[Senate Hearing 109-964]
[From the U.S. Government Publishing Office]
S. Hrg. 109-964
COMMUNITY DEVELOPMENT BLOCK GRANTS:
THE CASE FOR REFORM
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HEARING
before the
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT
INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JUNE 29, 2006
__________
Available via http://www.access.gpo.gov/congress/senate
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Michael L. Alexander, Minority Staff Director
Trina Driessnack Tyrer, Chief Clerk
FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND INTERNATIONAL
SECURITY SUBCOMMITTEE
TOM COBURN, Oklahoma, Chairman
TED STEVENS, Alaska THOMAS CARPER, Delaware
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
LINCOLN D. CHAFEE, Rhode Island DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia MARK PRYOR, Arkansas
Katy French, Staff Director
Sheila Murphy, Minority Staff Director
John Kilvington, Minority Deputy Staff Director
Liz Scranton, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Coburn............................................... 1
Senator Coleman.............................................. 6
Senator Akaka................................................ 8
Senator Carper............................................... 13
WITNESSES
Thursday, June 29, 2006
Hon. Pamela H. Patenaude, Assistance Secretary, Office of
Community Planning and Development, U.S. Department of Housing
and Urban Development, accompanied by Todd Richardson.......... 10
Hon. Kenneth M. Donohue, Inspector General, Department of Housing
and Urban Development.......................................... 110
Eileen Norcross, M.A., Senior Research Fellow for the Government
Accountability Project, Mercatus Center, George Mason
University..................................................... 25
Cardell Cooper, Executive Director, National Community
Development Association........................................ 27
Alphabetical List of Witnesses
Cooper, Cardell:
Testimony.................................................... 27
Prepared statement........................................... 79
Donohue, Hon. Kenneth M.:
Testimony.................................................... 11
Prepared statement........................................... 44
Norcross, Eileen, M.A.:
Testimony.................................................... 25
Prepared statement........................................... 53
Patenaude, Hon. Pamela H.:
Testimony.................................................... 10
Prepared statement........................................... 39
APPENDIX
Questions and responses for the Record from:
Ms. Patenaude................................................ 88
Ms. Norcross................................................. 97
Mr. Cooper................................................... 99
Letters submitted for the record by Senator Coleman.............. 100
National Association of Housing and Redevelopment Officials,
prepared statement............................................. 120
Charts submitted for the record by Senator Coburn................ 131
COMMUNITY DEVELOPMENT BLOCK GRANTS: THE CASE FOR REFORM
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THURSDAY, JUNE 29, 2006
U.S. Senate,
Subcommittee on Federal Financial Management,
Government Information, and International Security,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:30 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. Tom Coburn
(Chairman of the Subcommittee) presiding.
Present: Senators Coburn, Coleman, Carper, and Akaka.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. The hearing will come to order.
This is a hearing on Community Development Block Grants:
The Case for Reform. It is not a hearing on the elimination of
CDBG, in spite of the buttons I see out there, which leads me
to conclude that oftentimes, when somebody wants to distort
somebody's position that they may, in fact, have a problem.
When you have a goal of flexibility and consensus, you will
have different results than if you have your goal of
accountability and efficiency, and when you allow those two
separate things, you never get to what we are looking for,
which is accountability. And I do not think we are going to
have any of the witnesses' testimony today that is going to say
they do not want accountability, and I do not think we are
going to have any of the witnesses say they do not want
transparency. And I am sure we are not going to hear any of the
witnesses say we do not have results.
So the purpose of this hearing is to have a frank and open
discussion about how do we do the best job with the money that
we put in CDBG to make the greatest different in the most
number of people's lives who are deserving? That is what it is
about. It is not about playing games. It is not about politics.
It is about an honest look at: Can we do this better? Can we
account for it better? Can we get better results? And can we
measure those results?
The Community Development Block Grant program is a
multibillion-dollar program that has exceptional flexibility
compared to most other grant programs. That is one of the
reasons it is liked so well. It operated out of the Department
of Housing and Urban Development. It gives local officials
broad discretion on the use of funds for housing, economic
development activities, social services, and infrastructure.
The authorizing legislation requires that the activity meet one
of the following goals: To principally benefit low and moderate
income individuals; to eliminate or prevent slums; or remedy
urgent threats to the health or safety of the community. That
is what the legislation says.
When the program first began in 1975, HUD advertised that
CDBG funds could be used anywhere within a local government's
jurisdiction to serve the needs of and provide better living
environments for low and moderate income persons. This
flexibility continues today, and it helps our communities meet
localized needs that change on a case-by-case basis. That is a
laudable goal. It is a great goal.
Perhaps the first and most fundamental problem with the
program is its lack of sunshine. And I want to redirect you to
the accountability poster that this Subcommittee uses. When
there is no sunshine, there is great opportunity for
mischievous behavior. Transparency is the first and necessary
step towards accountability. One of the interesting things our
Subcommittee has found that we have asked for months to find
out how CDBG funds are used, and no one can tell us. No one has
accumulated all that. Nobody knows for total, if we take $3
billion or $4 billion, where did it go? Nobody knows that
answer.
HUD does not compile this information, much less make the
information available to the public. That lack of transparency
is simply unacceptable in the fiscal situation that we find
ourselves today. How can supporters make a serious claim that
the program as a whole is accomplishing its goals when nobody
knows how the money is spent? Nobody is measuring the goals.
Not surprisingly, with no transparency, other performance
problems are inevitable. Critics of Community Development Block
Grants, and I am not a critic; I am supportive; I just want
them to be more effective and more efficient, argue that while
flexibility abounds, the program has no standardized outcome
indicators, insufficient accountability, and it has ambiguity
goals. In the 39 hearings I have chaired in this Subcommittee,
I have found that when these factors coalesce within a Federal
program, opportunities for waste, fraud, and abuse of tax
dollars abound. For example, right here in Washington, DC, it
has been reported $100 million in CDBG block grant funds were
spent over a decade on revitalization projects, and there is
little to nothing to show for it. That is $100 million.
According to the Washington Post's assessment, the City's
use of this Federal funding is characterized by overspending,
cronyism, and conflicts of interest. Another example is CDBG
funds were appropriated to help in the September 11 aftermath
in New York City. But due to the program's lack of meaningful
guidelines and enforcement, some of this desperately needed
money went to fund very questionable projects that do not meet
those three guidelines.
Illustrating the lack of policy direction and management in
the program, the Manhattan Institute reports that CDBG loans
referred to as Section 108 loans have a 59 percent default
rate. That is three out of every five loans default. Why are we
looking at it? If that is the case, why are we not putting the
loans into areas that will make a difference and continue to
make a difference rather than default and make a short period
different? Critics say that even though HUD has specific
guidelines, transparency and oversight for its other lending
programs under HUD, it has nothing similar for Section 108
loans. For example, after the 1992 Los Angeles riots, the Los
Angeles Community Development Bank was created with CDBG funds.
In that came a $6 million loan that nobody would give to this
group for any other thing, and in the end of that, they put $24
million into it; lost all of it; and it closed with no effect,
no positive long-term effect for the community that it was
intended to help.
A key flaw in the program, I believe, is its outdated
funding formula. These formulas have not been updated since the
midseventies, meaning the program has not updated its funding
structure to reflect changes in poverty or community
realization and need over the last 30 years. The grants are not
consistently targeted to communities in need, and as a result,
there are numerous funding anomalies. For example, the posters
to my right, to your left,\1\ shows a great example: Temple,
Texas has under $20,000 per year per capita income; receives
$15 per capita in CDBG block grant funds. Then, if you look at
Oak Park, Illinois, where they have almost double the per
capita income, and they have $39 per capita in CDBG block
grants.
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\1\ The charts referred to appears in the Appendix on page 131.
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Now, if we go back to what the program was intended for, to
help poor and moderately low-income communities to help an ever
present health situation, how do we meet that when you see
these kind of funding disparities? You can also see that
Newton, Massachusetts, has three times the income of Hopewell,
Virginia, but this wealthy community receives three times more
CDBG funding per capita than Hopewell. These are just two of
hundreds of examples that we have discovered as we have gone
through and looked at this program, illustrating that different
communities are receiving the exact opposite of funds that you
would expect from the requirements of the legislation that
authorizes this program.
We all know that the communities that we live in have
changed in the past few decades. Some have improved
miraculously. Some have declined. There is no way for a
community that was needy in the seventies but is now wealthier
to graduate out of the program. Once a community is placed on
the list, no matter how wealthy the community becomes over
time, it is guaranteed a funding of CDBG block grants, no
matter what: Even if it has no need, it is still guaranteed.
And that means that somebody who has a more legitimate need is
denied those funds.
I value the goals of this program. I have several
questions, and when we get into full transparency, where anyone
can see on a public website how the money is spent; that is
called accountability, and anybody who wants this program to
survive and grow cannot adequately create a case to oppose
sunshine for where the money is spent. When will the program
adopt standardized performance measures that have teeth with
the ability to compare success from city to city? I think the
program is overdue for some reform. I believe the funds must be
targeted based on need, which means the formulas need to be
revised. I believe there needs to be transparency in
enforcement of the planned use of grants under this program,
which means that you have to publish a community's proposal and
the actual disbursements so that the community, as well as
everybody else, can see where the money went.
Potential waste, fraud, and abuse of funds needs to be
averted before high risk plans are enacted and undertaken
rather than afterwards. Funding must be conditioned also on
performance. Performance measures need to be better defined,
and grantees that consistently fail to perform need to face
real and immediate consequences and maybe intervention, not
taking away the money but intervention to show them how to use
the money better. The question is not to eliminate CDBG but to
make the dollars be more effective in the original intent of
the authorizing legislation.
Since 2000, the Administration, to its credit, has
identified these program weaknesses and has attempted some
reform. But these attempts have been met with open hostility in
Congress. I am afraid that many of my colleagues view the
program as an entitlement for their home districts. Last month,
HUD delivered the latest Community Development Block Grant
reform proposal to Congress. I hope that Congress will take our
responsibility to Americans seriously and work to make this
program for the needy communities it was created to help. As
more and more accounts of waste and abuse surface, we simply
cannot neglect our duty to the next generation in favor of the
next election.
[The prepared statement of Senator Coburn follows:]
PREPARED STATEMENT OF SENATOR COBURN
The Community Development Block Grant (CDBG) program is a multi-
billion dollar program that has exceptional flexibility compared to
most other grant programs. Operated out of the Department of Housing
and Urban Development (HUD), CDBG gives local officials broad
discretion on the use of the funds for housing, economic development
activities, social services, and infrastructure. The authorizing
legislation requires that the activity meet one of the following goals:
To principally benefit low- and moderate-income individuals, eliminate
or prevent slums, or remedy urgent threats to the health or safety of
the community. When the program first began in 1975, HUD advertised
that CDBG funds could be used anywhere within a local government's
jurisdiction to serve the needs of and provide better living
environments for low- and moderate-income persons. This flexibility
continues today, and it helps communities meet localized needs that
change on a case by case basis.
Perhaps the first and most fundamental problem with the program is
the lack of sunshine. Transparency is the first and necessary step
towards accountability. We asked for months to fund out how CDBG funds
are used and no one knows. HUD does not compile this information, much
less make that information public. That lack of transparency is simply
unacceptable. How can supporters make a serious claim that the program
as a whole is accomplishing its goals when nobody knows how the money
is spent.
Without transparency other performance problems are inevitable.
Critics of Community Development Block Grants argue that while
flexibility abounds, the program has ambiguous goals, insufficient
accountability, and lacks standardized outcome indicators. In the 39
hearings I have chaired in this Subcommittee, I have found that when
these factors coalesce within a Federal program, opportunities for
waste, frauds, and abuse of tax dollars abound. For example, right here
in Washington, DC, the Washington Post reported in 2002 that more than
$100 million in CDBG funds were spent over a decade on revitalization
projects--and there is little to show for it. According to the Post's
assessment, the city's use of this Federal funding is characterized by
overspending, cronyism, and conflicts of interest. As another example,
CDBG funds were appropriated to rebuild New York City in the aftermath
of 9/11, but due to the program's lack of meaningful guidelines and
enforcement, some of this desperately needed money went to fund
questionable projects like the Tribeca Film Festival.
