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



 
  DEPARTMENTS OF TRANSPORTATION, TREASURY, THE JUDICIARY, HOUSING AND 
URBAN DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 
                                  2007

                              ----------                              


                        THURSDAY, MARCH 2, 2006

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:32 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond, Murray, Kohl, Dorgan, and Leahy.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                        Office of the Secretary

STATEMENT OF HON. ALPHONSO JACKSON, SECRETARY

            OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

    Senator Bond. Good morning. The Senate Appropriations 
Subcommittee on Transportation, Treasury, Judiciary, HUD, and 
Related Agencies will come to order, and it is a pleasure once 
again to welcome an old friend, Secretary Alphonso Jackson, and 
extend our sincere thanks for appearing before us today to 
testify on the Department of Housing and Urban Development's 
fiscal year 2007 budget request.
    Mr. Secretary, we are looking forward to your comments on 
both the fiscal year 2007 budget as well as HUD's 
responsibilities with regard to the overwhelming disaster and 
rebuilding issues facing the gulf coast because of Hurricane 
Katrina and related storms.
    HUD's budget request proposes some $33.65 billion for 
fiscal year 2007, a decrease of $621 million, or 2 percent, 
from the 2006 funding level. Unfortunately, this request does 
not reflect the true extent to which many important housing and 
community development programs are compromised. In particular, 
because of needed increases to section 8 funding, funding for 
many widely supported programs, such as CDBG, public housing 
capital funding, HOPE VI, section 202 for the elderly, and 
section 811 housing for the disabled has been slashed. In 
addition, the budget includes a $2 billion rescission of excess 
section 8 funds, which we are waiting to see where and how they 
would be available, also existing FHA single-family mortgage 
insurance program that is marred by a shrinking share of the 
homeownership market, and increased default rates.
    In addition to the very difficult decisions posed by the 
HUD fiscal year 2007 budget, the subcommittee will also have to 
face substantial shortfalls in many other accounts, including, 
for example, a $400 million gap in proposed Amtrak funding, not 
enough to support Amtrak's funding needs, and I am not even 
sure that flat funding would meet the needs in 2007.
    Another example of the difficult decisions is the 
administration proposes to cut $765 million from the airport 
improvement program, which is critical to maintaining and 
improving infrastructure in our airports.
    These are just two examples. You have got enough headaches. 
But these are the range of headaches that we have in the budget 
that we have been given, and we face huge challenges in 
balancing the decisions for all our programs in a very tight 
funding year with HUD, as always, representing one of our 
largest challenges. And that is why we are always glad to see 
you here, Mr. Secretary.
    I know you have worked hard to defend these programs, and 
your work is greatly appreciated. You have been able to 
convince OMB of the importance of the section 8 program, which 
is adequately funded, even though I am not happy with the 
mandate that you have to push section 8 into a block grant 
assistance program. If anybody wants to talk about that, we 
will be happy to explain to them what we think are the very 
real and perhaps insurmountable problems with that.

                                  CDBG

    I am disappointed the CDBG level has been reduced by $1.15 
billion, but I am gratified that HUD was able to keep it, and 
keep it within this subcommittee, even at what is a 
significantly smaller budget for 2007. And, again, we 
appreciate the great leadership you have shown in helping OMB 
come to some slightly more reasonable judgments and requests.
    I think it is critical that HUD maintains the section 8 in 
public housing, CDBG, and HOME, flagship areas, along with FHA 
mortgage insurance that is necessary if HUD is to continue to 
play its role as a leader in housing and community development 
activities. And it requires adequate funding and your 
responsibility for these programs.

                     PUBLIC HOUSING OPERATING FUND

    The OMB continues to undermine many important programs 
which are critical to housing and community development needs. 
I am very much concerned that the public housing operating fund 
is flat-funded at $3.56 billion. We are moving toward 
implementation of an asset-based management of public housing. 
Unfortunately, the funding level does not meet the needs of 
these new operating requirements, nor does the funding address 
HUD's inclination to micromanage how PHAs will have to meet 
these new requirements.
    If you cut the budget significantly of any Government 
entity, the least you could do is give them the flexibility to 
use the funds how they can best be utilized. And this is very 
difficult for you or me or any of us in Washington to tell a 
PHA in Washington or Missouri or Texas what their problems are 
and how they are going to use their funds.

                                HOPE VI

    Once again, OMB has gone after one of the programs I 
started, HOPE VI. They propose rescinding all of the 2006 
funding even though it is being used. They propose eliminating 
HOPE VI in 2007 and reducing the Public Housing Capital Fund by 
some $261 million. If enacted, these proposals would 
substantially diminish the effectiveness of every program that 
is designed to address the capital needs of PHAs.
    More troubling, in support of eliminating HOPE VI, the 
administration argues PHAs can use their Capital Fund for bond 
collateral or debt service of loans in support of rehab and 
construction. Nevertheless, if at the same time capital funds 
are reduced or eliminated, the administration is undermining 
its justification for eliminating HOPE VI because lenders 
simply will not lend, and if they do, the cost of any bonds or 
debt will increase. So that OMB policy just makes no sense.

                           REDUCTION IN CDBG

    Also, obviously, I am concerned over the reduction in CDBG. 
As you and I and my colleagues know, this is supported by every 
mayor and Governor in the Nation and reflects the important 
principles of deferring to State and local decisionmaking and 
how to address local housing and community development needs 
instead of relying on some cubicle in the basement of the Old 
Executive Office Building in Washington. This is an important 
program, and I am troubled by OMB's continuing efforts to 
whittle this program to nothing.
    I do not have time to highlight all of my concerns with the 
budget. We will be having lots of correspondence and telephone 
calls with you over many, many more problems, but I do note the 
budget undermines funding for section 202 elderly and section 
811 disabled housing. Both programs are very important in 
addressing the needs of our most vulnerable and needy citizens. 
The elderly housing program is especially important since we 
know the need for elderly housing will skyrocket for the 
foreseeable future due to the aging of not only my generation 
but the baby boomers coming along behind.
    And then, once again, this committee has strongly supported 
the Lead Hazard Reduction program and the Rural Housing and 
Economic Development programs. These were our programs. They 
met an important need, and OMB went after them again. Certainly 
they have my attention. They cut everything that I have worked 
with my colleagues to put into the HUD portfolio because I 
think based on our examination and discussions they make sense.
    Nevertheless, I know you have tried very hard, Mr. 
Secretary, to fund many of these programs, but I think there is 
still hope, and we appreciate your good work. You deserve great 
credit, and I thank you for fighting for a balance in the 
funding of HUD programs against what I consider to be the worst 
instincts of the budget geeks in the basement of OMB. 
Nevertheless--and if there are any OMB people here, we will 
discuss that at greater length, if you wish to. The 
subcommittee needs to find more funds for HUD programs. We 
should not be trying to balance the budget and eliminate the 
deficit on the backs of our communities and most vulnerable 
citizens.
    I am an infrastructure Republican, and many of these 
programs are not only critical to recipients, communities, and 
States, but are critical in the creation of jobs, helping 
leverage new private and public investments in our vital 
communities and increasing their tax base. I think they are 
good investments for the Federal Government. They are 
investments I strongly support.

                             FUTURE OF FHA

    Finally, let me share with you my concern over the FHA 
single-family mortgage program. It is imploding. FHA's share of 
the market dropped 40 percent in fiscal year 2005. In 
particular, FHA home sales dropped to 4.3 percent in 2005 
compared with 7.6 percent in 2004, despite overall home sales 
being up 7 percent in 2005. In addition, FHA endorsements 
dropped 46.7 percent in 2005, while insurance-in-force dropped 
13 percent. Finally, and most troubling, default rates 
increased to 6.36 percent in fiscal year 2005, a 0.2 percent 
increase over the previous year.
    Over the last several years, in every HUD budget hearing, I 
have raised concerns about the viability and the future of 
HUD's FHA single-family mortgage insurance program. In every 
instance, my warnings and questions have been ignored, and I 
have been advised that the future is bright. The future is not 
bright unless you consider a burning trash dump bright. It may 
be time to close out FHA mortgage insurance for single families 
in deference to the marketplace or re-establish FHA as a 
private government corporation.
    I know that HUD plans to submit legislation to grow FHA 
receipts by increasing its ability to attract homebuyers with 
better credit ratings as well as balancing these new receipts 
to help families with poor credit risk become homeowners.

                           PREPARED STATEMENT

    I think we first need to understand whether the FHA single-
family mortgage insurance program is needed in today's market, 
and if so, how it is needed. I am concerned that HUD's new FHA 
model may be designed to take on more risks, not only risks 
associated with poor credit homeowners but the risk of lenders 
who face losses and who under the HUD proposal will be able to 
pass the risk of these losses onto FHA.
    I appreciate your time today, Mr. Secretary, and now it is 
a pleasure to turn to my ranking member and partner on this 
subcommittee, Senator Murray.
    [The statement follows:]
           Prepared Statement of Senator Christopher S. Bond
    The Senate Appropriations Subcommittee on Transportation, Treasury, 
the Judiciary, HUD and Related Agencies will come to order. We welcome 
Secretary Alphonso Jackson and thank him for appearing before us today 
to testify on the Department of Housing and Urban Development's fiscal 
year 2007 budget request. Mr. Secretary, I look forward to your 
comments on both the fiscal year 2007 budget as well as HUD's 
responsibilities with regard to the overwhelming disaster and 
rebuilding issues facing the Gulf Coast because of Hurricane Katrina 
and related storms.
    HUD's budget request proposes some $33.65 billion for fiscal year 
2007, a decrease of some $621 million, or some 2 percent, from the 
fiscal year 2006 funding level of $34.27 billion. Unfortunately, this 
funding request does not reflect the true extent to which many 
important housing and community development programs are compromised. 
In particular, because of needed increases to section 8 funding, 
funding for many widely supported programs, such as CDBG, Public 
Housing Capital funding, HOPE VI, section 202 Elderly and section 811 
housing for the disabled, has been slashed. In addition, the budget 
includes a $2 billion rescission of excess section 8 funds which are 
unlikely to be available as well as an existing FHA Single Family 
Mortgage Insurance program that is marred by a shrinking share of the 
homeownership market and increased default rates.
    In addition to the very difficult decisions posed by the HUD fiscal 
year 2007 budget, this subcommittee will also have to face substantial 
shortfalls in many of its other accounts, including, for example, a 
shortfall of some $400 million in the proposed Amtrak funding level for 
fiscal year 2007. This proposed funding level is clearly not enough to 
support Amtrak's funding needs and I am not sure that even flat funding 
will meet Amtrak's anticipated expenses in fiscal year 2007. Another 
harsh example of the difficult decisions faced by this subcommittee is 
the administration's proposed cut of $765 million in fiscal year 2007 
to the Airport Improvement Program. This program is critical to 
maintaining and improving the infrastructure of our Nation's airports. 
And these are only two examples of a number of significant funding hits 
taken by programs within our jurisdiction. Consequently, this 
subcommittee is facing huge challenges in balancing the funding 
decisions for all our programs in a very tight funding year with HUD 
representing one of our largest challenges.
    I am pleased, Mr. Secretary, that you have convinced the 
administration of the importance of the section 8 program which is 
adequately funded for the year even if I am dismayed by your continuing 
support of the administration's proposal to block grant section 8 
assistance. And while I am disappointed that CDBG has been reduced by 
some $1.15 billion from the fiscal year 2006 level, I am gratified that 
it continues to be funded within HUD and in this subcommittee even at a 
proposed paltry $3.03 billion for fiscal year 2007. I think it is 
critical that HUD maintain section 8 and Public Housing, CDBG and HOME, 
and FHA mortgage insurance--these are the 3 flagship areas of housing 
and community development assistance and HUD's role as the Nation's 
leader in housing and community development activities depends on 
adequate funding and responsibility for these programs.
    Nevertheless, this administration continues to undermine many 
important programs within HUD which are critical to the housing and 
community development needs of our States and communities, especially 
our low-income communities.
    First, I am concerned that the Public Housing Operating fund is 
flat funded at $3.56 billion. We are moving toward the implementation 
of asset-based management of public housing. Unfortunately, the 
administration's funding level does not meet the needs of these new 
operating requirements; nor does the funding address HUD's inclination 
to micromanage how PHAs will have to meet these new requirements. 
Moreover, the administration has proposed rescinding all fiscal year 
2006 HOPE VI funding, eliminating the HOPE VI program for fiscal year 
2007 and reducing the Public Housing Capital Fund by some $261 million. 
These proposals, if enacted, will substantially diminish the 
effectiveness of every program that is designed to address the capital 
needs of PHAs. More troubling, in support of eliminating HOPE VI, the 
administration argues that PHAs can use their Capital Fund for bond 
collateral or for the debt service of loans in support of 
rehabilitation and construction. Nevertheless, if capital funds are 
reduced or eliminated, the administration is undermining its 
justification for eliminating HOPE VI because lenders simply will not 
lend and, if they do, the cost of any bonds or debt will increase. 
Overall, this administration policy makes little or no sense.
    I am also concerned over the proposed reduction to CDBG by some 
$1.15 billion in fiscal year 2007. This account is supported by every 
mayor and governor in the Nation and reflects the important principle 
of deferring to State and local decisionmaking in how to address local 
housing and community development needs, instead of relying on some 
nameless bureaucrat in a cubical in Washington. This is an important 
program and I am troubled by the administration's continuing efforts to 
whittle this program into almost nothing.
    I am not going to highlight my every concern with HUD's budget--I 
will note, however, that the budget undermines funding for the section 
202 elderly housing program and the section 811 housing for the 
disabled program. Both programs are very important since they address 
the needs of our most vulnerable and needy citizens. The elderly 
housing program is especially important since we know the need for 
elderly housing will skyrocket for the foreseeable future due to the 
aging of the baby boomer population. In addition, the fiscal year 2007 
budget eliminates the Lead Hazard Reduction program and the Rural 
Housing and Economic Development program, both of which I helped to 
author and both of which meet specific and real needs in our 
communities.
    Nevertheless, Mr. Secretary, I think you have tried hard to push 
for the HUD budget and to fund many of these programs--perhaps not all 
the programs, but I think there is still hope for you. In any event, 
you deserve credit for fighting for a balance in the funding of HUD's 
programs against what I consider to be the worst instincts of the 
budget geeks in the basement of OMB. Nevertheless, this subcommittee 
needs to find more funds for HUD's programs. We should not be trying to 
balance the cost of the deficit on the backs of our communities and 
most vulnerable citizens. I am an infrastructure Republican and many of 
these programs are not only critical to recipients, communities and 
States but are critical in the creation of jobs, in helping to leverage 
new private and public investments and in increasing the tax base of 
our communities. This is a good investment for the Federal Government 
and it is an investment I support.
    Finally, I want to express my concerns over the FHA Single Family 
Mortgage Insurance program. This program is imploding. FHA's share of 
the market dropped 40 percent in fiscal year 2005. In particular, FHA 
home sales dropped to 4.3 percent in 2005 compared with 7.6 percent in 
2004, despite overall home sales being up 7 percent in 2005. In 
addition, FHA endorsements dropped 46.7 percent in fiscal year 2005 
while insurance-in-force dropped 13 percent. Finally, default rates 
increased to 6.36 percent in fiscal year 2005, compared to 6.13 percent 
in fiscal year 2004.
    Over the last several years, in every HUD budget hearing, I have 
raised concerns about the viability and future of HUD's FHA Single 
Family Mortgage Insurance program. In every case, I have been ignored 
and advised that the future is bright. The future is not bright unless 
you consider a burning trash dump bright. It may be time to close out 
the FHA Mortgage Insurance program in deference to the marketplace or 
re-establish FHA as a private government corporation.
    I know HUD plans to submit legislation to grow FHA receipts by 
increasing its ability to attract homebuyers with better credit ratings 
as well as balancing these new receipts to help families with poor 
credit risks become homeowners. I think we first need to understand 
whether the FHA Single Family Mortgage Insurance program is needed in 
today's market, and, if so, how it is needed. I am concerned that HUD's 
new FHA model may be designed to take on more risks--not only the risks 
associated with poor credit homeowners but the risks of lenders who 
face losses and who, under the HUD proposal, will be able to pass the 
risks of these losses on to FHA.
    Mr. Secretary, I appreciate your time today and I now turn to my 
ranking member and partner on this subcommittee, Senator Murray.

                   STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Well, thank you very much, Mr. Chairman, 
and, Mr. Secretary, I welcome you here. I hope we have a 
productive hearing, although it sounded to me like listening to 
the statement from the chairman that maybe we should have OMB 
in front of us. That might be more productive.
    Senator Bond. I might lose my temper.
    Senator Murray. All right. Well, thank you again, Mr. 
Secretary, for being here today. It has been more than 6 months 
since Hurricane Katrina reminded all of us of the ongoing 
poverty that grips so many American families today. After the 
storm, millions of us gathered around our television sets and 
saw vulnerable Americans struggling for their dignity and 
struggling for their lives.
    One of the little-known facts about Hurricane Katrina was 
that public housing authorities across the country made heroic 
efforts to find housing, to relocate hurricane victims, and I 
want to commend them today for their hard work and their 
compassion.
    But the sad fact is that every one of those public housing 
authorities already had long waiting lists of local families 
who had been waiting years for housing to become available. 
That means the efforts to house Katrina victims pushed other 
poor families further down a very long waiting list. Those 
families who were pushed down the list were in most cases no 
less poor, no less desperate, and in some cases, no less 
homeless than the Katrina victims. And the vast majority of 
them are still waiting for an available unit today.
    We should not be in a position where, if we respond to a 
disaster, our only choice is to hurt families who have been 
waiting years for housing. But that is the position we find 
ourselves in today, and there is one reason why: years of 
misguided housing budgets. And now we are once again working on 
a new budget for the coming fiscal year, and we should not make 
the same mistakes again.
    Unfortunately, that is exactly what the President's budget 
would do. HUD has a very critical mission: to promote 
homeownership, ensure safe rental housing, house the homeless, 
rejuvenate desolate communities, and provide hope to a great 
many struggling Americans.
    We are talking about the impoverished elderly. We are 
talking about disabled citizens who have very unique housing 
needs. We are talking about the working poor who are climbing 
the economic ladder.
    Now, I have often said that budgets are about priorities, 
and it is clear that the Bush administration's priorities are 
not with the missions of the Department of Housing and Urban 
Development. The President's budget for the coming fiscal year 
proposes to increase discretionary spending by 3.2 percent, but 
within that total, HUD is singled out for a cut of 1.8 percent. 
The Community Development Block Grant is slated for a cut of 
more than $1 billion.

