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




 DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND URBAN DEVELOPMENT, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2009

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS
                             SECOND SESSION
                                ________

   SUBCOMMITTEE ON THE DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND 
         URBAN DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS

                 JOHN W. OLVER, Massachusetts, Chairman

ED PASTOR, Arizona                      JOE KNOLLENBERG, Michigan
CIRO RODRIGUEZ, Texas                   FRANK R. WOLF, Virginia
MARCY KAPTUR, Ohio                      ROBERT B. ADERHOLT, Alabama
DAVID E. PRICE, North Carolina          JAMES T. WALSH, New York
ROBERT E. ``BUD'' CRAMER, Jr., Alabama  VIRGIL H. GOODE, Jr., Virginia
LUCILLE ROYBAL-ALLARD, California
MARION BERRY, Arkansas             

 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
                    Kate Hallahan, David Napoliello,
            Laura Hogshead, Lisa Pena, and Alexander Gillen,
                           Subcommittee Staff

                                ________

                                 PART 6
                                                                   Page
 Department of Housing and Urban Development......................    1
 Housing Needs of Special Populations [Elderly; Disabled; 
Homeless; HOPWA]..................................................  597
 Challenges of the Project-Based Section 8 Program................  663
 Status of the Project-Based Section 8 Program....................  837

                                ________

         Printed for the use of the Committee on Appropriations


PART 6--TRANSPORTATION, AND HOUSING AND URBAN DEVELOPMENT, AND RELATED 
                           AGENCIES FOR 2009
















 DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND URBAN DEVELOPMENT, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2009

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS
                             SECOND SESSION

                                ________

   SUBCOMMITTEE ON THE DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND 
         URBAN DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS
                 JOHN W. OLVER, Massachusetts, Chairman

ED PASTOR, Arizona                      JOE KNOLLENBERG, Michigan
CIRO RODRIGUEZ, Texas                   FRANK R. WOLF, Virginia
MARCY KAPTUR, Ohio                      ROBERT B. ADERHOLT, Alabama
DAVID E. PRICE, North Carolina          JAMES T. WALSH, New York
ROBERT E. ``BUD'' CRAMER, Jr., Alabama  VIRGIL H. GOODE, Jr., Virginia
LUCILLE ROYBAL-ALLARD, California
MARION BERRY, Arkansas             

 NOTE: Under Committee Rules, Mr. Obey, as Chairman of the Full 
Committee, and Mr. Lewis, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.
                    Kate Hallahan, David Napoliello,
            Laura Hogshead, Lisa Pena, and Alexander Gillen,
                           Subcommittee Staff

                                ________

                                 PART 6
                                                                   Page
 Department of Housing and Urban Development......................    1
 Housing Needs of Special Populations [Elderly; Disabled; 
Homeless; HOPWA]..................................................  597
 Challenges of the Project-Based Section 8 Program................  663
 Status of the Project-Based Section 8 Program....................  837

                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 43-801                     WASHINGTON : 2008





                     COMMITTEE ON APPROPRIATIONS

                   DAVID R. OBEY, Wisconsin, Chairman


JOHN P. MURTHA, Pennsylvania             JERRY LEWIS, California
NORMAN D. DICKS, Washington              C. W. BILL YOUNG, Florida
ALAN B. MOLLOHAN, West Virginia          RALPH REGULA, Ohio
MARCY KAPTUR, Ohio                       HAROLD ROGERS, Kentucky
PETER J. VISCLOSKY, Indiana              FRANK R. WOLF, Virginia   
NITA M. LOWEY, New York                  JAMES T. WALSH, New York     
JOSE E. SERRANO, New York                DAVID L. HOBSON, Ohio 
ROSA L. DeLAURO, Connecticut             JOE KNOLLENBERG, Michigan    
JAMES P. MORAN, Virginia                 JACK KINGSTON, Georgia 
JOHN W. OLVER, Massachusetts             RODNEY P. FRELINGHUYSEN, New Jersey        
ED PASTOR, Arizona                       TODD TIAHRT, Kansas   
DAVID E. PRICE, North Carolina           ZACH WAMP, Tennessee            
CHET EDWARDS, Texas                      TOM LATHAM, Iowa
ROBERT E. ``BUD'' CRAMER, Jr., Alabama   ROBERT B. ADERHOLT, Alabama        
PATRICK J. KENNEDY, Rhode Island         JO ANN EMERSON, Missouri       
MAURICE D. HINCHEY, New York             KAY GRANGER, Texas      
LUCILLE ROYBAL-ALLARD, California        JOHN E. PETERSON, Pennsylvania           
SAM FARR, California                     VIRGIL H. GOODE, Jr., Virginia             
JESSE L. JACKSON, Jr., Illinois          RAY LaHOOD, Illinois                   
CAROLYN C. KILPATRICK, Michigan          DAVE WELDON, Florida      
ALLEN BOYD, Florida                      MICHAEL K. SIMPSON, Idaho
CHAKA FATTAH, Pennsylvania               JOHN ABNEY CULBERSON, Texas        
STEVEN R. ROTHMAN, New Jersey            MARK STEVEN KIRK, Illinois       
SANFORD D. BISHOP, Jr., Georgia          ANDER CRENSHAW, Florida            
MARION BERRY, Arkansas                   DENNIS R. REHBERG, Montana 
BARBARA LEE, California                  JOHN R. CARTER, Texas       
TOM UDALL, New Mexico                    RODNEY ALEXANDER, Louisiana        
ADAM SCHIFF, California                  KEN CALVERT, California    
MICHAEL HONDA, California                JO BONNER, Alabama       
BETTY McCOLLUM, Minnesota
STEVE ISRAEL, New York
TIM RYAN, Ohio
C.A. ``DUTCH'' RUPPERSBERGER, Maryland
BEN CHANDLER, Kentucky
DEBBIE WASSERMAN SCHULTZ, Florida
CIRO RODRIGUEZ, Texas              

                  Rob Nabors, Clerk and Staff Director

                                  (ii)

















 
 DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND URBAN DEVELOPMENT, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2009

                              ----------                              

                                      Wednesday, February 13, 2008.

            U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                                WITNESS

HON. SECRETARY ALPHONSO JACKSON, SECRETARY OF HOUSING AND URBAN 
    DEVELOPMENT

                           Chairman's Remarks

    Mr. Olver. The Committee will come to order. Let me welcome 
the Secretary of the Department of Housing and Urban 
Development, Alphonso Jackson, back to the Subcommittee.
    Mr. Secretary, thank you for being with us today to discuss 
the Administration's Fiscal Year 2009 Budget request for 
housing and urban development.
    If we had enacted the budget submitted by the 
Administration last year for housing, it would have been 
disastrous for low-income families, seniors, and disabled 
persons served by HUD's programs. The same can be said about 
this year's request. Unfortunately, it is quite similar to last 
year's request.
    We must better promote and expand affordable housing, in my 
view.
    The Joint Center for Housing Studies at Harvard University 
has documented that from 1993 to 2003 alone, we lost 1.2 
million affordable housing units. In addition, approximately 
three-quarters of American households, which, by household 
income, are eligible for HUD assistance, received none, yet the 
Administration's request for Fiscal Year 2009 is strikingly 
similar to the previous budgets and cuts many vital, affordable 
housing and community development programs.
    For the Section 8, Tenant-Based program, the Center on 
Budget and Policy Priorities estimates that $15\1/2\ billion 
will be required to renew vouchers in 2009. Your budget 
provides only about $14.3 billion for contract renewals, which 
is $400 million less than last year's level and $1.2 billion 
below the amount needed to ensure no one that has a voucher 
will lose that voucher.
    Our own internal calculations of the Subcommittee estimate 
that the Administration's budget would force 55,000 tenant-
based vouchers currently in use to be lost.
    The Center on Budget and Policy Priorities believes that 
upwards of 100,000 vouchers in use by low-income families would 
be lost at that number.
    Public housing does not fare much better in the 
Administration's budget. Public housing is home to 2.6 million 
people, more than half of whom are seniors and persons with 
disabilities.
    In 2005, the median income of families in the public 
housing program was just under $11,000, only 23 percent of the 
national median household income of about $46,000. The budget 
provides $6.3 billion in total resources for public housing, 
which is about $300 million below what we provided in Fiscal 
Year 2008.
    In 1998, a HUD-sponsored study estimated the annual accrual 
of capital needs in public housing at $2 billion. Our best 
estimates today put that number at $2.54 billion in Fiscal Year 
2009, and the total backlog is somewhere in the range of $18-20 
billion.
    Under the President's budget, the Public Housing Capital 
Fund would receive a $515 million cut, and this backlog would 
not be addressed at all.
    The assault on public housing does not end there. The HOPE 
VI program for severely distressed public housing would also be 
zeroed-out in the Administration budget.
    I have heard from mayors and community leaders across the 
country on how HOPE VI grants have transformed and revitalized 
communities. To my knowledge, HUD received 28 applications for 
funds in Fiscal Year 2008 but will fund 5 of those proposals. 
Clearly, there is still a great demand for HOPE VI grants.
    One of the largest cuts in the President's budget is for 
the Community Development Block Grant, which is used in 
communities, largely large communities, to rehabilitate and 
construct affordable housing and public facilities, as well as 
to generate economic development and job creation. The block 
grant program would be cut by $866 million below last year's 
enacted, which is over a 20 percent cut, but very similar to 
the previous year's proposed cut.
    And, similar to last year, Housing for Persons With 
Disabilities would take a severe cut, along with Housing for 
the Elderly, which would be cut again, as it was proposed last 
year.
    What is the justification for cutting programs specifically 
targeted to the disabled and elderly, given the great need for 
affordable housing in both communities?
    There are a couple of bright spots here. I am pleased that 
your budget acknowledges the major funding shortfall in the 
Project-Based Section 8 account. We worked hard to increase 
funding by over $600 million for Project-Based Section 8 last 
year to try to put a down payment on the funding gap created 
and instill more confidence in the program.
    I was heartened that the Administration recognizes the 
challenges we face in this program, but, unfortunately, the 
budget request does not go far enough to solve the problem. The 
Administration has proposed $7 billion, which is over $600 
million more than provided last year, a substantial increase, 
as well as an advanced appropriation of $400 million to help 
extend contracts into the new fiscal year. With the estimated 
funding gap of as much as $2.8 billion, we still have a long 
way to go to fix the problem.
    Finally, I also want to commend you for matching the $75 
million we put into the 2008 bill for housing vouchers and 
supportive services for veterans. The problem is that these 
modest increases have been offset by other cuts in the budget 
that I have already described.
    So I am looking forward to your testimony, but before we do 
that, I would like to recognize my distinguished colleague, the 
Ranking Member from Michigan, Mr. Knollenberg, for any comments 
that he would like to make.

                        Ranking Member's Remarks

    Mr. Knollenberg. Mr. Chairman, thank you very much. 
Welcome, Mr. Secretary. I believe this is the fourth time you 
have appeared before this Committee to defend the President's 
budget proposals. That has been a pretty difficult task in the 
past, and it appears that it is going to be a very daunting one 
today.
    As I will have to leave shortly for another commitment, 
before we get too far into this, I will hold my opening remarks 
down to a minimum.
    In many ways, the $338.5 billion request for 2009 is 
similar in policy content to the proposals in previous years. 
Funds for the Community Development Block Grants, elderly and 
disabled facilities, and modernization of public housing have 
been reduced, and, quite frankly, as you know very well, I have 
always had support restoring those funds, the Chairman and 
myself, and, even though we both--certainly, I do--support 
reduced spending. I will not speak for the Chairman. Obviously, 
he has got his own views on that.
    On the other hand, I am pleased that the Department 
continues to seek savings by terminating the duplicative 
programs that are funded in other agencies that are so small 
that they cannot possibly have a national benefit. It is beyond 
me, to some extent, for example, why we continue to fund a $15 
million rural economic development program in HUD when the USDA 
is proposing a total of $15 billion in grants, loans, and 
related assistance for rural housing, community development, 
and business development programs.
    I have, in the past, and will continue in the future, 
supported proposals to eliminate these kinds of programs, 
particularly where there is duplication. There are, however, 
some serious deviations from past budgets that we need to 
explore today, even if they are not entirely of HUD's making.
    Subprime mortgages. Not a new item exactly; it has been all 
over the last several months. The State of Michigan has been 
particularly hard hit by previous reset base and will be hit 
hard again in the near future, as the next reset base hits.
    This year, the Committee provided--I think it was almost 
$200 million, or was it $180 million?--to the Neighborhood 
Works program to get professional counsels to help families 
deal with their personal crises. We need to better understand 
why it has happened and to whom it has happened. We also need 
to better understand how to prevent its reoccurrence in the 
future, and I hope you will provide us with the benefit of what 
you have learned thus far.
    Second is the apparent collapse of FHA receipts. We went 
through this, I know, last year. We have been critical of this 
Subcommittee's ability to find the kinds of increases we have 
seen in HUD over the past 4 years. What had been receipts as 
high as $2 billion just a few years ago have now disappeared, 
literally disappeared. If this were due to the fact that the 
private sector offers a better deal, then I could understand, 
and even agree, we should not be in the business of competing 
with or undermining the private sector, but that is not the 
case.
    The FHA is enduring huge losses resulting from a class of 
seller-assisted loans. Mr. Secretary, correct me if I am wrong, 
but, under the current program, FHA will actually operate in 
the red, to the tune of $1.4 billion, in 2009. Your budget 
conveniently assumes that reform legislation will pass, and all 
of these problems will be fixed, but the impact of the current 
program losses on this Subcommittee's ability to meet growing 
needs in HUD and elsewhere is very real. Every attempt to stop 
seller-assisted loans has been met with stiff resistance.
    I would like to explore today how you are going to deal 
with this issue. This has profound implications for this 
Subcommittee as we move forward.
    Third, I see that you are requesting funds to keep 
assisting elderly and disabled housing after the first-of-March 
expiration of FEMA/HUD Disaster Housing Assistance program.
    I am wondering if this is just the tip of the iceberg for 
this Subcommittee. We keep reading about problems and delays 
and about the expiration of funds and snags in the 
redevelopment areas in Louisiana and Mississippi that were 
struck by Katrina and by Rita. I would like to take on where we 
are, at least, with respect to HUD's responsibilities, and what 
you think this Committee will face down the road in additional 
expenses.
    Finally, the whole question of implementing your negotiated 
rule and guidelines for administering the operating and 
modernization subsidies to public housing authorities seems to 
never, never get settled.
    I was recently approached by someone in the public housing 
business at a luggage carousel complaining about HUD's heavy-
handed implementation, and I would guess that your own 
treatment has been far worse than that.
    I note that the legislation is being sought by the public 
housing industry to overturn the compromise that this Committee 
tried to work out, in good faith, in the 2008 budget. I would 
like to explore briefly what you think might be done to end 
this standoff with the industry groups.
    Finally, the budget proposes to eliminate all of the 
earmarks included in the 2008 enacted appropriations bill, but 
it intends to do that, I understand, next year. I am not sure 
what happens in between now and then and want to explore just 
what is going on here.
    Mr. Chairman, I promised to take as little time as 
possible, and so I will stop here. I have many other areas that 
I would like to explore, but I will submit questions for the 
record instead.
    I want to thank you, Mr. Chairman, and, Mr. Secretary, 
thanks for being here, and I yield back the balance of my time.
    Mr. Olver. Thank you, Mr. Knollenberg.
    With that, the floor is yours, Mr. Secretary. Your full 
statement will be printed in the record. If you can keep 
somewhere between the time used by myself and my Ranking 
Member, at 5 to 10 minutes, that would be fine.

                  Secretary Jackson's Opening Remarks

    Mr. Jackson. Thank you very much, Chairman Olver, and I 
want to thank the Ranking Member, Mr. Knollenberg, and the 
Members of the Subcommittee for the opportunity to appear here 
today.
    Mr. Chairman, the proposed Fiscal Year 2009 HUD Budget 
represents, in my mind, an investment in the American people by 
the American people. This investment is measured in more than 
dollars; it is measured in the lives we touch, whether creating 
or protecting sustainable home ownership, producing affordable 
rental housing, revitalizing our cities, or helping the 
homeless.
    I believe we have a good budget. It is physically sound and 
adequately supports our legislative mission and fits in well 
with the overall vision of the president's entire request. It 
is a historical investment of $38.5 billion for the programs at 
HUD. This is an increase of more than $3 billion, or over 9 
percent, of last year's proposal. The budget is almost $1 
billion more than our current budget authority. This funding is 
timeless.

                           HOUSING COUNSELING

    We have confronted a housing crisis. America needs the 
President's request for $65 million in this budget for housing 
counseling. Those funds, in addition to Neighborhood Works' 
$180 million, provide greater service to those most in need.
    Today, many Americans are facing foreclosure and would have 
greater benefit from housing counseling. This Fund would help 
partially address today's crisis and prevent such situations in 
the future.
    We also need to support the efforts to maintain the current 
ownership and to stimulate new purchases.

                               FHA SECURE

    Mr. Chairman, last year, the President and I introduced FHA 
Secure to help more Americans facing foreclosure by refinancing 
in a safe and more secure FHA loan. We did this using current 
regulations.
    There has been a notable increase in the number of 
closings. Two months ago, there were 2,500 closings a month at 
FHA. Now, there are 4,500 closings a week at FHA. But we could 
do so much more with legislation to modernize FHA.
    I would hope that Congress would act quickly to send a bill 
to the president's desk that will strengthen FHA's ability to 
offer safe alternatives to high-risk loans.

                              RESPA REFORM

    The Administration has also taken steps to ensure it is 
easy for homeowners to read the fine print when they do sign on 
the dotted line. That is why we are committed to RESPA reform. 
We hope to publish the new Real Estate Settlement Procedure Act 
rules in early March. We hope that it will bring much needed 
transparency to the home-buying process.

                       AFFORDABLE RENTAL HOUSING

    As in the past, Mr. Chairman, the largest part of our 
budget is affordable rental housing. Combined, this budget 
seeks more than $29 billion for our rental assistance program, 
which we expect to help more than 4.8 million households. We 
are mindful of the continuing need for more affordable rental 
housing, especially low- and middle-income workers who still 
find themselves priced out of the real estate market in many of 
our cities. We need to maintain the units currently available 
and expand the number. This budget will help us do that.

                            ASSET MANAGEMENT

    While I am on the subject of public housing, I want to 
bring to the Subcommittee's attention a particularly harmful 
bill that will be considered by the House later today. HUD is 
strongly committed to a successful transition to asset 
management for Public Housing Agencies.
    The bill the House will vote on, H.R. 3521, would severely 
undermine PHAs long awaited conversion to asset management and 
adoption of conventional business practices. It will eliminate 
any restrictions or limitations on the amount of management and 
related fees that PHAs could charge through January 2011, and 
it would exempt 88 percent of the PHAs from asset management 
altogether.

                                HOMELESS

    For these reasons, the Administration strongly opposes this 
legislation. Finally, Mr. Chairman, the homeless must not be 
forgotten. We are making strides to cut the number of chronic 
homeless with our continuing appeal approach. For the first 
time ever, we saw a decrease in the number of chronic homeless 
last year drop to 12 percent.
    We must continue the progress. Our budget once again seeks 
to increase the homeless programs to continue this good work. 
Mr. Chairman, I know you are mindful of the need to help our 
nation's homeless veterans. Americans are deeply and profoundly 
grateful for the service and sacrifice of our nation's 
veterans.
    In this proposal there is a request, as stated by the 
Ranking Member, of $75 million for our Veterans Affairs 
Supportive Housing Program. Prior to 2008, this program had not 
been funded since 1993. Working with the Veterans 
Administration, we will create an additional 9,800 vouchers for 
fiscal year 2009.
    This will bring the total approximately to 20,000 homeless 
veterans being served through housing and social services. That 
is double the number of available housing vouchers. Overall, 
this is a good budget for the Department, balanced, reasonable, 
appropriate and workable. It will allow us to operate within 
the framework of cooperation, partnership with related Federal 
agencies and other levels of government and nonprofit 
initiatives.
    Mr. Chairman, as we proceed through this budget, I look 
forward to working with you and the Ranking Members and the 
other Members of this Subcommittee. I thank you and the 
Subcommittee for your consideration of this budget.
    [The information follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Olver. Thank you very much, Mr. Secretary, for your 
comments. I know that my Ranking Member needs to leave somewhat 
early, I know you have concurrent time constraints, so I think 
I should get quickly onto the questioning.
    As is usual with this Subcommittee, I and the Ranking 
Member take up to 10 minutes in this first round and then after 
that, we go back and forth in 5-minute sequences, so we will 
get right down to it.

                        PROJECT-BASED SECTION 8

    Mr. Secretary, your budget acknowledges that the Project-
Based Section 8 account is in serious need of additional 
funding to deal with a shortfall, which variously we 
characterized it somewhere between $1.5 billion and $2.8 
billion, that has evolved, has been created, over a period of 
time by the practices of OMB and HUD in that account.
    In the past 12 months, this Subcommittee has invested $1.5 
billion in this account by an increase of over $900 million in 
the 2007 bill and then an increase of somewhat over $600 
million in the 2008 bill to try to correct this, but we still 
have a significant way, a long way, to go to get back to where 
we are doing 12-month contract renewals as they come up for 
renewal.
    You have added, again, $623 million to the Project-Based 
account, and that is by far your largest increase. I thank you 
for that because I think we do have to, given the problem, if 
we can once get a clear handle on it.
    I wanted to ask you, what does your proposed increase of 
$623 million in that Project-Based account actually buy in 
terms of months toward this goal of getting us to where we can 
contract for full 12-month contracts when these contracts come 
up for renewal?
    Mr. Jackson. Thank you very much, Mr. Chairman. Because I 
think that is a very in-depth question and to give you a very 
in-depth answer, I would ask Assistant Secretary Brian 
Montgomery, to come up and speak to you regarding that matter.
    Mr. Montgomery. Thank you, Mr. Secretary and Mr. Chairman. 
The issue has to do with the fact that these contracts do not 
coincide with our fiscal year. They are 12-month contracts, but 
very few of them match perfectly the fiscal year. Some go June 
to June. That cuts right in the middle of a fiscal year.
    So historically what has happened is we have used funds 
from the previous fiscal year to get us into the first few 
months of the new fiscal year, and then those funds pick up 
that contract to carry it through as that contract goes into 
the next fiscal year. Now, this process, which has been called 
several things, short funding, incremental funding, actually 
began back in the Clinton Administration and carried forward 
for many, many years.
    Recently our appropriations attorney ruled that we could no 
longer continue that practice and it has resulted in, as you 
know, a lot of unhappy Project-Based Section 8 owners. The good 
news is that in working together with our CFO's office, we came 
up with new contracts that the owners agreed to, and now we are 
doing essentially the same process but now within the bounds of 
new contracts.
    I would also say the $600 million is a substantial number, 
but it is also $1.2 billion more than our request from last 
year and some of that was born of our contract-by-contract 
review that we will have up on the Hill, by the way, within the 
next 2 weeks before the 60-day deadline. So I know that it is 
difficult, but I ask that you please understand that it has 
more to do with the fact that those contracts split fiscal 
years than probably anything else.

                      SECTION 8 CONTRACT RENEWALS

    Mr. Olver. Okay. I guess I do understand that, but is it 
not an appropriate goal to have, particularly in the housing 
market that we are dealing with?
    If we have contracts being renewed for 2, or 4, or just to 
the end of the fiscal, wherever, how close those things happen 
to fit, if those are being renewed only, does not that cause a 
considerable instability within the market for the developers, 
the contractors, in that instance and whether they feel 
confident that this is going to be an ongoing continuity?
    You may be correct that when it started it was a small 
amount. It has been allowed to grow, and grow and grow until it 
has become a big amount that meant we were in a position where 
we were contracting for very short periods of time and only 
until the end of the fiscal year and leaving these contracts 
running with considerable uncertainty.
    With what is happening in the housing market in general, is 
not this contributing to that, to the housing market problem?
    Mr. Montgomery. Yes, Mr. Chairman, you are correct. I would 
be less than honest if I said it was not a burden on the 
owners. Absolutely, it is. But again, this process has been 
going on for many, many years.

                       12-MONTH FUNDING CONTRACTS

    Mr. Olver. So would it not be appropriate to get that back 
to the point where since they have originally 12-month 
contracts, it is our business to make certain that we have 
appropriated enough money and that that problem be brought to 
us so that we understand what the true nature of it is so that 
we can have these contracts all go when they are being renewed 
to the 12-month series?
    Or else, we are contributing to the loss of affordable 
housing. Some of the contractors will take that view and have 
problems with their lenders and so on and the instability of 
that simply contributes to people taking their projects out of 
the public sector.
    Mr. Montgomery. Absolutely, Mr. Chairman. It should be our 
goal to ultimately be able to fully fund those contracts for 
the full term of their, well, for the full term I should say. I 
have to say, though, this is a huge step with the $1.2 billion 
increase from our request last year to get us to that goal.
    We will fully fund those contracts for this fiscal year, 
and for the extent that the 12-month cycle falls within fiscal 
year 2009 they will be fully funded.

                      SECTION 8 FUNDING SHORTFALL

    Mr. Olver. Well, of course, yes. We have added $1.2 billion 
to the total. This Subcommittee added the $600 million over 
your request in the 2008 budget in and now you have added 
another $600 million.
    Just within the last few weeks, your Chief Financial 
Officer, Mr. John Cox, in a letter to Chairman Maxine Waters of 
the Financial Services Committee, and I am going to quote from 
that letter, ``to resume a full 12-month funding at the time of 
contract renewal in fiscal year 2008 HUD estimated that it 
would require $1.5 billion to complete funding on fiscal year 
2007 projects, contract renewals, that were incrementally 
funded into fiscal year 2008 and an additional $6.6 billion to 
fully fund for 12 months all HAP contract renewals that come 
due during fiscal year 2008.''
    Now, this seems to me to leave a shortfall of about $1.9 
billion to fund the 12-month contract terms in fiscal year 2008 
based on HUD's estimated $8.1 billion need and the $6.14 
billion that is provided in fiscal year 2008 appropriations.
    The $8.1 billion would be the $6.6 billion plus the $1.5 
billion estimated in this letter that would be required to fund 
the renewals that were incrementally funded into fiscal year 
2008. Am I confusing you in this? Do those numbers get 
together?
    Mr. Jackson. We will let our CFO, Mr. Chairman, answer 
that.
    Mr. Olver. Mr. Cox is here?
    Mr. Jackson. Yes.
    Mr. Cox. Yes, sir.
    Mr. Olver. Would you like to explain what your letter----
    Mr. Cox. Mr. Chairman, good morning, John Cox, the CFO. 
Yes, that was our letter, and obviously we worked closely with 
Commissioner Montgomery's staff. The $1.9 billion, you are 
absolutely correct. That is the number it would take to fully 
fund all contract renewals coming into fiscal year 2008----
    Mr. Olver. For 12 months.
    Mr. Cox [continuing]. For a full 12 months, and in addition 
to that, to fully fund any renewal that would come due in 
fiscal year 2008 for a full 12 months. So it is a combination 
of both fiscal years for a full 12 months.
    Mr. Olver. So the $623 million, which I am enormously 
grateful that you have added, funds part of that. I was asking 
originally the question how far into the year does that fund 
the part? It still leaves us some short.
    Mr. Jackson. It really does not leave us short. As 
Commissioner Montgomery said, Mr. Chairman, they do not all 
come due at the same time. That is why I wanted him to 
specifically illustrate that proposal. Some are due in June, 
some are due in July, some are due in August.
    Mr. Olver. That is still going to leave us in the position 
of not being able to fund those that come due within 2008 for a 
full next 12 months. We are going to have to do some additional 
work on this. This is a road map that is extremely complex, and 
I will leave it at that for the moment.
    Mr. Jackson. Okay. Thank you so much.
    Mr. Olver. Thank you very much. Mr. Knollenberg.

                              FORECLOSURES

    Mr. Knollenberg. Mr. Chairman, thank you very much. I am 
going to toss some questions out on the FHA and subprime 
lending which has been a huge problem, particularly in my state 
of Michigan, and other states in the area and around the 
country, I might add, as well. I know that the expectation of 
these reset dates approaching could get worse.
    Mr. Jackson. That is correct.
    Mr. Knollenberg. I hoped you would say something else, but 
I understand----
    Mr. Jackson. No, that is correct.
    Mr. Knollenberg. What can you tell us about the severity of 
the issue over the next year and what the FHA or HUD programs 
can do and should be doing to ease the burden. With respect to 
your answer I would like to have you indicate how many 
mortgages or what percentages of the subprime loans are at risk 
over the next year.
    Mr. Jackson. We have projected, that is Secretary Paulson 
and myself, to the President that we are facing somewhere 
between 1.8 to 2 million possible foreclosures from the year--
--
    Mr. Knollenberg. You said possible foreclosures?
    Mr. Jackson. Yes, possible foreclosures, from those loans 
that were made in 2005 and 2006. We believe that with the FHA 
modernization legislation we can forestall many of those. 
Secondly, we have refinanced almost 75,000 just FHA Secure.
    So we believe that clearly with the program that Secretary 
Paulson and I talked about yesterday, the Hope Now Allowance, 
that we can forestall probably 1.5 million to 1.8 million of 
those foreclosures.

                               FHA SECURE

    Mr. Knollenberg. Now, if I could interrupt, what extent is 
FHA offering to take over these loans, or to convert these 
loans, or even to go so far as to FHA taking on a risk beyond 
what they are now?
    Mr. Jackson. I will let Brian speak in depth to where we 
are because we did very well this last 2 months. We have 
received an enormous amount of applications for FHA to 
refinance many of these loans, over 200,000, and we have 
adequately addressed 75,000 since FHA Secure.

                             FHA STANDARDS

    Mr. Knollenberg. My real key question here is the 
following, is FHA weakening its standards, its underwriting 
standards in any way?
    Mr. Jackson. No.
    Mr. Knollenberg. Not at all?
    Mr. Jackson. No.
    Mr. Knollenberg. None?
    Mr. Montgomery. No, sir, we are not. Just one slight 
correction. Those are loans that could possibly go to default, 
and, you know, I guess we are both right. They could end up in 
foreclosure, but it is more default at this point, that 2.2 
million figure. Between September, early September when the 
President and Secretary Jackson made the announcement about FHA 
Secure, through the end of December, FHA helped pump $32 
billion worth of liquidity into the mortgage market.
    Compare that timeframe to the previous year it was about 
$17 billion, so we almost doubled the amount of liquidity that 
we pumped into the mortgage market.

                           HOPE NOW ALLIANCE

    Now, I have to say within that 2.2 million possible default 
and/or foreclosure number, there are a good number of investors 
and speculative buyers, people who used subprime loans to buy a 
second home, but when you peel it all back I think the 
potential universe that we could help between us, the Hope Now 
Alliance and others is somewhere on the order of, you know, 
maybe a million.
    I think by the end of this calendar year we will have 
refinanced close to 300,000. The Hope Now Alliance, which is 
doing wonderful things, is also remodifying and doing a lot of 
other things as well.

                           SUBPRIME MORTGAGES

    Mr. Knollenberg. Go back in the early 1990s, we had no such 
thing as subprime mortgages. Then about 1993 or so they grew on 
us. Again, they grow, and they have grown steadily. From 1993 
to 2005, subprime originations grew to $625 billion. That 
growth was largely focused on racial and ethnic minorities, 
first-time home buyers included as well, and low-income 
households that could not pass the normal underwriting 
standards.
    It is a simple fact that this boom was encouraged at 
intense cheerleading from and was ballyhooed as the great 
American success story by both the Clinton and the Bush 
Administrations. So my concern, my question, is quite simply do 
you think this active support of subprime loans as a way of 
achieving record minority home ownership makes the government 
in any way responsible even though it did actually insure these 
loans itself?
    Mr. Jackson. Ranking Member Knollenberg, I really do not 
think the government is responsible. I think that it was greed. 
In many cases the mortgage insurers and mortgage brokers did 
not use the same standards that many of our banks use.
    Mr. Knollenberg. The question really is is the government 
in any way responsible in your judgment?
    Mr. Jackson. I really do not. I think that somewhere people 
must take individual responsibility. I think many of the people 
who went to the subprime market were lured into the subprime 
market. They could have qualified for the prime market, but 
they did not.
    Mr. Knollenberg. Was this within the framework of HUD we 
are talking about here or are you talking about generally?
    Mr. Jackson. Generally. Not within the framework of HUD 
because for some strange reason until Commissioner Montgomery 
came we were not really instrumental in trying to change the 
antiquated system that we had at FHA to entice more people to 
deal with us. That is why we lost such a large market share.
    Mr. Knollenberg. Looking back, in your own judgment do you 
believe that subprime lending is a solid, modern innovation 
needed to expand home ownership and if the underlying problems 
of this boom is in how the mortgages are fixed? Answer the 
first part of the question.
    Mr. Jackson. I think it is because 80 percent of the 
subprime market, subprime loans are still very rarely 
physically responsible. I think we had so many people enter the 
market that 20 percent of them is a problem. There is no 
question about it. I do not want to throw a fishing rod out and 
say that everybody who fishes in the Pacific Ocean is a bad 
fishing person. They are not.
    Only about 20 percent of those loans that we are dealing 
with today should not have been made. Some were made over the 
internet, some were made by falsifying income, and it was a 
very lucrative market. Congressman Knollenberg, these loans 
were packages, securitized, and everybody was making money. So 
they really did not pay great attention to the process.
    Mr. Knollenberg. But when you say they, you mean whom?
    Mr. Jackson. The insurers, banks, investment houses. I 
mean, to date, if we had to look at where our loans are, I am 
not sure we would be able to find it because we sold the 
securities to China, to India, to Brazil.
    Mr. Knollenberg. Here is my point. Only 20 percent of the 
subprime loans were made by banks and thrifts. Eighty percent 
were made by something else.
    Mr. Jackson. Right. But the 80 percent basically was made 
by the banks. Let me say this to you because it is very 
important to understand that when you and I go into a bank, no 
matter we will not call the huge banks, we know when they give 
us a decision as to whether they will finance a loan and say it 
is a 30 year mortgage, we know it is a 30 year mortgage.
    If not, we have recourse through federal regulations. With 
many of the mortgage insurers, the mortgage brokers, that was 
not the case. They would tell the people that they have a five 
year ARM. It looks that way at the first two pages, but if you 
look at page 99 you realize you only had a year ARM and they 
change.
    Mr. Knollenberg. I know what is interesting, only about 20 
percent of these being with the banks and the thrifts, and both 
of those groups have very arduous standards.
    Mr. Jackson. That is correct.
    Mr. Knollenberg. They are not experiencing a problem, so it 
must be somewhere where they do have a lax way of----
    Mr. Jackson. I agree with you, but I am saying those are 
the mortgage----
    Mr. Knollenberg. My question is is it HUD that may be 
involved in some of this? We could talk about a number of other 
instances. I know that some of the brokers were rotten, if you 
want to know the truth, and I know you know the truth.
    Mr. Jackson. Right.
    Mr. Knollenberg. And some of them are gone. The bad apples 
have drifted away. The dilemma remains, the problem remains. Of 
these 80 percent that were done by other than banks and thrifts 
I think there is a concern here about the future with respect 
to the nonthrift, nonbanking arena and where the 80 percent is 
the problem, and maybe some were pushed into subprime when they 
should not have been.
    That is something that I would hope that the banking 
industry, the thrift industry, would do something about making 
sure it does not repeat.
    On the FHA front I am greatly disturbed, also, by reports 
from HUD officials that much of the decline in receipts is due 
to losses associated with the increase in seller funded down 
payments and is a direct result of the involvement of national 
and local nonprofit organizations, like the Nehemiah Group, for 
example.

