[Senate Hearing 108-411]
[From the U.S. Government Publishing Office]



                                                      S. Hrg. 108 - 411


                    PROPOSED FISCAL YEAR 2004 BUDGET
                   FOR THE U.S. DEPARTMENT OF HOUSING
                         AND URBAN DEVELOPMENT

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

                                HEARING

                               before the

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

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

  THE ADMINISTRATION'S PROPOSED FISCAL YEAR 2004 BUDGET FOR THE U.S. 
              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                               __________

                             MARCH 4, 2003

                               __________

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


92-859              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
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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, Economist

         Jonathan Miller, Democratic Professional Staff Member

               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

                              ----------                              

                         TUESDAY, MARCH 4, 2003

                                                                   Page

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

Opening statements, comments, or prepared statements of:
    Senator Reed.................................................     3
    Senator Corzine..............................................     4
        Prepared statement.......................................    43
    Senator Crapo................................................     5
    Senator Allard...............................................     5
    Senator Dole.................................................     6
        Prepared statement.......................................    44
    Senator Sarbanes.............................................    13
    Senator Carper...............................................    13
    Senator Sununu...............................................    20

                                WITNESS

Mel Martinez, Secretary, U.S. Department of Housing and Urban 
  Development, Washington, DC....................................     6
    Prepared statement...........................................    45
    Response to written questions of Senators Sarbanes and Reed 
      not were
      available at time of printing.

                                 (iii)

 
                    PROPOSED FISCAL YEAR 2004 BUDGET
                       FOR THE U.S. DEPARTMENT OF
                     HOUSING AND URBAN DEVELOPMENT

                              ----------                              


                         TUESDAY, MARCH 4, 2003

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:03 a.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Richard C. Shelby 
(Chairman of the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The Committee will come to order.
    We are pleased this morning to welcome Secretary Mel 
Martinez from the Department of Housing and Urban Development.
    Ranking Member Sarbanes and I have asked Secretary Martinez 
to come before the Committee today to share the details of the 
Administration's proposed Fiscal Year 2004 Budget for HUD, and 
I appreciate the Secretary making the time to be with us today.
    Mr. Secretary, I am going to have to leave in just a few 
minutes because we have a very important organizational 
shuffling in the Appropriations Subcommittees. And if you are a 
Subcommittee Chairman, which I have been fortunate to be, you 
certainly have to be there. So, Senator Allard is supposed to 
come and relieve me. But if I happen to walk out, it is not 
because you are doing or saying anything I don't like.
    Secretary Martinez. I understand.
    Chairman Shelby. I will be back.
    Secretary Martinez. Yes, sir.
    Chairman Shelby. Mr. Secretary, let me begin by saying that 
I think this is a valuable opportunity for me and the other 
Members of the Committee. In previous years, HUD's budget 
hearing was many times held at the Subcommittee level. Since 
HUD is such a crucial and important part of this Committee's 
jurisdiction, I thought it would be important to hear from you, 
Mr. Secretary, here before the Full Committee.
    I am pleased that Senator Allard, the Subcommittee Chairman 
on Housing and Transportation, has for many years made HUD 
oversight a priority and he has worked diligently there. I am 
looking forward to working with him and going forward on 
important housing issues.
    President Bush is proposing to fund HUD at $31.3 billion in 
2004, an increase of $262 million over 2003. It includes 
several important and ambitious initiatives. I am particularly 
pleased to see the Administration's budget submission contains 
many important tools to increase homeownership.
    On average, American families have 44 percent of their net 
wealth in the equity value of their home. Homeownership is 
shown to be an important tool to lifting low-income and 
minority families out of poverty. Providing homeownership 
opportunities for these families not only provides them with an 
opportunity for wealth building, but also increases community 
pride and has a stabilizing effect on children.
    The President's American Dream Downpayment Initiative is a 
great first step, I believe, in meeting this goal.
    The greatest barrier to homeownership is a lack of 
resources for downpayment and closing costs. The American Dream 
Downpayment Initiative calls for a $200 million program to 
provide assistance for downpayment and closing costs to 
families wanting to own a home.
    Additionally, the 2004 Budget proposes a new mortgage 
insurance product within the Federal Housing Administration. It 
is designed to serve a subprime market of families who, because 
of poor credit history, are unable to get mortgage insurance on 
the private market at a reasonable rate. This program envisions 
requiring families to pay a higher premium insurance rate at 
the outset, but offers the opportunity for reduced rates in 
subsequent years once a pattern of prompt payment and better 
credit is established.
    Another portion of the budget submission I would like to 
mention is the creation of the Housing Assistance for Needy 
Families Program. This bold initiative would block-grant funds 
from the Section 8 Housing Choice Voucher Program. By 
allocating resources to the States here, there is an 
opportunity for increased efficiency and, we believe, the 
potential for enhanced coordination with other social service 
programs administered at the State level. I will be interested, 
Mr. Secretary, in learning just how this change might be 
implemented.
    One area of concern I would like to mention here this 
morning is, and while this doesn't relate directly, Mr. 
Secretary, to your budget submission, I think it is important 
that it be raised in the context of HUD funding.
    Some sources estimate that HUD is overpaying Section 8 
rental payments at an estimated rate of $2 billion a year. This 
is a troubling situation if that is true, but one that I know 
you are making every effort to rectify and to get your hands 
on.
    Particularly in this challenging budget in this climate 
today, I think it is extremely important that you focus on 
efficiencies within the Department, and I know you have talked 
with me about this before. Two billion dollars a year, if that 
figure is right, in misdirected funds is way too high and 
causes all of us significant concern. The $2 billion is money 
that could be spent for serving other needy communities or 
meeting other budgetary programs.
    Mr. Secretary, we are pleased to have you with us this 
morning and I look forward, as I have been, to working with you 
and we are proud of what you are doing.
    Secretary Martinez. Thank you, Senator.
    Chairman Shelby. Senator Reed.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you very much, Mr. Chairman.
    Welcome, Secretary Martinez.
    I had the pleasure and privilege of working with the 
Secretary and it has been a distinct pleasure. He is someone 
with enthusiasm and commitment to the housing goals that we all 
share. And as I said to you prior to the hearing, Mr. Chairman, 
I think I like the budget that you sent to OMB better than the 
budget that OMB sent to us, because this budget, frankly, 
doesn't begin to meet the needs of housing in the United 
States.
    We have seen in something that is not recent, but since 
1976, HUD has lost about two-thirds of its purchasing power in 
terms of its budget. And at the same time, housing costs have 
accelerated throughout the United States. So, people are really 
caught in a squeeze between increasing rental prices, 
increasing home prices, and dwindling Federal commitment to 
housing, particularly housing production. Again, this budget 
seems to reflect that.
    I am glad that programs like HOME and lead hazard control 
grants have been increased a bit. But overall, the budget just 
does not respond to the needs we see out there in every 
community of this country for adequate, safe, affordable 
housing for our citizens.
    Prices go up, 14 percent in my State, and they keep going 
up, and still, people are without adequate housing.
    We also have seen a commitment by you and the 
Administration, a laudable one, to end homelessness in 10 
years. But, frankly, the funding in this budget for homeless 
programs is not nearly enough to meet this 10-year goal.
    In my home State of Rhode Island, homelessness has 
increased by 23 percent during the past year, and the number of 
homeless children has increased by 31 percent. These are 
statistics that we all regret and, hopefully, we can do 
something about.
    As I noted, the lead program has an increase of $10 million 
over your fiscal year 2003 request. But that is still $39 
million less than Congress appropriated for fiscal year 2003. 
So, I think that the sentiment is there, but the resources 
aren't adequate.
    Last year, we had a hearing, as I chaired the Subcommittee, 
to meet the goal of saving children by 2010 from the exposures 
to lead. It would take about $400 to $500 million a year, by 
calculations. Certainly, much less is being appropriated in 
this bill.
    I am concerned that you are zeroing-out the Section 8 
program. I am also concerned that we have a cut in public 
housing funds. The Administration has proposed cuts of $1.2 
billion in capital funds in the past three budget submissions, 
despite a $24 billion backlog in need for public housing 
authorities throughout the country. In addition to that, there 
is a proposal to zero-out the HOPE VI program.
    So the budget, I think, again, is not adequate to the task 
of providing every American with access to affordable housing. 
I know that is your goal. That is your commitment. That is what 
you want to do. Hopefully, working with you, we can fix some of 
these shortfalls in funding.
    I thank you, Mr. Secretary.
    Secretary Martinez. Thank you, Senator.
    Chairman Shelby. Senator Corzine.

              STATEMENT OF SENATOR JON S. CORZINE

    Senator Corzine. Thank you, Mr. Chairman.
    I have a full statement I would like to submit for the 
record.
    Chairman Shelby. Without objection it will be made part of 
the record in its entirety.
    Senator Corzine. Thank you. I want to reiterate some of the 
concerns that I heard my colleague mention. I have serious 
concerns about the 2004 Budget with respect to the Department 
of Housing and Urban Development. I believe it is going to 
bring enormous harm to low- and middle-income families 
throughout America and I can say quite practically that will be 
the case to the people of New Jersey.
    It is a budget that provides no direct Federal aid to those 
States facing their worst fiscal crisis on a more broad basis 
than what is concerned here. We have heavy cuts going on in 
social programs, including in the housing area in our State. I 
won't go through homeland security and education and other 
things, but I am truly concerned about what it does to housing 
programs.
    The fact is, in my view, if I am calculating this right, we 
have $2 billion less for public housing programs through the 
operating funds and the fund for the Public Housing Drug 
Elimination Program. The Administration's proposals to block-
grant the Section 8 program, which will likely reduce funding 
dramatically for this 
program over a period of time, given the competing needs in the 
States.
    I am truly concerned, as I expressed to you last year, 
about the Public Housing Drug Elimination Program. One of the 
things that is most surprising to me, based on the kinds of 
commentary we had from the Secretary was about the HOPE VI 
program. I just have a hard time understanding what is almost 
universally accepted as a successful, bipartisanly supported 
program is undercut tremendously, eliminated practically in all 
real forms.
    The Empowerment Zones issues, which I am working with a 
number of Republican colleagues in the House and in a number of 
places across our State--it is a tough budget. I know we are in 
a tough financial situation as a Nation. That is why I am so 
adamantly opposed to having tax cuts while we are cutting the 
kinds of programs that I think are fundamental to the welfare 
of our Nation, both low- and middle-income families.
    The Low-Income Housing Tax Credit is going to suffer 
enormously in the context of the dividend exclusion. Ernst & 
Young has out a report that says that 35 percent fewer units 
would be financed. There is a programmatic effort that makes 
one wonder whether we are committed to affordable, low-income 
housing.
    I can tell you in New Jersey, this is a crisis. It is 
absolutely a crisis. There are not enough homes available for 
families to put people back to work, but the houses and housing 
is not available in the areas where people need to work.
    It is a real stretch.
    So, I know the Secretary is good-willed about where he 
wants to go with these things, but these budget proposals I do 
not think match the words. They do not always match the kinds 
of comments we have had in hearings like this before.
    I am anxious to hear your comments with regard to the 
budget constraints.
    Thank you.
    Chairman Shelby. Senator Crapo.

                 COMMENTS OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you very much, Mr. Chairman. I won't 
make an opening statement at this time. I will save my comments 
until the question period.
    Chairman Shelby. Senator Allard, I am going to recognize 
you and turn the hearing over to you.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard [presiding]. Thank you, Mr. Chairman.
    I want to thank you for holding this hearing. I appreciate 
the opportunity to learn more about the Administration's Fiscal 
Year 2004 Budget request and legislative proposals for the 
Department of Housing and Urban Development.
    As Chairman of the Subcommittee on Housing and 
Transportation, I have a keen interest in this issue, and while 
housing is often an overlooked portion of our jurisdiction, I 
believe it is one of the most important. And I am particularly 
pleased to be able to have this discussion.
    I believe this is a responsible budget. As I have noted on 
many previous occasions, Government agencies should be judged 
by their results, not by the size of their budgets or the 
number of new programs. The success of HUD will be determined 
by how many people it helps to achieve self-sufficiency and not 
by how much money it spends. By integrating performance and 
budget, the Administration has taken concrete steps toward 
providing real help while establishing accountability.
    Unfortunately, some still continue to focus only on money, 
as if compassion is measured by a percentage increase or new 
dollars can be the only mark of a high priority. More 
Government spending does not necessarily mean that more people 
are served, and it certainly does not mean that anyone is 
better served.
    I would like to commend the President and Secretary 
Martinez for a number of initiatives in the budget, 
particularly the focus on minority homeownership. I am pleased 
to join forces with them to enact the American Dream 
Downpayment Initiative, which I plan to reintroduce in the next 
few weeks.
    I hope my colleagues on the Banking Committee will join me 
in this effort to help thousands of low-income and minority 
families realize the American Dream of homeownership.
    As we all know, homeownership is an important means for 
these families to build wealth and prosperity. I am also 
pleased that the Administration has proposed the consolidation 
and streamlining of a number of programs. For many years, HUD 
has suffered because its leadership failed to focus on the 
Department's core mission--to provide decent, safe, sanitary, 
and affordable housing.
    While there may be a need for a number of different 
programs to address the various aspects of this mission, there 
was a proliferation of inefficient boutique programs. These 
yielded hundreds of different programs at HUD, many of which 
are unauthorized, duplicative, or outside of the core mission.
    The Department has sorely needed to focus on the core 
mission through consolidation and streamlining and I am very 
pleased that Secretary Martinez is providing that leadership. I 
look forward to receiving more details on the legislative 
proposals.
    I want to conclude by welcoming Secretary Martinez back to 
the Banking Committee. I know that your schedule is very full 
and so, I appreciate your taking the time to be here. I am sure 
that your comments will be helpful as the Committee considers 
the Administration's proposal. I look forward to hearing your 
testimony.
    Senator Dole have you had an opportunity to speak?

               COMMENTS OF SENATOR ELIZABETH DOLE

    Senator Dole. Thank you very much.
    Mr. Secretary, I certainly want to welcome you to the 
hearing. Thank you for the outstanding work you are doing as 
Secretary.
    I have a statement I would like to put into the record. But 
in the interest of time, I believe I will submit it, and wait 
for questions.
    Senator Allard. Without objection, so ordered.
    Secretary Martinez, welcome. We are all looking forward to 
hearing your comments.

                   STATEMENT OF MEL MARTINEZ

                           SECRETARY

        U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Secretary Martinez. Mr. Chairman, Ranking Member Reed, and 
Members of the Committee, it is a pleasure to be back with you. 
Thank you for your invitation to talk about our 2004 Budget, as 
proposed by President Bush for the Department of Housing and 
Urban Development.
    I would like to offer a full version of my remarks for the 
record, if I could, and just try to summarize in order to save 
more time for the questions.
    Senator Allard. Without objection, so ordered.
    Secretary Martinez. Thank you, Mr. Chairman.
    During this time of uncertainty in the world, as the 
Administration continues to focus on strengthening the U.S. 
economy, creating affordable housing options remains a critical 
component of the President's agenda.
    HUD's proposed $31.3 billion budget offers new 
opportunities for families and individuals, and minorities in 
particular, seeking the American Dream of homeownership. It 
offers new opportunities to increase the production of 
affordable housing and expand access to housing free from 
discrimination.
    It provides new opportunities for strengthening communities 
and in generating renewal, growth, and prosperity with a 
special focus on ending chronic homelessness.
    Our budget creates new opportunities to improve HUD's 
performance by addressing the internal management problems that 
have long challenged the Department.
    I know that this in particular is the subject of great 
importance to Members of the Committee and I want you to know 
that I share the concerns of the Members, and that this 
Administration has been, and continues to be, committed to 
improving management. I am pleased to say that we are making 
progress in that area and I will return to this subject later 
in my testimony.
    Let me begin by discussing homeownership.
    The President has committed this Nation to creating 5.5 
million new minority homeowners by the end of this decade. 
Several new expanded proposals in the Fiscal Year 2004 Budget 
will increase the availability and production of affordable 
homes and help more families to come to know the security of 
homeownership.
    As a first step, HUD proposes to fund the American Dream 
Downpayment Initiative, which, as you just indicated, Chairman 
Allard, you have so kindly agreed to introduce for us. And we 
will fund this Initiative at $200 million in this budget year. 
The Initiative will help approximately 40,000 low-income 
families with a downpayment on their first home. We also reach 
out to low-income families hoping to make the move into 
homeownership by allowing them to put up to a year's worth of 
their Housing Choice Voucher assistance toward a home 
downpayment.
    To promote the production of affordable single-family homes 
in areas where such housing is scarce, the Administration is 
proposing a tax credit of up to 50 percent of the cost of 
construction on new homes or the rehabilitation of an existing 
home.
    HUD is very committed to helping families understand the 
home-buying process and how to avoid the abuses of predatory 
lending. The Fiscal Year 2004 Budget will expand funds for 
counseling services from $40 million in fiscal year 2003 to $45 
million. This will allow us to provide 550,000 families with 
home purchase and homeownership counseling and about 250,000 
families with rental counseling.
    Our budget also strengthens HUD's commitment to SHOP, the 
Self-Help Homeownership Opportunity Program. SHOP is a key 
initiative that turns low-income Americans into homeowners by 
partnering with the Federal Government with faith-based and 
other community organizations. The program is funded at $65 
million, which will support the construction of 5,200 homes.
    So along with boosting homeownership, HUD's proposed 2004 
Budget promotes the production and accessibility of affordable 
housing for families and individuals who rent. We achieve this 
in part by providing States and localities with new flexibility 
and additional resources to respond to local needs.
    The HOME Investment Partnerships Program is a major tool 
for helping communities meet housing affordability needs. As 
reflected in this year's program, the HOME program is 
successful because it is well-managed and its flexibility 
ensures local decisionmaking. Our 2004 Budget provides a 5 
percent or $113 million increase over amounts that were 
proposed for the HOME program in fiscal year 2003. Overall, 
HOME will make nearly $2.2 billion in funds available to State 
and local grantees to help finance the cost of land 
acquisition, new construction, rehabilitation, downpayment, and 
rental assistance.
    To ensure greater flexibility within the Section 8 Housing 
Choice Voucher Program, and to empower States to make the 
decisions based on local needs, we propose converting the 
voucher program to a State-run block grant called Housing 
Assistance for Needy Families. Turning over administration of 
the program to the States is the appropriate way to ensure the 
best service for needy families, while improving its management 
by putting it closer to the people it is intended to serve.
    Our Budget includes legislative proposals that would 
substantially improve living conditions within public housing 
communities by giving public housing authorities new ability to 
leverage private capital.
    The Public Housing Reinvestment Initiative would authorize 
HUD to replace public housing subsidies for development or for 
portions of developments with project-based voucher assistance. 
Our Budget also adds a partial loan guarantee that will cover 
up to $1.7 billion in loans.
    This financial restructuring will allow PHA's to secure 
private 
financing to rehabilitate or replace aging properties on a 
property-by-property basis, as other affordable housing owners 
do if they are privately owned.
    The Public Housing Reinvestment Initiative reflects our 
vision for the future of public housing.
    For 10 years, the HOPE VI program has been an avenue for 
funding the demolition, replacement, and rehabilitation of 
severely distressed public housing. Established to revitalize 
100,000 of the Nation's most severely distressed public housing 
units, the program has already funded the demolition of over 
115,000 such units and the production of more than 85,000 
revitalized dwellings.
    With the 2002 and 2003 appropriations, we anticipate being 
able to demolish an additional 15,000 units and replace 15,000 
more. Just this week, we began notifying those communities that 
have been awarded HOPE VI grants for the 2003 cycle. With the 
$2.5 billion already awarded but not yet spent, and an 
additional $1 billion to be awarded in 2002 and 2003, HOPE VI 
will continue to serve communities well into the future.
    When HOPE VI was first created, it was the only significant 
means of leveraging private capital to revitalize public 
housing properties. But that is no longer the case. Today, HUD 
has approved bond deals that have leveraged over $500 million 
just in the last couple of years. PHA's can mortgage their 
properties to leverage private capital.
    In Maryland and Alabama, the PHA's are combining efforts to 

