[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                  STRENGTHENING AMERICA'S COMMUNITIES:
                  A REVIEW OF THE PRESIDENT'S FY 2006
                           BUDGET INITIATIVE

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







                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 6, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-13












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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North          HAROLD E. FORD, Jr., Tennessee
    Carolina                         RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
VITO FOSSELLA, New York              STEVE ISRAEL, New York
GARY G. MILLER, California           CAROLYN McCARTHY, New York
PATRICK J. TIBERI, Ohio              JOE BACA, California
MARK R. KENNEDY, Minnesota           JIM MATHESON, Utah
TOM FEENEY, Florida                  STEPHEN F. LYNCH, Massachusetts
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida           ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   AL GREEN, Texas
KATHERINE HARRIS, Florida            EMANUEL CLEAVER, Missouri
RICK RENZI, Arizona                  MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin,
RANDY NEUGEBAUER, Texas               
TOM PRICE, Georgia                   BERNARD SANDERS, Vermont
MICHAEL G. FITZPATRICK, 
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina

                 Robert U. Foster, III, Staff Director





















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 6, 2005................................................     1
Appendix:
    April 6, 2005................................................    45

                               WITNESSES
                        Wednesday, April 6, 2005

Gutierrez, Hon. Carlos M., Secretary, United States Department of 
  Commerce.......................................................     7
Jackson, Hon. Alphonso, Secretary, United States Department of 
  Housing and Urban Development..................................     8

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    46
    Cleaver, Hon. Emanuel........................................    48
    Gillmor, Hon. Paul E.........................................    50
    Hinojosa, Hon. Ruben (with attachments)......................    51
    Matheson, Hon. Jim...........................................    60
    Gutierrez, Hon. Carlos M.....................................    62
    Jackson, Hon. Alphonso.......................................    70
    Johnson, Clay III............................................    73

              Additional Material Submitted for the Record

 Frank, Hon. Barney:.............................................
    National Association of Housing and Redevelopment Officials, 
      prepared statement.........................................    76
    National Association of Federal Credit Unions, prepared 
      statement..................................................    79
    Community Development Financial Institutions Coalition, 
      prepared statement.........................................    80
Gutierrez, Hon. Carlos M.:
    Written response to questions from Hon. Steve Pearce.........    84
Jackson, Hon. Alphonso:
    Written response to questions from Hon. Steve Pearce.........    88
Johnson, Clay III:
    Written response to questions from Hon. Steve Pearce.........    89
U.S. Conference of mayors, National Association of Counties, 
  National League of Cities, National Association of Local 
  Housing Finance Agencies, National Association for County 
  Community and Economic Development, National Community 
  Development Association, National Association of Housing and 
  Redevelopment Officials, Council of State Community Development 
  Agencies, prepared statement...................................    90




















                  STRENGTHENING AMERICA'S COMMUNITIES:

                  A REVIEW OF THE PRESIDENT'S FY 2006

                           BUDGET INITIATIVE

                              ----------                              


                        Wednesday, April 6, 2005

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 1:12 p.m., in Room 
2128, Rayburn House Office Building, Hon. Michael Oxley 
[chairman of the committee] presiding.
    Present: Representatives Oxley, Baker, Pryce, Bachus, 
Castle, Ney, Kelly, Shays, Miller of California, Tiberi, 
Kennedy, Hensarling, Garrett, Harris, Pearce, Fitzpatrick, 
Davis of Kentucky, Frank, Kanjorski, Sanders, Velazquez, Watt, 
Meeks, Lee, Moore of Kansas, Capuano, Crowley, Clay, McCarthy, 
Baca, Matheson, Scott, Davis of Alabama, Green, Cleaver, 
Wasserman Schultz, and Moore of Wisconsin.
    Chairman Oxley. The committee will come to order.
    Pursuant to rule 3(f)(2) of the rules of the Committee on 
Financial Services for the 109th Congress, the Chair announces 
that he will limit recognition for opening statements to the 
Chair, Ranking Member of the full committee, and the Chair and 
Ranking Minority Member of the Subcommittee on Housing and 
Community Opportunity or their respective designees, to a 
period not to exceed 16 minutes, evenly divided between the 
majority and minority. Prepared statements of all members will 
be included in the record.
    The Chair recognizes himself for the purpose of giving an 
opening statement.
    Today, the Financial Services Committee welcomes the 
Secretary of the Department of Commerce, Carlos M. Gutierrez 
and the Secretary of Housing and Urban Development Alphonso 
Jackson, to discuss the President's initiative to overhaul the 
way the federal government funds and administers community and 
economic development.
    The Strengthening America's Communities proposed in the 
President's fiscal year 2006 budget proposal is a new $3.7 
billion program which seeks to reorganize and consolidate this 
nation's community and economic development initiatives into a 
new program under the direction of the Department of Commerce.
    In addition to consolidating these programs under the 
Department of Commerce, the President's proposal establishes 
strong accountability standards and a more flexible use of 
funds so that the communities most in need will be assisted.
    Currently, there are more than 35 federal programs in seven 
agencies that provide some $16 billion in grants, loans, and 
tax incentives to encourage community development and economic 
revitalization. The administration maintains that some of these 
35 programs duplicate and overlap one another, have few 
accountability standards, and have inconsistent criteria for 
eligibility.
    By streamlining the process and consolidating these 
programs, the administration believes that federal funds marked 
for community development efforts can be more accurately 
targeted and used.
    I applaud the administration's stated goal of creating a 
more targeted and unified program with stronger accountability 
standards and more flexibility. In addition, I support 
targeting funding to high-poverty areas in an effort to make a 
concrete difference in distressed areas.
    Yet, there are still many unanswered questions regarding 
the President's new initiative. We have scheduled this hearing 
today in an effort to learn more of the specifics regarding the 
President's new proposal and in hopes of gaining a clearer 
picture of just how this new proposal will continue the goals 
of community development for our distressed communities.
    On March 2, this committee held a hearing on the 
President's fiscal year 2006 budget proposal. As Secretary 
Jackson will remember, much of the discussion at that hearing 
centered on the President's new Strengthening America's 
Communities Initiative. Questions were raised on how this new 
program would be structured, whether the Department of Commerce 
has the infrastructure and tools necessary to adequately assess 
the community development and housing affordability needs in 
communities across the country, and how the 35 programs will 
collapse into grant programs that will continue to meet the 
community development needs across the country.
    I know that many here today are anxious to learn more about 
the President's bold new initiative. Many of us on this 
committee and in this Congress are hearing daily from 
constituents back home that have first-hand knowledge of how 
important programs such as the CDBG program are to their 
communities. They are asking questions and raising concerns 
about this new program initiative and whether it can continue 
to meet the critical economic and developmental needs of our 
communities.
    We trust that you will address many of those questions here 
today and that we will be able to work together in the months 
ahead to address your concerns for federal initiatives that not 
only meet strong accountability standards and allow for greater 
flexibility, but also continue to promote homeownership, 
community development and economic opportunity in our 
communities across the country.
    I now recognize the Ranking Member, the gentleman from 
Massachusetts, Mr. Frank.
    Mr. Frank. Thank you, Mr. Chairman. You and I often are in 
agreement on some of the ways we approach things, but I do want 
to disagree at the outset with your expressed wish that we 
would learn more about this.
    I think I speak for a very large number of people in the 
Congress and the country in saying the less we hear about this 
in the future, the better. I do not think when this sinks 
finally beneath the sea that it will be greatly mourned. In 
fact, it is hard to take it seriously.
    We have been told that we should do a major rewrite of a 
number of very important social programs. It is now April and 
we have seen no specifics, not even general concepts. There is 
no legislation. Presumably, this is to take effect by October 1 
of the next fiscal year. I do not know when we are going to see 
anything. I have to say that this approach, this program is at 
such a level of generality that it makes the President's Social 
Security approach look like a detailed, micro-managed piece of 
specifics.
    I think what happened is this: The President has, with the 
support of the majority, reduced taxes very substantially while 
we were fighting a couple of wars and ramping up homeland 
security. He then announced that he wanted to reduce the 
deficit, to cut it in half. I do not think that there is any 
realistic chance of that happening while he maintains his tax 
cuts, but he had to make good on his promise. So he has sent to 
the Congress in his budget a number of proposals for 
substantial reductions in programs that no one, with the 
possible exception of himself, takes seriously, and I do not 
think he does either. Nobody thinks these things are really 
going to happen. I regret the fact that they are so 
distracting.
    I should express my gratitude to the administration. Let me 
say, I hope no one here will begrudge the time we have spent on 
this hearing because in fact, thanks to this proposal, this 
committee saved some time. We had a meeting that we would have 
had to do and we did not do it because of this proposal. In 
past years, we have voted as a committee on our recommendations 
to the Budget Committee on the President's budget. This year, 
we did not have such a meeting. I believe we did not because a 
number of people on that side did not want to have to vote on 
this thing and vote against it, and they did not want to have 
to vote for it. So we did not have the meeting. So we are 
grateful to you for saving us the time.
    With regard to this program, I have rarely encountered as 
wide a reaction from a considerable range of people in 
opposition to this. Of course, it is not just CDBG that is 
involved here. There are other programs, not all of which are 
in our jurisdiction, but the Community Development Financial 
Institution program is in our jurisdiction. That has been very 
important for banks seeking to meet their CRA requirements. It 
has almost universally been opposed.
    In particular, what is troubling to me, let me close with 
this. We have in this country a severe housing crisis in many 
areas. We have a problem with housing being too expensive. The 
CDBG program as it is currently structured is available to be 
used in housing. Taking it down financially and consolidating 
it and putting it in Commerce appears to mean that it goes out 
of the housing business. The last thing we need is one more 
detraction from our ability to deal with housing.
    I said that was a final point. There is one other one. That 
is a philosophical one. Part of the argument is that you will 
not miss the money that we are cutting out of this program or 
this set of programs, and there will be substantial reductions 
because they have been consolidated. We do not know which 
program gets hit the worst yet, but there are substantial 
reductions. We are not talking about limiting growth. We are 
talking about actual reductions.
    But we are told we will spend it only in the poorest areas 
and that will make up for it. The problem with that is that I 
had hoped we would have as a goal allowing poor people to live 
other than in the poorest areas. De-concentration of the poor, 
which also means breaking up racial concentrations, ought to be 
an important piece of public policy.
    One of the things that happens, for instance, in a 
community where I live, the city of Newton, Massachusetts, 
which is not overall a poor community, but has low-income 
people. They use their CDBG funds to help build housing that is 
affordable in a community that is somewhat wealthier. By your 
standards, that would disappear. Our ability to give poor 
people a chance to move out of the poorest area would 
disappear.
    So this argument that it is a virtue to spend money on low-
income people only in the poorest areas is a very insidious 
one. I do not think it was intended that way, but that is the 
effect, because it undercuts completely our efforts to 
integrate racially and to de-concentrate economically. So what 
you see as a virtue I see as a problem.
    We often push--and HUD has talked about this--about trying 
to get communities to accept low-income housing, not to have it 
focused. Well, when you take away the money that they use to do 
that, you make a mockery of the argument that they ought to 
locate that housing. Many communities use CDBG for that 
purpose. If HUD wanted to increase the pressure on them to do 
that, I would be more supportive, but in its current form this 
proposal makes very little sense.
    I would in closing say this is clearly something far too 
substantive for the Appropriations Committee to be dealing with 
in the sense that it is legislative. I hope we will be assured 
that nothing is going to happen here unless this committee gets 
a chance to have a markup and a vote. I find it hard to believe 
it would survive.
    Chairman Oxley. The gentleman's time has expired.
    The gentleman from Ohio, Chairman of the Housing 
Subcommittee.
    Mr. Ney. Thank you. There are several gentlemen from Ohio 
on the committee, so that is why I kind of hesitated, Mr. 
Chairman.
    Thank you, Mr. Chairman.
    Mr. Shays notes there is only one gentleman from Ohio, 
though he did not say who.
    [Laughter.]
    Thank you, Mr. Chairman, for holding this important 
hearing. I would like to again thank today's witnesses. We 
worked with both agencies and also both individuals, although 
Mr. Gutierrez is relatively new. Already his department has 
helped us with the steelworkers and many tens of thousands of 
steelworkers and their families appreciate what has been done 
in the past and also what is being currently done through your 
department in working with Mr. Palmer and others. Thank you.
    Of course, Secretary Jackson, we worked countless times. We 
have also been fortunate to have you in our state several times 
doing some good things.
    The budget the Chairman has talked about CDBG, and the 
Ranking Member, I think that, of course, from my point of view 
raises some interesting and some serious questions about what 
role community development should play in helping our 
communities. Of course, there would be the consolidation.
    The question I raised before, actually, and noted with 
Secretary Jackson when he was here, and will also do with you, 
Secretary Gutierrez, is I applaud the administration's goal of 
creating a stronger, more unified community and also keeping 
that focus on the areas that have higher poverty rates, 
obviously. We want to make the areas that have not done as well 
come up to better conditions. But within that context, I have 
had serious concerns because I am afraid if you take a program 
and you move it, a program that has had certain flexibilities, 
and this is the question I just pose out there to contemplate. 
This is why I have opposed moving it, publicly. But if you move 
it over into Commerce, would it then take on a life of its own 
in the sense of it would adhere to certain rules within the 
Department of Commerce? The structure would change. Now, I 
would caution, if you say, well, the structure will not change, 
then I would say then why move it?
    So those are kind of the two things that I would just pose 
out there about this issue because it is important. Again, when 
it comes to HUD, I know it has its challenges to ensure an 
effective community development program and to implement some 
of the accountability measures. But a lot of the tools that are 
used within this program as it is currently set up are so 
critical to communities across this nation. I would tell you, 
we have had a huge outpouring of opinions on this issue.
    So welcome, both of you. I look forward to working with 
both of your departments. Again, I thank both of you, off this 
issue for a second, the CDBG, for a lot of the good work you 
have done with not only our state, but across the nation.
    Thank you, Mr. Chairman. I yield back my time.
    Chairman Oxley. The gentleman yields back.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman and Ranking Member 
Frank, for convening this hearing today on the President's 
Strengthening America's Communities proposal.
    Given the negative impact the proposal will have on my 
constituents, I look forward to hearing the testimony today 
from Secretary Jackson.
    Mr. Chairman, you may recall that the appearance of 
Secretary Jackson before this committee on Wednesday, March 2, 
2005 resulted in more questions being raised than answers about 
the President's proposal. On multiple occasions, Secretary 
Jackson testified that the Department of Housing and Urban 
Development had no specific information related to the 
President's proposal or what was to become of the 18 programs 
that would be consolidated and/or cut. I do not blame the 
Secretary for that lack of information because I do not think 
the administration has provided it nor did they think through 
that entire proposal.
    The absence of detail is also troubling, given the short 
timetable that would be necessary to implement the President's 
proposal. However, the basic foundation of the proposal is so 
flawed that additional details are unlikely to make any 
difference. At its core, I am particularly concerned about cuts 
in funding the Community Development Block Grant, CDBG, program 
and transfer of the program from HUD to the Department of 
Commerce for consolidation of 17 other programs. The President 
would fund this new program at a level that is 35 percent lower 
than the combined fiscal year 2005 appropriated levels for all 
18 programs. The pro-rata reduction for CDBG alone is $1.42 
billion. This troubles me because as former mayor of Kansas 
City, Missouri I have first-hand experience with the CDBG 
program and the Section 108 loan program. Despite what some 
people may say here in the beltway, I can tell you that these 
programs are effective and they have achieved quantifiable 
positive results.
    In addition, given the flexible nature of the CDBG program, 
these cuts will severely limit the ability of states and 
localities to address local housing and community development 
needs that are unique to that particular region. In Kansas 
City, Missouri alone, CDBG funded 80 programs including legal 
aid, crime prevention, homelessness assistance, small business 
development, sewer system improvement, senior citizen centers, 
neighborhood preservation and family service centers.
    Unless Secretary Jackson says today that this is not so, I 
am convinced that transferring CDBG from HUD to Commerce, 
housing initiatives will be more than likely ineligible to 
receive funds. As a result, mayors and local officials will 
lose an invaluable resource for creating affordable housing. 
For example, during my tenure as Mayor, my administration 
identified 60,000 single-family homes in need of rehabilitation 
or repair. The CDBG program directly contributed to the 
rehabilitation and construction of 12,000 single-family homes. 
However, the President's proposal will in essence prevent the 
construction or rehabilitation of the remaining 48,000 homes 
and crush the dreams of 48,000 Missouri families.
    Mr. Chairman, Ranking Member Frank, I lived in a house with 
no running water, no electricity, no indoor plumbing until I 
was 8 years old, and then my family moved into public housing, 
not far, Mr. Secretary, from where you left to come here to 
this great place called Washington, D.C. But my father, and I 
looked him in the eyes when he was able to buy a house and move 
it, because he bought it in a white neighborhood and had to 
move it into a black neighborhood, but I saw the pride in his 
eyes when he walked through the front door of our first home. 
My father then began winning the yard of the summer, because he 
was so proud of his home.
    I am telling you, if this CDBG program is cut, there are 
dreams that will fall to the ground and in many instances never 
rise again. As the former President of the National Conference 
of Black mayors, I have met with the National Conference of 
Black mayors leadership. I have met with the U.S. Conference of 
mayors. I held a regional meeting in Kansas City from Iowa, 
Kansas, Nebraska and Missouri. mayors came there from all over 
the region, small cities, large cities, urban and suburban, 
Republican and Democrat. Not one, not one Mayor is in support 
of these changes. I would dare say if any Mayor in the country 
campaigned that he or she was in favor of removing the 
Community Development Block Grant program from HUD to Commerce, 
he or she would be an ex-mayor. This program is critically 
important. We need it to continue.
    Mr. Chairman, on its face, the President's proposal seems 
to have been conceived without any consultation with 
municipalities, the principal beneficiaries. Thus, I would like 
to invite Secretary Jackson to come to my district and take a 
tour of Kansas City, Missouri and the metropolitan area. Since 
the CDBG program and the 108 loan program have been 
instrumental in revitalizing Kansas City, Missouri, I will show 
you, Mr. Secretary, building after building, business after 
business, home after home and job after job that would not have 
been realized without this vital program.
    The CDBG program has a proven record of success all over 
this country, like no other federal program. Its list of 
achievements includes creating affordable homes, revitalizing 
impoverished communities and creating jobs. I sincerely hope 
that Mr. Jackson will counsel the President to drop the 
Strengthening America's Communities proposal because it should 
be killed in its infancy.
    Thank you.
    Chairman Oxley. The gentleman's time has expired.
    The committee now turns to our distinguished witnesses. 
Secretary Jackson, it is good to have you back before the 
committee. Secretary Gutierrez, welcome to Washington and 
certainly welcome to the Financial Services Committee. We are 
pleased to have both of you.
    Secretary Gutierrez, are you beginning? However you want to 
proceed, Secretary Gutierrez.

