[Senate Hearing 109-487]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-487

 
                     HUD'S FISCAL YEAR 2006 BUDGET

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

                                HEARING

                               before the

               SUBCOMMITTEE ON HOUSING AND TRANSPORTATION

                                 of the

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

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   ON

 THE PRESIDENT'S PROPOSED BUDGET REQUEST FOR FISCAL YEAR 2006 FOR THE 
              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                               __________

                             APRIL 21, 2005

                               __________

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


   Available at: http: //www.access.gpo.gov /senate /senate05sh.html


                                 ______

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

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

             Kathleen L. Casey, Staff Director and Counsel

     Steven B. Harris, Democratic Staff Director and Chief Counsel

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                 ______

               Subcommittee on Housing and Transportation

                    WAYNE ALLARD, Colorado, Chairman

                JACK REED, Rhode Island, Ranking Member

RICK SANTORUM, Pennsylvania          DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina       JON S. CORZINE, New Jersey
MICHAEL B. ENZI, Wyoming             CHRISTOPHER J. DODD, Connecticut
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
MEL MARTINEZ, Florida                CHARLES E. SCHUMER, New York
RICHARD C. SHELBY, Alabama

                    Tewana Wilkerson, Staff Director

           Mark A. Calabria, Senior Professional Staff Member

                  John M. East, Legislative Assistant

             Jonathan Miller, Democratic Professional Staff

               Jennifer Fogel-Bublick, Democratic Counsel

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        THURSDAY APRIL 21, 2005

                                                                   Page

Opening statement of Senator Allard..............................     1

Opening statements, comments, or prepared statements of:
    Senator Reed.................................................     2
    Senator Corzine..............................................     8
        Prepared statement.......................................    33
    Senator Sarbanes.............................................    10
    Senator Schumer..............................................    13
    Senator Martinez.............................................    16

                                WITNESS

Alphonso Jackson, Secretary, U.S. Department of Housing and Urban 
  Development....................................................     2
    Prepared statement...........................................    33
    Response to written questions of:
        Senator Reed.............................................    39
        Senator Sarbanes.........................................    46
        Senator Schumer..........................................    47
        Senator Martinez.........................................    48

              Additional Material Supplied for the Record

Letter from various organization submitted by Senator Sarbanes 
  dated April 20, 2005...........................................    50
Letter from Nan P. Roman, President, The National Alliance to End 
  Homelessness to Senator Sarbanes dated April 20, 2005..........    52

                                 (iii)


                     HUD'S FISCAL YEAR 2006 BUDGET

                              ----------                              


                        THURSDAY, APRIL 21, 2005

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

    The Subcommittee met at 2:27 p.m., in room SD-538, Dirksen 
Senate Office Building, Senator Wayne Allard (Chairman of the 
Subcommittee) presiding.

           OPENING STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. I am going to go ahead and call the 
Subcommittee on Housing and Transportation to order, and I know 
that we are starting here just a minute or two early. We are 
going to have some votes this afternoon, and they are 
anticipated, at least the last time I looked--to start about 
2:15 or so, and I was hoping that what we could do is begin to 
get some testimony quickly, get some things put in the record. 
I am going to keep my comments very brief, and then hopefully 
we will give the minority an opportunity. I think they are on 
their way, and they can make a comment. If not, perhaps maybe 
the Secretary can make a few comments, and then when they show 
up, we will give them an opportunity to make some comments for 
the record.
    If at all possible, I am going to try and get this hearing 
concluded around 2:55, and the reason for that is out of 
respect for the Secretary's time. I know he is a very busy 
person, and we are going to have at least 4 votes, maybe 5, and 
in my mind I am figure it is an hour and a half where everybody 
is going to just have to sit here in recess while we do all our 
work on the floor. And so I hate to have you wait here for an 
hour and a half.
    That is the plan of action right now, and I just would like 
to welcome everyone to this hearing of the Subcommittee on 
Housing and Transportation, and today we will be discussing the 
FY2006 budget of the Department of Housing and Urban 
Development.
    I just want to personally welcome you, Mr. Secretary, to 
the Subcommittee. We appreciate your making time in your busy 
schedule to be here with us today.
    Secretary Jackson. Thank you very much, Mr. Chairman.
    Senator Allard. And so why don't I go ahead and recognize 
you. You can begin your testimony, and then when the minority 
shows up, I will give them an opportunity to make some comments 
for the record.

           STATEMENT OF ALPHONSO JACKSON, SECRETARY,

        U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Secretary Jackson. Thank you, Chairman Allard, and also 
Ranking Member Reed. We will present the 2006 budget here, but 
to save time I will submit the full budget to you all.
    Over the past 4 years, we have had a very unique experience 
in the Administration by promoting homeownership and increasing 
accessibility to housing and fighting housing discrimination. I 
will submit to you all a $28.5 billion budget for HUD for 2006.
    In June 2002, the President challenged us to create 5.5 
million new minority homeowners. I can tell you today that when 
he challenged us to create 5.5 million new minority homeowners, 
he also said that we had to continue the strong housing market 
that we had. Since that time, we have created 2.2 million 
minority homeowners, which is 40 percent of our goal, and to 
date, 51 percent of those homeowners are minorities.
    We have also had very strong evidence of the housing 
market, and it has been helped by the President's signing of 
the American Dream Downpayment Act, which we distributed $160 
million to over 400 State and local governments. But the most 
important part of that distribution is the $40 million that we 
used for housing counseling. We have found that by counseling 
people, they take the responsibility and understand the 
necessity of what goes with owning a home.
    The 2006 budget is the steward of the taxpayers. That is 
what we say. We have the Section 8 choice voucher, and we are 
pleased to tell you that Section 8, we funded it fully. But if 
we look at the history of Section 8, it has gone over the last 
5 years from 43 percent of our budget to 57 percent in 2005. At 
this rate we cannot continue to fund the program without 
cutting other programs. So, therefore, we are asking the 
Congress to pass what we call the flexibility bill as it 
relates to voucher and to go back to a budget-based system.
    Mr. Chairman and Mr. Ranking Member, but specifically Mr. 
Chairman, for your leadership in introducing S. 771, 
authorizing legislation to create flexible voucher, I would 
like to give my thanks and the thanks of the Department.
    With that, Mr. Chairman, I am open to answer questions from 
and the Members of the Committee.
    Senator Allard. Thank you, Mr. Secretary.
    I know that Senator Reed has a rather lengthy statement 
that he wants to make. I said that is okay, we will give you a 
chance to do that. And like I say, this is a minute-by-minute 
thing, but my latest memo here shows that the votes have been 
pushed back a bit, so that will continue to help serve our 
needs this afternoon as we hopefully get adequate discussion on 
issues that your Department is facing. So, I want to thank you 
again for being here, and now I recognize Senator Reed.

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you, Mr. Chairman for holding this very 
important hearing on the HUD budget for fiscal year 2006.
    I would also like to thank, obviously, Secretary Jackson 
for appearing before us to testify on behalf of the Department.
    Secretary Jackson. Thank you.
    Senator Reed. The Administration's budget request for the 
Department of Housing and Urban Development for fiscal year 
2006 is $28.5 billion, a decrease of $3.3 billion, or almost an 
11-percent decrease from the fiscal year 2005 funding level of 
$31.9 billion. However, this 11-percent cut does not fully 
reveal the true extent of the devastating cuts to HUD programs 
because the budget numbers are distorted through a budget 
rescission request of $2.5 billion as well as by how FHA 
receipts are treated for purposes of this fiscal year 2006 
budget.
    In fact, the overall funding for HUD programs is far much 
less than the Administration has indicated. Proposed reductions 
to individual HUD programs include, among others, some $4.6 
billion from Community Development Block Grant funding, $118 
million from housing for persons with disabilities, $14 million 
from housing for persons with AIDS, $24 million from rural 
housing and 
economic development, $24 million from brownfields, almost $286 
million from HOPE IV, $226 million from Section 8 project-based 
assistance, and $252 million from the public housing capital 
fund.
    I am also especially troubled by this proposed $2.5 billion 
rescission for which neither HUD nor OMB has been able or 
willing to identify the source of funding for this rescission.
    Let me say a little more about some of these cuts. First, 
the Administration's proposal to dismantle the CDBG program 
along with 17 other community development programs and these 
programs with a new program at the Department of Commerce is a 
terrible idea. The Administration proposal to fund this new 
initiative at $3.7 billion is a 34-percent overall reduction 
for all these programs from the fiscal year 2005 level of 
almost $2 billion.
    Basically, this proposal will eliminate one of our most 
important and successful Federal community development 
programs--the Community Development Block Grant program, CDBG--
and replace it with a program that will provide fewer resources 
to fewer people. CDBG was established in 1974 to provide 
Federal funding directly to local communities for housing 
rehabilitation, job creation, and infrastructure projects for 
low- and moderate-income families and neighborhoods. Over the 
past 30 years, CDBG has become the glue that holds together 
other Federal and local programs serving low-income people.
    Although the Administration is pretending otherwise, the 
real issue with Federal community development assistance is not 
the current structure of the existing programs, but the desire 
to cut back domestic spending.
    I am also very concerned over the Administration's approach 
to public housing. The Administration is seeking to eliminate 
the HOPE VI program as well as rescind the HOPE VI fiscal year 
2005 funding of $143 million. The Administration has also 
broken a promise to develop a new operating fund formula 
through a negotiated rulemaking process. Equally troubling, 
HUD's fiscal year 2006 budget request includes a $252 million 
reduction in the public housing capital fund despite an 
estimated $20 billion backlog in modernization needs.
    Finally, I am concerned about the Administration's $46.6 
million cut in funding for HUD's Office of Lead Hazard Control. 
As you are probably aware, this cut would eliminate the Lead 
Demonstration Program that I created, along with Senators 
Mikulski and Bond, to provide targeted funding to communities 
with the highest incidence of lead-poisoned children in the 
country. Your rationale that areas with high incidences of lead 
poisoning have now ``developed greater capacity and can compete 
for money in the regular grant program'' is a deep 
misunderstanding or misrepresentation of our demonstration 
program. In fact, our program only provides money to 
communities with a demonstrated need. It targets funding to 
communities with the worst problems. This HUD cut, which will 
harm children, is especially troublesome.
    Given the Nation's current fiscal problems, I am not 
expecting a big increase in the HUD budget. However, I think 
the Administration's proposals will hurt some of the most 
vulnerable people in our Nation--children, the elderly, the 
disabled, and those with AIDS--and I think you have a lot of 
explaining to do, Secretary Jackson, in your testimony. I look 
forward to your testimony.
    Just a final point. Everywhere I go in Rhode Island, in 
fact, around the country, one of the great needs is for housing 
for all of our citizens. You know, you do not have to go far. 
It is not an urban problem. It is a rural problem. It is not a 
Northeast problem. It is a Southwest problem. It is a West 
Coast problem. It is a problem across this country. And to cut 
the budget for the agency whose task is to assist local 
communities with their housing needs by such a significant 
amount flies in the face of the reality that faces this country 
and faces families across this country. And I find it, to be 
kind, problematic.
    Thank you.
    Senator Allard. Thank you very much for your statement, 
Senator Reed, and I thought we would proceed right on to 
questions.
    First of all, I would just like to take this opportunity to 
raise a concern that I think is going to affect HUD's ability 
to operate effectively and efficiently, and that is, the 
Department currently faces staffing vacancies.
    Secretary Jackson. Yes.
    Senator Allard. And of the 11 Assistant Secretary level 
positions at the Department, 8 are or will very shortly be 
vacant, and that includes a number of critical positions, as I 
see them. There is the General Counsel and Chief Financial 
Officer.
    Additionally, half the regional director positions are 
vacant, and I think that these vacancies seriously inhibit your 
help that you badly need in running the Department, Mr. 
Secretary.
    Now, I know that we have a real need there, but I also 
realize that you are not the one that does the nominating and 
whatnot. I assume that you are communicating with the President 
your open vacancies that you have in the Department so he is 
well aware of what your situation is. Is that correct?
    Secretary Jackson. Yes, Mr. Chairman, we are. And we are 
moving expeditiously on many of those. They are going through 
the clearing process with the FBI.
    Senator Allard. Okay. And now, the budget assumes a 
staffing level of 9,900, and that is a reduction of 123 FTE's. 
Most of the reduction comes from the assumed elimination of 
OFHEO's 225 FTE's.
    Secretary Jackson. Yes.
    Senator Allard. And given these reductions in staff levels, 
you are requesting an increase of $34 million for salaries and 
expenses. Would you explain that ambiguity, if you would, 
please?
    Secretary Jackson. We are not hiring new persons. What we 
are requiring is to meet the pay raise that was mandated, and 
we are asking for the extra money just to meet the pay raise so 
that we will make sure that our employees get what is due them 
and are pleased to get it.
    Senator Allard. Okay.
    Secretary Jackson. So we are not asking for any new 
employees.
    Senator Allard. Good. And then on the staffing decisions, 
how are those being made? And how are you assuring that we get 
the right people and the right programs to administer?
    Secretary Jackson. I will tell you that we have been in 
constant contact with personnel from the White House, and 
myself, the Deputy Secretary, and the Chief of Staff, we have 
interviewed a number of persons for the Assistant Secretary 
level, the General Deputy Assistant Secretary level. And we are 
looking at, I think, a tremendous crop of people who are 
willing to leave the private sector and come and work with us. 
I am just pleased, as an example, with the core people who want 
to be General Counsel for HUD. I think we are very fortunate to 
have the quality of people that are willing to do that for the 
salary that it pays.
    Senator Allard. Thank you.
    Now, I want to talk about the FHA zero downpayment 
proposal. As part of the budget, the Department proposed or 
reproposes the FHA zero downpayment legislation. As you know, I 
am a strong supporter of homeownership opportunities and have 
worked closely with you on the American Dream Downpayment Act.
    Secretary Jackson. Yes.
    Senator Allard. And various other proposals to promote 
ownership. However, I am concerned about this proposal here. 
First, what assurances do we have that such a program would 
create sustainable ownership?
    Secretary Jackson. We believe that the most difficult 
problem that low- and moderate-income people face is the 
downpayment and closing costs. It is not the sustainability of 
the rent. We believe that if we can go to the zero downpayment, 
we will encourage and increase homeownership at a faster rate.
    Will we have defaults? Yes. I cannot sit here and say we 
will not have defaults. But we will work with those persons who 
want to go, and we are not going to change or let down the 
standards any.
    What we are saying is that after a period of time--and I 
cannot remember that, I think it is 4 years--we will reduce the 
rate. But we believe deeply that, if given the opportunity, 
they will sustain themselves. And we have been able to see it. 
Even with the American Dream Downpayment Act, those persons who 
get into a home stay. And a lot of times you have persons who 
are paying 40, 45 percent of their income for rent. In most 
homes that are owned by Americans, it is either 30 or 31 or 32 
percent. So they will be saving money that can be used to help 
their children, their children's education, or do other things 
with it.
    Senator Allard. Thank you very much for your responses. I 
see that my time has expired. I am going to hold the Members on 
the Committee to a pretty strict 5-minute time limit because of 
our limited time that we are going to be in session. Then we 
will give plenty of time to keep gumming around as long as we 
have time here in the Committee. So, I will recognize you 
first, Senator Reed, and then Senator Corzine.
    Senator Reed. Thank you very much, Mr. Chairman.
    Mr. Secretary, let me follow up on some of the comments I 
made in my opening statement. As you know, I am particularly 
concerned about the cuts to the lead control program. It is 
effectively going to eliminate about 30 percent of the 
resources that are going to into that program. An underlying 
assumption is that we are committed as a Nation and you are 
committed as an administration to eliminating lead poisoning by 
the year 2010.
    According to the Federal Strategy to Eliminate Childhood 
Lead Poisoning by 2010, of which HUD was the key author, an 
average of 230,000 units need to be evaluated and identified 
lead paint hazards controlled each year. Last year, HUD created 
approximately 8,800 lead-safe units through its lead program, 
and that Federal strategy report recommended increasing Federal 
funding of the lead hazard control program.
    How will a $47.6 million cut in the HUD demonstration 
program enable the Department to do its part to end this 
program and achieve the goal by 2010?
    Secretary Jackson. Senator Reed, we believe that we have 
made great strides based on the demonstration program that you 
authored. We feel that now we have eliminated a lot of lead 
hazard problems that exist in this country, and we believe that 
within this budget that we have, we can continue to address 
those issues.
    But let me say something else to you that I think is very 
important. I understand the question that you asked, but I was 
presented with a very difficult circumstance. We have an 
expanding Section 8 budget, and I had to prioritize and look 
across every program that we had and decide how we best could 
serve the needs without putting persons out on the streets. And 
we made priorities.
    Was it easy? No, sir, it was not. Did I relish that? No, I 
did not. But choices has to be made, and we made the choices, 
and we felt that we had done quite a bit in the lead base 
program and that we could still present and command a program 
that would address the needs of those most vulnerable to lead.
    Senator Reed. There are other choices that you could have 
made, Mr. Secretary, and that would be to raise the top line on 
your budget, to have the President say that he is committed to 
ending lead in 2010, not just rhetorically but actually, to say 
he is committed to keeping people in homes. That choice was 
ignored.
    Secretary Jackson. No, I would disagree with you. We are 
committed----
    Senator Reed. So you have as much money as you need to 
eliminate childhood lead poisoning by 2010.
    Secretary Jackson. Yes, it is still our goal to do it.
    Senator Reed. It is your goal. Will you do it with this 
funding?
    Secretary Jackson. You know, I cannot tell you we will do 
it. We are going to make every effort to do it, and I believe 
we can do it with this funding.
    Senator Reed. Well, you are not making every effort, Mr. 
Secretary, when you cut $47 million out of the program.
    What you are doing is----
    Secretary Jackson. I understand what you are saying, but I 
would say I think we have enough to administer the program in a 
very formidable way.
    Senator Reed. Let me tell you, last year approximately 9 
percent of children in St. Louis--that is about 1,100 
children--were poisoned by lead. In my home city of Providence, 
about 9.5 percent of the children in the city were poisoned. 
That is about 831 people. In some school districts in 
Rochester, New York, one out of every three children is 
poisoned.
    This is a completely avoidable but very dangerous childhood 
disease that has irreparable damage to children, and, you know, 
I do not think it is a choice between putting people on the 
street and letting children be poisoned. I think it is a choice 
between getting more resources into your Department and other 
Federal priorities of this Administration, principally the tax 
cuts.
    Let us go to CDBG. In 2004, Secretary Bernardi, who is 
sitting there, who is the distinguished former Mayor of 
Syracuse, New York, said this: ``HUD has a long history of 
being there and providing help for people, particularly those 
with the greatest needs, our lower-income constituents. CDBG 
has certainly been there during boom years and, most 
importantly, in times of tightening budgets, which place 
greater demands on existing services. We must continue to 
support and build upon programs that work, those that have a 
proven record of flexibility and the ability to fit in with 
local determined needs. CDBG is such a program. It ranks among 
our Nation's oldest and most successful programs. It continues 
to set the standard for all our block grant programs.''
    What has happened in a year that would cause you to reduce 
CDBG funding significantly, on the other of 30 percent, if it 
has been such a successful program that is flexible, that 
works, and, in fact, you propose to restructure the program 
almost completely?
    Secretary Jackson. Mr. Ranking Member, I will not sit here 
and tell you that the Community Development Block Grant program 
is not a success. If I did that, I would be pretty 
hypocritical, having been chairman of two community development 
agencies, one in DC and one in St. Louis.
    What we did is zeroed out $4.5 billion out of our budget. 
It was going to Commerce. We made a logical argument that we 
felt that all of the economic development programs should be 
consolidated at HUD.
    Senator Reed. Commerce you mean, Mr. Secretary.
    Secretary Jackson. No, we made initially the argument that 
it should be at HUD, and the decision was made to send it to 
Commerce, and we did what was asked of us. We zeroed out $4.5 
billion. But I will not sit here and tell you that the 
community development program has not been a very active and 
stabilizing program.
    Senator Reed. I respect your stating what you and your 
Deputy Secretary have made clear, that this is a successful 
program. I think anybody who has been in local government, as 
you have and as the mayor has, understands that this is a 
program that not only provides resources but also flexibility. 
That is why the Secretary said it. It is a model of Federal-
city relationships. And to cut it--and your rationale now is 
you were just told to do it and you are carrying out your 
orders. But that is not a good justification for----
    Secretary Jackson. No, we did not cut the program. What we 
did is zeroed out of our budget $4.5 billion to be----
    Senator Reed. Transferred over to Commerce.
    Secretary Jackson. To Commerce. So our position is that the 
program----
    Senator Reed. I do not want to use up my time, but I want 
to understand the bookkeeping here. The money that will be sent 
over to Commerce is significantly less than what you spent last 
year on the program. Is that correct?
    Secretary Jackson. You know, Senator, I really cannot 
answer that question for you because I really do not know.
    Senator Reed. Well, if you do not know, Mr. Secretary, 
then----
    Secretary Jackson. I just know we zeroed out $4.5 billion 
out of our budget. Now, how they are going to use it at 
Commerce, I cannot tell you.
    Senator Reed. Thank you, Mr. Secretary.
    Senator Allard. Senator Corzine.