leverage their resources and assets to attract private capital. 
Some cities, like Chicago, are committing hundreds of millions 
of dollars of their own money to revitalize public housing 
neighborhoods.
    HUD is also seeking additional tools from Congress, such as 
the Public Housing Reinvestment Initiative. HOPE VI has been a 
successful program that was created to serve a specific 
purpose. It is time to look to the future and pursue new 
opportunities, working with the Congress, as we together look 
for creative ways to learn from HOPE VI and move to new areas 
of opportunity for urban revitalization.
    Regulatory barriers on the State and local level have an 
enormous impact on the development of rental and affordable 
housing. Within the 2004 Budget, HUD builds on its commitment 
to work with States and with local communities to reduce these 
regulatory barriers.
    Through the new Office of Regulatory Reform, HUD will spend 
an additional $2 million next year to learn more about the 
nature and extent of the regulatory problem and how to reduce 
the effects of excessive barriers to rental and affordable 
housing.
    The President has made it a top priority to reduce costly 
regulatory barriers on the Federal level and we are committed 
to doing so at HUD as well.
    State and local governments depend upon HUD grants to 
support community development projects that revive troubled 
neighborhoods and spark reinvestment and renewal. In fiscal 
year 2004, HUD will strengthen its core grant programs by 
ensuring that grantees have even greater flexibility to address 
locally determined priorities.
    The Community Development Block Grant Program will provide 
$4.4 billion in funding to meet local needs in more than one 
thousand jurisdictions. In 2004, HUD will make the program more 
effective by studying ways to reward communities that commit to 

results-oriented, outcome-based performance plans.
    Through the Fiscal Year 2004 Budget, HUD will strengthen 
its effort to protect the Nation's most vulnerable--those 
individuals and families who truly need Government assistance: 
The budget fund services benefiting adults and children from 
low-income families, the elderly, those with physical and 
mental disabilities, victims of predatory lending practices, 
and families living in housing contaminated by lead-based paint 
hazards.
    I want to highlight this Administration's unprecedented 
commitment to those who have no place to call home.
    Across the scope of the Federal Government, funding for 
homeless specific assistance programs increases 14 percent in 
the Fiscal Year 2004 Budget proposal. This Samaritan Initiative 
is an important new element of the Administration's strategy to 
end chronic homelessness within a decade.
    The Samaritan Initiative includes a proposed competitive 
grant that would be administered jointly by HUD, the Department 
of Health and Human Services, and Veterans Affairs. For 2004, 
HUD provides $50 million for the housing component of this 
initiative, while HHS and VA will each provide $10 million for 
services such as substance abuse treatment and primary health 
care.
    To increase the community's flexibility in combatting 
homelessness, the 2004 Budget proposes to consolidate the 
current three competitive homeless assistance programs.
    Finally, in recognition of the effectiveness of the 
recently reactivated Interagency Council on Homelessness, the 
Department will provide $1.5 million to operate the Council in 
the fiscal year 2004, which represents a 50 percent funding 
increase.
    HUD has made great progress over the past 2 years in making 
the Department work better for the taxpayers and for every 
American who seeks a place to call home. HUD fully embraces the 
President's Management Agenda and is on target to meet its 
challenging goals of improving overall efficiency and 
effectiveness.
    The steps the Department has taken thus far have gone a 
long way to restoring the confidence of the Congress and the 
public in HUD's management of its financial resources.
    I can assure the Members that this commitment to the 
highest standards of ethics, management, and accountability 
will continue during the coming fiscal year.
    I would like to thank each of you for your support of my 
efforts and I welcome your guidance as we continue to work 
together.
    The steps that the Department has taken thus far have gone 
a long way toward restoring the confidence of the Congress and 
the public in HUD's management and the way we manage our 
financial resources.
    I would like to thank each of you for your support and I 
look forward to our continued effort to work together.
    Thank you very much.
    Senator Allard. Thank you, Mr. Secretary, for your comments 
and your remarks.
    I think an agency or a department needs to be aware of the 
needs of the American people as they emerge. I think we have a 
group of individuals out here whose needs are emerging. We need 
to think about how we are going to deal with these groups. 
These are the members in our reserve forces and our National 
Guard units. These are volunteer individuals who are being 
called up to serve this country who have home payments they 
have to make. They have to leave their jobs. Their employers 
have to make sacrifices, too.
    And as the threat of war with Iraq amounts to thousands of 
armed forces and National Guard units have been activated for 
duty, both domestically and in the Middle East, many of these 
troops may face financial difficulties because they have been 
called away from their jobs to serve their country.
    I understand that the Soldiers' and Sailors' Civil Relief 
Act of 1940 provides service men and women with financial 
relief on their rent and their mortgage payments and an 
additional provision 
limits the interest rate to 6 percent. What additional 
resources will be available for those serving our Nation so 
that they do not risk foreclosure?
    Secretary Martinez. Mr. Chairman, I think, based on the 
current state of the law, that those are the limits of what we 
can do.
    Post-nine/eleven, when the war on terror began, I joined 
with Secretary Rumsfeld in initiating a reactivation of the 
Soldiers' and Sailors' Civil Relief Act. And that did provide 
the kinds of assistance that you describe.
    However, in the current environment, where mortgage rates 
are at 6 percent on a very competitive basis, perhaps it would 
be one possibility to consider, and I think you are addressing 
a very, very important point, the fact that perhaps 6 percent 
as a minimum or as a benchmark would not be appropriate. 
Perhaps something lower than that would be the kind of 
significant help that I believe the Act intended to have.
    So, I would welcome any suggestions from the Committee of 
how we might work together to deal with this new reality.
    I think you are correct that these people are giving of 
themselves and, in reality, are under financial hardship. I 
have heard of very encouraging things going on in certain 
communities. I know the homebuilders in Central Florida, for 
instance, are banding together to provide home repair services 
and things like that at no cost to those service men and women 
who have been called to service, but the families that are left 
behind are still left with a leaky roof or a heater that 
doesn't work. And they are providing, as a community service, 
just on an ad hoc basis, some assistance.
    More can be done, and I would welcome the opportunity to 
work with you as we think through this problem and how we might 
be able to provide assistance, especially working with the 
Department of Defense, as to how they might identify the 
problem areas that families are encountering.
    Senator Allard. There is a need here for some interagency 
communication. I am glad to hear that as part of your comments.
    I was going to ask you if there was any other tools other 
than perhaps reducing that 6 percent that you could think of. 
It doesn't sound to me like you have any at this point.
    Secretary Martinez. I do not have at this point.
    Senator Allard. It sounds like you are looking for some 
guidance from this Committee.
    Secretary Martinez. Right. Also, actually, I think we 
probably should talk to the people in the Defense Department as 
to what they encounter as these forces are activated because I 
am sure that there are some systemic problems that they all may 
encounter.
    So, I would propose to get with my colleagues in the 
Defense Department and then get back to the Committee with 
perhaps some other ideas of how we might be of assistance.
    Senator Allard. I think we need to give that some thought 
and see what we can do because obviously, some Americans are in 
need, but they are also doing a huge service for this country 
and we shouldn't forget them.
    As you know, I have been very supportive of efforts to 
consolidate and eliminate programs that are duplicative or 
troubled. I believe we should streamline Government programs 
and make them as cost-effective and efficient as possible.
    Accordingly, can you please explain the rationale behind 
placing environmental clean-up programs such as BEDI under the 
jurisdiction of the Environmental Protection Agency rather than 
at HUD? And can you also comment on the proposed elimination of 
the HOPE VI program?
    Secretary Martinez. First, on the BEDI program. 
Essentially, it was a $25 million program. The Environmental 
Protection Agency has had, for a long time, a much larger 
program of environmental clean-up on economic development and 
their funding levels, I believe, are significantly higher than 
those at HUD.
    It was felt as an Administration-wide policy that combining 
these programs under one roof would be a better way to manage 
them.
    I would argue that perhaps the better place to combine them 
might be at HUD. I did not win that argument, but in any event, 
I believe we do have a way at HUD of dealing with communities 
in a very comprehensive way. And while environmental clean-up 
perhaps is more suited to the EPA's mission, the economic 
development portion probably is better suited to what we do at 
HUD.
    In any event, it was felt that the better part of good 
judgment was to combine all of these in one place, which I 
think is sound policy, and that our small program of only $25 
million would be better served by going together with the 
remaining programs that EPA has, which are much larger.
    On the issue of HOPE VI, I alluded in my opening comments 
about that. I believe HOPE VI has been a largely successful 
program. I believe there are some things about HOPE VI that 
have given us all concern--the displacement of families, even 
during the construction phase, but certainly in long-term, 
whether there are not enough people that are in assistance 
situations and living in a given project when the project gets 
redeveloped, still have an opportunity to live there, is a 
concern.
    There are a number of other concerns about it. But I 
believe, overall, it has been a very, very successful program 
and it has done a lot of good.
    As we look to it, we currently have an incredible amount of 
the monies that were--in fact, about 50 percent of the monies 
that have been allocated to projects have yet to see the light 
of day. It has taken a long time for these projects to get off 
the ground and to actually come to fruition.
    For instance, in Chicago, we continue to work with them, 
and although they are making steady progress, there is still a 
significant amount of dollars that are funded to the Chicago 
Housing Authority that have yet to be developed.
    So, we believe that this is a good time, in a time of 
significant budgetary constraints, and at a time when difficult 
choices had to be made, that perhaps because of the continuing 
nature of the existing funding levels to HOPE VI that are still 
out there, that it was a good opportunity for us as this 
program came for reauthorization, that we should jointly come 
up with what should be the 
future of the type of HOPE VI program, how we should look to 
the future to revitalize communities to continue to improve 
public housing.
    We have put forth some private-type initiatives I believe 
have merit. But I do think that we need to continue to work 
together to look at how we revitalize public housing, how we 
revitalize urban areas, utilizing the model of a HOPE VI, but 
also learning from some of the areas where we could all agree 
we would identify as shortcomings. And so, it is a competitive 
grant program. There is no one out there currently expecting a 
HOPE VI, other than those who are in the current process, or 
maybe even into next year.
    And so, we felt like, in a time of making difficult 
choices, this was a choice that was reasonable to make. As the 
program was up for reauthorization, we think we should stop and 
take a good look at where we are on something like a HOPE VI, 
and we should determine where we would want to take it into the 
future.
    We intend to have proposals to you in the coming months on 
some ideas that we would have of how to reinvigorate an urban 
revitalization program like a HOPE VI.
    Senator Allard. I was going to call on Senator Reed next 
for questions, but we have a couple of Members, Senator Reed, 
that have shown up.
    Senator Reed. Let me yield to Senator Sarbanes.
    Senator Allard. Senator Sarbanes and also Senator Carper. 
We will see if they would like to make an opening statement and 
then we will come back to you.
    Senator Reed. Fine, Mr. Chairman.
    Senator Allard. Senator Sarbanes.

              COMMENTS OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Mr. Chairman, I will defer my statement. 
I think I come after Senator Corzine. I will wait until then.
    Senator Allard. Okay.
    Senator Carper.

              COMMENTS OF SENATOR THOMAS R. CARPER

    Senator Carper. Thank you very much, Senator Allard.
    I want to welcome Secretary Martinez. We are grateful that 
you are here and I will just wait until it is my turn to ask 
questions. Thank you.
    Senator Allard. We are back to you, Senator Reed.
    Senator Reed. Thank you, Mr. Chairman.
    Again, Mr. Secretary, thank you so much for your testimony 
today. Also thank you because Newport, Rhode Island, was one of 
those grantees for a HOPE VI grant. That brings me back to the 
whole issue of HOPE VI.
    You have said it is a worthwhile program. My understanding 
is that your Department had to make some difficult decisions 
and turn down some very worthy requests. So the need is still 
out there. I wonder again why this program that has 
demonstrated success is being zero-funded?
    Secretary Martinez. Well, we have a situation where the 
program is up for reauthorization. We have about $2.5 billion 
that still remains unexpended, another billion that will be 
coming through the next two cycles, the ones that your area in 
Rhode Island is benefiting from, and then still next year to 
come.
    We have only had 14 out of 165 projects that have been 
completed to date. More than half, as I said, of the $4.5 
billion that have been allocated remain unexpended.
    So, we still see that, although it has great promise, the 
promise has yet to be fulfilled. And that in a difficult budget 
cycle, in a time when we had to make difficult choices, we also 
felt like we should take a moment to look at what should be the 
future of a program like this and where we should take it into 
future years in terms of dealing with the distressed public 
housing of America.
    I know that there continue to be needs. There is no 
question but that is true.
    It was established in 1992. It was supposed to demolish 
86,000. We have more than funded that, and then some. So it 
just seems to me that it is one of those programs that had a 
beginning, a middle, and now this is the end of it, and we 
should think together about how we approach it into the future.
    Senator Reed. One of the concerns I have is that there 
doesn't seem to be anything that will follow on, and 
particularly when it comes into the context of the public 
housing authorities with their significant backlog in repairs 
that they have to do, let alone this type of innovative mixed-
use, mixed-income housing that was part of HOPE VI. Was there 
any thought to taking the HOPE VI funds and simply putting them 
back into the backlog for public housing repairs?
    Secretary Martinez. No, sir, that was not considered.
    Senator Reed. Well, again, it just seems that we had a 
program, HOPE VI, that was operating effectively. Even though 
the money was rolling out slowly, the projects were worthy and 
the vision was good. And now, we have not simply shifted funds 
to another approach, we have just taken the money off the 
table.
    Let me pick up another issue with respect to public 
housing, Mr. Secretary. And that is, I wrote, along with many 
colleagues, to you urging HUD to restore some of the funding to 
PHA's lost because of the $250 million shortfall in the 
operating fund. At the time of the letter, I understand that 
you did not want to increase the PHA's allocations above 70 
percent of their needs until the fiscal year 2003 bill was 
complete, the appropriations bill, and funding was assured. Now 
that we have passed the bill a few weeks ago, have you 
increased the share of funding available to PHA's?
    Secretary Martinez. Yes, sir, we have. We are grateful that 
the Congress allowed us to maneuver the situation to a point 
where we were able to do that. And so, we have been able to 
fund, or will be in the process of funding what we believe will 
be very close to a 90 percent allocation to all public housing 
entities that are in line for those funding levels.
    So the initial assessment was based on the status of the 
budget situation. But clearly, we now are able to forecast and 
confidently predict that we will fund approximately 90 percent, 
give or take, in that range.
    As you understand, this was a long-term fiscal deficiency 
in the Department that we felt was necessary to try to correct.
    And in doing so, we fell into a shortfall problem. But the 
funding level at a 90 percent level is not dramatically 
atypical if you look at a 10-year history of public housing 
funding from what has occurred over a period of time. Some 
years it has been 100 percent. The exception rather than the 
rule has been 100 percent. Most years, it has been somewhere 
between 90 and 100 percent funding.
    Senator Reed. Are we going to have this same problem this 
coming year, Mr. Secretary?
    Secretary Martinez. No, sir. In fiscal year 2004, we will 
not see that problem occur and, in fact, part of what I am very 
pleased to be able to report to you is that we have fixed the 
problem that had been carried over for a number of years and we 
have taken care of it. I do not believe that we will see this 
problem arise into the future.
    Senator Reed. What level do you anticipate funding public 
housing authorities, the operating subsidy?
    Secretary Martinez. For the 2004 fiscal year, we anticipate 
100 percent funding.
    Senator Sarbanes. When are you going to the 90 percent?
    Secretary Martinez. That will be for the 2003 fiscal year.
    Senator Sarbanes. Yes, but when are you going to do it?
    Secretary Martinez. Within 4 weeks, I am told.
    Senator Reed. My time has expired.
    Senator Allard. Senator Crapo.
    Senator Crapo. I will pass at this point, Mr. Chairman.
    Senator Allard. Senator Corzine.
    Senator Corzine. Thank you.
    First of all, Mr. Secretary, I appreciate your testimony. I 
want to reiterate the questions that my colleague from Rhode 
Island spoke to with regard to HOPE VI. This has been an 
extraordinarily successful program, I think by the assessment 
of HUD, and outside objective analysts about changing the lives 
of individuals that are associated with these projects.
    I think you are familiar with the lowering of poverty 
rates, unemployment rates, people off welfare, all those things 
that would be objective standards of quality of a program.
    And it is hard for me to understand why we have something 
that is working as well as this, particularly in the context of 
moving away from distressed public housing. I feel a little bit 
like I did last year about the public housing drug programs.
    I hope that we are not cancelling programs that a lot of 
people feel have had great success, zeroing-out programs. I 
know that you are working through this. I just want to be on 
record that this HOPE VI effort is something that I think, on a 
bipartisan basis--as a matter of fact, your own language in 
most testimony over the last period of time that you have been 
the Secretary, has been very supportive of this. And this seems 
inconsistent with many of those remarks.
    Second, on the Drug Elimination Program, last year, we made 
a very substantial argument that the money that was being 
zeroed-out of that program was going to be made available in 
other areas through expenditures. Can you bring us up to date 
whether that is actually taking place, and how it is taking 
place?
    Secretary Martinez. What we have done is allow the housing 
authorities to utilize the current and ongoing operating 
subsidy that they receive. It was increased by $250 million, 
almost 100 percent of the amount that was in the Drug 
Elimination Program.
    We have allowed them to utilize that subsidy money for 
those kinds of programs that they were doing before in the drug 
elimination arena if they were good and successful programs.
    Senator Corzine. Have you taken surveys to the local public 
housing authorities to address whether the money is being used 
in those ways or in other ways to assure that the purposes for 
which I think many people had argued on both sides of the aisle 
that 
the Drug Elimination Program was positive for, there were some 
complaints about specific activities--gun registration programs 

