[House Hearing, 110 Congress] [From the U.S. Government Publishing Office] H.R. 2895, THE NATIONAL AFFORDABLE HOUSING TRUST FUND ACT OF 2007 ======================================================================= HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS FIRST SESSION __________ JULY 19, 2007 __________ Printed for the use of the Committee on Financial Services Serial No. 110-53 U.S. GOVERNMENT PRINTING OFFICE 38-393 PDF WASHINGTON DC: 2007 --------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866)512-1800 DC area (202)512-1800 Fax: (202) 512-2250 Mail Stop SSOP, Washington, DC 20402-0001 HOUSE COMMITTEE ON FINANCIAL SERVICES BARNEY FRANK, Massachusetts, Chairman PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama MAXINE WATERS, California RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York DEBORAH PRYCE, Ohio LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York PETER T. KING, New York MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma JULIA CARSON, Indiana RON PAUL, Texas BRAD SHERMAN, California PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York STEVEN C. LaTOURETTE, Ohio DENNIS MOORE, Kansas DONALD A. MANZULLO, Illinois MICHAEL E. CAPUANO, Massachusetts WALTER B. JONES, Jr., North RUBEN HINOJOSA, Texas Carolina WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois CAROLYN McCARTHY, New York CHRISTOPHER SHAYS, Connecticut JOE BACA, California GARY G. MILLER, California STEPHEN F. LYNCH, Massachusetts SHELLEY MOORE CAPITO, West BRAD MILLER, North Carolina Virginia DAVID SCOTT, Georgia TOM FEENEY, Florida AL GREEN, Texas JEB HENSARLING, Texas EMANUEL CLEAVER, Missouri SCOTT GARRETT, New Jersey MELISSA L. BEAN, Illinois GINNY BROWN-WAITE, Florida GWEN MOORE, Wisconsin, J. GRESHAM BARRETT, South Carolina LINCOLN DAVIS, Tennessee JIM GERLACH, Pennsylvania ALBIO SIRES, New Jersey STEVAN PEARCE, New Mexico PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas KEITH ELLISON, Minnesota TOM PRICE, Georgia RON KLEIN, Florida GEOFF DAVIS, Kentucky TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina CHARLES WILSON, Ohio JOHN CAMPBELL, California ED PERLMUTTER, Colorado ADAM PUTNAM, Florida CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois ROBERT WEXLER, Florida KENNY MARCHANT, Texas JIM MARSHALL, Georgia THADDEUS G. McCOTTER, Michigan DAN BOREN, Oklahoma Jeanne M. Roslanowick, Staff Director and Chief Counsel C O N T E N T S ---------- Page Hearing held on: July 19, 2007................................................ 1 Appendix: July 19, 2007................................................ 71 WITNESSES Thursday, July 19, 2007 Alberghini, Lisa B., Director, Planning Office for Urban Affairs, Archdiocese of Boston.......................................... 47 Cisneros, Henry, Executive Chairman, CityView.................... 41 Crowley, Sheila, President, National Low Income Housing Coalition 43 Euille, Hon. William D., Mayor, Alexandria, Virginia, on behalf of the U.S. Conference of Mayors............................... 45 Montgomery, Hon. Brian D., Assistant Secretary for Housing- Federal Housing Commissioner, U.S. Department of Housing and Urban Development.............................................. 13 Myer, Joe L., Executive Director, NCALL Research, Inc., on behalf of the National Rural Housing Coalition........................ 68 Poole, JoAnne, Broker/Owner, Poole Realty, on behalf of the National Association of Realtors............................... 49 Roberts, David I., Chief Executive Officer and President of Lutheran Homes Society......................................... 61 Sandel, Dr. Megan, Assistant Professor of Pediatrics, Boston University School of Medicine.................................. 66 Shelton, Hilary O., Director, Washington Bureau, National Association for the Advancement of Colored People.............. 64 Thompson, Barbara, Executive Director, National Council of State Housing Agencies............................................... 62 APPENDIX Prepared statements: Brown-Waite, Hon. Ginny...................................... 72 Gillmor, Hon. Paul E......................................... 73 Alberghini, Lisa B........................................... 74 Cisneros, Henry.............................................. 80 Crowley, Sheila.............................................. 87 Euille, Hon. William D....................................... 96 Montgomery, Hon. Brian D..................................... 109 Myer, Joe L.................................................. 113 Poole, JoAnne................................................ 119 Roberts, David I............................................. 126 Sandel, Dr. Megan............................................ 138 Shelton, Hilary O............................................ 143 Thompson, Barbara............................................ 146 Additional Material Submitted for the Record Frank, Hon. Barney: Statement of Habitat for Humanity............................ 151 Letter from the Mortgage Bankers Association................. 155 Statement of the National Association of Home Builders....... 157 New York Times editorial..................................... 166 H.R. 2895, THE NATIONAL AFFORDABLE HOUSING TRUST FUND ACT OF 2007 ---------- Thursday, July 19, 2007 U.S. House of Representatives, Committee on Financial Services, Washington, D.C. The committee met, pursuant to notice, at 10:04 a.m., in room 2128, Rayburn House Office Building, Hon. Barney Frank [chairman of the committee] presiding. Present: Representatives Frank, Waters, Velazquez, Watt, Moore of Kansas, Capuano, McCarthy, Baca, Lynch, Green, Cleaver, Sires, Ellison, Klein, Boren; Bachus, Castle, Royce, Gillmor, Biggert, Shays, Miller of California, Feeney, Hensarling, Garrett, McHenry, and Bachmann. The Chairman. This hearing of the Financial Services Committee will come to order. For those of you who were paying attention to yesterday's hearing, I'm going to deviate from the precedent set yesterday, and wait for the opening statements before I ask my first question. That will be a change from yesterday's procedure. In fact, I may not even be here for the first question because this is an issue, the National Housing Trust Fund, on which the gentlewoman from California, the chairwoman of the Housing and Community Opportunity Subcommittee, and I have been very much engaged in an equal partnership, and she will be presiding over the hearing. I will in fact be going over to stop in at the press conference being held by the Homeless Coalition, which recognizes this bill as an important part of their program since the main cure for homelessness is a home, the absence of which is hard to overcome. I do want to say that this bill is, in my mind, one of the most important we will be considering. I think expanding the Children's Health Insurance Program is the single greatest contribution this Congress can make to improving the quality of life for some of our fellow citizens who are most in need of compassionate assistance. But I believe if we get this bill done it will be the second most important institutional response. In any one year, the number of units may not look huge, but housing units, as well-constructed as we believe they will be under this program, will last for 30 and 40 and 50 years so that at the end of a dozen or 15 years this bill will have made a significant contribution to alleviating one of the great shortages in this country, which is affordable housing. I will leave all the details for later. I do want to acknowledge Commissioner Montgomery, and he is the appointee of an Administration with whom we have some philosophical differences. Within that framework we have been able to cooperate with the Commissioner in ways that I think have been mutually beneficial. I want to acknowledge the assistance he has given, and I want to say that even on areas where I know we might have had some ultimate policy disagreement, we've been able to trust fully what he told us, and we appreciate that. I do want to comment on one point which is that some have suggested that one of the contributions to the fund--and let me just talk about the money for the fund, not from appropriations, but from other housing related activities, some of it comes from Fannie Mae and Freddie Mac. Now I do find a great inconsistency on the part of some who have been arguing for years that Federal legislation gives Fannie Mae and Freddie Mac an undue advantage, that they are able to borrow cheaply in the marketplace because of this perception of a Federal backup that I think is an inaccurate perception, and that Fannie and Freddie benefit too much from this and don't do enough for the public. Agreeing with that, we responded by saying, yes, we will take a small percentage of the money that they make, far less than they get from these advantages, and require it to go to affordable housing. Having done that, some of the same people who told us we were letting Fannie and Freddie get away with murder now say we are being unfair to the murderers. Somehow it is no longer a case of Fannie and Freddie getting too much from these advantages, but us preying on these poor, unsuspecting private corporations. They are not wholly private corporations. They are quasi-public entities and we think that the alternative of reducing the advantages they get and diminishing the amount of money that's available for housing is not a good one. The other choice, of course, is to leave the status quo in which they get more benefit than they should and that they pay back. And we've taken what we think is the middle course. We leave the benefits, although with greatly increased regulation, but we use some of that money for good public purpose. Similarly with the FHA, our bill, contrary to suggestions that it's going to lead to FHA fee increases, in the bill that our committee passed we seek to prevent the Bush Administration from increasing FHA fees not because there is a need to do that to do FHA business but to help benefit the general Treasury. And section 30 of the bill would prohibit HUD from increasing any FHA premium above the level that was in effect at the beginning of this fiscal year unless the Secretary shows that in the absence of an increase the program would require a subsidy from the Congress. So we, in fact, strengthen the resistance to FHA fee increases, and that applies to what we're doing here. If anything in this legislation that we have passed on the FHA that would get incorporated here were to cause a fee increase that would kick in. So we in fact prohibit fee increases. In fact our bill says no money goes to the housing fund if it were threatened, a fee increase. So the truth is that the bill that we passed already on the FHA, and it's all part of one package conceptually, prevents a fee increase that is being contemplated. And I will say, and I don't ask for any comment on this, that my sense is that the desire for this fee increase did not come from the FHA and that it did not come from HUD, but it came from OMB. That is to be the FHA's contribution to the war in Iraq. And we make it very clear that the FHA fee should increase only if there was a need to do that for FHA business. With that, I am going to move on. I do want to say that I can appreciate that within these differences we've been able to work with the Commissioner. I am sorry that I will have to miss our former Secretary, Secretary Cisneros. I had a privilege of working as a committee member under the regime of the two Henrys, Henry B and Henry C; Henry B. Gonzalez, who is up here, and Henry Cisneros, our two Texas housing champions, whose very fruitful collaboration continues to benefit this country today. I thank the witnesses in advance for all that they have done, and I will now turn the hearing over to the gentlewoman from California. First, I'll recognize the gentleman from Alabama. Mr. Bachus. Thank you, Mr. Chairman, for holding today's hearing on your legislation to establish a National Affordable Housing Trust Fund. We truly do have an all-star lineup of witnesses, and expect this to be a very good hearing. This is not the first time that this committee has had occasion to consider creating a National Affordable Housing Trust Fund. Our other hearings on that matter--and I want to say again today, no one questions the chairman's commitment, nor the majority or members of the minority's commitment to affordable housing needs of low-income Americans. I certainly share the chairman's belief that for many of our citizens those needs are going unmet currently. In our debates on creating a National Housing Fund in the past, in those debates--we had them when the GSE reform bill came before us, which included creating a National Affordable Housing Fund. When the FHA modernization legislation came before us it also had provisions creating a National Affordable Housing Fund. During those debates members on this side of the aisle questioned the wisdom of diverting resources from middle-class homeowners and from the surplus generated by FHA programs to fund other housing needs. And while these arguments certainly apply to the legislation that is the subject of today's hearing, I want to direct my concerns on this legislation to a different set of concerns. The chairman and I do not differ on outcomes. We both--as I said earlier in my statement, and I think the FHA and most of the witnesses, we all agreed that the needs of low-income housing citizens need to be addressed, and in some cases they are unmet. But what the chairman and many of the majority and those of us on this side of the aisle--and there are those with different opinions. We have some on this side of the aisle who are actually cosponsors of the chairman's legislation but many of us--we don't differ on the outcome or the goal, what we differ on is the means of achieving the goal, of meeting the needs of our low-income citizens. Rather than creating yet another housing bureaucracy or another housing program, I believe that our focus ought to be on increasing the efficiency of the existing programs. In this regard it is worth remembering that HUD already administers over 30 separate Federal programs designed to promote affordable housing opportunities for lower-income Americans and that these programs consumed the bulk of HUD's $35 billion budget during the last fiscal year. Indeed, the Affordable Housing Trust Fund outlined in Chairman Frank's bill is modeled to a great degree on one of those HUD initiatives, the Home Investment Partnership Program. The latest Federal Block Grant for States--I mean, I'm sorry, the largest Federal Block Grant for State and local government, HOME is designed to create affordable housing for low-income households. It is a successful program. It has a proven track record. Establishing another, a new housing trust fund, separate and apart from HOME and promulgating new regulations and rules at HUD could take months or years to properly implement. HOME is already up and running with 50 States, 585 local governments, and four insular areas presently administering the existing successful program. Rather than reinventing the wheel, I believe a better approach would be to take this opportunity to make an already successful Federal program work better by using HOME to increase production and preservation of mixed income and rental housing affordable to very-low and extremely-low-income families. Mr. Chairman, members of the committee, let me conclude by once again reiterating that I believe most of the members of this committee, both Republican and Democrat, are committed to finding resources to help low- and very-low-income families. However the difference is in whether we create a new program or utilize an existing program. I thank the chairman and the subcommittee chairman for holding this hearing, I thank our witnesses for taking time to be with us this morning, and I look forward to your testimony. Ms. Waters. [presiding] Thank you very much. I will recognize myself for 5 minutes. I'd first like to thank Mr. Barney Frank for holding this hearing and for all of his work on this critical piece of legislation. It is truly his vision that has brought us to this point. What Mr. Frank has done in bringing this bill to the House and to the Congress of the United States has opened up new opportunities to increase the housing stock for low- and moderate-income people, and I'm very grateful for his vision, his leadership, and the opportunity to work with him. I want to mention briefly the event I just came from because it is relevant to the hearing today. Over in the Cannon Building, a few of us joined national homeless organizations and some formerly homeless individuals helped by the programs of the McKinney-Vento Homeless Assistance Act, an event marking the 25th anniversary of that bill's enactment in July of 1987. I say the event marked the 20th anniversary of the McKinney-Vento Act because this is hardly a birthday that calls for celebration. Indeed there is more stinging indictment of recent Federal housing policy than the fact that widespread homelessness persists in the wealthiest nation on the planet 20 years after the Federal Government officially recognized its first reoccurrence since the Great Depression. I don't mean to suggest that no progress has been made in addressing homelessness in the last 2 decades, as we will explore in depth in a series of Housing Subcommittee hearings on homelessness, which I will convene after Congress returns from the August recess. We know much more about the how to meet the needs of various homeless households with different needs. We will build on that knowledge in the subcommittee. But the bottom line on homelessness is the bottom line, which is that we haven't made demonstrable progress in reducing the number of households experiencing homelessness nationwide since 1987. Indeed, despite lots of heartwarming individual success stories and a dedicated nonprofit field across the country, we may very well have lost ground. Homeless people are notoriously difficult to count for obvious reasons but there is little evidence that the 800,000 or so people whom we know pretty reliably to be homeless on any given night, over 10 percent of them in Los Angeles alone, are a lower number than the day the McKinney-Vento Act was past. And it's almost certainly not a reduction compared to the first rigorous national homeless count conducted in 1996. Sadly one reason for this is easy to identify. While some homeless people face personal challenges like mental illness, HIV/AIDS, or histories of trauma that require social services, health, or other support, every homeless individual and family shares one need in common, housing they can afford, and there simply is not enough of it right now. To give one example, there are 9 million renter households who earn less than 30 percent of area median income, but only 7.2 million affordable units are available to them. You don't need to have the math skills of Federal Reserve Chairman Bernanke, who joined us yesterday, to know that the inevitable results of subtracting these figures is widespread homelessness. For too long, the Federal Government has abdicated this responsibility to close this gap. I'm going to read to you a sentence from the Congressional Record, a quote, ``If we in Congress had not succumbed to the administration's efforts to slash, cut and terminate our assisted housing programs many of the people on our streets today would not be there.'' This might well have been plucked randomly from most of the homelessness and housing hearings over the past 7 years. In fact, it is a quote from the late Housing Subcommittee and later full committee chair, Henry Gonzales, rising on the House Floor on March 5, 1987, to speak in support of the bill that would become the McKinney-Vento Homeless Assistance Act. He goes on to call for the Federal Government to couple emergency homeless assistance with restoration of cuts to major Federal housing production programs. To all of the members who are present today, I think we should all really thank Chairman Frank for introducing legislation that finally gets the Federal Government back in the affordable housing production business. And I share the chairman's insistence that we invest in affordable housing stock creation and not simply more demand- side or tenant-based subsidies. As badly needed as such subsidies are, they just don't get the job done alone, especially in tight rental markets like Los Angeles. In such places, it is difficult to get private landlords to accept vouchers at HUD's fair market rent, particularly if you're someone with a troubled housing credit or other history as many homeless individuals and families are. These households need access to housing specifically targeted to them, and the only way for that to happen is to have cities, States, and nonprofits develop it. Like the chairman, I recognize that the bill merits further conversation, and I look forward to hearing from our panels of witnesses. A lot of thought has already gone into balancing priorities and its targeting of resources, eligible uses, control over distribution, and other heavily discussed provisions. But I'm very interested in the witnesses' perspectives. I do though want to make sure that we keep our eye on the ball. Simply put, if the Federal Government does not reengage on affordable housing at the scale of the National Affordable Housing Trust Fund and more, one of my successes as Housing Subcommittee Chair will be attending an event marking the 40th anniversary of the McKinney-Vento Act in 2027. I yield 5 minutes to Representative Biggert, the ranking member of the Subcommittee on Housing and Community Opportunity. Mrs. Biggert. Thank you Chairwoman Waters, and thanks to Chairman Frank for holding this hearing today. Madam Chairwoman, as you'll recall from the number of hearings this committee held earlier this year on H.R. 1427, the Federal Housing Finance Reform Act, and H.R. 1852, the Expanding American Homeownership Act, I have a number of concerns with the creation of a National Housing Trust Fund. While I commend this committee's goal of increasing the amount of available, affordable housing, I do not believe that H.R. 2895 is an efficient means to achieve it. And I'll make three quick points to expand on this. First, because the trust fund is financed through self-defeating provisions in both the GSE reform bill and the FHA reauthorization bill, low- and middle-income Americans, including the elderly, will have to foot the bill. Specifically, it's estimated that Fannie Mae and Freddie Mac, two entities that purchased or securitized almost 80 percent of American families' mortgages, will be taxed more than $3 billion over a 5-year period to help pay for the trust fund. As publicly traded companies accountable to their shareholders, Fannie Mae and Freddie Mac will inevitably seek to pass along these new assessments to their customers, America's low- and middle-income homeowners. This is unacceptable and will result in what amounts to a mortgage tax on these hardworking low- and middle-income Americans seeking to secure, maintain, or refinance their home mortgages. To me, it's robbing Peter to save Paul. And then second, CBO has estimated that FHA reauthorization bill could result in a $370 million surplus in 2008 and a $2.1 billion surplus over the 2008 to 2012 period. Now normally we would say that the surplus is a good thing, but not in this case. In this case the surplus would come through overcharging seniors on their reverse mortgages, and I don't think that's right. By far the majority of this FHA surplus would come from reverse mortgages premiums paid by our seniors, suggesting that they have been overcharged. As you know I have supported the ideas aimed at giving the surplus back to our seniors in the form of reduced premiums, which this committee rejected. By using the reverse mortgage product as a moneymaker to finance a National Housing Trust Fund, this bill instead instructs FHA to continue overcharging and essentially taxing our seniors. Our seniors deserve better. At the same time, this bill removes all surplus funds out of FHA, which I believe threatens the solvency of the FHA fund and its ability to pay out on insurance claims. Third, a National Housing Trust Fund unnecessarily adds another Federal housing program to the over 100 programs that already exist. The National Low Income Housing Coalition cites nearly 600 housing trust funds that have been created in cities, counties, and States of this country generating more than $1.6 billion per year to support housing needs. For example, the Affordable Housing Trust Fund in Illinois allocates approximately $16 million to $20 million each year to benefit low- and very-low-income households. Additionally, the Illinois Rental Housing Support Program provides rent subsidies for an estimated 4,000 rent burdened households. I think that these regionally tailored programs work best because they allow funds to be tailored to localized housing and community development needs. Also, to the extent that Federal programs fall short in some way, I must point out the existing federally administered program designed to serve the housing needs of low-income Americans, the Home Investment Partnership Program. This program already has the personnel, systems, and regulatory oversight in place to accomplish the same objectives as the National Housing Trust Fund. Rather than create a new Federal bureaucracy to address low-income housing availability, we should instead focus our efforts on improving the HOME program. Madam Chairwoman, again, thank you for holding this hearing. I am pleased that we are finally holding a hearing on this matter even though the committee has twice already, preemptively, moved legislation on the issue, and I look forward to hearing from today's witnesses and thank them for their time and expertise. I yield back. Ms. Waters. Thank you very much. I will recognize the gentleman from Texas, Mr. Green, for 3 minutes. Mr. Green. Thank you, Madam Chairwoman and I thank the chair of the full committee for his outstanding efforts. I'm also honored to welcome again Mr. Montgomery, who has been a real friend, and been very helpful to us, as well as Secretary Cisneros, always good to be in his company, and of course Hilary Shelton with the NAACP. Madam Chairwoman, it is my belief that the greatness of a country will not hinge on how a country builds skyscrapers, but rather on how it shelters people. It won't be measured by how many tractors it constructs or how many farmers in the field but how many people it will feed. The greatness of a country will be measured by how it treats the least, the