[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                 THE IMPACT OF LATE HOUSING ASSISTANCE 
                 PAYMENTS ON TENANTS AND OWNERS IN THE 
                PROJECT-BASED RENTAL ASSISTANCE PROGRAM 

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 17, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-72

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                 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             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
ALBIO SIRES, New Jersey              RANDY NEUGEBAUER, Texas
PAUL W. HODES, New Hampshire         TOM PRICE, Georgia
KEITH ELLISON, Minnesota             GEOFF DAVIS, Kentucky
RON KLEIN, Florida                   PATRICK T. McHENRY, North Carolina
TIM MAHONEY, Florida                 JOHN CAMPBELL, California
CHARLES A. WILSON, Ohio              ADAM PUTNAM, Florida
ED PERLMUTTER, Colorado              MICHELE BACHMANN, Minnesota
CHRISTOPHER S. MURPHY, Connecticut   PETER J. ROSKAM, Illinois
JOE DONNELLY, Indiana                THADDEUS G. McCOTTER, Michigan
ROBERT WEXLER, Florida               KEVIN McCARTHY, California
JIM MARSHALL, Georgia
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
           Subcommittee on Housing and Community Opportunity

                 MAXINE WATERS, California, Chairwoman

NYDIA M. VELAZQUEZ, New York         SHELLEY MOORE CAPITO, West 
JULIA CARSON, Indiana                    Virginia
STEPHEN F. LYNCH, Massachusetts      STEVAN PEARCE, New Mexico
EMANUEL CLEAVER, Missouri            PETER T. KING, New York
AL GREEN, Texas                      CHRISTOPHER SHAYS, Connecticut
WM. LACY CLAY, Missouri              GARY G. MILLER, California
CAROLYN B. MALONEY, New York         SHELLEY MOORE CAPITO, West 
GWEN MOORE, Wisconsin,                   Virginia
ALBIO SIRES, New Jersey              SCOTT GARRETT, New Jersey
KEITH ELLISON, Minnesota             RANDY NEUGEBAUER, Texas
CHARLES A. WILSON, Ohio              GEOFF DAVIS, Kentucky
CHRISTOPHER S. MURPHY, Connecticut   JOHN CAMPBELL, California
JOE DONNELLY, Indiana                THADDEUS G. McCOTTER, Michigan
BARNEY FRANK, Massachusetts          KEVIN McCARTHY, California






















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 17, 2007.............................................     1
Appendix:
    October 17, 2007.............................................    53

                               WITNESSES
                      Wednesday, October 17, 2007

Beebout, Donald L., Vice President, Showe Management Corporation.    42
Bodaken, Michael, President, National Housing Trust..............    37
Cox, John W., Chief Financial Officer, U.S. Department of Housing 
  and Urban Development..........................................     4
Lipton, Lawrence J., Chief Financial Officer, Related Companies, 
  Inc. on behalf of the National Leased Housing Association......    39
Livingstone, Carolann, President, 1890 House Tenants Association, 
  and Vice President, Eastern Region of the National Alliance of 
  HUD Tenants....................................................    44
Minnix, Larry, President and CEO, American Association of Homes 
  and Services for the Aging.....................................    45
Pagano, J. Kenneth, President and Chief Executive Officer, Essex 
  Plaza Management, on behalf of the National Affordable Housing 
  Management Association.........................................    41
Wood, David G., Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office..............     6

                                APPENDIX

Prepared statements:
    Beebout, Donald L............................................    54
    Bodaken, Michael.............................................    62
    Cox, John W..................................................   157
    Lipton, Lawrence J...........................................   164
    Livingstone, Carolann........................................   173
    Minnix, Larry................................................   181
    Pagano, J. Kenneth...........................................   193
    Wood, David G................................................   207

              Additional Material Submitted for the Record

Livingstone, Carolann:
    Copy of lease referred to in her testimony...................   230


                       THE IMPACT OF LATE HOUSING



                     ASSISTANCE PAYMENTS ON TENANTS



                    AND OWNERS IN THE PROJECT-BASED



                       RENTAL ASSISTANCE PROGRAM

                              ----------                              


                      Wednesday, October 17, 2007

             U.S. House of Representatives,
                        Subcommittee on Housing and
                             Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the subcommittee] presiding.
    Present: Representatives Cleaver, Green, Sires, Ellison; 
Capito, Biggert, Shays, and Neugebauer.
    Chairwoman Waters. This hearing of the Subcommittee on 
Housing and Community Opportunity will come to order. Good 
morning, ladies and gentlemen. I would like to thank Ranking 
Member Shelly Moore Capito and the members of the Subcommittee 
on Housing and Community Opportunity for joining me for today's 
hearing on the impacts of late housing assistance payments, 
better known as HAPs.
    I would like to start by noting that without objection, all 
members' opening statements will be made a part of the record. 
I am looking forward to hearing from our two panels of 
witnesses on the issue of late HAPs and the resulting 
consequences for tenants and owners in the project-based 
Section 8 program.
    The project-based Section 8 program provides much needed 
affordable housing for 1.3 million families nationwide. This 
program is critical in meeting the affordable housing needs of 
families in urban and rural areas, especially the elderly, 
persons with disabilities, and those who are trying to get back 
on their feet after being homeless.
    Indeed, without this program many communities would not 
have hard units targeted to these families. That is why I am 
dismayed at the news that the program is on shaky legs through 
no fault of the owners who participate in it or the families 
who rely on it.
    I am very concerned about recent actions taken by the 
Department of Housing and Urban Development in regard to not 
only making late payments to owners, but also in regard to its 
policy of short-funding contracts or signing owners to a 12-
month contract but only providing enough funding to carry that 
contract out not through the end of its term, but through the 
end of the Federal fiscal year.
    It seems to me that we need to be in the business of 
preserving project-based Section 8 units, and along with them, 
the owners of these units. Telling an owner that they have no 
guarantee of funding is simply unacceptable. I believe that 
when the owners get news like that, some of them may decide to 
opt out of the Section 8 program and to charge market rent. 
And, yes, the tenants get enhanced vouchers but the community 
has lost those affordable housing units.
    I am very disturbed by reports that the short-funding 
policy implemented by the Department is shaking the confidence 
of owners and tenants in the project-based Section 8 program. I 
am even more disturbed that the Department knows exactly what 
to do to fix this crisis, which is to request an additional 
$2.5 billion in funding for the project-based account, but, 
yet, has no plans to do so.
    It makes little sense to me that as we are fighting on this 
committee for affordable housing and the creation of additional 
project-based Section 8 units as in H.R. 1227, the Gulf Coast 
Housing Recovery Act, that the Department is undermining our 
efforts by not working to maintain the units that we have.
    In this committee, we have done a lot of work on affordable 
housing. We have passed a national affordable housing trust 
fund. We have passed a bill to strengthen the tenant-based 
Section 8 program and we are in the process of improving Hope 
VI, the Public Housing Revitalization Program. We are also 
working to determine how to best end and prevent homelessness. 
Having recently concluded 2 days of hearings on this very 
critical issue, it is crystal clear to me that hard affordable 
housing units are an essential part of ending homelessness and 
that the project-based Section 8 program plays an important 
role in providing the affordable housing resources that will 
help us to meet that goal.
    So it is not enough for the Department to provide these 
units. The Department must also fund them in a timely manner. 
Right now, we have 1.3 million units and up to 3 million 
homeless families a year. I cannot imagine what that homeless 
number will look like if the number of project-based units 
diminishes any further. And it will be a national travesty if 
those units diminish as a result of the Department's action or 
inaction.
    I look forward to hearing the witnesses' views on this very 
important topic, and now I would like to recognize Ranking 
Member Capito for 5 minutes, for her opening statement. Thank 
you very much.
    Mrs. Capito. I'd like to thank the chairwoman for 
scheduling this important meeting on the impacts of late 
housing assistance payments on tenants and owners in the 
project-based rental assistance program.
    The Department of Housing and Urban Development created the 
Section 8 program to address the need for affordable housing 
for lower-income Americans. Since its inception, it as served 
over 1.4 million households. Currently the program provides 
over 1.3 million housing units, with 22,427 active housing 
assistant payment contracts.
    The focus of this hearing, as we all know, is the impact of 
late housing assistance programs on tenants and owners in these 
project-based rental assistance programs. The GAO 
investigations in 2005 and 2007 found that between 1995 and 
2004, one-fourth of HUD's HAPs, which are the housing assistant 
payments, were late and on average 25,000 payments were late by 
2 weeks or more each year. Late payments undermine the effort 
to retain key participants in the project-based rental 
assistance program and HUD must take steps, and we must help 
you take steps, to ensure that payments are made in a timely 
manner.
    Late payments, as we know, and as the chairwoman had 
mentioned in her opening remarks, have detrimental effects on 
all involved, including owners, tenants, managers, and lenders. 
Owners of few projects who often have limited resources may be 
forced to dip into reserve funds to cover operating expenses, 
assuming there are reserve funds.
    This can result in late mortgage payments, utility 
payments, and the failure to carry out necessary rehabilitation 
projects. According to the GAO, owners of larger projects as 
well as their managers often complain of HUD fatigue resulting 
from the ongoing problem of late payments. Documentation 
submitted by the affordable housing industry states that 
lenders are reluctant to refinance mortgages of projects 
receiving project-based rental assistance because of the 
frequency of late payments.
    Other than market factors, late payments top the list of 
reasons project owners opt-out of the project-based rental 
assistance program. Late housing assistance payments were 
responsible in part for the loss of approximately 50,000 
housing units in the period between 2000 and 2005.
    This hearing seeks to understand the late payment problem 
and formulate solutions to resolve this threat to America's 
supply of affordable housing. In explanations of the late 
payment problem, the GAO frequently cites the inefficiencies of 
HUD's processing procedures, especially when contracts are 
renewed. This hard copy paper process is both time- and staff-
intensive. Furthermore, HUD lacks systemic internal processes 
for staff to estimate the amounts needed to obligate to 
contracts each year and monitor contract funding levels on an 
ongoing basis.
    Finally, critics of HUD's administration of the project-
based rental assistance program have pointed to the shortfall 
of appropriations and the timing of the 12-month HAPs 
contracts.
    Madam Chairwoman, let me again thank you for holding this 
hearing to address the problem of late housing assistance 
payments. I am anxious to hear from the witnesses today 
specifically regarding how HUD plans to address these 
deficiencies in their system, and I thank the witnesses for 
coming. Thank you.
    Chairwoman Waters. Thank you very much. I now recognize the 
gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Madam Chairwoman. I thank you and the 
ranking member, and I would like to associate myself with the 
remarks that have been made. I am very much concerned about 
this program. Some owners who are with non-FHA loans are not in 
a position to dip into a reserve because there is some notion 
that they are prohibited from doing so. That causes some 
consternation.
    I am also very much concerned about the efforts to take a 
shortfall approach to resolution as opposed to moving forward 
to seek the necessary funds to properly fund this program. It 
is an important program, especially to people in my district. I 
look forward to hearing from the witnesses, and I yield back 
the balance of my time.
    Chairwoman Waters. Thank you very much.
    The gentlelady from Illinois, Mrs. Biggert.
    Mrs. Biggert. I have no opening statement. I am just glad 
to be here to hear from the witnesses. Thank you for holding 
this hearing.
    Chairwoman Waters. The gentleman from New Jersey, Mr. 
Sires.
    Mr. Sires. Thank you, Madam Chairwoman. I would also like 
to echo what Mr. Green said: This is a very important program 
in my district. And as I look at this report that I just 
received, looking at my district I see that the number of 
apartments covered by HAP contracts expiring in Fiscal Year 
2008, I have the largest amount. I intend to ask the question 
of how that impacts the people in my district when I have the 
opportunity to ask questions. Thank you very much.
    Chairwoman Waters. You are welcome. The gentleman from 
Texas, Mr. Neugebauer.
    Mr. Neugebauer. I have nothing to say right now.
    Chairwoman Waters. Thank you. Then we will just move right 
along, and I will introduce our first panel.
    On our first panel, we have Mr. John Cox, the Chief 
Financial Officer at the United States Department of Housing 
and Urban Development. We also have Mr. David Wood, the 
Director of the Financial Markets and Community Investment 
Division at the United States Government Accountability Office. 
I thank both of you for appearing here today, and without 
objection your written statements will be made a part of the 
record.
    You will now be recognized for a 5-minute summary of your 
testimony.

    STATEMENT OF JOHN W. COX, CHIEF FINANCIAL OFFICER, U.S. 
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Mr. Cox. Thank you, Chairwoman Waters, Ranking Member 
Capito, and other subcommittee members.
    I appreciate the opportunity to appear before you today and 
address concerns raised over HUD's ability to fund the annual 
renewals of Section 8 project-based housing assistance payment 
contracts with funding available in Fiscal Year 2007, and 
requested for Fiscal Year 2008.
    In my testimony today, I will reassure you that first, this 
Administration's policy remains to be fully supportive of 
funding all have contract renewals as a needed source of 
affordable rental housing for nearly 1.25 million low-income 
families. Second, I will explain the program funding and 
payment issues we experienced in Fiscal Year 2007 and the 
Department's solution for resolving those issues. And, third, I 
will address the funding needs in Fiscal Year 2008 to fully 
support this important housing program.
    As the initial 20- to 40-year HAP contracts began to expire 
in the mid- to late-1990's, HUD sought to renew the HAP 
contracts to maintain this important source of low-income 
housing. However, budgetary constraints necessitated that the 
Congress and HUD make changes to the duration of the renewed 
contract terms. HUD reduced those terms of subsequent renewals 
to 1 or 5 years. HUD currently administers over 18,000 HAP 
contracts, and of these contracts, 12,900 contracts covering 
over 915,000 units are subject to annual renewal.
    As budgets became even tighter during the late 1990's and 
into this decade, HUD was forced to often partially fund some 
annual contract renewal terms for fewer than 12 months, 
splitting the annual contract funding between 2 Federal fiscal 
year appropriations.
    While HUD thought this partial funding practice was 
acceptable because the contract terms referenced funding as 
``Subject to the availability of funds,'' a closer review of 
the actual contract language and program funds control 
processes found that the intended incremental funding practice 
did not meet appropriate funds control because the wording of 
the contracts implied that HUD was fully obligating 12 months 
of funding at the time of contract renewal. HUD did not have 
sufficient funding available to both fully fund all Fiscal Year 
2007 contract terms for a 12-month period and meet our $1.65 
billion recision mandate for Fiscal Year 2007.
    As a result, HUD developed and executed the following 
strategy without terminating any contractual relationships or 
necessitating additional appropriations late in the fiscal 
year:
    First, HUD obligated a full 12 months of funding and all 
contract renewal actions that had already been executed in 
Fiscal Year 2007 under the previous contract terms.
    Second, HUD revised the contract terms for the 1,728 
contract renewals remaining to be processed in Fiscal Year 2007 
and for future renewals to correctly structure an incremental 
funding clause.
    Lastly, HUD re-estimated the funding needs of the remaining 
long-term Section 8 contracts using OMB's current inflation 
factors and recaptured all excess funds for use in covering 
HUD's Fiscal Year 2007 Section 8 contract renewal funding needs 
and our recision mandate.
    HUD has successfully executed this strategy to provide for 
the renewal of all HAP contracts and to avoid the need for 
additional appropriations or the unintended recision of 
obligated funds in other HUD programs.
    While we executed this strategy, many fourth-quarter 2007 
payments were not paid in a timely fashion. We took steps to 
provide as much relief to affected project owners as possible, 
such as allowing owners to borrow against project reserves or 
requesting mortgage forbearance or intervention with utility 
companies.
    However, I realized that some of our housing partners may 
have experienced hardships and I apologize on behalf of the 
Department. HUD sent the 1,728 fourth-quarter revised contract 
renewal packages to the owners for processing the first week in 
September, and all but 428 of those contracts were negotiated, 
executed, and entered into HUD's system to facilitate payment 
by the end of September. As of last week, fewer than 250 
contracts remain to be executed by the owners and that number 
declines daily.
    Contract renewals due in October of each year normally 
experience a 1-month payment delay as HUD transitions its 
financial systems from one fiscal year to the next and we will 
work to fix that problem in the future.
    In resolving the Fiscal Year 2007 HAP contract funding 
issues, HUD performed considerable analysis on its budget needs 
for Fiscal Year 2008. HUD believes that it can meet the Fiscal 
Year 2008 HAP contract renewal funding needs within the budget 
level in the President's 2008 budget.
    HUD would require a Fiscal Year 2000 funding level of $5.6 
billion to incrementally fund all Fiscal Year 2008 contract 
renewals through November of 2008, avoiding further new fiscal 
year late payment problems for housing owners.
    HUD is committed to improving its systemic means to more 
accurately forecast the program's budgetary needs. We are in 
the process of concluding a contract-by-contract data cleanup 
in our program data system. Implementation of the necessary 
systems changes is subject to the availability of sufficient 
information technology systems funding for HUD's working 
capital fund.
    We will continue to work with our business partners and the 
Congress to improve the administration of this critically 
needed housing program. That concludes my prepared testimony, 
Madam Chairwoman, and I stand ready to address your questions.
    [The prepared statement of Mr. Cox can be found on page 157 
of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Wood.