                       SELLER FUNDED DOWNPAYMENTS

    Frankly, on the surface it seems that a nonprofit helping a 
family buy a house by contributing to the down payment, that 
should be a good thing, should it not, not a bad thing? It 
should be a good thing.
    Mr. Jackson. Well, let me say this. It should be a good 
thing, but it is not necessarily so.
    Mr. Knollenberg. Why?
    Mr. Jackson. Because the amount that they are charging 
necessarily does not mean that is what the property should have 
sold for, and so they undervalue the property from the very 
beginning.
    Mr. Knollenberg. Undervalued?
    Mr. Jackson. Undervalue. Many of the people do not realize 
that when they go to sell they really cannot get what they paid 
for the property. So it looks good, again, on the surface, but 
it is not necessarily all good. I think that we should ask for 
some specific amount for down payment and make sure that the 
person will be able to support the mortgage.
    In many cases, many of those companies do not necessarily 
do that. Now, let me say one other thing to you with respect to 
the question you asked about the loans. I am very pleased that 
the FBI has decided to begin to investigate many of these 
mortgage insurers and mortgage brokers, who made these loans. 
That is a positive step, and I think that is the way we are 
going to curb to make sure it does not happen again.
    Mr. Knollenberg. What is your projected cost to the fund in 
2009 if this activity is continued?
    Mr. Montgomery. Sir, I just want to quickly say, as you 
know, we proposed a rule to do away with the seller funded down 
payment organizations. The IRS had a revenue ruling in May of 
2006. Yes, almost 2 years old. They were taking their time, and 
I will not comment beyond that. We were enjoined from 
implementing the rule by a Federal District Court here in 
Washington. The Judge has told us that he will have his 
decision by the end of February.
    I will say that from an actuarial standpoint, they are 
running us out of business. The claim rate, the cumulative 
claim rate on loans that have that sort of assistance are two 
and a half times more likely to fail than those that do not 
have that type of assistance. The IRS touched on two things, 
sir, quickly, that you cannot have a circular financial 
arrangement between a buyer, a seller and a nonprofit.
    The other thing the IRS said is they violate what is called 
the detached and disinterested generosity clause. It 
essentially means that, sir, if you give $500 to the Girl 
Scouts of America, you do not call them up the next day and say 
where are my free cookies? Clearly in this instance there is an 
expectation on the part of all parties.
    The IRS honed in on that, they are 100 percent right, but 
us trying to fix this has been arduous at best, sir. The bottom 
line is they are driving us out of business, and that is a pure 
and simple fact.
    Mr. Knollenberg. And you are going to try to stop them 
obviously.
    Mr. Montgomery. We have tried, sir, and the irony of this 
is we are in record level in terms of refinanced transactions, 
we are in record levels of recent with purchase contracts as 
well, but as long as we have that percentage of these loans and 
that form of assistance we will carry that risk in perpetuity.
    We could be the largest mortgage insurance company in the 
world, but as long as we have that level of risk, sir, it is 
unsustainable. That is what the 2009 budget states very 
clearly.
    Mr. Knollenberg. My time has expired. I do appreciate the 
responses. Let me just say, Mr. Chairman, thank you very much 
for allowing my stretching that out maybe for another few 
seconds or whatever. I do have plenty of other questions 
obviously, and some of those will have to be for the record, 
and I will submit those. Thank you.
    Mr. Olver. Thank you. Mr. Rodriguez.
    Mr. Rodriguez. Mr. Secretary.
    Mr. Jackson. Good morning.
    Mr. Rodriguez. Welcome back.
    Mr. Jackson. Thank you so much.

                         PROPOSED PROGRAM CUTS

    Mr. Rodriguez. I noticed the President's budget cuts $866 
million from the CDBG monies, that is approximately a 22.4 
percent cut. In addition to that, the request also cuts the 
EDI, which is I guess the Economic Development Initiative, as 
well as the Neighborhood Initiatives, or NIs, by over $206 
million. That is almost about a $1 billion cut on those very 
significant programs.
    In addition to that, these were programs that help 
communities in terms of infrastructures and those kind of 
issues. It also eliminates the HOPE VI Program that has been 
real good. I also represent a rural community. You also cut the 
rural housing and economic development, you cut the Housing for 
Persons With Disabilities and also made some significant cuts 
based on paying hazards reductions.
    Based on those recommendations, Mr. Secretary, it is a 
pretty significant deterioration in terms of those programs 
that go out there and address some of our needs. How can you 
justify making those proposals?
    Mr. Jackson. First of all, Congressman, I appreciate your 
question. Let me say that rural housing, first, should be 
handled by the Department of Agriculture because they have a 
large rural housing program. Secondly, we think that the 
reduction in the community development program is needed in the 
sense that many of the cities who are receiving Block Grant 
funds really do not need Block Grant funds.
    We think we should be able to pinpoint those cities. A best 
example I can give you, a city that has severe problems, like 
Canton, Ohio, where they have lost a lot of industry, I would 
like to zero in for 3, 4 or 5 years, and give them the kind of 
monies that they need to entice industry to come back.
    The way the program is written since 1974, we cannot do 
that. Palm Beach still gets Community Development Block Grant 
funds; Dover, Washington, still gets Community Development 
Block Grant funds; Dallas, Texas, my hometown, still gets 
Community Development Block Grant funds and usually, in many 
cases, for building inspectors.
    I think that the amount that we have appropriated, if the 
legislation was passed we would be able to address real serious 
issues that cities face. Today we cannot really address those 
issues because the money is so widespread, Congressman, that it 
is really not doing what you or your colleagues initially 
wanted it to do in 1974.
    I can tell you the first part of it it did do that because 
it zeroed in on those communities that needed it. Today, that 
is not the case. So if the legislation is passed I can tell you 
we can make strides in certain cities like Canton or Lorain, 
other places that really need injections to change the quality 
of life and bring businesses back.

                                HOMELESS

    Mr. Rodriguez. There is a difference between eliminating 
the resources and retargeting in terms of the language that you 
would be seeking. I would agree with you there is a need for 
some targeting, but you are also eliminating.
    I do want to thank you for looking at adding that $50 
million on homeless, but based on the numbers also of homeless 
and the conservative figures that are out there, that increase 
amounts to about less than $3 a year which you are basically 
buying a meal for a homeless person, one meal out of 365 days.
    I do want to congratulate you for at least putting new 
resources there, but we really need a little more than just one 
meal a year for these people that are homeless.
    Mr. Jackson. Let me say this to you. I would not debate 
that. I think that we have done a lot, but there is a lot more 
we need to do. There is just no question about that. We had a 
reduction for the first time in the history of 12 percent last 
year of the homeless rate, and we are able now to keep data.
    That data will give us better information as to how we 
should address this problem. So I would agree we have done a 
lot, but there is still a lot more to do.
    Mr. Rodriguez. Thank you very much.
    Mr. Olver. Ms. Kaptur.

                       HOUSING FOR SPECIAL NEEDS

    Ms. Kaptur. Thank you, Mr. Chairman, very much. Welcome, 
Mr. Secretary.
    Mr. Jackson. Thank you so much, Congresswoman.
    Ms. Kaptur. Good to have you here. Of course we always 
focus on the gaps and needs. I have to say yesterday when I was 
back in my district I attended a ceremony at a place called 
Bittersweet Farms which is one of the few adult residential 
facilities for the autistic in the world, and there was a HUD 
special project going up for adults who cannot function on 
their own.
    It just made me feel really good with the snowflakes 
falling and the ceremony that we had that all the people at 
HUD, sometimes if you wonder if your life is worth it and if 
you are doing what is important, yes, you are. So in one place 
in America, one place in the world, you made a difference, and 
it was just good to experience these housing projects for 
people with special needs and so forth.
    Mr. Jackson. Thank you very much.

                         FORECLOSURE ASSISTANCE

    Ms. Kaptur. They are not the only ones, but it was just a 
very special moment, so I wanted to share that with you as I 
get into the parts of the budget I am not happy about. Let me 
just say on home foreclosures, Ohio is really terribly 
affected, and the part of Ohio that I represent more than the 
rest.
    Congresswoman Sutton, if she were here, Sherrod Brown over 
in the Senate side now, we all share this same problem. There 
was a story at NPR this morning about Detroit. I think up to 5 
percent of their housing stock is in foreclosure.
    My question to you, sir, is first, is it my correct 
understanding that the amount of potential foreclosed units in 
the country could ring in over $2 million, and then from what 
you have said this morning as a result of what you are doing 
$300,000 of that or up to $1 million might be able to be 
refinanced?
    I am trying to understand the whole--what part we are 
dealing with and what part we are not dealing with. In my own 
district I can tell you it is my impression that the workouts 
are being handled as best they can, but I am not sure that in 
the way you want to target CDBG we are targeting this 
foreclosure assistance as carefully as we could to the areas 
that are being hit the hardest.
    So could you discuss a little bit the total gap that might 
exist in the country, and then how many troubled home mortgages 
you expect to be able to somehow touch and prevent foreclosure, 
what the gap will be? What are we going to lose, half a million 
homes?
    Then, in places like Toledo and Lorain, Ohio, and Sandusky, 
Ohio, and you mentioned Canton, my goodness, how these programs 
are going to target in there right now so that we can move it 
more quickly, maybe prevent those foreclosures more quickly. 
How are you targeting the areas of greatest need?
    Mr. Jackson. Sure. Let me say this to you. We have done I 
think, a very yeoman's job just with FHA Secure, but I think 
once the legislation, modernization legislation, is reconciled 
between the House and the Senate and passes we will be able to 
do a lot more. The other thing that I think is so very 
important at this point in time is that the stimulus package 
that you all passed has the ability to let us go up to $729,000 
where before we could only go up to $362,000.
    So we will be able to help a lot more homeowners in the 
next 10 months than we would have been able to help previously. 
I wish that had been forever for FHA because I think it could 
have been very, very important.
    Ms. Kaptur. So did you agree with my number of $2 million? 
Potentially, total outfall could be $2 million?
    Mr. Jackson. Yes, I do. Yes.
    Ms. Kaptur. Then, if that additional increment, if we 
finish the bill over on the Senate side, what percent of that 
$2 million can be prevented?
    Mr. Jackson. We believe we can easily serve $1 million of 
it, as the Commissioner said. With the FHA modernization, with 
everything we put in place, yes. With the ceiling raised, we 
can really address many of the issues we could not address 
before.
    Ms. Kaptur. Okay, potentially half. With the bill not 
through the Senate, what are we doing right now to target 
communities where the outfall is just phenomenal? The real 
estate market is basically, if there is anything worse than 
dead, that is what it is. It is a negative debt.
    Mr. Jackson. That is right. We have been traveling the 
country. I was in Detroit when 500 families showed up, and we 
basically saved about 80 of those. I am in Cleveland next week. 
Because it is very important that people understand that we can 
stop this process if they would only just talk to their 
lenders.
    One of the things, Congresswoman, that we found is that 50 
percent of the people are shameful and they do not want to talk 
to their lenders. So we are getting the message out through FHA 
Secure, through Hope Now Allowance. We sent out more than 
500,000 pieces of literature to potential homeowners who might 
be in default or foreclosure and said we have counseling 
centers at your city at this place.
    We have 2,300 counseling centers around the country, plus 
we have NeighborWorks, which is another counseling center. So 
we are trying to get the message out. Our biggest problem has 
been, sadly to say, it is people who do not want to tell anyone 
that they are in foreclosure.
    Ms. Kaptur. I know my time has expired. Mr. Secretary, when 
you consider going to Cleveland, think about going 40 minutes 
west, and then another 60 minutes west and then you would cover 
the whole northern band of Ohio. We could take you up to 
Detroit, and you could fly back.
    You will be in the bullseye then from Cleveland to Detroit 
of one of the most troubled regions in the midwest. I would 
just ask you to consider that because we are all hurting.
    Mr. Jackson. I will consider that. Probably what I will do 
is I will have my scheduler call your person and see if you are 
going to be there, and we can travel together.
    Ms. Kaptur. Thank you. Thank you very much.
    Mr. Jackson. Okay.
    Mr. Olver. Thank you. Ms. Roybal-Allard.
    Ms. Roybal-Allard. Welcome, Mr. Secretary.
    Mr. Jackson. Good morning.

                        AFFORDABLE HOUSING LOSS

    Ms. Roybal-Allard. I would like to follow up a little bit 
on what the Chairman's line of questioning was and also express 
my concern that HUD may face the type of financial crisis that 
they experienced at the end of 2007 when owners were faced with 
long delays in their payments.
    One of the concerns that I have is that in California, for 
example, owners are indicating that they are unlikely to renew 
their 12-month contracts if HUD cannot guarantee the full 12 
months of their contract. Does HUD have a plan to address this 
potential loss of affordable housing stock if this were to 
happen?
    You indicated that it is not a reality, but even the 
perception that they are not going to get their money is 
causing a lot of the property owners to say we are not going to 
even take a chance, which means there would be a considerable 
loss of affordable housing. Is there any plan in place to 
address that if that were to happen?
    Mr. Jackson. Yes. We are trying to assure, Congresswoman, 
that they understand we are going to make good--to make sure 
that they stay in the program on their payment. We have gone 
out of our way to make sure that they understand that. I wish I 
could tell you that we have some magical wand we could wave and 
say this is going to correct the problem.
    We think we are on the way. I think the Chairman said it a 
few minutes ago, we added $623 million. I think we are coming 
very close to resolving this problem, but until that problem is 
resolved we have made it very clear to the landlords that look, 
do not worry about it, we are going to make our payments to 
you.
    Ms. Roybal-Allard. And will they be timely?
    Mr. Jackson. They will be timely. They will be timely. 
There was one period of time that they were not, and I think 
you know it and I know it, and I made sure that was not going 
to happen again.

                        CAPITAL NEEDS ASSESSMENT

    Ms. Roybal-Allard. Throughout the country there are public 
housing authorities, as you know, that have very serious needs. 
For example, in the City of Los Angeles, there are more than 60 
public housing sites totalling 8,000 units, and in Los Angeles 
County, there are more than 3,600 units and 68 sites. Many of 
these projects require substantial repairs and modernization, 
including asbestos removal.
    In 1998, I believe, was the last time that HUD actually 
conducted a capital needs assessment, and at that time it found 
that it needed an additional $18 billion to $20 billion to 
bring all public housing properties up to date. Last year HUD 
announced that it was finally going to conduct a new needs 
assessment.
    Has that assessment been done? What were the findings? If 
it has not been completed, when will it be completed and what 
do you expect to find?
    Mr. Ozdinec. Congresswoman, we are in the process of 
conducting that needs assessment right now. We expect to let 
the contract in April.
    Ms. Roybal-Allard. You have not let the contract out yet?
    Mr. Ozdinec. No.
    Ms. Roybal-Allard. It has not been done?
    Mr. Ozdinec. No.
    Ms. Roybal-Allard. So right now the funding of these 
capital funds are just based on, what, 10-, 12-year 
information? How do you determine that when you do not even 
have accurate information about what the need is?
    Mr. Jackson. Well, let me say this to you, Congresswoman. 
Since 1990, when we had the Commission on Severely Distressed 
Public Housing, we said that there was 88,000 severely 
distressed public housing units in this country that needed to 
be removed and rebuilt. As of to date, we have removed 150,000.
    I believe clearly that there is still enough money in each 
one of these housing authority's budgets. I was in Los Angeles 
before the untimely death with Congresswoman McDonald. We 
visited two of the public housing developments. I believe that 
they have the capital funds to do this. Many of them are not 
using the capital funds the way that I think it should be used 
in that process.
    Now, when we make the assessment if we really believe that 
they need more funds I believe whoever comes behind me will 
make sure that is done. As of today, think about it, we have 
removed 150,000 units out of many of the public housing stock. 
That has freed up a great deal of money for them to do capital 
improvement on those buildings that are left.
    I still believe that they can be done. Secondly, they have 
reserves that they can use. Let me say this to you, because 
some people will say well, how do you know, Alphonso, that this 
has occurred, I have the dubious distinction of being the only 
Secretary that has ever ran a housing authority.
    I ran three major housing authorities in this country: St. 
Louis, Washington, D.C., and Dallas. So I know how to use 
resources when it is necessary. I think many of the 
professionals in this business will do it, too, but they will 
not do it unless they in many cases know that the money is not 
coming.
    I think we are allocating enough capital funds for them to 
do their job.
    Ms. Roybal-Allard. Okay. I see that my time is up, but I 
just want to address the point that you made about the 
reserves. My understanding, at least in California, is that 
many of these housing authorities do not have reserves or have 
very little reserve money to address these problems, and maybe 
we can follow-up on this a little bit.
    Mr. Jackson. I would be happy to because I can tell you 
that I am well aware a lot of them have reserves. Now, if you 
are talking about the very small ones, I would totally agree 
with you, but the major housing authorities in this country 
have reserve. Thanks.
    Mr. Olver. Mr. Berry.
    Mr. Berry. Thank you, Mr. Chairman. Thank you for being 
here, Mr. Secretary.
    Mr. Jackson. Thank you, Congressman.

                            SUBPRIME LENDING

    Mr. Berry. I believe that you said a few minutes ago that 
we had lenders that had not followed the Federal law or the 
Federal regulations. Why? I mean, did they just choose to 
ignore the law or are they some way or other outside the 
jurisdiction of the Federal government in this matter?
    Mr. Jackson. Well, Congressman, they did not follow, I 
mean, the regulations as banks would follow or thrifts would 
follow. They made promises to people, they lied to people, they 
enticed people to take these loans knowing that they were not 
financially capable of fulfilling these loans, and many of 
these people are being prosecuted today.
    As I just said to the Chairman, I am very pleased that the 
FBI has gotten involved at this point in time to close down a 
number of these insurers. We have taken several steps to make 
sure that we do everything in our power to make sure that they 
do not continue to run this process. Thirdly, many of them have 
gone into bankruptcy.
    Middle America is in bankruptcy at this point. So, yes, we 
had a lot of people. This was a very lucrative situation 
because nobody really held a mortgage in many cases. What they 
did is securitized it. They made the loan, sold it to the bank, 
the bank sold it to Germany, sold it to France, sold it to 
India, China.
    I mean, it was a moneymaking venture in this process. I 
would be happy to give you a diagram of how this system worked. 
It was phenomenal. And so over the last 8 years it has just 
been a moneymaker for people, and they did not do any of the 
things they should. People were making loans over internet, 
people were falsifying their information to make a loan and no 
one was verifying this information.
    That is why we are in this situation today. They did not 
want to verify it because they said if we can make the loan, it 
is fine.
    Mr. Berry. Well, I probably do not fully understand how 
that happened, but I reserve the right to be a poor dirt 
farmer, but I can add and subtract. I guess my real question to 
you is, do we need more laws or is it just a matter of 
enforcing the laws that we have?
    Mr. Jackson. Well, I will say this, that your colleague, 
Chairman Barney Frank, and Chairman Dodd on the Senate side, 
have talked about ways to look at how we can address this 
issue. So if you all choose to address the issue we will 
enforce any regulation or laws that you put in place.
    Mr. Berry. Basically, we have got laws that were ignored by 
the people that were violating them and they were not enforced 
either.
    Mr. Jackson. Well, they are being enforced now.
    Mr. Berry. Right.
    Mr. Jackson. I just think it was so lucrative nobody cared 
until we had this problem. That is why 2 years ago we brought 
the FHA modernization bill, because I foresaw that we were 
going to have a serious problem with these subprime loans.
    Mr. Berry. Thank you.
    Mr. Olver. Mr. Pastor.
    Mr. Pastor. Good morning, Mr. Secretary.
    Mr. Jackson. Good morning.

                                HOPE VI

    Mr. Pastor. First, let me apologize for being late and not 
being here at the very beginning, but this is the 
appropriations season and Subcommittees are having hearings 
about the same time. It is getting harder to recall a 
conversation I had with you last year that dealt with the HOPE 
VI.
    At the time, I had told you that we had just completed one 
in Phoenix. I think you had just seen it--The Harmon Project.
    Mr. Jackson. Yes.
    Mr. Pastor. And that we were interested in doing another 
one. I think you zeroed out the program last year. However, you 
said there was enough money in the program to continue new 
programs, and that the program was slow and was not moving 
forward as you had projected, and a number of proposals had 
been awarded but had not been completed or started. What is the 
status today?
    Mr. Jackson. To date, Congressman, we have completed 75 
HOPE VI out of 290 that have been awarded since 1990. We still 
have $1.4 billion outstanding.
    What I would like to see in all honesty, and I said this to 
the Financial Service Committee, is the ability to recapture 
that money and send it to places, like Phoenix, to Atlanta, to 
Charlotte, I want to even send my hometown, Dallas, but where 
people have really utilized the money to revitalize and 
integrate communities, both socially and economically, so we 
have zeroed it out.
    I still believe that there is no better program than the 
two, that is first, Community Development Block Grant, it is a 
phenomenal program. Secondly, I think that the HOPE VI for 
those that have been developed are absolutely phenomenal. I had 
the distinction of serving on the Commission on Severely 
Distressed Public Housing. We wrote the law.
    I personally gave the name to HOPE, which is Housing 
Opportunity for People Everywhere. I believe in the program, it 
is just the program has been stalled and it is not working very 
well. And so I would ask again to Chairman Olver and you all 
the ability to recapture that money and send it to cities.
    If we could recapture that $1.4 billion and send it to the 
right cities--when I say the right cities, the cities who have 
demonstrated this. Of course they are going to have to compete, 
but knowing that they have done very well--I mean, when you 
look at Atlanta, you look at Charlotte, they have done very 
well with their HOPE VIs. I think that is the way to do it.
    Then once that money is expended, I will go to the mat for 
anybody to tell people the HOPE VI Program is wonderful.

                             HOPE VI REFORM

    Mr. Pastor. As I recall, you said that your hands were tied 
last year and again this year because of lack of reform and 
inability to recapture. As you well know, Chairwoman Maxine 
Waters has been very active and HOPE VI is one she would like 
to continue.
    You have testified before the Financial Services, and I 
imagine before Maxine Waters.
    Mr. Jackson. Surely.
    Mr. Pastor. Have you proposed or asked for the reforms you 
need so that we can recoup some billion dollars so we can 
continue? You talk about 150,000, some people say it is only 
100,000, severe distressed stock that has been rehabbed, and 
there is probably about another 100,000 that still needs to be 
redone, and so there is still a need to do that, if we have 
that money available.
    Have you suggested to her what would be some of the reforms 
that would help to do that?
    Mr. Jackson. Yes, I have. I have suggested not only to her, 
to the Senate side and to both the House side, the Financial 
Services Committee. I think that if they would permit us to go 
back 5 years we could probably get $500 million very quickly, 
or go back 10 years, we could get more than that, and allocate 
it for reauthorization to those people who qualify.
    I believe that is the approach that we take. I can give you 
the name of cities, I would be happy to have that delivered to 
you, that has had HOPE VIs since 1992, and nothing has 
occurred. I mean, nothing has occurred. One example is Detroit. 
Detroit is a city that has had a HOPE VI for a long time.
    We just had one other city, and it has had one since 1996. 
That is 12 years ago, and the money is still sitting there. So 
I think that if we could recapture some of that money, 
reallocate it through the competitive process, we could make a 
tremendous difference. I said to Congresswoman McDonald when I 
visited her and two public housing developments there, they are 
ripe candidates for the HOPE VI Program.
    I mean, if we had the money they would be great candidates 
because they sit in the heart of Los Angeles, and they have not 
been renovated since they have been built. So if a good 
application comes in, Milan Ozdinec is responsible for that, I 
think that clearly they would entertain all of those.
    Mr. Pastor. Mr. Chairman, my time is up, but since the 
Secretary was willing to send the list is it possible to 
request the list, and that way members can find out who is and 
maybe approach Chairwoman Waters?
    Mr. Jackson. Sure.
    Mr. Olver. We will make a formal request.
    Mr. Pastor. Thank you.
    Mr. Olver. Mr. Secretary, we have another matter pending. 
It is only one vote. We are going to need to break, so we are 
going to stand in recess for about 10 minutes.
    Mr. Jackson. Thank you, sir.
    [Recess.]
    Mr. Olver. Thank you, Mr. Secretary.
    Mr. Jackson. Thank you.

                              CDBG FORMULA

    Mr. Olver. We are in a conundrum in the House, and so in 
about 20 minutes, we will have to go again. I think we will 
probably try to adjourn this about the time that you need to be 
trying to get to an airplane. I have commanded Mr. Goode to be 
for a few minutes the Ranking Member until Mr. Aderholt comes 
back.
    Let me just try to clarify a couple of things in my mind 
that came up from some things that some of my colleagues had 
raised. In the question of the CDBG formula that you have 
suggested needs to be changed, you have proposed that several 
times, really, the formula change ought to be a matter for 
authorization.
    I am wondering whether you, the Department or OMB, however 
these things go for actual legislative change, whether those 
changes that you have been offering have been submitted to the 
Financial Services Committee, for their consideration.
    Mr. Jackson. They have been. I am sorry.
    Mr. Olver. Go ahead.
    Mr. Jackson. They have been. We resubmitted them this year.
    Mr. Olver. You submitted them this year.
    Mr. Jackson. Resubmitted them last year, also.

                        PUBLIC HOUSING RESERVES

    Mr. Olver. Last year? Okay. I have some sympathy to what 
you are saying, I have to admit, though I am not so sure 
exactly how you would then operate in Canton, Ohio.
    If we knew exactly how community development would operate 
in the Canton with money that you might get from the Palm 
Beache, that is a different question. I really do not know how 
authorizing would deal with that, but that is where it might 
go.
    Secondly, on the question of the reserves which Ms. Roybal-
Allard raised, as you know, under the reauthorization bill for 
SEVRA, the Financial Services Committee and we, the House, have 
passed legislation that would reduce that number from that 
allowed reserve from 12 percent to nine and then to five.
    We last year with the agreement of the Financial Services 
Committee chose to reduce the reserves to seven and a half in 
between the nine and five.
    Now, let me ask you then, specifically, the $600 million 
that you are proposing should be reduced from reserves, where 
would that bring us in terms of the percentage below seven and 
a half, which is what we had last year? It has to bring it down 
so much. Where would that bring it?
    Now, you are saying that the reserves are available only in 
big places, not in small places, but I think that SEVRA is 
saying the same thing. How far down would that $600 million 
bring us?
    Mr. Jackson. Let me ask, this is his specialty, Milan 
Ozdinec.
    Mr. Ozdinec. Mr. Chairman, good afternoon, I am Milan 
Ozdinec from Public Housing and Voucher Programs. I think I 
would like to be clear about which reserve you are talking 
about. Are you talking about the public housing reserve or the 
Section 8 reserve?
    Mr. Olver. The public housing reserve.
    Mr. Ozdinec. Okay. I am Section 8, net restricted assets.
    Mr. Olver. Wait a minute. The way you are taking the $600 
is from the Section 8 public housing, the reserve, project 
account.
    Mr. Ozdinec. I thought so. Okay. As we sit here, Mr. 
Chairman, the net restricted assets, which is the account that 
you are describing, sits at about $2.1 billion. That is 
previously appropriated and approved funds that have been 
awarded to housing authorities that currently sit in their bank 
accounts.
    The Department has taken a position historically that was 
their money. That, much like the public housing program when 
those funds were awarded to those authorities, they would then 
utilize to the greatest degree possible that money for HAP and 
administration.
    We have advocated in the last three budgets that the caps 
on the utilization of those funds be removed so that housing 
authorities, to the extent that they are able to utilize 
efficiently their funds by reducing HAP, increasing 
negotiations with landlords to improve the efficiencies of 
their programs, can actually go above their authorized limits.
    Mr. Olver. They would say that would take their flexibility 
severely away. There must be some that is useable reserves 
versus what is unusable reserves.
    Mr. Ozdinec. That is correct.
    Mr. Olver. We will have to clarify that. My time is up here 
again. We want to have a couple of rounds of questions from my 
colleagues before we have to go vote and let you go, okay?
    Mr. Jackson. Okay.
    Mr. Olver. Mr. Aderholt.

                          MANUFACTURED HOUSING

    Mr. Aderholt. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for being here. I apologize for being late as well. It has 
sort of been a crazy day on the Hill with different hearings 
and procedural votes that are going on. It is that time of year 
with the appropriations season in full swing. Let me just take 
just a brief moment and say thank you for meeting with us 
yesterday.
    I had the opportunity to meet with the Secretary and some 
leaders from the manufactured housing industry yesterday in his 
office. I want to thank you for taking the time to meet with us 
and to sit down to discuss those issues.
    The manufactured housing industry is going through a very 
difficult time, as you know, over the last several years and 
trying to find some ways to help everyone find affordable 
housing, I think is very important. Just as important is your 
commitment to getting a group together in your office to work 
on that and your personal follow-up on that means quite a bit.
    Mr. Jackson. Thank you very much.

                               FHA REFORMS

    Mr. Aderholt. So thank you for your commitment to do that. 
We look forward to working with you. I know Mr. Montgomery is 
here today. He was, I think, out of town yesterday and was not 
able to be with us, but I know his commitment to this issue as 
well, and it is certainly something that is very big on his 
portfolio.
    I just want to talk a little bit about the priorities that 
you have at the Housing and Urban Development Agency and what 
your priorities with FHA reforms are. If you could just tell us 
a little bit about it, and what you foresee as something that 
you think is of the highest priority in that regard.
    Mr. Jackson. I must say that FHA reform, RESPA, are two of 
the highest priorities, especially FHA, because we think we can 
do a lot of good for low and moderate income people. We would 
love to see within the next week or so that we could have that 
legislation on the President's desk so it can get signed.
    That would be a positive step for us because that would put 
us in a position to help a lot more Americans who are facing 
foreclosure today. I must appreciate the Congress for passing 
the stimulus package because it means that we can for the next 
10 months help people at the higher level, up to $729,000, 
refinance their homes.
    I think that is a very positive step, but at the same time 
I think that we need the modernization legislation because we 
are effectively closed out of a lot of communities from 
Virginia all the way back to the Atlantic Ocean, from Utah all 
the way back to the Pacific Ocean. We cannot finance any 
refinance or finance any homes basically within that sphere of 
this country.
    So I think it is very important that this legislation pass. 
Secondly, I think that, too, with FHA Secure that the President 
talked about with the Hope Now Allowance, all of these are very 
important pieces of the puzzle. We were asked yesterday when we 
had Project Lifeline by a reporter what other steps we can 
take.
    There is a whole lot of steps we can take to try to make 
sure that people stay in their homes. One of the major steps is 
FHA modernization. That is long-term, has a very positive 
effect. Now, I think it was Chairman Olver who asked about some 
of the payer outs such as Nehemiah.
    I cannot say very much about it because basically we are in 
litigation, but I think that is not the best approach to take 
by setting up a system where they will give you your down 
payment and not really check your records so well. So we will 
see, but we think it is very important that we pass this 
modernization legislation.

                            IT MODERNIZATION

    Mr. Aderholt. Of course, as far as what you need for 
computer servers, what would you need for modernization?
    Mr. Montgomery. We certainly need to upgrade our IT systems 
not just for single family but multifamily as well, but I would 
say single family is near the top of the list. The average age 
of our systems is a little less than 18 years old and our 
oldest Legacy system is about 29 years old. You can imagine how 
difficult it is to operate with systems that old.
    Mr. Jackson. Congressman, let me say this. When we walked 
in, that is when now Senator Martinez was Secretary Martinez, 
we had a little over 300 systems operating at HUD. We have cut 
that substantially. The IT funds, this and the 2009 budget, 
whoever comes behind me is not adequate enough to address the 
issues that we want to do.
    We have gotten ourselves off the high risk list. We want to 
stay off the high risk list, but we are going to have to 
address certain issues with our information technology system. 
There is just no question about it. I am not sure how we do it 
if the sum told in this case is not increased. We will do the 
best that we can and continue to cut down.
    I think we have now 180 systems out of about 325 when we 
came there. We would like to cut that down substantially, and I 
think we can do it if we have the right allocation.
    Mr. Aderholt. Thank you.
    Mr. Olver. Thank you. Mr. Goode.

                           FHA MODERNIZATION

    Mr. Goode. Thank you, Mr. Chairman. Mr. Secretary, you 
mentioned FHA modernization. Could you give me your top two 
changes that you think need to occur to help that in specifics, 
not generalized?
    Mr. Jackson. That is why I brought Commissioner Montgomery.
    Mr. Olver. By the way, we have a vote on the floor in the 
next three or four minutes.
    Mr. Jackson. He knows how to be succinct.
    Mr. Goode. That will be my only question then, Mr. 
Chairman.

                            FHA LOAN LIMITS

    Mr. Montgomery. Loan limits which are deemed higher loan 
limits which floats all the boats, in particular in the high 
cost areas but also in the lower cost areas as well----
    Mr. Goode. The high cost ares.
    Mr. Montgomery. There are 11 high cost areas, five of them 
are in California.
    Mr. Goode. Are there any in Virginia?
    Mr. Montgomery. We are right in the middle of one right 
here. This is a high cost area, northern Virginia. Washington, 
D.C., and Maryland, are high cost areas.
    Mr. Goode. Okay.
    Mr. Montgomery. So float all the boats of high loan limits, 
some flexibility in the down payment. We have moved away from a 
zero down. The Senate bill has a one and a half percent. The 
House bill allows a zero down, but we think the borrower under 
the present mortgage market should have some skin in the game, 
so to speak----
    Mr. Goode. I agree.
    Mr. Montgomery [continuing]. And I would say some 
flexibility in how we price our premiums in light of the fact 
that we are an insurance company and need to stay solvent and 
not have to ask for an appropriation to stay in business, 
particularly in these unstable times in the mortgage market.
    Mr. Goode. Thank you.
    Mr. Olver. Thank you. Let me talk for 1 minute before we go 
and let you go. On the FHA, as you know, the FHA 
reauthorization passed the House with those amendments and goes 
to the Senate.
    Mr. Jackson. That is correct.
    Mr. Olver. If you have problems with that one, then you 
have work to do over there on the question of what is 
important; if they have not been taken care of on our side, we 
have got work to do there. I do note that you had assumed in 
your fiscal plan for this year in your budget an amount of 
money which traditionally FHA receives and distributes to HUD 
for FHA operations, and those have allowed you to do other 
things. In this case, we have none left unless the 
reauthorization passes the Senate clearly.
    Mr. Jackson. That is correct. That is correct.
    Mr. Olver. And you have assumed the passage of what I 
understand to be the Senate bill, and I am not sure exactly 
what the differences are, but you assumed that, and I am 
wondering whether that is something good, whether you should be 
assuming in your budget document that possible passage of the 
Senate bill. Do you want to comment on that?
    Mr. Montgomery. Well, in the 2009 budget, OMB has in there, 
an across-the-board premium increase as sort of the fallback 
position that if we do not get this, we do not get that. We 
raise premiums on everybody, and that is something we do not 
want to do. We would rather price according to the rest.
    Mr. Olver. Okay. Thank you very much--Mr. Secretary--we 
will have other questions for the record.
    Mr. Jackson. Thank you so much.
    Mr. Olver. Thank you very much.