Illustrating the lack of policy direction and management in the
program, the Manhattan Institute reports that CDBG loans, referred to
as Section 108 loans, have a 59 percent default rate. Critics say that
even though HUD has specific guidelines, transparency and oversight for
its other lending program, they have nothing similar for Section 108
loans. For example, after the 1992 Los Angeles riots, the Los Angeles
Community Development Bank was created using CDBG funds. This program
initially awarded a $6 million loan to an individual who was turned
down by every commercial lender he met with due to his extremely risky
business plan. Violating its own spending limit, the CDBG funded bank
ended up pouring $24 million dollars into this unsound business in a
misguided attempt to keep the business afloat. While politicians were
congratulating themselves, the business defaulted and was forced to
shut down. Two-thirds of the businesses assisted through this loan
program failed to create the required number of jobs and only a meager
11 percent created jobs that went to the area's residents.
A key flaw in the program is the outdated funding formula. These
formulas haven't been updated since the 70's--meaning the program has
not updated its funding structure to reflect changes in poverty over
the past 30 years. The grants are not consistently targeted to
communities in need, and as a result, there are numerous funding
anomalies. For example, Temple, Texas has just under $20,000 per capita
income and receives $15 per capita in CDBG funds. But Oak Park,
Illinois has almost double the average per capita income of Temple and
receives $39 per capita from the program. Newton, Massachusetts has
three times the income level of Hopewell, Virginia but this community
receives three times more CDBG funding per capita. These are just two
of hundreds of examples illustrating that different communities are
receiving the exact opposite amount of funds you'd expect.
We all know that the communities we live in have changed in the
past few decades--some have improved, some have deteriorated. There's
no way for a community that was needy in the 70's but is now wealthy to
``graduate'' from the program. Once a community is placed on the list,
no matter how wealthy the community becomes over time, it is guaranteed
a portion of the CDBG funding every year.
Even though I value the goals of the program, I have several
questions. When will we get full transparency with a public website
where anyone can see how the money is spent? When will the program
adopt standardized performance measures to be used in comparing
successes from city to city? The program is long overdue for meaningful
reform. There are several key points that must be addressed in order
for this program to be both effective and accountable.
Funds must be targeted based on need. This means the
formulas need to be updated and wealthy communities need to graduate
from eligibility.
There must be transparency and enforcement of the planned
use of grants under this program--publish a community's proposal and
actual disbursements on a public website. HUD needs to provide
consistent oversight and transparent monitoring of what goes into a
plan and how it is carried out. Communities must be able to comment on
a grantee's planned use of CDBG funds. Potential waste, fraud, and
abuse of funds need to be averted before high-risk plans are enacted.
Funding must be conditioned on performance. Performance
measures need to be better defined, and grantees that consistently fail
to perform need to face real and immediate consequences.
Since 2000, the Administration, to its credit, has identified these
program weaknesses and attempted reform. But, these attempts have been
met with open hostility in Congress. I'm afraid that many of my
colleagues view the program as an entitlement for their home districts.
Last month, HUD delivered the latest Community Development Block Grant
reform proposal to Congress. I hope that Congress will take our
responsibility to Americans seriously and finally make this program
work for the needy communities it was created to help. As more and more
accounts of waste and abuse surface, we simply cannot neglect our duty
to the next generation in favor of the next election.
I want to thank all the witnesses for being with us here today. I
look forward to hearing your testimony.
Senator Coburn. I want to personally thank all of our
witnesses for being here and the efforts that you put into your
testimony. I welcome my two companions on the panel, and I will
go on the order of first here, first to speak. Senator Coleman,
you are recognized.
OPENING STATEMENT OF SENATOR COLEMAN
Senator Coleman. Thank you very much, Mr. Chairman. Let me
first start by applauding your passion and your focus to deal
with fraud and to try to ensure transparency and accountability
in government programs. In your time in the Senate, you have
been a true champion. As a former prosecutor, and as the
Chairman of the Permanent Subcommittee on Investigations, I
think if we totaled it up, we would identify about $11 billion
in fraud and mismanagement that we have been in the process of
correcting, and by the way, even for government, that is a lot
of money.
I share a similar passion, and I also am appreciative of
what you stated that the goal here is not to eliminate CDBG. I
think we all agree on that. But a couple of observations, and I
have a fuller statement I will enter into the record. No
program is sacrosanct. Clearly, spending government dollars,
there needs to be accountability. There needs to be
transparency. I would like to commend the efforts of the HUD
Inspector General to fight CDBG waste, fraud, and abuse. There
are bad characters who fail their communities through criminal
acts, and we have to kind of root those out. There is no
question about that.
My concern is, and let me just be very blunt here: For
those of us who have seen CDBG work, as a former mayor, and I
have, and we have seen the incredible positive things that they
do in communities, urban communities, rural communities, that
without them, we would lose the opportunity for jobs. We would
lose the opportunity for economic development. Our communities
would be much worse off. This is an important program. And part
of the concern as we look at the last year, where the
Administration was, for instance, last year, which was
essentially to combine CDBG, kind of lump it in with a number
of programs, that raises, I think, a degree of cynicism out
there as to what the intention is towards this program, which
across the board, and I appreciate the Assistant Secretary
being with us today; my colleagues have spoken loud and clear.
I think we had 65-plus votes last year to oppose the
Administration's proposal to essentially eliminate CDBG at
least in its present form by combining it with a multitude of
other programs and cutting its funding.
So you have a very clear will of the Congress here, which
is not inconsistent with anything the Chairman has talked
about. Those of us who are passionate about this program and
who know its successes are also passionate about it working
effectively. And so, the issue becomes how do you do that? How
do you get there? One of the challenges that we have that if we
make any changes, and I am very sensitive as a former mayor, is
you have to look at the impact it has on communities and give
people the opportunity to kind of weigh that and to measure it.
And if we are going to change it, you have to understand that.
I am a great believer in public-private partnership. I am a
great believer in folks working together. We have had
cooperation between OMB, HUD, CDBG stakeholders, and they have
produced an increased, improved performance system. We have to
get about implementing that, that improved performance system,
and improved performance measures. But I have serious
reservations with HUD's reform plan. I have serious
reservations with respect to the formula change. I have serious
reservations with respect to the minimum grant threshold
proposals. I would hope that we would, as we go about doing the
reform that we all agree needs to take place, we want a better
system, that we work closely with the shareholders; that we
work closely with those who are impacted, and we figure out the
right way to do it. We just want to do it the right way here.
[The prepared statement of Senator Coleman follows:]
PREPARED STATEMENT OF SENATOR COLEMAN
Thank you Mr. Chairman. I appreciate the opportunity to be a part
of this hearing on a most important program for communities all across
this country.
Mr. Chairman, as you know, I have been a strong champion of the
Community Development Block Grant (CDBG) program. I come to this
afternoon's hearing to tout the vital importance of this program to our
communities. CDBG is a community development program that helps State
and local governments tackle their most serious community development
challenges. CDBG and public-private partnerships like it are the
cornerstone for the economic revitalization occurring across the
country and in many of our urban and rural communities in recent years.
But just as importantly I also come to this hearing as someone who
believes any government program can improve its performance and
accountability.
I can personally attest that dollar for dollar there is no better
program to help States and localities renew and rebuild their
communities and economies than CDBG. For every one CDBG dollar, nearly
three dollars are leveraged from the private sector. I know CDBG works
because I was the mayor of St. Paul before coming to Washington. During
my time as Mayor, over 18,000 jobs were created in St. Paul and CDBG
was undoubtedly a part of that success.
CDBG grows jobs; CDBG builds communities. Whenever I talk to the
folks back in Minnesota--to city administrators, mayors, or county
commissioners, they all tell me the same thing--that CDBG is the
lifeblood of their communities.
That said, Mr. Chairman, I share the President's goal of reducing
the deficit and exercising strong fiscal accountability in Washington.
As a former mayor, I know something about the challenges of crafting
fiscally responsible budgets. during my time as mayor I streamlined the
city's bureaucracy and helped to turn budget deficits into surpluses--
all without raising taxes.
In my view CDBG is a fiscally responsible program that
exponentially produces more than it costs and it is a truly
conservative initiative enabling local leaders to meet local needs. I
believe that government is beholden to the people. That individuals
with the help of their local representatives can plan their lives
better than bureaucrats in some distant capital. CDBG is a very
conservative idea that we should not have command and control programs
run out of Washington. Rather, we should help communities meet those
needs and priorities through one block grant.
With that in mind, I have respectfully disagreed with the
Administration's decision to eliminate the program last year and to
effectively starve the program of the funding necessary to undertake
its mission. Mr. Chairman, I do find it strange that while the
Administration is seeking to undermine this successful program it is at
the same turning to this program to provide emergency reconstruction
relief to the Gulf Coast in the amount of $16.7 billion or more than
five and a half times more than its FY 2007 budget request.
I see that the Assistant Secretary is with us today and I would
just like to relate to her that the Administration needs to accept the
political reality here that there is overwhelming bipartisan support
for this program and that it is unnecessary to fight a battle that it
will consistently lose. As I am fond of saying, it is better to measure
twice before cutting once.
That said, Mr. Chairman, I also come to this hearing as a strong
advocate for reasonable and appropriate reform of CDBG. Despite its
past success, I do believe there is room for improvement within CDBG.
On that account, I applaud the efforts of HUD, OMB and CDBG friends on
developing a new performance measurement system for CDBG. I believe
this new performance system is a significant step towards improving the
transparency and accountability of CDBG.
I would also like to commend the efforts of the HUD inspector
general's efforts against CDBG waste, fraud, and abuse. Unfortunately
there are some bad characters who are failing their communities through
their criminal acts. As a former prosecutor and Chairman of the
Permanent Subcommittee on Investigations, I take very seriously waste,
fraud, and abuse of taxpayer's dollars. I have worked with my
colleagues on identifying $11 billion in waste, fraud, and abuse. We
must be the best stewards of taxpayer dollars and to the end I
appreciate the efforts of HUD's IG.
Now while I am supportive of efforts to improve the performance, I
do have serious reservations with HUD's reform plan with respect to the
formula change and minimum grant threshold proposals.
According to HUD projections, my State's CDBG program would
experience a 31 percent reduction in funding, and entitlement cities
such as Minneapolis and St. Paul would respectively experience a 54 and
44 percent reduction in CDBG funding in FY 2007. Furthermore, the
proposal would no longer provide guaranteed funding for Bloomington,
Eden Prairie, Moorhead and several other smaller communities. These
reductions would have a devastating impact on the ability of the State
and communities to effectively undertake vital community development
programs.
Mr. Chairman, I have heard from the State, many of the affected
communities such as Coon Rapids, Duluth, and St. Paul, and the U.S.
Conference of Mayors and many other organizations as to the importance
of this program. I request these letters be made a part of the record.
Now I do believe that it is important to have a serious discussion
regarding the formula. However we should not act in haste given the
significant impact such a change would have on communities across this
country. It is my understanding that GAO is currently studying this
issue and is expected to issue a report within the year.
I would say that since CDBG is a public-private partnership, all
stakeholders should be brought together to address difficult issues
such as a formula change. We have seen how cooperation between OMB,
HUD, and CDBG stakeholders produced an improved performance system. I
am optimistic that under a similar model we can also appropriately
address the difficult issue of formula change and other reform issues.
Mr. Chairman, I thank you for holding this hearing and I look
forward to hearing from the witnesses.
Senator Coleman. Mr. Chairman, I have a number of the
affected communities in my State, 13 communities plus the State
itself have submitted letters in support of the program, and we
have a good conservative Governor in Minnesota, and his
principal has submitted a letter in support of this program. So
I would like to have those entered into the record.\1\
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\1\ The letters submitted for the record by Senator Coleman appears
in the Appendix on page 100.
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Senator Coburn. Without objection, so ordered.
Senator Coleman. And then, again, I want to thank you for
holding this hearing. I want to thank you for your diligence is
pursing these matters, and I just hope that we can work
together in a way that continues to build strong communities,
that recognizes that if something works, that is a thing you
have got to keep. We have got enough that does not work in the
Federal Government. CDBG works. It is working well, and if we
need to make it more transparent, more effective, we will do
that, but let us do it the right way with the right folks at
the table.