  STATEMENT OF DAVID G. WOOD, DIRECTOR, FINANCIAL MARKETS AND 
  COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Wood. Thank you, Chairwoman Waters. My statement is 
based primarily on a report that we issued in November 2005. 
That report was requested by the Financial Services Committee 
in response to concerns expressed by project owners about late 
monthly housing payments from HUD.
    In that report, we examined three topics: First, the extent 
to which HUD made timely payments over a 10-year period, Fiscal 
Years 1995 through 2004; second, the factors that affected the 
timeliness of those payments; and third, how late payments 
affected project owners and their willingness to remain in 
HUD's programs.
    HUD's subsidy payments are not subject to a statutory or 
regulatory standard for time limits. However, HUD's goal is 
generally to provide payments by the first business day of each 
month. Using that standard, we found that about 75 percent of 
the 3.2 million monthly payments that HUD made during the 
period we examined were timely.
    However, as noted in the opening statement, about 8 percent 
averaging some 25,000 payments a year, were 2 weeks or more 
late, and of those, 10,000 were 8 weeks or more late. Further, 
about one-third of all contracts experienced at least one 
payment that was 2 weeks or more late.
    Because we have not examined this issue since preparing the 
2005 report, I do not have data to indicate the timeliness of 
payments since Fiscal Year 2004.
    We found that there were primary factors that affected the 
timeliness of payments. The first was the process of renewing 
owners' contracts, which even HUD officials agreed could be 
cumbersome and paper-intensive.
    Delays associated with contract renewals was the most 
common reason for payments being 2 weeks or more late among the 
payments made from 2002 to 2004.
    Accordingly, we recommended that HUD streamline and 
automate the contract renewal process. HUD concurred with this 
recommendation and is currently planning a Web-based paperless 
process, but it does not expect to complete this until 2010.
    A second factor affecting timeliness was uncertainty of the 
dollar amounts assigned to individual contracts. This 
uncertainty occurred because HUD sometimes underestimated how 
much money each contract would need at the beginning of the 
contract term, and the Agency lacked a consistent process for 
monitoring the rate of expenditure and allocating additional 
funds if needed.
    We recommended that HUD develop a means of better 
estimating the amounts allocated to contracts and of better 
monitoring the rates of expenditure to ensure prompt allocation 
of any needed additional funds.
    HUD agreed with this recommendation and has taken some 
steps, including updating its database of contracts. However, 
we consider this recommendation, like the others from this 
report, as open, meaning that HUD has not yet completed 
corrective actions.
    A third principal factor potentially affecting payment 
timeliness was inaccurate or incomplete monthly vouchers 
submitted by project owners to contract administrators. 
However, because HUD's data systems do not capture the dates on 
which owners submit vouchers to the administrators, we could 
not quantify or measure the impact of that factor.
    The final topic in our report concerned the effects of late 
payments on owners. Property owners we contacted described a 
range of negative financial effects such as late fees on 
mortgages as well as service interruptions at their properties.
    We found that late payments alone were unlikely to cause 
owners to opt out of HUD's programs. However, in a more recent 
report examining HUD's efforts to keep owners in its subsidy 
programs, we found that owners' growing frustration over a 
variety of administrative issues, including late payments, 
might cause them to consider leaving the programs.
    Generally, owners indicated that the negative effects could 
be more severe, the more dependent they were on HUD's 
subsidies. Owners also noted that HUD did not notify them when 
payments would be late, preventing them from taking steps to 
mitigate the effects.
    We recommended that HUD notify owners if monthly payments 
would be late and to provide an estimated payment date. HUD 
agreed with this recommendation, but has not yet developed a 
means for systematically providing such notifications.
    That concludes my prepared statement and I will be glad to 
respond to any questions you have.
    [The prepared statement of Mr. Wood can be found on page 
207 of the appendix.]
    Chairwoman Waters. Thank you very much. I will recognize 
myself for the first 5 minutes, and I will start with Mr. Cox.
    Mr. Cox, I was distracted here for a moment, but I want you 
to go back and tell me how you are going to fix and correct the 
shortfunding and make timely payments to the owners to avoid 
putting them in situations where they are paying late fees on 
mortgages. It is not enough to apologize. Nor is it enough to 
say, ``Go negotiate with the utility companies and ask them to 
wait for their money.''
    The onus is on you to do what you are supposed to do and 
that is to just pay, on time, the owners for the services they 
are providing to our citizens. Now, go back and tell me how you 
are going to fix this.
    Mr. Cox. Madam Chairwoman, we have developed a contract 
system now, contract language that has been put out for all the 
owners in Q4. That contract language will now ensure them that 
we will make timely payments in the future. And this way we are 
providing funding through the end of the fiscal year as you 
reference in your opening remarks. Then, when we get additional 
funding in the following fiscal year for that full 12 months, 
we are renewing a full 12 months, we will provide that funding 
at that time.
    In addition to that, as Mr. Wood mentioned, we are taking 
steps to improve our database and ultimately the timely 
processing of the contract renewals. It is still a very manual 
process, so one of the things we have to do in the future is to 
improve our process of the renewals with the owners and the 
project-based owners who assist us with that process.
    Chairwoman Waters. So what you are telling me is that you 
will have a problem for the last 2 or 3 months of this year, 
but that it should be corrected in 2008?
    Mr. Cox. Yes, ma'am, that is correct.
    Chairwoman Waters. So tell me, describe what that problem 
will be, and how much hardship will that reap on the owners?
    Mr. Cox. It obviously depends on the individual owner, but 
clearly the items that you mentioned, possible utility payment 
issues and possible mortgage payment issues. When we determined 
that we had this problem back in July, we immediately notified 
the field to notify the owners that they could use reserves to 
the extent they had reserves. So we tried to give them as much 
a heads-up as possible, but we certainly realized that there 
were issues of late payment fees.
    Chairwoman Waters. So your problems exist from September 
through December?
    Mr. Cox. No, ma'am. They existed from July through 
September for the Q4 of the last fiscal year, 2007.
    Chairwoman Waters. So some owners can expect that their 
payments will be late up through December?
    Mr. Cox. No, ma'am, that's not correct. There were late 
payments made in the fourth quarter of the fiscal year of the 
government, so from July to September, there were late payments 
made. Of those 1,728 contracts that were up for renewal in that 
quarter, all but 450 were caught up by the end of the fiscal 
year. Another 200 have now been processed through the system 
and there are 250--
    Chairwoman Waters. So you are caught up at this point.
    Mr. Cox. Except for 250 for the Q4.
    Chairwoman Waters. And those 250 will be--
    Mr. Cox. We're waiting for those owners to return those 
contracts and whenever they do, they will immediately be 
processed.
    Chairwoman Waters. So we do not anticipate that we are 
going to have this problem next year at all?
    Mr. Cox. I do not anticipate it. I can't promise you we 
will never have a late payment again, that's beyond--
    Chairwoman Waters. Yes, but what has been described to me 
sounds as if it can be corrected certainly and that it has to 
do with the technology and the systems that you use for 
renewables. Is that correct?
    Mr. Cox. That certainly would help go a long way. Again, we 
have a very manual process today. The more we can automate that 
process, the better it will be for owners and their tenants.
    Chairwoman Waters. How should we punish you if you do not 
correct this problem? What should we do? Should we put into law 
a certain date, the first of the month, by which you should 
have this money? And if you don't, should we then penalize you 
in some way and take away some discretionary money? Or penalize 
salaries? What would you suggest we do?
    Mr. Cox. I would certainly encourage you to hold us 
accountable, and a good way to do that is to provide us the 
adequate working capital fund to automate these processes which 
will help us go a long way to making that happen.
    Chairwoman Waters. Have you requested this money in the 
budget?
    Mr. Cox. We have, yes.
    Chairwoman Waters. All right. Thank you very much. I will 
go to Ms. Capito for 5 minutes.
    Mrs. Capito. Thank you. Mr. Cox, let me ask you a couple of 
questions, kind of process questions. The payments are done 
quarterly. Is that correct?
    Mr. Cox. They are actually done monthly.
    Mrs. Capito. They are done monthly.
    Mr. Cox. As our contract renewals. We have a series of 
thousands of contracts that we execute; they are actually 
renewed monthly.
    Mrs. Capito. So from month-to-month, can you predict how 
many you are going to have every month? I mean you should be 
able to predict that pretty--does it fluctuate a lot?
    Mr. Cox. It does fluctuate a lot. I will give you an 
example. The October renewals are about 300. The January 
renewals, if my memory serves, are about 4,000. So it does 
fluctuate a lot, the workload fluctuates.
    Mrs. Capito. How do you, when different owners are the ones 
who are the victim of a late payment, how does that get 
decided? Who gets paid on time and who gets paid late? And what 
kind of system, you know, is it arbitrary or is it that the 
same people are paid late repeatedly? How does that shake out?
    Mr. Cox. No. The payments are made in our system when the 
contract document is actually returned and entered into the 
system, so it is simply paid as those owners request those 
funds, or actually the project-based administrators request 
those funds by owner.
    Mrs. Capito. So if you are late getting your paperwork in, 
you could possibly be one of those people who gets a late 
payment.
    Mr. Cox. That is correct.
    Mrs. Capito. Are you telling me that when you renew the 
contracts, it actually has to be mailed into HUD?
    Mr. Cox. That is what I am telling you, yes, ma'am.
    Mrs. Capito. So you do not do this electronically at all?
    Mr. Cox. Currently, no.
    Mrs. Capito. Whoa. That has to be a serious problem when 
you consider all of the things that you can do electronically. 
I certainly hope that could alleviate--I'm certain that I'm not 
telling you something you don't already know--a lot of issues 
in timeliness and certainly accuracy.
    Mr. Cox. Anytime you have a manual process, it lends itself 
to mistakes. It lends itself to delays. So to the extent we can 
improve these processes, that will greatly benefit the owners 
and the tenants.
    Mrs. Capito. How long have you been--you, yourself, been 
with HUD in this particular arena?
    Mr. Cox. Since May of last year.
    Mrs. Capito. Since May of last year. Because Mr. Wood's 
report covered 1994 to 2004. Correct?
    Mr. Wood. 1995 to 2004.
    Mrs. Capito. Okay. And obviously the report that he 
generated showed that there were huge problems, and then for 
you to come into the situation when somebody has obviously seen 
the report at HUD, not made the corrections and, and we are 
back in the same boat this year, were any corrections, to your 
knowledge, done? Were any modifications made after that report 
was generated?
    Mr. Cox. Well, as Mr. Wood indicated, we did engage a 
contractor to help us create a new database for all these 
contracts. One of the challenges is just the sheer volume of 
managing the numbers of 20-, 30-, and 40-year-old contracts 
combined with a great number of annual contracts. So one of the 
key initiatives we took after the GAO report was to engage that 
and that process will actually be complete next month. Again, 
as a first step in improving the overall business process.
    Mrs. Capito. Could you give me an example, and I know there 
are some in the book here, and I really should look at that, 
but let's just say for a project, a regular-size project, what 
would that monthly payment be?
    Mr. Cox. Congresswoman, I don't know the answer to that. It 
could vary dramatically depending on the size of the unit and 
the size of the total complex.
    Mrs. Capito. Right. I understand that.
    Mr. Cox. Not all complexes are 100 percent subsidized, so 
it really could vary dramatically. I don't--I'll be glad to 
provide you with a written answer.
    Mrs. Capito. I will check in my book for that.
    I do not have any further questions at this time, thank 
you.
    Chairwoman Waters. Thank you very much.
    Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman.
    Mr. Cox, please allow me to apologize to you in advance for 
asking that you give ``yes'' or ``no'' answers. I apologize 
because often when persons finish talking, I am not sure 
whether they have said yes or no. And because I have never 
encountered you before, I cannot attribute this to you, but I 
do want to move quickly, so I need yes or no answers.
    Sir, is it true that you have been given a legal opinion 
that is the primary cause of this current funding problem? Is 
this true?
    Mr. Cox. That is true.
    Mr. Green. Is it also true that this legal opinion has not 
been accorded this committee?
    Mr. Cox. That is correct.
    Mr. Green. Is it also true that this legal opinion, while 
recognized by you, is not in writing?
    Mr. Cox. That is correct.
    Mr. Green. How, sir, do you propose to follow the opinion 
closely that has not been codified? It is generally speaking 
customary in the legal profession to give opinion letters, 
something that is codified, so that those who propose to follow 
the opinion will have something that they can peruse and 
scrutinize closely.
    How is it that this opinion has not been codified?
    Mr. Cox. It is my experience in the private sector that, 
you know, if a lawyer gives me advice, I will begin to act on 
that advice. We will get a final opinion, but the same people 
who have given me that legal advice are also the same people 
who are working on the contract amendments and our key focus 
was on getting those amendments out the door, making sure that 
those late payments were caught up. And so that is the reason 
why the memo has not been completed.
    Mr. Green. Not to belabor the point, but generally 
speaking, when we are dealing with the amount of dollars that 
we are talking about now, generally speaking, lawyers provide 
written opinions to their clients.
    It is a bit unusual, in my opinion, to have an opinion that 
impacts the amount of dollars and lives that this one impacts, 
be a verbal opinion. Miscommunications, misunderstandings occur 
when we try to communicate verbally. But if we codify, we 
always have the original initial reference to go back to.
    You are in a position now where you must rely on what your 
opinion of the lawyer's opinion happens to be. I don't think 
that is an appropriate way for an entity the size of HUD to do 
business. I cannot imagine this being your customary practice 
of giving opinions and receiving opinions that are not 
codified.
    When will this opinion be codified so that we may review 
the opinion?
    Mr. Cox. I don't have an answer for you, Congressman. We 
will be reviewing both financial records as well as the legal 
opinion, so it will take some time. I don't have an answer for 
you today.
    Mr. Green. It is difficult to ascertain whether or not a 
legal opinion is in fact correct without the opinion itself to 
review. If we just receive a summary of an opinion, it is very 
difficult to peruse it closely.
    Do you agree that this committee has some responsibility to 
concern itself with the opinion that has been issued?
    Mr. Cox. Certainly.
    Mr. Green. How can we effectively carry out our 
responsibility without the opinion?
    Mr. Cox. I am happy to have someone come and brief you from 
our counsel's office on that, you know, before the official 
opinion is prepared. I am happy to do that.
    Mr. Green. Well, why would you act on an opinion that is 
not codified with language that we can peruse?
    Mr. Cox. The attorneys working with program attorneys 
working with our General Counsel were very clear on their 
opinion with me. Based on that judgment, the Department acted 
accordingly.
    Mr. Green. Madam Chairwoman, I am greatly concerned that we 
do not have a written opinion, and I am not sure what the 
proper course of conduct is, but I am sure that this committee 
is in need of that codification. I know that my time is up, so 
I will yield back to the chairwoman.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from Illinois, Mrs. Biggert, for 5 minutes.
    Mrs. Biggert. Thank you, Madam Chairwoman.
    I would like to go back to the assurances, Mr. Cox, that 
HUD will follow through on the promises and is committed to 
streamlining and accurately projecting funding levels. But how 
are you going to do that?
    It seems like the Federal Government is behind a lot of 
times in technology, but it seems like HUD is way behind. And 
with the working capital fund, are you going to be able to 
increase the technology that is needed so you do not have to do 
this manual labor?
    Mr. Cox. Congresswoman, if we get the request that we put 
in for Fiscal Year 2008, we will be able to take some steps to 
begin to fix that problem, yes.
    Mrs. Biggert. But that is taking the steps to begin. It 
seems like having this sophisticated system, data system, is 
going to take a while to do.
    Mr. Cox. I do not disagree with you. Recall that we have 
already begun that process to develop the system. The next step 
to that will be able to put the analytics onto that system so 
that we can more accurately project what the long-term needs of 
these contracts are.
    Mrs. Biggert. Did you request in previous years for the 
capital fund to be able to do this?
    Mr. Cox. We did. And unfortunately that request was not met 
fully.
    Mrs. Biggert. Were there reasons given?
    Mr. Cox. I do not know those specifics, no.
    Mrs. Biggert. How long has the system that you have been 
working with been in existence?
    Mr. Cox. The system actually will go live in November, next 
month.
    Mrs. Biggert. So you are already working on the system?
    Mr. Cox. Yes.
    Mrs. Biggert. You have the technology?
    Mr. Cox. We are working on the initial steps of the 
technology, which is a contract-by-contract data analysis.
    Mrs. Biggert. All right. So what is the system right now 
that is in existence?
    Mr. Cox. A very manual system right now.
    Mrs. Biggert. Okay. I am confused. You say it is going to 
be ready to go in November, but you do not have the funding 
yet.
    Mr. Cox. No. I apologize. The next step of the fund would 
be to take the database which is the actual contract-by-
contract analysis and then take that and automate that database 
to allow us to project forward, going forward.
    Mrs. Biggert. Okay. And so when do you think that would be 
up and running?
    Mr. Cox. I do not have an estimate for you today.
    Mrs. Biggert. Well, is it two years? One year? Three years? 
Four years?
    Mr. Cox. I apologize. I will get back to you. I will have 
someone in the program office get that.
    Mrs. Biggert. Thank you.
    And then, Mr. Wood, just out of curiosity, you know, we 
have your GAO report and maybe you said this, but it only goes 
through 2004.
    Mr. Wood. Right.
    Mrs. Biggert. Is that because nobody asked for an update?
    Mr. Wood. No one has asked for an update. And that was the 
most recent year at the time that we did the work.
    Mrs. Biggert. Since there probably has been no increase in 
the data system, it probably would be about the same result 
now?
    Mr. Wood. As far as we know, other than developing the new 
database of contracts, the system that is used to renew them is 
still the same, essentially the same as it was at the time we 
did our work
    Mrs. Biggert. Do any of the owners complain about having to 
use such a manual system? Mr. Cox or Mr. Wood?
    Mr. Cox. I think the GAO report indicates that they do is 
what I--if I had to deal with the manual system.
    Mrs. Biggert. Okay. What system does HUD have in place to 
notify owners if their monthly payment will be late? Or you 
just do not tell them?
    Mr. Cox. No. We have three ways we can do that today. We 
have the HUD Web site. We have calls and in-person meetings 
with the industry groups, and finally, we have what is 
internally called the HUD TRACS system which owners can access.
    We do not have, as Mr. Wood indicated, a system, for 
example, that we could automatically e-mail the owners. That is 
again one of the next steps we are hoping to improve.
    Mrs. Biggert. All right. I yield back. Thank you.
    Chairwoman Waters. Thank you very much.
    By the way, Mr. Cox, do you have legal counsel with you 
today?
    Mr. Cox. Yes.
    Chairwoman Waters. Would you bring them to the table?
    Mr. Cox. Sure.
    Chairwoman Waters. And now I will go to Mr. Sires for 5 
minutes.
    Mr. Sires. Thank you, Madam Chairwoman.
    I hate to harp on this thing, this manual effort, but it is 
amazing to me, and I guess I am new in Congress, that we can 
get millions of Social Security checks out timely, fairly 
timely, and we cannot get these checks out on time. To me it is 
mind-boggling.
    Did you hear that statement, Mr. Cox?