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
                                       Thursday, February 28, 2008.

  HOUSING NEEDS OF SPECIAL POPULATIONS [ELDERLY; DISABLED; HOMELESS; 
                                 HOPWA]

                               WITNESSES

MARK JOHNSTON, DEPUTY ASSISTANT SECRETARY FOR SPECIAL NEEDS ASSISTANCE 
    PROGRAMS
JOHN GARVIN, SENIOR ADVISOR FOR HOUSING PROGRAMS

                        Chairman's Introduction

    Mr. Olver. The Subcommittee will come to order. We are in 
the position where at least four or five different Committees 
are having showtime, several of them where there are lots of 
cameras. We are lucky we do not have cameras, or we would have 
the whole place here crowded, as several of the others are. I 
just came from one that I was on, which was very interesting.
    Anyway, I want to welcome Mark Johnston, Deputy Assistant 
Secretary for Special Needs Assistance Programs; and John 
Garvin, the Senior Adviser to the Assistant Secretary for 
Housing Programs, to the Hearing on Housing for the Elderly, 
Disabled, Homeless, and People with AIDS.
    The Federal government has a responsibility, I believe, to 
ensure that a strong social safety net exists for people who 
are elderly, disabled, homeless, or live with AIDS. You are 
always welcome to disagree.
    Our friends within these vulnerable populations are all too 
often forgotten and left without the supportive services they 
need and require. Adequate and affordable housing, along with 
supportive housing services, is particularly important for the 
elderly, disabled, homeless, and people with AIDS.

                        HOUSING FOR THE ELDERLY

    I would like to spend just a few minutes to describe the 
great need that exists for housing within these communities. 
For the elderly, according to U.S. Census Bureau, the number of 
elderly is expected to rise to 72 million by 2030, which more 
than double the number in the year 2000. Now, that is quite a 
rate of rise, in fact. It is about 3 percent per year or more, 
but we are not seeing that yet because the baby boomers have 
not yet begun to retire, but when they begin to retire, in the 
next few years, then, for the rest of that period, the baby 
boomers will be coming through year after year after year. So 
that is how you get to those kinds of numbers.
    The United States already has a shortage of housing for the 
elderly. AARP estimates that today there are ten seniors on the 
waiting list for every one unit of elderly housing that becomes 
available, and the rise in the number of elderly will continue 
to exacerbate this housing shortage as, again, the baby boomers 
reach retirement.
    In a report released in 2002, the Bipartisan Commission on 
Affordable Housing and Health Facilities Needs for Seniors in 
the 21st Century estimated that an additional 730,000 units of 
affordable housing for the elderly will be needed by 2020, just 
12 years from now.

                              SECTION 202

    The Section 202 Program is the largest housing program for 
the elderly, with over 268,000 units for seniors, and, once 
again, the President's budget recommends a steep cut, $195 
million below last year's level of $735 million, for the 
Section 202 Program. Of the President's recommended Section 202 
budget of $540 million, only $321 million is assigned for new 
construction, which can produce, roughly, 2,300 units. By my 
calculation, it would take, roughly, 300 years, at that rate of 
construction, to produce the 730,000 units that the 2002 
Commission says will be necessary by just 2020, which is just 
12 years from now. So those numbers really do not fit very 
well.
    For the disabled, the shortage of affordable units for the 
disabled is just as severe. A 2004 report released by the 
Presidentially appointed National Council on Disability cited a 
study which estimates that 1.8 million persons with 
disabilities who receive supplemental security income have 
severe housing problems.
    Another study, released last year, found, nationally, that 
average housing rents exceed by 10 percent a disabled person's 
monthly supplemental Social Security income payment, and, for 
those people, we are providing the difference between 30 
percent of their income as a subsidy on the housing. So it is 
really low-income people that are involved here.

                              SECTION 811

    The Section 811 Program, created in 1990 under the first 
President Bush, is the main Federal housing assistance program 
for the disabled. Through capital grants, project rental 
assistance, and vouchers, the Section 811 Program has only 
40,000 or so units, less than 5 percent of the number 
identified in the 2004 report of the President's own Council on 
Disability as being the number of people with disabilities 
having severe housing problems.
    A year ago, for fiscal year 2008, the Administration 
recommended nearly a 50 percent reduction for construction of 
affordable housing for the disabled.
    For fiscal year 2009, the President's budget recommends a 
$77 million reduction, which is more than a 30 percent cut from 
the enacted budget for 2008.
    In addition, last year, this Committee provided $30 million 
for about 4,000 new housing vouchers for the disabled. These 
new vouchers were the first new housing vouchers for the 
disabled in the last 5 years, yet the Administration's budget, 
as far as I can read it, does not include these new vouchers 
for Section 8, Tenant-Based Contract Renewals, and if this 
budget were enacted, those vouchers might be lost. Maybe you 
can correct me in the reading of the budget submission.

                                 HOPWA

    For people living with AIDS, there is also a great need for 
affordable housing and supportive services. According to the 
CDC, the Center for Disease Control, the number of people 
living with HIV is between a 1,039,000 and 1,185,000. Studies 
have found that people living with HIV and AIDS are more likely 
to experience homelessness or other housing problems.
    While the appropriation for the Housing Opportunities for 
People with AIDS [HOPWA] program reached a record $300 million 
in Fiscal Year 2008, the program serves about 8,000 households 
fewer than in fiscal year 2003, simply by the operation of 
inflation.
    I am glad that the Administration did not propose a 
reduction for HOPWA--the proposal is for the same $300 
million--but, clearly, more needs to be done to provide housing 
for and services for people living with AIDS.

                       HOMELESS ASSISTANCE GRANTS

    The Homeless Assistance Grant program is one area where the 
President has shown some compassion, providing increases to 
this account each year for the past several years. In January 
2007, the National Alliance To End Homelessness reported that 
approximately 750,000 people experienced homelessness in 
January of 2005. That is a point in time that their report 
showed. In addition, this report showed that 23 percent of this 
population consists of chronically homeless persons, or those 
who are homeless for long periods of time.
    The increases to this account reflect the Administration's 
goal to end chronic homelessness by 2012 and includes a new 
initiative called the Samaritan Initiative.
    I look forward to the testimony if it will help us to 
understand how the data are informing funding decisions and 
hear what progress we are making in terms of homelessness in 
America.
    Before we hear from Mr. Garvin and Mr. Johnston, and I 
think we will do that in reverse order, Mr. Johnston and Mr. 
Garvin here, I would like to turn to my esteemed colleague from 
Michigan, Mr. Knollenberg, for whatever comments he would like 
to make.

                       Mr. Knollenberg's Remarks

    Mr. Knollenberg. Thank you, Mr. Chairman. Thank you very 
much. How esteemed am I? I accept.
    Mr. Olver. Well, I will change it to ``distinguished,'' if 
you prefer.
    Mr. Knollenberg. Thank you. I also would like to add my 
welcome to Mr. Garvin and also to Mr. Mark Johnston.
    I realize that these gentlemen are not Assistant 
Secretaries, so I am not going to beat you up, and we should 
not beat you up, because the decisions were made with no 
responsibility attached to you folks. Nevertheless, you are the 
messengers, and the message that has been sent forward to the 
Congress and this Subcommittee over the past several years has 
consistently resulted in this Committee, this Subcommittee, 
having to find major increases in funds each year to simply 
continue the status quo.
    Frankly, this slash-and-burn approach to the elderly and 
disabled programs has been used so often that I really do not 
think the Administration is worried or concerned about the 
merits of their proposal. They simply do it in order to meet a 
budget target.
    As Chairman of this Subcommittee, and sense as a Ranking 
Member, I have rejected that approach and supported funding the 
program at current levels, even though I supported and proposed 
many other terminations and reductions of duplicative and low-
priority programs, and that is the point: Why we fund a $15 
million Rural Economic Development Program when the USDA has 
requested $15 billion in rural economic development is beyond 
me, and that $15 million, the first number, could have been the 
first significant increase in the AIDS Assistance program in 5 
years and could have built 130 to 150 more elderly units or 
built 115 more disabled units compared to what we have been 
providing.
    With the exception of the Homeless Programs, these programs 
being discussed today have essentially been level funded now 
for several years, as you know, yet we consider the $15 million 
for rural economic development as a high priority. This 
Subcommittee should stop funding these duplicative programs and 
put the funds toward increasing the very programs before us 
today.

                                RENEWALS

    A second concern that I have is that HUD, in general, has 
become the department of renewals. For Tenant-Based Section 8, 
we are spending $15 billion a year just to renew what we have. 
The same for Project-Based Section 8 programs: $7 billion a 
year just to renew the assistance being provided. The same for 
public housing. We are just spending $6 billion to $7 billion a 
year simply to keep the existing units operating.
    Now we have the same phenomenon happening in these 
programs. We have set in motion a process by which the cost of 
renewing what we have gobbled up as an increasing share of the 
funds we are providing each year and thereby eating into the 
funds available for new construction and expanding the number 
of people and families served.
    I hope to explore this during the question period and the 
long-term implications of that occurrence, and I am sure that 
you gentlemen will have some answers for us.

                                 HOPWA

    Finally, several years ago, Congress initiated some general 
provisions in this bill that affected who got AIDS housing 
assistance, essentially overriding the Authorization Act. I 
would like to hear more about the impacts of that general 
provision.
    Mr. Chairman, I know that you have a keen interest in, and 
you worry over, how to meet the needs of these extremely 
important programs, and the two of us have worked hard together 
to simply keep them level funded, and we know that there are 
real needs not being met.
    I look forward to having our witnesses today give us their 
views on how to maximize the benefits of these programs so that 
we may consider them as we move forward to the 2009 fiscal 
year, and, with that, I yield back my time. Thank you, Mr. 
Chairman.
    Mr. Olver. Thank you for your statement, Mr. Knollenberg.
    We will now hear from the witnesses, first, Mr. Johnston, 
and then Mr. Garvin. We have your complete written statements, 
and if you will keep your comments to somewhere in the range of 
what I and the Ranking Member have made, and then we can get on 
to questions. Mr. Johnston.
    Mr. Johnston. Thank you, Chairman Olver and Ranking Member 
Knollenberg.
    On behalf of the secretary, I am pleased to be here today 
before this Subcommittee. As the Deputy Assistant Secretary for 
Special Needs in the Office of Community Planning and 
Development at HUD, I oversee and manage the Department's 
efforts to address the housing and service needs of two of our 
most vulnerable populations; that is persons who are homeless 
and low-income persons who have HIV/AIDS.
    In 1987, the Congress enacted the McKinney Act, which 
created targeted homeless assistance programs at HUD and 
various other agencies to address the emergency, transitional, 
and permanent housing needs of homeless persons and families.
    Since then, HUD has awarded some $13.5 billion to 
communities across the country. In the President's fiscal year 
2009 Budget, HUD is requesting record funding of over $1.7 
billion in targeted homeless assistance efforts. This level of 
funding will allow HUD to continue to fund existing projects 
and also to serve by providing new project funding to create 
additional units.
    This funding request will also provide additional housing 
vouchers to homeless veterans who will benefit from the 
services offered by the Department of Veterans Affairs. The 
2009 Budget request represents a more than 50 percent increase 
in funding since 2001.
    HUD administers three competitive homeless assistance 
programs that provide a range of housing and services. They are 
the Supportive Housing program, which is our largest; the 
Shelter Plus Care program; and a program called Single Room 
Occupancy, or ``SRO.''
    In addition, we administer a formula program called the 
Emergency Shelter Grants program, which provides not just 
emergency shelter but also services and homeless prevention.
    To better serve homeless persons this year, HUD's 
competitive Homeless Grant Programs will be accessible through 
an electronic grant-application process. Each year, HUD 
receives well over 6,000 grant applications from about 450 city 
or regional Continuums of Care that represent about 3,900 
cities and counties in America. Converting to a completely 
electronic system will significantly reduce the time that we 
need to process the applications at HUD.
    In addition to this 2008 effort, we are looking to further 
streamline and expedite the use of our funds through 
legislation and through the authorizing process.
    The Department will also provide housing assistance to 
approximately 70,500 households to help persons living with HIV 
and AIDS under the Housing Opportunities for Persons with AIDS 
program, or ``HOPWA.'' HOPWA provides housing assistance and 
services to this very vulnerable population.
    For fiscal year 2009, the Administration is requesting $300 
million for HOPWA. This amount maintains the highest level of 
funding in program history. The President's Budget also 
requests an update to the statutory formula. This revised 
formula will take into account housing costs and the number of 
persons living with AIDS within a jurisdiction.
    HUD looks forward to strengthening the HOPWA Program so 
that it can continue to provide safe and decent housing to low-
income persons living with HIV/AIDS.
    I want to reaffirm HUD's commitment to addressing these two 
very vulnerable populations and thank you for the opportunity 
to discuss these special needs programs, and, at the 
appropriate time, I will be more than happy to take your 
questions.
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    Mr. Olver. Thank you very much. Mr. Garvin.

                     Mr. Garvin's Opening Statement

    Mr. Garvin. Thank you, Chairman Olver and Ranking Member 
Knollenberg. I am going to take away a lot of my comments 
because you have things you want to talk about, and I do not 
think you need an overview of the Sections 202 and 811 
Programs.
    Serving seniors and persons with disabilities is very 
important to this Administration, and I will not debate the 
fact that $540 million will not serve a 730,000-unit gap. That 
is very clear. I do not think $735 million would come close to 
doing it either.
    When Commissioner Montgomery brought me to D.C., a little 
over 2 years ago, he did so because he knew I come from the 
multifamily industry, and I have been an advocate for serving 
folks with special needs, specifically, people with 
disabilities and seniors, for the whole time I have been in 
housing.
    Ten years ago, I worked for the Texas Department of Housing 
and did the HUD Required Needs Assessment and saw the needs of 
people with disabilities and seniors very clearly. Ten to 12 
years ago, it was really bad then, too.
    So Commissioner Montgomery sends his regards, and also I 
failed to mention that he asked me to take over as Deputy 
Assistant Secretary of Multifamily Housing about 8 months ago, 
so I am serving a dual role. When I got here, Commissioner 
Montgomery asked that I really take a look at exactly what 
Chairman Olver was talking about: Production serving these 
woefully underserved populations is not good.

                            SECTIONS 202/811

    I have the utmost respect for the Section 202 Program and 
its sponsors and the HUD staff that run it, as I do for the 
Section 811 Program. I was actually the President of a limited-
liability corporation in Texas that built 811's and serves 
people with disabilities on a voluntary basis, so I have the 
utmost respect for those 2 programs.
    The problem is, they, on their own, cannot address the 
needs that need to be met.
    In the last 2 decades alone, the Low-Income Housing Tax 
Credit Program, as you are well aware of, has built or rehabbed 
at least two million units across this country and made them 
really safe, decent, affordable housing. States like North 
Carolina have gone beyond that and said that 10 percent of all 
of the units built or rehabbed have to be made accessible to 
people with special needs, people with disabilities, in 
particular. That is the kind of thinking we have to move 
forward with.

                              TAX CREDITS

    Just about 2 years ago, the Commission asked me to get 
together with the industry and advocates for folks with special 
needs and put together suggestions to make these programs 
streamlined with tax credits. The best thing about the tax 
credit program is it is very efficient, and, although not all 
tax credit developers would agree with this next statement, it 
is a lot easier to deal with than a lot of the HUD programs 
that have been around since the 1960's and, in this case, I 
think, 1959 was when it was signed into law.
    I have worked with a lot of tax credit developers. In my 
last job, I ran a trade organization of tax credit developers, 
and a lot of tax credit developers who wanted to do more tax 
credits with Section 202, they would try Section 811, but that 
is way fewer units, and they just would not get where they 
wanted to go with that.
    They would talk to me, and they would say, ``We would love 
to do Section 202 with tax credits, but just the timing of the 
applications and the burden of all of the additional paperwork 
was just too much, and it took too much time.''
    So we got the industry together and talked to them about 
how to leverage tax credits with the Sections 202 and 811 
Programs, and we got some really good suggestions. In the 2008 
Budget, we did not get that part, but, in the 2009 Budget, you 
will see a demonstration program, again, to leverage tax 
credits with Sections 202 and 811 Programs.
    People often talk about how long it takes to build and get 
these properties leased. With a tax credit program, you have to 
get the place built and placed in service, leased, in a 2-year 
period, or you face losing your credits, and investors are not 
going to want to deal with losing tax credits; that is their 
money.
    So we have a lot of good ideas. A lot, we can do without 
the demonstration program. I will not hide that, but the 
demonstration program would give us the ability to put a lot of 
the processing of Sections 202 and 811 Programs at the state 
housing finance agency because they supervise the asset 
management of the tax credits.
    So the best scenario would be, if you were building a 200-
unit, tax credit property, you build the property using your 
tax credit equity and some debt, and then maybe, in some cases, 
if you need a gap of Sections 202 or 811 development money, 
that is there. You can stretch the Sections 202 and 811 money 
if you use it more for rental assistance in a tax credit deal. 
Build it with the tax credit equity and debt and then make it 
affordable, like you were saying, often to people with 30 
percent of median income, by using the rental assistance 
offered by Sections 202 and 811.
    We have seen a few close examples of this--one in Vermont 
and one in California--and they are really good. It is a great 
use, but until we can get this on a nationwide, strong force 
behind it, we will see, I think, 4,000 units a year in Section 
202 and way less than that in Section 811, and even if we 
doubled or tripled what our budget request is, we are not going 
to be accurately addressing that need until we have a true 
force of production behind it, and thank you for having me here 
today.
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                              SECTION 202

    Mr. Olver. Thank you very much. I sense that neither of you 
is going to provide us with a good adversary for discussion 
around these issues because I have the feeling that you, more 
or less, agree that we have a serious, hard need, as, clearly, 
both I and the Ranking Member have an agreement there.
    I want to use the chart, if it shows what I think it is 
going to show. I think that, in a sense, this will provide some 
background to both what Mr. Knollenberg and I have already 
said, but it gives a little bit of historical perspective here.
    That chart shows, and I remind you that Mr. Knollenberg 
chaired this Committee in the previous term of Congress. The 
last 2 budgets--the 2007 and the 2008 budgets--both were 
finally produced after we were in the majority and after the 
majority had changed, and I was the Chairman during those 2 
times.
    That shows a series of bar graphs from fiscal year 2001, on 
the left, through 2002, 2003, 2004, 2005, 2006, 2007, 2008, and 
the Budget request for 2009. The white bars are the budget 
requests each year, the blue bars are the final budget 
enactments each year, and, as you can see, this goes to a 
period before Mr. Knollenberg chaired the Committee by several 
years there.
    In those years, there is a series of years where you can 
see, first, the virtual agreement with the President's request 
and then slight increases in the final budget enactments until 
one gets out to the years 2005 and 2006, where the ultimate 
budget is below the request, and then the bottom falls out in 
terms of the requests.
    Frankly, in those last 2 years, 2007 and 2008, the budget 
request was just totally inadequate here, and I am only now 
talking about--this is the Section 202 program. We could create 
another one for the disability program, and it would look 
similar. You are absolutely right that 540 does not get you 
toward this 730,000 need.
    What you are suggesting is that a good portion of that 
730,000 need is going to have to be provided for in a very 
different kind of a way. That, I think, is the gist of the 
comments that are there. Both of us, as Chairs, when he was 
Chair and now I am Chair, have been struggling with this 
problem of how do we begin to meet the needs when our budgets 
have been tight in these last several years and very tight, 
indeed.

                           ELDERLY POPULATION

    So you do not disagree with the sense that our population 
of elders is increasing and going to increase dramatically 
rapidly in the next few years as the baby boomers retire. But 
going with that, though, is that there have been reports that 
show that the income of those people who are in the Section 202 
housing that is available, the 268,000 units that are 
available, the incomes of those persons have gone downward, 
slipped downward, in the last few years. Just over a 5-year 
period--I think it was from 2000 to 2005--the report that I saw 
showed that the average income of those in those units had 
slipped from a little over 10,000 to just a little over 9,000.
    So the income is slipping. At the same time, the age is 
going up, the age increasing, so that now, among those in our 
268,000 Section 202 units, the number of people over 80 is now 
about 40 percent, whereas, only a matter of 5 or 6 years ago, 
it was just over 30 percent, and people who are older tend to 
need more services. We need more assisted living in that age 
group that is growing most rapidly.
    Now, when a big slug of new baby boomers comes in, that age 
may slip downward again, but it will not affect the number of 
people in this very high age group, the number of people, which 
is going to increase rather dramatically.
    So, all told, we have that kind of a need, and this series 
of demographic issues is coming together.
    Now, I am curious. We have to do something really 
dramatically, it seems to me, to get to the point where we are 
meeting that need for people because usually, in the private 
market, at least, we are not dealing with the very, very low-
income people. We still have people, who, at that $9,000 
present income, are only able to spend $3,000 of that, or 30 
percent, and then we are subsidizing the rest.
    So this is an income group that is not going to be easily 
served outside, so it seems to me, our role with HUD's programs 
is to deal with the very low-income people in that very large 
group with the large increases of numbers of people.
    Now, am I wrong? Do we need that end of the thing growing 
substantially? You look at that figure, and we have not been 
dealing with it either in terms of increasing the 
appropriation, either when the Democrats having been in the 
majority, nor when the Republicans were in the majority.
    The other line on there shows during the same period of 
years, an increase in the number of elders. Now, that is a $3 
million increase in elders in that particular period of years, 
and we are up to 38. So if, by 2020, if the figures are 
correct, and we should know the demographics. We know how many 
people are now 50 who will be 62 by the year 2020, so we 
certainly must know.
    Those studies must be reasonably close to accurate. That is 
going to begin to go up dramatically. The slope of the rate of 
increase is going to go up dramatically. That slope is a little 
bit off because it is on a different scale. It is not exactly 
the same percentage scale per year that the bar graphs are on. 
But from 2001, it should be going upward at a slightly slower 
slope.
    So we are diverging in meeting the needs, and the 
divergence, just by the number of people in the population who 
are in those needy categories--again, we are only talking about 
the elders--we are not talking about disabled--the gap between 
what we have available and the number of needs on the disabled 
is far worse than the gap between the 260,000 of housing units 
that we have versus the 730,000 or 750,000 that we might need.
    There is also an inflation factor. Just to provide the same 
level of services, you have to be adding the inflation amount 
at a couple of percent points per year, which means that, 
actually, when you put the inflation level and the growth of 
the population of elders, the slope of that line on population 
or needs is closer to the slope that is actually showing on the 
map. It just is a slope that would start from 2001, on the far 
left, and go upward at that slope from there.
    So the bottom has fallen out of the amount of money that 
has been appropriated. In that sort of situation, I would like 
to just ask you to comment.

                        UNDERFUNDING SECTION 202

    The gap clearly is growing. When you look at the 
President's budget these last several years, in terms of 
requests, the gap took a terrible drop, but it was falling, at 
least, versus inflated numbers, services that needed to be 
provided, and I would like you to say, what is the cost of not 
funding these programs at a better level? Do you have some 
sense? Could you give us an idea?
    What are the kinds of costs that we incur that we suffer by 
not dealing with this, and maybe if you can give me some sense 
of what portion of this should be handled by your proposed 
ideas about the demonstration programs--I will ask something 
about that later--versus the regular programs that HUD does and 
our public housing authorities do reasonably well? Try that for 
a couple of minutes.
    Mr. Garvin. Thank you, sir. I could not agree with you more 
on serving the extremely low-income, the folks who you 
mentioned, and your research is phenomenal, by the way, the 
folks at around----
    Mr. Olver. I just made that all up.
    Mr. Garvin. Good job, a very good job. Seniors making 
$9,500; that is Social Security. Obviously, they do not have 
any other assets. If we do not have an affordable housing 
option for them, a safe, decent, accessible housing option for 
those folks, they will wind up prematurely institutionalized in 
nursing homes, and that is a cost.
    Mr. Olver. That is costly.
    Mr. Garvin. Right. That is like about $75,000 a year 
versus, just to develop a Section 202 unit, is probably about 
$110,000 now, with inflation built into that. So you would pay 
$110,000 once and house them--obviously, not the same people--
but have affordable housing for seniors for a 40-year term, or 
you let them go into a nursing home, which costs the government 
and taxpayers a lot more. Obviously, the deal is to have a 
massive injection of affordable housing.

            MONEY FOLLOWS THE PERSON REBALANCING INITIATIVE

    One thing that the administration did that will help this 
is a lot is its initiative called Money Follows the Person 
Rebalancing Initiative, which provides money from the Center 
for Medicaid and Medicare to pay for the services that you were 
mentioning, sir, to keep people in their home, whether it is 
subsidized or not.
    Say, you lose a couple of activities of daily living--you 
cannot dress yourself, or you cannot make your meals--but, 
other than that, you can live pretty independent in your own 
home that maybe you have paid off the mortgage on. I think 80 
percent of all seniors own their own home and the loan is 
already paid off. So if those folks, even though they are not 
extremely low-income, they are not necessarily wealthy, and the 
same thing: If they do not have affordable housing options, 
they will prematurely wind up in an institution that will cost 
a lot to keep up.
    So the $1.7 billion over 5 years in Money Follows the 
Person, and HUD is working closely with the Center for Medicaid 
and Medicare Services to do what we were talking about, let 
folks in the Section 202 who need more advance services, let 
folks in tax credit units who need services, let folks living 
in their own home, in privately owned apartment complexes that 
have no government subsidy, allow them the services they need 
to stay in their home.
    It is good for the community. No one wants to transition 
into a nursing home. They want to stay in the their own home as 
long as they can, and this Money Follows the Person deal keeps 
people in their home, and that is a huge cost savings.
    I agree with you. We have to take this on. Again, Section 
202 is not even going to take the slightest bite out of solving 
this. We have to have a real national, senior housing 
initiative, using what we have, using the tools that we have. 
We do not need to create new tools, but we just need a lot of 
special needs set-asides at tax credit properties. A lot of 
tax-exempt bond financing, multifamily mortgage revenue bond 
developments will have set-asides based on the city's or 
state's investment. If they have a city housing trust fund, 
they will say, we will invest money if you will serve either 
folks with disabilities X percent, seniors, depending on what 
age or mix. There is a lot going on out there. The statistics 
you read need to be forced out there more and in more housing 
plans.
    Mr. Olver. How many years have you been with the 
Department?
    Mr. Garvin. Two years and one month and about 11 days.
    Mr. Olver. Okay. There is certainly a certain amount of 
optimism still there.
    Mr. Knollenberg, your 10 minutes or more.
    Mr. Knollenberg. Thank you, Mr. Chairman. I do appreciate, 
Mr. Garvin, your laying out the status of things, and I also 
appreciate the Chairman's work. I do not know where you found 
time to do this.

                      ASSISTANCE FOR THE HOMELESS

    Several years ago, Congress instituted a provision, over 
the administration's objections, to set aside 30 percent of the 
appropriated funds to secure hard units as housing assistance 
for the homeless. I believe the community has said that 
something like 140,000 units were needed to support the 
homeless community. Does that figure sound about right?
    Mr. Johnston. About right; 150,000 was the figure.
    Mr. Knollenberg. How many units have been placed under 
contract to date, or where we are relative to the goal of 
140,000 or 150,000 units to be placed under contract, and how 
many units will be added with the set-aside in 2008, or what is 
the average initial cost of adding a unit? Is that clear?
    Mr. Johnston. I think so. Let me start, and if I have not 
been responsive, let me know.
    Mr. Knollenberg. Thank you.
    Mr. Johnston. What I would like to do is just give a little 
bit of context on the 30 percent requirement.
    Back in the 1990's, the administration, at the time--HUD--I 
will just say HUD, at the time, had a very laissez faire 
approach in terms of how its funds should be used, whether it 
was housing or services. HUD's homeless programs can be used 
for a whole variety of activities. Supportive services, for 
instance, can include mental health treatment and drug 
treatment, case management, day care, et cetera, as well as 
housing--transitional housing and permanent housing.
    We let communities do whatever they wanted to using our 
money for housing or services in the 1990's, and, because it 
was easier to get the services from HUD than at other places, a 
significant percentage of all of HUD's funds went there. By 
1997, about 55 to 56 percent of all of our funds for housing 
and homelessness was going to supportive services.
    So I think the Congress, very rightly, said, we need to 
start focusing more on housing. So the Congress instituted a 
30-percent requirement, which, at that time, I do not think 
that Administration, frankly, was that supportive of it, but, 
since then, we have seen the light. We see that it really has a 
value to use more of our funds for housing and less of it for 
the supportive services.
    So we have instituted a number of incentives to meet that 
statutory requirement, and it is not an easy requirement to 
meet. You may think that 30 percent of our appropriation is 
easy to get, but the fine print in the appropriations language 
says, essentially, you cannot count Emergency Shelter Grants, 
which is about 10 percent of our appropriation, you cannot 
count Shelter Plus Care renewals, which is hundreds of millions 
of dollars every year. Essentially, it is about a 50 percent 
set-aside, and we are barely meeting it now. This past year, we 
hit about 31 or 32 percent, so we almost did not meet the 
statutory requirement, and that is, in part, because of this 
increasing demand for renewals that was referenced.
    Mr. Knollenberg. So this percentage is rising.
    Mr. Johnston. The 30 percent--it is 30 percent with a whole 
bunch of exceptions. So when you take out Emergency Shelter 
Grants, which is $160 million, and you take out, by law, 
Shelter Plus Care renewals, because that is what the 
appropriation's fine print says, that is about $300 million we 
cannot count, even though it is all permanent housing.
    So, in effect, it is about 50 percent; 40 to 50 percent, of 
the appropriation has got to go there, and we are close to not 
meeting it, to be frank, and, when we get there, and we have 
had that happen about twice now, we have to stop funding higher 
scoring projects, take them out, not fund them, and go much 
lower down on our list and find a permanent housing project 
that qualifies.
    So it is something to consider, but that is just the 
background. I apologize. I did not mean to get off on that too 
much.

                          CHRONICALLY HOMELESS

    But to get to your real issue, which, I think, is the 
150,000 units, our goal--this was in 2002, set by Secretary 
Martinez--was that, as a nation, we need to get about 150,000 
units for the chronically homeless, and that would be permanent 
housing units. ``Chronically homeless'' essentially means 
people living on the streets or in emergency shelters that are 
disabled and have been there for a long time.
    We have been forging forward, year after year. We, at the 
end of 2006--that is with HUD funding and our partners because 
we work with States and cities and non-profits to make this 
happen--we have matching requirements in the statute to do it--
is that there are about 40,000 units in place for the 
chronically homeless. Now, we have other permanent housing 
units for the non-chronically homeless.
    In 2007, HUD funded, just recently, over 4,000 additional 
new units for the chronically homeless. We are now tallying 
what the communities have developed with non-HUD funding. The 
Congress just appropriated, in 2008, the HUD VASH program, 
which is going to create 10,000 more units. So we are well 
beyond 50,000 units in 2008, is the short answer to your 
question.
    Mr. Knollenberg. Maybe you covered this in your comments. I 
did not hear. Could you estimate the percentage of the total 
grant program budget that is devoted to new and renewing 
existing hard units?
    Mr. Johnston. At this point, renewals is 86 percent. The 
previous year, it was 84 percent, and so we are seeing a 2- to 
3-percent increase per year.
    Mr. Knollenberg. That is good enough in terms of the 
answer. Do you agree or disagree that the grant program is 
heading in the same direction, as the Section 8 program?
    Mr. Johnston. Well, Section 8 is a gigantic program 
relative to the homeless programs.
    Mr. Knollenberg. Relatively speaking.
    Mr. Johnston. If your question is, are we increasing the 
renewal rate in our program each year, that is true.
    Mr. Knollenberg. So more and more money every year will 
have to be devoted----
    Mr. Johnston. If we do not, people will be back on the 
streets.
    Mr. Knollenberg [continuing]. Just to renew what we have in 
place. Right?
    Mr. Johnston. That is true. That is correct.
    Mr. Knollenberg. Or, to put it another way, if no mandated 
set-aside were included in the 2009 Budget, would you want to 
add hard units to the inventory, as a matter of policy?
    Mr. Johnston. In 2009, we believe we will still be able to 
fund all renewals, as well as some new projects, with or 
without the 30 percent requirement.
    Mr. Knollenberg. In 2009, but you are not talking about the 
issue.
    Mr. Johnston. I am sorry. I thought you were asking about 
2009. We do not have a 2010 budget, but----
    Mr. Knollenberg. I just want to make sure that it was 2009 
that you are talking about here.
    Mr. Johnston. Yes, it was.
    Mr. Knollenberg. I would like to turn now to the 
elimination of chronic homelessness. As you mentioned, this 
program was established by Secretary Martinez in 2001, and had 
the goal of eliminating chronic homelessness in 10 years. We 
are now more than halfway through that time period. Where do we 
stand, percentage-wise, today?