                                HOPE VI

    All funds for the HOPE VI program that the chairman 
mentioned, a program designed to demolish and replace our most 
decrepit public housing units, is proposed for elimination in 
the Bush budget. In fact, the administration budget goes even 
further and calls on Congress to eliminate the funding that we 
have already appropriated for this program in 2006. Housing for 
the elderly is cut by 26 percent, while housing for the 
disabled is cut by 50 percent.
    These proposed cuts come at a time when every study tells 
us that these populations are growing, and growing rapidly.
    One thing that has been very clear to every American this 
winter is the fact that utility costs have risen dramatically. 
It seems that everyone knows that except for the Bush 
administration. While utility costs have risen dramatically for 
public housing authorities across America, the Bush 
administration wants to freeze operating funds for public 
housing authorities for the fifth year in a row.
    Funding for the public housing capital fund, which is 
intended to keep over 13,000 public housing properties from 
falling into dilapidated, decrepit, and inhumane conditions, is 
singled out for an 11 percent cut.
    As I said earlier, the President's budget proposes to 
increase discretionary spending by 3.2 percent, but all of the 
rhetoric and public housing statements and his OMB Director 
have sought to divide this budget into three separate 
categories: funding for defense, funding for homeland security, 
and funding for everything else. That implication is pretty 
clear. In the view of the Bush administration, programs in that 
third category, programs that educate our children, prevent 
disease, house the underprivileged, are the least worthy of 
public funds.
    Within this third category, the President proposes to cut 
overall spending by a half percent, but for HUD, which falls 
entirely into this third category, the administration is 
proposing a much larger cut of 1.8 percent.
    The message to me is clear: The non-defense, non-homeland 
security portion of the budget is a low priority for this 
President, and funding for HUD's work is an even lower 
priority.
    Now, it is worth noting that while the administration is 
proposing to cut the HUD budget by more than $620 million, they 
are proposing to boost spending for exploration systems in NASA 
by more than $860 million. Now, like a lot of my colleagues, I 
do support the overall goal of space exploration. I think it is 
great. But when it comes to sending an astronaut to Mars or 
housing our elderly and disabled neighbors here on Earth, there 
is no doubt where my priorities lie.
    Mr. Chairman, last year, with your strong support, we were 
able to fend off many of the painful cuts that were included in 
the President's budget for HUD. Unfortunately, we were handed 
an allocation by a budget resolution that I did not support 
that resulted in our having to accept some of those proposed 
cuts. Last year, our appropriations bill did cut Community 
Development Block Grant program by more than $0.5 billion. We 
did cut HOPE VI program by 31 percent.
    Now, I am a member of the Budget Committee--as you used to 
be, Mr. Chairman, and we miss you there.
    We do need you back.

                           PREPARED STATEMENT

    If we are presented, however, with a budget resolution that 
continues to cut the Community Development Block Grant program, 
I want you to know I am going to be the first Senator out of 
the box offering amendments to restore those cuts.
    I hope that together you and I can work toward ensuring 
that we get a budget resolution this time that will allow us to 
reject those ill-conceived proposals so we can keep faith with 
the people who need HUD assistance the most.
    Thank you very much, Mr. Chairman, and thank you, Mr. 
Secretary.
    [The statement follows:]

               Prepared Statement of Senator Patty Murray

    Thank you, Mr. Chairman and welcome Secretary Jackson.
    It's been more than 6 months since Hurricane Katrina reminded all 
of us of the ongoing poverty that grips so many American families.
    After the storm, millions of us gathered around our television sets 
and saw vulnerable Americans struggling for their dignity and 
struggling for their lives.
    One of the little known facts about Hurricane Katrina was that 
public housing authorities across the country made heroic efforts to 
find housing to relocate hurricane victims. I want to commend them for 
their hard work and compassion.
    But the sad fact is that every one of those public housing 
authorities already had long waiting lists of local families who had 
been waiting years for housing to become available.
    That means the efforts to house Katrina victims pushed other poor 
families further down a long waiting list.
    Those families who were pushed down the list were, in most cases, 
no less poor, no less desperate and, in some cases, no less homeless, 
than the Katrina victims. And the vast majority of them are still 
waiting for an available unit today.
    We shouldn't be a in a position where--if we respond to a 
disaster--our only choice is to hurt families who have been waiting 
years for housing.
    But that's the position we find ourselves in today--and there is 
one reason why--years of misguided housing budgets.
    And now, we're once again working on a new budget for the coming 
fiscal year. We should not make the same mistakes again.
    Unfortunately, that's exactly what the President's budget would do.
    HUD has a critical mission--to promote home ownership, ensure safe 
rental housing, house the homeless, rejuvenate desolate communities, 
and provide hope to a great many struggling Americans.
  --We are talking about the impoverished elderly.
  --We are talking about disabled citizens who have unique housing 
        needs.
  --We are talking about helping the working poor climb the economic 
        ladder.
    I have often said that budgets are about priorities. And it is 
clear that the Bush Administration's priorities are not with the 
missions of the Department of Housing and Urban Development.
    The President's budget for the coming fiscal year proposes to 
increase discretionary spending by 3.2 percent. But within that total, 
HUD is singled out for a cut of 1.8 percent.
    The Community Development Block Grant--or CDBG--program, is slated 
for a cut of more than a billion dollars.
    All funds for the HOPE VI program--a program designed to demolish 
and replacing our most decrepit public housing units--is proposed for 
elimination in the Bush budget.
    In fact, the administration's budget goes even further and calls on 
the Congress to eliminate the funding that we have already appropriated 
for this program in 2006.
    Housing for the elderly is cut by 26 percent, while housing for the 
disabled is cut by 50 percent. These proposed cuts come at a time when 
every study tells us that these populations are growing--and growing 
rapidly.
    One thing that has been clear to every American this winter is the 
fact that utility costs have risen dramatically. It seems that everyone 
knows that--except for the Bush Administration.
    While utility costs have risen dramatically for public housing 
authorities across America, the Bush Administration wants to freeze 
operating funds for public housing authorities for the fifth year in a 
row.
    Funding for the Public Housing Capital Fund--which is intended to 
keep over 13,000 public housing properties from falling into 
dilapidated, decrepit and inhumane conditions--is singled out for an 11 
percent cut.
    As I said earlier, the President's budget proposes to increase 
discretionary spending by 3.2 percent, but all of the rhetoric and 
public statements by the President and his OMB Director have sought to 
divide this budget into three separate categories:
  --funding for Defense;
  --funding for homeland security, and
  --funding for everything else.
    Their implication is clear.
    In the view of the Bush Administration, programs in this third 
category--programs that educate our children, prevent disease, or house 
the underprivileged--are the least worthy of public funds.
    Within this third category, the President proposes to cut overall 
spending by 0.5 percent. But for HUD, which falls entirely into this 
third category, this administration is proposing a much larger cut of 
1.8 percent.
    The message is clear:
  --the non-defense, non-homeland security portion of the budget is a 
        low priority for the President,
  --and funding for HUD's work is an even lower priority.
    It is worth noting that, while the administration is proposing to 
cut the HUD budget by more than $620 million, they are proposing to 
boost spending for Exploration Systems in NASA by more than $860 
million.
    Like many of my colleagues, I support the overall goal of space 
exploration. But when it comes to sending an astronaut to Mars or 
housing our elderly and disabled neighbors here on earth, there's no 
doubt where my priorities lie.
    Mr. Chairman, last year, with your strong support, we were able to 
fend off many of the more painful cuts included in President Bush's 
budget for HUD.
    Unfortunately we were handed an allocation by a budget resolution 
that I did not support that resulted in our having to accept some of 
his proposed cuts.
    Last year, our appropriations bill did cut the Community 
Development Block Grant program by more than half a billion dollars. We 
did cut the HOPE VI program by 31 percent.
    I am a member of the Budget Committee, as you used to be, Mr. 
Chairman. If we are presented with a budget resolution that continues 
to cut the Community Development Block Grant program, I am going to be 
the first Senator out of the box offering amendments to restore those 
cuts.
    I hope that, together, you and I can work together toward ensuring 
that a budget resolution is adopted that will allow us to reject these 
ill-conceived proposals so that we can keep faith with the people who 
need HUD assistance the most.
    Thank you, Mr. Chairman.

    Senator Bond. Thank you very much, Senator Murray.
    Now, Mr. Secretary, if you would begin.

                   STATEMENT OF HON. ALPHONSO JACKSON

    Secretary Jackson. Thank you very much. Good morning, 
Chairman Bond and Ranking Member Murray, and other 
distinguished members of the committee. I thank you for the 
opportunity to be here to discuss the President's proposed 
budget of fiscal year 2007. It is a good budget, and I 
encourage you to give it your support.
    The President is very concerned about helping all Americans 
have access to affordable housing that is decent and dignified, 
and his $33.6 billion budget request for HUD demonstrates that 
concern.
    At the same time, the President understands that fiscal 
restraint is necessary if we want to reduce the deficit and 
keep the economy growing as it has been and help everybody by 
creating more jobs and higher wages.
    I want to highlight how the President's budget will help 
HUD achieve the mission Congress has assigned to us, 
particularly in three areas: helping more Americans own their 
own homes, especially folks who always thought homeownership 
was out of reach; helping those not ready or willing to own 
their own home to find decent rental housing; and reforming the 
way the Federal Government supports community development by 
better focusing block grant resources toward the most needy, 
while beginning to consolidate community development programs 
under one umbrella at HUD.
    First, Mr. Chairman, is helping more Americans achieve the 
dream of homeownership.
    If Congress will enact HUD's proposed changes to the 
National Housing Act, the FHA will make its mortgage insurance 
more flexible so that more Americans can qualify for mortgages 
without paying sub-prime rates. This will help more low-income 
families own and keep their homes.

                       FHA FORECLOSURE MORATORIUM

    Speaking of FHA, I am pleased to say that HUD has just 
announced a further extension of the FHA foreclosure moratorium 
for victims of Hurricane Katrina. Borrowers with FHA loans now 
have until March 31 to show that they have made long-term 
payment arrangements with their banks. If they do, they will 
have foreclosure protection until the end of June. And this is 
in addition to HUD's agreement to make interest-free loans to 
hurricane-affected families to pay their FHA-insured mortgages 
for a year.

                              HOME PROGRAM

    The President's budget includes $1.9 billion for the HOME 
Investment Partnerships program. In the past, every HOME dollar 
allocated has attracted $3.60 in private sector investments.
    Under that program, the President has proposed that the 
American Dream Downpayment Initiative, what we call ``ADDI,'' 
be funded at $100 million. Though it is a new program, ADDI 
funds have already assisted 13,845 low-income families to 
become first-time homebuyers.

                     HOMEOWNERSHIP VOUCHER PROGRAM

    Another young but important program helping low-income and 
minority families become homeowners is the Homeownership 
Voucher program, which allows families on section 8 rental 
assistance to use their vouchers to pay a mortgage on their own 
home for up to 10 years. The program has already helped 5,000 
low-income families own a home in the last 4 years, and we 
expect to have helped 3,000 more by the end of fiscal year 
2007.

                           HOUSING COUNSELING

    The President has proposed $45 million for housing 
counseling. This is a proven method for helping low-income 
families to prepare themselves for the responsibilities of 
homeownership, avoid predatory lending practices, and avoid 
foreclosure. This program, in continuing partnership with many 
faith-based and community organizations, would be able to 
assist approximately 600,000 families in 2007 if the 
President's proposal is adopted.
    Second, Mr. Chairman, is helping other low-income families 
find decent, dignified, and affordable rental housing.

            HOUSING CHOICE VOUCHER RENTAL ASSISTANCE PROGRAM

    HUD's largest program, at $16 billion, is the Housing 
Choice Voucher Rental Assistance program. Because of 
unsustainable cost increases, Congress wisely changed this to a 
dollar-based system. But for the new system to work better, 
Congress needs to pass legislation to allow the PHAs to design 
their own rent policies. That is why the administration is 
asking Congress to pass Senator Wayne Allard's State and Local 
Housing Flexibility Act, Senate Bill 771. And I want to thank 
the Senator for his leadership on this important issue.
    HUD continues its work to help communities remove 
unnecessary regulatory barriers to the development of low-
income housing--through America's Affordable Communities 
Initiative and its Regulatory Barriers Clearinghouse.
    The 2007 budget also proposes funding an additional 3,000 
housing units for the elderly and persons with disabilities. 
All expiring rental assistance contracts are being renewed, and 
all construction that is in the pipeline already is still 
eligible for amendment funds if their construction costs 
increase.
    In order to help more Native Americans become homeowners, 
the President proposes increasing the section 184 loan 
guarantees program by more than 100 percent, over fiscal year 
2006, to $251 million. He also wants to increase funding to 
support housing for persons with HIV/AIDS to $300 million, 
enough to provide assistance to an estimated 75,000 households. 
Our budget request includes a provision that would allow us to 
allocate these funds more fairly based on housing cost 
differences across the country.

                          HOMELESS ASSISTANCE

    The administration also remains committed to helping the 
homeless. HUD has aggressively pursued policies to move the 
homeless into permanent housing. This budget proposes to 
increase the amount for homeless assistance to $1.5 billion, 
enough to house more than 160,000 individuals.

                                  CDBG

    Third, Mr. Chairman, is laying the groundwork for reform of 
the way Federal resources are used to support community 
development. A key part of HUD's mission is to strengthen 
communities so that they can be better places to live, work, 
and raise families. HUD is committed to developing better 
performance measures for the Community Development Block Grant 
program, but we need a better way to target the CDBG funds to 
those most in need. So HUD will propose a new formula for the 
CDBG allocation very soon to you. Also, since the Community 
Development Block Grant program is staying at HUD, the 
President's proposed budget consolidates three other similar 
programs within HUD into the CDBG, laying the groundwork for 
further governmentwide consolidation later after HUD proves 
that the reforms are working well.
    In conclusion, Mr. Chairman, the administration's budget 
provides ample resources for promoting homeownership, fair and 
affordable housing, and community development--the key elements 
of the mission that Congress has assigned to HUD.

                           PREPARED STATEMENT

    This is a good budget, Mr. Chairman and ranking member, and 
I respectfully urge you to ask Congress to adopt it.
    I thank you for this opportunity to speak before you today 
on the 2007 budget, and I am now available for questions that 
you might have.
    [The statement follows:]

                 Prepared Statement of Alphonso Jackson

    Chairman Bond, Ranking Member Murray, distinguished Senators of the 
subcommittee, the President's proposed fiscal year 2007 budget truly 
reflects his intent to address our Nation's housing, economic, and 
community development requirements. HUD's $33.6 billion fiscal year 
2007 budget seeks to build on our success and lend a compassionate hand 
to Americans in need, while using taxpayer money more wisely and 
reforming several HUD programs.
    Over the past 5 years, HUD has successfully implemented the 
President's agenda to spur on economic and community development by 
promoting homeownership, particularly among the lowest-income 
Americans; increased access to affordable rental housing, while 
combating all forms of discriminatory housing practices; and made a 
commitment to focus community development dollars better on those most 
in need by increasing local control. At the same time, HUD has improved 
the operational efficiency of the Department. The President's fiscal 
year 2007 budget request will allow the Department to build upon those 
successes by advancing the core mission given to HUD by Congress.

    HOW HUD WILL PROMOTE ECONOMIC AND COMMUNITY DEVELOPMENT THROUGH 
                             HOMEOWNERSHIP

    The President's vision for an ownership society correctly focuses 
on the reality that the ownership of private property helps human 
beings prosper. There is ample evidence to prove the President's 
assertion that ownership promotes financial independence, the 
accumulation of wealth, and healthier communities. Chief among the 
things a person can own is his own home.
    Under President Bush's leadership, this administration has achieved 
new records in the rate of homeownership. Today, nearly 70 percent of 
the Nation and more than 51 percent of minorities own their homes. 
Despite achieving the highest homeownership rate in American history, 
minorities remain less likely than non-Hispanic whites to own their 
homes. To close this gap, President Bush challenged the Nation to 
create 5.5 million minority homeowners by the end of the decade, and to 
date 2.6 million minority families have joined the ranks of homeowners. 
While President Bush is pleased with the progress made, there is more 
to be done.
    The President's proposed budget will help HUD to further that 
mission by transforming the Federal Housing Administration (FHA) so 
that it can expand homeownership opportunities for low- and moderate-
income families; spur Fannie Mae and Freddie Mac to lead the market to 
create more affordable homeownership opportunities; help more of the 
lowest-income Americans make a downpayment through the HOME Investment 
Partnerships program (HOME) and the American Dream Downpayment 
Initiative (ADDI); transition more Americans from HUD assisted rental 
housing to homeownership through the Homeownership Voucher program; 
and, through our rapidly-growing partnership with faith-based and 
community organizations, increase the level of housing counseling that 
has been so useful in helping families prepare for homeownership, avoid 
predatory lending practices, and avoid default on their homes.
    FHA Product Transformation.--HUD proposes to amend the National 
Housing Act, which was created in 1934 to create the FHA and its 
mortgage insurance programs. The National Housing Act has not been 
updated in over 70 years. Existing statutory requirements prevent FHA 
from updating its products; this lack of flexibility has allowed a 
resurgence of high-cost loans similar to those that predominated in 
1934, such as interest-only and short-term balloon loans.
    The original purpose of the National Housing Act was to encourage 
lenders to offer loans that were less risky for consumers. If Congress 
will enact changes to the National Housing Act to allow FHA flexibility 
to offer insurance for loans of different term, cash requirement, and 
amortization, then FHA could make it possible for additional buyers to 
enter the market, thus aiding both consumers and the lending industry. 
This is a top legislative priority for me this year and I look forward 
to working with Congress to see it enacted.
    Using HOME and ADDI to Help More Low-income Families Own Their Own 
Homes.--For many low-income Americans, the single greatest obstacle to 
homeownership is the cash requirement for downpayment and closing 
costs.
    The HOME Investment Partnerships program, the largest Federal block 
grant program of its kind, completed nearly 72,000 units of affordable 
housing in 2005, often in partnership with nonprofits, States, and 
local governments. The administration proposes to increase the HOME 
program to $1.9 billion in 2007. Each HOME dollar allocated typically 
attracts $3.60 from private sector investments.
    Within the HOME allocation, ADDI funds have assisted 13,845 
families to become first-time homebuyers, at an average subsidy amount 
of $7,431. More than 47 percent of those assisted are minority 
homeowners. We have requested $100 million for fiscal year 2007 to 
further enhance homeownership in America through ADDI.
    Homeownership Voucher Program.--I am very proud to report that 
during this program's first 4 years, over 5,000 low-income families 
have been moved from the section 8 rental program rolls into the ranks 
of homeownership. By the end of fiscal year 2007, the program will 
provide homeownership opportunities for approximately 8,000 families.
    Counseling Our Way to Greater Homeownership.--Housing counseling is 
an extremely important tool to help Americans purchase and keep their 
homes. The fiscal year 2007 budget proposes $45 million for housing 
counseling in order to prepare families for homeownership, help them 
avoid predatory lending practices, and help current homeowners avoid 
default. In partnership with faith-based and community organizations, 
HUD will assist approximately 600,000 families to become homeowners or 
avoid foreclosure in fiscal year 2007. More than ever, potential 
homebuyers need assistance to make smart homeownership choices. Housing 
counseling is the most cost-effective way to educate individuals and 
arm them with the knowledge to make informed financial choices and 
avoid high risk, high cost loans, and possible default and foreclosure.