Senator Coburn. Thank you, Senator Coleman.
I would make note that the reform proposal that is before
us today does not combine CDBG with other grant programs, and I
would also make note that if you got CDBG where it was
transparent and working well, what you might see is those grant
programs would be folded into CDBG rather than the other way.
Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman, for
holding this hearing, and I want to add my welcome to our
witnesses as well. As you know, the Community Development Block
Grant program provides essential Federal resources to help meet
the specific needs of communities, and this is a special
program, because it empowers communities in determining their
priorities.
In Hawaii, our counties have recently used CDBG resources
to help provide affordable housing, assist the homeless, expand
day care facilities, provide meals to low-income families,
strengthen our medical infrastructure by making physical
improvements to our community health centers, and expand
opportunities to help individuals with disabilities find
employment. As a former director of the Hawaii Office of
Economic Opportunity, I care deeply about the success of these
programs. I did work in and work on it and did help people in
Hawaii over the years.
Today, we face a severe shortage of affordable housing in
Hawaii. In addition, increased construction costs have made
building houses, apartments, community health centers, and
other structures much more costly. Without Federal support,
these programs will no longer be possible, as construction
costs continue to rise. With CDBG facing cuts, we should be
advocating for additional resources to provide our communities
to meet their unique needs instead of having a formula fight to
divide whatever scarce resources we have. I will continue to
work to protect my home State of Hawaii and the CDBG program.
We need to give our communities more resources to meet
their needs, not less. As our counties struggle to meet the
increased costs of providing housing, ensure that low and
moderate income individuals have access to quality health care,
and help expand access to economic opportunities, the Federal
Government has an obligation to support these programs. Instead
of misconceived tax cuts that benefit a small number of wealthy
taxpayers, we must find the resources necessary to help our
local communities find the solutions to their problems.
It has been mentioned by the Chairman that there are
problems and in some cases that reflect mismanagement. These,
we need to take care of, but there are these communities that
really need the help, and CDBG can help to do it.
Thank you very much, Mr. Chairman.
Senator Coburn. Thank you, Senator Akaka. I appreciate you
being here.
I am going to recognize our first two witnesses and
introduce them. Your full testimony will be made a part of the
record, and I have read your full testimony. I have spent a
great deal of time looking at this program, and I recognize its
value. Pamela Patenaude became Assistant Secretary for
Community Planning and Development at the Department of Housing
and Urban Development. Prior to this appointment, she served as
HUD's Assistant Deputy Secretary for Field Policy and
Management, and before coming to HUD, she served as State
Director and Deputy Chief of Staff for U.S. Senator Bob Smith.
Kenneth Donohue is the Inspector General of Housing and
Urban Development. Before serving at HUD, he had a
distinguished 21-year career with the U.S. Secret Service as a
Special Agent, culminating with the Assistant Director assigned
to the CIA's Counterterrorism Unit.
Ms. Patenaude, we will recognize you now, and as you
finish, we will then recognize Mr. Donohue.
TESTIMONY OF HON. PAMELA H. PATENAUDE,\1\ ASSISTANT SECRETARY,
COMMUNITY PLANNING AND DEVELOPMENT, U.S. DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT, ACCOMPANIED BY TODD RICHARDSON.
Ms. Patenaude. Thank you, Mr. Chairman. Good afternoon,
Senator Coburn, Senator Akaka, and Senator Coleman. I am
pleased to be here today on behalf of Secretary Jackson to
share the Administration's proposal on the CDBG reform. The
President's fiscal year 2007 budget retains and consolidates
the CDBG program at HUD. We have proposed the reform because
the program's intended impact to the Nation's neediest
communities has decreased over time. Quite simply, the current
formula that allocates billions of dollars is no longer fair.
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\1\ The prepared statement of Ms. Patenaude appears in the Appendix
on page 39.
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Over the past three decades, demographic and socioeconomic
changes, development patterns, and other factors have created
significant distortions in the distribution of CDBG funds.
There has been a steady erosion in the ability of the formula
to target funding to places with greatest needs. The CDBG
formula has remained untouched since the 1970s. Reform is also
necessary because HUD must be able to hold grantees accountable
for performance and provide incentives to maximize the impact
of these limited and valuable funds.
To address these issues, the Administration proposes the
CDBG Reform Act of 2006. The three main elements of the Act are
formula reform, the introduction of a competitive challenge
grant, and enhanced performance measurement requirements. To
explain further, Dr. Coburn, I call your attention to the
irregular EKG on the chart to my right. [Laughter.]
Senator Coburn. That patient is dead. [Laughter.]
Ms. Patenaude. We have three charts here: Chart one, the
solid red line on the chart indicates the community index
needs. The jagged lines, the irregular lines, represent the
more than 1,100 entitlement grantees, and each individual line
represents the per capita grant for the entitlements. The
Community Development Needs Index was developed as a measuring
stick.
On the left hand side of the chart, we have our low need
grantees. On the right side, we have our high need grantees,
and the numbers on our left are the actual per capita grant
amounts. As you can see on the right, under the current
formula, many high need grantees are receiving significantly
smaller grants relative to the needs index. The biggest problem
with the current formula is that grantees with similar needs
are receiving widely different grant amounts, and that is where
you see the swings.
Chart two shows a more equitable distribution of the
Community Development Block Grants under the new formula or the
proposed formula. It demonstrates the ability of the new
formula to more fairly target funds to communities with
greatest needs.
And finally, the lightly shaded area represents the current
formula, and the dark vertical jagged lines represent the
entitlement grantees under the proposed formula. As you can
see, there is significantly better targeting to communities
with the greatest need. Grantees with similar need profiles
will receive a more equitable amount per capita, and most
importantly, the proposed formula will ensure more funding to
the most needy communities.
The second element of the CDBG Reform Act is the
introduction of a $200 million competitive challenge grant.
This fund would give communities the opportunity to compete for
additional funding to carry out economic development and
revitalization for distressed neighborhoods. In order to be
considered for the challenge grant, distressed entitlement
communities are required to have both a strategy and a track
record of concentrating investment in distressed neighborhoods.
Communities are selected based on objective criteria, including
the extent to which they target assistance to distressed
neighborhoods. HUD will award the challenge grants to
communities that achieve the greatest results in their
neighborhood revitalization strategies.
And finally, the third element of CDBG reform strengthens
the performance measurement requirements to improve the
effectiveness and the viability of the program. HUD is
currently implementing this new framework that clearly
establishes measurable goals. The CDBG Reform Act of 2006
reaffirms the national objectives of the program and preserves
local flexibility. By revising the formula, adding a challenge
fund, and implementing performance measurement frameworks, we
will improve the effectiveness of the program.
Thank you, Mr. Chairman, for this opportunity to present
the Administration's proposal.
Senator Coburn. Madam Secretary, thank you very much. Mr.
Donohue.
TESTIMONY OF HON. KENNETH M. DONOHUE,\1\ INSPECTOR GENERAL,
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Donohue. Senator Coburn, Senator Coleman, and Senator
Akaka, thank you for inviting me to testify today on this
important topic. Through our audits and investigative efforts,
the OIG hopes to strengthen HUD programs such as CDBG grants
into a more targeted, unified program that sets accountability
standards in exchange for the flexible use of the funds. The
CDBG program provides annual grants to 1,180 general units of
local governments and States, and results reflect each
community's ideas of a good use for the money that will, at
least in the design, result in the elimination of slum and
blight and foster economic development.
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\1\ The prepared statement of Mr. Donohue appears in the Appendix
on page 44.
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Some community projects, however, do not always match the
intent of their paper submission. We continue year after year
to identify the same problems in our audit investigative
efforts for the program and CPD activities in general. HUD OIG
audit reports show that repeated problems fall into the
following six categories: The improper use of funds; the lack
of capacity; requirements are not followed, a lack of adequate
management; national objectives not met; and a lack of
monitoring and reviews.
Over the past 2\1/2\ years, we have issued over 35 audit
reports. We have among other things identified $100 million in
questionable costs and funds that could be put to a better use.
We have indicted 159 individuals, pursued administrative
actions against 143 individuals, and made over $120 million in
recoveries.
An example of the lack of policy or adequate management is
a community association in Kansas City, Missouri, that
squandered CDBG funds to include company picnics, Christmas
tree lighting ceremonies, luncheons, gifts, and bonuses. You
see by the first chart, the poor recordkeeping, and that was
one example of the office recordkeeping.
An example of the entity now following HUD requirements is
a nonprofit corporation in San Juan, Puerto Rico, which could
not demonstrate that activities met at least one of the three
block grant national objectives: That it directly benefits low
and moderate income persons, that it aid in the elimination and
prevention of slums or blight, and that it met other community
needs that have a particular urgency.
In another review, the Department repeatedly warned Utica,
New York, that construction of a boat marina and ski chalet
were not eligible activities. The city incurred $903,000 in
ineligible costs and $214,000 in questionable costs for the
marina. The city is still trying to establish that $255,000 of
the ski chalet was an eligible activity; as you see in the
right, a picture of the ski chalet.
In reference to the lack of monitoring reviews, we found
that CPD has management controls to minimize the risks that
grantees and some grantees lacking capacity receive funding;
however, unverified assumptions, incomplete and outdated
guides, and limited ongoing monitoring undermine these
controls. I have seen the success of active monitoring efforts
with monitors used by the Lower Manhattan Development
Corporation in preventing waste and fraud in post-September 11
rebuilding activities, and I have testified previously to this
effective concept for use in disaster relief efforts in the
Gulf States.
Our investigative activities show there are five major
fraudulent types of schemes affecting the program: False
claims, soliciting bribes and kickbacks, procurement and
contracting, theft or embezzlement, and public corruption. The
City of Springfield, Massachusetts, was especially hard hit by
the public corruption. In the past several years, a number of
officials, including the public housing authority director and
the directors of at least two CDBG-funded nonprofits or public
agencies have been indicted and/or convicted of crimes that run
the gamut, including conspiracy to defraud the United States,
obstruction of justice, extortion, false statements, perjury,
criminal contempt, and witness tampering.
We endorse efforts to improve performance and
accountability within the CDBG program and support some of the
proposed changes by the Assistant Secretary. For example, I
believe it is a worthy endeavor to give policy makers the
opportunity to weigh new proposals to more fairly distribute
the funds to address inequities that have arisen as
demographics have changed. This said, I must say that we are
concerned that what appears to be language designed to insert
objective performance criteria into grant language by the
Administration will be undermined by the implementation of
vague criteria and a failure to improve deficient enforcement
tools.
These criteria may not be adaptable to quantitative
measurement. CPD has not always established a consistent
history in performance monitoring, specifically between its
headquarters staff and field sites. I am concerned that this
may set standards that are simply achievable rather than
accountable. In some instances, CPD refused to pursue any type
of sanctions against grantees on the ground that they should
not be held responsible for the lack of success of the proposed
activities as long as those activities are consistent with the
statutory objective of the grant. In addition, if a grantee has
not performed for 2 years, then, HUD should be required to
intervene. Moreover, this legislation also appears to lack
adequate enhancement to improve CPD enforcement tools under 42
U.S.C. Section 5311.
In regards to 42 U.S.C. Section 5311, we also believe it
needs to be amended to eliminate the requirement for a formal
hearing. In my view, without the authority to take prompt
enforcement action, grantee noncompliance will not be deterred,
and performance will not be encouraged. Alternatively, the CDBG
program should retain the process of giving notice to the
community of a grant and allow the community to comment on
proposals. This check and balance and transparency appears to
have been deleted in the proposed amendment, 42 U.S.C. Section
5304 (e).
That concludes my testimony. I thank the Subcommittee for
holding this important hearing. I look forward to answering any
questions you may have.
Senator Coburn. Thank you, Mr. Donohue.
I want to welcome my co-chairman, Senator Carper from
Delaware. I know he has a lot of experience with this program.
We have already established that this is not a hearing about
eliminating CDBG block grants, and we did that from the outset.
And if you would care to say something, Ms. Patenaude, you are
welcome to.