last, and the lost, not by how it treats the well-off, the well-heeled, and the well-to-do. The well- off, the well-heeled, and the well-to-do will always fare well. It is those who are in the streets of life that we have a duty to help. So I understand and I sympathize greatly with a lot of what has been said, but I also understand that right now we have 141,000 homeless veterans, and there's a proposal to cut $450 million from public housing. We have 170,000 homeless children and there's a proposal to cut Section 8 vouchers by $500 million. We have 754,000 homeless sheltered and unsheltered people, and there's a proposal to cut CDBG by $736 million. We have 189,000 disabled homeless people, and there's a proposal to cut Section 811, disabled housing, by $112 million. We are the richest country in the world. One out of every 110 Americans is a millionaire. We spend $329 million not per year, not per month, not per week, but per day on the war. We can afford to help the least, the last, and the lost. That is what this bill proposes to do. If we did not need it, the statistical information and empirical data would not indicate that we have this homeless problem in this country as well as a problem with affordable housing, so I'm honored to support this legislation because I believe in the final analysis, on the infinite continuum that we know as time, we will each have to give an accounting for the time that we spent on this island that we know as earth. And I want to say that I was there for the least, the last, and the lost. I thank you and I yield back my time. Ms. Waters. Thank you. I will now recognize the gentleman from California, Representative Royce, for 3 minutes. Mr. Royce. Thank you, Madam Chairwoman. Madam Chairwoman, I must again express my adamant opposition to this legislation and the idea here of creating what is called the Affordable Housing Fund. As I have expressed since its inception, this fund is straight out of Central Planning 101. This is really a step in the wrong direction. There appears here to be a clear conflict of vision. I think past government housing programs have actually done very little, if you look at the record, to increase homeownership levels in this country. We do not have much to show for the tens of billions of dollars we spent on housing through HUD and FHA, but there is a way to improve homeownership rates. They improve when real interest rates are low and when consumer incomes are high. Under that kind of an environment people can afford to frankly get into a position where they can buy their own home. I believe limited government and free market policies will generate these results; creeping socialism will not. It will work more as an anchor on the economy and prosperity. It will keep the private sector from becoming as vibrant and creating the opportunities for people so that they can move up. This fund will waste resources. It's going to provide false hope for those who wish to increase homeownership. Additionally this fund will create a terrible precedent, a terrible, terrible precedent for other industries in this country. As I said during the GSE and FHA debates, I hope that other financial institutions are watching this debate because you're going to be the next targets. Proponents of this concept are not going to stop at just assessing or taxing GSEs and the Federal Housing Administration. They're going to try to confiscate money once they set up this fund from any source they can get it. So again, thank you for holding this hearing, and I yield back the balance of my time, Madam Chairwoman. Ms. Waters. Thank you very much. I recognize the gentleman from New Jersey, Mr. Sires, for 2 minutes. Mr. Sires. Thank you, Madam Chairwoman. I'm here in support of this legislation. As a former mayor of a community where about 73 percent of the student body fell below the poverty level, one of the biggest issues I confronted in my 12 years as mayor was affordable housing. And it's beyond me how people in Washington keep insisting on cutting programs for the people who need it the most. I don't know where they get their information, but not necessarily everybody wants to be a homeowner. All these people need is a helping hand so their children can get educated in a decent home. And I don't know who advises this Administration on cuts of Section 8 on affordable housing, but the problems that I confronted certainly had to do with affordable housing. And I certainly think that as the richest country in the world, we could do a little bit more than we've been doing. All they need is a helping hand to access the American dream, and this is why I'm supporting so strongly this legislation. Thank you, Madam Chairwoman. Ms. Waters. Thank you very much. Now I will recognize the gentleman from Delaware, Representative Castle, for 2 minutes. Mr. Castle. Thank you, Madam Chairwoman. I'm pleased also to be here and pleased to see us taking up this legislation, the concept of which I certainly favor. I, too, am somewhat concerned about existing programs and other things that may need to be straightened out, and I'm delighted that we have the various witnesses and panels that we have here today, you know, the balance of rental versus ownership, and a variety of other things that need to be answered. I've looked at the panels, and there are three panels. I've looked at my schedule. I'm not sure I'm going to be here the entire time, so I'd like to talk about Joe Myer, on the last panel, who is from Delaware. I worked with Joe on housing issues for many, many years in a variety of capacities, and he is the executive director of the National Council on Agricultural Life and Labor Research (NCALL). He was one of the founders of that organization in 1976, and for the last 30 years since then, he has provided financial and technical assistance for nonprofit housing developers in the Delmarva Peninsula. Under his direction, NCALL has assisted 6,000 first- time home buyers in mortgage closings in Delaware through homeownership education and counseling, leveraging $581 million in attractive mortgages and assistance and apartment communities as well. Joe is a very important player, and he and I have cut a lot of ribbons together and done a lot of things of that nature. He is an extremely significant player in this whole business of dealing with housing. And if anyone believes that the Federal Government or State governments or local governments can really make the difference in housing, they don't understand the importance of the role of the nonprofit agencies and the difference they have made in terms of low-income housing and needed housing throughout our country. I think Joe represents those interests as well as anybody, and I hope when it's time for Joe to testify that people will listen carefully to what their needs are and what they have to do. We have to make our programs tie into programs such as that, which have worked so extremely well. So we welcome Joe here, and I'm delighted to be able to participate to the extent that I can today. And I yield back, Madam Chairwoman. Ms. Waters. Thank you very much. I recognize the gentleman from Missouri, Mr. Cleaver, for 3 minutes. Mr. Cleaver. Thank you, Madam Chairwoman. I won't take 3 minutes. I would like to express my appreciation to you, and of course to the chairman, Mr. Frank, and I think our ranking member, Mrs. Biggert, has been very cooperative even if we have some disagreements. I think this committee has perhaps been the busiest of any of the committees in Congress, and it's because we're trying to deal with issues of importance to the people in this country who need it the most. A couple of years ago, I think most observers of our society would have said that we're having one of the greatest housing booms ever. But as is always the case, that has dropped. We are now looking at an alarming drop in the number of homes purchased by citizens of our country. And of course the poor are always going to suffer the most. I am very, very supportive of the affordable housing fund, like my colleague, having served as Mayor of Kansas City, Missouri, one of the things I wanted to have as a legacy was the creation of housing so that people who grew up like I did in public housing would have the opportunity to live in a single family dwelling and become a part of the American dream. This housing fund is not perfect. The only thing I've seen perfect is Dick Clark's hair. But I am absolutely convinced that it is in the right direction and there is not--and we need to stop doing this in Congress because it hurts the body. There is no underlying scheme. There is no plan to bring in other funds. That is not on the table. Nobody is discussing that in the dark rooms of Congress. I think this is a good opportunity. If someone has an amendment to make it better, I will certainly support it. Thank you to Mr. Montgomery. We appreciate your spirit and, as we have been working with this, and, of course, my former colleague and Secretary, Mr. Cisneros, thank you. Ms. Waters. I will now recognize the gentleman from California for 2 minutes, Representative Miller. Mr. Miller of California. Thank you, Madam Chairwoman. Many hardworking families are unable to find decent affordable housing in communities where they work today. We need to consider new approaches to revitalizing neighborhoods so that working families can find affordable rental and homeownership opportunities in the communities where they're employed. If the Federal Government does not provide positive solutions to the lack of affordable housing opportunities the waiting list for Section 8 housing assistance will continue to grow. While I might not agree with 100 percent of the policy that has been proposed, Chairman Frank and Ranking Member Bachus have brokered compromise on many occasions and have produced legislation that Democrats and Republicans alike have ultimately strongly supported. I know there is a strong feeling on both sides of this housing trust fund legislation that we are here to consider today. As a fiscal conservative, I welcome ideas to promote affordable housing in ways that do not increase spending and that effectively leverage scarce Federal dollars for billions of private dollars. To be clear, the bill before us today is not about funding sources. The sources of GSE and FHA funds have been dedicated in previous legislation and have been considered in the past. The GSE bill passed the committee and the full House by a strong bipartisan vote. The FHA bill also passed in this committee by a strong bipartisan vote. It is no secret that I opposed the affordable trust fund in the GSE bill, but at the end of the day the fund was supported by a majority of my colleagues. It is also no secret that I supported the FHA bill to create the fund. I only supported this bill after an amendment I offered was accepted by the committee that essentially says that HUD must ensure FHA insurance premiums are as low as possible, that the insurance fund is solvent, and that any FHA needs are met before the excess dollars are sent to the housing fund. After that I firmly believe that the FHA fund should be used and dedicated to housing. We did this with the highway trust fund. We should also do it for FHA. The FHA money we are talking about is money that currently is going to the Treasury. So while I oppose the GSE fund, but support the FHA fund, the debate of whether we should set aside funds to create a national affordable housing trust fund is over for this committee. Today we are at this hearing to discuss how to allocate those dollars that will be set aside by the housing GSE and excess FHA funds. What we must now decide is how to allocate the dollars that have been set aside for affordable housing. Just as we offered amendments to both the GSE bill and the FHA bill to change the way housing fund dollars in this bill were distributed or how they were used, the bill before us today proposes solutions to those very questions. I must say that I strongly believe that we must ensure that this fund is geared towards development of quality mixed-income communities. We must target not only low-income families but moderate-income working families as well. I also firmly support the concept that we can help limited funds go further to help complete neighborhood revitalization efforts if we pursue a public-private partnership approach in this effort. We have an opportunity today to work together as Republicans and Democrats and hopefully the outcome of this legislation will benefit those in this country who have housing needs. I yield back the balance of my time. Ms. Waters. Thank you very much. I now recognize the gentleman from Texas, Mr. Hensarling, for 3 minutes. Mr. Hensarling. Thank you, Madam Chairwoman. In a little over 10 years, Federal housing assistance has almost doubled from $15.4 billion in 1995 to more recently $30 billion in 2007. The rate of increase is higher than the Federal commitment that we have seen to veterans, education, energy, transportation, international affairs, or even Social Security over the same period. The Federal Government runs, I believe, over 80 different housing and community development programs through HUD, as our ranking member said, over 30 specifically geared towards affordable housing programs. And so today our committee response is not necessarily to improve or reform the old programs but instead to create a new program on top of the 80 that already exist. The second response of this committee apparently is to raise taxes on hardworking American people. Make no mistake about it. This bill would impose a very creative de facto mortgage tax on hardworking Americans trying to pay for their homes. Although I do not question people's motives and I believe their hearts and motives are pure, many on this committee with their votes have made housing less affordable. If we truly want to make housing more affordable, we need to realize there is no greater housing program in American than a good job. And since we have enacted pro-growth tax policies in 2003, we have had 8.2 million new jobs created. And yet many in this House and many on the committee want the tax relief to go away. And, as you take away the tax relief, you begin to take away the jobs. Secondly, if we truly care about affordable housing, we need to realize how the single largest tax increase in American history contained within the Democrat budget resolution, how that impacts families who are trying to make their homes affordable. I hear from constituents in my district. I hear from the Brucker Family in Wills Point who writes, ``No increase in taxes. My family is only one breath away from losing our home as it is.'' I hear from the Stevens Family in Forney, Texas, ``If our taxes increased $2,755, we would not be able to pay our mortgage.'' And the list goes on and on and on. We need to realize that more spending fuels more taxes which makes homes less affordable. Third, it seems ironic to me that we would increase taxes on some, make housing less affordable for many low- and middle- income Americans because we know that Fannie Mae and Freddie Mac are an effectively a government protected duopoly. They have great economic power to simply pass along these fees or taxes, if you will, ultimately to the consumer. And so this is a mortgage tax, pure and simple. And last but not least--I have to have 10 more seconds to close. Although I suspect we disagree on many issues, as a former resident of San Antonio, as a Texan, and as a fellow Texas Aggie, I did want to wish a very sincere welcome to former Secretary Cisneros. With that, I yield back. Ms. Waters. Thank you very much. Having exhausted the opening statements, I will now move to our first panel. And I would like to introduce our first panelist, Mr. Brian Montgomery, Assistant Secretary for Housing and the Federal Housing Commissioner at HUD. I would like to welcome you to the committee, Mr. Montgomery, and you will be recognized for 5 minutes for an oral summary of your written testimony to the committee which will be made part of the hearing record in its entirety. Let me just say that I would like to thank you for the tremendous cooperation that you have exhibited as you have worked with my subcommittee on the FHA Housing Reform Bill, on our Section 8 work that we have done, and I am particularly pleased about the hearing that we had in New York on the Starrett Housing Development and the decision that was made by the HUD Secretary and you to help save that development. Having said all of that, I am not so sure we are going to remain friends for long, because while we welcome all of your cooperation, I am just afraid you are going to say something that is going to displease me today but if you do, you will know it. Thank you. With that, I would like to call on the Secretary for his 5- minute statement. Thank you. STATEMENT OF THE HONORABLE BRIAN D. MONTGOMERY, ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Mr. Montgomery. Well, thank you for that kind introduction, I hope. Madam Chairwoman, Ranking Member Bachus, and distinguished members of this committee, thank you for inviting me to testify on H.R. 2895. It is a pleasure to be with you this morning. I want to state at the outset that Secretary Jackson and I share your strong commitment to providing families with safe, decent, and affordable housing. That is why I am going to begin my testimony this morning by reminding the members of this committee that HUD, as you know, already has a number of programs aimed at providing affordable rental housing as well as homeownership opportunities. As you mentioned, Madam Chairwoman, I appeared before your field hearing in Brooklyn, New York, last week. By working together, we helped preserve the 16,000 units of housing occupied there at Starrett City. As you may recall, in my testimony I discussd the importance of preservation in general, and specifically, HUD's mark-to-market program which, as you know, has preserved more than 125,000 units of housing to date. And with the 5-year reauthorization passed by Congress earlier this year and signed into law by the President, we expect to preserve an additional 50,000 units of housing. I do want to thank the members of this committee, in particular, Congresswoman Waters and Congressman Price, as well as Chairman Frank, for supporting this legislation. In addition to preserving the existing affordable housing projects, the Department is committed to increasing the supply of new affordable housing. The majority of affordable housing projects today are built in part through the Low Income Housing Tax Credit. We have begun an initiative to identify and address ways in which HUD's financing programs including FHA 202 and 811, can work more effectively and more efficiently with the Tax Credit program. We are streamlining our subsidy layering and processing procedures to improve the timing of HUD approvals so we can better meet the tax credit deadlines. And I am pleased to report to the committee that we will soon be releasing this updated document that has gone from 100 pages written in 1995, to just 7 pages today. We are also committed to funding the HOME Investment Partnership Program. Each year HOME allocates approximately $2 billion in grants that allow communities, often in partnership with local groups, to fund a wide range of activities that build, buy and/or rehabilitate affordable housing for rent or home ownership as well as directing rental assistance to low- income families. Our Fiscal Year 2008 budget asks for $1.97 billion, which is a $200 million increase over the current year. The American Dream Downpayment Program is another successful initiative and I hope this committee continues its support for this program which has helped 24,000 low-income families purchase their first home. I mention all of the above programs because in addition to duplicating many of the services they provide, the trust fund under consideration today would actually compete. Let me stress, it would actually compete with our existing efforts to secure scarce resources. As you know, the trust fund would derive its funding from two sources. The first is the GSE bill passed by the House. The other is the pending FHA bill. As FHA Commissioner, I have to admit that I am a bit selfish and therefore I am very concerned about the latter. The FHA Modernization Bill authorizes appropriations equal to the sum, and I quote, ``The net increase in the negative credit subsidy for the mortgage insurance programs.'' This means that the source of funding would not be dedicated but rather subject to the regular appropriations process and all its competing demands and offsets. In other words, yes, I fear that we would be robbing Peter to pay Paul. You see, FHA receipts are already credited toward HUD appropriations and by authorizing a new program, you would be creating competition with other discretionary programs. Any deposits to the trust fund would have to be offset. And under H.R. 2895, we could find ourselves in the position where the affordable housing trust fund is funded but other higher priority programs including Project-based Section 8 might be cut. I mentioned the HOME program before and I want to come back to it for just a minute. They say imitation is the sincerest form of flattery because H.R. 2895 is clearly modeled after HOME. And I think a review of HOME's history and what it has produced might be instructive. In the 15-plus years of the HOME program, participating jurisdictions have expended $18.7 billion of $24 billion appropriated to date and produced more than 780,000 units of housing as well as assisting 165,000 families with tenant-base rental assistance. Now I do applaud the goal of this legislation. I have to say that with lower income funding levels, deeper income targeting, and longer affordability periods, I think it is unlikely that the trust fund would come close to producing 1.5 million units of affordable housing. I want to conclude my testimony by saying that almost all housing programs are discretionary. Short of creating a new entitlement program, we are all left only with the difficult choices of allocating scarce funding for many worthy programs. I know that is not an easy task. As the committee looks for ways to address the issue of affordable housing, as you know, we could immediately address and help millions of people without any additional cost to the taxpayers through the FHA Modernization bill, which this committee has done excellent work on. Thank you again for inviting me to testify here today. I will be happy to try to answer any questions you may have. [The prepared statement of Assistant Secretary Montgomery can be found on page 109 of the appendix.] Ms. Waters. Mr. Montgomery, without objection, your written statement will be made a part of the hearing record. I will now recognize myself for 5 minutes for questions. Let me start with your concerns about our GSEs. Help me to better understand your concerns about using funds generated under H.R. 1427 and H.R. 1852 to provide deposits to the trust fund. Why should we worry that the affordable housing fund in H.R. 1427 is tied to the GSE's mortgage portfolio? Is it not the case that H.R. 1427 and an incentive counterpart will set portfolio limits based on some public policy concerns quite apart from the affordable housing fund provisions? Mr. Montgomery. I will speak to the GSE portion first. Again, I share some of the concerns that would put downward pressure on both of these entities. And I might be fearful they would move beyond their mission. These are private corporations with shareholders and stock, and I think there would be, again, downward pressure put on them to produce. They have to find that money somewhere. As you know, we are conducting a financial activity review that we will be sharing soon, and we remain concerned. Getting back to the FHA for a second, again, while I laud the goals of this fund, I have to be a little selfish in saying those receipts offset HUD programs. If you look in the budget, you will clearly see that there is a bracket whereby FHA receipts are used to offset that. I just do not want to face the prospect where I am looking at taking funds from Section 8 or another program to fund an affordable housing fund. Ms. Waters. So you basically argue that to tie deposits to the trust fund to FHA's negative credit subsidy in part because this might create an incentive for FHA to overcharge its traditional customers higher premiums than is prudent. At the same time you argue that FHA receipts are critical to funding other HUD programs in the appropriations process, programs you say might be higher priority than a trust fund. Do not public policymakers already face whatever incentive they may have to overcharge FHA bars just in order to plug holes in each fiscal year's HUD budget? Mr. Montgomery. Well, speaking of FHA receipts, again this committee has done great work on the FHA bill and I appreciate it, but as it stands today, no FHA bill, I am looking at being $143 million in the red for the first time in FHA's history in Fiscal Year 2008. Now we all know why that has happened. That die was cast many years ago and I know this committee is trying to fix it. Ms. Waters. No, we do not. Would you explain that? Mr. Montgomery. Well, it is due in part to the Gift Downpayment programs which I know we had previous discussion about that are 2.3 times more likely to fail. And because a lot of hard-working families who have trouble saving money for a downpayment have to rely on that so-called gift downpayment, many families find themselves in a position of negative equity in their homes. And the truth is GAO has recognized that they are far more risky whereas an FHA product obviously with what the bill would offer with some downpayment assistance would not put families in that position. Ms. Waters. Your ``no downpayment'' aspect of the FHA program would not be synonymous to the gift downpayment? Mr. Montgomery. Not, not at all. Ms. Waters. Why not? Mr. Montgomery. Well, for one, the Gift Downpayment programs, unlike those last go-around, have an IRS Revenue ruling hanging over their heads. You do not have to take what I say about it, but the IRS has said these so-called gifts violate the detached and disinterested clause. When all of us write a check to charity, whether it is the American Cancer Society or the Girl Scouts, we do not expect anything in return except a good feeling. And it is clear through the IRS that these gift downpayments violate that detached and disinterested clause because there is obviously an expectation in there. Ms. Waters. What percentage of your portfolio came from those programs? Mr. Montgomery. Well, about 