           HOW HUD WILL INCREASE ACCESS TO AFFORDABLE HOUSING

    While homeownership is one of President Bush's top priorities, the 
President realizes that it is not a viable option for everyone. The 
largest component of HUD's budget promotes decent, safe, and affordable 
housing for families and individuals who may not want to become 
homeowners or who may not yet be ready to purchase a home.
    Promoting Local Control and Flexibility--Section 8.--HUD's Housing 
Choice Voucher program is HUD's largest program at $16 billion 
annually. The program provides approximately 2 million low-income 
families with subsidies that help them obtain decent, safe, sanitary, 
and affordable homes.
    In response to unsustainable cost increases, Congress recently 
converted the previous ``unit-based'' allocation system to a ``dollar-
based'' system. This made sense, but for the dollar-based system to 
work effectively, program requirements need to be simplified, and 
Public Housing Authorities (PHAs) need to be given greater flexibility.
    The State and Local Housing Flexibility Act (SLHFA) introduced last 
year in both the House and the Senate would, among other things, give 
PHAs the flexibility to serve more people and better address local 
needs. If Congress passes SLHFA, local PHAs will be able to design 
their own tenant rent policies, and, in turn, they can reduce the 
number of erroneous payments, use their dollars more flexibly, and 
create incentives to work.
    The administration's plan will eliminate many of the complex forms 
that are currently required to comply with program rules--saving both 
time and money. Furthermore, the administration's proposal will result 
in benefits and rewards for a PHA's decision to utilize good 
management. Enactment of this bill is one of my top priorities this 
year, and I stand ready to work closely with this committee and the 
Congress to make that happen.
    Making Improvements to Public Housing.--For fiscal year 2007, the 
Department will continue its efforts to improve public housing by 
moving toward project-based management, and mandating financial 
accountability. Project-based management will provide the information 
on individual properties, allowing managers to compare high and low 
cost properties and intervene as necessary.
    Public Housing's Capital Fund Financing Program.--The Department 
continues its successful implementation of the Public Housing Capital 
Fund Financing Program. This program allows PHAs to borrow from banks 
or issue bonds using future Capital Fund grants as collateral or debt 
service, subject to annual appropriations. In this way, PHAs are able 
to leverage the Capital Funds to make improvements. The President's 
fiscal year 2007 budget request includes $2.2 billion for the Capital 
Fund, which will cover the accrual needs of PHAs. The President's 
budget holds the Operating Subsidy funds level at $3.6 billion.
    Implementation of Harvard Cost Study.--In 1998, Congress directed 
HUD to undertake the Harvard Cost Study, a review of public housing 
costs analyzing how PHAs manage their units. The Department will 
continue its scheduled implementation of the congressionally mandated 
formula for allocating subsidies for public housing operations, and 
will implement the formula by fiscal year 2007. The proposed State and 
Local Housing Flexibility Act would help PHAs' administration of public 
housing through its flexibility and simplification of tenant rent 
policies. The implementation will include transitioning the management 
of public housing to an asset-based model similar to how private sector 
multifamily housing is managed. Project based accounting is scheduled 
to be implemented in fiscal year 2007, and asset based management by 
fiscal year 2011.
    Management Accountability of Public Housing.--The Department 
continues to place great emphasis on the physical condition of public 
housing properties, and the financial status and management 
capabilities of PHAs. The Department will continue providing technical 
assistance to PHAs and rating the effectiveness of PHAs through the 
Public Housing Assessment System (PHAS). PHAs with consistently failing 
scores may be subject to an administrative or judicial receivership. 
The Department will continue to utilize other tools such as Cooperative 
Endeavor Agreements with local officials, Memoranda of Agreements, and 
increased oversight, in order to correct long-standing deficiencies 
with PHAs. Over the past 5 years, the physical condition of public 
housing units has improved significantly.
    America's Affordable Communities Initiative.--Unnecessary, 
excessive or exclusionary Federal, State, and local regulations 
severely limit housing affordability by increasing costs as much as 35 
percent. They also limit the ability of housing providers to build 
affordable multifamily housing and perform cost-effective housing 
rehabilitation. The Department believes that regulatory barrier removal 
must be an essential component of any national housing strategy to 
address the needs of low- and moderate-income families, and is 
committed to working with States and local communities to do so. The 
Department established ``America's Affordable Communities Initiative: 
Bringing Homes Within Reach through Regulatory Reform'' in fiscal year 
2003. This has encouraged efforts at the local level to review and 
reform regulatory barriers and other impediments to expanding housing 
affordability.
    Through the Regulatory Barriers Clearinghouse, the Department 
maintains and disseminates important information to local governments 
and housing providers about regulatory barriers and new strategies 
developed by other communities. All proposed HUD rules, regulations, 
notices, and mortgagee letters are now carefully reviewed to ensure 
they enhance rather than restrict housing affordability.
    Indian Housing Loan Guarantee Fund.--The U.S. Government holds much 
of the land in Indian country in trust. Land held in trust for a tribe 
cannot be mortgaged, and land held in trust for an individual must 
receive Federal approval before a lien is placed on the property. As a 
result, Native Americans historically have had limited access to 
private mortgage capital. The section 184 program addresses this lack 
of mortgage capital in Indian country by authorizing HUD to guarantee 
loans made by private lenders to Native Americans. The President's 
budget proposes $251 million in section 184 loan guarantees for 
homeownership in tribal areas, which represents a more than 100 percent 
increase over fiscal year 2006.
    Elderly and Persons with Disabilities.--The fiscal year 2007 budget 
proposes funding for approximately 3,000 additional housing units for 
the elderly and persons with disabilities. While still expanding the 
program, the budget reflects a decrease in the rate of growth from the 
2006 level, where over 7,000 new units were funded. This decrease 
recognizes that there are already a large number of projects in the 
pipeline. Importantly, however, all expiring rental assistance 
contracts are being renewed, and amendment funds are available for 
qualifying increased costs of construction projects already in the 
pipeline. Funds will also be available to provide supportive services 
through the Service Coordinator Program and for the conversion of 
existing elderly housing projects through the Assisted Living 
Conversion Program. Funds are also available to support the existing 
Mainstream Voucher Program fully.
    HUD has constructed almost 27,000 units specifically for persons 
with disabilities. Including the funding for fiscal year 2005, HUD has 
314 projects in varying stages of development in the construction 
pipeline.
    HUD has constructed almost 400,000 units specifically for the 
elderly. Including the funding for fiscal year 2005, HUD has 342 
projects (about $1.6 billion) in varying stages of development in the 
construction pipeline. Moreover, HUD serves an additional 675,000 
elderly families under other HUD rental assistance programs such as 
section 8 and Public Housing.
    Housing for Ex-offenders Returning to Society.--Every year, more 
than 600,000 inmates complete their sentences and are returned to the 
community. Approximately two-thirds of prisoners are re-arrested within 
3 years of their release and nearly half of them return to prison 
during that same period. Individuals released from prison face 
significant barriers upon re-entering their communities, such as lack 
of job skills and housing. To confront this problem, the President 
proposed a 4-year Prisoner Re-entry Initiative in his 2004 State of the 
Union address, designed to harness the experience of faith-based and 
community organizations to help individuals leaving prison make a 
successful transition to community life and long-term employment. The 
President's 2007 budget provides a total of $59 million for the 
Prisoner Re-entry Initiative, including $24.8 million in the HUD 
request for housing needs for this population.
    Youthbuild.--The President's 2007 budget again calls for the 
transfer of the Youthbuild program, which supports competitive grants 
to train disadvantaged youth, from the HUD to the Department of Labor 
(DOL), as recommended by the White House Task Force for Disadvantaged 
Youth. On July 22, 2005, the Secretaries of Labor and HUD jointly 
transmitted legislation to the Congress to accomplish this transfer. 
Shifting this program to DOL will promote greater coordination of the 
program with Job Corps and the other employment and training programs 
the Department of Labor oversees.
    Housing Opportunities for Persons With AIDS (HOPWA).--The HOPWA 
program provides formula grants to States and localities for housing 
assistance for low-income persons living with HIV/AIDS. The program 
helps maintain stable housing arrangements that improve access to 
health care and other needed support. The program also provides 
competitive grants to government agencies and nonprofit organizations. 
In fiscal year 2007, the President is proposing an increase in HOPWA 
funding to $300 million, which will support an estimated 28 competitive 
grants and will provide formula funding to an estimated 124 
jurisdictions. These resources will provide housing assistance to an 
estimated 75,025 households. In addition, the fiscal year 2007 budget 
request includes a proposal that would allow HUD to change the formula 
so that the distribution of funds is more equitable because it 
recognizes housing cost differences across the country.

               HOW HUD WILL REFORM COMMUNITY DEVELOPMENT

    A key component of HUD's strategic goals is to strengthen 
communities, ensuring better places to live, work, and raise a family. 
HUD is committed to producing a better means of measuring the 
performance of community development efforts, specifically within the 
Community Development Block Grant program. Allocating these funds more 
efficiently will help further reinvigorate our communities.
    Laying the Groundwork for Reform of CDBG, Focusing Block Grants 
According to Unmet Needs.--The Community Development Block Grant (CDBG) 
program serves low- and moderate-income families in cities and urban 
counties, States, and insular areas across the United States through a 
variety of housing, community, and economic development activities. The 
fiscal year 2007 budget proposes to reform the CDBG program to 
contribute more effectively to local community and economic progress. 
Formula changes will be proposed to direct more of the program's base 
funding to communities that cannot meet their own needs; bonus funds 
will reward communities that demonstrate the greatest progress in 
expanding opportunity for their residents. Other Federal programs that 
support local development will operate in coordination with CDBG within 
a new, broader framework of clear goals, crosscutting performance 
indicators, and common standards for awarding of bonus funding and 
measuring community progress. HUD programs that duplicate the purposes 
of CDBG--Brownfields Redevelopment, Rural Housing and Economic 
Development, and section 108 Loan Guarantees--will be consolidated 
within CDBG as part of this reform. This is another top legislative 
priority for me, and I look forward to working closely with you to 
achieve it.
    Block Grants for Native American Communities.--The needs of this 
country's Native American population continue to be addressed through 
HUD's programs. The fiscal year 2007 budget proposes to increase the 
funding of the Native American Housing Block Grant program to $626 
million.
    Healthy Homes and Lead Hazard Control.--Today, the Department 
estimates that 26 million fewer homes have lead-based paint compared to 
1990 when the program began. Ten years ago, there was no Federal 
funding for local lead hazard control work in privately owned housing; 
today, the HUD program is active in over 250 jurisdictions across the 
country. The President is proposing $115 million for this program.
    Faith-Based and Community Initiative.--HUD continues its successful 
efforts to increase participation by faith-based and community 
organizations (FBCOs) in HUD programs. Due to a variety of efforts, 
more faith-based and other community organizations are extending their 
reach when helping society's most vulnerable citizens. The Center 
continues to provide outreach and technical assistance to FBCOs, 
through its grant writing workshops, its Unlocking Doors Affordable 
Housing initiative, and other outreach efforts. I am proud to report 
that the Center's outreach and technical assistance efforts have helped 
all groups compete on a level playing field for HUD assistance, 
regardless of whether they are faith-based or secular. According to the 
White House's 2004 data collection numbers, faith-based organizations 
have successfully competed for and won 23.3 percent of eligible HUD 
funding--a higher percentage than in any other department of the 
Federal Government.

                    HOW HUD WILL COMBAT HOMELESSNESS

    In addition to pursuing other agency goals, HUD remains committed 
to the goal of ending chronic homelessness. The chronically homeless 
live in shelters or on the streets for long periods, often suffering 
from mental illness or substance abuse problems, and absorb a 
disproportionately large amount of social and medical services and 
expenditures. The fiscal year 2007 budget proposal includes an increase 
to $1.5 billion from $1.3 billion in 2006 for Homeless Assistance. This 
increase supports the administration's long-term goal of ending chronic 
homelessness by dedicating up to $200 million for the Samaritan 
Initiative that bolsters communities' efforts to produce supportive 
housing for the chronically homeless. Through the Continuum of Care 
grant competition, HUD has aggressively pursued policies to move all 
homeless families and individuals into permanent housing. This overall 
funding level in 2007 will house 160,000 individuals and families 
through this program.
    This year, in addition, I am pleased to chair the U.S. Interagency 
Council on Homelessness, where the Federal agencies are working 
together toward this goal.
    The administration again proposes to consolidate HUD's three 
Homeless Assistance Grants programs into one simplified program that 
will give local communities greater control to direct these funds to 
their priority needs.

         HOW HUD WILL CONTINUE TO FIGHT HOUSING DISCRIMINATION

    The Bush Administration is committed to vigorous enforcement of 
fair housing laws, in order to ensure that equal access to housing is 
available to every American. Fair housing enforcement activities are 
pivotal in achieving the administration's goal to increase minority 
homeownership by 5.5 million by 2010. For 2007, the President's budget 
proposes approximately $45 million to support Fair Housing and Equal 
Opportunity activities to help ensure that Americans have equal access 
to housing of their choice. These activities include education and 
outreach, as well as administrative and enforcement efforts by State 
and local agencies and nonprofit fair housing organizations. 
Additionally, the requested amount would support the Department's 
ongoing efforts to address fair housing concerns in areas affected by 
Hurricanes Katrina and Rita. The efforts would include bilingual public 
service announcements, printed advertisements, and training events. The 
Department would provide technical assistance to builders, architects, 
and housing providers on accessibility requirements through 
Accessibility FIRST to ensure that newly constructed housing units are 
accessible to persons with disabilities.

            HOW HUD WILL INCREASE ITS OPERATIONAL EFFICIENCY

    HUD made significant strides in financial management this year. We 
are particularly proud of our achievements in:
    Financial Performance.--Successfully accelerating the close of our 
operational books and audit of our financial records within 45 days of 
the end of the fiscal year, HUD earned an unqualified audit opinion on 
its 2004 and 2005 financial statements, giving the Department an 
unqualified or clean audit opinion on its financial statements for the 
past 6 consecutive fiscal years. The financial auditors also determined 
that HUD made significant progress in strengthening internal controls. 
The auditor downgraded two long-standing material weaknesses--one 
dating from 1990.
    Continuing progress on the implementation of the final phases of 
the FHA Subsidiary Ledger Project contributed to HUD's ability to 
accelerate the preparation of auditable financial statements, and 
eliminate longstanding material internal control and financial systems 
weaknesses. HUD will complete the FHA Subsidiary Ledger Project in 
fiscal year 2007 and continue to pursue its goal for modernizing the 
Department's core financial system by fiscal year 2008, through the HUD 
Integrated Financial Management Improvement Project.
    Electronic Government.--HUD continues its E-Government 
transformation in order to meet public expectations and government 
performance mandates by: increasing access to information and services 
using the Internet; eliminating duplicative and redundant systems by 
leveraging and integrating with existing Federal-wide services; 
acquiring or developing systems within expected costs and schedules 
that can be shared and used to simplify business processes; ensuring 
the protection of personal data; and providing increased security to 
guard against intrusion and improve reliability. HUD has executed plans 
to improve its information technology capital planning, project 
management, and security environment, along with modernizing HUD's IT 
systems infrastructure. HUD's future focus will be on modernizing its 
core financial systems applications and business systems applications 
in its largest program areas--rental housing assistance, single-family 
housing mortgage insurance, and discretionary grants, as well as 
establishing integration from our procurement data system to the 
Federal Procurement Data System (FPDS). In 2005, HUD successfully 
implemented two new systems: (1) a Human Capital support system and (2) 
a cross-match system with HHS to assist PHAs in verifying tenant 
incomes to assure eligibility for the program and accuracy in computing 
tenant rent contributions.
    Eliminating Improper Payments.--HUD has reduced its gross annual 
improper rental assistance payments by 61 percent since 2000. In 2003, 
improper payments were reduced to $1.6 billion from the 2000 level of 
$3.2 billion. In 2004, improper payments were further reduced to $1.25 
billion. In October 2005, HUD provided local PHAs with an electronic 
tool to verify tenants' income with the Department of Health and Human 
Services' National Directory of New Hires. This new tool will further 
improve the accuracy of eligibility determination for the rental 
assistance program and the proper calculation of the tenant's portion 
of the rent and the amount of Federal subsidy to be allocated. While 
the estimated improper rental housing assistance payments in fiscal 
year 2004 were substantially reduced from prior year estimates, they 
still represented 5.6 percent of total program payments. Through 
continuous corrective actions, HUD's goal is to reduce that improper 
payment rate to 3 percent of total payments during fiscal year 2007.
    In conclusion, Mr. Chairman, the President's proposed fiscal year 
2007 budget makes good progress toward successfully realigning Federal 
Government priorities according to our Nation's current needs. The HUD 
portion of that budget will help promote economic and community 
development through increased opportunities for homeownership and 
affordable rental housing, free from discrimination; it will also lay 
the groundwork for reform by focusing community development funding 
more carefully toward those most in need; and it will enable HUD to 
continue along the path to greater Departmental efficiency and 
effectiveness.
    I thank you for the opportunity to articulate the President's 
fiscal year 2007 agenda for HUD. This is a good budget, Mr. Chairman, 
and I respectfully urge the Congress to adopt it. I am now available to 
answer any questions that you or other Senators may have.

    Senator Bond. Thank you very much, Mr. Secretary, and as I 
said, we have a lot of questions. We have touched on some of 
them.
    The PHA formula funding is flat-funded, but the estimates 
currently project that HUD's operating budget proposal will 
fund these agencies at about 80 percent of their eligibility 
under the formula for 2007. How can you expect agencies to 
operate safe and decent housing when they receive 80 cents on 
each dollar they expect from the Federal Government? And what 
kind of shortfalls is this liable to produce?
    Secretary Jackson. Mr. Chairman, that is a fair question. I 
think if we can pass the reforms that we have asked, that will 
be increased. But if we keep it at the present state that we 
have, you are correct. I think that the agreement that we have 
had with the industry is the best approach to go to asset 
management; that is, we have a lot of public housing 
authorities today that have assets that are underused, and in 
many cases not used at all. If we go to total asset management 
and those units are not used, you are paying only for the used 
units. Today, I think it is very important that we look at it 
in that manner. We have not been looking at it that way. And 
that was one of the reasons when we were doing the negotiation 
and I talked to many of the people in the industry and they 
were unsatisfied, I told our staff to go back to the table and 
try to address the needs that had been denoted to us by the 
people in the industry.
    And I think having come out of the industry for a period of 
time, I am very sensitive to their needs, and I think that 
clearly if the reforms are passed and adopted, we will have 
substantial monies to cover the program. If not, then, yes, we 
will have a shortfall.
    Senator Bond. Well, as I understand, during the negotiated 
rulemaking the Department acknowledged that implementing the 
rule would require an additional $250 million in funding, and 
since then, the implementation of the rule seems to have become 
increasingly complex and costly. You know, granted, there needs 
to be a new system, but how can we expect a reasonable and 
ordered implementation of the rule as we move to asset-based 
management when there is a cut and in the face of the 
transition costs which have been acknowledged by HUD?
    Secretary Jackson. We have acknowledged there is a concern, 
and, again, speaking with the industry, I sent our staff back 
to the table to make the transition as smooth as possible so 
that we would not have this kind of effect that you have just 
said.
    We felt that we had come to an agreement, and I still think 
we have come to an agreement, by delaying some implementation 
by some housing authorities and letting others start 
implementation when we set the program to start.
    I believe we have addressed the issues that the industry 
wanted to--said was very significant, and I am a little 
perplexed in talking to some of my industry colleagues when 
they say that we have not, because I specifically said to the 
staff, ``Get in the room and resolve this'', because I, too, 
felt deeply that that specific issue had to be addressed.