              STATEMENT OF SENATOR JON S. CORZINE

    Senator Corzine. Thank you, Mr. Chairman. I have a formal 
statement for the record.
    Senator Allard. We will make that a part of the record, 
Senator.
    Senator Corzine. I did not hear Senator Reed's statement, 
but I am sure I will echo a lot of the same themes. I am 
troubled with the decline in budget top-line numbers for HUD, 
and I am particularly troubled with the CDBG efforts. And I 
must tell you that hardly anything is bringing more rants and 
raves from State and local communities than the CDBG cuts. I am 
very troubled with a number of the changes in the public 
housing operating fund, basically a reduction to 89 cents for 
every dollar needed to cover basic housing operation costs.
    Our local authorities are going to have to turn to the 
State. I am a little more interested in the State now than 
maybe even I was prior to recent days.
    [Laughter.]
    Somebody is going to have to make up the differences. You 
know, devolution of responsibility when a State is already 
running a $4 or $5 billion budget deficit is hard to 
understand. HOPE VI, which has been an extraordinarily 
successful, leverageable program in New Jersey, is zeroed out 
in the budget. I do not know where to start. I also have the 
same issues on lead. I know the Administration has a very 
laudable goal of ending homelessness in America. I think the 
steps that we are taking with respect to a lot of the issues, 
acknowledging we have serious budget problems--Senator Allard 
and I sit on the Budget Committee, and we heard more than 
enough to scare people on both sides of the aisle about where 
we are going. But these budget problems are not going to go 
away. They are just going to go either to the State government 
or to the local government. And I do not understand actually 
why we are pulling so fundamentally away from providing support 
for housing.
    I guess my question is: What is the philosophical thrust of 
this? We have an affordable housing gap in this country. We 
have talked about that under the context of the GSE's. What is 
driving this push-away from HOPE VI, the changes in operating 
rules that reduce Section 8 housing subsidies for these homes? 
What is the philosophy? Is it just simply budget?
    Secretary Jackson. Let me say this: The philosophy that the 
President and I have is that we are going to do everything in 
our power to serve the needs of those most in need. And I 
believe that, clearly, when we talk about a number of 
programs--and let me use the HOPE VI as an example. The HOPE VI 
program has been, in certain places, an excellent program.
    Senator Corzine. Extraordinary.
    Secretary Jackson. No, I would not say extraordinary, 
Senator. I would say that of the 200 or so awards that we have 
made, we have only finished, in the last 12 years, 33 of them. 
We are standing with $3 billion outstanding that is over 5 
years old. So it is not extraordinarily successful. And when we 
dreamed up the HOPE VI program, I was one of the committee 
who----
    Senator Corzine. My point was it is extraordinary in those 
communities where it has been properly executed and changed, 
and one wonders why we do not use the example of those places 
that have been successful to try to get this program to be a 
driver of economic renewal in our communities as opposed to 
zeroing it out because there have been flaws in how the money 
has flowed.
    Secretary Jackson. I do not think it is just flaws. I think 
that the program from its inception has not operated as the 
people who were writing the legislation--and a number of 
Members are still in the House--thought it would be. It has not 
worked as well as we thought, and the key to it is we still 
have over $3 billion outstanding.
    I believe also that it is my responsibility to make sure 
the Section 8 program works, and I have been very honest with 
the Committee, and I will be very honest today. It is eroding 
the budget. Just 5 years ago, it was 43 percent of our budget. 
Today, it is 57 percent of our budget. I had to make very 
difficult choices in order to make sure that the Section 8 
voucher program was funded fully.
    Senator Corzine. Just so you know, make sure that you 
recognize that the growth in that budget is absolutely 
indicative of the demand for affordable housing in this 
society, which we are not providing enough of. I mean, it is 
indicative of a demand.
    Secretary Jackson. No, it is----
    Senator Corzine. The lines for people who want to sign up 
for Section 8 vouchers and/or housing rental units is 
extraordinary in my State. Maybe it is different in other 
places.
    Secretary Jackson. No. It is extraordinary. But I think the 
real issue is what has happened to the program since 1998. We 
made a decision to serve 75 percent of the vouchers to 30 
percent or less than median in this country, where before it 
was 50 percent of median, and the average stay on the program 
was just a little over 3 years, where the average stay today is 
almost 8 years. So we are increasing budgets, but more people 
are not being served, and that is the thing that disturbs me 
tremendously.
    In your part of the country, in Senator Reed's part of the 
country, it is very difficult to really use a Section 8 
certificate or voucher. We know that. But in the Southwest and 
the Southeast, it is not that difficult. But the prices the 
landlords are getting for these vouchers are exorbitant. They 
should not be there.
    So if we can have the flexible voucher program and give the 
flexibilities to the housing authorities to use, I think we 
will see more people being housed quicker and less people 
staying longer on the program. And I know some people will say 
that is not true. Well, you know, I have the dubious 
distinction of being the only Secretary of HUD that has ever 
run a housing authority. I ran three of them. And I had a 
budget that they gave me, and I housed people on Section 8. I 
do not see a problem going back to budget base and flexibility. 
If given flexibility, you know what you have to do with those 
vouchers. And I believe that that is the way we are going to 
stop the exponential growth of this program. Otherwise, it is 
going to eat away at our budget continually.
    And let me say this when you say there is a need. I do not 
see that we have an affordable housing problem in the United 
States. I think we have it by regions. If you are talking about 
your part of the country, we have a serious problem. If you are 
talking about Rhode Island, we have a serious problem. But if 
you are talking about Dallas, if you are talking about Fort 
Worth, if you are talking about Chicago, no, it is not a 
serious problem like you will see in New Hampshire, Maine, and 
other places.
    Senator Allard. Senator Corzine, thank you, and you and 
Senator Sarbanes came in after I explained where we are on this 
Committee. I am going to try to keep the 5-minute rule as 
strict as I can because we have about four or five votes that 
are going to be coming on the floor. They have been delayed, so 
it is going to help us out this afternoon to manage it. And 
that takes up nearly all of our hearing time that we had set 
aside.
    We are on the first round of questioning, so I want to give 
Senator Sarbanes an opportunity to make an opening statement 
and to go ahead and ask questions if he would like. Myself, 
Secretary Jackson, and Senator Reed have taken our full 
statements and put them in the record, and we will put your 
full statement in the record, Senator Corzine, and then I will 
call on Senator Sarbanes.
    Senator Sarbanes, we are in the first round, and you are 
up.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you, Mr. Chairman.
    Mr. Secretary, I guess I am wondering what happened to the 
HUD budget on the way to the Congress.
    [Laughter.]
    It must have gotten waylaid somewhere. One hopes it was not 
like this when it came out of the Department, but who knows, 
and maybe we might examine that here today.
    My reading is that the overall funding levels have been cut 
about 12 percent from fiscal year 2005 to fiscal year 2006. Do 
you disagree with that?
    Secretary Jackson. I cannot tell you that they have been 
cut. We shifted $4.5 billion out of our budget to go to 
Commerce.
    Senator Sarbanes. Yes, that is interesting. Was that your 
idea to send it over there to Commerce?
    Secretary Jackson. I think just before you came in, 
Senator, I said to Senator Reed that I think that HUD made a 
logical argument that economic development should, with the 
community development program, stay at HUD. The argument we 
felt was very strong. But the decision was made to consolidate, 
and I totally support consolidating the programs. They should 
be consolidated because the way they are piecemeal today is not 
good, because a lot of times we do not know what economic 
development----
    Senator Sarbanes. Now, the consolidation I think was about 
$4.7 billion out of the HUD budget?
    Secretary Jackson. It was $4.5 billion out of our budget.
    Senator Sarbanes. Yes, and it was consolidated into an 
agency over at Commerce?
    Secretary Jackson. Yes.
    Senator Sarbanes. And was their budget about $370 million?
    Secretary Jackson. Yes, their economic development program 
was about $370 million.
    Senator Sarbanes. $370 million.
    Secretary Jackson. Yes.
    Senator Sarbanes. And you sent over there $4.5 billion.
    Secretary Jackson. We zeroed $4.5 billion out of our 
budget.
    Senator Sarbanes. Boy, that is the tail wagging the dog, is 
it not? So it seems to me. Public housing has been cut. You are 
talking about eliminating the HOPE VI program. Actually, are 
you also talking about rescinding what the Congress 
appropriated this year for HOPE VI?
    Secretary Jackson. No. We have the HOPE VI NOFA on the 
street. We have not rescinded it.
    Senator Sarbanes. $143 million that we appropriated for the 
current fiscal year, you are not proposing to rescind it?
    Secretary Jackson. We had proposed, but it was told to us 
that we move forward with it, and we have.
    Senator Sarbanes. Oh, good. Who told you that?
    Secretary Jackson. Senator Bond, for one.
    Senator Sarbanes. Oh, good.
    [Laughter.]
    Senator Corzine. You should ask him how many Missouri 
projects are in HOPE VI.
    Senator Sarbanes. I am going to get to that one.
    [Laughter.]
    I understand the disabled housing program, Section 811, is 
being cut 50 percent and further being restricted to voucher 
assistance only. Is that correct?
    Secretary Jackson. It is not--yes, it is. What we did is we 
were still under all of the outstanding vouchers, but we are 
not building 1,500 new units.
    Senator Sarbanes. The experts tell us that for the disabled 
though you need--they need the services to go along with the 
housing. I am quite interested in this subject because I just 
introduced legislation to encourage providing services for the 
elderly as well. What the experts are telling us is that just 
the housing alone is not enough to meet the problem. You need 
the services to go with the housing, both for the elderly, but 
even more so for the disabled.
    Secretary Jackson. Yes.
    Senator Sarbanes. But you are not going to continue the 
program of constructing housing specifically designed for the 
disabled; is that correct?
    Secretary Jackson. Yes. We did not put in for 1,500 new 
units, but we will continue to fund the 40,000 units we have 
out there and provide the assistance.
    Senator Sarbanes. Mr. Chairman, I would like to put in the 
record two letters of opposition to the block granting of the 
Section 8 voucher program and the eliminating of the various 
protections that have ensured that it provides affordable 
housing, first and foremost, to those who need it most.
    Senator Allard. We will be glad to put that in the record, 
and would you like to put your full statement in the record, 
Senator Sarbanes?
    Senator Sarbanes. I am almost at the end of it here.
    [Laughter.]
    Senator Allard. Okay.
    Senator Sarbanes. One is signed by 39 organizations that 
says that the Administration's proposal represents a seismic 
shift in national housing policy. ``The program changes 
proposed would be devastating to those current participating in 
HUD affordable housing programs, as well as the millions in 
need of such assistance.'' And it is signed by, amongst others, 
the Low Income Housing Coalition, Catholic Charities, Jesuit 
Conference USA, Enterprise, Lutheran Services in America, 
United Cerebral Palsy, and the Volunteers of America.
    The second letter sent by the National Alliance to End 
Homelessness explains, ``Section 8 is particularly important in 
providing supportive housing, the key to meeting the goal set 
by President Bush in 2002, of ending chronic homelessness in 
this country in 10 years.''
    Mr. Chairman, in closing, because I see I have used up my 
first round here, I just want to quote Senator Bond, our 
colleague, to whom you made reference earlier, Chairman of the 
Appropriations Subcommittee with jurisdiction over HUD. Senator 
Bond said to you, Mr. Secretary, at your last appearance before 
him. Senator Bond said, ``I believe that the President has been 
getting some very bad advice about the housing and community 
development needs of the Nation.''
    Now, are you the one who gives him advice, the President, 
about housing and community development needs, or has that 
advice been coming from somebody else?
    Secretary Jackson. No. I give advice to the President about 
housing needs, especially as it relates to HUD.
    Senator Sarbanes. And do you think Senator Bond was 
referring to you when he said that, or maybe some other 
advisers that the President was hearing from?
    Secretary Jackson. I think you would probably have to ask 
the Senator that.
    Senator Sarbanes. Okay, thank you.
    Thank you, Mr. Chairman.
    Senator Allard. Thank you, Senator Sarbanes.
    Senator Schumer, we are in a first round of questioning, 
and if you can possibly put your full statement in the record, 
it would help us, and we have four, maybe five pending votes on 
the floor, so I am trying to move things along.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. I will be quick.
    Senator Allard. And would like to give you your full 5 
minutes, and if we have time I would like to go through a 
second round of questioning. Just before I recognize you, I 
would like to--again, we have heard some dismal stories here, 
but there is a good story out there in that homeownership is at 
an all-time high in this country, and so housing programs have 
been working.
    Senator Schumer.
    Senator Schumer. Wait till we undo Fannie and Freddie, and 
then we will undo that one good point too.
    [Laughter.]
    But in any case, I want to thank you, Mr. Chairman, for 
holding this hearing. I will be quick with my questions because 
I know we have to move along.
    The first issue--and this is also good news--smaller but 
very consequential. We have in New York City an epidemic of 
distressed HUD housing facing enforcement action, and if we do 
nothing, particularly when the leases expire, they will just be 
put on the market. New York City, even in the poorest 
neighborhoods property values are way up, so that you could 
profitably just have these rents float to market. It would just 
throw 17,000 people out of housing with nowhere to go. Our real 
estate market is tight.
    And the Secretary has been very helpful. We have already 
solved the problem of Logan Gardens. We are about to solve at 
Adventist Francis and Gates Patchen, so we are working our way 
through them. And I wanted to thank the Secretary for that. He 
is working.
    Secretary Jackson. Thank you.
    Senator Schumer. With the cooperation of yourself and New 
York City's HPD Commissioner, Sean Donovan. So that is the good 
news front. And I take it we will continue to work in that 
direction as we work through those projects.
    Secretary Jackson. We surely will.
    Senator Schumer. Great. Now, the bad news is operating 
subsidies. We have in New York City 600,000 people in public 
housing. When I was in the House we already crossed the bridge 
that we were not going to build new public housing, and the 
amount of money to build new public housing is minimal. In some 
years it has been zero, and it was very expensive to build 
public housing, and there were better ways. The 80/20 does a 
very good job, in my opinion, at least in high cost areas like 
New York, of providing affordable housing, so I was not wed to 
that.
    On the other hand it has been immutable that operating 
subsidies would continue to come through. You have a huge 
investment. New York's 600,000 people is more than all but 8 or 
9 cities in the United States. New York City happens to have a 
well-regarded housing authority and it maintains the housing 
quite well. Most of the projects have been federalized over the 
last 20 years. How can we cut the operating subsidies the way 
we are? I mean everywhere we look Section 8, which was regarded 
as a good healthy program, we are not getting--and a free 
market program, or at least as free market as when the 
Government gets involved in housing as you could, is going 
down. And now these operating subsidies.
    The housing authorities were promised that their loss would 
not exceed 5 percent. They were promised that. Every one of 
them thinks it. Now we are seeing that they are losing huge 
amounts of money. I think in Niagara Falls it was 47 percent. 
New York City would lose $185 million. It makes no sense to cut 
the operating subsidy. If you want to say, oh, the locality 
should pick these things up, well, you could say that about 
everything, and frankly, the localities have less money than 
the Federal Government. So you are just going to take this 
wonderful grand investment that has housed so many poor people, 
and basically put it on the road to poor housing, which it is 
not now. Can you please explain to me first what made HUD 
change its mind with the 5 percent, getting away from the 5 
percent cut, but the overall rationale of cutting operating 
subsidies which means it is like not maintaining your car, or 
it is like a private homeowner not maintaining their home.
    Secretary Jackson. Mr. Senator, I cannot talk to you about 
5 percent. I am not sure about where you got the 5 percent 
from, but I can talk to you about the negotiated rulemaking 
that we had with the industry. And what we said is that if the 
housing authorities are going to be able to sustain themselves 
is that we must look at better ways of managing those 
authorities. And you talk about housing authorities, about 70 
percent of them benefit from the negotiated rulemaking that we 
did. There are some that will suffer, there is no question 
about it.
    But let me say this to you. You know, when I ran housing 
authorities in St. Louis, Dallas, and in Washington, DC, the 
operating subsidy was never more than 92 percent. We were 
funding it at 90 percent. It has been and will still be, I 
think, at a level that the housing authorities will be able to 
carry out their mission.
    Are we asking them to manage better? Yes. But I had to 
manage three housing authorities with never having 100 percent 
of subsidy.
    Senator Schumer. Let me give you one example. Is New York 
City not managed well?
    Secretary Jackson. I think New York is managed well.
    Senator Schumer. How do they deal with $185 million cut?
    Secretary Jackson. Well, I cannot specifically speak to 
what their cuts are today.
    Senator Schumer. There are people in this audience who were 
part of the negotiation.
    Secretary Jackson. Yes.
    Senator Schumer. Well, I will take a liberty here. How many 
of you were told that 5 percent would be the limit of the cut 
by HUD? Raise your hands. There are a few hands there. There 
were.
    So we should go back. I would ask you to go back and 
reexamine that issue. I understand you are part of the 
Administration and doing your job for the man who appointed 
you, the President. But a Housing Secretary has some obligation 
to fight for the constituency, which is housing, and nowhere, 
not Ronald Reagan, not George Bush the first, has done this 
kind of cut to operating subsidies that we have seen here.
    Secretary Jackson. Senator, I would disagree. I have 
operated three housing authorities. I know what I have been 
funded at, and I was never funded at 100 percent. I think only 
once in the 8 or 9 years I ran a housing authority I was funded 
at 95 percent, but most of the time I was funded at 90 to 92 
percent.
    Senator Schumer. Can you cite for me a year where the cuts 
in operating subsidies have been greater than this budget?
    Secretary Jackson. I am not sure when you say ``the cut'' 
because right now New York City has over $400 million in 
reserve, and we just permitted them to issue a $600 million 
bond issue that will be used for renovation of their housing 
authority buildings.
    So, I think that with us doing that, we put them in a very 
unique position where other housing authorities wish they were.
    Senator Schumer. But that is, I am told here, some are 
going to be funded at 50 percent. That is a big difference than 
90 percent.
    Secretary Jackson. I do not know of any housing authority 
that is going to be funded at 50 percent.
    Senator Schumer. Can you guarantee to us that every housing 
authority will be funded at 90 percent?
    Secretary Jackson. I cannot make a guarantee that every 
housing authority will be funded, but I am saying----
    Senator Schumer. You just said that it was going to be 90--
--
    Secretary Jackson. I think we are funding most housing 
authorities at 90 percent.
    Senator Schumer. Well, maybe most. I do not know ever if 
that is true, but I would urge you to submit to me in writing 
the percentage that each city, each of the 100 largest housing 
authorities is funded at under your proposal, okay?
    Secretary Jackson. Sure, I will be happy to.
    Senator Schumer. Thanks.
    Senator Allard. I would like to also now recognize Senator 
Martinez. We are in the first round of questioning. If you have 
an opening statement, you can put that in the record, and we 
are trying to control the time here to 5 minutes. We have 
obviously gone over that a number of times, but we are 
expecting some votes here on the floor and there will be about 
four or five of them. So proceed, please.

