The Chairman. How does that break out?
    Mr. Weicher. It breaks down about 80 percent capital 
advance and 20 percent project rental assistance contract. I 
might say that a substantial share, half of the remaining 
money, a quarter of the total, $1.3 billion, are the funds that 
Congress appropriated in fiscal year 2001 and 2002 and which, 
by the time of the GAO study, were still within the HUD 
guidelines, the HUD processing guidelines. That money is not 
yet late. Those projects are not yet in the pipeline in that 
sense. We expect to complete, as we have been doing, we expect 
to complete more than half of those projects within the 2-year 
period as we did for the year 2000 projects and as we have done 
in earlier years as well and then bring most of the remainder 
to closing within a third year. That is the track record, and 
that is the record we have established and we are building on.
    The Chairman. OK. With that, let me turn to my colleague, 
Senator Talent. Jim?
    Senator Talent. Yes, let me follow up the discussion that I 
had and maybe ask some--the point I raised before and then 
maybe ask some specific questions.
    There are people sitting at this panel probably 
collectively with decades and decades and decades of experience 
in providing this housing to elderly people. Now, think outside 
the box a little bit. Would it be possible to short-cut some of 
this by establishing in communities some type of boards or 
control organizations that represent the various stakeholders, 
the nonprofits that had been doing this, to develop a 
procedure--maybe we could do this on a pilot basis--where you 
knew up front that certain funds were going to be available. 
You all know basically what the guidelines are, and knowing 
that those funds were going to be available, one of the things 
I have found in other areas is that makes it easier to leverage 
dollars. If we sort of lifted some of the regulations and some 
of the oversight regarding the specifics of these projects, and 
instead you knew that certain pools of funds were going to be 
available, you could go ahead with more discretion on your own 
and then periodically you would have audits and the HUD people 
would come by and check on how you are doing. I mean, how 
different would that be from what you are now doing? Is that 
model, in your judgment, at all workable in this context? Are 
there too many local regulations? Is there a danger that 
somebody might use money unwisely? I mean, would it be possible 
to sort of transcend these problems a little bit by changing 
the way that we do this so you don't have to have specific 
applications for every project?
    Does anybody want to comment on that?
    Ms. Hubanks. I would like to answer that. We are a very 
small organization. NCR and VOA are wonderful programs, and 
they are much larger. They have different resources than we do. 
We don't have a foundation behind us. Something like that would 
be wonderful for us to be able to do as a small organization. 
We have got experience because we have done this before. We are 
not coming into it brand new. Somebody coming into it brand new 
may have some difficulties. It may work different in other 
communities.
    We work very closely with our city and with our Committee 
on Aging in the county. So for us that would be a very workable 
solution.
    Senator Talent. Mr. Herlihy, you mentioned you built a 
sidewalk that basically didn't connect anything up. Now, I 
don't imagine this happens a lot. I have seen this process from 
when I have nonprofits in my area contact me and they want help 
with an application, or I go out and visit a project and there 
is an awful lot of great work being done out there. I think we 
all feel that.
    Is there some way of expediting this in part by changing 
the way in which we apportion this money so that once we 
certify or once we have a set of providers who we trust that 
have a proven record, we simply allow them to make these 
decisions without having to have it overseen so much by the 
Government? Then what the Government does is check periodically 
to make sure everything is going well, and then check on the 
final outcomes? Would that speed the process up? Could we do 
that effectively?
    Mr. Herlihy. We, in essence, do that in part right now in 
that we a lot of times target a community. We go in and work 
with them ahead of time prior to our application and get things 
set up essentially in the local community in preparation of an 
application. But still quite often in doing that you still have 
to go through the zoning process.
    Senator Talent. I know that zoning is a problem no matter 
what you are trying to build anywhere.
    Mr. Herlihy. I guess I would be a little leery of that. I 
would hate to see any significant amount of funds being 
expended ahead of time without the absolute commitment in set-
up that it is going to be a facility, would be one of my great 
concerns.