    STATEMENT OF HON. CARLOS M. GUTIERREZ, SECRETARY, U.S. 
                     DEPARTMENT OF COMMERCE

    Secretary Gutierrez. Thank you, Chairman Oxley and 
Congressman Frank, members of the committee. I appreciate this 
opportunity to discuss the President's Strengthening America's 
Communities Initiative. I am pleased to be here with my 
distinguished colleagues, and of course Secretary Jackson and 
Deputy Director Johnson.
    We are enjoying tremendous economic prosperity throughout 
the country. We have a responsibility to ensure that it reaches 
all corners of the country. The economy is strong and we want 
to make sure that it is strong for everyone. There are 
transitioning areas experiencing high levels of unemployment 
and poverty. President Bush is committed to improving the 
service to distressed communities that are working to create 
the conditions for economic growth and job creation.
    The President's Strengthening America's Communities 
Initiatives consolidates 18 community and economic development 
direct grant programs. The goal these programs share, and that 
I know we all share, is to increase economic opportunity in 
needy areas and raise the quality of life for the people living 
there. We believe that consolidating these 18 programs will 
eliminate duplication, will ease access to the federal system, 
will target assistance, will better account for taxpayers's 
dollars, and most importantly will achieve greater results.
    The basic concept is not new, Mr. Chairman. The Initiative 
for a Competitive Inner City, the Progressive Policy Institute 
and the U.S. Council on Competitiveness, among others, have 
called for some consolidation of these grant programs to 
improve service and efficiency.
    I recognize that much of the debate on the President's 
proposal is focused on the level of funding in the fiscal year 
2006 budget. Let me just note here that in fiscal year 2005, 
the federal government will spend a total of $16.2 billion on 
the overall suite of community and economic development 
programs. For fiscal year 2006, the President's proposed budget 
calls for $15.5 billion in overall spending for community and 
economic development programs. This represents a 4 percent 
decrease and not the major reduction that some have claimed.
    Under the President's proposal, funds would flow directly 
to communities and states in a formula grant form. This gives 
them important local control. What we ask in exchange for this 
broad flexibility is an agreement on performance measures so we 
can quantify the benefits at both the community and program 
level over the long term. Under the President's plan, 
assistance is targeted to the most distressed communities. We 
anticipate the vast majority of Community Development Block 
Grant entitlement communities will qualify for the new program. 
Some areas, especially rural regions, will actually see more 
resources than under the current system.
    Today, distressed American communities face a federal maze 
of paperwork, programs and departments. We should and we can do 
better on their behalf. The President's proposed restructuring 
of the development direct grant programs is designed to do just 
that: help our neediest communities strengthen their economies 
and create new American jobs.
    Mr. Chairman, I look forward to working with the members of 
this committee, the Congress and my colleagues on this 
important initiative. With your permission, I will submit my 
written testimony and I would be pleased to answer any 
questions. I will turn it over to my colleague, Secretary 
Jackson.
    Thank you, sir.
    [The prepared statement of Hon. Carlos M. Gutierrez can be 
found on page 62 in the appendix.]
    Chairman Oxley. Thank you, Mr. Secretary. Your full 
statement will be made part of the record, as will Secretary 
Jackson's.
    Secretary Jackson?