    Mr. Cox. I am sorry. I apologize.
    Mr. Sires. Well, that is probably the problem.
    I said it is amazing to me that we can get Social Security 
checks out, millions of them on fairly good time, and we cannot 
get these checks out on time.
    I understand that it takes 4 months for the owner in 
advance to submit all the paperwork before they get any checks.
    Mr. Cox. The process does begin several months for a 
renewal, the one-time annual renewal. That is correct.
    Mr. Sires. Plus it takes another month and some of these go 
beyond a month beyond that and 8 weeks beyond that, so we could 
possibly be looking at 6 months before they get a check.
    Mr. Cox. That is possible, yes.
    Mr. Sires. That is amazing. What do you expect these owners 
to do? Why does it take 4 months?
    Mr. Cox. Because it is such a manual process, Congressman, 
the getting it to--we, we negotiate these contracts through 
third party intermediaries at the State level, so we have to 
get the information to that agency. That agency then works with 
the owner, returns that information to the State agency, and 
then back to the Department. But, clearly we can make 
improvements. There is no question.
    Mr. Sires. Has anybody made a recommendation to streamline 
this process? Have you seen a report how we can streamline this 
process so it does not take 4 months?
    Mr. Cox. I have not personally seen a recommendation, but I 
know that we are working on technology improvements within the 
Department to be able to do that.
    Mr. Sires. And when do you anticipate this technology? 
Obviously, this Department is not the most technology-advanced 
department in the Federal Government. So when do you anticipate 
this technology to come online?
    Mr. Cox. If we get full funding of the President's request 
in Fiscal Year 2008, we will be able to make significant 
strides in starting that process.
    Mr. Sires. You made a statement that 75 percent of payments 
were on time?
    Mr. Cox. I believe it was Mr. Wood who made that statement. 
That is from the GAO report.
    Mr. Wood. That is correct. During the period that we 
examined between 1995 and 2004.
    Mr. Sires. And there is another statement someplace in the 
report that says that some of these payments were lower than 
they should have been. Did I get that right? I could not hear 
very well, when Mr. Cox was speaking.
    Mr. Wood. In the GAO report, we did not address the amounts 
as to whether the amounts were accurate. We were strictly 
looking at timeliness.
    Mr. Sires. How about Mr. Cox? Did you make the statement 
that there was an error or some of the monies that were sent 
were not the exact amount, that in many cases it was lower than 
it should have been?
    Mr. Cox. No, sir, I did not make that statement.
    Mr. Wood. Congressman, I may have confused you. I did make 
the statement that HUD often underestimated the total amount 
that they would need. At the time they renewed a contract, they 
would often underestimate the amount that they would need in 
total to make the monthly payments during the coming year.
    Mr. Sires. Okay. Maybe that is what I misunderstood.
    As far as the incomplete vouchers by the owners, how often 
does that happen? Because I would think that an owner 
struggling to get this payment would want to make sure that 
these vouchers are accurate when they go in, especially when it 
takes 4 months to process.
    How long does it take if there is an inaccuracy in the 
voucher? You have to send it back. Does the process start all 
over again? How does this work?
    Mr. Cox. No. The third party State agency will deal with 
that and they will do the first check to make sure that those 
vouchers are accurate. And my understanding from the GAO 
report, when they looked at that on a contract basis is that 
the State administrators were able to correct that fairly 
quickly. It depends on the nature, you know, what the issue. 
Obviously, the time could vary to get it back.
    Mr. Sires. Mr. Cox, if nobody asks for the report, you will 
not do another report. Is that how this works? This report that 
stopped at 2004.
    Mr. Cox. The Department does not ask for GAO reports. 
Congress asks for GAO reports.
    Mr. Sires. Okay. But if we do not ask for another one?
    Mr. Cox. We are still going to try to make improvements in 
the program clearly regardless of whether we have another 
report. We need to do that.
    Mr. Sires. Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you very much.
    The gentleman from Texas, Mr. Neugebauer.
    Mr. Neugebauer. Thank you. In your testimony, Mr. Cox, I 
think you had talked about the fact that some of these 
contracts in the GAO report I think reflects that some owners 
are electing not to renew their contracts and are going to more 
private-based, a market-based housing. And so this issue of the 
late payments and the delays of renewing these contracts, do 
you have any numbers or a way to project that the reason a lot 
of these folks are going to market-based housing, getting away 
from the HUD program, is because of the problems and the delays 
and the ambiguity that kind of frustrates these folks and they 
say, ``I'm tired of doing that.'' Because probably in some ways 
it puts somewhat of a financial burden on those folks if you go 
30, 60, or 90 days without payments, and you have a mortgage or 
other obligations for utilities, taxes, that kind of stuff.
    Do you have a feel of feedback of we are losing people to 
participate in these programs?
    Mr. Cox. Is that question for me?
    Mr. Neugebauer. Yes.
    Mr. Cox. The information that is documented in the GAO 
report indicates that the primary reason that owners leave is 
for economic reasons. They have a better economic alternative 
to convert the property to market rate, etc. But clearly late 
payments is indicated in the report as well, as a frustrating 
factor, and I would appreciate that.
    Mr. Neugebauer. When you have a person or company that is 
not--on a project that is not going to receive their payment, 
are you communicating with them? Do they know that their 
payment is going to be late? If they are sitting there going to 
the mailbox and the check is not coming, are they surprised to 
find out the check is not coming? Or are we communicating with 
them?
    Mr. Cox. We have many ways to communicate with them. As I 
mentioned earlier, we have, via our Web site, via the public 
industry groups. And particularly for small owners which are 
most likely to be most impacted, we will often have a field 
office personnel call them directly and have them be a point of 
contact so that when the payment is ready to be made, they know 
how to do that, they know who to contact, and that payment can 
be expedited. That is particularly true for the small owners.
    Mr. Neugebauer. So is there a number that if I am a small 
project owner and I can--do I call my field office? Or do I 
call the payment office? Who am I communicating with?
    Mr. Cox. Primarily the field offices around the country.
    Mr. Neugebauer. Now, you mentioned that some of the delay 
in renewing these contracts is because you are waiting for 
paperwork to come through. Some of these programs are 
administered through the State. Is that correct?
    Mr. Cox. Yes, Congressman, a State agency.
    Mr. Neugebauer. And so there is a chain there of, I have 
sent the paperwork to the State, and the State then has to 
forward that to HUD nationally? Or does that go then to the--is 
the field office involved in that at all? How does that work?
    Mr. Cox. The field office can be involved in that. But, 
again, they are involved in terms of shepherding that contract, 
again, from HUD to the State agency, and ultimately to the 
owner.
    Mr. Neugebauer. So under this new electronic version of, I 
guess, renewing these contracts online, is that where you are 
headed?
    Mr. Cox. That's correct.
    Mr. Neugebauer. And so if the State is in the paper loop 
now, are we going to take the States out of the paper loop? How 
is that process going to work?
    Mr. Cox. I think that process has yet to be defined, but 
the goal would be to reduce the paperwork and to do that 
electronically with the owners both from the contract renewal 
standpoint as well as the passing of paper now via mail, 
obviously that could happen electronically as well, similar to 
what happens in FHA today, for example.
    Mr. Neugebauer. So in November, when I go online to renew 
my contract, I might be submitting the application 
electronically. I am really not signing up electronically. It 
is not going into the system. I am a little unclear as to how 
that works.
    Mr. Cox. To be clear, what is going to be completed in 
November is the contract-by-contract data analysis. The new 
process will not be completed in November.
    Mr. Neugebauer. So I will not be able to sign up in 
November online?
    Mr. Cox. Not electronically, no, sir.
    Mr. Neugebauer. So we will still be passing paper in 
November from the project to the State and the State to HUD and 
HUD is going to feed all this information into the computer. 
Somebody is going to enter it into the computer?
    Mr. Cox. That is correct.
    Mr. Neugebauer. That is the way people did business 20 
years ago. It amazes me and I am not just picking on HUD but I 
look at Federal agency after Federal agency after Federal 
agency and we are spending $3 trillion of the taxpayers' money 
and the Federal Government is in most agencies behind the curve 
on technology.
    It is, I think, frustrating to all the members of this 
committee that, you know, we hear this from other agencies, 
too. For example, today in our military, our soldiers have to 
make 10 copies of their medical records so that when they go 
into the VA system, they can start submitting those to 10 
different people that they go to, and those records do not 
transfer.
    I think that one of the things that needs to happen is the 
Secretary needs to come back and not just talk about technology 
for this but as I think the gentleman from New York said, you 
know, we get Social Security checks out. We direct deposit 
those. Do you all do direct deposit?
    Mr. Cox. We do for some of the HUD programs, not all.
    Mr. Neugebauer. Well, praise the Lord that you are using 
some technology.
    I think the question was brought up as to what we can do to 
hold you accountable. I think what we ought to do is look at 
the appropriation for the agency and say, ``Look, unless you 
can demonstrate to us that you are moving in some way to 
rectify this, we need to earmark some money to get the agency 
moving in that direction.''
    One of the things I have been working on with Chairman 
Frank, particularly with FHA, is that we are trying to put a 
certain amount of money aside for FHA for them to be involved 
in some new technology because you are trying to compete in the 
mortgage industry and the mortgage industry already has this 
technology.
    I think that is one of the frustrating things to me. And I 
will finish, Madam Chairwoman, but I think a lot of agencies 
are trying to reinvent the wheel in database technology. I mean 
that is how the whole process begins with spreadsheets and 
databases is where the software innovation, you know, started.
    And basically about 99 percent of the software we use today 
is really, underneath it, is just a database. And so I am a 
little concerned that we do not have something--surely, 
electronically you have a database at HUD for this program. 
Right? I mean you can pull up a screen.
    All right. Madam Chairwoman, I yield back the time I do not 
have.
    Chairwoman Waters. Thank you very much.
    The gentleman from Minnesota, Mr. Ellison.
    Mr. Ellison. Thank you, Madam Chairwoman, for this hearing.
    Mr. Cox, could you explain once--the gentleman from Texas, 
as he pointed out, once you do identify the project owners and 
the vendors that they are not going to get their checks on 
time, what do you tell them that they should do to mitigate the 
circumstance?
    Mr. Cox. We work with them in a variety of ways to 
provide--
    Mr. Ellison. I can barely hear you. I am sorry.
    Mr. Cox. Sorry. We work with them in a variety of ways to 
provide assistance. If they are in an FHA mortgage we obviously 
provide FHA mortgage forbearance. We work at the field level to 
write utility companies, write mortgage holders to ensure, you 
know, help them--
    Mr. Ellison. So you help them communicate?
    Mr. Cox. We absolutely do.
    Mr. Ellison. But you do not give them the money.
    Mr. Cox. We do not, not until we--
    Mr. Ellison. Okay. So let me ask you this, do these 
secondary folks who you help them talk to, do they always buy 
it? Do they always say, ``Okay. Since HUD said the money is 
coming, we won't cut off services. We will continue to provide 
pesticide services, and other kind of services that need 
payment?'' Do they always buy it?
    Mr. Cox. I cannot say in every case they buy it.
    Mr. Ellison. Do they never buy it.
    Mr. Cox. But in the majority of cases they do.
    Mr. Ellison. Do you have any figures on that?
    Mr. Cox. I do not.
    Mr. Ellison. So your sense is that they buy it, but you 
don't really know. Isn't that true?
    Mr. Cox. I will be glad to get the Program Office--
    Mr. Ellison. But you don't know?
    Mr. Cox. I do not know, no.
    Mr. Ellison. Thank you. And, of course, the people who, the 
individuals who benefit ultimately from this program are people 
who are low-income people. Right?
    Mr. Cox. Correct.
    Mr. Ellison. They are citizens of our country. Right?
    Mr. Cox. Absolutely.
    Mr. Ellison. Senior citizens, people who have worked their 
whole lives sometimes and made this country great. Right?
    Mr. Cox. Absolutely.
    Mr. Ellison. And yet they are facing loss of services 
because you guys cannot get the payments. Right?
    Mr. Cox. Potentially.
    Mr. Ellison. Yes. And, you know what? I assume--I am not 
going to sit here and tell you guys how to run a program 
because I figure you could run the program much better than me 
because you do it.
    I figure it is not happening because somebody does not want 
it to. And so my question is this: Is this poorly run program 
really a reflection of the Administration's basic contempt for 
public housing programs?
    I mean when smart people do dumb things, something else is 
going on. Right? You guys know how to run a program. It is not 
happening because you do not want it to happen. And so in 5 
years, after the program has failed, you can say, ``Oh, well, 
we do not have anybody who wants to take Section 8 anymore.'' 
Because they have all gotten out of the program because you 
guys have screwed up the program. You created failure. Is that 
not true? Just admit that is what you are doing.
    Mr. Cox. Congressman, I can assure you the Administration 
is very committed to this program which serves--
    Mr. Ellison. And your commitment is reflected in the 
excellent running of the program. Is that right? Your 
commitment is reflected in how you demonstrate your value of 
the program through your competent administration of the 
program. Is that right?
    Mr. Cox. Clearly there needs to be--
    Mr. Ellison. Let me tell you. Anything the Administration 
wants to do, it gets done.
    Let me ask you this: Have you ever heard somebody say, we 
should shrink government to the size where it can be drowned in 
the bathtub? Have you ever heard that phraseology before?
    Mr. Cox. I have not, no.
    Mr. Ellison. You have not heard that?
    Mr. Cox. No.
    Mr. Ellison. Well, trust me. A well-known political 
commentator said that. And I guess my question is, what do you 
expect the fate of this program is going to be in 5 years after 
vendors bail from the program because you guys do not run it 
well? Will you then say that the program needs to be ended 
because people do not want to participate?
    Mr. Cox. We are very committed to the program and I would 
expect us to continue to be committed in 5 years.
    Mr. Ellison. Well, I don't doubt that you may be, but I am 
talking about the people whom you answer to above your pay 
grade.
    Now let me ask you this. The letter that the gentleman, the 
other gentleman from Texas, Congressman Green, asked you are 
you going to share this opinion letter with Congress when you 
finally get around to getting it memorialized in writing?
    Mr. Cox. Yes.
    Mr. Ellison. When is that going to happen? Give us a date.
    Mr. Cox. I do not have a date for you today.
    Mr. Ellison. Give us--will it be by the end of this month?
    Mr. Cox. No.
    Mr. Ellison. Will it be by the end of November?
    Mr. Cox. It will probably be by the end of the calendar 
year.
    Mr. Ellison. Okay. So by December 31st, we are going to see 
a letter?
    Mr. Cox. That would be my expectation.
    Mr. Ellison. Okay. Can we have your promise?
    Mr. Cox. I will do the best I can.
    Mr. Ellison. Can we have your assurance? Yes or no? Can we 
have your assurance right now--
    Mr. Cox. I will do the best I can.
    Mr. Ellison. --as you have sat down and have testified 
before Congress, will you give us your firm assurance that 
before December 31st, 2007, we will have that opinion letter? 
Can you do that?
    Mr. Cox. I will do everything I can. I am not going to 
write it--
    Mr. Ellison. That sounds like you are waffling.
    Mr. Cox. I am not going to write it. I will do everything I 
can to--
    Mr. Ellison. It does not sound like you want to tell us. 
Okay. So we will all just note your--are you a little 
embarrassed by this whole thing? I mean I am just asking.
    Mr. Cox. Certainly we are apologetic for the late payments, 
no question about it.
    Mr. Ellison. But isn't it kind of embarrassing?
    Mr. Cox. We certainly wouldn't want it to happen.
    Mr. Ellison. Neither would I. Let me ask you this. Now I 
have practiced law for 16 years, and that is not much compared 
to some people, but it is a lot compared to other people. And 
if I said to my client, ``Here's my advice to you.'' And they 
said, ``Okay. Give me a letter so I can make sure I know what 
you are saying to me.'' And I took 3 months to get it to them, 
I would not be their lawyer very long. Do you understand what I 
am saying?
    Mr. Cox. Yes.
    Mr. Ellison. Do you claim any kind of privilege that would 
prevent you from sharing this letter from Congress?
    Mr. Cox. No.
    Mr. Ellison. So we cannot anticipate you asserting 
privilege with regard to this letter.
    Mr. Cox. Not to my knowledge, no.
    Mr. Ellison. Okay. And as I said, you know, this--can you 
tell me what exactly is the advice that you were given because 
you told all of us that you had a very clear understanding of 
what the advice was, could you share it with us now for the 
record so that we can have something to rely on, even if it is 
not a written letter?
    Mr. Cox. Sure. I actually referred to it directly in my 
testimony, Congressman.
    Mr. Ellison. Okay.
    Mr. Cox. We were executing annual contracts but we had 
funding to fund to the end of the fiscal year. So the 
implication clearly is the contract was written and we provided 
to you in my testimony both the contract language before and 
now the contract language afterwards. It just simply did not 
meet the funds control issue that we had in the Department. So 
it is not more complicated than that.
    Mr. Ellison. Now let me ask you this: Is the appropriation 
that you all have requested adequate to fix the problem that 
you are experiencing?
    Mr. Cox. The appropriation that we requested in Fiscal Year 
2008 is adequate to fund the program with the new contract 
language, that is correct.
    Mr. Ellison. Is it adequate to make up for this backlog and 
shortfall that we are facing at this time?
    Mr. Cox. It is not.
    Mr. Ellison. Okay. So what would the appropriation be not 
only to meet the upcoming needs but also to fix the backlog 
needs?
    Mr. Cox. I would have to get you that number. I do not have 
it. Clearly it would be larger than what we have requested, but 
I do not have that figure off the top of my head.
    Mr. Ellison. You do not know that?
    Mr. Cox. No, I do not.
    Mr. Ellison. Can you get that by the end of the day? You 
can provide it to the chairwoman.
    Mr. Cox. I will be glad to get it as quick as I can.
    Mr. Ellison. Okay. Can you get it by the end of next week? 
We need the numbers, so I am just trying to pin you down. When 
can we get that number?
    Mr. Cox. I will provide it to you as quickly as I can.
    Mr. Ellison. That might be next millennium. Give me a date.
    Mr. Cox. I will give it to you by the end of next week.
    Mr. Ellison. Okay, thank you, sir.
    Is that the gavel?
    Chairwoman Waters. Yes.
    Mr. Ellison. Thank you. I will yield back the time I do not 
have.
    Chairwoman Waters. Thank you very much.
    Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman.
    Mr. Sires and I were mayors. In Kansas City, I had 32 
lawyers. And on at least two occasions I can remember asking 
the principal attorney, city attorney, to let me know whether 
or not we could do something and how we stood on a particular 
lawsuit against the Police Department.
    And they made an appointment, came to the office and during 
the appointment, during the time we talked they said, ``Mr. 
Mayor, here is the opinion verbally. We are not going to write 
it because we do not want it a part of discovery. And so here 
is what we think but we are not going to write an opinion.''
    To follow up on the line of questioning previous to me, was 
there an opinion, a verbal opinion that was not put in writing 
because perhaps it was vetted by others in the department or 
other departments and then you decided or the law department 
decided, let's not put this in writing? That's a question.
    Mr. Cox. No, sir. No.
    Mr. Cleaver. Ma'am, hi. Thank you for being here.
    Chairwoman Waters. Would you please identify yourself and 
your title prior to responding to Mr. Cleaver.
    Ms. Forrester. My name is Althea Forrester. I am the 
Assistant General Counsel for the Assisted Housing Division in 
the General Counsel's Office.
    Mr. Cleaver. Ms. Forrester?
    Ms. Forrester. Yes.
    Mr. Cleaver. Was there a verbal opinion given?