               STATEMENT OF SENATOR MEL MARTINEZ

    Senator Martinez. Rather than an opening statement, I 
simply wanted to give a warm welcome to my colleague and dear 
friend, Secretary Jackson.
    Secretary Jackson. Thank you.
    Senator Martinez. Secretary, that little seat looks so 
lonely from over here.
    [Laughter.]
    I used to sit over there a time or two and I want to 
welcome the other good friends from HUD who I had the privilege 
of working with, and helping to do a lot of the things that I 
think made America a better place in terms of housing.
    I want to ask you in two specific areas. One is one of my 
passions that I know you share was the issue of homeownership. 
Would you review for us--and if it has been already done I do 
not suppose you will mind doing it again--the successes we have 
had in the recent past in terms of homeownership rates, how 
that has been accomplished and what you foresee in the future 
in terms of homeownership?
    Secretary Jackson. Back in June 2002, as you were Secretary 
then, President Bush challenged you and myself to increase 
minority homeownership by closing the gap that exists between 
blacks, hispanics, and white Americans. And he challenged us to 
create 5.5 million new minority homeowners by 2010. As of 
today, we have created 2.2 million new minority homeowners, 
specifically black and hispanic, so I think we are about 42 
percent in a positive role, and I believe that we will get 
there before 2010.
    Many of the homeowners that we have created have come out 
of public housing and Section 8, because not only did we create 
the homeownership for them, but we also created counseling for 
them. We went from $8 million a year in counseling when we 
first walked in, to over $40 million, and we can help some 
800,000 people a year. And on a number of occasions I have been 
with the President where we have seen people graduate from 
public housing, from Section 8, and become homeowners. And I am 
extremely pleased, even though I realize that everyone 
immediately will not own a home. But we have been very 
successful.
    Senator Martinez. In this budget what is the funding for 
the American Dream Downpayment Initiative?
    Secretary Jackson. $200 million, which will help an 
additional 40,000 families.
    Senator Martinez. Good. One other thing that I know you and 
I worked an awful lot on was on the issue of chronic 
homelessness. I know that your commitment continues. Can you 
review for us what this budget will do in terms of homeless 
Americans and the chronic particularly?
    Secretary Jackson. We are making every effort with the 
Samaritan Program to meet the needs of the chronic 
homelessness, and not in a sense where we address one portion 
of it. The President has insisted that we address the whole 
perspective of a person. And I had a chance to see how our 
money was working just about 5 weeks ago when I went out to Los 
Angeles with Governor Schwarzenegger to visit Path, and that is 
a center where a person comes in off the streets, has been 
there more than 90 days. First, they address the mental and 
physical part of the person. Then they talk to the person, 
trying to find out what they really want to do, and help them 
find jobs and security, and then help them find housing.
    So the program we are putting in place now is quite 
different than those piecemeal programs that had existed over 
the last 12 or 13 years. We are trying to address the whole 
person because we realize right now that about 80 percent of 
our budget is taken care of by less than 10 percent of the 
chronic homeless people. So unless we get them off the street 
and keep them off the street, we are not going to be very 
successful.
    Senator Martinez. Mr. Chairman, I do not know how much time 
I have. I just want one quick comment.
    Senator Allard. You have two minutes.
    Senator Martinez. Mr. Secretary. I know you and I have 
discussed the issue of CDBG, where we have a difference of 
opinion in terms of the propriety of moving this program, 
frankly, and even diminishing the funding of it. I hold the 
view very strongly that CDBG belongs at HUD, that it is a 
program that has worked well at HUD, it should continue to be 
at HUD. While I have great faith in the Secretary of Commerce, 
who also is a friend, I just do not believe that the nexus that 
exists between cities and HUD is something that can be 
replicated by another department.
    The continuity in issues of community development and 
housing that exists between HUD and communities is unique. And 
I think for that reason it is very unwise to move a very 
successful program. And the criticisms I have heard of it, I 
just do not think are well thought out, out of HUD and to the 
Department of Commerce. I think that CDBG has worked well, and 
you know the old adage, ``If it ain't broke, don't fix it.'' I 
do not think CDBG is broke.
    With that I would just like to ask you about the Section 8 
program in the budget. How much of your budget is Section 8? I 
used to worry greatly about what someone described to me--I 
believe it was maybe Senator Bond--the Pac Man of the HUD 
budget being Section 8 as it consumes more and ever increasing 
portions of the budget, but how the budget treats Section 8 and 
what your thoughts were on the flexible voucher program.
    Secretary Jackson. The last part, I support the flexible 
voucher program because that is the way I administered the 
Section 8 program in three housing authorities and that is the 
way all housing authorities administered it before 1998. So 
when they say we are making a step backward, no, we are 
actually going forward and giving the housing authorities more 
flexibility. I think they have been hindered. And we have 
received numerous letters from housing authorities who say that 
they are willing to do that because it will give them more 
flexibility.
    When we walked into HUD we were spending about 42 to 43 
percent of our budget for Section 8. Today, in the 2006 budget, 
it is 57 percent of our budget. We cannot continue the program. 
and I guess when I see people say, well, it is going to hurt 
the homeless, well, I want to say this clearly. Very few 
homeless people get priority anyway in housing authorities. 
Housing authorities are not serving the homeless. And so when 
they come and tell you that, that is absolutely not true. Now, 
they will make the argument to the Senate, but they will not 
make the argument to me because I ran three housing authorities 
and I know how much homeless people are served. You serve 
people that are 30 percent or less, or up to 60 percent. And 
those are persons who usually are working in many cases, and 
some are not.
    But I want to say that in the end I think that we cannot 
continue unless we give the housing authorities more 
flexibility. You all gave us the budget base last year, but 
with that budget base we have to have flexibility so that they 
can serve the constituents.
    Senator Martinez. Thank you, sir. My time is up.
    Thank you, Mr. Chairman.
    Senator Allard. Mr. Secretary, that is exactly what we are 
trying to do with the legislation that we are introducing here, 
to try and give local housing authorities more flexibility and 
try and carry on with what the appropriators, Senator Bond in 
particular, had to do last year in their budget as a Member of 
the Appropriations Committee. I do appreciate your comments in 
that regard.
    One program I want to run by you, and it is a request for 
homeless assistance grants where you propose $25 million for a 
prisoner reentry initiative.
    Secretary Jackson. Yes.
    Senator Allard. I applaud you for this effort, and it is 
important to try to prevent homelessness, particularly among 
those discharged from institutional settings. I think that is 
particularly a tough situation. Could you please describe the 
initiative and what you expect to accomplish?
    Secretary Jackson. When the President spoke of this some 
months ago, it was his intent to try to stop recidivism, 
because one of the major problems that many people leaving 
prison face is first, finding a stable environment to live in, 
second, a stable job. And hopefully what the reentrance program 
will do is to help them in both of those situations, where they 
can become productive citizens. We are looking forward to 
carrying it out.
    Senator Allard. Thank you. I also wanted to bring up 
another issue that is not under the jurisdiction of this 
Committee, but I think it is important in the overall picture 
of what we are trying to accomplish as far as housing is 
concerned, and that is a single-family homeownership tax 
credit.
    Secretary Jackson. Yes.
    Senator Allard. I was pleased to read the proposal for a 
single-family homeownership tax credit patterned after the very 
successful rental tax credits. And although it is not within 
Banking Committee's jurisdiction, I am a very strong supporter 
of the proposal. In fact I have joined Senator Santorum and 
Senator Sarbanes both in introducing the tax credit 
legislation. I think it was just yesterday it was introduced, 
and hopefully that will be swiftly enacted.
    Could you please elaborate on what this proposal would mean 
for homeownership?
    Secretary Jackson. If we are able to pass that and get it 
funded as we should, we are talking about $2.5 billion in tax 
credit that will go to developers to write down the cost of 
building no-market housing--some will call it affordable 
housing. Take as an example, we know that in the suburbs of Los 
Angeles to build a home, before it ever comes out of the ground 
because of regulatory barriers that exist, environmental, 
street and sewage, it is somewhere between $92,000 and about 
$109,000. If we can write down 47 percent of that, it becomes a 
home that a teacher, a fire person, a police person, or a nurse 
can afford. But to date if we do not write it down, it will not 
occur. And I think that we must give developers incentives to 
come back into the urban areas and develop our urban core.
    And if we can get this Single-Family Affordable Tax Credit 
Act passed, it will do just that, it will give them the 
incentives. We have seen how successful the low income tax 
credit has been in this country, and I perceive that the 
Single-Family Affordable Tax Credit Act will do exactly the 
same thing for people in the middle, who in many cases, you 
take a family of 2 or 5 with both of the parents being 
teachers, who are making just $100,000. Today, they cannot 
afford a home in California. With the Single-Family Tax Credit 
Act I believe clearly they would come within the purview of 
being able to own a home.
    Senator Allard. I share your enthusiasm. I think the Rental 
Tax Credit has been very successful.
    Secretary Jackson. It has been.
    Senator Allard. I know that the Colorado Housing Authority 
has been a strong proponent of these tax credits as a way of 
increasing affordable housing in the State of Colorado, and 
they appreciate the flexibility that goes with that.
    Secretary Jackson. And Denver has done a very excellent 
job.
    Senator Allard. Thank you. I appreciate you mentioning 
that.
    I have not used up all my time because I want to make sure 
that both Senator Reed and Senator Sarbanes has time on the 
second round, so I am going to call on Senator Reed.
    Senator Reed. Thank you again, Mr. Chairman.
    Mr. Secretary, I would like to look at the Section 8 
program. In your comments, you suggested it is just growing so 
dramatically that it is devouring all other programs. And I do 
recognize, as you do, that part of the growth stems from 
Congressional actions increasing the number of eligible 
persons. In addition, part of the growth, and there have been 
estimates about a third of the growth related to the perfect 
storm of hot housing markets, prices going up, incomes 
declining, people qualifying for Section 8.
    It seems though the Congressional Budget Office has found 
that actually the growth in spending, their projection in March 
2004 is that the growth in spending would slow to 1.8 percent 
in fiscal year 2005, so that we might have seen the crest of 
the wave already. And in addition, your own data from the 
Voucher Management System shows that quarterly growth in 
average voucher course have been steadily declining since 
spring 2003. So again I think we have the question of whether 
this is the uncontrolled program that you suggest in your 
comments.
    But I have a more specific question. If this is such a 
unmanageable and out-of-control program, how can you get $2.5 
billion of rescission money out of it to plow back into your 
budget? I mean you seemed by rescinding $2.5 billion that you 
actually had $2.5 billion in Section 8 monies hanging around. 
That is not indicative of a program that is bursting at its 
seams, and in fact you have to steal from other programs to 
fund it.
    Secretary Jackson. We have until 2006 to find that 
rescission, and it does not necessarily have to come out of the 
Section 8 program. We have said that we will look at the 
Section 8 program, but it does not have to.
    And let me say to you, when you say that the voucher cost 
is going down, the cost of the voucher that we project should 
be cheaper than what we are paying in many locales. The only 
place that we have serious problems meeting the needs of the 
vouchers are in areas where you are from, Rhode Island, New 
Hampshire, Maine, and California. Other places, landlords are 
far exceeding what the market value of apartment complexes are 
in those areas. The Southeast, the Southwest, and the Midwest, 
we are paying heavily.
    And I still say this to you, Senator, that pre-1998, 70 to 
80 percent of the people who want a voucher pay their 
utilities, they pay their 30 percent of adjusted gross income, 
because we have now 75 percent of the people on vouchers, we 
are paying their utilities and we are paying them to live on a 
Section 8 voucher. And we have to understand that the voucher 
was never created as a substitute for public housing. It was a 
transitional proposal to go from public housing into market 
rate housing. But we have made it a permanency, and I do not 
think it should be permanent. I have said that and I still say 
it today.
    Senator Reed. Let me just go back, and to respond to your 
answer. So there is a distinct possibility that the cuts that 
have been proposed in other programs, like Hope VI and lead 
abatement, all those might be further cut if you cannot find 
the $2.5 billion in the rescission in Section 8.
    Secretary Jackson. That is always a possibility, yes.
    Senator Reed. Well, that seems to be a very dire 
possibility since you are already cutting significantly from 
practically every program, or at least most of the programs. 
And, you know, again, I do not think this, from the numbers I 
have seen--and we can debate, I think, in a very principled and 
conscientious way what these numbers suggest--but it seems to 
me that the Section 8 program is not out of control. In fact, 
it might be stabilizing in some respects.
    Now, let me turn to another question, which is that you 
talk about your proposal to give flexibility to local housing 
administrations with respect to Section 8. What does that mean 
in practical terms? What can they do if your proposal is 
adopted that they cannot do now? And I ask this with all 
sincerity.
    Secretary Jackson. If they choose to continue to serve 75 
percent, 30 percent of low-medium, they can. Our flexibility 
says you can go up to 60 percent of medium and serve those 
persons. We are giving them the right to serve people who today 
are still what we call ``the working poor'' who cannot get on a 
voucher today, the opportunity.
    Senator Reed. Who loses out, Mr. Secretary, given the fact 
that this funding is not going to increase dramatically? In 
fact, you are taking money away from it. Who loses out in this 
flexibility?
    Secretary Jackson. I do not think anyone loses out. I 
think, in fact, you will have a greater turnover because you 
will have people who are not going to be on the program as long 
as the people who are serving on the program today. And I think 
we must give people incentives to get off this program, and we 
are not.
    Senator Sarbanes. Is the incentive to just knock them off ?
    Secretary Jackson. We are not going to knock anyone off, 
Senator.
    Senator Reed. Mr. Secretary, how can you not knock anybody 
off, but they are going to leave voluntarily in a context of 
the same resources. I just do not understand.
    Secretary Jackson. That is easy. I will be happy to explain 
it.
    Senator Reed. Please.
    Secretary Jackson. At the housing authority, I ran in 
Dallas, somewhere between 20 and 25 percent of the vouchers 
turned over every year. Rather than those vouchers going 
directly to 75 percent of the people, the housing authority can 
make a decision that they are going to put 25 percent of those 
vouchers to people between 40 and 60 percent of medium. And the 
other 75 might go to 30 percent of medium. They do not really 
have that flexibility now, but they will have it if they so 
choose. And they will know that the people who are at 40 or 
above will be paying for their utilities and be paying their 
rent.
    Senator Sarbanes. But what happens----
    Senator Allard. Wait a minute. Excuse me, Senator Sarbanes, 
I do want to kind of control our time here closely so everybody 
has an equal shot. And Senator Martinez would be next, 
alternating between parties, and then you will be next.
    Senator Martinez.
    Senator Martinez. Thank you, Mr. Chairman.
    If you have a follow-up to that, I do not mind yielding a 
moment of my time. I do not want to be too generous, Senator, 
but you are always generous with me. I do not mind returning 
the kindness.
    Senator Sarbanes. You are using all your vouchers for 
people below 30 percent of area median income (AMI). Let's 
posit that as a given.
    Secretary Jackson. Basically, yes.
    Senator Sarbanes. All right. Then you are going to give 
discretion to use these vouchers for people 40 to 60 percent. 
So the housing authority is going to take some of its vouchers 
and use them for people 40 to 60 percent. What is going to 
happen to the people at 30 percent?
    Secretary Jackson. The people at 30 percent stay on the 
vouchers until they get off of them.
    Senator Sarbanes. You are just shifting them.
    Secretary Jackson. No, you see----
    Senator Sarbanes. You just said that----
    Senator Martinez. No----
    Secretary Jackson. But Senator, we did that until 1998, and 
the program did not grow exponentially. When we decided that we 
were going to house people 30 percent or less than medium, we 
had a growth in the program, not a growth in the number of 
people who were serving.
    And I want to say this to you: If the housing authorities 
would do their job by validating the income of people, a lot of 
the people who we perceive as 30 percent or less, you will see, 
will not be 30 percent or less of medium.
    Senator Sarbanes. Now that is a different point.
    Secretary Jackson. But that is a factual point. Because I 
was one of the few housing authorities in the country that did 
rent verification every 6 months. And a lot of people came off 
the program.
    Senator Sarbanes. Would you concede my point if income 
verification did not lead to what you just asserted?
    Secretary Jackson. I am not sure what you asked me.
    Senator Sarbanes. You are saying to me, to defend what you 
did, that these people are really not at 30 percent of income 
and if you do proper income verification you will establish 
that fact.
    Secretary Jackson. That is correct.
    Senator Sarbanes. If you do not establish that fact by 
income verification, then the point I made is right on point, 
is it not?
    Secretary Jackson. That we would put people off the 
program?
    Senator Sarbanes. Yes.
    Secretary Jackson. No. No one is being put off the program. 
Once they turn in their voucher, we can utilize that voucher as 
the housing authority sees fit. But we are not taking someone 
off of the program.
    Senator Martinez. Mr. Secretary, and people on the voucher 
stay on the voucher?
    Secretary Jackson. They stay on the voucher until they turn 
it in.
    Senator Martinez. And when there is a vacancy--See, one of 
the things I think has been missing in this discussion is the 
fact that some housing authorities cannot fill all their 
vouchers----
    Secretary Jackson. That is correct.
    Senator Martinez. --with 30 percent. And so when you give 
them flexibility, then all of a sudden those housing 
authorities that chronically get the money rescinded, which is 
where this rescission comes from, all of a sudden now have the 
flexibility, by their own decisionmaking, to fill their 
vouchers with people who otherwise would not be able to get a 
voucher. In fact, no one would get a voucher because they 
otherwise wouldn't be used because in that particular 
marketplace they cannot use them all up under the 30-and-under.
    Secretary Jackson. They cannot. And let me say this to you. 
What the flexibility does is give the housing authority the 
right to decide how to use their vouchers. I believe that it is 
important, and we have tried this with a pilot program which we 
call Move to Work with a number of housing authorities. And we 
said, what you do is give us a plan of how you are going to 
spend your money and your Section 8 money, and as long as you 
hold to the plan and it does not in any way affect our 
abilities to regulate you, then use it.
    I think right now, if you go to San Francisco or if you go 
to Senator Reed's Providence, Rhode Island, we can go to 110 
percent of medium. But in Rhode Island you still cannot house a 
family of five in a decent apartment at 110 percent of rent. 
But if we give the Providence Housing Authority the right to 
have flexibility, they can choose to go to 150 percent of 
medium if they choose, without asking us, to house their 
person. Because what we are doing is saying we are going to 
give $20 million. You spend it as you see fit to house as many 
people as you want to house. So you have given them more 
flexibility.
    Senator Martinez. So you are giving the local authority the 
ability to manage the resources that they are given in order to 
house more people.
    Secretary Jackson. Which they do not now, because we tell 
them what to do.
    Senator Martinez. Right. And all wisdom--I believe I might 
have said that sitting where you sit today--all wisdom does not 
emanate from Washington, but in fact some local officials could 
make those decisions and further utilize the resources that 
Washington sends.
    Secretary Jackson. And I can tell you this. You are 
correct. When I was in D.C., we gave back vouchers every year 
because I could not get HUD to let me go up to 130 percent, 135 
percent of medium to house people. So then we got criticized by 
HUD to say you are not spending your money. Well, it was a 
double-edged sword. I am saying if we created a budget base for 
housing authorities, let us give them the flexibility now to 
house as many people as they can.
    Senator Martinez. Senator, if I--go ahead.
    Senator Allard. Senator Martinez, it is your time.
    Senator Martinez. Yes, thank you.
    If I could ask you about the Section 8 impact on the 
budget. We began to discuss that in the last round, but I want 
to come back to that. Because I used to be greatly concerned 
that at some point or another the continued growth 
geometrically of the Section 8 program vis-a-vis the rest of 
the HUD budget was preventing us from doing so many other 
things at HUD, or would eventually for sure do that.
    Can you comment on that and how this flexibility might help 
that problem as well?
    Secretary Jackson. I think it will do exactly what, I think 
it was either Senator Reed or Senator Sarbanes was alluding to 
a few minutes ago. It will stop the exponential growth of this 
program. Because at that point, the vouchers will be turning 
over much quicker than what they are doing now. And you will 
have more people paying for the amenities of their apartment 
rather than us paying for all the amenities for people to live. 
What we call that at HUD is ``negative base rent'' because we 
are paying them to stay.
    So, I do believe that, clearly, if the housing authorities 
have that flexibility, the program will stop growing, and we 
have projected it. It will not keep growing at 8, 9, or 10 
percent a year, as it has been for the last, I guess, 6 years 
or so.
    Senator Martinez. With the moments I have remaining, can 
you tell me something about the housing market, the current 
status of it in terms of, you know, the somewhat slow but the 
rising interest rates that there has been. I know Mr. Weicher 
behind you probably used to keep me posted on that, but I 
always like to know--you know, you read about housing bubbles 
and such as that. Can you speak to that issue?
    Secretary Jackson. I can tell you that the housing market 