 STATEMENT OF ALPHONSO JACKSON, SECRETARY, U.S. DEPARTMENT OF 
                 HOUSING AND URBAN DEVELOPMENT

    Secretary Jackson. Chairman Oxley, Ranking Member Frank and 
members of the committee, I want to thank you for the 
opportunity to appear here today, as the committee begins its 
deliberation on the Strengthening American Communities 
Initiative, which the administration has proposed within the 
fiscal year 2006 budget.
    I, too, am pleased to be here with my colleague, Secretary 
Gutierrez.
    Let me briefly outline for the committee the motivation 
guiding the administration proposal and how the initiative will 
make the federal government a better partner in meeting the 
nation's community and economic development needs.
    Today, potential grantees seeking funds for community and 
economic development projects must navigate a maze of 35 
federal programs spread across seven different departments. 
Each program operates under a separate set of standards, and 
each has its own reporting requirements. These programs at 
times duplicate and overlap one another. They can be 
inconsistent in how they determine eligibility.
    The goal of the Strengthening America's Communities 
Initiative is to consolidate 18 community and economic 
development programs into a single program. The new program 
will be administered by the Department of Commerce. It will 
build on the experience of HUD, Treasury and the other 
departments with related programs. I support the concept of 
consolidation as a catalyst for delivering more funding to 
communities in need.
    The CDBG program is the federal government's largest single 
grant program to assist local governments in undertaking a wide 
range of community development activities. In the course of its 
30-year history, CDBG has provided a ready source of flexible 
funds for housing rehabilitation programs, public services, 
public facilities and infrastructure, and economic development 
activities benefiting millions of low-and moderate-income 
persons.
    While the formula has changed from time to time since 1974, 
the core variables have not been changed since 1978. In 
February 2005, HUD issued a report that offers four alternative 
formulas that would substantially improve targeting to 
community development need. This study will provide Congress 
and the Department of Commerce with formula options as it 
fashions the legislation for the new Strengthening America's 
Communities Initiative. However, I would hope that this new 
initiative embrace the flexible use of funds that grantees 
under the current CDBG program have come to depend upon.
    In addition to CDBG, the administration's proposal would 
consolidate and replace smaller HUD programs, including 
Brownfields development grants, grants to Round II Empowerment 
Zones, Rural and Economic Development grants, and the Section 
108 guarantee program. The Section 108 program has been used by 
a number of CDBG recipient communities to leverage their number 
of block grant dollars. Working with Secretary Gutierrez, I 
will seek ways to ensure that jurisdictions with previously 
awarded Section 108 loan guarantees to cities are not adversely 
affected by the transfer to Commerce.
    I will work with Secretary Gutierrez, my colleagues within 
the administration, and the other agencies affected by the 
consolidation as the Department of Commerce develops 
legislation that will be implemented with the Strengthening 
America's Communities Initiative.
    I would like to thank all the committee for your support 
and I will submit my full testimony to the committee.
    [The prepared statement of Hon. Alphonso Jackson can be 
found on page 70 in the appendix.]
    Chairman Oxley. Thank you, Mr. Secretary, to both of you. 
We appreciate your coming before the committee.
    Let me begin with what would be an obvious question to 
Secretary Gutierrez. That is, why would the Commerce Department 
better be able to administer the CDBG program? What particular 
expertise or other areas of influence would Commerce have vis-
a-vis HUD?
    Secretary Gutierrez. Thank you, Mr. Chairman.
    The mission of the Commerce Department is focused on 
community and economic development. We have experience in 
working with local communities in developing performance 
measures that are tied to results. Very importantly, we have a 
network to the private sector which would enable us to attract 
private investment to local communities. So in putting a 
growth, job creation, economic development, community 
development focus on these grants, that would fit very well 
into the mission of Commerce. It would fit very well in what we 
do today, what we have experience doing, and we believe we can 
fulfill that mission with this community development program, 
sir.
    Chairman Oxley. How, specifically, would that work? That 
is, Commerce and their ability to attract private investment? 
We are not talking about trusts or anything like a charitable 
kind of thing. We are talking about private investment, right?
    Secretary Gutierrez. Yes, sir.
    Chairman Oxley. Just kind of take us through an example of 
how would that work. Would you play a mediating role or a 
consulting role? How does the department fit into this whole 
equation?
    Secretary Gutierrez. Our role, Mr. Chairman, would be in 
working with local officials and communities in developing the 
strategic plan, ensuring that there are adequate performance 
measures in place, and then very importantly giving all the 
support to the local communities to have them invest the funds 
as they see fit in a manner that would best achieve those 
objectives.
    Chairman Oxley. It seems to me HUD could do precisely the 
same kind of arrangement?
    Secretary Gutierrez. Well, it is something that we already 
do today in our EDA grants. We have seen that many of those 
grants have performed and the objectives have been set. We have 
a little ratio that we use of $32 leveraged for every dollar 
that we invest. Part of that leverage is private sector 
investment that we were able to attract to local communities. 
Ultimately, we believe that these programs will work if we can 
point to job creation; if we can point to economic growth; if 
we can point to a tangible improvement in that community's 
performance. We have experience in doing that today. We 
essentially do that today with our EDA grants. That is what we 
would like to do with the broader community development grants.
    Chairman Oxley. Secretary Jackson, Assistant Secretary 
David Sampson has said, ``the highest level of poverty'' would 
be the standard used in the new formula under Commerce's 
proposal for distributing money. Mr. Secretary, is the highest 
level of poverty the basis of the current formula for CDBG at 
HUD?
    Secretary Jackson. No, it is not. There are a number of 
areas that we look at. We look at the community, how the 
community has developed over the time. Poverty is one of the 
variables. But in looking at that, we look at communities 
within the community, not necessarily the city as a whole. So 
you can have a city, the best example I can give you is 
Detroit. You can have a city like Detroit where we spend about 
$50 per capita for each one. But if you look at Oakland, we 
spend about $6 per capita because even with Oakland, a very 
prosperous community, you still have pockets of poverty. You 
still have pockets of areas that are pretty depressed.
    So the block grant has a clear discrepancy as to how the 
money is spent. So it is not just spent because you have a very 
prosperous community. We look at if there are pockets of 
poverty as one of the subjects that we look at, not totally as 
the subject.
    Chairman Oxley. So there would be a change, then, in that 
standard as proposed by the administration. Is that correct, or 
am I missing something?
    Secretary Jackson. If poverty is the only basis or the 
highest basis, yes. Poverty is one of the bases that we look 
at. We look at how the city has matured, the housing stock of 
the city, the infrastructure of the city, when you take it into 
consideration. If you look at a city like Baltimore, when we 
were doing housing development with Community Development Block 
Grant funds, one of the important things were in rehabilitating 
a specific community, we had to look at the infrastructure. The 
infrastructure was totally outdated. So before we could go in 
and make any changes within that community, we had to address 
the infrastructure. So the infrastructure was just as important 
as poverty, as not having a very viable community at that 
point.
    Chairman Oxley. Thank you. My time has expired.
    The gentleman from Vermont, Mr. Sanders?
    Mr. Sanders. Thank you, Mr. Chairman.
    We welcome both Secretary Gutierrez and Secretary Jackson 
with us. Thank you.
    Let me begin by expressing my strong agreement with 
Representative Cleaver. I was a Mayor for 8 years of 
Burlington, Vermont. The CDBG program worked extraordinarily 
well. I have to tell you that I regard it as an outrage that in 
the midst of a housing crisis that exists in many parts of this 
country that CDBG funding will not be able to be used for 
affordable housing.
    Also, for an administration that tells us that they believe 
in bringing people together, how can you develop policy in 
which virtually every mayor in America is in opposition, League 
of Cities and Towns are in opposition? You are supposed to be 
listening to the cities and towns of America, not using the 
arrogance of power to tell them what is good for them. They are 
in disagreement. I would urge very strongly that you listen to 
what they have to say.
    Mr. Chairman, I found Secretary Gutierrez's remarks 
particularly interesting. He began his remarks, and I quote, by 
saying, ``the President and the administration start with the 
belief, first and foremost, that the tremendous economic 
prosperity America enjoys has not reached all corners of our 
country.'' Tremendous economic prosperity. Did I hear you 
correctly on that one?
    Secretary Gutierrez. Yes, sir.
    Mr. Sanders. Maybe the confusion is that some folks to go 
country clubs and go to fundraisers with millionaires and 
billionaires. I have to agree with you. Those people are doing 
very well. But I would suggest, Mr. Secretary, that if you talk 
to the middle class of this country, they do not believe that 
they are enjoying tremendous economic prosperity.
    How can you talk about tremendous economic prosperity when 
over the last 4 years we have seen an increase in poverty in 
America by four million people? How do you talk about economic 
prosperity when almost 22 percent of the children in America 
live in poverty, which is by far the highest rate of childhood 
poverty? How do you talk about economic prosperity when more 
than four million more Americans have lost their health 
insurance? Forty-five million Americans today have no health 
insurance.
    How do you talk about economic prosperity when 1.6 million 
American families went bankrupt recently, and most of that 
bankruptcy had to do with the loss of a job, a medical 
emergency or a divorce? How do you talk about economic 
prosperity when the new jobs being created today pay 21 percent 
less than the jobs that are being lost? How do you talk about 
economic prosperity when the middle class is shrinking and the 
gap between the rich and poor is growing wider?
    So my question to Mr. Gutierrez, almost 22 percent of our 
children live in poverty. That compares to European countries 
where in many cases, 2, 3, 4 percent of their children live in 
poverty. Can you tell the parents in this country whose kids 
live in poverty about economic prosperity? Are you ashamed? Do 
you think there is something fundamentally wrong in a country 
as wealthy as ours when 22 percent of our kids live in poverty? 
Mr. Secretary?
    Secretary Gutierrez. Congressman, let me address your 
question with facts and the numbers that I have. This economy 
is growing at, the last number for 2004, is 4.4 percent. That 
puts us as number six of the top 20 economies in the world.
    Mr. Sanders. And corporate profits are also going up. What 
is happening to the average worker, Mr. Secretary?
    Secretary Gutierrez. So if I could just finish the thought 
on the economy. We are number six in the top 20 economies in 
the world. The only five that are growing faster are developing 
economies. So if you take large developed markets, there is no 
market in the world that comes close.
    Mr. Sanders. True, but not relevant to the needs of 
ordinary workers. Their wages are going down.
    Secretary Gutierrez. In terms of average income, which 
would be the best way to measure if our jobs are generating 
more income than not, the average income during this 
administration's time in office is up 10 percent.
    Mr. Sanders. The average income is, excuse me, average 
income is not the best way to determine what is happening for 
ordinary families. If you are a billionaire and I am broke, on 
average we have $500 million. That is not what is important. 
What is important is the real income of middle class families, 
which is going down. The rich are in fact getting richer and 
that distorts this whole question of average income.
    Secretary Gutierrez. Congressman, the numbers I see show 
that average income is up 10 percent. If the jobs we were 
creating were lower-income jobs, I think we would see that 
number going down. Unemployment is at 5.2 percent. That is the 
lowest it has been versus the average of the last three 
decades.
    Mr. Sanders. Mr. Secretary, I apologize for having to 
interrupt you, but I have a limited amount of time, so forgive 
me for doing that.
    Chairman Oxley. The gentleman's time has expired.
    Mr. Sanders. Let me just ask one last question, if I might, 
please?
    Do you disagree that real inflationary-adjusted wages have 
gone down over the last 2 years? Do you disagree with that 
fact?
    Secretary Gutierrez. Congressman, the number I have is that 
average income, adjusted versus inflation, has grown 10 percent 
since this administration took office.
    Mr. Sanders. You are not answering my question, sir.
    Secretary Gutierrez. I do not have those specific facts, 
sir.
    Mr. Sanders. Thank you.
    Chairman Oxley. The gentleman's time has expired.
    Would the gentleman come forward and take the Chair, the 
gentleman from Ohio?
    Mr. Ney. It does not come off my time, right, Mr. Chairman?
    Chairman Oxley. No.
    [Laughter.]
    Unless you are slower than I think.
    [Laughter.]
    Actually, he has deceptive speed, Mr. Secretary. He is 
actually moving slower than it looks.
    [Laughter.]
    Mr. Ney. [Presiding.] Thank you very much. This is not for 
the purpose of theater. He has to leave, the Chairman does, so 
that is why I am moving over into here.
    I want to ask a first question of Secretary Jackson. OMB 
had an analysis, the OMB PART, and in that analysis it was not 
very favorable to this program. Do you have any comments on 
that?
    Secretary Jackson. Are you talking about the PART scores?
    Mr. Ney. Yes.
    Secretary Jackson. Yes, when we came into office in 2001, 
OMB was in the process of doing an evaluation of a number of 
programs within HUD, including the Community Development Block 
Grant program. They made some suggestions. I took the 
suggestions as an instrument for improving the Community 
Development Block Grant program. In that process, they said 
that there were not adequate tools in place to judge the 
outcome of the program.
    So what I did, Mr. Chairman, is I brought together the 
professionals in the industry, the industry people and top-
level people from OMB on a monthly basis for the last 14 months 
to come up with some positive way to measure the outcomes. We 
submitted to you about a month ago four different formulas that 
we think will address a number of the issues that were brought 
up in the PART scores.
    We think still today that we addressed many of the issues 
that were brought up. I was asked last time by Chairman Oxley, 
had OMB been back in to assess that. No, they have not, but I 
think that they had great input in developing much of the 
performance that we presented to Congress to try to address the 
issues that were raised in the 2000 PART.
    Mr. Ney. Thank you.
    Secretary Gutierrez, some people have said the CDBG would 
be cut 30 percent; some have said 4 percent. There is quite a 
discrepancy in the two. Would you want to comment on that?
    Secretary Gutierrez. Yes, sir. There are 17 programs that 
would currently be folded into one program. One of those is 
CDBG. The remaining programs would actually, I am sorry, 18 
programs would be folded in; 17 programs would stay the same. 
The 18 programs would be folded into one program. If we add up 
the two, we are talking about $15.5 billion of spending. That 
compares with $16.2 billion in this fiscal year.
    So the overall pot of money that would be invested in 
community and economic development programs would decline by 4 
percent. If you take individual programs, you can come up with 
a higher percentage, but overall, the overall pot that we will 
be working with and we will be investing in community 
development and economic development will be $15.5 billion, 
compared to $16.2 billion.
    Mr. Ney. So some programs would have a higher percentage 
within a program, but overall you are saying it is 4 percent. 
It is not an overall 30 percent.
    Secretary Gutierrez. It is 4 percent decline. You are 
right, some programs would see an increase within that number, 
yes, sir.
    Mr. Ney. I think the question I had on this before, and if 
either of the Secretaries would want to answer it, let's say 
this happens and it shifts from HUD over to Commerce. Does it 
just shift in one total package as it is? Or do there have to 
be new rules written by Commerce, for example? Does HUD just 
shift it over verbatim? Are you to that stage yet, either 
Secretary, on that?
    Secretary Jackson. All I can say is that what we did from 
our budget, that is fiscal year 2005, was $4.5 billion. We 
zeroed out $4.5 billion out of our budget for 2006.
    Mr. Ney. So then can anybody answer, does this, when it 
shifts over, does it come over that every, the point I am 
trying to get to, every way that HUD ran this and criteria and 
its usage, would that just come over also verbatim language? We 
know the money will come over. What about the language?
    Secretary Gutierrez. Congressman, we plan to introduce 
legislation at the end of April. We have an advisory committee 
in place which is helping us sort through some of these 
details. We would hope that we can work out some of the rules 
with this committee and determine how best to utilize this 
money and how to design this program. We have an opportunity to 
design this program from scratch. I believe, Mr. Congressman, 
