[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
THE ADMINISTRATION'S PROPOSAL
TO PRESERVE AND TRANSFORM
PUBLIC AND ASSISTED HOUSING:
THE TRANSFORMING RENTAL
ASSISTANCE INITIATIVE
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MAY 25, 2010
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-140
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58-050 WASHINGTON : 2010
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina RON PAUL, Texas
GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California WALTER B. JONES, Jr., North
GREGORY W. MEEKS, New York Carolina
DENNIS MOORE, Kansas JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts GARY G. MILLER, California
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
WM. LACY CLAY, Missouri Virginia
CAROLYN McCARTHY, New York JEB HENSARLING, Texas
JOE BACA, California SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia RANDY NEUGEBAUER, Texas
AL GREEN, Texas TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois JOHN CAMPBELL, California
GWEN MOORE, Wisconsin ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota KENNY MARCHANT, Texas
RON KLEIN, Florida THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio KEVIN McCARTHY, California
ED PERLMUTTER, Colorado BILL POSEY, Florida
JOE DONNELLY, Indiana LYNN JENKINS, Kansas
BILL FOSTER, Illinois CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana ERIK PAULSEN, Minnesota
JACKIE SPEIER, California LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York
Jeanne M. Roslanowick, Staff Director and Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
May 25, 2010................................................. 1
Appendix:
May 25, 2010................................................. 45
WITNESSES
Tuesday, May 25, 2010
Donovan, Hon. Shaun, Secretary, U.S. Department of Housing and
Urban Development.............................................. 2
Gleason, Thomas, Executive Director, MassHousing, on behalf of
the National Council of State Housing Agencies (NCSHA)......... 21
Graziano, Paul T., Executive Director and Housing Commissioner,
Housing Authority of Baltimore City, on behalf of the Council
of Large Public Housing Authorities (CLPHA).................... 23
Martens, Betsey, Senior Vice President, National Association of
Housing and Redevelopment Officials (NAHRO).................... 26
Montanez, Judy, Board Member, National Alliance of HUD Tenants
(NAHT)......................................................... 28
Preston-Koenig, Terri, President, National Leased Housing
Association.................................................... 24
Reyes, Damaris, Executive Director, Good Old Lower East Side, on
behalf of National People's Action............................. 29
Rhea, John B., Chairman, New York City Housing Authority (NYCHA). 31
Taylor, Mark, Executive Director, Charleston-Kanawha Housing
Authority, Charleston, West Virginia........................... 34
APPENDIX
Prepared statements:
Donovan, Hon. Shaun.......................................... 46
Gleason, Thomas.............................................. 69
Graziano, Paul T............................................. 77
Martens, Betsey.............................................. 90
Montanez, Judy............................................... 111
Preston-Koenig, Terri........................................ 124
Reyes, Damaris............................................... 134
Rhea, John B................................................. 140
Taylor, Mark................................................. 146
Additional Material Submitted for the Record
Frank, Hon. Barney:
Letter to Secretary Donovan from the Housing Justice Network,
dated May 3, 2010.......................................... 154
Letter from 19 urban academics scholars in opposition to the
legislation................................................ 172
Written statement of Chicago housing and human rights
organizations in opposition to the legislation............. 178
Responses of the New York City Housing Authority to questions
posed by the Financial Services Committee.................. 182
Written statement of Los Angeles housing and human rights
organizations in opposition to the legislation............. 186
``HUD Is Trying to Privatize and Mortgage Off All of
America's Public Housing,'' by George Lakoff............... 190
Written statement of the Massachusetts Union of Public
Housing Tenants............................................ 192
Written statement of New Orleans housing and human rights
organizations in opposition to the legislation............. 196
Written statement of the National Low Income Housing
Coalition.................................................. 200
Written statement of John Derek Norvell, Concerned Citizens
of Greater Harlem.......................................... 206
Written statement of Erik Crawford, President, Davidson/Site
166 Resident Association, Inc.............................. 209
Written statement of the Public Housing Authorities Directors
Association................................................ 210
Written statement of Rod Solomon............................. 220
Written statement of the Right to the City Alliance.......... 223
Written statement from various fair housing advocates........ 229
Marchant, Hon. Kenny:
Letter to Chairman Frank from various housing groups......... 231
Letter to Secretary Donovan from various housing groups...... 233
THE ADMINISTRATION'S PROPOSAL
TO PRESERVE AND TRANSFORM
PUBLIC AND ASSISTED HOUSING:
THE TRANSFORMING RENTAL
ASSISTANCE INITIATIVE
----------
Tuesday, May 25, 2010
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10 a.m., in room
2128, Rayburn House Office Building, Hon. Barney Frank
[chairman of the committee] presiding.
Members present: Representatives Frank, Waters, Velazquez,
Watt, Moore of Kansas, Clay, McCarthy of New York, Baca, Scott,
Green, Cleaver, Donnelly, Carson, Driehaus, Kosmas, Himes,
Peters; Capito, Hensarling, Neugebauer, Marchant, Jenkins,
Paulsen, and Lance.
The Chairman. The hearing will come to order.
Our witness today, a regular witness and a very welcome
one, is the Secretary of HUD, who is doing a very good job. We
are talking now about a very important subject, which is public
housing. Let me say when you deal with public housing, you are
dealing with some of the poorest people in America. And as I
look at the record on public policy, one where we have the most
to apologize for and, more importantly, the greatest need to
improve, is in the way in which we treat the poorest people in
America.
We have done far too much to push lower-income people into
homeownership for which they were not prepared or financially
able and not nearly enough to provide decent living quarters
for them. There are a large number of children in this country
who are living in inadequate housing that is run by the Federal
Government and in some cases by States as well.
To me there is no greater priority for this committee, so I
welcome the Secretary, and we will get right to his testimony.
If there are no further requests for statements, we will begin
the testimony with the Secretary. If the ranking member wants 5
minutes at the appropriate time, we will interrupt the
proceeding. After the Secretary has concluded his testimony, in
addition to the 5 minutes for questions, I will certainly
recognize any one member on the Minority who wants to make a 5-
minute statement.
On the other hand, I don't have subpoena power. If they
want to stay away, I can live with that. The Secretary will
proceed.
STATEMENT OF THE HONORABLE SHAUN DONOVAN, SECRETARY, U.S.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Secretary Donovan. Thank you, Mr. Chairman, and members of
the committee. I want to thank you for giving me the
opportunity to testify on the Administration's proposed
legislation to preserve rental housing for generations to come.
I believe the single most important thing we do at HUD is to
provide rental assistance to America's most vulnerable
families. And I know that you, Mr. Chairman, and so many
members of this committee share that view and have worked
tirelessly to ensure that we meet that commitment.
The current housing has underscored the broad impact HUD
has on people's lives. In all, HUD provides deep rental
assistance to more than 4\1/2\ million households, helping
families and also giving communities the tools they need to
tackle their development challenges. As anyone who has ever
worked on housing preservation knows, the engine that drives
capital investment at the scale needed in a mixed-finance
environment is a reliable, long-term, market-based stream of
Federal rental assistance. No other mechanism or no other
source of government funding has ever proved as powerful in
unlocking a broad range of public and private resources to meet
the capital requirements of affordable housing that serves
those with the greatest housing needs.
HUD's rental assistance programs are absolutely
irreplaceable, but it does not take a housing expert to see
that they are also in desperate need of simplification and that
the status quo is no longer an option.
HUD currently administers 13 different rental assistance
programs, each with its own rules, managed by three operating
divisions with separate field staff. This proliferation of
programs and delivery systems doesn't make housing more
accessible but less, because families have to fill out dozens
of applications, processed by scores of administrators, simply
to have a decent chance of receiving assistance. At the same
time, our public housing program alone has a backlog of unmet
capital needs estimated at $20 billion to $30 billion. And in
the last 15 years, the absence of a viable preservation
strategy has led to the loss of 150,000 units through
demolition or sale.
But as great as capital needs are they don't compare to the
depth of human need. Countless public housing residents remain
in neighborhoods of concentrated poverty because moving means
giving up their subsidy. To the Obama Administration, failing
to preserve these resources for the next generations is simply
unacceptable. But it is just as clear that we need to do a
better job for those generations, and that the Federal
Government can't do it alone.
So at this moment, we face a choice. We can approach these
challenges piecemeal or we can try to solve the problem in a
comprehensive way. In so doing, we can not only put these
programs on firmer ground, but can put an end to the parallel
system that exists today in which most families live in housing
that is financed, developed, and managed through mechanisms
that can be integrated with the communities around them, while
the 2\1/2\ million poor families served by HUD's oldest
programs live in another.
That is why we have proposed the Preservation Enhancement
and Transformation of Rental Assistance Act, Mr. Chairman. This
legislation not only reflects our best thinking at HUD but,
perhaps more importantly, our best listening, incorporating the
lessons we have learned from Congress and other stakeholders
about what it takes to build strong neighborhoods and help
families make the housing choices they need. This legislation
would authorize public and assisted housing owners to convert
to long-term, property-based rental assistance under Section 8
on a voluntary basis.