                         ASSET-BASED MANAGEMENT

    Senator Bond. Well, there is another issue that just 
strikes me as being a real problem. HUD is behind schedule, I 
gather, in developing the criteria for asset-based management, 
and when October 1 rolls around, PHAs scheduled to lose 
subsidies will not be able to use the stop-loss provisions of 
the rule, which would limit their loss to 5 percent, if they 
comply with the asset management requirements. I understand 
that HUD has indicated that the criteria should be completed by 
mid-2007, and PHAs in compliance will have their funding 
restored retroactively according to stop-loss rules.
    But how do you do that? How do you plan for a year when you 
are going to get a shortfall and you are going to be shorted at 
the front, and you do not know what you are going to--if you 
are going to come out a winner in the end? It seems to me that 
by saying, hey, you start operating on October 1, and maybe by 
March 1 we will tell you how much money you are going to get, 
as a former chief executive of a small operation, I would have 
found that extremely difficult to handle.
    Secretary Jackson. I think your assessment under normal 
circumstances is correct, but one of the things that I think is 
very important is I asked the industry--because I have tried to 
be extremely open and accessible to the industry if that was 
acceptable. They said to date it was acceptable. That is why we 
extended the ability for the stop-loss gap to go into effect.
    Now, if it is not, then I am a little baffled and 
surprised, and I would suggest that as chairman, you and I sit 
with the industry because I would not have made--I would not 
have gone forward with this unless clearly the industry had 
accepted this.
    Senator Bond. I think maybe your team selects some, and our 
guys and gals will select some, and maybe we will have 
everybody sit in the same room so that they tell you the same 
things they are telling us, because somebody is getting the 
wrong story.
    Secretary Jackson. I think you are correct, Mr. Chairman. 
And I am a little baffled.
    Senator Bond. I think this one is----
    Secretary Jackson. You know, I think----
    Senator Bond. They are telling you one thing and us 
another. I would like to find out where the truth lies.
    Secretary Jackson. I have asked the staff to go back and 
make tremendous concessions, because I believe that when we did 
the meetings for the operation perspective, that the industry 
operated in good faith and down the road somewhere we stopped 
operating in good faith, and I sent them back to the table.
    Now, I feel that--I have personally talked to the major 
entities in the industry, and I thought we had resolved this, 
and I do not question you because I have a great deal of 
respect----
    Senator Bond. Well, it is not a question--I am not 
questioning what you are telling me or what my staff is telling 
me. But we are getting two very different signals.
    Secretary Jackson. I agree.
    Senator Bond. So we need to get together and have the group 
that we are trying to serve tell both you and us what the truth 
is.
    Secretary Jackson. I would be happy to do that, sir.

                          BLOCK GRANT VOUCHERS

    Senator Bond. Vouchering the block grant, as I said, I have 
got a minimum amount of high enthusiasm for that proposal. 
Maybe it could work if there is an adequate commitment of 
future funding and if it included special protections for 
extremely low-income families. But there is no guarantee of it.
    I would be interested in why the Department does not 
include the current law requirement that 75 percent of the 
vouchers go to extremely low-income families at or below 30 
percent of area median income. And what is your response to the 
claim that there would be more homeless families without this 
requirement?
    Secretary Jackson. Again, I think that is a fair question. 
I think we do adhere to that 75 percent of the vouchers should 
go to, at this point as the present law is written, the 
households below 30 percent or less of area median income. I 
don't think, Mr. Chairman, that in the present state of the 
program we can change the quality of making sure that more 
people have accessibility to the voucher. The extended time 
that people stay on that voucher has been increased 
tremendously since 1998. Before that, it was nearly 3 years. 
Today it is about 8 years. So we do not have the turnover that 
we had before.
    I truly believe that if we give the authority to the 
housing authority in a block grant, as we did before 1998--we 
did not have unit-based costs before 1998. They gave us an 
allocation. And I can tell you both in St. Louis, both in the 
District of Columbia, and both in Dallas, I dealt with 
allocations and I was able to house more people at a quicker 
rate than we are doing today.
    To me, there are no incentives for a housing authority to 
ask people or to help people get off section 8, because they 
are going to get their administrative costs regardless of what 
they do, whether they lease up or do not lease up those units.
    So I believe that if we go back to where we were before 
1998, we will see aggressive housing authorities moving, 
serving more people, and the voucher will turn over much 
quicker. And, you know, again, you know, I hear the argument 
that is being made by housing authorities. But I am just sorry, 
Mr. Chairman and ranking member, I do not buy the argument. I 
ran three housing authorities, and I know what it takes. And 
the three housing authorities I ran all did very well, as you 
know, in St. Louis, and we served a lot of people. But I think 
we should give housing authorities incentives to serve more 
people and turn the vouchers over much quicker than what they 
are doing. And at this stage, they have no incentives to do 
that, and that is why the lines for section 8 vouchers are 
longer and longer and longer, and getting longer. And I don't 
know whether we are creating more homeless people, but I can 
tell you that the lines are getting longer.
    Senator Bond. Senator Murray.

                               CDBG CUTS

    Senator Murray. Mr. Secretary, I read through your formal 
opening statement, and reading that statement, you would never 
know that you are proposing a cut to CDBG of $1.15 billion or 
about 27 percent. What your statement says is ``Allocating 
these funds more efficiently will help further reinvigorate our 
communities.'' Can you tell us how cutting available resources 
by $1.15 billion next year helps reinvigorate our communities?
    Secretary Jackson. Senator Murray, I perceive us cutting 
about $635 million out of the block grant program as it stands 
today, not $1.2 billion. I do believe this, that the block 
grant program has served a very vital purpose. That is why I 
was such a great advocate of it. But I am also convinced that 
you have very wealthy communities that have pockets of poverty 
that they should be taking care of. When I look at the block 
grant program, I think we should zero in on those communities 
that have been in distressed conditions, that really need our 
help, both economically, housing, infrastructure-wise, and gear 
our money toward those persons to help them move forward. And 
if they are moving forward, continue to help them until they 
come to the level that they do not need our help.
    That has not been the case with the Community Development 
Block Grant Program, and I must admit that.
    Now, to say that it has not done good in many places, I 
could not say that because that would be very hypocritical 
because I am a great proponent of it and I served as chairman 
of two community development agencies, but I do think the money 
can be zeroed in, and if the reforms are adopted, I think we 
have substantial money to address the needs of those 
communities most in need.
    Senator Murray. I am in my 14th year here in the Senate, 
and I can say that I know of very few programs that have as 
much broad-based support as CDBG. It is supported by Members of 
Congress, by Governors, mayors, county supervisors, community 
development organizations, everywhere I go, and it is 
consistently supported by Democrats and Republicans alike 
because they go home and they hear how these funds are being 
used, and they know that it makes an incredible difference in 
their community. It seems to me like the only group that 
appears to be openly hostile to the CDBG Program is the Bush 
administration.
    Last year the proposal was to combine the program with 
other programs and cut it by more than one-third, and this year 
you want to cut it by $1.15 billion. I just want to know how 
the administration came to the conclusion that this program is 
broken and it needs to be fixed.
    Secretary Jackson. Let me say this to you. I do not think 
that we are hostile toward it, and I can specifically tell you 
that I am not. I have seen the program work, so I cannot debate 
about it not working----
    Senator Murray. What is broken about it?
    Secretary Jackson. The point is, is I do not think it zeros 
in or zooms in on those communities most in need or those 
cities most in need, and I think that if we began to do that, 
not pockets of poverty in Palm Springs, but places like Akron, 
Ohio that really needs tremendous infusion of funds. I think we 
should clearly specify where the money should go and what is 
needed, and we have not done that. I think that that is a 
serious problem, we have not. I mean there are areas in Dallas, 
where I was born and raised, that receive block grant funds 
that should not, but if you take specific areas in St. Louis 
where you have almost a total community that has suffered 
tremendously, I think we should gear the money where it is 
needed.
    Senator Murray. Okay. But right now your own budget 
documents say that as the program exists today, 95 percent of 
CDBG entitlement funds and 97 percent of State grantee funds 
went to benefit, today, low- and moderate-income individuals. 
So if every dollar of this program is already providing 
benefits to targeted communities, why is the administration 
saying we need to target it even more?
    Secretary Jackson. Again, I am not going to disagree with 
you, but let me say this to you. Take Dallas as an example, 
where I am from. Their block grant monies, a great deal is 
spent on housing inspection. That is a worthless waste of time 
of Community Development block grant money. That is what it is. 
But if you ask Dallas, they are going to say that they are 
doing that in low- and moderate-income areas, which they are, 
but that is a function of city government, and they should be 
doing it themselves. They should be using the block grant 
funds, if they are going to use them wisely, for the 
infrastructure and rebuilding of that city.
    Senator Murray. Here in Washington, DC, are we going to 
look at every community and decide ourselves here, or yourself 
in your program, who is using the money wisely, and start doing 
earmarks?
    Secretary Jackson. No, that is not what I am saying, but I 
am saying to you that we have communities that are wealthy that 
can address many of these needs, and they have not been 
addressing these needs.
    Senator Murray. I do not know Dallas. I did not know it was 
wealthy. But in your proposal, you say, so-called affluent 
communities are going to be eliminated. How are you going to 
define affluent communities? We have Bellview, that some people 
may say is affluent, but let me tell you, there is a growing 
large number of low-income people in Bellview, and they use 
those funds for low-income people even though Bellview may be, 
I do not know, within the Nation, an affluent community. I do 
not think so, but how are you going to define this?
    Secretary Jackson. Well, if you want to use Bellview, that 
is a very good example.
    Senator Murray. It is not a good example.
    Secretary Jackson. I am very aware of it. They use a larger 
portion of their funds for housing inspection. They should be 
doing that. That should not be a function. If we are going to 
deal with it, we should look at the areas of the highest area 
of poverty to address needs.
    Senator Murray. So are you saying CDBG funds should not be 
used for housing inspections?
    Secretary Jackson. Really, I do not think it should. If it 
should, it should come out of the administrative costs of that 
city. See, I think we have gotten so used to us not really 
addressing the needs of Community Development Block Grant funds 
as to what they were initially set out to do, that we think 
that it is okay to continue to do this. I am not saying that a 
portion of it should not be used, or should not come out of the 
administrative costs.
    Senator Murray. How are you going to define affluent 
communities?
    Secretary Jackson. I think when you get our proposal that 
we are submitting to you, to reorganize and to look at how we 
can best serve communities. I think we can define affluent 
communities. I think Palm Beach is an affluent community. I 
think that, clearly, several communities that I could name are 
affluent. I think Bellview is affluent.
    Senator Murray. So you are basically going to say at the 
Federal level, we are going to define what affluent communities 
are, and none of them will get any CDBG funds; is that right?
    Secretary Jackson. No, that is not what I am saying, but I 
think we should look at it very hard and see how we address it 
proportionally or whether they should receive it.
    Senator Murray. When will we get your proposal?
    Secretary Jackson. You will have our formula within the 
week of what we are setting forth.
    Senator Murray. Well, it will be very fascinating to see 
how you define affluent.
    Secretary Jackson. I will tell you this, I clearly believe 
we can define it without a doubt, and I think the formula will 
address that.
    Senator Murray. Communities like Bellview have a 
dramatically growing number of low-income people. They are the 
people who work in the hotels. They are even the people who 
teach in our schools, and their housing needs are incredibly 
difficult because they live in a community where housing is 
even more expensive than other communities. So I see CDBG funds 
being incredibly important to what you may well define to us as 
affluent.
    Secretary Jackson. And I would say to you, I do not 
disagree with you on what you just said, but if the monies were 
going to the housing needs, that would be a different 
perspective. I think I would ask you to go back and look at how 
Bellview has been spending their money, because one of the 
things I did before I got here is I did look at it, and a lot 
of it is being spent in areas that I think you would ask them 
to relook at that and go spend it for just what you said.
    Senator Murray. We will see how you define affluent and 
what happens with that.
    Secretary Jackson. Okay.
    Mr. Chairman, Thank you very much.
    Senator Bond. Thank you very much, Senator Murray.
    We are very pleased to be joined by additional members of 
the subcommittee, and sorry you missed out on our initial very 
thoughtful discussions that Senator Murray and I offered.
    But now we are happy to hear your questions, beginning with 
Senator Leahy.

                 STATEMENT OF SENATOR PATRICK J. LEAHY

    Senator Leahy. Thank you, Mr. Chairman. We were here prior, 
but we also have a massive immigration bill before Judiciary, 
and that is where I was.
    Secretary Jackson, it is good to see you again.
    Secretary Jackson. Good seeing you, Senator.
    Senator Leahy. Welcome you to your second appearance before 
our subcommittee. I know that Senator Bond and Senator Murray, 
who do a superb job in leading this committee--I will repeat 
that for Senator Bond.
    Senator Bond and Senator Murray, you do a superb job in 
leading this subcommittee.
    Senator Bond. Thank you very much.
    Senator Leahy. I am concerned though about the budget, and 
I understand what you said to Senator Murray, but I look at 
cuts in affordable housing by cutting funds for public housing, 
weakening of the section 8 program, the President slashed 
funding for--I believe that CDBG is extremely helpful.
    Secretary Jackson. I agree.
    Senator Leahy. I have watched how it has been used in my 
State, and I see these cuts. Whether you are for or against the 
war in Iraq, we just get asked for billions and billions and 
billions of dollars more all the time to rebuild parts of Iraq, 
to do everything from providing for the National Guard of Iraq, 
while we cut money for the National Guard of the United States; 
for housing for Iraq, we cut it here. I believe a strong 
America begins at home, and that has nothing to do with whether 
you are for or against the war in Iraq, but if we are going to 
be providing for these things in Iraq, we ought to start 
providing for them in the United States.
    Fortunately, the attempts to pay for the war in Iraq out of 
our domestic programs is not a wise one to do. If the war is 
that great an idea, then pass a tax to support it. We did this 
with World War II. We did it in Korea. We have always done it. 
Now, I think this puts a real burden on ordinary people. In my 
home State of Vermont, Vermonters are finding it harder and 
harder to find basically affordable housing. It is going to 
become increasingly difficult for our teachers and our police 
officers and our fire and rescue workers even to afford places 
to live in the communities they serve. We are going to see 
homeless families in Vermont grow.

                           PREPARED STATEMENT

    Last weekend it was 10 degrees below zero in Vermont, not 
unusual this time of year. I have been in my home in Vermont 
when I could not tell exactly what the temperature was because 
the thermometer on the front porch only goes to 25 below zero. 
I live in a comfortable house. Many Vermonters do not. That 
does not become a matter of discomfort, that becomes a matter 
of life or death. I will submit a full statement for the 
record, if I might, Mr. Chairman.
    Senator Bond. Without objection.
    [The statement follows:]

             Prepared Statement of Senator Patrick J. Leahy

    I welcome Secretary Jackson to this hearing of the subcommittee. We 
have much to discuss, as the President has sent a budget to Congress 
that ratchets down affordable housing among our budget priorities, and 
that would increase, not lessen, the burden put on the shoulders of our 
Nation's struggling low-income families. I must say that I wish it 
could start on a more positive note. Unfortunately the President's 
proposed budget for the important work of your Department is one that 
again invites disappointment and even incredulity, not praise.
    For an unprecedented sixth year in a row, the Bush Administration 
has decided that affordable housing is not a national priority. The 
President's budget proposal says to ordinary Americans families 
struggling to make ends meet and needing help in affording basic 
housing, ``Sorry, but putting a roof over your head is no longer our 
concern.'' That attitude is short-sighted, has real consequences in 
real communities for real people and is anything but compassionate.
    At a time when Federal leadership is needed more than ever before, 
the Bush Administration is running in the other direction. The 
President has sent a budget to Congress that would hurt affordable 
housing programs by cutting funds for public housing and weakening the 
section 8 program, and he would slash funding for one of the most 
successful initiatives that supports economic development and 
affordable housing, the Community Development Block Grant (CDBG) 
Program.
    After squandering record surpluses and converting them overnight 
into a record national debt through irresponsible tax and spending 
policies, the White House's solution is to slash funds for affordable 
housing programs that help hard-working Americans and their families 
who are stuck in a financial cul de sac, as the gap between housing 
costs and wages continues to widen. At the same time, the White House 
calls for more massive tax cuts for the wealthiest individuals and 
corporations. Our children and grandchildren, who cannot possibly 
afford such irresponsibility, will reap the true legacy of the Bush 
Administration's abysmal fiscal management.
    In my home State, Vermonters are finding it harder and harder to 
find basic, affordable housing. If we fail to address this problem head 
on, it will become increasingly difficult for our teachers, police 
officers and fire and rescue workers to afford places to live in the 
communities where we need them. We will continue to see the ranks of 
homeless families in Vermont grow. This is not a problem unique to 
Vermont.
    The budget before us signals a substantial retreat in our 
commitment to help provide access to safe and affordable housing for 
all Americans. The public housing capital fund is cut by 11 percent and 
the operating fund is level-funded despite the need for additional 
funding for the operation of public housing under the new asset-based 
management system, funds for housing for persons with disabilities have 
been cut in half, HOME formula grants have been reduced, the housing 
for the elderly program has been slashed, and both fair housing 
programs and lead-based paint grants have been cut.
    Most egregious is the administration's proposal to cut the CDBG 
program by $736 million, leaving funding at its lowest level since 
1990. This program provides critical source of funding for affordable 
housing, supportive services, public improvements, and community and 
economic development. If the President's proposed cuts to CDBG are 
enacted in fiscal year 2007, then an estimated 97 percent of the more 
than 1,000 communities that have held entitlement status since fiscal 
year 2004--which was the highest level of funding for CDBG under this 
administration--or earlier and every State program would have their 
CDBG allocation slashed by at least one-third.
    One of the few programs to see an increase in this budget proposal 
is the section 8 Housing Vouchers program, and even that increase will 
not be enough to restore the cuts that were made to this year as a 
result of inadequate funding in fiscal year 2005.
    I hope to hear from you today about the vision you have for the 
Department of Housing and Urban Development and how you expect to run 
efficient and effective programs like these, when they are slowly being 
starved to death.