that if we had to start from scratch, and if we had the 
opportunity as we do to redesign a program, I do not believe we 
would design it the way it is today. So we would look forward 
to working with you on that.
    Mr. Ney. Thank you. My time has expired.
    Mr. Meeks, the gentleman Mr. Meeks is next. Excuse me, my 
mistake.
    The gentleman, Mr. Kanjorski?
    Mr. Kanjorski. Thank you.
    I do not usually identify with my friend from Vermont as 
well, but this is probably the first time I understand his 
reaction to both of your programs. Let me talk about just the 
broad view. I am really astounded that the administration, with 
a great opportunity, would have been so crass as to not work 
closely with the committee to reconstitute these programs with 
the thought process. The last time I looked at the 
Constitution, Mr. Secretary, the Congress writes the laws, not 
the administration. They assist us or request certain 
legislation will be introduced, but the Congress passes that 
legislation.
    So the formulas, if they are going to be changed, the 
structure if it is going to be changed, is going to start at 
this committee and move through the full House; start in the 
Senate committee and move through the full Senate. I cannot 
believe the crassness of your two departments and the White 
House has in regard to reformulating programs that are so 
fundamental to the American people.
    You know, quite frankly, we had a reorganization meeting of 
one of our subcommittees. I was one of the people who think we 
probably should take the time to look at how our programs are 
operating and whether we can do things to make corrections or 
changes that would be advantageous to the community. But I 
never believed that we would have two cabinet officers and the 
White House coming up here with a hatchet and just going at 
something like Community Development Block Grant. I am not sure 
you are just talking about a marginal cut, and yet some of the 
information that we are receiving it looks just in community 
development we are talking about a 35 percent cut, if the other 
programs are to continue to exist.
    When you talk about a 35 percent cut or even a 10 percent 
cut, you are literally shooting at the heart of not only the 
largest cities in America, but most of the middle-sized cities 
of America that absolutely rely on community development money 
to put together and leverage larger projects. I think your 
indication is, you must have concluded that with this 
tremendous increase in average income in the United States, 
there has been a tremendous increase in infrastructure 
investment in the United States. Do either of you gentlemen 
suffer from that delusion?
    Secretary Gutierrez. Congressman, we are here because we 
would like to work with this committee. We have an advisory 
committee in place that is advising us so that we can bring 
forward the best recommendation.
    Mr. Kanjorski. Just a second, let me stop you right there 
for a second.
    Secretary Gutierrez. Yes, sir.
    Mr. Kanjorski. I just read in the paper, it was either the 
Post or the New York Times, some comments of my Republican 
colleagues in the Senate, castigating this administration as 
one of the worst administrations in terms of its relationship 
with the Congress. Those are not my words. That is Republican 
members of the Senate and the House saying that. I am going to 
tell you, they are winning me over.
    The idea that you would come up here and just say, we are 
going to take $4.5 billion out of HUD, turn it over to 
Commerce, and we are going to tell you about it in a month when 
we send the legislation up, that even beats the President's 
Social Security plan, that I have not seen yet. I mean, you 
fellows have structured a phantom idea down there that you do 
not have responsibility to the constituents of this country, to 
their elected representatives, or to reality.
    I understand your background and I have a great deal of 
respect for it as a CEO executive. Would you ever come to a 
board of directors, if you can talk about it in that term, in a 
corporation and say, I have the plan; I am going to give it to 
you in two months, but it is going to do this, and we ask you 
to go along with it, and that is what we are here for. Or would 
you have committees working on it? Would you have analysis?
    Because I am not convinced that any of you have Community 
Development Block Grant experience that you really know how it 
works out there in the field. If you think you do, why don't 
you spend a day with me? I will take you to my district and I 
will show you what is done with it, how it operates, and how 
significant a blow this would be to almost every middle-size 
community in my Congressional district.
    The other programs, I have got to tell you, I am 
experienced with the Commerce Department and EDA. If I had my 
druthers, I would double the funding because I think they do an 
effective job at very little regulation, with very little 
control, and get leverage of incredible capacity. I would hope 
that you would be looking at programs like that and say how we 
can better leverage private sector money with government money 
to create jobs, create infrastructure, and improve conditions. 
But to start off with the idea, and I think you ought to 
disabuse yourself of that fact. If you think the average income 
in the United States, average income if you knock off the two 
extremes, have really gone up 10 percent, then we are not even 
talking.
    I agree with you. CEO salaries in the last 5 years, in the 
last years have increased significantly. But I could take you 
to any number of industries where benefits are taken away from 
people, contributions are required for health funds, and 
salaries or wages are being held tight or being reduced. I do 
not know where you are all living.
    Mr. Ney. The time has expired.
    Mr. Kanjorski. If I just maybe for a second. You know, I 
actually do have some friends up in the country clubs and every 
now and then I try and go on their turf. I get the amazing 
response to them. They are usually pretty high-priced people, 
$100 to $500 an hour people. And they all stand around and 
complain about the plumbing bill they just paid, and did you 
hear at the local plant they just had a wage increase to $18 an 
hour? You know? And most of these guys are sitting around 
making $150,000, $200,000, $400,000, $500,000 a year, and they 
are complaining about that guy making $36,000 a year. I think 
that is what I see in this presentation and this 
administration. You are out of touch with reality, gentlemen.
    Mr. Ney. The time has expired.
    Mr. Bachus, the subcommittee Chair.
    Mr. Bachus. Thank you.
    Mr. Secretary, I am actually optimistic by what I hear 
today, and let me tell you why. I am sure that shocks a lot of 
people. Everyone here has expressed the same goal and that is 
helping the distressed areas, helping the poorest communities. 
Mr. Kanjorski just talked about country clubs. You know, there 
are affluent communities where there are 10 country clubs in 
one small community. There is a gap, as Mr. Sanders said, 
between the rich communities and the poor communities. The 
bottom line, and Mr. Sanders said this, the bottom line is 
helping the poorest communities.
    That is what President Bush says he wants to do and that is 
what you say you want to do. But what I am hearing is that 
there are affluent communities and there are poor communities, 
and we need to focus on the poor communities. It is my 
understanding that that is what you are proposing.
    So let me just ask you one question. I think maybe it will 
cut to the chase, because every member has said, Mr. Ney, he 
said the most severely distressed areas. Mr. Cleaver said we 
have got to help the poorest people in the poorest 
neighborhoods. He and I both come from families, we were raised 
in areas where we did not have homeownership. I did not have a 
homeownership until I was 12. I remember the pride he had. So I 
think we are all concerned about the poorest communities.
    Now, when OMB looked at the Community Development Block 
Grants which everybody is defending as a wonderful formula, and 
Mr. Kanjorski says you are talking about reformulating this. 
When they looked at it, they found, they looked at the 200 
richest communities in America and the 200 poorest communities 
in America.
    What they found was that 35 percent more money was going to 
the richest communities than the poorest communities. Now, is 
that accurate? It sounds crazy. It sounds crazy that the 
National League of Cities would not be standing on their head 
talking about the need to do exactly what the Bush 
administration is doing, and that is reformulate the formula so 
it goes to the poor communities.
    Secretary Gutierrez. Congressman, your facts are absolutely 
right. I can show you communities with a poverty rate of 2 
percent, 3 percent, that are receiving a significant proportion 
of the money. What this administration is saying is let's use 
that money for the people who need it the most. So I believe it 
is a very clear and a very noble objective.
    Mr. Bachus. Well, doesn't this discrepancy where more money 
has gone to the rich communities than the poor communities 
meant that what we have been doing in the past with community 
and economic development has not worked the way we want it to 
work? Because the goal, and I will quote another one of my 
Democratic colleagues, the goal is obvious: to target the 
severely distressed communities and neighborhoods.
    Then he says, that is what is Community Development Block 
Grants are doing. That is not what the figures show, is it? 
Would you like to comment? How does the Strengthening America's 
Communities, which has been so roundly criticized as something 
to do with the gap between the rich and the poor, I think it 
maybe does in that it is going to target the poor for more 
help. But how does it address the gap between the rich and the 
poor that we are all concerned about?
    Secretary Gutierrez. As you were saying, we want to make 
sure that the money is invested in those communities that need 
the money the most. I can also show you some, we picked out 
some communities just randomly and looked at results, and 
looked at performance measures. If you look at the poverty rate 
back in 1980 and since then, millions and millions of dollars 
have gone into some communities and the poverty rate today is 
higher than it was in 1980. So what we are saying is, we want 
to give the money to those communities that need it the most. 
And very importantly, we want to measure the results and make 
sure that we are improving the conditions of those communities.
    Mr. Bachus. Why does the press, including the New York 
Times and The Washington Post, why haven't they pointed out, 
particularly to their poorest constituents, that they are being 
mistreated and are not getting fair treatment, that 35 percent 
more money is going to, and that is per person, in the 200 most 
affluent communities in this country? They have received 35 
percent more per person, per poor person, than the poorer 
cities. Why are the papers screaming about you wanting to 
reformulate this and base it more on poverty?
    Secretary Gutierrez. It is a good question, Congressman.
    Mr. Bachus. Do they really like poverty? Do they really 
care about people that are poor?
    Mr. Ney. The time has expired.
    Secretary Gutierrez. We have an opportunity here to 
redesign and to start from scratch. Again, if we had to start 
from scratch, I do not believe we would design the system as it 
is today, and it is a wonderful opportunity to use our 
taxpayers's money in a wiser fashion. I believe we owe it to 
our citizens to do that.
    Mr. Bachus. I agree. It is a wonderful goal and it needs to 
go to those folks that are intended to be helped.
    Mr. Ney. The time has expired.
    The gentleman from New York, Mr. Meeks.
    Mr. Meeks. Thank you.
    I am baffled by this also. I mean, generally sometimes we 
come and we have an issue when you can see things clearly, 
particularly all of the cities, Democrats one way, Republicans 
another way and things of that nature. But here we have, as the 
former mayor of Cleveland talked about, a situation where 
basically every Mayor, every Mayor, be he or she Democrat or 
Republican, those that administer the monies, those that are 
down on the ground at the level to make sure that the needs are 
being taken care of where they need to be taken care of, are 
basically against this consolidation.
    Let me just basically talk about my Mayor, who hosted the 
Republican convention this past year, Mayor Michael Bloomberg, 
sending a letter to all of us and sending, I guess, to you also 
that he is writing to express his opposition to the 
Strengthening America's Communities Initiative. And he talks 
about the fact that by the 18 existing programs scheduled for 
consolidation were funded at $5.6 billion, while the 
administration's proposed budget for their replacement is only 
$3.7 billion.
    He talks about New York City, which received nearly $250 
million in 2004 through just two of these programs, the CDBG 
and the CSBG program. And he enclosed the details of how in 
fact he did utilize this money and it was utilized to help the 
poor and underserved, and that by cutting back we are really 
going to be hindering taking care of those who are least 
fortunate.
    As I know Mr. Cleaver, and I heard Congressman Bachus 
indicate, I, too, if it was not for certain funding, coming 
from a poor neighborhood, and understanding the district which 
I represent, this will severely hurt them. Let me just give you 
an example. Let me ask a question, for example. We were trying 
to do a project in our district, and this is I guess under 
Commerce at one time, because what is important is some retail 
development.
    At times, retail development becomes the cornerstone of 
economic benefit. We tried to go through EDA. We had a local 
community development corporation go through EDA trying to get 
$1 million. It was denied because EDA indicated that they were 
not willing to look at a major retail development. We lived in 
a place called Rockaway, New York at that time.
    So my question is, that this would have been a public-
private venture; something that would have gone to the 
cornerstone of economic redevelopment in the community, 
creating jobs and everything, but yet from Commerce's 
perspective, they are not in this business, or at least they 
were not with reference to EDA programs.
    So my first question would be, if this money was shifted 
over, would a similar determination be made when you are 
talking about retail development? Because we were able with 
this other money to have the flexibility to do what was 
necessary and what is necessary to economically revitalize 
distressed communities, or what I like to call new market 
communities.
    Secretary Gutierrez. Congressman, I am not familiar with 
the specific example that you cited. I will say that part of 
the concept here is to allow local communities to invest the 
money where they see fit to meet performance standards such as 
economic growth, such as employment, such as the poverty level. 
I would tend to agree with you that in some cases, a retail 
outlet can make a big difference for a community. There are 
many other types of investments that can make a difference for 
a community, that can lower the crime rate in a community, that 
could increase the value of real estate in a community.
    So it all depends on what is right for the community. If we 
can just agree on performance standards, then we can let local 
people invest that money where they see fit, because they 
understand, they know their community the best.
    Mr. Meeks. If you are talking about performance standards, 
then I still do not understand. If you are talking about 
evaluating programs, et cetera, why then shift jurisdiction 
away from HUD to Commerce, if it is just, you know, the process 
of evaluating and if you are talking about evaluating where the 
money is going or how it is being spent, and you have this set 
up, why not just tell HUD to do it? Why is it necessary to 
shift the money from HUD to Commerce?
    Secretary Gutierrez. It is not only, if I may, Secretary 
Jackson, it is not only HUD. There are programs in five 
different agencies, 18 different programs. Each requires a 
different approval mechanism. Each has different performance 
standards. Each requires a tremendous amount of bureaucracy. 
What we are saying is to shift the money into one area where it 
would be focused on one objective, which is to put it behind 
the areas that need it the most, to give it to local people, to 
invest it behind performance standards.
    As I mentioned before, there is experience in the Commerce 
Department. It is part of our mission to foster economic 
growth, to foster job creation. So this would make sense to put 
in that overall pot of money and put it behind that EDA effort.
    Mr. Ney. The time of the gentleman has expired.
    The gentlelady from Ohio, Ms. Pryce?
    Ms. Pryce. Thank you, Mr. Chairman.
    Secretary Gutierrez and Secretary Jackson, thank you very 
much for being here today.
    I just want to clear up a few things in my own mind. The 
CDBG program currently affords a lot of flexibility to 
communities. It allows them to meet their unique needs. It 
works fairly well from where I come from. I was pleased to hear 
in your testimony that you want to continue to be as flexible 
as possible and also expand on flexibility.
    I would be interested to hear your thoughts on how the new 
program will compare to the CDBG program in terms of 
flexibility when it comes to whether or not communities will be 
allowed to invest in community infrastructure and services, as 
well as housing. Will those be allowable activities? Either one 
of you or both of you?
    Secretary Gutierrez. As I mentioned before, flexibility is 
an important concept and it is an important objective of the 
new strategy, if you will, for investing this money. Using 
local knowledge and local objectives the local people are the 
ones who best know where to invest it. There are occasions, as 
you say, where infrastructure can make a difference; where if 
we reduce a crime rate in a specific community, that that will 
be an incentive for businesses to invest capital; that if we 
improve the quality of the housing and the infrastructure, that 
that will increase the value of real estate. That, in turn, can 
make it more attractive for job creation.
    So specifically to your question, yes, if that is what 
makes sense in a local community and is what will really make a 
difference, this program will allow for that.
    Ms. Pryce. And that is your understanding, too, Secretary 