For the sake of brevity, I will focus on three fundamental
principles that guide this legislation: First, that the
complexity of our programs is part of the problem. We have seen
how smaller legacy programs like Section 8 mod rehab, contracts
administered by PHAs, and properties assisted under the rent
supplement or rental assistance programs have become orphans at
HUD as new housing programs have evolved. Along with our Fiscal
Year 2011 budget proposal, this will allow us to merge these
programs with our core Section 8 program, creating new
opportunities for long-term, property-based projects to
preserve these units. And by creating a more coherent set of
tenant organization and procedural rights and nondiscrimination
of fair housing requirements, this legislation will ensure that
our programs are fairer, easier for families to access, less
costly to operate, and more efficiently administered.
Second, this bill would change the funding structure of
public housing to leverage public and private capital and open
public housing to retail, schools, and other community anchors.
I want to be completely clear, this bill will not privatize
public housing. Neither President Obama nor I have any interest
in risking such an important resource or opening the door for
others to do so. To the contrary, this proposal doesn't change
who owns this housing or who is served by it, but rather how
this housing is financed. By allowing public housing properties
to tap their inherent value to meet their capital needs like
owners of other affordable housing are able to do, this
legislation levels the playing field, making it more likely,
not less, that properties will remain publicly owned and
affordable to the lowest-income households. And by maintaining
the targeting and affordability requirements of the U.S.
Housing Act, the legislation ensures this assistance continues
to be targeted to the neediest families.
To make sure that leveraging its value does not put this
housing in jeopardy, we also have included strong protections
in this bill that ensure long-term affordability and quality.
This unprecedented combination of policies will protect tenants
and prevent the loss of assisted housing units in the unlikely
event of foreclosure.
The third principle of this legislation is to encourage
resident choice. President Obama and I believe that residents
should be able to choose where they live without fear of losing
their rental assistance. This isn't a new idea. In the last
decade, Federal policies like the project-based voucher program
have overcome the old division between place-based and people-
based assistance by allowing an owner the security and capital
leveraging of a long-term, property-based contract while
assuring that residents can choose to move with available
tenant-based vouchers. So new project-based developments
already use this tool. Our legislation ensures that families
who live in properties developed under one of our older
programs have the opportunity to benefit from a similar policy
as well.
And so, Mr. Chairman, I hope you can see that the goal of
this legislation is to set up a system that meets today's
housing needs, preserves these resources for future generations
and ensures they better serve those generations. And by
allowing these programs to truly integrate this housing to
bring in a mix of uses and incomes and link this housing to
surrounding neighborhoods, I hope you can see that we are
committed to ensuring that all families can live in
sustainable, vibrant communities of opportunity and choice
wherever they live or whatever their circumstances. That is
what this legislation is about, that is what this
Administration is committed to, and that is what we look
forward to realizing with you in the weeks to come.
Thank you.
[The prepared statement of Secretary Donovan can be found
on page 46 of the appendix.]
The Chairman. I will now recognize for a 5-minute opening
statement the ranking member, the gentlewoman from West
Virginia. Then we will go to questions.
Mrs. Capito. Thank you, Mr. Chairman. Thank you, Mr.
Secretary. Just briefly, I won't give my entire opening
statement, but I would like to thank you again for joining us,
Secretary Donovan, and I will just make a few comments.
Certainly, knowing that making government programs in all
of the different rental assistance programs in HUD more
efficient is a great goal. But at this time, as we know, in
this fiscal year, the President's budget provides for $350
million in funding for phase one, just phase one of this
program. And at a time when our Nation is facing record
deficits, providing this level of funding to fundamentally
change Federal programs might not be the best plan, especially
when project-based assistance has been a more costly way to go
in many instances.
Further, we have had a back-and-forth discussion in this
committee on one-for-one replacement. This legislation calls
for one-for-one replacement, meaning that local authorities
must replace the existing units with the same number of new
units regardless of need. In areas that have abundant
affordable housing units, this may not be the most efficient or
appropriate use of our government resources, and that is a
debate I am certain we will have as we move forward.
As I said, I do support the Secretary's goal of making
rental assistance programs more efficient. I do have some
concerns that the proposal could make the market a bit more
confusing. The absence of mandatory compliance could lead to a
situation where some programs are replaced while others still
exist, and how does this lead to streamlining if we have some
areas that are complying and some that are not?
And lastly, my favorite part of the day, of this morning,
not to disparage the Secretary, is I have a friend who will be
testifying on the second panel. I look forward to hearing from
my friend Mark Taylor from the Charleston-Kanawha Housing
Authority. Mark has been an excellent resource for me as we
continue to discuss ways to make our housing programs more
efficient. He is a tireless advocate for those seeking
affordable housing in Kanawha County. I am pleased he is able
to join us today, and I look forward to hearing his thoughts.
I want to thank the chairman again for allowing me to give
my statement, and I want to thank the Secretary for joining us
today.
The Chairman. And I appreciate the gentlewoman doing it
very directly. Mr. Secretary, you have addressed some of the
concerns, and that is what we are going to be dealing with.
I guess I would separate out two questions. Going to a
project-based Section 8 is one thing. The ability to finance
and put ownership at risk is another. You say in your opening
statement that ownership won't change, but it might if there is
a financing and a foreclosure. How necessary is that? Is there
some way to try to get financing without that? And if you have
a foreclosure, would you then have a--you could have use
restrictions, but you then have a private entity, it is almost
like contract prisons. Is there then a private entity standing
in the shoes of government, and what are the constitutional and
other implications of that?
So that is what concerns me, is the--you anticipate under
this, you could wind up with a foreclosure and a private
ownership of public housing. Are they then required to maintain
this public housing in perpetuity? Does a tenant or anyone else
have the same constitutional rights vis-a-vis that owner in the
municipalities? For instance, in many municipalities, public
housing is a big part of the population. Does that diminish the
right of the elected officials who have previously appointed
them or in some cases they are elected? Would you address that?
What is the status of a potential private owner of public
housing?
Secretary Donovan. Just to be clear, broadly on this
subject, this is intended to level the playing field.
The Chairman. Mr. Secretary, we only have 5 minutes. I
understand that, but that is not my question. You will accept
the fact that there may be foreclosures, and I need to know
what happens in that case.
Secretary Donovan. Specifically, every other kind of
housing today can access not only private--
The Chairman. Mr. Secretary, we have had a good working
relationship. Don't jeopardize it by not answering the
question. That is not what I asked you. You had a chance to
talk about that. What happens with a privately-owned--public
housing is now publicly owned. What happens, what is the status
of a private owner who takes it over?
Secretary Donovan. There is a required, for any public
housing building, there is a required 30-year minimum term with
a use agreement initially with renewals of any property-based
contract at the unilateral discretion of HUD. And so there is
no way for an opt out to happen on those properties.
The Chairman. What is the status--stop, please. What is the
legal position you have now with a private owner of what had
been public housing, what is the constitutional relationship
with the city, what are all those implications?
Secretary Donovan. I am sorry. I am trying to answer the
question.
The Chairman. No, you are not. Please answer the question.
Secretary Donovan. The use agreement survives foreclosure.
The Chairman. Stop, please. I didn't ask about the opt out.
People have--if you are living in a place owned by a government
entity, you have one set of rules. Then, a private entity takes
over. What does that do to your constitutional rights, to the
relationships with the city? The mayor can't fire you anymore.
That is a very important set of questions.
Secretary Donovan. And I thought you were asking about in
foreclosure the risk of that happening.
The Chairman. Yes. Because then it becomes a private owner.
Secretary Donovan. And so all of those current requirements
about the public ownership continue. And the fact that there is
private financing does not change that ownership in any way.
The Chairman. Doesn't foreclosure transfer the ownership
from the public entity to the private entity?
Secretary Donovan. The foreclosure, first of all, all of
the requirements of affordability continue and--
The Chairman. I didn't ask you that, and you know it.
Secretary Donovan. And the transfer, any transfer of the
property would be subject to the ability of HUD to have a right
of first refusal on that transfer.
The Chairman. That is not the question. The question is, if
in fact there is a private owner, what is the legal status of
that private owner vis-a-vis the tenants, the rest of the city,
etc.? That is pretty clear-cut.
Secretary Donovan. In terms of if there is a private owner
of that housing, it would still operate under all of the
requirements both for affordability, the housing authority
itself would continue to be subject to all of the same
appointment of commissioners, other current requirements of
public ownership of that land.
So again, if I am missing the question, if you want to
clarify it?
The Chairman. My time has expired. The gentlewoman from
West Virginia.
Mrs. Capito. Thank you, Mr. Secretary. Certainly one of the
questions, and we were discussing this earlier today, is the
cost, the $350 million of the phase one. I mentioned that in my
opening remarks. And the proposal proposes to convert rental
assistance to a project-based voucher system which has
traditionally been more expensive.
So I wonder, can you address that issue, the added expense
of project-based vouchers? But also, it seems to me that any
time you hear ``streamline,'' there should be a cost savings.
And there is $290 million of the $350 million which is used to
convert. If you could address the cost issues with this and the
project-based voucher assistance being more expensive and how
that is going to play into this?
Secretary Donovan. There are three specific things I would
say about that. First of all, the operating costs will
increase, but there will be an offsetting savings on the need
for capital investment in the properties at the same time. And
so because the operating will be used to leverage additional
capital to help to renovate the properties, there will not be
the same need going forward for direct capital infusions in the
property through appropriations.