has not slowed at all. I mean, I was saying the other day to a 
friend I remember when we had a president back in the 1970's 
and it was 19 percent. And I bought my first house, and it was 
unbelievable. Well, today it is at about 5.25 percent, and it 
has gone from 4 percent. So people are buying homes because it 
is their belief that it is the best time to get it. Do we think 
that the interest rate will grow some? Maybe 6 percent. But I 
do not think we are going to have that in the next 3, 4, or 5 
years. I think the housing market will still be very strong. 
And I think that is in essence what--I am not sure that he 
appeared before this Committee--but Chairman Greenspan said it 
is a unique market. And in places like Washington, DC, you put 
a house on the market and you do not just get a buyer, you get 
people bidding on it.
    Senator Martinez. Thank you, Mr. Secretary.
    Senator Allard. Senator Martinez, I am of the understanding 
that you at one time were in charge of a housing authority. I 
do not know whether it has just been one or two. I know that 
Secretary Jackson referred to his, at least two housing 
authorities you have been in charge of.
    Secretary Jackson. Three.
    Senator Allard. Three. And I think that the experience from 
both of you--and that discussion here has been most helpful to 
this Committee, and I wish that we could bring in more 
practical experience from the local aspect. And I could not 
agree with you more, that we need to have more flexibility at 
the local, and it is good to hear both of you refer to that. In 
fact, the legislation I am working with HUD to give us more 
flexibility locally, and I hope that you would look at that, 
Senator Martinez, and perhaps be a cosponsor with me on that.
    Senator Martinez. I certainly would.
    Senator Allard. Now let me recognize Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Mr. Secretary, I want to follow this line of yours and 
former Secretary Martinez that all wisdom does not emanate from 
Washington, DC. I am a supporter of the negotiated rulemaking 
process where it is practicable. In fact, doing the 
negotiations over the 1998 public housing bill, I joined with 
my colleague, Senator Connie Mack of Florida to push a 
reluctant HUD Secretary--that was Andrew Cuomo--to accept 
negotiated rulemaking for a number of rules in that 
legislation.
    Now, I understand that HUD undertook a negotiated 
rulemaking with the public housing authorities over how to 
establish a new operating fund formula. I further understand 
the group came to an agreement, and then HUD published a rule 
that was substantially different from the rule that had been 
agreed to.
    Secretary Jackson. I do not perceive it is substantially 
different. There are some differences. And I think that when we 
negotiated, we told them that there possibly would be changes. 
But I also, after that occurred, Senator, met with the industry 
groups again and let them tell me what they thought should be 
in the rule. And they are sending me a letter. I am open to 
look at it and to meet with them. We perceive we have not 
violated our agreement with them. But at the same time, having 
come out of the industry, I believe it is imperative for me to 
listen to what they have to say and what their comments are.
    Senator Sarbanes. One of the things you knocked out, as I 
understand it, was the stop-loss provision. That actually was a 
provision that HUD itself had proposed. Is that correct?
    Secretary Jackson. Yes, I think we did propose the stop-
loss provision.
    Senator Sarbanes. HUD proposed it as part of the agreement, 
and then you knocked it out of the agreement.
    Secretary Jackson. Yes, I think so. I have to get back. I 
cannot tell you specifically. I will be happy to answer that 
for you. I will get back to you on that.
    Senator Sarbanes. All right, if you could get back to us.
    Secretary Jackson. I surely will.
    Senator Sarbanes. Now, Mr. Secretary, you know, in our job 
we read around this paper, that paper, and so forth. And so I 
was interested in your column on Social Security in The Wall 
Street Journal. I thought it was a step outside the traditional 
expertise of a HUD Secretary, but in any event I was pleased to 
read it. It is entitled, ``It Really is Black and White.'' Did 
you pick that title?
    Secretary Jackson. No, I did not pick that title. I think 
the papers put the titles on them, from everything I have been 
able to discern.
    Senator Sarbanes. Okay. Now, the point is, as I gather that 
you are making, is that African-Americans get a bad deal under 
Social Security because they do not live as long as white 
Americans. Is that right?
    Secretary Jackson. I want to tell you that they get a bad 
deal. They do not have the years that white males have in 
collecting their Social Security benefits.
    Senator Sarbanes. You said there that the average white 
male would collect 7 years of benefits and the average black 
male would collect less than 1 year of Social Security.
    Secretary Jackson. Just about a year of Social Security, 
yes.
    Senator Sarbanes. Now, where do you get that from?
    Secretary Jackson. Data that has been provided to me.
    Senator Sarbanes. What if I said to you that the data I 
have from the CDC shows that the life expectancy at age 65--not 
at birth; I am going to come back to at-birth. And if that is 
the figure you are using, which I presume it is, I am going to 
point out why it is faulty--but that the life expectancy at age 
65, at retirement age, differs only 2 years between whites and 
African-Americans, males. That would undercut a lot of the 
assertion you made in your column, would it not?
    Secretary Jackson. Well, you can say that and I cannot stop 
you from saying it. I think I am accurate.
    Senator Sarbanes. But that is what the statistics----
    Secretary Jackson. Well, I use statistics also, and mine 
does not say that.
    Senator Sarbanes. What statistics did you use?
    Secretary Jackson. I will be happy to forward those to you, 
if you would like to----
    Senator Sarbanes. I would like it if you do.
    Senator Allard. I believe that is out of the Social 
Security Administration or similar.
    Secretary Jackson. Right.
    Senator Sarbanes. No, no. What is being used, Mr. Chairman, 
and we need to nail this discrepancy, is the expectation at-
birth of how long you will live.
    Senator Allard. So you are assuming in that, if you were 
born today, that down in the future that our health care will 
have affected minorities to a point where their life would be 
that much better; where today, I think Social Security would be 
talking about those that are retiring today, where yours would 
be talking about 50 or 60 years down the road.
    Senator Sarbanes. No, no, no. I am talking about the ones 
retiring today.
    Senator Allard. Because I could not understand what you 
were meaning by ``at-birth,'' where your starting time was. 
That could explain the difference in these figures.
    Senator Sarbanes. If you take at birth, there is a greater 
difference, because African-Americans face a greater hazard in 
the earlier years.
    Senator Allard. That is true.
    Senator Sarbanes. Low birth weight, higher infant mortality 
rates, lack of access to decent medical care, and so forth. 
Clarence Page says when he heard about that gap in black life 
expectancy that the first question we should ask is shouldn't 
we be doing something to increase black life expectancy. But 
that is not what the Secretary said in his column. What the 
Secretary said in his column is that the average white male 
would collect 7 years of benefit at retirement and the average 
black, 1 year. That is just not the case.
    Secretary Jackson. Well, that is what I believe----
    Senator Sarbanes. At retirement, the life expectancy is a 
difference of less than 2 years at that point.
    Secretary Jackson. That is your perception, Senator.
    Senator Sarbanes. No, no, no. Those are the figures from 
the CDC. It is not about perception.
    Secretary Jackson. Then, that is their perception. And I do 
not think Clarence Page is any authority on anything.
    Senator Sarbanes. So much for Clarence Page. But what do 
you think about the CDC?
    Secretary Jackson. That is their number. Those are not the 
figures that----
    Senator Sarbanes. They are not an authority on anything 
either?
    Secretary Jackson. Those are not the figures that I am 
dealing with. And if you want me to submit those, I will be 
happy. You know, the one thing I do understand is I am black 
and I am in America, and I know the extension between white 
males and black males. And that is specifically what I am 
talking about--not blacks and whites generally, black males and 
white males.
    Senator Sarbanes. Yeah.
    Secretary Jackson. And it is a difference of 7 years.
    Senator Sarbanes. What is a difference of 7 years?
    Secretary Jackson. The ability to receive your Social 
Security benefits.
    Senator Sarbanes. At retirement?
    Secretary Jackson. Beginning at retirement.
    Senator Sarbanes. No, sir. That is not what the CDC tells 
us.
    Secretary Jackson. Okay.
    Senator Sarbanes. The CDC tells us that the most recent 
life expectancy at age 65, that the difference for men is 2 
years.
    Secretary Jackson. I am not sure what point you are trying 
to make, Senator. What is it that you want to make the point to 
me? I am not sure what you are trying to make.
    Senator Sarbanes. The point I am trying to make is that 
your point is not accurate and is overstated.
    Secretary Jackson. That is your position. And I accept and 
respect your position. I think I am correct.
    Senator Allard. Let me intervene here, if I might.
    Senator Sarbanes. Why don't you submit a statistical 
analysis that shows that you are correct.
    Secretary Jackson. I said that in the beginning, I would 
submit it to you.
    Senator Sarbanes. Take these CDC figures on life expectancy 
at retirement and then present your point. Okay?
    Senator Allard. I was going to suggest that, Senator 
Sarbanes. Let's go ahead. I want to make sure that Committee 
Members have an opportunity to ask questions related to the 
mission on HUD and also talk about our homeownership society 
and homeownership opportunities. And I would like to move on 
now and just make a brief comment. I know Senator Martinez has 
a question, too, and then I will come back to the other side 
over here.
    But, you know, these are interesting figures, I guess, and 
I think they can be straightened out if we all sit down and 
look at where our sources are and everything and see what we 
mean by what we are saying. But at any rate, I think what is 
the valid discussion of this Committee is homeownership society 
and homeownership opportunities for African-Americans and all 
minorities. That is what it is all about. We often talk of 
homeownership and it also extends, I guess, to retirement 
ownership. I think of so many people that go to retire, they 
rely on the equity of their home to help them get through 
retirement.
    Secretary Jackson. That is correct.
    Senator Allard. So, I think ownership is good, whatever the 
statistics. And I know that Senator Martinez wanted to ask a 
question, and then we will go back and give some more time to 
the other side. We are getting awfully close to a vote time, I 
believe.
    Senator Martinez. I just really want to get back to the 
2006 HUD budget and I wanted to ask you, although I concur in 
your comments, Mr. Chairman, about the ownership society, the 
importance of it to all Americans.
    Mr. Secretary, I wanted to ask you, because I asked you 
about the Samaritan grant program for chronically homeless, if 
you might know the funding level for that program in this 
coming year.
    Secretary Jackson. I am not sure what--But what is it? I 
know it is $200 million more. What is it? Is it an increase of 
$200 million?
    Two hundred million dollars more.
    Senator Martinez. Well, that is a very substantial 
increase, by the way, because as I recall, the program began 
with about $64 million or $46 million, something like that. So 
this is a very dramatic uptake on the funding levels.
    Secretary Jackson. That is correct.
    Senator Martinez. I heard so much about the decimation of 
everything that is going on in HUD and I do not believe that to 
be the case. And I am really pleased that this particular 
program would help the most vulnerable population in America 
and has been, I think, very successful. I am proud to see that 
that legacy continues on that program and that it will continue 
to be helping the chronically homeless, which ultimately, I 
think, will help all homeless Americans to become something 
other than homeless because of so much funding going to that 
particular program.
    But anyway, thank you for your testimony. I am going to 
have to head over to HUD. I appreciate seeing all of my good 
friends at HUD, and Deputy Secretary, great to see you as well, 
and I congratulate you for your work and your continued 
perseverance.
    Secretary Jackson. Thank you, Senator.
    Senator Martinez. It sure is much more pleasant on this 
side of the aisle.
    Senator Allard. Okay, thank you very much, Senator 
Martinez. In the fairness of balance, I will go ahead and yield 
to Senator Reed and I will let you and Senator Sarbanes kind of 
divide for the next 5 minutes of this Committee, and then we 
will adjourn.
    Senator Reed. Thank you, Mr. Chairman.
    Just following up on the Section 8 program, because of its 
size and its centrality, this notion of flexibility, it seems 
to me, you would give these housing agencies a certain of money 
each year.
    Secretary Jackson. Yes.
    Senator Reed. And from what you said, Mr. Secretary, 
everyone would be taken care of because no one would give up 
their voucher they have today unless they did it voluntarily, 
yet they could move things around and get more people on in 
certain areas. But it seems to me that it is a classic block 
grant approach, that it would not be responsive to the actual 
demands of the community. You know, if a housing agency found 
itself without adequate resources because of increased rents, 
it would not be reflected in their grant. They would just have 
to be a little more flexible. That is one of the problems I 
have with your explanation.
    Secretary Jackson. Senator, I would say this. I think the 
example that I gave is the example, when I used in 
Massachusetts, New Hampshire, Rhode Island, or even here in DC, 
where I could not go past 110 percent of medium in that area. 
So a lot of people went without a voucher. And we returned 
money. If you give the flexibility, where a family of four or 
five, they can go up to 125 percent, then they can house that 
person. So, I think that is the flexibility that most housing 
authorities want.
    Senator Reed. Mr. Secretary, but doesn't that presume that 
you are fulfilling all of the needs of people up to 110 
percent? Were you doing that in Washington?
    Secretary Jackson. Oh, yes. But it was very difficult 
because of the rental market that we were in.
    Senator Reed. Right.
    Secretary Jackson. Yes.
    Senator Reed. But you were filling all the needs up to 110 
percent?
    Secretary Jackson. Yes, we were, as much as we could. And 
we still had excessive money because people could not find 
housing to live in in the District.
    Senator Reed. But that seems to be a problem as much as 
just the market, as much as the program.
    Secretary Jackson. There is no question.
    Senator Reed. Well, as you must know from my comments, I am 
very skeptical of the proposal to rescind money from Section 8 
and the notion of simply curing all of this by giving a 
flexibility. Because implicit, I think, in what you have said 
is the notion--at least, it comes through to me--that what we 
want to do is get people off the Section 8 program.
    Secretary Jackson. I think that should be our objective, is 
to get people off the program, to cut down the number of years 
that they are on the program. And before, as I said to you 
before, the concept that we are bringing before you is not a 
new concept. This is the concept that housing authorities 
worked under pre-1998.
    Senator Reed. Just a final point, because I do want to 
yield some time to Senator Sarbanes. This would make a lot more 
sense to me if there was a robust HUD budget that would provide 
opportunities for programs complementary to Section 8. And we 
have talked about some of them here--first-time homebuyers, 
adequate public housing monies to provide. But this is a budget 
that cuts everywhere. And I think it is naive to assume that 
you are going to just simply get these people who are currently 
Section 8 recipients off into other housing opportunities. I 
just think it is terribly naive. And the budget, I think, is an 
absolute disaster. I think we will come back here in a year, if 
this budget goes through, and find that homelessness is 
increased, that many more people are looking for Section 8's 
that cannot get them, that we will be really turning our back 
on a lot of--not even to mention disabled Americans, which we 
are not putting any more resources in, effectively, and others.
    So, thank you.
    Secretary Jackson. Thank you, Senator.
    Senator Sarbanes. Mr. Secretary, do you think enough 
resources have been committed to address the affordable housing 
problem to take care of the problem?
    Secretary Jackson. I think we have. Through the voucher 
program, yes, I think we can address the affordable problem 
that exists in this country. But I also think that we can 
address it by spending the over $3 billion in the Hope VI 
program that we have outstanding by more than 5 years. I think 
there are ways, yes, we can address it if we spend our money 
wisely. I think we can address it, housing authorities, by 
doing exactly what New York City did by issuing a $600 million 
bond issue to work for the rehabilitation of their units. And 
we have been extremely flexible with housing authorities around 
the country in doing this. The best example I can give you, 
Senator, is Chicago. Mayor Daley is remaking the whole public 
housing issue in Chicago better for everyone.
    Senator Sarbanes. We have a deficit problem that we are 
confronting in the Federal budget, correct?
    Secretary Jackson. Do we have a deficit?
    Senator Sarbanes. We do have a deficit.
    Secretary Jackson. Yes, we do have a deficit.
    Senator Sarbanes. Do you believe that in fact there are so 
many resources put into housing that we could take substantial 
amounts of money out of housing and still meet the affordable 
housing problem?
    Secretary Jackson. I am sorry, I am not sure what you are 
asking on that question.
    Senator Sarbanes. I am trying to get a read on what your 
evaluation is of the resources needed to address the affordable 
housing situation.
    Secretary Jackson. As I said----
    Senator Sarbanes. Is it your position that we are putting 
too many resources into trying to address the affordable 
housing issue?
    Secretary Jackson. No.
    Senator Sarbanes. No. Do you think we are putting enough 
resources into addressing the affordable housing--
    Secretary Jackson. Yes, I do.
    Senator Sarbanes. You do?
    Secretary Jackson. Yes.
    Senator Sarbanes. How does that square with what we hear 
reported to us about the need for affordable housing, and the 
inability to provide it?
    Secretary Jackson. Well, let me say this to you. The reason 
in many cases we have a regional problem with affordable 
housing has nothing to do with the resources of the Federal 
Government. It has to do with regulatory barriers that exist in 
States. And it is important to understand, as I just told you, 
before a house ever comes out of the ground in California, you 
are somewhere between $92,000 and $109,000. That house cannot 
be affordable. The only way to make that home affordable is to 
do what I just said a few minutes ago, is, if you all passed a 
single-family affordable tax credit act for $2.5 billion, we 
can give developers incentives to write down the cost of that 
home where people who want an affordable home can afford it.
    I do not think the Government can make any----
    Senator Sarbanes. I think that answer that you have just 
given me directly contradicts your previous answer, that you 
thought enough resources were currently available. Because you 
have just outlined to me, as I understand it, at least, that in 
order to address that housing problem, we need to commit more 
resources.
    Secretary Jackson. I do not think it is contradictory.
    Senator Allard. Well, Senator Sarbanes, I think you are 
talking about resources that get allocated through Government 
through a spending program. He is talking about resources, they 
are not allocated through a spending program, but are also 
allocated through the tax code. So you have tax credits. And 
you combine them all together, then you have more going into 
housing. And I think that is the difference in your two 
arguments. You are looking at the spending side, he is looking 
at the total side with the tax credit.
    Senator Sarbanes. No, I am looking at the total side.
    Senator Allard. I do not hear you mentioning the tax 
credit.
    Senator Sarbanes. He is telling me on the one hand that 
there are adequate resources available to address the 
affordable housing problem. Then the next answer he gives me is 
he uses an example--I did not volunteer the example, it was the 
Secretary who volunteered the example. The next example he uses 
is we need to enact a program whose cost on the revenue side, 
because of its tax implications, I guess, is--I think you said 
$2.5 billion.
    Secretary Jackson. Yes.
    Senator Sarbanes. There is a further commitment of $2.5 
billion, by the Secretary's own statement, to try to get at the 
affordable housing problem.
    Secretary Jackson. I said to you, Senator, that yes, I do 
believe--and I do not think it is contradictory--that I do 
believe that HUD has adequate resource to address affordable 
housing. But even with those adequate resources that we have to 
address, the ability of having affordable housing in this 
country depends on the State that you are in, and it is a State 
problem. It is not a Federal Government problem. We cannot tell 
California what the regulatory codes of their State should be. 
They have to dictate that. So if we can help with, as we did in 
low income tax credit, with developers to develop it and write 
down the cost of housing to make it more affordable for 
Americans, yes, I think we should do it. But that does not mean 
we are not putting adequate resources into affordable housing.
    Senator Sarbanes. I supported the low income housing tax 
credit to try to address the affordable housing problem, but I 
recognized that it represented a commitment of resources in 
order to try to deal with this problem. And I take it that is 
what you are saying today, we need to commit more resources.
    Secretary Jackson. No, I am saying to you in certain areas, 
like California and other areas, yes, I think we have to try to 
help States--well, not so much States, try to help those 
persons living in these States meet their needs of 
homeownership.
    Senator Allard. I hope we can draw this to a close?
    Senator Sarbanes. Yes, I see the light.
    Senator Allard. Okay. Mr. Secretary, thank you very much.
    Secretary Jackson. Thank you all very much.
    Senator Allard. I think you are doing the right thing of 
looking to local control, and I believe you are doing the right 
thing in saying that we do not need to appropriate all the 
dollars that go into affordable housing. I think we can use the 
tax code to create some incentives out there. I think that has 
helped us in the past and, hopefully, it will continue to 
perform for us in the future.
    I want to thank you for taking your time to be here. I want 
to apologize for having to cut the hearing short. I would also 
like to apologize to the minority Members that are here for 
having to cut it short, but we do have votes on the floor. It 
is 4 o'clock. We got almost everything in except for the last 
30 minutes.
    Secretary Jackson. Thank you.
    Senator Allard. I want to thank the Members for 
participating, and to you, Mr. Secretary.
    Senator Sarbanes. Mr. Chairman.
    Senator Allard. Yes.
    Senator Sarbanes. I just want to suggest that if it eases 
consideration of all these problems, maybe we can replace the 
cost of the housing voucher with a refundable income tax 
credit--
    [Laughter.]
    Senator Sarbanes. --if that puts it into a context and 
makes it more amenable. And instead of giving the housing 
voucher, we would just do a refundable income tax credit that 
would provide an equal or more amount in order to obtain 
housing.
    Senator Allard. We will give you the last word, Senator.
    The hearing is adjourned.
    [Whereupon, at 4:03 p.m., the hearing was adjourned.]
    [Prepared statements, response to written questions, and 
additional material supplied for the record follow:]