Jackson, that housing and infrastructure services will all be a 
part as long as it helps to create jobs and improves economic 
activity in these areas?
    Secretary Jackson. I will do everything in my power in the 
process of developing the legislation to make sure that it is 
inclusive to continue the flexibility that is presently in the 
program.
    Ms. Pryce. Okay. I am particularly impressed by the 
emphasis on accountability, those aspects of your proposal, the 
performance standards, and wonder if you know how that will be 
implemented. It seems to me that will be something new and 
additional that we have not done before and costly to develop 
and implement. Where are we going to realize all this savings? 
Will there be actual cuts or are we going to see the savings 
come from the combination in the administration of all these 18 
different programs? I assume much of it will come from there. 
Or do you really envision cuts in dollars that are 
administrative?
    Secretary Jackson. Let me answer this first because I have 
heard on numerous occasions about accountability. It is 
important to understand that, yes, there are some flaws in the 
present community development program. When we came to office, 
we had a backlog of $370 million with 200 projects. Today, we 
have a backlog of 25 projects with $50 million.
    It is because of accountability, because of what was said 
by OMB in 2001 that we got together with OMB, with the 
industry, with the professional groups, to develop some 
alternate plans which we submitted to you to address the issue. 
Many of the issues that were raised in the 2001-2001 audit have 
been addressed because we agreed specifically with OMB that 
there was an accountability problem that had existed at HUD not 
just that year, but going way back 10 years, 12 years as it 
relates to this program.
    So we have done that and that is why I said in my opening 
statement that in the transfer to Strengthening America, we 
will consistently work with Secretary Gutierrez to make sure 
that these accountability measures that we have already put in 
place are successful going forward in the new program.
    Now, yes, there are still problems, but I want everyone to 
understand that HUD has not been sitting on its tush for the 
last 3 years. When OMB came in and made the recommendations, I 
empanelled, I stress again, I empanelled people from the 
industry, people from the profession, and people from OMB who 
had made the PART study to correct many of the issues that we 
were seeing.
    Now, getting to the point, I do believe, and I will support 
wholeheartedly what the administration and the President has 
said, the economic development programs should be consolidated. 
I do not back off of that commitment. But it is not necessarily 
because the program has been totally inaccurate and 
ineffective. That is not the case. It had been, but clearly 
with the suggestion and the position that was stated to us 
during the first PART score by OMB, we immediately began to 
empanel people to address the needs that we talked about by 
OMB.
    Mr. Ney. The time has expired.
    The gentleman, Mr. Watt?
    Mr. Watt. Thank you, Mr. Chairman.
    Let me first apologize to the witnesses for not being here 
to hear their testimony in person. Perhaps this became clearer 
as a result of the testimony, but maybe a better substitute for 
live testimony is the actual written statements. So I went 
immediately to the written statements and started reading them.
    I quickly came to the realization that I think is leading 
to the consternation that is being expressed. Secretary 
Gutierrez, I am particularly interested in the comments in your 
statement. I start with page six, where you have a sentence 
that says the underlying premise of the President's proposal 
enjoys diverse support. So I went searching for the underlying 
premise of the President's proposal. I came away with several 
different things.
    First, I went back to page four, and it said fiscal year 
2005, the federal government will spend on the overall suite of 
community and economic development programs a total of $16.2 
billion; the President's proposed budget for fiscal year 2006 
calls for overall spending for community and economic 
development programs of $15.5 billion, a 4 percent decrease.
    So my first question is the underlying premise of the 
President's proposal to reduce the amount of money. I then went 
to the bottom of the page and I saw this comment, those 
communities that face the biggest challenges should receive the 
most assistance from the federal government. So I started to 
question, is this whole area going to be a means test? Is that 
the underlying premise that you say everybody is committed to?
    And then I went to the next page, that is page five, and it 
says the best anti-poverty program is a good job. I wondered if 
it matters to a person who is looking for a job whether his or 
her job is located in the most distressed community or 
somewhere else within the city that they will be working in? So 
what exactly is the underlying premise that we are dealing 
with?
    And then I went to the third paragraph on that page, and it 
says the Commerce Department works closest with the private 
sector and has had the most success in leveraging private 
sector resources. So I started to wonder whether the underlying 
premise is increasing private sector involvement or partnering 
in these programs.
    But then I went to the last paragraph on that page and it 
said while the proposal is to consolidate funding for the 18 
programs into one new program, the administration intends the 
new program to offer communities broad flexibility in the use 
of the funds. So then I said, well maybe the underlying premise 
that everybody is lined up behind is broad flexibility in the 
use of these funds.
    I do not know what the underlying premise is that you are 
referring to, Secretary Gutierrez, on page six. The underlying 
premise of the President's proposal enjoys diverse support. I 
have not heard any of it in this committee. I do not understand 
what that underlying premise is. Is it cutting funds? Is it job 
creation? Is it private sector participation? Is it broad 
community-based discretion? What is this underlying premise 
that we all are supposed to be lined up behind?
    Secretary Gutierrez. Congressman, the underlying premise is 
to do an even better job with the taxpayers's money; to give it 
to those communities that really need it the most; to give it 
to those communities that are in transition that have been 
impacted because certain industries have been impacted; to give 
it to those communities and then to ensure and to help those 
communities improve their level of job creation; the level of 
economic growth; the value of real estate; the crime rate; 
performance measures; actual improvement in people's lives. 
That is the underlying premise and we would like to work with 
this committee.
    Mr. Watt. And Commerce has more authority over that than 
HUD?
    Mr. Ney. The time has expired. If you want to answer that 
question, go ahead.
    Secretary Gutierrez. We have experience doing that, 
Congressman, yes.
    Mr. Ney. Thank you.
    The gentlelady from New York, Ms. Kelly?
    Mrs. Kelly. Thank you.
    I appreciate the presence of both of you here. I have been 
hearing from my communities in New York. They are frightened, 
quite frankly. They are in somewhat of a turmoil now because of 
this proposal and they do not really have any specifics on how 
they in particular will be affected.
    I am concerned about what your dialogue has been with 
America's communities and what outreach you have done toward 
the communities that already have the CDBG monies and are using 
them. I am concerned about what their ongoing projects are 
going to be. I am concerned about the fact that I, in 
particular, do not seem to have specific proposals in hand. It 
is a controversial plan and I do not see specifics. So I wonder 
if you could address that, either one of you.
    Secretary Gutierrez. I will just say a couple of things, 
Congresswoman. First of all, I understand the nervousness 
because this is change, and change usually creates some 
anxiety. That is why we would like to develop the specific plan 
with the committee and with an advisory committee. We have not 
come forward with specifics because we felt we owed it to 
everyone to come forward with a concept where we can start from 
scratch, redesign this, that it really does benefit those 
Americans who need the money the most, and then work together 
so that we ensure that programs do not get left out, that 
communities do not get left out, that we do this in the best 
way possible.
    So that is really what is driving the proposal. I 
understand that change always generates anxiety, and that is 
why we want to work with this committee. But we have a great 
opportunity here.
    Mrs. Kelly. I understand that, sir, but I would like to 
know if you have procedures in place for consultation with 
states and communities that are already utilizing the CDBG 
monies, to get their ideas, their comments, their proposals, 
before you submit a detailed piece of legislation to Congress. 
Is that in place?
    Secretary Gutierrez. Yes, we are putting an advisory 
committee in place with representatives from communities, 
people who understand community development and economic 
development, and getting that input and getting the benefit of 
that as we develop the plan. I have tried to go out and visit 
some of the centers to actually look at first-hand where the 
money goes and to live it and to touch it and to feel it. I 
cannot say I have been to 100 places, but I have been to a few 
and I have tried to get out there and get a sense of this 
myself.
    So yes, we will work with those who want to work with us. 
We would like to have the benefit of your contribution and the 
benefit of everyone's input.
    Mrs. Kelly. Mr. Jackson, I am concerned about what will 
happen with ongoing projects. What is being planned for them? 
Are we looking at a hard landing for them or a soft landing? 
Are you going to phase them out? Are you going to just simply 
cut them off?
    Secretary Jackson. Congresswoman, I do not think we can 
phase any of the programs that are ongoing out. We have 
allocated the monies for 2005 for the Community Development 
Block Grant program. We also have some outstanding 108 loans 
that clearly we will have to take into consideration with any 
proposal that we develop as to how we address those issues. I 
would think that in the future coming, yes, we would have to 
address those issues.
    Mrs. Kelly. But by implication, you are saying you do not 
have a plan at the present time to deal with this. Is that 
correct?
    Secretary Jackson. Commerce is taking the lead in 
developing the plan and the legislation. We will serve to 
augment the development. I have had a number of conversations 
with Secretary Gutierrez informally about the plan. It is being 
developed now and we will in essence work with the Commerce 
Department as it is being developed.
    Mrs. Kelly. Mr. Secretary, are you going to allow Congress 
to have a look at this, are you going to work with us and do 
you intend to work with the communities to try to allow those 
people who are currently engaged with CDBG plans, things that 
they have started, they are going to need continuing money to 
finish, in all probability, some of these, do you intend to 
work with them? Have you got something in place, some kind of a 
structure in place to get these people together so that you can 
hear what they are saying and react and listen and take into 
consultation what they are saying, before you submit detailed 
legislation to us?
    Mr. Ney. The time has expired.
    Secretary Gutierrez. Yes, Congressman. We would work with 
this committee. We would work with communities. We understand 
that there are projects that are ongoing, and some of them are 
half-way completed; some of them are three-fourths of the way 
completed. We cannot just go in and chop off the project.
    Mr. Ney. The time has expired.
    Next is the distinguished gentleman, Mr. Clay from 
Missouri.
    Mr. Clay. Thank you, Mr. Chairman and Ranking Member Frank.
    Mr. Secretary, I am not in favor of the transfer of CDBG 
from HUD to Commerce, and having said that for the record, I 
have a question that I asked Secretary Jackson the last time he 
was here. I, like most members of Congress, am deeply concerned 
by the drastic budget cuts of the CDBG program and the proposed 
shift of its jurisdiction and oversight from HUD to Commerce.
    I additionally have questions about whether the efficiency 
of targeting revenues from CDBG grants will be enhanced or 
diminished if such a transfer does take place. I represent St. 
Louis, and the statistics of poverty and lack of housing in 
North St. Louis qualifies the city for quite a large amount of 
money from HUD through the CDBG program. Yet, much of this 
money is never seen in North St. Louis and is sent downtown for 
other projects. We bring money into the city, yet the problems 
still exist.
    How do we better affect methods to get the money to the 
areas that produce the justification for the block grants? 
Although I do not favor sending the program over to Commerce, 
would this result in a much more efficient targeting of the 
monies than is presently practiced? What suggestions do you 
have that can result in a systematic targeting and then 
eliminating the housing problem in districts like North St. 
Louis?
    Secretary Gutierrez. We believe, Congressman Clay, that we 
should address that and that it is not right that if the money 
is being sent to St. Louis that it is diverted and does not 
reach those areas of the city that need it the most. The whole 
idea is to encourage and support projects that have long-term 
objectives, and performance metrics, and to make sure that 
those projects get all the support they need.
    I was just looking at statistics for St. Louis. You are 
absolutely right. It has a poverty rate that is above the 
national average. It is an area where we should be able to 
measure that. We should be able to look back once we start this 
program and have tangible results. That is what this is all 
about. We are trying to redesign a program to make it as 
efficient and effective as possible and we would like to do so 
with the help of the committee.
    Mr. Clay. Well, if that is the case, I am willing to work 
with you in that respect.
    Secretary Gutierrez. Thank you, sir.
    Mr. Clay. One more issue. In the First District of 
Missouri, we have tremendous problems with health care, 
brownfields redevelopment and many other areas addressed by 
CDBG. How will taking this program from the professionals in 
one agency and putting it with new personnel in another agency 
drastically reduce the monies needed, when it is already 
underfunded? How will that make the situation better, 
transferring it from HUD to Commerce?
    Secretary Gutierrez. Again, we do have experience working 
with communities to leverage private sector dollars. The 
Commerce mission is to work with private sector, work with 
local communities to enhance job creation, to enhance economic 
growth. That mission, that mindset, can be applied very 
powerfully to these grants so that we do end up with 
communities that are creating jobs, that are growing, that are 
more vibrant.
    Mr. Clay. Thank you, Mr. Secretary.
    When your schedule allows, I would love to invite you out 
to St. Louis and show you around and show you some of the needs 
of the area of St. Louis that I represent. I sure would like 
for that to be sooner, rather than later.
    Secretary Gutierrez. Thank you.
    Mr. Clay. Thank you.
    Mr. Ney. The gentleman yields back his time.
    The gentleman, Mr. Garrett?
    Mr. Garrett. Thank you.
    And thank you, Mr. Secretary.
    I think generally speaking everyone up here is on the same 
page on at least one point and maybe two, and that is on the 
one point we are on the same page is we are all concerned about 
addressing the needs of the least fortunate. We may or may not 
be on the same page as to making sure that we do so in the most 
efficient manner, however. It seems as though you have been 
lambasted so far from both sides.
    On the one hand, it is suggested to you that you are being 
too detailed and coming to us with a program that is already in 
place and we have no in put on it. On the other hand, there are 
assertions by the ranking member that there is no detail in 
this program whatsoever and that is creating the confusion that 
is out there.
    And maybe that is part of the problem. The last point is 
true that we have confusion in the field because there are not 
the details, but I think that is appropriate. This is the 
committee that will be looking at it, and hopefully I 
personally would like to work with you to move it forward and 
making sure that all the input from the cities on up and the 
municipalities and rural areas on up get their two cents worth 
into the program.
    I think we all know of good programs back in our home 
districts. We have a program called Norwescap, a great program, 
works hard on a shoestring budget; brings together a whole 
bunch of programs and gets the job done. But I think if we are 
honest, we would also say we know a lot of programs that are 
not really getting the job done, in part because of how the 
program is set up now in Washington.
    I understand you have 35 programs out there under seven 
cabinet offices. Bob Ney has already mentioned that it is not 
getting the job done when we are putting 35 percent of the 
money less into those areas with the highest poverty rates. 
That is not getting the job done.
    The complexity of it, I was just looking at the one chart 
here, is just like anything else you will see here in 
Washington. The current program with all the cabinet offices up 
here and all the agencies underneath, all the program 
underneath, acronyms which I honestly do not know all of them, 
the NCDI, the CDEF, the RCF, the CDBG, the CDOS, the RHED. I 
can understand anyone back at home says, how do I get my 
program run when I have to deal with that mess, present company 
excluded, of course, in Washington?
    Then on top of that, we see that in PART, the program 
assessment rating tool, which rates out of the OMB all agencies 
of the federal government, most agencies, they looked at this, 
looked at most of the 18 federal programs that are slated for 
consolidation, and found that most of them are either 
ineffective or the results are not demonstrated.
    So I would hope that we could all get on the same page and 
say that we want to help the least fortunate; and (B), that we 
want to do it in the most cost-effective manner.
    Now, my question sort of goes around a different area, 