OPENING STATEMENT OF SENATOR CARPER
Senator Carper. First, let me say that I am delighted to
hear that. The second thing I want to say is welcome to our
witnesses. I apologize for having missed all of your testimony
and part of yours, Mr. Douglas.
Senator Coburn and I were part of a discussion that went
well into the night last night trying to figure out what we can
do to rein in our very large Federal budget deficits, and I
think in the end, we have to look at everything and figure out
what is working well and what is not, and programs I support as
much as CDBG, we need to look at these programs, too, and
figure out what we can do better. And so, we approach it with
that spirit.
I have a statement for the record, and I just look forward
to the opportunity to question our witnesses and to maybe hear
from some others. Thank you.
Senator Coburn. Thank you.
Madam Secretary, can you give me some examples of wealthy
communities receiving larger CDBG grants than those given to
poorer communities with much higher needs?
Ms. Patenaude. Yes, I can. Thank you, Mr. Chairman. As a
native New Englander, I think a very obvious example is Newton,
Massachusetts, and Lawrence, Massachusetts, which is a
declining community, an old mill town. Newton, Massachusetts is
a wealthy community, a suburb of Boston, and under the proposed
formula, it would be corrected, and we would restore equity.
Senator Coburn. Do you think the resistance to restoring
equity is that there are going to be some losers in terms of
total dollars to communities? Is that the resistance that you
are hearing as you talk about your reform plans?
Ms. Patenaude. The most difficult part of the CDBG reform
proposal is that some communities with high needs will lose,
but it is relative to the needs index, and until 2 days ago, we
had not received any formal feedback from our stakeholders, but
we are in receipt of that now.
Senator Coburn. So if a community, based on your minimum
grant criteria, did not have enough to get the minimum grant,
what happens to that money that they did not get? Where does it
go?
Ms. Patenaude. As you know, we have proposed a minimum
threshold, which is a percentage of the appropriation, so that
we will not have entitlement communities coming in and out of
the program and that based on 2006 appropriations is
approximately $500,000. So communities that do not meet the
minimum threshold will be eligible to participate either
through the State program or join an urban county. The
demographics is not going to be a one-for-one, but the money
should be redistributed based on that population and the
poverty of the entitlement community.
Senator Coburn. But the State does not really lose the
money.
Ms. Patenaude. No, I do not believe they do.
Senator Coburn. The State still gets the money; the money
just gets redirected in a priority that the State then makes a
decision; is that correct?
Ms. Patenaude. That is correct, Mr. Chairman.
Senator Coburn. So even though you have a very wealthy
community, and they fall out of this direct block grant does
not mean they are not going to get money, correct? Because if
the State decides to take that money through their State
allocation, the State could very well still give it to them.
Ms. Patenaude. That is correct.
Senator Coburn. OK; when my staff attempted to obtain
grantee-level spending data, it became evident that there is no
consistent data collection process. Some cities have their
reports online, while others have them only in paper format.
Some even had them in the form that what we saw from Mr.
Donohue, which is not in any format at all. Each city had a
different process for sharing information. Furthermore, the
data was not collected in a central location at your
headquarters but rather stored all around the country. Most of
the time, it was not computerized, even though it may have been
computerized originally.
Why does HUD not have a consistent reporting requirement
for the grants today?
Ms. Patenaude. Senator, I believe we do. All grantees are
required to enter data into the IDIS system, and that system is
currently going through a reengineering to make it more user-
friendly. We are moving to a web-based platform. But all
grantees are required, with the new performance measurement
framework that we are currently implementing, and we are
training all of our grantees this summer in 10 locations
throughout the country, we will obviously be requiring grantees
to enter additional data under the performance measurement
framework.
Senator Coburn. What about Mr. Donohue's idea that the
language that you all have floated before the Congress is that
you may intercede when there are vague criteria, lax
enforcement, or problems versus should or shall? Why did you
choose the option of could? Why should you not intercede? Why
should you not intervene if somebody is failing? And why should
the language not be that you have to intercede?
Ms. Patenaude. The proposed legislation does give the
Secretary the authority to take----
Senator Coburn. But it does not say they have to.
Ms. Patenaude. It does say he may, but I do believe that
Secretary Jackson was instrumental in the development of this
legislation, and I believe that we interpret that the Secretary
will take action when appropriate.
Senator Coburn. Well, I certainly do not read it that way.
I read it that it is an out. You do not have to enforce it if
you do not want to. And I think it should be if you are going
to have that type of program, you certainly ought to have that.
Mr. Donohue, are there outstanding recommendations for
increased accountability that your office has made to HUD which
could be immediately enacted by Congress, by action from
Congress, that would result in improvements in both the fraud,
the lax enforcement, the vague criteria, and other things? Have
you all made recommendations that we could act on? Rather than
a reform, could we do something that would help us get more
bang for the buck
Mr. Donohue. Senator, we submit proposed legislation to the
Hill annually, and two of the issues that we have spoken to is
the ones that Madam Secretary has spoken about. One is the
formal hearing requirement. I would submit to you that the
Secretary should, as you indicated, should have the right to
weigh in on programs that are ineffective and misspent funds
and whatever. And I think that as the request indicated that if
there were going to be hearings required and an appeal, I think
that could take place, and there is ample room to go back and
address those matters that might come back up.
The other matter is the national objectives. The way it is
designed right now is the applicant applies for a national
objective, and then, what we found in some cases were they
either did not meet that objective, or at the time of our audit
or thereof, the objectives were reapplied. One of the other
objectives was reflected. And we feel as though that if these
objectives are part of the application process that at least
the grantee should go back and submit a change at some
appropriate time for HUD's approval to go forward on the
applied grant that they have now changed to.
Senator Coburn. Senator Carper.
Senator Carper. Thanks, Mr. Chairman. I hate to
mispronounce the names of our witnesses, and I pronounce your
last name Donohue.
Mr. Donohue. That is right, sir.
Senator Carper. I have no idea how to pronounce your last
name. Would you just say it for me? Is it Patenaude?
Ms. Patenaude. Patenaude.
Senator Carper. OK; good. I missed your testimony, as I
said earlier. And would you just take the a minute and just
give me my take-aways? If we remember nothing else from what
you have had to say today, what are the couple of things that
you would have us remember?
Ms. Patenaude. The three elements of the CDBG reform: The
proposed formula revision, the introduction of a competitive
challenge grant, and the performance measurement requirements.
Senator Carper. OK; take a few more seconds and maybe
another minute and talk about the three elements.
Ms. Patenaude. Under the proposed formula revision, we
believe it would restore equity. The current formula, as you
can see from the chart, if we could put Chart One back up, that
demonstrates the lack of targeting under the proposed formula.
Senator Carper. And how does it do so?
Ms. Patenaude. The solid red line is a community needs
index that was developed as a measuring stick. The light or the
pink vertical jagged lines represent each entitlement
community, more than 1,100 communities are laid out on this
chart.
Senator Carper. Somewhere on that continuum, one of those
spikes, probably right along the solid line, is Delaware?
Ms. Patenaude. Todd, can you point out Delaware?
[Laughter.]
Senator Carper. That is OK, Todd. I think she was kidding.
Ms. Patenaude. Well, we could. It is in the 30--right
there.
Senator Carper. Above average?
Mr. Richardson. It is above the line.
Senator Carper. That is pretty impressive. [Laughter.]
Senator Carper. OK; what else would you have me know about
what you had to say?
Ms. Patenaude. That HUD needs the ability to hold grantees
accountable with this new performance measurement framework and
also that the performance measurement framework was not
developed in a vacuum. It was a 2-year process working with
stakeholders and the Office of Management and Budget, and it
was very much a consensus document. And because the program has
such flexibility, it was obviously a very difficult framework
to come up with.
Senator Carper. Does the new formula take into account the
cost of housing and services in the local areas?
Ms. Patenaude. Under the proposed formula, we have a fiscal
capacity adjustment, and I believe that the fiscal capacity
adjustment----
Senator Carper. When we say fiscal capacity adjustment, can
you just kind of translate that for me?
Ms. Patenaude. I am going to attempt to.
Senator Carper. And you are welcome to bring somebody up to
the desk who can translate it for me as well, just in layman's
language.
Ms. Patenaude. That is the most complicated part of the
formula, but we have the variables that play into the formula.
And at the end, a fiscal capacity adjustment is applied so that
communities with high per capita incomes we believe would have
high cost of services, there is an adjustment made but no more
than 25 percent based on the per capita income.
Senator Carper. OK; I will have Senator Coburn explain it
further to me later. [Laughter.]
Senator Coburn. Does that mean there is a minimal penalty
for the lower needs but yet higher income communities?
Ms. Patenaude. Can you clarify what you mean by penalty?
Senator Coburn. Well, the adjustment, it is limited to 25
percent, right?
Ms. Patenaude. Todd, do you want to address that, please?
Senator Carper. And you may want to identify yourself, sir.
Mr. Richardson. My name is Todd Richardson. I am an analyst
at HUD.
The per capita adjustment essentially says that if you are
a community whose per capita incomes are higher than the per
capita incomes of the metro area, your grant is adjusted
downwards, and if you are a community where your per capita
incomes are lower than the metro area, your grant is adjusted
upward. So if you are a particularly poor community--think
about Camden, New Jersey, in the Philadelphia metro area--your
grant, there is a base grant that is provided, and that grant
gets adjusted upward, because your average per capita incomes
are lower than the metro area.
Whereas, if you were a wealthy suburb, for example, your
grant would be reduced to reflect having higher per capita
incomes relative to the metro area.
Senator Carper. My first reaction to that is that seems to
make sense. What do you all think?
Ms. Patenaude. Todd is the author of the formula study, so
I think he would agree. [Laughter.]
Senator Carper. All right. Todd, who is your boss?
[Laughter.]
Ms. Patenaude. It is actually another Assistant Secretary.
I am not his boss.
Senator Carper. Just checking. [Laughter.]
Senator Carper. Sort of a follow-up, because I want to make
sure I got this right. So somebody in Delaware at the median
income has to pay more relative to housing costs both to buy
and to rent a home from someone in Oklahoma, for example?
Delaware loses money, and Oklahoma gains? I am told by my staff
that this gap could be even more pronounced in places like
Hawaii, with very high housing costs. And I would just ask if
that is true, and also, might it make more sense to consider
the purchasing power of the grants, not just the absolute
amounts of the grants themselves?
Ms. Patenaude. I am looking at the numbers for Delaware and
Oklahoma, and again, it is relative to the community needs
index, so if a community was receiving a higher per capita
grant under the current formula, they will lose under the
proposed formula so that it is closer to the community needs
index.
Senator Carper. Does the formula take into account other
things that a State may try to do to address poverty, such as
what we spend on education, on our schools, what we are
spending on health care, Medicaid, and other things or spending
on housing itself? And if so, how?
Ms. Patenaude. Well, the formula is based on persons in
poverty, excluding college students, female-headed households
with children under 18, housing overcrowding, and housing 50
years or older occupied by a poverty household. And then, the
fiscal capacity adjustment is applied. So I do not believe that
the items that you listed would come into plan in the proposed
formula. Perhaps they are recognized in the 17 variables that
are used for the community needs index.
Senator Carper. OK; thanks very much. Thanks, Mr. Chairman.
Senator Coburn. Senator Coleman.
Senator Coleman. Thank you, Mr. Chairman.
First, I have to ask you a question, Mr. Donohue: Are you
aware of a GAO review of CDBG?
Mr. Donohue. I believe I am, sir, and I looked over it a
bit as well.
Senator Coleman. And I read somewhere that there was an OMB
PART evaluation. Do you know what that is?
Mr. Donohue. I do know what that is.
Senator Coleman. And are you familiar with that regarding
CDBG?
Mr. Donohue. I cannot recall, sir.
Senator Coleman. Can you just tell me briefly what an OMB
PART evaluation is?
Mr. Donohue. I am going to have to bring one of my staff up
to explain that if I can, sir.
Senator Coburn. Can I answer that?
Senator Coleman. Yes.
Senator Coburn. It is a Program Assessment Rating Tool, and
this program has a 17 score out of 100, 100 being running the
program grant based on performance measurements--27 out of 100;
I am sorry, not 17--which means this, in terms of measurement
tools, we do not have measurement there. And that is part of
the management, trying to get measurement to see if we are
effective in how we are spending money.
