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




 
LIVING IN AMERICA: IS OUR PUBLIC HOUSING SYSTEM UP TO THE CHALLENGES OF 
                           THE 21ST CENTURY?

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON FEDERALISM
                             AND THE CENSUS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 15, 2006

                               __________

                           Serial No. 109-136

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform


                                 ______

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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
------ ------

                      David Marin, Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

               Subcommittee on Federalism and the Census

                   MICHAEL R. TURNER, Ohio, Chairman
CHARLES W. DENT, Pennsylvania        WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       PAUL E. KANJORSKI, Pennsylvania
VIRGINIA FOXX, North Carolina        CAROLYN B. MALONEY, New York
------ ------

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                     John Cuaderes, Staff Director
                          John Heroux, Counsel
                         Juliana French, Clerk
            Adam Bordes, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 15, 2006................................     1
Statement of:
    Lazio, Rick A., executive vice president, Global Government 
      Relations and Public Policy, JPMorgan Chase Bank; Henry 
      Cisneros, chairman, Cityview, former Secretary of HUD; 
      David G. Wood, Director, Financial Markets and Community 
      Investments, Government Accountability Office; and Renee 
      Lewis Glover, former commissioner, Millennial Housing 
      Commission, chief executive officer, Atlanta Housing 
      Authority..................................................    10
        Cisneros, Henry..........................................    19
        Glover, Renee Lewis......................................    44
        Lazio, Rick A............................................    10
        Wood, David G............................................    21
    Solomon, Rod, counsel, Hawkins Delafield & Wood, LLP, former 
      HUD Deputy Assistant Secretary for Policy; Conrad Egan, 
      president, National Housing Conference, former executive 
      director of the Millennial Housing Commission; Alexander 
      von Hoffman, senior fellow, Joint Center for Housing 
      Studies, Harvard University; Edgar O. Olsen, professor of 
      economics, University of Virginia; and Michael A. Stegman, 
      Macrae professor of public policy, planning and business, 
      and director, Center for Community Capitalism, Kenan 
      Institute of Private Enterprise, adjunct professor of 
      entrepreneurship, University of North Carolina at Chapel 
      Hill.......................................................    65
        Egan, Conrad.............................................    83
        Olsen, Edgar O...........................................   100
        Solomon, Rod.............................................    65
        Stegman, Michael A.......................................   113
        von Hoffman, Alexander...................................    90
Letters, statements, etc., submitted for the record by:
    Clay, Hon. Wm. Lacy, a Representative in Congress from the 
      State of Missouri, prepared statement of...................     8
    Dent, Hon. Charles W., a Representative in Congress from the 
      State of Pennsylvania, prepared statement of...............   132
    Egan, Conrad, president, National Housing Conference, former 
      executive director of the Millennial Housing Commission, 
      prepared statement of......................................    85
    Glover, Renee Lewis, former commissioner, Millennial Housing 
      Commission, chief executive officer, Atlanta Housing 
      Authority, prepared statement of...........................    46
    Lazio, Rick A., executive vice president, Global Government 
      Relations and Public Policy, JPMorgan Chase Bank, prepared 
      statement of...............................................    14
    Olsen, Edgar O., professor of economics, University of 
      Virginia, prepared statement of............................   102
    Solomon, Rod, counsel, Hawkins Delafield & Wood, LLP, former 
      HUD Deputy Assistant Secretary for Policy, prepared 
      statement of...............................................    68
    Stegman, Michael A., Macrae professor of public policy, 
      planning and business, and director, Center for Community 
      Capitalism, Kenan Institute of Private Enterprise, adjunct 
      professor of entrepreneurship, University of North Carolina 
      at Chapel Hill, prepared statement of......................   116
    Turner, Hon. Michael R., a Representative in Congress from 
      the State of Ohio, prepared statement of...................     4
    von Hoffman, Alexander, senior fellow, Joint Center for 
      Housing Studies, Harvard University, prepared statement of.    92
    Wood, David G., Director, Financial Markets and Community 
      Investments, Government Accountability Office, prepared 
      statement of...............................................    23


LIVING IN AMERICA: IS OUR PUBLIC HOUSING SYSTEM UP TO THE CHALLENGES OF 
                           THE 21ST CENTURY?

                              ----------                              


                      WEDNESDAY, FEBRUARY 15, 2006

                  House of Representatives,
         Subcommittee on Federalism and the Census,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:05 p.m., in 
room 2247, Rayburn House Office Building, Hon. Michael R. 
Turner (chairman of the subcommittee) presiding.
    Present: Representatives Turner, Dent, Foxx and Clay.
    Staff present: John Cuaderes, staff director; Jon Heroux, 
counsel; Juliana French, clerk; Adam Bordes, minority 
professional staff member; and Jean Gosa, minority assistant 
clerk.
    Mr. Turner. A quorum being present, this hearing of the 
Subcommittee on federalism and the Census will come to order.
    We want to welcome you to the subcommittee's oversight 
hearing entitled, ``Living in America: Is our Public Housing 
System up to the Challenges of the 21st Century?'' This will be 
the first in a series of hearings designed to examine the state 
of public housing system in the United States.
    Congress first authorized public housing in 1937 as part of 
Franklin D. Roosevelt's Depression-era public works legislative 
package. Over the years the program has evolved from a public 
works program designed to serve predominantly working families 
on a temporary basis before moving on to permanent market-rate 
housing after a few years, to one serving poorer families who 
are more likely to become long-term residents, with fewer 
options for securing permanent unsubsidized housing.
    In my hometown of Dayton, OH, the Dayton Metropolitan 
Housing Authority serves close to 15,000 families through its 
public housing communities or Section 8 vouchers. While we have 
made significant progress in the housing arena over the last 10 
years, addressing the housing needs of the city's poorest 
families remains a significant challenge as we seek to create 
quality affordable housing for all families.
    Despite several minor attempts to reform our public housing 
system, by the mid-1990's, there were still far too many cases 
where public housing did not provide quality, affordable 
housing to the Nation's neediest families. In 1998, Congress 
passed the Quality Housing and Work Responsibility Act to 
address the many problems within the public housing system. 
This landmark legislation was the largest overhaul of the 
public housing system in its long history.
    Today, public housing programs serve more than 3 million 
families at a price of more than $20 billion annually in 
Federal funding. Public housing programs consume nearly 60 
percent of HUD's entire annual budget.
    In recent years, public housing programs and housing 
assistance have taken a back seat in the national debate. But 
with a combined Federal, State and local government investment 
of more than $50 billion, it is time we begin looking to see if 
these funds are being well spent. In this hearing, we will look 
at our public housing system from a broad view. Later, we will 
narrow the subject matter of any follow-on hearings based on 
what we learn in part from our witnesses today.
    This hearing will examine the factors that led up to 
Congress' decision to reform the Nation's public housing 
programs in 1998, as well as the recommendations made by the 
Millennial Housing Commission in its 2002 report entitled, 
``Meeting our Nation's Housing Challenges.'' We will examine 
the present state of public housing and take a broad look at 
how effective reform legislation has been in creating better, 
safer and more affordable housing for the Nation's low and 
moderate-income families.
    We have on our first panel the Hon. Rick Lazio of JPMorgan 
Chase. Representative Lazio is the former chairman of the House 
Financial Services Subcommittee on Housing and Community 
Opportunity, and the author of the Quality Housing and Work 
Responsibility Act of 1998.
    Next we have the Hon. Henry Cisneros, who was the Secretary 
of Housing and Urban Development from 1993 to 1997, and is 
currently chairman of CityView.
    Next we have David Wood, Director of Financial Markets and 
Community Development at the Government Accountability Office.
    Last, we have Renee Glover, a former Commissioner on the 
Millennial Housing Commission and currently the CEO and 
president of the Atlanta Public Housing Authority.
    On our second panel we have five distinguished witnesses. 
First is Rod Solomon, who is counsel with the law firm of 
Hawkins Delafield & Wood, and was the Deputy Assistant 
Secretary for Policy at HUD.
    Next we have Conrad Egan. Mr. Egan is currently president 
of the National Housing Conference, and the former executive 
director of the Millennial Housing Commission.
    Following Mr. Egan, we will hear from Dr. Alexander von 
Hoffman, a historian and senior research fellow at Harvard 
University's Joint Center for Housing Studies.
    Next we have Dr. Edgar Olsen, professor of economics at the 
University of Virginia.
    Last, we have Dr. Michael Stegman, who is the director of 
the Center for Community Capitalism at the Kenan Institute of 
Private Enterprise, and an adjunct professor of 
entrepreneurship at the University of North Carolina.
    I look forward to the expert testimony our distinguished 
panel of leaders will provide to the subcommittee. I thank you 
for all your time.
    I recognize Mr. Clay, our ranking member.
    [The prepared statement of Hon. Michael R. Turner follows:]

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    Mr. Clay. Thank you, Mr. Chairman. Let me first begin by 
thanking you for starting this legislative session with a 
review of our Nation's public housing program. This topic is of 
significant importance to all of our constituents, from Dayton 
to St. Louis, and everywhere in between.
    Since its origins dating back to the Great Depression, 
public housing programs have served as a bedrock of support for 
millions of families, elderly and disabled individuals. At the 
same time, however, these programs have struggled to mitigate 
significant economic and social ills that have prevented our 
capital investments and programmatic goals from achieving their 
intended outcomes. Public housing, nevertheless, is in more 
demand than ever, as economic disparities and escalating 
housing costs have forced an overwhelming number of individuals 
to seek assistance.
    Being from an urban center like St. Louis, I know firsthand 
the value of public housing to my constituents. Our local PHA, 
the St. Louis Housing Authority, has a budget of approximately 
$60 million that is derived entirely from HUD. Its public 
housing program has a budget of $33 million to support 
approximately 3,800 units located in 33 developments throughout 
the city. Unfortunately, however, approximately 700 of these 
units are not suitable for use because of modernization or 
demolition activities, and the average age of a public housing 
building is 38-years-old. Complicating matters is the strain on 
its Section 8 Housing Voucher program, which provides roughly 
4,900 vouchers annually, yet has nearly 3,200 applicants on its 
Housing Choice Voucher waiting list.
    While I approach today's hearing with an open heart and 
mind, I believe any long-term approach to public housing reform 
needs to be undertaken with care and consideration for all 
program beneficiaries. To meet this requirement, I believe a 
hold harmless mechanism that would protect families from cuts 
in the future ought to be considered as part of any future 
authorizing legislation.
    Mr. Chairman, I thank you very much. I yield back the 
balance of my time.
    [The prepared statement of Hon. Wm. Lacy Clay follows:]

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    Mr. Turner. Thank you, Mr. Clay.
    We will now start with the witnesses. Several witnesses 
have kindly prepared written testimony which will be included 
in the record of this hearing. The witnesses will notice that 
there is a timing light at the witness table. The green light 
indicates that you should begin your prepared remarks, and the 
red light indicates that your time has expired. The yellow 
light will indicate when you have 1 minute left in which to 
conclude your remarks.
    It is the policy of this committee that all witnesses be 
sworn in before they testify. If the witnesses would please 
rise and raise their right hands.
    [Witnesses sworn.]
    Mr. Turner. Please let the record show that all witnesses 
have responded in the affirmative.
    I want to thank each of you again for the time that you are 
taking to be here, both in the preparation that it took and the 
time that you are taking out of your schedules.
    This committee is just beginning its process of looking at 
the issues of public housing. Last year we focused on CDBG and 
brownfields and brownfield redevelopment, holding over 5 
hearings, both in Washington, DC, and field hearings on the 
issue of CDBG and prospects for its reform and to preserve that 
program, and then also brownfields, how we might be able to 
assist communities, making sure that they have more effective 
tools for the redevelopment of abandoned factory sites.
    This is a beginning process so it is very important that we 
begin with each of you because you come to the table with 
significant knowledge in what has occurred in the past and 
where we have fallen short in the past, and a vision of what we 
might need to do in the future. So I appreciate you coming and 
sharing that with us. As I was telling Rick Lazio, that each of 
you have come to contribute to our to-do list, and we greatly 
appreciate the skill and knowledge that you are going to bring 
to the table to permit us to do that.
    With that, I would like to begin with Rick Lazio.

 STATEMENTS OF RICK A. LAZIO, EXECUTIVE VICE PRESIDENT, GLOBAL 
 GOVERNMENT RELATIONS AND PUBLIC POLICY, JPMORGAN CHASE BANK; 
 HENRY CISNEROS, CHAIRMAN, CITYVIEW, FORMER SECRETARY OF HUD; 
   DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY 
INVESTMENTS, GOVERNMENT ACCOUNTABILITY OFFICE; AND RENEE LEWIS 
  GLOVER, FORMER COMMISSIONER, MILLENNIAL HOUSING COMMISSION, 
       CHIEF EXECUTIVE OFFICER, ATLANTA HOUSING AUTHORITY