and things.
    Secretary Martinez. Right. Local authorities have the 
discretion to utilize the funds as they see fit. We do not 
survey their utilization of it, but it is available to them if 
they make the decision to utilize them for a drug program if 
they believe is successful.
    In making their choices that they have to make, anybody has 
to make, in deciding how to utilize funds, they are capable of 
doing that if they wish to do so and it is purely a local 
decision.
    Senator Corzine. Do you think it is no longer an issue that 
HUD should be addressing?
    Secretary Martinez. No. I believe it is important. Public 
safety in public housing is an important issue. I believe it 
has its roots and its solutions at the local level.
    We do provide a fairly--well, one would argue whether it is 
adequate or not--but the levels of funding and the operating 
subsidies that we provide to local public housing, which was 
increased to an amount equal almost to the amount of the Drug 
Elimination Program, allows them to utilize it in that way if 
that is what they choose to do.
    We would also encourage public housing authorities if they 
have a local public safety problem or a drug problem, that it 
is the responsibility of local mayors and local public safety 
agencies to not disregard public housing residents as something 
akin to second-class citizens not deserving of public safety 
protection and not 
deserving of other local programs that do drug elimination or 
whatever the program may be.
    So, I think a concerted effort working with local 
communities is the way to approach the problems that residents 
of public housing may be affected with.
    I think there is too much of a segregating effort in any 
community that has a substantial amount of public housing. I 
think those people need to be integrated into the mainstream of 
life of their communities.
    And people who live in public housing should have every 
right to police protection that every other citizen in that 
community has.
    Senator Corzine. Not at this point, but after the hearing, 
I wonder if I could get some specifics about how that $250 
million that you suggested was being spent on programs that 
were the same, actually occurred.
    Secretary Martinez. I would be happy to provide that.
    Senator Corzine. We had a hard time piecing that together.
    Are you familiar with the Ernst & Young discussion with 
regard to the dividend tax cut proposal that the President has 
put down and its potential for causing a 35 percent drop or so 
in the number of affordable rental units?
    Secretary Martinez. I am aware that the Ernst & Young 
report describes those kinds of figures and reaches those 
conclusions.
    Senator Corzine. And also potentially undermines the 
President's own single-family tax credit proposal.
    Secretary Martinez. I know that those are the conclusions 
of the Ernst & Young report.
    Senator Allard. The Senator's time is expiring.
    Senator Corzine. Have you had time to study and see whether 
you have different views or different comments on it?
    Secretary Martinez. Senator, I have looked at the report 
and not thoroughly studied it yet because I just received it a 
couple of days ago. But in fact, those analyses of that report 
would have to come from the Department of the Treasury, who 
really does tax policy.
    At HUD, we do not do tax policy. So in terms of dealing 
with the specifics of the report and the issues that it raises, 
I believe even in those areas where it deals with housing, that 
Treasury would be the better place to have a comprehensive 
response to the specifics of the tax policy.
    I do believe that it is the position of the Administration 
that the impact described in that report is greater by that 
report's judgment than those that the Department of the 
Treasury would forecast in terms of the impact on housing.
    Senator Corzine. We will come back.
    Senator Allard. Thank you, Senator.
    I am going to be fairly tight on the time because I want to 
give everybody an opportunity to ask one question. We all have 
a lot of committees going on at the same time. Then we will 
have another round of questioning and you can come back if you 
want.
    Senator Crapo, you passed. Do you have another question 
that you want to bring forward?
    Senator Crapo. I would like to ask some questions at this 
point if I could, Mr. Chairman.
    Senator Allard. Go ahead.
    Senator Crapo. Thank you, Mr. Chairman, and Mr. Secretary, 
I appreciate your being here with us today.
    I too have some concerns about the budget. There has been a 
lot of discussion already with regard to the HOPE VI program 
and the fact that it has not been funded. But I am concerned 
about HUD's responsiveness to the Congress and in particular, 
some of the other programs as well that have been zeroed-out.
    For example, one of the concerns that is very important to 
me is the Rural Housing and Economic Development Program that 
is scheduled to have no funding at all in the Fiscal Year 2004 
Budget.
    I would like to ask you to explain to me why that program 
is not receiving the funding that it has received in the past. 
And if we have time, I want to go on to the Brownfields issue 
as well.
    Secretary Martinez. In regards to the rural housing 
program, Senator, every year that I have been at HUD, and I 
think even perhaps from years before that, it has been the 
judgment of the Office of Management and Budget that it is a 
program that belongs in the Department of Agriculture and not 
at HUD. And so, they consistently zero it out in the budget 
cycle. Congress consistently funds it and we move on.
    I met with Senator Bond a few days ago and he is 
particularly concerned about that as well. I understand your 
concerns. It is just a matter of basic policy judgments that 
are made by the Administration that it is a program that should 
be better managed from the Department of Agriculture.
    Senator Crapo. Did the Department propose funding for this 
in the Agriculture budget, though?
    Secretary Martinez. I am not sure if that is the case or 
not. I am sorry. I cannot answer that.
    Senator Crapo. You can see the concern there.
    Secretary Martinez. Sure.
    Senator Crapo. If it is zeroed-out in HUD's budget, and if 
it is not put into the Agriculture budget, then the 
Administration is basically proposing to take it out.
    I do believe I agree with Senator Bond, and I suspect many 
of the other Senators, that this is a very critical part of our 
housing need in this country. Idaho, for example, has a 
tremendous need for rural housing support. I would encourage 
you to reevaluate whether to zero-out that budget.
    What about the Brownfields Redevelopment Program? It also 
has been zeroed-out.
    Secretary Martinez. The program is funded in the EPA 
budget. That has been transferred over to the EPA and it was 
funded in the EPA budget. It was felt that it should be 
consolidated in one place for better management of the program, 
with the funding all in one location, rather than have some at 
HUD and some at the EPA. But that is funded in the EPA budget.
    Senator Crapo. Do you know whether the levels of funding 
were equal as they transferred over from HUD?
    Secretary Martinez. Yes.
    Senator Sarbanes. On Brownfields?
    Secretary Martinez. On Brownfields. It is a $10 million 
increase. It is a drop from $25. So, I was wrong on that. I 
thought it was at the same level, but it apparently is only at 
the $10 million level.
    Senator Crapo. So it was at $25 million and now it is down 
to $10 and transferred to the EPA.
    Secretary Martinez. That is correct.
    Senator Crapo. Well, I will conclude my questioning with 
that. It is just that I am concerned that some of the important 
priorities that Congress is setting are not being addressed in 
the budget.
    I am sure we will have opportunities to address this at a 
further point. But I really would encourage you to go back and 
take another look at the Rural Housing Economic and Development 
Program because that is a critical program to States--I think 
every State has rural areas, but particularly a State like 
Idaho.
    Senator Allard. Senator Dole.
    Senator Dole. Mr. Secretary, let me repeat that from all I 
have heard and read, you are doing an excellent job in heading 
the Department. However, the challenges that you have faced at 
HUD, I know, have been daunting and it is hard for some to 
gauge the quality of the work that you and your team bring to 
the table with an agency that has had so many fundamental 
problems.
    Clearly, the General Accounting Office, the HUD Inspector 
General have acknowledged the improvements that you have 
instituted in many areas where there have been issues that have 
plagued HUD for some time. According to the GAO, HUD has 
designated programmatic and financial management information 
systems as one of the Department's major management challenges.
    Many of the problems that HUD seems to be facing right now 
and struggling with seem to be caused by inadequate information 
technology systems. For instance, the issue of the operating 
subsidy shortfall announced in January was attributed to an 
internal financial management system failure.
    According to budget documents, $300 million has been spent 
in each of the last 3 years for information technology. That is 
$900 million. Can you tell us if this $900 million has really 
moved us closer to resolving these problems? And how much more 
do you estimate would be needed to fix the problems?
    Secretary Martinez. Senator, thank you for your comments.
    I think we have made very significant progress in 
information technologies at HUD. I must say that I believe that 
pattern was begun even prior to my arrival at HUD. But it is 
something that has been dramatically different from the 
situation that existed just a few years ago.
    I believe the funding that has been provided by the 
Congress for us to address that issue has, in fact, provided us 
the opportunity to fix something like the operating subsidy 
shortfall in the public housing program where we do not think 
that we will have that problem in the future ever again.
    We believe the commitment that has been made to adequately 
fund those issues at HUD is paying off and making a difference.
    In terms of future funding needs, I am not prepared to go 
beyond what the current budget provides. But over the next 5 
years, we are talking about $380 million. We also are talking 
about modernization efforts that will reduce the cost in 2007 
and 2008. I believe that the levels you suggest will continue 
for the next 5 years. But we do believe that in 2007 and 2008, 
we will begin to reduce the cost of continuing our IT 
upgrading.
    I will be glad to provide you a little more detailed 
information in a written question if you would like.
    Senator Dole. Fine. Thank you. I would appreciate that.
    According to the January 2003 GAO Report, the Department is 
seeking to further reduce the number of noncompliant computer 
systems from 17 to 14 in this fiscal year 2003, and then you 
would hope to be fully compliant with Federal financial 
standards, all systems compliant by 2006. Are you confident 
that that 2006 goal is realizable? What steps are being taken 
to reach that goal? Who will be accountable?
    Secretary Martinez. Our management people are very much 
focused on continuing to improve those financial systems. We 
cannot assimilate them all into one system. We are always going 
to have to have a multiplicity of systems because of the very 
different tasks that we accomplish at HUD, with FHA being in 
one area and very different issues as it relates to maybe 
personnel, payroll types of systems.
    So, necessarily, we are going to have different systems.
    But we believe that the consolidation that has taken place 
has been very productive, very positive. It has allowed us to 
meet now audits on a recurring basis that have had no serious 
deficiencies or flaws. That is 2 years running, which I am very 
proud to see because I do not think that that had ever occurred 
in recent years at HUD.
    So those kinds of progress that we have seen in the past, I 
think can continue and enhance.
    I would love to have our CFO, Angela Antonelli, who is 
here, and probably very anxious to answer these questions more 
fully than I am able to, and Vickers Meadows also, the 
Assistant Secretary for Administration, to more fully brief you 
on some of the details of these efforts because I think we are 
doing really some very good things and making substantial 
progress in what I think, by anyone's admission, it would be 
systemic problems at HUD for many years, that we are really 
putting behind this.
    Senator Dole. Yes, I understand that.
    Senator Allard. Senator Dole, I think that is a good point 
that you bring up. I think in our Subcommittee on Housing and 
Transportation, it is something that we need to follow up with. 
I would also be interested in getting a briefing on this as we 
move forward because we do have that 2006 deadline.
    Senator Dole. Right. Thank you.
    Senator Allard. Senator Sununu, do you have a statement?