    Senator Leahy. To go back to what Senator Murray was saying 
on CDBG, slashing by $736 million, that is the lowest level 
since 1990. The National Low-Income Housing Coalition estimates 
these cuts are in there, then 97 percent of the more than 1,000 
communities that have held entitlement status will find it 
slashed by at least one-third. You have been asked questions 
about that. I will not keep going on that. But we see CDBG, 
proposed consolidation of Brownfields redevelopment grants, 
rural housing, economic development, and section 108 loan 
guarantees. If you are going to consolidate all of those 
programs, how are you going to do more with less? Is there some 
magic or are we using the same rosy assumptions we are in Iraq?
    Secretary Jackson. Well, first of all, I would not agree 
that it is a rosy assumption in Iraq. I believe our President--
--
    Senator Leahy. I have heard the administration say we would 
be welcomed as liberators. I have seen signs ``mission 
accomplished,'' and I heard, ``Bring it on,'' and I heard that 
this is just a momentary blip in the road as the country is 
spiraling, apparently, into civil war. But this is not the 
committee of Defense Appropriations or Foreign Operations. I am 
just worried that we sometimes make these projects, and they do 
not work very well.
    Secretary Jackson. To answer your question, Senator, if I 
did not think that this could work, I would not be here 
defending it. I think before you came in I said to Senator 
Murray I have the real dubious distinction of being the only 
HUD Secretary to run a housing authority, and to be chairman of 
two community development agencies. And my perspective is, is 
that----
    Senator Leahy. That is one of the reasons we welcome you, 
because of your experience.
    Secretary Jackson. Thank you, sir. My perspective is that 
if we implement the revised formula, which I think is very 
important--and I have said this almost from day one when I was 
Deputy Secretary--to look at how best to distribute the money 
to those communities most in need, and not as we have over the 
last 30 years. I think that when Senator Murray asked me or 
made a statement about the success of the program, there are so 
many successes. I cannot even debate that. But I think we can 
distribute the money much better to address those communities 
in 2005 that most need it, and not communities that have used 
it for programs that are not necessary to address the needs of 
what the block grant program was, from the inception, believed 
to accomplish.
    And I say that again, yes, there is a cut, but I believe 
that clearly the monies that we have, if we adopt a formula 
that we are going to submit to you, will address the needs of 
what we think is very important in the block grant.
    Now, if it is not adopted, I think you are absolutely 
correct, but I do believe that we can do a lot more with not as 
much money this time.
    Senator Leahy. My time is up, but I see this case every 
year. There are all these different holes in the budget. This 
subcommittee is faced with the unenviable task here for every 
mayor, every Governor, and just by every other group saying, 
``Can you put the money back in?'' Again, we have worked in a 
very bipartisan way here, but it is somewhat difficult. We will 
have a further conversation. My time is up, but I will submit 
questions for the record, and maybe you and I might chat later 
on.
    Secretary Jackson. Yes, sir, thank you.
    Senator Leahy. Thank you, Secretary.
    Senator Bond. Thank you very much for your comments and for 
your sympathy, Senator Leahy. This is a tough year, and we will 
all have a lot of work to do.
    Senator Kohl.
    Senator Kohl. Thank you very much, Mr. Chairman.
    Secretary Jackson, just to plow this ground a little 
deeper, and once again, about section 202. The program, as you 
know, provides funding for local nonprofit agencies to 
construct and manage housing for low-income seniors. This 
section 202 program creates, as you know, safe and affordable 
communities where senior residents have access to the services 
that allow them to live independently, with the number of 
individuals over the age of 65 expected to double, as you know, 
in the next 24 years. How do you explain in a way that makes 
people understand and accept a proposal by the administration 
to cut funding for this program?
    Secretary Jackson. To date, Senator, we have decreased the 
program by $307 million, but it is fully funded for the 
existing contracts that exist today, fully funded. In 2006 we 
funded 7,000 units of 202 and 811, and in 2007 we are funding 
an additional 3,000 units. So clearly, from my perspective, if 
the money is spent in an expeditious manner, I have no problems 
at all going back, saying we need more money. The program has 
been slow starting, and in fact, we geared the program up, 
since we have come in 2001, to get the backlogs of 202s, 811 
that was in the backlog, and we have almost cleared it up, but 
not quite. And if the money continues to be funded, I think it 
is--I will be happy to go back and ask. I am not against 202's, 
811, but I think the money must be expended very quickly.

                                HOPE VI

    That is my argument even with my good friend, the chairman, 
about the HOPE VI. To date we still have about $3.2 billion 
outstanding over 10 years in HOPE VI that has not been spent, 
and I do not think we should continue to fund the program 
unless clearly the money is spent expeditiously and wisely. To 
date, out of 200 allocations of HOPE VI, a little over 200, we 
have only had about 35 completed. That was the same situation 
we faced when we came in to 202. So it is not, again, that I do 
not think it is worthy. I think we have to look at the program 
and see whether it is being utilized in the best manner. If we 
do that, then, yes, I am the person that will defend it until 
the end and go ask for money.

                                  CDBG

    Senator Kohl. Well, we will see. CDBGs, Mr. Secretary, as 
you know, provide important funding to States, counties, cities 
and local communities for a range of projects such as housing, 
supportive services for seniors and disabled, improvements in 
public facilities, and so on. In my State, Wisconsin, the 
program has funded housing projects for elderly, homeless and 
single family housing, for low-income first-time homeowners, 
and a host of other projects. It is a sort of decentralized, 
locally controlled program that this administration has 
supported. So, again, why does the budget target this program 
for such a significant cut? And is it going to be distributed 
in such a way so that communities such as Wisconsin will not be 
cut? Is that what you suggested earlier?
    Secretary Jackson. What I suggested is, is that we put in 
place a revised formula that we are going to submit to you all 
for you to act upon. I think that we are going to look at all 
of the recipients of block grant programs, look at the 
community as a whole, not necessarily piecemeal, and that is 
what I said to Senator Murray. You have very rich communities 
that have pockets of poverty, but clearly, those communities 
can address that pocket of poverty, where we could best use the 
monies that we have and been allocated, to address those cities 
of total communities that need it.
    I am one, Senator Kohl, that believes block grant works. I 
have seen too many great projects that have been very well 
carried out, but I have also seen cities utilize money--and 
this is not something I have just said today--I have seen 
cities over the years utilize monies for things I did not think 
they should be utilizing the money for. One of the biggest 
problems, when I chaired the redevelopment authority here in 
the District, I had great fights with the council people 
because they had their pet projects, and I said, really, that 
should not be the case. We should zero in on the low- and 
moderate-income community, those with the most poverty, those 
which have the potential of developing economic development in 
conjunction with housing. And so I do believe that the program 
is valuable and worthwhile. I just think we have to redirect 
our energy and specifically say how this program should be 
used.
    Senator Kohl. In doing so, cut the budget for the program. 
I mean, we must----
    Secretary Jackson. No, and a revised formula. Yes, the 
budget has been cut.
    Senator Kohl. I mean, at one end you say it is a great 
program and you support it, you endorse it, you think it is 
good. On the other hand, the budget has a cut for the program 
and there is something there that does not connect. If you, for 
example, take the position, as most of us do, that there is so 
much that needs to be done in our country, so much, with 
programs like this, how you can support at the same time 
cutting the program is, as you can understand, to some of us 
hard to understand.
    Secretary Jackson. Sure.

                              BROWNFIELDS

    Senator Kohl. But before my time runs out, just on 
Brownfields, obviously, the program, Brownfields, promotes 
economic development in abandoned and under-used industrial 
commercial facilities, as you know. It is a program that is 
good for the environment, good for business, and good for 
economic development. A number of communities in my State, 
including a neighborhood development initiative in Beloit, 
Wisconsin, have benefited from the Brownfield funding. So, can 
you explain why the President would propose eliminating, 
eliminating funding for the Brownfield redevelopment programs?
    Secretary Jackson. We have not cut it. We have consolidated 
the program. I think in consolidating the program, it goes back 
again to what I have said to the others. I think we must zero 
in on those communities, Senator Kohl, that most need the 
money. And if Beloit is one of those communities--that is one I 
cannot comment on--then, yes, we would zero in on that 
community. The question we would ask when we zeroed in on this 
community: ``When we go in with the Community Development Block 
Grant Program, what effect is this going to have on the 
community? Has this community been devastated because of loss 
of jobs over a period of time? Will this invigorate the 
economic development, the housing development within that 
community?''
    If it does, then it is our responsibility to go in and help 
Beloit become a better community. But it is not our 
responsibility to go into Palm Beach and help Palm Beach get 
richer, even though you might have pockets of poverty in Palm 
Beach.
    Senator Kohl. Are you saying that the Brownfield program 
will not be eliminated in Beloit?
    Secretary Jackson. It will be part of--it is consolidated 
into the Community Development Block Grant Program.
    Senator Kohl. Our fear, of course, as you know, is that 
this consolidation will result in less or no money for 
something like brownfields. As you know, that is what those of 
us on the other side of the issue are arguing, and very fearful 
will occur. Tell us that we are wrong.
    Secretary Jackson. Well, I can tell you as the Secretary 
that is not my intention when we talk about consolidation. My 
intention is to take a picture of what is needed in a community 
to bring that community to where it should be after devastation 
has occurred, whether industry has left, whether that has 
happened. I do believe that it is important to look at the 
community as a whole, and as I said to Senator Murray a few 
minutes ago, yes, there are cuts, but I am well aware of monies 
from block grants that have not been used for what I think they 
should be used for. I know people will disagree and say, ``That 
is what you think,'' and it is what I think.
    I think that cities have totally taken--as my city, Dallas, 
I use all the time--just totally taken every housing inspector 
in the city off the payroll and put them on CDBG. I think that 
is the function of the city of Dallas. And I always want to use 
the city because that is the safest city for me to use, since 
it is Dallas. But I do not think it should be used for that.
    I think it should be used for infrastructure to address 
issues, as the Senator just said, for rebuilding house 
infrastructure for low-and moderate-income people, such as fire 
people, police people, nurses, teachers, who find it very 
difficult today to be able to afford a home in this country. 
That is why I think we should juxtapose CDBG funds with HOME 
funds, with Shop funds, and help people who most need it, and 
in many cases that has not been the case. It has been a 
supplement for cities to do things that they should be required 
to do themselves.
    Senator Kohl. Thank you so much.
    Mr. Chairman, thank you.
    Senator Bond. Thank you very much, Senator Kohl.

                                HOPE VI

    Mr. Secretary, since you wanted to talk about HOPE VI, I 
thought that we might talk a little bit about it, because you 
know how complex it is. You know how long it takes these deals 
to get done. Very difficult for the local governments to put 
all the plans together, and, frankly, from what I hear, HUD has 
not been as helpful as it could and should be, doing something 
that is absolutely the most important thing we can do, and that 
is to turn obsolete, unsafe, unsound, housing, which has been a 
festering place for crime and drugs and not good places for 
families, and turn them into viable communities.
    Now, I can show--and I know you have seen what is going on 
in St. Louis, Murphy Park instead of Vaughn, the King Louis 
operations. This has truly revolutionized downtown St. Louis.
    Secretary Jackson. That is true.
    Senator Bond. And I understand Atlanta, and Louisville, and 
even Chicago, which had had some very real programs, is being 
reborn with the money that goes into the HOPE VI operation. I 
am not going to be like Jim Cramer on Mad Money and tout my 
book, but I hope that you have read the San Francisco Chronicle 
article on HOPE VI, which said that it was one of the very few 
revolutionary programs that is making a difference in housing. 
And if you wanted to change it, if we want to, first of all, 
improve the management, administration of it, but when you are 
saying, well, all these needs are going to be handled through 
the Public Housing Capital Fund, and at the same time more than 
a 10 percent decrease in that, you take that into account with 
the proposal to eliminate HOPE VI, it seems to me that this 
budget turns its back on the need to help cities provide the 
infrastructure that is needed in many instances to clean out 
unsafe, unlivable housing projects into decent places for 
families to live.
    I am just very much troubled by what the budget does to the 
Public Housing Capital Fund, and to HOPE VI.
    Secretary Jackson. Mr. Chairman, let me say this to you. 
Since 1991, when we first implemented the first HOPE VI after 
the recommendation of the National Committee on Severely 
Distressed Public Housing, which I served on, and you, and Jack 
Kemp were very instrumental in making sure that HOPE VI was put 
into law, we have demolished almost 120,000 units today around 
this country. So the same capital fund that was needed then is 
clearly not needed today. And I think, clearly, we should not 
have the same amount of money.
    Secondly, I cannot ever question St. Louis. St. Louis has 
been very, very unique in a sense--so has Atlanta--because in 
their HOPE VI they have had developers who would leverage the 
money. That was the basis of the program in the first place, is 
to find a developer who would take the allocation from the 
Government, leverage it and create a community that was both 
socially and economically integrated.
    Now, have we seen that in St. Louis with developers? I will 
not call any names, but it has been successful. Have we seen 
that in Atlanta? It has been successful. Have we seen that in 
Charlotte? It has been successful. Have we seen it in Dallas? 
It has been successful. But those are only some examples of the 
35 of over 200 applications that were funded, that were done, 
and done in a timely manner.
    Now, if you look in the last 3 years that we have been 
here, we went back to the original language of the HOPE VI, 
where we suggested that you have a developer come in who could 
leverage the money that we give you. That is working, but we 
still have this money in the pipeline.
    Now, I would be the first to say if we are recapturing part 
of this $3 billion, I would say, yes, let's find some way to 
reallocate it to other HOPE VIs in the country, but right now, 
the money is standing still. And we just began, after 15 or so 
years in New Orleans, to get those HOPE VI off the ground. So I 
am saying to you, I am not saying the program in certain areas 
has not worked, but clearly it has not been the program that 
you thought about or Secretary Kemp thought about, or we 
thought about on the National Commission.
    Senator Bond. I think we suggested recapturing some of that 
money, some of the unused HOPE VI money, but we understood that 
HUD opposed it because they did not want to be in the position 
of recapturing it.
    Secretary Jackson. No, no, Senator----
    Senator Bond. If there are some areas where it is not being 
used, and other areas where it is needed, I think we ought to 
work together to recapture that. But you put your finger on one 
critical point for HOPE VI to work, there has to be a community 
with a developer with leverage that is going to come in and 
make this a truly mixed income, viable community.
    Secretary Jackson. If you recapture the money and tell us 
what to do with it, I will do it.

                      PUBLIC HOUSING CAPITAL FUND

    Senator Bond. Well, we have about $20 billion in public 
housing capital backlogs, and the budgets that have been 
presented by OMB do not come anywhere near meeting those. We 
need to get money into the Public Housing Capital Fund, and you 
and we need to be clear that if you are going to have HOPE VI, 
you need to come in with a plan, and with a developer, with the 
financing, with this community support, and then HUD needs to 
streamline its act----
    Secretary Jackson. Absolutely.
    Senator Bond [continuing]. So these people can make it 
work. There are needs around the country for the HOPE VI 
funding, and if some day when you say that they are all done, I 
will be happy to check, and I will bet we can find some more 
where it is needed.
    Anyhow, I took up a lot more time than I meant. Sorry.
    Senator Murray.
    Senator Murray. Thank you, Mr. Chairman.

                    PUBLIC HOUSING CAPITAL FUND CUTS

    Mr. Secretary, following up on that, in your formal opening 
statement you said the Department continues to place great 
emphasis on the physical condition of public housing 
properties. Well, I am having a hard time reconciling that 
statement with the budget proposal that actually cuts the 
Public Housing Capital Fund by more than a quarter of a billion 
dollars, both last year and then again this year.
    Let me just share with you how those Federal capital grants 
have impacted a PHA in my State. King County Housing Authority 
has been trying for a long time, for years, to install fire 
prevention sprinkler systems into all their older buildings 
that house the elderly and house the disabled. They have had an 
increasing number of fires, and one of them resulted recently 
in a fatality.
    These cuts in capital grants have meant that the 
installation of those safety systems are taking longer and 
longer and longer to get done, and it is really putting people 
who live there at risk.
    If the Department is so concerned with the condition of 
public housing, why have you allowed funding for this program, 
the housing capital fund, to drop every year for the last 6 
years?
    Secretary Jackson. Let me say this to you, Senator: We 
believe that the assets which King County and other housing 
authorities have are marketable. They can issue bonds very 
easily to cover any expense that they need, because, clearly, 
they know they are going to receive every month their monies 
from HUD.
    The best example I can give you is what Mayor Daley has 
done in Chicago. He has issued bonds to the tune of almost $350 
million to address needs, plus using the capital fund. If they 
did not have those assets, I think the argument that you--the 
question you just asked, the argument you are making is 
legitimate.
    We have gone back and said use the assets. For years, 
housing authorities--and I was one of them--asked to be able to 
issue bonds on our assets so that we could do things that we 
ordinarily could not do within capital funds. We have given 
them that authority to do it now. There is no reason why King 
County or anyone else cannot issue bonds to cover areas that 
they say are in critical need and do them very quickly. It is 
being done right there in Chicago. It is being done right there 
in Philadelphia. It is being done in other cities.
    So I don't understand why they cannot address this if it is 
a really critical need not only through the capital funds, but 
also through issuing bonds.
    Senator Murray. Well, maybe we can get you together with 
them, because they say this is a real challenge, and when they 
see those declining dollars in the future, they have to pledge 
their future capital grants from HUD for this purpose, and when 
those numbers are declining and they don't know that they are 
there, it is harder and harder for them to do.
    Secretary Jackson. Well, I think the key to it is that, 
from talking to the investment bankers, they realize--and I 
have had a chance to talk to them because that was a concern 
that was raised, a legitimate concern. I said the only way we 
are not going to meet the obligations of housing authorities in 
this country is that our Government goes bankrupt. And I do not 
see our Government going bankrupt, because if we go bankrupt, 
then we cannot meet any of our obligations.
    So I allayed the fears of many of the people on Wall Street 
about making these bond issues. That is why they have done it 
in probably 15 cities today, because they know they are going 
to be paid out of the income that each housing authority 
receives around this country.
    We have to pay them. Every year they have the operating 
subsidy, they have the capital subsidy that we have to give. 
And we have to give it because it is in the budget that you 
allocate for us each year. So I cannot understand why they 
cannot do it.