Senator Coleman. Assistant Secretary Patenaude; is that----
Ms. Patenaude. That is correct.
Senator Coleman. When you are talking about the change in
the program, one of the changes is in the amount of funding for
CDBG under the Administration's request. Was CDBG appropriated
$3.7 billion last year?
Ms. Patenaude. This fiscal year, 2006, that is correct.
Senator Coleman. And that the Reform Act of 2006 posits a
$200 million set aside, so if you take that, so we put the
challenge grants aside, then, you have $2.7 billion. You talk
about one of the concerns, you are starting out with a 25
percent cut.
Ms. Patenaude. Well, they are separate issues. The
President's fiscal year 2007 budget does propose a cut for the
CDBG program.
Senator Coleman. Is it about 25 percent? Are the numbers I
have given you----
Ms. Patenaude. They are correct, sir.
Senator Coleman. And so, and I am one who measure twice,
cut once. [Laughter.]
Measure before you do your cuts. And I think that is part
of the issue here. I think the work being done by the Inspector
General in terms of performance measures, formal hearings,
giving the Secretary a chance to be involved when there are
problems, I do not think anyone is going to argue with that. So
when you kind of look at the hallmarks of this, it is not just
fairness in the program. One of the hallmarks of it is a
substantial cut in the program before we even begin. That
raises a level of concern.
I think there is also a level of concern, at least I read
it. I have had a chance to review the National Association of
Housing and Redevelopment Officials' document which is now part
of the record.\1\ I cannot tell you whether it is gospel or
not, but they give figures here in terms of the impact of these
cuts that are pretty substantial. And in fact, every grantee in
Minnesota, which sees its allocation decline by at least 18
percent; all three of Delaware's entitlement communities would
lose at least one-third of their funding.
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\1\ The prepared statement of the National Association of Housing
and Redevelopment Officials appears in the Appendix on page 120.
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Senator Coburn. Do we lose any money?
Senator Coleman. Norman, Oklahoma would experience a 35
percent reduction in CDBG grant. One of the concerns here, and
I say this as a former mayor, is these kind of ups and downs.
You cannot plan a city's future, you cannot do long-term
development unless you have a process by which you look at
these and you measure the impact. That is why the GAO has a
study. And the GAO report, as I understand it, is working with
stakeholders. I think it may be a good model. Did you work with
the Conference of Mayors when you proposed the Reform Act of
2006?
Ms. Patenaude. The performance measurement framework that
was----
Senator Coleman. No, the funding of the other formula. You
are talking about getting fairness. Let me say that one of my
concerns is that mayors who deal with this thing--I have to
tell you, they have not been knocking on my door about lack of
fairness. And so, you have the folks who are most directly
impacted, who are your stakeholders, and I think the GAO is
working with them; I think it is a good model, and I am just
not sure whether HUD has had that same kind of consultation,
discussion. Can you help me on that?
Ms. Patenaude. Sure; I do not believe that HUD consulted
with the stakeholders on the actual funding proposed in the
President's budget, but we did have consultations over a 2-year
process developing the performance measurement framework.
Senator Coleman. One of the other issues, and it goes to
this question of why there are concerns. I think there are
concerns about the real impact. One of the great sins in
Congress is the law of unintended consequences. We say we are
going to do something, and then, we get an impact and then try
correcting it afterwards. Again, I am just relating to this
report. They cite your testimony before the Subcommittee on
Housing and Community Opportunity held on the House side,
Financial Services Committee, Housing and Community
Opportunity, in which you indicated you gave an example of two
cities, Santa Monica and Santa Maria. And this is your quote:
``Under the current formula, they receive about $1.3 million.
In terms of need, they are very different. Santa Monica, large
per capita income; Santa Maria, low per capita income. Under
the formula the Administration will propose, Santa Maria's
grant would increase to $1.6 million, while Santa Monica's
would fall to $750,000.'' That sounds reasonable.
Their analysis says Santa Monica received a CDBG formula
grant in the amount of $1.382 million for fiscal year 2006;
Santa Maria received $1.307 million. If Congress were to adopt
the Administration's proposal exactly as written, Santa
Monica's grant would in fact fall to $558,000, while Santa
Maria's grant would fall to $1.180 million.
So in other words, what you have there is a 60 percent cut
for Santa Monica, and you have a 10 percent cut for Santa
Maria.
Ms. Patenaude. I believe they are using two fiscal years,
though. They are not using level appropriations for 2006. They
are comparing 2006 to proposed 2007.
Senator Coleman. Right; so they are looking at your 2007
budget. And your 2007 budget, this community that has great
need, they are going to also get a cut. And I have trouble with
that. And so, I think we agree on the goals, but we are looking
at communities that have need that are going to be cut, and I
have trouble explaining that.
And so, I think as we go forward in this, let's bring in
the mayors. Let's bring in the folks who are supposedly
impacted by the lack of fairness and other local officials and
have them talk about this and see if we get where the Chairman
and the Ranking Member want us to go, because that is where I
want to go: Transparency and accountability. But I do not want
to see cuts if something is working. And that is my trouble: If
it is working, if it is actually growing jobs and doing the
housing things and growing our communities, cut somewhere else
where it is not working.
But this program and this proposal cuts, using your own
example, you are going to see a cut in a program that you are
touting perhaps as something that has the need. And I just find
that problematic.
Ms. Patenaude. Senator, if I may, we do have an increase in
other areas in CPD. There was an increase in the proposed 2007
budget for the homeless and for the Home Program.
Senator Coleman. I am just saying I know this program, and
I have seen the impact in communities across Minnesota, rural
as well as urban, and my deep concern is--again, I spend my
time fighting fraud and abuse. But if I have something that is
working, and my mayor is telling me they are getting something
out of this, I want to be real careful about what we cut.
Senator Coburn. I want us to go back and clarify. The
Administration proposes a budget, and that does not mean we are
going to do it. And you know we are not going to probably do it
on CDBG grants. So I want us to clarify what the reform
proposal is outside of what that is. Because if we get caught
up in what the Administration is proposing in terms of their
total budget, which they get the right to recommend; we get the
right to legislate what it will be. If we get caught up in
that, we take our eye off the ball. The problem is you cannot
measure whether this program is effective. You can on an
anecdotal basis, and that is the whole point of trying to get
some measurement data to see if what we are accomplishing is
worth the value of what we are putting into it. And I think
that is important.
The other thing, the point I would make is one of the
reasons that the Administration comes by and cuts this is
because of what the IG says in terms of fraud, what the GAO
says, what the PART analysis says, says that it is not working.
There is no measurement goal. So the whole purpose for thinking
about reform--and I will tell you right now, I do not think
this reform proposal as it is written is probably not going to
go anywhere in Congress, but that does not mean that we do not
need to have some reform in terms of measurements and
refinements and how do we measure outcomes, and how do our
grandchildren, since we are borrowing this money from them, get
the best value for their dollar?
And so, I would hope that what we would do from the basis
of this hearing is establish a way to--how do we measure
fairness? How do we measure the effectiveness of the program?
There is no measurement. That is one of the reasons we are
having this hearing is we need to find out. We have less than 9
years before this program is really going to get crunched. I
mean, everybody can deny that is all they want, but we are on a
path to where discretionary spending is going to get squeezed.
And the way to protect CDBG is to put in a system that shows
how effective it is so it will be able to compete for the
dollars that should be there to help these very communities.
And so, I hope we will keep our focus on measuring--maybe
we do not need to reform it at all until we have measured it.
Maybe what our reform needs is let us put in good measurement
criteria, performance criteria, reporting criteria, and
sunshine criteria so we can really find out what we are doing.
Senator Carper, your turn.
Senator Carper. Mr. Donohue, I think you may have mentioned
before I came in something about a project in Utica, New York,
that may have involved a chalet. And would you just go back and
just tell me again what you were talking about?
Mr. Donohue. Well, sir, this was a program funded in Utica.
It was, I believe, a CDBG program, and the money turned up
based on our audit. We did, as was mentioned, about 1,180
grants that were awarded in the past year, we have done 35
audits over the past 2\1/2\ years, which is very few, actually.
One is this Utica. What we found in the case was this was a
sampling and a photograph, we found the ski chalet and a marina
being built and completed on that same money. That was not its
intended purpose as designed and did not fit into the
application in any way whatsoever.
Senator Carper. The project did not marry up with the
application?
Mr. Donohue. That is correct, sir.
Senator Carper. And is there no way under current laws or
regulation that could have been caught?
Mr. Donohue. Well, that is the whole question, sir, is that
what happens is when we go back and take a look at these, and
we have just got into this about 2\1/2\ years ago on the CPD
program, the ones we have seen is--really, the concern that I
have is at the subgrantee level, and their application process,
what they are asking to do, it seems to change at times.
And when we look at these audits, we find more times than
not that it is used for criminal activity often the case. We
have had a host of indictments. But we also find that there is
a lack of capacity in many of these audits as well.
Senator Carper. I am sorry; lack of----
Mr. Donohue. Lack of capacity; lack of being able to
deliver on what their intended purpose was, particularly on the
subgrants.
Senator Carper. So, it seems to me that you have a
jurisdiction; they applied for a grant for a particular
purpose. Somebody, presumably HUD, reviews that grant
application and decides whether or not it has merit and comes
up with a dollar value. Later on, once the project is underway
or completed, who has responsibility to make sure that what is
being done with the money is what was initially proposed?
Mr. Donohue. Well, that really gets to the heart of my
point today, sir, is that what I believe, one of the things I
found, a classic example was the Lower Manhattan Development
Corporation. We went in there and took a proactive approach to
the expenditures of about $2.5 billion, and one of the things
we came away with was the need and the success of monitors. I
truly believe that if I leave anything with you today, it is
the idea that I believe that in the disbursement of these
funds, the administrative funds or some of these funds of those
grants need to include a monitor or monitors that will
literally look at these programs, development utilization of
the funds, and report back to us in this case to let us know it
is being effectively applied.
It has been a success, I believe, in the Lower Manhattan
Development Corporation, and it is one of the things I am
trying to spearhead in the Gulf States region.
Senator Carper. Ms. Patenaude, would you respond to that
recommendation, please?
Ms. Patenaude. Thank you, Senator Carper. Under the current
statute, if an activity is eligible, the grantee can change the
activity as long as it still meets one of the three national
objectives. And if I could comment on the ski chalet, the
creation of jobs that benefit low and moderate income, that is
eligible under the statute, so we would have to respectfully
disagree that we do not have the authority to tell a grantee
they cannot do something if it is an eligible activity.
Senator Carper. Whose job is it to catch it if it is not?
Ms. Patenaude. We have very effective monitoring in place.
We monitor more than one-third of the 1,100-plus grantees a
year. We do front-end risk assessments to identify activities
that could be high-risk, and we have more than 600 employees
located in 45 field offices that conduct these. And if I may
comment on the application, grantees are required to submit a
consolidated plan. And then, we look at the reports at the end
of the year to compare them, and there is a requirement to hold
a public hearing.
Senator Carper. Mr. Donohue, would you respond to that?
Mr. Donohue. Yes, I would, sir. I have looked at my audit
report. It states the fact that the grantee in a case with
regard to the ski chalet used the CDBG funds to help finance
the renovation of a ski chalet in spite of a warning by HUD
that the activity may not have been a national objective of the
CDBG program. And that was not its intended purpose, and yet,
it went ahead and built it anyway.
Senator Carper. Last word, Ms. Patenaude.
Ms. Patenaude. I think we have a wonderful partnership, and
we cooperate fully with the IG. We have, since Labor Day, been
working with the IG on the appropriations. Now, there are the
two supplementals for the Gulf Coast. We do follow up. We take
their audits very seriously, and oftentimes, there is some
disagreement at the end whether or not an activity was
eligible.
Senator Carper. All right. My colleagues, Mr. Chairman and
Senator Coleman, sounds like we have a difference of opinion
here.
Senator Coburn. We have a vote on. What we are going to do
is give you an opportunity, if you like.