Mrs. Capito. So, is there a decrease in the capital
appropriations asked at HUD?
Secretary Donovan. We are proposing a decrease in the
capital appropriations in the budget this year. It is not fully
offsetting, but it is a--there will be--
Mrs. Capito. What is that, do you recall?
Secretary Donovan. Excuse me?
Mrs. Capito. What is the number of the capital offset?
Secretary Donovan. The reduction that we are proposing this
year is $300 million, I believe. We are just checking on that
right now.
Second of all, going forward there would be savings in
terms of soft costs. Because of the complexity of the programs,
the need for costs and operating them, as well as any
transactions to bring in new capital into the property would be
offset as well. Those are not incorporated into the budget for
2011. We are working on estimates of what those savings would
be going forward. I would be happy to share those with you, but
there are offsetting savings there as well.
And then the last thing I would say is there are
substantial costs that we are incurring today because public
housing is failing in the long term. An ounce of prevention
today can avoid substantial long-term costs going forward. We
already have a $20- to $30 billion backlog, and I believe
strongly that if we don't act now to preserve this resource,
the costs in the long term of failing to preserve public
housing will be far larger.
Mrs. Capito. Let me ask a question. I was reading through
Mr. Taylor's remarks, and accepting myself for not
understanding every detail of what he was saying is that they
are already committed to a capital reinvestment on their
projects for 40 years, I think, for the next 40 years, is that
correct--20 years.
What consideration in this program would go for one of the
housing authorities which has already made the commitment to
improve their properties, and done a very nice job. What kind
of considerations and how would that influence what we are
seeing here in this bill to the ongoing programs of the housing
authorities?
Secretary Donovan. Certainly, if there is investment that
is already slated for those properties, they are in good
condition, that I think would be a benefit in terms of what
would be offered by this legislation. It would give housing
authorities that are in good condition more flexibility going
forward in terms of the sources that they could bring to bear,
but also would allow them because of the operating contracts
more flexibility to use funding for services, to benefit their
residents, to incorporate, for example, to bring in retail, to
bring in other uses into their properties that could benefit
the residents and better integrate them with the neighborhood
and help them be sustainable for the long term.
So it is not just about the capital that is going into
renovations, it is also about bringing in other uses, mixing
incomes, a range of other things that could benefit those
properties in the long term.
So I think there would be opportunities for those housing
authorities that are in good condition currently to be able to
improve the properties in the very long term.
Mrs. Capito. I see my time is about up. Thank you.
Secretary Donovan. Thank you.
The Chairman. The gentlewoman from California.
Ms. Waters. Thank you very much, Mr. Chairman. Thank you,
Mr. Secretary, for being here today. I am going to try and
continue some of the discussion that was raised by the chairman
in relationship to foreclosed properties. And I am going to go
through this exercise because I think it is important for us to
engage you on these very, very important issues. But I am
starting out with a negative feeling about TRA.
Page 11 of your draft discusses properties in foreclosure
or bankruptcy. It is my understanding that your proposal will
provide that in the event of a foreclosure or bankruptcy, a use
restriction would remain on the property. Okay, use restriction
meaning that this property has to be utilized in the same
manner. However, you have language on page 12, lines 1 through
5, stating that the Secretary can modify this requirement if
the units are not physically viable, financially sustainable or
if necessary to generate sufficient lender participation. The
section goes on to require the Secretary to transfer the
contract for assistance to other properties if he makes such a
finding.
And I have a few questions about this. First, why would a
property not be physically viable? Isn't it the point of TRA to
allow housing authorities to assess the private market so they
could rehabilitate their properties?
Second, by financially unsustainable, I assume that you
mean that the debt on the property exceeds the net operating
income needed to make the property run in the black. How would
a property get to be in this position in the first place? Also,
if the property is in foreclosure, isn't it by definition
financially unsustainable? If the housing authority was unable
to service the debt because let's assume the risks were
insufficient, wouldn't the investor have the same problem?
Third, it seems that you want to be able to waive the use
restriction entirely if you find that it presents an impediment
to lenders making loans to housing authorities. Knowing that
you could waive the use restriction, it seems to me that
lenders would make waiving the restriction a condition of their
participation. I think this provision essentially renders the
use restriction meaningless.
Can you explain under what conditions you would grant such
waivers?
And fourth, if the use restriction is waived, what happens
to the tenants of that property? Do they have to move or do
they receive enhanced vouchers? When a contract is transferred,
what kind of property is it transferred to? Is it transferred
to a property across town, next door, in the suburbs, on and on
and on?
I know that I threw a lot of questions at you, but there
are hundreds more about this TRA. Do you want to take a stab at
some of those, Mr. Secretary?
Secretary Donovan. I would be happy to do that. First of
all, we currently have--any new affordable housing that is
developed is developed in this way. So we have long experience
in how to protect properties in foreclosure from losing that
housing. TRA would actually enhance our ability to do that in a
number of ways. First of all, there would be a required use
agreement that would survive the foreclosure, as you said. In
addition to that, however, we also would have a right of first
refusal in order to ensure that if the current housing
authority, the owner, is not able to keep up that property, if
we don't believe they have the capacity to do that, that we
could direct the property to a different public owner or to an
owner that we are sure is going to be able to preserve it. So
that is a very important tool to be able to ensure that the
property is preserved in the long term.
The specific provision that you asked about, about
transferring assistance, the truth is that we do have
properties that are currently under severe distress that we
will not be able to preserve even today. We have already, as I
said in my testimony, lost about 150,000 units of public
housing because of the inability to preserve them.
Ms. Waters. Mr. Secretary, my time is just about up, and I
will talk with you some more about this, but I just want you to
know that I consider this experiment to be very dangerous. And
as I have said over and over again, I am not about to be a part
of privatizing public housing. I think that there are a lot of
problems with this experiment, and I would like you to just
really think about some of the questions that you are going to
hear today. And if you are still interested in pursuing it, map
out a time over the next 2 years where you can meet with
residents, you can talk with advocates, you can have more
hearings, you can flush all of this out rather than try to move
with something this tremendous, this big.
Thank you. I yield back the balance of my time.
The Chairman. The gentleman from Texas.
Mr. Marchant. Mr. Secretary, I would like to follow up a
little bit on the chairman's previous question. If the lender
even for foreclosure is bound by a previous set of
circumstances and has a very limited amount of discretion what
the lender can do with the property once the foreclosure takes
place, doesn't that significantly reduce the number of
potential buyers for the property, and doesn't it potentially
restrict the pool, the borrowing, to where the lenders with the
prospect of not having the freedom once they get the property
back to dispose of it in the way they normally would, won't
that limit the borrowers, or am I misunderstanding?
Secretary Donovan. I think it is very important that we are
clear with any lenders or any other investors in the property.
There would be tax credit equity that would come into these
properties. We have long experience now with affordable
housing, and lenders do as well, with those types of
restrictions. So to be very clear, I think it is, there is a
large market for lending on these properties that is developed
already. And lenders are, well understand the restrictions as
they go into these deals, and there are a pool of buyers that
would be available, but they will be required to preserve this
housing as affordable going forward should we get to that
foreclosure situation.
So would it restrict the buyer somewhat? Yes, but that is a
restriction that we believe is important to ensure that the
property continues as affordable housing. And there is a broad
market for lending for these types of properties already that
could be tapped given those restrictions.
Mr. Marchant. Well, in most of the syndicated programs that
I have seen, most of the tax benefits are stripped out of the
units in the early years, and the tax credits are separated
away from the unit, and then usually there are investors that
take the benefits of those tax credits so that when you get
into the mid to later stages of the finance and the repayment
and you get the property back, would you then propose that when
it was resold by the lender that you would--tax credits would
be reconstituted?
Secretary Donovan. There are a number of ways to handle a
situation like that where it is late in the compliance period.
Typically, States are requiring at least 30 years, but
typically much longer, use restrictions already. And so we see
those situations come up where those properties can be
recapitalized. Sometimes new tax credits may be necessary for
the next generation of repairs to the property, but in many
cases, other types of financing debt or other forms of
assistance, whether it be home or CDBG funding from HUD or
other sources, are available. So that is one option that you
describe, but it is not the only option available. And again,
this is something that we see happening with all new affordable
housing that is developed through the low-income housing tax
credit already.
Mr. Marchant. And my second question: If this program is
mandatory and you have a significant number of people who
choose not to convert, you will then be required to continue to
operate two separate programs. And so whatever consolidation
savings you thought you were going to get, are you going to
really be able to realize them with having to operate now
instead of one program, another program.
Secretary Donovan. We believe that there will be
significant savings even from the first year in terms of--I
talked earlier about many of our orphan programs that are quite
small programs today that don't have any option for
preservation today. We believe there will be very strong
participation even on a voluntary basis that will allow us to
streamline a number of the programs very quickly. In the longer
run, we believe that we need to demonstrate the effectiveness
of this conversion process we are proposing a first year, and
that we should come back to Congress to discuss whether other
properties in future years would be required to convert rather
than making a decision today on that. But in the long run, we
believe there is a potential if we get this right to bring all
the programs together and achieve the full benefits of that
consolidation. We believe there will be the benefits in the
early years, but the full benefits would come in later years
with further legislation from Congress.