30 percent of our current borrowers rely on some assistance for downpayment through a government program or through a family member, but about 25 percent are through these gift downpayments which again for the need that some people need some assistance on the downpayment again which this committee recognizes and has supported. Ms. Waters. Do you not have the ability to either support or not support the programs that you are referring to that make up 25 percent of your portfolio? The gift downpayment? I mean there is nothing in law or regulation that would force you to accept their participation. Is that right? Mr. Montgomery. Well, there is--we have to go through rulemaking. As you know, I cannot just withdraw a rule overnight. These gift downpayment programs have been around for 10 years. Ms. Waters. Yes, but you have been using them. They have been utilizing FHA. Mr. Montgomery. Our law clearly states that our downpayment assistance has to involve nonprofits. Until the point in time that the IRS determines that ``XYZ'' foundation is not a bona fide 501(c)(3), then we have to continue to accept that at this time. Ms. Waters. I do not think there is anything in the law that would have prohibited you from not involving them, but you readily accept their participation, and they make up 25 percent of your portfolio. So what has caused you to change direction? Mr. Montgomery. Well, again, getting to the point of the IRS Revenue ruling, and if they are not a bona fide 501(c)(3) at what point in time, then we can no longer accept that form of assistance. HUD has previously tried to move to, during the previous Administration, move toward rulemaking to not accept that sort of assistance but was not successful. Ms. Waters. Thank you very much. We will talk about that some more a little bit later on. I would now like to recognize Ranking Member Bachus for questions. Mr. Bachus. Thank you, Madam Chairwoman. Commissioner, you--in my opening statement I talked about reservations about creating a program very similar to the HOME program. But as I understand it the program that is now before us would actually target or tend to go--have more emphasis on affordable rental property for the lowest income Americans. It sort of moves the target down; is that your analysis? Mr. Montgomery. Yes, this bill, as I understand it, would target 75 percent at 30 percent of AMFI and below. And HOME, while not having any written targeting, currently 40 percent of HOME funds go toward 30 percent of AMFI and below. Mr. Bachus. We talk about, you know, Federal housing programs. We talk about where the need is. One thing that I am struck by from time-to-time we do talk about programs for low- income Americans is that I have a home in Birmingham that's worth well over half-a-million dollars, and I have a home up here that's worth about half-a-million dollars, and I do receive a pretty hefty tax deduction on my home mortgage interest, so it's not as if even higher income Americans are not receiving what some could call a subsidy or a tax break. My concern is truly for the lowest income Americans, so-- and I believe I can say that as a conservative. I think there's a debate among conservatives as to this whole question, but I make no apology for being both conservative and saying that if we're going to--if we're going to have Federal housing programs, we have all sorts of programs to create homeownership, but I think maybe what we've even found with some of the subprime situation is that not every American is suited or even wishes to own their own home. And I think the greatest need is in rental income for a rental housing, for extremely-low-income families. How can we do a better job on that or do you think it's necessary? Mr. Montgomery. Yes, I do think it's necessary. In fact, I will say up front that HUD's own worst case housing needs analysis shows that the number of low-income--and many of the families who will be targeted by this fund, the number of families who need that sort of assistance has gone up. Sadly that has gone up by 800,000 families between 2003 and 2005. It's one of the reasons why we have proposed as part of our 2008 budget a demonstration program at least in the case of low-income seniors and persons with disabilities, the way that we can leverage our limited resources through tax credits and private activity bonds to use those funds, to spread them out perhaps as bridge funds so HUD is not the only funding source impossible. One of the areas that again is of most concern to me is housing for seniors and for persons with disabilities, and I do share in that goal of what the fund would try to do, and that is to help more families at the extremely-low-income figure, at 30 percent and below. Mr. Bachus. Did you say the elderly and disabled are particularly two groups that--if anyone is deserving of Federal assistance or subsidy it would be those and very-low-income Americans, who often have large families. We do have a situation in this country that we'd all be blind if we didn't know that we can't have working households with two wage earners and they're still struggling to survive and to provide shelter for their children. I would say that with all the programs that the government funds, many of them are not directed at low-income Americans. Many of them benefit very high-income Americans, in fact. We should come together and try to find long-term solutions, long- term funding solutions for rental income, for extremely-low- income American families. Thank you, sir. The Chairman. Let me just ask on that, Mr. Montgomery, for families--I know we have some money for the elderly and some money for the disabled in terms of housing. I would note that the President has proposed to reduce those amounts every year from year-to-year; Congress has resisted that. So over the President's objection there has been more money for the disabled and elderly programs. But how much money is available annually--do you have a sense of this, if not you can get it to me later--for housing for families in which nobody is disabled? That would include single parents and children. How much Federal assistance is available for the construction, not Section 8, year-by-year vouchers, for the construction of housing for families who would be, say, at 50 percent of the median and below? Do you have any top-of-the-head notion? Mr. Montgomery. You said other than the 202 and 811 programs? The Chairman. Right, I'm talking about for families without any disabled persons. Mr. Montgomery. Which is about a billion. The Chairman. Those are--yes, thanks to Congress. And the Administration has tried to cut those and we've resisted that. But how much is available for construction for families other than the elderly and the disabled? Mr. Montgomery. From Federal sources outside of tax credits, from pure production, as you know there's very little, if any, Federal commitment towards producing construction of affordable housing. The Chairman. Whatever you can kind of get out of the home, maybe. So I think that's the point we make is that when there's virtually no construction money for family housing available and even the tax credit as you know--and I was glad to see in your statement that we're working on parallel paths here, I've been working with the chairman of the Ways and Means Committee, by making the Low Income Housing Tax Credit Program interoperable easily with the appropriations-based programs. We can do a lot of good, save a lot of time and money, and get housing without any budget hit. We're both working on that But in my part of the country and many others, unaided, unsupplemented by another program, the Low Income Housing Tax Credit is not going to get rental levels down low enough for that segment of the population. So we are talking about in this bill whether or not the Federal Government ought to get back in the business of helping build affordable units for family rentals. But let me ask you a couple of other questions. One of the issues here is that while we might be causing the FHA fees to increase and I know you have not, but I assume you haven't accused us of that--statement because as you're aware the Administration has asked us, has announced, not even asked us that they're going to use the existing authority to raise the FHA fees. Would you describe the pending proposal to raise FHA fees and give us the rationale for it, since my understanding is that the FHA is already now generating a surplus for the Treasury. So what is the pending proposal to raise FHA fees and what's the rationale? Mr. Montgomery. Are you referring to the single family FHA fees? The Chairman. Yes. Mr. Montgomery. Well, our premiums right now are the same; we're at 1\1/2\ percent. The Chairman. Is there not a proposal pending to raise them? Mr. Montgomery. Well, the 2008 budget--so we can prevent from going positive on our credit subsidy--does note that we need a modest increase in premiums. The Chairman. You're acting like this is a surprise, Mr. Montgomery. You know what we're talking about. Mr. Montgomery. It's not a surprise. I've been talking about this a lot. The Chairman. What's the current request by the Administration for an increase? It's only for single-family, you're not asking for a multi-family increase? Mr. Montgomery. Let me address the single-family, 1.5 percent. We would increase it to 1.66 so we don't go positive on the credit subsidy, which none of us want. Let me speak to what that dollar amount represents. Our average mortgage is about $129,000. That .66 increase is about $7 a month. The Chairman. All right. So you--is that something you're asking us to legislate or that you can do on your own? Mr. Montgomery. Well, the statutory cap for the premium is 2\1/4\ percent. Two predecessors ago, Mr. Abgar, right before he actually left office, lowered the premium to 1.5 percent, which the Commissioner can do, and it has stayed at 1.5 percent since October of 2000. The Chairman. So you are not asking Congress to do this. This is something that the Administration proposes to do to undo this? Mr. Montgomery. The Commissioner has the authority to raise that premium-- The Chairman. I understand, but can we get a little more direct in our answers here? Mr. Montgomery. That was pretty direct. The Chairman. Are you planning to do it? Mr. Montgomery. Sir, I have made a commitment, not before this committee but before the Senate Appropriations and House Appropriations Committees that the fund will not go positive under my watch. When it comes time-- The Chairman. That may seem direct to you, but it doesn't to me. Are you planning in the near term to increase the FHA single family premium? Mr. Montgomery. So I don't have to ask Congress for $143 million in appropriation. Yes, sir. That's what-- The Chairman. You are planning to raise it? Okay. I cite that because we talk about where the fee increases. How about multifamily? Mr. Montgomery. Again, as part of the 2007 budget as well, a proposed increase on some multifamily programs. As you know, that rule was withdrawn. It came back. Some of the programs that would have been part of the original rule, as you know, were no longer part of the second. The Chairman. So what is the current status now of that proposal? It came back, that's an interesting sort of-- Mr. Montgomery. Yes, it walked its way back-- The Chairman. Yes. We have rules, we have autonomous rules, apparently. They walk, they talk, they feed. They come back, nobody--we'll do a movie now of the rule that walked and came back to us. What is that rule proposing itself to do right now? Mr. Montgomery. Well, the rule right now which is actually not out for public comment yet but will be soon-- The Chairman. It's a shy rule. Mr. Montgomery. Yes, sir. It is, but it will appear before the end of the fiscal year. The increase would be for 221 D-3s and 221 D-4s; it would exempt tax credits in hospitals. The Chairman. And how much of an increase would you be talking? Mr. Montgomery. Well, the proposal last year, as you know, was 32 basis points. This year it is half of that. It would only be 16 basis points. But sir, I just want to make sure as last year there will be plenty of time for public comment. The Chairman. There is nothing pending on that now. All right, I appreciate it. Mr. Montgomery. That has not gone into effect, sir. The Chairman. I appreciate that. So we do have a potential for that to come forward. The next is Mr. Miller, a nice segue to Mr. Miller on the subject-- Mr. Miller of California. Just to follow up on that because, Commissioner, the budget proposal that you're requesting is 35 percent on most of the multi-family housing programs. I mean that's what your budget proposal requests--a 35 percent increase. Mr. Montgomery. OMB subsequently issued an errata sheet which corrected that. Mr. Miller of California. Was that after 100 of us mailed you guys a letter saying it is ridiculous that you guys make a profit every year? Was it maybe-- Mr. Montgomery. Well, I just want to make sure you understand the proposal. Mr. Miller of California. You cut it from 35 percent of what, 35 percent of what, how low did you-- Mr. Montgomery. Two years ago, it was 32 basis points. We withdrew that. In 2008 the proposal is 16 basis points. Mr. Miller of California. Okay. So now it's going to be half of 35 percent, let's say 17.5 percent. And yet you're making a profit. Now I know that in your testimony you're concerned about pressure on FHA premiums to provide money for the affordable housing fund, but you're wanting the 17.5 percent increase on the multifamily, which is increasing it, and yet every year FHA makes a profit and it goes to the Treasury basically. I guess one problem I have is--I'm not arguing but I have a real problem with the comment you made on the downpayment assistance program that it's very risky, and that's the private sector helping with downpayment assistance for an individual. Yet the American Dream Downpayment Assistance Act, which is the government giving people for a downpayment is good. It seems like if you use the same underwriting criteria that you would use for zero downpayment or the American Dream Downpayment Act, same criteria. Why would one be more risky than the other if the underwriting criteria is equal? Mr. Montgomery. Sir, there's a difference between apples and pineapples. Mr. Miller of California. Well, no. The difference between the downpayment assistance program in the private sector that they currently face is that HUD changed the ruling on what was considered a charity. Prior to HUD changing that ruling-- Mr. Montgomery. It was the IRS. Mr. Miller of California. Well, the IRS had no problem with them prior to you guys changing the ruling, but once you changed the ruling that they were not a charity, per se, then they were in violation of the law and the IRS. But the point is that if you have $5,000 or $3,000 given to an individual from the government for downpayment assistance or you have $5,000 from the private sector given to an individual for downpayment assistance, what's the difference? Mr. Montgomery. First and foremost, in the so-called gift downpayment programs, you repay that gift. The cost of that downpayment is put on your note. Sometimes it's done and families don't even know it. And a lot of those gifts are used in stagnating or declining markets where there's very little house appreciation. And as a result of that-- Mr. Miller of California. Well, I know many of the--the committee, those were gifts, those were not put on somebody's notes, and nobody had an argument with that. Mr. Montgomery. I think the proof is in the pudding how those loans perform and they are almost 2\1/2\ times more likely to fail. Mr. Miller of California. But why? Mr. Montgomery. And that is one of the reasons that we are forced to raise our premiums. Mr. Miller of California. Please answer me. Why? Are you applying the same underwriting criteria? If you apply the same underwriting criteria on a $100,000 house if somebody got a $3,000 downpayment to buy, so they owe $97,000, versus somebody who bought through a zero downpayment, and they owe $100,000, if you apply the identical underwriting criteria, how can you convince us that somebody is better off owing $100,000 than they are owing $97,000 if the same underwriting criteria has been applied? You're skirting my--I'm not arguing; you're skirting my question. Mr. Montgomery. No, I'm not, sir. I'm just saying it's--in the case for that downpayment, the gift downpayment I only use the term ``gift'' because it's descriptive, is paid back, and a lot of families don't know that. Again, they're in stagnant or declining markets. They're in a negative equity position, and they're repaying it. Mr. Miller of California. So they're in the same position somebody with a zero downpayment is in? Mr. Montgomery. I'm sorry, sir? Mr. Miller of California. Are they in the same position as somebody with a zero downpayment? Mr. Montgomery. No, because it is clearly known at the outset that the family is in a certain equity position. The family may or may not elect to do that. Certainly the underwriting is there, but the truth is that a lot of families don't realize that they are paying this gift back. They thought it was, in fact, a gift. And sir, that is why the proof is in how they perform, and they fail 2\1/2\ times more often than the non-gift downpayment programs, and that is why I have to raise premiums. Mr. Miller of California. We'll continue to debate that. On targeting, where are most HUD funds currently targeted? To low- income or moderate-income families? Mr. Montgomery. Are you talking about FHA or all of it? Mr. Miller of California. Yes, HUD funds in general. Mr. Montgomery. It would depend on the program, but most of them are at 80 percent of AMFI and below. Mr. Miller of California. Most of them are low? Mr. Montgomery. The vast majority of them are. Mr. Miller of California. Do you see success in pursuing mixed income developments as might be proposed in this legislation? Mr. Montgomery. Oh, I think mixed-income developments have a place, dependent on the community and certain other demographics. Mr. Miller of California. Do you think that this fund should be mainly targeted heavily to low-income or give existing HUD programs that deal with it or should we maybe look at this program to service more the needs of even moderate- income working families if we're going to have a program? Mr. Montgomery. Well, as I mentioned previously, I think the goal of the fund, to help more families at 30 percent of AMFI and below, is a very good goal. Again my problem is just in the case that I now have to help fund that fund but I'm facing the prospect of whether I fund Section 8 or I fund an Affordable Housing Trust Fund, and that's a difficult decision. Mr. Miller of California. You mean you're funding it through the FHA excess premiums? Mr. Montgomery. All FHA receipts are credited toward HUD, but that's the point-- Mr. Miller of California. Where do the excess premiums go today? Mr. Montgomery. They go to offsetting HUD's budget, every penny of them. Mr. Miller of California. And the language we've included in the bill allows that--but it says the excess funds, above solvency and those types of things that normally would go to the Treasury would go to this fund. But the appropriators use that excess and they credit it to our budget. Mr. Montgomery. Well, it would be either through--it would be us or Transportation. But the point, sir, is that since they credit those funds toward our budget, toward HUD's budget that we would face the prospect, do I fund Section 8, HOME, or do I give the funds to a trust fund? And as I reference in my remarks, I would selfishly want to fund HUD's programs first, and I would hope that everybody on this committee would share in that. I can make one last point. I think the reason State housing trust funds work well--some would say they refer to them as sort of benign revenue sources, but that's the coin of the realm of making trust funds work. States use document recording fees. They use real estate transfer taxes. They use interest from escrow accounts that have been returned to a State entity. That's a big jump from now taking on a Federal level, the possibility of taking funds out of a housing agency to go fund a housing trust fund. And again, I just want to be selfish that I am going to try to protect HUD's resources first. I would hope people would expect me to do that, and that's what I referred to earlier. Mr. Miller of California. Thank you very much. The Chairman. I recognize the gentleman from New York and I say we certainly are glad to work with you to protect HUD's resources, and the next time OMB comes calling, we'll be there. The gentlewoman from New York. Mrs. McCarthy. Thank you, Mr. Chairman. I guess the questions that I basically want to ask is what is HUD's--what are you looking at to the future? We are talking about housing for certainly the lowest of the incomes, those with disabilities, and our seniors. I happen to agree that we have a lot of middle-low-income families on Long Island. The problem is the jurisdiction on Long Island. Nobody wants low-income families in their neighborhoods, which is really a shame. I do not want to see warehousing of the lowest incomes into one area either, which I already have. I have a 23 percent minority area. I will be very honest with you. On the rentals in one of my areas, I would not put anybody in that. Those are Section 8 housing. I would not put anybody in those homes, in those particular apartment rentals. Looking at New York State, we have a shortage of 336,000 units of rental. Is HUD looking to the future with a bill like this that we could have like almost mixed rentals, where you would have young middle-income families or low-middle-income families with seniors, and people with disabilities, so there is a mixed community in one building? It seemed to work 20 or 30 years ago, versus what we are seeing today, warehousing the poorest of the poor in one area. Would that be more acceptable to say my villages, my towns? Mr. Montgomery. That is one of the primary goals of the demonstration program I referenced earlier with our Section 202 and 811 programs. By blending them with the tax credit program, which is targeted at 80 percent of AMFI and below, using the economies of scale, we can better spread out our resources, combine them with State and local resources, whether it be a mixed income, as long as it is below that certain AMFI number, then we can produce more housing. I know it is a tough budget environment. That is one of the reasons that we moved to offer these two demonstration programs, which I want to add many of the folks who were here in this room today have helped us draft that pilot program, and I appreciate their effort. Again, Congresswoman, that is one of the goals of the program. Mrs. McCarthy. One of the concerns I have, my working poor, because they live on Long Island, I will even speak for myself, our utilities, our taxes, are extremely high. Even though the county has started helping with $10,000 downpayments--I think we have renovated maybe five or six homes in the last 5 or 6 years. We pick one house a year, renovate it, and hopefully get a family in it. We work with our local groups that are trying to educate them. They can find the money for the downpayment on the homes, but then they find they cannot afford the taxes and they cannot afford the utilities. That is a problem. Yet with the rental apartments, which we do not have-- Nassau County is one of the oldest counties in the country, and unfortunately there was no planning going back when we all started. Even to try to build the building and then have the community accept it, I will go back to should HUD also consider the percentage of affordable housing units in a jurisdiction when developing the formula for allowing the funding? Mr. Montgomery. That is some of what States do through their consolidated plans that help guide obviously where HOME funds go. Actually that is a lot of the goal of what the HOME program does. While I am sure there could be improvement in it, a lot of States are doing that currently as part of their consolidated plans. Mrs. McCarthy. I can see in my area also maybe you could build one building for what it would cost to put that building up versus in other parts of the country where they might be able to put up three or four buildings. It just seems that we always get caught not getting any, or as I said before, we are 336,000 units short. I am sure Long Island has a large proportion of that, even being close to New York City. I think we have to start thinking outside the box on how we are actually going to deal with high cost areas: California; Texas is certainly short of housing; and Florida comes in fourth. I think with everything that we have seen and certainly in my 11 years of trying to find housing for those who need it, even our young people when they first get out and have a job and it is a low-paying job, whether as a teacher or a nurse, they cannot stay on Long Island, and that is not good for the economy to keep the economy going on Long Island. I support this bill. I am just concerned about whether it is going to help an area like mine. Is it going to help areas that have a higher income which make false readings as far as I am concerned for some of my minority areas. Mr. Montgomery. Again, it targets most of the funds toward 30 percent of AMFI or below. What you have described to me, it could be difficult, although I think we all agree that is a good goal, which is what we try to do under the HOME program as well. Mrs. McCarthy. I yield back the balance of the time. The Chairman. The gentlewoman from Minnesota. Mrs. Bachmann. Mr. Chairman, thank you for the opportunity to ask a question of the witness. I appreciate it and I thank you so much, Mr. Montgomery, for being here today. I appreciate it. It is an important issue that we are dealing with, affordable housing. The goal is worthy of the chairman's bill, and that is to construct and rehab and preserve 1.5 million dwelling units over the next 10 years. It is an ambitious goal. I am just wondering from your perspective--I was not here earlier and I apologize for that--do you think this is an achievable goal, first of all? I have other questions. Mr. Montgomery. We do have a good yardstick of comparison, the HOME program, which this is nearly identical to. Since 1990, it has produced about 787,000 units of housing, another 165,000 families have been assisted through tenant abates rental assistance, and that is about $18 billion of about $24 billion that has been appropriated, by the way. I would say that while it is a worthy