Senator Coleman. I just wanted to put a couple of things in
the record. I know the Chairman raised a concern about Section
108. I went back; I used Section 108. I thought it was a pretty
good program, and I am going to have to check the record on
this, but your figure was pretty substantial before. At least
in Minnesota, I do not have any default rate. I have got to go
back and find any; so there is a huge----
Senator Coburn. That is why you are from Minnesota.
[Laughter.]
Senator Coleman. That is why I do not want to kill the
program.
Senator Coburn. Again, there is no intention to kill
programs here. And that is the problem. And there is a real
structural problem. You get accused that you want to eliminate
a program if you want to make it efficient. And that is a
political bushwhack that belies what we need to do for our
kids. The fact is if we spend $10 million on something we
should not be spending, that is $10 million that did not go to
help somebody accomplish something better and give jobs. But it
is also lost opportunity to do it right, get it right, and make
it meet one of the three goals.
Senator Coleman. Just for the record, the two other things,
because I have a copy of the OMB program evaluation. And on the
question has the program taken meaningful steps to correct its
strategic planning deficiencies? The answer is yes. And they
are saying that HUD is actually in the process of correcting
these. Are all funds, Federal and partners, obligated in a
timely manner and spent for the intended purpose? And the
answer to that is yes.
There are challenges in this. And we are in fundamental
agreement on the need to fix this program. My big concern,
Assistant Secretary, is the process. My big concern is moving
forward with a significant budget cut in a program that
universally among cities and throughout this country, urban and
rural, I think it is making a big difference. It is growing
jobs; which, by the way, HUD says that in its own--I think I
have the 2004 highlight accomplishments of fiscal year 2004
CDBG, ``this is a HUD document, approximately 95 percent of the
funds expended by entitlement grantees and 96 percent of State
CDBG funds were expended for activities that principally
benefited low and moderate income persons; overall, a full half
of persons directly benefitted from CDBG assisted activities,
minorities, including African-American, Hispanic, Asian-
Americans, or American Indians.''
This is a program that is making a difference. And so, I
think we have a shared interest. I am going to work with the
Chairman to make sure that we put in place, make sure there are
strong performance measures; make sure that we can root out the
specific instances of abuse. But I am also going to urge the
agency to work with your shareholders. If you are going to talk
about redistributing funds that are going to have a significant
impacts on the communities of all of us, and make it very
difficult to plan long-term to meet the economic and housing
needs in those communities, you have got to work with them.
And I do not think that has been done to date, and I think
that is the need that changed. And then, we do that and work
with the GAO, then, I think we can agree, Mr. Chairman, on some
changes that need to be made.
Senator Coburn. One comment I would make is there is no way
HUD can make that statement, because they do not have the
performance criteria or measurements as stated by PART, as
stated by IG, as stated by GAO. So there is no way that they
know that, for sure, that 95 percent of the funds were spent in
the way that they were intended, and that is the whole purpose
of the hearing is let us put the measurement--and much like you
said, measure twice, cut once--and let us put the measurement
functions in in terms of reforming so that we can know what we
are getting and then move from there.
It is important to know, I think we need to reform the
program. In declining dollars, we are going to have to redirect
some of the funds to the poorer communities. We have to have
some change in the funding formula if, in fact, we are going to
accomplish the purposes of this program, which means the
wealthier communities may have to take a little bit less so
that those who are most dependent can have more, and we can
really create more opportunity.
I am going to ask, if we could, if both of you could have
someone stick around for our second panel; we will empanel the
second group when we come back from the vote, and we will
recess until that time. Thank you.
[Recess.]
Senator Coburn. The hearing will reconvene.
For the record, I want to make sure we clarify that the
information submitted for the record by Senator Coleman on the
cuts for the cities reflected, the cuts in the Administration's
requests for total CDBG and they were not necessarily
reflective of the cuts from the reform bill before us.
Eileen Norcross is a Research Fellow at the Mercatus Center
at George Mason University, where she works on the Government
Accountability Project. Before coming to the Mercatus Center,
she was a fellow in journalism at the Competitive Enterprise
Institute, a consultant with KPMG, and a research analyst with
Thompson Financial Securities Data.
Cardell Cooper is the Executive Director of the National
Community Development Association. He is the former mayor of
East Orange, New Jersey, and served as the Assistant Secretary
for Community Planning and Development at the Department of
Housing and Urban Development in the Clinton Administration.
Ms. Norcross, you are recognized. Your complete testimony
has been made a part of the record.
TESTIMONY OF EILEEN NORCROSS, M.A.,\1\ SENIOR RESEARCH FELLOW
FOR THE GOVERNMENT ACCOUNTABILITY PROJECT, THE MERCATUS CENTER
AT GEORGE MASON UNIVERSITY
Ms. Norcross. Thank you, Senator Coburn, Senator Carper,
and Members of the Subcommittee for inviting me to testify on
the Community Development Block Grant case for reform. I am
currently engaged in a study to determine whether Federal
economic development programs are able to meet their intended
goals. Our research does not reflect an official opinion of
George Mason University.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Norcross appears in the Appendix
on page 53.
---------------------------------------------------------------------------
According to its statute, CDBG was created to increase the
viability of urban communities by addressing housing needs and
creating healthy living environments by expanding economic
opportunity, primarily for low and moderate income persons. The
activities grantees engage in must principally benefit low and
moderate income people, eliminate or prevent slums, and remedy
urgent threats to the health or safety of the community.
CDBG faces several barriers to assessing its impact. First,
it is difficult to obtain data. For now, only aggregate data is
available on HUD's website. Grantee-level data is available
from local HUD offices. We tried to get this information for 71
cities and could obtain most reports online or through the
mail, though 15 cities did not return our calls, and several
cities could not mail or upload the report due to the size of
the document exceeding 1,000 to 2,000 pages in some cases.
Providing grantee-level data in a more easily accessible
format allows citizens to better understand how the program
operates in their community as well as throughout the Nation.
It permits enhanced monitoring of how funds are used, and it
improves oversight, and it also permits researchers to analyze
the program's effects.
Second, outcome measures will better enable data
collection. HUD has developed and is beginning to use more
measures, though many are still output-oriented, and must also
show that grantee-reported outputs serve the program's goals.
I applaud HUD's efforts but caution that a simple count of
jobs or businesses assisted is not enough. We need to know if
the creation of jobs or businesses led to economic
revitalization that would not have occurred in the absence of
CDBG dollars in order to truly assess the program's
effectiveness.
And third, determining the effects of CDBG rests not only
on the quality and consistency of the data but also on the
difficulty of establishing what would have happened in the
absence of funding. We can use econometric studies or case
studies. These should rely on good economic theory. If done
correctly, empirical studies that involve field work,
interviews, and surveys can be valuable and complement
statistical inference. Case studies are not anecdotes. The
hazard with anecdotes is that the experience of one community
is offered as evidence for what all communities are
accomplishing nationwide. Depending on their quality, they may
not tell the full story.
The following is not a case study but an example of how
CDBG dollars are spent in Madison, Wisconsin, highlighting the
need to dig deeper behind the current measures in order to get
a picture of its effects. In 2005, Madison, Wisconsin spent
over $1.4 million of its CDBG funds on economic development,
claiming the creation of 99 jobs, including jobs for two
coffeehouses, a bakery, restaurant, several biotech firms, and
information technology companies.
Madison, Wisconsin is a college town. Fifty-nine percent of
its students are classified as living in poverty, and the
current formula does not exclude them. Eight percent of
Madison's residents are actually in poverty. According to the
CDBG statute, these loans in Madison are legitimate uses of
CDBG funds, and these 99 jobs went towards HUD's 2005 total of
91,237 jobs created.
The deeper question is was CDBG created to create
coffeehouse jobs for college students in relatively wealthy
communities? Did the biotech firms create jobs for truly low to
moderate income people as envisioned by the statute's intent or
for graduate students? Did taxpayers subsidize private
businesses to do something they would have done anyway?
Are these negative outcomes? It depends on whether you
consider this an effective use of CDBG dollars. Could these
funds have been used to help with disaster relief in the Gulf,
an area in urgent need of revitalization?
Madison, Wisconsin, was legitimately awarded funds
according to the current formula to legitimately fund economic
development activities to serve the objective of job creation.
Congress must determine if this is the outcome they are seeking
to achieve with this program.
CDBG was created with a particular outcome in mind:
Alleviate slums and blight to revitalize communities and
generate economic opportunity for residents. However, it has
drifted from its original mission. I believe Congress should
change the formula recommended by HUD, improve transparency,
and make grantee-level data publicly available; require the
measures designed by HUD; and consider what aims Congress is
trying to accomplish when it created this program to determine
if current activities are serving that aim.
Further empirical testing of this program is needed to know
its effects. This is only possible with better data collection.
The measures offered by HUD will facilitate this. HUD is to be
commended for identifying structural and management
deficiencies in the CDBG program. Better targeting of funds,
data collection, and empirical evaluation of this program will
help HUD and the public identify what activities are best
serving the communities this program was designed to help.
Thank you.
Senator Coburn. Thank you, Ms. Norcross.
Mr. Cooper, welcome. We are glad you are here. You
obviously have a great deal of experience with this, and we
look forward to your testimony.
TESTIMONY OF CARDELL COOPER,\1\ EXECUTIVE DIRECTOR, NATIONAL
COMMUNITY DEVELOPMENT ASSOCIATION
Mr. Cooper. Thank you very much, Chairman Coburn. It is an
honor to be before the Subcommittee today, to Senator Coleman;
I always affectionately called him mayor. We served together as
colleagues during my tenure as mayor. It is good to see you,
and certainly, Senator Carper hopefully will be back for the
rest of the hearing.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Cooper appears in the Appendix on
page 79.
---------------------------------------------------------------------------
As the Executive Director of the National Community
Development Association, I am pleased to appear before you
today. I have served previously, as you know, as an Assistant
Secretary of Community Planning and Development at U.S.
Department of Housing and Urban Development. And it is sort of
interesting: You are seeing the person who has to do it now and
the person who was there. I have spent time in various
hearings, and we tend to have a need to change things and fix
things, and clearly, when they are broken, they ought to be
fixed. There is no question. I commend the Assistant Secretary
for her presentation. However, I do not necessarily agree that
the answer is that CDBG is in need of reform.
I believe, Senator, that you made a very cogent point, as
other Members did. There is no one who can disagree with that
accountability chart, and agreeing with the accountability
chart, if there was enforcement and monitoring is done
correctly, we can achieve that goal. Back in January 2001, the
GAO submitted a report to the Congress specifically about HUD
being on the high-risk list as an agency within the Federal
Government. At the same time, during that report, it submitted
that CPD programs, in particular CDBG, had made significant
strides and improvements that warranted it to be taken off of
the high-risk list.
That was done with a combination of partners, both mayors
and practitioners as well as the Department, to come up with a
better tool of how we measure and monitor those programs. I
commend the U.S. Department of Housing and Urban Development
for working on performance measures. That was a time where
partnership did exist. The Conference of Mayors, the NCDA, a
number of other national organizations were all involved in
having a candid discussion about how do you best measure a
program for the 30 years that it has been in existence, has
proven results, but at the same time, the data collection to
support that and back that up needed to be improved? And that
is what the performance measures under their proposal would do.
That does not require reform. That was a partnership. It is
being implemented. They are starting, as we speak, to train the
various communities how to access that system, how to use it,
how to report the very data, Mr. Chairman, that you talked
about. And I believe that if we give that an opportunity to
work, then, some of the underlying questions automatically get
answered.
Let me for the record also state I heard the IG talk about
the anecdotal stories of people who have done some things that
quite frankly, if they do not meet the smell test and are
against the laws of this land, there is enforcement capability
in that Department, and I know Senator Coleman as a former
prosecutor would agree. When people violate the law, and it is
proven that they have violated the law, there are measures that
can be taken to deal with that.
Unfortunately, when we use anecdotal stories on the
negative side, it gives the general appearance of waste, fraud,
and abuse. The issue of waste, fraud, and abuse for any
community, if it is monitored correctly on the front end and
enforced on the back end, I think you could limit that problem,
and over the years, that has been the tool that has been used
and constructively. I also want to add that as we talk about
CDBG and its flexibility, over the 30 years of being a
practitioner as a mayor and one who had to govern in a very
difficult community under deep financial constraints and as a
former Assistant Secretary who has traveled around the country
in both urban and rural areas, large cities and small cities,
for the majority of people who are involved in this program,
they are doing the job, and they are doing it well.