Mr. Marchant. Thank you.
The Chairman. The gentlewoman from New York.
Ms. Velazquez. Thank you, Mr. Chairman. Mr. Secretary, this
TRA is quite an ambitious proposal, and if adopted it will
transform the way housing assistance is provided in the United
States. As proposed, it gives you flexibility to include
additional rental programs. Can you explain to us what will be
the process for adding those, and are you planning to include
additional housing programs like HOPWA if this is an open-ended
flexibility?
Secretary Donovan. Our initial focus will be on public
housing, but also on assisted housing that is funded through
rent supplement and the rental assistance program and the
Section 8 moderate rehabilitation.
The other piece I would mention is that there are about
40,000 units of assisted housing that are owned by public
housing agencies that now operate under different rules.
Ms. Velazquez. So it will give that authority, that is what
I wanted to know.
Secretary Donovan. We do not propose whether it is HOPWA or
any of the other programs currently.
Ms. Velazquez. I know. But it says here, and this is the
legislative language, other Federal affordable housing programs
as identified by the Secretary by notice.
Secretary Donovan. We do believe that if this is
successful, we will see interest from housing authorities in
converting some of their other programs. HOPWA is not at this
point one of those programs that we are interested in.
Ms. Velazquez. As you know, hundreds of thousands of New
Yorkers are on the waiting list for public housing in Section
8, and in your testimony you suggest that in certain cases,
waiting lists may be affected as a result of TRA. In what
instances would that take place?
Secretary Donovan. I am sorry, Congresswoman, just to be
very clear, HOPWA actually is not one of those programs that
each legislatively would be allowed under the current
legislation. So it is not included in one of those programs. We
could give you more detail on which programs would be possible,
but HOPWA is not one of them.
Ms. Velazquez. I am just reading your language. It says
here, ``other Federal affordable housing programs as identified
by the Secretary by notice.'' So it is open-ended and could
include HOPLA if you deem.
Secretary Donovan. I think the place that the language
would modify in the statute does not include HOPWA, and so it
is a limited number of programs. We could get you specifics of
which exactly would be allowed by that.
Ms. Velazquez. Okay. So in what instances would that take
place? Your testimony suggests that in certain cases, waiting
lists may be affected.
Secretary Donovan. Yes. Currently, there is the ability for
project-based voucher recipients to move to the front of the
line for waiting lists.
Ms. Velazquez. Okay. So my next question is--you answered
my question--how is HUD balancing the needs of applicants
currently on waiting lists with tenants who may be newly
eligible under TRA for Section 8 assistance? Would that happen
at the expense of people in the waiting list, Section 8?
Secretary Donovan. That is a very good question. We have
had a lot of comments and input about this from stakeholders
that we have met with. What we would do in order to ensure
fairness for those on the waiting list is have a minimum 2-year
residency within the development before you could get access to
a voucher, and a requirement that no more than one-third of
vouchers that are freed up would have to go to residents who
want to exercise that mobility right. So that we believe would
institute a fair process to ensure those on the waiting list
already would have access to vouchers.
Ms. Velazquez. One out of three, right?
Secretary Donovan. One out of three. We believe that the
current limitation that for a resident of public housing the
only way that they can continue to receive assistance is to
remain in their unit, that if they want to move to take a job
or because their family is moving or if a relative is sick they
have no ability to keep their assistance. So we do believe that
this is an important benefit to residents of public housing and
other forms of assisted housing for them.
Ms. Velazquez. But it will be at the expense of those who
have been for so long on a waiting list for Section 8.
Secretary Donovan. I believe we balance that. I would also
say that it would free up units within public housing. The unit
that they were leaving would continue to be project-based and
would be open then to somebody off the waiting list there. So
there continues to be housing opportunities available for those
on waiting lists.
Ms. Velazquez. Thank you.
The Chairman. The gentleman from North Carolina.
Mr. Watt. Thank you, Mr. Chairman. Mr. Secretary, thank you
for being here.
I don't want to belabor the point that the Chair and
several other members have made, but I do have some concerns
about your ability to bind folks after there is a foreclosure
or a bankruptcy. And I also have a concern about the
flexibility that would be given to the Secretary to waive the
requirements.
I am reading the summary of the bill and it says, this
clause provides that the terms of new rental assistance
contracts or use agreements remain in effect in the event of
foreclosure or bankruptcy. That is fine. But the Secretary
would be authorized to modify this requirement if the units
were not viable or ``if necessary to generate sufficient lender
participation.''
So you have two concerns that are raised here. One is the
legal situation that is created and your ability to bind
somebody, both a lender who is making a loan and a purchaser
who is buying in at a foreclosure, which is questionable. But
the other side of that is the amount of discretion that is
given to Secretaries of HUD to waive those requirements under
certain circumstances. I want to say publicly that I have
eminently good confidence in you in this Administration making
those decisions, but I tell you I wouldn't have had a hill of
beans worth of confidence in the last Secretary of HUD in the
last Administration making those same decisions. So I think
that would be a real concern to me.
Second, but I am not going to beat that horse anymore,
several people have elaborated on that. A concern that I have
expressed about this proposal and about the choice proposal is,
and I have had this discussion in my office with several people
from your Department, actually, it is a great way to generate
more capital to be more entrepreneurial, but I am not sure that
you all appreciate the variation in the entrepreneurial ability
of housing authorities around the country out there.
There is a great deal of variation of entrepreneurial
expertise in these housing authorities, and I see it in the
variation in the housing authorities in my own congressional
district. Some of them are very business savvy, others are very
good at administering public housing and keeping it up and
collecting the rent and, you know, doing what HUD requires them
to do, but I don't see any level of entrepreneurial expertise
out there.
So this variation that takes place, unless you are going to
put in place some kind of very strong support system, which
coincidentally hadn't necessarily been in place from HUD
administration to HUD administration either, there is not the
confidence, again--I don't want to beat the last
Administration's HUD Secretary to death, he is a good friend of
mine personally, but we never could get any answers out of him
for this committee when we would ask him anything, and I am not
sure I would want him to be putting in place the support
mechanisms for housing authorities that vary.
So if you could comment on that quickly, my time is about
to run out, and I have taken too much of it asking the
question.
Secretary Donovan. Three specific things I would say: First
of all, that for those housing authorities, particularly
smaller housing authorities, we already impose on them what I
would say are too complex and burdensome rules and requirements
for their operation. We frankly treat them kind of one-size-
fits-all like they were larger housing authorities. And one of
the things that moving to TRA would allow us to do, I believe,
is simplify the requirements for particularly those smaller
housing authorities or housing authorities with less capacity
that would actually make it easier for them to operate rather
than harder, first.
Second, we see with property-based contracts many, many
small nonprofits or other small for-profits that are able to
work successfully with us under the kind of proposal that we
are putting forward. And I believe, I would be happy to spend
more time with you to give you some of the specifics about the
way those benefits would flow to them, that we could
effectively operate with them with the support that they would
need.
The third thing I would say is we have had a lot of
discussion with FHA about the ability to offer debt for those
properties where there might be some initial difficulties in
figuring out how to access capital along with other forms of
technical assistance.
So I do believe, through FHA and through other forms of
technical assistance, we could help those housing authorities.
The Chairman. The gentleman from Kansas.
Mr. Moore of Kansas. Thank you, Mr. Chairman. Mr.
Secretary, I held an Oversight Subcommittee hearing a few weeks
ago on the issue of debt and leverage and how we need to
reverse our overdependence on both. If there is one thing I
hope we have learned from the recent financial crisis, it is
that we need to get back to living within our means like our
parents and grandparents did and learned to do after the Great
Depression. Part of that lesson I think must include the
understanding that not everyone can be a homeowner. And that is
okay as long as there is affordable housing available.
In that spirit, how would this transforming rental
assistance initially meet the objective to affordable housing
options for individuals and families who are not homeowners?
Secretary Donovan. This would do that by ensuring that
these precious resources, public housing and other affordable
housing that we provide, is preserved for the next generation
who can't be homeowners. The fact that we have a $20 billion to
$30 billion backlog of unmet capital needs in this housing,
that this, particularly public housing today, has no ability to
access low-income housing tax credits or other sources of
capital that every other form of affordable housing in the
country has ability to access. I believe that if we stay on the
path that we are on, the status quo, we will continue to lose
critical rental resources year after year because we don't have
the capital available to them to be able to keep that housing
up.
So I think this is a very important step in preserving that
rental housing for those who can't become homeowners.
Mr. Moore of Kansas. Thank you. Does the Administration's
proposal include oversight enhancements or fraud mitigation
provisions to ensure that taxpayer dollars are used efficiently
and properly? If so, would you describe those? And if not,
could they be added to the proposal to ensure we fully expose
and minimize waste, fraud, and abuse?
Secretary Donovan. We do have provisions to ensure strong
oversight of the properties. If there are others that you would
be interested in discussing with us, I would be happy to talk
about them.
What I would say is it does give us, the legislation, the
ability to pursue civil money penalties that are enhanced for
violations of provisions under the contracts or the
requirements of the use agreements.