goal, using the HOME program as a basis of comparison, it might be difficult. Mrs. Bachmann. I appreciate your answer. You are right. I see there is a very strong similarity between the program that is now being proposed and the current HOME program. That is nearly a doubling of what we have seen in terms of a goal. I was wondering how reachable you thought that is. Thank you for that background. I am also wondering when we create a new program like this, it will necessitate that we create an entirely new bureaucracy, and that could take months, maybe even years to bring the necessary rules and regulations on line to put this program into practice. What I am wondering is, if the existing HOME program could supplement the existing trust funds without creating a new bureaucracy? Could we do more with what we have by tweaking and fine tuning the program that we now have so that we could be more ambitious in reaching greater goals so we could take care of the needs of more people, disabled people, low-income people? Mr. Montgomery. As a Commissioner, I used to work at a State housing finance agency in Texas, which by the way, we tried to get more funding for our State housing trust fund back then. I am fearful that some State housing finance agencies with a new program, as we would expect, it would take them a while to figure it out, so to speak. I think some States would go full speed ahead and spend it and hope for the best, relative to the compliance period and the monitoring of how the funds are spent. I think other States on the other hand would say wait a minute, we are not quite sure how to go into this, and do the opposite thing, be very hesitant to spend the funds. I suspect some States would say, is this not the HOME program? Again, recognizing the difference, which I want to be very careful to point out, between the target income levels. I think you will have States doing all sorts of different things, but again, it gets back to my point--I do not want to take more of your time. Mrs. Bachmann. That is fine. If you would like to finish, that is fine. I have one more question. Mr. Montgomery. Go ahead. Mrs. Bachmann. One study that I was curious about, and I do not know if you are familiar with it, from the Reason Foundation, and they found that oftentimes programs like the one that is being proposed actually fail. I am wondering what your response is. They said the reason why is not despite the housing trust fund's resources, it will fail because they said State and local land use restrictions result in less space and higher costs to build new units, which means that supply cannot meet demand. What I am wondering is, do you see in the current legislation that is being proposed before this committee, incentives for the State and for the local governments that you just referred to, to reduce the amount of regulation that it then imposes on the housing construction? Mr. Montgomery. I think there is a proposal for States that lower some of the regulatory barriers to waive some match provisions and things of that nature, which I think is good. I am not familiar with that particular study that you are referencing, so I cannot really comment on that. My own personal experience again with the Texas housing trust fund, which had an altogether different source of funding, that is the coin of the realm, where do you get the money, I think it was a successful program. Mrs. Bachmann. Do you think that is part of the reason for the success, the source of that funding, which is different from this proposal? Mr. Montgomery. Unfortunately, whether it is a State budget or Federal budget, there is no free lunch. To agree there is a--and I will use the term ``benign,'' for lack of better-- funding source, since everybody has to answer to the appropriators and to the authorizers, if they can find that source, which many States have done, Florida has been able to raise $200- to $300 million through a real estate transfer tax, and some other States you will hear from later have done a wonderful job through document recording fees and other sources. I think it is very key. I think we all share in the goal of what the fund would do and what HUD does, but again, the key is what is the funding source. Mrs. Bachmann. Ten years from now if we all gather again for a reunion in this room, as we go review and do an audit of this bill, what are we going to find? Are we going to be talking about a success story? Mr. Montgomery. I do not know what is going to happen to the bill. That is not my job. I do not vote here. I would hope-- Mrs. Bachmann. Based upon your experience with what you have done in the past, what do you foresee with what your knowledge is, how would you apply that to what you think the true success of this bill will be? Mr. Montgomery. I would say to the degree that it is HUD, State trust funds, or if there is a national housing trust, I would hope that at the end of the day, we are helping more people than we are today. Mrs. Bachmann. Could you be more responsive to my question? Do you foresee success or not? Mr. Montgomery. It is hard to say since this is just a proposal. Again, I would say since the bill does much of what is already in the HOME program, putting the funding issue aside, yes, I do think there would be some States that would do well, and other States that would not. You just cannot escape the argument that I made earlier, having us as a funding source, we are facing a difficult decision. Do we fund HUD programs or do we fund the trust fund? Mrs. Bachmann. Thank you, sir. Thank you, Mr. Chairman. The Chairman. The gentlewoman from New York. Ms. Velazquez. Thank you, Mr. Chairman. Assistant Secretary Montgomery, first and foremost, let me thank you for coming to New York, and the fact that you were there 2 weeks ago shows that we are facing a crisis when it comes to the shortage of affordable housing in New York City. Members of Congress, every time we go to our districts, we become case workers or we go policing to see what is going on. This last Saturday, I just held a housing town meeting, and more than 600 people showed up. It tells you that people are very concerned about the fact that we do not have affordable housing. You come here and you praise the goals of H.R. 2895 but also you raise concerns about the proposal under consideration. I would like to ask you to give us specific recommendations of how can we make the housing trust fund a workable project. Mr. Montgomery. Since it mirrors much of what you see in the HOME program, which our Administration asked for $200 million more this year than last year, I would say beefing up the HOME program would be a good step. I do not know-- Ms. Velazquez. How would you accomplish that? Mr. Montgomery. If I had a magic wand, it would be one thing. None of us do. There is a need for more funds for the HOME program. Ms. Velazquez. Did the Administration request more funds? Mr. Montgomery. We did request more, which the House Appropriations Committee cut $200 million from our request, unfortunately, last week. As far as how I would look at funding it, that is the problem. The States have sources that are not available at the Federal level and States have figured it out on their own and many have done a very good job funding housing trust funds. Ms. Velazquez. The difference is that unlike the Federal Government, States must pass a balanced budget, which will increase the possibility of instability to these funds. If the States have been able to manage the funds in that fiscal environment, why cannot we in the Federal Government do it? Mr. Montgomery. Again, it gets back to the point of what is the source of the funds. Someone just threw an idea out at me. The Federal Government settles lawsuits all the time. That revenue goes right back to the Treasury. Why could we not use that as a source? I said, well, I guess that is something you could look at, but again, it gets back to the source of since there is no free lunch here and every penny of the budget and then some is spoken for, where do the funds come from. Ms. Velazquez. H.R. 2895 clearly provides the source for the funds. That is why we should be supporting it. Thank you very much. Mr. Montgomery. Other than the fact that it takes the funds from HUD. The Chairman. I am going to recognize myself. What funds is HUD now getting in the absence of this FHA and housing trust fund bill that you would lose? Please identify them for me. Mr. Montgomery. We keep back a certain amount of receipts which by the way, I have no receipts for next year, as it-- The Chairman. You are not answering my question and I am going to ask it again. How much are you now getting that you think this will take away from you and tell me where. Mr. Montgomery. If you look at the budget, receipts of about $700 million from this year are used to offset HUD-- The Chairman. You are getting $700 million this year, you said, right? Mr. Montgomery. Every penny of it offsets HUD's budget. The Chairman. The bill that we passed, the combination of the FHA bill and the housing trust fund bill, how much of that $700 million would it take away from you? You said it would take money away from you. Would it take any of that money away from you? Mr. Montgomery. Well-- The Chairman. It is a fairly straightforward question. Mr. Montgomery. It would take money away from HUD because every penny-- The Chairman. Commissioner, please, you know better than that. I am asking you a straightforward question. The $700 million you cited, would anything we are doing reduce that? Mr. Montgomery. Every penny of our receipts-- The Chairman. Can you give me a straight answer? Mr. Montgomery. I am trying to. The Chairman. No, you are not. You are trying to evade it. You said you are getting $700 million now. What are we doing that--would anything we are doing diminish that current flow of funds? Mr. Montgomery. Maybe I am not understanding the question. The Chairman. Sure, you are. Mr. Montgomery. But every-- The Chairman. In the bill, what would diminish the current flow of funds? What in the FHA bill-- Mr. Montgomery. Because it has to be covered via the appropriation process. The Chairman. What has to be covered? The bill says, the FHA bill, that we increase revenues by raising the level of housing price you can go to and we take the capital off the HECMs. That would generate some additional revenue. It certainly does not affect any existing revenue. Does anything that is being contemplated--if we were not to pass either bill, you do not lose anything, do you? Mr. Montgomery. Sir, the point I was trying to make earlier-- The Chairman. I understand the point, you are trying to evade. Mr. Montgomery. The appropriators-- The Chairman. Excuse me, Commissioner. Mr. Montgomery. The HUD budget is those receipts, and that is the point I was trying to make earlier; there is no excess. The Chairman. In the first place, that is a fiction, when they do the appropriation. Secondly, the question is we are talking about generating additional revenues for the FHA. I really am disappointed that you evaded the question. I take it nothing we are doing would diminish your current flow of funds. Are you confident that if we were in fact to go ahead with these increased revenue sources for the FHA through taking a cap off home equity mortgages and raising the amount of mortgages you can insure, that the Administration would ask that all of that be credited to the FHA? Mr. Montgomery. Sir, I am sorry. The Chairman. No, I want an answer to that question. Mr. Montgomery. I think I understand your question now, sir, I am sorry. Yes. We have-- The Chairman. Answer the question I just asked you. If we were to generate the new revenues that are in the bill and did not assign them to the housing trust fund, are you confident the Administration would ask they go to the FHA? Mr. Montgomery. Sir, we hold back what we need. The Chairman. Excuse me, Commissioner. You understand that is not an answer to the question I asked. You really do. Mr. Montgomery. No, I do not understand, sir. I am trying to answer your question here. Sir, my point is-- The Chairman. No, you are not. This is disappointing to me. Mr. Montgomery. We hold back what we need to cover claims which vary year-to-year, the gift downpayment programs I referenced earlier. The Chairman. I am talking about HUD. You know you are switching ground. You said HUD gets credit--you keep switching between the FHA and HUD in general, for purposes of obfuscation, which disappoints me. You said that HUD gets credit for the additional revenues that the FHA generates, correct? You did say that? Mr. Montgomery. Yes. The Chairman. The legislation we are talking about doing would generate additional revenues for the FHA. You are aware of that? Mr. Montgomery. Yes. The point is that-- The Chairman. No. Mr. Montgomery. They would have to go back to the HUD budget from the appropriators which is what they have always done. The Chairman. Yes. I have asked you this question which you pretend not to understand. Are you confident that if we were to generate these additional revenues by taking the cap off the home equity mortgages and raising the amount of mortgage you could insure, that the Administration would ask that HUD get the credit for that in its appropriation and that the appropriated amounts for HUD would increase? Mr. Montgomery. Sir, that, I do not know. The Chairman. You know the answer is no. Mr. Montgomery. I would say give it to the HOME program. The Chairman. I did not ask you what you would say. Again, you know you are deliberately not answering. I did not ask you what you would say. The point is this, what we have are constraints on the HUD budget and the notion that if we were to increase money for the FHA, that would be additive to the HUD budget, is not true. I believe you know it is not true. I am disappointed that you would even pretend that it might be the case. The HUD budget is constrained by other factors. In fact, it is the Administration that is trying to raise the FHA fees. We have legislation to prevent you from raising them. The legislation we are talking about says that if any of these revenue diversions were to jeopardize the FHA solvency and require more money from the appropriators, it would not go into effect. Your notion is that we would get a total additional for HUD, that HUD would get the credit for any additional FHA money, and that simply has not been the case. During your tenure, has that been the case? Has the HUD budget overall increased proportionately? Have FHA surpluses gone up? Mr. Montgomery. About $1.6 billion this year from the previous year. The Chairman. Did it go up proportionately because of the FHA getting more funds? Mr. Montgomery. The FHA is self-sufficient, sir. The Chairman. Commissioner, please, stop that. You said that the HUD gets-- Mr. Montgomery. We are in the hole right now, sir. We are in the hole. I do not have any money. The Chairman. In the past, throughout your tenure, has the FHA been losing money? Mr. Montgomery. Sir, as you know, we are trying to fix FHA from being in the hole but it was not too long ago, including under Secretary Cisneros, FHA was generating a lot of money. That is not the case today. As we all know, and this committee was great in helping us get the FHA bill through-- The Chairman. I agree with that. The point is there has been no correlation between the FHA surplus or deficit and the HUD budget. Here is your argument, that we should not take additional revenues we generate for the FHA and put them into affordable housing because otherwise it would have gone to the HUD budget. I do not think anybody in the world believes that is true. I am disappointed to hear you say it. Mr. Montgomery. Sir, I am just looking at the budget we publish every year, and it clearly has a credit for our receipts under the HUD budget. I know what you are trying to say, sir. Looking at what it has on our budget books-- The Chairman. You said the FHA has been losing money recently. Mr. Montgomery. I am sorry, sir? The Chairman. It has been losing money, correct? Mr. Montgomery. We will start losing money in about 2 months, sir. The Chairman. You told me you are losing money now. You said you were in the hole. Mr. Montgomery. The die has been cast, that we are not producing-- The Chairman. You just said--Commissioner, I have never been more disappointed in somebody's testimony than yours. The notion that the HUD budget goes up, that there is a causal link between increased FHA revenues--of course, as my colleagues point out, this Administration keeps trying to cut the budget. We have been able to stop some of that. The notion that the additional FHA money would translate into additional funding for HOME or CDBG, if that is the argument against this bill, I look forward to the debate. I now recognize the gentleman from Connecticut. Mr. Shays. Mr. Chairman, thank you for waking all of us up here. I was happy to let this go on, because frankly I did not hear a straightforward answer candidly. I would like not to use my time right now, since I just got here, and let other members who have been waiting longer go, and then I would like to ask some questions. Who is next, Mr. Chairman? I need to wake you up. The Chairman. Are you finished? Mr. Shays. I am not going to use my time now. I would like to wait and let members who have been here a while ask questions. The Chairman. I apologize. We will recognize the gentleman from North Carolina. Mr. Watt. Thank you, Mr. Chairman. Mr. Montgomery, let me approach this a slightly different way because in reading your testimony and hearing the exchange that has taken place, it seems to me that what you are saying is that HUD has a certain budget and if we make more money available, that money is not likely to be used for this purpose. It is just going to be used as a substitute. Is that what you are saying? Mr. Montgomery. That is what the appropriators do. Mr. Shays. Say ``yes.'' Mr. Watt. If that is what you are saying. Mr. Montgomery. Yes. Mr. Watt. It seems to me that the logical consequence of what you are saying is under those circumstances what we are doing will not inure to the purpose that we intend for it to inure to because the money is coming to HUD and consequently the inappropriate place to send the money is to HUD because if you send it to HUD, there is going to be a substitution for what HUD is already doing. I am not wedded to sending this money to HUD. I think the trust fund could be set up someplace else and the money sent someplace else if you are concerned about this money being substituted for money that HUD is already getting. The question I want to ask is, since you do not seem to think HUD ought to get this money under these circumstances, who would be the appropriate alternative beneficiaries to administer the housing trust fund other than HUD, since under your analysis, HUD ought not be getting it because it will just be a substitute for what you are already doing? Mr. Montgomery. Sir, my point was that I think HUD should. Mr. Watt. I did not ask you what your point was. You have made your point. I am trying to make my point now. Mr. Montgomery. Yes, sir. Mr. Watt. My point is who would be the other alternative beneficiaries to administer the housing trust fund other than HUD? You have obviously eliminated HUD now as an appropriate beneficiary of the funds, under your analysis. Who would be the other appropriate beneficiaries to administer a housing trust fund since the official position of HUD seems to be that you do not want it over there because it will conflict with other things? What are the alternatives that we have as to where to send this money? Mr. Montgomery. Sir, actually, I did want HUD to keep the funds, as they do now. That was a point I made in my remarks, which you missed, sir. Mr. Watt. I missed those remarks. In the exchange you just had, it sounded to me like you were saying, do not send this money over here. Mr. Montgomery. No, sir. Mr. Watt. Because it will be used for the purposes we are already achieving. If you want to add to those purposes, you need to send it somewhere else. Let's assume that is what you were saying because I think everybody in the room heard those conflicting things that you were saying, what would be some of the alternative places to send the money other than HUD? Mr. Montgomery. In the hypothetical sense, sir? Mr. Watt. In the hypothetical sense. Mr. Montgomery. I think some States are doing some wonderful jobs with their housing trust funds. Mr. Watt. If we set up a mechanism that said States do not substitute this for what you are already doing, put it on top, which is what Mr. Frank says we were going to do for HUD, you think the States would be able to apply that standard better than HUD would be able to apply it? Mr. Montgomery. The States could decide they want to use it for their HOME funds. Mr. Watt. No. Mr. Montgomery. Hypothetically, sir. Mr. Watt. We would tell them no, you cannot do that. Mr. Montgomery. Hypothetically, as well. Thinking hypothetically. Mr. Watt. We were trying to tell you no, you cannot do it. You cannot substitute it for HOME funds either. You are saying that we can tell the States that, but we cannot tell HUD that? Mr. Montgomery. Sir, that would obviously be a decision for you, but back to my point, I think States, whether it augments their trust fund, again hypothetically, I think many States are set up to do that right now. Some of them are testifying here later today. I think they would tell you. Mr. Watt. I am sure they are going to say yes, send the money to us. HUD is about the only place I know of that says, do not send money over here because it might substitute for some money we already have, which is what you seem to be saying. Mr. Montgomery. No, we would take any extra money obviously that the appropriators would give us, but in the case that we offset our budget with my receipts, that money would have to come from somewhere else if I did not offset that budget. That was the point I was trying to make earlier, sir. Thank you. Mr. Watt. I do not understand what you are saying. The Chairman. I have been working on HUD budgets for 27 years. It has never been the position of the appropriators that the amount appropriated to HUD would rise or fall according to FHA receipts. It is a bookkeeping matter whereby FHA receipts are entered into the general fund, but no one has ever suggested that the budget of HUD goes up or down in any way dependent on net receipts and losses from the FHA. I have been working on HUD budgets since coming here. The gentleman from Missouri. Mr. Clay. No questions. The Chairman. The gentleman from Texas. Mr. Green. Thank you, Mr. Chairman. Earlier, I did not thank the ranking member of the full committee and the ranking member of the subcommittee, so I thank them at this time. Mr. Montgomery, thank you for some of the things you have done to be of assistance to us in Texas, and I thank the Secretary also for some things he has done to be of assistance to us. Mr. Montgomery, currently, we have as you have indicated, a number of programs. Let me just quickly ask you, is there a trust fund for the HOME program? Mr. Montgomery. You mean is there currently a trust fund within the HOME program? Mr. Green. Yes, sir. Mr. Montgomery. It is out of my purview at HUD, but I do not believe there is a trust fund, per se. Mr. Green. I will take that to mean, ``no.'' Mr. Montgomery. Yes, sir. Given my familiarity, because it is not under my purview at HUD. Mr. Green. Is there a trust fund for CDBG? Mr. Montgomery. Not that I am aware of, sir. Mr. Green. I will take that to mean, ``no.'' Mr. Montgomery, let me ask you this. Are you in a position to know whether there is a trust fund for CDBG? Mr. Montgomery. It is not under my purview at HUD, but I am not aware that there is. Mr. Green. Are you in a position--you are a high official in HUD and you do not know whether there is a trust fund for CDBG? Mr. Montgomery, this is not necessary. Mr. Montgomery. I agree, sir. Mr. Green. You are putting yourself in an awkward position if you persist with this. You really are. Mr. Montgomery, what is your title? Mr. Montgomery. I am the Assistant Secretary for Housing at the U.S. Department of Housing and Urban Development. Mr. Green. Mr. Montgomery, is it not true that in your official capacity, you work not only in the Office of HUD but you work directly with the Secretary; is that true? Mr. Montgomery. Yes, sir, that is true. Mr. Green. Is it not true that most of the business of HUD comes through that office such that you are familiar with it? Mr. Montgomery. Are you saying in working with the Secretary? Mr. Green. Yes, sir. Mr. Montgomery. Yes, sir, like all Cabinet agencies. Mr. Green. Is CDBG a program that is administered by HUD? Mr. Montgomery. Yes, sir. I just do not administer it. Pardon my ignorance on it. I do not administer it. Mr. Green. I understand. Is it the case that you are not mindful of what is happening to the extent that a reasonable and prudent person should be? Would you not agree that a secretary in your position ought to know? Mr. Montgomery. Whether or not there is a trust fund? Mr. Green. Yes, for CDBG. Mr. Montgomery. If you are implying my lack of sophistication on the subject, sir, I am sorry. Mr. Green. I believe you know there is not one. Is there a trust fund for the Section 515 rental housing program? Mr. Montgomery. That is at the U.S. Department of Agriculture. I do not believe there is, sir. Mr. Green. Is there a trust fund for Section 811 for the disabled? Mr. Montgomery. Again, sir, no, there is not. Mr. Green. 