              PREPARED STATMENT OF SENATOR JON S. CORZINE

    Secretary Jackson, it is good to have you here today to discuss 
HUD's fiscal year 2006 budget. I hope this will not be the only 
opportunity this year to discuss some of the critical housing policy 
and funding issues that are on the table.
    Frankly, I have a lot of questions about the President's budget 
proposal and about the future of our affordable housing programs under 
this Administration. I realize that these are tough budget times, but 
every year the HUD budget seems to take the biggest hit.
    Secretary Jackson, when we met last year in my office--just before 
your nomination hearing--we had a good discussion about the importance 
of HUD's community economic development programs. You assured me then 
that you were committed to maintaining and strengthening these 
programs, which include the Community Development Block Grant. Yet, 
this budget not only proposes shifting all of HUD's community 
development programs out of HUD and into the Department of Commerce, 
but it also reduces CDBG funding by 35 percent. That translates to a 
$40 million cut for New Jersey.
    The Administration has again proposed eliminating the HOPE VI 
program, a program that has done enormous good in my State and around 
the country. Since the creation of the HOPE VI program in 1992, New 
Jersey has received $389 million in funding to revitalize and rebuild 
decaying public housing developments. With that Federal funding, New 
Jersey leveraged $700 million in private sector funding. HOPE VI 
works--we have seen it work in New Jersey.
    Unfortunately, the list of cuts keeps going. While the President 
did propose an increase for the Section 8 program, he has also proposed 
legislation that I believe would undermine the Section 8 program. This 
legislation, which I understand Senator Allard has introduced, would 
eliminate critical protections in the program that ensure the neediest 
families have access to vouchers. It would allow public housing 
authorities to charge rents irrespective of a family's income. Even 
more concerning is the fact that this proposal would grossly underfund 
the Section 8 program.
    Mr. Secretary, the Section 8 program is our largest housing 
assistance program. Sixty-five thousand families in New Jersey rely on 
Section 8 in order to afford housing. These families are by and large 
extremely low income. Without Section 8 assistance, many of them would 
be homeless.
    In President Bush's first budget to Congress, he announced that he 
wanted to eliminate homelessness by 2010. Mr. Secretary, if we block 
grant this program we will double homelessness by 2010. In fact, the 
Housing and Community Development Network of New Jersey has estimated 
that under current funding levels, which are inadequate, 11,500 
families in New Jersey will lose their vouchers by 2010.
    Mr. Secretary, I hope that you will come back to the Committee so 
that we can have a dedicated discussion on the issue of Section 8.
    Finally, I want to mention HUD's proposed operating subsidy rule. 
This is another issue that I think merits its own hearing. In 1998, 
Congress mandated that HUD engage in a negotiated rulemaking with the 
public housing community to develop a new funding mechanism for 
operating subsidies. HUD did that. And, then it proposed a completely 
different rule. Under this new rule, New Jersey housing authorities 
will see a $17.3 million reduction in funding. These cuts will starve 
housing 
authorities of the funds they need to maintain staffing and continue 
operations.
    Mr. Secretary, I wish I could congratulate the Administration for 
something in this budget. Unfortunately, I cannot. I really hope that 
we can work together to ameliorate some of these cuts and to develop 
bipartisan solutions to the very serious housing affordability crisis 
our Nation is facing.