                   STATEMENT OF RICK A. LAZIO

    Mr. Lazio. Thank you, Mr. Chairman. I am delighted to be 
here. I want to congratulate you for assembling two wonderful 
panels, people that I have had the pleasure of working with 
before, and I am sure they are going to be able to provide 
great insight into the current state of housing policy in 
America. I also want to acknowledge Congressman Clay. It's 
wonderful to see you again, and I thank you for the opportunity 
and the respect you show for showing up for this.
    I thought I would, as I said, dispense with the written 
testimony. My pal here, Henry Cisneros, is kidding me a bit, 
because he is pushing this timer in my face. I said, ``Was this 
always this uncomfortable?'' He said, ``Yeah.'' Did we saw off 
the legs or--[laughter]--I have great respect for the people 
who have testified in the past in front of my committee, and I 
want to begin by acknowledging a really terrific, ideal 
partner, and that was Henry Cisneros. It seems almost quaint in 
this era to have a Republican chairman and a member of the 
Democratic administration really bond the way I would like to 
think that we did. But it's been a great relationship. I have 
tremendous respect for him, and I'm sure would not have been 
able to accomplish what we did accomplish without his strong 
support and leadership. So it's been a loss for the country not 
to have him in public service.
    When I was elected we were in the minority, and having been 
in the minority and the majority, I would say that being in the 
majority is more fun, but 2 years later the Republicans did 
sweep into the majority, and one of the great advantages of 
getting the gavel as housing chairman was not to really have 
any history, any partisan history. There was nobody's mess to 
clean up for. There was no doctrinaire, paradigm to try to fit 
into, per se, which was an advantage in terms of having a clean 
slate from which to work.
    The second major advantage was that there was a sense of 
urgency and a general sense of consensus, I think, that there 
were fundamental problems and challenges affecting public and 
assisted housing. That created the imperative to work to try 
and have a more fundamental reform, which is in fact what we 
did.
    The last advantage that I had was to be given the gift of 
time. At the time I took the gavel, there were calls on both 
sides of the aisle for either a dismantling of HUD or 
dismantling of public housing and a vouchering out of public 
housing, and I was given time by the then-Speaker Newt 
Gingrich, to learn and listen and go out in the field which is 
exactly what I did, and I would strongly recommend to this 
committee, to be a good listener, to go out into the field and 
listen to the tenants, listen to the people who were struggling 
with these issues every single day. We'd airlift in and presume 
to know the answers, and in fact, we really didn't know the 
answers, hardly knew what questions were the right questions to 
ask to being with, but we got there. Places like Desire and New 
Orleans, or Robert Taylor Homes and Cabrini Green, and places 
from Brownsville and New York, to St. Louis and parts west, and 
that informed us greatly.
    I was committed to take time to listen, and what I saw and 
heard was that tenants wanted clean, safe, healthy housing. 
They wanted a place where if they had children they could raise 
them and have the confidence that they had in the environment 
where those children could have the opportunities that perhaps 
they did not have. Seniors wanted to live without being 
harassed. The people expected to have the light bulbs work, the 
doors on hinges, and the windows intact. Public housing 
officials wanted more flexibility. They wanted to be trusted to 
do their job. They wanted to spend less time hassling with 
trying to fit into programs, that while well intentioned, had 
grown to be so prevalent that their very local needs were not 
always met.
    So there were two thrusts to the reform that we came back 
with. One was really what I call more of a group of management 
reforms, beginning with consolidating literally dozens of 
programs, again, that were well-intentioned programs, but which 
didn't fit the needs of every single housing authority, and to 
consolidate them into two major grants, one a capital, and one 
an operating grant program for the Federal Government to fund, 
in that sense providing more flexibility again for housing 
authorities to address those needs.
    Then there were other things, for example, like repealing 
the one-for-one replacement rule, which again, while well 
intentioned, had the perverse impact of keeping dysfunctional 
units, debilitated units online, still costing housing 
authorities to maintain them because they didn't really have 
the money to replace them, or the site-based waiting list for 
public housing, so that a senior who wanted to stay in the same 
neighborhood that they had lived their whole life could go on a 
waiting list for just that one building as opposed to having to 
take the first unit that came up. And these operational 
management reforms, I think, were generally and fairly widely 
supported at the time.
    A second group of reforms had to do with creating a more 
dynamic atmosphere, an atmosphere where people who had the 
capacity to have a job and to earn an income could do so 
without having disincentives. So we provided more flexibility 
in terms of the income targeting to create more mixed income to 
provide more sustainable development, but also provide the 
opportunity for there to be more role models for people in 
these buildings, so that when a job became available that you 
could hear from word of mouth, so that children could see that 
a parent gets up in the morning and goes to work, that we 
thought that was intrinsically positive, that we modified the 
Brooke amendment, which again, while well intentioned, setting 
rent at 30 percent of income, had the perverse impact of 
effectively having a marginal tax on anybody who wanted to work 
overtime or get a better job or get married to somebody who had 
a job. They would do the rational thing, which was either to 
work off the books, not an ideal situation, or to choose either 
not to get married or not to take that work opportunity. So we 
created a tenant choice so that tenants would either have a 
flat rent or they'd be able to rely on that same guarantee of 
having no more than 30 percent of their rent, their income as 
rent.
    The goal was to empower tenant groups to allow them to be 
entrepreneurial. I remember, for example, in one of my visits 
at the Cabrini Green there was a tenant leader who talked about 
the fact that the basement had been dominated by drug dealers, 
that the tenants had been kicked out, and if they just had the 
authority, that they could come back, and they were going to do 
what they needed to do to help inform the law enforcement 
officials to kick out the criminals. But they wanted to put new 
lights in there. They wanted to clean the basement. They wanted 
to put washers and dryers in the area to service not just that 
building, but other buildings. But there was no incentive to do 
that because if they actually earned money because of that, 
that money would go back out of the building, and so we sought 
to change the law so that they could do that, that we could 
empower again local tenant groups to have more decisionmaking.
    If I think about it thematically, a lot of this had to do 
with devolving decisionmaking back to local communities, with a 
sense that communities each had distinct needs, and that 
housing, while we focused on it from a policy standpoint, was 
not all that there was, that for different groups, the 
disabled, people with AIDS, the seniors, they needed supportive 
services and they needed it onsite. We need to provide the 
flexibility for housing authorities and tenant groups to do 
that, that we needed to provide for a mixed income, and 
leveraging and private sector, public-private partnerships, 
because it wasn't just about housing, it was just as much about 
making sure that people could live in a place where they could 
have access to a good education for their children, where they 
can get to transportation and get a job, where they can live in 
a safe place without fear of being harassed or being victims of 
crime, where they could go and get decent banking services and 
decent prices for groceries, and not have to pay more than more 
affluent people in the suburbs were paying.
    And so we came to understand that we need to provide the 
flexibility. I look at the 1998 act and its predecessor, the 
1996 bill, and I think we perhaps started our work, but we 
certainly haven't finished it. The need to continue to marry 
resources and leverage up and use HUD and private sector 
resources to focus on bricks and mortar and to get other 
agencies within the Federal Government to address some of the 
softer needs, but just as important, needs of supportive 
services, should be a high priority I think for this committee 
and for this Congress.
    I will sort of wrap up by saying that I believe that our 
debate on the floor was a contentious debate. It was one of the 
longest debates I think that we had during that Congress, but 
in the end, over 100 Democrats supported the bill, and they 
supported the 1996 bill. As I was saying to Secretary Cisneros, 
it seems almost quaint now to have that level of bipartisanship 
where Republicans and Democrats were able to address a problem 
and look at a solution that reflected the values of the two 
great parties, of compassion and understanding, or addressing 
needs of the poor, of responsibility and work and family, and 
both parties could walk away and think that they had done 
something important for the community. My hope is, with 
appropriate levels of funding and with continued tweaking, that 
we will get there. And I hope that this was a modest but 
important step forward to achieve that goal.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Lazio follows:]

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    Mr. Turner. Mr. Secretary.

                  STATEMENT OF HENRY CISNEROS

    Mr. Cisneros. Thank you, Mr. Chairman. Let me begin by 
thanking you and Congressman Clay for your diligence in digging 
into a subject that's frequently not studied because it doesn't 
generate headlines and it requires a lot of digging into 
difficult things, but your work as a former mayor of a great 
midwestern city, and Congressman Clay's representation of a 
city in which some of the breakthrough moments for public 
housing have occurred, Pruitt-Igo on the negative side, and yet 
some of the Hope VI developments in St. Louis that are models 
for the entire country.
    I also want to thank Congressman Lazio. What you saw here 
in his statement is the same passion and conviction he brought 
to the debate in the 1990's, and literally millions of lives 
have been touched by Rick Lazio's work and leadership.
    Rick, thank you for just being a great public servant and a 
great guy.
    I also want you to know, Mr. Chairman, that you have in 
Renee Glover, the best public housing administrator in the 
country today, doing the best job for her city. Atlanta, not 
only has public housing has been transformed, but the city has 
been transformed by the work that Renee has begun there.
    As Congressman Lazio mentioned--and I am going to call him 
Congressman Lazio for the rest of his life, no matter what else 
he's doing--this is a time of reform for public housing. We 
tried to build on the reforms of my predecessor, Jack Kemp, our 
own work and that of Secretary Cuomo and the Clinton 
administration, and now Secretary Jackson, who brings the 
unique perspective of the only HUD Secretary who's ever been 
the director of a public housing agency, and in fact, he's been 
the director of several. We're at a point of convergence in 
which ideas and experiences and lessons are coming together 
from the experience of the 1990's and the early years of this 
decade.
    Among the reform lessons of the last decade, witnessed by 
four HUD Secretaries, are the following. First, we know that 
reforms in physical design matter, the scale of buildings, the 
trading off of the high rises for townhomes, the creation of a 
sense of defensible space and privacy for families instead of 
having to walk the hallways of those buildings to have their 
own entrances. The new urbanists have made a contribution in 
walkability and bringing the street grid back to the 
developments. And the use of the physical redesign in 
conjunction with Section 8, so that we have less dense density 
in families who live in Section 8 settings, that's one set of 
reforms that's been very powerful.
    Another set of reforms have been the roles of private 
investment in public housing, the kind of efforts that Hope VI 
ushered in, where market mechanisms were introduced, not just 
on the projects that are Hope VI, but into the thinking of the 
authorities themselves. And as Congressman Lazio mentioned, the 
importance of mixed income in the resident base has been very 
important to the residents and to the communities.
    And perhaps the most important reforms have been the way 
public housing authorities think of themselves. Most now think 
of themselves as among the biggest real estate entities in a 
city. They have more land, more apartments or units, more 
management responsibility than almost any other real estate 
entity in town. The best of them, like Renee in Atlanta, or in 
Seattle, where the Seattle Housing Authority, one of the 
highest graded in the country, owns 4,500 unsubsidized 
apartments that they have acquired, apartments in private 
apartment buildings, that function like large multi-family 
units. And they make those work for the families that have to 
be subsidized, by cross-subsidizing and creating really 
attractive settings. The really sophisticated housing 
authorities now use low-income housing tax credits, new market 
tax credits, State and local bonds, capital grants, private 
investment, foundation support, local trust funds, State 
programs and generated revenue streams of their own from their 
private market activities.
    So it is a whole new ball game. It really is a time of 
reform. It's appropriate that we would be before the Committee 
on Government Reform. We have better physical settings, mixed 
income opportunities for residents, more market type mechanisms 
and incentives at play, and yet, all at the service of trying 
to put people who make less than 30 percent of area median 
income into housing. As I say, a whole new ball game.
    I believe we're going in the right direction, and that a 
lot of important ideas are converging. The asset-based focus is 
correct to provide project-based accounting and budgeting. 
Communities that can function more like private multi-family 
properties is the right thing to do.
    It will also require--and this is important that the 
committee note--greater flexibility, because we cannot 
micromanage to the project level as some HUD guidance continues 
to do. There's an inherent contradiction in saying we're going 
to a project-based system, and yet continuing the holdover 
command and control regulations that the bureaucracy wants to 
impose. The right approach is to set standards and hold 
authorities to standards, but give them the flexibility to 
work.
    Finally, and most importantly, I think, it requires the 
continuing provision of adequacy of resources. It is a 
fundamental reality, even in a project-based world, that 
housing authorities cannot raise rents above the 30 percent of 
adjusted family incomes, so they need adequate operating 
subsidy, because even going to a different structure, they 
can't take care of the poorest without adequacy of operating 
subsidies.
    Again, even in a project-based framework, they can't take 
money from projects to fund central office operations if 
there's not excess cash coming off of the projects. So for a 
period of time, the Federal Government will continue to provide 
significant operating subsidy resources. It's my understanding 
that the estimate for what it takes to make this transition is 
about $4 billion this year, and the 2007 budget allows for 
about $3\1/2\ billion, so about half a billion off.
    Similarly, on the capital front, with the elimination of 
Hope VI, it means inadequate production of new affordable 
units, maybe the end of some of the physical reforms that I've 
been describing, if the capital subsidies are not adequate. We 
made tremendous progress, meaningful reforms. I think we can 
see that we're headed down a path that, frankly, could not have 
been foreseen. Not even Jack Kemp, my predecessor, who's a 
great friend, in his most exalted visions of what public 
housing could be, could see where we're headed, very positive 
directions. We've learned some important lessons, but we must 
stay the course of reform, and that includes a recognition of 
flexibility and the recognition of adequacy of resources in 
this time.
    Millions of American families will live better lives 
because of these reforms, and their children will have a 
platform for the self-reliant lives that we want for them. 
That's what public housing traditionally has meant, and it can 
mean that again for families.
    Thank you.
    Mr. Turner. Thank you, Mr. Secretary.
    Mr. Wood.

                   STATEMENT OF DAVID G. WOOD

    Mr. Wood. Thank you, Mr. Chairman. GAO is often asked or 
mandated by the Congress to examine specific aspects of the 
public housing program. My statement today is based on a number 
of reports that we've issued in the last few years. Generally, 
our work involves examining how well HUD administers the 
program, including its oversight of local housing agencies. In 
carrying out our work, we sometimes survey local agency 
officials or visit public housing developments for firsthand 
observations.
    In doing so we've identified challenges faced by both HUD 
and local agencies in fulfilling program requirements.
    In keeping with the theme of your hearing, I'm going to use 
my time to briefly highlight our work on the Hope VI program 
for revitalizing severely distressed public housing. As 
Secretary Cisneros noted, in several ways this program 
represents an alternative to traditional public housing 
projects. It's designed to allow Federal and private funding to 
be combined to produce mixtures of public, other subsidized 
and/or market rate housing units. The program may also involve 
local nonprofit and community groups, particularly in the 
provision of supportive services such as job training. In the 
year beginning in November 2002, we issued three reports 
examining various aspects of this program.
    For the first report we examined the extent to which public 
housing agencies had leveraged their Hope VI grants with other 
funds. We found that the extent of leveraging had generally 
increased over the life of the program, from about 58 cents for 
every Hope VI dollar in 1993, to about $2.63 for every Hope VI 
dollar in 2001. The average over the period was about $1.85. Of 
that amount, 79 percent, however, was leveraged from other 
Federal sources, including equity provided to the low-income 
housing tax credit program. Of the non-Federal portion, 9 
percent was from State or local governments, and 12 percent was 
from the private sector. We also found that housing authorities 
had leveraged funds to provide community and supportive 
services, a total of about $295 million between 1993 and 2001. 
This leveraging had also increased over the life of the program 
and represented about 41 percent of all funds allocated for 
supportive services.
    Our second report examined HUD's oversight and management 
of the program. Among other things, we found that the majority 
of local housing agencies had not met deadlines in their grant 
agreements. For example, of 42 grants for which the time for 
construction had expired, only 3 had actually completed 
construction. We recommended that HUD ensure that its field 
offices perform required annual project reviews and that the 
agency develop meaningful enforcement policies. HUD agreed with 
those recommendations and took corrective action.
    Our third report in November 2003 examined program impacts 
on existing residents of project sites and on surrounding 
neighborhoods. We found that of the 49,000 residents displaced 
from sites that had received Hope VI grants through 2001, about 
half relocated to other public housing, about one-third used 
vouchers to rent private housing, and the rest had moved 
without giving notice or had been evicted.
    Overall grantees expected about 46 percent of original 
residents to return to the revitalized sites, but that 
percentage varied greatly among sites. Because of the lead time 
required, and other factors, we limited our examination of 
potential neighborhood impacts to the 20 sites that had 
received grants in 1996. We found that neighborhoods near those 
sites had generally experienced improvements, according to 
changes and measures such as education, income, housing values 
and crime. In four locations we also compared changes in these 
measures to those in similar nearby neighborhoods with public 
housing, but without a Hope VI project. With some exceptions, 
we generally found greater positive changes in the 
neighborhoods with Hope VI projects. However, because many 
other factors can affect the measures we were using, we could 
not determine the extent to which Hope VI alone contributed to 
the changes.
    We noted that several studies conducted by universities and 
others also showed that the neighborhoods in which Hope VI 
sites are located, had experienced improvements in key 
indicators.
    Mr. Chairman, that concludes my prepared statement. I'll be 
glad to answer any questions that you or other Members may 
have.
    [The prepared statement of Mr. Wood follows:]

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    Mr. Turner. Thank you.
    Ms. Glover.