though. There was an article in Human Events a while back, last 
term I think it was, that raised the question to all department 
heads, all cabinet offices: Is your cabinet one that is 
constitutionally valid? Is there a constitutional basis for 
your programs? This issue is more than academic to me from New 
Jersey because New Jersey is a state that is, on the up-hand, 
the most affluent state in the country, but on the other hand, 
that is on average, I go back and get editorial board meetings 
all the time that say why aren't you bringing enough of your 
own money back to New Jersey again?
    When you are an affluent state and you are looking at 
programs like this, we are not getting our own money back. We 
end up subsidizing the other 49 states all the time and in this 
program especially. So we do not get it back, and yet we do 
have a problem in our state.
    Although we are an affluent state, not everyone is 
affluent. We have poor people in our state. When you have the 
average cost of a house at $300,000, poor people, new 
immigrants to our state, they cannot afford that. They are 
coming together in little houses and three families are living 
there so they can get by.
    So programs like this may say, well, you are poor by a 
certain definition, but when it looks at a state like New 
Jersey that is affluent, well, we are not poor anymore because 
we are a rich state. So we end up subsidizing everybody else 
and not getting our ``fair share'' back at the end of the day. 
So I raise that question to you at the end. The first question 
goes back to how do we make this seem more local, but the 
larger question, the Human Events question, is there a basis 
for this? And how do I explain this back to my constituents on 
a fairness basis?
    Secretary Jackson. Let me say this to you, Congressman. In 
1974, Congress wrote the law as to how the community 
development agency would work, how the Community Development 
Block Grant program would work. In that process, they talked 
about several factors: the distress factor of the community, 
the population, poverty, age of housing, and growth lag. They 
said take these into consideration as to how you fund the 
program. To date, that is what we have taken into 
consideration.
    So therefore as I gave you the example with Detroit just a 
few minutes ago, that in the city of Detroit it meets all five 
of these guidelines. So therefore, we are allocating about $50 
per capita in the city of Detroit. But Oakland, in many ways 
like New Jersey, is a very affluent suburb, so we allocate 
about $6 per capita because even being an affluent suburb, they 
still have pockets of poverty. They have housing that is pre-
1940. So therefore, we still have to address that situation.
    Mr. Ney. The time has expired.
    Secretary Jackson. What we have done to date because of the 
PART score that we have, again I reiterate it, I empanelled 
people from the profession, from the industry and OMB. We 
completed an analysis and we have submitted to you four 
scenarios for your consideration as to how best to address the 
issue that you just said. It is up to Congress now, this 
committee, to analyze those four scenarios that we gave you.
    Even if the program goes to Commerce, I think it is still 
important to analyze those scenarios as to how you think the 
program of those four should best work. That is the way I think 
that it came about in 1974 when now Secretary Mineta was in the 
Congress and helped write the present legislation that we 
operate under now. We are giving back to you based on what was 
asked of us scenarios that you can decide how and how best the 
program should be administered.
    Mr. Ney. The time has expired.
    The gentleman, Mr. Scott of Georgia.
    Mr. Scott. Thank you very much, Mr. Chairman.
    I must admit that I am having some serious, serious issues 
over here as to the big why. Now, we are getting hit two ways 
here. First of all, these critical programs are being cut in 
funding in housing and community development by 35 percent. 
Then you are taking the remnants of those, 18 programs, and 
shifting them away from the agency with the heritage, the 
tradition, the experience of working with these programs, whose 
total mission is affordable housing and effective community 
development, and shifting them away from that over to the 
Commerce Department which has no expertise. And to say that 
this is done in the interests of efficiency makes a big why to 
me.
    Secondly, this has got to be a total loss of confidence in 
you, Mr. Jackson, and your department, to take these vital 
programs from your agency, from you. You are far more qualified 
from my estimation, no disrespect to the Commerce Secretary, on 
these issues, with your background in housing in Texas, in 
Houston, I believe. You have come up through the ranks, and you 
are sitting there and seeing these programs cut out from under 
you in the interests of they can be better done over here.
    I think that is a slap in the face to you and to HUD, which 
we have had many problems with, but it is clearly the agency 
where these programs belong. With all due respect, they do not 
belong in Commerce. The question has to be answered. The 
American people are expecting an answer. Why? In the face of 
this, the Commerce Department does not have any expertise in 
brownfields. The Commerce Department does not have any 
expertise in community block grants, affordable housing. What 
about the transition costs that are involved in transporting 
these services?
    We need to really come clean with this. Is this a way of 
killing the block grants softly? Something is rotten in the 
cotton here. There are nine categories of eligible activities 
authorized by Congress under the CDBG program. Most of these 
categories are related to housing or property. Do you mean to 
tell me that the Commerce Department has more experience than 
the agencies that have been handling this, with housing and 
property development, to adequately assist local communities 
and their community development needs?
    There is something not right with this move. Could you 
respond?
    Secretary Jackson. I will be happy to, Congressman. Let me 
say this to you. I would disagree with you paraphrasing this as 
for inefficiency purposes. I do not think that is the basis 
that this is occurring. There is inefficiency in every 
government program.
    Mr. Scott. Well, why do you think they are taking these 
programs from you?
    Secretary Jackson. May I finish please? My understanding, 
and I still endorse the concept, is for consolidation. Yes, I 
do believe that the economic development programs should be in 
one place, and I stick to that premise. I do not perceive it as 
a slap in the face to myself or to HUD.
    As I said to you before when you asked basically the same 
question in the previous meeting, we made our logical argument 
as to why we thought it should stay at HUD. It was not. I 
support the concept then as now that we should consolidate the 
programs, not because of inefficiencies, not because of 
something that the programs have done wrong. I think they 
should be housed in one place so they can be administered by 
one administrator. I do not in any way backtrack from that.
    Mr. Scott. Mr. Jackson, do you approve of these cuts in the 
CDBG program?
    Secretary Jackson. I do not know of cuts. I know that I 
zeroed out of my budget $4.5 billion.
    Mr. Scott. Do you agree with those cuts?
    Secretary Jackson. I am not sure what you are asking me if 
I agree with, Congressman.
    Mr. Ney. The time has expired.
    Mr. Frank. Would the gentleman yield? The number in the 
budget is $3.7 billion for CDBG and everything else, not $4.5 
billion even.
    Mr. Ney. The time has expired.
    Mr. Miller, the gentleman from California.
    Mr. Miller of California. Welcome, Secretary Gutierrez. I 
have not had a chance to really talk to you or hear you in the 
past, so it is good to have you here.
    I know, Secretary Jackson, last time you were here, you 
thought you were going through a divorce, and everybody loves 
you today. What a change a day can make.
    [Laughter.]
    It really is. Everybody has a right to come up with an 
idea. I am looking forward to seeing what your final proposal 
is going to be on this because you are here talking today. You 
are not here cast in concrete. You are here I think asking for 
some direction and advice on what we would like to see happen. 
Rarely do I hear anything from our cities as unanimous as I 
have on this issue here.
    One of the things that bothers me, and I listened to Mr. 
Frank when he spoke also, and we are going to target the 
highest levels of poverty. The problem I have with that, 
because somebody who might be low income in a high-cost area 
might not necessarily be low income in an area full of poverty, 
but they both have needs. That is a concern for me.
    The concept of starting from scratch, if we have waste, 
fraud and abuse, I think we need to absolutely deal with that. 
I agree with you 100 percent. There needs to be accountability. 
We need to eliminate any outdated or unneeded programs. I am 
with you on all of that.
    I come from a 30-some year experience as a developer and 
builder out there. I just look at economic development and 
community development as two different issues. In my industry, 
they are looked at two different issues. I have really enjoyed 
both your answers because I am impressed by both of you.
    I think you do a very good job in Commerce, and I have 
listened to your answers because you have a strong background 
and your expertise is that, economic development. I support 
that for communities. When my communities go out and they are 
trying to encourage economic development, they are working on 
shopping centers and bringing revenues into the city so they 
can provide the infrastructure and make the community better 
overall.
    But when my communities are going out and doing community 
development, it is a different issue altogether. The people I 
am concerned about in my district, because they do not fall 
into the highest level of poverty, are those that are low 
income, seniors specifically even in my area that need 
mitigation for building safety programs, deficiencies they 
have, violations, senior programs, physical mobility that we 
provide for in our communities, nutrition, meals on wheels, 
which CDBG funds in our communities, and the YMCAs which do a 
good job helping low-income mothers who are out working and 
have a place for their kids so they can go to. That is all 
subsidized by CDBG.
    I guess my concern is, Secretary Gutierrez, I think you 
have the expertise to try to build that strong engine in an 
economy which provides jobs, does benefit communities. And 
Secretary Jackson, I remember of you last time getting beat up 
a little bit, and I thought you and I were just best old 
buddies because we were agreeing on most everything, and I 
think you have done a good job in what you do, too.
    So I like both of you, and I am in a problem here, because 
I have two individuals with expertise that are great in what 
they do, and we are going to mix them. That kind of bothers me. 
I am going to look at what you come up with at the end, but 
that in itself bothers me because I have listened to your 
responses and both of you, I give you high marks in what you do 
because your responses are based on your expertise. I think you 
are great, both of you, but when we mix them, I have a problem.
    Now, Secretary Jackson, having been Chairman of two 
community development agencies, what is your assessment of CDBG 
today?
    Secretary Jackson. Today, it is good. If I stood here and 
told you that the Community Development Block Grant program has 
not worked in this country, I would be very hypocritical in the 
sense that I was Chairman of the community development agency 
in St. Louis and the community development agency in 
Washington, D.C. I can point to several projects that were done 
with CDBG money that are an absolute success.
    Mr. Miller of California. So we are finding it might be 
necessary in some areas?
    Secretary Jackson. I am sorry?
    Mr. Miller of California. From your findings and 
application, it might be necessary, and I am with you on that. 
I agree with your response.
    Secretary Jackson. I think, Congressman, what I said to you 
was when we walked in here we had $370 million with 309 cities 
in backlog. There is no question. Today, we have 50 cities with 
$25 million.
    Mr. Miller of California. You have given me my response. 
You are doing a great job. I love you. I am going to get to him 
because I am going to run out of time real soon.
    What tools or institutional models do you have at Commerce 
that they do not have?
    Secretary Gutierrez. I just want to follow up.
    Mr. Miller of California. I am not trying to cut you off, 
Mr. Jackson; you know that.
    Secretary Jackson. That is fine.
    Mr. Miller of California. My light is going to go red any 
minute and I am going to be dead.
    Secretary Gutierrez. Congressman, I would like to say that 
the problem is not HUD, and I would agree with Secretary 
Jackson about the people within HUD and the commitment and the 
passion they have.
    Mr. Miller of California. No, I never said there was. That 
is not the question, yes.
    Secretary Gutierrez. They do great work. The problem is the 
system. We have 18 different programs with 18 different 
evaluation techniques, 18 different ways of accessing the 
money. Some have measures, some do not. So it is the system 
that we are trying to correct, and it is not any kind of 
indication that HUD has not done a good job. I want to make 
that clear, because we have a great deal of respect for the 
people at HUD.
    We are talking about what we can do better. We are saying 
that if we all get our heads around this, we design a system 
from scratch that is better and can do better for our people.
    Mr. Ney. The time has expired.
    Mr. Miller of California. As a supporter of Commerce and 
HUD, I would love to spend more time talking with you. You have 
an expertise in both of what you do. But I am concerned, and I 
am not against either one of you. I am just concerned.
    Mr. Ney. The time has expired.
    The gentlelady from California, Ms. Lee.
    Ms. Lee. Thank you, Mr. Chairman.
    First, thank you both for being here and laying out this 
concept. You indicated earlier that you did not really have a 
plan yet and that this is just a concept. Well, I think you 
have heard from both Democrats and Republicans on this, from 
people around the country. It is a bad concept. So I do not 
know why you just do not go back to the administration and say 
to them it is a bad concept; it has very little support; and 
forget it. Because there is no way that this concept should be 
developed into a plan.
    First of all, do you know, several years ago there were 
signs that this administration wanted to dismantle HUD. I think 
this probably is one of the major steps in getting rid of HUD. 
Many of us believed then as we believe now that HUD is an 
agency that provides really for the least of these.
    And given the values, agenda that you all have, it boggles 
my mind to believe that you could now transfer this into the 
Department of Commerce. I said this to you earlier, Secretary 
Jackson, that it does not reflect the values that say that we 
care about those who are most in need in our country.
    What kind of, and I am asking you Secretary Gutierrez, what 
kind of track record do you have with people who are living 
with HIV and AIDS and who need housing, or with the disabled? I 
know HUD has proposed all these huge cuts to the disabled and 
to those living with HIV and AIDS as part of their overall 
budget. So I need to get a handle on how in the world Commerce 
is going to manage and put forth some of these initiatives that 
you all do not have, quite frankly, a clue about.
    Secretary Gutierrez. The concept here, Congresswoman, is to 
do a better job with the money the taxpayers have given us. As 
we look back and look at communities that have received 
millions and millions of dollars over the years, we have seen 
poverty rates that are increasing. The money that has been 
invested in these communities has not generated results. We 
believe that we have to do better.
    Ms. Lee. Do you have anything that shows that the 
Department of Commerce has helped to reduce poverty rates and 
knows how to provide services to those living with AIDS and 
senior citizens and the disabled communities?
    Secretary Gutierrez. We have in our EDA grants which 
granted is smaller, but we do have experience in working with 
economic development and community development metrics. We can 
show you examples of communities that have increased their job 
creation, where economic growth has improved. We believe that 
due to the right thing for a community, that that should 
translate eventually to better jobs, more jobs, higher real 
estate values, a better quality of life.
    Ms. Lee. Sure, maybe eventually, but right now we are 
talking about right now. The CDBG has created, what, at least 
90,000 jobs last year; housing, rehabilitation for housing, the 
services that CDBG provides as an adjunct to economic 
development. What in the world does Commerce know about doing 
this?
    I understand what consolidation means, but when you are 
going to abandon a mission that HUD has in terms of being 
really the only agency, if you asked me, that has as part of 
its mission to ensure a safety net and ensure that the least of 
these are at least provided some kind of government focus. You 
know, it is an effort I think to just get rid of those people 
and let them fend for themselves.
    Secretary Gutierrez. We are deeply committed to improving 
the lives of everyone. Our mission is around creating jobs, 
creating economic growth, having tangible results for people. 
We believe we owe that to people and we owe it to them to use 
taxpayers' money more efficiently.
    Ms. Lee. So Secretary Jackson, you do not owe that to 
people anymore, out of HUD, as it relates to the CDBG?
    Secretary Jackson. Of course, and we will continue to do 
that.
    Ms. Lee. How are you going to do that, when you proposed, 
first of all your cuts that you proposed; and secondly you said 
you had debated the concept and you lost, they won. Well, why 
don't you go back and debate it some more and say this is a 
democracy. There is no support for this out there in America.
    Secretary Jackson. It is not a win or lose situation. As I 
stated before, I see it as consolidation. Secondly, HUD is 
still in place. We are still operating.
    Ms. Lee. But you are dismantling a huge portion of HUD 
right now. Next year, you will dismantle the rest. Trust me.
    Secretary Jackson. We are not dismantling.