Mr. Moore of Kansas. And has HUD performed any cost-benefit
analysis on this proposal to see if taxpayer dollars will be
used more effectively compared to current programs? And if not,
would your Department be able to do a cost-benefit analysis and
provide that in writing to members of this committee?
Secretary Donovan. We would be happy to do that. We have
begun that analysis. We have looked obviously at the 2011 costs
and benefits of it. But we are analyzing the longer-term cost
and benefits today. I would be happy to provide that to the
committee.
Mr. Moore of Kansas. Thank you very much. Mr. Chairman, I
yield back my time.
The Chairman. The gentleman from Missouri.
Mr. Clay. Thank you, Mr. Chairman. And thank you, Mr.
Secretary, especially for your visit yesterday to my hometown,
St. Louis, Missouri, and your tour of the Northside
Regeneration Project. Hopefully, we can establish a strong
working relationship to see that project through.
Let me start off by asking you, can you give us examples of
the use of the $4 billion in ARRA funding that went to capital
improvements of public housing units. Can you point out what
that money was used for by those local housing authorities and
do you think it was an effective use of the funds?
Secretary Donovan. I do believe that the ARRA funds have
been very effective, that they have gotten out quickly. And to
date, we already have about 180,000 units of public housing
that have completed renovations thanks to the ARRA funds. A lot
of that is long-standing work, basic work of replacing roofs,
providing better, whether it is plumbing fixtures or kitchens
or other basic amenities in those apartments. They have also
been used very effectively, and St. Louis is a good example, to
introduce energy efficiency into public housing. Solar is a
particular focus that the St. Louis Housing Authority is
pursuing with their competitive funds from ARRA. And what is
important about those is that they both improve the living
conditions for residents, they lower the costs for residents,
but they also lower the cost to the taxpayer. Typically, those
investments are paying back the initial investment in 3 to 5
years.
Mr. Clay. And I guess certain units get to the point where
you have to make a decision of whether we demolish those units
or we try to make improvements to it. How do you see that?
Secretary Donovan. This is the fundamental challenge that
we are trying to address with this bill, is despite being able
to get $4 billion of desperately needed capital in the Recovery
Act, there continues to be $20 billion to $30 billion of
capital needs in public housing alone. And given the current
fiscal challenges that we have, I just don't think there is a
way that we are going to get to that full capital need through
direct appropriations. And so what we are trying to do with
this bill is to ensure that we make those investments today so
that we can avoid at the point that the roof actually caves in
and the property can no longer be saved or that it can only be
saved at a far higher cost, much better to prevent that from
happening today with investments in keeping up those properties
than to have to suffer the loss of housing and the much higher
cost of saving those properties down the line. We believe the
time to invest in these properties is now, and that is really
what TRA is trying to achieve.
Mr. Clay. In an ideal world, how do you envision
streamlining some of HUD's housing programs?
Secretary Donovan. Well, first of all, we don't see a need
to have so many of them. We have 13 deep rental assistance
programs today. Many of them really operate like orphans. They
are earlier programs that are no longer actively used for new
housing, but whether it is the alphabet soup of rent supp and
RAP and mod rehab, all of those programs today continue and we
have a very hard time preserving those properties for future
generations. By being able to simplify our programs, bring
those into our Section 8 umbrella we could both preserve them,
continue to have good housing going forward, while at the same
time not having so many different rules and regulations for the
different housing that we operate, and making it simpler for
tenants to be able to understand the rules, not have to fill
out as many different applications with different rules that
they currently have to do in order to get access to decent
housing.
Mr. Clay. It sounds like something we need to modernize,
public housing and assistance in this country.
Mr. Chairman, I yield back. Thank you.
The Chairman. The gentlewoman from New York.
Mrs. McCarthy of New York. Thank you, Mr. Chairman, and
thank you, Mr. Secretary. Listening to the questions and
answers, I guess I will follow through with that, because I
still think there is a little bit of concern on the
consolidation. My concern on two fronts would be on how we are
going to work with the--how do you envision a consolidation
taking place that doesn't interrupt the current services to the
various sectors of people who serve, for example, the disabled
and the elderly? And just out of curiosity, between the public
housing and the private housing of Section 8, and you might not
have this answer at this time, and I will take it down the
road, but on safety issues for the residents, I can speak for
some in the public housing and the private housing on Long
Island, safety issues are a big concern. People are afraid to
go out of their apartments in the evening time, and that is in
the suburban area. Certainly reading the papers and looking at
some of the things that happen in public housing, how do we
make the public housing safer for those residents who are in
there?
Secretary Donovan. I think you ask a really important
question, particularly about the elderly and the disabled,
because we have almost 1\1/2\ million households who are either
elderly or disabled or both living in units that would be
covered by TRA. And one of the fundamental barriers to making
them safe for the residents that you are talking about, whether
it is accessibility and being able to continue to live in those
units with the kind of features that are necessary, as well as
just overall safety in terms of protection for the residents,
whether it is installing security measures or having funding
for resident programs and other things that enhance safety, all
of that is hurt by the lack of capital to be able to keep these
properties up. And so that $20 billion to $30 billion capital
gap that I talked about is a fundamental barrier to making
public housing more safe and accessible to elderly and disabled
families. What we are proposing is a way to be able to bring
that capital, $25 billion in total is our estimate, that we
could access to be able to improve public housing for access to
those residents and their safety.
Mrs. McCarthy of New York. Because one of the concerns I
have is that being into some public housing, especially for the
elderly and the disabled, what some people would consider that
it has been fitted for a disabled person or an elderly person.
I hope that you have better architects out there. A handrail
here and a handrail there doesn't cut it. We are talking about
whether it is a sit-in shower, whether it is an open tub, I
know those things are expensive but those are the qualities of
life to give, so that we can keep them out of nursing homes, to
be very honest with you. It comes down to a point that if they
can't take care of themselves or with an aide, they are going
to end up in a nursing home and it is going to cost a lot more
money. And of course down the road I guess we are going to see
some disagreement on allowing guns into public housing,
something I will try to fight, and hopefully I can work with
you on language that we can work with together so those
undesirables in public housing don't have guns to threaten
other residents who are actually just trying to have a peaceful
life.
Secretary Donovan. I would just recommend to you, I saw a
remarkable example in your colleague's district yesterday of a
universally designed, fully accessible development there with a
mix of incomes, disabled, nondisabled, and really a remarkable
example, I think, of the work that can be done to make housing
more accessible.
Mrs. McCarthy of New York. Thank you.
The Chairman. The gentleman from California.
Mr. Baca. Thank you very much, Mr. Chairman. And thank you
very much, Mr. Secretary, for being here. Reading your
statement, and I just want to quote on what you stated here, on
page 2, you said HUD currently administers 13 different rental
programs, each with its own rules, managed by three operative
divisions with separate field staff.
What do you propose in streamlining this process in making
it more effective in providing assistance?
Secretary Donovan. Our initial proposal under the 2011
budget and the legislation--supported by the legislation that
we proposed would focus on four of those programs primarily:
public housing; the rental assistance program; the rent
supplement program; and Section 8 mod rehabilitation. Those are
particularly smaller programs that don't have preservation
options that we believe need to be given those options and
could be consolidated into Section 8.
Public housing is the other main focus. And there the
biggest issue really is the access to capital that I have
talked about earlier. In terms of the streamlining that would
exist, what it would allow us to do is just, for example, not
have different rules in terms of incomes for those who could be
admitted to the property the way that those calculations are
done, different rules if you want to be able to refinance those
properties.
Mr. Baca. They would all be separate rules? Because, right
now, you are complaining and saying that everyone operates on
their own and are managed by a different set of rules. These
would be the same set of rules that would be applied to these--
Secretary Donovan. Exactly. The goal will be to harmonize
and standardize those rules on income and a range of other
criteria.
Mr. Baca. In doing so, I am also very concerned that as you
move in that direction, that diversity will also be there in
terms of the hiring of individuals who would implement these
kinds of programs, and hopefully you will take that into
consideration as well.
Secretary Donovan. Absolutely. And, in fact, the
legislation specifies that what we call Section 3--those are
the requirements for hiring residents both of public housing
and the local communities--would continue for housing
authorities moving forward under the legislation.
Mr. Baca. Thank you.
Then, on page 3, you said, given the size of the Federal
deficit and the challenge we inherited, it is clear that the
Federal Government alone will not be able to provide funds
needed to bring properties up-to-date and preserve them for the
next generation. How do we achieve this? And how do we become
more cost-effective in providing public housing?
Secretary Donovan. The major barrier for public housing
today is that, unlike every other kind of affordable housing,
they are unable, except with extreme efforts that are very,
very difficult, to access low-income housing tax credits, loans
from any other source; and so the fundamental way that we would
be able to preserve particularly public housing through this
proposal is to open up the ability to get access to funding and
other support both from other public-sector sources and
private-sector sources.
But the other thing that I think is critical that I don't
want to lose focus on as well, today, it is almost impossible
for the typical public housing development to bring in retail
development or bring in other types of uses and services
because of the way it is financed and structured in terms of
the ownership of the land. And so providing more flexibility to
bring in those other uses we believe is an equally important
part of the long-term preservation. It will allow public
housing to be integrated with the communities around it with
other types of uses, rather than just the single use of
residential that has been effectively required of public
housing in the past.