                STATEMENT OF RENEE LEWIS GLOVER

    Ms. Glover. Good afternoon. I want to thank the chairman 
and the ranking member for this opportunity to provide 
testimony.
    I also want to take a minute to recognize Secretary 
Cisneros, who, without question, was one of the finest 
Secretaries ever, and interestingly enough, he is really the 
genius behind so many of the reforms growing out of the Hope VI 
program, because by providing greater flexibility, it really 
allowed the private sector and other market forces to really do 
what they could do to empower the program. And in so many ways 
he's not given credit for it, but I wanted to acknowledge him 
because that took courage of conviction.
    I also want to thank Congressman Lazio for his forward 
thinking because he is absolutely right, with all the 
regulatory entanglement nothing can really move forward, and 
the courage of the 1998 law really has made a big difference. 
So, thank you.
    I believe that we all agree that reform is needed, but what 
is often overlooked is the real revolutionary change that is 
occurring today, and there are two causes for this: the Hope VI 
program and the deregulation through primarily the Moving to 
Work Demonstration Program. When I say revolutionary change, I 
mean a sheer sea change, because, quite frankly, what the Hope 
VI program has allowed is to truly step back and come up with 
local solutions to what are really local problems. The problem 
that is probably the biggest challenge with the public housing 
program is the concentration of families in poverty.
    And so the question is: is there a thoughtful way, through 
resources, to deconcentrate families so they in fact can have 
an opportunity to achieve the American dream. What the Hope VI 
program has unleashed is the power of deconcentrating poverty, 
public-private partnerships, leveraging private resources, 
market forces, new partnerships, partnerships with the local 
school systems, with mayors and others, and, quite frankly, 
human development. I think if we look back at the terrible 
tragedy in New Orleans, what we see in terms of the families 
coming out of those conditions is the product of concentrating 
families in poverty.
    In Atlanta alone, during this past 10 years, which, quite 
frankly, in the total scheme of things is a short period, we 
have developed using private sector development partners over 
11 mixed-income communities, and having an economic impact of 
about $3 billion. That has also unleashed the power of about 
1,070 acres of land. In addition, the families who have been 
impacted by the program have moved on to the work force, who 
have moved on to purchase homes and what-have-you, and they are 
in fact realizing the power of being in the mainstream of 
America.
    The second, I think, most important benefit of the Hope VI 
program is that the private sector cares about these issues, 
and before, the private sector did not care about these issues. 
So now the private sector development community and private 
investors are now coming up with ideas of how can we continue 
this revolution without Hope VI dollars.
    I still believe, however, that, notwithstanding all of this 
progress, there is much to be done. And so Senator Mikulski and 
Senator Bond from the Missouri area, have cosponsored a new and 
refreshed and reformed Hope VI program based on the learnings 
and best practices from the Hope VI program, and I believe that 
Congress should in fact embrace it and move it forward, because 
even though there are criticisms about the program, no one, not 
a single person, understood the great power that this program 
was going to unleash, not only just in Atlanta, but throughout 
the country.
    The second very positive change is deregulation, and the 
Moving to Work Program has been going on since 1996, which has 
in effect allowed housing authorities, in a demonstration 
manner, to look at different ways of doing local problem 
solving, serving families without all of the regulations and I 
think that we are seeing really outstanding results growing out 
of that as well.
    So I would say in order to keep the revolution moving 
forward, the Congress should in fact adopt and implement the 
Hope VI program and fund it, most importantly, so that we can 
continue this great revolution, because the families are in 
fact critically important, and I believe that if we can figure 
out how to deconcentrate families from terrible outcomes of 
poverty, we should have the courage to do it.
    Deregulation, I believe, is going to be the real power to 
cut down on the costs of the program. As the Secretary 
commented, HUD is now looking at powering down the resources to 
the individual properties, but if the micromanagement 
continues, that will continue to drive costs, and I believe, 
the deregulation growing out of that effort won't be 
successful. There are about 3,400 public housing authorities. 
2,800 own less than 500 units. We could easily just deregulate 
those without a whole lot of difficulty, and just have a very 
simple agreement with some outcomes, and that would address a 
huge part of the issue, and then the remaining entities could 
be brought into the Moving to Work Program, and that would be a 
very thoughtful way of moving toward deregulation for the 
entire industry.
    And last but not least, money makes everything happen, and 
if in fact we have the mission of serving families who earn 
less than 30 percent of area median income, which is very 
little money, then there must be funding to support the 
programs.
    Thank you.
    [The prepared statement of Ms. Glover follows:]