                               ----------

                 PREPARED STATEMENT OF ALPHONSO JACKSON
      Secretary, U.S. Department of Housing and Urban Development
                             April 21, 2005

Overview
    Chairman Allard, Ranking Member Reed, Distinguished Members of the 
Subcommittee, thank you for the invitation to join you this morning. I 
am honored to outline the fiscal year (fiscal year) 2006 Budget 
proposed by President Bush for the U.S. Department of Housing and Urban 
Development (HUD).
    Over the past 4 years, HUD has expanded homeownership, increased 
access to affordable housing, fought housing discrimination, tackled 
homelessness, and made a new commitment to serving society's most 
vulnerable. The Department has implemented innovative solutions to 
address our Nation's housing needs, and our results have been 
impressive and measurable.
    HUD's $28.5 billion in new net budget authority for fiscal year 
2006 seeks to build on our success and lend a compassionate hand to 
individuals in need, while also using taxpayer money more wisely and 
reforming programs in need of repair. The HUD budget proposed by the 
President reflects this intent through three broad, yet focused 
strategic goals: Promoting economic opportunity and ownership, serving 
society's most vulnerable, and making Government more effective.
    In his February 2 State of the Union Address, the President 
underscored the need to restrain spending in order to sustain our 
economic prosperity. As part of this restraint, it is important that 
total discretionary and nonsecurity spending be held to levels proposed 
in the fiscal year 2006 Budget. The budget savings and reforms in the 
Budget are important components of achieving the President's goal of 
cutting the budget deficit in half by 2009 and we urge the Congress to 
support these reforms. The fiscal year 2006 Budget includes more than 
150 reductions, reforms, and terminations in nondefense discretionary 
programs, of which eight affect HUD programs. The Department wants to 
work with the Congress to achieve these savings.
    The funding reductions, reforms, and terminations contained within 
HUD's fiscal year 2006 budget represent difficult choices in an era of 
significantly diminished 
resources for all domestic discretionary programs. These decisions were 
made thoughtfully, following an analysis of each program's current 
funding levels and an assessment of future needs.

Promoting Economic Opportunity and Ownership
    The President's vision of an ``ownership society'' has been a 
central theme of his Administration. Ownership--and homeownership in 
particular--is the key to financial independence, the accumulation of 
wealth, and stronger, healthier communities.
    Homeownership creates community stakeholders who tend to be active 
in charities, churches, and neighborhood activities. Homeownership 
inspires civic responsibility, and homeowners are more likely to vote 
and get involved with local issues. Homeownership offers children a 
stable living environment, and it influences their personal development 
in many positive, measurable ways--at home and at school.
    Homeownership's potential to create wealth is impressive, too. For 
the vast majority of families, the purchase of a home represents the 
path to prosperity. A home is the largest purchase most Americans will 
ever make--a tangible asset that builds equity, good credit, borrowing 
power, and overall wealth.
    In 2004, more Americans achieved the dream of homeownership than at 
any time in our Nation's history. Today, nearly 70 percent of American 
families own their homes--an all-time record--and minority 
homeownership has surpassed 51 percent for the first time in history.
    That figure, however, points to a significant homeownership gap 
between non-Hispanic whites and minorities. In June 2002, the President 
challenged the Nation to create 5.5 million new minority homeowners by 
2010. Since the President's challenge, 2.2 million minority families 
have joined the ranks of homeowners, and we are on track to meet the 
5.5 million goal.
    The Administration is working to make homeownership more affordable 
and more accessible. Government should do everything it can to help 
families find the security, dignity, and independence that come with 
owning a piece of the American Dream.
    For many Americans, high downpayments and closing costs represent 
the greatest barrier to homeownership. To help overcome this obstacle, 
the President proposed the American Dream Downpayment Initiative to 
provide low- and moderate-income families with the funds and support 
needed to purchase their first home. On December 16, 2003, President 
Bush signed the American Dream Downpayment Initiative into law, and 
since then, HUD has distributed $162 million in downpayment funds to 
over 400 State and local governments. These funds have already helped 
over 3,500 families purchase their first homes--of which more than 50 
percent were minorities. The 2006 Budget requests $200 million to fully 
fund the Initiative.
    Helping families learn about the loan products and services 
available to them and how to identify and avoid predatory lending 
practices is critical to increasing homeownership. Housing counseling 
has proven to be an extremely important element in both the purchase of 
a home and in helping homeowners keep their homes in times of financial 
stress. The fiscal year 2006 Budget proposes $40 million for Housing 
Counseling to assist over 700,000 families to become homeowners or 
avoid foreclosing on their homes. This effort will fully utilize faith-
based and community organizations.
    The President is also proposing a new Single Family Homeownership 
Tax Credit that could increase the supply of single-family affordable 
homes by an additional 50,000 homes annually. Under the President's 
plan, builders of affordable homes for moderate-income purchasers will 
receive a tax credit. State housing finance agencies will award tax 
credits to single-family developments located in a census tract with 
median income equal to 80 percent or less of area median income and 
will be limited to homebuyers in the same income range. The credits may 
not exceed 50 percent of the cost of constructing a new home or 
rehabilitating an existing property. Each State would have a 
homeownership credit ceiling adjusted for inflation each year and equal 
to the greater of 1.75 times the State population or $2 million. In 
total, the tax credit will provide $2.5 billion over 5 years.
    As you know, tax legislation is the responsibility of the Treasury 
Department, but we will be working with Treasury's Office of Tax Policy 
to ensure the credit legislation addresses issues such as disclosures, 
so that the credit operates smoothly.
    The Homeownership Voucher program, while still new, has 
successfully paved a path for low-income Americans to become 
homeowners. Together with pre- and post-homeownership counseling, 
strong and committed collaboration among Public Housing Authorities 
(PHA's), local nonprofits, and lenders has proven to be essential in 
making the program work for families across the country. The greatest 
challenge to the success of the program is finding lenders who are 
willing to participate.
    Government Sponsored Enterprises were chartered to help low- and 
moderate-income families secure mortgages. HUD recently published a 
rule that requires Fannie Mae and Freddie Mac to increase their 
purchases of mortgages for low- and moderate-income households and 
underserved communities. These new goals will push the GSE's to 
genuinely lead the market in creating homeownership opportunities for 
those traditionally underserved by the mortgage markets, particularly 
first-time homebuyers.
    In addition to increasing the housing goals annually from 2005 
through 2008, HUD's rule establishes new home purchase subgoals in each 
of the three goal areas. This is intended to focus the GSE's' efforts 
on the purchase of home mortgages, not refinancings. HUD projects that 
over the next 4 years, GSE's will purchase an additional 400,000 home 
purchase loans that meet these new and more aggressive goals as a 
result of the new rule.
    As the primary Federal agency responsible for the Administration of 
fair housing laws, HUD is committed to protecting the housing rights of 
all Americans, regardless of race, color, national origin, religion, 
sex, familial status, or disability. This commitment is reflected in 
HUD's budget request for fiscal year 2006.
    The goal of HUD's fair housing programs is to ensure all families 
and individuals have access to a suitable living environment free from 
unlawful discrimination. HUD contributes to fair housing enforcement 
and education by directly enforcing the Federal fair housing laws and 
by funding State and local fair housing efforts through two programs: 
The Fair Housing Assistance Program (FHAP) and the Fair Housing 
Initiatives Program (FHIP).
    The fiscal year 2006 Budget will provide $23 million through FHAP 
for State and local jurisdictions that administer laws substantially 
equivalent to the Federal Fair Housing Act. The Budget also provides 
$16 million in grant funds for nonprofit FHIP agencies nationwide to 
directly target discrimination through education, outreach, and 
enforcement.
    The fiscal year 2006 Budget requests $583 million to fund Native 
American Block Grants (NABG). These grants are used by tribes and 
tribally designated housing entities to develop new housing units to 
meet critical shortages in housing. Although NABG funding has been 
reduced in fiscal year 2006, HUD expects that all program requirements 
will be met, including new housing development, housing assistance to 
modernize and maintain existing units; housing services, including 
direct tenant rental subsidy; guaranteed lending; crime prevention; 
administration of the units; and certain model activities.
Serving Society's Most Vulnerable

Ending Chronic Homelessness
    The Administration is committed to the goal of ending chronic 
homelessness, and has aggressively pursued policies to move more 
homeless families and individuals into permanent housing. A chronically 
homeless person suffers from a disabling developmental, physical, or 
mental condition or a substance abuse addiction. They have been 
homeless for a year or more, or they have had repeated periods of 
extended homelessness. They may occasionally get help and leave the 
streets, but they soon fall back to a life of sidewalks and shelters.
    Research indicates that although just 10 percent of the homeless 
population experiences chronic homelessness, these individuals consume 
over half of all emergency homeless resources. Housing this population 
will free Federal, State, and local emergency resources for families 
and individuals who need shorter-term assistance.
    In July 2002, the President reactivated the Interagency Council on 
Homelessness for the first time in 6 years, bringing together 20 
Federal entities involved in combating homelessness. Since its 
inception, the Interagency Council has helped State and local leaders 
across America draft plans to move chronically homeless individuals 
into permanent supportive housing, and to prevent individuals from 
becoming chronically homeless. Today, 47 States and more than 200 
county and city governments have joined the Federal effort.
    The Budget provides a record level of resources for permanent 
supportive housing for homeless individuals who have been on the 
streets or in shelters for long periods. The 2006 Budget provides $1.44 
billion for Homeless Assistance Grants ($25 million of which is for the 
Prisoner Re-Entry Initiative), $200 million more than in 2005. 
Altogether, the Administration requests $4 billion in 2006 for Federal 
housing and social service programs for the homeless, an 8.5 percent 
increase.

Housing for Special Populations
    Housing Opportunities for Persons with AIDS (HOPWA) provides 
formula grants to States and localities to provide housing to ensure 
persons with AIDS can continue to receive health care and other needed 
support. The program also provides competitive grants to nonprofit 
organizations. In fiscal year 2006, HOPWA will fund an estimated 25 
competitive grants and will provide formula funding to an estimated 124 
jurisdictions and in total will provide an estimated 67,000 households 
with housing assistance.
    The fiscal year 2006 HOPWA funding request represents a 5 percent 
decrease from the fiscal year 2005 funding level. The reduction was one 
of a number of difficult choices the Administration made in formulating 
the fiscal year 2006 Budget, but one which is in consistent with the 
goal of restraining spending in order to sustain economic prosperity. 
HUD is seeking changes in the HOPWA formula that will improve the 
targeting of the program, so that HOPWA better supports those whom it 
was created to serve--the most vulnerable persons, and individuals who 
are homeless or with very low incomes--ahead of other low-income 
households.
    The fiscal year 2006 budget proposes to fund grants of $119.9 
million for Supportive Housing for Persons with Disabilities (Section 
811). Section 811 provides assistance to expand the supply and the 
availability of affordable housing for persons with disabilities. The 
Administration is proposing the elimination of the program's new 
construction component, resulting in a $118.2 million funding decrease 
from fiscal year 2005. The Section 811 program will continue to support 
all previously funded housing subsidies under the program and up to 
1,000 new housing vouchers. The Administration intends to undertake a 
study of the Section 811 program to determine the most efficient use of 
the limited funding available for it.
    HUD's Office of Lead Hazard Control and its Healthy Homes 
Initiative work to eradicate childhood lead poisoning and prevent other 
housing-related childhood diseases and injuries. The fiscal year 2006 
budget proposes $119 million to fund these two programs, a net decrease 
of $47.6 million from the fiscal year 2005 appropriation. The Lead 
Demonstration Project accounts for $46.6 million of this decrease. 
Areas with high incidence of lead poisoning have now developed greater 
capacity, and therefore activities previously funded under the 
Demonstration program will be addressed through the regular grant 
program.

Making Government More Effective
Reforming Community and Economic Development Programs
    The Budget proposes a new program within the Department of Commerce 
to support communities' efforts to meet the goals of improving their 
economic opportunity and ownership. This initiative will consolidate 
programs such as Community Development Block Grants into a more 
targeted, unified program that sets accountability standards in 
exchange for flexible use of the funds.
Reforming Low-Income Housing Assistance
    Another way in which the fiscal year 2006 Budget will make 
Government a better steward of taxpayer money is through reform of the 
Section 8 Housing Choice Voucher Program.
    HUD has three major rental assistance programs that collectively 
provide rental subsidies to approximately 4.8 million households 
nationwide. The major vehicle for providing rental subsidies is the 
Section 8 program, which is authorized in Section 8 of the U.S. Housing 
Act of 1937. Under this program, HUD provides subsidies to individuals 
(tenant-based) who seek rental housing from qualified and approved 
owners, and also provides subsidies directly to private property owners 
who set aside some or all of their units for low-income families 
(project-based).
    The Housing Choice Voucher Program, the best known of the Section 8 
rental assistance programs, provides approximately 2 million low-income 
families with subsidies to afford decent rental housing in the private 
market. Generally, participants contribute up to 30 percent of their 
income toward rent, and the Government pays the rest.
    In the past, funds have been appropriated for a specific number of 
vouchers each year. These funds were then given to PHA's based on the 
number of vouchers they awarded and at whatever costs were incurred.
    In 2001, the Housing Certificate Fund, under which both the 
project-based and tenant-based Section 8 programs are funded, consumed 
43 percent of HUD's annual Budget. That had risen to 57 percent in 
fiscal year 2005, and the trend line continues to increase dramatically 
in the Department's fiscal year 2006 Budget. This rate of increase, 
combined with an extremely complex set of laws and rules that govern 
the program, has resulted in a program that increasingly is difficult 
to sustain.
    In response to rapidly increasing costs, Congress recently 
converted this ``unit-based'' allocation system to a ``budget-based'' 
system. This made sense, but for the budget-based system to work, 
program requirements need to be simplified and PHA's need to be 
provided with greater flexibility.
    I would like to thank you, Chairman Allard, for your leadership in 
introducing S. 771, authorizing legislation to implement Section 8 
reform. This legislation will simplify Section 8 and give more 
flexibility to PHA's to administer the program to better address local 
needs. PHA's will continue to receive a set dollar amount as in 2005, 
but they would have the freedom to adjust the program to the unique and 
changing needs of their communities, including the ability to set their 
own subsidy levels based on local market conditions rather than 
Washington-determined rents. Local PHA's will be able to design their 
own tenant rent policies, and in turn, reduce the number of errors that 
are made and create incentives to work. The plan will eliminate many of 
the complex forms that are currently required to comply with program 
rules, saving both time and money. Furthermore, the legislation will 
reward PHA's for good management through performance-based incentives. 
These changes would provide a more efficient and effective program, 
which helps low-income families more easily obtain decent, safe, and 
affordable housing.