Mr. Baca. Would that help in reference to what was said
earlier with the Section 8? There are many people on the
waiting list, but it takes almost 2 years. And the problem is
is that people are without jobs, without housing, and yet need
to get into affordable housing. Yet there is a waiting list,
you know, that is there that could go up to 2 years. Would this
expedite that process? What would be done to reduce that?
Because people are in need right now to get into this housing.
Secretary Donovan. One of the reasons that we have more
people on the waiting list than we would like is that we have
many public housing apartments that don't have funding to be
renovated and made available for rental. We have lost about
150,000 units of public housing over the last decade or so
through abandonment--
The Chairman. The gentleman's time has expired.
Secretary Donovan. --because there hasn't been the capital
available to keep them in good condition, and this TRA would
allow us to access that capital.
The Chairman. The gentleman from Georgia.
Mr. Scott. Thank you, Mr. Chairman. Welcome, Secretary
Donovan.
Secretary Donovan, one of the most heartbreaking situations
that our homeowners are facing now is the fact that since we
have been in this real depression, we have lost about $9
trillion in home values. I wanted to, first of all, before I
get into these questions on the rental assistance, what are
your thoughts about that? How are we dealing with this? What is
available to the homeowner who may be watching this hearing as
to what they can do to restore the values of their homes? What
is the Administration doing to address this terrible issue of
the loss of home values to the tune of $9 trillion? What are we
doing to recapture that?
Secretary Donovan. There is no single answer to what we can
do. What it has required over the last year is a broad range of
efforts that go to stabilizing the economy and the job picture
more broadly. Obviously, the Recovery Act was critical to that.
And then more specifically, keeping interest rates low,
encouraging refinancing, modifying the mortgages of over 1.2
million families to date across the country and providing more
financing options particularly for underwater borrowers. FHA
has been a very effective tool for doing that, and we are
expanding this summer even further the options for underwater
borrowers to refinance.
All of that has led to the housing market stabilizing and
beginning to turn around. Since April of last year, we have
actually added $1 trillion in equity for homeowners in this
country. You compare that to the $9 trillion that you talked
about, 30 straight months of declines in housing values when we
came into office. We are not out of the woods, by any means. We
still have a ways to go, but we have been able to stabilize
that and begin to help homeowners build equity again, a total
of $1 trillion, according to the Federal Reserve.
Mr. Scott. But does a homeowner have anything at his
disposal? He gets in the mail this form that says that his home
has lost this much in value, and they want to maybe appeal
that. Is there anything moving where they have some access to
address that and appeal that amount?
Secretary Donovan. The most direct way that we can help
underwater homeowners is through refinancing of those
properties and getting a write-down of their existing loan to a
level that is sustainable. That is what our FHA program is
intended to do.
What I would suggest to homeowners is that they reach out
to a HUD-approved housing counselor in their community. You can
find that on our HUD Web site. We have counselors available in
every community, and they can help with the specific needs of a
homeowner to help connect them to options.
Mr. Scott. In Georgia, I represent counties like Clayton
County and Cobb County and Douglas County all around Atlanta.
We have had one of the highest foreclosure rates in abandoned
homes. What is the relationship that HUD has to the
Neighborhood Stabilization Act? And how would you rate that in
terms of impacting on the issue of continuing to raise that
value, and how successful has that been?
Secretary Donovan. We believe the Neighborhood
Stabilization Program has been very successful. To date, about
17,000 homes have been completed, and we believe with the $6
billion that has been allocated in total that we should reach a
total of about 80,000 homes. In fact, I was in the Philadelphia
neighborhood in your area near your district just on Friday and
witnessed an entire street that has been stabilized thanks to
the investments of neighborhood stabilization.
We believe that, actually, we ought to invest more money in
neighborhood stabilization. We announced last week
Administration support for doing that.
Mr. Scott. Before the chairman brings his hammer down, this
question on the TRA, in units converted on the TRA, residents
would have the right to move out of their homes and maintain
rental assistance with a housing choice voucher. How many
people in the converted units are expected to use their
mobility rights under this initiative?
Secretary Donovan. Currently, what we see is that about 11
percent of residents move out each year; and with the 300,000
units that we propose for TRA in the first year we believe that
we could certainly balance vouchers through turnover, natural
turnover in the voucher program for those folks who want to
move out without disadvantaging those who are in the waiting
list or having any risk to those properties that are in the
program.
Mr. Scott. Thank you, Mr. Secretary.
The Chairman. I can't resist noting that the Neighborhood
Stabilization Program was written here with the gentlewoman
from California in the lead and was the product of this
committee under her leadership, and we appreciate the
seriousness with which it has been taken.
The gentleman from Indiana.
Mr. Carson. Thank you, Mr. Chairman.
Mr. Secretary, as you are aware, our most vulnerable
families are facing an unprecedented crisis today. TRA will
give low-income families greater flexibility to rent housing in
a wide range of neighborhoods. I am interested in understanding
how HUD will determine which voucher holders are ready to move
into better neighborhoods. I also want to ensure that this plan
will not conflict with the overall goal of improving existing
rental housing.
And, secondly, generally speaking, I would like to also
understand, sir, what HUD is doing to ensure rental units meet
minimum standards of health and safety.
Secretary Donovan. So, first of all, what I would say is I
think the most important thing that TRA would achieve is to
ensure that we do preserve existing housing for future
generations. Quite simply, a capital backlog of $20 billion to
$30 billion will not allow these properties to serve future
generations. We are at risk of losing tens of thousands more
units of public housing if we don't act quickly to try to bring
resources to the table to preserve that housing. So that is
really the primary goal of TRA, is the preservation of public
housing and other assisted housing. So I think that is key.
Second of all, what I would say is we do believe that with
the feature of choice that we are proposing to add that it is a
critical thing and an important statement to say low-income
people should have opportunities to move without the risk and
the fear of losing their rental assistance. And today, we
provide that in project-based vouchers, but we don't provide it
in the large majority of our programs.
But we do recognize that it isn't just enough to say there
is a voucher. TRA, we are actually proposing to provide some of
the first-year funding towards counseling and other forms of
assistance that would help families using vouchers to access
neighborhoods of opportunity. Those have been shown to be
successful in many places around the country, and we want to
support that kind of assistance to ensure that families have a
real choice, not just a theoretical choice about where they
live.
Mr. Carson. Thank you, Mr. Secretary.
Madam Chairwoman, I yield back my time.
Ms. Waters. [presiding] Mr. Donnelly.
Mr. Donnelly. No questions, Madam Chairwoman.
Ms. Waters. If there are no more questions, the Chair notes
that some members may have additional questions for the
Secretary which they may submit in writing. Without objection,
the hearing record will remain open for 30 days for members to
submit written questions to the Secretary and to place his
responses in the record.
We would like to thank you, Mr. Secretary, for being here
today. Your testimony has been very, very helpful to us.
We have over 1,000 petitions that have been signed by
individuals concerned about TRA. Without objection, I would
like to submit them for the record.
[The petitions referenced above are contained in committee
files.]
Ms. Waters. And, with that, we will call on our second
panel. Thank you.
I am pleased to welcome our distinguished second panel.
Our first witness will be Mr. Thomas Gleason, executive
director, MassHousing, on behalf of the National Council of
State Housing Agencies. Our second witness will be Mr. Paul T.
Graziano, executive director and housing commissioner, Housing
Authority of Baltimore City, on behalf of the Council of Large
Public Housing Authorities. Our third witness will be Ms. Terri
Preston-Koenig, president, National Leased Housing Association.
Our fourth witness will be Ms. Betsey Martens, senior vice
president, National Association of Housing and Redevelopment
Officials. Our fifth witness will be Ms. Judy Montanez, board
member, National Alliance of HUD Tenants. Our sixth witness
will be Ms. Damaris Reyes, executive director, Good Old Lower
East Side, on behalf of National People's Action. Our seventh
witness will be Mr. John Rhea, chairman, New York City Housing
Authority. And our final witness will be Mr. Mark Taylor,
executive director, Charleston-Kanawha Housing Authority,
Charleston, West Virginia.
Without objection, your written statements will be made a
part of the record.
I will now begin with our first witness to be recognized
for 5 minutes, Mr. Gleason. Thank you very much.
STATEMENT OF THOMAS GLEASON, EXECUTIVE DIRECTOR, MASSHOUSING,
ON BEHALF OF THE NATIONAL COUNCIL OF STATE HOUSING AGENCIES
(NCSHA)
Mr. Gleason. Thank you, Madam Chairwoman, and committee
members, for the opportunity to testify on HUD's Transforming
Rental Assistance Initiative.
My name is Tom Gleason, and I am the executive director of
MassHousing.
Ms. Waters. I am sorry. You cannot be heard up here. Is
your microphone on?
Mr. Gleason. Technology eludes me, Madam Chairwoman.
I am testifying today on behalf of the National Council of
State Housing Agencies. NCSHA supports HUD key goals for the
TRA initiative: preservation; simplification; and mobility.