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    Mr. Turner. Thank you.
    Mr. Secretary, I know that you are under a time constraint, 
so I wanted to check with you on your timeframe. Are you OK? 
Because we can focus questions in your direction if we need to.
    Mr. Cisneros. I'm fine.
    Mr. Turner. I appreciate all your testimony. As you know, 
from your personal experience and background in this topic, 
this is a very broad spectrum that we are looking at today, so 
our questions to each of you are going to focus on just one or 
two aspects of what we are looking at, and that certainly 
should not be interpreted as our lack of interest in other 
areas. Each of you in your written testimony have given us a 
very broad overview of some of the things that we need to do 
and some of the things that work, great policy discussions 
throughout the documents that you have given us.
    Most of the topics that people have raised fall in about 
four different categories. One, management of the facilities 
themselves; two, resident-focused comments, intervention, 
economic mobility, transition from public housing; three, 
financial, both our financial participation on the Federal 
level, but also financial structures and creativity in looking 
at capital structures, budgeting and the private-public 
partnerships that might bring additional financial resources; 
and then one that's almost architecture in nature both by 
buildings themselves, but also in the place where the residents 
live, looking through both vouchers and mixed-use developments, 
and mixed-use economic structures.
    I am going to begin my questions by first telling you a 
story and asking your response to that, and then my second area 
of focus, which I am going to actually ask the question about 
first before I tell you the story. And that is, I would like 
each of you, after I get your comments on my experience that I 
had with public housing, is to give your thoughts on ways that 
we can increase our intervention for residents even if we have 
the appropriate structure and type, but even if we have very 
well-managed facilities, and even if we are doing everything we 
can with the public dollar and trust, the focus of being able 
to impact the lives of the people that live in public housing 
or Section 8 voucher programs is important, and I know each of 
you have thoughts and background experience in that. So if you 
could also comment on that.
    Now for my story. As I served as Mayor for the city of 
Dayton, I did not have direct authority or control over public 
housing as is usual in many communities. I had appointment of 
two seats out of five on a regional board. I was very active in 
transitioning our neighborhoods to market-rate housing 
production. We had, in our neighborhoods, many abandoned lots, 
many abandoned structures. We went into the neighborhoods. We 
acquired the lots, built new housing, the abandoned housing 
rehabilitated, and bring the community back into a focused 
neighborhood to see what was possible. One of those 
neighborhoods we abutted against a public housing development, 
and the public housing development had been the site of crime 
and drug activity and was largely viewed as a budding influence 
in the area, both for the residents that were there and for the 
community that we were actively redeveloping with market-rate 
housing.
    I approached the public housing authority, and I posed the 
question to them as to the long-term future for that site, 
since, as we were beginning to redevelop housing there was a 
market demand for market-rate housing. This piece of property 
would be a great addition to our efforts. And I was told that 
in fact this site was scheduled to be remodeled, and there was 
going to be additional investment that was going to occur. And 
I told them perhaps we could make a deal and you could save 
those funds of redevelopment. What could we do to transition 
this site that we might be able to gain the land and put it 
into productive use.
    I was very well aware that they had a significant amount of 
vacancy in other units, and wondered about the ability to 
transition both new individuals that are moving into the 
facility, or perhaps even people who live there, to other 
facilities. I was told that the people who lived in this 
particular housing development would not move, but that if this 
facility was demolished, that because they were on borderline 
for economic mobility, that there was enough affordable housing 
available in that area, that they would most likely leave 
public housing and go out into the marketplace. Of course, I 
thought that was the whole idea. So my next question was, well, 
why wouldn't that be a good thing? I was told, well, that 
facility contributes an administration portion of overhead 
costs to our larger metropolitan housing authority, and 
therefore, their decision would be not to lose this facility 
because they didn't want it to impact their bottom line, even 
though it might be better for the community, better for the 
residents that were there.
    That is more along the lines of a management issue. At that 
point I obviously got much more involved in public housing, and 
that facility is transitioning to market housing today. But I 
would like your thoughts first on management decisionmaking. 
How do we go about the process of making certain that in 
management decisionmaking that we do provide incentives, and 
that those who have leadership responsibilities for public 
housing are looking holistically at the impact for the 
residents, impact for the communities?
    And then second, I would love your insight on things that 
we might be able to do better for resident intervention.
    Mr. Lazio.
    Mr. Lazio. Mr. Chairman, I think that the first thing that 
comes to mind is that you have to align the incentives for 
creativity correctly so that the maximum amount of options are 
before the housing authority's management, whether it's a land 
swap, providing for, as the bill did, a vouchering out. You 
have to, it seems to me, you have to be tenant centric on this. 
Looking at your situation, looking at this building or a series 
of buildings as a cross-subsidy opportunity for their other 
areas, seems to me that they got to provide the opportunity for 
them to think more broadly about mixed use in some other spot, 
or some other way in which some of that revenue shortfall might 
be addressed. But if you're focused on the tenants, and you 
want to give them the maximum opportunity to, as I said 
earlier, get to the right school district for their children or 
get closer to a transportation hub so they can get to jobs, 
have a better life, then it may be that in your case that a 
vouchering option ought to have been explored.
    I do think that it would be a terrible mistake to presume 
that all tenants in public housing want to stay there. It is 
also an equal mistake, in my opinion, to suggest that the 
entire policy of the Federal Government ought to be to promote 
homeownership, because I do think there are people that will 
always need and desire rental housing, and that it is at least 
a responsibility of the Federal Government, has been since the 
1937 act, to provide it in a safe and healthy way, be a good 
partner.
    Looking for creative ways in which you can leverage other 
government money, other local government money, other local 
government assets, whether it's buildings or land, providing 
enough incentives so that they can consider these type of 
swapped arrangements, and including the possibility of tenants 
moving and having a choice through a Section 8 voucher program, 
or by converting that voucher to homeownership, which is also 
provided for in the bill so that you could provide for the 
value of a Section 8 voucher for down payment assistance or to 
service a mortgage. Those are the kind of things I think that 
need to be laid out to a management authority of a PHA in the 
situation that you have outlined.
    Mr. Turner. Mr. Secretary.
    Mr. Cisneros. Mr. Chairman, I have to take a slightly 
different tack than what you did as Mayor. One of the things I 
felt strongly about as Secretary was that we couldn't, in the 
zeal for reform, give up sites because we needed the hard 
units, and that the proper thing in a case like that would be 
to redevelop that site with the housing authority still having 
a major role, perhaps more mixed income, perhaps with private 
units in there and so forth. Not because for administrative 
reasons, but because one of the great sort of moral dilemmas 
for me through this whole process has been, as much as I favor 
what we've done with Hope VI and the use of Section 8 and the 
deconcentration, and the lower densities, the critique is we 
gave up too many hard units and there's too many people who 
need the units.
    So I guess my tack would have been a different one in that 
case, trying to redevelop that piece of ground, make it 
compatible with what was around it. I've just seen so much 
evidence across the country that could be done, whether it's 
Park Duvall or the site in Newark that was at the epicenter of 
the riots in 1965 that now has Hovnanian Builders building 
across the street from it. I mean cities are being transformed 
because of what's being done with those sites, and still keep 
some hard units, some percentage of units for the very, very 
poor.
    So that's a different kind of perspective, but if I may 
offer that.
    Your second very briefly, resident intervention. I think--
I've often felt that what we're missing in the key intervention 
is a linkage to education, and Renee has done a good job, for 
example, at Centennial Homes with a magnet school built into 
the project, at University Homes near the Atlanta University 
complex. Denver has done some connection to the community 
college. I'd like to just kind of throw out an idea that's been 
a pet sort of thing of mine for a lot of years. A couple of 
housing authorities picked up on it, but maybe the Government 
Reform Committee would find it interesting, and that is a 
concept that I called ``Campuses of Learners.'' Imagine that we 
thought of public housing sites--keep in mind we want these to 
be temporary places for people to live before they go on to the 
rest of their lives--that we thought of them more, as we think 
of residential camp housing on a university campus. People are 
there while they're learning, while they're improving their 
lives, while their children are learning, while they're 
enhancing their skills. And really build in a linkage of 
training and community college, and even higher education, and 
computers onsite and all the rest of it, but it's designed to 
be there to give you the resources where you can go on with the 
rest of your life, just as we think of a university campus.
    That's kind of an abstract notion, but a way to maybe 
accomplish what we really want to accomplish both in the 
physical site and the self-improvement for families and 
individuals.
    Renee knows a whole lot more about this than I do.
    Ms. Glover. I just wanted to add that it's interesting, 
when you get on the ground, there's always, I think, the 
misperception that the families are more tied to these 
properties than you might think. And one of the things that Mr. 
Wood alluded to, is that if you were to do an assessment of 
what's going on with these sites, particularly the large, 
distressed sites, you would see very high rates of crime, very 
low work force participation, very, very low levels of income 
and so on.
    So the question is, is there a way of creating a healthier 
environment so that you can get better outcomes for the 
families, and at the same time, having more powers of incomes 
on the neighborhoods, because, not surprisingly, the families 
want what every other American wants. So one of the things that 
has been so powerful with the Hope VI program is bringing in 
the private sector, creating a community that in fact is a 
community, and it is not all about poverty and despair, but 
it's really a market-rate community with affordable units as a 
part of it, so that we're actually creating communities for 
workers, middle management and senior management.
    And you get so many wonderful benefits from that, because 
what you have is role models in terms of families working and 
encouraging the families to work. Working with the schools is 
so critically important, and in fact, that's one of the reforms 
in Senator Mikulski's legislation, because, quite frankly, 
schools drive neighborhoods. Nobody picks up the paper on 
Sunday, when they're looking to locate their families and say, 
``I want to find the worst school in the district so I can 
purchase a home.'' So the linkage of great schools and great 
communities is critical. The families really love the Section 8 
voucher because it represents choice, and the key is 
administering the program well so the family's not moving from 
one bad situation to another.
    So I think that if we could eliminate a lot of the myths, I 
think aligning the incentives and the funding is the way that 
you get to better decisionmaking. What we have seen, that $3 
billion worth of economic impact that we have had is both on 
the plot of ground, and if you think about 1,078 acres of 
under-performing real estate throughout a city, and that's just 
10 of the projects--there were 40 some of them--then you can 
see the power, empowering of that real estate. But more 
importantly, tapping into the human potential because 6,000 
families were living in these conditions, and I will tell you, 
we have not had any resistance, once you get on the ground 
working with the families, about do you want a better 
opportunity, because the answer is always yes, yes, yes. What 
they're concerned about is not having the resources to relocate 
their family so that they can too achieve the American dream. 
Not everybody wants to achieve homeownership, but I promise 
you, everybody wants a better educational opportunity for their 
children and a decent healthy environment, and they do not want 
the stigma of being labeled poor and being institutionalized in 
poverty.
    So I think that there's a lot of great best practices that 
we can use to approach the reform and be thoughtful about it, 
and also get significantly better outcomes and better 
decisionmaking.
    Mr. Turner. Excellent, thank you.
    I just want to say with respect to that particular 
development that we were facing, it was a 7-year discussion 
then that the community undertook as to what to do, both with 
the leadership of the housing authority and this property, all 
of which took in the components of--as a result of the 
leadership of Congressman Lazio and Secretary Cisneros, of the 
options that you then gave communities to undertake. The 
concern wasn't the initial approach and the initial discussion, 
it was one where the authority was unmotivated as a result of 
their own bottom-line view versus, as with Ms. Glover, what we 
see as so many times the great things that are accomplished are 
accomplished because of leadership at the local level. There 
has to be a way, as you provide Federal tools that are 
creative, and transitioning of creativity at the local level, 
that we encourage them to take advantage of those.
    Mr. Cisneros. Congressman, if I may, Mr. Chairman, the 
problem that we encountered when the Hope VI program started 
was that in many cities the public housing had been built in an 
earlier era at the edges of where the work and the employment 
was and where the workers were needed. As the cities began to 
rebound and the downtowns rebounded, this became very valuable 
property, so we had a lot of people coveting, developers 
coveting that land, and we took the position that this was for 
public housing, and that as problematic as it was, we needed to 
redevelop it, but not sell it off because the losers were going 
to be the poorest folks.
    When you operate at the national level, you have to be sort 
of gross about this and set policies because otherwise they're 
violated in the specific case, and that's why I ended up, you 
know, in that posture, that where possible, let's redevelop 
them and save the housing, rather than allow high-rise office 
towers on that site.
    Mr. Turner. Certainly you have to look at the core mission 
of the public housing.
    Mr. Lazio. I'd add one thing, Mr. Chairman, also if I can. 
Increasingly you're seeing housing authorities use the low-
income housing tax credit program, which has been an incredibly 
successful program for the Federal Government, to be able to 
access some dollars, and in a case like this--and I don't 
really know what the facts are on the ground, but it might well 
have been that option which would get you to a mixed income, 
provide some additional dollars, maybe redevelop the site 
consistent with the community and still have enough money to 
put maybe other units online or provide vouchers would have 
been the win-win.
    Mr. Turner. Thank you.
    Mr. Clay.
    Mr. Clay. Thank you very much, Mr. Chairman.
    First, I would like to start with Congressman Lazio. 
Welcome, and it is good to see you again.
    Mr. Lazio. Thank you, great to see you too.
    Mr. Clay. Let me say that the 1998 reforms were a positive 
development, particularly the authorization of Hope VI and its 
value to public housing authorities across the country. My 
concern, however, is that we are underfunding Hope VI and the 
voucher programs within HUD. Would you agree with the premise 
that policy reforms can only work if they are adequately 
funded?
    Mr. Lazio. Yes.
    Mr. Clay. OK, you agree with that one. [Laughter.]
    Now, this year--there is no argument about that, OK. 
[Laughter.]
    You don't want to expand on it, do you?
    Mr. Lazio. Congressman, there's an old story over in 
Russia, and I asked somebody about how he thought the economy--
give me a summation in one word of how he thought the economy 
was. He said, ``Good.'' I said, ``Well, could you expand on 
it?'' He said, ``Not good.'' [Laughter.]
    Mr. Clay. I will serve you up another softball then. How 
about this one: this year the public housing capital fund 
program is funded at $2.4 billion, even though capital 
improvement needs are estimated to be nearly $20 billion across 
the Nation. As a representative of the banking industry, can 
you offer us some perspective on the benefits and shortcomings 
in this program? Are PHAs able to leverage adequate private 
sector financing for new development need?
    Mr. Lazio. I'm not sure I could answer that question of 
whether it would satisfy me or would satisfy you, Congressman, 
because I don't know that I'm up to speed quite enough. But I 
will say this, that the public funding does matter, that it can 
provide flexibility, which I think we have, and we could 
provide the incentives and the option to leverage and to 
provide these public-private pools of capital, and to leverage 
off of them, and that ought to be done. But that is not going 
to completely substitute for a Federal commitment, a public 
commitment to public housing and assisted housing.
    Mr. Clay. Thanks for that response.
    Let me ask Secretary Cisneros, and good to see you again 
also.
    Mr. Cisneros. Yes, sir.
    Mr. Clay. Is there a model for best practices for PHAs 
across this country, and do they even pay attention to them, 
and have you seen any PHAs that have taken these best practices 
to heart and transformed their agency?
    Mr. Cisneros. Yes, sir, I think there are some very good 
public housing authorities, and some model cities. It's not 
just because she's here, but one of them, truly, is what Renee 
has done in Atlanta. It's worth a trip there to see the 
highlight projects and the combination of projects and what 
they've meant for that city.
    It's relatively easy to define the high performers because 
HUD has a grading system for management, for properties, for 
outreach, etc., and among the highest performers traditionally 
have been Seattle, Denver, for example, and I would comment you 
to those because they're just good operations, just creative 
people. They understand their role in the real estate market of 
that town, of those cities. And those have been good examples.
    There are other cases that are maybe not as great for the 
whole authority, but some sites that are spectacular, like Park 
Duvall in Louisville, for example. I think some of the 
Baltimore projects, where they took down all of the high-rises, 
four big complexes each with about 12 high-rises, they're all 
gone, and now townhouses and reasonable scale in their place. 
Another example, what McCormack Baron has done in your city, at 
what was Murphy and is now a different name, is an example of 
wonderful school, training right onsite, families in the town 
homes. Those would be some that I would cite for you.
    Mr. Clay. Darst-Webbe is what you were looking for. Darst-
Webbe.
    Mr. Cisneros. Right.
    Mr. Clay. On another front, because of your close ties to 
Texas and San Antonio, I wanted to hear some of your thoughts 
on how FEMA and HUD have fared in housing displaced residents 
of the Gulf Coast, many whom have moved to Texas after the 
storm. Has the Katrina disaster housing assistance program been 
an adequate response to the roughly 75,000 citizens of New 
Orleans who relied on Section 8 program housing?
    Mr. Cisneros. You really don't want my--we were trying to 
keep this on a high tone, and we're trying to keep this 
positive. [Laughter.]
    Mr. Clay. I want you to try to answer that one, and we'll 
move on.
    Mr. Cisneros. Truly, there's almost nothing about the 
Katrina situation that we could cite as a model of how to help 
a city to recover or treat people who have been displaced. In 
my own city, we've had tens of thousands of people who were 