               COMMENTS OF SENATOR JOHN E. SUNUNU

    Senator Sununu. I do not have a statement. I have just a 
few questions at the appropriate time.
    Senator Allard. We will put it there.
    Senator Sarbanes.
    Senator Sarbanes. Welcome, Mr. Secretary.
    Secretary Martinez. Senator.
    Senator Sarbanes. Mr. Secretary, I like you very much, 
personally. I wanted to say that right at the outset.
    [Laughter.]
    Secretary Martinez. This is not off to a good start, 
Senator.
    [Laughter.]
    Senator Sarbanes. I still remember your confirmation 
hearing when we discussed the work that you had done in 
Orlando, and my perception of a commitment you had to help 
people who weren't able to make it, and a genuine concern about 
affordable housing. But somehow, in the internal workings of 
the Administration, you are really getting jammed into the 
corner in terms of the resources you have with which to address 
the challenges that confront you.
    It all came home to me as I looked over this budget request 
for the fiscal year we are going into. I am quite concerned 
about a number of areas which I hope to explore with you this 
morning.
    Now, presumably, the people lined up behind you there in 
the seats are supporting you to the hilt. I would certainly 
hope so. However, I can hardly say that about the OMB. And 
there is always a struggle and tension between the Department 
and the OMB, as we well know.
    But I do not see how HUD is going to do its job given the 
erosion that is taking place in your budget. And that becomes 
doubly significant when we realize that so much of what is done 
in housing and community development requires a partnership 
between your Department, the State governments, the local 
governments, the nonprofit sector, and the private for-profit 
sector, because a lot of the programs have been arranged in a 
way that all of these interests interrelate.
    So the end result is often dependent on HUD funding, the 
HUD catalyst or the HUD glue to hold this all together. And 
these outside groups and governments really have to look to HUD 
to provide an infusion of funding, often at the outset, but 
certainly as the process moves along, in order to ensure 
success.
    I want to explore with you some of these problems. I may 
have to use another round in order to do it, although I hope 
that some of this time will get attributed to an opening 
statement which I did not give.
    It is our perception of the budget that the Section 8 
vouchers are not being fully funded and that we are actually 
not going to be able to fund all vouchers in use.
    Public housing is again taking a hit. The capital fund for 
repair of public housing units is being cut. And yet, there is 
a huge backlog in repairs. We have an inventory of public 
housing out there, and if it is maintained and repaired, it can 
continue to provide affordable housing.
    Senator Crapo raised the issue about the rural housing, 
which seems to be going down the drain as best I can understand 
the budgets. Although we are told to go look in somebody else's 
budget for rural housing funding, thus far, we have not been 
able to find it there.
    It is a little bit like this EPA problem that just came up 
a minute ago. And while it is not a big amount of money, it is 
important.
    For example, you are getting out of the business of 
Brownfields redevelopment. You tell us the EPA is going to do 
this, but HUD was doing it at $25 million and they are going to 
do it at $10 million a year, which is more than a 50 percent 
cut.
    Others have talked about the HOPE VI program. Actually, I 
want to focus on that for just a moment. You approved 
yesterday, and we are most appreciative of it, the application 
from Frederick, Maryland, for a HOPE VI project.
    Now this I think is a perfect example of how some HUD money 
can produce, once it works its way out of the system, a very 
significant infusion of resources in order to address the lack 
of affordable housing.
    In this instance, we are seeking to transform two severely 
distressed public housing developments and their surrounding 
neighborhoods, the city, county, State, and private sectors all 
committed significant resources. The city contributed several 
off-site parcels of land to the project to build a community 
center, have a recreational facility and park, and fund 
infrastructure improvements.
    They joined with the county in a tax increment financing 
district to support economic development and job opportunities.
    The State committed tax credits to help raise private 
equity. It is calculated that a $16 million HOPE VI grant, and 
you approved $15 million, so I do not quarrel with you on that, 
but that that money will leverage an additional $55 million--
$55 million--in non-Federal and private funds.
    So, you put in $15 million. We are going to get another $55 
million from other sources. We are going to put $70 million 
into this community.
    The proposal in the end was carefully worked out, had the 
support of the public housing residents that are in these 
distressed projects. It has the support of Interfaith Housing 
of Western Maryland, which is a very highly regarded nonprofit 
that works as a housing advocate. It has the support of the 
NAACP--it was all very carefully done.
    This project will construct low-density public housing, 
homeownership properties, and market-rate rental units. Two-
thirds of the current households will be able to remain in or 
return to the site. And in addition, provisions have been made 
so that the remaining tenants will be placed in existing public 
housing or provided with other units.
    This project has been very carefully put together and I 
think that is why it merited your approval. But it seems to me 
a dramatic 
example of how the HOPE VI program can work.
    Now, I listened as the others were asking you questions 
about this program and you said, well, we have a problem with 
relocation of tenants. If we have a problem, we should solve 
it. It was solved in this instance, apparently, and solved very 
well. It has also been solved in other successful HOPE VI 
projects.
    You say that it takes a long time for the projects to be 
completed--well, that may be true. Sometimes it takes a while 
to put together this kind of community support and this kind of 
package. But there is example after example of where this 
program works very well. HOPE VI is getting rid of severely 
distressed housing. Housing that is depressing the 
neighborhood. We are drawing a lot of resources in. We marshal 
community support.
    I do not quarrel with you that there are certain problems 
in administering the program. But it seems to me that it 
represents a very important initiative. And the way to go at it 
is not to simply drop the program and the initiative, but to 
tighten it up or improve it in terms of its functioning so you 
get the kind of results we see in communities around the 
country.
    So on that one, let me ask why are we letting that program 
go by the boards? It is a tool that has been used and can be 
used to address these severely distressed neighborhoods where 
there is an absolute depressant effect on many of our urban 
areas and even not so urban areas across the country.
    Secretary Martinez. Senator, I understand that the program 
is not unsuccessful, and my comments were not directed at 
trying to suggest that it is not meritorious.
    First of all, the backlog in the output was only to suggest 
to you that there is still a lot to be done in HOPE VI, that 
the time that it takes for these projects to get off the ground 
will still allow an awful lot of what you are just describing 
to take place over the next several years, with still two more 
rounds currently in the budget cycle that will take place as we 
go forward. That is a timeframe that we should utilize to see 
how we can continue to develop better ideas and other ideas of 
how something like a HOPE VI can continue to work.
    It does take a long time for the projects to come together. 
The displacement of people, which was not an issue in 
Frederick, Maryland, because Frederick, Maryland, is not a 
large urban center. It is not the same experience that they had 
in Chicago, for instance, where there have been multiplicities 
of lawsuits from tenant groups or so-called those self-
appointed representatives of tenants.
    That is not to say it is a bad program. That is only to say 
that in a very difficult budget cycle, a program that was up 
for reauthorization, that it had concluded--as I said, it began 
in 1992 and it was to run for 10 years. This year, it was up 
for the reauthorization cycle.
    It seemed to us that in making difficult choices, this was 
a place where we could begin to think anew and begin to think 
of how we could go forward with some program that would be 
patterned after the HOPE VI, but maybe yet even with better and 
more improved ideas.
    Senator Sarbanes. Well, what is that program?
    Secretary Martinez. I am sorry?
    Senator Sarbanes. What is that program?
    Secretary Martinez. Senator, we do not have that to present 
to you today.
    Senator Sarbanes. So, you are going to end the HOPE VI 
program that was held out there to eliminate the distressed 
housing, but there is nothing to replace it.
    Secretary Martinez. Not today.
    Senator Sarbanes. At least at this point. Is that correct?
    Secretary Martinez. That is correct.
    Senator Sarbanes. Do you advise your children to quit one 
job before they get another? As a matter of advice, would you 
say, or do you usually counsel them to make sure that they have 
another job lined up before they leave the one they have?
    Secretary Martinez. They usually do not leave a job with 50 
percent of the funding that they were given for the prior job 
still unspent. They usually have spent all their money by the 
time the job is concluded.
    Senator Sarbanes. Well, as Jack Reed pointed out, you have 
all these projects all over the country, many of them 
meritorious. It is not as though you are lacking applicants 
with some merit. You can cite me an example of Chicago that has 
been tied up, but you have a lot of other places that are 
coming in with meritorious projects that you could move on.
    Secretary Martinez. I do not think there is any question, 
Senator Sarbanes, that if we did not have choices to make that 
were difficult in this budget cycle, that HOPE VI would not 
have been where it is today.
    Senator Allard. Senator Sarbanes--12 minutes. I do not mean 
to be rude. I was going to call on Senator Carper, but we may 
have lost him. Let me go ahead and call on Senator Sununu and 
we will come back. I am sorry.
    Senator Sununu. Thank you, Mr. Chairman.
    I want to pick up briefly on that point, just so that I 
understand the financial ramifications and that I understand 
exactly where we are on HOPE VI.
    Mr. Secretary, what are the unobligated balances for HOPE 
VI, the money that has been appropriated, but not obligated for 
the improvement revitalization of public housing demolition and 
identifying new units?
    Secretary Martinez. We have 14 projects of the 165 that 
have been completed. More than 50 percent, or $2.5 billion, 
remains unspent.
    Senator Sununu. $2.5 billion.
    Secretary Martinez. Correct.
    Senator Sununu. Is there any money that is going to be 
added to that over the next couple of years?
    Secretary Martinez. About another billion dollars will be 
added to that.
    Senator Sununu. I think that is important because the 
suggestion that, suddenly, with the absence of a new 
appropriation in 2004, and we do not know if that is going to 
happen or not, but the suggestion of the absence of an 
appropriation in 2004 prevents us from being able to transition 
to a different program, prevents us from being able to continue 
part of the mission of HOPE VI, I think is inaccurate.
    Senator Sarbanes. Would you yield so that we can be very 
clear on that point?
    Is that $2.5 billion money that has been committed for 
projects that have been approved and not yet spent? Or is that 
$2.5 billion you have on hand that could be used for newly 
approved projects?
    Secretary Martinez. There is $2.5 billion that has been 
approved but unspent.
    Senator Sarbanes. That funding has been committed to 
projects.
    Secretary Martinez. Committed but unspent.
    Senator Sarbanes. Yes.
    Senator Sununu. It has all been obligated?
    Senator Allard. They are obligated dollars. Is that 
correct, the $2.5 billion?
    Secretary Martinez. That is correct. They are obligated 
dollars. There is $500 million coming in the 2003 budget cycle 
that still is not committed. We have just committed half a 
billion dollars this week, and there is another half billion 
yet uncommitted. There is $2.5 billion committed, but unspent.
    Senator Sarbanes. So if one of Senator Sununu's communities 
is putting together a HOPE VI application now, the only money 
available that they can compete for is the $500 million that is 
in this year's budget. Is that correct?
    Secretary Martinez. In 2003, yes. In the 2003 budget. Now 
an additional source of funding may be if some community, by 
failure to act over a period of time, the monies might be 
recaptured.
    Senator Sarbanes. I thank the Senator for yielding, but I 
think there was an impression being given that there was $2.5 
billion available within the Department to commit for projects.
    Senator Sununu. My first point is that there is $3.5 
billion available and your point is that there--$3.5 billion in 
the pipeline and $500 million, as you point out, is 
uncommitted, completely uncommitted at that point, so it is 
still available for competition.
    The second point is that there is a legislative proposal, 
and I do not know that it is a good one or a bad one, but it is 
a legislative proposal, for the PHRI, the revitalization 
initiative that would involve access to private financing.
    Again, I do not know if this is a good proposal or a bad 
proposal. It is a new proposal, and it is intended to provide 
access to private financing and encourage public/private 
partnerships to revitalize public housing.
    I just think that those points are important to make, 
especially when, as was noted by others today, there are severe 
problems, management problems, backlog problems, and within the 
HOPE VI program.
    Finally, I know and I understand, and I want everyone here 
to understand, that I recognize the value that HOPE VI has 
provided in a number of communities. And that shouldn't 
surprise anyone in the least. Even if it is a poorly managed, 
poorly designed, poorly constructed, and poorly implemented 
program, if you or I were spending $500 million a year, we had 
darn well better be able to show some progress, some families, 
some communities, some areas of the country that have benefited 
by that $500 million.
    That doesn't mean that it is a good program or not a good 
program. It just means that we spent a tremendous amount of 
money. And the real questions we need to answer, and that I 
think the Secretary and his staff need to answer, is why is 
this not the best use of $500 million to revitalize distressed 
areas, to demolish programs, to encourage private financing?
    That is the burden that is on you and I would hope we would 
answer.
    But it is not just a question of finding some community 
where we have spent $10 million or $50 million or $100 million 
because, unfortunately, even the most poorly managed program is 
going to provide some positive results somewhere, even if the 
money has been spent inefficiently.
    I also want to comment about the initiatives that were 
mentioned earlier, the programs that were eliminated in the 
budget in addition to HOPE VI, the Section 8 Loan Guarantees, 
Brownfields was mentioned, the Empowerment Zones are another 
example.
    I simply want to offer the following observation.
    I do not know whether all of these proposals or requests to 
terminate the programs are appropriate or not. I will comment 
about one, and that is Brownfields.
    My intuition is that the Brownfields initiative belongs in 
the EPA. We passed good bipartisan Brownfields legislation last 
year. It increases funding for Brownfields initiatives to the 
highest level ever across the country. Yes, we have had a small 
Brownfields initiative within HUD. I think it is fair to argue 
that that Brownfields program is better managed, that those 
dollars will do more for more people and more communities if 
managed under the EPA.
    Now that is my intuition. I do not know that that is 
necessarily right or wrong. But I do respect the fact that your 
proposals in these areas are designed to, at least, engage us 
in a debate and a discussion as to whether or not these 
programs are being operated and run in the right place and, 
frankly, whether or not they are the right programs to have 
today.
    We shouldn't just keep appropriating money to the same 
programs because they are the programs that we have already 
run, and if we expect you to do a better job, if we expect to 
meet emerging needs and housing needs better, I would hope that 
you are at least engaging us in some debate and discussion 
about structuring programs, creating new programs and, 
ultimately, eliminating programs that aren't the best use of 
taxpayers' money.
    An issue was raised earlier that I think you addressed on 
the problems in the operating subsidy, $250 million.
    It is my understanding that your response was that you 
intend to fund at 90 percent of the operating subsidy for 2003, 
and that you intend to avoid this problem in 2004. My question 
is, can you be more specific as to how you intend to avoid this 
problem again in 2004?
    Secretary Martinez. We became aware of a shortfall in the 
operating subsidy in the year 2002. We at that time informed 
the OMB and the Congress and the public housing industry. We 
believe that our management has now been able to put in place 
the types of oversight and the types of systems that will 
prevent a shortfall from occurring in the future. And we 
believe that we have solved this potential problem from ever 
occurring again.
    I believe that by the management changes that we made and 
the systems that are now in place, that we have corrected what 
has been a long-term problem that was creating, frankly, a very 
bad accounting practice that was simply taking $250 million 
from the next year's money, just to cover the shortfall, and it 
was essentially deferring the problem to yet the next year.
    Senator Sununu. So the funding levels you are requesting in 
this budget submission, coupled with the management changes 
that you describe, are enough to give you confidence that this 
problem will be entirely avoided in fiscal year 2004?
    Secretary Martinez. That is my confident answer to you.
    Senator Sununu. Final question. Senator Dole mentioned the 
information technology initiatives. I appreciate the amount of 
money that has been put forward to try to deal with 
improvements in information technology.
    One problem that I had become aware of and done some work 
on in the House when I was on the Budget Committee was the 
issue of overpayments in the Section 8 program that is the 
result of the lack of systems in place to confirm or to verify 
applicants' income.
    The amount of overpayments at various points over the last 
4 or 5 years have been anywhere from $500 billion to $900 
billion a year. It would seem to me that this is an area where 
better management of information systems can make an enormous 
difference in order to make sure that you are not providing an 
overpayment. That gives you more money obviously to meet the 
Section 8 and the voucher needs that are out there, that we all 
know are out there.
    To what extent have management changes or the application 
of information technology enabled you to address the income 
verification and Section 8 overpayments?
    Secretary Martinez. Senator, there has been an overpayment 
and underpayment issue. It has been an inaccurate payment 
problem, so it has been on both ends of the balance sheet. We 
have worked very diligently to try to correct those problems. I 
am not at liberty to give you the specific details.
    [Pause.]
    I am going to ask Michael Liu, if I could, my Assistant 
Secretary for Public and Indian Housing, to give you a more 
specific answer on that.
    Senator Sununu. Thank you.
    Mr. Liu. Senator, Secretary Martinez has put together a 
special team which has been in operation now for over a year at 
HUD to specifically address this important issue. We have 
progressed on a number of fronts.
    Number one, we are in the process of developing a better 
system to assist our housing agencies both in public housing 
and Section 8, where they can deal with the up-front income 
verification issue of applicants to the programs. That seems to 
be the key problem that we have.
    Number two, we are putting out a notice on the Section 8 
and public housing side that will require public housing 
agencies to use State data on wage and income to compare with 
their information that they receive from applicants where that 
State information is available.
    Number three, we are also engaging with the States around 
the country on getting agreements with them to share their 
information on wage and new-hire information with HUD, and we 
are going to distribute that to the housing agencies for their 
view.
    Finally, we have gone out and provided intensive reviews of 
the largest public housing agencies and Section 8 agencies in 
the country to get a baseline of what their issues are, what 
their problems are, and are providing them technical 
assistance.
    We have set a goal that by the end of fiscal year 2003, 
that we will have reduced our error rate by 15 percent. And 
further, by 2005, we would have reduced our problem by at least 
half of what it has been.
    So, we have been very methodical and very focused on this 
issue.
    Senator Sununu. Thank you very much.
    Senator Allard. Now, I want to call on Senator Carper, but 
before I do, we had a discussion about the dollars being 
transferred to the Department of Agriculture. I had my staff 
look it up. There is $25 million in rural housing in your 
budget, Mr. Secretary. We have noted that there was an increase 
on the agriculture business for rural housing of $500 million. 
That is a 25 percent increase in that part of their budget.
    So it sounds to me like in that particular instance, they 
have more than picked up the rural housing that was decreased 
in your Department over in the Department of Ag.
    Secretary Martinez. If I may add another answer to that, 
sir. In the area of Brownfields, I am also informed that the 
Brownfields, as Senator Sununu pointed out, under the EPA 
program, in this Administration, has increased from $100 
million to $210 million. So while HUD had a very small program 
and maybe the transfer was only $10 million, overall, the 
commitment, the budgetary commitment to Brownfields 
redevelopment has gone from $100 million to $210 million.
    Senator Allard. Senator Carper.
    Senator Carper. Thank you, Mr. Chairman.
    Before I finish, Mr. Secretary, and I am not going to ask 
you to do this initially, but you may be thinking about it, I 
want you to share with us some of the Administration's 
proposals as they pertain to increasing the opportunity for 
homeownership, which is one of my passions and I understand it 
is one that you and the President share, and I just want to 
better understand how your budget speaks to that concern.
    Others have already raised some of the questions that I 
had.
    We have one HOPE VI project in the State of Delaware. It 
has been a slow start-up. The project was approved about 3 
years ago when I was Governor. Finally, we broke ground on it 
last fall and we hope that significant progress will be made on 
the project this year and it will be a good thing for 
Wilmington and for the families that are able to be there.
    This is probably not a good analogy, but I am going to use 
the analogy of Superfund.
    We toiled for years with Superfund, unhappy with how slow 
we were and how slow the process was in cleaning up Superfund 
sites. And finally, what seemed like 5 or 6 years, we figured 
out how to start cleaning up sites and have made a whole lot of 
progress in the last decade.
    There is a lot still to go, but maybe part of what is going 
on here with HOPE VI is that it takes us and the local 
communities a while to get it, to figure out how to use HOPE VI 
and to move it along. As I understand it, HUD's own goal for 
relocating residents I guess in HOPE VI was exceeded I think in 
the report sent last December, exceeded by about 5 percent.
    I am told that HUD's own goal for constructing 5,500 units 
in 2002 was actually exceeded by 20 percent or by an additional 
1,000 units. HUD's own goal of having 5,000 units occupied in 
2002 was actually exceeded by a little more than 23 percent, 
with over 6,100 units occupied. I think those numbers were 
given to us by your own people.
    So, you heard from a lot of other people here about HOPE 
VI. I believe it is a project or program that is worth 
preserving. And I am told that the Urban Institute is 
conducting a rather large study of HOPE VI to get 
recommendations for the continuation of the program or its 
improvement. I do not believe the results of that study are in, 
and I would just urge that we wait on that and to learn from 
that study.
    Any comment?
    Secretary Martinez. No. I think that is an excellent idea. 
I am not here to trash HOPE VI, by the way.
    Senator Carper. I noticed.
    Secretary Martinez. I know that Senator Corzine remembers 
well my comments on it. It is a great joy to travel to 
communities and see what used to be, and see the pictures of 
the old and then the new and the revitalized areas of many of 
our urban centers.
    I just think that we need to engage in an energetic debate 
about what it should be and how we should think beyond the 1992 
box that began HOPE VI, how we might get it to more communities 
around the country rather than have it be so focused on maybe 
some of the same communities, how we deal with people who might 
have moved out of a project--we only know 14 of them have been 
completed out of 165. So, therefore, there is a whole lot of 
people who got moved to somewhere else, told that they will be 
able to move back, who still haven't moved back to anything.
    There are things about it that we can think through and 
improve. I am willing for us to look at that Urban Institute 
report. I am sure it will have a lot of credibility as to how 
we might do this even better.
    I do not mean to monopolize your time, but thank you.
    Senator Carper. Well, thank you. I used to hear a phrase a 
lot--perhaps you did too--if it ain't broke, don't fix it. I do 
not like that little saying. We changed that in Delaware to, if 
it is not perfect, make it better. And that might apply here as 
well.
    Let me just refocus, if I can, on Section 8's and block-
granting the voucher program.
    I was involved, as a Governor through the National 
Governors Association working with the Clinton Administration 
and Congress, in taking the AFDC and block-granting it to 
create a different kind of program that we called TANF, as you 
know--Temporary Assistance for Needy Families.
    The States were initially reluctant to agree to take an 
entitlement program and to block grant it and say, that is it, 
in terms of the funds that you are going to have for cash 
assistance for welfare in the future. And we ultimately did so 
because we believed that there was going to be a drop-off in 
the number of families that would be participating, that would 
need cash assistance over the coming years.
    It turns out that that is exactly what has happened. 
Nationwide, the rolls for cash assistance are down by about 
half, even in the midst of a recession that we are coming out 
of.
    There is a difference between taking a block-grant approach 
to AFDC and turning it into TANF. And I think taking this 
voucher program, Section 8 rental assistance program, and 
block-granting that, because I am not sure that the kind of 
caseload reduction that we have seen in TANF is going to be 
replicated in Section 8.
    I would just have us be mindful of that fact as we go 
forward in this area. I do not think the block-grant approach 
anticipates any changes in inflation, any decreases in 
caseload.
    Any comments with respect to that analogy?
    Secretary Martinez. Yes, Senator. I would say that many of 
your former colleagues and governors around the country are 
welcoming that opportunity because of the positive experience 
with TANF. We are calling this HANF because we believe it is a 
parallel program.
    I am not sure I can speak to caseload reduction, but I can 
certainly speak to a couple of issues that I think would be 
much better managed.
    No one can suggest that for over a billion dollars a year 
to be recaptured from housing money, that then gets allocated 
to perhaps other needs, it is a good thing for the needy 
families of America who need better housing.
    I believe that by providing local and State governments 
with the opportunity and flexibility to manage the program, and 
certainly we will avoid that recapture issue.
    I also find that a program that requires the rent levels to 
be adjusted out of Washington with a lot of paperwork and 
usually a 6 month delay, say a community all of a sudden bumps 
up against a rent level where people cannot with a voucher go 
get a place to rent because there is nothing on the 
marketplace.
    They cannot just make that adjustment at the State level. 
They have to come all the way to Washington, to HUD, a very 
inefficient place, by the way, which we hope every day to make 
more efficient, but yet not there. And it might take 5 or 6 
months for the local agency to then have that adjusted rent 
level.
    So, I think, just on those two examples, this is a retail 
program and it could be better managed at the State level with 
the same commitment I heard--and I remember someone this 
morning made the comment that over time, money would be lost 
from housing.
    I think that it can be very clearly written into the 
legislation and the enacting legislation that I would ensure 
that this money remain in housing. And I believe that that 
could happen.
    I believe that Section 8, while it is a good program, it is 
broke. I mean, that it is not working exactly great when we see 
the under-utilization of vouchers. It really breaks my heart to 
think about that money being recaptured and then not 
necessarily going--where you know that there are so many places 
where people are saying, we desperately need more vouchers, 
where other places, they cannot use them.
    Senator Carper. Mr. Secretary, as we debate whether to go 
forward on this path, keep in mind the concerns that I raised, 
please.
    And the other thing that I would ask is if we keep in mind 
whether or not a block-grant structure may affect the 
willingness on the part of landlords to participate in the 
program. There are some concerns that they will not if we have 
a fragmented system with 50 different programs out there. Would 
you take just a minute on homeownership and tell me what is in 
the budget that really speaks to that?
    Secretary Martinez. Yes, Senator. Thank you very much for 
the opportunity.
    We believe that the President very passionately believes in 
homeownership as a key to reaching the American Dream for many 
American families.
    We have a commitment of $200 million to the American Dream 
Downpayment Initiative which would provide, through the HOME 
program, downpayment assistance to families for the first-time 
homebuyers, obviously in the right income brackets, to buy 
their first home.
    In addition, a very important component of homeownership 
from what the Government can do is the $45 million in 
homeownership training and education.
    We believe that families need the counseling, particularly 
families that are immigrants to this country, speak English as 
a second language, that they can use--and all poor families, 
really--the understanding of how to go about the home-buying 
process, how to order their finances, how to fix their credit 
problems.
    We also continue to fund SHOP, which provides homeownership 
opportunities. The tax credit program that the President has in 
this year's budget for single-family construction would also 
enhance the availability of affordable single-family housing in 
distressed areas of our communities.
    The second part of the program which is equally important 
is the private-sector partnership. And in that arena, we have a 
very strong partnership with Fannie Mae, with Freddie Mac, and 
with the Nation's mortgage banking community.
    In addition to that, the homebuilders, the realtors, all of 
the people really in the home-buying and home-financing 
industry coming together to offer partnership where now we have 
a large number of partners working with us diligently to try to 
create 5.5 million more homeowners through the next decade.
    We have benchmarks in place. We will have a yearly report 
which will come out in June to tell us how we have done in the 
past year and ensure that this goal is not just a goal, but, in 
fact, can be a reality.
    Senator Allard. Senator Carper, your time is expired.
    Senator Carper. Thank you, sir.
    Senator Allard. Now, I will turn it over to the Chairman.
    Chairman Shelby. Thank you, Senator Allard, for presiding. 
As I told the Secretary earlier, we have been in an 
appropriation shake-up of the subcommittees. The shake-up is 
okay.
    [Laughter.]
    I am glad to be here.
    Mr. Secretary, in March 2000, the HUD Inspector General--I 
know you were not there then--issued a report detailing the 
serious financial and managerial concerns that they have with 
Puerto Rico's Public Housing Administration. More than $21.8 
million in wasteful or fraudulent expenses were identified by 
the Inspector General of HUD. In addition, the Inspector 
General found that the Public Housing Administration was not 
complying with the Federal procurement requirements. Schemes 
involving kickbacks and fraudulent activities have led to the 
indictment of several public housing employees there. That is a 
lot of money.
    Where is HUD today in making a determination that Puerto 
Rico's Public Housing Administration should go into 
administrative receivership and have HUD make decisions on 
behalf of the PHA?
    If this is not under consideration, what other options 
exist? And what, if any, progress has been made since the 
Inspector General's report--not our report, but your Inspector 
General's report in 2002 regarding this? Has any effort been 
made--I know I am asking you several questions here--to recover 
the $21.8 million in ineligible expenses identified by the 
Inspector General? Do you want to bring somebody else up?
    Secretary Martinez. Yes, sir. Michael Liu, Assistant 
Secretary for Public and Indian Housing. Let me make a stab 
initially, and then I might turn it over to him to complete the 
answer.
    Chairman Shelby. Yes, sir.
    Secretary Martinez. I just returned from Puerto Rico. I was 
there last Thursday and Friday.
    At the very beginning of my time at HUD, I met with 
Governor Calderon of Puerto Rico, who was also a newly elected 
Governor. We identified these as very serious problems that 
needed to be addressed. The first thing we addressed was the 
HOPE VI program that they had there. They had an ongoing HOPE 
VI which was in such a state of mismanagement and disarray, 
that we felt it necessary for HUD to take over the 
administration of that program. We did so and we have now 
initiated that HOPE VI, which was a construction project to be 
completed.
    Chairman Shelby. Has it changed a lot since you took it 
over?
    Secretary Martinez. It has changed dramatically. And 
frankly, we are now considering turning it back over to the 
Puerto Rico Housing Authority.
    We have done a couple of other administrative things. I am 
going to let Mr. Liu give you some details.
    Chairman Shelby. We would like that.
    Secretary Martinez. But I also want to tell you something 
very innovative and positive that we did in Puerto Rico, which 
is that we have just now for the first time on a pilot basis--
Puerto Rico is different from every other housing authority in 
America. It is a commonwealth-wide housing authority 
administration. We now have partnered with four municipalities 
in Puerto Rico to give them management over their housing 
authorities at the very local level, which we think will break 
up a lot of the issues and problems that have chronically 
plagued the Puerto Rico Housing Authority. We are going to do 
this with four cities on a pilot level. We may expand it later.
    The second thing, or the last thing I will say before I 
turn it over to Mr. Liu, is that we, Senator, have the 
confidence that new management of the Puerto Rico Housing 
Authority and Mr. LaBoy, who has come into being to direct that 
agency, is doing a very, very good job. We have a great deal of 
confidence that the problems of the past are not being 
repeated.
    However, we do concern ourselves with that greatly. And I 
would not have hesitated to put him under Federal receivership 
as I did with the New Orleans Housing Authority when that was 
in a situation that we felt there was no other choice.
    So, we did it in the case of New Orleans. We continue to 
work with the government of Puerto Rico in a way that we felt 
would get us to a better day. We think we are coming to that 
moment now. And I will let Mr. Liu get into some of the details 
on the issues that you raised.
    Chairman Shelby. Thank you.
    Mr. Liu. Mr. Chairman, real quickly.
    Chairman Shelby. Identify yourself for the Reporter.
    Mr. Liu. Yes, sir. Michael Liu, Assistant Secretary for 
Public and Indian Housing.
    Chairman Shelby. Okay.
    Mr. Liu. In regard to the monies that you have mentioned, a 
good portion of that was tied to the HOPE VI, one of the HOPE 
VI contracts that we had with a contractor there that the 
public housing authority did. With the cooperation of this 
management of the public housing authority, we pursued that 
individual, that firm, to the last resort through the courts.
    We lost.
    In conjunction with our Inspector General, the Inspector 
General has agreed that we have exhausted all possible courses 
of action there. They have recommended and agreed that we 
dispense with $12 million of that obligation. However, in 
return for $7 million from the housing authority on the sale of 
a piece of property that is in transaction right now.
    In the other areas of procurement, we have worked very hard 
in providing technical assistance and in monitoring their 
procurement practices. As the Secretary mentioned, we now feel 
very firm that they are on the right track.
    Chairman Shelby. Have you been working with the Inspector 
General regarding the initial report 2 years ago, 3 years ago?
    Mr. Liu. Yes, sir, we have been.
    Chairman Shelby. He is on top of things?
    Mr. Liu. Yes, sir.
    Chairman Shelby. Okay.
    Senator Reed.
    Senator Reed. Thank you very much, Mr. Chairman.
    Mr. Secretary, let me associate myself with the remarks of 
Senator Carper about the Section 8 voucher program because I 
think that the issue here is the ever rising cost of housing.
    As I understand the current program, the reimbursement is 
based on actual housing costs. And the danger in the block 
grant is that the monies may not keep up with these rising 
costs of housing, leading the States to either cut back on the 
number of people served or to somehow decrease the subsidy.
    And as I look at the budget, the fiscal year appropriation 
for the Housing Certificate Fund was $17.09 billion and the 
President's request is $17.058 billion. There is already a 
slight reduction from what was appropriated last year.
    If my numbers are right, I wonder how we are going to keep 
up--I guess the basic question is, how are you going to ensure 
that this block grant doesn't result in less people being 
served than are currently being served?
    Secretary Martinez. Senator, the block-grant proposal would 
fund the precise number of units that are being funded today. 
It would not fund a lesser number. It would just allow the 
States to do the management of it in a more direct way. But it 
would not be the intent to result in an immediate cut in the 
funding to Section 8 vouchers.
    We have, Mr. Liu tells me, $700 million additional in the 
Section 8 voucher program. So, I just do not think that we 
anticipate a reduction in the funding levels.
    Senator Reed. I guess if the issue is management, of being 
efficient in terms of distributing the vouchers, identifying 
recipients, that is one thing. But how do the States manage to 
increase housing costs without increased monies?
    Secretary Martinez. I suppose from time to time, the 
housing costs would have to be accounted for in increases on 
the levels of funding that they would receive from year-to-
year. I do not think they would be frozen in time. It would 
just be a management tool.
    Senator Reed. Well, I think, again, Senator Carper 
eloquently described the concerns that he has and I share.
    Secretary Martinez. Senator, if I may.
    Senator Reed. Yes, Mr. Secretary.
    Secretary Martinez. I just think it would be an appropriate 
debate for us to have. I think it is an innovative way. I think 
it is revolutionary. I think it will dramatically have many 
things that would be positive. But we do keep in mind those 
things that you mentioned and I hope we can continue to debate 
this topic.
    Senator Reed. One of the concerns I have is that if you 
look back historically, GAO did a report when Congress block-
granted social programs in 1981 and found that almost every 
program faced huge cuts in the following years in terms of 
their appropriations because the block grant was easier to cut 
than individualized, specified, targeted programs.
    Secretary Martinez. Right.
    Senator Reed. So let me put that in context. And I agree 
with you that this is something that we have to watch very 
carefully.
    Let me turn for a moment again to the issue of public 
housing operating funds. I might be confused and I would 
appreciate your direction here.
    The fiscal year 2003 appropriation bill was $3.57 billion. 
But $250 million of that I assume was used to the shortfall.
    Secretary Martinez. Correct.
    Senator Reed. So, effectively, we are going into 2003 with 
about $3.327 billion to cover costs which we know are at least 
that much. And the request this year is just for $3.574 
billion.
    It just seems to me that there is $250 million here that we 
pulled from the 2003 budget to last year's budget. And yet, we 
are not increasing the request by anything on the order of $250 
million extra.
    Secretary Martinez. We had a 1-year shortfall that was 
funded by the--was it special defense appropriations?
    [Pause.]
    By the operating subsidy on this year, is being funded. We 
then, going forward, will be able to function with that budget 
level because what we have done is fix the problem that was 
creating that shortfall on a year-to-year basis.
    I do not think we have a $250 million shortfall going 
forward like we have had in the past.
    Senator Reed. Just one final question, Mr. Secretary. You 
have talked about moving the Brownfields program from your 
Department to EPA. My assumption is that EPA's responsibility 
on Brownfields are remediation of the site, State compliance, 
not housing directly. When those funds are going over to EPA, 
does EPA now have the responsibility and the obligation to 
directly use these resources for residential housing?
    Secretary Martinez. Sir, our program did not do residential 
housing, either. It was economic development in Brownfields 
areas. So it was really for economic development opportunities. 
The EPA will do the same thing.
    Senator Reed. So, they will do the same thing.
    Secretary Martinez. Economic development.
    Senator Reed. Thank you, Mr. Secretary.
    Chairman Shelby. Senator Allard.
    Senator Allard. Mr. Chairman, I cannot let this go by 
without asking you about the Government Performance and Results 
Act.
    Secretary Martinez. GPRA.
    Senator Allard. I ask every member of HUD that comes here 
to testify about this question because I am interested in 
making sure that we move forward with that. Would you please 
discuss how the Administration is utilizing this approach 
through the President's Management Agenda? How does the 
integration promote accountability? How will this outcome focus 
to help benefit those people in HUD who are relying on the 
programs, as well as the taxpayer, if you will?
    Secretary Martinez. Senator, if I may allow Angela 
Antonelli, our Comptroller, to answer that question. I will 
defer to her. My notes do not have GPRA today.
    Senator Allard. Okay. Very good.
    [Laughter.]
    Ms. Antonelli. Senator Allard, performance measurement, as 
you know, is a very high priority within the President's 
Management Agenda and budget and performance integration.
    Consistent with that, we have made every effort to align 
our programs and our dollars with the Department's strategic 
goals and objectives. And attached to all of that are 
performance measures on how we hold our programs accountable.
    We produce, as part of the GPRA, the Annual Performance 
Plan. We will be producing our 2004 APP and delivering that to 
Congress very shortly.
    As you know, the APP has performance measures attached to 
all of our programs. Through the Performance and Accountability 
Report, we report annually to Congress and just delivered the 
2002 Performance and Accountability Report to Congress. That 
reports on our performance for 2002.
    So it is something that we take very seriously. We are 
working very hard within the Department to continue to improve 
the quality of our measures and we will continue to do that in 
the 2004 APP. And we certainly welcome any comments from this 
Committee with regards to the quality of that and the extent to 
which we continue to improve that.
    Senator Allard. Thank you.
    The General Accounting Office has repeatedly cited human 
capital as a weakness at HUD. The problem is exacerbated by 
HUD's aging workforce. Apparently, it is the oldest in the 
Government.
    I am aware that you recently completed a Resource 
Estimation and Allocation Process called REAP that would help 
match needs with skills. What were the results of the REAP and 
how is HUD using that to address its human capital 
deficiencies?
    Secretary Martinez. Senator, I am happy to report that we 
have been able to ``staff up,'' if you will. One of our goals 
has been to continue to revitalize and reenergize our 
workforce. We have established an internship program where we 
now are bringing in talented young people with a new and 
positive skill set.
    We find that the aging workforce, while it is a double-
edged sword, on the one hand, you may be losing very 
experienced employees. But then again, we may be gaining new 
ones with the new skill sets the 21st Century sometimes 
requires. We are working hard at making a positive out of that.
    We are employing the REAP as a guide. We have reached 
staffing levels that are really adequate for the moment. We are 
looking forward to stabilizing that. We staffed up a little 
quickly. We now need to slow down in our hiring. So it is 
always a moving target, if you will. But I am pleased that we 
have been able to move our staffing levels from 9,100 to the 
9,300, which has been authorized and utilizing REAP so that we 
do it in keeping with our needs, but also the critical hire 
list. We continue to work on improving our controls of how we 
do that process.
    Senator Allard. Now, I know that you are working to try and 
increase homeownership among minorities. You use the 5.5 
million by the end of the decade. I know that you were very 
much working together on the American Dream Downpayment 
Initiative. Do you have other programs going out there to help 
meet that goal of 5.5 million by the end of the decade?
    Secretary Martinez. Well, certainly, we do the ongoing 
programs that HUD has. But on the specific, the Downpayment 
Initiative Program that you have kindly agreed to sponsor. It 
is also the educational component and it is also the tax credit 
proposal which provides an additional amount of affordable 
single-family homes in distressed areas in our communities all 
working together. But I also think we rely greatly on our 
partners in the private sector because, really, that is going 
to provide a tremendous infusion of not only dollars, but 
manpower and know-how, in providing families that are desirous 
of becoming homeowners the opportunity to do so.
    Senator Allard. Thank you, Mr. Chairman. I see that my time 
is about ready to expire.
    Chairman Shelby. Senator Corzine.
    Senator Corzine. Thank you, Mr. Chairman.
    Mr. Secretary, I want to go back to this Ernst & Young 
study with regard to the dividend tax cut proposal, 
particularly since you have mentioned tax credits now twice 
within the context of homeownership.
    The tax credit efforts also apply in some of the Fannie Mae 
and Freddie Mac programs. Before the proposal on the dividend 
exclusion, was there any discussion with HUD on what the 
implications of that would be from either Treasury or OMB?
    Secretary Martinez. Senator, let me first of all let you 
know that I have been informed that the Mortgage Bankers 
Association will be releasing a study early next week saying 
that they find no major effect from the low-income tax credit 
proposal on housing.
    My early discussions with even the homebuilders, while 
initially there was some concern, later, as they further 
studied it, I believe their concerns have been dissuaded.
    I believe that the Ernst & Young report raises some very 
valid and serious concerns. But I do not believe it is a 
unanimous voice. And I do know that the Department of the 
Treasury has a very different point of view on that specific 
issue.
    Senator Corzine. I guess my question was, was that a 
consideration? Did we think about the housing implications and 
whether or not that would work to the advantage or the 
disadvantage? Did we think about that when we were putting 
together an overall budget proposal?
    Secretary Martinez. Senator Corzine, as I told you earlier, 
the tax proposals of the Administration are really a product of 
the Department of the Treasury and not the Department of HUD. 
And in fact, we piggyback with them on issues like the single-
family housing tax credit. But it is not a program that either 
HUD designs or develops.
    Senator Corzine. Right. I hope that you and Treasury 
Secretary Snow can get on the same page on these as it impacts 
these housing programs.
    I won't beat up on this. I want to put in a word for the 
Enterprise Zone activities which are zeroed-out.
    I, like you, come from the private sector. I think leverage 
is a terrific opportunity when the Federal Government will put 
down a dollar and gets 10 dollars. As I suggested the last 
time, I would love to take you to Cumberland County and see 
where $123 million has been leveraged by about $10 million of 
public investment.
    Several hundred new housing units renovated, rehabilitated, 
reconstructed. New jobs. And without that kind of funding for a 
program, it is hard to understand how economic development can 
go forward. I suspect that this individual situation may be 
reflective of other things around the country and we are 
interested in economic growth.
    This is a great example of public/private partnership, as 
we heard earlier on HOPE VI and other areas. I would think that 
that would be consistent with the philosophy of the 
Administration.
    I have a question, though, that ties with something that 
you said in your opening statement, where you made a very real 
and, I believe, sincere, commitment to promoting homeownership 
among 
minorities. But in some ways, I do not understand how that 
relates to something that I think HUD has recently proposed in 
a rule that would repeal requirements for recipients of 
Community Development Block Grants to demonstrate a commitment 
to diversity.
    Under the Johnson Executive Order 11246, companies with 50 
or more employees in Federal contracts of more than $50,000 are 