                      ENDING CHRONIC HOMELESSNESS

    Mr. Johnston. Again, I will be briefer, but I want to give 
a brief context about how we are getting there because it is 
valuable to know.
    Mr. Knollenberg. You have to be very concise about that, if 
you would, so I can get to another question.
    Mr. Johnston. I will. In 2002, Secretary Martinez 
identified a goal, the first time ever for HUD, to try to 
measurably reduce anything related to homelessness, and, in 
this case, the toughest group: persons who are chronically 
homeless. The goal was to end chronic homelessness in 10 years, 
as you have stated.
    We saw that we needed a lot of help to do that, and so the 
Interagency Council on Homelessness has reached out to 
governors, mayors, and other elected officials to help us with 
that. Their plans did not start in 2002.
    Mr. Knollenberg. When did they start?
    Mr. Johnston. Well, each mayor--they have their own agenda. 
Some started last year, some started in 2005, 2006, 2007, et 
cetera, and so it is going to be a somewhat staggered approach. 
In our requests, over the last 4 or 5 years, you have not seen 
a specific goal of 2012, because we have to have these partners 
to make it happen.
    We still have the goal to end chronic homelessness, and we 
are making progress. Let me give two examples.
    Actually, between 2005 and 2006, the first years that we 
had hard data on the chronically homeless, we saw a 12-percent 
reduction--actually, an 11.5-percent reduction. That is the 
first time that this Country has ever seen a reduction of any 
kind related to homelessness.
    So we are on the right track. We are not going to get there 
by 2012, but we are moving in that direction.
    Mr. Knollenberg. Most of the states do have some kind of 
program, do they not?
    Mr. Johnston. Do you mean a plan to end chronic 
homelessness?
    Mr. Knollenberg. Well, I assumed it was a program. If it is 
just a plan, that would tell me that maybe it has not started 
yet.
    Mr. Johnston. I think that is the case in a number of 
states, that they have announced a plan; in many States, they 
have not quite fully implemented.
    Mr. Knollenberg. But that decision made by Secretary 
Martinez back in 2001 did say 10 years, so, apparently, some 
other things did not happen online fast enough to make this 
thing work out to the numbers that he had suggested would be 
the case in 2001.
    Mr. Johnston. To solve homelessness and, in particular, to 
solve chronic homelessness--people that need everything, people 
that need housing, jobs, mental health treatment, drug 
treatment--we need a lot of partners, and we need those mayors 
and governors for this.
    Mr. Knollenberg. Let me talk about some of those partners 
and those agencies. When you consider the number of agencies 
that have specific programs--I am not talking about the states 
now--that is in there, two specific programs to address 
homelessness, all the way from Agriculture to the Veterans 
Administration to the mainstream entitlement programs, and 
there are many others, would not it make more sense to submit a 
single, consolidated plan or budget request that puts all of 
the parts together into a comprehensive whole?
    At the moment, there is really no way to be sure, at any 
level, that all of the programs are working together in some 
kind of common goal. If requested by this Subcommittee, could 
you give us some information on putting together a complete 
listing of all of the program budgets and all of the agencies 
that contribute to reducing homelessness, or has that never 
been done, for internal purposes, before? Is this something you 
could do?
    Mr. Johnston. We do it. We have done it for years.
    Mr. Knollenberg. Okay. Is it something that we could get in 
a consolidated form?
    Mr. Johnston. Absolutely. It is in an Excel spreadsheet.
    Mr. Knollenberg. All right.
    Mr. Johnston. OMB does it, and they work with each of the 
agencies to do so.
    Mr. Knollenberg. It just seems to me, and my time has 
expired, but it just seems to me that we cannot get a handle on 
this thing, I do not think, or our hands on it, unless we know 
exactly who is out there working side-by-side, but they are not 
working side by side. They are working, as I gather, 
independent of each other. You do not agree with that?
    Mr. Johnston. I do not agree, actually.
    Mr. Knollenberg. When you get your numbers together, we are 
interested in that, number one. So if you think there is a 
coordination, I guess, maybe if you could define it.
    Mr. Johnston. Could I give a couple of examples?
    Mr. Knollenberg. Well, my time has expired.
    Mr. Johnston. Okay.
    Mr. Knollenberg. But if you are extremely shorter, we can 
come back the next round.
    Mr. Johnston. I will be short.
    Mr. Knollenberg. How short?
    Mr. Johnston. Less than a minute.
    Mr. Knollenberg. Is that okay, Mr. Chairman?
    Mr. Johnston. I used to work at the food stamp program on 
homelessness. I have worked at the Interagency Council on 
Homelessness, and I have worked at HUD. I work, on a daily 
basis, with other agencies. I am on the phone almost every day 
with the VA. They are a huge partner for us. I have regular 
contact with the Health and Human Services Department and the 
Department of Labor.
    There is a lot going on behind the scenes that probably we 
could better articulate in our submissions when we submit them 
to Congress, but we have a lot of good coordination going on.
    Mr. Knollenberg. Thank you very much. Thank you, Mr. 
Chairman.
    Mr. Olver. Thank you. [Off mike.]
    Mr. Rodriguez. Thank you, Mr. Chairman. Along with the 
comments that were made by the Chairman. I will yield. We came 
in together.

                           CONTINUUM OF CARE

    Ms. Roybal-Allard. I was just informing the Chairman that I 
have two other hearings going on plus another meeting that I 
have to go to. Thank you very much, Congressman Rodriguez.
    Mr. Johnson, in December of 2007, the Los Angeles Continuum 
Care received its largest HUD homeless assistance award. I am 
very pleased about that because you do know what the need is in 
Los Angeles. However, the methodology that is currently used to 
calculate the funding levels is largely based on the age of 
local housing stock and the local poverty rate, and it does not 
direct resources to the areas of the country with the highest 
homeless populations.
    Let me just, for the record, give you an example of what I 
am talking about. For 2007, Los Angeles had a pro rata amount 
of $43,038,224 and a final award of $67,533,854. As a point of 
comparison, the New York City Continuum of Care had a pro rata 
need amount of $61,532,526 and a final award of $83,326,595.
    Now, their pro rata need amount was approximately $18.5 
million more than that of Los Angeles. However, New York has 
about half the number of homeless persons as the Los Angeles 
Continuum of Care on any given night. In addition, only 10 
percent or 3,750 of the homeless population are unsheltered 
compared to over 56,000 unsheltered in Los Angeles.
    So, clearly, the existing formula for distributing funding 
really does not address the unmet needs of the homeless 
population, which is really what the goal of this program is.
    My question is, what is being done to correct the 
inequities in this formula, so that we are actually putting 
money where there is the greatest number of homeless people in 
this country?
    Mr. Johnston. That is a very good point, and I recognize, 
Los Angeles does have a huge need. I work with Rudy Montiel, 
the Executive Director of the Housing Authority of the City of 
Los Angeles, and others quite a bit.
    When HUD, years ago, tried to assess how it would measure 
need, it simply asked every applicant, how much need do you 
have? And every grantee in Los Angeles, and every other place 
in the country, had an incredibly different answer. ``We have 
the most need.'' ``We have the most need.'' We had every 
different grantee giving us a different answer.
    We concluded that, we needed some basis that was consistent 
across the country with which to make our awards. So we 
established the concept of pro rata need, as you referred to 
it, and in trying to get guidance on what that should be based 
on, since nobody knew how many homeless people they had at that 
point, and, frankly, many communities still have a hard time 
counting it, especially in a continuum like Los Angeles where 
there are over 30 cities within one continuum.
    So we went back to the statute, and the statute's only 
guidance to HUD, in terms of how you measure homelessness for 
allocating funds, is the Emergency Shelter Grants program, 
where it identifies the factors in CDBG, the Community 
Development Block Grant program.
    So those are the factors that we use to establish the need, 
the pro rata need, for these communities. We would love to get 
to a point where communities would know exactly how many 
homeless people they have, but we are definitely not there yet.
    When I am out on the streets in Skid Row in Los Angeles, it 
just reminds me how challenging it is to really enumerate 
homeless people in this country, and until we get to a point, 
and one way we are doing that is using homeless management 
information systems, information on every homeless person 
within a community for the entire nation, which is a 
requirement by Congress, then we are going to get closer to 
really being able to allocate funds based on how many homeless 
we have versus these other factors that are really not nearly 
as good a proxy as they should be, in terms of matching up with 
homelessness.
    Ms. Roybal-Allard. How long do you expect that to take? 
What we do know is the example that I just gave you. There is 
this tremendous inequity that we know exists. So is anything 
being done in the interim to close that gap as you are waiting 
for whenever we can get this magic formula to determine how 
many people are homeless throughout the country?
    Mr. Johnston. We provide significant incentives in our 
competition to ensure that every community has a Homeless 
Management Information System (HMIS), and it is not an easy 
thing to implement because it is getting information, client-
level information, such as age, race, gender, et cetera, on 
every single homeless person in every single community in this 
country, and having that locally in a database so they can 
actually enumerate how many they have.
    About 90 percent of all continuums now have the system, but 
most of them have fewer than 80 percent of their homeless in 
it.
    So until we get much closer to 100 percent within every 
community, we are not going to be able to use homeless counts 
as the basis for allocation.
    Ms. Roybal-Allard. I guess my question is, though, we do 
know that these inequities exist. We do have numbers, such as 
what I cited, that show the tremendous inequities. So what is 
being done, or what can be done, in the interim to address this 
problem? We just cannot say, ``Well, it is just too bad you 
have three times as many homeless, but we are waiting for the 
system to work.''
    Mr. Johnston. Right. It is challenging. The challenge that 
Los Angeles had this last year was to enumerate across 30 
different cities, they were using, in part, a telephone-survey-
sampling process, where they would call a few people to 
represent thousands of responses.
    Ms. Roybal-Allard. I guess what you are saying is that is 
just the way it is going to be until the system gets up and 
working.
    Mr. Johnston. Well, I do not know that I would want to rely 
on a sample of calling a very small number of people to say how 
many people live in a large city, like New York or Los Angeles. 
So I think we are definitely more than just a couple of years 
out from precise enough HMIS information with which to allocate 
funding.

                       VIOLENCE AGAINST WOMEN ACT

    Ms. Roybal-Allard. One more question, and then I have to 
leave.
    Congress made specific findings in the Violence Against 
Women Act that disabled and elderly women are at a high risk of 
domestic violence and that domestic violence increases the risk 
for contracting HIV. In addition, many disabled people are 
getting inadequate notice of their VAWA rights regarding 
housing due to an inability to comprehend the complicated 
language that sometimes is used in the notices or the lack of 
proficiency of English that some people have.
    Now, I know you do not have oversight over VAWA 
implementation as it pertains to Section 8 and public housing. 
However, you do oversee housing as it pertains to the elderly 
and the disabled, and I am wondering what are you doing, if 
anything, to, at least, protect this high-risk, vulnerable 
population from being evicted or being discriminated against 
with regard to housing because of the violence in their life?
    Mr. Olver. Be concise, Mr. Garvin.
    Mr. Garvin. I will be. I do not know. I will find out, but 
I have not received any complaints about it, so I have not 
heard that it was an issue in the Sections 202 or 811 programs.
    Ms. Roybal-Allard. Thank you, Mr. Chairman. Thank you, Mr. 
Rodriguez.
    Mr. Olver. Thank you.

                          APPRENTICE PROGRAMS

    Mr. Rodriguez. Thank you. Mr. Chairman, you kind of 
highlighted what I wanted to talk about, and you did a 
beautiful job.
    We find ourselves in a serious dilemma. I know that, even 
under, as the Chairman indicated, under Democrat and 
Republican, we still have a problem out there. For every 10 
seniors, there is only one, so what are we going to do?
    I heard some comments in terms of how we might begin to 
look at it. The minority leader talked about the rule, the 
veterans homeless and how we could maybe come to grips with 
some of this. I was wondering if you might want to comment, or 
maybe for us to start giving some thought about, how do we put 
something that is comprehensive in nature, that responds to the 
future, in terms of a vision?
    I know that, for example, right now, we do not have the 
electricians, we do not have the carpenters, and we do not have 
the plumbers. There is a need for some kind of program for the 
next generation of skilled labor force that is needed out 
there. How do we put something together that allows an 
opportunity for us to have the apprenticeship programs, allow 
an opportunity for us to look at how we impact the--because I 
know that when we subsidize housing, it also has an impact to 
the low-middle-income that does not qualify but has to pay 
higher rent because of that.
    I do not know if we have something that can evaluate this 
as to how do we meet this need. We can be talking about this 
for the next 10 years, the way we have been, and still not meet 
the need. So how do we come up with something comprehensive 
that addresses the needs of some of the veterans programs that 
I have seen where they are reaching out and have some homeless 
programs just for veterans? I know they are very few and 
between, but we have one in San Antonio, and they are doing a 
good job with the G.I. Forum there. So if we could think maybe 
outside the box and look at Labor, look at Education, and how 
we tie in.
    Back home, we have what we call the ``arimados,'' those 
that basically are living with us, our cousins, that come to 
move in with us. We have a large number of that, and so how do 
we maybe help in those areas that allow us to deal with the 
situation? I just want to throw that out as to what do we need 
to do to help you out, to try to make something comprehensive 
in nature occur?
    Mr. Garvin. Sir, let me speak to apprenticeship. One of the 
best things I worked on when I was in Texas was called Texas 
Youth Works, and it was all over Texas. I think it was state 
Senator Barry Antos, at the time, put it together. We had one 
in San Antonio, and it was great. It had at-risk youth. It is 
kind of like what HUD had as a youthbuild, but it was state 
run, so there were very few barriers to it. Those at-risk kids 
would build affordable housing all across the state, single-
family. It had a very big green element to it, an excellent 
program. I know it was awesome to see those kids come up.
    Some woman, like, 17 or 16, had a baby at home, and she 
built the kitchen cabinets. She would come and say, ``Look at 
this.'' Well, she had a job forever because, like you said, 
builders are in short supply all over the country. So those 
kids got jobs.
    On meeting the housing need, one thing we need to do, and 
this is not what the Federal government can do, we need to 
start really forcing states to have better state housing trust 
funds. I know California has a great one and Florida has a 
great one. I worked and worked in Texas to get this increased, 
and I think it was, like, $4 million for the whole State of 
Texas when I left to come here.
    State housing trust funds go so well with Federal programs 
because it fills the gap. Like Chairman Olver was talking, if 
you are trying to serve down at the 30 percent or 40 percent of 
median income, Federal funding has programs to do that, but you 
can only serve very few. You need to leverage those dollars in 
state housing trust funds, city housing trust funds. San 
Antonio has a wonderful housing trust fund. Those are the kinds 
of things that we need to really address.

                           CONTINUUM OF CARE

    Mr. Rodriguez. Do we have any plans out there, in terms of 
a vision that goes beyond, in terms of actually trying to meet 
these needs, that incorporates what is out there and what is 
needed in the future that goes across HUD? The minority leader 
talks about the rule that deals with housing and the VA that 
deals with housing and other types of things.
    I know you mentioned providing for those that go in those 
kinds of settings to be allowed to be given some subsidies.
    Mr. Johnston. If I could just briefly respond.
    Mr. Rodriguez. Yes.
    Mr. Johnston. I was on a conference call yesterday with Mr. 
Henry Cisneros, and we were talking about something that he 
started at HUD years ago called Continuum of Care, which is 
what HUD still does. That is how we allocate our funds. We used 
to get an individual applicant--thousands of them--like the GI 
Forum, to submit an individual application to HUD to get 
funding. We said, No. San Antonio, you figure it out, as a 
community, with your public housing agency, your nonprofits, 
your foundations, your mayor, everybody. You get together and 
figure out what you want, and we will fund what you want on a 
priority list. You tell us the projects you want funded.
    It is a wonderful way to go. It engages the VA. They have 
their own VA data that they now connect up with ours. It 
engages local departments of labor, housing, mental health, 
substance abuse. All of those entities are involved because, to 
solve a problem like homelessness, you need to have that 
together. I think it is a great model for what can happen to 
really effectively do something at the local level.
    Mr. Rodriguez. In closing, let me just say that, in our 
rural areas, we really do also have a problem in terms of 
housing, not only in terms of actually housing, period, even 
for those people that can afford. They are just not there in 
the small communities.
    Mr. Johnston. [Off mike.]
    Mr. Rodriguez. Yes, sir.
    Mr. Olver. Mr. Pastor.

                              HOMELESSNESS

    Mr. Pastor. Good morning. First, let me apologize for being 
late. It was in another hearing where we were dealing with 
Yucca Mountain.
    Going back to your point, the Phoenix metro area in trying 
to solve the problem of homelessness, that the county, the city 
government, MAG, and council of governments and non-profits 
basically organized themselves and developed a campus where 
people who have a need come in. There is intake. The county has 
a health clinic there. There is a dental clinic there.
    So there are degrees of homelessness. You have the very 
chronic, who feel that they basically want more of a subsidy, a 
daily subsidy, in their life, and then you have those that are 
in transition due to a loss of job or a problem, domestic 
violence, that they fall into the streets. Through an intake 
system, people are given immediate attention, but then a long-
term plan is developed for them to go to the services that 
probably have a greater impact on their lives than just feeding 
them or giving them overnight shelter.
    I would tell you that that seems to be working for us. Like 
most things in life, as the economy is going bad, there are 
more people in need, and so there is always a lack of money, 
but I think there is political will, at least in the Phoenix 
metro area to address those needs.
    Mr. Johnston. I think the regional approach that Phoenix 
has used has been very effective, to incorporate not just the 
city but the county.
    Mr. Pastor. The county and also the other metro areas, 
other cities involved. So it is a regional solution to a 
regional problem rather than each city trying to deal with it 
itself.
    Mr. Johnston. I have been impressed at that campus. As I 
recall, it was the dental facility. They do not use hardly any 
HUD funding to do that. They have dentists that volunteer their 
time. The state-of-the-art dental equipment; I had never seen 
such nice equipment before. It is so nice.

                           REVERSE MORTGAGES

    Mr. Pastor. Part of it is because Maricopa County has a 
responsibility for indigent healthcare. So the county decided 
to open a facility, meeting its medical obligations, and so 
that is why the dental clinic is there.
    You find that the dental society, because it has to do 
community work, will volunteer, and their dentists come in. So 
it is an effort that brings people together. I think that the 
regional solution has worked for us in that area.
    One of the things--I do not know if you are familiar with 
it--reverse mortgages, where an elderly couple or elderly 
person owns a home, they have paid for the house, and now, 
obviously, their income is lessening because of the economy, 
inflation, et cetera. What is your experience with reverse 
mortgages?
    Mr. Garvin. HUD actually insures, I think, about 95 percent 
of the whole reverse mortgage market, and we see exactly what 
you were just saying, sir. This is something I failed to 
mention when talking about keeping people in their homes. The 
reverse mortgage is a great way to, if you are a senior, and 
you acquire a disability: ``You have paid for your house. Now 
it can start paying you,'' is basically what they are saying. 
You can take money out and put up grab bars in the shower, 
widen the doorway, make an accessible entrance. We have seen a 
lot of seniors doing that. We have seen a lot of seniors doing 
reverse mortgages to pay for unexpected medical problems.
    It is a great way. We have a trust issue. The commission 
that regulates reverse mortgages for the country; my father 
still does not trust them. So getting the message out has been 
one issue, but the volume of them is going through the roof.
    Mr. Pastor. He probably was born during the Depression. He 
does not trust any government.
    Mr. Garvin. Right after, but do not tell anybody I said 
that.

                          SECTION 202 PROGRAM

    Mr. Pastor. If I could just follow up, I do not know the 
status of where we are at today. Probably we have cut back on 
the Section 202 program. I have seen where non-profits, either 
faith-based or not--Urban League, Lu Lac--have been able to 
develop apartments, where the apartment is available to seniors 
that qualify, and there is a small area where they can cook 
their own meals, but there is also the common area where meals 
are shared.
    One of the things I found was that, as people get older and 
family are moving away, there is a great degree of isolation. I 
think the Section 202 program provides some individual 
amenities and, at the same time, some socialization and group 
is something that we need to continue. For whatever reason, it 
seems like overall support has decreased with that effort. Is 
it just a lack of money, a lack of interest?
    Mr. Garvin. Let me say, definitely not a lack of interest, 
and I will leave it at that. But you are absolutely right. The 
common areas in Section 202s; it is the best of both worlds. 
You can live independently, but you also have some 
socialization. I agree with you.
    Mr. Pastor. But I see that the interest has diminished, in 
terms of community groups. Is it just a lack of money?
    Mr. Garvin. I think it is a difficult program. A lot of 
those nonprofits that you mentioned have turned into working as 
a joint venture in the local housing tax credit program. It 
serves more people. They, too, offer services, not to the 
degree that Section 202 does--Section 202 serves far better--
there are way stronger services. But in a senior tax credit 
deal, you have the same thing. You have the common area. You 
have group meals, if it is provided. Very credible medical 
testing.
    So I think a lot of the sponsors, nonprofit alike, are 
moving over into the tax credit. We still see very strong 
interest in Section 202 as well.
    Mr. Pastor. Thank you, Mr. Chairman.

                       STATE HOUSING TRUST FUNDS

    Mr. Olver. Thank you. We have just had some votes called, 
and we have really about 15 minutes until they go to zero. I 
think we can still make it. So I think maybe if we can try to 
stay within four minutes apiece, or something like that, we 
might get there to the end. That is not easy.
    Let me just say, Mr. Knollenberg, it was Mark Fedor who 
provided the base graph. I provided the embellishments from 
other data that one needs to think about in putting this stuff 
together.
    Mr. Johnston, your talk about the homeless program; we are 
not going to get there either with the number of dollars, even 
at the $50 million per year. This $50 million per year is 
probably going to get us maybe 5,000 more units, and it will 
take a long time to get from what I think is the present 
cumulative number that has been created since 2002 of about 
60,000. You were using 40, but I think, with the cumulative 
total of new beds with permanent supportive housing that have 
been created, that would leave us about 90,000 still to get to 
that 150. It would take us a little bit more than that.
    So we have a problem, even there, where you have been 
putting more money in year after year because we have only been 
increasing the number in that cumulative group by between five 
and 10,000 per year, at least, and it has dropped down in the 
5,000 level.
    Let me just go back and ask, Mr. Garvin, you were saying 
that state housing trust funds and city housing trust funds are 
very valuable. Have union pension funds appeared heavily in the 
process of development of affordable housing?
    Mr. Garvin. I have seen some union pension funds as top-
tier passive investors in tax credits and tax-exempt bond 
financing. I have seen them invest.

                              DEMO PROGRAM

    Mr. Olver. Okay. I wanted to ask you. I am going back 
thinking about it because this is going to be a longer 
conversation. This is just exploration, whereas we need to 
think about, much of this is authorization, as well as 
appropriation.
    You talked about the demonstration programs. You have a 
demonstration program asking for $15 million in relation to 
other housing and a $10 million demonstration, basically the 
same demonstration, for within the disabled program. This, the 
Administration asked for last year as well. We did not provide 
that because, basically, it is authorizing language. I am not 
aware that the Administration has provided any legislative 
proposal to the Authorizing Committee to do that. Do you know? 
No authorizing language has been provided.
    Mr. Garvin. It would come from existing----
    Mr. Olver. If you feel that that is very necessary, and we 
ought to have some further discussion about just why it is 
necessary, because our staff, in part, looked at it and thought 
you had the authority to do that, that you might already be 
able to do that, but if you are certain----
    Mr. Garvin. There are several things we can do, but not 
all.
    Mr. Olver [continuing]. You have got to have some authority 
to do it, then we have got to get the language up, and the 
authorizers who are cranking out legislation in relation to 
housing fairly quickly this year; we have to make that 
connection. The concept of having a comprehensive or 
consolidated kind of a plan, just as a comment; there are some 
overlaps if you do not do the things, if you keep stripping the 
money out of the elder and, particularly, the disabled program, 
you are likely to see some more homeless people being created 
by that.
    Your comprehensive, consolidated program needs to consider 
all of these groups of people with need and their 
interrelationships as well. I think that the consolidated plan 
concept that the Ranking Member had come up with makes a good 
deal of sense.
    I will pass on to you, Mr. Knollenberg, for continuation 
here because we do have some votes. We are not in trouble yet.
    Mr. Knollenberg. How much do I have?
    Mr. Olver. Seven minutes before it goes to zero.

                           OPERATING SUBSIDY

    Mr. Knollenberg. I will not let that happen, so we will be 
all right.
    Mr. Garvin, I will be addressing you. I would like to 
return to the earlier question that I had for Mr. Johnston. 
Once the elderly or disabled facilities are completed, and once 
the initial operating subsidy contracts expire, the operating 
subsidy must be renewed.
    Assuming an addition in funding, which, in your case, looks 
realistic since the program has not been increased for some 
time now, can you tell us how much or what percentage of the 
budget for each program in 2009 is going to be devoted to 
renewing the subsidy on existing facilities rather than 
building new facilities, and what will these percentages rise 
to, in your opinion, over the next 3 years, if no increase in 
funding it is made at current funding levels?
    If you do not have the specifics, can you give us a feel 
for what is happening here?
    Mr. Garvin. I can give you roughly. It is a very big 
concern of ours as well. I think, in 2008, in the Section 202 
program, I think the rental subsidy eats up about 11 percent of 
the total funding amount. Looking down the road, in 2009, I 
think that doubles to about 22 percent as we renew and renew.
    In the Section 811, I think it is about 10 percent now, and 
forecasted down to 2011, it raises to about 21 to 22 percent as 
well.
    Mr. Knollenberg. One of the biggest criticisms of the 
program has been the slow and, some say, extremely slow, pace 
of facility construction. I know that you believe some progress 
has been made, but, nevertheless, given the tremendous, 
demonstrated and rapidly growing capacity and talent that 
exists in the private-development community for elderly and 
disabled facilities, do you think the program might benefit if, 
say, nonprofit subsidiaries, private developers, could compete 
for these funds? What is your view on that?
    Mr. Garvin. In some ways, that is happening, that you will 
have a for-profit construction company working with non-profit 
sponsors. In my experience, working with the owners of 
multifamily housing, the for-profit sector, they really do not 
want to own and operate a Section 202 or Section 811; they want 
to build it. They want the construction fee, but they do not 
want to own and operate. It is very intense, and the community-
based nonprofit does a better job, even they think, of actually 
operating the property.
    Mr. Knollenberg. In your opinion, is the goal, in your 
opinion, to build as many facilities as fast as possible, or is 
the goal to build facilities that can be operated over the long 
run by nonprofits or community organizations?
    Mr. Garvin. Pretty much both. I want to see an improvement 
on how long it takes to build one of those Section 202s. It 
takes a long time. As I mentioned before to Chairman Olver, tax 
credits; you build and place that in service, get it leased in 
two years, and you are not at risk of losing your credits, 
which really puts you upside down.
    Mr. Knollenberg. My time is up, is it not? Just one quick 
question. Are there any benefits, in your view, to splitting 
the program so that they can be built privately but operated by 
the usual nonprofits?
    Mr. Garvin. I am sure there is probably some benefit in 
that thinking. My staff is not going to jump over the table at 
me. I come from the private development sector, so I am not 
going to say that I do not think the private sector could not 
help, and are helping. In some cases, they do build.
    Mr. Knollenberg. I appreciate your response, and, with 
that, I will conclude my comments and my questions, so thank 
you both very much.
    Mr. Garvin. Thank you very much.
    Mr. Olver. [Off mike.]
    Mr. Garvin. We have some.
    Mr. Olver. It is unclear what you need authority for. We do 
not have any idea why you need that authority when you have not 
provided legislation for this opportunity----
    Mr. Garvin. That is a good point. I will work on that 
immediately when I get back.
    Mr. Olver. Thank you very, very much. The hearing is done, 
and thank you very much for being here.

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                                         Wednesday, April 23, 2008.

                    CHALLENGES OF THE PROJECT-BASED

                           SECTION 8 PROGRAM

                               WITNESSES

MICHAEL BODAKEN, PRESIDENT, NATIONAL HOUSING TRUST
J. KENNETH PAGANO, PRESIDENT AND CEO, ESSEX PLAZA MANAGEMENT, ON BEHALF 
    OF THE NATIONAL AFFORDABLE HOUSING MANAGEMENT ASSOCIATION
WILLIAM L. MINNIX, JR., PRESIDENT AND CEO, AMERICAN ASSOCIATION OF 
    HOMES AND SERVICES FOR THE AGING

                           Chairman's Remarks

    Mr. Olver. The hearing will come to order. Today is a two-
part hearing, and it will focus on the crisis in the Section 8 
program. This afternoon we are going to be joined by HUD 
Assistant Secretary For Housing, Brian Montgomery, to discuss 
this section of this Project-Based Section 8 Program. This 
morning we will hear from outside witnesses about the impact 
HUD's changes to the project-based program has had on owners, 
developers and tenants.
    Before I introduce my panel, let me set the context for 
today's hearing. The Project-Based Section 8 Program provides 
about 1.3 million affordable rental units for low-income 
families, over half of which are elderly or disabled. As the 
initial 20-year or longer long-term contracts from the 1970s 
began to expire in the 1990s, the contracts were replaced with 
shorter contracts subject to annual appropriations. Currently 
close to 80 percent of Section 8 units, or roughly 14,000 
contracts, are funded by 1-year contracts through annual 
appropriations.
    In the late 1990s, HUD modified this policy of obligating 
12 months of funding without notifying property owners or 
tenants that it had done so. Instead of obligating 12 months of 
funding at renewal, HUD increasingly provided only a few months 
for some contracts, typically just enough to cover the 
remaining months of a fiscal year.
    In fiscal year 2007, HUD's legal office determined that the 
short funding of contracts, constituted a potential violation 
of the Anti-Deficiency Act. Instead of requesting additional 
funding from Congress to cover the shortfall and fix the 
potential ADA violation, HUD began to issue, for instance, 3- 
or 5-month contracts to landlords.
    Today our panel will discuss the impact these short-term 
contracts and the estimated $2.8 billion shortfall are having 
on owners and residents of Project-Based Section 8 housing.
    Joining us this morning are Michael Bodaken who is 
President of the National Housing Trust. We have Kenneth 
Pagano, President and CEO of Essex Plaza Management, and Larry 
Minnix, the President and CEO of the American Association of 
Homes and Services for the Aging.
    Mr. Olver. Before we hear from the panel, I would like to 
recognize my Ranking Member, Mr. Knollenberg, for any comments 
that he would like to make.

                       Mr. Knollenberg's Remarks

    Mr. Knollenberg. Thank you, Mr. Chairman. Thank you very 
much. And again, let me add my welcome to the panel this 
morning. I am also looking forward to the testimony from the 
Department this afternoon where we will be able, I hope, to get 
into some of the technical details surrounding the Project-
Based Section 8 Program.
    I must admit to being a little concerned that we are 
joining this long list of subcommittees that want to delve into 
not only how much is being spent on the program, which is 
certainly important to us, but how it is being spent. As the 
data I will raise during the question-and-answer period shows, 
by and large all owners are being paid what they are owed, and 
on time. And those that are not, for the most part, are delayed 
for reasons unrelated to the availability of funds.
    I am not sure why Congress needs to jump in and fix 
something that is not broken, as far as I can tell. I hope that 
the testimony of the panel and the question-and-answer period 
will shed some light on the problem before us.
    I am a bit reluctant to get too enmeshed or become enmeshed 
in the technical decisions the Department makes to distribute 
the funds unless there is a clear problem to solve. More 
importantly, I am not sure why the project owners should want 
to become enmeshed in the technical details the Department 
makes as long as they are paid in a timely way and in the 
amounts that are owed.
    Therefore, I look forward to the testimony this morning 
from the panel as to what their concerns are and the extent to 
which they have been or are now victims of the program's 
administration.
    Before this Subcommittee takes any action, we need to see 
the specifics on who is being harmed and by how much. That, to 
me, is defined simply as a number of late payments and why, and 
a number of owners that are leaving the program and why. 
Forgive me if I appear to be a bit skeptical, but this program, 
which has been annually funded through appropriations for more 
than 20 years, has always been funded and has always paid the 
project owners what they are owed. Across Democratic and 
Republican Administrations, the funds have always been there. 
In fact, for many years the program has had excess funds and, 
as a result, for years Congress has instituted annual 
rescissions of excess funds in this program as long-term 
contracts expire and either shift to annual renewal contracts 
or owners opt out of the program all together.
    Last year was no different. Yet, now some are declaring 
that we have a massive shortfall in the billions of dollars 
that the Appropriations Committee must provide to avoid dire 
circumstances. More importantly, these declarations are not 
from the people who actually administer the program on a daily 
basis. Their complaint is actually very different and one which 
I believe we should be concentrating on here this morning and 
this afternoon with the Department.
    The real complaint from the Department and the real task 
that we should be facing is not what we appropriated in fiscal 
years 2007 or 2008, but the Department will testify this 
afternoon that they have ample funds to complete the year. The 
real complaint and the real issue is, what does this Congress 
accomplish by October 1 for fiscal year 2009?
    This Subcommittee can ill-afford to put funds into any 
programs that are not absolutely needed in the year they are 
appropriated. Advancing funds for any program today can only be 
done at the expense of other programs. Therefore, as we proceed 
today, I hope the subcommittee will be very cautious.
    The Subcommittee now has an enormous burden already with 
depleting highway funds, rapidly increased costs of highway and 
bridge repairs, and the additions of hundreds of new Tenant-
Based Section 8 vouchers that must be renewed every year.
    I would also urge the Subcommittee to avoid budgetary 
gimmicks that avoid or postpone the scoring of costs but do not 
avoid the impacts on the deficit, especially if there is no 
emergency in this program today. I believe that the 
Department's testimony and the evidence to date makes that 
clear.
    If Congress completes the appropriations cycle as they are 
supposed to, then I am confident HUD will have sufficient funds 
in 2009. We can and we will work with them to be sure of that 
as part of the normal appropriations cycle. But if Congress 
fails to do so, if we don't do our job, then we must be sure 
the continuing resolution has sufficient funds to continue the 
program adequately. If we do that, then there will be no 
shortfall in 2009. The program will not grind to a halt as some 
have argued, and we will not need to resort to budget gimmicks 
either.
    Mr. Chairman, I am sure that all project owners would like 
the certainty that comes with full funding for this program. I 
am sure they would also like to have funds in advance of when 
they actually need them. They all would like the assurance of 
their profit and a guarantee of their income. But that is not 
the world that appropriators live in. This is an annual 
discretionary budget process over which this Subcommittee 
presides, and that means the Committee has to set priorities 
and live within a budget. That means there is no absolute 
certainty.
    I thank the Chairman certainly for the time, and I look 
forward to hearing from the panel about the problems that are 
facing this program. Once again, I thank you all for being 
here.
    Mr. Olver. Thank you very much for your very challenging 
and thoughtful statement.
    Mr. Knollenberg. Challenging and thoughtful. Okay. I will 
accept that.
    Mr. Olver. I think thoughtful and challenging is a better 
way to put it--but anyway.
    Mr. Olver. Gentlemen, your written statements will be 
placed--your full written statements will be placed in the 
record. So if you could maybe begin to answer something that is 
here, that has been alluded to, we will go down the list.
    Let's start with Mr. Bodaken and work our way down the 
panel.