Human Capital
    After many years of downsizing, HUD faces a large number of 
potential retirements and the loss of experienced staff. HUD's staff, 
or ``human capital,'' is its most important asset in the delivery and 
oversight of the Department's mission. HUD has taken significant steps 
to enhance and better use its existing staff capacity, and to obtain, 
develop, and maintain the staff capacity necessary to adequately 
support HUD's future program delivery. HUD has revamped its hiring 
practices, and now fills jobs in an average of only 38 days, instead of 
the 96-day average originally cited by the Government Accountability 
Office. Moreover, HUD has synchronized the goals and performance plans 
of its managers with the overall aims of the Agency, and is developing 
a new managerial framework through recent hiring and executive training 
programs.

Competitive Sourcing
    In April, HUD announced its first public-private competition, 
focusing on the contract administration and compliance monitoring 
functions associated with its assisted multifamily housing properties. 
Through this competition and others that are being considered, HUD 
hopes to realize cost efficiencies and significantly improve 
performance.

Improved Financial Performance
    HUD has striven to enhance and stabilize its existing financial 
management systems operating environment to better support the 
Department and produce auditable financial statements in a timely 
manner. While still suffering from internal control weaknesses, HUD met 
the accelerated timetables for producing its performance and 
accountability report, and improved the reliability, accuracy, and 
timeliness of financial systems. HUD is continuing efforts to reduce 
its internal control weaknesses from 10 to 7 by next year.

E-Government
    HUD completed security reviews for all of its information systems 
in calendar year 2004, and plans are in place to eliminate security 
defects by next year. HUD awarded its large contract for core IT 
infrastructure, successfully resolving a protest that lasted for 2 
years.

HUD Management and Performance
    Today, public and assisted housing residents live in better quality 
housing with fewer safety violations than 4 years ago. HUD increased 
the percentage of projects meeting its physical condition standards in 
public housing by 9 percentage points (from 83 percent in 2002 to 92 
percent in 2004) and in subsidized private housing by 8 percentage 
points (from 87 percent in 2002 to 95 percent in 2004). HUD now turns 
around at least 45 percent of public housing authorities classified as 
``troubled'' within 12 months rather than the 2 years allowed by 
regulation. New rules and procedures have virtually eliminated property 
flipping fraud from the FHA insurance programs, and close monitoring 
will continue to prevent such abuses. New rules and procedures have 
forced out bad appraisers from the FHA program and our ``Credit Watch'' 
lender monitoring initiative will continue to bar other individuals who 
improperly raise the risk of loss in these programs. Since 2002, HUD 
has worked with stakeholders to streamline their Consolidated Planning 
process into an easy-to-use and helpful tool for communities.

Faith-Based and Community Initiative
    HUD expanded its outreach to community organizations, including 
faith-based organizations, attempting to level the playing field for 
its formula and competitive grants. HUD has removed all discriminatory 
barriers to participation by such organizations. HUD's technical 
assistance has helped these organizations understand the application 
process as well as the responsibilities for implementation. These 
organizations are beginning to compete more widely and effectively as 
shown in their success in increasing the number of grants from 659 in 
2002 to 765 in 2003, a 16 percent improvement.

Improper Payments Initiative
    At the beginning of the President's first term, HUD committed to 
working with its stakeholders to reduce the improper payment in rental 
subsidies by one-half by 2005. At that time, over 60 percent of rental 
subsidies were incorrectly calculated by program sponsors due to 
improper interviews, inadequate income verifications, misunderstood 
program rules, and computational errors. Other errors resulted from 
inadequate verification of tenants' self-reported incomes. Four years 
later, HUD has achieved exactly what it committed to do. There has been 
a 27 percent reduction in improper subsidy determinations by program 
sponsors over the past 4 years. More importantly, there has been a 50 
percent reduction in improper payments amounting to $1.6 billion.
    Beginning in 2005, HUD will expand the verification of tenant self-
reported incomes to include recent wage data. This has the dual benefit 
of both improving accuracy and providing more privacy because income 
data will be matched electronically whereas current procedures require 
a paper verification letter to the tenant's employer. These stewardship 
efforts improve confidence that the right person is getting the right 
benefit in a timely, dignified, and private manner as intended under 
law. Because this is the first quarter that agency efforts were rated, 
progress scores were not given.

Conclusion
    All of us share the goal of creating housing opportunities for more 
Americans. We have done great work over the past 4 years, and we should 
be proud of everything we have accomplished together. But we should not 
be satisfied, because our work is far from being finished.
    I look forward to the work ahead, as we seek to open the American 
Dream to more families and individuals, and open our communities to new 
opportunities for growth and prosperity.
    I would like to thank all the Members of this Subcommittee for your 
support of our efforts at HUD. We welcome your guidance as we continue 
our work together.
    Thank you.

         RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 
                     FROM ALPHONSO JACKSON

Q.1. What is your response to criticism from the disability 
community that these cuts send the message to the public that 
HUD is not particularly committed to fair housing education and 
enforcement to safeguard the rights of persons with 
disabilities and other minorities impacted by housing 
discrimination?

A.1. The Department continues to demonstrate in manifold ways 
its commitment to fair housing education and enforcement on 
behalf of people with disabilities and others affected by 
unlawful discrimination.
    While the Department's fair housing programs have undergone 
cuts, HUD has placed a greater emphasis on high profile, 
systemic enforcement actions to obtain relief for a large 
number of people. The Department has also made its funds go a 
long way through the development of enforcement methodologies 
and public-service announcements that can be replicated and 
redistributed by other agencies. We believe these actions, and 
the Department's continued response to individual complaints, 
will have a measurable impact on discrimination against people 
with disabilities and other populations.
    Notably, in fiscal year 2006 the Department's recently 
formed systemic investigations unit will be fully operational. 
That unit has already launched two large, Secretary-initiated 
investigations, and is reviewing others for possible approval. 
The unit will investigate allegations of housing providers who 
have a policy or widespread practice of discrimination, to 
include owners of large apartment complexes who may have 
violated the Fair Housing Act's accessible design and 
construction requirements, housing providers operating in 
several States, real estate agencies engaged in racial 
steering, and lenders engaged in predatory lending practices. 
The creation of the unit allows HUD to consolidate multiple 
cases it may receive against the same housing provider or 
launch its own investigation against such a housing provider, 
where warranted.
    HUD's Fair Housing Training Academy, now in operation, is 
helping the Department promote consistent performance among the 
101 Fair Housing Assistance Program agencies investigating fair 
housing cases under their respective State and local laws. 
Since the establishment of the Academy, the Department has been 
able to reduce some FHAP training and technical assistance 
costs. Moreover, costs for the Training Academy decline in 
subsequent budget years, such as fiscal year 2006, as the 
Academy becomes more self-sustaining and no longer needs funds 
for start-up costs such as curriculum development.
    The Department's enforcement on behalf of people with 
disabilities goes well beyond its enforcement of the Fair 
Housing Act. Under its authority to enforce Section 504, the 
Department has conducted 100 compliance reviews of recipients 
of HUD funds in fiscal year 2004, which will result in the 
creation of thousands of accessible dwelling units. HUD 
targeted large Public Housing Authorities for its compliance 
reviews in order to create the largest number of accessible 
units for people with disabilities. This includes 478 units at 
the Miami-Dade Housing Agency, 104 units at the Housing 
Authority of the City of Las Vegas, and 775 units at the 
Housing Authority of Baltimore City. As part of HUD's education 
and outreach effort, HUD regularly meets with various 
disability rights organizations to identify issues/areas of 
concern, including additional means of expanding fair housing 
enforcement.
    HUD is also conducting a study on the nature and extent of 
discrimination persons with disabilities face when seeking to 
rent housing. This study tests paired-testing methodologies and 
is developing methods to measure housing discrimination against 
persons with disabilities. Results of the study will help the 
Department formulate policy to address such discrimination. The 
study will be published this summer. The study will pay 
dividends for the Department and the fair-housing/disability-
advocacy community as it makes available a testing methodology 
that groups throughout the country may use to measure the level 
of discrimination against people with disabilities in their 
communities.
    Finally, the Department continues to fund the Fair Housing 
Accessibility FIRST initiative. FIRST is a major education and 
outreach program, which provides training and technical 
guidance on a national scale to assist architects and builders 
to design and construct apartments and condominiums with the 
legally required 
accessibility features. The American Institute of Architects 
has accredited the FIRST training program. FIRST has required 
fewer funds in the years since the initial start-up year, and 
has a sustained impact on the construction of new multifamily 
housing as more members of the housing industry are educated on 
the Fair Housing Act's accessibility requirements. In fiscal 
year 2004, FIRST trained a total of 3,560 builders, developers, 
code officials, architects, and others involved with the 
development of more than 1,150,000 multifamily housing units.
    All in all, HUD's awareness studies and tracking surveys 
show that HUD's enforcement actions and high-profile education 
efforts do resonate with the public and have resulted in 
increased awareness of fair housing rights and 
responsibilities.

Q.2. According to statistics from the National Fair Housing 
Alliance's latest report on trends in fair housing, fair 
housing complaints filed through HUD, FHAP, and the National 
Fair Housing Alliance all increased in 2004, with complaints on 
the basis of disability constituting the single largest 
category of complaints (31 percent of all complaints). Yet, in 
your fiscal year 2006 Budget, you proposed reducing FHEO's 
funding by 29 percent overall ($14 million)--including a 38 
percent (or $10 million) reduction in the FHAP program. How can 
you possibly justify reducing funding for fair housing 
enforcement in the face of increasing reports of 
discrimination?

A.2. The proposed fiscal year 2006 budget for fair housing is a 
reduction from the fiscal year 2005 level of 13.7 percent in 
FHAP and an 18.9 percent decrease in FHIP. Furthermore, the 
salaries and expenses budget for FHEO is 4 percent above the 
fiscal year 2005 level. This decrease largely reflects cost-
savings that HUD will achieve through performance-based 
reimbursement of the FHAP agencies, consolidation of training 
programs, and improvements in the dissemination of cutting-edge 
fair housing enforcement, education, and outreach materials.
    This comes at a time when the Department is better managing 
its Fair Housing Act caseload and, for the first time, 
completing the majority of its cases within the 100-day 
timeframe set forth in the statute. As the Department goes into 
fiscal year 2006, it will have a fully operational systemic 
investigations unit, which will investigate high-profile, 
large-impact cases that result in widespread changes in 
industry practices and obtain relief for multiple people.
    The work of the systemic investigations unit will 
complement that of the FHAP agencies, who will continue to play 
an integral role in fair housing enforcement. The Department 
recently opened the National Fair Housing Training Academy to 
provide training that will result in more consistent and higher 
quality investigations among HUD offices and FHAP agencies, 
providing for greater cost-effectiveness. Among the 101 FHAP 
agencies, the Department has also put new performance measures 
in place, which reimburse those agencies on a sliding scale, 
based on the timeliness and the quality of their 
investigations.
    In general, the Department's training and education efforts 
are self-perpetuating and consolidate many previous activities. 
For example, the Fair Housing Training Academy required funding 
at a much higher level during its first year for curriculum 
development and other initial costs. In fiscal year 2006, the 
Training Academy will require less funding as it becomes more 
self-sustaining. Furthermore, the Training Academy fulfills 
most of the training needs of the FHAP agencies thereby 
reducing that historic budget item and former technical-
assistance funding.
    The Training Academy will also serve as a clearinghouse for 
fair housing materials produced by FHIP recipients and FHAP 
agencies under education-and-outreach and administrative 
funding. By giving FHIP recipients and FHAP agencies access to 
materials produced by other organizations, this will eliminate 
the creation of duplicate materials and will enable groups to 
expand the types of enforcement, education, and outreach activities 
they are able to perform. The Disability Discrimination Study, to be 
issued in the summer of 2005 is just one example. While the 
Department worked with Access Living, a disability advocacy 
group in Chicago to design the groundbreaking testing 
methodology that formed the basis of the study, the Department 
will widely disseminate the study and its accompanying testing 
guidebook so that other disability advocacy groups will be able 
to use this same methodology to test disability discrimination 
in their own communities.
    Finally, the Department has produced a series of highly 
acclaimed public-service announcements on housing 
discrimination. TV and radio stations continue to broadcast 
these popular ads, well beyond their initial intended run. The 
Ad Council, which, with civil-rights groups, received the grant 
to produced the ads, reported that public awareness of the Fair 
Housing Act's requirements increased from 67 percent to 74 
percent in just the ads' first-year run.
    On all fronts, the Department is making sure that its 
activities are cost-effective, producing widespread and 
sustained impact on housing discrimination.

Q.3. Among the specific steps that need to be taken, outgoing 
FHA Commissioner Weicher committed 3 years ago to making 213 a 
``Multifamily Accelerated Processing'' program. What are your 
current plans regarding completing that process?

A.3. I have been unable to confirm any such commitment at this 
time. However, as the Department is currently reviewing the 
existing regulations for this program, we will also commit to 
reviewing the applicability of the ``Multifamily Accelerated 
Processing'' for this program.

Q.4. What will you or the Department do to update and make the 
FHA 213 (co-op) insurance program more user-friendly?

A.4. HUD acknowledges that co-op homeownership has not received 
full support by the Department. HUD is currently analyzing the 
regulations to create a more effective utilization of its 
Cooperative Homeownership program. We believe that cooperative 
housing is a good vehicle for prospective homebuyers in that 
they provide some of the tax and equity benefits of single-
family homes.

Q.5. Former FHA Commissioner Weicher commissioned a contracted 
study with the Hollister Group and other consultants in 2004 
entitled, ``Cooperative Housing Market Assessment'' to help 
evaluate the efficacy of cooperatives in assisting HUD to 
achieve the President's ownership society objectives. This 
study was completed last year but has still not been publicly 
released. Can you please provide me with a copy of this study?
A.5. It is my understanding that the report is under review by 
the staff. I will commit to discussing with staff the potential 
release of the report to the public.

Q.6. Can you tell us the specific criteria used to award bonus 
points during the fiscal year 2004 grant round?

A.6. No bonus points were awarded in connection with the fiscal 
year 2004 Housing Choice Voucher Program/Family Self-
Sufficiency Notice of Funding Availability (HCV/FSS NOFA). 
Applicants were funded based on priority categories that were 
established in the HCV/FSS NOFA that was published in the 
Federal Register on May 14, 2004. Funding was awarded to PHA 
applicants that qualified for the first three funding 
categories: Priority 1--Renewal PHA's with qualifying 
homeownership programs; Priority 2--New Applicant PHA's with 
qualifying homeownership programs; and Priority 3--Renewal 
PHA's requesting an initial FSS homeownership coordinator. 
There was sufficient funding for all eligible applicants in 
priority categories 1 and 2, but not enough to fund all 
Priority 3 applicants. Consequently, HUD calculated the FSS 
Homeownership Percentage and Positive Escrow Percentage for 
each of the eligible Priority 3 applicants as required by the 
NOFA. Priority 3 applicants were then funded in order starting 
with those with the highest FSS Homeownership Percentage first. 
In the case of two applicants with the same FSS Homeownership 
Percentage, Positive Escrow Percentage and HCV program size 
were used to determine funding order.

Q.7. In the fiscal year 2004 Family Self-Sufficiency (FSS) 
coordinator grant round announced in December, about a third of 
all previously funding programs (256 programs) did not receive 
funding. Of the $47.7 million available for this purpose, only 
$44.5 million has been released. This undistributed $3.2 
million is the equivalent of 68 FSS coordinators. When and how 
do you intend to make funds available to local agencies?

A.7. HUD received requests from 873 applicants asking for a 
total of $72.8 million for HCV/FSS coordinators, but had only 
$47.7 million available. Of the $3.2 million that remained 
after the first round of funding was announced, all but $16,800 
has been awarded to eligible applicants. Since the remaining 
balance is not sufficient to fund a full position, it will be 
offered to the highest ranked unfunded application to partially 
fund a position.

Q.8. How many families are currently under lease?

A.8. As of the April 2005, PHA submission, there are 2,014,171 
units currently under lease.

Q.9. I am concerned that the upheaval and shortfalls of the 
past year have caused a reduction in the number of families 
assisted in the voucher program. According to HUD's Voucher 
Management System data, how many voucher families were under 
lease in January 2004?