living in an old Air Force base hangar for the longest period 
of time. They've now begun to filter into other housing through 
churches and so forth, but I must say, very little can be 
attributed to the responsiveness of the U.S. Government.
    Mr. Clay. So HUD included, the response could have been 
better.
    Mr. Cisneros. Yes, sir. I wish I could be more positive 
about it.
    Mr. Clay. Thank you for your answer. I appreciate that.
    Mr. Wood, you have stated that a November 2002 review of 
Hope VI budgeting by a sample PHA revealed a 60/40 split in 
public and private financing of program activities. Can you 
describe what types of private sources are involved in Hope VI 
financing, and is there adequate capital available to the PHA 
community for development needs?
    Mr. Wood. The 60/40 split I believe refers to the 
involvement of private capital for supportive services. The 
amount of private funds involved in the capital projects that 
those grantees that we looked at was actually much smaller, it 
was about 12 percent. But the leveraging for community and 
supportive services had to do with things like job training, 
providing transportation or meals and things of that sort.
    Mr. Clay. Thanks for that.
    Ms. Glover, your testimony really piqued my interest about 
how you connect education or opportunities to residents, and I 
was wondering, the education or opportunities, do they expand 
to the adults also?
    Ms. Glover. Well, they certainly can. But let me just 
expound a little bit on the education reform, because in all of 
these communities there are neighborhood public schools, and so 
the opportunity is to connect the education reform that's going 
on in every city in America, and certainly that is one issue 
that has enjoyed, I think, consistent support regardless of 
Republican, Democrat. Everybody knows that education is the 
great equalizer.
    So what we have done is working with the public school 
system, as we reform these communities, and we reform the 
social environment from which the children are coming to attend 
the public schools, this creates the opportunity for the school 
system to leverage their reform efforts, because what has 
happened in too many of our urban cities, is that the schools 
have become crisis centers rather than great places of 
education, and that's why this notion of moving away from 
concentrated poverty is so important, because you really can 
leverage so many opportunities because at the end of the day, 
environment matters. What we needed to be looking at is how can 
we create opportunities and environments for families so that 
they are not harmed by the environment, but in fact, can afford 
the housing, can also have a great opportunity in terms of 
education and what-have-you.
    I will just point out that in each case of the 42 
properties, 26 of which were serving families in Atlanta back 
in 1994, there was a captive elementary school inside of each 
one of those communities, and without exaggeration, those were 
the worst public elementary schools in the entire system. So 
you have a bad social environment and a bad school environment, 
we can all sit here and predict the outcome. So this really 
creates the opportunity, which I believe is so important in 
linking both education reform with the housing reform, and I 
think we'll start seeing much greater and many more success 
stories around education.
    Mr. Clay. Let me just point out to you that there is a 
direct link to educational performance by students, and 
educational attainment of their parents. And when they come 
home with homework and their parents don't understand and 
cannot help children, then it bears a direct link to those 
students' performance, and I just wanted to make you aware of 
it.
    Ms. Glover. Oh, absolutely. I'm very aware of that. You're 
absolutely right.
    Mr. Clay. If you have an opportunity to address it, that 
would be pretty interesting.
    Ms. Glover. OK.
    Mr. Clay. Let me ask you about your testimony. You spoke to 
legislative reform, and what should be undertaken by Congress 
in order to improve the Section 8 program. I guess my real 
concern is that Congress can institute all of the new reforms 
at once, but we will be back here in another 5 years if we 
don't make a full commitment to funding these programs. Can you 
offer us some ideas on how we can establish more significant 
and reliable funding mechanisms?
    Ms. Glover. Well, I think the starting point is really an 
agreement among Congress about what it is that we're trying to 
accomplish. If in fact we agree that we want to have families 
living in healthy environments, and if we want to serve 
families who earn 30 percent or less than the area median 
income, then we have to look at the local real estate markets 
to determine what the rents are in less impacted neighborhoods, 
because what affords the rent is what the family is paying 
based on 30 percent of their income together with the subsidy 
that is provided by the voucher.
    So if indeed we want families living in healthier 
communities and not in very distressed communities, there is a 
price to be paid, and over time--see, I believe that if we in 
fact can improve the environments where families in fact are 
raising their children, that over time there will be less of a 
need for the subsidies, but there's going to be a transition 
period, and so I think it's strictly a matter of agreeing on 
what policies we want to support and then put the funding to 
it. So there's a way of getting at that number, but certainly 
if you make the subsidy more shallow, that is going to cut down 
on the opportunities in terms of good housing opportunities for 
families using that voucher.
    Mr. Clay. I thank you for your response. I thank all of the 
witnesses for their response. Perhaps I will take Mr. Cisneros 
up on his suggestion to come and see your housing authority.
    Ms. Glover. We'd be delighted to have you come, sir.
    Mr. Clay. And come and see Mayor Franklin. Thank you all.
    Thank you, Mr. Chairman.
    Mr. Turner. OK. Mr. Dent.
    Mr. Dent. Thanks, Mr. Chairman, and good afternoon.
    A couple questions on Hope VI. As you know, Hope VI was 
created to help demolish some existing public housing units, 
the more stressed housing units. That has been a success with 
my community. Allentown, PA has just received a $20 million 
grant, for which we are very grateful, and we are going to take 
out one of the oldest housing projects in the Nation and turn 
it into a much more appropriate housing mix than had been the 
case.
    My question to the panelists, would you conclude that the 
program has accomplished its goal and its purpose? The goal 
was, I guess, to demolish about 86,000 units, and we are 
approaching that number. Do you believe it has accomplished its 
purpose, I guess is the question I would have. Maybe we should 
direct it to former Secretary Cisneros.
    Mr. Cisneros. I will be happy to begin, sir. I believe it 
has accomplished its purpose and that it is one of the great 
untold bipartisan successes of the last decade or so. The 
origins of it are in the Jack Kemp period at HUD, where he had 
Hope I, II, III, IV, V, and VI, which came about as a result of 
a commission on the emergency status of the most distressed 
public housing in the country. In the fall of 1992 they 
finished their work, so before we came into office. Then it 
fell to us to write the regs and implement Hope VI, and I chose 
to build on what Jack had done, despite, you know, the kind of 
the pressure to sort of separate from the previous 
administration and start something completely fresh. It didn't 
make sense to start over, so we sort of continued the genetics 
of it, if you will. So I see it as a bipartisan program.
    And when folks like Rick Lazio weighed in and the Speaker 
in that era, to tweak the program and improve it, it truly has 
been a major contribution.
    One, there are multiple reports. This report that Mr. Wood 
made today from the Government Accountability Office, but also 
the Urban Institute and the Brookings Institution and others, 
which have basically documented that cities are different, 
central cities are different where Hope VI has succeeded, 
because now investment is possible. Where there were sinkholes 
for just no energy, no investment, today they're magnets for 
investment. And I could cite city after city, Chicago, Newark, 
Pittsburgh, all kinds of places that were hopeless in these 
neighborhoods that today are thriving.
    Now, the down side--and I'll be very brief--is I think we 
have to be careful not to lose track of the number of people we 
were serving before, and that's what the critics come after us 
on, and I accept the critique. In downsizing, in making it less 
dense, we use Section 8 to send people other places. Don't know 
exactly where all those folks went and don't know what happened 
in their lives, and we ended up with fewer hard units to serve. 
That was the right thing to do for all the reasons that I've 
cited. But for me there will always be a sense of obligation to 
make sure we keep the numbers strong, so that we actually 
didn't end up cutting people off, you know, and sending people 
to homelessness or other bad conditions. But I do believe the 
program accomplished its purpose.
    Mr. Dent. I guess then the next question would be what 
remains to be done, I guess, where do we go from here?
    Mr. Cisneros. I would say more of the same. There's yet a 
lot of cities and a lot of sites that are as bad as what we 
fixed. We fixed the worst I think. Renee could speak to that, 
you know, because she's in the field every day. But I would say 
another decade of this, and we will have turned public housing 
around. It will be a different creature than it was in 1992.
    Mr. Dent. And another issue that I've noticed in the urban 
areas where I live is not simply public housing, but what we 
would call row homes in a place like Allentown. Many of your 
eastern cities have them. We have row homes that were once 
owner occupied, were since converted to apartment units or a 
home that one family--maybe a three-story home--converted to 
three apartment units. You mentioned density, increasing the 
density in town, more garbage, more kids at school, more cars 
in the streets. And I have noticed one thing that we have been 
very successful in our area, at least a slow process, but 
trying to deconvert these apartments back to owner-occupied 
settings. Many people paying those rents they are paying could 
easily afford a mortgage. Many don't realize that, but that is 
a reality.
    I guess my question is: what role should the Federal 
Government play in deconversion of those types of housing units 
that are not publicly owned? What can we do to help that, 
because that would do a great deal to empower people and their 
neighborhoods.
    Mr. Cisneros. I think the Federal Government does have a 
role through CDBG, through the proposed Homeownership Tax 
Credits, for example, through other programs that give more 
resources to local government to enact programs like that. I 
don't think it warrants a Federal program for that end, but I 
do think that Federal resources are needed. Local governments 
just don't have the money.
    Mr. Dent. Correct. In my view, that would probably do more 
to help restore neighborhoods to their former luster than 
anything else we could possibly do, must simply because you are 
lowering debts and you are creating ownership opportunities. 
Does anybody else have any thoughts on that?
    Mr. Lazio. The only thing I would add to that, two things 
if I can, Congressman. One is that there is actually authority 
in the bill to use the value of a rental voucher for 
homeownership, either for down payment assistance or to help 
service the mortgage. And you are absolutely right, we saw this 
in places like Long Island where I was from, where people were 
in basement apartments, but the voucher that they were being 
given to pay the rent was more valuable than the cost of 
servicing a mortgage for them. They could own their own place 
and build some equity and have the stability of homeownership, 
so for some people that's really going to work, and it's a 
matter of bringing this to the attention, in part, of the local 
housing authorities.
    The second part of it is vouchers, especially rental 
vouchers, only really work when you have some slack in the 
market, so you have places for people to go to. That's why when 
people talked about a vouchering out model, I thought, well, 
that's a one-size-fits-all for all communities. There's going 
to be situations where actually giving someone a voucher will 
be meaningless because the market is so tight they have nowhere 
to go.
    So incentivizing the construction of market rate units that 
are still at the same time affordable is important, and I would 
say, politically, if I could add this last point, in my 
experience, to talk about housing, affordable housing in terms 
of providing opportunities for entry-level workers, no company 
in your back yard is going to be able to grow if there is not 
decent housing for people who are moving up the ladder, who are 
starting in entry level and middle management, and that does 
resonate with a whole different group of constituents.
    Mr. Cisneros. Very good point.
    Mr. Dent. My observation has been the programs have been 
enormously successful where tried, but there is not enough 
funding to facilitate the deconversion process fast enough. You 
know, we get some very good examples of success, but we just 
can't do it quick enough. It is much easier, apparently, to 
convert these owner-occupied residences to apartments than 
going back the other way, and so I am just trying to accelerate 
that process. Any thoughts you have as to how we can do that 
with our Federal dollars is appreciated.
    Mr. Cisneros. Your nonprofits in your community can play a 
role.
    Mr. Dent. Correct, and our nonprofits are doing that. 
Again, it is about funding, but they have done a terrific job 
and we have used them very effectively actually.
    Ms. Glover. I just want to speak very quickly to whether 
Hope VI has met its mission. I think it met its initial 
mission, but I think Secretary Cisneros was absolutely right, 
another 10 years would be very, very important.
    And I wanted to inform the process just a little bit on 
what the Hope VI money does because I think that there's a 
sense that it's really not leveraging and meeting its goal. 
Basically, it pays for the cost of relocating the families, the 
cost of demolition, the cost of the human services programs 
that are critically important so that the families, who in fact 
are using vouchers and entering the mainstream for the first 
time, can be successful in community.
    And last, but not least, buying down the cost in a mixed-
income community of that affordable unit so that the rents can 
be affordable to the families who need it, thereby leveraging 
private resources for housing for middle management and senior 
management.
    So that if you leverage it correctly, you really can have a 
very important impact, and certainly, I think if you drive 
around urban America, you know, based on your own observations, 
that more is needed.
    And I wanted to mention that another area are these very 
old project-based Section 8 properties that are coming to the 
end of the life of the voucher, and that too will need some 
repositioning because if not, it will opt out, and the private 
sector will in fact take over those resources that had indeed 
provided affordable housing for cities. So I think that there 
needs to be some attention paid to those older properties 
because they are opting out, not because people are not 
committed to affordable housing, but because there are no 
resources to help in preserving the stock and doing the same 
type of treatment that we've seen with Hope VI.
    Mr. Dent. Thank you.
    Mr. Turner. I want to thank all of our panelists, but first 
off, let me thank Mr. Wood and Ms. Glover for your 
participation, the technical expertise that you bring to the 
table. This is our first hearing and it is an overview, and we 
are going to now take up issues that are more specifically 
targeted, and I am certain that we are going to be in touch 
with you, not only as we continue this process to get your 
insight, but as we begin to pick those issues and ideas, to get 
your input on how we might focus and topics that we might be 
able to make an impact on.
    And for Congressman and Mr. Secretary, if you look at all 
the testimony that is going to follow in panel two, almost all 
of the policy discussions, when they talk about what has 
happened in the most recent past and then what things that we 
need to look forward to, most of those policy issues come from 
the discussion that you two gentleman had and the initiatives 
that you have given, and opportunities that you have given to 
communities. So let me thank you for your contribution to the 
intellectual focus of when everyone takes up the issue of how 
do you undertake reform for public housing, and also how do you 
function, and how do you make certain that it serves our 
communities. Your willingness to spend your time to come speak 
to us and talk about those topics of which you both have, 
obviously, a great deal of love, and a great deal of expertise, 
is very much appreciated. I am certain that we will be in touch 
with both of you also as we take up issues and ideas.
    We want to, from this testimony, see what areas need 
additional focus and oversight, so that we can then look to see 
some of the things that you two undertook that have not been 
implemented correctly, or that now have done their job and need 
to be tweaked so that they can serve more effectively.
    Before we close completely, I wanted to give the two of you 
any opportunity for closing remarks that you might have.
    Mr. Lazio. Mr. Secretary.
    Mr. Cisneros. Thank you, Rick.
    Mr. Chairman, let me just thank you again, and Congressman 
Clay and Congressman Dent, and the rest of your committee, 
because I know that the mandate of the Government Reform 
Committee is broad, and you could take on any number of 
subjects. This is an important subject.
    First of all, there is a real opportunity here to build on 
some reforms. Second, it is an unsexy subject, so it's just not 
taken up frequently, but this is an opportunity to really 
transform public housing in America. We'll end up with 
something completely different if we build on the themes that 
we've learned the last years. So your voice of leadership, 
bipartisanly, could make a huge difference, and I just want to 
encourage you to take that theme of reform and march on. Thank 
you.
    Mr. Turner. Thank you.
    Mr. Lazio. The only thing I would add to that in 
associating myself with the Secretary's comments is, is that 
there is no lack of hunger or need for more creativity by 
members of this committee or of this body. And if you would 
look at this as if Henry and I were never here and you want to 
create something from scratch, I guarantee you're going to find 
some great ideas that will be able to be leveraged by some of 
the great housing advocates that are in this room.
    And just to make this last point, as you consider how 
you're going to evaluate our housing policies, you'll be doing 
the right thing by listening, and I would really encourage you 
to get out in the field also and hold some field hearings and 
speak to the people and tenants whose lives are impacted every 
day by this.
    Thank you.
    Mr. Turner. Excellent.
    I am going to recognize Mr. Clay for closing comments.
    Mr. Clay. Thank you, Mr. Chairman.
    Just very briefly, I would like to take this opportunity to 
recognize a young man that is with me today, who is serving as 
my shadow today. He is an 8th grader from Oneness-Family School 
in Bethesda, MD. I wanted to introduce him and insert in the 
record his name, Remington Williams, who is with us today, and 
thank him for being here.
    Mr. Turner. It is wonderful to have him with us.
    Mr. Clay. Thank you. Thank you all.
    Mr. Turner. Panel one, thank you so much. We will turn to 
panel two then. We appreciate you attending.
    Panel Two includes Mr. Rod Solomon, Mr. Conrad Egan, Dr. 
Alexander von Hoffman, Dr. Edgar Olsen, and Dr. Michael 
Stegman. We will take a few minutes recess as we change panels.
    [Recess.]
    Mr. Turner. Gentlemen, thank you for joining us. We will 
now hear from our second panel. Today we have Rod Solomon, 
counsel with the law firm of Hawkins Delafield & Wood; Conrad 
Egan, president of the National Housing Conference; Dr. 
Alexander von Hoffman of Harvard University Joint Center for 
Housing Studies; Dr. Edgar Olsen of the University of Virginia; 
and Dr. Michael Stegman of the University of North Carolina.
    I thank each of you and welcome you, appreciate the time 
that you have taken to participate and the time that you are 
spending with us here.
    Before we begin, I would like to remind our witnesses that 
oral testimony would be limited to 5 minutes. We do have your 
written testimony, and we appreciate the information you 
provide to us there. You will notice that there is a timer on 
the witness table. The green light indicates that you should 
begin your prepared remarks, and the red light indicates that 
your time has expired. The yellow light indicates that you have 
1 minute in which to conclude your remarks.
    It is the policy of this committee that all witnesses be 
sworn in before they testify, so will the panel members please 
rise and raise your right hands?
    [Witnesses sworn.]
    Mr. Turner. Let the record show that all witnesses have 
responded in the affirmative, and we will begin with Mr. 
Solomon.