    Ms. Lee. Yes, you are.
    Secretary Jackson. No, we are shifting resources.
    Ms. Lee. You are getting rid of HUD. That is what you are 
doing. You are dismantling it and next year we will see you 
nail the coffin shut, with your support.
    Mr. Ney. The time has expired.
    Mr. Pearce?
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Jackson, nice to see you after your visit to New Mexico 
with me.
    Secretary Jackson. Thank you.
    Mr. Pearce. Mr. Gutierrez, we look forward to that.
    I would like to associate my comments with Mr. Clay from 
Missouri who commented that many times we send funds to very 
poor areas and those funds are diverted along the way. Our 
office, for one, has told our communities if we ever get your 
money for a project and you do not use it for that, we will 
never ask again, never. So I appreciate having you all come to 
this situation with us.
    As I listened to the discussion, I am a little amazed. You 
know, we are talking about shifting functions and we as a 
Congress just had a great national discussion on revamping and 
in fact changing the way we gather intelligence. And yet we are 
concerned here about the shifting of functions. I swear I 
thought I was hearing a converted Republican talk, because he 
talked about unelected officials who are rewriting the 
Constitution and rewriting programs without authority. And I 
was sure he was talking about the judiciary, which we talk 
about all the time, taking constitutional functions. But just 
as he fell into a dead faint, he declared it to be the 
administration instead.
    Who is going to look over the functions, the state or the 
federal government, of the SAC program? Who would administer 
that, the federal agency or state agencies?
    Secretary Gutierrez. Overall, obviously the money is 
federal money, but the management of the programs and the 
accountability for the programs should be at a local level.
    Mr. Pearce. You bet. Okay, I appreciate that. Again, we are 
basically doing that in our office. We are asking the 
communities to prioritize their needs and then we simply see if 
we can get the dollars. Everyone always talks about local 
control until we actually set about doing it. So I appreciate 
that. I appreciate the ideas of eliminating duplication and 
expanding flexibility.
    For rural areas, we are very concerned with how much actual 
funding that we might lose. Do you have a spread sheet showing 
how much funding actually would go through the system compared 
to what it is right now? I suspect we are going to lose a lot 
of duplicative functions, a lot of administrative function. So 
I am thinking that the water at the end of the pipeline, the 
money out the end of the pipeline might actually be the same or 
more, frankly.
    Secretary Gutierrez. We do not have numbers for rural 
areas, although we believe that if we apply criteria that would 
force the money to go to those areas most in need, that that 
should surface more rural communities.
    Mr. Pearce. Thank you. The current assessment tools for 
CDBG, who administers those and are those assessment tools 
going to be carried through? Or have those assessment tools 
maybe have not worked? I do not know.
    Secretary Gutierrez. We would manage the assessment tools, 
performance metrics at Commerce, with local communities in the 
programs. I am sure that OMB would continue to evaluate our 
work the way they evaluate the use of federal money across the 
system.
    Mr. Pearce. Again, I appreciate the idea of accountability, 
because I have listened to a very shrill debate on No Child 
Left Behind in our state and the teachers declaring that the 
accountability was going to be the end of education. Yet in the 
last school that I visited, the increase in reading scores was 
28 percent; the increase in math scores was 26 percent. And the 
poor, that is free and reduced school lunch programs, those 
kids are up almost 50 percent. So No Child Left Behind, with a 
little bit of accountability, is actually directing the money 
very well and I suspect that we are going to do the same thing.
    I think my last comment, Mr. Chairman, has to do with the 
economic discussion that was had. You know, American jobs are 
under fire and at risk of going overseas to countries that are 
subsidizing entire economic climates. They have a culture of 
maybe no regulation and we are competing with that. American 
technology is being stolen and then being used to turn around 
and give jobs to foreign countries instead of U.S. countries. 
Our intellectual property is being taken away. The American 
worker is competing with workers who are making dollars per day 
instead of dollars per hour. In short, our nation is fighting 
for its economic life.
    Mr. Gutierrez, I am proud to have you on the team because 
we must win this battle. It takes more than shrillness in this 
room and it takes more than harsh comments for the American 
economy to survive because we are under attack from every other 
nation. The enemy is not on the other side of the aisle in this 
body. The enemy are those who would take our jobs and transport 
them.
    So I appreciate having you all, and I appreciate the 
thorough look that you are giving this. I look forward to 
working out the parameters, but if you could get me those 
spread sheets showing the reduction of funding, I would 
appreciate it.
    Secretary Gutierrez. Yes, sir.
    Mr. Ney. The time has expired.
    The gentleman, Mr. Moore from Kansas.
    Mr. Moore of Kansas. Thank you, Mr. Chairman.
    Secretary Jackson, recently I received a letter from the 
Johnson and Wyandotte Counties Council of mayors. Those are the 
two largest counties in my district, that comprise probably 85 
percent of the population of my district. We are right across 
the line from Congressman Cleaver, who asked you some questions 
earlier.
    I received a letter expressing their apprehension about the 
proposed changes. The Council worries, and this is a quote from 
their letter, ``a 35 percent cut in economic development 
spending for fiscal year 2006, coupled with the transfer of the 
CDBG program to an agency unfamiliar with its mission will 
immediately undermine local job creation, antipoverty and 
revitalization efforts in communities across America.''
    I wondered, Secretary Jackson, is you have heard that the 
United States Conference of mayors has denounced the cuts that 
are presented in the President's proposal?
    Secretary Jackson. Yes, I have.
    Mr. Moore of Kansas. And have you also heard the National 
Association of Counties have denounced the cuts in the same 
manner?
    Secretary Jackson. Yes, I have.
    Mr. Moore of Kansas. The fiscal year 2006 budget request of 
$3.71 billion for the program represents a 35 percent cut in 
funding compared to the fiscal year 2005 level of $5.665 
billion. The proposal would mean a $1.16 billion cut in funding 
for affordable housing in our communities.
    On March 12, I had a press conference in my district with 
seven mayors and the Chairwoman of the Board of County 
Commissioners. Most of these folks in my district, frankly, are 
in the President's party and I am sure voted for the President 
as well, but they are very, very concerned about these deep 
cuts in this program.
    I want to read to you just a very short couple of 
paragraphs from a Kansas City Star article that appeared after 
our press conference. In Prairie Village, seven Kansas mayors 
and other public officials from Johnson and Wyandotte Counties 
said the areas stood to lose vital safety net funding. ``CDBG 
money is not about urban. It is not about rural. It is about 
people,'' Annabeth Surbaugh, Chairwoman of the Johnson County 
Commission said in a news conference held by Representative 
Moore. ``It seems like when the feds do a shift in funding, we 
get the shaft.'' She is very plainspoken, but that is what 
Chairwoman Surbaugh said.
    I have the same kind of concerns because I do not want to 
see a program which really has developed communities and helped 
people in our country have the funding cut so much that it ends 
up hurting communities and people. You can call it whatever you 
want. We can say Strengthening America's Communities, but if we 
are actually hurting communities and hurting people in this 
country, we are not doing a service for our folks.
    I tell people, and I really mean this, this should not be 
about Democrats and Republicans. This should not be about 
partisan politics at all. This should be about helping our 
country and our people. I want to just read one more statement 
from Chairwoman Surbaugh. She said, ``Without the grants, homes 
deteriorate, neighborhoods crumble, and the social fabric of a 
community begins to fray.''
    I have those same concerns because I, number one, believe 
that these funds have helped our country and our communities 
and our people as much as about anything we have done. I just 
hate to see it, I cannot believe that the mayors and the county 
commissioners around this country are all so wrong. I certainly 
want to see the details of your proposal and I hope you will 
get that to us as soon as possible, the other Secretary, Mr. 
Gutierrez, if you would please.
    Secretary Gutierrez. Yes, sir.
    Mr. Moore of Kansas. What do you say to the mayors, either 
one of you? What do you say to the mayors and what do you say 
to the county commissioners in this country, almost 
unanimously, not unanimous, but almost unanimously who have 
denounced these cuts and are very concerned about the transfer 
of the program from HUD to Commerce?
    Secretary Gutierrez. Congressman, a little while ago 
someone mentioned that it would be very arrogant on our behalf 
to come forward with a very detailed plan, without taking into 
account the input, the very valuable input of this committee. 
So what we have brought forward is an idea, a passion for doing 
a better job with taxpayers's money, and working with the 
community, working with other constituents to come up with a 
better way.
    Mr. Moore of Kansas. Have you talked to the National 
Association of Counties? Have you talked to the National 
Council of mayors about your proposal?
    Secretary Gutierrez. Personally, I have not. I have had 
some meetings with some mayors.
    Mr. Moore of Kansas. Secretary Jackson, have you, sir?
    Secretary Jackson. Yes, I have.
    Mr. Moore of Kansas. Who have you talked to, sir?
    Secretary Jackson. I spoke to the U.S. Conference of mayors 
and the National Association of Counties.
    Mr. Moore of Kansas. Did they express the same concerns 
that I have related here today?
    Secretary Jackson. Yes.
    Mr. Moore of Kansas. And you have not, Mr. Secretary?
    Secretary Gutierrez. No, but we would like their point of 
view. We would like them to help us because it is somewhat easy 
to say no. It is a little bit harder to get our heads around 
how do we do a better job with taxpayers's money and figure 
something out and figure out a new design.
    Mr. Frank. Would the gentleman yield?
    Mr. Moore of Kansas. Yes, sir.
    Mr. Frank. I would just say on behalf of the Democratic 
side, I have checked with the subcommittee Ranking Member's 
staff and our staff, we have certainly not received anything. 
You said you wanted to work with the committee. I am not aware 
of any requests from either department for us to begin to talk 
about this. Secretary Gutierrez asked if we could have met 
yesterday and I apologize for the fact that we could not. But 
there has been no request for any consultation or input that I 
am aware of to the Democratic staff.
    Mr. Ney. The gentleman from Texas, Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman.
    Mr. Secretary and Mr. Secretary, welcome. If I understand 
this initiative properly, I wish you would have showed up here 
about 10 or 20 years ago, but better late than never. Secretary 
Jackson, always good to see you again, sir. You clearly are one 
of the most qualified individuals who has ever served in your 
office, and certainly your reputation precedes you.
    I want to talk a little bit, since we have heard how 
popular the CDBG program is, and indeed it is popular with a 
number of mayors and city and county officials in my district 
in East Dallas and East Texas. But at the same time, I know 
that any program that essentially is handing out free money is 
going to be a very popular program. But that program, not 
unlike any other program we have here, has opportunity costs. 
Every dollar that goes into CDBG is a dollar that cannot be 
used to save Social Security. It is a dollar that cannot be 
used to reduce the debt that my children one day are going to 
inherit if we do not reform a number of these programs.
    So my question is, Mr. Secretary, given all of your 
experience, and I know of a number of individual projects that 
CDBG funds have been used on that are quite good, but in an 
overall, macroeconomic sense, when we pour all this taxpayer 
money in on one end, how are we measuring success on the other 
end besides the fact that we are going to spend more money next 
year than we did last year? How do I evaluate that the 
taxpayers are getting good value for their investments? And the 
recipients, how do we know that we are really doing anything to 
alleviate the blight in their neighborhoods or create economic 
development?
    Secretary Jackson. Congressman, I think that is a very fair 
question. Let me say this, I go back to 2001, 2002, with the 
evaluation that was done by OMB. In that process, they denoted 
a number of problems that existed in the program, and that they 
wanted outcome measures that we could statistically say that 
the program is working. What I did after that, as Deputy 
Secretary, is went to the secretary, at that time Secretary 
Martinez, and said we have to respond and we have to begin to 
be proactive as OMB has said.
    So we empanelled professionals from the community 
development area, the industrial leaders, and members from OMB 
who worked side by side for the last 14 months to address 
exactly what you have just said, to measure the outcomes. What 
we did in that process is we completed the analysis and we 
submitted to you and this committee four alternates that can be 
used to address many of the issues that you said.
    Let me say this, because it is important. I am pleased and 
I said it then and I say it now, that OMB came and made the 
evaluation because we would not at HUD be as far along as we 
are in finding remedies for the problems that we have in the 
Community Development Block Grant program. Yes, we can clearly 
say that there are communities that have been absolutely 
successful, and I do not doubt that, because as I said earlier, 
if I had to speak about it, I can tell you a number of programs 
in St. Louis and right here in Washington, D.C. that I oversaw 
that are doing extremely well.
    But without measured outcomes, that is a problem. I think 
that if you review the alternates that we sent to you, we have 
addressed the issue specifically about communities and how we 
have a disparity in some communities versus others, as 
Secretary Gutierrez has said. We have addressed that issue.
    We have also addressed how do you measure this in a metric 
system to make sure that we can document that these programs 
are working. I think that in many cases we are in the process 
we have been doing for the last two-and-a-half years, and we 
will continue to do it as long as we have the program. If the 
program is at Commerce, we will work with them to set up those 
same metrics so we can continue to measure.
    Mr. Hensarling. Thank you, Mr. Secretary. My time is 
starting to run a little short here.
    Secretary Gutierrez, in your testimony, you include some 
fairly radical notions for inside the beltway. Number one, that 
we should use the best tools available to actually see if we 
are achieving benefits to those we have pledged to help; that 
we can actually consolidate programs and get more with less; 
that we should target resources to those who need it the most. 
Again, these are not radical concepts outside of the beltway.
    Unfortunately, to some extent, they are radical inside, 
particularly the idea that we can get more with less. I know 
you were a Fortune 100 CEO. When you were at Kellogg's, did you 
ever have 18 HR departments or 18 CFOs or 18 marketing 
departments? And if you did, did you reach the point of 
diminishing margin of utility where you could have gotten more 
with less?
    Secretary Gutierrez. Yes, Congressman, I think that is an 
excellent point. It would be a little bit like having 18 sales 
departments. That is why I say the problem is not HUD; the 
problem is the system. If we can focus on creating and 
designing a new system, we would do a great job for our 
taxpayers around the country.
    Mr. Ney. The time has expired.
    Mr. Crowley of New York?
    Mr. Crowley. I thank the Chairman and thank both 
secretaries for being here today, especially Secretary 
Gutierrez, who's from Flushing, Queens, the town that I come 
from. So welcome.
    I welcome Secretary Jackson as well.
    I think it is fair to point out, my colleague from Texas 
had mentioned that dollars that are put towards Community 
Development Block Grants are dollars that potentially could be 
use to save Social Security and some other laudable programs 
that I think the federal government now supports. I think it is 
also fair to say that for every cut that is made in Community 
Block Grant or in HUD or in Commerce is another dollar that can 
be given towards the tax cut for the wealthiest 1 percent in 
this country is wrong. I think it is important to put that on, 
at least for my purpose, on the record as well.
    Mr. Jackson, I am going to ask you a question. It may sound 
very rhetorical, but it is a real question. Does this 
administration believe that in public housing that fighting 
drugs is a priority?
    Secretary Jackson. Yes.
    Mr. Crowley. It does. I ask the question because several 
years ago, this administration eliminated the drug elimination 
program, also known as DEP and told housing authorities around 
the country to use their capital or operational funds to 
continue the good and successful works of DEP. Are you familiar 
with that?
    Secretary Jackson. Yes.
    Mr. Crowley. As an aside, I am the son of a police officer 
in New York City for 22 years. I grew up around a lot of police 
officers. I know for a fact the NYPD has said that the DEP 
funds were vital in their fight against drug use in public 
housing. But this year, the New York City Housing Authority, 
the largest of its kind in the United States, is dealing with a 
$50 million slash to its budget. They can barely maintain their 
voucher program, let alone or operate the DEP program.
    So my question is, where is the money? If the 