    Senator Talent. OK. Ms. Keller, you mentioned in your 
statement that funding from the latter sources, that is, 
private foundations, et cetera, are often quite difficult to 
obtain and many private foundation grants are incompatible with 
Section 202 program requirements. What did you mean by that, 
``incompatible''?
    Ms. Keller. Well, we have on occasion received funding from 
the Weinberg Foundation, but HUD has indicated to us that we 
can't use it, that it is not compatible with the 202 program, 
so we have had to turn it back. Like Tom was saying, when we 
are having to do sidewalk/street improvements, HUD doesn't 
permit you to use HUD funds for anything outside the perimeters 
of the site. So we will have to go to the city to try to get 
grants, foundation funds, for anything outside the perimeters, 
and it is not unusual for sidewalks, walking paths, widen the 
roads, put in street lights. Generally what will happen with us 
is maybe there are $400,000 or $500,000 in outside funding we 
get. The city will give it to us, and then we turn right back 
around and hand it back to them for the improvements that we 
have to do in that city.
    Senator Talent. That probably all takes time, too, doesn't 
it?
    Ms. Keller. A lot of time, and it is a competition. You 
submit applications, usually a lot of excerpts from what you 
have, your plans, your specs, to the city. You are competing 
with everybody else in that city for those same funds.
    Senator Talent. My sense usually----
    The Chairman. let's----
    Senator Talent. Go ahead.
    The Chairman. You know, let's pursue this together because 
there is a common thread here that obviously what I have found 
interesting is that the right hand is 202 and the other hand is 
CDBG monies, and it is all HUD money. That tranche of time when 
you have found out that the project is inadequately funded, to 
go out and find other sources of money to package it all 
together to get a final product is apparently quite substantial 
in 95 percent of the cases. Is that what you said, Tom?
    Mr. Herlihy. No, I didn't throw that number out.
    The Chairman. OK, but one of you used the figure----
    Ms. Keller. I said 90.
    The Chairman. You used the figure of 95 percent of the 
cases require additional monies to complete a project, and some 
of that money is HUD money.
    John, maybe you could speak to that or we all could 
collectively. I find it fascinating that we cannot do one-stop 
shopping if, in fact, we have a qualified project that meets 
all of the requirements of HUD, why HUD can't fund it 
completely. Or is there an intent or a purpose to find 
leverage? I can understand the value of leveraging private 
dollars or finding dollars outside of the Federal trough. But 
when it is going to different locations at the trough and it 
takes 5 or 6 months or more and that 18-month period becomes a 
reality, that doesn't make a lot of sense.
    Mr. Weicher. Mr. Chairman, let me say with respect to CDBG 
money that that money is given by the Department, by the 
Federal Government, to municipalities and States to be spent as 
they see fit on the purposes of community development. Once we 
provide them with the funds, it is their choice as to whether 
those funds should be just to support----
    The Chairman. Yes, I know that. I mean----
    Mr. Weicher [continuing.] A Section 202 project or 
something else. In that sense, I don't think it is really going 
to HUD twice. It is going to HUD for the 202 money, and it is 
going to the local government for local government sources, 
some of which come from the Federal Government.
    With respect to the question of how we--of the level of 
funding for an individual project, our choice essentially, Mr. 
Chairman, is: Do we provide full funding for a smaller number 
of projects or do we provide partial funding and try to use it 
as leverage, as you said a moment ago, try to use it as 
leverage for a larger number of projects?
    There is no perfect way to answer that question. The way we 
have chosen to answer it is to try to stretch the resources 
which we have, $780 million a year in the 202 program, stretch 
those resources to provide help in more places than we could if 
we went on a 100-percent basis, but not to stretch it so far 
that we simply can't get projects built. That is always a 
judgment. It is always a balancing call, and I am sure that in 
some cases the balance we strike is not the balance we would 
strike once we have been through the process.