 STATEMENTS OF ROD SOLOMON, COUNSEL, HAWKINS DELAFIELD & WOOD, 
 LLP, FORMER HUD DEPUTY ASSISTANT SECRETARY FOR POLICY; CONRAD 
EGAN, PRESIDENT, NATIONAL HOUSING CONFERENCE, FORMER EXECUTIVE 
 DIRECTOR OF THE MILLENNIAL HOUSING COMMISSION; ALEXANDER VON 
   HOFFMAN, SENIOR FELLOW, JOINT CENTER FOR HOUSING STUDIES, 
  HARVARD UNIVERSITY; EDGAR O. OLSEN, PROFESSOR OF ECONOMICS, 
    UNIVERSITY OF VIRGINIA; AND MICHAEL A. STEGMAN, MACRAE 
    PROFESSOR OF PUBLIC POLICY, PLANNING AND BUSINESS, AND 
 DIRECTOR, CENTER FOR COMMUNITY CAPITALISM, KENAN INSTITUTE OF 
  PRIVATE ENTERPRISE, ADJUNCT PROFESSOR OF ENTREPRENEURSHIP, 
          UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL

                    STATEMENT OF ROD SOLOMON

    Mr. Solomon. Thank you, Mr. Chairman, Congressman Clay, 
Congressman Dent. I'm Rod Solomon now with the law firm here 
and formerly a HUD official with the honor of helping Congress 
develop the public housing reform law, and then coordinating 
implementation at HUD for 5 years.
    Last year the Brookings Institution published my report, 
which reviews progress under the 1998 law, and I'd ask 
permission to have the report included in the hearing record. 
Thank you.
    The law contained many initiatives. My report tracks 
progress on 54 provisions, each with its own story. But more 
generally, I reviewed progress regarding four broader 
objectives: one, improving or replacing the public housing 
stock; two, increasing tenant self-sufficiency and promoting 
public poverty deconcentration; three, improving or replacing 
public housing management; and four, improving the voucher 
program.
    Overall we should recognize the enormous change that's 
occurred in these programs and many of the PHAs. We 
successfully eliminated the vast majority of notorious bad 
public housing projects, replaced them with mixed income or 
lower density public housing, and substantially with vouchers, 
and greatly upgraded management in many large cities. Voucher 
reform supported expansion in the number of families assisted 
by half a million between 1997 and 2003.
    With respect to public housing improvement and replacement, 
in addition to replacing the worst projects, HUD eventually 
implemented the ability for housing authorities to borrow 
against receipt of future capital money. About $2.2 billion has 
been approved after an extensive HUD process, of which about 
$1.3 billion was for three transactions.
    With respect to self-sufficiency and deconcentration of 
poverty, the replacement of those large distress projects 
helped. Further, the percentage of families with children in 
both programs, where their largest source of income was 
earnings, increased from about a third to about half between 
1995 and 2001, and remained significantly higher than before 
that period. Those changes though almost certainly result more 
from economic trends and welfare reform than from the act. The 
percentage of extremely low-income families we serve in the 
programs increased somewhat in both programs.
    With respect to public housing management, we've seen vast 
improvement in a number of large cities such as Washington 
here, Chicago and Philadelphia. The improvements mostly were 
brought about by local or HUD initiatives rather than the act. 
Some of the act's basic provisions to bolster management were 
delayed for years in implementation or otherwise did not have 
the expected impact. The act and related HUD actions did 
encourage improvements in physical conditions in public 
housing, and expedited obligation of capital funds.
    For vouchers, cost has been the dominant issue lately. The 
increase in pre-unit costs relates partly to measures taken in 
the act or by HUD to address concerns that some families who 
receive vouchers were not successfully finding units, still 
were paying unreasonable percentages of their incomes for rent, 
or finding units only in areas with high-poverty 
concentrations.
    I have some general recommendations for your to-do list, as 
the chairman called it. First, your work generally should 
emphasize the importance of these programs and their need for 
adequate funding.
    Second, the subcommittee should examine additional steps 
HUD could take to collect, analyze and release critical data 
that will help us monitor the progress in these programs.
    Third, the subcommittee should examine further 
opportunities for HUD to expedite reform. Regulations still are 
not in place with respect to significant aspects of the act. 
These include, among others, rules to allow aspects of 
leveraging capital for public housing and for housing 
authorities' voluntary conversion of public housing to 
vouchers. HUD needs to finish the guidance job in a manner that 
supports the reforms. The subcommittee also should examine how 
HUD could simplify requirements further. For example, the 
approval process for borrowing against future capital funds 
needs to be streamlined and the new regulatory emphasis on 
management of individual properties, rather than the entire 
PHAs, must be implemented with substantial flexibility.
    Fourth, with respect to potential legislative issues, the 
committee should review whether initiatives such as loan 
programs can reasonably be expected to replace the Hope VI 
grant program. The subcommittee also should consider the need 
for further initiatives to sustain and increase leveraging of 
private capital funds. The administration, several years ago, 
proposed a mechanism for property-based financing along the 
same lines other affordable housing improvements are financed, 
and that approach should be reviewed again.
    Finally, the subcommittee should review areas where 
experience indicates that statutory simplification is critical. 
This will include, I think, public housing rent requirements, 
which are very complex. More generally, Congress should aim to 
require local performance and retain in the measures protecting 
fundamental program elements, continued availability of units, 
income targeting of families to receive assistance, and 
affordability of Government assisted housing, and otherwise 
leave plenty of room for local innovation.
    Mr. Chairman, thank you again, and I'll be pleased to 
respond to any questions.
    [The prepared statement of Mr. Solomon follows:]

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    Mr. Turner. Mr. Egan.

                    STATEMENT OF CONRAD EGAN

    Mr. Egan. Thank you, Mr. Chairman, and Mr. Clay and Mr. 
Dent, for the opportunity to present today principally as to 
former executive director of the congressionally chartered 
Millennial Housing Commission. With your permission, I would 
like to place the Commission's report into the official record 
of this hearing. Thank you, sir.
    In the report the Commission presented to Congress in May 
2002, there are two recommendations to improve public housing 
and the Housing Choice Voucher Programs. At this point I would 
also like to particularly acknowledge the leadership of Ophelia 
Basgal and Renee Glover, who were two public housing authority 
directors present as commissioners on the Millennial Housing 
Commission, and particularly Renee Glover, who was the chair of 
our Public Housing Committee. Of course, you heard her earlier 
today and you know what kind of contribution she's made, not 
only to the national housing scene, but also particularly in 
Atlanta.
    First, the Commission recommends a gradual transition from 
the current agency-based system to a property-based system with 
subsidies falling to specific properties based on the rents 
they would command after any needed renovation in the 
conventional real estate market. This transformation would 
enable public housing authorities to rehabilitate properties 
using funds raised in the private capital markets.
    Second, the Commission recommends principally for the 
Housing Choice Voucher Program, measures to match voucher 
holders with services that complement efforts to support 
employment and other opportunities, and this challenge, of 
course, came up earlier today in this hearing. Most 
importantly, though, the Commission asserts that the Housing 
Choice Voucher Program is distinctly worthy of additional 
funding in substantial annual increments.
    In the remainder of my statement let me focus on the first 
recommendation where the Commission specifically recommends the 
application of private real estate principles. First, a 
comprehensive approach is recommended for severely distressed 
properties. Some public housing properties are in such poor 
condition or so poorly located that they do not warrant 
additional involvement. These properties are good candidates 
for demolition and replacement with vouchers of hard units. The 
Hope VI program must be maintained principally because the 
private sector is typically unable to provide the first-in 
capital necessary to attract additional significantly greater 
investments for these properties, and I also would like to 
acknowledge, as Renee Glover did earlier today, the recently 
introduced legislation by Senators Bond and Mikulski to 
significantly improve and reform the Hope VI program.
    Second, much of the remaining public housing inventory 
would shift over time to the property-based financing model by 
converting operating and capital funding to long-term contracts 
linked to each public housing property. These contracts would 
provide reliable funding to cover operating costs, debt service 
on loans for capital costs and replacement reserves. Subsidy 
levels would be based on each property's market rent. Capital 
improvements would be financed through loans secured by a 
mortgage, which could be backed by FHA mortgage insurance. No 
additional support would be necessary for the majority of 
public housing properties.
    Property-based financing is not, however, appropriate in 
all cases. For small properties and for those whose capital 
needs required rent substantially above market-based rent 
levels, the alternatives include using the Hope VI program, 
agency-based financing, and additional housing development 
vehicles, including the long-term housing tax credit and 
housing grant programs. Public housing authorities should 
therefore continue to be able to leverage some of their subsidy 
funds by using various agency-based mechanisms. A property-
based financing strategy would be appropriate for most 
properties and has several merits.
    The long-term costs of this capital improvement approach 
would likely be lower than the current approach. Improvements 
can occur quickly before properties deteriorate further, and 
finally, property-based financing provides another level of 
operational oversight from lenders and investors, thus 
substituting standard real estate practice for HUD oversight.
    I would also like to emphasize the point that Secretary 
Cisneros made earlier, that it is important to keep the units 
that are going to be moved from some of these sites, and I 
would glad to comment further on that during the question and 
answer period.
    The Millennial Housing Commission's basic recommendation in 
this area is that the public housing authorities must be 
permitted and encouraged to utilize the private sector's 
financial resources by converting their developments to a 
property-based model like the rest of the world of real estate.
    Thank you, Mr. Chairman, for the opportunity to make this 
presentation.
    [The prepared statement of Mr. Egan follows:]

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    Mr. Turner. Dr. von Hoffman.

               STATEMENT OF ALEXANDER VON HOFFMAN

    Mr. von Hoffman. Thank you, Mr. Chairman, and members of 
the subcommittee for this opportunity. As a historian I am 
delighted, not to say even surprised, that our elected 
representatives are crafting policies by trying to understand 
how we got here. The history of public housing is long and 
complicated, but I would pull from three major lessons, which I 
hope will guide future policies. These are just broad strokes 
as it were.
    The first lesson would be that the intentions of the 
original public housing advocates offer inspiration for today's 
programs. The program we have today is not necessarily what its 
creators intended. The original advocates, in the 1930's, 
conceived of public housing as varied, as flexible, as 
democratic, and locally controlled, more bottom-up than top-
down. Instead of a monolithic agency they envisioned an 
assortment of entities, local governments, unions and 
nonprofits developing and managing public housing. The 
residents were to have a large say in what went on in their 
developments because they were to be represented in the 
organizations that actually developed the public housing.
    There were to be a variety of types of housing, rentals, 
cooperatives and homeownership, and the originators of public 
housing wanted to replicate the vital community life of 
America's neighborhoods and small towns. Early prototypes, for 
example, contained kindergartens, playgrounds, community 
centers and stores, which was intended to create a sense of 
community and function as communities.
    So the public housers certainly did not get everything 
right, but I think some of their core ideas are worth 
incorporating today. So thinking of that, if we think how to 
implement their idea of variety, public housing authorities 
should form partnerships with nonprofit and for-profit housing 
developers. It's very interesting how in sync some of these 
ideas are with what happened with Hope VI and the 1998 reforms. 
To implement the idea of flexibility, housing authorities 
should become entrepreneurial, try many approaches, as Renee 
Glover had done in Atlanta, perhaps developing mixed income 
housing in which market-rate units subsidize low-income units. 
Authorities could sell old properties and use the profits from 
that to develop new hard units, or they could be like the 
Cambridge Housing Authority in my hometown, and create low and 
moderate-income assisted living facilities. They're all new 
horizons that could be reached.
    To implement the idea of democracy, I would hope we 
continue to encourage as much resident participation as 
feasible, as was originally envisioned. Just some examples, a 
number of cities have preserved the Expiring Use Housing 
recently by assisting tenants to buy their buildings and run 
them as cooperatives, cooperatives, which were an important 
element in the original public housing ideal.
    And then to implement this idea of community existing in 
new housing developments would continue and expand on 
incorporating community facilities and services, even going so 
far as stores and work places.
    The second major lesson in policy history is that 
circumstances change and we should be prepared to adjust when 
they do. For example, the clientele for public housing has 
changed dramatically over the years. The assimilated immigrants 
and middle-class African Americans, who were the first tenants, 
were gradually replaced by low and extremely low-income 
households, often single mothers with nowhere else to go. Today 
circumstances are changing again. Low-income people, like 
everyone else, are moving to the suburbs, and these communities 
may not be prepared. We should encourage housing authorities to 
form regional alliances to help solve the new emerging regional 
housing problems.
    At the same time, immigration has raised the number of 
foreign-born low-income residents, who often are unaware of 
their housing choices. We should make every effort to 
incorporate poor immigrants into appropriate housing programs.
    And the third lesson I would draw from history is that a 
single policy, even a good one, is not a panacea. For much of 
its history, public housing adhered to a kind of environmental 
determinism that held that modernist style high-rise slabs or 
low-rise barracks would solve all their residence problems. But 
people thrive in a variety of housing types, and one should 
avoid, even if it's new urbanist, a single formula for 
architecture. Recently, many embraced the idea that mixed-
income housing will cure concentrations of poverty. This will 
do some good, but mixing extremes of incomes will not cure the 
complex problems of people, who for reasons of health or family 
situations, are chronically unemployed.
    Another popular cure-all is homeownership. Again, some low-
income families will benefit from buying houses, but others may 
find it too burdensome to keep up mortgage payments and 
maintain a property. In short, it will take not one, but an 
array of approaches to solve low-income housing needs of people 
who may have multiple problems.
    There's much more to be learned from the history of 
housing, but I hope that these observations are helpful to the 
committee as it goes about its task of planning for the future.
    Thank you.
    [The prepared statement of Mr. von Hoffman follows:]

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    Mr. Turner. Thank you.
    Dr. Olsen.

                  STATEMENT OF EDGAR O. OLSEN

    Mr. Olsen. Thank you, Mr. Chairman. I welcome this 
opportunity to talk with you and the members of your committee 
about the future of the public housing program. I speak from 
the perspective of a taxpayer who wants to help low-income 
families, albeit, a taxpayer who has spent more than 30 years 
studying the performance of housing programs.
    My testimony is right up the alley of this committee. It 
concerns how to get more for the money spent on current 
programs. In the case of public housing it's possible to get 
much more. The evidence on program performance indicates that 
the housing voucher program has outperformed the Public Housing 
Program in every respect. My written testimony mentions some of 
this evidence and contains references to the papers and reports 
that provide the details.
    The largest difference between housing vouchers and public 
housing is in their cost for providing equally good housing. 
The evidence is unanimous that it costs much less to provide 
equally good housing with housing vouchers than with public 
housing projects. Therefore, shifting the budget for public 
housing to housing vouchers will allow us to serve all of the 
families served by public housing equally well, that is, 
provide them with equally good housing for the same rent, and 
serve hundreds of thousands of additional families. 
Alternatively, it would allow us to serve current recipients 
much better without spending any more money, or equally well at 
a much lower taxpayer cost.
    The 1998 Housing Act made a small step in that direction. 
My testimony describes a much more significant initiative that 
would gradually lead to the elimination of the public housing 
program in its current form. It's important to realize that the 
poor performance of the Public Housing Program relative to the 
Housing Voucher Program is not due to differences in 
administrative competence. Both are administered by the same 
local public housing agencies. At HUD, the Secretary for Indian 
and Public Housing oversees both programs.
    The difference in performance is due to fundamental 
differences in the design of the programs. The voucher program 
relies on the incentives of recipients to get the best housing 
possible for the money spent on it. Public Housing Program 
relies on civil servants, who have weak incentives for good 
decisions and who do not even know whether they have made bad 
decisions unless their decisions are extraordinarily bad.
    My proposal requires no additional Federal funds. It's a 
proposal to better use the funds and assets currently available 
to public housing agencies. New legislation is needed to 
realize the large gains that would result from a major shift of 
resources from public housing to housing vouchers. The 
following proposal will achieve these large gains in an orderly 
fashion.
    First, Congress should require every local housing agency 
to offer each current public housing tenant the option of a 
portable housing voucher or remaining in its current unit on 
the previous terms. The latter option ensures that no public 
housing tenant will be harmed by this legislation. Families 
that accept a voucher would benefit because they would move to 
housing, neighborhoods, and/or locations that they prefer to 
their public housing units. Housing agencies should be required 
to pay for the vouchers from their current operating and 
modernization subsidies. This ensures that each housing agency 
receives the same amount of Federal money as it would have 
received under the current system.
    My proposal would not require housing agencies to sell 
their projects beyond the current requirements. However, it 
would allow them to sell any of their projects to the highest 
bidder. Requiring sale to the highest bidder will produce the 
most money to operate and modernize the housing agency's 
remaining projects.
    Many housing agencies would surely choose to sell their 
worst projects. These are the projects that would be abandoned 
to the greatest extent by public housing families that are 
offered vouchers, and they are the projects that will be the 
most expensive to renovate. When a project is sold, the 
remaining tenants in that project should be offered the choice 
between vacant units and other public housing projects of a 
housing voucher.
    When public housing units are vacated for whatever reason, 
the housing agency should be allowed to charge whatever the 
market will bear for them. This will provide additional revenue 
to housing agencies without additional Federal subsidies. More 
importantly, it will make their revenues depend in part on the 
desirability of the housing that they provide. The absence of 
this connection is the primary source of the excessive cost of 
the Public Housing Program.
    When a current public housing tenant either gives up its 
voucher or leaves its unit without a voucher, the housing 
agency should be required to offer a housing voucher to a 
family from its public housing waiting list, using its existing 
preference system. This ensures that the housing agency will 
continue to provide housing assistance to the same number of 
families, and indeed, the same types of families.
    If the preceding proposal is adopted, the Public Housing 
Program in its current form will wither, but public housing 
agencies will do a much better job helping low-income families 
with their housing.
    I appreciate the willingness of the members of this 
committee to listen to the views of a taxpayer whose only 
interest in matters under consideration is to see that tax 
revenues are used effectively and efficiently to help low-
income families.