required to file with the Federal Government written 
affirmative action plans.
    Those plans did not mandate hiring quotas, but did require 
companies seeking Federal contracts to demonstrate a plan and a 
good-faith effort toward hiring women and minorities. I 
understand HUD is proposing to exempt organizations that 
receive Community Development Block Grants, more than $4.4 
billion allocated in fiscal 2003 from their obligations under 
the Executive Order.
    First of all, I would love to hear your comments about it. 
But is HUD's position that there is no longer a need for this 
commitment to diversity as exhibited in this Executive Order?
    Secretary Martinez. Senator, I am sorry to say I am unaware 
of the issue that you raise. I will look into it and be glad to 
consider responding to you in writing. But I am not familiar 
with that issue whatsoever.
    Senator Corzine. I think it is one of those things that was 
included on a January 6, 2003 proposal from HUD, if I am not 
mistaken, that was associated with some of the faith-based 
initiatives that have come.
    Secretary Martinez. The faith-based initiative attempts to 
break down barriers and bring more people into opportunities 
for partnership with the Federal Government.
    There is nothing that I am aware of in that particular 
regulatory change that would in any way either attempt or by 
design or accidentally, limit participation by people from a 
broad spectrum of race and creed and other backgrounds.
    Senator Corzine. I certainly would want clarity with regard 
to this as it relates to Community Development Block Grants 
because I think it is a major shift in policy----
    Secretary Martinez. Senator Corzine, I am looking back here 
to Assistant Secretary Roy Bernardi the Assistant Secretary who 
manages the Community Development Block Grant Program. He is 
unaware of this issue. It is not something that we are aware 
of.
    Senator Corzine. We need to sort this out because our legal 
people are suggesting to me that this January 6 order with 
regard to Community Development Block Grants actually changed 
the basic framework of this.
    Secretary Martinez. Would that be an order from HUD or----
    Senator Corzine. According to the research that my people 
have been able to develop.
    Secretary Martinez. Okay. What we should do is perhaps have 
your people communicate with us and we can get together and try 
to ascertain what that is about.
    Senator Corzine. Thank you.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Mr. Secretary, a number of times here you have used a 
phrase--I am trying to recall exactly the phase. It was, I 
believe, ``Given the current situation we confront on the 
budget.'' Was that the phrase you used as you were responding 
to the question about why there are some cutbacks and why you 
are not funding the HOPE VI and so forth? What was that phrase 
that you used?
    Secretary Martinez. I guess, I am not sure exactly the 
phrase, but what I am alluding to is that we are in a time of 
unprecedented needs from a standpoint of national defense. We 
are at a time when the economy has not been as flourishing as 
we would all like it to be. And so, it is a difficult budget 
year.
    Senator Sarbanes. Is that a euphemism on your part for what 
you heard from OMB? Is that phrase designed to mask, as it 
were, an OMB directive?
    Secretary Martinez. No, sir. I think it is reflecting the 
current reality in which our country is living.
    Senator Sarbanes. So when you went to OMB to begin with, 
did you already factor that into your request, or was that 
consideration, this kind of broader view of the macroeconomic 
situation, was that in effect fed back to you by OMB?
    Secretary Martinez. I believe that the development of the 
President's Budget, which HUD is a part of, is a product of the 
interaction of the Department, OMB, and the overall priorities 
that the President sets out.
    And that my role in the Administration is to, number one, 
do a good job with HUD in terms of preparing a thoughtful 
budget, and then allow it to be part of the process which at 
the time you were reminiscing about earlier when I was at my 
confirmation hearing, I had no idea just exactly what those 
three letters meant to my world, but as you well know, are 
significant.
    OMB does play a very large role in the preparation of the 
President's Budget.
    Senator Sarbanes. Do you think Secretary Rumsfeld, when he 
puts forward his budget, factors in these broader 
considerations, or do you think he puts forward a budget that 
reflects what he judges to be the needs within his area of 
responsibility?
    Secretary Martinez. I believe your question to be more 
rhetorical in nature than seeking an answer from me. But I 
think you should know that I am not going to comment on how 
Secretary Rumsfeld puts together his budget request because I 
think that that is something that should be answered by him.
    Senator Sarbanes. Let me ask you a couple of questions 
about public housing. First, what is the view of the Department 
with respect to expanding the current stock of public housing? 
Not vouchers. I am not talking about vouchers now. Second, what 
is the view of the Department with respect to maintaining the 
current stock of public housing?
    Secretary Martinez. If you mean by the expanding of public 
housing, it is new construction for public housing.
    Senator Sarbanes. Right.
    Secretary Martinez. I do not believe that our approach to 
that is any different than it has been for many years, which is 
that, essentially, there is not a public housing production 
program at HUD today, nor has there been one to my knowledge 
for quite a number of years.
    In terms of the existing stock of public housing, I think 
we have a continuing commitment commensurate with budget levels 
that have been around again for some period of time to continue 
to modernize and upgrade public housing.
    I know from my experience many years ago in the local 
housing authority, that even then, in the early 1980's, we had 
great concern about what was called modernization and the need 
to continue to do new roofs or to somehow or another continue 
to maintain the stock of public housing.
    I think that our view of that is that we continue to make 
that commitment and continue to do what we can to improve 
public housing within the constraints of----
    Senator Sarbanes. Do you think that your commitment of 
resources for the modernization of the existing stock of public 
housing is at a level sufficient to sustain it? Or do you think 
you are falling behind the need so that you are going to lose 
some of the stock because it will simply deteriorate into a 
condition in which it is either not usable or too expensive to 
bring up to standards?
    Secretary Martinez. I believe that what we are doing to 
maintain public housing is adequate to maintain it.
    We also are opening avenues of new opportunities for public 
housing agencies to do a lot for themselves in order to provide 
and acquire private financing which will allow them to do the 
necessary maintenance and upkeep, and upgrade.
    I think that these innovative ideas are going to provide 
the independence for the housing authorities to do on a 
project-by-project basis or even on a single apartment complex 
basis, the kinds of improvements that they have not been able 
to do in the past.
    So, I believe we are freeing up the imagination and the 
creativity of our local housing authorities in partnership with 
local lending institutions and all to improve that.
    Senator Sarbanes. Now does that approach involve an 
assurance to the public housing authority of vouchers from HUD?
    If the public housing authority is going to go out and 
borrow a lot of money to put into the maintenance or 
modernization of its public housing, which I take it is what 
you are suggesting, to what will the lender look for repayment 
of this debt that the public housing authority will be 
assuming?
    Secretary Martinez. My intuition tells me that what they 
look to is to the stream of income that would be coming by the 
rents that are collected. But this is not just an idea. This is 
actually occurring and happening. Today, Chicago has committed 
$300 million in new, innovative financing. Philadelphia, $120 
million. The District of Columbia, $33 million.
    These are all happening today in a way that I think are 
going to be very successful and then encourage even more of our 
public housing entities to do the same thing.
    Senator Sarbanes. And they are going to, in effect, carry 
the debt simply by the rents?
    Secretary Martinez. The way in which financing usually 
takes place is that the lender will look for a stream of income 
coming to the borrower that will then allow that borrower the 
reasonable prospects of repaying the loan, that I think is what 
occurs here.
    Senator Sarbanes. Where is that stream of income coming 
from? Is it just the rents? That was my question.
    Secretary Martinez. A certain percentage of the capital 
fund, rent, and other income.
    Senator Sarbanes. What is the other income?
    Secretary Martinez. It would be management fees. It would 
be other activities that public housing entities sometimes 
enter into. In different communities, they have different 
opportunities to do things which derive income for them. It is 
a private financing mechanism.
    Senator Sarbanes. Well, I would like to see this financing 
arrangement. It doesn't assume any stream of income coming to 
the public housing authority from HUD?
    Secretary Martinez. I think that, inevitably, the public 
housing authority receives rental--I mean they receive monies, 
operating subsidies, from HUD every year. The rent that is paid 
by the tenants, and the subsidies that are given provide a 
stream of income that appears to be sufficient for these 
financial institutions to make a commitment.
    Senator Sarbanes. All right. So, then, it is critical to 
making this work, that a stream of income from HUD is assured 
or guaranteed, is it not?
    Secretary Martinez. The current system is working in these 
three cities, and I am sure in others. And whatever guarantees 
the financial institutions obtain was sufficient to allow them 
to make the loans.
    Senator Sarbanes. We will have to take a careful look at 
that. I am concerned that you are setting up a system to 
replace capital grants for modernization by shifting the 
housing authorities into a borrowing arrangement. And it is not 
clear to me once they go into the borrowing arrangement, where 
the funds will come from to handle the repayment. It seems to 
me--will HUD eventually drop out of that picture?
    Secretary Martinez. I do not think so, sir.
    Senator Sarbanes. Is HUD putting an income stream into 
those situations that you just described?
    Secretary Martinez. I think HUD's participation with public 
housing authorities and the way that it has been done in the 
past is not anticipated to be changed dramatically by these 
arrangements. It is just allowing them a new vehicle, a new way 
that they can improve the stock of housing by having yet 
another avenue available to them.
    Senator Sarbanes. Well, you have cut the Capital Fund each 
year now since you have been at HUD. And of course, the budget 
submissions for cutting the Capital Fund have been 
significantly greater than what the Congress has in the end 
done. The Congress has swallowed some of the cuts, but we have 
really restored a great deal of them.
    In three budget submissions, you have proposed $1.2 billion 
in cuts to the Public Housing Capital Fund. I do not see how we 
are going to sustain this housing--I think it would be a policy 
lacking in common sense to allow existing public housing stock 
that, through reasonable measures, could be sustained as 
available affordable housing, simply to fall into disrepair, 
and I am quite concerned about that.
    It is a policy argument whether we should build more public 
housing, and I understand that. As you pointed out, we have not 
done that in recent years because we have gone down the Section 
8 path. But I do want to know what the basic attitude is toward 
sustaining the public housing. There are some people who argue 
that they want to do it all in and go completely to vouchers.
    I take it that is not your position.
    Secretary Martinez. That is not my position. It is not 
currently anything under discussion by this Administration. 
Some would argue that that would be a healthy way to go. But 
that is not something that I am particularly advocating or it 
is nothing that is indicated by any of the things that you 
suggest.
    Senator Sarbanes. Of course, if you went that way, you 
would give up a lot of currently available housing stock, a lot 
of which is helping us to meet the problem of affordable 
housing.
    Secretary Martinez. Yes. I am not suggesting that that is 
something that we should engage in.
    Senator Sarbanes. Well, my time is expired.
    Chairman Shelby. Thank you, Senator Sarbanes.
    I noticed in the budget, Mr. Secretary, that you are 
calling for $17 million for the manufactured housing program. 
That is a 30 percent increase in funding over recent years.
    Since HUD's budget for this program is paid, I think it is 
paid for entirely by label fees and the industry is not as 
healthy as it was several years ago, I am curious as to how you 
justify such a significant increase, whereas, I understand that 
you are estimating that industry will sell 281,000 homes in 
2004.
    Secretary Martinez. The numbers arise, Mr. Chairman, by our 
determination of the fees by taking the appropriate amount and 
dividing it by the number of units that we expect to be 
produced.
    Chairman Shelby. I understand that, the label. Your 281,000 
homes projected for 2004 seems rather high considering that in 
the calendar year 2002 we just finished, the most recent data 
available there, only 168,000 homes were sold. This would be 
over a 100,000 increase. Of course, the industry would like it. 
But they feel like that is an inflated figure.
    Do you want to respond?
    Secretary Martinez. Housing Commissioner Weicher.
    Chairman Shelby. Okay.
    Mr. Weicher. Thank you, Mr. Chairman. I am John Weicher. I 
am the Assistant Secretary for Housing and the Federal Housing 
Commissioner.
    Chairman Shelby. Yes, sir.
    Mr. Weicher. The 281,000 unit figure comes from the 
forecast of DRI. It is the only private forecast that we know. 
That is their forecast for the volume of manufactured homes in 
2004. We get the $17 million figure by multiplying that by the 
fee per unit, which we established by regulation last year. We 
are not proposing to change the fee in reaching that number.
    Chairman Shelby. Thank you.
    Senator Sarbanes, do you have any other questions?
    Senator Sarbanes. Mr. Chairman, no. I do think, and I will 
discuss it with you, we should give some thought to doing 
budget sessions on specific programs because I think it is 
clear today that you do not really have a chance to get as far 
in depth with respect to the budget as might be desirable.
    I think the prospect of just doing the entire HUD budget at 
one hearing doesn't give us that chance. So maybe we should 
give some thought to whether we should just focus on particular 
aspects of it and then explore that with the Secretary and 
whichever Assistant Secretary is responsible.
    Chairman Shelby. Senator Allard is not here, but his 
staffer is here. He is the Chairman of the Subcommittee over 
that, and we might look at it.
    Senator Sarbanes. Good. Thank you very much.
    Chairman Shelby. Mr. Secretary, we appreciate your 
appearance here today and your candor.
    Secretary Martinez. Thank you.
    Chairman Shelby. We wish you well. And let's build housing 
for every American, if we can.
    Secretary Martinez. Thank you, sir. It is good to be with 
you.
    Chairman Shelby. Thank you.
    Secretary Martinez. Thank you very much.
    Chairman Shelby. The Committee is adjourned.
    [Whereupon, at 12:15 p.m., the Committee was adjourned.]
    [Prepared statements and response to written questions 
follow:]