    The Chairman. Yes, Tom.
    Mr. Herlihy. I would just like to add to that that does 
make a certain amount of sense also the way that it is done. 
For example, a project that I recently developed in Denver, in 
the city of Aurora, they had unusually high, what I will call 
impact or development fees, local fees. Their local fees were 
approaching $300,000 for a 202 that I was developing. We went 
to the city of Aurora for CDBG funds basically to pay for their 
impact fees.
    Many of the other development costs, cost of construction 
and so on, were fairly close online, but it was those local 
impact fees that really pushed it over the budget.
    The Chairman. Well, I guess the question that I would ask 
of you, John, and then maybe those of you who are out there in 
the field have had this experience, of the eligible 
applications--``eligible'' meaning, obviously, they have 
demonstrated the need, they have come a long way--how many are 
denied because they cannot put the final or complete funding 
package together? Are there a number of denials out there where 
there is clearly the need, everybody qualifies, except they 
can't come up with all of these other monies and, arguably, 
therefore, HUD had inadequately funded and, therefore, denied? 
Do you know that?
    Mr. Weicher. Mr. Chairman, I don't know that because we 
don't--that is not an aspect of the application which we report 
on.
    I do know that the competition is fierce, and the scores, 
the winning scores in individual multi-family hub areas, the 51 
areas around the country through which we provide funds, the 
field office we have scores, in many places winning scores in 
the 90's and scores that do not quite qualify only a point or 
two lower. We see very many well-qualified applications, and we 
try to select the best of them from those applications.
    It is also quite typically true that applications which 
fall short in this year, just barely fall short in this year, 
are, in fact, successful applicants the next year with the 
same, essentially the same application.
    The Chairman. I ate into your time.
    Senator Talent. No, that is OK, unless you are watching the 
clock very carefully, Mr. Chairman.
    Ms. Keller, why couldn't you use those foundation funds 
that didn't meet HUD program requirements, do you know in what 
respect it didn't?
    Ms. Keller. At this point in time they were sent to the 
local HUD attorneys, and we have had this happen in three 
offices, that the repayment schedules or the terms of the 
grants weren't compatible with the laws regarding the 202 
financing program. There was something in that language that 
did not coincide with the language of the HUD deed, mortgage, 
HEP requirements, contracts. Specifically, I cannot tell you.
    Senator Talent. Those of you who are doing this in your 
communities, are there a lot of instances in this process where 
you can't use certain funds or you have to use money for 
something or there is a delay while you are waiting for an 
approval where you are looking at it and you are saying, you 
know, I have been doing this for an awful long time, I would 
not be going through this exercise if I had the discretion to 
do this the way I wanted, this isn't adding any value, this 
isn't helping us provide better housing. Is this a constant 
experience that you have in this process?
    Ms. Keller. For me it is not. I can't speak for everyone 
else. But, you know, when you go to a grand opening and some 
elderly person comes up and puts their arm around you and tells 
you they didn't have heat until they moved in or they were 
living in their car, then it is worth what----
    Senator Talent. It makes it all worthwhile. What I am 
getting at is that we are moving--there is a trend in the 
country which I think is very good to vest more discretion in 
the people who are actually providing the service to the 
seniors. To the extent that we can do that, it allows you all 
to do what you think makes sense in terms of the vocation and 
the mission that you have which works better for the seniors. 
If I can get the process to move in that direction, it reduces 
delays, allows money to be used more efficiently, allows you 
more flexibility in drawing dollars from other areas. That is 
what I am suggesting here, but I don't hear you all saying that 
you feel like we need any kind of a systemic change in that 
sense. [No response.]
    No.
    Ms. Hubanks, would you tell us some of the specific things 
you have done with the Fort Worth office? I mean, evidently you 
are having great success dealing with them. What are some of 
the things they are doing to shorten the time?