    [The prepared statement of Mr. Olsen follows:]

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    Mr. Turner. Dr. Stegman.

                STATEMENT OF MICHAEL A. STEGMAN

    Mr. Stegman. Thank you, Mr. Chairman. The views I express 
today are informed by almost 40 years of academic and 
professional activities in affordable housing and community 
development policy and practice, and by service in the 
administrations of both Presidents Carter and Clinton at the 
U.S. Department of Housing and Urban Development.
    After addressing the issues of public housing's continuing 
role in the affordable system, I will respond to the specific 
questions you put to our panel. I refer you to my written 
testimony for more complete responses.
    The public housing inventory peaked around 1991 at 1.4 
million units. Over the following 10 years it declined by 
nearly 160,000 units, which was the size of the national public 
housing stock in 1983. Today the inventory is smaller still. 
Given its modest size, one might think that it would be hard to 
make a case for public housing's continuing importance. After 
all, 5 years ago, public housing accounted for less than 1 out 
of every 25 rental housing units in the country. But looked at 
another way, even at 4 percent of the national rental 
inventory, public housing accounted for nearly half of all 
rental units in the country renting for under $250 a month or 
less in 2001. And notwithstanding ongoing demolition and 
transformation campaigns, its value as an essential housing 
resource is likely to be even greater in the future because 
private rents are rising much faster than inflation, and much 
faster than the incomes of families who are on the lower 
reaches or rungs of the income ladder.
    HUD's own latest figures for 2003 underscore this point. 
There were only 78 affordable units for every 100 extremely 
low-income households in the country, while the ratio of 
available and standard units is much less, 33 units per 100 
households.
    The 1990's saw a series of fundamental changes in law and 
policy, including the creation of Hope VI, the introduction of 
mixed income and mixed financing opportunities and enactment of 
QHWRA in 1998. Taken together, I think these reforms have the 
potential to dramatically improve the lives of public housing 
residents and reconnect them with economic opportunity and 
reverse the fortunes of the very neighborhoods and communities 
that have been blighted by obsolete and dangerous projects.
    As a result of these developments, in my view, public 
housing is more innovative and dynamic today than at any time 
in its 69-year history. So in partial answer to the question 
posed in the title to the hearing, while public housing is not 
yet fully up to the challenges of the 21st century, it has come 
back a long way in a relatively short period and continues to 
have a significant amount of untapped housing and neighborhood 
development potential. But it will only be able to fulfill that 
potential through deep, trusting, stable and adequately funded 
partnerships with residents, their communities, governments at 
all levels, and the private sector.
    While each of these partnerships may be fraught with 
tensions, the public housing system can only be as strong as 
the weakest link in this chain of critical relationships.
    And so, Mr. Chairman, as we look to the future, the 
greatest challenge public housing authorities face is living up 
to their obligations to become outstanding asset managers, so 
that by example they can demonstrate their worthiness of the 
large and long-term commitments it is so essential for their 
partners and would-be partners to make, because one of the most 
important roles of State and local government and community 
service organizations in the public housing system revolves 
around the provision of essential services. To public housing 
residents, it is important that this subcommittee grasp the 
depth of resident needs as it contemplates the importance of 
the partnerships that I alluded to.
    Here is what a recent set of Urban Institute surveys found 
about the needs of families living in five representative Hope 
VI sites. There's no reason to believe that these families are 
much worse off or much better off than other families living in 
public housing and communities across the country. The mostly 
African-American women residents are very poor; 35 percent had 
incomes of less than $5,000 a year. Less than half were 
employed. And like their non-public housing counterparts, many 
cycled in and out of employment. Overall, their health was 
significantly worse than the average American adult; 41 percent 
reported their overall health was fair or poor, a rate over 
three times greater than self reports of a fair or poor health 
for all adults in the country nationally, and about twice that 
of Black women nationally.
    Obesity, hypertension, diabetes, arthritis, asthma rates, 
were all higher than national prevalence rates. Almost half 
were diagnosed as obese. More than a third had been diagnosed 
with hypertension. The prevalence more than 30 percent higher 
than for Black women nationally. And one in eight Hope VI 
adults reported having an asthma attack in the past year, about 
three times the share of asthma attacks reported by a national 
sample of adults.
    Mr. Chairman, public housing authorities alone cannot be 
expected to meet these urgent needs of their residents, but as 
PHAs transition out of the service business into the asset 
management business, because of staff shortages, budget 
constraints and lack of ongoing engagements, many existing 
local, public and private social service organizations are 
finding it hard to incorporate the needs of public housing 
communities into their priority work plans, and the impacts of 
budget cuts and community services, block grants, CDBG and 
other social services, eventually and inevitably come home to 
roost in public housing.
    Mr. Chairman, 11 percent of CDBG goes into services, not 
bricks and mortar. The elimination of that program last year in 
the administration's proposal would have wiped out over $300 
million of services that go to low-income people in low-income 
communities.
    Finally, in terms of the role of capital markets in public 
housing, I'd say things are progressing nicely. I would take 
one exception to Mr. Wood's testimony about not counting 
private equity generated by the sale of low-income tax credits 
as part of private equity leveraged by public housing funds. 
When companies take the research and development tax credit, we 
don't count that as a Federal investment. We count that as 
private capital investment, and the same should be true with 
respect to the low-income housing tax credit. When you factor 
that into the Hope VI leveraging, we find that only 53 percent, 
in one study only 53 percent of total project costs were 
Federal costs on Hope VI projects; 28 housing authorities, 49 
Hope VI grants, only 53 percent of Federal capital, the rest 
private, including significant amounts of private mortgage 
capital.
    Thank you very much.
    [The prepared statement of Mr. Stegman follows:]