A.9. The total number of units under lease in January 2004 was 
2,004,341. This number includes 14,978 5-year Mainstream units.

Q.10. Provide information on what has happened to affected 
troubled properties and tenants after Section 8 contract 
termination, foreclosure, or disposition sales since January 1, 
2001.

A.10. Attached please find the data on properties after Section 
8 termination and foreclosure/disposition since January 1, 
2001.*
---------------------------------------------------------------------------
    * Held in Committee files.

Q.11. Please provide any internal HUD policy guidelines or 
memoranda on the following issues: (i) retention or use of 
project-based Section 8 under existing contracts with REAC 
scores below 60 or at foreclosure; (ii) criteria for commencing 
foreclosure and for establishing the terms of foreclosure 
sales, including use restrictions, purchaser qualifications, 
Section 8 assistance, or other subsidies; (iii) taking 
possession of properties as mortgagee-in-possession, making 
---------------------------------------------------------------------------
repairs, or accepting deed-in-lieu of foreclosure;

A.11. Attached please find the following: (1) the Department's 
policies and procedures for taking mortgagee-in-possession; (2) 
criteria for commencing foreclosure; and (3) processing and 
approving the disposition of HUD-owned multifamily projects.*
---------------------------------------------------------------------------
    * Held in Committee files.

Q.12. Please provide a list of properties (name, location, HUD 
program(s), number of units, number of assisted units, and 
occupancy rate) with HUD-held mortgages in foreclosure or 
property disposition pipeline, and reason(s) for foreclosure 
---------------------------------------------------------------------------
(financial or covenant default).

A.12. Below is a list of the properties including the name, 
location, HUD program(s) and number of units with HUD-held 
mortgages in the foreclosure pipeline and the reason(s) for 
foreclosure. Please note that we do not have records on 
occupancy rates.*
---------------------------------------------------------------------------
    * Held in Committee files.
---------------------------------------------------------------------------
    At this time, the Department does not own any properties 
and therefore, there is no property disposition pipeline.

Q.13. I am very concerned about a disturbing pattern in the 
Department's handling of ``troubled'' privately owned, HUD-
subsidized and assisted multifamily housing--buildings where 
owners are delinquent on mortgage payments or have failed to 
maintain property standards. In limited situations, 
preservation strategies are not feasible. However, we have 
heard from Members and community groups in New York, 
Massachusetts, Illinois, Ohio, Pennsylvania, Texas, Florida, 
Maryland, and here in Washington, DC, that the Department has 
consistently failed to use its authority to further 
Congressional goals of preserving and improving affordable 
housing and preventing tenant displacement. In fact, in almost 
every case, the Department has usually pursued a policy of 
converting to vouchers--the exact opposite of what should be 
done to save these buildings as affordable housing and promote 
neighborhood revitalization without displacement. I am 
requesting information regarding the Department's policies and 
rationales, and the extent of the problem today.
    Please provide a list of properties (name, location, HUD 
program(s), number of units, number of assisted units, and 
occupancy rate) with one or more failed REAC scores and their 
status in the enforcement process (in workout negotiations, 
under correction plan, pending termination).

A.13. As part of the Department's mission to ensure that 
residents reside in decent, safe, and sanitary housing, the 
Department initiated a protocol whereby, if a project received 
an inspection score under 60 on a scale of 1 to 100, that 
property would be referred for potential enforcement action. 
The Department meets with the owner to discuss the 
ramifications of failing physicals, and issues a notice of 
violation and/or default offering an opportunity for the owner 
to cure the default and conducts a reinspection no sooner than 
60 days from the first inspection. Should the project fail a 
second inspection, the Department will take the necessary 
actions to permanently cure the problems of the project. The 
Department works with the owner to review options available, 
ranging from paying the mortgage off and making the necessary 
repairs to selling the property, changing management, or 
refinancing. The 
Department's first priority is to work with the owner to make 
the necessary repairs. However, if the owner fails to make the 
repairs, the Department will review its options, including the 
abatement of the subsidy, foreclosure, acceleration of the 
mortgage, and will subsequently sell the mortgage note.
    Since the inception of this protocol the Department's 
property portfolio was roughly 30,000 properties, of which, 
37,757 inspections have been conducted and released to owners 
of 26,000 properties. Many of the properties were inspected 
more than once, due to annual inspections. Some received two or 
three inspections under the concept of offering the owners 
opportunities to make the necessary repairs. There are 17,500 
properties that have been inspected only once as they either 
received an acceptable score or are awaiting a second 
inspection. There are 9,118 properties that have had more than 
one inspection because they have had annual inspections or they 
were inspected 2 or 3 times in an attempt to allow the owner to 
cure the default.
    Currently, of the 2,586 properties that received their 
first score under 60, only 1,334 properties received a second 
score over 60 and will be inspected in the future according to 
outstanding protocol; 739 properties had one failed inspection 
and are awaiting a second inspection; 513 properties have had a 
second failed inspection, so some action was in order. Of the 
513 properties, the field offices have submitted 133 corrective 
plans that are now under review in headquarters. Only 380 
properties have thus far been subjected to some decisive 
action, either initiated by the owner or the Office of Housing. 
The attached reports will further outline the resolutions.*
---------------------------------------------------------------------------
    * Held in Committee files.

Q.14. As part of the House Appropriations Committee's fiscal 
year 2005 VA-HUD Report (H.Rpt. 108-674, page 67), HUD was 
directed to come forward with programmatic guidance for the 811 
``mainstream'' program by March 15, 2005. This guidance was to 
include: Targeting of rental assistance consistent with 
longstanding 811 targeting criteria, that is targeting to 
individuals with the most severe disabilities; maintenance of 
these vouchers upon turnover; and retention of a meaningful 
role for nonprofit disability groups in the program.
    This language also expressed strong concerns regarding the 
diversion of 811 tenant-based assistance to the Section 8 
voucher program. Can you provide an update on progress in 
developing this required programmatic guidance for the 811 
tenant-based program?

A.14. On February 1, 2005, the Department issued Notice PIH 
2005-5 (HA) on the New Freedom Initiative and the Housing 
Choice Voucher (HCV) program. This Notice clarified that to the 
extent practicable, vouchers awarded for the purpose of serving 
nonelderly disabled families must continue to be awarded to the 
same target population upon turnover. The Notice also clarified 
that ``to the extent practicable'' meant that all nonelderly 
disabled families on a PHA's waiting list have been issued 
these turnover vouchers, and PHA outreach efforts, specifically 
directed to nonelderly disabled families, yielded no eligible 
applicants. The Notice also clarified that, under the Section 
811 Program of Supportive Housing for Persons with 
Disabilities, vouchers must be issued and reissued upon 
turnover to both elderly and nonelderly disabled persons. 
Notice PIH 2005-5 (HA) defined the continuing role of nonprofit 
disability groups in providing referral services and housing 
search assistance and transitional services to the disabled 
population that receives HCV.
    In regard to the diversion of Section 811 assistance, on 
August 4, 2004, the Department issued Notice 2004-13 (HA), 
which implemented six new codes to be used with data submitted 
on Form HUD-50058 (Family Report). One of the codes, MS5 
specifically tracks vouchers issued and leased under the 
Section 811 program in the Public Housing Information Center 
(PIC). Failure to serve disabled families as required will 
result in the forfeiture of these vouchers.

Q.15. The limited information we have received regarding the 
Administration's fiscal year 2006 request for Section 811 does 
not specify how the remaining estimated $35 million for Section 
811 would be spent (the fund leftover after the $85 million for 
tenant-based and project-based (PRAC) renewals are taken care 
of.) Would this remaining $35 million stay in the 811 program 
for new ``mainstream'' vouchers, or would it be needed for 
contract amendments for prior year commitments (fiscal year 
2002 and fiscal year 2003) for 811 tenant-based awards?

A.15. If there are funds that are leftover after the 
Department's amendment and renewals needs are met, these 
remaining funds will be available for incremental tenant-based 
assistance. The President's budget indicates that ``up to 
$34,000,000'' may be available for incremental tenant-based 
rental assistance.

Q.16. How about under the Administration's proposal for fiscal 
year 2006?

A.16. Based on historical data, we estimate that more than 
155,000 beds may be produced with fiscal year 2006 funding.

Q.17. How many units of supportive housing do you expect will 
be produced with fiscal year 2005 Homeless Assistance Grants 
Funding?

A.17. Communities can use the Homeless Assistance Grants (HAG) 
funding to provide housing as well as an array of supportive 
services. Both the law and HUD provide communities with 
flexibility in using these funds to address local needs. As 
such, the number of units of housing funded in fiscal year 2005 
is largely dependent on local needs. With this caveat, HUD 
estimates the HAG funds will provide renewal and new funding 
for more than 150,000 beds.

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR SARBANES 
                     FROM ALPHONSO JACKSON

Q.1. Why did HUD propose and accept a stop-loss provision in 
the negotiated rule only to drop it in the proposed rule?

A.1. The stop-loss provision would have allowed a PHA to 
discontinue its subsidy reduction (stop-loss) by demonstrating 
that it has successfully converted to asset management. Upon 
further consideration, HUD believes that the Harvard Cost Study 
methodology should be equally applied to all PHA's, and that 
this stop-loss provision would weaken the goal of 
redistributing operating subsidies to PHA's who have 
historically been underfunded in the current formula. In 
addition, in accordance with the Committee's recommendations, 
the proposed rule continues to allow PHA's to substitute 
independent cost data for use as a basis of subsidy funding 
through one of the five categories of appeals.

Q.2. Please submit supporting materials for the data Secretary 
Jackson used in The Wall Street Journal op-ed, ``It Really is 
Black and White . . . Private Social Security Accounts Will 
Help Lift Minorities Out of Poverty,'' dated April 19, 2005.

A.2. Senator Sarbanes' argument is similar to Paul Krugman's in 
The New York Times on January 28, 2005, where he states, 
``Blacks' low life expectancy is largely due to high death 
rates in childhood and young adulthood. African-American men 
who make it to age 65 can expect to live, and collect benefits, 
for an additional 14.6 years--not that far short of the 16.6-
year figure for white men.'' The Secretary, however, was not 
referring to African-Americans that made it to the age of 
retirement. He was referring to all African-Americans, and 
using the full-benefit Social Security retirement age 
applicable to individuals born in 1960 and later (age 67). The 
data source for life expectancy at birth is the National Center 
for Health Statistics, National Vital Statistics Reports, Vol. 
49, No. 3, June 26, 2001. http://www/cdc/gov/nchs/data/nvsr/
nvsr49/nvsr49_03.pdf. [-SSA, Housing Branch]

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR SCHUMER 
                     FROM ALPHONSO JACKSON

Q.1. Why has the Department proposed a cut in the Public 
Housing Operating Fund?

A.1. The Department has not proposed a cut for Operating Fund. 
The $3.4 billion request for fiscal year 2006 would fund PHA's 
at an 89 percent proration level, which is the same as the 
current proration level for fiscal year 2005.

Q.2. Why did HUD drop the stop-loss provision that would allow 
for PHA's to lose only 5 percent?

A.2. The stop-loss provision would have allowed a PHA to 
discontinue its subsidy reduction (stop-loss) by demonstrating 
that it has successfully converted to asset management. Upon 
further consideration, HUD believes that the Harvard Cost Study 
methodology should be equally applied to all PHA's, and that 
this stop-loss provision would weaken the goal of 
redistributing operating subsidies to PHA's who have 
historically been underfunded in the current formula. In 
addition, in accordance with the Negotiated Rulemaking 
Committee's recommendations, the proposed rule continues to 
allow PHA's to substitute independent cost data for use as a 
basis of subsidy funding through one of the five categories of 
appeals.

Q.3. What is the current and expected funding level? Can you 
cite for me a year where the cuts in operating subsidies have 
been greater than this budget?

A.3. Historically, the lowest proration level in the Operating 
Fund has been 89 percent (1996). At the request of $3.4 
billion, the proration level for 2006 is estimated to be 89 
percent. The current proration level for fiscal year 2005 is 89 
percent.

Q.4. How does NYCHA deal with a $185 million drop in subsidy?

A.4. Please note that in fiscal year 2003 dollars, NYCHA's 
operating subsidy would decrease by $129 million or 17 percent 
under the proposed rule. With the transition policy, NYCHA's 
loss would be limited to 24 percent in Year 1. As a result, 
under the proposed rule, NYCHA would have their reduction 
limited to approximately $31 million in Year 1. NYCHA has the 
following resources to deal with the loss of $31 million.

 Operating subsidy is only one of NYCHA's revenue 
    streams that provides resources for the operation and 
    maintenance of their public housing stock. A review of 
    NYCHA's last audited financial statement reveals that the 
    total revenue stream for NYCHA's public housing program was 
    over $1.3 billion, of which $563 million, or 43 percent, 
    came from tenant rent, $711 million, or 54 percent, was 
    from operating subsidy, and the remainder of the balance 
    consisting of other smaller revenue sources. Therefore, 
    NYCHA's Year 1 loss is approximately a 2.5 percent 
    reduction of their entire public housing fund budget.
 Consistent with the Harvard Cost Study's finding, 
    PHA's who would receive less subsidy tend to have larger 
    reserves than the PHA's who would receive more subsidy. 
    More specifically, NYCHA's losses would be cushioned by the 
    approximately $409 million it has in operating reserves.
 The proposed rule also allows PHA's to maximize other 
    revenue streams without receiving an offset in subsidy, as 
    the current rule requires.

    Last, the Harvard Study found that NYCHA had historically 
been overfunded even after taking into account the special cost 
features associated with New York City in general. It should be 
noted that NYCHA currently receives $759 million in operating 
subsidies, which represents 22 percent of total annual 
operating subsidies while managing 13.3 percent of the 1.2 
million public housing units available nationally. Under the 
proposed rule, NYCHA's share in operating subsidy would 
modestly decline from 22 percent to 19 percent.

Q.5. What is the expected increase or decrease in subsidy for 
the largest 100 PHA's?

A.5. At the request of $3.4 billion, the proration level for 
2006 is estimated to be 89 percent. That said, Appendix A shows 
the estimated increase/decrease in subsidy under the proposed 
rule versus the current formula for the 100 largest PHA's in 
terms of number of units under management.
    For the 100 largest PHA's, the distribution of PHA's whose 
subsidy will increase/decrease under the proposed rule formula 
is provided below.

 number of PHA's with increase in subsidy: 66
 number of PHA's with decrease in subsidy: 28
 PHA's with no change: 6 *
---------------------------------------------------------------------------
    * 5 are PHA's that participate in the Moving to Work (MTW) program 
and their formulas will continue to be calculated pursuant to their MTW 
agreement. In addition, the Harvard Cost Study did not provide a new 
Project Expense Level (PEL) for the Virgin Islands, HUD is assuming 
that the Virgin Islands will continue to receive funding at the current 
formula level.
---------------------------------------------------------------------------

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR MARTINEZ 
                     FROM ALPHONSO JACKSON

Q.1. Why did HUD publish a rule that is substantially different 
than the negotiated rule?

A.1. Consistent with rulemaking policies, as well as the 
Department's obligations under Executive Order 12866 (entitled 
``Regulatory Planning and Review'') and other rulemaking 
authorities, the draft rule underwent further review at HUD and 
executive branch review prior to publication. As a result, 
certain of the Committee's recommendations were revised to 
better reflect Administration policies and budgetary 
priorities. Although changes were made to certain of the 
Committee's recommendations, the proposed rule stays committed 
to the Harvard Cost Study recommendations, namely:

 The proposed rule adopts the Harvard Study's 
    methodology for estimating operating costs as well as the 
    broader reforms in the area of asset management.
 The Harvard Study was silent on a transition policy. 
    However, the proposed rule retains the Committee's 
    recommendation of a transition policy to allow time for 
    PHA's to align their resources with the new funding. As a 
    result, PHA's who stand to gain also have their increases 
    limited to soften the impact on PHA's who face decline 
    under the new formula.
 Similar to the Committee's recommendations, the 
    proposed rule went beyond the Harvard Cost Study's 
    recommendations by providing PHA's with the tools to 
    convert to asset management by providing fees for 
    information technology, asset management, asset 
    repositioning, and rental income stability.
 The proposed rule retains the five categories of 
    appeals recommended by the Committee, which would allow a 
    PHA to appeal its new operating fund amount.
 The proposed rule also allows PHA's to maximize other 
    revenue streams without receiving an offset in subsidy, as 
    the current rule requires.
 The redistribution remains largely intact, with 81 
    percent of all PHA's gaining under the proposed rule (the 
    same as under the Committee's recommendations).

    
    