    Ms. Hubanks. Well, one of the things that we have done is 
we have worked with the architectural specialist in advance so 
that by the time we get ready to submit our documentation, we 
have pretty well been through it together so that it is much 
easier for him to look at and approve. We have kind of done 
that step by step as we have gone through the process to make 
it so that we are kind of all working together.
    If I turn it in as is and they have not seen it, it takes a 
great deal longer for them to process. So we have tried to work 
together.
    Senator Talent. To just try and do as much as you can to 
get it approved before the actual process starts.
    Ms. Hubanks. Right, so that when we turn it in, they know 
exactly what is coming, we know exactly what they are looking 
for, and we have been able to work out the little bugs in the 
system.
    Senator Talent. I wonder, John, if HUD, when you get 
reports that an office like this is really working in an 
unusually good fashion to expedite this process, whether there 
is some process you have within the agency to bring other 
people in for training or demonstrations or replicate that kind 
of model in other places. Is there something internally you all 
do to try and take a successful model and replicate it?
    Mr. Weicher. Well, as we said, and as all of the 
participants have said, we began to train staff in how to 
implement 202s, how to process 202s, last summer, in 2002, for 
the first time in 10 years. We have additional training 
scheduled this year on the technical implementation issues. 
Certainly part of that training is learning--some people who 
have done well telling other people, and, of course, part of it 
also is that when you have somebody from every part of the 
country together there, they do a lot of talking on the side, 
after hours, between sessions, over dinner. We think that is 
important, and we intend to continue it.
    Senator Talent. Thank you, Mr. Chairman.
    The Chairman. Well, thank you.
    You have just answered a follow-up question I was going to 
have, John. Are you institutionalizing this on an annual basis 
or every two years or whatever?
    Mr. Weicher. Well, we hope to do it annually. It really 
will depend on the availability of training funds. But we are 
trying to do it this year and we hope to continue.
    The Chairman. Well, I think private America has found that 
an extremely valuable thing to do, especially in large 
companies, for the right hand and the left hand to sit down 
together and compare. Oftentimes, you are right, it is the 
conversation at the evening meal where one says, you know, in 
Texas we are doing it this way, and somebody in Pennsylvania 
says, well, I will be darned, that makes sense, we hadn't 
thought of that. That does help in these ways, and much of 
that, of course, can be done inside existing regulations.
    David, you mentioned that you are continuing to track the 
progress HUD is making in light of the audit, the 
recommendations of that audit, and Dr. Weicher spoke to several 
of those. Will GAO consider doing a follow-up analysis of work 
in progress a year out from the study? I think that would be 
extremely valuable for this committee to revisit the dollars 
and cents, the applications, the timeliness. Obviously, Dr. 
Weicher is having successes of the kind that are respectable 
and appropriate, and that pipeline appears to be getting 
drained out. I think it would be extremely important for all to 
do such.
    Mr. Wood. Yes. In terms of the specific work we do, we 
obviously respond to requests from committee chairmen. We do 
have a process for routinely following up on recommendations 
from any of our reports. We also, of course, every two years do 
the performance and accountability series where we try to 
summarize for each department management problems that we see 
across the department, and a couple are very relevant to this 
202 program at HUD. For example, we designated human capital 
management as a department-wide issue which gets into the 
adequacy of staff training and skills and so forth. But, yes, 
we would be happy to consider that.
    I just wanted to add also, on this issue of differences 
among offices, we do have data--it is in an appendix to our 
report--where we looked at the performance of each of HUD's 45 
field offices that deal with 202 projects and there are data in 
there. So that would be a good starting point for HUD to find 
out why some did so well and others did not.
    The Chairman. Thank you. That would be extremely valuable.
    Dr. Weicher, what is HUD doing to document--I guess I am 
trying to understand. I thought I did understand, maybe not as 
clearly as I should have. You talk about scoring projects. Do 
you look at or is there an effort to determine--you didn't 
choose to use the word ``leverage.'' I used it. Is there a way 
to look at how monies are put together beyond what HUD is 
willing to participate that in? In other words, is there an 
examination of additional costs incurred by the nonprofits?