202 for the elderly? Mr. Montgomery. No, there is not a trust fund. Mr. Green. The truth of the matter is this will be the very first national affordable housing trust fund that you are aware of, true? Mr. Montgomery. Yes, sir. That is true. Mr. Green. Mr. Montgomery, it would seem to me that people who want persons to have affordable housing, who want housing preserved, housing rehabilitated, and housing produced, would say that happy days are here. We finally have a trust fund for housing. It would just seem to me that people would want to have parades and roll out a red carpet, sound the trumpets, go tell it on high, that we finally have a trust fund for housing. It just makes so much sense that somebody ought to be appreciated for this. It really does. I marvel at how we demean what is about to become a monumental accomplishment for the least, the last, the lost, for persons who cannot afford even affordable housing. It really is a marvelous circumstance that we are witnessing. It really is. My final comment is this, Mr. Montgomery. I think that some of us do not appreciate a very basic premise that impacts all of us, and this is the premise. No one deserves a status in life to which he or she is born. I am going to repeat that. No one deserves the status in life to which he or she is born. We are here today in these environments because we have just been blessed. There are others who are not so fortunate. This fund, this trust fund, is there for them. I thank Mr. Frank, Ms. Waters, and all who have supported this. Prior to my coming, I understand something similar was introduced. They deserve expressions of great appreciation for what they have been trying to do. I thank you for your efforts. Mr. Chairman, I thank you, and I yield back the balance of my time. Mr. Montgomery. It is for the reasons that you have articulated, Congressman, that I am working very hard to improve FHA. I am working very hard to get more funds for 202 and 811. It is why I publicly say we have a production problem in this country, developing affordable housing. I have said it in many cases, and I will continue to say it. Mr. Green. I want to reclaim my time. Have you worked to establish a trust fund? Mr. Montgomery. Sir, I am working hard to keep what HUD has or to use as an offset towards our budget. I am working very hard to get more funds in my realm within HUD. Mr. Green. Do you believe that a trust fund would benefit poor people in this country? Mr. Montgomery. Absolutely, sir. Mr. Green. Thank you. Mr. Montgomery. Absolutely. The Chairman. Mr. Montgomery, while I continue to be somewhat frustrated by our previous exchange, I do want to acknowledge that yes, in our dealings together, your efforts within the constraints that you have have been ones that we appreciate. We have a disagreement here, but I think it is reasonable to stipulate that it does not extend to other areas where we have been and will continue to be cooperative. I do acknowledge that what you said has been accurate about your efforts. I recognize that you are here as a representative of the Administration. At this point, I want to insert into the record an editorial from the New York Times dated July 3rd, endorsing this idea; the testimony submitted by Jonathan Reckford, who is chief executive officer for Habitat for Humanity in support of the trust fund; and the statement of the National Association of Home Builders in favor of this trust fund. I ask if there is no objection, that all these be made part of the record. The Chairman. We will now go to Mr. Cleaver. Mr. Cleaver. Thank you, Mr. Chairman. Mr. Montgomery, sing with me, ``Kum Ba Ya''. You do not want to hear me sing. Sorry. The Chairman. The gentleman from Missouri can meet with the recorder later to make sure that is accurately transcribed. [Laughter] Mr. Cleaver. Mr. Montgomery, in November, I will be speaking to the mayors in Seattle at their conference. One of the things that mayors are always concerned about is whether Washington listens to them; I know this from experience. One of the things that has occurred to me is whether or not you can reconcile HUD's position with the position of the U.S. Conference of Mayors, Republicans and Democrats, who are on the ground every day, who support this legislation. Is there a way that you can reconcile HUD's position with their position, also with the position of the NAACP, which has provided a statement that I would like to have entered into the record as well. The Chairman. Without objection, it will be made part of the record. The NAACP will also be testifying. Mr. Montgomery. I think, at last count, because of Sheila Crowley's great efforts, that you have 5,495 supporters. I think you have the 37 States who have housing trust funds supporting the legislation. Again, the goals of what they are trying to accomplish, I support. So I do not cover old ground, in the interest of time, I just reference my concerns relative to the funding. Mr. Cleaver. So you cannot reconcile HUD's position with the position of the mayors? Mr. Montgomery. I have not read their official statement, but I know-- Mr. Cleaver. They support it. Mr. Montgomery. Yes, sir. I am aware of that. Mr. Cleaver. They are on the ground. They are there every day on the ground. Mr. Montgomery. I visited with them in Los Angeles last month, sir. Mr. Cleaver. Can you reconcile HUD's--what is it that the mayors see that you cannot see? Mr. Montgomery. Again, sir, not to cover old ground in the interest of time, just my concern with the funding and how it would impact our budget, sir. Mr. Cleaver. Thank you. Mr. Montgomery. That is plain and simple. Mr. Cleaver. You said if we set up this fund, it would duplicate other programs. Mr. Montgomery. Yes. Mr. Cleaver. If that is true, are we saying the programs that are already in existence are ineffective? There must be a declaration at the same time that these programs are ineffective or we would not see a rise in the number of the homeless, and there would be no push to try to establish a housing trust fund. If those programs are effective, why are mayors confused? Why are people around the country confused who deal with the issues related to the homeless? Are those programs effective that you are concerned about duplicating? Mr. Montgomery. The HOME program is a very effective tool, sir. Again, I do want to support one of the goals in particular that this fund would do, and that would increase the level of funds that go to families at 30 percent of AMFI and below, above what the HOME program does. If we can find sources for that within HUD, I would support that 100 percent. I do not want you to think I do not support a lot of what this fund does. Quite the contrary, I do. Mr. Cleaver. The point I am trying to make, and perhaps poorly, is that if there are existing programs that this fund is going to duplicate, and the people who deal with the issues regarding this fund all believe we need it, then maybe the programs we have in HUD are ineffective. Mr. Montgomery. Sir, I do not think you will hear from States that they think the HOME program is ineffective. I think you would probably hear that they need more money. Mr. Cleaver. You disagree or agree with them declaring that they need more money? Mr. Montgomery. No, sir. I do not disagree that the States would need more money at all. Mr. Cleaver. You do support this bill? Mr. Montgomery. I support increasing affordable housing to the degree that it does not impact my budget, which unfortunately it does. Mr. Cleaver. I am going to sing ``Kum Ba Ya'' again. Mr. Montgomery. I am not trying to be difficult, sir, I promise you. I really am not. Mr. Cleaver. I give up. [Laughter] The Chairman. I remind people and again I want to say the gentlewoman from California and I have had a good working relationship with the Commissioner as he said, and we believe that he has been a diligent and compassionate supporter. There are constraints as to what he can and cannot say. Things do tend, as we said earlier with the rules, the rules do tend to walk into policy positions, things happen. The gentleman from Connecticut. Mr. Shays. Thank you very much. Mr. Montgomery, Chairman Frank asked you a question to which he did not think you were responsive. I am curious to know what your answer was going to be even though it was not responsive. I am just curious to know what you wanted to put on the record and then from that, I may ask another question. First off, tell me this. Tell me what you thought he asked you and then tell me what you wanted to say. I will not interrupt you. Mr. Montgomery. As I recall, he asked me do we have any excess receipts, do those go to the Treasury, do they go to HUD? I do not want to get into how the appropriating process works. I do know that when we have a budget that we submit, it is very clear they are offsetting the budget or the FHA receipts that go to pay other HUD programs. In the world of the appropriators, those receipts go to HUD and they are spoken for. Mr. Shays. I understand what you wanted to put on the record. He was not asking you what appropriators want to do. What I want to do is put it in my own words because I think you had a question that followed, he was trying to help you out, and you were not allowing him to help you out. Does this get to the issue of opportunity costs, that there is only so much money that HUD is going to be allowed to have, and therefore, you were saying if you give us more money here, appropriators are going to take it away somewhere else? Is that what you were basically trying to say? Mr. Montgomery. Historically, yes, sir. I think that is the case. Mr. Shays. In my judgment, that is something you should put on the record. It is our judgment as to what they will do. It is very clear to me that appropriators, whether they are Republicans or Democrats, if they see a department get more money in one place, they may take it out somewhere else because there is only so much they are going to allow HUD to have or any other department. I think it is fair to say with a Democratic Congress, you are going to see more money going to HUD. This, to me, seems like an opportunity for you to say you know, we would love this money, so long as you do not take it away from us somewhere else. That is kind of the way I would have answered it because the way you answered, it gives the impression that you do not want extra money. Mr. Montgomery. I am sorry if I left the committee with that impression. It was not my intent. Mr. Shays. That is the impression that you kind of left. I will give you a good example. This Congress decided, rightfully so, that it needed to put more money into the Department of State, but that in the foreign affairs budget, it wanted to put more money. What it did was it took a program dealing with Africa and the AIDS program and took some of that money out of the NIH budget. It looked like we were putting more into the NIH budget but we took $200 million out and gave it to a very worthy program that used to be in another department. We were struck by the fact that it looked like we were adding more to NIH and we were adding some more but not as much in reality because we were taking some of that and putting it into another program unrelated to the NIH budget. If your answer is that you feel this adds more money to HUD, it does, does it not? Mr. Montgomery. I am sorry. Are you talking about the trust fund? Mr. Shays. Yes. The housing trust fund gives more money to housing, correct? So long as Congress does not take it away somewhere else, is that not correct? Mr. Montgomery. I am a little foggy on what you are saying, sir. For purposes of time, I will agree with what you are saying. I am sorry. Mr. Shays. Tell me why you are foggy. Mr. Montgomery. Any receipts that I have beyond what I need to pay claims and things of that sort, again, we give back to the Treasury. Those funds are then credited toward HUD's budget, I should say. If that did not happen, which is the case for next year, the funds have to come from somewhere. Mr. Shays. If in fact that is correct, then you have the opportunity to say to Congress that we will only get extra money if you make sure that we are credited and they do not debit our account more as a result. Mr. Montgomery. Yes, sir, if I follow your line of reasoning, yes, sir. Mr. Shays. I am not saying it as well as I would like to, so I do understand a little of your confusion. The bottom line is that there is a solution to the problem that you may fear and that the best way, it seems to me, for you to deal with it is to say that so long as these things happen, we will be okay, but if Congress takes the money for other reasons, and does not let us realize this extra money for housing, it will just be something we do not benefit from. At any rate, that was my best attempt. Mr. Montgomery. Thank you, sir. The Chairman. By the way, less than half of the money in the trust fund comes from the FHA. The largest share comes from the GSEs and no one can argue that would go to HUD under any circumstances. That goes to the shareholders of Fannie Mae and Freddie Mac. Mr. Shays. Do you agree with that? Mr. Montgomery. I was not referencing-- Mr. Shays. Do you agree with what Mr. Frank just said? Mr. Montgomery. If you could repeat it, sir. I am sorry. The Chairman. As we have the trust fund bill now, there are two revenue sources, much more than half would come from the GSEs, and no one could argue that any of that money would otherwise go to HUD. That is money from Fannie Mae and Freddie Mac's shareholders. Mr. Montgomery. I do not believe that is envisioned in the statutes, so I would agree. I do want to point out-- The Chairman. I am sorry. You do not believe what? Mr. Montgomery. Were you talking about any excess from the GSEs that would go to HUD? I am not aware of that, sir. The Chairman. I said that in the trust fund bill, the larger share of the revenues that would go to the trust fund come from Fannie Mae and Freddie Mac. Mr. Montgomery. Yes, sir. That is absolutely correct. The Chairman. No one has argued that in the absence of the trust fund bill, any of that would go to HUD. Mr. Montgomery. Yes, sir. That is correct. I am sorry I misunderstood your question. The Chairman. Thank you. The gentleman from Oklahoma. Mr. Boren. Thank you, Mr. Chairman. It is a real pleasure to watch my colleague, Mr. Green, from Texas and another friend from Texas here--from an Oklahoma perspective, it is always nice to watch two Texans go after each other. We do that in October at the Cotton Bowl and it is a lot of fun to watch. I am going to have to step out before our next panel but I do want to thank Secretary Cisneros for being here. He is a great family friend and a great public servant to San Antonio, the State of Texas, and our country. Thank you for being here. I have one question. I am going to be very brief. Going back to the actual legislation and not going into the budgets and everything else, the paperwork that I have before me, the prohibited uses of the funds that would be in this trust fund in H.R. 2895 would be the bill includes prohibitions against any funds being used for administrative costs or expenses, political activities, advocacy lobbying, of course, I think that is a good thing. What we have seen with NAHASDA and what we have seen with some of the other pieces of housing legislation since I have been on this committee for just a short time, the impact on Native Americans. I represent eastern Oklahoma, 25 counties. We have 39 federally recognized tribes. Tribes are not all alike. The Chickasaw Nation is different from the Choctaw Nation, different from the Miami tribe, different from the Wyandotte's. The Choctaw's and Chickasaw's have done very well from gaming. Some of the tribes in the northeastern part of my district have not done so well. Some do not have sources of funds from gaming. Some do. Smaller tribes like the Quapaws and other tribes, they have a very limited budget. My question to you is, this provision within the trust fund or any other pieces of legislation that deal with housing, do you think it is appropriate for any of these trust funds or any other funding mechanisms to go towards maybe smaller tribes so they can actually administer these funds? We have a real debt of home ownership in places like rural Oklahoma. Mr. Montgomery. I do know there is a set aside within H.R. 2895 for tribes and other areas. I am not sure of the breakdown by the size of the tribes. I am sorry. I just do not know what that number would be. Mr. Boren. The funding is great. We are talking about very rural areas and maybe within a tribe, there might be one or two people who can carry out these programs. The tribe might not have the necessary funding so they can carry these programs out. Do you think it would be within the bounds of legislation-- not just this piece of legislation, which I am very supportive of the chairman on--any other legislation, do you think it would be appropriate for funding to go to smaller tribes, to hire one or two people to administer housing programs? Let's just take it generally. Mr. Montgomery. Sir, in concept, I agree with what you are saying. Again, I am just not that familiar with that portion of the bill and the breakdown. I am sorry. I am not that familiar. In concept, I do agree with what you are saying. Mr. Boren. In the interest of time, I am going to yield back to the chairman. Thank you so much. Again, I thank all my Texas friends. The Chairman. The gentleman has yielded back. The gentleman from Connecticut has been very helpful in keeping me focused today--very unusual. Thank you, Commissioner. I know you have been here as a proxy for the Administration. We understand that. You have done your job as you were supposed to. We will call forward the next panel. Mr. Montgomery. Thank you, sir. The Chairman. Please be seated. The next panel consists of: the Honorable Henry Cisneros, former Mayor of San Antonio and Secretary of the Department of Housing and Urban Development; Sheila Crowley, president of the National Low Income Housing Coalition--the single most vigorous force behind this fund; the Honorable William Euille, Mayor of Alexandria, our neighbor, who is here on behalf of the U.S. Conference of Mayors--I guess the conference budget was tight, they did not want to pay a lot of airfare, so they gave him his Metro card and here he is--we are delighted to have the Mayor of our important neighbor here; Lisa Alberghini, whom I will note is the director of the Planning Office for Urban Affairs of the Archdiocese of Boston and the Archdiocese of Boston has been a great builder of housing, affordable housing, for many years--for anybody who decided they needed something called a ``faith based program,'' I have been working with the Archdiocese and Office of Urban Affairs with Ms. Alberghini and her predecessor; and finally, JoAnne Poole, who is the owner of Poole Realty, and she is here importantly on behalf of one of our strong advocates for a good housing program, the National Association of Realtors. We will begin with Secretary Cisneros. STATEMENT OF HENRY CISNEROS, EXECUTIVE CHAIRMAN, CITYVIEW Mr. Cisneros. Mr. Chairman, thank you very much. Members of the committee, thank you for giving me the opportunity to come in and support H.R. 2895, the National Affordable Housing Trust Fund Act of 2007. Thank you, more importantly, for your leadership to organize the content of this bill, and your legislative skills to manage the strongest chance ever to create a national housing trust fund. I would like to acknowledge the long term advocacy and solid creative work done by many, many outside organizations, including the National Low Income Housing Coalition, the Center for Community Change, the Housing Trust Fund Project, the NAACP, and many others. I will use my time to make four succinct points. First, the national housing trust fund is important because it is such a focused tool. Across the entire spectrum of housing, starting with housing shelters and supportive housing and subsidized rentals and public housing, market rentals, entry level home ownership and move up housing across that entire continuum, the greatest need, the greatest suffering is among families, individuals, and households below 30 percent of median income, the extremely-low-income families of our country. To address their needs, to produce housing that touches the entire first part of this continuum, from homelessness through these various first steps, we need units, production, and housing stock, that low-income people can access. We need units so that homeless people can access the Housing First concept. We have to have housing units for them to be able to move out of homelessness. We need supportive housing with services. We need low- income rental stock. I am in the home ownership business personally, but I acknowledge the absolute most pressing need before the country in housing is the lowest income rental stock. We need housing that works with other programs, such as public housing, and we need housing that works in conjunction with market housing, so that flexibility is possible to take something like this fund and match it to market housing, 20 percent or 25 percent of a market development. There is no Federal program today targeted precisely in this way or on this scale. We need this focused new production program. Point one. Point two. We can see from local housing trust funds that the concept works. There are over 600 local or State housing trust funds today. In big cities, such as New York City, the effort is underway to try to create or preserve 4,300 units with a trust fund. In Chicago, the goal is 5,500 rental subsidized units, not over 30 percent of median income, to meet the city-wide goal of producing affordable housing. In smaller communities, many that are in high-cost areas, such as Boulder, Colorado, the explicit goal of the City is to use a housing trust fund to make sure that 10 percent of the housing stock is permanently affordable. In Boulder, that amounts to 2,700 units of which 2,100 would be rental, and 600 would be ownership. In another high-cost area, Mountain View, California, they are using the housing trust fund of Santa Clara County there where Catholic Charities just produced an award winning single room occupancy facility for people earning between $15,000 and $30,000 a year. That is 20 percent of average median income, using the flexibility that only a housing trust fund makes possible. At the State level, Washington State is considered as one of the most effective State housing trust funds. They have over the years amassed $500 million and leveraged $2 billion in 32,000 units, mostly rental. The point is that housing trust funds work. The corollary point is that at the local level, they are symptomatic of why a national fund is needed. State and local housing trust funds exist because the stress of housing affordability is so great that existing programs cannot meet the need. There is a crisis. It is also true that they are patched together with chewing gum and baling wire in many places. Real estate transfer taxes, document reporting fees, linkage fees, unclaimed property funds, the need is great, the revenue base is inadequate, and the scale is not adequate. A national trust fund is needed. Third point quickly. H.R. 2895 incorporates the best elements of what we have learned in recent years from housing programs, the need for rental production, to focus on the very- low-income, economic integration, proximate to economic opportunities and transit, incorporation of green development ideas, State, rural, and Native American housing, the opportunity for faith-based institutions to work, the prohibitions on administrative costs and travel and political activities, the matching provisions that are incentivizing to local governments, the local discretion that unleashes creativity as we have seen from nonprofit and private best practice designs, and the use in conjunction with market projects, integrating low-income units. This is a great idea and this fund uniquely will make that possible. Finally, the fourth point is you identify revenues in H.R. 2895 from new sources, Fannie Mae, Freddie Mac, and the FHA, in such a way as not to cannibalize other programs, and in such a way as not to exacerbate the Federal fiscal challenge. Therefore, it can generate and merits bipartisan support. I will close by simply saying that in the last years I have collaborated with my predecessor, a Republican HUD Secretary, Jack Kemp, in a number of studies and books. In our last project, we concluded about the housing trust fund, the following: ``We recognize the need for a source of capital for the production, preservation and rehabilitation of housing affordable to low-income households. We, therefore, recommend that the Administration and Congress establish a national housing trust fund for this purpose. Specifically, trust funds should be used to support the production, preservation and rehabilitation of 1.5 million affordable housing units over the next 10 years.'' A bipartisan statement, Mr. Chairman, my predecessor, Jack Kemp and I, together acknowledging the importance of a national bipartisan effort. We were able to talk about it. You thankfully are doing something about it. To answer one of the points that the Congresswoman asked earlier about what this will look like in 10 years, those who participate in this and support it will have been responsible and should be justifiably proud in 10 years of a major new productive and successful housing initiative. Thank you. [The prepared statement of Mr. Cisneros can be found on page 80 of the appendix.] The Chairman. Thank you, Mr. Secretary. Ms. Crowley? STATEMENT OF SHEILA CROWLEY, PRESIDENT, NATIONAL LOW INCOME HOUSING COALITION Ms. Crowley. Thank you, Chairman Frank. It is a wonderful day that we are here today and having this opportunity to testify about a national housing trust fund, and it is a great honor to be on this panel with many fine people, but I especially want to thank our friend, Secretary Cisneros, for coming and making such an eloquent statement. The establishment of a national housing trust fund with dedicated sources of revenue for the production and preservation of affordable housing for people with the most serious housing problems has been the top priority of the National Low Income Housing Coalition since 2000, and in 2001, we joined with many other organizations to form the National Housing Trust Fund Campaign that is now over 5,600 organizations strong. As Ms. Waters noted earlier today, we are observing the 20th anniversary of the passage of the McKinney-Vento Homeless Assistance Act, an emergency response to the rapid growth of homelessness in the United States in the 1980's. Before coming to Washington, I worked at the community level for 20 years. I remember when homelessness was relatively rare, and I remember when homelessness accelerated in the 1980's. I know that homelessness grew as the supply of low-cost housing diminished, and as the cost of rental housing increased, and as the support from the Federal Government began to wane. I know we have no hope of ending or preventing homelessness in the United States until we make a serious investment in housing that the lowest income people can afford, and that is what the national housing trust fund does. It is easy to understand the persistence of contemporary homelessness when we look at the mismatch between housing units and numbers of people. There are 9 million extremely-low-income renter households, and there are only 6.2 million rental units they can afford, if you use the standard of 30 percent of income for housing. Thus, we have an absolute shortage of 2.8 million rental units for this income population nationwide. It is the only income