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    Mr. Turner. Thank you.
    I want to return to the property discussion of the example 
that I laid out for a public housing development that was in my 
community, the issue of attempting to transition it, the public 
housing authority's view being that it is a contributor overall 
to the administration overhead of the umbrella organization, 
and the threat of losing those funds. I am going to overly 
simplify the characterization of Congressman Lazio's and 
Secretary Cisneros' response, but Congressman Lazio advocating 
for voucher opportunities for the residents, Secretary Cisneros 
stating a policy which I would describe as--again, 
oversimplifying; I know he would have had much more to 
contribute overall to the discussion if we had continued down 
the line--but to characterize the initial comments as a ``once 
public housing, always public housing'' land view of this is an 
asset as a specific site.
    I wonder if--many of you have used the term ``property-
based management'' and many of you have used the term ``asset-
based management,'' and as asset-based management for real 
estate, while public housing that has an opportunity to 
transition doesn't necessarily mean that a decision that was 
made 40 years ago to locate public project housing X on this 
spot X, means that this spot X should remain either in the 
hands of public housing or transitioning to a use that 
accommodates public housing. And we see all over the country 
communities that are making that transition of looking at 
public housing opportunities at a different location versus a 
specific location, and working in partnership.
    I would like, if you would, for each of you to talk about 
the issue. And we all raised the issue of if you have a project 
that is obsolete and needs to be removed, and providing 
economic diversity to a community and for the residents that 
live there. Let's focus our comments, if you will, on the issue 
of the opportunities of redevelopment for these sites. Mr. 
Solomon.
    Mr. Solomon. Mr. Chairman, I think you're right that it's 
being looked at all over the country and it's very site 
specific and inventory specific, and I think that's what asset-
based management is in part. I would like to point out that to 
a substantial extent, this is happening, meaning that public 
housing is being disposed or demolished in those situations 
about 135,000 units since all of this activity started. 
Nevertheless, the way the system is set up now, it does have 
the local management actors that have to decide whether this 
right.
    And I agree with something Congressman Lazio said, which 
is, we have to try to get the incentives right so that the 
housing authorities looking at this, the cities are going to 
come out OK in terms of both money and hopefully will see a 
bigger picture that will realize that when it's a better 
interest for the residents and future residents and families 
they're trying to serve, to convert, that will also be in their 
self-interest and they'll be commended for it. And I think we 
have some work to do there.
    We also have some work to get the tools in place that were 
even in the 1998 act so that this can fully occur where it 
should.
    Mr. Turner. Mr. Egan.
    Mr. Egan. Mr. Chairman, I think that the approach needs to 
be tailored to the individual circumstances. I think our goals 
should be, as many of us have said here today, to do what's 
best for the community, to do what's best for the residents and 
also, I agree, to do what's best for the taxpayers.
    Therefore, public housing authorities and their 
counterparts and partners in the public and private sectors 
should have the maximum amount of flexibility and the broadest 
range of options to achieve the best solutions for those 
communities. The solution will vary from market to market. In a 
soft market situation where there are plenty of additional 
vacant units available, the best option may very well be a 
voucher type approach. Where the market is very tight like the 
Washington, DC market, for example, the strategy might be to 
hang on more to a property-based approach. But I think 
regardless, the goal should be to try to create to the maximum 
extent possible, opportunities for the residents to rejoin the 
rest of the world of society.
    I think the statistics that Mike Stegman just gave us here 
today are very telling, and I think are a demonstration that 
what we need to do is to give those residents an option to kind 
of rejoin the rest of society and to reconnect, as the case may 
be, with the kind of services and institutions that the rest of 
society is able to enjoy.
    Let me give you just one quick example, if I could, which I 
think demonstrates a particular solution in a particular place. 
One of my additional responsibilities is to chair the Fairfax 
County Redevelopment and Housing Authority. I'm in my 5th year 
as the chair of that venerable institution. And we are, I 
think, a very entrepreneurial agency. One of the things that we 
did recently was to look at one of our older properties which 
needed rehabilitation, and we made a decision to take half of 
the public housing authority funding and move it to other units 
in the county which we purchased on a scattered-site basis 
through the county's inclusionary zoning ordinance, and to 
convert those units in that property to a low-income housing 
tax credit.
    So on the one hand we created a mixed-income community 
onsite and we gave the residents who were able to move to these 
property-based units elsewhere in the county an opportunity to 
connect into, as I said, the rest of the world of society, but 
I think it's going to vary from place to place, and that's why 
the PHAs need flexibility and options.
    Mr. von Hoffman. I would just say everybody's job would be 
a lot simpler if Americans would just stay still and stop 
moving around, and that is a kind of larger context. And again, 
times change. You know, the old neighborhoods are not inhabited 
by the same people they used to, and it's in that context that 
I think you encountered this situation in Dayton. You have 
changes go on, and I'm concerned with the nonprofits who do 
low-income housing with the public housing authorities, that 
they listen to people like Conrad and Renee Glover, and think 
beyond what's happening just this moment or what they used to 
do, and think about the change in the population, because poor 
people are moving out. So we might think about producing hard 
units as well as vouchers and creating communities that will 
help integrate people.
    That said, I have to endorse the idea of situation by 
situation because a lot of people are going to fear when this 
happens a real estate grab, quite frankly, that has happened on 
occasion in the Urban Renewal Program over time. Local 
government people made deals with important entrepreneurs that 
basically move an area out of poor people's hands into wealthy 
people's hands for that. So I would say that I embrace the 
spirit of change and flexibility, but probably will need to 
have some safeguards to make sure it's done right.
    Mr. Olsen. No competent economist would agree with a 
proposition that the fact that a piece of land was once used 
for public housing it should always be used to house subsidized 
families. I mean, as you mention, the location of jobs has 
changed vastly over the years, and so the best place for low-
income people to live has obviously changed vastly.
    Beyond that I would say the evidence indicates that all 
forms of unit-based assistance, all types of housing projects, 
have excessive costs for the housing provided. So I think as a 
general matter we should be moving away from designating 
specific properties for low-income people, and giving them 
vouchers and letting them live where they want to live.
    Mr. Stegman. I don't think all of our programs ought to be 
run by economists. [Laughter.]
    And there are other values that go into this. But if you go 
back to Congressman Lazio, aligning incentives is absolutely 
critical. Even in the public-private partnerships we don't want 
the public partner taking all the risks and the private partner 
getting all the gain. That's not a market-driven strategy.
    Rod Solomon will remember this. The public housing folks 
came to the Secretary--I was his Assistant Secretary for 
Policy--with the proposition to encourage demolition, we ought 
to give housing authorities 3 years--correct me if I'm wrong, 
Rod--3 years of operating subsidies for units that don't exist 
anymore. Phantom operating subsidies to really align the 
incentives that you, Mr. Chairman, were talking about. They 
couldn't afford to lose the operating subsidies, and so we were 
seeing housing authorities not doing probably what they ought 
to have been doing. Can you imagine GAO finding 3 years of 
operating subsidies for units that don't exist? You know, 
you've got to have a way of kind of couching that, but the 
alignment of incentives is absolutely critical.
    If we go to project-based budgeting and project-based asset 
management in the context that you're talking about or in the 
context that Ed Olsen is talking about, if that development 
can't be occupied by rent-paying people, it will drain the 
resources of the authority so that they can't manage their 
portfolio, and they will find it in their interest to do 
something about it, not just keep it up as kind of an 
archaeological kind of--anyway. [Laughter.]
    Mr. Turner. I appreciate the discussion because you have 
all identified, and wonderfully, the broad range of issues that 
need to be taken up when a decision like that is made, and they 
are many, and what a great description each of you have 
contributed to that. I appreciate it.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman.
    I will be quite brief in the interest of time. Just for a 
panel-wide question--and perhaps you can help me understand it 
better--one concern I continue to have is that new reform 
efforts to place individuals into privately owned multi-family 
structures will result in unit shortages due to budget 
limitation and market rental costs that continue to rise. How 
does a fixed budget program like Section 8 adjust in this 
environment? And I would love to hear from all of you on that, 
or anyone who wants to take a stab at it. Mr. Solomon?
    Mr. Solomon. If the answer is how do they adjust to a flat 
budget, they don't, if rents are going up in the locality. So I 
heard the question you asked in the last panel, and I think 
part of this is how do we have a system for the voucher program 
that tries to be responsive to the cost changes and is still a 
responsible system in terms of cost. I think we have to start 
with, as one of the panelists said, defining what we're trying 
to do in the program. If we're still going to serve people who 
are paying 30 percent of their median--I'm sorry--of their 
income as rent, and we're still going to target to serve the 
very poorest families, who our studies have shown are the ones 
with the most need in terms of needing to be served, then per 
unit that's going to cost a certain amount.
    And when Congress sets these budgets, Congress has to be or 
should be very clear about, OK, these are the kinds of 
parameters, this is what we're aiming to do, and this is how 
many families we can serve with these budgets. We, taxpayers 
have to leave it to all of you, knowing those facts, to 
evaluate the importance of staying at 2 to 2.1 million families 
assisted.
    Mr. Clay. Thank you.
    Mr. Egan. Mr. Clay, let me respond to your question by 
going back to the example I cited, which I cited for a reason. 
Because I think what, the basic points I want to make is that 
the answer to your question varies significantly from market to 
market, and I agree generally that Congress has the burden of 
trying to fund the Section 8 Housing Choice Voucher Program in 
as predictable and sustainable a manner as possible. 
Increasingly, the investment community is relying on that 
Section 8 subsidy to make major decisions about debt and equity 
investments.
    But in a very tight market like Cambridge, MA and Fairfax 
County, I would suggest, just kind of off the top of my head--
I've been trying to run some quick numbers here--that we can 
probably provide to a family, housing assistance at half the 
price in a property-based solution than in a voucher-based 
solution. Specifically, the units that we were able to purchase 
with the public housing authority we moved out of the one 
development and used to buy on a scattered-site basis townhomes 
in other parts of the county. That's probably costing us about 
$1,000 a month, all in, because we were able to purchase the 
units at a significantly lower price through our inclusion 
rezoning ordinance.
    Give a Housing Choice Voucher to a family in Fairfax 
County, they're going to end up having to pay probably double 
that to find a comparable unit.
    Mr. Clay. OK. Thank you for that response.
    Mr. von Hoffman. I would just speak to this briefly. In 
Cambridge, since Conrad brought it up, which is an extremely 
high housing market, the housing authority there, as in other 
places, ended up having to purchase apartment buildings in 
order for there to be properties to use the vouchers. It 
becomes so tight that you really need some creative solutions.
    Mr. Clay. Let me ask you about that, doctor. In an ideal 
situation, do you foresee there always being a need for public 
housing and available units, or do you think we could 
transition people and families to homeownership, to mortgage 
rate rental units or will there always be a need?
    Mr. von Hoffman. I think there will always be a need, and I 
think Americans generally will feel there's a need. And I think 
you can look at what's happened in the nonprofit and community 
development movement over the last 30 or 40 years to see that 
given the opportunity, people have used the low-income housing 
tax credit to create communities. I think, again--that was my 
point about the panaceas--to think that one thing will 
transform someone's life is just naive. And you can look at 
history or you can look around you and see that. I think that 
well-done public housing projects, as they were conceived and 
have been very effective at different points in time, or 
nonprofit developments, or even for-profit, commercial 
developments that are done with this in mind, are a very good 
way of bringing people along, integrating--Renee Glover's 
example is wonderful--integrating education, job training, or 
just stability.
    Mr. Clay. And mixed use is included in there, mixed-use 
unit. Anybody else? Yes, sir.
    Mr. Olsen. Well, first, I mean we haven't had a fixed 
budget for the voucher program. The voucher program budget has 
risen rapidly in recent years, and I don't favor a fixed 
budget, because if we had a fixed budget, with inflation it 
would mean we would have to serve fewer people or we would 
serve the people served not as well. So I certainly don't favor 
a fixed budget for the voucher program. On the contrary, I 
favor a rapidly rising budget for the voucher program to serve 
more people, funded by vouchering out project-based assistance, 
so just transferring the total budget toward the vouchers. So I 
favor an entitlement housing voucher program for the poorest 
people.
    Mr. Clay. Entitlement.
    Mr. Olsen. Yes.
    Mr. Clay. Thank you.
    How about you, Dr. Stegman?
    Mr. Stegman. Mr. Clay, the budget-based Section 8 kind of 
policies, if continued, would have either one of three effects 
or a combination of them. As rents go up and you keep the 
budget as it was based on the number of people being helped the 
previous year, either you assist fewer households, you raise 
tenant contributions to rent, or you use your program for 
higher-income households so that they really have a need for 
lower subsidies.
    I think a bigger problem is that only a quarter of eligible 
households receive housing assistance. That's really the bigger 
kind of issue. We're not in an entitlement situation, but when 
we look at Section 8, it's the only safety net program that I'm 
aware of where the market kind of sets the subsidy level. It's 
a market-based, that's what housing costs in an area that is 
not concentrated poverty, and so on. And when we look at 
market-based programs, it seems to me those who support them 
need to support the kind of market principle, which is paying 
the market rents. When you fix the budget you don't pay the 
market rents.
    Mr. Clay. All right. Thank you all. Did you want to answer?
    Mr. Olsen. I'll followup on that. There have been studies 
of the adequacy of fair market rents that indicate that these 
rents and the maximum subsidies in the voucher program greatly 
exceed what is necessary to occupy units meeting HUD's minimum 
housing standards. So we could take the money from the voucher 
program right now--we want to phase this in and grandfather 
people--we could take that money, offer less generous subsidies 
to a lot more people. That's what I think we should do.
    Mr. Clay. OK. But then what do you do with the current----
    Mr. Olsen. Grandfather them, allow them to continue on the 
current system, and just as there's turnover--every year 
there's about a 12 percent turnover rate--phase them into a 
less generous voucher program where you're serving more people 
though.
    Mr. Clay. OK. But there were probably incentives for them 
being involved in the program to begin with, don't you think?
    Mr. Olsen. Well, that provides significant benefits to 
them, absolutely. But I think we need to grandfather to make it 
politically feasible to do something like that.
    Mr. Clay. I thank you for that, and I thank all the 
witnesses for their response.
    Thank you, Mr. Chairman. I yield back.
    Mr. Turner. I also serve on the Armed Services Committee, 
and there is a hearing that is ongoing for which I might need 
to leave in the middle of--so we might have to cut short the 
answers to this question, and if we do, what I'm going to ask 
is that we adjourn, and then if you are unable to--if we don't 
get to you, which I do believe we will, if you would submit 
your answer in writing.
    One of the issues that I think is most important that we 
focus on, besides financial issues and impact on budget, 
besides the housing structure and environment and quality 
housing and affordability, is the issue that most of the 
residents that we have in public housing that have opportunity 
for economic transition, in other words, non-elderly, non-
disabled, most likely have some other issue that is 
complicating the expression of poverty that requires 
intervention through some social services, through education, 
through skill sets. What comments or thoughts might you have as 
to how we might better improve our ability to go beyond just 
the four walls of looking at providing a place for families to 
live, but opportunity for skills and transitional? Start with 
Mr. Solomon.
    Mr. Solomon. First of all, Mr. Chairman, I'm glad you 
mentioned non-elderly, non-disabled, because we sometimes 
forget that in public housing half of our occupancy is elderly 
and disabled. So focusing on the other group, the families, I 
think, given the way the budgets have been in recent years and 
what might be reasonable to expect, and the expertise that 
agencies have in our communities, we're really talking about 
how to get help from outside the public housing system and 
outside public housing authorities to focus on these residents, 
and really bring some both case work and figure out the help 
they need and try to get it to them.
    The act that was passed in 1998 did say that housing 
authorities are to use their best efforts to get cooperation 
agreements with local agencies, that will kind of offer 
services like employment assistance, other types of assistance. 
Housing authorities say that they're doing that, but I think 
the committee could see a little bit more what's happening with 
that. It's also something where HUD, with all of its regional 
offices, could use the presence of those field people to help 
join that effort locally and help engage the housing 
authorities where they are not doing it themselves or having 
trouble doing it with some of those other public and private 
sector agencies and entities that can help these residents.
    Mr. Turner. Thank you.
    Mr. Egan.
    Mr. Egan. I think the general principle is that the 
relationship between the public housing authority and the 
residents should not cease at the point where the resident 
moves to additional opportunities, but there should be an 
ongoing relationship, presumably using private sector 
community-based services to help that family make that 
transition. Very specifically, I would recommend looking at 
some of the lessons that have come out of the Hope VI program 
in that regard. You talked about, at least Mr. Clay talked 
about visiting Atlanta. I'm sure that an onsite review of their 
experience would be very, very useful. Also, I think 
particularly the experience in Chicago with the transformation 
of the massive units of housing, and specifically the effect of 
the Gautreaux decision, which preceded the transformation. 
Literally as we speak, this moment at the Urban Institute, Alex 
Polikoff is releasing his book on the history and analysis of 
the Katrow decision. So I would recommend that counsel may wish 
to speak with Dr. Polikoff about the experiences of that 
program.
    Mr. Turner. Thank you.
    Mr. von Hoffman. I, just briefly, take a sort of historical 
view and say the reason we have this problem is because in the 
1950's housing authorities and housing people generally were 
kind of blind-sided by the fact that they were going to need 
social services for their residents, and so we're kind of 
playing catch-up. I agree completely, Hope VI points the way 
and it's the enlightened housing authorities. I would also say 
there are many nonprofit, and there are some for-profit 
community development groups that have housing developments 
where they have job training, they have case workers. Here in 
D.C., Jubilee Housing, and you can go on to some of this faith-
based work as well, that provide examples.
    And then finally, I would just say I think in general in 
this case, as well, it would be great to lower the barrier 
between something called public housing and those entities, and 
the community, meaning that there are other low-income people 
or other people who have these problems and needs, and there is 
no reason to say that we're going to target only the people 
inside the walls of housing development, and that way we might 
have efficiencies of scale too, because we're serving a wider 
number of people.
    Mr. Turner. Dr. Olsen.
    Mr. Olsen. I think we shouldn't expect housing programs to 
solve all problems. For example, many children in public 
housing projects get a lousy education, and that's because 
they're in a lousy public school. There are just many problems, 
many important problems that housing authorities should not 
attempt to address.
    So I would really prefer a more minimalist approach. The 
thing that they should do is make sure that low-income people 
live in adequate housing, and they should do it in a cost-
effective way. Now, if they can do that first, then we can go 
on to other things.
    But the one other specific thing I'll mention is there has 
been a lot of discussion about the work disincentive effects of 
housing assistance. The estimates that are available suggest 
that indeed all forms of housing assistance have work 
disincentive effects. People earn less than they would have 
earned in the absence of it. The magnitude is on the order of 
13 percent. And this has to do with the subsidy schedule which 
basically says, under the basic subsidy, is the more you earn, 
you know, the more you pay in rent for your public housing 
unit, the less of a subsidy you get.
    So I think the QHWRA provisions that allowed housing 
authorities to experiment with the rent schedule, I think is 
trying to address that, and may well be able to address it, but 
I don't think we have any systematic evidence on this, and I 
think we should. I think we should try to learn something from 
the experiences of different housing authorities in a very 
systematic way because I think that is an important issue and 
that is something that housing authorities can do something 
about.
    Mr. Turner. Dr. Stegman.
    Mr. Stegman. I mean I would agree with Ed that housing 
agencies don't have either the capacity, the skills, or ought 
not necessarily have the responsibility of meeting all of the 
other needs of families, but there is a moral obligation, once 
the housing authority gets involved in the lives of families, 
particularly if we're talking about moving them in order to 
transform a neighborhood. It is absolutely incumbent upon us to 
make sure that these residents who have all of these multiple 
problems, get as good services as they can to put them on the 
path to a better life.
    The problem that we have here with Hope VI is the physical 
improvements are generational. I mean they're going to be 
around forever, but the short-run costs are being borne by 
families who are being relocated to--some cases we don't know 
exactly how well they're doing. We know there are a lot of 
needs that aren't being met, and a lot of this dates back to 
the time that every housing authority had a police force, every 
housing authority was expected to do all the social services. 
They were not connected to the community, and we're trying to 
change that. That's why I said if they become outstanding asset 
managers, and really, experts in what they're supposed to be 
doing, they will be better partners if we can support the 
funding of the social service networks adequately in the 
community. These folks are part of the community. That's the 
only way it's going to ultimately be done.
    Just one idea. I mean, the Chicago Housing Authority uses 
connectors. They don't provide the services, but part of their 
transformation is actually--I mean you could call them 
coordinators. You could call them case managers. But 
essentially they are trying to connect the residents in these 
transformed communities, those who are being relocated and so 
on, with social services. They're not providing the services 
themselves, but they are providing some resources to connect 
them.
    Mr. Turner. Excellent.
    I want to thank each of you for participating, not only, 
again, for the written testimony that you have provided to us 
and the wonderful research that you have included with it, but 
your preparation for today and the answers of your questions 
today.
    This is, as I stated, our beginning overview of the issue 
of public housing. I hope that each of you will be available to 
us as we look to becoming more focused on specific topics, and 
will be free to contact us as you have ideas of things that you 
think that we should be looking at. This is a broad topic, but 
one that your research and insight proves is certainly 
important to us from our community standpoint and from the 
lives of the people that live in public housing.
    With that, I will close the hearing, and thank you so much 
for attending.
    [Whereupon, at 4:33 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Charles W. Dent and 
additional information submitted for the hearing record 
follow:]

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