                         Mr. Bodaken's Remarks

    Mr. Bodaken. Thank you. Chairman Olver, Ranking Member 
Knollenberg and members of the subcommittee, thank you for 
allowing me to testify today. My name is Michael Bodaken and I 
am head of the National Housing Trust, a national nonprofit 
dedicated to the preservation of existing affordable housing.
    Just 6 months ago in October, I testified before the House 
Subcommittee on Housing and Community Opportunity on this very 
subject. At that time I made the following essential points. In 
the summer of 2007, as was alluded to this morning, HUD began 
sending letters to property owners, requiring owners to sign 
12-month contracts with less than 12 months of funding. This 
unraveling of the government's promise to owners had caused 
great concern to all of us in the industry, concerning tenants, 
owners and investors. My own organization had been compelled to 
take $800,000 out of our reserves to meet HUD Section 8 gaps at 
that time for four properties. Vendors were canceled, and 
maintenance was drastically reduced. In one property in South 
Carolina we were told literally, in writing, I cannot tell you 
when the property will be paid.
    Today I come before this Subcommittee, 6 months later, 
fearing that the failure of HUD to make timely payments in the 
summer of 2007 is not going to be repeated in the same way this 
year, not with the same intent, a possibility with catastrophic 
consequences for tenants and owners.
    The following is just a sample of what has occurred since 
the last hearing. Over 45 investors, lenders and housing 
developers have signed a letter to this Committee on April 1 
who rely on Section 8 for their profession, urging you to fund 
the $2.4 billion in emergency funding to fund Section 8 over 
the next 12 months.
    HUD has conceded to this Committee and to the other 
committees that it needs $2.6 billion to fully fund Section 8. 
And owners and investors have continued to suffer harm. In at 
least two instances of which I am aware, tax credit investors 
have required owners to set up emergency reserves, 6-month, 
quote, Section 8 risk reserves, that were never before 
requested.
    In one project that we are working on in Springfield, 
Missouri, $131,000 is owed today. In my own organization, we 
have had to cancel or extend invoices from vendors and minimize 
maintenance to our properties. It is true, Mr. Knollenberg, 
that we are being paid currently. But these have all occurred 
in the last 6 months. And I fear that this may occur again. I 
don't dispute that right now we are being paid. But for the 
last 6 months there have been significant problems in this 
area.
    But all these problems, I think, pale in comparison to 
something that HUD has not brought before this Committee, and 
that is the exposure to the FHA Insurance Fund of all the 
contracts that come before this Committee for renewal each 
year. We are in the middle of a housing foreclosure crisis in 
this Nation. My organization and LISC have conducted an 
independent analysis of all the FHA-insured contracts that come 
up for renewal this year and next year during the next 18 
months. Over $11 billion of Section 8 contracts are insured by 
the FHA and they come up for renewal in the next 18 months.
    It is important to understand the implications of all of 
this. If HUD is failing to make the payments on time and owners 
are forced to go into default, FHA will be on the hook. And 
that analysis is in our testimony.
    Directing you to page 4 of my testimony, we have collected 
information from each of your districts, showing you how much 
FHA-insured stock you have in each of your districts. In this 
Committee alone, nearly $250 million of FHA-insured mortgages 
are coming up for renewal during the next 18 months.
    The second most important thing that HUD fails to mention, 
and I urge you to ask them about it this afternoon, is the 
cascading of renewals that their short-term funding policy will 
necessarily require in the late fall of this calendar year. By 
short-term funding, every contract renewal--Chairman Olver said 
it correctly--80 percent of HUD's 18,000 contracts are renewed 
each year. No question. By short-term funding all of those 
contracts, we are looking at an iceberg that is coming at us in 
the fall of this year where HUD will have to make those 
renewals simultaneously. I do not believe that anyone at HUD 
can honestly say to you that they have the administrative 
capacity--let's assume that they had the money--that they have 
the administrative capacity to make those renewals in the late 
fall of this year. And when you speak to HUD about this, they 
talk about their technology improving, and they are not 
concerned about it. But it is a serious concern for all of us 
in the industry.
    As a letter to you, on March 19 from the House, a 
bipartisan letter from your own Members said: ``Today, the 
mortgage crisis is putting mounting pressure on an already 
strained rental market. Homeowners that lose their homes rely 
on Section 8.''
    I would add to that the two concerns I brought up today, 
the FHA concerns and the cascading of renewals. Fortunately 
this crisis can be avoided. The addition of Section 8 budget 
authority does not produce an increase in Federal outlays or 
produce an increase in the Federal deficit. It is merely a 
matter of timing.
    Members of the Subcommittee, the time to act on this crisis 
is now. Thank you.
    Mr. Olver. Thank you, Mr. Bodaken.
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    Mr. Olver. Mr. Pagano, your turn.

                          Mr. Pagano's Remarks

    Mr. Pagano. Thank you, Chairman Olver, for holding this 
important hearing. Good morning, Ranking Member Knollenberg and 
members of the Subcommittee. My name is Ken Pagano, and I am 
honored to be here today to speak on behalf of the National 
Affordable Housing Management Association (NAHMA). NAHMA 
represents managing agents and owners involved in Federal 
rental assistance programs. And I am also president of Essex 
Plaza Management Company and NAHMA's regional president for New 
Jersey.
    Shortfalls in the Project-Based Section 8 program have two 
immediate impacts on the day-to-day operations of affordable 
properties: late subsidy payments to owners and incremental or 
partial funding of housing assistance payment contracts.
    Last summer properties across the country did not receive 
their HAP payments for 2 or 3 months. To make ends meet, many 
NAHMA members had to lay off staff, cut services to residents, 
miss mortgage payments, make late utility payments or miss 
payments to site vendors, borrow from project reserves for 
replacement, postpone maintenance and ask owners for loans.
    In my own experience as a managing agent, the cost of 
operating project-based Section 8 properties has increased as a 
result of last summer's crisis. Despite many years of timely 
payments, vendors are now asking for up-front deposits. I have 
lost discounts because I was not able to pay them on time. 
Banks and vendors are charging late fees. My properties have 
paid between 12 and 18 percent interest for water or sewer and 
tax payments in the State of New Jersey because HUD didn't pay 
me on time. My properties suffered. My tenants were also 
affected.
    I have had to defer work outlined in my Mark-to-Market 
program because I needed money to make debt service payments. 
But the funding problem did not end last summer. For example, 
in late 2007 a NAHMA member operating in the Midwest 
experienced a 2-month delay in HAP payment, first, because HUD 
did not have the funding to pay the HAP, and then because HUD 
added an extra step in the contract renewal process, requiring 
the contract administrator to sign the new contract. This 
member was especially frustrated because it had submitted its 
paperwork 120 days prior to its contract expiration. The 
contract was to have been renewed prior to November 1, but the 
owners have not received voucher payments in November or 
December. At the same time, the owner is expected to pay 
mortgage and utilities to keep the building lighted and warm in 
the Nebraska winter.
    Another frustrating consequence of last summer's funding 
crisis is HUD's incremental or short-term funding language in 
Section 8 renewal contracts. Project-Based Section 8 contracts 
now obligate funding of owners for a period of time, less than 
the term of the contract, either 1 year or multiyear. For 
example, contract language may read, HUD is providing $350,000, 
which is sufficient to fund HUD's HAP for approximately 4 
months. At every anniversary date for multiyear contracts, HUD 
is notifying owners when it does not have enough funding to pay 
for the full 12-month annual increment. HUD's letters state how 
much funding will be provided to cover a specific number of 
months and that HUD will obligate funding when appropriations 
are available.
    We have had multiple contracts in the D.C. area that have 
been not funded for several months. In addition to that, we 
have had members advise us in San Bernardino, California, that 
they will be opting out of the program. In addition, they are 
saying properties in Los Angeles and right next to Southern 
California University will also be opting out because they are 
able to get better rents without the Section 8 subsidy.
    We are requesting that HUD look--that this Subcommittee 
look at the Administration's requests and fund $2.8 billion in 
shortfall funding for Section 8 and address whatever regulatory 
problems there are. I cannot stress enough how important it is 
to provide a $2.8 billion increase for Project-Based Section 8 
as quickly as possible. Many of the industry observers believe 
funding would finally be stabilized and contracts could be 
fully funded for their 12 months.
    I thank you for this opportunity and I would be happy to 
answer any questions.
    Mr. Olver. Thank you, Mr. Pagano.
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    Mr. Olver. Mr. Minnix.

                          Mr. Minnix's Remarks

    Mr. Minnix. Yes, sir. Thank you, Mr. Chairman and Mr. 
Ranking Member. The facts and figures that my colleagues have 
given you are real. I represent somewhere around 2,000 not-for-
profit, mostly religious Masonic labor-sponsored not-for-
profits. The good news about all these HUD programs is that 
every community in America now has low-income housing for 
elderly and disabled people.
    Think about that, one of the great things that America has 
done in the last 40 years. So we have given birth to this great 
program. And by the way, more recently we are seeing that the 
service coordination side of this is keeping people out of 
nursing homes and emergency rooms and hospitals; that the value 
of these programs is far more than I think any of us realize.
    The late payment issue is symptomatic of mismanagement, 
nonmanagement. In fact, we are encouraged by the new nominee 
Secretary who has had some experience with small business. 
These are enormous small businesses. There are just a lot of 
them, and they run on a shoestring. And the late payments have 
an effect on employees losing benefits, residents--we have 
asbestos abatement projects that have to be stopped midstream 
because they can't pay. You have businesses and contractors 
that won't work with organizations because they can't get paid.
    We did question some of our members. We have a member now 
where it has been 240 days without being paid. If HUD were a 
person, it would be called a ``deadbeat dad.'' It is the 
Deadbeat Dad Agency. Again the irony is, it is a great program.
    The other term we use for HUD, and looking at the big 
picture, it is the zombie agency. It is not dead. It is not 
alive. And I think Congress needs to look at whether or not 
this is really an important program for older and disabled low-
income Americans. And if it is, how do we rejuvenate it? If, 
for whatever reason it is not, how do you give it a responsible 
burial?
    But right now the way we are treating people is having a 
huge effect on the lives of individuals and communities. And we 
believe very strongly that low-income housing is an investment 
in people's health, people that construct it, people that work 
in it, people that live in it. There are 10 people waiting to 
get in one of these units for every unit occupied. What 
business wouldn't be thinking about how to expand if you had 10 
consumers wanting your product that can't get it? And then we 
are figuring out how to slow pay them. And then there are games 
about that.
    I hope the new Secretary can solve the administrative games 
being played around all this.
    Long term, I think with whoever is the next President and 
whatever priorities the next Congress has, if we don't consider 
the revision of low-income investment in housing of older and 
disabled people in the community, we are missing a great 
opportunity to say, what is our commitment to these people? And 
they are out there. And you can count on just about one hand, 
figuratively speaking, how many not-for-profits have gone out 
of business. I mean, they figure out a way to cope, and maybe 
you can just say, well, they figured out how to get by. But 
when you can't accumulate depreciation and you can't pay your 
people and your vendors question what you are doing, how many 
businesses--what kind of credibility problems begin to arise in 
a community where there is a facility in virtually every 
community in America? And you know what? It has been successful 
for decades.
    And that is why we think you guys need to not only help 
solve the existing immediate administrative problems that drag 
on, but you need to step back and say, we have got a great 
program. How do we invest in the future?
    Now I want to separate people from processes. Mr. 
Montgomery is coming in this afternoon. We have dealt with some 
very good people at HUD to try to solve these problems, but you 
can't get an answer. We did a thing in my former organization, 
once we figured out there was something like 16 levels between 
us and the Secretary that could tell you ``no'' on something. 
And nobody can tell you ``yes'' definitively. Rescissions. You 
can take money back because people can't get the money. The 
processes to go through to try to get approval for something 
are just onerous.
    We have people--we have had members now that say it takes 
twice as long to construct a facility or renovate as it should 
because of the unnecessary approval processes to try to get the 
work done. So therefore, you have architects and contractors 
that won't deal with people because they can't get answers out 
of things.
    And all of these are fixable problems. There is just 
absolutely no reason for this thing to be as managed--or 
mismanaged as it is.
    Mr. Montgomery, you need to know, in the midst of Katrina, 
we had a member call that said that they had 70-something 
residents stranded in downtown New Orleans who were not on the 
rescue radar screen of anybody. And between one of our staff 
members and Mr. Montgomery, who went down there, we got those 
people rescued.
    So we have to remember that there are people in these jobs 
that mean well and work hard. But somehow or another the 
decision making, administrative, and the policies need to be 
reconsidered.
    Mr. Olver. Well, thank you very much for your comments. We 
will add those to the written documents that you have provided.
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                             LATE PAYMENTS

    Mr. Olver. As has been our usual procedure in this 
subcommittee, I and the Ranking Member will each take 10 
minutes here on the first round, and then we will go through 5-
minute questioning sessions by each of them in turn, switching 
from side to side here in the process.
    Let me start by asking you, each of the three of you--you 
Mr. Pagano, you are Essex Plaza Management. But you also are 
part of a much larger organization.
    Mr. Pagano. That is right.
    Mr. Olver. So you have your own data as CEO for the 
management. How many units do you manage?
    Mr. Pagano. We have 3,500 units.
    Mr. Olver. 3,500. And what is the territory?
    Mr. Pagano. New York and New Jersey.
    Mr. Olver. New York and New Jersey. Okay. But your 
organization has a much larger number of units?
    Mr. Pagano. Probably 850,000.
    Mr. Olver. 850,000. I am going to ask each of you the same 
question. I want to know what you are doing directly and what 
your organization is doing.
    Do you have, either in your own ownerships, do you have 
long-term contracts now; that are still from the old 20-, 30-, 
40-year lease contracts that were created in the early days of 
this program?
    Mr. Pagano. Yes.
    Mr. Olver. You do. And are you now finding that those long-
term contracts are in the same position as the short-term 1-
year contracts in that they are being paid to the end of the 
fiscal year or to some point--well, to the end of the fiscal 
year?
    Mr. Pagano. Yes.
    Mr. Olver. And those are behind as well? I am hearing two 
of you say, I think, that people are getting their payments 
sometimes late. They should be coming on a monthly basis pretty 
much. Once the contract is signed, and you know what it is, and 
the long-term ones are there with their adjustments for 
inflation and so forth year by year--those are very well known 
well in advance--what would be keeping them from paying those 
on a timely basis rather than what has been described?
    Mr. Minnix. I think I mentioned that someone was behind by 
something like 240 days in the payments on a contract that was 
approved. There are a bunch of questions which I will ask each 
of you to address and each of you can tell me first the numbers 
of the kinds of housing that you directly and your organization 
cover. Go ahead.
    Mr. Minnix. We get everything from ``Washington is making 
us do it,'' ``They are holding up payments.'' HUD blames OMB. 
The regional people blame HUD and Washington. ``The dog ate my 
homework.'' You can go right on around--I mean how does----
    Mr. Olver. So why would one contract be paid on time and 
another one be behind by 60 days, 100 days?
    Mr. Minnix. I hope we will have some management----
    Mr. Olver. But am I correct that some are being paid on 
time?
    Mr. Minnix. Some are being paid on time.
    Mr. Olver. After the contract has been signed and agreed 
to. Why would that be?
    Mr. Minnix. Personality kinds of things get involved. 
Sometimes it is the provider's fault. But these people have 
been doing this a long time. And they are dependent on this 
paperwork. But that is part of the administrative mess that 
needs to be cleaned up. The finger-pointing goes around and 
around and around, and the facility and the people that live 
and work there wind up suffering for it. I wish I knew. But I 
can tell you what they say. They start pointing the fingers 
upstream back to Washington. Somebody needs to get on top of 
that. That is just management 101.
    Mr. Olver. All right. Maybe back to you, Mr. Pagano.
    Mr. Pagano. I have a 30-year contract on a senior citizen 
building in Jersey City. I am in year 28. September, October, 
November, I had no Section 8 funds from HUD.
    Mr. Olver. From last September, October, November, you have 
not yet received the Section 8 funds?
    Mr. Pagano. I have received them. I received them mid-
December and was caught up. But I had 3 months where I could 
not pay my mortgage. And the response, when I vouchered those 
funds, right on HUD's Web, was inadequate funds. And we went to 
the contract administrator, we went to the HUD office, and they 
eventually moved funds so that we were able to collect the 
money. But the response for the 2 months submitted and the 
third month on our voucher process was inadequate funds. That 
is what HUD reported to the contract administrator. Didn't have 
the money to give to them to give to me. And it was a 30-year 
contract. We are in year 28. And the repercussions of that is, 
the general partners and the limited partners who I had 
discussed extending the affordability period at the end of the 
30 years to continue it as affordable funding or not, are now 
looking at me and saying, if that happens again, we are going 
to default on our mortgage, we are going to have to explore 
changing this to market-rate housing.
    And it is very easy when the rest of the area around the 
property is being developed as condominiums starting at 
$350,000. I have 110 units of all senior citizens. They are not 
going to have a place to go. And the limited partners have now 
started pressuring the general partners in saying, hey, we are 
not getting any return, we are not----
    Mr. Olver. Do you have other projects which were suffering 
that same delay in the payments for several months into the 
early part of this fiscal year?
    Mr. Pagano. Depending on when the contract renewal was--
okay, if I renewed in October, I may not have received--you may 
not have received funding. In talking to our members, you 
submit a contract renewal a full 120 days prior to the 
expiration of the contract. And when HUD starts adding steps 
after the fact, as they did in our members' Nebraska property, 
and telling them, you know, I have a contract that was supposed 
to be renewed October 1, and I didn't get any payments until 
December, mid-winter in Nebraska is a rough time to supply heat 
and utility. That is a real problem.
    Mr. Olver. Mr. Bodaken.
    Mr. Bodaken. National Housing Trust owns or operates about 
2,000 HUD-insured Section 8 units. We are members of the 
Stewards for Affordable Housing, which is a national nonprofit 
organization. And our members operate roughly 56,000 Section 8 
units. And part of my testimony is based on both our properties 
and their properties.
    I thought it might be helpful to answer your question to 
refer you to a couple of exhibits in my testimony which will be 
very clear. Take a look at exhibit 4, if you would, of my 
testimony. And it will just take a minute. I think it might be 
useful.
    Exhibit 4 is a typical letter that a HUD owner would 
receive. These are September letters. And we have underlined 
the appropriate language. And to clear up the confusion, now 
what owners are being asked--it is Exhibit 4. Let's make sure 
that----
    Basically HUD now says with the notice that we have, 
sufficient appropriations are not available at this time to 
make housing assistance payments under the renewal contract. 
And later on they say, subject to an annual appropriation we 
will be able to provide you more funds.
    And then Exhibit 5, which is the next exhibit, is the type 
of thing we would get from the Section 8 contract 
administrator. And you will notice there he says, ``I cannot 
tell you when your property will be paid at this time.'' And 
this was in all of our properties that had expirations between 
July and December--or, I am sorry, July and November of last 
year. This occurred in every one of our properties, to answer 
your question directly. Some of them were 2-month delays, some 
were 3, some were 1 or 2. In one of the properties, the long-
term contract, payment came faster, but it was delayed. But a 
payment did come faster. And I can't tell you why that 
occurred. I don't know.
    But certainly that is a decent question. Why would HUD 
delay some contracts and not others? I think it is fair to say 
that lots and lots of contracts that expired in the last 
quarter of 2007 and the first quarter of fiscal year 2008 were 
delayed. HUD would certainly be able to give you that 
information. Our experience was that all of our contracts were 
delayed one way or the other. That expired during that time 
frame.
    Mr. Olver. Now my understanding is that the funding that 
Congress provided in the fiscal year 2008 Omnibus of $617 
million above the President's request would carry the program 
through the short-funded contracts, should carry all of them 
through October or November, according to HUD. We may explore 
that later in the afternoon.
    Do you think that would be the case with the funding that 
is now available as things seem to be happening for you? Or do 
you have any way of knowing that?
    Mr. Bodaken. I think it is fair to say that HUD's numbers 
on this have varied from time to time dramatically. We met with 
HUD officials on this matter in February, and they were candid 
about saying they did not know exactly how much--what time 
frame they would be able to go through. We happen to know in 
Region 10 in Seattle and Portland, HUD is now asking owners who 
have additional replacement reserves or residual receipts 
reserves to take those residual receipts reserves down to a 
certain level to provide HAP funding. That just happened 
yesterday.
    I think you should be concerned about this issue. I am not 
saying they don't have funding to go through October or 
November. But they are doing things now that makes me, as an 
owner, concerned about their ability to get through that time 
frame.
    Let's assume, arguendo, that they can get through that time 
frame. What happens then? What happens at that time? And I have 
not heard from HUD any understanding of how they can possibly--
unless they have a continuing resolution that funds an 
exaggerated amount for all of those that are expiring at that 
first quarter, whether or not they will be able to handle that 
situation. So I think it is fair to be concerned about whether 
they will be able to make the payments through October or 
November. And I think there is evidence out there that would 
make a reasonable person concerned about it.
    Mr. Olver. Thank you. Mr. Knollenberg.
    Mr. Knollenberg. Chairman, thank you. To begin with, I 
would like to ask Mr. Pagano and Mr. Bodaken a question about 
project owners in general.
    Mr. Pagano you are a project owner; that is correct, right?
    Mr. Pagano. Yes.
    Mr. Knollenberg. Tell me, what is the average rate of 
return, if you can, from the contracts that you have with HUD 
to provide affordable housing?
    Mr. Pagano. To be frank with you, based on the current way 
that HUD is calculating the OCAF, I have not seen any return on 
equity on any of the long-term contracts in over 5 years. On 
the mark-to-market projects, less than 50 percent of our 
properties that went through mark-to-market, based on HUD's 
failure to adjust the OCAF because of--for rising utility 
costs, pay the refund for the capital recovery payment that the 
owners invested.
    On a mark-to-market process you were asked--HUD recast the 
mortgage. We were asked to put capital into the deal. The 
return was supposed to be 7 percent on that capital, and it was 
projected in each and every deal. The OCAF adjustments or the 
annual adjustments for rent have not kept pace with the utility 
increases; therefore, less than 50 percent of the deals where 
we put in $200,000, $300,000 or $400,000 are paying us anything 
on that investment.
    Mr. Knollenberg. Mr. Bodaken, can you answer that question 
for the industry at large?
    Mr. Bodaken. I can't for the industry at large. I can 
answer for our own experience.
    Mr. Knollenberg. And if you can't answer it, can you tell 
us who somebody might be that we could talk to?
    Mr. Bodaken. Well I would think NAHMA, the organization 
that Mr. Pagano works for, the National Leased Housing 
Association which represents owners of these properties--and 
most of the owners of properties are for-profits, not all are--
I would think they would have some figures that would help you 
get at that.
    Mr. Knollenberg. But you can only relate to your own?
    Mr. Bodaken. I can only tell you what our experience is.
    Mr. Knollenberg. Mr. Pagano, one thing I am curious about, 
why would property owners stay in the system after, say, 20-, 
30-, 40-year contracts, why would they stay with HUD? Because 
when that expires, what do they do then? In other words, given 
the huge opportunity, and certainly given the introduction of 
so many--for so much uncertainty associated with relying on an 
annual contract--which is what this hearing is really all 
about--can you tell us why at the end of these long-term 
contracts with HUD, project owners stay in the system and agree 
to annual contracts thereafter?
    Mr. Pagano. Well, I think in our case it is a matter of 
estate planning. There is no real exit strategy for a general 
partner that has been in for 30 years. Most of the general 
partners--early deals, the early partners were individuals. 
Here they have negative capital accounts and are facing huge 
tax consequences if they opt out of the program.
    The individual States are offering incentives under various 
preservation programs for an owner to restructure the deal and 
come in and keep the property affordable. And we have several 
owners, and, you know, here in Washington you may think it is 
funny, but we have several owners that, once in the affordable 
industry, have grown attached to their tenants. We have had 
tenants in our properties for 20, 25 and 30 years; and the 
owners do come and see it, and they have grown an attachment to 
those people and don't want to see them put on the street.
    Mr. Knollenberg. I understand. But doesn't it seem a little 
odd that these contracts are more lucrative than market rents 
would be?
    Mr. Pagano. They are no longer more lucrative than market 
rents.
    Mr. Knollenberg. But they still continue to stay.
    Mr. Pagano. Because of tax consequences we are staying. And 
in the name of preservation, the deals are being restructured 
in such a way that allow some of the----
    Mr. Knollenberg. Mr. Minnix, can you respond to that as 
well?
    Mr. Minnix. Yes. I would like to comment on a whole 
different sort of segment. St. Mary's Court over here near 
George Washington University, low-income, church-sponsored, 
they don't necessarily have a return on investment. They got 
into that as a mission, and they have been successful over the 
years. So nobody is taking home some kind of return on that. 
The reimbursement that they get through Section 8 or whatever 
pays basics.
    There are thousands of facilities like that where they are 
in it for the mission. So when they don't have money, they 
don't have a pot to draw from or an investment tool to draw 
from. A question about what happens after 30 or 40 years is 
part of the policy question, because the housing needs of the 
people that St. Mary's Court is serving has increased. It is 
not going away.
    And one of the things that you all need to help us do is 
how you reconceptualize meeting those housing needs. But we can 
be caught up in return-on-investment issues and the issues 
really come down to people in communities and how do you 
preserve and enhance those facilities? And most of these people 
are not making money. In fact, the way--even the budgeting, 
there is no profit in there.
    Mr. Knollenberg. So, really, you are in kind of a unique 
situation with respect--relative to the other two gentlemen; is 
that right?
    Mr. Minnix. I represent essentially the not-for-profit 
faith-based labor Mason. And you tend to forget about those, 
and they are the ones over time that are standing the test of 
time in their communities. And we can't make business decisions 
based on investment. We have to make decisions based on people 
equally.
    Mr. Bodaken. Just for the record, the Trust is also a 
nonprofit organization. I join in those questions. We are not 
earning a return on our profits.
    Mr. Knollenberg. I have a question for you, Mr. Bodaken. As 
you are aware, the government long ago got out of creating the 
long-term contracts with individual project owners in favor of 
increased mobility and increased reliance on the marketplace 
through the use of tenant-based vouchers. Vouchers, as you 
know, now outnumber project-based units by almost 2 to 1.
    Mr. Bodaken. Yes.
    Mr. Knollenberg. Do some or even most project-based owners 
also agree to provide units under the tenant-based program? And 
do you believe that most would accept tenant-based vouchers if 
the project-based program were eliminated? Or would they opt 
out of the system?

                         PROJECT-BASED VOUCHERS

    Mr. Bodaken. I can't speak for every owner. But I would 
tell you we would, of course, accept tenant-based vouchers. 
They are more expensive than project-based vouchers on a per-
unit basis. But absolutely. We have properties where we accept 
tenant-based vouchers, and have no problem with that.
    The nice thing about a project-based voucher for us is that 
we did know that there was a certainty of income, and we would 
be able to pay our asset managers overtime. But certainly we 
have no philosophical objection whatsoever to vouchers. I think 
it has increased costs, I think it is around a $900-per-unit 
cost for the government to provide vouchers. And indeed, that 
is something for the subcommittee to consider. But I think 
vouchers have a useful--in any housing system, they are 
indispensable. I think one thing to think about is in tight 
housing markets, elderly people, large families can't use 
vouchers. In looser housing markets----
    Mr. Knollenberg. Let me follow up with another question to 
you, Mr. Bodaken. I think we would all agree that tenant-based 
vouchers are far less certain in terms of income and profits to 
the owner, for a variety of reasons, than the project-based 
units. Should the project-based system have more certainty than 
the tenant-based provider who is paid solely on the basis of 
units actually under lease? And if so, why?
    Mr. Bodaken. The answer is yes. And the answer is because 
we have chosen to enter this program and provide housing that 
requires the government and us to put in our own equity, to 
provide our own services. And that is something the voucher 
provider doesn't do. We have resident services at every one of 
our facilities. Internet after-school programs. For the elderly 
we have services. All of that is paid in part from the project-
based income that we are able to leverage from the Federal 
Government. If you take that away, you take away that whole 
community component that project-based housing provides.

                             LATE PAYMENTS

    Mr. Knollenberg. Let me go to another final question 
perhaps in my round here. Mr. Bodaken, again, the issue that we 
hear most often with respect to this program and the way it is 
currently funded is that it is late payments to the owners that 
seems to cry out.
    Can you tell me how many owners have opted out as a result 
of late payments?
    Mr. Bodaken. I can tell you how many owners have opted out. 
I can't tell you as a result of late payments. There have been 
300,000 units that we have lost between 1995 and 2004, and the 
rate generally is around 25,000 units. We hear a lot of 
information. HUD does not keep good information about this. But 
it is----
    Mr. Knollenberg. So you don't think there is any 
information available to tell us?
    Mr. Bodaken. I think HUD should be able to tell you a 
better idea of that. But it is an issue.
    Mr. Knollenberg. Let me go to the other panelists briefly. 
Can you offer your views, Mr. Pagano?
    Mr. Pagano. I think that the data that HUD has been touting 
is old data. It was before the crisis of last summer that the 
number of people considering opt-out based on what happened 
last summer has definitely increased. As I said in my 
testimony, we have three properties--and these are staunch 
advocates of affordable housing--saying, we are opting out 
because I can't go through that. And I am getting limited 
partners and general partners coming to me and saying, why am I 
still here in here? I can't be guaranteed a payment.
    Mr. Knollenberg. Mr. Minnix, could you just be brief in 
your response?
    Mr. Minnix. I have people who want to opt in and acquire 
some of these units, and find it very difficult because of the 
processes involved and the access to capital. That gets back to 
the policy issue. We have people that want to do this work, but 
it is not profitable work in the investment sense, like you 
build hotels or condos. It is more the service sense. But I got 
people trying to get into the business.
    Mr. Knollenberg. Thank you. Thank you, Mr. Chairman.
    Mr. Olver. Ms. Roybal-Allard.

                          NON-PAYMENT FROM HUD

    Ms. Roybal-Allard. Dr. Minnix, I want to talk about what 
the practical result is for tenants when an owner does not 
receive payment from HUD for the contract? What is the owner 
obligated to provide tenants in the instance that payments are 
late from HUD, or that the payment simply never comes? Are 
there reporting requirements, for example?
    Mr. Minnix. Well, what happens in the facility is that the 
organization that owns it does their best to make sure that the 
resident is okay. It creates a great deal of anxiety. Sometimes 
if you have to lay off employees or suspend work, you know, 
thinking in your own family if you had to report to your 
creditors that you can't pay your bills, think of what that 
does to your relationship with your significant other or your 
children. I mean it is difficult. Work stops and services stop. 
And then the reputation of the entity is damaged in the 
business community.
    So those are the kinds of things that happen. The subtlety 
of it, if service delivery, especially service coordinators, 
have to be laid off, then those services that get brokered 
through the various other title Older Americans Act programs 
can stop. And then you have people that face health and other 
kinds of crises. So it is very real pain that is relatively 
unquantified, but it is there.
    Ms. Roybal-Allard. Mr. Pagano, we are hearing that some 
owners are giving termination notices to tenants, informing 
them that the lease may be canceled in the event of a 
nonpayment from HUD. Is this true? And if so, can you tell us 
how widespread this is?
    Mr. Pagano. I know we have not done so. Depending on the 
State and the local law, there is notice that has to go to the 
tenant advising them that HUD is not funding--if HUD is not 
funding the contract, that there will be proceedings started to 
terminate their lease. It is happening. It is not--it depends 
on funding, the funding of the contract. When you get a 
contract that is supposed to be 12 months, and HUD tells you 
you have 3 months' worth of funding, lawyers are advising the 
owners to advise the tenant, because HUD requires a 1-year opt-
out notice to the tenant. HUD is requiring a notice to a tenant 
saying, in a year we are not going to be in the Section 8 
program. And many owners are opting to give that notice as soon 
as HUD fails to fund their Section 8 responsibility.
    Ms. Roybal-Allard. So it is not a notice of termination, it 
is a notice advising them that after a certain period? Because 
our understanding is they are actually getting termination 
notices.
    Mr. Pagano. It should not be. The rule is that if I am 
going to opt out as an owner, I must give the tenant a full 12 
months' notice of my intent to opt out. The trigger time of 
when that notice goes out is usually tied to the Section 8 
contract.
    If I get a contract that says it is only funded for 3 
months, my owner may direct me and say, Okay I am not renewing 
next year. Give the 12-month notice to the tenant.
    And I think that is what you are referring to. Most States 
will not stand for a simple ``You are out.''
    Ms. Roybal-Allard. They terminate you.
    Mr. Bodaken. I want to respond to that. We have seen 
notices that don't evict the tenant, but say their rent is 
going to go from, say, $100 a month to $1,000 a month. So they 
are not evicting the tenant but the effect is the same. The 
owners give the 1-year notice and they say, If HUD doesn't pay 
me, your rent will go from $1,000 or $1,100 and that is 
important to know. I think that is what you are referring to. 
It is not a termination notice. It is a rent-hike notice that 
would effectually terminate the tenant's residency.
    Ms. Roybal-Allard. Thank you.
    Mr. Olver. Mr. Walsh.
    Mr. Walsh. Thank you, Mr. Chairman.
    Mr. Pagano, you seem to have been in this business for a 
long time. You said you have one property. I heard you say you 
are in your 28th year of a 30-year contract.
    Mr. Pagano. That is correct.
    Mr. Walsh. It is a 30-year contract, correct?
    Mr. Pagano. Yes.
    Mr. Walsh. Has this delay in payments occurred on a regular 
basis?
    Mr. Pagano. Last year was the first year that we were hit 
with a 3-month delay in payment.
    Mr. Walsh. Ever?
    Mr. Pagano. First time in 28 years, yes. And that was a 
noninsured mortgage.
    Mr. Walsh. Okay. And Mr. Bodaken, you said that you 
anticipate there will be a glut or a flood of these new 
renewals coming up this fall.
    Mr. Bodaken. I don't think there is any other conclusion 
one can reach based on the short-term funding, yes.