While we are still analyzing this proposal, we want to
raise five preliminary concerns for the committee:
First, we believe that the property recapitalization
demands that the TRA initiative will place on the housing
credit and other Federal housing resources have not been
adequately assessed. These programs are already oversubscribed
in many States, and the TRA initiative will only cause further
strain on these limited resources. We ask that you work with
the leadership of the Ways and Means Committee to ensure that
additional credit is provided to States to meet this increased
demand. Otherwise, States will have to make difficult choices,
choices between preserving TRA developments, producing new
rental housing, or preserving existing privately financed,
affordable housing developments.
Second, we are pleased that the latest TRA proposal
provides for project-based Section 8 for most of the
developments that undergo conversion. Years of experience have
shown us that project-based Section 8 is the best tool
available for ensuring long-term affordability and attracting
private capital. We believe that HUD's proposal provides the
Secretary with the discretion allowed for converted TRA
developments to utilize market rents and, in some cases,
budget-based rents that exceed market rents, where necessary,
to support appropriate rehabilitation and higher operating
costs.
This rent-setting flexibility is critical to ensure
successful TRA conversions in high-cost but low-rent areas. In
fact, we believe the chairman's preservation bill is a better
vehicle to accomplish this for several existing project-based
rental assistance programs. It will provide not only more
options but increased certainty in how particular projects will
be financed.
Third, NCSHA strongly supports mobility as a means for
creating opportunity for residents to improve the quality of
their lives. However, it must be achieved without reducing the
resources available to help other families. It is troubling
that residents of converted TRA developments will be able to
have a priority over many needy, unassisted individuals and
families who have been waiting for voucher assistance for
years. We believe that this cannot be treated as a zero-sum
game. In order to accommodate the TRA mobility feature without
impacting on existing waiting lists, additional rental vouchers
are needed. Furthermore, tenant mobility will have the
unintended consequence of creating higher vacancies at these
developments, leading to lower operating income, which will, in
turn, reduce the amount of debt that can be leveraged in the
future for property rehabilitation.
Fourth, NCSHA is pleased that HUD's TRA proposal relies
exclusively on voluntary participation by PHAs and private
owners. We urge the committee not to make participation
mandatory. We also urge the committee to limit HUD's authority
to expand the TRA program to additional programs too quickly.
We recommend that the committee fully review the outcomes of
the TRA initiative before allowing HUD to extend the program
simply by notice. One way to do this would be by authorizing
this effort as a PILOT program only.
Fifth, and finally, HUD needs to define the kinds of
entities it will seek to administer rental assistance contracts
on TRA properties and to elaborate on the scope of their
expected activities. Many HFAs would be interested in expanding
their responsibilities to include TRA properties. This would be
especially true for those like MassHousing that have
successfully participated for more than a decade in HUD Section
8 project-based contract Administration program.
However, we are concerned that the opportunity for HUD to
take advantage of HFA experience and capacity may be lost if
HUD stays on its current course toward rebidding PBCA contracts
without recognizing the unique strengths that HFAs bring to
their role as contract administrator.
Thank you, Madam Chairwoman, and members of the committee,
for the opportunity to testify; and please let me know if NCSHA
can provide any further information to help you.
[The prepared statement of Mr. Gleason can be found on page
69 of the appendix.]
Ms. Waters. Thank you very much.
Mr. Graziano.
STATEMENT OF PAUL T. GRAZIANO, EXECUTIVE DIRECTOR AND HOUSING
COMMISSIONER, HOUSING AUTHORITY OF BALTIMORE CITY, ON BEHALF OF
THE COUNCIL OF LARGE PUBLIC HOUSING AUTHORITIES (CLPHA)
Mr. Graziano. Thank you, Madam Chairwoman, and members of
the committee. My name is Paul Graziano. I am the executive
director of the Housing Authority of Baltimore City, housing
commissioner for the City of Baltimore, and a board member of
the Council of Large Public Housing Authorities. I am pleased
to be here representing CLPHA for today's hearing on the PETRA
legislation.
CLPHA has been actively engaged in discussions with public
housing stakeholders to develop a preservation strategy through
reform of the funding and regulatory system. Such reform was a
primary focus of the Summit on the Future of Public Housing
convened by CLPHA in 2008 and the policy framework produced by
the Summit participants.
The criteria for preservation is straightforward. As the
Summit Framework called for, we seek a long-term funding
structure that addresses reasonable operating costs, adequate
replacement reserves, and recapitalizes the portfolio by
converting public housing to more adequate, reliable, and
flexible subsidy models.
We commend Secretary Donovan for his vision and commitment
to preserve and expand affordable housing. To hear the
Secretary say that public housing is an irreplaceable public
asset that must be preserved represents a turning point in this
most important public policy debate. We are dedicated to the
mission to serve the needs of low-income people. We do not want
to put the properties or the people we serve at risk.
There are many competing demands in determining how to
reform and transform affordable housing programs, including
HUD's own internal administrative streamlining objectives and
other social policy mandates. But, for us, the most immediate
and compelling objective is the preservation and improvement of
public housing stock. We are very concerned that this urgent
goal may be lost in the maelstrom of transformation for the
Department and other housing programs.
PETRA creates an overly complex approach to preservation,
with a complicated financial and rent-setting framework,
sweeping and untested social policy mandates, and burdensome
administrative and regulatory requirements, some of which
undermine the very goal of preservation. More to the point, we
favor a slimmed-down bill that focuses on preservation, not on
transforming HUD.
In general, the bill tries to do too much, too soon, with
too few resources. Rental assistance conversion should be the
core focus purpose and entirety of the bill.
Our concerns with the authority to convert are centered
around the options and opportunities for PHAs to use more
reliable subsidy models to leverage private capital and, in
particular, the restrictions on the use of project-based
vouchers as a viable conversion option. Project-based vouchers
have significant market acceptance as an effective
redevelopment tool for PHAs and their private partners.
Converting public housing to the PBV program is simply a way to
address the capital backlog once and for all over the next
several years, thereby establishing a more sustainable and
administratively efficient program for the future.
We are particularly heartened by the financial leveraging
tools embodied in other proposed legislation which would pledge
the full faith and credit of the United States in the public
housing loan guarantee and also authorizes housing tax credit
exchange for rehabilitation of qualified public housing units.
These tools are integral and critical elements to ensure the
success of public housing preservation strategy.
At the core of the effective preservation strategy, there
must be a rent-setting policy that ensures long-term
sustainability of the housing. HUD estimates 300,000 units can
be preserved through PETRA. We have done a study at CLPHA, and
we believe that the $290 million will actually preserve
approximately 60,000 to 65,000 units, funding at an average
level of approximately $80,000 per unit in rehab.
Furthermore, according to our estimates, about 58 percent
of the national portfolio would be able to raise sufficient
debt using FMRs to preserve the properties and cash flow. The
remaining 42 percent of the properties would need exceptions
above the FMR to cover this cost.
I have attached to our written testimony a couple of
appendices.
Appendix B, which I will just refer to very briefly, shows
a range of developments in the City of Baltimore, and you will
see that the rents vary by neighborhood. And so that is a real
issue. The level of rehab is the same, but comparable rents are
lower, so we need to address that issue. With respect to
resident choice and mobility, we are very concerned about the
impact here on our waiting list and whether it is an equitable
decision.
In closing, I would just like to say that we think the
program needs to focus on those core principles of public
housing preservation. We applaud HUD and we thank the committee
for the opportunity to speak today.
[The prepared statement of Mr. Graziano can be found on
page 77 of the appendix.]
Ms. Waters. Thank you.
Our next witness will be Ms. Terri Preston-Koenig.
STATEMENT OF TERRI PRESTON-KOENIG, PRESIDENT, NATIONAL LEASED
HOUSING ASSOCIATION
Ms. Preston-Koenig. Thank you.
My name is Terri Preston-Koenig, and I am the director of
community development and affordable housing services for Baker
Tilly Virchow Krause, a consulting services firm. I am here
representing the National Leased Housing Association as the
incoming president. I am very happy to be able to present
testimony today.
Madam Chairwoman and members of the committee, thank you
for the opportunity to testify on the Administration's proposal
to radically overhaul our assisted housing programs. This is
far-reaching and complex legislation. It can impact the
viability and preservation of 2.6 million units in HUD-assisted
projects, affect the tenant-based voucher program that assists
2.2 million poor households, and adversely impact millions of
poor persons who may be in dire circumstances because they do
not have affordable housing and are seeking to obtain Federal
housing assistance that is, indeed, in limited supply.
We have the utmost respect for Secretary Donovan, but we
believe the transformation initiative to be ill-conceived and
unrealistic. HUD seeks to justify its sweeping proposal by
asserting that it has too many separate rental housing
programs. It designates 13 within its own rules and that these
should be consolidated into fewer programs. Among the 13
programs that HUD has actually identified that should be
eliminated include programs such as Housing Opportunities for
People With AIDS, Shelter Plus Care for homeless persons,
Section 202 assistance for elderly persons, and Section 811
assistance for disabled persons. These programs serve people
with distinctive needs. We are unsure what consolidation will
do for the nonprofit sponsors or, more importantly, for those
people that they serve.
Also included in this list of 13 is a Section 8 project-
based program. This program assists families in about 1.4
million units. This program is an extremely valuable long-term
resource for providing affordable rents for poor families and
is functioning well.