              PREPARED STATEMENT OF SENATOR JON S. CORZINE

    Thank you very much, Mr. Chairman. I want to reiterate the concerns 
outlined by the Ranking Member and my colleagues about the 
Administration's 2004 Budget for the Department of Housing and Urban 
Development (HUD) and the enormous harm this budget will have on low- 
and middle-income families throughout America.
    Regrettably, this seems to be the norm for this Administration, 
rather than the exception. The budget of the ``Leave No Child Behind'' 
President has no significant aid for America's public schools. They 
have offered a trickle down economic plan that by their own admission 
offers very little in the form of immediate stimulus, but will add $1.5 
trillion to our already enormous Federal deficit.
    It is a budget that provides no direct Federal aids to States 
facing their worst fiscal crisis in four decades. Now many will be 
forced to cut funding for vital programs like Medicare and Head Start. 
And it fails to adequately fund important homeland security measures 
like first responders and ensuring the security of chemical plants, 
many of which can be found in residential communities.
    It is not a stretch to assert that this Administration's budget 
will likely leave this country worse off tomorrow than we are today--
there is no doubt that at least fiscally, America is worse off now than 
before this Administration was in place. But nowhere are this 
Administration's misplaced priorities more demonstrable than in its HUD 
budget and its housing programs.
    Over the past 2 years, the President has slashed $2 billion from 
the public housing program, slashed funds for the Public Housing 
Operating Fund and eliminated funding for the Public Housing Drug 
Elimination Program (PHDEP).
    The Administration's proposal to block grant the Section 8 program 
will likely reduce funding for the program and undermines the program's 
mission to assist the most low-income families afford housing. At a 
time in which more and more families are struggling to afford housing 
and voucher utilization is on the rise, underfunding the Section 8 
program is a misguided step.
    But the HUD budget is not just about slashing public housing 
programs. It is also about rescinding Federal support for community 
revitalization projects that are transforming our Nation's urban core, 
including those in my State, New Jersey.
    I am nothing short of outraged at the proposed elimination of the 
very successful, bipartisan HOPE VI program; funding for Round II 
Empowerment Zones and cuts for Brownfield redevelopment. Each of these 
programs has been successful in communities throughout America.
    The Hope VI program has been particularly vital in New Jersey, 
where its helped transform some of the Nation's oldest public housing 
stock into safe, livable mixed-income communities for families.
    The Cumberland County EZ in my home State has created hundreds of 
jobs, renovated, rehabilitated, and constructed more than one hundred 
housing units, and funded more than 60 programs that are expected to 
leverage more than $123 million in private, public, and tax-exempt bond 
financing. The Cumberland County EZ is leveraging $10 in non-Federal 
funds for every $1 of Federal financing.
    Why does the President want to eliminate such successful programs?
    Secretary Martinez, you yourself seem to be developing a serious 
credibility gap. At your confirmation hearing, and in subsequent 
questioning, you articulated HUD's support for PHDEP--a year later you 
eliminated it, without saying a word to Congress. Last year, you said 
the HOPE VI program was ``overall . . . a great program that has done 
an awful lot of good, and we [Bush HUD] are delighted.'' Now a year 
later, like we witnessed with PHDEP, you are completely eliminating 
funding for that program.
    The constant here appears to be that your Agency, Secretary 
Martinez, continually seems to be used as a funding source to offset 
the costs of this President's ``Leave No Millionaire'' behind tax-
cutting agenda. It is the reverse Robin Hood scenario, robbing programs 
that help the poor to pay the cost for programs that make the richest 
Americans wealthier. Even the President's proposal to exclude taxes on 
corporate dividends hurts housing efforts, particularly the Low-Income 
Housing Tax Credit (LIHTC). The tax credit will likely become less 
attractive to investors should this dividend exclusion be enacted.
    A recent report by Ernst & Young, LLP, indicated that 35 percent 
fewer units 
financed by the LIHTC would be produced every year if the dividend tax 
cut were enacted. Again, the poor gets hurt for an initiative that 
primarily benefits the wealthiest of Americans.
    In closing, Mr. Chairman, I would like to state a few facts about 
the housing crisis we are facing in America and in my State, New 
Jersey. There, 34 percent of households are renters, and today the 
average family would have to work 146 hours at minimum wage to afford 
the Fair Market Rent for a 2-bedroom apartment. Waiting lists for 
Section 8 in New Jersey are as long as 3 years--and even with vouchers, 
the lack of affordable housing stock makes it difficult for families to 
find housing. Those numbers are similar in urban communities throughout 
America.
    Secretary Martinez, the housing crisis in this country is very 
real--but your HUD budget seems to give short shift to the housing 
crisis, or the families affected by this crisis. And that is a shame, 
because it is your job to care.
    Thank you, Mr. Chairman.

                               ----------

              PREPARED STATEMENT OF SENATOR ELIZABETH DOLE

    I would like to express my appreciation for your holding this 
hearing today and join you in welcoming Secretary Martinez to discuss 
the Administration's Department of Housing and Urban Development budget 
request.
    Let me begin by making it very clear that I believe that Secretary 
Martinez should be congratulated for the good work he has done at HUD. 
Secretary Martinez took over an Agency which was in disarray. Staffing 
cuts had been made by the previous Administration to adhere to 
arbitrary staffing goals. Unfortunately, some of the Agency's most 
senior and experienced staff was lost due to downsizing. The HUD 
Inspector General's Office referred to this as ``the brain drain'' and 
noted that serious long-term effects would be felt.
    In addition, a series of management reform initiatives in the 
previous Administration moved and consolidated staff in new areas of 
the country. This unfortunately created enforcement gaps exploited by 
criminals who took advantage of HUD and took advantage of ordinary 
citizens. I am reminded of a North Carolina saying that goes, ``you 
cannot fall off the floor''--and in some sense that could have applied 
here. Secretary Martinez had nowhere to go but up with such a trouble-
ridden Department, but he has clearly exceeded all expectations.
    I have reviewed the General Accounting Office's January 2003 review 
of HUD. The GAO states on the first line of the first page of the 
report that, ``HUD has made progress since January 2001 in addressing 
identified weaknesses in its high-risk program areas and management 
challenges, but significant challenges remain.'' I look forward to this 
opportunity to discuss with the Secretary those significant challenges 
which remain, and assess the extent to which these will be addressed in 
the Fiscal Year 2004 Budget.
    A top priority for the proposed budget is achieving the goal of 
homeownership for low- and moderate-income families. I believe this is 
a laudable goal on the part of this Administration. While the United 
States enjoys an all-time high national homeownership rate of 68 
percent, there are sectors of the population for whom homeownership 
remains frustratingly unattainable. In fact, the homeownership rate for 
African-Americans and Hispanics is in the 40th percentile. This is an 
unacceptable disparity that we must work to change, for my friends and 
my neighbors in North Carolina and throughout the country.
    The benefits of homeownership for families, communities, and the 
Nation are profound. When individuals and families own their home, they 
establish roots in their communities and have a greater stake in the 
growth, safety, and development of their towns and cities. It is 
through initiatives to further grow homeownership that we empower 
individuals and families by helping them build wealth and improve their 
lives.
    While most of the Fiscal Year 2004 HUD Budget is allocated for 
important programs such as rental assistance and public housing, I have 
always believed that programs designed to lead their beneficiaries to 
independence are the best use of taxpayer dollars. Increasing the rate 
of homeownership for Hispanic and African-American communities is one 
such goal that is clearly demonstrated in the programs contained in the 
Fiscal Year 2004 HUD Budget, and I am committed to working with 
Secretary Martinez and my colleagues on this and other related issues. 
We need to ensure that HUD becomes known first and foremost for its 
programs that improve the lives of America's families, and not for 
bureaucracy and inefficiency.
    Thank you.

                   PREPARED STATEMENT OF MEL MARTINEZ
      Secretary, U.S. Department of Housing and Urban Development
                             March 4, 2003

Overview
    Chairman Shelby, Ranking Member Sarbanes, and distinguished Members 
of the Committee, thank you for the invitation to join you this 
morning. I am honored to outline the Fiscal Year 2004 Budget proposed 
by President Bush for the U.S. Department of Housing and Urban 
Development (HUD).
    HUD has achieved measurable success since 2001 in carrying out its 
mission and meeting the many challenges confronting a Cabinet-level 
Department. Today, HUD annually subsidizes housing costs for 
approximately 4.5 million low-income households through rental 
assistance, grants, and loans. It helps revitalize over 4,000 
localities through community development programs. The Department 
provides housing and services to help homeless families and individuals 
become self-sufficient. HUD also encourages homeownership by providing 
mortgage insurance for more than 6 million homeowners, many of whom 
would not otherwise qualify for loans.
    Supported by HUD's proposed $31.3 billion Fiscal Year 2004 Budget, 
this very important work will continue. Housing remains a critical 
component of both the President's plan to promote economic growth and his focus on meeting the common challenges faced by Americans and their communities.
    The President does not intend to change his 2004 Budget based on 
the program or Agency levels included in the 2003 Omnibus bill the 
Congress adopted in mid-February. The President's 2004 Budget was 
developed within a framework that set a proposed total for 
discretionary spending in 2004, and each Agency and program request 
reflected the Administration's relative priority for that operation 
within that total. While we recognize that Congress may believe there 
is a need to reorder and adjust some of these priorities, the 
Administration intends to work with Congress to stay within the 2004 
overall amount.
    HUD's proposed budget offers new opportunities for families and 
individuals--and minorities in particular--seeking the American Dream 
of homeownership.
    It offers new opportunities for renters by expanding access to 
affordable housing free from discrimination.
    It provides new opportunities for strengthening communities and 
generating renewal, growth, and prosperity--with a special focus on 
ending chronic homelessness.
    And our budget creates new opportunities to improve HUD's 
performance by addressing the internal management issues that have long 
plagued the Department.

Increasing Homeownership Opportunities
    Americans place a high value on homeownership because its benefits 
for families, communities, and the Nation as a whole are so profound.
    Homeownership creates community stakeholders who tend to be active 
in charities and churches. Homeownership inspires civic responsibility, 
and owners vote and get involved with local issues. Homeownership 
offers children a stable living environment that influences their 
personal development in many positive, measurable ways--at home and in 
school.
    Homeownership's potential to create wealth is impressive, too. For 
the vast majority of families, the purchase of a home represents the 
path to prosperity. A home is the largest purchase most Americans will 
ever make--a tangible asset that builds equity, credit health, 
borrowing power, and overall wealth.
    Due in part to a robust housing economy and Bush Administration 
budget initiatives focused on promoting homeownership, more Americans 
were homeowners in 2002 than at any time in this Nation's history. The 
national homeownership rate is 68 percent. That statistic, however, 
masks a deep ``homeownership gap'' between non-Hispanic whites and 
minorities: While the homeownership rate for non-Hispanic whites is 
nearly 75 percent, it is less than 50 percent for African-Americans and 
Hispanics.
    The Administration is focused on giving more Americans the 
opportunity to own their own homes, especially minority families who 
have been shut out in the past. In June 2002, President Bush announced 
an aggressive homeownership agenda to increase the number of minority 
homeowners by at least 5.5 million by the end of this decade. The 
Administration's homeownership agenda is dismantling the barriers to 
homeownership by providing downpayment assistance, increasing the 
supply of affordable homes, increasing support for homeownership 
education programs, and simplifying the home-buying process.
    Through ``America's Homeownership Challenge,'' the President called 
on the real estate and the mortgage finance industries to take concrete 
steps to tear down the barriers to homeownership that minority families 
face. In response, HUD created the Blueprint for the American Dream 
Partnership, an unprecedented public/private initiative that harnesses 
the resources of the Federal Government with those of the housing 
industry to accomplish the President's goal.
    Additionally, HUD is proposing several new or expanded initiatives 
in fiscal year 2004 to continue the increase in overall homeownership 
while targeting assistance to improve minority homeowner rates.
    As a first step, HUD proposes to fund the American Dream 
Downpayment Initiative at $200 million. This was first introduced in 
fiscal year 2002, this program targets funding under the HOME program 
specifically to low-income families wanting to purchase a home. The 
fiscal year 2003 appropriations provided for $75 million for this 
initiative, which will be sufficient to begin the program. The Fiscal 
Year 2004 Budget provides funding to assist approximately 40,000 low-
income families with downpayment and closing costs on their homes.
    The HOME Investment Partnerships Program (HOME) plays a key role in 
addressing the shortage of affordable housing in America. As reflected 
in this year's program assessment, the HOME program is successful 
because it is well-managed and its flexibility ensures local 
decisionmaking. In 2004, a total of $2.197 billion is being provided to 
participating jurisdictions (States, units of local government, and 
consortia) to expand affordable housing, which represents a 10 percent, 
or $200 million, increase for HOME from the 2003 enacted level. The 
funds dedicated to expanding and improving homeownership will be spent 
rehabilitating owner-occupied buildings and providing assistance to new 
homebuyers. Based on historical trends, 36 percent of the 
homeownership-related funds will be used for new construction, 47 
percent for rehabilitation, and 14 percent for acquisition.
    Recipients of HOME funds have substantial discretion to determine 
how the funds are spent. HOME funds can be used to expand access to 
homeownership by subsidizing downpayment and closing costs, as well as 
the costs of acquisition, rehabilitation, and new construction. To 
date, HOME grantees have committed funds to provide homebuyer 
assistance to more than 288,000 low-income households.
    To promote the production of affordable single-family homes in 
areas where such housing is scarce, the Administration is proposing a 
tax credit of up to 50 percent of the cost of constructing a new home 
or rehabilitating an existing home. This new tax credit targets low-
income individuals and families; eligible homebuyers would have incomes 
of not more than 80 percent of their area median.
    HUD is committed to helping families understand the home-buying 
process and how to avoid the abuses of predatory lending. Housing 
counseling has proven to be an extremely important element in both the 
purchase of a home and in helping homeowners keep their homes in times 
of financial stress. The Fiscal Year 2004 Budget will expand funds for 
counseling services from $40 million in fiscal year 2003 to $45 
million. This will provide 550,000 families with home purchase and 
homeownership counseling and about 250,000 families with rental 
counseling.
    The Fiscal Year 2004 Budget strengthens HUD's commitment to the 
Self-Help Homeownership Opportunity Program (SHOP). SHOP provides 
grants to national and regional nonprofit organizations to subsidize 
the costs of land acquisition and infrastructure improvements. 
Homebuyers must contribute significant amounts of sweat equity or 
volunteer labor to the construction or rehabilitation of the property. 
The Fiscal Year 2004 Budget request for $65 million triples the funding 
received in 2002, reflecting President Bush's commitment to self-help 
housing organizations such as Habitat for Humanity. These funds will 
help produce approximately 5,200 new homes nationwide for very low-
income families. Funds are provided as a set-aside within the Community 
Development Block Grant account.
    The Federal Housing Administration (FHA) is the Federal 
Government's single largest program to extend access to homeownership 
to individuals and families who lack the savings, credit history, or 
income to qualify for a conventional mortgage. In 2002, FHA insured 
$150 billion in mortgages for almost 1.3 million households, most of 
them first-time homebuyers, which represents a 21 percent increase over 
the previous year. Thirty-six percent were minority households.
    FHA offers a wide variety of insurance products, the largest being 
single-family mortgage insurance products. FHA insures single-family 
homes, home rehabilitation loans, condominium loans, energy efficiency 
loans, and reverse mortgages for elderly individuals. Special discounts 
are available to teachers and police officers who purchase homes that 
have been defaulted to HUD and who promise to live in their homes in 
revitalized areas.
    HUD is proposing legislation for a new mortgage product to offer 
FHA insurance to families that, due to poor credit, would either be 
served by the private market at a higher cost or not at all. It is 
anticipated that borrowers will be offered FHA loan insurance under 
this new initiative that will allow them to maintain their home or to 
purchase a new home. The new Mutual Mortgage Insurance Fund (MMI) 
mortgage loan program is expected to generate an additional $7.5 
billion in endorsements for 62,000 additional homes.
    Through its mortgage-backed securities program, Ginnie Mae helps to 
ensure that mortgage funds are available for low- and moderate-income 
families served by FHA and other Government programs such as VA and the 
Rural Housing Service of the U.S. Department of Agriculture.
    During fiscal year 2002, Ginnie Mae surpassed a total of $2 
trillion in mortgage-backed securities issued since 1970. Reaching this 
milestone means that more than 28.4 million families have had access to 
affordable housing or lower mortgage costs since Ginnie Mae's 
inception. HUD is proud of Ginnie Mae's accomplishments and its 
important role in helping to support affordable homeownership for low- 
and moderate-income families in America. HUD's role in the secondary 
mortgage market provides an important public benefit to Americans 
seeking to fulfill their dream of homeownership.
    The Fiscal Year 2004 Budget supports five HUD programs that help to 
promote homeownership in Native American and Hawaiian communities.
    The Native American Housing Block Grants (NAHBG) Program provides 
funds to tribes and to tribally designated housing entities for a wide 
variety of affordable-housing activities. Grants are awarded on a 
formula basis that was established through negotiated rulemaking with 
the tribes. The NAHBG program allows funds to be used to develop new 
housing units to meet critical shortages in housing. Other uses include 
housing assistance to modernize and maintain existing units; housing 
services, including direct tenant rental subsidy; crime prevention; 
administration of the units; and certain model activities.
    The Title VI Federal Guarantees for Tribal Housing Program provides 
guaranteed loans to recipients of the Native American Housing Block 
Grant who need additional funds to engage in affordable-housing 
activities but who cannot borrow from private sources without the 
guarantee of payment by the Federal Government. Because the grantees 
have not applied for all funds appropriated in prior years, the amount 
of subsidy required in fiscal year 2004 is reduced from $2 million to 
$1 million, and the loan amount supported is reduced from $16.6 million 
to $8 million. Prior-year funds remain available until used.
    The Indian Housing Loan Guarantee (Section 184) Program helps 
Native Americans to access private mortgage financing for the purchase, 
construction, or rehabilitation of single-family homes. The program 
guarantees payments to lenders in the event of default. In fiscal year 
2004, $1 million is requested in credit subsidy for 100 percent Federal 
guarantees of approximately $27 million in private loans.
    The Hawaiian Homelands Homeownership Act of 2000 established the 
Native Hawaiian Home Loan Guarantee Fund, which is modeled after 
Section 184. The Fiscal Year 2004 Budget will provide $1 million in 
credit subsidy to secure approximately $35 million in private loans.
    Modeled after the NAHBG, the Native Hawaiian Housing Block Grant 
(NHHBG) was authorized by the Hawaiian Homelands Homeownership Act of 
2000. The Fiscal Year 2004 Budget will provide $10 million. Grant funds 
will be awarded to the Department of Hawaiian Home Lands and may be 
used to support acquisition, new construction, reconstruction, and 
rehabilitation. Activities will include real property acquisition, 
demolition, financing, and development of utilities and utility 
services, as well as administration and planning.