    Mr. Weicher. Well, there is an assessment of whether the 
project can be covered by the funds that are available, and it 
is always a factor to look at the ability of the sponsor, the 
track record of the sponsor in successfully completing 202 
projects, either entirely within the funding for the project as 
allocated by us or by bringing in additional outside sources.
    I certainly recognize that it is sometimes a complication 
to have to bring additional funding sources to the table, and 
as I said, ``We try to strike a balance to make the funds go 
effectively as far as we can.''
    The Chairman. How much additional cost in time--and I used 
to sell, broker real estate, so I understand that when you have 
got a piece of property out there that is valuable but you 
can't get the money for 12 months for it, sometimes owners just 
say the heck with you, we have got another buyer down the road. 
In hot economies, that oftentimes happens, and, therefore, it 
is money lost and, therefore, property becomes more valuable. 
But has there ever been an assessment of the additional costs 
incurred by the time it is required of the nonprofits to go out 
and secure the additional monies to make a project, to 
complete, and, therefore, a certifiable project?
    Mr. Weicher. Not to my knowledge. Certainly not in the two 
years in which I have been Assistant Secretary for Housing. 
This is an issue that we would expect to discuss with the 
stakeholders when we get together with them later.
    The Chairman. Something else concerns me, and maybe Tom and 
Cynthia wouldn't like to hear this. But when I see an 
application of that size and an application instruction book of 
that size, I react to it by saying, now, if I have got a 
skilled professional staff and I am in the business, and I have 
been there a while and I am good at it, I can make this happen. 
But if I am not good at it, if I am new to the business, if I 
am small, if I am struggling, and the needs are still out 
there, I probably am not going to make it. I can't wade 
through--I am quite Tom's and Cynthia's organizations have 
systems and talent that produces these things on their 
computers and grinds them out and probably has a software 
package that does it for them in large part once they have fed 
the information in. They are sophisticated, big organizations. 
Are we creating an application process that clearly leans 
toward them? Therefore, are we eliminating others that should 
be eligible and capable of acquiring these as nonprofits for 
their communities and the seniors? Has there been any 
evaluation of that?
    There is no allocation of small business in this instance, 
is there?
    Mr. Weicher. No. These are all nonprofits to begin with. It 
is not a small business----
    The Chairman. Well, nonprofits is not a definition of size.
    Mr. Weicher. I know that, but it is not a small business 
issue. I can tell you this, Mr. Chairman: I look at the list of 
winning applications and I look at the list of those which do 
not win each year. We have a range of successful applicants, 
including the local affiliates of the organizations that are 
here at the table, and also including purely local 
organizations. This is an important program to faith-based 
organizations. About half of our projects, successful 
applicants, are, in fact, religious organizations.
    The Chairman. That is my understanding, yes.
    Mr. Weicher. Some of them are individual congregations. We 
fund applications from this particular church or this 
particular synagogue or this particular temple as well as 
applications from Volunteers of America in Ohio and so on. We 
certainly expect that as you are more used to the program, you 
will find it easier to work with, but we do have this broad 
range of successful applicants.
    The Chairman. OK. Cynthia, you provided us with a list in 
your testimony of valuable suggestions. If you could change one 
thing in the current 202 program, what would it be?
    Ms. Keller. Eliminate the requirement to seek outside 
funding.
    The Chairman. OK. Tom, what would be the one thing you 
would eliminate or your organization would?
    Mr. Herlihy. I would like to see the application process 
simplified and, consequently, the review and award time could 
be reduced, I believe.
    The Chairman. Have you ever done an analysis of those items 
that you would want to take out of it that could bring that and 
condense that down, let's say, from 18 months to 12 months? 
Because my guess is you go to 18 and well beyond.