                          SHORT-TERM CONTRACTS

    Mr. Walsh. Right. So there are fewer and fewer of these 30-
year contracts and more and more of the 1- and 2-year 
contracts. That is a policy change for HUD. Do you think that 
that affected your late payment, Mr. Pagano, these contract 
renewals?
    Mr. Pagano. We have experienced delays on the short-term 
contracts on almost a--you know, every year I get delayed at 
least 2 months somewhere. Whether it is New York or New Jersey, 
we get hit with a delay for a variety of reasons. But the long-
term contracts were always considered--you know, we were fine.
    Mr. Walsh. This issue of the shorter-term contracts, both 
of you either own or manage--or I am not sure about the other 
gentleman--a number of properties and have been doing this for 
a long time. What is your sense of this 1- to 2-year contracts 
or 1- to 5-year contracts as opposed to long-term contracts? 
What does that do to the business? How does it impact on the 
tenant?
    Mr. Bodaken. You know, I think we have actually adjusted to 
the 1- to 5-year contracts. There was a time right after HUD 
changed the policy in the late 1990s where I think it was 
difficult for the industry to kind of react. But I think people 
got accustomed to the subject, to appropriations language in 
the contracts, and we were able to do transactions, we were 
able to buy properties. As Mr. Pagano said, do them with tax 
credits. And the industry between, say, 2002 and 2007, I think 
did fine. I think this latest problem has changed all of that.
    Mr. Walsh. I think, Mr. Bodaken, you also said that between 
1998 and 2004, somebody said this----
    Mr. Bodaken. I said that.
    Mr. Walsh. Something like 330,000 units were lost.
    Mr. Bodaken. That is right.
    Mr. Walsh. That was, at the time, a pretty dramatic 
speculation in upward mobility, upward valuation in the real 
estate market. So probably a lot of those went market rate?
    Mr. Bodaken. Yes, sir. Yes, sir.
    Mr. Walsh. So it wasn't necessarily because of the way HUD 
was managing the payments and so forth. But you didn't say 
that.
    Mr. Bodaken. I didn't say that. I just think that there is 
a very likely possibility that if you look at page--I think it 
is 8 of my testimony--I have a chart where I show 500,000 HUD 
units are now under market. And if I were an owner--I am a 
nonprofit owner--but if I was a for-profit owner of one of 
those properties and HUD was doing this, I would think that I 
would consider opting out. We won't do that. But I think for-
profit owners will increasingly do that.
    Mr. Walsh. Just as a parochial issue, we have a situation 
in my hometown, Syracuse, where there is one property----
    Mr. Bodaken. I am well aware.
    Mr. Walsh. Okay, good. I don't know if it is fair to ask 
you, is National Housing Trust interested in helping with that 
problem?
    Mr. Pastor. If they get paid on time.
    Mr. Bodaken. We have told the city of Syracuse we are very 
interested in trying to help them figure that property out. 
There are significant issues with that property, not the least 
of which is HUD's requirement for a payment that is an 
exorbitant amount, given what the property is worth. But yes, 
we were interested in helping Syracuse.
    Mr. Walsh. In the initial option auction, apparently HUD 
required that these properties be kept affordable housing for 
20 years. No one responded to these options, so hopefully there 
will be a respondent or two.
    Mr. Bodaken. Yes. I hope so.
    Mr. Walsh. Yes. I would like to be able to help with that.
    Mr. Bodaken. Yes. I think it is an important housing 
resource for the city. And actually I think mixed income would 
be at an appropriate thing for them.
    Mr. Walsh. Thank you, Mr. Chair.
    Mr. Olver. Mr. Pastor.
    Mr. Pastor. Thank you, Mr. Chairman. Good morning. As I sit 
here and I have read some of your testimony, at one time the 
policy was long-term contracts, 20, 30 years. Then they started 
going to shorter-term contracts, 2- to 3 years, and the 
industry was able to handle that. Then there was some tenant-
based, I guess, vouchers that came into the mix. But it is my 
assumption that, all along, that at least you were getting paid 
on time, so that way you could run a business and be able to do 
this and do that.
    Then 2007, I think that is the date that is in my mind, 
where a shortfall, because of HUD not having the money or 
mismanagement or whatever it was, that then you were required 
to do 3-month contracts, or you had to carry yourselves for 3 
months. And so now, most recently, it is because of the 
shortfall at HUD that you are experiencing all these problems.
    Mr. Pastor. The sixteen steps going from one to the other. 
So basically, as I understand, the situation is the funding. If 
you were able to be funded according to your contract for a 
year, a year, that possibly you could continue to provide the 
housing for senior citizens and disabled citizens. Am I 
basically correct? This came in the last 2 or 3 years, the last 
couple of years.
    Mr. Minnix. I think it has been a problem for the last 
couple of years. The policy issue around stability, if you look 
at the number of elders that come out of the community to live 
at these places, they come out of neighborhoods.
    Mr. Pastor. I understand.
    Mr. Minnix. They are selling a house and need a place to 
live for a long period of time. That is part of the success of 
the program. It would be my view we ought to stabilize 
something around long-term contracts, 10 years, 20 years, those 
work for a lot of, especially project-based housing. The more 
you decrease it and then you have the unpredictability of the 
business model as well as people not knowing what is going to 
happen in their lives, then you create a lot of instability.
    And so I think the policy problems around whatever cash 
flow or budget issues that have arisen in the last couple of 
years has really created a huge problem.
    Mr. Pastor. So the policy should go back, this is a service 
that is needed. And I agree with you, that it is more expensive 
to send somebody to a nursing home.
    Mr. Minnix. That is right.
    Mr. Pastor. That is very expensive. And as you age, there 
is a continuum of eventually maybe ending up in a nursing home, 
but independent living, group living, there is a whole cycle. 
So that in the long run, it would be more beneficial to have a 
policy to put a senior citizen or a disabled person through 
this whole spectrum of care and eventually be in a nursing 
home. So as I understand, you are saying that a policy change 
should be that the contract should be for a longer term?
    Mr. Minnix. In my view, for many of these facilities, yes.
    Mr. Pagano. We believe that the contract should be funded 
for the full term that it is stated. If my contract runs from 
August to August, when HUD signs that contract they should have 
funding for August to August.
    Mr. Pastor. Do you agree it gives greater stability to say 
that you will have a 10-year contract and be paid on a yearly 
basis August to August?
    Mr. Pagano. That would be great because what is happening 
now with the short-term contracts, we submit a contract renewal 
120 days prior to the expiration, and then go through a whole 
procedure with HUD and the contract administrator to get that 
contract processed. And that every year we go through that and 
there is always a paper snafu someplace.
    Mr. Pastor. Mr. Chairman, maybe I am wrong, but I am told 
that one of the problems we encounter in the subcommittee by 
having longer term contracts is the way they are scored. And so 
then it is basically an inside baseball problem, so they are 
getting affected by it. So the policy is affected by inside 
baseball knowledge.
    Mr. Bodaken. I think that is essentially correct. 
Basically, HUD took the 30, and 20 and 10-year contracts down 
to annual renewals, I think for that reason, for the budget 
authority purposes. I couldn't agree more that we would do 
better if we had longer-term contracts that were funded long 
term, but my guess is as Representative Knollenberg said, you 
are in a constrained resource environment. What we are saying 
on a yearly basis, just on a yearly basis.
    Mr. Pastor. Well, this administration has put us in a 
constraint. And from what I gather from your testimony things 
had been going good until 2007.
    Mr. Bodaken. I want to be clear. What we are really saying 
is on a yearly basis, put it back on solid footing and once do 
you that, I think the program will regain stability because it 
was operating reasonably well until last summer. And we are 
very concerned that this will repeat.
    Mr. Pastor. Thank you, Mr. Chairman.
    Mr. Olver. Ms. Kaptur.
    Ms. Kaptur. Thank you. Welcome gentlemen, and thank you for 
the great work you do. I can tell you make a difference in Ohio 
and all across our country. I guess you are all residents in 
this region of the country? Am I reading that correctly?
    Mr. Pagano. I am from New Jersey.
    Ms. Kaptur. Oh well, that is a short train ride.
    Mr. Minnix. I am a transplanted Georgian to Virginia.
    Ms. Kaptur. Well, I guess those on the east coast have a 
special responsibility to tether those from the rest of the 
country like Ohio who might not have permanent presence here in 
Washington all the time. So we appreciate the work you do with 
the stakeholders out there in the Buckeye State.
    I want to follow on Congressman Pastor's line of 
questioning here as to why we are facing this so-called 
shortfall and whether, in fact, it has do more with the way 
that accounting is handled, either at HUD or here in Congress. 
And this is what I want to understand a little bit better, 
versus some sort of policy change that HUD has enacted because 
there is this new idea or changed idea about how to fund 
affordable housing.
    And let me ask you about the accounting if it is only 
rearranging the beans for budget purposes, is it due to the 
fact that we are in the horrendous deficit the way in which the 
present value of future expenditures are booked at HUD, is this 
really what this is about? Can you explain this to me versus 
some sort of change at HUD that says, well, we really didn't 
like the long-term contracts for some reason. We have a better 
idea about how to fund affordable housing. Is this a way to put 
pressure on units at the local level so that they cash out and 
they go into the private market? Is there an effort to do that 
or are we caught up in this accounting crunch, and somehow this 
helps HUD to mask, or our committee to mask the real needs? 
That is my first question, is this a policy change or an 
accounting change.
    And then secondly, if we don't provide sufficient funding, 
what could we anticipate over the next year in terms of not-
for-profit funders adding to the supply at a time when we are 
getting all these people who are losing their homes all over 
the country, there will only be more pressure or getting 
private sector investors to partner with you? What impact would 
that have on the supply if we don't do something here?
    Mr. Minnix. Well, I will respond on the policy issue. We 
believe that it is not a stated policy, but we are drifting 
into a policy of trying to squeeze people out of these 
programs. And we don't know why, just look at the behavior.
    I had a former HUD official tell me that a former Secretary 
came by all the regional offices and told them to dust off 
their resumes and start looking for a job because the 
government is going to get out of this business. And so we have 
been drifting ever since.
    If there is a policy change, then somebody needs to say so 
we can plan for it adequately. If there is not a policy change, 
we need to get the behavior back in line with policy. There is 
a need for low-income housing, it works and the policy, from 
our view, is drifting. I think there are short-term accounting 
problems and the hearings a number of months ago sort of 
highlighted those. But you see the policy drifting from longer 
term contracts to shorter.
    So what is going on here we view it as passive policy 
change that is driving people out of the business, making it 
less attractive to get into the business, and yet the need for 
the business from a service as well as investment standpoint is 
increasing and that is what doesn't make sense.
    Ms. Kaptur. And the end yield would be we would have fewer 
units across the country.
    Mr. Minnix. Exactly. And then people that went into it with 
certain investment things are getting out of it because they 
are--why stay in that, I have got real estate here, I will try 
to sell it or get rid of it.
    And all over the country there are situations like Mr. 
Walsh's where there is a facility in a community that there are 
people willing to take on and help out if there is a way do it, 
but that, in itself, is a very complicated process.
    Ms. Kaptur. Dr. Minnix, one thing I don't understand, the 
longer term contracts give the private market more stability 
because you can guarantee it. They know what the return is and 
what they have to anticipate. With this year to year, living 
hand to mouth, I would think that that would really reduce 
confidence in the private sector.
    Mr. Minnix. No, no question about it. And with our members, 
what stands behind the confidence is the reputation. People 
will say, okay, well, the Masons are not going to kick my 
mother out or the Lutherans are not going to kick my mother 
out. So you leave the provider with the instability of how to 
handle that in a market place. And that is where the not-for-
profit sector sort of copes and finds a way. When it comes time 
that they can't cope anymore, they sell the real estate and we 
are seeing some more of that and it is just poor policy.
    Ms. Kaptur. I can tell you in my district, I worry about a 
lot of people because we are in this area of heavy home 
foreclose and our government is frozen.
    Mr. Minnix. Well, you have some of the best not for profit, 
faith-based sponsored housing leaders in your State of any 
State. And you also have the Presbyterians there that are 
pioneering in how to help people stay in those kind of 
facilities through coordination of services.
    One of the things I hope you all would do is allocate some 
funds for studies models to keep people out of nursing homes 
and emergency rooms because it is happening. And then I think 
we could get a better score however that is done someplace, 
because these housing facilities are essential to the health of 
communities they are in.
    Ms. Kaptur. One of the things I just wanted to say Mr. 
Chairman and members of the Committee, in our district, our 
LMHA, our Metropolitan Housing Authority, that is just one of 
our authorities in one of the counties actually has some 
Section 8s that they can't assign. One of the subgroups I am 
truly worried about as I am listening are the mentally ill, 
because we have struggled so hard. We have only met 10 percent 
of the need in our area of what is really necessary. But with 
the homelessness that is increasing as a result of these 
foreclosures and a host of other economic reasons, they are the 
ones hanging on at the bottom of the ladder. If something goes 
wrong somewhere else in the system, this group of people, I 
think, are particularly vulnerable because it has been so hard 
to place them anyway. So I am very worried about as this 
ripples through this system, what will happen to those that 
have really very little ability to live on their own?
    Mr. Minnix. You might want to hold a hearing in Columbus at 
the National Church Residences, a facility there for homeless 
people. It is exemplary for what it is doing around getting 
people off the streets, helping them get jobs, helping them get 
their health stabilized. It is successful financially and it is 
successful programmatically, and that is the best of the 
investment of these programs over the years. You ought to visit 
it, you would be proud of it.
    Ms. Kaptur. Thank you for the suggestion.
    Mr. Olver. Thank you. Mr. Bodaken, you mentioned 300,000 
units it was it between '95 and '04.
    Mr. Bodaken. Yes, that is correct.
    Mr. Olver. HUD has been using about 15,000 reduction per 
year.
    Mr. Bodaken. That is a different estimate.
    Mr. Olver. That would be a factor of 2 difference over that 
period of time.
    Mr. Bodaken. It is a different estimate. They are talking 
about Section 8s, and we are talking about all HUD-insured 
properties that are below-market that HUD insures or section 
8s.
    Mr. Olver. So you have no objection to the 15,000 opting 
out of the Project-Based Section 8?
    Mr. Bodaken. No, other than to say that I think that is a 
recent number. If that is a recent number, I haven't heard it. 
I think it was over years 25,000 Section 8s comes to my mind.
    Mr. Olver. The implication though is one time we had more 
than a third, 1.3 million project-based at its maximum.
    Mr. Bodaken. We had 1.65 million. Yes.
    Mr. Olver. I am just trying to clarify in my own mind where 
we are headed here. Because I think we know we have needs for 
all of our low-income housing programs.
    I think it was you also who mentioned that tenant based 
vouchers are more expensive by, I think you used the number 
$900.
    Mr. Bodaken. Yes.
    Mr. Olver. It costs the government more because the income 
eligibility is a lower income eligibility for it to be tenant-
based?
    Mr. Bodaken. No. Well, it could be, but that is not the 
reason. The reason has do with how you budget vouchers and 
project-based units. Remember 500,000 units of that 1.3 million 
are below fair market value rent. So HUD is only paying on the 
project-based system about, and Laura knows it better than I, 
but about 6,500 a year or something. And the vouchers for the 
same property are 7,400, and that is because the vouchers are 
paid at fair market rent. The project-based in that same 
community is probably 90 percent of that. So you are paying 
less for about 500,000 units than you would for a voucher.
    Mr. Olver. I will have to have my staff take me through 
that one. I was understanding that as a situation where for the 
tenant program 75 percent have to be below 30 percent of AMI.
    Mr. Bodaken. It could be that is a justification, but it is 
also related to the fact that vouchers are put at fair market 
rents, they are budgeted FMRs.
    Mr. Olver. Okay. I think there must be some cost impact to 
the government because the subsidy is deeper on the tenant 
vouchers for the reason that a much larger proportion has to be 
in the lowest of income levels. Whereas for the project based, 
those in the lowest income levels are a lower percentage under 
the rule.
    Mr. Bodaken. I understand.
    Mr. Olver. The testimony that Mr. Montgomery gave us 
earlier this year, I just want to quote something from his 
testimony. ``Historically, what has happened is we have used 
funds from the previous fiscal year to get us into the first 
few months of the new fiscal year. And then those new fiscal 
year funds pick up that contract and carry it through as that 
contract goes into the following fiscal year. This process, 
which has been called several things, is short funding and so 
forth has been used for many years. At least a dozen years.''
    I am trying hard to understand how we got to the 2007 
situation. It seems to me we slipped through that process of 
rolling some into the next fiscal year for a number of years 
until finally it got to the point where there was not enough 
money appropriated to cover the 2007 situation. And so the last 
quarter was just not being paid.
    Mr. Bodaken. You are exactly right. They had to borrow, I 
forget the amount, but a significant amount of money from the 
long-term contracts.
    Mr. Olver. Yes.
    Mr. Bodaken. To make up for that last quarter.
    They went and raided the long-term contracts to try to fill 
the gap for that last quarter.
    Mr. Olver. Well, the long-term contracts still were being 
paid or were they also being paid?
    Mr. Bodaken. They were taking inflation factors and trying 
to do a variety of things to try to bring that money over to 
the short-term contracts and they did that and----
    Mr. Olver. So does that mean that the long-term contracts 
in late 2007 were also being paid one to 3 months late? Is that 
what was happening?
    Mr. Bodaken. In some cases, I believe that is the case, but 
I think it has to do with how they were borrowing the money 
from those accounts. And I think it is both a policy and an 
accounting issue. It is not either/or, because if they would 
have had a policy of trying to protect the stock over the long 
term and helping neighborhoods and revitalize them. Vouchers 
are an indispensable part of any housing system, but they are 
not one-size-fits-all. And what they are doing is they are 
slowly but surely taking stock away interest this project-based 
system at a certain amount per year and this is another way to 
do that. They are also trying to account for it and they have a 
problem because they haven't accounted properly, so it is a 
combination.
    Mr. Olver. However Mr. Montgomery, just to finish that one, 
and people from HUD have said as I have mentioned at an earlier 
point that the appropriation for '08 was supposed to they say 
take us through into the beginning of '09, a month or 2 into 
'09. So there should not be any reason for the nonpayment. I am 
not sure that is true. It means a lot of funding is not in 
place.
    Anyway, Mr. Knollenberg. I realize I have gone over again.
    Mr. Knollenberg. Well, I think we do that, both of us 
occasionally.
    Mr. Olver. I am trying to understand what is going on.
    Mr. Knollenberg. I am stuck in my chair.
    According to HUD's database, only three Section 8 owners 
have opted out in fiscal years 2007 and 2008 combined. 
Furthermore, a recent GAO study indicated that as we might 
suspect that market conditions with the principal determinant 
of decision to opt out and that there was no apparent link from 
the funding stream or other administrative problems and late 
payments and owners' decision to opt out. Do you basically 
agree with these findings or disagree? I just need a yes or no.
    Mr. Pagano. I disagree.
    Mr. Bodaken. I think three is too small that seems like an 
inordinately low number.
    Mr. Knollenberg. That was the data provided by the GAO, I 
can't argue if it is right or wrong.
    Mr. Bodaken. The GAO provided that data?
    Mr. Knollenberg. Yes. Let me get into another question or 
two as well.
    I have from HUD the current universe of late payments, here 
is a number of contracts the Department is behind on in their 
payments. In January of 2008, it was 74 contracts, February of 
2008 it was 123 contracts, March 2008 it was 218 contracts. Now 
out of nearly 18,000 contracts covering 1 million units, this 
does not appear to me to be a crisis requiring 2.4 billion in 
emergency funding. According to HUD's records, the major reason 
for missed payments is delays in executing contract renewals, 
not the availability of funds. Under these circumstances, do 
you really think it is important to infuse $2.4 billion in 
funds into this program?
    Mr. Bodaken. Yes, because I don't believe that January, 
February and March are indicative of what is going to happen 
later on this calendar year. And second, I believe that that is 
correct, what they are saying is correct for those periods.
    I would urge you to look at the previous year, the previous 
months and let's see what happens the rest of this calendar 
year. I think this 3-month period is a fair guess. But when we 
look at the past calendar year, sir, it is not indicative of 
what has occurred in the system.
    Mr. Knollenberg. All right.
    Mr. Minnix. I don't know where they would get their data. I 
know we come back to the concept deadbeat dad slow paid, 
thought it would slip by. I have got a list of about 20 
projects in the Detroit area alone that are slow paid and that 
is one of the ones that is 240 days.
    Mr. Knollenberg. You disagree.
    Mr. Minnix. Yes, I disagree.
    Mr. Knollenberg. I have been giving you what is information 
provided to us by these folks.
    Mr. Pagano. Mr. Knollenberg, that GAO study was prior to 
the funding problem last summer. If you check the dates on the 
study, it doesn't reflect any of the problems that the industry 
encountered, and that is why----
    Mr. Knollenberg. I am just saying the information for 
January, February and March is data that is available, but that 
is what we were given.
    Mr. Pagano. But I always question HUD, are they counting 
those contracts that they are still in process, because they 
don't count that as a problem.
    Mr. Knollenberg. That is what we will have to take a look 
at too.
    Mr. Bodaken, this program has been quietly but routinely 
entering annual contracts and paying owners on a partial 
payment basis until recently when the Department appears to 
have decided that a new method is needed, which is probably 
fair enough. What is, in your opinion and from the point of 
view of the owners the difference between the old method and 
the new method, specifically what is wrong with the new method 
of entering annual contracts and paying owners?
    Mr. Bodaken. The specific thing that is wrong is owners are 
left to understand that they will have to, every 3 to 4 months, 
anticipate another renewal. Tenants will be left uncertain. And 
investors in this program, investors are requiring us to put 
aside 6 months of what they call transition Section 8 risk 
reserves. That is the problem. We have never had to do that 
before, we are now required to do that.
    Mr. Knollenberg. Let me go to Mr. Pagano and Dr. Minnix. 
Mr. Pagano, what is your opinion of the problem as owners?
    Mr. Pagano. Our problem is, as an owner, if I can't 
guarantee the cash to the investor, and I cannot guarantee 
wages, I have a problem, and I therefore have to set up 
reserves. And that reserve affects the operation of the 
property.
    Mr. Knollenberg. Dr. Minnix.
    Mr. Minnix. The types of people that our members serve have 
limited options in the marketplace. They come out of 
neighborhoods and they need stable funding for long periods of 
time. And nobody is making money off of that, but you are 
making sure that the lives of these people stay stable and 
therefore the related businesses support them will know that 
they get paid.
    So it is not a one-size-fits-all kind of situation. You 
have to look at the different types of people being served and 
what their options are. We have got a lot of people that just 
can't pick up and go somewhere else in winter in Orlando 
because they have the money to do it. These are limited income 
people.
    Mr. Knollenberg. Thank you very much, Mr. Chairman.
    Mr. Olver. Thank you. Mr. Pastor.
    Mr. Pastor. Doctor, you could send them to Phoenix, we 
probably have better weather.
    Following up on Mr. Knollenberg's questions, you responded 
that the new way of being paid causes you now to have to set up 
a fund and then that takes money that you can use to maintain 
the facility or upgrading it or providing more services.
    Knowing that there is a short-term fix and then hopefully a 
longer term fix, because we go year to year and knowing some of 
the accounting problems and deficit problems, what would be a 
recommended policy that you would recommend to us to say in a 
short term this is something that would be a good policy, and 
then as you go further out, and from that short term, this 
would be a better policy knowing that affordable housing is 
still going to be needed, baby boomers are going to grow in 
number, et cetera. So I will ask the question, all three of you 
can respond.
    Mr. Bodaken. Well, I am cognizant of the subcommittee's 
concerns about budget, the situation, we are in a constrained 
environment. And I would suggest that you have a one-time fix 
for this program. The emergency supplemental of $2.4 billion 
that will put the program back on solid fiscal footing. It 
doesn't produce a dollar outlay, it is a timing issue. Once you 
do that, we are back on an annual appropriations basis. We sign 
12-month contract, HUD has 12 months subsidy. Once you do that, 
we are done. And I think that is the answer. It is not really a 
policy change, it is making sure that HUD has a year's worth of 
funding when it signs a year contract.
    Mr. Pastor. As I understand your comments that there is a 
HUD rent policy that is creeping into the way we are behaving, 
and so obviously, there has to be an announced policy in the 
long term. What would be the better policy long term?
    Mr. Bodaken. I'll let Mr. Minnix----
    Mr. Minnix. I think the short-term policy is for HUD to pay 
its debts on time like everybody else is expected to. And I 
think that you all need to give some guidance to HUD around 5- 
10-year kinds of contracts for types of people that are going 
to need these facilities for years to come. And that gives 
stability to individuals as well as to businesses.
    If the policy is year-to-year, somebody ought to say that, 
but in my view with the kinds of populations I remember 
serving, it ought to be much longer term contracts and that 
deserves policy deliberation.
    Mr. Bodaken. The current policy is month-to-month. I want 
to be clear about that. We don't have a year-to-year policy 
anymore. We did have that.
    Mr. Pagano. In refinancing the deals, I think a longer term 
contract would be looked for favorably by the financial 
institutions. They rate everything. It is just like when you go 
out and finance a car, they are looking at the car and they are 
looking at your financial picture. If I have a long-term 
contract, whether it is insured or uninsured, I will probably 
be able to get a better rate on my mortgage which affects the 
long-term operation of the property.
    Mr. Olver. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman. Gentlemen, let me ask 
you in fiscal year 2008, let me see the administration 
requested $5.5 billion to renew project-based vouchers, and 
that was an amount below what Congress appropriated in the 
prior fiscal year.
    Then for '08, our conference report included $6.139 
billion, which was a pretty substantial increase for Section 8 
renewals. The Administration in its budget submission to us 
this year sent up a budget asking for $6.7 billion. So that was 
an increase, quite a substantial increase over their prior 
thinking for renewing vouchers. It was a $624 million increase 
over the renewal level. They also requested a $400 million 
advance for '09.
    Mr. Bodaken. Yes.
    Ms. Kaptur. The first time an advance has been proposed for 
that account. Let me ask, from everything that you know why you 
think those numbers are either adequate or inadequate, and what 
you think the shortfall actually is? As we proceed forward here 
with legislation, what should our target be and why?
    Mr. Bodaken. Well, HUD has agreed, we don't need to ask 
this question. The answer is $2.6 billion according to HUD of 
what is needed to fund on a 12-month basis all the Section 8 
contracts. And the reason you are confused about this is 
because they are saying, and it is also true, it is 
simultaneously true that HUD has sufficient money to go through 
a number of months.
    Ms. Kaptur. Are you saying $2.6 billion? Are you saying the 
number is adequate including the 400 million?
    Mr. Bodaken. Not for yearly funding, for 12 months on a 
yearly basis for all contracts. I am saying that is inadequate 
by $2.6 billion.
    Ms. Kaptur. By $2.6 billion.
    Mr. Bodaken. And the reason is because HUD has moved to 
these short-term contracts, 3 to 5 months. But HUD has agreed, 
they answered questions to the House Financial Services 
Subcommittee, and I urge you to look at it. The CFO has agreed 
that to fund all the contracts on a 12-month basis is $2.6 
billion more than the Administration has requested.
    Ms. Kaptur. If that is true, you are saying that what they 
have asked us for then--is the amount they have asked us for 
through the first quarter of '09 sufficient and that $2.6 
billion is needed for the other quarters of '09, January 
through September?
    Mr. Bodaken. No. I am sorry. I am just saying that whatever 
they have asked for is inadequate and they agree that to fund 
all the contracts on a long-term basis for one year is another 
$2.6 billion and that is in writing.
    Ms. Kaptur. On top of the advance.
    Mr. Bodaken. That is right. No, I think if you include the 
advance, it would be $2.2 billion including the advance. 
Because that answer was made prior to the time that the advance 
was proposed. So I am assuming that they didn't answer it that 
way.
    Ms. Kaptur. Okay.
    Mr. Bodaken. So I am assuming that it is $2.2 billion.
    Ms. Kaptur. Knowing what HUD is doing, everything is on a 
short fuse now, they are borrowing from long-term contracts and 
trying to bring money up front which means that ultimately that 
will be short----
    Mr. Bodaken. It is coincident with the timing of the next 
administration. That is the concern, that the administration is 
going to inherit this iceberg. It is going to be a significant 
problem in this calendar year. There is no question.
    Ms. Kaptur. Have the number of units in your associations 
around the country stayed level or have they been going down? 
And has this impacted the number of units yet?
    Mr. Bodaken. No, I agree with HUD, generally speaking, that 
we have not seen a significant departure of units yet. That is 
a fair statement.
    Ms. Kaptur. So everything you know about HUD, do you think 
they just don't like project-based housing? Do they really 
think that whoever is in charge over there or thinking about 
this, that they just want to just go voucher? What is in their 
thinking? Do they believe in HUD? You know, what is going on 
over there? What are they trying to achieve?
    Mr. Minnix. I wish we knew. All I know is that we have a 
program that has worked well for a long period of time. The 
need, the demand exceeds the need. And increasingly, the 
availability of these units and the financing around them has 
become increasingly problematic. And that is why I say we are 
drifting into unstated policy that we don't know where it is 
going.
    Now we have very few opt-outs in our group. Again, we are 
trying to find people that will opt-in. I think there is a lack 
of clarity about what the policy is. And what is the future of 
housing in this country for low- and modest-income elderly and 
disabled people. And now we find ourselves essentially kiting 
dollars to try to make ends meet. It is just nuts, it is just 
nuts.
    Ms. Kaptur. It will be very interesting to observe the new 
secretary of HUD. He used to be a CEO over at Lehman Brothers; 
is that correct? The new nominee over there at HUD, he is a 
Wall Street fellow, Lehman Brothers investment banker at Lehman 
Brothers. I said okay, what does this mean for HUD's portfolio?
    Mr. Minnix. I hope he understands something about what the 
Lutherans, and the Masons, and the Jews and the Catholics are 
doing, because it does not necessarily wind up at Lehman 
Brothers radar screen. That is what gets lost in all of this is 
the community-based commitment to these people.
    Ms. Kaptur. What has been happening all over our country is 
that public assets are being privatized and sold to foreign 
bidders because we are cashing out our assets. I wonder if 
there is a thought going through somebody in the 
administration's mind about housing being an asset? This would 
be a great asset to put on the table. Wall Street, as far as I 
am concerned, has robbed the average homeowner of this country 
of the most important form of savings.
    Mr. Minnix. The day the Episcopalians get a done notice 
from the Chinese, I will call you. We didn't know what is 
happening with it, that is the problem. The policy is drifting.
    Ms. Kaptur. Yes. Yes, Mr. Pagano.
    Mr. Pagano. The $2.8 billion came from Senator Dodd and his 
Committee, they came up with that figure. When speaking to HUD, 
they all have a script. And they will state their script to 
suit their number. If the simple question is if you have 
contracts for 12 months and had to fund them, how much money 
would you need. And then you'll come up with the $2.8 billion 
shortfall. They all have the script, no matter what coast you 
are on or what HUD official is there, we have plenty of funds. 
But you ask them privately or in a session how much money do 
you need to fund all the contracts that you have signed for the 
next 12 months, they have that number, that is where the 
shortfall is.
    Mr. Olver. They have been borrowing from the long-term 
contracts, the ones that are left to get through a fiscal year. 
I think we have sort of agreed on that. But there was an old 
accounting method being used for a number of years before we 
hit the train wreck of 2007.
    Mr. Bodaken. That is right, that is fair.
    Mr. Olver. Before we ran into a problem. But that was 
because their own counsel indicated that that left them in 
violation of the Antideficiency Act. And so then they changed 
the accounting method to the new method, which I don't know the 
details enough of the old one or the new one and they think 
that that has avoided the Antideficiency Act, I believe.
    Mr. Bodaken. I think that is fair.
    Mr. Olver. They believe that has avoided the Antideficiency 
Act, but that has caused the situation we are in.
    Mr. Bodaken. Correct.
    Mr. Olver. Now, it doesn't really matter whether it was a 
lack of funds or a lack of staff to get the contracts through 
that caused what was going on at the end of 2007. If it was 
lack of funds, then it really is substantially the Congress's 
problem if we can figure out exactly what the number is. And 
clearly, to come up with $2.8 billion on an emergency basis 
would allow them to go back to none of the games that have been 
going on for quite a number of years. And the change in method 
of accounting and so forth that move monies from one fiscal 
year to another fiscal year and took money away from the long-
term contracts. But that would fund all of those, you say, 
without any scoring problem----
    Mr. Bodaken. Correct.
    Mr. Olver [continuing]. And without any implication for 
debt, something along those lines.
    Mr. Bodaken. There is a memo.
    Mr. Olver. I am getting vaguely an idea of what is going on 
without really understanding how we got here.
    Mr. Bodaken. Well, you are getting very close, you are 
getting really warm. And it has to do with how these are scored 
over time. It is a timing issue.
    Budget authority, in and of itself, does not produce 
outlays, and because these contracts come at different times in 
the calendar year, if we are going to fund them on an annual 
basis as opposed to a fiscal year basis, we need a one-time fix 
for HUD to do that budget authority wise.
    Mr. Olver. But you can live with the new accounting method 
if they paid it on time?
    Mr. Bodaken. I want to be clear.
    Mr. Olver. If we appropriated enough money to get them 
through by this new accounting method.
    Mr. Bodaken. On an annual basis.
    Mr. Olver. Yes, an annual basis.
    Mr. Bodaken. I don't believe--we will, we will. But I 
believe that once the renewals come up at the same time that 
you have a half million units where owners are below market and 
they have options and they are not--they don't have to live----
    Mr. Olver. But that serves the policy, not our policy.
    Mr. Bodaken. That is right. But I really think that the 
elephant in the room is that concern for the Subcommittee and 
for the housing stock and for the community.
    Mr. Olver. For the reduction in affordable housing.
    Mr. Bodaken. Absolutely, absolutely.
    Mr. Olver. So I guess there are those who argue, and as we 
talked about it a bit, owners and tenants have not really been 
harmed in this process.
    Mr. Bodaken. No. Well, that is just not true.
    Mr. Olver. Let me give you a chance to answer that.
    Mr. Bodaken. Well, I think very quickly I will say we had 
to take $800,000 out of reserves. We also had a mechanic's lean 
put on the property in Florida. We took vendors off of four 
properties and reduced maintenance on those four properties. In 
my testimony in October, I didn't even tell you what happened 
in November and December to tenants at our properties--we have 
had to reduce services in all of our properties.
    Now, it is true today that has been restored. But I am 
disputing that, but I am disputing the fact that this will not 
occur again. And I do believe that the Subcommittee needs to 
take that into consideration.
    Mr. Olver. But that will drive people, particularly profit 
owners. Although, are the incentives and disincentives, 
incentives for profit owners versus nonprofit owners similar?
    Mr. Bodaken. No, they are different.
    Mr. Olver. So we have nonprofits to go back in and try to 
pick up.
    Mr. Bodaken. There are tax consequences for profit owners 
that keep them trapped essentially in these investments. There 
are mission-related reasons why nonprofit owners will continue 
to do this.
    Mr. Olver. Will continue?
    Mr. Bodaken. That is part of what is going on here. But it 
is the case that I can refinance and opt out and not have that 
tax consequence. That is, in fact, what I think you are going 
to look at, what you are going to see.
    Mr. Pagano. If I pay a bill late, I am paying a late 
charge.
    Mr. Bodaken. You bet.
    Mr. Pagano. My mortgage company, they don't care to hear 
about HUD's woes. They don't want to know about whether it was 
a funding appropriations problem or a snafu in Kansas City with 
the payment. If I don't pay it on time, I get a $1,500 notice 
saying your mortgage is late. Send your mortgage payment before 
the end of the month, otherwise I am declaring default, plus 
$1,500. It is a very simple thing. If I don't do that, they 
notify the local HUD office that they are going to call me in 
default.
    That $1,500 on a tight budget has got to come from 
somewhere. I have already given up my return, I am not taking 
in in most instances. That means services have to be reduced. 
The municipalities have all been cut, one way or another; they 
raised water, sewer and taxes. They too don't get their check 
on time, tack on a hefty penalty. And all I am looking for is 
HUD says well, better luck next time or borrow your own money. 
But even the time it takes to borrow the money from the 
reserves, I am incurring loss of interest on the reserve 
investment. And then on top of that, I am paying penalties for 
the payments I am making . I am cutting back on security. I am 
cutting back on neighborhood networks. I am stalling work that 
should be done that was planned to be done on a 15-year 
projected basis, because I know if I do it all, at the end of 
the day, there will be no emergency fund for me to meet the 
next time HUD is late.
    Mr. Olver. I think--I think there is harm to everybody in 
the system. But the end result is fewer units of affordable 
housing ultimately through this process. Mr. Knollenberg.
    Mr. Knollenberg. Mr. Bodaken, I have a question. If we 
added $2.4 billion, why would HUD simply not use it to meet the 
2008 rescission?
    Mr. Bodaken. Well, I don't know, and I really don't know, 
but I assume it would be to do exactly what we are talking 
about, which is you would instruct them to use it, to restore 
annual contracts on an annual basis. And that would be the 
means by which the money would be used.
    I can't imagine that that would be the rationale the 
administration would use to take $2.4 billion and use it for a 
rescission.
    Mr. Knollenberg. Let me go to Mr. Pagano and Dr. Minnix on 
this next question. As it is explained to me the new system 
that HUD is using simply makes explicit what had been the 
current operating procedure in the past. Let me pose you the 
following example: There are now sufficient funds to fund all 
of your contracts with HUD through to October 1st of this year. 
If you would, let's just say that covers 9 months of your 
contracts. If the 2009 Appropriations Act, or I mentioned this 
in my opening remarks, if the continuing resolution had 
sufficient funding, to complete the remaining 3 months, would 
it matter to you that funds came from two fiscal years? I'll 
start with you, Mr. Pagano.
    Mr. Pagano. It wouldn't matter to me if it came from two 
fiscal years except I haven't seen a budget passed on time in a 
long time.
    Mr. Knollenberg [continuing]. This year too.
    Mr. Pagano. I hope. My concern is that HUD's on a 
continuing resolution, HUD tells me we don't have adequate 
funds to fund those last 3 months.
    Mr. Knollenberg. But the CRs for the purpose, it can be 
designed to do a number of things if, in fact, it is taken into 
consideration. So a CR can be the answer if we do it right.
    Dr. Minnix.
    Mr. Minnix. I think the people that live and work in these 
facilities, they don't care where the money comes from as long 
as it is there and it is stable, and that HUD is fulfilling its 
obligations. What you don't want to be told is the money may 
not be there and oh, by the way, we know we owe you that last 
quarter, but there is a dispute about that. We know we are 90 
days behind and that puts everybody at risk. I think the 
tenants and the workers there don't care where the money comes 
from as long as HUD pays its obligation on time.
    Mr. Bodaken. I do object to that notion in that if I have a 
contract that has expired.
    Mr. Knollenberg. To what notion?
    Mr. Bodaken. To the notion of 3 months. As I understand 
your question, I have a 9-month contract and there is 3 months 
and they tack it on at the end, is that fair? I object to that 
if I understand you correctly. What if I renew in July or 
August or September and I am not getting a 12-month contract, 
but a 2- or 3-month? I think this is the key. It is going to be 
so big to fund those contracts that we have to take that into 
consideration. If it is that amount, sure.
    Mr. Knollenberg. So you don't believe that a CR can be 
constructed to do the job?
    Mr. Bodaken. Not without the supplement, the budget 
authority that we are talking about, no.
    Mr. Knollenberg. I think that concludes my questions, Mr. 
Chairman.
    Mr. Olver. I want to give at least a quick couple of 
minutes to each of the members who have been very patient here 
and then we will end this morning's hearing. Mr. Pastor.
    Mr. Pastor. As I understand the situation, enough money to 
pay to October so that would be 2008, then 3 months into 2009 
is what----
    Mr. Bodaken. No, they basically said some time in October 
or November.
    Mr. Pastor. Well, okay, let's say 3 months in 2009, the 
first 3 months of 2009 would be paid. So as I understand 
Knollenberg saying, there was enough money to pay from today to 
the end of fiscal year 2008, and there is a commitment to pay 
the first 3 months of 2009 fiscal year.
    Mr. Olver. I haven't heard that they made that----
    Mr. Pastor. Well, that seems to be what I am gathering. 
That is the unwritten policy that people are talking about.
    Mr. Pagano. At issue would be if I signed a contract in 
August----
    Mr. Pastor. I understand.
    So if we say all right we can take you to the remainder of 
2008 and in the year, and in fiscal year 2009, we will pay you 
or do a 12-month contract. So you know that for 12 months, you 
are going to get paid. It gives you that stability of 12 
months. You know what your life is going to look like for 2009. 
Now that is a better option than what the unwritten policy is 
right now.
    Mr. Bodaken. You bet, absolutely.
    Mr. Minnix. That is a good short-term fix. The money is 
appropriated and HUD actually pays.
    Mr. Pastor. The second scenario, the 12 months in 2009 
would be the $2.4 billion.
    Mr. Bodaken. Yes.
    Mr. Pastor. That is where the $2.4 billion would bring you 
to so that you get some stability for a year.
    Mr. Bodaken. Yes.
    Mr. Pastor. HUD would have the money to pay you.
    Mr. Bodaken. And it would restore, the program would 
operate after at the levels that the Administration is 
proposing this year. That level would be the appropriate level.
    Mr. Pastor. Thank you, Mr. Chairman.
    Mr. Olver. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman for giving me just an 
extra minute here. Let me ask these gentlemen how many total 
units were able to provide the funding that Congressman Pastor 
suggested? How many units does that actually keep under 
contract?
    Mr. Bodaken. 1.3 million.