Promoting Decent Affordable Housing
    Ideally, homeownership would be an option for everyone, but even 
with its new and expanded homeownership initiatives, the Administration 
recognizes that many families will have incomes insufficient to support 
a mortgage in the areas where they live. Therefore, along with boosting 
homeownership, HUD's proposed Fiscal Year 2004 Budget promotes the 
production and accessibility of affordable housing for families and 
individuals who rent. This is achieved, in part, by providing States 
and localities new flexibility to respond to local needs.
    HUD has three major rental assistance programs that collectively 
provide rental subsidies to approximately 4.5 million households 
nationwide. The major vehicle for providing rental subsidies is the 
Section 8 program, which is authorized in Section 8 of the U.S. Housing 
Act of 1937. Under this program, HUD provides subsidies to individuals 
(tenant-based) who seek rental housing from qualified and approved 
owners, and also provides subsidies directly to private property owners 
who set aside some or all of their units for low-income families 
(project-based). Finally, HUD subsidizes the operation, maintenance, 
and modernization of an additional 1.2 million public housing units.
    HUD is proposing a new initiative--Housing Assistance for Needy 
Families (HANF)--under which the funding for vouchers, which has been 
allocated to approximately 2,600 public housing authorities (PHA's), 
would be allocated to the States. States, in turn, could choose to 
contract with PHA's or other entities to administer the program. The 
funding for both incremental and renewal vouchers will be contained in 
the HANF account.
    There are a number of advantages to providing the voucher funds to 
the States. The allocation of funds to States rather than PHA's should 
allow for more flexibility in efforts to address problems in the 
underutilization of vouchers that have occurred in certain local 
markets. The allocation of funds to the States will be coupled with 
additional flexibility in program laws and rules, to allow States to 
better address local needs and to commit vouchers for program uses that 
otherwise would go unused. In the former Housing Certificate Fund, more 
than $2.41 billion has been recaptured over the last 2 years from the 
Housing Choice Voucher Program. These large recaptures have resulted in 
a denial of appropriated housing assistance for thousands of families, 
which will be avoided under HANF. The administration of the HANF 
program should run more smoothly, with HUD managing fewer than 60 
grantees compared to approximately 2,600 today.
    Allocation of the funds to the States should allow for more 
coordinated efforts with the Temporary Assistance for Needy Families 
(TANF) Program, and the One-Stop Career Center system under the 
Workforce Investment Act, successfully 
administered by the States, to support the efforts of those now 
receiving public 
assistance who are climbing the ladder of self-sufficiency.
    HUD proposes that fiscal year 2004 be a transition year in which 
PHA's would continue to receive voucher funds directly while States 
ramp up in preparation for administering the HANF program. Up to $100 
million would be made available to assist States with this effort. In 
addition, States could apply for incremental vouchers if they are ready 
to do so, and could request waivers that would assist in the 
implementation of their programs.
    The HANF account would contain $13.6 billion in funding for voucher 
renewals and incremental vouchers. This would include funding for up to 
$36 million in incremental vouchers for persons with disabilities, 
additional incremental vouchers to the extent that funding is 
available, $252 million for tenant protection vouchers to prevent 
displacement of tenants affected by public housing demolition or 
disposition of project-based Section 8 contract terminations or 
expirations, and $72 million for Family Self-Sufficiency Coordinators.
    For fiscal year 2004, the Administration proposes separate funding 
for vouchers under the new HANF account. The Project Based Rental 
Assistance Account will retain funding for renewals of expiring 
project-based rental assistance contracts under Section 8, including 
amounts necessary to maintain performance-based contract 
administrators. An appropriation of $4.8 billion is requested for these 
renewals in fiscal year 2004, which is a $300 million increase over the 
current fiscal year. In addition to new appropriations, funds available 
in this account from prior-year balances and from recaptures will 
augment the amount available for renewals and will be available to meet 
amendment requirements for on-going contracts that have 
depleted available funding, as well as a rescission of $300 million.
    It is anticipated that approximately 870,000 project-based units 
under rental assistance will require renewal in fiscal year 2004, an 
increase of about 50,000 units from the current fiscal year, continuing 
the upward trend stemming from first-time expirations in addition to 
contracts already under the annual renewal cycle. The HANF account 
funds an estimated 30,300 units in subsidized or partially assisted 
projects requiring tenant-protection vouchers due to terminations, opt-
outs, and prepayments.
    Public Housing is the other major form of assistance that HUD 
provides to the Nation's low-income population. In fiscal year 2004, 
HUD anticipates that there will be approximately 1.2 million public 
housing units occupied by tenants. These units are under the direct 
management of approximately 3,050 PHA's. Like the Section 8 program, 
tenants pay approximately 30 percent of their income for rent and 
utilities, and HUD subsidies cover the remaining costs.
    HUD is programmatically and financially committed to ensuring that 
the existing public housing stock is either maintained in good 
condition or is demolished. Maintenance is achieved through the subsidy 
to PHA's for both operating expenses and modernization costs. 
Legislation to implement a new financing initiative is included and 
enhanced in the Fiscal Year 2004 Budget. This will allow for the 
acceleration of the reduction in the backlog of modernization 
requirements in public housing facilities across the Nation.
    The formula distribution of funds through the Public Housing 
Operating Fund takes into account the size, location, age of public 
housing stock, occupancy, and other factors intended to reflect the 
costs of operating a well-managed public housing development. In fiscal 
year 2004, HUD will increase the amounts provided for operating 
subsidies from $3.530 billion to $3.559 billion, plus $15 million to 
fund activities associated with the Resident Opportunities and 
Supportive Services (ROSS) Program.
    The Public Housing Capital Fund provides formula grants to PHA's 
for major repairs and modernization of its units. The Fiscal Year 2004 
Budget will provide $2.641 billion in this account. This amount is 
sufficient to meet the accrual of new modernization needs in fiscal 
year 2004.
    Of the funds made available, up to $40 million may be maintained in 
the Capital Fund for natural disasters and emergencies. Up to $30 
million can be used for demolition grants--to accelerate the demolition 
of thousands of public housing units that have been approved for 
demolition but remain standing. Also in fiscal year 2004, up to $40 
million will be available for the ROSS program (in addition to $15 
million in the Operating Fund), which provides supportive services and 
assists residents in becoming economically self-sufficient.
    To address the backlog of capital needs, the Department is 
including a legislative proposal in its 2004 Budget called the Public 
Housing Reinvestment Initiative (PHRI) that will allow PHA's to use 
their Operating Fund and Capital Fund grants to facilitate the private 
financing of capital improvements. This initiative also will encourage 
development-based financial management and accountability in PHA's.
    These objectives would be achieved by authorizing HUD to approve, 
on a property-by-property basis, PHA requests to convert public housing 
developments (or portions of developments) into project-based voucher 
assistance. The conversion of units to project-based vouchers will 
allow the PHA's to secure private financing to rehabilitate or replace 
their aging properties by pledging the property as collateral for 
private loans for capital improvements.
    The Fiscal Year 2004 Budget enhances this proposal, which was made 
in last year's budget request, by also proposing a guarantee of up to 
80 percent of the 
principal of loans made to provide the capital for PHRI. There was 
substantial interest by PHA's and others in last year's budget 
proposal; the loan guarantee should greatly facilitate the involvement 
of private lenders. The budget includes $131 
million in subsidy for this guarantee, which would allow the guarantee 
of almost $2 billion in loans and significantly accelerate the 
improvement in public housing conditions.
    The PHRI reflects our vision for the future of public housing.
    For 10 years, the HOPE VI program has been the Government's primary 
avenue for funding the demolition, replacement, and rehabilitation of 
severely distressed public housing. With $2.5 billion already awarded 
but not yet spent, and an additional $1 billion to be awarded in 2002 
and 2003, HOPE VI will continue to serve communities well into the 
future.
    When HOPE VI was first created, it was the only significant means 
of leveraging private capital to revitalize public housing properties. 
But that is no longer the case. Today, HUD has approved bond deals that 
have leveraged over $500 million in the last couple of years. PHA's can 
mortgage their properties to leverage private capital. In Maryland, 
PHA's are forming consortiums to leverage their collective resources 
and assets to attract private capital. Cities such as Chicago are 
committing hundreds of millions of dollars of their own money to 
revitalize public housing neighborhoods. HUD is also seeking additional 
tools from Congress such as the Public Housing Reinvestment Initiative.
    HOPE VI has served its purpose. Established to revitalize 100,000 
of the Nation's most severely distressed public housing units, the 
program has funded the demolition of over 115,000 severely distressed 
public housing units and the production of over 60,000 revitalized 
dwellings. There are also more effective and less costly alternatives. 
The average cost per rebuilt HOPE VI unit is approximately $120,000, 
compared to $80,000 in HUD's HOME program. Only 20,000 new HOPE VI 
units have been completed to date. On average, 5 years pass between the 
time a HOPE VI award is made and a new unit is occupied. In contrast, 
during the same period, HUD's HOME program produced 70,000 new rental 
units with an average construction time of about 2 years. It is time to 
look to the future and pursue new opportunities, such as those I have 
noted, which can more effectively serve local communities.
    Among HUD's other rental assistance programs, FHA insures mortgages 
on multifamily rental housing projects. In fiscal year 2004, FHA will 
reduce the annual mortgage insurance premiums on its largest apartment 
new construction program, Section 221(d)(4), for the second year in a 
row--from 57 basis points to 50 basis points. With this reduction, the 
Department estimates that it will insure $3 billion in apartment 
development loans through this program, for the annual production of an 
additional 42,000 new rental units, most of which will be affordable to 

moderate-income families, and most of which will be located in 
underserved areas. Additionally, because this program is no longer 
dependent on appropriated subsidies, FHA avoids the uncertainty and the 
suspensions that have plagued the program in prior years. When combined 
with other multifamily mortgage programs, 
including those serving nonprofit developers, nursing homes, and 
refinancing mortgagors, the FHA anticipates providing support for a 
total of some multifamily 178,000 housing units.
    In addition to the extensive use of HOME funds for homeownership, 
the HOME program has invested heavily in the creation of new affordable 
rental housing. The program has, in fact, supported the building, 
rehabilitation, and purchase of more than 322,000 rental units. Program 
funds have also provided direct rental assistance to more than 88,000 
households.
    The Native American Housing Block Grant (NAHBG) and Native Hawaiian 
Housing Block Grant (NHHBG) are also used for a wide variety of 
affordable-housing 
activities. Several other HUD programs contribute to rental assistance, 
although not as a primary function. For example, the flexible Community 
Development Block Grant (CDBG) Program can be used to support rental 
housing activities.
    Regulatory barriers on the State and local level have an enormous 
impact on the development of rental and affordable housing. HUD is 
committed to working with States and local communities to reduce 
regulatory and institutional barriers to the development of affordable 
housing. HUD plans to create a new Office of Regulatory Reform and 
commit an additional $2 million in fiscal year 2004 for research 
efforts to learn more about the nature and extent of regulatory 
obstacles to affordable housing. Through this Office, researchers will 
develop the tools needed to measure and ultimately reduce the effects 
of excessive barriers that restrict the development of affordable 
housing at the local level.

Strengthening Communities
    HUD is committed to preserving America's cities as vibrant hubs of 
commerce and making communities better places to live, work, and raise 
a family. The Fiscal Year 2004 Budget provides States and localities 
with tools they can put to work improving economic health and promoting 
community development. Perhaps the greatest strength of HUD's economic 
development programs is the emphasis they place on helping communities 
address locally determined development priorities through decisions 
made locally.
    The mainstay of HUD's community and economic development programs 
is the CDBG program. In fiscal year 2004, total funding requested for 
the CDBG is $4.732 billion. Funding for the CDBG formula program will 
increase $95 million from the fiscal year 2003 enacted level, to $4.436 
billion. Currently, 865 cities, 159 counties, and 50 States plus Puerto 
Rico receive formula grant funds.
    HUD is analyzing the impact of the 2000 Census on the distribution 
of CDBG funds to entitlement communities and States. Based on this 
review, revisions to the existing formula may be proposed so that funds 
are allocated to those communities that need them the most and will use 
them effectively. Any proposals will, of course, consider measures of 
need and fiscal capacity, as well as other factors.
    Of the $4.732 billion in fiscal year 2004, $4.436 billion will be 
distributed to entitlement communities, States, and insular areas, and 
$72.5 million will be distributed by a competition to Indian tribes for 
the same uses and purposes. This budget presumes legislative changes 
proposed in fiscal year 2003 to fund CDBG grants to insular areas as 
part of the formula, and to shift administration of the Hawaii Small 
Cities Program to the State. The remaining $224 million is for specific 
purposes and programs at the local level and is distributed generally 
on a competitive grant basis.
    As it did in fiscal year 2003, the Fiscal Year 2004 Budget again 
proposes $16 million for the Colonias Gateway Initiative (CGI). The CGI 
is a regional initiative, focusing on border States where the colonias are located. Colonias are small, generally unincorporated communities that are characterized by substandard housing, lack of basic infrastructure and 
public facilities, and weak capacity to implement economic development 
initiatives. The Fiscal Year 2004 Funds will: Provide start-up seed 
capital to develop baseline socio-economic information and a geographic 
information system; identify and structure new projects and training 
initiatives; fund training and business advice; and provide matching 
funds to develop sustainable housing and economic development projects 
that, once proven, could be taken over by the private sector.
    HUD participates in the privately organized and initiated National 
Community Development Initiative (NCDI). The Fiscal Year 2004 Budget 
will provide $30 million for the NCDI and Habitat for Humanity, in 
which HUD has funded three phases of work since 1994. A fourth phase 
will emphasize the capacity building of community-based development 
organizations, including community development corporations, in the 
economic arena and related community revitalization activities through 
the work of intermediaries, including the Local Initiatives Support Corporation and the Enterprise Foundation.
    The Fiscal Year 2004 Budget provides $31.9 million to assist 
colleges and universities, including minority institutions, to engage 
in a wide range of community development activities. Funds are also 
provided to support graduate programs that attract minority and economically disadvantaged students to participate in housing and community development fields of study.
    Grant funds are awarded competitively to work study and other 
programs to assist institutions of higher learning in forming 
partnerships with the communities in which they are located and to 
undertake a wide range of academic activities that foster and achieve 
neighborhood revitalization.
    The Fiscal Year 2004 Budget requests $65 million for the Youthbuild 
program. This program is targeted to high school dropouts ages 16 to 
24, and provides these disadvantaged young adults with education and 
with employment skills through constructing and rehabilitating housing 
for low-income and homeless people. The program also provides 
opportunities for placement in apprenticeship programs or in jobs. The 
fiscal year 2004 request will serve more than 3,728 young adults.
    The Community Renewal Tax Relief Act of 2000 authorized the 
designation of 40 Renewal Communities (RC's) and 9 Round III 
Empowerment Zones (EZ's), and provided tax incentives which can be used 
to encourage community revitalization efforts. Private investors in 
both RC and EZ areas are eligible for tax benefits over the next 10 
years tied to the expansion of job opportunities in these locations. 
These programs allow communities to design and administer their own 
economic development strategies with a minimum of Federal involvement. 
No grant funds have been authorized or appropriated for RC's or Round 
III EZ's. Round II Empowerment Zone communities have received grant 
funding in the past, but after 4 years of funding, still have balances 
of unused funds available. Of course, all of the tax and other benefits 
associated with Zone designation remain intact. Also, both HOME and 
CDBG funds can be used for the same activities.
    The Administration is deeply engaged in meeting the challenge of 
homelessness that confronts many American cities. Across the scope of 
the Federal Government, funding for homeless-specific assistance 
programs increases 14 percent in the Fiscal Year 2004 Budget proposal. 
We are fundamentally changing the way the Nation manages the issue of 
homelessness by focusing more resources on providing permanent housing 
and supportive services for the homeless population, instead of simply 
providing more shelter beds.
    HUD is leading an unprecedented, Administration-wide commitment to 
eliminating chronic homelessness within the next 10 years. Persons who 
experience chronic homelessness are a sub-population of approximately 
150,000 individuals who often have an addiction or suffer from a 
disabling physical or mental condition, and are homeless for extended 
periods of time or experience multiple episodes of homelessness. For 
the most part, these individuals get help for a short time but soon 
fall back to the streets and shelters. Research indicates that although 
these individuals may make up less than 10 percent of the homeless 
population, they consume more than half of all homeless services 
because their needs are not comprehensively addressed. Thus, they 
continually remain in the homeless system.
    As a first step, the Administration reactivated the U.S. 
Interagency Council on Homelessness. Reactivating the Council has 
provided better coordination of the 
various homeless assistance programs that are directly available to 
homeless individuals through HUD, HHS, VA, the Department of Labor, and 
other agencies. And $1.5 million is earmarked within the Homeless 
Assistance Account for the operations of the Council in fiscal year 
2004.
    HUD and its partners are focused on improving the delivery of 
homeless services, which includes working to cut Government red tape 
and make the funding process simpler for those who provide homeless 
services. The Fiscal Year 2004 Budget continues to provide strong 
support to homeless persons and families by funding the HUD homeless 
assistance programs at the record level of $1.528 billion.
    Several changes to the program are being proposed that will provide 
new direction and streamline the delivery of funds to the local and 
nonprofit organizations that serve the homeless population.
    The Fiscal Year 2004 Budget includes funding for a new program to 
address the President's goal of ending chronic homelessness in 10 
years: The Samaritan Initiative. Funded by HUD at $50 million, the 
Samaritan Initiative will provide new housing options as well as 
aggressive outreach and services to homeless people 
living on the streets. This program is part of a broader, coordinated 
Federal effort 
between HUD, HHS, VA, and the Interagency Council on Homelessness.
    In order to significantly streamline homeless assistance in this 
Nation and increase a community's flexibility in combating 
homelessness, HUD will propose legislation to consolidate its current 
homeless assistance programs into a single program.
    The Administration is also proposing legislation that would 
transfer intact the Emergency Food and Shelter Program (EFSP) that 
administered by FEMA to HUD. The transfer of this $153 million program 
would allow for the consolidation of all emergency shelter assistance--
EFSP and the Emergency Shelter Grant Program--under one agency. EFSP 
funds are distributed to a National Board, which in turn allocates 
funds to similarly comprised local Boards in eligible jurisdictions. 
Eligibility for funding is based on population, poverty, and 
unemployment data. The Board will be chaired by the Secretary of HUD 
and will include the American Red Cross, Salvation Army, and the United 
Way, as well as other experts.
    In addition to funding homeless supportive services, the fiscal 
year 2004 funds services benefiting adults and children from low-income 
families, the elderly, those with physical and mental disabilities, 
victims of predatory lending practices, and families living in housing 
contaminated by lead-based paint hazards.
    Nearly two million households headed by an elderly individual or a 
person with disabilities receive HUD rental assistance that provides 
them with the opportunity to afford a decent place to live and 
oftentimes helps them to live independent lives.
    The Fiscal Year 2004 Budget will provide the same level of funding 
for Housing for the Elderly and Housing for Persons with Disabilities 
as was requested for fiscal year 2003. The effectiveness of the Housing 
for the Elderly Program was evaluated this past year using the Office 
of Management and Budget's new Program Assessment Rating Tool (PART), 
and received low performance scores. The Administration recognizes the 
need to improve delivery of housing assistance to the elderly (Section 
202) and will examine possible policy changes or reforms to strengthen 
performance. Funding for housing for the elderly is awarded 
competitively to nonprofit organizations that construct new facilities. 
The facilities are then provided with rental assistance, enabling them 
to accept very low-income residents. In fiscal year 2004, $773 million 
plus $10 million in recaptures will be provided for elderly facilities. 
Many of the residents live in the facilities for years; over time, 
these individuals are likely to become frailer and less able to live in 
rental facilities without some additional services. Therefore, the 
program is providing $30 million of the grants for construction to 
convert all or part of the existing properties to assisted-living 
facilities. Doing so will allow individual elderly residents to remain 
in their units. In addition, $53 million of the grant funds will be 
targeted to funding the services coordinators who help elderly 
residents obtain needed and supportive service from the community.
    The budget for fiscal year 2004 proposes to separately fund grants 
for Supportive Housing for Persons with Disabilities (Section 811) at 
$251 million. The disabled facilities grant program will also continue 
to set aside funds to enable persons with disabilities to live in 
mainstream environments. Up to 25 percent of the grant funds can be 
used to provide Section 8-type vouchers that offer an alternative to 
congregate housing developments. In fiscal year 2004, $42 million of 
the grant funds will be provided to renew ``mainstream'' Section 8-type 
vouchers so that, where appropriate, individuals can continue to use 
their vouchers to obtain rental housing in the mainstream rental 
market. The Housing for Persons with Disabilities Program also received 
low performance scores when it was evaluated using the PART. The 
Department proposes to reform the program to allow faith-based and 
other nonprofit sponsors more flexibility in using grant funds to 
better respond to local needs. In addition, the reformed program would 
recognize the unique needs of people with disabilities at risk of 
homelessness, and give priority to serving this group as part of the 
Administration's Samaritan Initiative to end chronic homelessness.
    One of the targeted uses of new incremental vouchers under the 
Section 8 program is for nonelderly disabled individuals who are 
currently residing in housing that was designated for the elderly. 
Disabled individuals are provided Section 8 vouchers to continue their 
subsidies elsewhere. If a sufficient number of applications for these 
vouchers are not received, the PHA's may use them for any other 
disabled individuals on the PHAs' waiting lists. In fiscal year 2004, 
the Department will allocate $36 million for the nonelderly disabled to 
fund approximately 5,500 vouchers.
    HUD will also provide $297 million in fiscal year 2004 in new grant 
funds for housing assistance and related supportive services for low-
income persons with HIV/AIDS and their families. This is an increase of 
$5 million over the fiscal year 2003 level and is based on the most 
recent statistics prepared by the Centers for Disease Control and 
Prevention. Although most grants are allocated by formula, based on the 
number of cases and highest incidence of AIDS, a small portion are 
provided through competition for projects of national significance. The 
program will renew all existing grants in fiscal year 2004 and provide 
new grants for an expected three new jurisdictions. Since 1999, the 
number of formula grantees has risen from 97 to an expected 114 in 
fiscal year 2004.
    HUD's Lead-Based Paint Program is the central element of the 
President's program to eradicate childhood lead-based paint poisoning 
in 10 years or less. In fiscal year 2004, funding for the Lead-Based 
Paint Program will increase to $136 million from $126 million provided 
in the President's request for fiscal year 2003. Grant funds are 
targeted to low-income, privately owned homes most likely to expose 
children to lead-based paint hazards. Included in the total funding is 
$10 million in funds for Operation LEAP, which is targeted to 
organizations that demonstrate an exceptional ability to leverage 
private sector funds with Federal dollars, and funding for technical 
studies to reduce the cost of lead hazard control. The program also 
conducts public education and compliance assistance to prevent 
childhood lead poisoning. The President's budget requests an additional 
$25 million for a new, innovative lead hazard reduction demonstration 
program to eliminate lead-based paint hazards in homes of low-income 
children, funded under the HOME program. This new program will provide 
creative ways of identifying and eliminating lead-based paint hazards--
methods that will serve as models for existing lead hazard control 
programs, such as replacing old windows contaminated with high levels 
of lead paint dust with new energy-efficient windows.
    Also included is $10 million for the Healthy Homes Initiative, 
which is targeted funding to prevent other housing-related childhood 
diseases and injuries such as asthma and carbon monoxide poisoning. 
Working with other agencies such as the Centers for Disease Control and 
the Environmental Protection Agency, HUD is bringing comprehensive 
expertise to the table in housing rehabilitation and construction, 
architecture, urban planning, public health, environmental science, and 
engineering to address a variety of childhood problems that are 
associated with housing.
    HUD is requesting $17 million in fiscal year 2004 to meet the 
expanded costs of its Manufactured Housing Standards Program. This is a 
$4 million increase over the current fiscal year. These funds will meet 
the costs of hiring contractors to inspect manufacturing facilities, 
make payments to the States to investigate complaints by purchasers, 
and cover administrative costs, including the Department's staff. Fees 
have been set by regulation to support the operation of this program.