group for whom there is an absolute shortage. If my poster could go up, that would be really great because you could see it quite graphically. This is the only group where we actually have a shortage. Who are extremely-low- income households? The Chairman. That is the group in the red? Ms. Crowley. The group in the red; yes. Below the line. Who are extremely-low-income households? In Washington, D.C., they are families with a total income of $27,000 a year or less. In Los Angeles, it is $16,860 a year or less. These are people who earn their living in the low-wage workforce. They are child care providers, nursing home aides, hotel housekeepers, office cleaners, retail clerks, and receptionists. Extremely-low-income households are also those who are elderly and disabled whose income is limited to Federal SSI payments. The Federal SSI benefit level in 2007 for an individual is $7,476 a year. What happens to real people under the circumstances of scarcity for a need as basic as housing? The main thing that happens is that they end up paying way too much of their income for their housing; 71 percent of extremely-low-income renters spend more than half of their income for their housing. Those who have the fewest coping skills and have the weakest social networks are the ones that are at higher risk of becoming homeless under these conditions of scarcity. Simply put, this bill makes capital resources available to developers who are willing and able to build and operate housing that extremely-low-income families can afford. There is no current Federal production housing program that is specifically targeted to this population. The trust fund dollars will not be used as the sole source of capital for any project. Rather, they will add enough to bring down the cost for a percentage of units in any given project such that they become affordable to the extremely-low- income households. The core intent of this bill is that the funds will be used for rental housing, but the bill fully supports using resources for home ownership. We understand that getting extremely-low- income households into home ownership is a challenge and in most cases may not be in their best financial interest. We strongly believe that the best home ownership program for people in the low wage workforce is to increase the supply of rental housing they can afford so that they have a much greater chance of becoming successful homeowners in the future after being stable and successful renters who can develop a good credit history and might even have the opportunity to save some money for a downpayment. The goal of the national housing trust fund and H.R. 2895 is to produce and preserve 1.5 million homes over 10 years. This is indeed a very ambitious goal. The bill provides dedicated sources of funding. CBO estimates that the combined value of these would be no more than $1 billion a year, which is quite substantial, but to reach our goal, we are going to have to find other dedicated sources of revenue and the bill does allow for that, and we think there is any number of creative ways we can do that. Mr. Montgomery suggested one a few minutes ago. Let me close by saying this is one of the most important bills that this committee will take up in the 110th Congress and to my mind, the most important. We want to work with you to make it the best bill possible. I want to offer our heartfelt thanks to Chairman Frank and Mr. Shays and Mr. Miller and Chairwoman Waters and the other original co-sponsors of H.R. 2895 who once again have demonstrated that the very best low-income housing legislation is always bipartisan. Thank you. [The prepared statement of Ms. Crowley can be found on page 87 of the appendix.] The Chairman. Thank you, Ms. Crowley. Mr. Mayor, who is the successor, not immediate, of one of our colleagues, I believe, Mr. Moran. We are glad to have you here. STATEMENT OF WILLIAM D. EUILLE, MAYOR, ALEXANDRIA, VIRGINIA, ON BEHALF OF THE U.S. CONFERENCE OF MAYORS Mr. Euille. Thank you, Mr. Chairman, and members of the committee. I am William D. Euille, the Mayor of the City of Alexandria, Virginia, a product of public housing, and a 15- year advocate for affordable housing. I am pleased to be here this morning to testify on behalf of the U.S. Conference of Mayors, the National Association of Counties, the National Community Development Association, the National Association of Local Housing Finance Agencies, and the National Association of County, Community and Economic Development. We strongly support H.R. 2895, the National Affordable Housing Trust Fund, and we appreciate this initiative and trust me, there will be parades and fireworks. We urge the Committee to adopt our recommendations and improve the legislation, and the U.S. House of Representatives to pass it. Over the last several years, mayors have called on Congress to adopt a national housing trust fund. In 2002, Boston Mayor Thomas Menino, who was then president of the Conference of Mayors, asked the Administration and Congress to create a national housing trust fund to meet the needs of low-income individuals and families through production and preservation of rental housing and that cities receive a direct allocation of funds. This policy statement was developed following a national housing forum convened by Mayor Menino and attended by most of the organizations supporting H.R. 2895. The Conference of Mayors also adopted a policy in 2003 calling for passage of a national housing trust fund, and most recently, in Los Angeles, in June of this year, the organization adopted a policy reaffirming its support of a national housing trust fund, primarily, but not exclusively, designed to meet the needs of the very-low-income, i.e., 30 percent of the AMFI or below, through the preservation and production of housing. The policy also asks that 60 percent of the national housing trust fund be allocated to localities. Similar policy statements have been adopted by the organizations that I testify on behalf of today. Local government interested in support for the national housing trust fund is based on several reasons. Mr. Chairman, some of these are exactly the same as those you state in purposes for the legislation. Local officials know firsthand that there is a lack of affordable housing for low-income families. Just yesterday, I met with a group of junior and senior high school students. One of the questions they asked me is, Mr. Mayor, where are we going to live once we graduate from high school? Of all the issues we are all concerned with as Americans, next to the war in Iraq, the next thing that folks are most concerned about is where they are going to live. The U.S. Conference of Mayors annual hunger and homelessness survey has repeatedly listed the shortage of affordable housing as the major cause of homelessness in America. We believe that you have chosen a laudable goal to construct, rehabilitate and preserve at least 1.5 million affordable housing units over the next 10 years. Just in the Washington metropolitan area, it is estimated that we need to build and preserve 50,000 units a year just to meet the needs. We can do this locally by redevelopment/ development, higher density, and we can re-prioritize our efforts on home rentals. There are other studies and data which will be cited by others during this hearing which will leave no doubt that more affordable housing is needed. Most can cite the staggering number of unmet housing needs in our Nation, the difficulty that people with jobs have in finding affordable housing, and the fact that millions of low-income families must pay more than half of their income for housing. All of these offer substantial proof of the need for a national housing trust fund. This is about hope and prosperity for all. This is the American dream. As you know, Mr. Chairman, many localities have created their own housing trust fund. There is a great deal of experience across the Nation in cities and counties, as expressed by Secretary Cisneros. With that, first of all, I want to thank the committee for allowing us to be here this afternoon in support of H.R. 2895, the National Housing Trust Fund, and we, the Mayors of America, look forward to working with you for its passage. Thank you. [The prepared statement of Mayor Euille can be found on page 96 of the appendix.] The Chairman. Thank you, Mr. Mayor. Next is someone with whom I have been working, working with the cooperation of the Archdiocese to convert a church or use of a church into affordable housing, Lisa Alberghini, who is executive director of the Planning Office for Urban Affairs, which is affiliated with the Boston Catholic Archdiocese. Ms. Alberghini? STATEMENT OF LISA B. ALBERGHINI, DIRECTOR, PLANNING OFFICE FOR URBAN AFFAIRS, ARCHDIOCESE OF BOSTON Ms. Alberghini. Chairman Frank, and Ranking Member Bachus, thank you for the opportunity to testify on this important legislation that will bring hope and homes to so many Americans across the country. Thank you especially to Chairman Frank for your tremendous leadership, and to the Low Income Housing Coalition and all of the advocates who have worked so hard on this bill. I am Lisa Alberghini, executive director of the Planning Office for Urban Affairs. We are a self-sustaining housing and social justice ministry affiliated with the Archdiocese of Boston. I am here to support this legislation on behalf of our office, the Archdiocese of Boston, and the people we serve who are in dire need of affordable housing. H.R. 2895 is also strongly supported by the U.S. Conference of Catholic Bishops, Catholic Charities U.S.A., and a wide range of faith-based organizations of many faith traditions across this country. The Planning Office is a private nonprofit developer created by the Archdiocese in 1968 to work for housing justice on behalf of the Church. Since that time, we have developed more than 2,300 units of affordable and mixed-income housing with debt and equity financing of nearly $300 million. We serve working families, the homeless, frail elders, veterans, people living with HIV/AIDS, and disabled individuals, by creating mixed-income communities, where all residents are treated equally, and the poor are not isolated in poverty. The need for affordable housing is great and well- documented. Rather than focusing on more statistics, I would like to get right to giving you our perspective about how this legislation can help and why it is so important. The Planning Office is a developer and a social justice ministry. We are directly involved as a practitioner in building affordable and mixed-income housing and have extensive experience using a wide array of financing programs that currently exist for this purpose. We know what works and what does not work. H.R. 2895 is a thoughtful piece of legislation that will benefit people in need across America, while using an efficient and industry proven funding method to supplement private sector activity. The proposed trust fund is efficient, meaningful, targeted, and based on a proven model. It is not creating a new untested tool. It has been purposely structured to use a system that we know works, and it will support public/private sector collaboration, while at the same time addressing a need that the private sector cannot possibly respond to on its own. In our view, this Act is the best of both worlds. It provides a tool but not a handout, and that is the difference between charity and justice. Justice relies upon empowering people. This legislation gives us that opportunity which is why there is significant bipartisan support for this Act. I would like to briefly describe a few of our developments and how the trust fund could help. Rollins Square is a 184 unit development we built in the south end of Boston, one of the City's highest income areas. It is very much the type of housing that Representative McCarthy noted as creating vibrant communities that we need more of. It includes 20 percent low-income units for families earning 30 percent of median income which is a key policy goal of the trust fund, 40 percent moderate-income units for first- time home buyers, and 40 percent market rate units. All of these units are fully integrated throughout the entire property, which means there are formerly homeless people living next to first-time home buyers, living next to people who paid more than $1 million for their condominiums, for their homes, and they are all living literally side-by-side as neighbors who share a common community. Our office has provided a lot of information on the work that we have done to the committee staff today, but if you have a minute to look at anything, pull out the least glamorous piece in the Rollins' package, which is just a one-page list of the profiles of the 37 formerly homeless families who now call Rollins Square their home, where they can get on with the business of living their lives. How could the trust fund have helped? Rollins Square was a $67 million deal that required 14 separate sources of funds and had problems closing the last financial gap, delaying the project for 18 months, which only drove up the costs more and created a cyclical problem. It is precisely the type of development that could have been funded through this Act, particularly given its targeting. If there were more Federal funds available, it would have meant a quicker development process and ultimately more public benefit. Our St. John of God & St. Jean Baptiste developments, also in Massachusetts, are very similar. They could have used this trust fund enormously. Finally, the Saint Aidan, which is a 59 unit mixed-income development located in Brookline, Massachusetts--in Brookline, by the way, the median family house price for a single family home last year was $1 million. With prices like that, what happens is that the teachers, firefighters, and librarians have to enter town in the morning and leave town at night; the people who serve you can no longer afford to live in the communities with you. Saint Aidan's, though, will be 60 percent affordable, and in this case we are fortunate enough to have had Chairman Frank as our Representative, with the benefit of his leadership to solve a number of problems with the project and for that, we, and the Archdiocese, are enormously grateful. The trust fund could have shortened a very long 7 years that it has taken us to get that development out of the ground, by giving us additional resources. Some might think that since these got built, why do we need the trust fund? The process took far too long, was far too inefficient, and offered far less public benefit than could have occurred with the trust fund in place. Most importantly, these developments represent the 1.5 million homes that did not get built and would be if this Act were passed. A couple of last comments on the big picture here. Why is this so important to us as a country? More than 25 years ago, the Catholic Bishops of the United States issued a pastoral letter called, ``The Right to a Decent Home.'' It described decent housing as a human right and said its provision involved public responsibility and the partnership between private enterprise and government. This fund would create that and provide that unquestionably. There is a very broad coalition of people with common and diverse interests coming together in support of this legislation. We come from different faiths, different beliefs, and different backgrounds, because housing our neighbors in need is a moral imperative and concern for decency and fairness is a value we all share. We all know that having a decent home affects every aspect of our lives, and not having one devastates even the strongest among us. We would like to see this passed to help address the issues facing the 37 million people in America who are living in poverty, and as Father Snyder, the president of Catholic Charities U.S.A., told us, and I mentioned in Washington a couple of weeks ago, poverty remains our Nation's most serious political blind spot and a threat to the common good and future of our Nation; it is a human-made disaster, not a force of nature beyond our control, and we can make choices that change that. With this legislation, we will. Thank you, and we urge your support. [The prepared statement of Ms. Alberghini can be found on page 74 of the appendix.] The Chairman. Thank you. Finally, JoAnne Poole, representing the National Association of Realtors. Please, Ms. Poole. STATEMENT OF JOANNE POOLE, BROKER/OWNER, POOLE REALTY, ON BEHALF OF THE NATIONAL ASSOCIATION OF REALTORS Ms. Poole. Good afternoon, Chairman Frank, and members of the committee. I have been a Realtor for 21 years, and I am currently serving as part of the National Association of Realtors. We often refer to home ownership as the American dream, but I believe having a decent home in a suitable living environment should not be a dream. It is a basic need and it should be available to everyone. Every day, my fellow Realtors and I see working Americans like you and me who simply cannot afford a decent place to live. Less than half of our Nation's minority families own a home today. That is 25 percentage points below the national average. With the rapid rise in home prices in recent years, the so- called home ownership gap is likely to grow as more and more people are finding home ownership out of reach for them. Those who do manage to purchase a home face additional struggles. Studies show that minorities are 30 percent more likely to receive a higher priced loan than white borrowers, even after accounting for risk. Of course, housing affordability is not just a problem for minorities. People of all backgrounds are finding it harder and harder than ever to pay for housing. According to the Joint Center for Housing Studies at Harvard University, more than one in seven U.S. households spend more than half their income on housing. Finding affordable rental housing is another growing problem. In the 10 years between 1993 and 2003, two million affordable housing units were lost. HUD estimated in 2005 that they were only 77 units affordable and available for every 100 low-income renters. That means nearly a quarter of low-income families do not have access to decent rental housing. Whether you look at the facts or consider personal experiences, the conclusion is the same. Affordable housing is no longer merely a problem, it is a crisis, and we must all do our part to address it. In 2002, the National Association of Realtors created our own housing opportunity program. Through this program, we provide local and State associations and individual Realtors with the resources they need to increase housing opportunities in their communities. The program also provides grants to State and local associations to help them establish their own local housing opportunity programs. During the past 5 years, our State and local Realtor associations have developed numerous programs and affordable housing funds that have helped meet the housing needs of thousands more low- and moderate-income families across the nation. These programs have had a tremendous impact on our communities and our lives. Sadly, they are not enough to address the growing problem. We need help and we need it now. Today, Realtors are pleased to lend our support to H.R. 2895. We believe this legislation will provide significant help in the form of additional funds to meet America's growing demand for affordable housing. We strongly support the division of funds outlined in the bill with 60 percent of monies going to cities and counties and the remaining 40 percent to States. We applaud you for allocating 25 percent of the funds for families who make up 80 percent of our median income, families who currently receive no Federal housing assistance. America's Realtors stand ready to work with you on this bill and on all efforts to make home ownership and affordable housing a reality for even more Americans in the years ahead. As John Adams once said, if your actions inspire others to dream more, learn more, do more, become more, you are a leader. Thank you again for helping to lead this important effort and for inspiring all of us to do more. Thank you very much for the opportunity. [The prepared statement of Ms. Poole can be found on page 119 of the appendix.] The Chairman. Thank you, Ms. Poole. I have found in the ability to work with the Realtors, that these are people who are not just trying to make money off housing, but they have a genuine understanding of the importance of increasing housing resources, and I appreciate it. Let me say to this panel and the next panel, it may look kind of routine, there are not a lot of people here, but we are building a record here that is very important. Frankly, this is a ``no news is good news.'' This is rapidly becoming less controversial than it used to be, but it is because of this combined support. This is very useful. Let me make explicit what many have referred to almost explicitly, the importance of a trust fund. This really will go to Commissioner Montgomery. Even to a very good level of annual appropriations, we are talking about construction. You simply cannot expect, and we are dealing here with the private sector, the units that are built here are not going to be built by any Government agency. These are going to be built by the private sector in various forms of cooperation. You cannot expect the private sector to build, and we cannot expect the banks to lend, on an annual appropriations basis. If you are talking about getting housing constructed, you need to have a multi-year process. That is why a trust fund is appropriate here when it is not for other aspects of Federal programs. It is like the highway trust fund. Construction requires there to be a certainty that the flow of funds will be there. People who have to borrow money. People who have to do plans. Even if it were a case of taking appropriations that would otherwise be available for an annual appropriations process, it would be worthwhile. It is not, I want to repeat, in the 27 years that I have been on this committee and focused on housing, no appropriator of either party has ever suggested to me that the appropriations go up or down depending on the receipts of the FHA. That simply has not been the case. In any case, there is a separate argument for doing it as a trust fund. Secondly, I want to say to the Mayor and also to some of the others, I appreciate your taking this serious enough to make some specific proposals for changes. We are going to be looking at these. We are not locked into this. I do make this plea. We have seen this happen, many of us. Let's make sure that our agreement, in principle, transcends any specific differences we have about how to do it. Having said that, I welcome these kind of suggestions and proposals, and they come from people who are supportive, and the Mayors are obviously very much in the forefront, and we will be looking at that. The last point I want to make is to underline what Lisa Alberghini said, and let me make this very explicit again. You said, Ms. Alberghini, a couple of times, ``to the public benefit.'' What you mean is too few affordable units, correct? Ms. Alberghini. That is right, Congressman. The Chairman. You get into a Catch-22. In the Town of Brookline, which I represent, where some of my friends and I have a disagreement over this, we now have people criticizing this project because they say there are not enough units that are affordable, and there are fewer affordable units than there should be or there would have been if we could have done it quicker. That is because they first succeeded in delaying it by various tactics, and delay in the housing business add costs. This is really people now complaining about the results of their own actions. To the extent that we have a trust fund, again, this ties into what I said, if you have a trust fund, you have a certainty of a flow of funds. You are not in the uncertainty period. You can do your construction planning thoughtfully. Stability of funds is very important for these private sector people. That is the point. It will help us maximize these units. I should add that we are also working closely with the chairman of the Ways and Means Committee and this committee on efforts so that the tax supported housing bonds and low-income housing tax credit programs will be fully interoperable with this and other programs, so we really think leveraging is very high. I am very appreciative of what you said, and of getting this across. We look forward to working with everybody. I would say to Secretary Cisneros, when you next talk to Mr. Kemp, tell him we are thinking of him. Mr. Mayor? Mr. Euille. Mr. Chairman, if I may add, in Alexandria, we have had a housing trust fund since 1993. Primarily, it was funded by developer voluntary contributions and then a few years ago, we dedicated one cent of our annual real estate tax rate to creating and continuing to fund our affordable housing trust fund. More recently, again through a public/private partnership, because Alexandria is so dense, but yet we have a critical need to meet our affordable housing objectives, we have the opportunity to build for the first time in more than 30 years a new fire station in our City, a new development area, and one of the solutions or compromise with the community in terms of building this four bay fire station was the need to ensure that we provided affordable housing and workforce housing. For the first time, we believe we are the first community in the Nation, we are building a new fire station that will have 64 units of public housing and workforce housing built on top of the fire station in a very growing community. We are very proud of that fact, but again, we would not be able to do that without the affordable housing trust fund. The Chairman. In my first 2 years of graduate school, I lived across the street in Cambridge, Massachusetts, from a fire station. You do learn to sleep through. Give them hope. [Laughter] The Chairman. The gentleman from Connecticut. Mr. Shays. I will yield to Mr. Green for a second. Mr. Green. Thank you. I want to thank all of the panel members for coming. Mr. Chairman, I have been blessed to be appointed to my first conference committee, and it is about to start. I must leave. No disrespect to anyone. I really wanted to stay for the entire time. God bless you. I yield back. Mr. Shays. Thank you. First, let me say, Mr. Cisneros, I loved working with you when I chaired a committee that oversaw housing, and I thank you for your service to the Government and particularly as Secretary of HUD, you were very willing to work with both sides of the aisle, and it was a pleasure to work with you, and it is a pleasure to have all of you