    Ms. Forrester. Yes. There was a question asked and we 
responded with our opinion as to the interpretation of the 
contracts.
    Mr. Cleaver. And was the verbal opinion, was it a decision 
that we should not put this in writing at this time?
    Ms. Forrester. No. We were not even asked to put it in 
writing. I do not think there was a question because it was a 
position that others had already gleaned should be taken in the 
Department. And so there was not a request for a formal 
opinion. But we would put it in writing if we were asked.
    Mr. Cleaver. In 2006, the legal counsel ruled that it was 
illegal to have a contract with the owners through 12 months. 
Right?
    Ms. Forrester. No, I am not aware that anything was drafted 
or discussed in 2006. Our office or at least I was not aware of 
the position that we were in in terms of the contract and the 
funding, the discrepancy between the contract and the funding 
until 2007.
    Mr. Cleaver. Okay. Maybe my information is wrong. But the 
information I have suggests that in 2006, the legal counsel 
ruled that it was illegal to sign owners to a 12-month contract 
term.
    Ms. Forrester. No, I am not aware of anything like that.
    Mr. Cleaver. Okay. After the meeting I would like to speak 
more to that just because it is contradictory to the 
information I have.
    I want to go back to the ``HUD-ran-out-of-funds by July 
issue.'' Mr. Cox, Mr. Ward, are you familiar with the 108 Loan 
Program?
    Mr. Cox. I am generally familiar with it, yes.
    Mr. Cleaver. Do you know if it has ever run out of money?
    Mr. Cox. I do not, sir.
    Mr. Cleaver. The 108 loan program is generally used by city 
governments to do economic development projects where you are 
actually borrowing against a CDBG and I was the president of 
the National Mayors Organization. I traveled all over the 
country. I have never heard of the 108 Loan Program running out 
of money.
    Now, I am connecting that to this because the 108 Loan 
Program generally deals with hotels. We have done 108 Loan 
Programs to rebuild historic districts. All kinds of economic 
development projects.
    Sometimes they were connected to the enterprise zone or the 
Economic Development Initiative, EDR Program, and they never 
run out of money. So it goes to what my colleague said earlier 
that when we have programs dealing with the poorest people, we 
run out of money. But when we deal with the economic 
development programs where we are dealing with major 
developers, we never run out of money.
    Tell me I am wrong. Tell me about a program that deals with 
major developers that has run out of money. And I am not saying 
that, you know, I actually would like for you to tell me just 
one program that ran out of money. Anyone?
    Mr. Cox. I am not aware of any.
    Mr. Cleaver. Yes. That is the point, don't you see? When we 
deal with poor people, we run out of money. I mean there is 
something immoral about that. There is something unseemly about 
that and that is just my trouble with this program.
    I actually don't have any more questions because that 
troubles me so greatly. And I think the question about 
embarrassment and shame, it is not just you. Everybody, all of 
us ought to be embarrassed that this is how we treat poor 
people.
    Chairwoman Waters. Thank you very much.
    Mr. Shays?
    Mr. Shays. Thank you.
    As I listen to this, I get more and more uncomfortable. Mr. 
Ellison's questions, in my mind, were almost too gentle because 
what I am seeing is this: We all know we have a problem and we 
all know we have a backlog. And that means to get the backlog 
taken care of you may need some more people to process this but 
you need more money.
    What I am hearing you say, Mr. Cox, what I am hearing you 
say is basically you have enough money to renew the contract to 
the new contract, but you do not have enough to deal with the 
old contract. I mean the backlog. Is that correct?
    Mr. Cox. No. Congressman, what we determined in 2007 is we 
did have a problem. We worked to figure--
    Mr. Shays. No, no. I am asking this. You do not have enough 
money, you did not ask for enough money to deal with the 
backlog. Is that correct?
    Mr. Cox. We asked for enough money to incrementally fund 
the contracts in Fiscal Year 2008.
    Mr. Shays. I want you to answer my question in a way that I 
can understand it. And I am asking a simple question. My 
understanding is you did not ask for enough money to deal with 
the backlog.
    Mr. Cox. The fiscal year President's request for 2008 would 
not fully fund every single renewal in Fiscal Year 2008.
    Mr. Shays. So you did not ask for or the President did not 
give you enough money to fund the backlog. Is that correct?
    Mr. Cox. I believe I just answered that question, yes.
    Mr. Shays. No, you did not. You want to answer it in a way 
that obfuscates the answer. I happen to be a Republican with a 
Republican Administration. I think I am more offended by your 
answer than my Democratic colleagues, who I think are being 
very kind to you.
    It is a very up-front thing. It is your problem if you do 
not ask for enough money. It is our problem if you ask for 
enough money and we do not give it to you.
    So I am just trying to understand the first part of the 
problem. And it is my understanding that the White House did 
not submit a budget that would deal with the backlog. Is that 
correct? It is an easy answer. Yes, they did, or no, they 
didn't.
    Mr. Cox. Again, Congressman, the funding requested in 2008 
would not fully fund all 12 months' renewals for all contracts.
    Mr. Shays. So the answer is yes.
    Mr. Cox. Correct.
    Mr. Shays. Thank you. So you all did not ask--the 
Administration did not submit a budget that would allow for us 
to deal with the backlog. Given that, how do you solve the 
problem? What is your solution if you do not have enough money 
to deal with the problem? It is pretty straightforward.
    Mr. Cox. We have a solution. That solution is to pay for 
the portion of the contracts, the annual renewals in the fiscal 
year, which will be Fiscal Year 2008. We have the funds 
available if the budget is passed--
    Mr. Shays. No, no, no. You told me you don't have the funds 
to deal with the backlog. Don't go--I am not going to get off 
this subject. I am just going to stay on this subject and I 
would ask the gentlelady who is chairing this committee to let 
him know that you will give me enough time to have him answer 
the question.
    Chairwoman Waters. We will stay here all day until he 
answers that question.
    You had better answer that question.
    Mr. Shays. The answer is--it is not funny. It is not funny. 
It is embarrassing. And the reason it is embarrassing to me is 
we, Republicans, tend not to want to own property. We want the 
market system to work. We have a market program. Contrary to 
Mr. Ellison, I think this actually is the kind of program I 
want. We have a market system so some people can live in a 
project, in housing that others can live in that aren't--who 
can pay the market rate.
    What I want to know is, you do not have enough money to 
deal with the backlog. You have already said, yes, you do not 
have enough money. So if you do not have enough money to deal 
with the backlog, then do we invent money? Do we just say, 
``Take your loss.'' Or do we just carry that backlog and always 
be late next year? You will be here late next year then, will 
you not?
    If we have not paid back the money we owed, doesn't it just 
go into the next year, and won't we be behind next year? It's a 
simple question.
    Mr. Cox. It is a simple question. And we have provided 
funding in Fiscal Year 2007 for a great number of contract 
renewals through the full 12 months. We provided that into 
that, you know, into Fiscal Year 2008. Fiscal year 2008's $5.6 
billion which is the President's request, gets us through 
November of 2008.
    Mr. Shays. You will still have a backlog. Is that not 
correct?
    Mr. Cox. I apologize. I don't know what the concept of 
backlog is.
    Mr. Shays. Well, it is a simple concept. You owe people 
money. You are not current so you always are going to be 
behind.
    Mr. Cox. But we are current and we will be current with the 
$5.6 billion that we have.
    Mr. Shays. Well, then how can you give me a statement that 
you do not have enough money to pay the backlog?
    Mr. Cox. That is why I say I don't understand the concept 
of backlog. We will fund incrementally the portion of the 
fiscal--
    Mr. Shays. Let's just start here. I ask patience of my 
committee members. Do we owe any landlords money for money they 
have already--do we owe any landlords money?
    Mr. Cox. We have about 400 contracts from last year that 
are waiting to be returned. When those are returned, we have 
the funds to fund those.
    Mr. Shays. Well, you know, I am not going to get anywhere 
with you. So you can go back and you can say, 
``Congratulations.'' But you have made a fool of yourself. And 
you have done it in a way that embarrasses me, it embarrasses 
this committee, and it embarrasses you.
    We are not in a game here. We are just trying to understand 
a problem. I admit you had me a little confused because you 
gave different answers for the same question.
    The bottom line, what I understand to be true is this: We 
don't have enough money to pay the landlords, so we delay the 
contracts. These landlords are owed money, you are going to 
take future money and pay past debt and we will be behind next 
year.
    And maybe your theory is you won't be here next year 
because there will be another Administration or whatever. But, 
you know what? Next year you will be here, and I hope you are 
the one who comes here and has to respond to the same questions 
and you can make a fool of yourself a second time.
    Chairwoman Waters. Thank you very much, Mr. Shays.
    Normally, this would be the end of our questioning for you 
and I am sure if you have been here before, that is how it has 
happened. But I have the gavel now and I have the opportunity 
to make a few changes.
    I think you have not been forthcoming with us. And our 
members are a little bit frustrated because you have not been 
clear. We think that you are $2.5 billion short in your funding 
requests that should be $8 billion.
    In addition to that, you have not really answered Mr. 
Shays' question. In addition to that, you have not satisfied 
Mr. Green about whether or not you made a formal request for a 
written opinion and also Mr. Cleaver has additional questions 
for you.
    So we are going to do another round. We are going to go to 
each member for at least one question so that we can get at 
some real truth here. And, as a matter of fact, we can go 
beyond that if we have to. And we are going to ask you to just 
sit there until we find out what it is you're telling us.
    With that, we are going to start all over again. Ms. 
Capito?
    Ms. Capito. Thank you, Madam Chairwoman. I will pass on my 
second question and move to the other members.
    Chairwoman Waters. Thank you.
    We're going to go to Mr. Green.
    Mr. Green. Thank you, Madam Chairwoman. And I do beg 
indulgence because I am gravely and greatly concerned.
    Mr. Cox, what HUD is doing may not be criminal, but I 
assure you it's sinful because HUD should not be in the 
business of creating homelessness. And that is what HUD is 
doing. HUD is creating homelessness.
    In the year 2002, we lost 87,143 units, which also means 
that we had to extend the enhanced vouchers to pay for some of 
these units which means we paid the regular subsidy plus the 
market value. And that is the most expensive type of voucher 
that we have. We should not be doing this and we should not be 
losing these units.
    I might add that Texas and California lost the most units: 
Texas, 12,088; and California, 12,326. I have in my district 
900 units that are up this year. So I am concerned and I would 
like to, if I may, address the lady--and I need to know her 
name.
    Ma'am, would you give me your name, please?
    Ms. Forrester. Althea Forrester.
    Mr. Green. Ms. Forrester, you indicated that you would give 
an opinion in writing, if requested.
    Ms. Forrester. Yes.
    Mr. Green. Is this to say that you have not been requested 
to give an opinion in writing?
    Ms. Forrester. No, we have not been requested to put our 
opinion in writing.
    Mr. Green. Ms. Forrester, I greatly appreciate your honesty 
because I assure you that the problem with this may be the 
opinion. The opinion may be the problem. It is the genesis of 
all of this.
    Mr. Cox, is it true that you received what you said was an 
opinion in 2006?
    Mr. Cox. No, sir. That opinion came in 2007.
    Mr. Green. And from whom did you receive the opinion, sir?
    Mr. Cox. I received that from our Office of Appropriations 
Counsel.
    Mr. Green. All right. Is that the lady seated next to you?
    Mr. Cox. No. Althea works in the General Counsel's Office.
    Mr. Green. So is the lady seated next to you prepared to 
give a legal opinion at this time?
    Mr. Cox. I can't speak for her.
    Mr. Green. Permit me to ask you. I'll ask you if you're 
prepared in the following way, Ms. Forrester. Have you 
personally looked at the law as it relates to these contracts? 
Have you reviewed the law itself?
    Ms. Forrester. Our office has looked at--
    Mr. Green. Excuse me, ma'am. Not whether the office has and 
I do not mean to be rude, but this is quite sensitive. Have you 
reviewed--if you are going to give me an opinion, I need to 
know what you've done.
    Ms. Forrester. Yes. I have looked at the contracts.
    Mr. Green. Have you reviewed the law?
    Ms. Forrester. I have looked at the contracts and the law 
as it relates to appropriations and we have made an opinion. I 
have--
    Mr. Green. Before you continue, because my time is short, 
you have looked at the law and the contracts. Next question: Do 
you agree that these contracts are in writing? Yes or no.
    Ms. Forrester. Do I agree--excuse me?
    Mr. Green. The contracts, the 12-month contracts, are they 
in writing?
    Ms. Forrester. Are they in writing?
    Mr. Green. Yes.
    Ms. Forrester. Yes, they are in writing.
    Mr. Green. They would be because to comply with the statute 
of frauds they would be in writing, contracts for 12 months or 
longer.
    Ms. Forrester. They are in writing.
    Mr. Green. All right. So they are in compliance with the 
statute of frauds.
    Do you agree that there was a meeting of minds as it 
relates to these contracts?
    Ms. Forrester. I don't understand the underlying question.
    Mr. Green. Well, the underlying question is a question of 
whether or not you have an offer, an acceptance, and a meeting 
of the minds. There was an offer, there was an acceptance, and 
because it is codified, one would assume that there was a 
meeting of the minds as it relates to the contracts. True?
    Ms. Forrester. I would be speaking for others if I said yes 
or no to that.
    Mr. Green. Okay. You do have the written contract.
    Ms. Forrester. I have copies of the contracts.
    Mr. Green. So you would now indicate that these contracts 
can be negated on a verbal opinion simply because someone in 
the office found reason to conclude that they were 
unacceptable?
    Ms. Forrester. No one has ever said that the contracts can 
be negated.
    Mr. Green. Well, if the contracts are not being negated, 
why are we not funding as we previously funded?
    Ms. Forrester. I think you are confusing the method of 
funding with the whether or not the contract is viable.
    The contracts were created at a time when HUD would receive 
in appropriations sufficient funds to put aside for each 
contract that was executed the value of the contract. So if the 
contract over 12 months was $1 million, there was $1 million.
    However, over time HUD was not receiving sufficient funding 
to be able to put aside $1 million at the time. And rather than 
not enter into a contract they were funding, the contracts 
always to 12 months, but incrementally.
    The contracts however now clearly reflect the funding 
method as opposed to the fact that the contracts have been 
negated.
    Mr. Green. But what you concluded was that you could not 
use what we are calling pursuant to my memo short-funding of 
the contracts.
    Ms. Forrester. We concluded that if you were going to fund 
the contracts incrementally, then the contracts needed to 
reflect that.
    Mr. Green. May I have just one more minute, Madam 
Chairwoman?
    So you are not short-funding the contracts and, as a result 
of this, we find this present dilemma that we are dealing with.
    Ms. Forrester. Right. The contracts ultimately are not 
short-funding. There is a difference between actually not 
paying a month, as opposed to paying 12 months with 1 month or 
2 months late. The contracts are paid 12 months. There is 12 
months of funding received by the owners. However, we said that 
the contracts must reflect the method of funding as well as--
    Mr. Green. One final question. If you can give a legal 
opinion, would it take you until December 31st to give this 
legal opinion? A written opinion?
    Ms. Forrester. Would it take my office--
    Mr. Green. Yes. Would it take until December 31st to 
provide a written opinion about what you have already perused, 
about what you already understand.
    Ms. Forrester. I would say that we would hope it would not 
take us until December 31st.
    Chairwoman Waters. Mr. Green, the committee is going to 
request that we get that written opinion. And I would like you, 
as an attorney, to suggest a reasonable amount of time that we 
will request this opinion.
    Mr. Green. Madam Chairwoman, I think most lawyers would 
agree that an opinion that has already been studied and 
announced can be rendered within 30 days quite easily.
    Chairwoman Waters. It is so ordered, then. We will follow 
up with a written request that the opinion be given to this 
committee within 30 days.
    Thank you very much, Mr. Green.
    Mr. Green. Thank you.
    Chairwoman Waters. Mrs. Biggert.
    Mrs. Biggert. Mr. Cox, how is it decided which contracts 
will receive a late payment? Is it because in November, you run 
out of money, so all of those contracts are due then?
    Mr. Cox. It could be for a variety of reasons, 
Congresswoman. It could be because as we mentioned earlier the 
payments, the contract wasn't returned in time. It could be--we 
have challenges I mentioned in my testimony with the beginning 
of the fiscal year getting that just because we do not get the 
money until October 1st so it is very hard to get the money 
that day and then turn it right around. So it could be for a 
variety of reasons.
    Mrs. Biggert. What is the average time that the payment 
finally arrives to the owner if there is a late payment?
    Mr. Cox. I don't have an average for you. I think the GAO 
reported, you know, somewhere between 2 weeks was an average. 
Then there was a small group that was 4 weeks and a smaller 
group that was 8 weeks.
    Mrs. Biggert. Mr. Wood, is that still probably correct?
    Mr. Wood. That's an accurate characterization of the time 
that we examined. But, as I said earlier, we don't really have 
any data to show since 2004 how that might have changed.
    Mrs. Biggert. Is there any interest or anything paid to the 
owners if the payment is late?
    Mr. Cox. Not to my knowledge.
    Mrs. Biggert. It's just the payment?
    Mr. Cox. That's correct.
    Mrs. Biggert. I yield back.
    Chairwoman Waters. Thank you very much.
    Mr. Cleaver? Sorry. If we do it in the order we did before, 
it would be Mr. Ellison and then Mr. Cleaver in the order that 
you came in.
    Mr. Ellison. Mr. Cox, could you offer your views as to what 
liability HUD could face if someone were to fall ill because 
the payments were not made on time and then some vital service 
wasn't able to be secured?
    For example, what if payments were not rendered on time 
and, for example, a pesticide company decided that they weren't 
going to be able to spray, and then somebody's child got 
roaches stuck up in their ears or something like that, what 
kind of exposure do you think HUD might have? What sort of 
moral responsibility? What sort of legal responsibility would 
you be concerned about?
    Mr. Cox. We would certainly want to do what's in the best 
interest of the tenants, but legal liability, I apologize, I'm 
not an attorney, so I don't know the answer to that.
    Mr. Ellison. Would you offer your views on this subject? 
What responsibility, either moral or legal, does HUD have if 
their failure to discharge their duties per the contract 
resulted in an injury to a tenant?
    Ms. Forrester. I can't speculate on that. I mean there 
would be so many factors involved.
    Mr. Ellison. Right. So you just don't want to--you don't 
believe you have any exposure or do you believe you do?
    Ms. Forrester. No. I can't say either way. I would have to 
look at the contracts. We'd have to look at the--
    Mr. Ellison. Well, you looked at the contracts. You just 
got through talking about how you knew all about the contracts 
and how the contracts were valid regardless as to whether they 
were being complied with. You were pretty articulate a moment 
ago. Would you--
    Ms. Forrester. As you understand as an attorney--
    Mr. Ellison. Excuse me, ma'am. I need you to--
    Ms. Forrester. --that when--
    Mr. Ellison. I'm not going to have you overtalk me. Okay?
    Ms. Forrester. I won't.
    Mr. Ellison. And so I need you to offer your views on what 
sort of exposure HUD faces. I mean we are Congress. It is our 
job to be concerned about these things. I want to know what 
your views are. What sort of exposure, legal and moral, is HUD 
facing for failure to properly discharge its responsibilities 
per these payments?
    Ms. Forrester. I think it would be irresponsible to 
speculate on what kind of exposure we would face without--
    Mr. Ellison. Ma'am, it is irresponsible for you not to run 
a good program. That is what is irresponsible. And I want to 
know what you think about this, unless you just refuse to 
answer. Do you refuse to answer me?
    Ms. Forrester. No.
    Mr. Ellison. Okay. Well, let me hear the answer.