    Mr. Herlihy. I could do that fairly easily, yes. I have got 
a number of items here marked out where that could be done.
    Senator Talent. Mr. Chairman, would you yield for just a 
second?
    The Chairman. I would be happy to.
    Senator Talent. An addendum to that, Mr. Chairman. What 
about a program where, if you have done this successfully a 
number of times, you get some kind of a status? Like the SBA 
has a preferred lender program. They can do low-documentation 
type applications. So at least if you have a record of success 
and HUD knows they can trust you, then you can file less of an 
application, something like that. Is there any reason we 
couldn't do that?
    Mr. Herlihy. That is what I am alluding to or that is what 
I am suggesting, basically.
    Senator Talent. Yes, for somebody who has a record, and 
then the new nonprofits, Mr. Chairman, could maybe partner with 
those who are already in and learn that way. You could mentor 
them.
    Mr. Herlihy. Which is also what we do when we cosponsor an 
application with a local organization Senator Talent. One more 
thing to Ms. Keller?
    The Chairman. Please.
    Senator Talent. You talk about eliminating that 
requirement, which--in my observation is where nonprofits can 
use Federal money to leverage other dollars, they do it. They 
don't have to be told to do it. If we did eliminate the 
requirement, it doesn't mean you wouldn't be out trying to get 
additional funds, does it, Ms. Keller?
    Ms. Keller. Correct. Basically what happens during the time 
we are trying to get those funds, though, it is the processing 
time itself. Labor costs are going up. Materials are going up. 
We are forced to build a facility with bare minimum materials, 
which, in the long run cost HUD more money in the way of 
subsidy to cover maintenance costs, because we are having to 
buy inexpensive materials that have to be replaced maybe in 5 
years rather than 9 or 10 if we had bought quality materials in 
the first place.
    Senator Talent. What you are saying is if we had a system 
that was flexible enough to leave it up to the nonprofit and 
maybe provide some incentives to leverage more dollars, you 
could use it for some way that you wanted to, then you would do 
it where you could. But if you needed to make a judgment that 
in order to hold down the cost of the project, you had to go 
ahead entirely with the Federal dollars, you would. That is the 
kind of flexibility you are aiming for, right?
    Ms. Keller. It is, and sometimes we will go ahead and 
submit the application to HUD saying we have grants pending, 
but if they don't--if we are not approved, could you go ahead 
and ask for the amendment money? But in most instances, HUD is 
going to wait and see if we got the outside funding first. Or 
sometimes they will ask us, try this fund, this fund, this 
funding source before you come back to us, which delays the 
process.
    We did just partner with Hopewell Baptist Church in 
Missouri, and we are funded. It is going to construction soon, 
and partnered with a local housing authority in St. Louis. So 
we have done a lot----
    Senator Talent. I am just aiming for a system, Mr. 
Chairman, where we really trust the people who are doing this 
because they have the heart to do it. Nobody is doing this 
here. They are nonprofits, and if we adjust the system more in 
that direction, you end up reducing delays. Money goes further. 
You are able to make a good program even better.
    Thank you, Mr. Chairman.
    The Chairman. The thing that concerns me is what Cynthia 
just said. When you put out a bid to construct something and 12 
months later you break ground and your costs of construction 
have gone up 10 percent but you are locked into a fixed amount 
and you have got to start scaling down quality, you are scaling 
down long-term viability of that unit, usually, or ultimately 
that happens.
    Lee Ann, let me ask you the question that I have asked both 
Tom and Cynthia. In your experiences, what would be the one 
thing you would like to have changed?
    Ms. Hubanks. We are a very small organization, and we were 
funded in 1993, 1995, and 1996, and in each case I did those 
applications myself. I had packets that looked very comparable 
to this.
    For us, the biggest problem that we have got is the up-
front expense. We are very small. We don't have a foundation 
behind us. So we are always out looking for additional funds. 