administration truly wants to be a partner in preventing drug 
abuse in public housing, where is the commitment by this 
administration towards that end?
    Secretary Jackson. Congressman, let me say this, that when 
the drug elimination program was eliminated in the budget, it 
was not effectively eliminated. What HUD did at that point and 
Congress did at that point is it was the budget at that time 
for drug elimination was somewhere I think about $525 million.
    What they effectively did is told the housing authorities 
that they could utilize the monies that had been allocated for 
drug elimination for either capital improvement or continue to 
use it for drug elimination. They just did not call it drug 
elimination.
    They put about $490 million of the $525 million, if I 
remember correctly, back into the budget. Housing authorities 
that had been utilizing it for that, continued to utilize it 
for that. Dallas is one of those housing authorities that I can 
specifically tell you that. Let me tell you why it was 
eliminated, because in many cases about 78 percent to 80 
percent of the housing authorities, even when they got their 
drug elimination monies, were not using for that purpose. So 
rather than continue the facade, Congress and HUD made the 
decision, why don't we just give it to them and if they choose 
to use it, they will use it.
    The last part that you said, we just put $1.4 million back 
into the operating budget. We put $1.1 million back into the 
Section 8 budget to make sure that we address the needs of 
places like New York City and others. If there is a shortfall 
at this point, I am just not aware of it. We did increase the 
budget this year and for next year in 2006.
    Mr. Crowley. You brought up Section 8. Let me just address 
that for a moment. I have a housing complex in the Bronx, a 
housing unit in the Bronx that is 100 percent Section 8 
housing. There has been some discussion about a new owner for 
that building who has not accepted Section 8 housing in the 
past. He has indicated to the people in that building that he 
will not accept Section 8 vouchers in the future. I brought 
this to the attention of the Ranking Member. Since you are here 
in front of me today, have you been hearing such stories around 
the country.
    Secretary Jackson. Yes, we have.
    Mr. Crowley. And what do you plan to do about that?
    Secretary Jackson. If they are not budget-based vouchers 
and certificates, there is nothing we can do.
    Mr. Crowley. So basically those individuals who cannot 
afford to stay there will go where?
    Secretary Jackson. They will be able to take their vouchers 
to other housing developments.
    Mr. Crowley. Where in New York City can you do that?
    Secretary Jackson. I cannot tell you. I do not live in New 
York City.
    Mr. Crowley. I don't know where else you can do that in any 
other part of the country that has public housing either.
    I listened to what you said. You know, cuts are going all 
across the board here, city, state and federal as well. You 
have gone from $5.7 billion to $3.7 billion in CDBG; $4.1 
billion in HUD alone, down to $2.6 billion, a drastic cut. My 
colleague asked you before, Mr. Scott, whether you agreed with 
the cuts. You implemented them, but do you agree with them? You 
did not answer his questions. I wonder if you could answer it 
now?
    Secretary Jackson. What I said to the Congressman then and 
I will say it to you, we zeroed out of our budget $4.5 billion.
    Mr. Crowley. Did you agree with that is what he asked you.
    Secretary Jackson. Yes, I do believe that.
    Mr. Ney. The time has expired.
    Mr. Crowley. I appreciate that. Thank you.
    Mr. Ney. The gentleman, Mr. Frank.
    Mr. Frank. Mr. Chairman, there has been a lot of 
conversation about consultation. We have been told that the 
reason there are no specifics is that they want to leave room 
for consultation. I must say, I do not think that is the 
reason. I think there is no consultation because this idea has 
not been taken seriously at any level.
    Let me just ask, Mr. Secretary, who is writing the bill? 
Secretary Gutierrez, is the bill now being written?
    Secretary Gutierrez. We are in the process.
    Mr. Frank. Who is ``we''? Who is writing it? Who is writing 
the bill, which agency?
    Secretary Gutierrez. We are writing it within Commerce and 
we plan to have a bill, a preliminary bill to you in late 
April.
    Mr. Frank. Okay. The Department of Commerce is writing it.
    Secretary Gutierrez. I will find out specifically.
    Mr. Frank. Okay. I do not mean a name. I mean the agency.
    Secretary Gutierrez. Yes.
    Mr. Frank. We have had no contact, those of us on the 
Democratic side, at least, have had no request for input or 
anything else. In fact, I rarely see such unanimity from 
people. There was some suggestion this was an inside the 
beltway thing. Well, that would be true only if the beltway 
were described as consisting of the Atlantic and Pacific 
Oceans, Canada and the Gulf of Mexico, because there is a 
nationwide rejection.
    I have been asked today to submit material from the 
National Association of Housing and Redevelopment Officials and 
local officials, and I would ask unanimous consent that all 
these be put into the record.
    Mr. Ney. Without objection.
    Mr. Frank. In conclusion, the President's Strengthening 
America's Communities proposal may have a pleasant sounding 
name, but it represents an unprecedented reversal of the 
covenant relationship between the federal government and states 
and localities. It is a profoundly disturbing retreat from a 
responsible federal community and economic development agenda.
    On behalf of the National Association of Federal Credit 
Unions, I want to share our concern regarding the proposed 
changes. The National Association of Federal Credit Unions 
opposes moving the CDFI, the Community Development Financial 
Institutions, which we have jurisdiction over. The National 
Association of Federal Credit Unions opposes moving the fund to 
the Commerce Department and urges Congress to continue the fund 
at $80 million level.
    The Coalition of CDFI Organizations, community development 
financial institutions, including a lot of banks and a lot of 
private sector activity groups, also ask that I submit their 
statement expressing their very strong opposition to this 
program.
    I do not know of any of the agencies that are involved at 
the local level in administering this, private citizens, 
elected officials, appointed officials, financial institutions. 
I do not know any that are for this. ``Under the proposed block 
grant structure, CDFIs would lose the ability to apply directly 
to the federal government for targeted investments. The 
important role that modest federal dollars play in allowing 
CDFIs to attract private sector investment would be lost under 
the new proposed structure.''
    Now, there will be a lot more. Let me ask you, Secretary 
Gutierrez, if this proposal goes through and the bill that your 
department is writing, how much of CDBG will be available for 
housing? How much of the new program will be available for help 
in the construction of housing?
    Secretary Gutierrez. As I mentioned before, the overall 
funds would be cut by 4 percent.
    Mr. Frank. I understand that. But in the new rules, would 
housing be a fully eligible activity or would it be a 
restricted activity? Of the reduced amount of money available, 
because that is one of the concerns since CDBG is now used for 
housing, how much of that would housing be eligible for use 
under the new program as it is under the existing one?
    Secretary Gutierrez. That will depend on the specific 
program and the specific----
    Mr. Frank. I understand, but you are writing it. What do 
you mean, ``it depends on''? You are writing it. How are you 
going to write it?
    Secretary Gutierrez. We would be writing eligibility 
criteria.
    Mr. Frank. Do you plan in the bill, I understand it will 
come to us, but in the bill that your department is writing, 
what is your intention regarding housing?
    Secretary Gutierrez. Our intent is to improve the economic 
conditions at the local level.
    Mr. Frank. Excuse me, Mr. Secretary, that is not what I 
asked you. You have learned quickly how to dodge questions. I 
congratulate you.
    In the bill that you are writing, will housing be a fully 
eligible use for these monies to the extent that it now is or 
not?
    Secretary Gutierrez. To the extent that that helps a local 
community improve their economic conditions, yes.
    Mr. Frank. So if they decide that housing is good for the 
local economy, they could use the money for housing?
    Secretary Gutierrez. It depends on the specific proposal.
    Mr. Frank. You are going to approve the specific proposal? 
Oh, that is interesting, because right now under CDBG the local 
communities have a lot of autonomy. So apparently, you are 
going to propose something that has much more federal say-so? I 
guess that is a reversal from what I would have thought your 
direction would be.
    Under the proposal now, under very broad guidelines, the 
communities decide about CDBG. You are now telling me that 
whether or not a community can build housing, they would need 
approval from your department. That is a severe retreat in 
terms of the flexibility that communities have had, and I think 
it is one more mark against the program.
    I have no further questions.
    Mr. Ney. The gentlelady from Florida, who so patiently has 
sat here since the gavel dropped, Ms. Wasserman Schultz?
    Ms. Wasserman Schultz. Thank you, Mr. Chairman.
    In the limited time I have, I noted that, Mr. Secretary 
Jackson, you had avoided answering the question about whether 
you approve of the cuts, and you are choosing not to define 
them as cuts. But as the Ranking Member said, there was $4.5 
billion that you are zeroing out in your budget. What is in the 
budget is about $3.7 billion; $4.5 billion minus $3.7 billion 
is whatever it is. You do the math. That is a cut. So are you 
in favor of there being less money now, less money in the 
future than there is now that funds your program, that is 
currently housed in your department, that will under your 
proposal, no longer be housed in your department?
    Secretary Jackson. Congresswoman, what I have said is that 
we zeroed out $4.5 billion out of our budget. How the new 
legislation will look, I am not in a position to tell you.
    Ms. Wasserman Schultz. No, no, but I am not asking you 
that.
    Secretary Jackson. I am answering your question. I am not 
in a position----
    Ms. Wasserman Schultz. You are not answering my question, 
with all due respect, and you have not answered any of our 
questions no matter which way we have asked it. There, in the 
budget, I am not talking about your proposal, but in the 
budget, the number, the line item, has less money in it now 
than has been zeroed out from your budget, less money. I will 
just ask you generally. Do you support there being less money 
available for the programs that your department currently 
funds? Do you support that?
    Secretary Jackson. My position, Congresswoman, is we zeroed 
out $4.5 billion.
    Ms. Wasserman Schultz. That is not a position. That is a 
statement.
    Secretary Jackson. May I finish? How the money will be 
utilized when the new legislation is written, I am not in a 
position to discuss that today. I think Secretary Gutierrez has 
said before they will bring it before the Congress for your 
evaluation.
    Ms. Wasserman Schultz. I think that your answer has been 
telling and pretty much implicitly answers the question.
    Secretary Gutierrez, can you tell me what the current 
mission of the Department of Commerce is? And if it has 
anything whatsoever to do with housing?
    Secretary Gutierrez. The current mission is to improve 
economic conditions throughout the country. I am not using the 
specific words, but I think you want the concept. It is all 
about encouraging economic growth, setting the environment for 
economic growth, for innovation, for job creation. That is the 
mindset that we want to apply to local communities.
    Ms. Wasserman Schultz. You stated that you think that we 
can do better in general. How is it that Commerce can do a 
generally better job than HUD on the programs that you are 
consolidating under your department?
    Secretary Gutierrez. As you state, because of our mission, 
we are focused and our systems are focused on economic growth, 
on job creation, on attracting private sector capital. That is 
the kind of mindset that we believe we owe our people who are 
receiving this money so that they in turn can have access to 
more jobs, to more capital, to more growth.
    Ms. Wasserman Schultz. Why can't all of that be done in the 
Department of Housing and Urban Development? Why is it better 
to do it in the Department of Commerce, whose mission does not 
include anything related to housing?
    Secretary Gutierrez. But our mission is all about economic 
growth and economic development and job creation.
    Ms. Wasserman Schultz. None of which has anything to do 
with housing.
    Secretary Gutierrez. It does. If the housing is inadequate 
in a given community, that community will not be able to 
attract investment.
    Ms. Wasserman Schultz. What do you consider to be the 
mission of the CDBG program and affordable housing programs? 
Are they to create jobs?
    Secretary Gutierrez. The mission of Commerce is to create 
an environment whereby we can create jobs, we can create 
growth, innovation and entrepreneurship. We want to apply that 
mindset to all of these funds.
    Ms. Wasserman Schultz. You do not feel that what you are 
doing here is trying to fit a square peg into a round hole?
    Secretary Gutierrez. No, what we are trying to do here is 
to utilize our taxpayers's money to go to those people who need 
it the most.
    Ms. Wasserman Schultz. Mr. Chairman, I think it would be 
wise when we see this proposal that included in it should be 
the change in the name of HUD to UD, so that that will more 
clearly define what its future mission will be.
    Thank you. I yield back the balance of my time.
    Mr. Ney. The gentleman, Mr. Davis?
    Mr. Davis of Alabama. Thank you, Mr. Chairman. I will be 
extremely brief.
    Given the time, Mr. Gutierrez, let me ask you in 30 
seconds, tell me in the most succinct language possible, tell 
me the single biggest obstacle to minority business development 
in this country, for the sake of time, in 30 seconds or less if 
you can, just a couple of phrases.
    Secretary Gutierrez. I would say based on my experience, 
the single biggest obstacle would be access to capital.
    Mr. Davis of Alabama. Tell me how any of the changes that 
are being proposed would address the problem of access to 
capital for minority business?
    Secretary Gutierrez. Access to capital is done through 
beneficial loans. It is done through private sector investment.
    Mr. Davis of Alabama. No, tell me how these specific 
changes, the cuts and the consolidation, would take us a step 
closer to dealing with the access to capital problem?
    Secretary Gutierrez. Because our mission in Commerce is to 
help businesses, to help small businesses, large businesses. We 
have a minority business----
    Mr. Davis of Alabama. I understand that, but not to cut you 
off, but as you know our time is pressed. Tell me how the 
changes, tell me how the consolidation and the cuts would take 
us further down the path to dealing with the lack of access to 
capital.
    Secretary Gutierrez. Because we are in the business of 
creating jobs, and jobs are created through capital. And that 
is what we do at Commerce.
    Mr. Davis of Alabama. So no specific explanation of why the 
consolidation or cuts would work.
    Secretary Jackson, a similar question to you, the single 
biggest problem in 30 seconds or less, or the single biggest 
obstacle to providing more affordable housing? Thirty seconds 
or less.
    Secretary Jackson. I think we have addressed many of the 
issues to addressing affordable housing. We have the American 
Dream Downpayment----
    Mr. Davis of Alabama. No, no, no. Tell me the single 
biggest remaining obstacle to expanding affordable housing.
    Secretary Jackson. Well, down payment and closing costs.
    Mr. Davis of Alabama. Tell me how the proposed cuts or the 
consolidation would take us a step closer to addressing that 
problem.
    Secretary Jackson. First of all, that portion of HUD is in 
no way being affected.
    Mr. Davis of Alabama. Okay. Well, the point that I am 
making, and I will not debate you for the sake of a limited 
time frame, the fact that we have to go vote, but my concern, 
gentlemen, is there is an embrace of the idea of cuts because 
we need to save money. The reality is that these cuts are 
minimal as things go in the course of a $2.9 trillion budget, 
but yet this minimal amount of money is important to 
accomplishing the goals of these programs.
    I would be more comfortable and a lot of people on the 
committee would be more comfortable if there was some 
correlation between these changes, these consolidations and 
these cuts and the missions of your two agencies. I have not 
heard it today. I do not think my colleagues have heard it. All 
that we have heard is the cuts are good because we need to save 
money. The reality is, this does not save a lot of money. I 
would feel a lot better, as would my colleagues, if the cuts 
took us, and the changes took us a step further to 
accomplishing the goals of your agencies.
    I yield back the balance of my time.
    Mr. Ney. The vote is on. We will know in 30 seconds or less 
whether we will be back for a second panel.
    The Chair notes that some members may have additional 
questions, of course, for this panel, which they might want to 
submit in writing. Without objection, the hearing record will 
remain open for 30 days for members to submit written questions 
for these witnesses and to place their responses in the record.
    With apologies to OMB, I am sorry for the inconvenience. It 
is hard to predict the votes today. Any statements you would 
have or testimony for the record, we would welcome for the 
record.
    [The prepared statement of Clay Johnson III can be found on 
page 73 in the appendix.]
    One thing further for the Secretaries, I would note some of 
the members are leaving for the funeral of the Pope. So as a 
result, some people will not be able to be back and plans have 
changed for people leaving the capital.
    With that, I want to thank the members of the panel and 
OMB. Again, thank you very much.
    [Whereupon, at 3:38 p.m., the committee was 
adjourned.]









                            A P P E N D I X



                             April 6, 2005


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