                         PROJECT-BASED HOUSING

    Ms. Kaptur. 1.3 million, okay. And as you look to the 
future and it is really hard do this in the housing market now 
because we are in such an implosion it is probably hard to 
answer this, but do you see it likely that we would go back to 
a 40-year contract, or is the mortgage market changing such 
that as you look at what you are financing, as you look to the 
future over the next 10 years, in terms of project-based 
housing, what type of private sector environment are you 
anticipating? What length of mortgage? What does the market 
look like out there for project-based housing? What would give 
the private sector confidence to partner with you?
    Mr. Minnix. I think you have to look at what gives them 
confidence to invest either through philanthropy, government or 
private sector. When you build a building you expect it to last 
30 years, give or take. And so how do you provide for the 
capital to build a facility that is going to be in a community 
for the next generation. That is the kind of planning you have 
to do. You can't build buildings that you have to tear down in 
5 years if the government's policy changes. So this is where we 
are back to. What we had was a really good program that was 
born in the mid to late '60s and it served a good purpose for a 
long time. Now it needs to be rethought on a longer-term basis.
    And the people that a lot of these facilities are serving 
are people that do not have the wherewithal to make choices, 
buy condos, do other things. Many come out of modest houses in 
neighborhoods. And some have not ever had the luxury of owning 
a home, but they mostly happen to be mostly 80-year-old women, 
or homeless people or mentally ill people that society either 
provides for them or it doesn't. But you have to think long 
term here.
    Ms. Kaptur. Dr. Minnix, I am hearing you, so you prefer 
longer instrument.
    Mr. Minnix. Yes.
    Ms. Kaptur. We were told back in the '80s, and I fought 
against this and didn't win, that we were told we didn't need 
the thrifts or long-term mortgages and home ownership because 
we are going to move into this whole new world. Interstate 
banking and mortgaged-backed securities. And the great thing 
about that is we wouldn't have any more savings and loan 
implosions, that what this would do is break up the mortgage 
instrument into all these little pieces, we would sell it on 
Wall Street. And by golly, we would have a variety of 
instruments, and have more choice and never have to worry about 
market implosion.
    Now we have the largest real estate washout in American 
history. And the first time in American history is negative net 
savings in the mortgage market, so we have more owed than the 
units are worth.
    So now I look at your housing. And your housing has a 
revenue stream which is guaranteed by the people of the United 
States. You look like a juicy little apple out there right now 
to those who have done this to our home mortgage market. I say 
to myself in the mortgage market, in the future, after we get 
through this crisis, what is that going to look like? And I 
hear you, Mr. Chairman----
    Mr. Olver. We all know where we are at the moment on what 
you described. I think I ought to, on that note, close.
    Mr. Minnix. You are right.
    Mr. Bodaken. You are right. There is $11 billion worth of 
FHA insured mortgages on this property also, don't forget that.
    Mr. Minnix. By the way our people pay their debts.
    Mr. Pagano. And you have second mortgages that HUD has 
taken on all of these properties that if the first default, 
there are HUD-held mortgages on the second and thirds.
    Mr. Olver. I thank you all very much for trying to educate 
us. Thank you very much. The hearing is closed.
                                         Wednesday, April 23, 2008.

             STATUS OF THE PROJECT-BASED SECTION 8 PROGRAM

                                WITNESS

HON. BRIAN MONTGOMERY, ASSISTANT SECRETARY FOR HOUSING AND FHA 
    COMMISSIONER

                      Chairman's Opening Statement

    Mr. Olver. The Subcommittee will come to order.
    Let me welcome HUD Assistant Secretary for Housing and the 
Federal Housing Administration Commissioner, FHA 
administration--is that what that means?
    Mr. Montgomery. I have two titles, sir. Only the Government 
does that. But yes, sir.
    Mr. Olver. Okay. That is what FHA is--Federal Housing 
Administration Commissioner. So you serve on that board as--or 
whatever being Commissioner does to that. Are you the CEO for 
that?
    Mr. Montgomery. Two job titles, but only one paycheck. 
[Laughter.]
    Mr. Olver. Okay. All right. Let me welcome you back to the 
Subcommittee, in any case. I know you have been very busy with 
the on-going mortgage crisis and FHA modernization and things 
like that. And I appreciate your spending a little time with us 
to help us on our problem with the Section 8 program.
    This afternoon's hearing is going to focus on the 
controversy, crisis, whatever you want to put to it, in the 
Project-Based Section 8 Program. During this discussion, we are 
going to talk about housing assistance payment contracts, Anti-
Deficiency Act violations, short-funding, budget shortfalls and 
the like.
    With such mind-numbing and arcane terms, it is easy to lose 
sight of the primary reason for the hearing. And that is, over 
a million affordable housing units are at stake, and we must 
ensure that the families that live in these units, many of whom 
are elderly or disabled, are not forced out of them.
    This morning we heard from owners and tenant groups who 
testified that the current uncertainty in the Section 8 program 
has created a crisis of confidence that may lead to a 
significant reduction in the number of affordable units. That 
is that owners will opt out when their contracts come up. At 
any time, whenever the contract comes up, they can opt out. Our 
collective actions on dealing with this loss of confidence in 
Section 8 will determine whether these units are protected or 
lost.
    So let me begin by just a couple of minutes of comment as 
to how we got here.
    When the initial long-term Section 8 contracts from the 
1970s began to expire in the 1990s, HUD replaced these 
contracts with shorter contracts subject to annual 
appropriations. Currently, close to 80 percent of Section 8 
units, or 14,000, my understanding, of the contracts are funded 
by 1-year contracts through annual appropriations, and roughly 
20 percent, something like 4,000, contracts are still longer-
term contracts that are in their first 20- or 30- or 40-year, 
toward the end, often, of those long-term contract periods were 
the typical kinds of contracts that started out in the 1970s.
    It is my understanding that for initial contract renewals, 
HUD obligated 12 months of funding. Year-long contracts 
maintain confidence in the program by assuring owners and 
tenants that the contract would be fully funded throughout the 
year. It is also my understanding that some time in the 1990s, 
late 1990s I think, HUD modified this policy of obligating 12 
months of funding without it becoming common knowledge, without 
notifying property owners or tenants that it had done so. If 
that is unfair, you will have a chance to rebut.
    Instead of obligating a full year of funding and renewal, 
HUD increasingly provided only a few months for some contracts, 
typically just enough to cover the remaining months of a fiscal 
year. The net effect of this policy change shifted the funding 
needs of the Section 8 program from one fiscal year to the 
next, thereby masking the program shortfalls.
    In fiscal year 2007, HUD's legal office determined that the 
short-funding of contracts, as I have just described, 
constituted a potential violation of the Anti-Deficiency Act 
(ADA), yet it was the fully inadequate response to this legal 
opinion by both HUD and OMB that created the crisis in the 
Section 8 program in the latter part of 2007 and the beginning 
of 2008. Instead of requesting additional funding from Congress 
to cover the shortfall, HUD began to issue 3- to 5-month 
contracts to landlords, instilling a crisis of confidence in 
the long-term viability of this program.
    In last year's budget, our Subcommittee grappled mightily 
with this problem. We repeatedly requested from the Department 
the actual dollar amount necessary to cover the shortfall, but 
our request went unanswered. Officially we were told that the 
$5.522 billion requested in the President's budget was enough 
to fund the program, even though this figure, $5.522 billion, 
was $300-plus million below the amount that we had provided in 
fiscal year 2007.
    In the end, we provided $6.139 billion for Project-Based 
Section 8 renewals, a full $600 million above the President's 
initial request. More importantly, the Subcommittee required 
HUD and OMB to determine by January 15, 2008, whether an ADA 
violation had actually occurred when HUD was short-funding 
contracts. If no ADA violation occurred, HUD was ordered to 
issue 12-month contracts. If there was such a violation, HUD 
and OMB would be legally required to report the shortfall 
immediately so that Congress could adequately address the 
issue.
    As you know, Mr. Secretary, the deadline that we set of 
January 15, 2008, has come and gone without a full response. 
And it appears that the Administration is prepared to run out 
the clock and leave this problem for the next President.
    While HUD and OMB have refused to answer the questions 
about the potential ADA violation, there does appear to be some 
recognition in the President's fiscal year 2009 budget that 
there is a shortfall that could jeopardize the program. The 
Administration has proposed $6.7 billion for contract renewals, 
which is over $600 million more than we provided last year--
that is, in the 2008 Omnibus--as well as an advance has been 
asked for appropriation of $400 million to help extend 
contracts into the new fiscal year.
    This is clearly a step in the right direction, but with an 
estimated funding gap, coming from earlier testimony before the 
Financial Services Committee, of at least $2.4 billion there, 
we still have a long way to go to stabilize and restore our 
confidence in the program.
    Mr. Secretary, we would like to explore with you today how 
we can stabilize this Project-Based Section 8 Program to at 
least maintain and not lose some of the 1.3 million units that 
are under the project-based system. I hope that we can identify 
the true financial needs of the project-based program.
    Before we allow you your time on this one, I would like to 
recognize my ranking member, Mr. Knollenberg, for any comments 
that he would like to make.

                   Mr. Knollenberg's Opening Remarks

    Mr. Knollenberg. Thank you, Mr. Chairman, and I look 
forward to completing this hearing process this afternoon.
    And welcome, Mr. Montgomery. Glad to have you here. I had 
hoped to work closely with you in developing the 2009 
appropriations act. And so I am welcoming you back and your 
staff back as well.
    And I am not sure if you view this hearing as more of a 
distraction from the urgent business of helping families out of 
their subprime troubles--and there are plenty of those--or more 
as a reprieve from the pressures that you must be under to 
accomplish what may be the impossible thing to do. But 
nevertheless, welcome back to address the issue of Project-
Based Section 8 funding.
    We learned a fair amount from this morning's hearing about 
the impact that funding decisions may have on the long-term 
viability of the program, defined as the willingness of owners 
to stay in the system. In the end, it appears to me that the 
hearing boiled down to confidence in the future funding. And of 
that we on this Subcommittee can provide some assurance, based 
on our actions in the past, to always fund both the Project- 
and the Tenant-Based Section 8 programs. But we cannot provide 
the kind of guarantees that come with a mandatory program. And 
in the end, that is what I think the industry really wants.
    So, in my opinion, it comes down to certainty as defined by 
the following question: Does this program need to include 
enough funding--this is not a question for you now--does this 
program need to include enough funding to ensure that all 
contracts are fully funded up front for 12 months? Or can the 
program continue to operate, as it has in the past, with 
sufficient funds being provided in each appropriations act to 
fully fund contracts during the fiscal year?
    The answer, I think, lies in the ability of Congress to 
complete its appropriations process on time or to ensure that 
any continuing resolution includes the funds needed to operate 
as if the act had been completed on time.
    Does that make sense? I hope.
    And if you do not trust that to happen, then I think it is 
fair to argue for a major infusion of cash to lock in those 
funds. But then we are faced with a multi-billion-dollar 
appropriation to provide that infusion of funds, and the 
Subcommittee does not have those funds, given all the other 
perils that face us in funding HUD and especially in the 
transportation programs.
    I fear that many will be tempted to look for a budgetary 
gimmick, such as declaring an emergency. But if, on October 1st 
of this year, the 2009 appropriation act has passed or a 
properly constructed CR is put forth, then I do not see any 
basis for emergency spending.
    I would like to hear your views on that, Mr. Montgomery, 
and we will be following up with questions to that effect.
    In addition, there has been much discussion and many 
demands made over completing an internal investigation of the 
process that was used in allocating funds for the past several 
years. I am not sure why. As I understand the issue, it is a 
matter of which prevails, appropriations law or contract law. I 
am not a lawyer; this is over my head. But I can tell you that 
there is much disagreement on this issue.
    But Congress has every means available to require that you 
administer the program in any matter it so chooses, regardless 
of your internal deliberations or the final answer at which you 
arrive. Whatever the outcome of that internal debate, in my 
opinion it certainly does not provide an appropriate basis for 
adding billions to the program. Many other very large programs 
would have to be cut or eliminated just to satisfy a deficiency 
of funds that have already been spent. I see no gain or purpose 
in any proposal for that purpose.
    Again, I would like to hear your views on the issue. And 
since it has been floating around for the past few months, 
perhaps you can clear the air a little.
    Finally, I hope, and I know you hope, that this may be your 
last appearance before the Subcommittee. I want to wish you the 
very, very best in your future endeavors, whatever that may be.
    I am especially grateful for all the work you have done on 
the subprime lending issue. And, as you know, Michigan has been 
one of those States that was the hardest hit by the mortgage 
resets. And HUD's efforts and your personal involvement have 
made a difference on this issue, and that is to be noted and 
appreciated.
    And, with that, I yield back the balance of my time and 
look forward to your testimony. Thank you.
    Thank you, Mr. Chairman.
    Mr. Olver. Thank you, Mr. Knollenberg.
    Mr. Montgomery, your shot.

                    Mr. Montgomery's Opening Remarks

    Mr. Montgomery. Thank you, Mr. Chairman, thank you, Ranking 
Member Knollenberg and other distinguished subcommittee members 
who may join us. I appreciate the opportunity to appear before 
you this afternoon to address some concerns you are hearing 
about our ability to fund and pay the annual renewals on our 
Project-Based Section 8 Housing Assistance Payments (HAP) 
contracts.

                       HOUSING ASSISTANCE GRANTS

    In my testimony today, I want to reassure you that the 
Administration's policy remains in support of funding all HAP 
contract renewals as a much-needed source of affordable rental 
housing for close to 1.25 million low-income families. I will 
also outline what this Administration is doing to resolve the 
issues regarding this very important and essential housing 
program.
    First, let me say that I realize some of our housing 
program partners have experienced hardships based on our delay 
in making HAP payments. I have done it before but I will do it 
again today and offer my apologies to them for that process.
    The Administration understands the importance to many low-
income families of the Project-Based Section 8 HAP program. We 
know that delayed payments from HUD means that owners are often 
forced to make late mortgage payments, late utility or even 
insurance payments. And we understand the industry is 
concerned, and we are facing these challenges head on.
    Well, back in the fall of 2005--this was very early in my 
tenure--I recognized that there were problems in the 
Administration of the Project-Based program. And I took several 
steps to improve the process of reviewing and funding these 
contracts.
    First, I requested an independent review of the portfolio, 
which began in early 2006. I have been told that that was the 
first time since the early 1990s that our portfolio had been 
reviewed and audited to that level of detail. The review was 
completed late last year, and as a result of this analysis we 
were able to correct the deficiencies and significantly improve 
the accuracy and reliability of our budget estimates.
    I have also expanded the tracking of monthly voucher 
submissions and have improved my staff's capacity to respond to 
unexpected shortfalls. Nonetheless, I believe the current 
procedures for funding Section 8 contract renewals are still 
too cumbersome, they are still too time-consuming, and further 
improvements must be made.

                        CONTRACT RENEWAL FUNDING

    With the enactment of the MAHRA Act in 1997, the 
Department's duty is to fund a renewal contract for any given 
year, regardless of the contract term. It is explicitly subject 
to the condition that Congress make sufficient amounts of 
funding available to the Department in our appropriations act.
    As you know, there are currently 14,000 contracts, covering 
1 million housing units, that are subject to annual funding 
renewals. Well, the practice of incremental funding of 
contracts commenced in 1997, and HUD was often forced to 
partially fund some annual contract renewal terms for fewer 
than 12 months.
    Now, we are all very aware of the problems that have arisen 
due to the incremental funding of the contracts over the last 
several years, which resulted in payments not being made on a 
monthly basis. In order to attempt to address these problems in 
fiscal year 2007, we executed a strategy that remedied the 
situation without terminating any contractual relationships or 
necessitating additional appropriations late in the fiscal 
year, and in a constrained budget environment, I might add.
    However, during this time, many owners experienced 
significant contract payment delays. While we took steps to 
provide as much relief as possible, such as allowing owners to 
borrow against project reserves or requesting special mortgage 
forbearance, many 2007 payments were not made on time.
    The Department was successful in providing funding for the 
renewal of all HAP contracts into fiscal year 2008 and avoid 
the need for additional appropriations or the unintended 
rescission of unobligated funds in other HUD programs.
    Now, I am pleased to report that for fiscal year 2008 the 
Department's current analysis indicates it can meet the 2008 
HAP contract renewal funding needs with the funding level in 
the 2008 budget. The President's budget request of $7 billion 
for Project-Based assistance in 2009 is more than $1 billion 
over the amount provided in 2007.
    In addition to this request, the Administration is also 
proposing an advanced appropriation of $400 million to support 
continued and timely subsidy payments during the first quarter 
of fiscal year 2010. Our ability to preserve affordable housing 
is at least partly dependent on our success in eliminating the 
anxiety over untimely payments.
    I am determined to continue to push for improvements in the 
way we manage the Project-Based Section 8 Program. Project 
owners and investors and especially the tenants living in 
Section 8 housing deserve better service, and certainly better 
service than they received last year, and I am committed to 
making sure that they see real improvement.
    Lastly, thank you for this opportunity to testify before 
you today.
    [The information follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Olver. Well, thank you very much for that.
    We heard this morning from groups that manage and 
administer Project-Based Section 8 units. They all indicated 
that there was a serious problem of confidence and uncertainty 
in the program that grew out of that latter quarter of 2007 and 
the first quarter of 2008.
    With substantial numbers of late payments, I tried to find 
out whether they were across all accounts. I was never quite 
sure whether they were in all cases late payments or whether 
there was some extra circumstances that made some of them late.
    In any case, between the late payments and the short 
contracts, they have been forced to create reserves and pay 
their mortgages and reduce services and maintenance and so 
forth. Analysts believe that with the uncertainty created, a 
number of for-profit companies will get out of the program 
because it has become too cumbersome.
    My fear is that we will wait until it is too late to 
respond to this. We will wait until owners have gotten out en 
masse before we recognize the problem. And maybe, from what you 
are saying, you have done much to improve it.
    Do you agree that uncertainty has been created or was 
rampant there in that period of time?
    Mr. Montgomery. Thank you, Mr. Chairman.
    I would say there has probably been uncertainty since the 
beginning of the program, since it was always subject to 
appropriations.
    But just to rewind the clock a little, remember, we have 
had one series of continuing resolutions after another. And 
even going back to October of 2006, we barely had enough 
funding to get us through into the second quarter of fiscal 
year 2007. And also recall, we did not get the appropriation 
that year of some $5.8 billion or so until late February of 
2007, a little more than a year ago.
    We are all very familiar with what happened from our 
appropriations attorney; I won't go into that level of detail 
again. But that is a pretty hard one-two punch for anybody.
    And when you now have to go take a practice that had been 
working for at least 10 years and now, at the 11th hour, 
basically rework all these contracts, I know it caused a lot of 
people some angst, but at the same time I want to commend the 
staff at HUD, who worked many, many long hours, some of them 
sitting behind me, to do an almost near-impossible task, and 
that is rework some 14,000 contracts to fix the problem going 
forward.
    And it certainly caused a lot of people some angst, sir, 
and I won't deny that.
    Mr. Olver. Well, I will get back to that a little bit 
later.
    My understanding is that the extra funding that Congress 
provided in fiscal year 2008 Omnibus, which was $617 million 
above the President's request, will carry the program through 
short-funded contracts to October or November of 2008. That 
looks as if it is reaching a little bit into the 2009 fiscal 
year.
    Do you agree with that assessment?
    Mr. Montgomery. Well, I will agree with the assessment that 
we have enough to pay all of the contracts through this fiscal 
year and on into the next fiscal year.
    Mr. Olver. How long into the next fiscal year, would you 
say?
    Mr. Montgomery. Well, because of the advance appropriation 
for 2010, we will not only pay them all the way through fiscal 
year 2008, all the way into fiscal year 2009, and hopefully the 
first 3 or 4 months into 2010.
    Mr. Olver. All right. But you, in testimony before this 
Subcommittee back a couple of months ago, had agreed that we 
were in a process of using 1 year's fiscal monies to begin the 
process in the next year, and that was rolling on and the 
number being pushed into the next fiscal year was growing. But 
it is my understanding that that process was growing, that more 
was being pushed into the next fiscal year.
    But this number that we have for 2008 you think finishes 
2008. And in agreement with that process that I have just 
described, that you had testified to earlier, it would appear 
that that may cover some portion of the next fiscal year.
    Mr. Montgomery. Yes, that is correct.
    Mr. Olver. You think that is correct. Okay.
    Well, if that is true and the fiscal year 2008 
appropriations--you get the program to--a ways into the 2009 
year, what happens in the event that the program is under a 
continuing resolution again at that point?
    As you point out, we have had a number of continuing 
resolutions. What happens, in particular, if it is subjected to 
some kind of a long continuing resolution?

                      EXPIRING SECTION 8 CONTRACTS

    Mr. Montgomery. Well, we have been subject to many 
continuing resolutions for some time, but we have been able to 
make due with those appropriations. Remember, the program does 
get a little more expensive each year, because every year from 
now until 2025 you will have contracts rolling off their 
initial term, and they need to be renewed every year. So that 
number will continue to grow regardless.
    Mr. Olver. Are there contracts that are long-range 
contracts that reach all the way to 2025?
    Mr. Montgomery. That is correct. We will continue to have 
renewals until the year 2025. Or you will continue to have 
contracts coming off their initial term into the year 2025. 
Remember, some of these originally were 20, 30, 40 years.
    Mr. Olver. So that would have to be a 40-year contract that 
was issued in 1985?
    Mr. Montgomery. The last year that we were in the 
production business of Section 8 was, I think, fiscal year 
1984.
    Mr. Olver. Okay. All right. So you have lived with 
continuing resolutions from year to year, and this may be 
another one. We have had quite a few of them; that is quite 
true.
    A CR, particularly a long one, further throws these 
problems, it seems to me, dealing with expiring contracts, with 
rents that rise every year, does not seem easy with a long-term 
CR that provides only the rate of services used in fiscal year 
2008 that has been agreed to, especially for these 1-year 
renewals.
    How do you handle that problem when there is a CR, that the 
numbers that you are allowed to use depend upon, usually, 
previous years' services?
    Mr. Montgomery. Well, we also have recaptures from previous 
years that average somewhere around $400 million to $600 
million a year, which--we normally don't get those toward the 
end of a fiscal year. But that is also what has been done for 
many years. They use the recaptures to help get them into the 
next fiscal year.
    Mr. Olver. So you rewrite contracts? The long-range ones 
have an escalator. But the short-term contracts, you rewrite 
them with a new--whatever the inflation rate is. But then you 
think you would be able to cover the beginnings of those with 
these kind of recaptures that you are talking about?
    Mr. Montgomery. Well, and we have been able to cover them, 
dating back to the previous Administration.
    But remember, the contracts coming off the initial term get 
a 5-year renewal, but the funding is only guaranteed for 1 
year. So even though it is a 5-year renewal, the funding has to 
be done every year. And that has been back to--well, with the 
MAHRA Act in 1997.
    Mr. Olver. These were the ones coming off their first long-
term return contract, 20-, 30-, 40-year?
    Mr. Montgomery. Correct.
    Mr. Olver. Then they get 5-year renewal?
    Mr. Montgomery. 5-year renewals but only 1-year 
appropriation. That is correct.
    Mr. Olver. But you also have a whole bunch shorter than 
that, 1-year contracts, don't you?
    Mr. Montgomery. Well, yes. They are all 1-year funding. But 
as they come off their long-term, it is a 5-year renewal, but 
again, subject year by year to appropriations.
    Mr. Olver. Every time I go through this, I learn some other 
little quirk about this system. I am happy that it is you that 
is dealing with it.
    Mr. Montgomery. It is full of quirks, sir. I am sorry.
    Mr. Olver. Yes, okay. Well, I will pass on to Mr. 
Knollenberg for the time being.
    Mr. Knollenberg. Thank you, Mr. Chairman.
    Mr. Montgomery, let's begin with 2007 and try and figure 
out what caused this crisis of confidence which people are 
beginning to relate to in the Project-Based Section 8 Program.
    What was your funding level in 2007, and why wasn't it 
adequate?
    Mr. Montgomery. I think fiscal year 2007 was about $5.6 
billion with the recaptures that I referenced earlier. And with 
amendments, it ended up being close to about $6.7 billion. 
    Mr. Knollenberg. So what was the real problem then in 2007?

                          INCREMENTAL FUNDING

    Mr. Montgomery. Well, there were a lot of problems, as I 
articulated a minute ago. But, clearly, the biggest one was the 
long-term practice of the incremental funding, being told that 
we can no longer do that and having to go modify all those 
contracts. So that, by far, was the biggest hindrance.
    Mr. Knollenberg. So that was a challenge that put you in 
between a couple of rocks, I guess?
    Mr. Montgomery. Absolutely, sir.
    And, again, the groups that are behind me, I speak to them 
frequently, I meet with them frequently. I hate this as much as 
they do. But I also, at the same time, know that our staff 
worked very, very hard to fix this problem, and I think we have 
going forward.
    Mr. Knollenberg. Uh-huh. Would it be fair to say that if 
Congress had enacted a 2007 budget or provided sufficient 
funding via a CR through the exceptions process that the crisis 
of confidence may not have happened?
    Please give us, if you can, as close as you can to a yes-
or-no answer, and then you can add caveats or any more 
information if you need it. But can you respond to that?
    Mr. Montgomery. I will say, in my opinion, I will give you 
a ``yes'' to your previous question.
    Mr. Knollenberg. The Administration is continually accused 
of requesting less funding than necessary to ensure the renewal 
of the Section 8 contracts, and I believe you disagree with 
that. Is that correct?
    Mr. Montgomery. Well, again, since these contracts do split 
fiscal years, we request enough to get us through that fiscal 
year. And then, of course, over the next fiscal year, the 
contract gets picked up again.
    Mr. Knollenberg. Then what is the source for this 
difference of opinion? Is there something you can put a finger 
on, just one thing? Is it just that?
    Mr. Montgomery. I would say it is just that. But I asked my 
staff, and while there were some differences of opinion, 
everybody seemed to coalesce around that it had been since the 
early 1990s since the last time these contracts had been fully 
funded, some time during the last days of the Kemp 
administration.
    Mr. Knollenberg. What about 2008 and 2009? Do you have 
enough to meet the requirements of those two?
    Mr. Montgomery. Yes, sir.
    Mr. Knollenberg. You do. What level of funding is needed in 
fiscal year 2009 to put all contracts back on a 12-month 
funding cycle?
    Mr. Montgomery. Well, for 2008, I believe it was about $1.8 
billion. For fiscal year 2009, I believe that was increased to 
about $2.6 billion. But, again, that is to encumber those funds 
and to obligate those funds for a contract that runs right now 
into the next fiscal year, again, which is something, according 
to our long-term career staff, that probably hasn't been done 
in close to 17 years.
    Mr. Knollenberg. In the fiscal year 2008 Conference Report, 
the Subcommittee asked the Department to complete its inquiry 
to determine if the partial or incremental implementation of 
contracts violated appropriations law.
    Has OMB, for example, has the Department reached a decision 
relative to this inquiry?
    Mr. Montgomery. No, sir, they have not. But, again, there 
was a problem that was outside of our purview. It spanned two 
Administrations, and I can probably think of no bigger waste of 
time than for everybody to try to go back and figure out the 
hundreds of people that were involved in this problem over 10 
or 12 years, who is to blame. And I will say, the last group I 
want to blame are the career staff, who worked very hard to fix 
this problem.
    Mr. Knollenberg. The last you want to blame?
    Mr. Montgomery. I am sorry, sir?
    Mr. Knollenberg. Could you repeat that again?
    Mr. Montgomery. I don't want to sound like a bureaucrat 
here, but for a situation that spanned two Presidential 
Administrations of two different political parties and then, 
well, all of a sudden, 10 years in the future, it is determined 
that that practice can no longer be done, everybody worked very 
long hours to fix it, to me it just doesn't make sense to blame 
mostly the career staff who worked so hard to fix it, now 
somehow blame them and slap them with an ADA violation.
    But I will take my lumps if that is the case. But it just 
doesn't make any sense to me.
    Mr. Knollenberg. Has HUD had a long-standing problem with 
making timely payments to owners?
    Mr. Montgomery. Well, beyond some of our systems issues and 
on-going personnel needs, we have never had anything like we 
experienced, you know, this time last year.
    Mr. Knollenberg. Specifically, has any of the problem been 
associated with or due to lack of funds? And has that been 
corrected?
    Mr. Montgomery. Well, we, again, believe for fiscal year 
2008 and for fiscal year 2009 and a little bit into 2010 that 
the funding issue should be behind us.
    Mr. Knollenberg. Can you tell us how many owners have opted 
out as a result of late payments?
    Mr. Montgomery. I believe about three over the last 2 years 
have opted out. And GAO did a study of this and determined that 
owners were more likely to opt-out for economic reasons than 
for late payments.
    Mr. Knollenberg. So it has been negligible.
    Mr. Montgomery. It has been negligible the last 2 to 3 
years.
    Mr. Knollenberg. And at this moment, how far behind is the 
Department on their payments?
    Mr. Montgomery. Payments for January--and this is out of 
about 14,000 contracts. There are 74 that are still late, 123 
for February, and 218 for March.
    Mr. Knollenberg. Those are the figures for this calendar 
year thus far. So that is the universe of current payment 
problems; that is the entirety of it?
    Mr. Montgomery. That is correct.
    Mr. Knollenberg. Can you tell me how the Department has 
modified the contracts to allow for this incremental funding?
    Mr. Montgomery. Well, again, this is part of what our 
appropriations attorney had said that we had to fix, that the 
language in the old contracts didn't match the funding that had 
now been going on for some 10 years. So we essentially said, 
the owners of this new contract, you would get 3 months of 
funding, and you will get X amount up until November.
    They wouldn't all be done in November because, remember, 
these are staggered out over the fiscal year. So again, that 
was the staff that worked many long hours to get all those 
contracts done.
    Mr. Knollenberg. Thank you.
    I am going to relinquish at this time, Mr. Chairman, and 
yield to you. Thank you.
    Mr. Olver. Mr. Pastor.