here. Mayor, I remember the Titans. I have to tell you it is one of the great movies. If 60 percent of it were true, it is a great story. I have a feeling that more than 60 percent--you graduated a few years before, right? You graduated when? [Laughter] Mr. Shays. Let me just ask you, Mayor, to what extent do you think the impediment to housing is the result of local barriers such as zoning development fees, permits, and so on? Clearly, that plays a role in housing. There is an initiative by this Secretary to try to deal with that. One, do you think it is a problem, and two, are you trying to play a role in dealing with that? Mr. Euille. Yes, sir. It is indeed a problem. Through housing advocacy on the part of faith-based, nonprofits and the businesses and citizens coming together, there has to be a constant outreach and education initiative underway. Once citizens understand that when we talk about meeting affordable housing goals and objectives we are not just talking about the poorest of the poor, but we are talking about pretty much all of us. Many of us are just a couple of paychecks away from being homeless. As a result, when we show them and can prove to them that we are talking about the people we need to have in our communities to provide the day to day services and so forth, it is wake up, now I understand. Once you educate the community to accept the fact that there is a crisis and we all need to be working on this together, then secondly, local governments through their planning and zoning and code requirements are willing to loosen up so we can again think out of the box a little bit more, utilize best practices, like I mentioned with this one particular project with the fire station, and we can do some of these things to meet these objectives. Mr. Shays. Thank you. Secretary Cisneros, tell me how did you react to the testimony that was provided by Mr. Montgomery? What were your reactions, as you listened? Mr. Cisneros. I felt sorry for the man, for starters. I have been in that position. Mr. Shays. Because since Barney was speaking, you could not understand what Barney was saying? The Chairman. No, because he could. Mr. Shays. I know never to engage Barney in any dialogue because you always regret it, and why I did it just then, I do not understand. [Laughter] Mr. Cisneros. Clearly, this is mostly about coming up with sources of revenue that provide a new entity, which has new flexibilities, which is targeted in a way no other Federal program is today towards production for very-low-income persons. With respect to the Assistant Secretary's points, the fact that the money has been identified from the GSEs is very important. We know it is available. We know it is not onerous. We know they can afford it. We know they need to be doing something like this. The money is not going anywhere else. With respect to the FHA funds, because of what has been identified, again, new money, not presently allocated for any other purpose, I think this is just a great way to fund a housing trust fund which the country needs and has needed for a long time. Mr. Shays. To the others on the panel, I am just going to read something, just so you hear the argument against, it can be a pretty boring hearing since I am a co-sponsor of the bill, we like it, but let me have you respond to the concerns: ``The establishment of a new housing trust fund would require the creation of a huge new Federal bureaucracy and would not be an effective means to promote home ownership for low-income families. The creation of such a trust fund would require HUD to devise and administer a new set of rules and regulations, taking resources and time away from its other established affordable housing programs such as HOME, Section 8 vouchers and CDBG. It is important that the proposal in H.R. 2895 is a model to a great degree on HUD's HOME investment partnership program. The trust fund is so similar in its requirements, i.e., rents, income targeting, affordability periods, etc., to the HOME program, that it prompts the question why is it necessary to create a new Federal bureaucracy to administer essentially the same program.'' Maybe one last paragraph: ``Instead of establishing a national housing trust fund, one approach would be to fine tune the existing HOME program to include additional requirements for deeper targeting of the HOME program that could be used to address the lower income families.'' Those of you whom I have not asked, maybe you could respond. Mr. Cisneros. Let me just, very quickly speak to those points, very, very quickly. First, it does not have to be a big bureaucracy. This can be done very leanly. The precedent exists at the State and local trust funds. A trust fund is by definition a different entity than a standard Federal bureaucracy and it can be done using very entrepreneurial kind of private sector models and done very straightforwardly. The HOME program is not deep enough. It does not get to the 30 percent in the way it is operated in most communities. It is not operative in that way. A trust fund further adds greater flexibilities than the HOME fund, just tweaking the HOME program is not breaking new ground the way a trust fund can do. That would be my response to those points. Mr. Shays. With your indulgence, Mr. Chairman. The Chairman. Yes. Ms. Alberghini. From the perspective of a developer, I think they are very different things. The HOME program has an enormous level of complication in its regulations, and one of the things we appreciate Chairman Frank working on is trying to help simplify and streamline some of these regulations, but they are very different even with the deeper targeting in the HOME program, it is not nearly as flexible as the trust fund. The trust fund can be used for project-based rental assistance, for example. It can be used for a variety of different things that the HOME funds currently are not structured in the same way to use. So from a developer's perspective, I think that it is more flexible, even with deeper targeting in the HOME program, there is such a level of complication with that at this point that I think we are better off starting fresh with a proven tool in a trust fund with the flexibility this would provide. Ms. Crowley. Actually, I was at the table when the proposal got developed. And I can tell you we actually did not model it on the HOME program. To the extent that it does resemble it, that is coincidental. But the thing that is different that is essential, which is what Mr. Frank pointed out, is that a trust fund has dedicated sources of revenue, and that the State and local trust funds that this actually does more closely resemble, the ones that have been the most successful and the ones that have been sustainable and the ones that have been able to really make a huge difference, are the ones that have dedicated sources of revenue. And generally, that is where folks have moved to. So we have just heard Mayor Euille describe what they did eventually to get to what it is that they are putting in there. And so that is why you create this and then you figure out what you are going to do with it. There are two objectives: One, getting more production dollars for ELI households; and two, having dedicated sources of revenue that we can rely on over time. Mr. Shays. Thank you very much. Thank you, Mr. Chairman. The Chairman. Thank you. Let me just point out a couple of things. There is one other model that we have been using. It has existed at the Federal Home Loan Banks created by this committee, and that is the Affordable Housing Fund of the Home Loan Banks. I don't think anybody thinks that is a big bureaucracy. But this, in particular, this is the most anti-bureaucratic program we have ever had. This creates no new bureaucracy, and it will use HUD to distribute funds, the existing HUD, to existing trust funds. So the bureaucracy argument is totally off the point. This is simply going to be a pass-through. The gentlewoman from New York. Mrs. McCarthy. Thank you, Mr. Frank. And thank you again for the testimony of all the witnesses. Now I am going to apologize up-front; most of us try to allot 3 to 4 hours for a hearing, but at 1 p.m., I am supposed to be somewhere else. I have to say hearing from you, and I did read a lot of the testimony, and I was happy to see that you built an affordable housing area or rentals, anyhow, in a wealthy area because I will be very honest. Nassau County is an extremely unique area in many ways. It is probably one of the wealthiest communities in the country. And yet I have the poorest of the poor, and they are all segregated. And that is something that I would like to see change, only because of schooling. Where are my worst schools? They are in my underserved areas. And I would like to see that change over the years. But with all the affordable--that was the thing that we were trying to do on Long Island. We kept trying to sell everything as affordable housing. Of course, every community said no because they were looking at the old models and they didn't want that kind of housing in their community. So we started going with workforce and tried to explain, it is your daughter who just graduated and can't get a job. And I think that is the only way that I am going to be able to sell it to my mayors in my area, that we can bring in good housing for the new workforce who are coming out of the colleges, but yet take care of our people with disabilities, our poorest of the poor, and have a mixed community. With that being said, I tell my staff all the time, I know you can't afford to buy a home. Buy a condominium. At least it is a lower price. You build up equity. Is there housing that will have become condominiums so first-time home buyers, especially those who would be on the lower income would be able to actually afford that? Could they use the vouchers for that so that they would be building equity in the condominium to be able to buy a home in the future? I am just trying to think outside the box on where we are going in the future. Mr. Cisneros. My reading of the proposed legislation is that many different modes of many types of housing can be done. And to the extent that there will be some of this fund that could be used for home ownership, using it in a condominium structure makes more sense than single family detached homes. And then when matched to things like the use of vouchers for home ownership, the kind of thing you are suggesting is possible. What you are describing in Nassau is not that unique any more. Many, many areas of the country have this mixture of upper income and then working people who cannot afford to live there and who live in substandard or overcrowded conditions. We see this all over the country. One of the great things about this fund is that it will allow local solutions, people to come together with a project that mixes 25 percent very-low-income in a building in a community that has higher income. It speaks very wisely, I think, to issues like proximity, to economic opportunity, and income integration in projects. These are lessons we have learned from HOPE VI and other things in recent years, low- income tax credits, the way they are done. I think the beauty of this fund is it is going to allow for a lot of local innovation, a lot of local creation. Just as wise as people can be in designing good projects, this funding will make it possible to carry it out. Mrs. McCarthy. Just as the Secretary said, there is a lot of opportunity for innovation. The bill has a very specific statement about promoting the development of two- to four-unit owner-occupied housing. And so that is my notion of the sort of perfect elements, is if you develop a duplex that is owned by a very-low-income person who is developing equity, but that has an apartment in it that can be rented by an extremely-low- income person. So that person has an affordable unit and eventually could be able to then save up to buy the house across the street, so that you are maximizing all of those things, and that we are getting out away from the homogenized notions of what neighborhoods should be, and that we are creating diverse forms of housing in neighborhoods so that people at all stages of the life cycle and different incomes can all live there together. Ms. Alberghini. Representative, one other note. The funds can clearly be used for downpayment and closing cost assistance for moderate-income first-time home buyers also. And one of the concerns that you mentioned in some of your earlier comments about the targeting, as a supporter of the bill still, the deepness of the targeting, and the targeting for the 30 percent of median income folks, that can happen. And you want it to happen within the context of these mixed-income communities that you describe as what makes a vibrant, genuine town. I think the key to eliminating the concentrations of poverty that you see, and creating a vibrant community, is to be able to take the funds that are targeted at those very-low- income households making 30 percent of median or less, and use those in developments that also have the first-time home buyers and the market rate condominiums, and use the pieces of the tool that are allowed, given its flexibility in the Trust Fund Act, for the moderate-income component as well--the downpayment assistance, construction costs. I mean, it is all the same development, and you can use that money for construction costs, for acquisition, for downpayment assistance, and for closing cost assistance. So I think there is a lot of attention still in the bill to helping that moderate-income group, but it does it in a way that you can integrate it with the very-low-income as well. Mrs. McCarthy. Thank you. And with that, I apologize to the third panel. As Chairman Frank has said, we all care about this issue, and even when we are not here, we have been working on it. The Chairman. The gentlewoman is right. Unlike some hearings, I must say not this one, at which I have been present in person, but not in spirit. The gentleman from Minnesota. Mr. Ellison. Mr. Chairman, thank you and all the original cosponsors. I think this is fabulous, and I am so honored to be here with this distinguished panel. Yesterday I introduced a bill to try to address predatory lending. But if it ever gets passed, or if any version of it does, it will help people going forward. What about the people who are already in crisis? Do you think this legislation could help prevent foreclosure and maybe help bail people out who are right there in the midst of losing their home? Ms. Crowley. The bill is very specifically dedicated to capital funds for construction, and so it is a production bill. There are some provisions for providing operating assistance, but I don't envision it as something that could prevent foreclosure for somebody who is in foreclosure now. Mr. Cisneros. I think that is right. And I would simply say that my admonition or counsel would be not to try to do everything with this trust fund. It is focused on production of units that presently are not being produced. I think that is its strength. And there will be other means to address the foreclosure issues and the predatory lending and the subprime issues. Mr. Ellison. Well, when you talk about preservation of housing, do you think that that might be--would that strain the definition of preservation too much to say that foreclosure prevention might be a way to help preserve housing? Because, of course, we have been talking about construction, preservation, rehabilitation. Mr. Mayor? Mr. Euille. I was just going to add, that maybe--you could perhaps stretch it, the preservation part of the legislation, to include what your concerns are. But I would add that having a National Housing Trust Fund, again, that can help supplement what we do on a State and local level will afford an opportunity for localities then to use their own tax general revenue dollars to help meet the needs of those who are being affected or impacted by predatory lending schemes and/or foreclosure. So it has a lot of benefits. But perhaps this piece of legislation will not directly address those needs, but certainly afford an opportunity for localities to then utilize some of their own dollars. Mr. Ellison. As we are trying to construct, preserve, and rehabilitate new housing, and I am so fully in favor of that, how does that important and noble goal square with the record losses of housing units we are seeing, given the foreclosure crisis? How do they fit together? I mean it seems like at one point people are losing their homes, on the one hand. I mean, in my own town of Minneapolis, there are certain neighborhoods where we have 50 percent foreclosure rates in certain low-income neighborhoods. Is it possible we could be building them on one hand and people will be losing them on the other? Mr. Cisneros. Sure. They do absolutely fit together. Mr. Ellison. Could you talk about that? Mr. Cisneros. One has to think about the big picture. And different programs have different purposes. Mr. Ellison. Right. Mr. Cisneros. So this particular fund isn't the answer on the foreclosure question. But one in making comprehensive national or local housing policy needs to think about sustainability in the home, sustainable home ownership. Mr. Ellison. Right. Mr. Cisneros. And the foreclosure problem, the subprime issue, obviously goes to that. So steps will have to be taken to help people at the local level. Mr. Ellison. Sure. Mr. Cisneros. And the GSEs, and the regulators, and perhaps the Congress and HUD to step in and help people to be able to stay in their homes. Mr. Ellison. Well, thank you, Mr. Secretary. I think it is right that if anything, it will free up dollars that can be used from other sources to address that. So that is important. One of the things that concerns me a lot is how poor children do in school. And it seems like if they don't have a stable housing situation, and they are having to move constantly, then they are in a new school district and they find themselves trying to catch up. Is that one of the important residual effects of trying to address this low-income housing crisis? Mr. Cisneros. There is very solid scientific evidence that shows that children in stable housing do better, not just in school but psychologically and in other ways. There is actual medical evidence that shows health conditions improve with the decency and stability and safety of housing. Overcrowding, substandard conditions, unsafe housing, lead paint problems, all of those impact children. I think it was Sheila's group that just published or at least published another group's report that said that actually, among minorities, they cite the quality of their marriage is impacted first and foremost by the quality of housing, more than any other factor but how much disposable income you have. The stability of the family is impacted by the quality of the housing. Mr. Ellison. Well, if you are giving up 50 percent of your income in housing, that impacts your ability to-- Mr. Cisneros. Afford anything else. The Chairman. If the gentleman would yield, let me just say he has been very prescient in this because on the next panel we do have Dr. Megan Sandel, who is an M.D., and a master of public health, who is specifically going to talk about the impact on children of homes as opposed to homelessness. So the gentleman has very correctly focused on a very important topic. Ms. Crowley. If I could just add one quick things about schools. You are absolutely right that the data all show that children whose families can't afford basic housing are in constant motion, and so they are moving from school to school, which means they get further and further behind. But it is not just the kids who are moving that are affected. It is the other kids in the classroom and the teachers because when you have a lot of churning in schools and you have new kids coming into the classroom mid-year, two or three times a year, the teachers have to double back to pick those kids up, which means the other kids are getting less attention. And it ultimately means that those schools, their test scores don't keep up. Their test scores go down, which means that higher-income people aren't going to go to that school. It all has a spiraling-down effect, so I think that it is important to understand the systematic impact beyond the individual child to the entire educational system. And there is a fair amount of research in the education literature that really gets at all of that. Mr. Ellison. Just one last question. If families are paying upwards of 50 percent of their income in housing, what happens to the retail sector in the neighborhoods in which they live? I mean, is there enough money to sustain furniture businesses in the neighborhood, or good decent grocery stores where there are good fresh foods? What happens to those neighborhoods where there is just sort of a drain on income because so much of it is going into housing? Mr. Cisneros. Unfortunately, there is a market for payday lenders, check cashers, and other people who prey on the stressed financial circumstances that develop when people have to pay that much for housing. Ms. Alberghini. I think that is another good reason also to try to create economic diversity in the residential communities because that only helps strengthen the retail sectors in the surrounding area. And so the notion of creating these mixed- income communities that can then support retail areas, and at the same time break down the concentrations of poverty, is the way to go. One last comment on your last point. I think that the schools issue is another reason to try to get homeless or formerly homeless people into permanent housing right away. Ultimately, we would have an objective to eliminate the shelter system, to be able to get them into permanent homes so they are not moving around. And that again is often something that can be accomplished in the mixed income model. Mr. Ellison. Let me thank all the panelists very much. I just really want to commend everyone. Thank you very much. The Chairman. And one final thing. I am reminded by staff, too, that the gentleman from California is going to be having some hearings on the reauthorization of the McKinney Act, and one in the subcommittee will be specifically on the impact of homelessness on children. So again, the gentleman from Minnesota has correctly pointed to an issue. I thank all the panelists for past work, present testimony, and most important, future work come September when this bill comes to the Floor. We will now call up the next panel with my deep gratitude for their patience. Again, my reminder that their persistence is going to help when this bill gets passed, and I very much appreciate them staying. I now have to request that we include in the record a letter from the mortgage bankers. And if I don't object, then there will be unanimous consent, and it will go in the record. So since I don't object, it goes in the record. I thank the panel. We have Mr. Dave Roberts, who is the chief executive officer and president of the Lutheran Homes Society; Barbara Thompson, a frequent collaborator with this committee, who is the executive director of the National Council of State Housing Agencies; another very familiar face to many of us, Hilary Shelton, who is the director of the Washington Bureau of the NAACP; the aforementioned Dr. Megan Sandel, who had previously been here for a forum arranged by the Speaker on children, and several of us were impressed at that time by the relevance of her testimony to the housing issue; and Mr. Joe Myer, a very important part of our coalition. We always want to remind people when we talk about housing, yes, the cities are important, but there are other issues. And I am very proud of the effect of the work this committee has done on rural housing, Native American housing, and other kinds of housing that are sometimes left out. So please, Mr. Roberts, we will begin with you. And I very much appreciate your forbearance and patience. STATEMENT OF DAVID I. ROBERTS, CHIEF EXECUTIVE OFFICER AND PRESIDENT OF LUTHERAN HOMES SOCIETY Mr. Roberts. Thank you, Mr. Chairman, and members of the committee. I am David Roberts, president and CEO of Lutheran Homes Society of Southeast Michigan and Northwest Ohio. On behalf of Lutheran Services in America, Lutheran Services in America/Ohio, and Lutheran Homes Society, we would like to thank you for the opportunity to testify about the National Affordable Housing Trust Fund Act of 2007, H.R. 2895. We would also like to thank the committee for their interest in affordable housing. We strongly support passage of H.R. 2895. The passage of this bill would make a significant difference in the lives of those in need of affordable housing, those who have low incomes as a result of disability or loss of a spouse. I speak for Lutheran Homes Society (LHS), a 147-year-old agency that began serving in 1860, a year before the start of the Civil War. Since that time, LHS has served hundreds of thousands of youth and elderly in a variety of residential settings. In 2006, we provided a total of 773 individuals for our affordable housing ministry. I am currently president of LSA Ohio, which is a coalition of 17 agencies serving virtually every social need. Our agencies in Ohio provided over 1,700 units of affordable housing in 35 locations, and we have a waiting list of over 1,200 people. These Ohio agencies are members of our national association, Lutheran Services of America (LSA). LSA is comprised of nearly 300 member agencies, delivering more than 9.5 billion in services to six million people in the United States. LSA nationally provides over 16,000 units of affordable housing for low-income people. But honored members, this testimony and this legislation is not about LSA, LSA Ohio, or Lutheran Homes Society. It is about elders and families and people with disabilities who need a home, and your opportunity to give it to them through this legislation. Here are two examples of elderly persons whom LHS affordable housing has helped. Sister Agnes, aged 72, has an annual income of $4,535. She has no assets to her name. Her rental expense is $103 a month, and she was living in multi-family housing before coming to us. But because the rent was getting too high, Sister Agnes came to us. And she says that, ``living here has allowed me to help in my volunteer services.'' Helen, aged 67, has an annual income of $1,357, and pays $34 a month in rent. She came to live at Windy Acres in New London, Ohio, because she had no contact with her family, was homeless, and was living in her car at that time. Lutheran Homes Society believes that the investment in and the development of affordable housing should be a