Ensuring Equal Opportunity in Housing
    In this land of opportunity, no one should be denied housing 
because of that individual's race, color, national origin, religion, 
sex, familial status, or disability. The Administration is committed to 
the fight against housing discrimination, and this is reflected in 
HUD's budget request for fiscal year 2004.
    HUD is the primary Federal agency responsible for the 
administration of fair housing laws. The goal of these programs is to 
ensure that all families and individuals have access to a suitable 
living environment free from discrimination. HUD contributes to fair 
housing enforcement and education by directly enforcing the Federal 
fair housing laws and by funding State and local fair housing efforts 
through two programs: The Fair Housing Assistance Program (FHAP) and 
the Fair Housing Initiatives Program (FHIP).
    The Fiscal Year 2004 Budget will provide $29.7 million--an increase 
of $4 million above the fiscal year 2003 level--under FHAP to support 
State and local jurisdictions that administer laws substantially 
equivalent to the Federal Fair Housing Act. The increase will provide: 
(1) An education campaign to address persistently high rates of 
discrimination against Hispanic renters (as identified by the 2000 
Housing Discrimination Study); (2) funding for a Fair Housing Training 
Academy to better train civil rights professionals and housing partners 
in conducting fair housing investigations; and (3) additional funding 
for expected increases in discrimination cases processed by the State 
and local fair housing agencies as a result of increased education and 
outreach activities. The Department supports FHAP agencies by providing 
funds for capacity building, complaint processing, administration, 
special enforcement efforts, training, and the enhancement of data and 
information systems. FHAP grants are awarded annually on a 
noncompetitive basis.
    The Fiscal Year 2004 Budget will provide $20.3 million in grant 
funds for nonprofit FHIP agencies nationwide to directly target 
discrimination through education, outreach, and enforcement. The FHIP 
for fiscal year 2004 is structured to respond to the finding of the 3-
year National Discrimination Study and related studies, which reflect 
the need to expand education and outreach efforts nationally as a 
result of continuing high levels of discrimination.
    Fighting predatory lending is an important activity for FHIP 
agencies, as reports continue to show that the abusive lenders 
frequently target racial minorities, the elderly, and women for 
mortgage loans that have exorbitant fees and onerous 
conditions.
    Educational outreach is a critical component of HUD's ongoing 
efforts to prevent or eliminate discriminatory housing practices. HUD 
will continue its work to make individuals more aware of their rights 
and responsibilities under the Fair Housing Act. A major study titled 
``How Much Do We Know'' emphasized the continuing need for public 
education on fair housing laws; in fiscal year 2004, FHIP organizations 
throughout the country will continue to fund a major education and 
public awareness campaign in support of study findings.
    The colonias have many barriers to fair and affordable housing in 
both rental and homeownership. Many of the residents are recent 
immigrants unaware of their rights under the Fair Housing Act. Funds 
will be targeted to FHIP agencies that provide education and 
enforcement efforts in those areas. FHIP-funded fair housing 
organizations with grants targeted to the colonias will provide 
residents with information on the Fair Housing Act and substantially 
equivalent laws and respond to allegations of discriminatory practices.
    FHIP will continue to emphasize the participation of faith-based 
and community partners. Recognizing the tremendous impact that 
education has on the implementation of fair housing laws, virtually any 
entity (public, private, profit, and nonprofit) that actively works to 
prevent discrimination from occurring is eligible to apply for funds 
under this initiative.
    Faith- and community-based partnerships in FHIP will empower 
citizens by: (1) Encouraging networking of State and local fair housing 
enforcement agencies and organizations; (2) working in unison with 
faith-based organizations; and (3) promoting a fair housing presence in 
places where little or none exists today. HUD will emphasize 
partnerships with grassroots and faith-based organizations that have 
strong ties to those groups identified in the 2000 Housing 
Discrimination Study as being most vulnerable to housing 
discrimination, particularly the growing Hispanic population.
    Promoting the fair housing rights of persons with disabilities is a 
Departmental priority and will remain an important initiative within 
FHIP. Fair Housing Act accessibility design and construction training 
and technical guidance is being implemented through Project Fair 
Housing Accessibility First (formerly called the Project on Training 
and Technical Guidance). The project, which is now in its second year, 
will provide training at 48 separate venues to architects, builders, 
and others on how to design and construct multifamily buildings in 
compliance with the accessibility requirements of the Fair Housing Act. 
During that same period, Project Fair Housing Accessibility First will 
maintain a hotline and a website to provide personal assistance to 
housing professionals on design and construction problems.

Promoting the Participation of Faith-Based and Community Organizations
    HUD's Center for Faith-Based and Community Initiatives (Center) was 
established by Executive Order 13198 on January 29, 2001. Its purpose 
is to coordinate the Department's efforts to eliminate regulatory, 
contracting, and other obstacles to the participation of faith-based 
and other community organizations in social service programs.
    The Center will continue to play a key role in fiscal year 2004 in 
facilitating intra-Departmental and interagency cooperation regarding 
the needs of faith-based and community organizations. It will focus on 
research; law and policy; development of an interagency resource center to service the faith-based and community partners; and expanding outreach, training, and coalition building. Additionally, the Center will participate 
in the furtherance of HUD's overall strategic goals and objectives--particularly as they relate to partnership with faith-based and community 
organizations.
    On December 12, 2002, the President issued Executive Order 13279, 
``Equal Protection of the Laws for Faith-Based and Community 
Organizations.'' Its intent is to ensure that faith-based and community 
organizations are not unjustly discriminated against by regulations and 
bureaucratic practices and policies. The Order directs the Center to: 
(1) Amend any policies that contradict the Order; (2) where appropriate, implement new policies that are necessary to further the fundamental principles and policymaking criteria set forth in the Order; (3) implement 
new policies to ensure that the collection of data regarding the 
participation of faith-based and community organizations in social service programs that receive Federal financial assistance; and (4) report to the President the actions it proposes to undertake to implement the Order.
    In compliance with Executive Orders 13198 and 13279, the Center 
will continue to participate in implementing HUD's strategic goals and 
objectives, as well as the following key responsibilities: Conduct an 
annual Department-wide inventory to identify barriers to participation 
of faith-based and community organizations in the delivery of social 
services; initiate and support efforts to remove said barriers; widen 
the pool of grant applicants to include historically excluded groups; 
identify and reach out to faith- and community-based organizations with 
little or no history of working with HUD; work with HUD program offices 
to strengthen and expand their faith-based and community partnerships; 
and educate HUD personnel and State and local governments on the faith-
based and community initiative.

Embracing High Standards of Ethics, Management, and Accountability
    Improving the performance in HUD's critically needed housing and 
community development programs begins at home in the Department, by 
embracing the high standards of ethics, management, and accountability. 
The President's Management Agenda is focused on how we can better 
manage to fulfill our mission by addressing the Department's 
longstanding major management challenges, high-risk program areas, and 
material management control weaknesses. Accountability begins with 
clarity on the Department's goals, priorities, and expectations for 
performance results. We have integrated the goals of the President's 
Management Agenda with our budget, our annual management operating 
plans, and our management performance evaluation processes, to better 
assure accountability and results.
    A key focus of the President's Management Agenda is to address 
deficiencies in HUD's management of its financial and information 
systems and human capital, which have hindered the Department's ability 
to properly control and mitigate risks in the rental housing assistance 
and single-family mortgage insurance programs. There are no quick fixes 
for these longstanding problems, but we continue to pursue a deliberate 
and methodical improvement process that is clearly demonstrating 
progress in improving HUD's program delivery structure and performance 
results.

Financial Management and Information Systems
    A primary focus of the past 2 years has been on addressing the 
Department's most significant financial management systems deficiencies 
in the FHA, and on stabilizing and enhancing HUD's existing core 
financial management systems operating environment. The FHA Subsidiary 
Ledger Project is proceeding on-schedule as a multiyear, phased effort 
to replace FHA's commercial accounting system with a system that fully 
complies with Federal requirements, including budgetary accounting and 
funds control and credit reform accounting. A major project milestone 
was accomplished with the successful implementation of the new FHA 
general ledger system in October 2002. Enhanced funds control 
capabilities of the new system are scheduled for implementation in 
2004, and FHA will continue to adapt and further integrate its 19 
insurance program feeder systems over the next several years to achieve 
full systems compliance by 2006.
    While FHA awaits the completion of these systems improvements, they 
have been working with the HUD Chief Financial Officer on a Department-
wide effort to improve HUD's funds control. HUD's handbook on policies 
and procedures for the administrative control of funds had not been 
updated since 1984. We updated and strengthened these policies and 
procedures in a new Administrative Control of Funds Handbook issued in 
December 2002.
    With respect to HUD's core financial management system, the HUD 
Central Accounting and Program System (HUDCAPS), we have been focused 
on stabilizing and enhancing systems operations to support the 
accelerated preparation and audit of HUD's consolidated financial 
statements. We eliminated two reportable conditions from the OIG's 
fiscal year 2000 financial statement audit related to: (1) The 
reliability and security of HUD's critical financial systems, and (2) 
controls over fund balance with Treasury reconciliations. We prepared 
mid-year financial statements in fiscal year 2002 and have begun the 
preparation of quarterly statements in fiscal year 2003. Our year-end 
audit and reporting process was accelerated by 1 month for fiscal year 
2002, and we have plans for further acceleration the next 2 years to 
meet the OMB mandate for issuance of our fiscal year 2004 audited 
financial statements by November 15, 2004.
    HUD has received unqualified audit opinions on the Department's 
consolidated financial statements for the last 3 consecutive years--a 
strong indicator of financial management stability and accountability. 
However, the audit of our fiscal year 2002 financial statements was not 
trouble free. It contained 3 material weakness and 10 reportable 
conditions. Addressing these remaining internal control deficiencies is 
a high priority for the Department.
    While HUD's core financial management system, HUDCAPS, is 
substantially compliant with Federal financial management systems 
requirements, it is inefficient and expensive to maintain. We initiated 
the HUD Integrated Financial Management Improvement Project (HIFMIP) to 
study options for the next generation core financial management system 
to replace HUDCAPS. Previous HUD systems integration improvement 
efforts failed to fully meet their intended objectives due to 
inadequate planning and commitment. HUD is taking the time to properly 
plan this project. A HIFMIP Executive Advisory Committee was convened 
in January 2003--with representation from the Principal Staff of HUD's 
major organizational components, including FHA and GNMA, and an 
advisory role has been provided for the HUD OIG. A new Assistant CFO 
for Systems was hired in October 2002, and Project Manager was hired 
for HIFMIP in February 2003. The HIFMIP Vision is scheduled for 
completion by January 2004, and feasibility studies with a systems 
recommendation by July 2004.
    HUD's overall fiscal year 2004 information technology (IT) 
portfolio will benefit from our continuing efforts to improve the IT 
capital planning process, convert to performance-based IT service 
contracts, strengthen IT project management to better assure results, 
extend the data quality improvement program, and improve systems 
security on all platforms and all applications. HUD is also continuing 
to pursue increased electronic commerce and is actively participating in 
the President's ``e-Government'' projects to better serve all of our 
citizens and realize cost-efficiencies through standardized systems 
solutions in common areas of information and processing need.

Human Capital Management
    HUD's staff, or ``human capital,'' is its most important asset in 
the delivery and oversight of the Department's mission. Effective human 
capital management is the purview of all HUD managers and program 
areas, and improvements have been geared toward meeting HUD's primary 
human capital management challenges. HUD has taken significant steps to 
enhance and to better utilize its existing staff capacity, and to 
obtain, develop, and maintain the staff capacity necessary to 
adequately support HUD's future program delivery. Building upon the 
REAP and TEAM management tools, a new staff resource estimation and 
allocation system implemented in 2002, HUD will complete a 
Comprehensive Workforce Analysis in 2004 to serve as the main component 
to fill mission critical skill gaps through succession planning, 
hiring, and training initiatives in a Five-Year Human Capital 
Management Strategy.
    HUD is working to determine where application of competitive 
sourcing to staff functions identified as commercial would result in 
better performance and value for the Government. We have worked with 
OMB to ensure the appropriate amount and mix of competitive sourcing 
opportunities, taking into account the workforce we have inherited, 
including the significant downsizing and extensive outsourcing of 
administrative and program functions over the past decade. HUD's 
Competitive Sourcing Plan identifies some initial opportunities for 
consideration of possible outsourcing, in-sourcing, or direct 
conversion studies to realize the President's goals for cost efficiency 
savings and improved service delivery. HUD will continue to assess its 
activities for other areas where competitive sourcing studies might 
benefit the Department.

Strengthening Controls Over Rental Housing Assistance
    HUD's considerable efforts to improve the physical conditions at 
HUD-supported public and assisted housing projects are meeting with 
success. HUD and its housing partners have already achieved the 
original housing quality improvement goals through fiscal year 2005 and 
are raising the bar with new goals. However, HUD overpays hundreds of 
millions of dollars in rental housing subsidies due to the incomplete 
reporting of tenant income and the improper calculation of tenant rent 
contributions. Under the President's Management Agenda, HUD's goal is 
to reduce rental assistance program errors and resulting erroneous 
payments 50 percent by 2005. HUD has established aggressive interim 
goals for a 15 percent reduction in 2003 and a 30 percent reduction in 
2004.
    To achieve our erroneous assistance payments reduction goal, we 
have taken steps to reestablish an adequate HUD monitoring capacity in 
the field to oversee intermediary performance. Field staff is 
conducting intense, on-site monitoring reviews to detect and correct 
income verification and subsidy calculation errors. We are also working 
to provide intermediaries with improved program guidance and automated 
tools to more efficiently and effectively administer the rental 
assistance programs. Program simplification proposals are also under 
consideration, along with a pending legislative proposal for increased 
authority to perform more effective computer matching with tenant 
income data sources to enable intermediaries to perform upfront 
verifications of income used in rent and subsidy calculations. Updated 
error measurement studies will be performed on program activity in 2003 
through 2005 to assess the effectiveness of our efforts to reduce 
program and payment errors.

Improving FHA's Single-Family Housing Programs Risk Management
    FHA manages its Single-Family Housing Mortgage Insurance Program 
area in a manner that balances program risks with the furtherance of 
program goals, while maintaining the financial soundness of the 
Mortgage Mutual Insurance (MMI) Fund that supports these programs. The 
MMI Fund is financially sound and the single-family housing programs 
are contributing to record homeownership rates, with a focus on 
homebuyers that are underserved by the conventional market. 
Nevertheless, overall program performance and the condition of the MMI 
Fund could be further improved if all lenders, appraisers, property 
managers, and other participants in FHA's program delivery structure 
fully adhered to FHA program requirements designed to reduce program 
risks and further program goals.
    In the past 2 years, FHA has initiated or completed numerous 
actions to improve the content, oversight, and enforcement of its 
program requirements, including consideration of alternative business 
processes. FHA developed 16 rules to address deceptive or fraudulent 
practices. This includes the new Appraiser Watch Program, improvements 
to the Credit Watch Program that will identify problem loans and 
lenders earlier on, new standards for home inspectors, a final rule to 
prohibit property ``flipping'' in FHA programs, and rules to prevent 
future swindles like the 203(k) scam that threatened the availability 
of affordable housing in New York City. These reforms, and the greater 
transparency they ensure, will make it more difficult for unscrupulous 
lenders to abuse borrowers. The HUD budget ensures that consumer 
education and enhanced financial literacy remain potent weapons in 
combating predatory lending.
    In addition, FHA continues to enhance its staff capacity for 
administering this program area, and continues to achieve favorable 
property disposition results through its performance-based management 
and marketing (M&M) contracts. M&M contracts have resulted in a steady 
decline in FHA's property inventory, from 36,000 homes at the end of 
fiscal year 2000 to 30,113 at the end of fiscal year 2002. The loss per 
claim on insured mortgage defaults has been cut from 37 percent to 29.5 
percent.

Conclusion
    As we implement our proposed Fiscal Year 2004 Budget, we will also 
judge our success by the lives and communities we have helped to change 
through HUD's mission of compassionate service to others: The young 
families who have taken out their first mortgage and become homeowners, 
the homeless individuals who are no longer homeless, the neighborhoods 
that have found new hope, the faith-based and community organizations 
that are today using HUD grants to deliver social services, and the 
neighborhoods once facing a shortage of affordable housing that now 
have enough homes for all.
    Empowered by the resources provided for and supported by HUD's 
proposed 
Fiscal Year 2004 Budget, our communities and the entire Nation will 
grow even stronger. And more citizens will come to know the American 
Dream for themselves.
    I would like to thank each of you for your support of my efforts, 
and I welcome your guidance as we continue our work together.
    Thank you.
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