                        ELDERLY DISABLED HOUSING

    Senator Murray. Well, let me follow up on Senator Kohl's 
question on housing for disabled and elderly. The AARP reported 
that there are currently nine people waiting for every unit 
available, and the senior population is expected to double by 
2030, from 36 million to 70 million.
    Given the unmet needs and the growth in the aging 
population, I find it very hard to see how we can follow 
through on a huge cut to housing support for elderly, more than 
26 percent. How do you justify that?
    Secretary Jackson. Because right now we have fully funded 
the existing contracts in the 202 program. We did, as I said to 
Senator Kohl, cut $190 million, but for 2006, we had and still 
have 7,000 new units today that have not been developed. In 
2007, we have an additional 3,000 units. And all of these to 
date are being put out through a proposal to be developed.
    So I think we are addressing the needs, and if we can clear 
up, as we have done the pipeline before, we will be happy. That 
is a program that I think is absolutely important. In fact, I 
was talking to Chairman Bond about it. You know, I am almost 
there. I am near elderly. So you will have to look and see 
where we are in this program. But I believe that clearly right 
now we are addressing the needs because we have not cut out one 
existing contract. We have funded 7,000 units for 2006. We have 
funded an additional 3,000 units for 2007. And then, if 
necessary, we will fund again.
    But I think until we develop those units again, I don't 
think we should just put money in the budget.
    Senator Murray. What you were saying to Senator Kohl is 
there are unobligated funds in the pipeline so, therefore, you 
are decreasing your request. Well, we don't do that in other 
programs. There are a lot of unobligated funds in the NASA 
program, but the President is asking for an increase there 
because of the need. And I do not understand why the same is 
not true, because the need is so high, and you are doing a 
better job of getting the money out the door. But because the 
need is so high, I do not understand why we are asking----
    Secretary Jackson. Well, I cannot address what the 
administrator at NASA does, but I can tell you what I have 
suggested, and my position is that I believe that clearly we 
can address the needs of the elderly at this point. If I did 
not, I would go and--I would be the first to tell you. I really 
do.
    Senator Murray. All right. Well, thank you, Mr. Chairman.
    Senator Bond. Thank you, Senator Murray. I will have a 
number of questions to follow up on section 202 because, as I 
mentioned to you, we share those concerns.

                              SECTION 811

    I might as well get to another very serious cut, the 811, a 
90 percent reduction in the 811 fund from $155, almost $156 
million, down to almost $16 million. How are you supposed to 
continue the progress toward eliminating costly institutional 
care that everyone agrees is outdated if 811 is eliminated as a 
tool for developing permanent supportive housing?
    Secretary Jackson. First of all, 811 is still fully funded. 
HUD has built about 27,000 units of 811, and there are about a 
little over 300 in the pipeline today. I still believe, again, 
that with the fully funded contracts, with the units built, we 
can address the needs. If it is clear to me that the needs 
further exceed what we perceive--what we have in the budget, 
then clearly I will come back and speak with you.
    Senator Bond. Well, we are going to have some more 
questions about that. We will get back to you on that one.
    Secretary Jackson. Okay.
    Senator Bond. Because we really think that one is serious. 
There are many other things I want to touch on very briefly.

                           IMPROPER PAYMENTS

    Improper payments. You found $1.25 billion in 2004 in the 
section 8 program, losses estimated $2 to $3 billion a year, 
but under the Improper Payments Information Act of 2002, HUD 
plans only to target improper payments of no more than 5 
percent in 2006 and 3 percent in 2007.
    How do you measure and verify these numbers? And has the 
HUD IG verified your methodology?
    Secretary Jackson. Yes, we have--the HUD IG is involved, 
but also, chairman, when we came, we had really no way from our 
perspective of really verifying it. We have got a top-notch 
information technology person and we react now that we have put 
in place systems that we can verify for the first time. We are 
still working with others to even be more specific in verifying 
it, but I feel a lot better now with the numbers that we are 
giving you than I would have felt 3 years ago.
    Senator Bond. Speaking of numbers, we had to rescind $2 
billion-plus from section 8 for the current year, and you told 
us you would find it, and now OMB has said you are going to 
find another $2 billion.
    How are you doing finding the $2 billion for 2006? And 
where do you expect to find it from excess section 8 for the 
coming year?
    Secretary Jackson. I will have to give you a written 
response to that, Chairman.
    Senator Bond. I look forward to that one.
    [The information follows:]
  U.S. Department of Housing and Urban Development,
                                    Washington, DC, August 31, 2006
The Hon. John W. Olver,
Ranking Member,
The Hon. Joe Knollenberg,
Chairman,
Subcommittee on Transportation, Treasury and Housing and Urban 
        Development, The Judiciary, District of Columbia, Committee on 
        Appropriations, U.S. House of Representatives, Washington, DC.
The Hon. Patty Murray,
Ranking Member,
The Hon. Christopher S. Bond,
Chairman,
Subcommittee on Transportation, Treasury, the Judiciary and Housing and 
        Urban Development, and Related Agencies, Committee on 
        Appropriations, U.S. Senate, Washington, DC.
    The Fiscal Year 2006 Appropriations (Public Law 109-115) Act 
requires the Department to notify the Committees on Appropriations if 
the statutory rescission of $2.05 billion will be met from sources 
other than section 8. Pursuant to this requirement, the Department is 
submitting a list of programs that may be used to meet the rescission 
requirement. With the exception of Drug Elimination Grants, the funds 
for these programs will expire at the end of fiscal year 2006 if not 
obligated. The Department will make these funds available to the 
program offices for obligation almost through the end of September 
2006. However, if by the end of September 2006, the funds are not 
needed then these funds will be used to meet the Department's 
rescission requirement for fiscal year 2006.
    In fiscal year 2002, Congress terminated the Drug Elimination 
Grants Program. The balances remaining in this program are from 
recaptures. These balances will be used to meet the rescission 
requirement. A reprogramming is pending Congressional approval for 
$14.5 million of the total $34 million in the Public Housing Capital 
Fund. If Congress does not approve the reprogramming in time, then 
these funds may also be used to meet the rescission requirement.
    If you have any questions or if I can provide additional 
information, please let me know.
             Sincerely,
                                     L. Carter Cornick III,
                General Deputy Assistant Secretary for Legislation.

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT POTENTIAL SOURCES FOR FISCAL
                          YEAR 2006 RESCISSION
------------------------------------------------------------------------
                                                              Amount
------------------------------------------------------------------------
Unobligated Funds Expiring at the End of Fiscal Year
 2006:
    HOPE VI (SY 2005)...................................      $2,946,391
    Housing for Persons w/Disabilities (SY 2003)........       3,966,849
    Housing for Persons w/Disabilities-TB (SY 2003).....         118,800
    Housing for Persons w/Disabilities (SY 2004)........       3,084,243
    Housing for Persons w/Disabilities-TB (SY 2004).....       1,771,486
    Housing for Persons w/Disabilities (SY 2005)........      11,420,573
    Housing for Persons w/Disabilities-TB (SY 2005).....       2,307,920
    Housing for the Elderly (SY 2003)...................      24,727,911
    Housing for the Elderly (SY 2004)...................       3,942,457
    Conversion to Assisted Living (SY 2004).............       2,467,584
    Service Coordinators (SY 2003)......................         288,703
    Service Coordinators (SY 2004)......................         456,083
    Pre-Construction Grant Demo (SY 2003)...............       4,440,662
    Pre-Construction Grant Demo (SY 2004)...............      19,682,000
    Working Capital Fund................................       2,843,992
    Public Housing Capital Fund.........................  \1\ 34,810,700
Unobligated funds available until expended:
    Drug Elimination....................................         796 948
                                                         ---------------
      Total, non-section 8 sources......................     121,273,302
                                                         ===============
Section 8 Rescission....................................   1,928,726,698
------------------------------------------------------------------------
\1\ Of this total amount, a reprogramming request has been submitted to
  Congress for $14.5 million. If the reprogramming request is not
  approved by Congress before the end of the fiscal year then the entire
  $34.8 million will be available to meet the fiscal year 2006
  rescission.

                         FHA MORTGAGE INSURANCE

    Senator Bond. Moving on to FHA, you have heard me raise my 
serious questions about the single-family mortgage program. It 
is competing with the private sector, and you are trying to put 
all kinds of bells and whistles on it to bring in wealthier 
homeowners to subsidize less economically strong home 
purchasers.
    How is that going to compete successfully with the private 
mortgages? And how do you expect them to--what role is FHA 
going to provide that the private mortgage companies cannot 
provide?
    Secretary Jackson. Let me say this: Our regulations have 
been an inhibiting force for us to continue to compete with the 
private market. The first thing that we are doing is getting 
rid of those inhibiting regulations.
    Second, there is a large group of people who do not fit the 
private market, but yet who have been using, in my mind, many 
predatory lenders at high interest rates to get loans. We feel 
deeply that that is the population we need to zero in on. And 
if we can be flexible in our regulations and offer them the 
same kind of flexibility that many private entities offer those 
persons who are not in this limbo area that we call it, we can 
address the needs.
    I don't think that FHA is obsolete. I don't think it has 
been managed very well, and I don't think we have put our 
programs out publicly like we should have. We have not been 
proactive in any of the processes, and so when we asked 
Assistant Secretary Brian Montgomery to come, one of the things 
that we stressed with him is that we have to be more active 
with FHA to get part of the market back. Over the last 10 
years, we have--it is the most amazing thing to see how we have 
lost market, but we have lost market because it is as if we 
really did not care about being in the market. And I think that 
clearly, for those persons who are in that limbo area, we 
should be there for them to make sure that they do not get 
these high usury rates.

                          HIGH-RISK BORROWERS

    Senator Bond. Well, one of the things I am worried about--
there are a number of worries I have about it. In other words, 
there is a risk that HUD may be taking on the risks of a number 
of mortgage companies who have taken on high-risk borrowers in 
the sub-prime market and then FHA gives them a new FHA 
mortgage. That is bailing out the initial lender, giving the 
initial lender who had the high rates in the sub-prime market, 
and you wind up with FHA bearing the loss that they have caused 
by taking out--giving a sub-prime loan with a high rate to 
somebody who is not a worthy borrower. So I am worried that FHA 
is setting itself up to be the chump in this process and 
leaving people with great problems in defaulted housing.
    That relates to other questions, that HUD seems to be 
permitting nonprofits funded by a property seller to fund the 
downpayment so that they get the 3 percent downpayment 
requirement, but the seller puts money into a charity that 
provides and raises the price by 3 percent so the homeowner who 
may not be economically able to carry a mortgage has 
essentially a zero downpayment no-risk mortgage, which, based 
on the experience we have seen, is destined to be a disaster.
    Now, those things worry me about what FHA is doing. Please 
respond.
    Secretary Jackson. Well, let me say this: You are 
absolutely correct. That was the posture of FHA for a period of 
time. That is not our posture today because we see that as 
unacceptable because we are creating severe problems for the 
prospective homeowners. And, clearly, we do not think that is 
what we should be doing.
    That is why we are asking you to look at the Flexible bill 
that we are sending you today, to give us the power to cut many 
of the regulations so we can deal directly with this group that 
is right in the middle rather than having the lenders that you 
just spoke about dealing with that group.
    So I do not disagree with you. That has been our posture, 
but that is not our posture today.
    Senator Bond. I will come back to that after Senator Murray 
asks her questions.

                              HOMELESSNESS

    Senator Murray. Thank you, Mr. Chairman.
    Mr. Secretary, you noted in your testimony that you 
currently serve as the Chairman of the Interagency Council on 
Homelessness. Last year, our committee directed the Council to 
assess an issue that I care a great deal about, and that is the 
educational rights of homeless children. I have worked very 
hard to strengthen the protections for homeless children in the 
No Child Left Behind Act, the Individuals with Disabilities 
Act, Head Start, Higher Education Act.
    Can you tell me, as Chairman of the Interagency Council, 
what the status and preliminary findings of your assessment are 
yet?
    Secretary Jackson. Honestly, Senator, I cannot, but I will 
find out for you. I was not Chairman--I have been Chairman now 
for about 4 months. I did not know that you had asked for that, 
but I will ask where it is and I will make sure that I get back 
to you directly, because I did not know you had asked for that.
    Senator Murray. Okay. I would really appreciate that. I 
have been really concerned by some reports I have heard that 
homeless shelters may be requiring homeless children today to 
change schools and that certain school districts are being 
allowed to skirt their responsibilities to provide 
transportation. And I want to know exactly what is happening 
with that and----
    Secretary Jackson. I will get back to you.
    Senator Murray [continuing]. What leadership your agency is 
demonstrating to make sure those homeless kids their 
educational rights in this country. So I will be hearing----
    Secretary Jackson. I will get back to you immediately.
    [The information follows:]

              Interagency Council on the Homeless Reports

    The House Conference Report 109-307, on page 293 of H.R. 3058, the 
``Transportation, Treasury, Housing and Urban Development, the 
Judiciary, the District of Columbia, and Independent Agencies 
Appropriations Act of 2006,'' enacted as Public Law 109-115, directed 
the Interagency Council for the Homeless to conduct an assessment of 
the guidance disseminated by the Department of Education, the 
Department of Housing and Urban Development, and other related Federal 
agencies for grantees of homeless assistance programs on whether such 
guidance is consistent with and does not restrict the exercise of 
education rights provided to parents, youth, and children under 
subtitle B of title VII of the McKinney-Vento Act. This assessment also 
addressed whether the practices, outreach, and training efforts of 
these agencies serve to protect and advance such rights. The 
Interagency Council for the Homeless submitted to the House and Senate 
Committees on Appropriations the attached interim report on May 1, 
2006, and the attached final report on October 25, 2006.
    [Clerk's Note.--The reports referenced above have been retained in 
the committee files, and are also available in part at http://
www.usich.gov/slocal/EducationWebPost.html.]

                          PHAS OPERATING COSTS

    Senator Murray. Very good.
    You are, as you told us, the first Secretary of HUD who 
actually ran a housing authority, and I appreciate that. But I 
have heard from some of the larger PHAs up in the Northeast 
that are heating with natural gas that now they have to commit 
half of their Federal operating funds just to pay for those 
utility costs. And I was just curious if you were running one 
of those PHAs up there and now having to pay those tremendous 
costs for your utility bills, what would you do? Eliminate 
services for elderly? Reduce maintenance? What decisions would 
you make in order to pay for that?
    Secretary Jackson. You know, I cannot answer that question 
because to me--and I do not mean to dodge the question. That is 
speculation because it is very strange to me. I have not heard 
that yet. And I know the prices of natural gas have gone up, 
but no one has brought that to my attention. So if there is a 
large number that that is occurring----
    Senator Murray. There is----
    Secretary Jackson [continuing]. I will be happy to look 
into it.
    You know, let me say this to you, Senator--and I believe 
exactly what you just said. What bothers me tremendously is I 
have been very open to industry. It is amazing how they come to 
you with stuff, and I have been the most open Secretary and the 
only one that was their colleague at this level, and they do 
not bring it to me. And I hope they are here and they hear what 
I am saying, because they bring problems to me, but they do not 
bring other stuff to me. And if they are going to still want 
accessibility to me, I would much rather for them to tell me 
that than me be surprised today with something that you have 
said and they have not brought it to me.
    Senator Murray. Okay. I am hoping they heard that.
    Mr. Chairman, I have a number of other questions that I 
will submit for the record. Particularly, I have some on 
Katrina, but I understand you are coming before the committee 
next week to talk directly about that.
    Secretary Jackson. Yes.
    Senator Murray. So I will save those for that time.
    Secretary Jackson. Thank you.
    Senator Bond. Thank you very much, Senator Murray. I am 
going to close up, too, but I also am looking forward to 
talking with you and Mr. Donohue, the HUD IG, about Katrina, 
because we are being asked to put a whopping big amount in, and 
I kind of wonder--like Jerry Maguire, ``Show me the money.'' 
Where did it go?
    But we were talking the last time about the gifts for the 
downpayment. Have you stopped that practice? Have you made it 
clear that this is not a legal practice for----
    Secretary Jackson. Have we stopped that practice?
    I am sorry. We are waiting--I am sorry. I knew we had 
brought--we are waiting on the IRS to come with a 
recommendation to us because, clearly----
    Senator Bond. It seems to me, the IRS or no IRS, it is a 
recipe for disaster, and, you know, I think you ought to be 
looking at the risks that are entailed with accepting this. I 
mean, I don't care----
    Secretary Jackson. You are right.
    Senator Bond [continuing]. What the IRS says about it. I am 
worried about what it does to the FHA.
    Secretary Jackson. Chairman, I agree with you, and I will 
do that.

                             SECTION 8 CUT

    Senator Bond. And to go back to what I was saying about 
section 811, the budget request is a 50 percent reduction, but 
only about $15 to $16 million is going to be left for new 
construction. The rest will go to rental payments for current 
projects and vouchers, and so when I said 90 percent cut, the 
new construction available under the budget request for 811 is 
only $15 to $16 million, and it seems to me that there are a 
lot more needs out there than that.
    Secretary Jackson. Yes, sir.

                           PREDATORY LENDING

    Senator Bond. All right. Predatory practices, what are you 
doing to reduce predatory lending? And how successful have you 
been?
    Secretary Jackson. I think we have been very successful. We 
are working extremely hard because we are concerned about that, 
especially in the Northeast. It is--and when I say the 
Northeast, I am talking everything from Washington, DC back. It 
has been absolutely astounding, and also----
    Senator Bond. One of our very good friends from Baltimore, 
who is not here today, will have a lot to say about that, and 
on her behalf, I reiterate the concern that she has had with 
that practice.
    Secretary Jackson. And she has been working well with us, 
and we have talked to her on numerous occasions regarding that.
    Senator Bond. Good. FHA multifamily, you are proposing 
increased mortgage insurance premiums. Again, some have 
suggested this could have a chilling effect on the development 
of multifamily housing projects. Why is the fee necessary? And 
have you conducted an impact analysis on the marketplace? And 
if so, what did you find?
    Secretary Jackson. I do not know the answer to that, Mr. 
Chairman. I will get back to you.
    [The information follows:]

                    FHA Mortgage Insurance Premiums

    The Department's budget stated that FHA would apply a 32 basis 
point increase on the FHA mortgage insurance premiums for all 
multifamily projects except mortgages for projects that utilize low-
income housing tax credits, and GSE and HFA risk-sharing. This increase 
was to apply to both initial and annual premiums. In no case, however, 
was the resulting premium to exceed 80 basis points. The purpose of the 
increase was to permit continuation of the program while at the same 
time offsetting taxpayer liability for the program's administrative 
costs and any potential financial losses arising from insuring these 
mortgages. The proposal was prompted by the outcome of an evaluation of 
the program using OMB's Program Assessment Rating Tool (PART). That 
evaluation raised questions concerning program targeting and its 
overall efficiency. Since submission of the budget, HUD staff has had 
the opportunity to have numerous discussions with Congressional staff 
and the industry on this topic. Both have raised legitimate concerns 
about the impact such a premium increase would have on HUD's ability to 
foster the development of much needed rental units. The Department 
realizes these concerns must be addressed before any increases are made 
to insurance premiums. The Secretary is committed to fully discussing 
the proposed increase with the industry and Congressional leadership 
before any action is taken.