    Ms. Forrester. You have asked me whether or not we would be 
facing any liability and as any lawyer understands whether or 
not we face liability is something that has to be analyzed 
based on State, local, and Federal law, contractual law, and I 
am not going to speculate on whether or not we would be subject 
to any particular liability, but as an agency we would, of 
course, face the possibility of suit.
    Mr. Ellison. Ma'am, if you are advising the agency, you 
mean to tell me you do not have any views that you would share 
to protect your agency from liability, by way of advice?
    You are not prepared to sit up here and say, ``We could end 
up in a lot of trouble if we don't deal with this because we 
have certain duties and responsibilities under these 
contracts.''
    You are not here to--you are just going to demur on that 
one. You're not going to articulate what kind of trouble that 
the agency could be in?
    Ms. Forrester. No, I'm not going to speculate on that.
    Mr. Ellison. Yes. Well, I am pretty disappointed with that 
answer, too. And I was hoping that you would be a little bit 
more forthcoming than others seated at the table, but I guess 
that is the way it goes.
    Chairwoman Waters. Mr. Ellison, if I may? One of the things 
that was mentioned here this morning was that we have nothing 
in law that indicates they should have the payments to the 
owners on the first of the month or any particular time. That 
is an area you may want to take a look at. And if they are out 
of compliance with something we put in law a date by which they 
should have the payment, then we should talk about what then 
happens, whether or not the persons responsible are subject to 
dismissal or something.
    Let's take a look at that because that is where you create 
liability when we have dates certain by which they should do 
something in particular maybe. So if you will take a look at 
that for a possible bill.
    Mr. Ellison. We are on it, Madam Chairwoman.
    Chairwoman Waters. Thank you very much.
    Okay. We are back to you, Mr. Shays.
    Mr. Shays. Thank you.
    I would like to ask counsel, first, a question. Has anyone 
in the Department asked you if there was a liability problem? 
Is this the first time you have been asked this question?
    Ms. Forrester. Yes, it is.
    Mr. Shays. Why do you think that is so?
    Ms. Forrester. I think because it is understood, at least 
in the discussions that we've had, that the Department is not 
trying to not pay and that it is a balancing act between what 
we have received in funding and our obligations not only to the 
program but to the tenants. And so while we are aware of it, it 
would be not useful to sit around speculating on individual 
liability.
    Mr. Shays. Let me ask you this, though. What I don't 
understand is when you say it wouldn't be useful, I would think 
it would be prudent to know up-front if you have a liability 
problem. That is why we have legal representation in our 
departments so they anticipate this. I am just curious why it 
was not anticipated.
    Ms. Forrester. I didn't say--
    Mr. Shays. Mr. Wood--
    Ms. Forrester. Let me just say that I didn't say that. Our 
office is not the litigation office. So to the extent and I 
guess I should correct that, to the extent that issue may have 
come up, that would not be to our office.
    Mr. Shays. Well, that would have been more helpful if you 
had answered it that way. I feel like we are playing a game 
where we have to kind of ask the right question and I am really 
not an enemy here. I am just trying to--I came here trying to 
think what could we do to help out. And I just feel we do not 
get straight answers.
    What I would like to ask you, Mr. Cox, is, is this the 
first time you were ever asked what our, you know, past 
liabilities are and how much that is? Is this the first time 
that anyone has asked you that?
    Mr. Cox. It is for me, yes.
    Mr. Shays. Are you new at this job?
    Mr. Cox. No. I've been on board since May of 2000--
    Mr. Shays. I would just think that we would want to know 
and if you had this job that you would want to know, ``My God, 
how much backlog of IOUs do we have?''
    Because what I am struck with is the fact that we are 
playing a game. And the game is that we are going to go 
incrementally because we do not have enough money in our budget 
to pay the obligations. And so you are using creative financing 
and I think that is to your credit in once sense. You're trying 
to deal with it.
    But here I would think you would put it on our shoulders 
and say, ``This is what we need to deal with. If we don't get 
this money, they we have to do these kinds of incremental 
games.''
    Mr. Wood, help me out. What I would like to understand is, 
is there--does the Department have past obligations--do they 
have a financial problem in not having enough money? Am I 
inventing this? Are we all inventing this?
    Mr. Wood. What we found when we examined that period of 
1995 to 2004 was that the single biggest problem contributing 
to late payments was the fact that there was not a renewed 
contract in place. That is distinct in a sense from the funding 
issue.
    Mr. Shays. Okay. Let's agree to that. And is there any 
incentive for the Department not to have an agreement on 
contracts because they don't have enough money to pay?
    Mr. Wood. I would think that the Department would want to 
fully fund the contracts.
    Mr. Shays. What is that?
    Mr. Wood. I would think that the department would want to 
fully fund the contracts.
    Mr. Shays. And do they have enough money to fully fund the 
contracts?
    Mr. Wood. In the past, my understanding is that HUD has 
obligated/allocated 12 months' worth of rent.
    Mr. Shays. That's not what I asked. Obligating is not do 
you have enough money to pay it.
    Mr. Wood. Well, they would only obligate money if they had 
been appropriated that money.
    Mr. Shays. So we don't have a problem then, do we?
    Mr. Wood. What it--this whole issue of the lack of funding, 
frankly, didn't arise during the period that we examined. It 
has come up since so I really don't know frankly a whole lot 
more about it than you do.
    But what it seems to me is that HUD is allocating something 
less than 12 months of rent to the contracts--
    Mr. Shays. Because they don't have enough money.
    Mr. Wood. Because they don't feel like they have enough.
    Mr. Shays. That's right. That's right.
    Chairwoman Waters. Thank you very much, Mr. Shays.
    Mr. Cleaver?
    Mr. Cleaver. Madam Chairwoman, I want to associate my 
comments and my feelings with Judge Green, that he expressed 
earlier.
    I would like to move back to where we were earlier. When I 
asked about in 2006, whether the legal counsel ruled that it 
was illegal, I think the answer was, ``No, that didn't 
happen.''
    Ms. Forrester. Yes. I was not aware of anything happening 
in 2006.
    Mr. Cleaver. Good. Oh, good. That's exactly what I want. 
Did I have the date wrong?
    Ms. Forrester. You may have. That may be it.
    Mr. Cleaver. I'm sorry. I didn't ask the question properly. 
Was my statement correct and the date wrong or some little word 
wrong? That it was ruled illegal and I just used the wrong 
date?
    Ms. Forrester. Well, to be honest, I thought even if the 
date was correct, I thought the statement was incorrect.
    Mr. Cleaver. That the legal counsel has never ruled that it 
was illegal to sign owners to a 12-month contract.
    Ms. Forrester. Yes. I'm not aware that we have ever said 
that. I'm not aware that anybody in OGC has said that, but I 
know our office has not said that.
    Mr. Cleaver. Okay. I just wanted to make sure that it is 
clear because I think somebody has said that, but I will deal 
with that later out of the committee.
    Mr. Cox, when did you know that there was going to be a 
problem?
    Mr. Cox. In August, I believe, of this year, 2007.
    Mr. Cleaver. Two months ago.
    Mr. Cox. Correct.
    Mr. Cleaver. So are you satisfied with the staff work? Your 
staff work?
    Mr. Cox. I am, yes.
    Mr. Cleaver. The only reason I ask is because the HUD staff 
said that there was a problem back in February. I'm sorry. Are 
you going to fire somebody for not telling you until August?
    Mr. Cox. It could have been in the program area and not in 
my area, in the CFO shop, but that was when I was made aware of 
it.
    Mr. Cleaver. Okay. Assume that I'm correct, because I am, 
and the staff knew in February, is there any reason for the 
delay in informing you 4 months later?
    Mr. Cox. Not to my knowledge.
    Mr. Cleaver. Six months later. When were appropriators 
contacted?
    Mr. Cox. Roughly that same time period, August.
    Mr. Cleaver. In August?
    Mr. Cox. Right.
    Mr. Cleaver. Okay.
    Mr. Cox. At least that I am aware of.
    Mr. Cleaver. We knew there was a problem on February the 
8th. I will be specific. We knew there was a problem on 
February the 8th, and appropriators were contacted in August.
    Mr. Cox. Well, there may have been other programmatic 
contacts with Appropriations. I'm just aware of the meetings 
that I was in.
    Mr. Cleaver. Well, do you think that they have mistreated 
you by sending you here and you're not equipped to answer, for 
me, the most critical question. We knew there was a program 
problem in February, at the beginning of the year, and we 
didn't even try to contact appropriators to deal with the 
program until August.
    Mr. Wood, can you help me?
    Ms. Forrester?
    Somebody in the press?
    The gentleman over there asleep?
    [Laughter]
    Somebody help. I'm just a Methodist preacher. I just want 
somebody to tell me how could you know--who can I ask?
    Mr. Cox. I will be happy to respond to a specific question.
    Mr. Cleaver. Mr. Cox, I just asked you one.
    Mr. Cox. But I don't know the answer.
    Mr. Cleaver. I just asked you a specific question.
    Mr. Cox. I don't know the answer but I'll be happy to--if 
someone in the Department knows in the program area, I'll be 
happy to get that back to you.
    Mr. Cleaver. Okay. My final question is--well, maybe the 
chairwoman made a mistake. Were you informed about what the 
committee hearing was going to be about?
    Mr. Cox. Absolutely.
    Mr. Cleaver. Okay. That's where my confusion comes in. The 
most critical issue, when did you know that there was a 
problem?
    And then when did you try to address the problem, and why 
did you wait 6 months to even begin to talk about the problem? 
Or help me. Tell me that I'm going--I just want to feel better.
    Mr. Cox. What I can tell you is I knew about the problem in 
August. We started working on a solution with the problem with 
the General Counsel's Office.
    Mr. Cleaver. Are you angry at the people who didn't tell 
you?
    Mr. Cox. I certainly would have appreciated a little 
earlier warning.
    Mr. Cleaver. Can you call me and let me know what you're 
going to do, what you have done when you get back to see those 
people?
    No, I am serious. Because people hate their own government 
and these people are--these are not rich people who are being 
impacted. And I just want to know why we--why there was not 
some sense of urgency.
    Do you think there should have been a sense of urgency?
    Mr. Cox. Yes.
    Mr. Cleaver. Are you as angry as--I am just frustrated. I 
think I have a good question and nobody answers. I yield back.
    Chairwoman Waters. Thank you very much.
    I share the committee's frustration. I do not think, Mr. 
Cox, that you have straightforwardly said to the committee that 
you have a policy of under-requesting the appropriations that 
you need. And in order to manage your program, you simply make 
the owners wait for their payment because you did not request 
enough money.
    As I understand it, in order to fund this program, you need 
$8 billion in Fiscal Year 2008. Is that correct?
    Mr. Cox. No, ma'am, that is not correct.
    Chairwoman Waters. How much do you need?
    Mr. Cox. As I explained earlier, the amount of money--there 
is no backlog.
    Chairwoman Waters. Just answer me. Answer me. How much 
money do you need to fund all of the apartment owners, renew 
all of the contracts, and pay them for 12 months without them 
having to wait for their money for 2008?
    Mr. Cox. We will be able to pay every payment in 2008 for 
all the renewals in 2008 with the $5.6 billion that we will get 
in 2008.
    Chairwoman Waters. I think you are nuancing. With the 
renewals, Mr. Shays kept asking you if there were back 
payments.
    Mr. Cox. There are no back payments.
    Chairwoman Waters. So you are not $2.5 billion short for 
2008?
    Mr. Cox. That is correct.
    Chairwoman Waters. How do you get your estimate for 2008?
    Mr. Cox. We build it on a project-by-project basis, on a 
contract-by-contract basis.
    Chairwoman Waters. And you are comfortable, you are 
comfortable that based on whatever formulas you use that you 
have requested the correct amount of money to fund the 
contracts for 12 months without the delays that we are so 
concerned about now?
    Mr. Cox. I am comfortable--to be very clear, I am 
comfortable that we can fund those contracts on time in the 
months in Fiscal Year 2008. We will fund the increment of the 
remaining period depending on when those contracts renew in 
Fiscal Year 2009 as we get that appropriations.
    Chairwoman Waters. So, members of the committee for 2007, 
you are still late, but you expect to be caught up by the end 
of the year.
    Mr. Cox. This month.
    Chairwoman Waters. This month.
    Mr. Cox. This month.
    Chairwoman Waters. And those contracts following October, 
for November and December, will be paid on time?
    Mr. Cox. Correct.
    Chairwoman Waters. And for 2008 you said you have some--you 
are waiting on people to return information to you for the 
renewables. Is that correct?
    Mr. Cox. That's for the remaining renewals in Q4 of last 
year, Fiscal Year 2007.
    Chairwoman Waters. For 2007. So I guess what you're 
saying--you are qualifying this. And you are saying if you do 
not get that information back on time, then you will not be 
able to pay on time. But that is the only reason that they 
would not be paid on time. Is that correct?
    Mr. Cox. That is correct.
    Chairwoman Waters. All right. I'm going to--
    Mr. Cox. We have those funds available--just to be very 
clear--
    Chairwoman Waters. I am going to be in touch with everyone 
in my district because I am not going to have them be used as 
an excuse that they did not get their information back on time 
to be paid on time.
    Now, you are in this committee, and you are on the record, 
and you have just told this committee that according to your 
formulas you are comfortable that you have requested the 
correct amount of money for 2008 and it is something less than 
$8 billion. How much is that amount that you have requested? I 
should know that, but I don't have it.
    Mr. Cox. The President's request was $5.5 billion.
    Chairwoman Waters. $5.5 billion. And $5.5 billion will pay 
all of the owners in 2008 12-months' payment on time.
    Mr. Cox. All of the payments that are due in Fiscal Year 
2008. I want to be clear about that. Fiscal year 2008.
    Chairwoman Waters. All that are due in 2008. Why does that 
sound different than what I am saying?
    I am asking if all of the owners will be paid on time 12 
months in 2008. And you are saying something different. What is 
different between what you are saying and what I am asking you?
    Mr. Cox. I will try to be clear if I am not. Any renewal 
that happens in 2008 won't require 12 full months of payments 
in 2008 because it depends on when those contracts renew. So if 
you renew in January of 2008, you will get 9 payments, 9 months 
worth of payments in Fiscal Year 2008. If you renew in June, 
you will get 5 months worth of payments or 4 months worth of 
payments.
    So what I am telling you is that the payments that are due 
in Fiscal Year 2008 we have the funding available in the 
President's request--
    Chairwoman Waters. So if I renew in January, I am going to 
provide the units through December.
    Mr. Cox. Correct.
    Chairwoman Waters. And I want 12 months worth of payments.
    Mr. Cox. Correct.
    Chairwoman Waters. Why am I getting 9 months worth of 
payments.
    Mr. Cox. You will get 9 months worth of payments in the 
Fiscal Year 2008 appropriation and you will get 3 months worth 
of payments from the fiscal year--
    Chairwoman Waters. Well, if the fiscal year ends in what? 
September?
    Mr. Cox. Yes, ma'am.
    Chairwoman Waters. Then my money from September to December 
is not in the 2008 request. Is that right?
    Mr. Cox. That is correct.
    Chairwoman Waters. Why did it take you so long to say that?
    Mr. Cox. I apologize. I thought it was clear.
    Chairwoman Waters. No, it is not clear. So if my money is 
not there for the 3 months, I have to wait until 2009 to get my 
money?
    Mr. Cox. Correct. But you get payments on a monthly basis.
    Chairwoman Waters. But, but--
    Mr. Cox. After the funds are available.
    Chairwoman Waters. But if in fact your technology is 
insufficient, and you are slow anyway, and you can't get the 
money out and my renewable is in January and you are 4 months 
behind, then when am I going to get my 12 months worth of 
money?
    Mr. Cox. But we are not 4 months behind.
    Chairwoman Waters. Okay. How many months behind are you?
    Mr. Cox. We, for the fiscal year issue we had in 2007, as I 
mentioned, there were 1,700 contracts. Those contracts were 
issued in September, we have 450 of those left. Actually, now, 
about--
    Chairwoman Waters. So for 2007 on average, how late were 
you with your rental payments, with your payments for our 
landlords? Our owners?
    Mr. Cox. I don't know that. I will be glad to ask the 
Program Office and get back to you quickly.
    Chairwoman Waters. Yes, but the problem is this: You're 
telling us to rely on the fact that you're going to do better, 
that you are going to be up to speed on your technology, but 
you haven't--you said you have started already renewing or 
rehabilitating or putting in your new technology.
    You were late and that is what has our apartment owners so 
upset. These are small business people. These are tiny, 
oftentimes small business people. You were late sometimes up to 
4 months. And you are telling us to trust you that your funding 
on the fiscal year, not on the whole year, there is going to be 
some delay with the latter 3 months that go over into 2009. 
Plus whatever mistakes you have with your technology that is 
not working. So we still have a problem.
    Mr. Cox. Well, I would tell the owners there is no plan to 
be late in Fiscal Year 2009. The plan is to be on time in 
Fiscal Year 2009.
    Chairwoman Waters. Members? We are going to have to take 
some very direct action that will help to ensure that this late 
payment problem does not continue. I don't know how to fix it 
without the additional dollars that are not requested beyond 
the fiscal year at this time. Because of PAYGO, if we request 
the money now, we have to find some money to offset it which we 
should not have to do because our appropriators would have 
given you the money if you had asked for it for the entire 12 
months. They would do that, as I understand it.
    We are going to have to find a way to make sure that we do 
not continue to allow HUD to use late payments as a way of 
underfunding requesting for HUD to make themselves look better 
and make themselves look as if they do not need the money, they 
are not spending the money. So I kind of get what is going on 
and we will try and figure it out.
    I do not know whether to thank you for being here or not. 
But since you have come and you have spent time, you have made 
us jump through a lot of hoops here today trying to figure out 
what to do about these landlords who are providing poor people 
a place to live.
    And as was said, we have lost units because there are some 
people who are going to walk away. I hear all the time, ``I 
don't want to mess with government. It is too messy. It is too 
bureaucratic. I don't want to do it.'' Not only from, you know, 
the apartment owners but all throughout government. This is 
what business people say all of the time. This is supposed to 
be a business administration that understands business and 
supportive of business, so we do not like this. We do not like 
this at all. We are going to find a way.
    When I was in State government, I would strip your salary 
out of the budget. They do things a little bit different here, 
but I will find a way to get to it. Thank you very much.
    We are going to go and take three votes.
    Thank you very much. I would like to dismiss this panel and 
we have 30 days by which to raise questions and get the answers 
back in the record.
    We are going to call in the second panel and then we are 
going to ask your patience while we go and take three votes and 
then we will be back.
    All right. So if the second panel will get ready, we will 
introduce you when we return. Thank you very much.
    [Recess]
    Chairwoman Waters. The Subcommittee on Housing and 
Community Opportunity will come to order. I would like to thank 
our second panel for your patience, and I am pleased to welcome 
you all here.
    Our panel consists of: Mr. Michael Bodaken, president of 
the National Housing Trust; Mr. Lawrence J. Lipton, chief 
financial officer, Related Management, testifying on behalf of 
the National Leased Housing Association; Mr. J. Kenneth Pagano, 
president and chief executive officer, Essex Plaza Management, 
testifying on behalf of the National Affordable Housing 
Management Association; Mr. Donald L. Beebout, vice president, 
Showe Management Corporation; Ms. Carolann Livingstone, 
president, 1890 House Tenants Association, and vice president, 
Eastern Region of the National Alliance of HUD Tenants; and 
Larry Minnix, president and chief executive officer, the 
American Association of Homes and Services for the Aging.
    Without objection, your written statements will be made a 
part of the record, and you will now be recognized for a 5-
minute summary of your testimony. We will start with Mr. 
Bodaken.