                           3-MONTH CONTRACTS

    Mr. Pastor. So it was because of the attorney's opinion 
that you changed the way of doing business and you went to the 
3-month?
    Mr. Montgomery. Well, yes, sir. We didn't have a choice in 
the matter. The appropriations attorney, while in the employ of 
our Chief Financial Officer, actually reports to Congress. And 
it was his opinion.
    Mr. Pastor. And because of that opinion, then, you 
overturned 10 years of practice, and so that--I have to tell 
you, in your comment I think I heard a couple minutes back, you 
and your staff didn't like what happened. I think the 
operators, the people you contract, even hated it more. So that 
was a feeling I got from this morning.
    Mr. Montgomery. Yes, sir.
    Mr. Pastor. And as you were told by staff that attended 
that hearing--and I agree with you, it is hard to blame people 
for something that happened in the past, and people worked at 
it. And so I will tell you that I am not looking for a place to 
put blame. It is done, and now I am looking, what do we do 
going forward?
    Mr. Montgomery. Yes, sir.
    Mr. Pastor. Because people are affected, people throughout 
this country, mainly senior citizens. People who have a 
disability are affected. And, obviously, I think you and I 
don't want to cause pain or suffering to these people.
    Mr. Montgomery. Yes, sir.
    Mr. Pastor. And you will probably correct me, but, as I 
understand, with the funding that you have requested, that it 
would take us to the end of fiscal year 2008 and then probably, 
at best, pay 3 months into 2009.
    Mr. Montgomery. Well, again, we have enough funding for 
2008, and we are requesting an advanced appropriation, but that 
is for 2010.
    Mr. Pastor. What you have today will get us to the end of 
fiscal 2008 and, at best, be able to fund 3 months into 2009?
    Mr. Montgomery. Well, and one of the problems at the first 
of the fiscal year has a lot to do with our old systems, our IT 
systems, that they cannot begin processing the new fiscal year 
until they close out the old fiscal year. So a lot of it is to 
avoid that backlog between the system changeover, which takes 
about a month. So that has always been a slow time for HUD, the 
beginning of the fiscal year.
    Mr. Pastor. Let me go back again. Due to the funding that 
you will receive, hopefully, in a bill or a CR and the problems 
you have with the system that you have in place, that the 
scenario probably is that you will have monies to the end of 
fiscal year 2008 and probably, at best, put people under a 3-
month in 2009.
    Mr. Montgomery. And, more likely, be under another 
continuing resolution.
    Mr. Pastor. Well, but you think I am correct in that if I 
was to talk to a number of your operators, say the best I think 
HUD can do is finish 2008, you can rely on that, and at best, 
you probably can rely on 3 months in 2009. Due to the system, 
due to the money----
    Mr. Montgomery. Well, that has always been the way the 
program works. As we go into a new fiscal year or do a 
continuing resolution, we get the funds ultimately to now carry 
the program through that fiscal year. And that practice has 
been going on for many years.
    Mr. Pastor. Sure.
    Mr. Montgomery. It is just, of late, now we all just have 
continuing resolutions.
    Mr. Pastor. Knowing the system at the end of fiscal year 
2008, you know, causes problems--today I heard that probably an 
infusion of a supplemental, I think it was $2.6 billion, to 
HUD, that this would correct the errors of 2007 and create 
stability in this market, and people could go forward with 
their lives with longer-term contracts than what they have 
today.
    Would you agree with that or disagree with that?
    Mr. Montgomery. Well, I would say that if you want to fully 
fund the contracts and encumber 12 months of funding today on 
into the next fiscal year, the number is somewhere between $2.4 
billion and $2.6 billion. But, again, that has not been done in 
some 15, 16, 17 years, now dating back two additional 
Administrations.
    So the issue is, in this tight budget environment, do you 
want to encumber $2.6 billion more, knowing that into the next 
fiscal year, as is always the case, those contracts get picked 
up? And I think that is where the difference in the philosophy 
lies.
    Mr. Pastor. Well, we will have a new Administration, for 
sure. There will be some other changes, that maybe additional 
revenues may be forthcoming due to changes. So it may be a 
hypothetical, as we talk today, but in a matter of months, you 
know, we will work at the situation a little differently.
    But is that a solution then, the $2.4, $2.6--bring 
stability to the program and probably not cause any discomfort 
to our elderly or disabled?
    Mr. Montgomery. Well, we certainly share in that goal, 
Congressman, I can assure you.
    But, look, I don't blame the industry stakeholders or non-
profits, you know, for wanting to get them fully funded. Again, 
we just think, in our tight budget environment, doing it the 
way that it has been done for a number of years is the best use 
of limited resources in this environment.
    Mr. Pastor. Thank you very much.
    Thank you, Mr. Chair.
    Mr. Olver. Ms. Roybal-Allard.
    Ms. Roybal-Allard. Thank you, Mr. Chairman.
    Mr. Montgomery, thank you for joining us this afternoon.
    Owners of Section 8 properties in California, as you know, 
have expressed their concern about HUD's new policy of 
incrementally or short-funding Section 8 contracts. And many 
owners have indicated that if this policy were to continue, 
that they may not renew their contracts.
    As you know, it is absolutely critical that we get accurate 
information about the funding needs of these programs, because 
it is the only way that we would be able to fully fund Section 
8 contracts and restore confidence in the program.
    Do you still agree that short-funded contracts have a 
harmful impact on property owners and may discourage some 
continuing to participate in the Section 8 program?
    Mr. Montgomery. Well, I would say, again, given the fact 
that only three have opted out in the last 2 years, most of 
them do stay in the program.
    Ms. Roybal-Allard. Okay. In spite of what they are saying, 
is what you are saying?
    Mr. Montgomery. Yes.
    Ms. Roybal-Allard. And do you agree that providing the 12-
month funding at each contract renewal is the better policy? Do 
you have a way of comparing that?

                            12-MONTH FUNDING

    Mr. Montgomery. Well, again, as I told Congressman Pastor, 
our process, which dates back, you know, again, some 10 years, 
accomplishes the same thing without encumbering and obligating 
budget dollars in a very tight budget environment.
    Ms. Roybal-Allard. Okay. I just want to go back to the 
first part of my question and make sure that I understand.
    You are saying that, even though people are complaining, 
property owners are complaining, that right now there is no 
indication that they are going to opt out of the program, that 
you have only had three out of the entire program, is that it?
    Mr. Montgomery. Out of 14,000 or so, yes.
    Ms. Roybal-Allard. Out of 14,000. And are all these people 
who have had their contract--the term of the contract has been 
completed? And so you are saying that out of the 14--I am 
sorry--thousand did you say?
    Mr. Montgomery. 14,000 that are--more than 14,000 that are 
renewed.
    Ms. Roybal-Allard. That the other thousands, minus these 
three, are operating without their long-term contract or a 
yearly contract?
    Mr. Montgomery. The reason we heard so much dissent last 
year, again, has more to do with the opinion of our 
appropriations attorney that said, ``The practice that you have 
been doing for 10 years you can no longer do.'' That is when, 
as we all painfully know, the funding stopped for about 3 
months. I don't blame them for being mad, and I have apologized 
to them, and I will continue to do so.
    But, you know, again, now that we have rewritten the 
contracts to satisfy the attorneys, the practice will continue, 
and we are very confident it will take us out into the next 
fiscal year.
    Ms. Roybal-Allard. Okay. Now, if it turns out that HUD's 
current estimates are mistaken and Section 8 funds begin to run 
out in late 2008, what actions will HUD then take to ensure 
that property owners will receive all the payments that are due 
them on time?
    Mr. Montgomery. Well, again, the program has always been 
subject to appropriation, but near the end of each fiscal year 
we also use recapture funds to make up the difference going 
forward.
    Ms. Roybal-Allard. Okay. And do you notify the Subcommittee 
of the shortness of funds? Will the Subcommittee be notified?
    Mr. Montgomery. I assume we will do whatever the current 
practice is, we would do.
    Ms. Roybal-Allard. Okay. And one final question: What other 
steps is HUD taking to ensure the problems of last summer are 
not repeated? And what infrastructure and human capital 
advances are you making to better estimate funding needs and 
execute the contracts?
    Mr. Montgomery. Well, certainly, going forward with new 
contracts that satisfied that concern in our attorney's mind, 
but also the contract-by-contract review that was complete, you 
know, that now says, look what you have been estimating and 
logging these many years, you were pretty darn accurate. And, 
again, that hadn't been done in almost 17 years.
    So we think, going forward, reference to the next 
administration, whoever that may be, we have a good model, a 
fully funded one, going forward to at least the first quarter 
of 2010.
    Ms. Roybal-Allard. Okay.
    Thank you, Mr. Chairman.
    Mr. Olver. Thank you.
    Let me go back and follow. Let's assume for the moment that 
you are right, that the $600 million that the President added 
for renewals and the $400 million advance will get this program 
through until September 30, 2009, and the $400 million is 
advanced appropriation, essentially, for 2010. That $400 
million would not be nearly enough to do as much as a whole 
quarter of that new fiscal year, but you would have some 
recaptures, you would think.
    I am not sure how you can depend upon the numbers of 
recaptures. I think there is reason to believe that the amount 
of recaptures could not be as much as $400 million, let's say.
    But that would give you--$400 million for contracts into 
2010 couldn't be more than a month or two, at most, with all 
the recaptures that could be there, could they?

                        ADVANCED APPROPRIATIONS

    Mr. Montgomery. Well, we would also kick into the new 
fiscal year, which, of course, we don't have a new 2010 budget 
yet.
    Mr. Olver. It, by itself, wouldn't get you very far.
    Mr. Montgomery. But the 2010 budget would, which--you won't 
see me around here for the 2010 budget.
    Mr. Olver. All right. All right. Okay.
    My understanding is that that means that every single 
contract, all 14,000 of them, would be pushed to that specific 
date of the 30th of September of 2009.
    Mr. Montgomery. No. No, sir. Remember, those contracts--
they would have to be done by that time. Those contracts renew 
every month. So that is the deadline. That is not when they all 
come due, though. They all are renewed every month. That is 
actually part of the problem we have.
    Mr. Olver. So there is nothing happening here that would 
require all of those contracts to be renewed on that particular 
date?
    Mr. Montgomery. No, sir, not at this time.
    Mr. Olver. There is always going to be--whatever process 
you have, you are always expecting to have a phasing of the 
contracts over the year, a thousand per month or whatever the 
number may happen to be.
    Mr. Montgomery. That is correct.
    Mr. Olver. It is just that the payment will be good only 
for up to the end of that fiscal year.
    Mr. Montgomery. That is correct.
    Mr. Olver. And then carries on into the next year because 
of recaptures and so forth, so be it. By, sort of, going back 
to your comments in February, at the hearing in February, that 
these monies have been--that whatever excess has been not used 
over into the next fiscal year.
    Mr. Montgomery. Yes, sir.
    Mr. Olver. I see. So you are saying that there will be no 
problem of any kind of renewal jamming going on at that 
particular point?
    Mr. Montgomery. Well, we have not had an advanced 
appropriation in--I don't know if we ever have. So----
    Mr. Olver. That is quite an unusual one, I guess.
    Mr. Montgomery. It is a very good thing to have, sir. 
    Mr. Olver. They have all been short-funded, though, to 
reach an end-of-fiscal-year date. But the contracts, as 
written, are all going beyond and just waiting for the 
additional appropriation.
    Mr. Montgomery. Well, there are very, very few--I don't 
have the exact number; we can get it--that expire at the end of 
the fiscal year. This is different from what you have in public 
housing. Ours are staggered throughout the entire year.
    Mr. Olver. What is the amount that is necessary--assuming 
that the President's request is enacted, what is the dollar 
amount necessary to renew all contracts for 2010?
    Mr. Montgomery. For 2010?
    Mr. Olver. To renew all contracts--to renew the contracts 
for that fiscal year.
    Mr. Montgomery. 2010, I don't know, sir. For 2009, I 
believe it is somewhere around $6.7 billion. Because, remember, 
every year you have long-term contracts come off that initial 
term, and now they go on to the renewal pot. Those long-term 
contracts are paid from the housing certificate fund. Those are 
obligated funds going back 20, 30 years. That is why the number 
always goes up.
    Mr. Olver. I know you have obligated funds from the old 
law.
    Mr. Montgomery. Correct.
    Mr. Olver. But as soon as they come off that, then they go 
onto a 5-year contract, if I remember what you told me about in 
the previous round, and then it is subject to appropriation.
    Mr. Montgomery. That is correct.
    Mr. Olver. And then it will be funded only to the end of 
the fiscal year. And if you are late on the funding, then they 
are--except by maybe some carryover and recapture and so forth, 
then you are stopped there, depending upon whatever the 
continuing resolution may say.
    Mr. Montgomery. Yes, sir.
    Mr. Olver. Let me just point out that the GAO study that 
you mentioned earlier in conversation with Mr. Knollenberg was 
a study from several years ago which did not take into account 
what happened in the last quarter of 2007 and the first quarter 
of 2008, which seems to be the period of time that has 
everybody all excited. And the change in the accounting process 
that went on and the delays in the payment that seems to have 
happened in a substantial way, that you are saying you think 
you have pretty well corrected.
    And even then your comment that there have been three over 
a 2-year period, of course that doesn't really reflect results 
of those same two quarters and the resulting lack of confidence 
that grows up out of those two quarters. That would only 
reflect, perhaps, those people who decided right at that moment 
not to renew, which is their choice anytime it comes up for a 
new contract.

                               OPTING-OUT

    Mr. Montgomery. Again, it is not a mandatory program. It 
has always been subject to appropriations. But I am putting 
myself on the owner's place for a minute. I don't blame them 
for being very concerned. For the first time in I don't know 
when, all of a sudden they are not getting paid over about a 3-
month gap. But, remember, the situation wasn't of our doing. We 
were dealt a bad hand too. We fixed it.
    So I don't blame them for 1 minute, sir, for being upset, 
and I have apologized to them. But now, going forward, you 
know, we are getting the new contracts signed, the new 
renewals. And, again, going forward, on into the next 
Administration, sir, this program should be fixed.
    Mr. Olver. What would the--well, Mr. Knollenberg. I will 
come back.
    Mr. Knollenberg. We did discuss that this morning, that 
issue of the three. And the grouping told us that there must be 
some mistake and you should update your background on this.
    Anyhow, that is not my question. That is just one of the 
things we went through. They were very strong in their view 
about that, that there must be some mistake with the GAO 
report.
    The project owners also tell us that the new contracts 
which fund the projects incrementally has resulted in reduced 
ability for them to obtain credit and other financial problems. 
What do you discern from that? Can you make a comment on that?
    Mr. Montgomery. Well, almost since its inception, this 
program has been subject to appropriations since it is a 
discretionary program. So, I mean, one could say that that 
concern has been there for the last 30-some-odd years. But, 
again, just to reference my previous comments, I am sure they 
were immensely concerned last year during that funding gap.
    Mr. Knollenberg. Yeah. Have any owners notified you of 
their intent to leave the system recently?
    Mr. Montgomery. Beyond the ones who have actually left, no, 
sir, I am not aware of any.
    Mr. Knollenberg. Okay. Will the Department use Project-
Based Section 8 funding to make the Department's $1.25 billion 
rescission?
    Mr. Montgomery. I will say, going forward, based on what we 
all have had to do over the last 15 months, my personal opinion 
is I hope not. But I would say that that is not my decision.
    Mr. Knollenberg. If additional funds were provided as 
emergency funds in the supplemental coming up, would HUD then 
simply use previously appropriated Section 8 funds to meet the 
rescission?
    Mr. Montgomery. Again, that is a decision a little out of 
my purview, as to what ends up happening on the rescission.
    Mr. Knollenberg. Yeah. I guess it is going to have to be 
within our purview, when it comes down to making a decision on 
that.
    And then, why do you think--and I presume you do think 
this--that an advanced appropriation will help mitigate this 
late-payment problem? Isn't that like a budgetary gimmick?
    Mr. Montgomery. Well, it is that and the fact that we have 
had continuing resolutions, as long as I can remember. So that, 
and along with that it has historically been a slow time for 
HUD anyway, as we change over from one fiscal year to another. 
Again, going into the next administration, we think we can 
alleviate a lot of that logjam.
    Mr. Knollenberg. It is a gimmick to avoid being scored, 
too, is it not?
    Mr. Montgomery. I have been told that, too, sir.
    Mr. Knollenberg. Thank you. That is the end of my 
questioning.
    Mr. Olver. Mr. Goode.
    Mr. Goode. Thank you, Mr. Chairman.
    And you may have said this earlier. What is the total cost 
of your Section 8 housing program right now?
    Mr. Montgomery. Well, as I referenced earlier, because 
contracts in their long-term initial term come off every year, 
right now somewhere between $6.4 billion to $6.9 billion.

                 REQUIREMENTS FOR SECTION 8 ASSISTANCE

    Mr. Goode. Let me ask you this. How many persons get 
Section 8 assistance, just ballpark, that are seniors? And I 
will define that as being 65 and older.
    Mr. Montgomery. Sir, there are currently about 1.25 million 
units which, of course, are occupied by however many numbers of 
persons, but about three-quarters we estimate are either 
seniors or persons with disabilities.
    Mr. Goode. So non-seniors, nondisability is probably what, 
300,000 then?
    Mr. Montgomery. About 25 percent of that figure I believe, 
yes sir.
    Mr. Goode. Let me ask you this. Of that 300,000, how would 
you categorize their ages?
    Mr. Montgomery. Sir, I would have to follow up.
    Mr. Goode. Ballpark.
    Mr. Montgomery. Their ages?
    Mr. Goode. Yes.
    Mr. Montgomery. That I don't know. I would hate to hazard a 
guess.
    Mr. Goode. Do you do any check of the immigration status of 
Section 8 applicants?
    Mr. Montgomery. Sir, I am not 100 percent with the 
eligibility process at the local level, but legal resident 
status, things of that nature are looked at. Yes, sir.
    Mr. Goode. Do you ask to see a birth certificate?
    Mr. Montgomery. That level of knowledge I don't know off 
the top of my head.
    Mr. Goode. Does anyone sitting there know? Do you ask to 
see a naturalization certificate?
    Mr. Montgomery. Sir, I don't know. I will have to find out 
for you.
    Mr. Goode. So you couldn't tell me if I asked you what 
percentage of the 300,000 that weren't seniors may be here 
illegally?
    Mr. Montgomery. Sir, I couldn't tell you, but I suspect it 
is a very, very small number.
    Mr. Goode. All right. Thank you, Mr. Chairman.

                          LONG-TERM CONTRACTS

    Mr. Olver. Thank you. You made a comment that again leads 
me to think I have lost something along the way. Long-term 
contracts that are still there that have never reached their 
first renewal, the 20s, 35s, 40s, whatever they happen to be, 
that are still out there, you said funds were obligated for 
those?
    Our testifiers this morning said that those also fell into 
the delays on payments in this time period of the fourth 
quarter of '07 and the first quarter of '08. Am I 
misunderstanding something you have said? It sounds as if they 
had funding obligated to them for the whole of those contracts 
when they were laid out as contracts. Then wouldn't those have 
been paid and wouldn't that money have been saved to pay them 
throughout the whole of that fiscal year?
    Mr. Montgomery. We have operating costs, adjustment 
factors, annual adjustment factors that we call amendments, 
that add additional funds each fiscal year, even to those in 
the long-term contracts. I am not sure if those were impacted 
by this.
    Mr. Montgomery. They were; yes, sir.
    Mr. Olver. So they were then in that particular period as 
we went into fiscal '08, whenever these processes were there, 
those--also the long-term contracts, there were 4,000 or so of 
on-going; 20 percent, whatever, of residual long-term contracts 
were also not getting paid on time.
    Mr. Montgomery. Well, only relative to the portion that was 
the annual adjustment factor, inflation factor.
    Mr. Olver. Only with regard to the adjustment factor?
    Mr. Montgomery. Yes. Yes, I was correct.
    Mr. Olver. Only with regard to the adjustment factor. Well, 
that is certainly new. I think some of the people, or maybe 
staff for some of the people who were there this morning--and 
maybe I misunderstood what was being said there this morning.
    As a last thing that I want to ask you, if we were to fund 
the President's budget for '09 as it has been requested, but 
not do the forward funding, $400 million, to do something into 
'10, thereby essentially ending the funding except for whatever 
excess that provided, if any, as of the 30th of September of 
'09, what would be the cost of 1 year of the project-based 
program for 1 whole fiscal year? One million dollars, 
$300,000----
    Mr. Montgomery. I will have to get you that number.

                        ANNUAL COST OF A VOUCHER

    Mr. Olver. You will have to get me that number. Do you know 
what roughly the average cost of a voucher is?
    Mr. Montgomery. Well, as far as what we pay the owners on a 
monthly basis, it could vary $10,000 a month, $20,000 a month, 
even more than that. These units are of various size. We make 
up the difference between the 30 percent and the cost of the 
unit, certainly with some inflation factors. Ours are not 
vouchers, public housing.
    Mr. Olver. Well, I am told that in answer to the questions 
asked in the Omnibus--is that in the document or the letter 
that we have from the Government Affairs Office--that the 
number for a full 12-month needs for all of fiscal year '09 
would be $7,448,000,000.
    Mr. Montgomery. That sounds correct.
    Mr. Olver. I was asking for 2010.
    Mr. Montgomery. That I don't know.
    Mr. Olver. Well, it gets ramped up a little bit.
    Mr. Montgomery. Yes, sir, and will continue until 2025.
    Mr. Olver. Okay, I have nothing further.
    Mr. Knollenberg. I am fine.

                       TENANT OCCUPANCY STANDARDS

    Mr. Goode. I will follow up a little bit.
    Let me ask you this. In your housing that you provide the 
assistance for, do the individual owners of the units, do they 
have any residence capacity? Can you have eight in the facility 
if you want, or that is individually set? You all don't have a 
rule on it, HUD doesn't?
    Mr. Montgomery. I am sorry, sir, I don't know if I 
understand the question.
    Mr. Goode. If I was getting rental assistance from you and 
I owned a facility, do I have any rules and regulations about--
because of what is good habitation standards. Do you all have a 
habitation standard?
    Mr. Montgomery. Oh, yes, sir, absolutely.
    Mr. Goode. What is the max you can have in a unit?
    Mr. Montgomery. I am not sure of the sliding scale. It is 
something we called a REAC score. I know in the past you have 
to have a 60. I believe it is on a 100 scale. My colleagues are 
nodding yes.
    Mr. Goode. Let me ask you this, then. If the person that 
gets your voucher, or if it is paid assistance, if let's say 
they are here legally, that you all don't check who else stays 
in the unit with them, do you? I am assuming you did check.
    Mr. Montgomery. Yes, there are checks to make sure the 
person is not here illegally. There are very strict rules.
    Mr. Goode. If I got the voucher, do you check who I let 
into my unit?
    Mr. Montgomery. Well, certainly there is 24-hour 
monitoring. But many times a lot of complaints we hear from the 
tenant groups is the very problem you were talking about; is 
that they are the ones who many times turn in another tenant 
for having too many occupants in there. They don't like it 
either.
    Mr. Goode. Right. But the status of the persons that are in 
those units, you all don't have any rules on checking that out, 
do you?
    Mr. Montgomery. Well, given there are so many people in 
there obviously we don't----
    Mr. Goode. You have the number, but you don't have a rule 
on the status of the persons in the units.
    Mr. Montgomery. With friends and guests and others that 
shouldn't be staying there. It is specific who should be in the 
unit. If they have persons living there who are not supposed 
to, they can be subject to eviction from their unit.
    Mr. Goode. Let me ask you this. Suppose somebody had 
someone that was a parole violator there? Is that a violation 
of your rules?
    Mr. Montgomery. If they are violating their parole?
    Mr. Goode. Is that your rules? Violation of parole is one 
rule, but do you have a rule?
    Mr. Montgomery. If someone is a fugitive from justice or--I 
am assuming they probably shouldn't be living in one of our 
units.
    Mr. Goode. Okay. So if someone who came into the country 
illegally, would you classify them as a fugitive?
    Mr. Montgomery. Sir, immigration is not my area, sir.
    Mr. Goode. What you are saying, it is not okay to have a 
parole violator, but it would be okay to have somebody that 
violates immigration laws living there. Are you saying that?
    Mr. Montgomery. What I am saying is that the tenants have 
rules they have to play by. A vast majority of them play by 
them. It is their home. For those who don't, who have folks 
living there illegally who should not be--be it parole or 
whatever--it is a violation of their agreement and they could 
be evicted for that.
    Mr. Goode. So you are saying most of the agreements, to 
your knowledge, then say that you should not have someone who 
is a lawbreaker in the facility.
    Mr. Montgomery. Sir, I will double-check that, but I am 
fairly certain that someone who is a fugitive from justice. 
Someone who was previously incarcerated, that is different.
    Mr. Goode. If you say you were guilty of a misdemeanor, is 
that a violation of most of the tenant agreements?
    Mr. Montgomery. You mean like a class A misdemeanor, sir? 
Like a class A misdemeanor or class B?
    Mr. Goode. Well, it depends on the State. In Virginia let's 
just say class 1, assault and battery.
    Mr. Montgomery. Sir, I don't know, I don't know, but I can 
find out for you.
    Mr. Goode. Can you check then on misdemeanors, illegally in 
the country? If you could check on those two things.
    Mr. Montgomery. Yes, sir, we will do so.
    Mr. Goode. Thank you, sir.

                             ADA VIOLATION

    Mr. Olver. I just have one last question, Mr. Secretary. In 
the Omnibus we had passed, the HUD and OMB made a final 
determination as to whether or not there had been somewhere 
during that period of time before you changed the accounting 
procedure, whether there had been an ADA, an Antideficiency Act 
violation; because that is what essentially your counsel in HUD 
had said, you could not continue doing what you had been doing 
because that would constitute an ADA violation. And you did 
change the accounting process, the way you were processing 
these things at that point.
    And the Congress had asked in the Omnibus that you answer 
that by the 15th of January of '08.
    On the 15th of January we did get a letter which said in 
effect that you would not be able to meet the January 15th 
deadline for responding with a final determination on the 
appropriations concern about whether there had been an ADA 
violation. Can you now give us any idea when that determination 
will be made?
    Mr. Montgomery. Sir, I will find out when I confer with my 
staff to get an update on what that is. Again I strenuously 
object that it was an ADA violation.
    Mr. Olver. You strenuously object?
    Mr. Montgomery. Yes, sir. You heard my opinion on it 
before.
    Mr. Olver. Is the counsel still on staff? Who made that?
    Mr. Montgomery. He reports to you, sir.
    Mr. Olver. The counsel reports to us?
    Mr. Montgomery. The appropriations attorney does.
    Mr. Olver. No, I thought it was one of your attorneys.
    Mr. Montgomery. No, sir, it is an appropriations attorney 
that Congress previously put in HUD. And it was his opinion 
which we disagreed with, but that was the opinion and we fixed 
it.
    Mr. Olver. But he is on the payroll of HUD?
    Mr. Montgomery. Yes, sir. He is on Mr. Cox's payroll, but 
he does not report to him.
    Mr. Olver. Okay, you are going to give us some kind of an 
answer soon.
    Mr. Montgomery. Yes, sir.
    Mr. Olver. As to when we can expect an answer?
    Mr. Montgomery. Yes, sir.
    Mr. Olver. Thank you very much. Mr. Knollenberg.
    Mr. Knollenberg. I have nothing more to say other than 
thank you very much, Mr. Montgomery.
    Mr. Montgomery. Thank you.
    Mr. Olver. Have a good day.
    Mr. Montgomery. Thank you, Congressman.















                           W I T N E S S E S

                                                                   Page
Bodaken, Michael.................................................   663
Garvin, John.....................................................   597
Jackson, Hon. Alphonso...........................................     1
Johnston, Mark...................................................   597
Minnix, W.L., Jr.................................................   663
Montgomery, Brian................................................   837
Pagano, J.K......................................................   663




















                               I N D E X

                              ----------                              --
--------

              Department of Housing and Urban Development

12-Month Funding Contracts.......................................    18
Affordable Housing Loss..........................................    27
Affordable Rental Housing........................................     6
Asset Management.................................................6, 100
Capital Fund.....................................................    93
Capital Needs Assessment.........................................    28
CDBG.......................................................32, 109, 582
CDBG and EDI Grants..............................................   572
Contract Employees...............................................    91
Contracting......................................................85, 90
Disaster Voucher Program.........................................    67
Fair Housing.....................................................   102
FHA and Subprime Lending.........................................   566
FHA Loan Limits..................................................    36
FHA Modernization................................................    35
FHA Reform......................................................34, 590
FHA Secure.......................................................    20
FHA Standards....................................................    20
FHA Structure....................................................     5
Foreclosure Assistance...........................................    26
Foreclosures.....................................................    20
Funding..........................................................    60
Homeless......................................................... 6, 25
Homelessness in Small Towns and Rural Areas......................   596
Hope Now Alliance................................................    21
HOPE VI...............................................79, 115, 576, 578
Hope VI Reform...................................................    31
Housing Counseling...............................................     5
Housing for Special Needs........................................    25
Housing Vouchers.................................................   584
HUD Veterans Affairs Supportive Housing..........................   595
HUD/FTA Working Group............................................   129
HUD's Grants in 2006 and 2007....................................   132
IT Modernization.................................................    35
Kin-GAP..........................................................   585
Lead Abatement...................................................   114
Manufactured Housing.............................................    34
Moving to Work...................................................   123
Opening Statement by Alphonso Jackson, Secretary, Department of 
  Housing and Urban Development..................................     5
Opening Statement by Chairman John W. Olver......................     1
Opening Statement by Ranking Member Joe Knollenberg..............     3
Operating Fund...................................................    97
Product Service Codes............................................    88
Project Lifeline.................................................   593
Project-Based Section 8.........................................17, 588
Proposed Program Cuts............................................    24
Public Housing...................................................   575
Public Housing Reserves..........................................    33
Questions for the Record from Chairman John W. Olver.............    38
Questions for the Record from Congressman David E. Price.........   578
Questions for the Record from Congressman Robert B. Aderholt.....   590
Questions for the Record from Congresswoman Lucille Roybal-Allard   585
Questions for the Record from Ranking Member Joe Knollenberg.....   557
Rescission.......................................................    84
RESPA Reform.....................................................     5
Rural Housing and Economic Development.........................113, 594
Section 8..........................................18, 19, 106, 73, 570
Section 811......................................................   583
Section 901......................................................    70
Seller Funded Downpayments.......................................    23
Staffing.........................................................38, 92
Subprime....................................................21, 29, 591
Tenant Protection Vouchers.......................................    61
The FHA Fund.....................................................   569
Violence Against Women Act.......................................   578
Working Capital Fund.............................................    58
Written Statement by Alphonso Jackson, Secretary, Department of 
  Housing and Urban Development..................................     8

  Housing Needs of Special Populations (Elderly; Disabled; Homeless; 
                     Housing for Persons with AIDS)

Apprentice Programs..............................................   622
Assistance for the Homeless..........................599, 615, 641, 648
Chronically Homeless......................................616, 618, 651
Continuum of Care..............................................620, 623
Demo Project.....................................................   627
Elderly Population...............................................   612
Grant Program....................................................   650
Homelessness.....................................................   624
Housing for Persons with AIDS (HOPWA)................599, 600, 640, 659
Housing for Persons with Disabilities............................   658
Housing for the Elderly..........................................   597
Housing for the Elderly and Disabled...........................654, 662
Money Follows the Person Rebalancing Initiative..................   614
Opening Statement by Chairman John W. Olver......................   597
Opening Statement by John L. Garvin, Deputy Assistant Secretary 
  for Multifamily Housing Programs, Senior Advisor to the Federal 
  Housing Commissioner, Department of Housing and Urban 
  Development....................................................   607
Opening Statement by Mark Johnston, Deputy Assistant Secretary 
  for Special Needs Assistance Programs, Department of Housing 
  and Urban Development..........................................   601
Opening Statement by Ranking Member Joe Knollenberg..............   599
Operating Subsidy................................................   627
Questions for the Record from Chairman John W. Olver.............   630
Questions for the Record from Congresswoman Lucille Roybal-Allard   662
Questions for the Record from Ranking Member Joe Knollenberg.....   648
Renewals.........................................................   600
Reverse Mortgages................................................   625
Section 202..........................................598, 612, 625, 631
Section 811....................................................598, 632
Sections 202/811.................................................   607
State Housing Trust Funds........................................   626
Tax Credits......................................................   607
Underfunding Sections 202......................................622, 662
Violence Against Women Act.....................................622, 662
Written Statement by John L. Garvin, Deputy Assistant Secretary 
  for Multifamily Housing Programs, Senior Advisor to the Federal 
  Housing Commissioner, Department of Housing and Urban 
  Development....................................................   609
Written Statement by Mark Johnston, Deputy Assistant Secretary 
  for Special Needs Assistance Programs, Department of Housing 
  and Urban Development..........................................   603

           Challenges of the Project-Based Section 8 Program

Late Payments..................................................810, 816
Non-Payment from HUD.............................................   816
Opening Statement by Chairman John W. Olver......................   663
Opening Statement by Kenneth J. Pagano, President and CEO, Essex 
  Plaza Management, on behalf of the National Affordable Housing 
  Management Association.........................................   789
Opening Statement by Larry Minnix, President and CEO, American 
  Association of the Homes and Services for the Aging............   796
Opening Statement by Michael Bodaken, President, National Housing 
  Trust..........................................................   666
Opening Statement by Ranking Member Joe Knollenberg..............   664
Project-Based Housing..........................................815, 834
Short-Term Contracts.............................................   818
Written Statement by Kenneth J. Pagano, President and CEO, Essex 
  PlazaManagement, on behalf of the National Affordable Housing 
  Management Association.........................................   791
Written Statement by Larry Minnix, President and CEO, American 
  Association of the Homes and Services for the Aging............   798
Written Statement by Michael Bodaken, President, National Housing 
  Trust..........................................................   668

             Status of the Project-Based Section 8 Program

12-Month Funding.................................................   854
3-Month Contracts................................................   852
ADA Violation....................................................   861
Advanced Appropriations..........................................   855
Annual Cost of a Voucher.........................................   860
Contract Renewal Funding.........................................   841
Expiring Section 8 Contracts.....................................   848
Housing Assistance Grants........................................   841
Incremental Funding..............................................   849
Long-Term Contracts..............................................   859
Opening Statement by Brian Montgomery, Assistant Secretary for 
  Housing and FHA Commissioner, Department of Housing and Urban 
  Development....................................................   840
Opening Statement by Chairman John W. Olver......................   837
Opening Statement by Ranking Member Joe Knollenberg..............   839
Opting-Out.......................................................   857
Requirements for Section 8 Assistance............................   858
Tenant Occupancy Standards.......................................   860
Written Statement by Brian Montgomery, Assistant Secretary for 
  Housing and FHA Commissioner, Department of Housing and Urban 
  Development....................................................   843