We have used the community development block grant on multiple 
occasions to purchase land because we can't get the process 
that takes so long, we can't get people to wait on us for 6 
months on a contingency while we wait to find out if we are 
funded, and then another, you know, 12 months before we close.
    So once we are funded, we use the community development--
the project rental assistance contract and the fact that we 
were funded for building the building as the collateral then to 
go get the funding to pay for the land and then we turn it in 
to HUD and run the process. So we add an extra step in there 
that we may not normally have to do or some of the larger 
organizations might not have to do.
    So for an organization the size of mine, having some pre-
development costs for fixed costs, for hard costs, would be 
tremendously helpful. But separating the 202 from the project 
rental assistance would be devastating for an organization like 
mine.
    The Chairman. OK. Well, I thank you all. I think we have 
covered the area quite well. John, I must tell you that the 
work that is underway is good to hear about, pleasing to hear 
about. The workshops, the training are critical. Working with 
the nonprofits, questioning them, quizzing them about what they 
would see different I think is also important. We expect 
accountability. It is your responsibility.
    At the same time, we don't expect a bureaucracy that isn't 
viable and flexible and demonstrates the reality of the 
marketplace. If we are running up costs in construction 
abnormally and, therefore, depleting the value of the 
appropriation for the purpose of getting housing out, that is 
something that I think concerns us all. I am not suggesting we 
are doing that, but if we extend time out there in an active 
real estate market and in an active market, then we may be in 
part doing some of that.
    There is no question about need, and that is what this 
committee is concerned about. Most communities across this 
country find a need for this kind of housing and a good number 
of our seniors in that kind of situation where this kind of 
housing can dramatically improve their lives. So we are 
concerned about it. We will wish you the best and revisit you 
in a year.
    Mr. Weicher. Thank you, Mr. Chairman.
    The Chairman. We will look forward to having you back to 
review and, David, we will look at where we might track with 
you so that we see work in progress that is sustainable and 
institutionalized. I think that is what is increasingly 
important, that we not find ourselves in the situation you 
found yourself in, and that is, years and years out there of 
applications stacked up and progress uncertain. We are glad you 
have tackled that, and we are glad the President and the 
Secretary laid that charge down. It was critically important 
that we do so.
    So, again, let me thank you all, and, John, let me 
especially thank you for taking the time to stay, to listen, 
and to respond to questions, and we appreciate all of your 
testimony.
    The committee will stand adjourned.
    [Whereupon, at 11:23 a.m., the committee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Prepared Statement of Senator John Breaux

    I would first like to thank Chairman Craig for holding this 
vital hearing on housing for the elderly. I would also like to 
take this opportunity to thank all of the witnesses who have 
come before us to testify today. Your testimony will be of 
great value as the Committee works to address some of the 
critical challenges that exist in providing housing to our 
nation's seniors.
    The need for affordable housing for the elderly is great. 
It has been estimated that nearly 3.3 million elderly 
households have what is defined as ``very low incomes.'' To 
address this need, the Department of Housing and Urban 
Development's Section 202 Supportive Housing for the Elderly 
Program was developed. This program serves as a resource for 
developing housing for low income elderly households and is the 
only federal program devoted exclusively to providing this type 
of housing. Due to the population it serves and its very 
important mission, it is imperative that HUD's Section 202 
program run efficiently and effectively.
    Today we will hear from witnesses who will discuss some of 
the problems associated with applying for and receiving funding 
to develop Section 202 housing projects. We will also hear from 
the General Accounting Office, which today released a report 
today Chairman Craig and I requested. Unfortunately, it appears 
that the Section 202 housing program is currently neither 
efficient nor effective. I hope that this hearing is the first 
step towards fixing these problems. Those seniors who have the 
greatest needs, should not be left waiting for an affordable 
place to live.
    Thank you once again Mr. Chairman for holding this 
important hearing. I look forward to hearing from our 
witnesses.

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