STATEMENT OF MICHAEL BODAKEN, PRESIDENT, NATIONAL HOUSING TRUST

    Mr. Bodaken. Chairwoman Waters, Ranking Member Capito, and 
selected members of the subcommittee, thank you so much for 
inviting me to testify today. And thank you for holding this 
very important hearing.
    My name is Michael Bodaken and I am head of the National 
Housing Trust. We are a national nonprofit dedicated to 
preserving and improving subsidized housing with an emphasis on 
project-based Section 8 housing.
    Project-based Section 8 allows us to fulfill our mission in 
two ways. First, as was articulated by a number of people this 
morning, project-based Section 8 serves extremely-low-income 
households, 40 percent of whom are seniors.
    Second, project-based Section 8 provides a reliable stream 
of income for outside investment into the Section 8 properties. 
Over the last 10 years, the National Housing Trust estimates 
over $700,000,000 of private investment has been made into 
Section 8 properties through low income housing tax credits, 
bonds, etc., on the strength of the annual renewal of the 
Section 8 contracts that we have been talking about today.
    Project-based Section 8 is not a bi-coastal phenomenon. On 
page 2 of my testimony I note that over 15,000 project-based 
apartments are located in the Members' districts on this 
committee alone. And it is important for us to recognize that 
it is all over the Nation, and if we have a problem with a 
program, it is a national problem.
    How did we get here today? We got here fundamentally 
because HUD and OMB failed to ask for appropriate 
appropriations for this fiscal year. They ran out of funds for 
Fiscal Year 2007; $1.2 billion, according to the Trust, was 
underestimated.
    No one asked Mr. Cox the question, but he did concede that 
they ran out of money. We believe it was approximately $1.2 
billion.
    When you compound that amount by the underestimate of what 
they are asking for Fiscal Year 2008, well over $2 billion is 
now needed to put the program back on an annual renewal basis 
otherwise they will continue to shortfund the contracts as we 
discussed.
    This phenomenon has not been ignored by Congress. Senator 
Kit Bond, the ranking member of the Senate Subcommittee on 
Appropriations for HUD had the following to say.
    ``Finally I raised one issue that we have not been able to 
address, HUD and OMB's failure to provide adequate funding for 
Project-based Section 8. To my colleagues, to OMB and to HUD, I 
say let's get serious.''
    The result of not being serious is that owners, people who 
are here today, are receiving contracts that say 12 months and 
they are receiving letters, and I am going to quote from the 
letters that we have received and they are in my testimony.
    ``This letter constitutes notice that HUD is determined 
pursuant to the foregoing provision that sufficient 
appropriations are not available to fund your contract.'' 
Again, these letters are in my testimony.''
    In South Carolina we were told by the Section 8 contract 
administrator, in bold print, ``I cannot tell you when the 
property will be paid.'' This was in September of 2007.
    For the first time ever, HUD is short-funding contracts and 
being explicit with owners that it does not have the funding. 
And it is creating a crisis in the program the likes of which 
we need to address now. It is not merely a paperwork problem. 
It is not merely a ``technology'' problem. It is as the 
chairwoman has explicitly stated, their failure to ask for 
sufficient funds to run the program.
    How has our organization suffered? We are now currently 
behind some $785,000 as a result of HUD's neglect. That 
$785,000 is exhibited in one project, Hazel Hill, which was 
just given the award for the best affordable housing 
preservation project in the Nation by Housing Finance Magazine. 
We could not fund the program with Section 8 and so we took the 
money out of our proceeds and put it back into the project.
    This is a serious problem for not just us but for the 
nation. Our confidence has been badly shaken. And we are not 
alone. Many owners of Section 8 contracts that have market rent 
levels below the market when not given sufficient incentive by 
the Federal Government to stay in the program, owners will not 
stay with the program. They will sign a 3 or 5 month contract 
now. That is certainly correct. But over time, owners will 
leave the program if they have options. And according to our 
statistics, over 500,000 apartments have that option.
    The time to correct this problem is now. Owners are shaken, 
residents are shaken, and investors are very concerned about 
HUD's commitment to this program. We urge you to write the 
appropriators to urge them to fund--we ask that you ask the 
appropriators to do as they have in the past, to fund it 
appropriately so we can get back on firm footing. Thank you 
very much.
    [The prepared statement of Mr. Bodaken can be found on page 
62 of the appendix.]
    Chairwoman Waters. Thank you.
    Mr. Lipton.