partnership between government and the developer. As evidence of this commitment, Lutheran Homes Society, in our newest HUD 202 project in Oregon, Ohio, is including our donation of land valued at $290,000. This fund would help with gap financing by creating a new funding source for capital development and improvement. I commend those who conceived of and wrote this legislation because it addresses the continuum of housing needs, which includes rental and home ownership. It is important to remember that not everyone fits in the same mold, and people have different needs. I believe that the National Affordable Housing Trust Fund would address that continuum. Today, LHS alone has over 500 people waiting for our affordable housing at our various sites. Additionally, we have an interest list for housing that is not yet built. Here is an example of someone who is waiting on that list. Catherine is an 81-year-old widow, and although she can take care of herself, she is unable to maintain her home and her yard. The older home that she lives in is in serious need of repair, and she lacks the funds to do so. Since the death of her husband, Catherine has depleted her savings and barely survives on her monthly income of $449, which is less her Medicare deduction. She struggles with the necessities of life, like food and prescription co-pays. Obviously, her low income prevents her from being able to afford market-rate housing. Catherine is a real person, and unfortunately, there are so many others out there just like her who do not have the means to increase their income. This legislation, if enacted, will help Catherine and those like her by giving her a home that they can afford. I believe that they will, like Sister Agnes, help others in need. I would like to thank the committee, and especially Chairman Frank, for your legislative efforts on behalf of these low-income people by supporting H.R. 2895. Thank you again for this opportunity to speak with you and to bring to you these real examples of real people and the thousands of others who need affordable housing. [The prepared statement of Mr. Roberts can be found on page 126 of the appendix.] The Chairman. Thank you, Mr. Roberts. Ms. Thompson? STATEMENT OF BARBARA THOMPSON, EXECUTIVE DIRECTOR, NATIONAL COUNCIL OF STATE HOUSING AGENCIES Ms. Thompson. Thank you, Chairman Frank, for the opportunity to testify today on behalf of the National Council of State Housing Agencies (NCSHA) in support of the Affordable Housing Trust Fund Act of 2007. NCSHA has long advocated for new, flexible, State- administered affordable housing production resources to leverage those States now administer, like the Low Income Housing Tax Credit, to reach even lower income families than those resources can reach on their own. NCSHA represents the Housing Finance Agencies (HFAs) of the 50 States, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. HFAs allocate the Low Income Housing Tax Credit. They issue private activity bonds, administer home funds, operate Section 8 vouchers, and many of their own State funds and credits to support affordable housing production. NCSHA is very grateful to you, Mr. Frank, for your commitment to establishing new, reliable, dedicated sources of Federal support for affordable housing. We also appreciate your recognition of the interdependence of Federal housing programs and the importance of facilitating their use together. We applaud your unprecedented effort to reach across jurisdictional lines to Ways & Means Committee Chairman Rangel to work with him to remove barriers to the effect combination of taxed base housing programs like the housing credit and HUD programs. NCSHA strongly supports the chairman's interest in concentrating trust fund resources on the housing needs of extremely-low-income families. States are increasingly challenged to meet the needs of these families with available resources. And as you are acutely aware, Mr. Chairman, those resources--the credits, HOME, and other resources that are often combined to reach our lowest income families, must be combined to reach our lowest income families--are increasingly scarce. To bring the full force of scarce housing trust funds and all funds to bear on these urgent housing programs, we do offer four general suggestions for the committee's consideration: First, we suggest you allocate housing trust funds through the States as they can most effectively and efficiently leverage them with the housing credit and other production resources they administer in amounts sufficient to make a difference, and direct these resources to the greatest relative needs within their jurisdictions. Second, we suggest that you eliminate overly complex and unnecessary rules that will limit State flexibility, will be barriers to the combination of other trust funds with other housing resources, and add time and therefore cost to the development and compliance process. Third, we suggest to the committee that you make the match requirement sufficiently flexible that it does not deny jurisdictions funding they want and need by, for example, limiting it to 25 percent, as the HOME program requires, and giving States equal credit for investment of Federal and non- Federal resources in trust properties and programs. And finally, and very importantly, Mr. Chairman we suggest this committee and Congress create a source of long-term operating support for rental properties housing extremely-low- income families. This is the largest barrier to their development, and short-term operating subsidies such as those permitted under the trust legislation will not overcome this barrier. Rents that are affordable to extremely-low-income families and families who are well below 30 percent of area median income simply will not be sufficient to support the continuing operation over the long term of these properties. Thank you, Mr. Chairman, for the opportunity to share our views. NCSHA and the Nation's State HFAs stand with you and look forward to working with you to ensure that the trust fund lives up to its potential. [The prepared statement of Ms. Thompson can be found on page 146 of the appendix.] The Chairman. Thank you, Ms. Thompson. Mr. Shelton? STATEMENT OF HILARY O. SHELTON, DIRECTOR, WASHINGTON BUREAU, NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE Mr. Shelton. Good afternoon, Mr. Chairman. My name is Hilary Shelton, and I am here on behalf of the NAACP, our Nation's oldest and largest and most widely recognized grassroots-based civil rights organization. I serve as director of the NAACP's Washington Bureau, our public policy and Federal legislative advocacy arm. I am here because the guarantee of safe, secure, and affordable housing for all Americans has long been the cornerstone of the NAACP's legislative policy agenda. While we continue to struggle against housing discrimination, Americans are also finding it increasingly difficult to obtain affordable housing in a safe and secure community that allows us to raise our families on the modest income that so many hard-working Americans take home. This is especially true for low-income Americans and racial and ethnic minorities, and so our struggle continues. Before I talk about that, however, I would like to first thank Congressman Frank, you, sir, and Congresswoman Waters and the other members of this committee and this Congress who have worked so hard and for so long to address the critical housing shortage that is facing too many low-income people. I would also like to thank our partners at the National Low Income Housing Coalition and others who have worked diligently on behalf of the National Affordable Housing Trust Fund. The NAACP strongly supports H.R. 2895, legislation to establish a national housing trust fund. For close to half of all American families, owning an affordable home, or even finding a safe, decent rental unit is financially unattainable. And although to many who may appear to be of common sense, it bears stating here that a safe, secure, and affordable home, whether it be owned or rented, is key to a stable family life, which in turn can only benefit communities. Safe, secure, and affordable housing leads to, among other benefits, lower health care costs. Children who live in substandard housing are more likely to suffer from debilitating health conditions, including asthma and lead poisoning. But sadly, finding a safe and affordable home is becoming increasingly difficult for many Americans, and is proving to be especially hard for extremely-low-income Americans. Unfortunately, a disproportionate number of these people are African Americans and other racial and ethnic minorities. Currently only 46 percent of African Americans own their own homes, compared to more than 70 percent of white Americans. Perhaps more troubling than that statistic, however, is the disparate number of African Americans who spend too much of their income, which is already at the low end of the wage scale, on housing and utilities. The most current numbers we have indicate that 23 percent of African Americans fall into the extremely-low-income category. These men, women, children, and families have severe housing needs. In other words, they spend more than 50 percent of their income of housing and utilities. In summary, half of all African Americans live in unaffordable, inadequate, and/or crowded housing. But of course, this is not only a problem for African Americans. Seventy-one percent of Hispanic Americans who fall into the extremely-low-income category have severe housing needs, and 66 percent of extremely-low-income Caucasians pay more than 50 percent of their income to ensure they have a roof over their heads. All these numbers add up to one alarming fact: Too many Americans of all races and ethnic backgrounds are too often forced to choose between shelter over their heads or food on their tables. If these numbers do not convince you of the clear need for a National Affordable Housing Trust Fund as established in this bill, let me also tell you that the situation is getting worse. In 2003, the U.S. Department of Housing and Urban Development estimated that there was a deficit of two million extremely- low-income rental units. In 2005, that deficit had grown to four million. In 2003, HUD estimated that there were 44 affordable rental units available for every 100 extremely-low-income families. That number dropped to 40 units available in 2005, and the number continues to worsen. Unfortunately, the number of extremely-low-income households continues to grow as the number of affordable rental units decreases. As a matter of fact, of the 5.8 million black households reporting housing problems in 2003, 4.9 million cited housing affordability as their biggest problem. It is because of this growing need that the NAACP strongly supports the establishment of a National Affordable Housing Trust Fund, and especially one that targets the needs of extremely-low-income Americans. I would remind you that we are talking about men and women who usually work at or near the minimum wage, or those who are on Social Security. These are the people who most need our help, and unfortunately are often the last to receive it. Under H.R. 2895, we would establish Federal housing funds to be used to meet the nationwide goal of producing, rehabilitating, and preserving at least 1.5 million units of affordable housing over the next 10 years. It would be based on more than 270 State and local trust funds across the Nation that have already produced hundreds of thousands of units. Furthermore, as a direct result of H.R. 2895, approximately 180,000 much-needed jobs will be created to help produce, rehabilitate, and preserve this new housing. That is about $5 billion in wage creation which will grow about 1.7 million residual jobs. So, in the eyes of the NAACP, this bill is not only much- needed, it is a great idea. The NAACP is thus pleased to strongly support H.R. 2895, and I would once again like to thank all the Members of Congress who have worked so hard to bring us this far. The NAACP stands ready to make the National Affordable Housing Trust Fund a reality. And with that, I look forward to your questions. [The prepared statement of Mr. Shelton can be found on page 143 of the appendix.] The Chairman. Thank you. Dr. Sandel. STATEMENT OF DR. MEGAN SANDEL, ASSISTANT PROFESSOR OF PEDIATRICS, BOSTON UNIVERSITY SCHOOL OF MEDICINE Dr. Sandel. Good afternoon, Mr. Chairman, and members of the committee. I wanted to thank you for the invitation to speak today. As a pediatrician, I am not among the usual suspects to testify, and I wanted to say that I am here today to support H.R. 2895, the National Affordable Housing Trust Fund. I am also here today to share new evidence that shows that housing is the foundation to excellent child health. I hope to convince you that the best medical intervention for children is often finding them an affordable home, and it is within your power to keep kids healthy through housing. As many of you know, there are millions of families on affordable housing waiting lists. And in Boston, it is not unusual for waiting lists to actually close because there are so many families who are waiting and therefore they can't even apply. Even families in homeless shelters are often there for over a year-and-a-half before they can get a home that they can afford. And often families who are on the waiting lists are forced to make terrible choices between rent and food, or settling on a home with severe housing problems like infestations or mold or lead paint because simply that is all that they can afford. We know from the Children's Sentinel Nutrition Assessment Program, which is commonly known as CSNAP, that food-insecure children who are eligible but don't receive housing subsidies are twice as likely as those who do receive housing subsidies to have stunted growth by WHO criteria. It is an important aspect of this bill because it targets the lowest income families, the ones that are most likely to have food-insecure children, and that by giving them an affordable home, you may be able to prevent stunting from occurring. As you know, stunting not only limits children's physical growth in the short term, but it stunts their lifelong potential because we know that if your body is not growing, your mind is not growing as well. Because many families have very limited choices of homes that they can afford and have to make tradeoffs, they often live in substandard conditions. For instance, I think that the cockroach infestation is an excellent example of how that affects health. We know that children who have asthma who are exposed to cockroaches in their home and are allergic are 3 times more likely to end up in the hospital. It is also known that 30 percent of children who live in the urban areas are allergic, but it may be surprising to note that 20 percent of suburban children are also exposed and are allergic to cockroaches. And further, new data suggests that exposure to cockroaches in early life may actually cause immune system changes that can lead to the development of wheezing or asthma. Young children who live with other substandard exposures, such as lead paint from older homes, can also lead to problems with development, and recent estimates have estimated that this leads to billions of dollars in education and other costs. Lastly, families who have difficulty affording rent may double up with other families, resulting in crowding, or these families may frequently move. We know children who stay in the same home and do not more frequently have better child development outcomes and do better in school. Another aspect of the bill that I think is excellent is the local flexibility. From my experience working in Boston with the Boston Public Health Commission, local community development corporations, and some State-funded housing developments, the ability for State or local governments to match the best local solution to the greatest housing needs makes the most sense. In some instances, rental housing needs are the most pressing. In others, home ownership may be the best outcome. And research has consistently shown that home ownership makes housing more stable and is better for overall health. In pediatrics, the best therapies are often tailored, and this bill clearly accommodates that. I urge you to support H.R. 2895, the National Affordable Housing Trust Fund bill, because it can ensure that our most vulnerable population, our children, have safe, decent, and affordable homes. I leave you with the idea that a safe, decent, affordable home is like a vaccine. It literally prevents disease. A safe home can prevent mental health and developmental problems. A decent home may prevent asthma or lead poisoning. An affordable home may prevent stunted growth and unnecessary hospitalizations. This bill's goal is 1.5 million affordable homes over the next 10 years, and that can mean literally 1.5 million children who are healthier. I would like to end with a story that drives home why I think housing can be a medical intervention and can make kids better and keep them healthy. In my pediatric practice, I take care of a child, Whitney, whom I met when she was 9 months old. Her family was homeless at the time because they could not afford an apartment. At the time, she was falling off her growth chart. She already was having trouble growing. And over the next 3 months, she literally gained less than a pound. I needed to hospitalize her because she had become dangerously malnourished. She ended up needing to be transferred to a rehabilitation hospital because she had an underlying problem with swallowing, and she stayed there for over a month. You can imagine the cost of that to insurance. When she was at the rehabilitation hospital, she was able to gain weight, but as soon as she went back to the shelter, she began to lose weight again. After advocating with lawyers from our medico-legal partnership at Boston Medical Center, Whitney and her family were finally offered an affordable home at a local public housing development. Once in her new apartment and she was living there, she was able to gain weight, and within months her developmental delays improved and she was able to thrive. I recently saw Whitney at her physical a few months ago, and at 4 years old, she was starting to learn to read. I tried my best to treat Whitney. I gave her all my medical expertise, including very expensive medical care during hospitalizations. But the best medical intervention for her, the one that eventually made her well, was a safe, decent, affordable home. It is actually Whitney's birthday today, July 19th. And I can think of nothing better to help her and kids like her to stay healthy than to pass H.R. 2895, the National Affordable Housing Trust bill. Thank you. [The prepared statement of Dr. Sandel can be found on page 138 of the appendix.] The Chairman. Thank you. Mr. Myer. STATEMENT OF JOE L. MYER, EXECUTIVE DIRECTOR, NCALL RESEARCH, INC., ON BEHALF OF THE NATIONAL RURAL HOUSING COALITION Mr. Myer. Chairman Frank, and members of the committee, my home State is Delaware; I want to acknowledge the introduction that Mike Castle gave me earlier. You should know that as Governor, Mike Castle implemented a very successful housing trust fund which is operating today and has done a lot of good, and he is a great friend of affordable housing. My name is Joe Myer, and I am executive director of NCALL Research and a current board member of the National Rural Housing Coalition. The National Rural Housing Coalition is a membership organization, a national one, that advocates for Federal policies which improve housing and community facilities in rural America. We appreciate the opportunity to testify today on rural housing issues and H.R. 2895, the National Affordable Housing Trust Fund. NCALL is a multi-faceted nonprofit housing operation in Dover, Delaware, and we offer a variety of housing development services to nonprofit organizations along with direct education services to lower income households. To that end, we have helped to develop 45 apartment communities for families, elderly, and migrant and seasonal farm workers. And we also just reached a milestone of 6,000 first-time home buyers. We work regularly to develop apartments serving very-low- income persons, and frankly, these require complicated patchwork quilts of leveraging and financing to secure low income housing tax credits. We believe the National Housing Trust Fund assistance to rural Delaware will help to provide financing leverage needed to access other Federal, State, and private partners. Rural housing need: America's rural communities suffer from elevated poverty rates and substandard housing. Rural households on average are poorer, and according to the 2000 census, the poverty rate in rural America is 14 percent higher than the national rate. Likewise, Delaware's rural counties have higher poverty rates than the State average, and experience similar conditions. For instance, 57 percent of all workers statewide have insufficient income to afford a two-bedroom apartment in their county of employment. There is a deficit in this small State of 12,000 affordable housing units for those with extremely low incomes. A majority of Delaware's 20,000 substandard housing units in need of major repair or actual repayment exist in rural counties. And the median incomes in our rural counties are 30 percent lower than our metro county. In face of this need, rural housing spending for USDA programs has dropped 20 percent over the past 3 years. The Administration's Fiscal Year 2008 budget request calls for elimination of most rural housing programs serving low-income households. NCALL has been directly hit with the impact of such reductions, which have slowed rural housing really to a trickle. Increased affordability gaps at the same time have created more demand than ever. Availability of other Federal programs for rural areas: Even though a disproportionate amount of the Nation's substandard housing is in rural areas, they are less likely to receive government-assisted mortgages. For instance, 22 percent of the Nation's population is in rural areas, but less than 7 percent of FHA assistance goes to non-metro areas. Only 10 percent of Veterans Affairs assistance reaches non-metro areas. Only 12 percent of Section 8 funds go to non-metro areas. And in 2003, of the 9 million families assisted by Fannie Mae, only 11 percent lived in rural America. We are very pleased to support the National Affordable Housing Trust Fund Act. Reinvigoration of Federal housing policy is long overdue. The resources that this legislation makes available will definitely have a positive impact on both the quality and the quantity of affordable housing across the Nation. Given the high levels of housing distress in rural areas and recent reductions in Federal assistance, the National Rural Housing Coalition is especially pleased to endorse this legislation. The National Housing Trust Fund Act will help provide resources for affordable housing that are desperately needed to help bridge increasing affordability gaps, especially in rural areas. We have a few comments and recommendations regarding the legislation, and these are aimed at facilitating the use of the trust fund in rural areas. Under targeting requirements, we are pleased to support the targeting requirements established in legislation. We do want to share and make the important point that the targeting required anticipates the availability of a level of subsidy that we have typically not seen much of in rural America. It is extremely difficult to assemble subsidies adequate for housing extremely low-income households at 30 percent of median and below. We support this provision, and we hope to work with the committee to be sure that rural America is adequately served. Secondly, use of the trust fund allocations for rural areas: Currently, the provision does not provide sufficient direction to States or participating jurisdictions on the definition of need. As a result, there is no uniform standard for allocating funds to rural communities. We will be pleased to work with the committee in designing a formula that provides a fair share of the trust fund resources for rural America. Again, we are pleased to support this legislation, and urge the committee to act on it promptly. On behalf of the National Rural Housing Coalition and NCALL, we support H.R. 2895 and the implementation of a National Housing Trust Fund. Thank you. [The prepared statement of Mr. Myer can be found on page 113 of the appendix.] The Chairman. Thank you all, and this has been very helpful. Let me just say, because we are going to be talking next week, and we will be talking informally with you, we do hope to vote this bill out of committee before we break in August and have it on the Floor in September. And there were some specific proposals. The mayors had some, the State housing authorities, and the rural people. Now, as you understand, they are not all obviously compatible. There are some conflicts there. And I begin by hoping everybody will remember that something is going to be better than perfection, and we will work on this. I will say, and I know again there is also some other--we are trying to maximize the funds. I am sympathetic to the matching fund issue. I wish we were in a situation in which I wouldn't have to be as much, but there are problems in State and local areas. And so we will be approaching the matching fund issue. I will say, with regard to the rural, there are going to be limits on our being too prescriptive because this is an argument for pass-through, and some of this is going to have to be done at the State level. It is going to be hard for us to be in some ways as prescriptive as others might like. And then the question of the mayors versus the States and the others, we will work on all that and we will try to do our best. I will also say this. With some of these things, this is not going to be forever. The trust fund will be. One thing I am confident of, once this starts, nobody is ever going to let it go away. For one thing, we will have ongoing projects. At no given time, would you be able to stop it without the flow of funds. But some of the operations we will talk to, so we will be available. The staff will be available. We will working out some of the specifics. And we really do look forward to your help in our getting this bill forward. I thank you all. The testimony has been useful, the proposals for some changes are also useful, and we will go forward. The hearing is adjourned. [Whereupon, at 1:37 p.m., the hearing was adjourned.] A P P E N D I X July 19, 2007 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]