And what is being produced is lifting people who are low-
income and moderate income people to a level where they can
sustain themselves. We are talking about families where two
parents are working. CDBG was not designed as a poverty program
only, and I think sometimes, we get caught up in that side of
it. And the reality is that we have lifted people up and moved
them to a point where they are contributing to society. They
are paying taxes. The neighborhoods are improving. And I think
that it is important for us as we make these efforts to enforce
the accountability issue that we not lose sight that we do not
need to reinvent the wheel and reform something that works. We
need to enforce that which is working, and we need to hold
those who are accountable for the things that they do that are
not within the construct of what CDBG was designed for.
We also recognize that CDBG is flexible because the answer
to Hurricane Katrina was let's use CDBG because of its
flexibility on the grounds to help those who were devastated by
this major disaster in our Nation. In New York City, when
September 11 happened, CDBG was one of the answers. The point I
want to make, though, in New York City, because it was labeled
a disaster, as many of these other issues are, the Department
has the authority to grant waivers, and when they grant those
waivers, it changes how those regulations are employed, and I
think they need to be very honest about when that occurs,
whether a waiver was granted that allowed them to do an
activity that may be out of the general scope under those
rules.
I do believe that if we talk about winners and losers, the
American people lose when we make disinvestment. We have
finally gotten to a point where you have the business community
and bankers and developers who are willing to step deep into
the pool because of the Federal investment in neighborhoods and
communities around this country. They have been our partners;
they continue to be our partners; the money is spent wisely; it
helps produce jobs; it changes the face of neighborhoods.
The losers in this deal, quite frankly, are all of America.
We look at the various States. I will give you an example: In
Alaska, 16 percent decrease; Ohio, 10 percent; Utah, 13
percent; Michigan, 6 percent; Hawaii, 19 percent; Minnesota, 26
percent; New Jersey, 11 percent. I could go down the list. And
where we are making what appears to be increases, at the same
time, we are reducing the budget on the other side; it is going
to have some devastating consequences.
So I ask you and implore you on behalf of the people who
are the practitioners to ask HUD, in fact, if we work together
so well on the performance measures, and we all agree that is a
proper way to go, then, they need to sit down and talk to the
practitioners and those who are responsible on the ground and
come up with a workable way to deal with this formula issue.
And the answer is not in this reform package. There are so many
things that are going on right now. The GAO has a study.
Congressman Turner has a study. The Department is rolling out
reform. The Department rolled out reform and had not had one
conversation, as my dear friend Assistant Secretary Patenaude
said, and not that that makes them bad people; it is just that
if that dialogue had taken place, we might be here talking
about how we get to the accountability pieces without going
through a reform track but simply enforcing and holding people
accountable for their responsibility, because after all, the
Federal dollars belong to the American people, and we should be
good stewards of the public trust.
Let me conclude by saying that our partners stand ready, as
we always have, to work closely with the Department, but there
are many mixed signals that are being sent. And I appreciate
the fact this Subcommittee has this hearing today, but then,
again we do not always have to reinvent something in order to
correct it. I do believe that the rules and the tools are in
the Department to correct the very things that the Secretary
and the Department are trying to cure.
Having sat in that seat, I know it is easier said than
done. But the independent remarks of GAO over the last few
years of where we are headed make sense, and the GAO, to their
credit, called in all of the stakeholders most recently, all of
the stakeholders, spent an entire morning with them----
Senator Coburn. Could you summarize, if you would?
Mr. Cooper. I will summarize by saying that if we want to
get to the heart of the issue and to use the public funds in
the way they were designed, to continue the most flexible
program in the Federal portfolio that was created out of a
Republican Administration and enacted by a Democratic Congress
in a bipartisan spirit, delivering services to America and
improving these communities, then, CDBG reform is not the
answer. It is a matter of working together collectively on the
accountability issues.
Thank you, Mr. Chairman.
Senator Coburn. I am a little bit confused because of your
written statement that says, ``holding grantees accountable for
performance is redundant, and you oppose the accountability
provisions in the reform package.''
Mr. Cooper. No, I said it is redundant in the sense that
the Secretary needs a special provision to enforce that which
they have already enacted. That is the point. The performance
measures were part of the Department of Housing and Urban
Development and the list of organizations who helped develop
those standards. And they are now training people to put those
standards into place. To say that now, in addition to that,
there should be another review by the Secretary, give the
standards that they have put into place that OMB agrees with an
opportunity to work.
Senator Coburn. One of the things, and it is important, and
I tried to define this with Senator Coleman a little bit, and
the last part of your testimony, not just the most recent but
before, confused a declining request for CDBG funds with
reform. My goal would be that we could measure performance and
that measurement--accountability without teeth, accountability
without the ability to change things is not accountability. If,
in fact, you have to report, but there is no problem if you are
not reporting accurately or the fact that, which is my greatest
worry, is there is great flexibility in this program, and it
does accomplish a great deal of good.
In a declining budget, and everybody here in this room; you
can kid yourself, but 10 years from now, there is not going to
be a $5.2 billion CDBG supplemental, and there is not going to
be a $3.7 billion CDBG appropriation, because the money is not
going to be there. So the way to assure that it is more likely
that the money is going to be there is to design a measurement
and management assessment program that assures that this money
is well spent. And I do not think anybody would disagree with
that, and I do not think your testimony disagrees with that.
Mr. Cooper. My testimony does not disagree with that at
all.
Senator Coburn. You do not oppose outcome measures.
Mr. Cooper. I am a firm believer in outcome measures. I
think during my tenure as the Assistant Secretary, of all
reports submitted by GAO and OMB that yes, indeed, we do
support that. What I am saying is that you have the ability
within the Department, as they have stated, and we support, we
were part of developing these outcome measures. So, yes, we are
on the same page.
Senator Coburn. And you would not oppose online data
collection for the materials associated with the CDBG block
grants so that what is out there is easily accessible not only
by HUD but by the members of the community that know where
their tax dollars are going?
Mr. Cooper. What I am saying to you is that they have to
have a system to do that. The IDIS system has been that four-
letter word that has plagued everyone on the Hill and in the
Department for so many years as a corrective system and the
data that is entered into the system; the data which is public
information ought to be able to be made available.
Senator Coburn. OK.
Mr. Cooper. The question that I think the Assistant
Secretary, if she was here, would agree, any sensitive data as
it relates to individual people and that kind of thing ought
not be there.
Senator Coburn. We are not talking about that. I want to
get a yes or no answer. Your group and you do not oppose online
data collection for CDBG grants, protecting privacy
information----
Mr. Cooper. As long as it protects privacy information.
That information is public information.
Senator Coburn. You would support that.
Mr. Cooper. That is public information.
Senator Coburn. And you all would support that.
Mr. Cooper. I have no objections to it.
Senator Coburn. Would you also, and Ms. Norcross, comment,
if you have outcome measures, and there is no consequences to
the outcome measures, what good are the outcome measures
theoretically?
Mr. Cooper. It is not a theoretical question. It is a very
honest question. The Department has within its ability that
when people are not meeting the standards that are set by the
Department, there are certain actions the Department can take.
The question that I would have is why not on the enforcement
end through the Department? If the issue is capacity, and I
heard that argument, then, we have in the past, you work with
those communities to give them assistance in capacity-building.
Senator Coburn. OK; but the Department can. My question is
should the Department? And that is the difference between the
authority they have now versus what I would like to see is I
would like to mandate that the Department help those people be
compliant. I would like to mandate if their outcome is not good
that there is a consequence to it.
Mr. Cooper. I always believed, at least in my tenure, that
was the case, and that is what they did. I do not know why they
believe they cannot do it.
Senator Coburn. They did not testify they could not do it.
That was not their testimony. What I am saying is something
very different, and that is having oversight to where they have
to so that we can hold the Department accountable of doing the
best management techniques. They can do it, and I agree. I am
saying they should do it.
Mr. Cooper. I believe in many cases, they do, but perhaps
they need to document for this Subcommittee where they have
enforced those things, and I think you will find that for the
most part, they can. And if you are suggesting that language is
placed there that says they shall or they must, I would think
that should apply to every Department in this country.
Senator Coburn. Don't worry. I am getting to all of them.
Mr. Cooper. I figured you would be.
Senator Coburn. This Subcommittee is getting to all of
them.
Under the current formula, East Orange, New Jersey, is a
very distressed community with high needs and currently
receives about $25 per capita. Bloomfield, New Jersey, on the
other hand, according to HUD's need index, is not as needy. I
am not saying they are not needy; I am just saying they are not
as needy, about half as needy as East Orange by their index.
The City of Bloomfield receives the same amount per capita as
East Orange.
As the former mayor, do you really think that meets the
intent of what was intended when this legislation was
originally put into effect, that somebody who has less need
gets the same amount of money as somebody who has more need?
Mr. Cooper. It all depends on how you identify need,
Senator. Bloomfield, New Jersey is located directly next to
East Orange, New Jersey. I represented both East Orange and
Bloomfield in the county legislature. There are pockets of
poverty in very wealthy communities, and those pockets of
poverty that are in those communities are just as entitled, the
low and moderate income people in those communities, to benefit
from this program as any other community.
Senator Coburn. So therefore, the assumption would then be
that every community ought to get the exact same amount per
capita.
Mr. Cooper. No, that is not what I am saying, Senator. If
we want to get to the heart of the issue, I think if
appropriate funding was made, we could eliminate this debate
because----
Senator Coburn. That is not going to happen.
Mr. Cooper. Whether it happens or not is not my call. I can
only express to you how I see it. If we address the
accountability issues, get the data that is required, that
everyone wants to see and let the performance measures work
once they implement them, and to say that--you mentioned that
in 10 years, the program will not be here unless people can
defend it, well, let's do the first part right first.
Senator Coburn. That is not the question I am asking. The
question I am asking you: Is it fair or is it appropriate, let
me ask it that way, is it appropriate; take fairness out that
if we have a community that gets $45 per capita, that has twice
the per capita income as the community over here that gets $22
and has one-half the per capita income, is that an appropriate
response for the needs in terms of CDBG block grants?
Mr. Cooper. If you talk about low and moderate income
people.
Senator Coburn. I am talking about low and moderate----
Mr. Cooper. No, because----
Senator Coburn. So you are saying that it is an appropriate
response?
Mr. Cooper. They are targeting down, and we are turning the
issue to having CDBG no longer as a low and moderate income
program but a program that will address the poverty in the
Nation. It was not created as a poverty program, and perhaps we
need to look at what we are doing to tackle poverty overall in
the Nation. But if that is the case, low and moderate income is
the standard in which CDBG----
Senator Coburn. So the answer is either yes, it is
appropriate, or no, it is appropriate.
Mr. Cooper. I believe that it is the will of the people in
those communities to provide for the people under current law,
and that is the law, so I do not support the HUD Reform Act as
defined----
Senator Coburn. I am not talking about the Reform Act. I am
just asking you is it appropriate? Do you believe it is
appropriate?
Mr. Cooper. Senator, I have answered your question. For the
record, I believe that people at the local community under the
rules of this program have the right to deal with low and
moderate income people in their community who are in need. That
is the answer, and that is what the program has done for 30
years.
Senator Coburn. So it is appropriate, and we will let the
record show that.
Mr. Cooper. In your words.
Senator Coburn. Senator Coleman.
Senator Coleman. Thank you, Mr. Chairman. First, a general
statement. I think we are in agreement about 90 percent of
things here. I think we are in agreement about transparency; I
think we are in agreement about performance standards. I think
we are in agreement about outcome measures. I think we are in
agreement about accountability. It is how you get there.
My frustration has been how we have gotten there. As the
Secretary said, there has not been a conversation with the
stakeholders.
Mr. Cooper. No, there has not.
Senator Coleman. GAO is doing it, but there has not been
that.
And as I look at the bottom line, not philosophical
discussions about East Orange versus somewhere else. If you
took the change in this Department that was recommended, Anoka
County, Minnesota, 34 percent reduction; Dakota County, 41
percent; Duluth, 57 percent; Hennepin County, 45 percent;
Minneapolis, 54 percent; Webster County, 42 percent, in all of
these, there are some communities that are strong, and there
are some that are very weak.