    Senator Bond. All right. Finally, you are chairing the 
Interagency Council on the Homeless. How are you doing meeting 
your goals? How much progress has been made to meet the goal of 
150,000 units of permanent housing? And when do you expect to 
achieve it?
    Secretary Jackson. I would prefer to speak, Mr. Chairman, 
to you and the Ranking Member in private about that.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Bond. All right. Well, the nice thing about it is 
this conversation will be continued. We have lots of things to 
work on. I believe that that concludes it. There will be--I am 
sure that the ranking member and I will have several questions 
for the record, and if any other members of the subcommittee 
have questions for the record, we would ask them to get them in 
by the end of this week. And we will expect your replies in a 
timely fashion and look forward to continuing these 
discussions.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

              Questions Submitted by Senator Arlen Specter

                PUBLIC HOUSING OPERATING FUND--NEW RULE

    Question. The fiscal year 2007 budget request maintains funding at 
$3.564 billion for the Public Housing Operating Fund. According to the 
National Association of Housing and Redevelopment Officials, this level 
of funding would represent only 81 percent of actual operating subsidy 
needed for fiscal year 2007 as housing authorities shift to asset-based 
management. Additionally, the implementation of the new regulations for 
the Public Housing Operating Fund provides a new formula for 
distributing operating subsidy to public housing agencies (PHAs) and 
establishes requirements for PHAs to convert to asset management. What 
is HUD's plan for assisting PHAs to come into compliance with this new 
approach?
    Answer. The Department has issued a significant amount of guidance 
and information regarding the transition to asset management. Most of 
the guidance has been shared with interested PHAs and representatives 
of the industry groups that represent PHAs while it was in draft form 
to solicit input prior to finalization and publication. Since 
publication of the rule, the Department has held approximately 20 
meetings with PHAs and the industry groups to discuss the steps 
required for implementation of asset management. All guidance has been 
shared with these groups prior to the meetings and working drafts 
provided for comment and recommendations.
    The transition to asset management is a complex undertaking and the 
Department recognizes that a great deal of guidance and information for 
both PHAs and HUD staff will be necessary to ensure a successful 
transition. For that reason, the Department has been taking a phased 
approach at getting the guidance developed and issued, rather than 
issuing one set of guidance that is expected to cover all actions 
required over several years as PHAs transition to asset management.
    On the day that the Final Rule was published, the Department met 
with representatives of the industry groups to provide a copy of the 
rule and to discuss next steps. The Final Rule was published on 
September 19, 2005 and in response to concerns raised by PHAs and the 
industry groups over the implementation of the rule in fiscal year 
2006, the Department issued a revision on October 24, 2005, pushing the 
implementation date back to October 1, 2006. On November 2, 2005, the 
Department published Notice PIH 2005-34 (HA) that provided an overview 
regarding implementation of the Final Rule for the Public Housing 
Operating Fund Program. This Notice was for informational purposes only 
and informed PHAs of various upcoming notices and other activities tied 
to the implementation of the Final Rule.
    On December 28, 2005, the Department published a Federal Register 
Notice that provided supplemental information regarding the 
Department's method of calculating public housing operating subsidy 
under the Final Rule. The Notice explained the computation of the 
Project Expense Level (PEL) that is one factor in the formula expenses 
component of the Operating Fund Formula. The Notice provided a step-by-
step description of the computation of the PEL so that PHAs would 
understand how their PELs would be calculated.
    A key component of the transition to asset management is the need 
for each PHA to identify their project or property groupings. 
Recognizing that the current project numbering system did not 
necessarily reflect the appropriate grouping of buildings for 
management purposes, the first step was to allow PHAs to self-identify 
their project groupings. After a series of meetings with PHAs and 
industry groups, the Department issued Notice PIH 2006-10 (HA) on 
February 3, 2006 that provided guidance and related instructions to 
PHAs and HUD field staff regarding the identification of projects for 
purposes of asset management. On February 28, 2006, and March 1, 2006, 
the Department held meetings with the HUD field office staff to discuss 
the Notice and to conduct a live demonstration of the computer screens 
that the PHAs would see when they entered their project grouping 
information. On March 8, 2006, the Department conducted a video 
broadcast with the PHAs and HUD field office staff on the project 
groupings' Notice and conducted a demonstration of the computer screens 
for both PHAs and field office staff. The broadcast was taped and used 
as a webcast on March 15, 2006 and March 23, 2006. The webcast is 
stored in the Department's archives of webcasts and can be accessed 
from its web site at www.hud.gov.
    On March 22, 2006, the Department issued Notice 2006-14 (HA) that 
provides guidance to PHAs on the criteria for asset management. This 
criteria is for those PHAs that want to submit documentation of 
successful conversion to asset management in order to discontinue their 
reduction in operating subsidy under the Operating Fund Program Final 
Rule, commonly referred to as the ``stop-loss'' provision. This Notice 
was discussed thoroughly with PHAs and representatives of the industry 
groups prior to publication and the industry groups provided the 
working drafts of the Notice to their members through their web sites 
and provided extensive information and comments about it through their 
publications.
    The Department has held a series of meetings with PHAs, the 
industry groups and the private market vendors that offer computer 
assistance and software programs used by a number of PHAs. The meetings 
with the IT professionals and the vendors are to assure that any 
changes to systems and software can be done, as necessary, so that PHAs 
do not experience system problems as they transition their inventory to 
an asset management model.
    The Department has also held a series of meetings with PHAs, the 
industry groups, Fee Accountants, Certified Professional Accountants, 
Independent Professional Auditors and representatives of the American 
Institute of Certified Public Accountants (AICPA) to discuss the 
necessary financial reporting changes. The Department will issue 
guidance to PHAs on asset-based accounting and budgeting requirements. 
The first group of PHAs that will have to maintain their books on an 
asset-based approach will be those PHAs whose fiscal year begins July 
1, 2007. The Department intends to have the guidance issued prior to 
July 1, 2006, so that PHAs will have a full year to implement any 
necessary changes to their accounting systems. The last group of PHAs 
that will have to maintain their books on an asset-based approach are 
those PHAs whose fiscal year begins March 31, 2008.
    Question. Given the anticipated shortfall, how will your budget 
fully implement the negotiated rule, including transitional costs?
    Answer. Many PHAs have healthy levels of operating reserves. At the 
end of fiscal year 2005, nationwide, PHAs had approximately half a 
billion dollars in reserves that can be used to support the operation 
and maintenance of low-income housing. PHAs are allowed to retain all 
of the income they receive from investments and other non-dwelling 
rental income such as income from rooftop antennas, laundry receipts, 
etc. In 2005, this other income accounted for $298 million. For 
purposes of subsidy calculation, rental income is frozen at 2004 
levels, which means that any increase in rental income does not 
decrease the amount of subsidy that the PHA will receive in 2006 and 
2007.
    There is much to be gained through providing needed program and 
regulatory reforms that will give PHAs the flexibility to address their 
locality's housing assistance needs. By unlocking the potential that 
PHAs have in their assets, additional funding can be obtained to make 
needed improvements in housing stock or to develop an additional type 
of affordable housing that is self-sustaining and not wholly dependent 
upon Federal appropriations. PHAs will be able to make local program 
decisions and to focus their housing resources in a way that makes 
sense for their communities while seeing reduced regulatory costs. 
Through a variety of programs, the Department has encouraged PHAs to 
look at their inventory and make informed management decisions about 
the housing stock. Steps that PHAs have taken include demolishing the 
worst, and often most expensive housing stock, entering into energy 
performance contracts to reduce the cost of utilities, and switching to 
tenant-paid utilities.

                      MOVING TO WORK PROGRAM (MTW)

    Question. MTW has enabled public housing authorities to implement 
federally-funded housing programs based on local needs by providing 
budget flexibility and regulatory relief. The fiscal year 2006 TTHUD 
Appropriations Conference Report provided a 3-year extension to MTW 
agreements that would expire on or before September 30, 2006. While we 
thank you for the extension, the Pittsburgh Housing Authority's MTW 
agreement expires 3 months after the September 30, 2006 deadline. Would 
you be willing to work with the Pittsburgh Housing Authority to grant 
them a similar extension as was received by all housing authorities 
expiring 3 months earlier?
    Answer. The Department has agreed to grant the Housing Authority of 
the City of Pittsburgh (HACP) a 1-year extension to their MTW 
Agreement. Following subsequent communication between your office and 
HUD, the Department is currently considering granting HACP a 3-year 
extension rather than a 1-year extension.
    The Department has expressed its willingness to continue and expand 
MTW through Title III of the proposed State and Local Housing 
Flexibility Act. While this bill is under consideration in Congress, 
the Department recognizes HACP's desire to avoid a lapse in their 
participation in the demonstration.
    Question. Could you please clarify why some public housing 
authorities initially received MTW extensions through 2011, yet similar 
extensions have not been granted to other requesting housing 
authorities?
    Answer. No current MTW housing authorities have received an 
extension to continue their MTW demonstration until 2011. Agreements 
for only three of the demonstration participants have expiration dates 
that occur in 2011 or 2012: Oakland, Baltimore, and Chicago. Oakland 
and Baltimore only recently executed their agreements and were given 
the now standard 7-year term. Their Agreements expire in 2011 and 2012 
respectively. Due to the complexities of Chicago's Transformation Plan, 
their initial Agreement provided for a 10-year demonstration term, 
which expires in 2011.
    It should be noted that the issue of extensions would not be a 
matter of concern under Title III of the State and Local Housing 
Flexibility Act (SLFHA), which is awaiting Congressional action. In 
Title III, the MTW Demonstration Program is made permanent and 
participating PHAs will meet certain performance requirements, not 
arbitrary time periods for participation. SLHFA would provide funding 
and program flexibility to PHAs; would allow agencies to develop 
program implementations that respond to local market conditions; would 
allow fungibility and flexibility needed to achieve greater cost-
effectiveness in Federal expenditures; increase housing opportunities 
for low-income households; reduce administrative burdens; allow Federal 
resources to be more effectively used at the local level; and enable 
families to achieve economic self-sufficiency.

         STRENGTHENING AMERICA'S COMMUNITIES INITIATIVE (SACI)

    Question. The President's budget outlines a modified SACI 
(Strengthening America's Communities Initiative) proposal where only 2 
of 18 economic development programs would be funded--HUD's CDBG 
program, and a Regional Development Account within Commerce's Economic 
Development Administration. In fiscal year 2006, Congress funded these 
18 programs at a combined level of $5.3 billion. The fiscal year 2007 
budget proposes only $3.36 billion--a reduction of nearly $2 billion. 
Additionally, the fiscal year 2007 budget proposes a plan for a new 
CDBG funding allocation formula. Given the drastic cuts in funding to 
the CDBG program, altering the formula would likely result in cutting 
off CDBG funding to hundreds of municipalities--the expected loss in 
CDBG to PA is $56.5 million. How does HUD intend to achieve the impact 
of these 18 programs, with a nearly $2 billion or 37 percent reduction 
in funding?
    Answer. The fiscal year 2007 budget request for CDBG is an 
acknowledgment that HUD and its grantees are actively working to 
address the current and future effectiveness of the CDBG program. With 
regard to the proposed CDBG formula changes, a recent study by the 
Office of Policy Development and Research clearly indicates that 
targeting to community development need has fallen dramatically since 
the formula was established 30 years ago. Restoring a greater degree of 
equity to the distribution of CDBG funds will help offset any 
reductions experienced as a result of reduced funding levels. The HUD 
budget does propose consolidation of the Brownfields, Rural Housing and 
Economic Development program and the section 8 Loan Guarantee program, 
all of which can be funded as eligible activities through the mainstay 
CDBG program. In addition, these are small programs compared to the 
scale of CDBG funding.
    In addition to formula reform, the creation of a Challenge Fund 
will further target grants to effective efforts as high impact projects 
in distressed communities. Finally, the ongoing development of 
effective performance measurement efforts will add to the efficiency 
and effectiveness of the CDBG program.
    Question. How does HUD intend to address the unmet CDBG funding 
needs in municipalities that will lose funding under the new formula?
    Answer. Any proposed formula revision would not alter or restrict 
the list of CDBG eligible activities. CDBG will retain its hallmark 
flexibility and emphasis on local decision-making and, through the 
proposed formula reform, HUD will establish a strong foundation for the 
future of the CDBG program. These reforms include:
  --A proposed formula change to target to need. The formula change 
        will direct a higher proportion of resources to areas with 
        greater need than under the existing formula and areas with 
        similar needs will receive similar funding;
  --In addition, the reform includes bonus funds to reward more 
        effective grantees;
  --Finally, there is improved performance measurement, which will lead 
        to a more effective national program and greater local impacts.

                         ELIMINATION OF HOPE VI

    Question. HOPE VI enhances communities by decentralizing poverty 
and giving families an opportunity to live in mixed-income 
neighborhoods with better educational and employment opportunities. I 
have visited HOPE VI sites throughout Pennsylvania and have discovered 
the critical impact that reconstruction in these public housing 
developments has on revitalizing neighborhoods. As HOPE VI has 
accomplished one of its goals of demolishing 100,000 units--which 
suggests to me that the program has been effective--how does HUD 
propose to accomplish this level of reconstruction in the future if 
HOPE VI is eliminated?
    Answer. As a result of the HOPE VI program and other initiatives, 
the Department's goals for demolition of the worst public housing have 
been met. However, the HOPE VI program has shown to be more costly than 
other programs that serve the same population. For example, a GAO 
report (GA0-02-76) stated that the housing-related costs of a HOPE VI 
unit were 27 percent higher than a housing voucher and 47 percent 
higher when all costs were included.
    The Department recognizes the importance of addressing the current 
capital backlog within the public housing inventory and believes that 
this need can be more appropriately met through other modernization 
programs operated by the Department; e.g., the Capital Fund, Capital 
Fund Financing Program, non-HOPE VI mixed-finance development including 
leveraging private capital investment, required and voluntary 
conversion, section 30, and the use of tax credits. The Department will 
encourage housing authorities in need of this assistance to submit 
proposals under these programs. The Department has already approved 
over $2.5 billion in 61 transactions involving 131 public housing 
agencies under the Capital Fund Financing Program.
                                 ______
                                 
            Questions Submitted by Senator Pete V. Domenici

                       ELIMINATION OF SECTION 811

    Question. This is second year in a row that the administration is 
attempting a deep cut to the HUD section 811 program. For fiscal year 
2006, the proposal was to completely eliminate funding for new capital 
advance/project-based units. Congress rejected this idea in 2005--both 
the House and Senate Appropriations Committees restored funding. This 
year, the proposal is to impose another reduction to the capital 
advance/project-based side of the program--a 90 percent reduction, from 
$155.7 million, down to $15.84 million.
    Additionally, the President's New Freedom Initiative spans numerous 
Federal agencies including HHS, Education, Labor and HUD. It is 
designed to promote integration of people with disabilities into the 
mainstream of community life through access to health care, education, 
employment and housing. It is based on the principle of life in the 
community as an alternative to institutional settings such as nursing 
homes and psychiatric hospitals. These deep reductions to the 811 
program run completely against the important national goals contained 
in the New Freedom Initiative.
    Secretary Jackson, how are States and communities supposed to 
continue progress toward eliminating costly institutional care if 811 
is eliminated as a tool for developing permanent supportive housing?
    Answer. The budget proposes $119 million for the Housing for 
Persons with Disabilities program. Despite the section 8 funding 
absorbing a majority of the Department's budget, we are able to direct 
significant funding to the section 811 program that provides for: (1) 
funds to renew and amend existing contracts; (2) $13.2 million for the 
construction of additional new units, and (3) continued financial 
support for the 27,000 units that we have already constructed and for 
the 314 projects (about $400 million) in the construction pipeline.
    Question. What resource will replace the permanent supportive 
housing developed by section 811?
    Answer. We have not abandoned new construction in favor of 
vouchers. We believe that both forms of assistance are needed to 
properly serve persons with disabilities.
                                 ______
                                 
                Question Submitted by Senator Herb Kohl

                          CUTS TO SECTION 202

    Question. The section 202 program provides funding for local non-
profit agencies to construct and manage housing for low-income seniors. 
The section 202 program creates safe and affordable communities where 
senior residents have access to the services that allow them to live 
independently. With the number of individuals over the age of 65 
expected to double in the next 24 years, how can you explain the 
proposal in the administration's budget to cut section 202 funding by 
$190 million in fiscal year 2007?
    Answer. Despite the fact that section 8 renewal funding absorbed a 
majority of the Department's budget, we are able to direct significant 
funding ($546 million) to the section 202 program to provide for: (1) 
congregate services; (2) service coordinators; (3) funding to convert 
projects to assisted living; $414.8 million for the construction of new 
units; and (4) funds to renew and amend existing contracts.
    The Department has always and continues to be a proponent of 
housing for the elderly. We have constructed approximately 400,000 
units specifically for the elderly and have 342 projects (about $1.6 
billion) in the construction pipeline. In addition, we serve an 
additional 675,000 elderly families under other HUD rental assistance 
programs.
    We also are ensuring that elderly families who own homes can remain 
there through FHA's reverse mortgage program. In 2005, we insured 
43,131 reverse mortgages and we are seeing a steady increase in this 
area.
                                 ______
                                 
            Questions Submitted by Senator Richard J. Durbin

                          WHY CUT CDBG FUNDS?

    Question. I met with many of the Chicago aldermen last week while 
they were here in Washington, and one of the first things they asked me 
about was Community Development Block Grants. They asked: should we 
just assume a 10 percent cut in CDBG funds when we plan our upcoming 
budgets? They went on to tell me how devastating that would be, and how 
much good they can do in their local communities in Chicago thanks to 
those CDBG funds. So my question is this: why does the Bush 
Administration want to cut CDBG funds each and every year?
    Answer. The administration's fiscal year 2007 budget requests more 
than $3 billion in funding for CDBG. While the request is lower than 
the fiscal year 2006 appropriation level, the accompanying formula 
reforms will enable these funds to be better targeted to the Nation's 
most distressed communities. Over time, the program's targeting to 
community development need has been diffused as a result of demographic 
changes, development patterns and other factors. Therefore, HUD is 
proposing to reform the program so that it can continue to meet its 
objectives. Reform has four components: formula reform to restore 
appropriate targeting and preserve fairness in the distribution of 
funds; creation of a Challenge Fund that would enable effective CDBG 
grantees to obtain additional funding for community and economic 
development activities in distressed neighborhoods; consolidation of 
duplicative programs; and implementation of a performance measurement 
framework to establish clear, measurable goals of community progress to 
show the results of our formula programs. In addition, each CDBG 
grantee will retain the ability to utilize their CDBG funds as they see 
fit, but will have to carefully prioritize their needs in order to use 
those funds most effectively.

                     CAN HUD AND HHS WORK TOGETHER?