   STATEMENT OF LAWRENCE J. LIPTON, CHIEF FINANCIAL OFFICER, 
   RELATED COMPANIES, INC. ON BEHALF OF THE NATIONAL LEASED 
                      HOUSING ASSOCIATION

    Mr. Lipton. Madam Chairwoman and members of the 
subcommittee, my name is Larry Lipton, and I am the chief 
financial officer of Related Management. I am appearing before 
you today on behalf of the National Leased Housing Association, 
which for over 35 years has represented owners, managers, 
lenders, investors, public officials, and others involved with 
Section 8 and other affordable housing programs.
    Related Management is also an active member of the National 
Multi-Housing Council and the National Apartment Association, 
and both organizations have joined with NLHA in submitting this 
testimony.
    My company, Related Management, has its headquarters in New 
York City and owns and manages about 26,000 units of 
multifamily housing in 12 States spread from New York to 
California. Our Section 8 project-based inventory totals 11,287 
units in 64 projects.
    The Section 8 project-based programs have provided 
effective and enduring shelter since their inception for many 
millions of low-income families. In our opinion, the Section 8 
subsidy mechanism is the most effective housing subsidy ever 
devised by Congress. It is an elastic subsidy that can reach 
the very poorest families and keep their rent burden 
proportionately the same as the rent burden on families with 
more income.
    However, for Section 8 to be an effective program, HUD must 
comply with its contractual promise to housing providers to 
make timely monthly assistance payments. These assistance 
payments cover the difference between the tenant portion of the 
rent generally set at 30 percent of the tenant's adjusted 
income and the HUD-approved rents for the project.
    The tenant rent contribution generally pays for only a 
small portion of the costs of running the project including 
debt service payments. Without assistance from HUD, a project 
cannot continue to operate and serve its tenants.
    While HUD has been late sporadically in making payments 
over the past several years, this year late payments have been 
widespread over most parts of the country with nonpayment often 
persisting for several months.
    In the case of our company, for example, we billed HUD in 
June of this year $9.8 million in assistance payments for July. 
Almost one-third of our bill, or $3.1 million, was not paid by 
July 31st and about 20 percent, or $2 million, remains unpaid 
as of September 30th.
    One of our projects in San Diego received no funds for the 
3-month period of July through September, for a total of 
$525,000. No doubt many smaller ownership entities than ours 
have been hit harder than us, but any late payment at any time 
is indefensible.
    Owners do what they can to cope during these periods of 
nonpayment such as drawing funds from a replacement reserve and 
other reserves when possible, borrowing funds, delaying 
payments to vendors, and making personal contributions.
    We are not sure why these payment problems occurred. We 
have no assurances that they will not occur. To protect 
themselves from future late payments, some owners may consider 
taking several actions including not making need project 
repairs, selection of the highest income tenants legally 
possible, and perhaps most significantly as has been mentioned, 
planning to opt-out of the Section 8 program.
    The late payment problem not only affects the operations of 
the project but also makes the preservation of these aging 
projects through sales often to nonprofit purchasers that 
commit to long affordability periods and rehabilitation usually 
with proceeds from a low income housing tax credit.
    Furthermore, the damage is being compounded by concerns 
that Congress will not provide sufficient appropriations for 
the Section 8 project-based program in Fiscal Year 2008. HUD is 
responding to this potential shortfall by entering into renewal 
contracts that no longer purport to make a commitment for 1 
year of funding but rather obligate HUD for only a period of a 
few months with a promise to extend the short period for an 
indeterminate further period when and if sufficient 
appropriations become available.
    The perception this kind of contract creates is 
devastating. Until recently, several years of predictability 
and stability in the Section 8 renewal process have led 
purchasers, lenders, and investors in Section 8 properties to 
rely on long term Section 8 renewal contracts even though 
subject to annual appropriations as sufficient backing for 
their investment. They assume the appropriation risk in these 
contracts because they thought the risk was minimal. They are 
not so sure anymore.
    Unless the industry has countenance that the government is 
committed to adequate and timely funding, the Section 8 
inventory is likely to shrink in size nor will it get the new 
investment needed to preserve these projects as affordable 
housing and keep them affordable far into the future.
    What is it that this committee can do to rectify the damage 
done to the Section 8 inventory? First, it can exercise close 
oversight over the process HUD uses to make Section 8 
assistance payments as well as how budgetary needs are 
calculated.
    Second, a package of amendments submitted to the committee 
by the NLHA to remove statutory and administrative impediments 
to preserving affordable housing will help facilitate Section 8 
renewals and sales, rehabilitation, and long-term 
affordability.
    Third, the committee should urge that sufficient 
appropriations be provided for Fiscal Year 2008 to avert the 
use of a succession of short-term funding obligations by HUD.
    I would like to thank you for the opportunity to testify on 
this important subject and I will be pleased to answer any 
questions you might have.
    [The prepared statement of Mr. Lipton can be found on page 
164 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Pagano.

 STATEMENT OF J. KENNETH PAGANO, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, ESSEX PLAZA MANAGEMENT, ON BEHALF OF THE NATIONAL 
           AFFORDABLE HOUSING MANAGEMENT ASSOCIATION

    Mr. Pagano. Thank you, Chairwoman Waters, for holding this 
hearing and for the leadership you have taken on this important 
issue.
    My name is Ken Pagano and I am honored to be here today to 
speak on behalf of the National Affordable Housing Management 
Association. I am also president and chief executive officer of 
Essex Plaza Management Company of Newark, New Jersey, and 
president of NAHMA's regional chapter in New Jersey, Affordable 
Housing Management Association.
    The summer of 2007 has bought a HAP payment crisis which is 
unprecedented in scale and duration. The problem was not 
limited to contract renewals. There were live unexpired 
contracts that were not paid for. Properties went on from 1 to 
3 months without receiving HAP payments. Some were owed 
hundreds of thousands of dollars.
    Like many of our industry colleagues, NAHMA believes these 
problems were caused by insufficient Fiscal Year 2007 
appropriations for project-based Section 8 contracts and from 
the failure of HUD and OMB to submit an adequate funding 
request to Congress.
    The result has produced a crisis of confidence in the 
program for owners, investors, and vendors. The cost of 
operating project-based Section 8 properties has increased as a 
result of the late HAPs. Despite many years of timely payments, 
vendors are now asking for up-front deposits and I have lost 
discounts because I was not able to pay them on time. Banks as 
well as vendors are charging late fees. My properties have paid 
between 12 and 18 percent in late fees for water, sewer, and 
tax payments in New Jersey because HUD did not pay us on time.
    Maintenance and services to tenants have also been cut back 
in my properties due to the funding delays. For example, we 
have had to cut the hours of the Neighborhood Network Community 
Learning Centers on the properties. We have also had to defer 
scheduled work outlined in the mark-to-market process because 
the money was needed to make debt service payments. We have 
also had to defer general maintenance and cut back on other 
supportive services.
    As another example, a NAHMA member in Louisiana was not 
able to move Katrina evacuees into vacant apartments this 
summer because without the HAP payments from HUD, the property 
did not have the necessary funds to prepare the units for 
occupancy.
    For all of these reasons, opting out is looking better to 
owners. HAP payments have been chronically late for years and 
the funding may not even be dependable in Fiscal Year 2008.
    The Senate's HUD appropriation bill will cut funding for 
contract renewals as the Administration requested and we fear 
even the modest increase provided by the House over the 
President's request will not be enough.
    Despite the chaos this summer, the Administration has not 
revised its budget request. Likewise, HUD is asking owners to 
sign Section 8 contracts that obligate funding for less time 
than the term of the contract.
    For example, the language in a 12-month contract may state, 
``HUD is providing $350,000 which is sufficient to fund HAPs 
for perhaps 4 months of the renewal contract term.'' The 
contracts say more funding will be added to the contract when 
appropriations are available. But the question in everybody's 
mind is what happens if the appropriations do not become 
available?
    The short term or incremental stop-and-go financing has 
become a funding debate. Late HAPs are an expected and 
seemingly accepted part of operating project-based Section 8 
housing. That is just wrong. HAP contracts are legal contracts. 
It is incumbent on the Federal Government to have the necessary 
funding in place to pay owners on time and in full, just as it 
is the owner's responsibility to provide safe, decent, and 
sanitary housing for the tenants.
    All things considered, it is not hard to understand why 
owners and limited partners are asking me, ``Why am I still in 
this program,'' when they are being approached by investors who 
would like to convert the properties to condominiums and 
market-rate units. It is hard to convince owners on the 
benefits of continuing in the project-based program when 
operating costs are increasing, returns are diminishing, and a 
property risks default on the mortgage if the HAP is late.
    If owners leave this program and if nervous investors walk 
away from preservation deals because they have lost faith in 
the dependency of the Section 8 funding, the low-income 
families who need this housing most will lose it. And the 
tragedy of this situation will be that it is entirely 
avoidable.
    Clearly it is time to change ``business as usual.'' NAHMA 
respectfully offers four recommendations to fix the HAP 
problems: First, we strongly urge Congress to stabilize funding 
by providing the necessary appropriations to pay the full 12-
month increments of HAP contracts in Fiscal Year 2008; second, 
the Administration, HUD, and OMB must address regulatory issues 
that cause or contribute to late payments; third, we are asking 
Congress to amend the enhanced voucher statute to make these 
tenant protections available when the HAP payment stop for any 
reason; and finally, NAHMA strongly urges Congress to create a 
disincentive for late payments by passing legislation that 
requires HUD to pay owners interest on late HAP payment after 
the payment is 10 days late.
    This concludes my statement. I thank you, Chairwoman 
Waters, for the opportunity to testify today, and I would be 
happy to answer any questions.
    [The prepared statement of Mr. Pagano can be found on page 
193 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Mr. Donald Beebout.

     STATEMENT OF DONALD L. BEEBOUT, VICE PRESIDENT, SHOWE 
                     MANAGEMENT CORPORATION

    Mr. Beebout. Madam Chairwoman and members of the 
subcommittee, my name is Donald Beebout, and I am vice 
president of Showe Management Company, based in Columbus, Ohio. 
I thank you for this opportunity to talk about the late HAP 
payments.
    I have over 34 years experience in affordable housing, 7 
with HUD and 27 years with the Showe Management Company. Our 
company, Showe Management Corporation, owns and manages 5,000 
units in Ohio, Texas, New Mexico, and Hawaii. Our Section 8 
project-based inventory is 2,500 units in 30 properties.
    Our company is very concerned that the late HAP payments 
have become a chronic problem at HUD, not just an occasional 
delay at one or two properties at contract renewal. In the past 
several years, the number of delays and the length of delays 
have increased. In the most recent delay that occurred in July 
and August of this year, we did not receive the July and August 
HAP payments on 18 of 30 Section 8 properties until mid to late 
August. These late payments totaled $1,260,000. Delays in these 
HAP payments required our company to borrow funds from other 
corporate entities in order to pay the mortgage payments and 
the property vendors.
    We were originally informed that we would receive the July 
and August payments during the first 5 days of August. We 
actually received these payments in late August. In the past, 
our company has been reluctant to withdraw funds from reserves 
for replacement accounts because we would incur withdrawal 
penalties on certificates of deposits, in some cases loss of 
principal on Treasury Bills and notes due to sales prior to 
maturity. However, because of the lengthy delays and the 
amounts involved, we had to withdraw funds and incur these 
penalties.
    In addition to the time and expense for repair and reserve 
replacement requests, we also incurred additional costs in 
reinvesting these funds after the HAP payments were finally 
received. According to HUD these delays were due to shortfalls 
in funding. In fact, some of our contracts that are currently 
being renewed are being renewed for less than one year. That 
only compounds the problems since it takes HUD 6 to 8 weeks to 
process contract renewals and amendments.
    It is our understanding that the shortfall problem will be 
worse in Fiscal Year 2008 since HUD is estimating a $2 billion 
shortfall based on proposed levels.
    I am requesting that HUD fully fund the $8 billion needed 
to adequately fund the project-based Section 8. HUD should 
consider appropriating funds for the entire contract term since 
this will reduce time and paperwork and the properties will be 
able to retain the owner's participation and allow for more 
favorable financing. Most original HAP contracts were funded 
for the entire period.
    In addition, HUD should adequately fund contracts and HUD 
needs to use modern technology to reduce the time in processing 
contract renewals and payments. The Department should also be 
required to pay owners penalties plus interest for late 
payments. If I am late paying my Federal taxes, I am charged a 
penalty plus interest. There must be some penalty assessed or I 
do not think the problem will get fixed.
    After hearing what I heard today, it does not appear that 
the problem is going to get fixed anytime soon and certainly 
one of our options would be to opt-out on some of our 
properties, but certainly that isn't what we want to do but 
after the frustrations of this summer, I think that some of our 
owners are asking us why are we still in this program. Thank 
you again for the opportunity to testify about the late 
payments and I would be glad to answer any questions.
    [The prepared statement of Mr. Beebout can be found on page 
54 of the appendix.]
    Chairwoman Waters. Thank you very much.
    Ms. Carolann Livingstone.

   STATEMENT OF CAROLANN LIVINGSTONE, PRESIDENT, 1890 HOUSE 
TENANTS ASSOCIATION, AND VICE PRESIDENT, EASTERN REGION OF THE 
                NATIONAL ALLIANCE OF HUD TENANTS

    Ms. Livingstone. Thank you, Madam Chairwoman. On behalf of 
1.5 million families, and elderly and disabled tenants in 
project-based Section 8 housing, NAHT thanks the subcommittee 
for responding so quickly to our request last month for this 
hearing on the Section 8 funding crisis.
    For me and my 9-year-old son, Section 8 housing is 
literally a matter of life and death. Like many thousands of 
the Section 8 families that I represent across America, I was 
once homeless. I lived on the street for 1\1/2\ years. Section 
8 housing provided the vital step up for me so I could 
stabilize my life, provide a decent home for my son, find a job 
at the local church, and go back to college to move up and out 
of poverty.
    If HUD cuts off Section 8 and we tenants are forced to pay 
the difference in our rents, it could mean an overnight 
increase of 3 to 4 times what we are paying now. The National 
Alliance of HUD Tenants has already received reports of owners 
doing exactly that in New York, Pennsylvania, and Ohio.
    To give one example, a disabled tenant in Philadelphia 
faces an overnight increase from $198 to $1,015 in his monthly 
rent if HUD cuts off funds anytime after December. And I would 
like to add to my written testimony a copy of his lease that he 
was forced to sign.
    Today more than 90 percent of the project-based Section 8 
units are subject to annual appropriation by Congress. If 
Congress and HUD do not provide an extra $2.5 billion toward 
the $8 billion needed in 2008, then 30 percent of these 
households, that is 470,000 of us, could lose our homes 
overnight.
    The NAHT Board met with HUD officials on September 14, 
2007, and I was in that meeting. We met to find out what was 
happening to our homes. Their explanation of the funding 
shortfall was upsetting to say the least. They said that no one 
at HUD had any idea how much money was actually needed to fully 
fund all the Section 8 contracts for a year.
    HUD now admits the gap is $2.5 billion, but neither HUD nor 
OMB will make an official request and President Bush has vowed 
to veto even the inadequate HUD appropriation bills.
    Madam Chairwoman, the inability of the Administration to 
anticipate or request the needed funds is deeply disturbing. 
These people are playing with our lives and our quality of 
life. Obviously, a $2.5 billion shortfall in 2008 will result 
in mass displacement and homelessness as owners are forced to 
opt out of the program.
    We tenants need to know what will happen if funds are 
suddenly cut off in the middle of a Section 8 year contract. 
Will we receive a one-year notice from HUD and/or the owners 
before the rents go up? Will we receive enhanced vouchers to 
cover rent increases? How will these vouchers be funded? Will 
HUD allow owners to terminate leases if Section 8 funds are not 
available and we cannot afford to pay the rent?
    We ask the subcommittee to get written answers to these 
questions from HUD as soon as possible.
    NAHT tenants and affiliated local organizations across the 
country are already reporting adverse effects of the late 
payments. In my own building, all repairs have stopped, 
maintenance has been on part time, and the management only 
comes in twice a week now.
    Delayed or short-funded Section 8 payments can only lead to 
even worse conditions, lower REAC scores, and potential HUD 
enforcement or even termination down the road.
    The Nation has already lost at least 350,000 units of 
affordable housing since 1996 due to owner opt-outs and 
prepayments. Owners in high-market areas are facing funding 
uncertainty or terminations by HUD will almost certainly opt-
out of the program.
    HUD's proposal to shortfund Section 8 contracts is not the 
answer but perhaps the worst impact is the gnawing fear that I 
feel and my fellow tenants feel of becoming homeless, possibly 
for the second time.
    In my State of Rhode Island, the one large homeless shelter 
has been demolished. As I look out my living room window, I can 
see people at night sleeping on the sidewalk in downtown 
Providence. Last night, there was a woman out there with a 
child. What will happen if HUD cuts off funds and more are sent 
to the streets? That could easily be me again.
    I am asking for all of us that Congress and HUD please 
solve this crisis now. Thank you, Madam Chairwoman.
    [The prepared statement of Ms. Livingstone can be found on 
page 173 of the appendix.]
    Chairwoman Waters. Thank you very much and a copy of the 
lease that you have requested to be placed in the record shall 
be placed in the record without objection.
    Ms. Livingstone. Thank you.
    Chairwoman Waters. Thank you very much.
    Mr. Minnix.