Senator Coburn. Senator Coleman, is that relationship to
the formula?
Senator Coleman. To the formula.
Senator Coburn. Or the reduction plus the formula?
Senator Coleman. It is proposed 2007 appropriation based on
the formula that is there.
Senator Coburn. But that is based on a decreased funding. I
will make that real clear in the record.
Senator Coleman. A decrease overall of 25 percent; in many
cases, almost double that. And these are communities, every one
of them have--and I do not want to debate; just to say that you
look at that, well, we have agreement on these things. How do
we get there?
And the other issue I want to talk about, I think there is
agreement, and Ms. Norcross, I was going over your
recommendations, which actually, as I kind of went through
them, I am for changing the formula, but I want to have a
discussion about how you get there. I do not want to impose
upon communities massive reductions, 54 percent, when they have
not been part of the conversation. I think it is the arrogance
of Washington. I think it is the arrogance of the Federal
Government to come in and to tell communities this is what we
are doing without having them at the table.
I agree with your recommendations, but I have one, Ms.
Norcross, I want to ask you about: Improved transparency;
require performance measures; we can reconsider what the
mission is, take a look at that; the question about
infrastructure, I do want to stress that. I have a community,
Brewster, Minnesota; got a half million dollar CDBG grant for
infrastructure. As a result of that grant, they were able to
accommodate a soybean oil processing plant about, I do not
know, about $30 million worth of new investment and jobs in a
small rural community.
Ms. Norcross, the one thing I have to ask about your
testimony is, at least in your testimony, you talk about San
Jose State economist Benjamin Powell summarizes the misguided
idea behind the government directly financing job creation.
What I want to understand, does that mean 7(a) loans, small
business loans? Is that directly financing job creation?
Ms. Norcross. That is correct; if you are subsidizing job
creation in that way, by handing a loan to business rather than
the----
Senator Coleman. So you would think that is misguided.
Ms. Norcross. I think that first, you would want to
identify there is a market failure.
Senator Coleman. We may have a disagreement.
Ms. Norcross. I respect that.
Senator Coleman. And again, I think there are a number of
things government does, and government does not grow jobs. The
private sector grows jobs. We shape an environment. We do
infrastructure; that is pretty clear. But there are other
things we do to support, I think, the entrepreneurs. And you
look at some companies, I mean, they start in a garage because
they got a 7(a) loan or something like that. They are producing
a lot. So we may just have a philosophical disagreement about
that.
I hope where we go from here, Mr. Chairman, is that we take
a look at these things upon which we agree and that we engage
the communities that are impacted, that we make sure that we do
not impose drastic cuts on folks without having them part of
the conversation. And I want to work with the GAO, work with
some others, and I think we can have a better program. But I do
think it is one in which job creation is part of it, and that
is where we disagree.
Mr. Cooper.
Mr. Cooper. Senator Coleman and Senator Coburn, perhaps
some of the contentions that you see is because as part of a
major reform without having had a meeting with the stakeholders
and the providers, it leads to a bit of distrust, whether it is
imaginary or not. There are those who believe that when the
Department was scheduled to--and I know this meeting is not for
that, but when it was scheduled to go to Commerce, there was
almost a closing out of CDBG; then, the cuts. And people began
to think that it is being bled to death quietly. And then, when
you have this massive reform that is introduced without the
dialogue without any partners involved, it does send very bad
signals.
Senator Coburn. That is an absolutely legitimate criticism.
Mr. Cooper. And I think your point you made earlier to the
Secretary that if, in fact, the kind of dialogue that has taken
place, we might really be here getting to the accountability
questions that you want to get to. Because I think in that kind
of meeting with mayors who are practitioners and community
activists and other people, they would absolutely agree that
there are priorities here that need to be corrected. So again,
just for the record, I just want to state that if in fact we
are talking about accountability, let us wrestle with the
accountability issue and come up with the kind of
accountability that we all know is required, but at the same
time, you cannot do that if your partner is not dialoguing at
all.
So you have some people who are feeling pretty blue about
this these days, because for the last 3 years, there has been
this consistent sort of slicing away, bleeding, if you will, of
a program.
Senator Coleman. And if I could say just one more thing for
the record, Mr. Chairman, as I sit here and defend this
program, I was a mayor for 8 years. I did not raise taxes in 8
years; cut my economic development agency at least by a third.
And I was a conservative mayor. I merged, consolidated units of
government. I was a conservative mayor, and those principles
work. But as a conservative mayor, one of the things that I
saw, and this was where we simply philosophically disagree: I
think there are things that we do, infrastructure being part of
it, some others that CDBG does, housing for first-time
employees; you cannot grow jobs unless folks have a place to
live that in the end made my community much stronger, much less
reliant in the end.
I tell people I may have Senator in front of my name. I
still have mayor stitched in my underwear. You do not forget
where you come from. And I think CDBG is a conservative program
that allows--and my concern is I think there is an arrogance in
the way this proposal was laid out there, that the Federal
Government telling people here is what we are going to do;
major shift in a program without being part of the
conversation. And I think that has to change.
Senator Coburn. Thank you. First of all, Mr. Cooper, you
have a legitimate complaint.
Mr. Cooper. It is just an observation.
Senator Coburn. No, it is a legitimate criticism. And the
fact is that is what is wrong with the Federal Government. Just
to clarify for the record, the SBA 7(a) program has never been
measured effectively. How it is measured is how many dollars it
has loaned, not how many jobs it has created. So we are trying
to do that. We are trying to get how do you measure the
effectiveness? Because the problem is with the 7(a) loan, we
know that we have got $70 billion on the hook for loans, but
nobody has ever actually done the matrix to make the
measurements is did those loans create those jobs?
We ought to know whether or not that did that. So the whole
purpose of this hearing is not to endorse or not endorse a
reform movement. The purpose of this hearing is not to say we
want CDBG to go away. The real purpose of this hearing is like
in every other hearing is how do we put measurements on so we
know how to make the best decisions with the limited dollars
that are going to be coming forward?
And I believe that Senator Coleman has hit it right, and I
think everybody agrees: The question is what are the parameters
that we measure? What are the teeth that we put into those so
that if somebody is not working, not appropriately responding,
that we can measure, can we send the money somewhere where it
will? In other words, the whole goal, if this is a legitimate
function of the Federal Government, and I believe it to be, if
it is, how do we make it the best it can be, and how do we
assume to move to that point?
And I think Senator Coleman and I agree, and I think
Senator Carper would agree, and we are looking forward and how
do we put the type of parameters and measures on. I am not
convinced that the performance measures that they have now have
any teeth with them. And I also am not convinced that they
create the proper expectation from the grantees to comply. What
I would like to see is not create a burden on them but make it
easy, make it streamlined and easy for them to do it and have a
program that has some teeth.
Because what happens is when you change expectations that
you are going to be accountable in a program, people become
accountable, because there is a consequence to it. If there is
no consequence to it, and you are not accountable, then they
will not be. And so, the goal is not to micromanage but is to
set out some parameters and make sure that we get some--and I
agree with you that once we get the measurements, then we can
know what to do, and then we have to work with the agencies to
do that.
There are some good ideas in this program of reform. I am
not saying there are not some. I think the idea, if we
increased CDBG block grants $200 million so we could create
this challenge, there are things you could have done in East
Orange, New Jersey, where you were doing better, and you could
have gotten some extra money for that to make it even better.
So that idea is not necessarily a bad one. It is a bad one
because you are taking it away from the shrinking pool. Would
you agree with that?
Mr. Cooper. Well, there were other incentives that we
granted to communities who were doing well, and just for the
record, and I think it is good work of the Senate as well as
the House some years ago; remember the issue years ago was that
people were not spending their money out at a certain rate. We
could not figure out why, and we got together with all of the
partners involved, and we did the analysis. We found out that
there were certain communities who had phase one, two, and
three of projects that, for example, in land acquisition, they
purchased the land, so they got that part done, and they went
to develop, and they found out they had environmental problems,
and then they got a lawsuit.
So those things are real problems that communities have,
and it should not be viewed that we cannot fix those things.
There is enforcement, and I agree with you: If you really think
about this whole accountability issue, and I know you have, I
do not think there is an argument anywhere against that. I
would just like us to be able to get to those measurement tools
so when OMB raises the question of how can we account for the
number of jobs developed, and how do we know the impact of
this, that we have a series of accountability tools to get
there, and I just do believe that there are enough wheels on
the wagon, quite frankly, right now to do that, and let us get
that part fixed first, and then, we can determine where we go
from there, because right now, we are sort of chasing budget
fights and reforms and hearings----
Senator Coburn. We do not want to confuse the two.
Mr. Cooper. Exactly, and I think the safest way not to do
that, and you could attach, I believe that you can have the
accountability discussion, but if you get into the reform
discussion, particularly if you look at how the dollars are
going to be generated in and out in any given community;
politically, it may be a difficult job for the Congress and the
Senate to deal with, but in reality, it is even a greater
difficulty for mayors on the ground to deal with, because if
you are losing money, and you still have people who are in need
of services, and if you are gaining money, people go where the
services are provided, Senator. And we have seen that.
Senator Coburn. A couple of final questions for Ms.
Norcross.
Ms. Norcross, in your testimony, you make the important
point that jobs do not create economic growth but rather the
exact opposite: Economic growth creates jobs. Besides the
number of jobs created, what performance measures do you think
would best gauge whether or not the use of CDBG funds is
stimulating economic development in communities?
Ms. Norcross. I would like to see if unaided capital
investment came into that community; what were the overall
economic effects, the macroeconomic effects; what does
employment look like; the number of people on public
assistance. And I am glad that HUD is going down the road of
establishing these outcome measures, jobs created, businesses
assisted but want us to go further and show that these measures
are having overall macroeconomic effects in a community, and I
think that is the way they need to go.
Senator Coburn. And you do not disfavor the Federal
Government having a role in that. What you are saying is you
ought to measure it to make sure the dollars go to the best
place to get the greatest impact?
Ms. Norcross. That is correct; I think there is
disagreement among economists as to whether job creation should
be a goal, but that is for Congress to decide. If that is to be
a goal, then, let us try to tease out whether CDBG dollars are
having larger economic effects. Are they leading to increased
prosperity in that community? And that would be HUD's role to
take the grantee data that is being reported on jobs created
and try to demonstrate if that is having a larger impact,
economic impact, on that community.
Senator Coburn. Are there ways a grantee could game a new
performance measurement system and appear to be meeting goals
when, in fact, they are not?
Ms. Norcross. I do not know if I would use the word game.
When I looked more closely at Madison, Wisconsin, what I saw
was here, we have HUD reporting it created 91,000 jobs last
year. I looked a little deeper at Madison, Wisconsin, and I
inferred that these jobs were going to potentially college
students in that town. Here is a case where, looking at the
macro number, we get the impression that HUD is creating jobs
for low to moderate income people. When you look a little more
deeply behind the numbers, is that necessarily the case?
So I think with a job creation figure, you want to be
certain that you go a little deeper, make sure that these jobs
are actually going to low to moderate income people as
envisioned by the program's intent. Are these temporary jobs?
Senator Coburn. How do you differentiate a job created by a
CDBG program versus a job created by somebody coming in at the
same time with capital and then assessing, either rightly or
wrongly, that came from the CDBG money? As an economist, can
you have metrics or statistics where you can ferret that out?
Ms. Norcross. I think it would be fairly difficult to
establish the counterfactual, but I think there are ways around
that, and certainly, that was one of my motivations in trying
to get HUD data. So I think there are methods, econometrics you
can use.
Senator Coburn. I want to thank all our witnesses for being
here today. We will be submitting questions to each of you that
I would very much appreciate that you would answer, questions
that I would like to ask but we do not have the time here today
to do it.
Mr. Cooper, thank you for your experience. Thank you for
your service in the Clinton Administration and serving our
country, and thank you for serving the people that you
represent today. We appreciate it very much.
Mr. Cooper. Thank you very much, Senator.
[Whereupon, at 4:36 p.m., the Subcommittee adjourned.]
A P P E N D I X
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