    Question. We all share the goal of eliminating the homelessness 
epidemic in this country. The experts tell me that in order to do so 
the chronically homeless must be provided with services such as 
addiction treatment, mental health counseling, job training, and so 
forth in addition to housing, in order to keep them off the street and 
help them become productive members of society. Do you believe that 
your department can best manage the provision of these services, or 
should the Department of Health and Human Services handle this effort? 
If HHS should be doing this, how can you ensure that HUD and HHS will 
effectively work together to provide the complete services that these 
folks desperately need?
    Answer. The McKinney-Vento Act authorizes the use of HUD funds for 
a variety of supportive services through the Department's Supportive 
Housing Program. As such, since enactment of the Act, HUD has provided 
funding for housing as well as supportive services. HUD has and 
continues to work closely with the Department of Health and Human 
Services (DHHS) and other departments that provide supportive services 
for homeless persons, including the Departments of Veterans Affairs and 
Labor. All such agencies are members of the U.S. Interagency Council on 
Homelessness (ICH). The ICH agencies have been working collaboratively 
on a number fronts in recent years, including demonstration programs to 
provide needed housing and supportive services for chronically homeless 
persons. In these demonstrations, HUD provided resources for housing, 
and other agencies, including DHHS, provided needed supportive 
services. These demonstrations, now underway, will provide useful 
insights on collaborations between the Federal partners involving 
housing and services.

               CAN HUD PROVIDE HOUSING DURING DISASTERS?

    Question. We've watched in disgust as the Gulf Coast residents who 
lost their homes to Hurricane Katrina have been locked in sports 
stadiums, bused to different States, kicked out of hotels . . . and 
maybe, just maybe, offered a trailer in a location that is not at all 
conducive to finding a job or rebuilding a sense of community. FEMA has 
shown that it is simply not up to the challenge of providing permanent 
housing to such a large number of displaced families. What can HUD do 
to step in here on behalf of the families in the Gulf? In preparation 
for the next disaster, what role should HUD be prepared to play in 
providing both short term and long term housing to those in need?
    Answer. The $11.5 billion enacted for disaster assistance under the 
Community Development Block Grant program can be used by States to 
address the housing needs of families in the Gulf. The flexibility of 
the CDBG program works well in the grey area between temporary and 
permanent housing solutions. Each of the five States has a housing 
component in its action plan for disaster recovery. Mississippi and 
Louisiana will directly undertake programs that focus on housing. 
Alabama, Florida, and Texas will distribute their allocations to 
various units of general local government to address housing needs. In 
addition, Texas plans to allocate funding to councils of governments to 
carry out housing as part of their overall activities.
    Following issuance of the report, The Federal Response to Hurricane 
Katrina: Lessons Learned, and at the direction of the Homeland Security 
Council, HUD began actively exploring options for implementing the 
recommendation that HUD become the lead Federal agency for the 
provision of temporary housing should that transfer of responsibility 
occur. HUD's preparation involves consideration of comprehensive and 
scalable program designs, operations and logistics, program 
authorities, and appropriation resources for temporary disaster housing 
program funding, staffing, travel, training, etc.

             WHY CUT FUNDING FOR THE ELDERLY AND DISABLED?

    Question. At a time in which the President continues to push hard 
for making permanent the tax cuts that overwhelmingly benefit the 
wealthy, how can you at the same time justify cutting funding that 
supports the housing needs of the elderly and the disabled? What does 
that say about the morals and the priorities of this administration?
    Answer. The $1.1 billion increased cost of serving the roughly 3.4 
million families currently receiving section 8 rental assistance 
required that the Department make some very difficult funding 
decisions. Our first priority had to be to families currently receiving 
subsidy.
    However, despite the fact that section 8 renewal funding absorbed a 
majority of the Department's budget, we are able to direct significant 
funding ($546 million) to the section 202 program to provide for: (1) 
congregate services; (2) service coordinators; (3) funding to convert 
projects to assisted living; $414.8 million for the construction of new 
units; and (4) funds to renew and amend existing contracts.
    In addition, proposed sufficient funding for the section 811 
program provides for: (1) funds to renew and amend existing contracts; 
(2) $13.2 million for the construction of additional new units; and (3) 
continued financial support for the 27,000 units that we have already 
constructed and for the 314 projects (about $400 million) in the 
construction pipeline.
                                 ______
                                 
             Questions Submitted by Senator Byron L. Dorgan

           HOUSING FOR THE ELDERLY AND DISABLED PROGRAM CUTS

    Question. A large number of North Dakotans who take part in public 
housing programs are elderly or disabled. Many of these folks cannot 
work, and if they do, cannot afford suitable housing without 
assistance. We are now on the front edge of the boomers turning senior 
and my State doesn't have housing available for the rapidly growing 30 
percent of median and under portion of this group. This is a problem 
that the section 202 Elderly Housing Program and section 811 Disability 
Housing Programs were designed to address. In my opinion, these 
programs should be expanding not contracting. If you were in my shoes, 
how would you justify cutting section 202 by 25 percent and section 811 
by 50 percent to my constituents?
    Answer. Our first priority for fiscal year 2007 was to provide for 
the $1.1 billion in increased costs associated with serving the roughly 
3.4 million families currently receiving section 8 rental assistance. 
This required that the Department make some very difficult funding 
decisions.
    However, despite the fact that section 8 renewal funding absorbed a 
majority of the Department's budget, we are able to direct significant 
funding ($546 million) to the section 202 program to provide for: (1) 
congregate services; (2) service coordinators; (3) funding to convert 
projects to assisted living; $414.8 million for the construction of new 
units; and (4) funds to renew and amend existing contracts.
    In addition, proposed sufficient funding for the section 811 
program provides for: (1) funds to renew and amend existing contracts; 
(2) $13.2 million for the construction of additional new units; and (3) 
continued financial support for the 27,000 units that we have already 
constructed and for the 314 projects (about $400 million) in the 
construction pipeline.

               CUTS TO COMMUNITY DEVELOPMENT BLOCK GRANTS

    Question. This year, the President's budget calls for a $1 billion 
reduction in the CDBG program, representing a 25 percent loss in 
funding from last year's levels. Because of its flexibility and use in 
a variety of projects, local and State governments in Grand Forks, 
Fargo, and other North Dakota communities have come to rely on the 
program as the cornerstone of any new community revitalization effort. 
Folks at various North Dakota Housing Authorities tell me that for 
every $1 of the CDBG program invested in communities, $3 are leveraged 
in private funding, bringing much-needed investment, and jobs in North 
Dakota communities. I support this program and am pleased that Congress 
rejected the administration's proposal to eliminate CDBG last year. I 
see the proposed cuts as evidence that the administration is abandoning 
its commitment to America's communities in the guise of reform. How 
would you respond to that, Mr. Secretary?
    Answer. The administration's fiscal year 2007 budget proposal is a 
clear statement of commitment to America's communities and of support 
for the CDBG program. It retains the program at HUD, funds it at a 
level of $3 billion, and proposes a series of legislative initiatives 
that will ultimately strengthen the CDBG program. HUD is committed to 
seeing these reforms enacted and establishing a strong foundation for 
the future of the CDBG program. These reforms include:
  --A proposed formula change to target to need. The formula change 
        will direct a higher proportion of resources to areas with 
        greater need than under the existing formula and areas with 
        similar needs will receive similar funding;
  --In addition, the reform includes bonus funds to reward more 
        effective grantees;
  --Finally, there is improved performance measurement, which will lead 
        to a more effective national program and greater local impacts.

   NATIVE AMERICAN HOUSING AND SELF-DETERMINATION ACT BILL LANGUAGE 
                              CONTINUATION

    Question. The fiscal year 2007 budget requests the continuation of 
bill language included in last year's HUD appropriations Act that 
amends the Native American Housing and Self-Determination Act funding 
formula to require that HUD distribute funds on the basis of single-
race or multi-race data, whichever is the higher amount. What is the 
Department rationale for including this language in fiscal year 2007, 
given that it generated a fair amount of controversy among the tribes 
and tribally designated housing entities in fiscal year 2006? Wouldn't 
it be preferable to consider whether changes are appropriate to the 
funding formula as part of the NAHASDA reauthorization process, which 
we will be engaged in the 110th Congress?
    Answer. The fiscal year 2006 HUD Appropriations Act (2006 Act) 
contains a provision directing the Department to implement what is 
commonly known as the ``hold harmless'' provision. This calls for the 
Need component of the Indian Housing Block Grant (IHBG) formula to be 
calculated twice for each tribe, once using single-race data and once 
using multi-race data. Each tribe is then awarded the higher of those 
two amounts.
    Until reauthorization of the Native American Housing Assistance and 
Self-Determination Act (NAHASDA) is addressed, and Congress determines 
what statutory changes, if any, it will enact during the 
reauthorization process, the Department has determined that the best 
course of action to follow is to continue the methodology Congress 
provided in the 2006 Act. This will ensure stability and continuity in 
the way that IHBG recipients receive their IHBG formula funding.

                 RISING UTILITY COSTS IN PUBLIC HOUSING

    Question. Public housing and voucher program participants make a 
monthly housing payment that covers rent and utilities. As utility 
costs skyrocket, energy costs consume a greater and greater proportion 
of the housing payment. This means that housing authorities receive 
less in the form of rent for public housing. The utility over payments 
in the Voucher program come directly out of the fixed administrative 
fees allocated by HUD. In public housing, I'm told that increased 
utility costs could easily tap out these reserves. Under the 
President's proposal, there is not a utility allowance adjustment. Do 
you think that HUD is prepared to cover skyrocketing utility bills?
    Answer. While the Department will not know the actual cost of 
utilities for fiscal year 2006 until PHAs submit their financial 
statements for the past 5 to 7 years, PHA utility costs have remained 
relatively stable with no dramatic spikes. Immediately after Hurricane 
Katrina, utility rates spiked and then came down considerably.
    The 2007 Utility Expense Level (UEL) for the Public Housing 
Operating Fund is calculated based upon a 3-year rolling average to 
account for increases as well as decreases in the cost of utilities 
over a period of time. Although, the Department's 2007 utility expense 
estimate is based on actuals from a 3-year rolling base inflated by the 
OMB utility inflation factor of minus 1.8 percent, it is difficult to 
estimate the impact of utilities without actual cost data.
    However, over the past 3 fiscal years (2003-2005), PHAs have been 
able to retain over $100 million in excess utility payments made to 
them, which are available as a part of their operating fund reserves to 
cover operational and maintenance costs of their program. Also, to 
reduce the cost of utilities, the Department encourages PHAs to enter 
into energy performance contracts, and to also switch to tenant-paid 
utilities. Switching to tenant-based utilities does not shift the cost 
of utilities to the persons needing the assistance because the tenant's 
rent is lowered by the amount of the standard utility allowance, and 
the tenant becomes responsible for the entire utility cost, above or 
below what the standard utility allowance was before the change in 
policy. This will encourage personal responsibility of tenants in 
conserving energy and reducing utility consumption and will reduce, or 
at least make predictable, the utility expense of the PHA and the 
Department. In addition, the Energy Policy Act allows for energy 
performance contracts to run for up to 20 years instead of 12 years. 
This should allow PHAs and HUD greater certainty in planning their 
utility expenses, and responding to unexpected variations in 
consumption or price.
    The Housing Choice Voucher program assists families with the gross 
rent, which is not only the rent due to the owner, but also includes 
applicable utility allowances for any tenant supplied utilities. The 
individual PHA establishes the utility allowances for its program. 
These allowances must be based on the typical cost of utilities and 
services paid by energy-conservative households that occupy housing of 
similar size and type in the same community. In accordance with 24 CFR 
982.518(c), the PHA must review its schedule of utility allowances each 
year, and must revise its allowance for a utility category if there has 
been a change of 10 percent or more in the utility rate since the last 
time the utility allowance was revised. Funding to cover these 
allowances is part of the Housing Assistance Payment (HAP) subsidy 
amount provided by HUD for rental assistance; it is not part of the 
administrative fee provided to a PHA to manage the program. Starting in 
fiscal year 2005, Congress has provided funding to PHAs based on a 
budgetary formula and has directed PHAs to manage all increases in HAP 
costs, including increases in utility allowances, within that budgetary 
allocation.
                                 ______
                                 
            Questions Submitted by Senator Patrick J. Leahy

               CUTS TO COMMUNITY DEVELOPMENT BLOCK GRANTS

    Question. This is the second year that the President's budget seeks 
drastic cuts and changes to CDBG. The request would slash CDBG by over 
$1 billion, leaving funding at its lowest level since 1990. This 
program is a critical source of funding for affordable housing, 
supportive services, public improvements, and community and economic 
development.
    The National Low Income Housing Coalition estimates that if further 
cuts to CDBG are enacted, then an estimated 97 percent of the more than 
1,000 communities that have held entitlement status since fiscal year 
2004--when we reached the highest level of CDBG funding under this 
administration--or earlier would have their CDBG allocation slashed by 
at least one-third. Each State would also see its allocation reduced by 
at least a third compared to the fiscal year 2004 funding level.
    Secretary Jackson, your Department is principally responsible for 
housing and community development. How do you justify a budget that 
slashes funding for this most successful initiative that supports 
economic development and affordable housing?
    Answer. The fiscal year 2007 budget of $3.032 billion for CDBG 
reflects a reduction of approximately $700 million from the enacted 
fiscal year 2006 level. The administration's fiscal year 2007 budget 
proposal recognizes the value of the CDBG program to local community 
development efforts in two ways. First, it maintains the CDBG program 
at HUD as opposed to consolidating or transferring it to another 
agency. Second, the budget requests funding for the CDBG program at a 
level of more than $3 billion. In addition, the fiscal year 2007 budget 
proposal improves the effectiveness of the program in several 
significant ways. The proposal is as follows:
  --proposed formula change will direct a higher proportion of 
        resources to areas with greater need than under the existing 
        formula and areas with similar needs will receive similar 
        funding;
  --bonus funds will be established to provide additional funds to more 
        effective grantees; and
  --improved performance measurement will lead to a more effective 
        national program and greater local impacts.

               CUTS TO COMMUNITY DEVELOPMENT BLOCK GRANTS

    Question. Is it the President's intention to focus this program 
solely on job creation and economic development? If so, why don't we 
call this what it is--the elimination of community development as part 
of HUD's core mission?
    Answer. The proposed reforms of the CDBG program will not alter or 
restrict the list of CDBG eligible activities. Thus, grantees will 
continue to make their own decisions as to the activities they will 
fund with their CDBG dollars--be it public services, infrastructure, 
housing or economic development. The reforms will achieve three goals--
CDBG formula reform, improved performance measurement standards for 
CDBG and implementation of a challenge grant to provide targeted 
development grants to high impact projects in distressed communities.

     CONSOLIDATION OF HUD'S SMALLER COMMUNITY DEVELOPMENT PROGRAMS

    Question. I noted that the President's proposal from last year for 
the ``Strengthening America's Communities Initiative'' remains alive in 
the fiscal year 2007 budget request. The administration was soundly 
beaten back by Congress last year on its proposal to consolidate and 
slash funding under this initiative for several smaller economic and 
community development programs with larger programs like CDBG.
    The administration pursues this misguided goal for fiscal year 2007 
with a proposed consolidation of CDBG with Brownfields Redevelopment 
grants, Rural Housing and Economic Development, and section 108 Loan 
Guarantees. It again proposes no funding for these smaller programs and 
would fund CDBG at 20 percent less than this year.
    Since the fiscal year 2007 budget request would fund CDBG at 
substantially less than this year, as well as consolidate it with those 
other programs, how do you magically propose to do so much more with so 
much less?
    Answer. The key will be reform of the CDBG formula. A recent study 
by the Office of Policy Development and Research found that one of the 
problems with the CDBG formula is that some communities with little 
need for CDBG funds have received much more on a per capita basis than 
many communities with much greater needs. Restoring a greater degree of 
equity to the distribution of funds will help offset any reductions 
experienced as a result of reduced appropriations levels. The budget 
does propose consolidation of the Brownfields Economic Development 
Initiative (BEDI), Rural Housing and Economic Development Program, and 
the section 108 Loan Guarantee Programs under CDBG. In almost every 
case, the activities eligible for assistance under these programs can 
be funded through the CDBG program. This point is demonstrated by the 
fact that the section 108 and BEDI programs are authorized through the 
CDBG statute and utilize the CDBG eligible activities list to define 
their eligible activities.

                        CUTS TO HOUSING PROGRAMS

    Question. I was pleased to see an increase this year for the 
section 8 voucher program in fiscal year 2007. Finding an affordable 
place to live is becoming increasingly difficult for many working 
families in Vermont and the section 8 program often helps bridge the 
gap for families who are struggling to make ends meet.
    Unfortunately due to inadequate funding in fiscal year 2005, local 
housing agencies budgets continue to be cut this year. Some estimate 
that 80,000 fewer families may be served by the voucher program as a 
result, over 200 of those in Vermont. The increase in the fiscal year 
2007 budget is enough to undo about half of these reductions--and I 
thank you for that--but it still falls short of the money needed to 
restore the cuts we have seen over recent years.
    In other areas of the budget we see additional rollbacks. The 
public housing capital fund is cut by 11 percent, the operating fund is 
level-funded despite the need for additional funding for the operation 
of public housing under the new asset-based management system, funds 
for housing for persons with disabilities have been cut in half, HOME 
formula grants have been reduced, housing for the elderly programs have 
been slashed, and both fair housing programs and lead-based paint 
grants have been cut.
    Mr. Jackson, each year the administration submits a budget for HUD 
that is littered with bullet holes--one year it is section 8, the next 
it is public housing, the next it is CDBG--and each time the 
subcommittee is left holding the bag. Can you offer me any assurances 
that this will not continue in future years?
    Answer. While some, including the Center for Budget and Policy 
Priorities (CBPP), forecasted that approximately 80,000 fewer families 
would be able to be assisted given the administration's funding request 
for fiscal year 2005, this has turned out not to be so. In fact more 
families were assisted in fiscal year 2005 than the previous year and 
the CBBP has retracted its initial fiscal year 2005 projections in a 
footnote to its 2006 report. The Department has not been made aware of 
a single family in the State of Vermont displaced as a result of the 
fiscal year 2005 budget for the Housing Choice Voucher Program.
    HUD has been consistent in its support for the section 8 program. 
The administration agrees with the appropriators in that the most 
effective way to deliver section 8 rental assistance is through a fixed 
budget that allows public housing agencies to properly plan their 
operations. In support of that approach the President's budget request 
currently being debated, includes a $380 million budgetary increase 
over 2006 funding levels coupled with a number of key legislative 
proposals aimed at further improving the efficiency of the Housing 
Choice Voucher Program. HUD will continue to actively engage in 
communication with Congress to ensure these important reforms are 
enacted. By measuring outcomes and aligning incentives, these important 
programs will be even better.

                   CUTS TO PROPOSED HOUSING PROGRAMS

    Question. How do you expect to run a Department whose core programs 
are being eroded away bit by bit?
    Answer. By appropriately prioritizing resources and proposing 
reforms to key Departmental programs, including section 8 and CDBG, HUD 
can continue the advances for the good of the low-income community. 
Those programs that are not able to drawdown all of its funds or are 
simply inefficient, must be reformed. HUD will continue to work with 
Congress to ensure these key reforms are enacted.

                          SUBCOMMITTEE RECESS

    Secretary Jackson. Thank you.
    Senator Bond. Thank you very much. The hearing is recessed.
    [Whereupon, at 11:04 a.m., Tuesday, March 2, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
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