    STATEMENT OF LARRY MINNIX, PRESIDENT AND CEO, AMERICAN 
        ASSOCIATION OF HOMES AND SERVICES FOR THE AGING

    Mr. Minnix. Yes, ma'am. Thank you very much for the 
opportunity. I represent not-for-profit aging service providers 
of all kinds, 5,800 nationally. The largest single subgroup is 
low-income affordable housing. Most of those are sponsored by 
religious organizations and labor with other groups like the 
Masons and so forth. We have been doing this for a long time 
and we are as good of stewards of those funds over time as you 
would find.
    The facts you have heard here--this is all real. It is all 
the truth. We spent the morning listening to obfuscation and we 
are spending the last half hour listening to the truth.
    You have my testimony; it has a bunch of facts that I will 
not reiterate. Let me respond at two or three levels. One is 
that this conversation that you all are having today is going 
on in these facilities that are not funded with secretaries and 
offices, administrators, residency company and vendors who come 
in and demand cash payments, people trying to reassure 
residents and their families that they are not going out of 
business. So this is a very real conversation that takes place 
there.
    I wish every one of you could send a staff person to spend 
a day in one of these facilities and watch what happens when 
you are trying to defend yourself to people to whom you are 
accountable for your financial obligations and see what occurs.
    I have Bethany in San Francisco that was stopped in the 
middle of asbestos abatement because they ran out of money. 
Now, you can imagine what that does to an environment. Some in 
Mr. Shays' district, he has 50 or 60 of these facilities, 
Catholic organizations, that got to the point that they had to 
lay off staff and cut their health insurance until they could 
go out and gin up contributions in the community. So there are 
all those kind of stories that go on and on.
    What we hear internally is that HUD blames you for not 
providing the money. Sometimes they blame the State agencies. 
You ought to hear that ring-around-the-rosy sometime when you 
are in an office trying to get paid and listening to somebody 
from the State blame Washington, and somebody in Washington 
blame the State. You could make a sitcom out of it if it were 
not so tragic, so there is ring-around-the-rosy.
    Everybody blames OMB. People at HUD say, ``We have been 
told by OMB not to ask for money because you are not going to 
get it.''
    The truth is that we are perhaps $2.5 billion short. Not to 
catch up in my world and your world, that's called kiting. We 
would not be permitted to get away with that.
    There are in my view the issue of the ideological, that is 
the big dead elephant in the room Mr. Ellison brought up. There 
are people who view these programs as welfare handouts as 
opposed to investment in people. This has been one of the most 
successful programs in the 40-year history of the Great 
Society. There are 10 people on the waiting list for every one 
of the things that is occupied. What business would not want 10 
times the customers waiting to get in?
    Studies are beginning to show that it keeps people out of 
nursing homes and keeps them out of emergency rooms. These are 
great programs.
    Four things are needed. One is integrity to meet the 
obligations of the United States of America to these projects. 
Number two, a competence at the Department of Housing and Urban 
Development and related agencies to manage this thing. This is 
a very manageable problem. These are predictable businesses. 
The revenue is predictable. There are computer programs that 
will tell you out 10 years when you need to replace everything 
from roofs and air conditioning to the welcome mat in the 
front. It is a very predictable stable business, and it can be 
managed well.
    The third thing that is needed is $2.5 billion to catch up. 
And then after that you can predict what these projects will 
cost and what it is gong to take to do it. And any investment 
in a community if you think of it as investment instead of one 
more ideological welfare scalp on somebody's belt, if you think 
of it as an investment, it is a great program.
    And why, if this program were a child in an emergency room 
in a hospital, the diagnosis would be failure to thrive. And we 
all know what failure to thrive is caused by, inattention by 
people who are supposed to be caring about these issues.
    This is a solvable problem, and I commend you for drawing 
attention to it. We cannot let incompetence and obfuscation 
wreak havoc--incompetence is expensive. It is more expensive 
than competence and we cannot let the Administration get away 
with this where people keep fingerpointing. People are getting 
hurt out there. Thank you.
    [The prepared statement of Mr. Minnix can be found on page 
181 of the appendix.]
    Chairwoman Waters. Thank you very much. It is time for 
questions and to tell you the truth, I do not have any. I am 
clear. I am very clear based on the testimony of the first 
panel, based on your testimony, it is very clear to me what we 
need to do.
    And let me just say that you heard the members of the panel 
on both sides of the aisle ask very probing questions and 
really displayed their dissatisfaction with the combination of 
incompetent and a lack of asking for the right amount of money 
in order to pay our apartment owners and managers on time.
    And so when we left here on break, I had an opportunity to 
speak with the chairman of the Financial Services Committee, 
Chairman Frank, and he told me he already had some ideas about 
what we need to do and how we need to do it.
    While we know that we need to come up with the additional 
money because it was not requested in the budget, now to fix it 
under PAYGO we would have to find the comparable amount of 
money someplace else in order to fund it. Without doing that, 
there are some other ways. Maybe we can approach this through 
supplemental or emergency, etc., and I am sure that we will be 
willing to look at all of that.
    And, of course, we need to follow up on the competence 
issue and the technology to make sure that they certainly have 
the ability to do the renewables and other kinds of things that 
are necessary in order to be timely in the payments. But I am 
convinced just having been involved in this hearing this 
morning that we are all committed to correcting this problem.
    We do not like it. We do not think it is fair. We do not 
want to lose more units. We need to expand the number of units 
that are available to families that are looking for safe and 
secure places to live.
    So allow me to just use my time to thank you for being 
here, and to thank you for being involved in the program. We 
would like to encourage you to stick with us. We are going to 
make it right. Thank you very much.
    I will turn it over to Ms. Capito.
    Mrs. Capito. Thank you and I would like to join in the 
sentiments of the chairwoman in terms of having an eye-opening 
experience here this morning to listen and to hear the sort of 
verbal dancing around the issue that we have heard.
    I want to ask two questions. First of all, Mr. Lipton, you 
said that you have 64 properties. Is that correct?
    Mr. Lipton. Sixty-four projects.
    Ms. Capito. Sixty-four projects of which--
    Mr. Lipton. Sixty-four projects and about 11,300 units of 
housing.
    Ms. Capito. And you mentioned that maybe half of those--I 
cannot remember the exact number, 20 of them had late payments 
through the summer?
    Mr. Lipton. Fiscally about a third of the payments were 
late, yes. We billed in the month of June almost $10 million 
and over $3 million of that was late.
    Ms. Capito. As you look through your different projects, is 
there any way for you to predict which projects are going to 
get late payments and which are not?
    Mr. Lipton. There is not. We were just among ourselves, the 
panel, discussing that during the break that we had and we are 
completely at a loss to understand how it is that I can have 
projects, for example, in one county that received funding and 
in the next county, they do not.
    Ms. Capito. Is there ever an instance where you might get 
partially paid?
    Mr. Lipton. There have been instances on renewal contracts 
where HUD knew that funding was going to be short and we have 
received partial payments. But, again, I think the renewal 
issue is separate from the issue of not having sufficient funds 
to cover the obligations of the existing contracts.
    Ms. Capito. Okay. The other question I have is the 
shortfall amount. We have heard somebody mention, I think, $2 
billion, and somebody else mentioned $2.5 billion. And then Mr. 
Cox this morning said zero. That was my understanding of what 
he said. He said that HUD would have the money to meet the 
obligations. I mean that is a pretty wide variance.
    Just so I understand this, and I asked the chairwoman to 
clarify for me and she did, but I want to make sure I 
understand the difference in what we are talking about here is 
he is talking about say if you renew in January and you are 
paid through September, that is considered a 9 months and so 
that would not be included--the extra 3 months there would not 
be included in the 2008. So if you extend 12 months, that is 
where you get to the $2.5 billion. Is that correct?
    Mr. Bodaken. I was the one who said $2.5 billion. Yes. The 
answer is it is an under-obligation of this year which they--it 
is $1.2 billion under-obligation of this year and it is $1.3 
billion doing the January-July. So, for example, if you were 
going to renew in July of next year, they would give you 3 
months. You sign a contract. It would appear that with $5.6 
billion, you would be able to fund the contracts through that 
fiscal year, but you would have year-long contracts which you 
could not fund after that fiscal year ended. So this problem 
will just be kicked down the road by them. So it is a 
combination of them underestimating for this fiscal year and 
that which makes the $2.5 billion.
    Ms. Capito. Mr. Pagano.
    Mr. Pagano. The other thing that they left out and we have 
all experienced, existing contracts that have nothing to do 
with renewals that are running out mid-term. We had contracts 
that were not going to renew until Fiscal Year 2008 that 
stopped payments in July and August of 2007.
    Now that is another issue and I stopped Mr. Cox on the way 
out and said, ``We had contracts in two States that were not 
expired, they were not being renewed and you stopped payments 
in July.''
    He said, ``That should not have happened.''
    Ms. Capito. That is in the Section 8 housing?
    Mr. Pagano. Yes.
    Mr. Bodaken. We had that as well.
    Ms. Capito. Well, it is hard to fathom really. I want to 
thank you, Ms. Livingstone, for your advocacy for the tenants 
and for your bringing your real-life story to us.
    I know it brings great meaning, I think, to all of us to 
know that even though you are not our constituent, you really 
are our constituent because we have many just like you who are 
using the Section 8 housing and enhancing your life for you and 
your child. So I appreciate you for bringing that. Thank you.
    Ms. Livingstone. Thank you. And it also makes me concerned 
about HUD's cavalier attitude toward the fact that it is people 
that we are really talking about here. Every one is using the 
word, ``units'' and ``tenants'' and the dollar signs, but it is 
really people we are talking about. It is people's lives. And 
79-year-old women cannot be put out in the street if they do 
not have anywhere to go. This is not, you know, it is just 
people's lives and I really appreciate the opportunity to be 
able to say that. Thank you.
    Chairwoman Waters. Thank you very much.
    Mr. Green.
    Mr. Green. Thank you, Madam Chairwoman.
    I would like to associate myself with the comments of the 
chairwoman and the ranking member.
    I would like to add to what you have said, Ms. Livingstone, 
that it is about politics as well. People and politics. Here is 
what is going on. HUD understands that they should fund the 
contracts for 12 months as they have been written. Their lawyer 
has said so.
    They have refused to get a written opinion because they 
will have to follow that written opinion. So they are still 
trying to partially fund these contracts.
    They want to partially fund the contracts because they do 
not want to ask us to provide money that might require PAYGO to 
kick in. Meaning HUD does not want to be the Department from 
the Administration that comes forward and says, ``We need more 
money to fund the programs, the contracts that we have 
obligated ourselves to because if we do this,'' if they do this 
then we would say, ``Okay, HUD, we will do it but we are going 
to let everybody up here know, which would include both sides, 
that PAYGO is going to have to kick in.'' And I am using the 
term, kick in, meaning we would have to honor the PAYGO rule. 
And if we honor the PAYGO rule, then that means that HUD would 
be charged with--we might ask, but HUD would be charged with 
having asked us to do something that this Administration does 
not want to do and that is provide the additional tax dollars 
necessary to fund a needed program. So that is the politics.
    They are trying as best as they can to dance around this, 
not honor--their own lawyer has said you have to honor these 
contracts for 12 months and they are trying to avoid honoring 
these contracts for 12 months. About politics and about the 
lives of people, I regret that we find ourselves in this 
position right now.
    I sincerely believe that this chairwoman is going to do 
what she can to correct this problem. I believe it in my heart. 
I have seen her in action and this ranking member is sensitive 
to it and I think the rest of us will fall in line and we are 
going to do what we can to be of assistance to make sure that 
we get it done.
    One quick question: It is my understanding that HUD is to 
spend about $10 million annually from the project-based Section 
8 program to ensure that tenants are informed and involved in 
the decisions that affect them. My question is, are you getting 
ample notice of what is happening? Timely notice of what is 
happening? Or are you finding out by some sort of grapevine, if 
you will, as to what is going on? Are you getting the notices? 
Because this program has not been funded as it should be, as I 
understand it.
    So let me ask, Ms. Livingstone, let's start with you. Are 
you getting the notices?
    Ms. Livingstone. No. That was part of my oral speech that I 
left out so that I could honor my time limit. Section 514 of 
MAHRAA authorizes HUD to spend up to $10 million annually for 
this purpose, but HUD has failed to spend any of the funds 
since 2002.
    The Section 514 Stakeholders convened by HUD have 
recommended $1 million for the National VISTA Program as the 
quickest way to get the resources to the tenants to get them 
organized.
    Unfortunately, Commissioner Montgomery has rejected this 
request. We were going to ask that the subcommittee adopt 
legislation recommended by the stakeholders at the soonest 
opportunity and ask Commissioner Montgomery to work with NAHT 
so we tenants can better cope with the crisis.
    In Rhode Island, I have a tenant project run--Rhode Island 
HUD Tenant Project which is funded by HUD money right now in 
organizing, but they are constrained to only be able to work 
with at-risk properties.
    What the definition of at-risk is kind of nebulous, so 
consequently they are working with one high-rise at this point 
in time when there are 8 or 10 that do need the help of paid 
organizers to learn how to organize.
    Mr. Green. Thank you.
    My final comment is to Mr. Minnix: I think you are 
imminently correct. It is solvable, but HUD is refusing to 
acknowledge that it even exists, that the problem exists so as 
to say there is no problem to solve. But we know that it 
exists.
    Mr. Minnix. That is exactly right. I am glad to hear you 
know that it exists. This is a problem that has been under the 
surface for a number of years.
    When I was back in the project manager world where I came 
from, I remember a HUD person telling us when we just wanted to 
get a new roof that we had to be near bankruptcy before they 
would release the funds.
    I had a prominent HUD official in recent years say the 
solution to all this housing stuff is for people to go to work. 
And we said with some other faith-based leaders, ``What jobs do 
you expect 80-85-year-olds to begin to seek?''
    ``Oh, well, we are not exactly talking about them.''
    That is what makes us think this is some kind of under-the-
surface ideological conflict that has to see the light of day.
    Mr. Green. Well, Mr. Minnix, we spend $229 million a day on 
the war. If we can spend $229 million a day on the war, we can 
take care of our people who have demonstrated a need for this 
housing and I think it is time for us to get about the business 
of getting it done.
    Mr. Minnix. Mr, Green, if I may follow up? If you begin to 
look at not just elderly, but disabled populations, somebody 
had better be giving some thought to a national housing plan to 
help deal with some of the people who are going to be coming 
back from this war because everybody, unless you are homeless, 
needs someplace to live every night and is that not a national 
moral responsibility? I believe it is.
    Mr. Green. Thank you. I have to yield back now because I am 
out of time. Thank you.
    Chairwoman Waters. Thank you very much.
    Again, I would like to thank our entire panel for being 
here today. And I would like to thank all of the members who 
have stayed with us today as we tried to really understand what 
is going on over at HUD.
    The Chair notes that some members may have additional 
questions for this panel which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and to place their responses in the record. Let the 
record reflect that the Chair has requested that Mr. Cox and 
HUD present us with a written copy of the legal opinion 
regarding the partial funding of housing assistance payments 
within 30 days.
    Are there any more submissions for the record?
    If there are no more submissions for the record, this 
hearing is adjourned. I thank you all very much.
    [Whereupon, at 1:20 p.m., the hearing was adjourned.]











                            A P P E N D I X



                            October 17, 2007


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