It is beyond our understanding why HUD would propose to
convert any established program into a new program with new
rules. HUD says, don't worry, conversion to the program would
be voluntary. No owner would be required to convert. But if
some owners convert and others do not, how can streamlining
occur if two programs replace one?
Any perceived streamlining could only be achieved if HUD
does induce conversion. Indeed, Secretary Donovan noted in his
testimony that full benefits could only be achieved if all
programs converted.
If this proposal is enacted, it could immediately
destabilize the preservation of the Section 8 project-based
inventory. The reason lenders and investors put their funds
into preservation in Section 8 projects is based because they
have confidence in the predictability and stability of the
Section 8 project-based rules. Why should a lender make a long-
term loan on good terms to a property with a current project-
based Section 8 HAP contract when there is a chance that this
project could be converted to another program with more
restricted rents and more undesirable rules? And why should a
Section 8 owner renew its contract if HUD makes it
disadvantageous to remain under the Section 8 program, even if
the owner chooses not to convert?
We urge the committee to reduce the scope of this proposal
to areas of recognized need where some good might be
accomplished. This program aimed at preserving public housing
could actually provide an additional tool. We believe that
instead of promoting a large-scale transformation, we should
look at requesting a program to preserve public housing. This
would aid programs such as public housing to look towards
residents, investors, and communities and develop a workable
framework that might support preservation.
When you look at rent sup and RAP conversions, this is an
area where rental subsidy contracts could actually be helped.
However, there is no need to create a new program to preserve
these units. We have attached language which could accomplish
the objective.
The same holds true for the Section 8 mod rehab program. A
pending provision in the preservation bill before this
committee could provide adequate solutions to the preservation
of the 27,000 units that are outstanding on the moderate
rehabilitation programs.
Finally, regarding mobility, this is simply not great
policy. Resident choice doesn't mean that residents can wait
their turn for a voucher. This means that they can jump to the
top of the voucher waiting list. It is inequitable and unsound
housing policy to extend the time a poor person must wait on
this list, for example, from 2 to 3 years, or roughly 50
percent longer. Thank you.
[The prepared statement of Ms. Preston-Koenig can be found
on page 124 of the appendix.]
Ms. Waters. Thank you.
Our next witness will be Ms. Betsey Martens.
STATEMENT OF BETSEY MARTENS, SENIOR VICE PRESIDENT, NATIONAL
ASSOCIATION OF HOUSING AND REDEVELOPMENT OFFICIALS (NAHRO)
Ms. Martens. Chairwoman Waters, and members of the
committee, good morning. My name is Betsey Martens, and I am
the executive director of Boulder Housing Partners, the housing
authority serving the City of Boulder, Colorado. I am here
today in my capacity as the senior vice president of the
National Association of Housing and Redevelopment Officials. On
behalf of NAHRO's more than 23,000 agency and individual
members, I thank the committee and the Administration for
engaging NAHRO in this important dialogue.
The fundamental premise of TRA is strong. It recognizes
what NAHRO and others have suggested as the future of public
housing. Nevertheless, NAHRO has serious concerns regarding the
PETRA discussion draft.
As my colleague from CLPHA underscored, the preservation of
public housing's physical assets should be the first and
overriding priority of any conversion proposal. Conversion
should be entirely voluntary and based on existing programs. To
that end, NAHRO's conversion proposal relies upon Section 8
project-based rental assistance program.
Beyond conversion options, PHAs must also have continued
access to a fully funded public housing program supported by
robust implementation of the Section 30 programs and featuring
a streamlined regulatory environment, particularly for small
public housing agencies. On this last point, NAHRO is proudly
working side-by-side with the Public Housing Authorities
Directors Association to advance a small PHA reform proposal
designed to free small agencies and residents from burdensome
regulatory requirements.
Turning to PETRA, instead of emphasizing preservation over
other priorities, the proposal includes several collateral
policy initiatives that would likely inhibit the financial
repositioning of public housing. The preservation of converted
public housing developments depends upon adequate stable
funding in combination with a rational approach to setting
rents. The Administration has not made the case regarding
PETRA's ability to provide a sustainable funding environment.
Because it creates the potential for rents to be adjusted,
including decreases, at any time and because HUD has the
unilateral power to force contract extensions, PETRA includes
too many disincentives for participation by owners and lenders.
Although mobility is desirable and important, PETRA's resident
choice option will significantly distort housing choice voucher
waiting lists and complicate preservation efforts. This feature
risks transforming converted developments into way stations for
households seeking tenant-based vouchers.
PETRA also allows for the extension of its mobility feature
to the entire federally-assisted inventory, private and public,
converted and unconverted. This overreach could ultimately lead
to reductions within the affordable housing inventory.
While the consolidation of voucher programs in consortia
would not be required under PETRA, regional configurations
could still be given a priority by HUD in evaluating
applications. Regionalization could become a de facto
requirement for participation, a troubling outcome that we
should avoid.
PETRA leaves too many questions unanswered, making it
impossible to evaluate the adequacy of the Administration's
Fiscal Year 2011 budget request for TRA. Of primary concern to
NAHRO is the lack of information on financing. NAHRO is
concerned that HUD's leveraging assumptions may be too
optimistic and that the proposed amount for year one
incremental funding may prove insufficient.
Given the concerns NAHRO and others have raised, including
my colleagues on this panel, we would suggest that our
conversion proposal represents a more prudent way forward.
Under NAHRO's proposal, PHAs would have the option to
voluntarily convert public housing to the existing PBRA
program, with oversight transferred to HUD's Office of Housing.
Given the Office of Housing's less administratively burdensome
regulatory environment and lenders' familiarity with the
existing PBRA program, conversion under NAHRO's proposal would
provide for a sustainable operating environment and a proven
approach to leveraging assets to meet capital needs.
Keeping in mind fiscal constraints and an eye on the
legislative calendar, NAHRO suggests initiating the
preservation of public housing through voluntary conversion by
providing for a PILOT program based on our proposal. NAHRO
estimates that a PILOT to convert 50,000 public housing units
to units assisted through PBRA would require an appropriation
of approximately $100 million for Fiscal Year 2011. NAHRO has
developed legislative language to authorize such a PILOT which
we would be pleased to share with you. It is our hope that you
will support this approach and communicate that support.
Thank you for providing NAHRO with the opportunity to
testify today.
[The prepared statement of Ms. Martens can be found on page
90 of the appendix.]
The Chairman. Thank you, Ms. Martens.
Next, we have Ms. Judy Montanez, who is a board member of
the National Alliance of HUD Tenants.
STATEMENT OF JUDY MONTANEZ, BOARD MEMBER, NATIONAL ALLIANCE OF
HUD TENANTS (NAHT)
Ms. Montanez. Good morning, Chairman Frank, and members of
the committee. Thank you for inviting the National Alliance of
HUD Tenants, NAHT, to testify.
Since 1992, NAHT has represented the 1.3 million families
who receive project-based Section 8 in privately owned HUD
multifamily housing. NAHT is the only national multifamily
tenants union in the United States today, with membership in 25
States.
Although PETRA will mainly target public housing in this
first year, HUD intends to expand it to all HUD-assisted
housing, starting with 30,000 privately owned apartments next
year. So our membership is directly affected.
NAHT supports the principles of rent simplification, tenant
empowerment, and extension of grievance rights to HUD's
multifamily tenants and can support the mobility proposal in
PETRA with increases in voucher funding. We can offer support
in principle the consolidation of 13 disparate programs into
one new funding stream and rental assistance program, provided
this is done in the most cost-effective manner, as outlined in
our written testimony.
But the Administration's bill falls short of promises to
preserve public housing under public ownership with maximum
affordability, one-to-one replacement, and guarantee repairs.
Instead, the bill could result in a permanent privatization and
loss of the Nation's system of publicly owned housing by
imposing a 30-year use restriction with no requirement to renew
and bring in powerful investors and banks into the ownership of
these buildings.
Unless these problems are corrected, NAHT must oppose the
PETRA proposal. In effect, HUD's bill would bring the whole
nightmare of expiring use housing into the Nation's system of
public housing. For 40 years, HUD's multifamily tenants have
waged countless struggles building by building against the rent
increases, decline in services, substandard conditions, and
expiring use restriction.
I have lived this nightmare firsthand, as a tenant in
expiring use housing. The Castleton Park Tenants Association in
Staten Island, which I co-chair, had to rally 454 families to
fight a predatory equity investor who planned to destroy our
community for profit. After an accident left me unemployed and
disabled, I would have been homeless many times over had I not
lived in a subsidized complex. We found ourselves rallying
against HUD to enforce the law and begging tenants for
donations to pay for the fight to keep our homes.
Beyond Castleton, this struggle has been a nightmare for
the 400,000 families who have lost their affordable housing
because HUD and Congress 40 years ago tried to build low-income
housing on the more costly dealt bargain with private
investors. The Nation's investment in those affordable homes
has been squandered.
Another 200,000 more face expiring mortgages today, an
issue which the committee is addressing through H.R. 4868. We
urge Congress to not make the same mistake twice. Do not impose
the same crisis and struggle of our sisters and brothers in
public housing.
Any proposal to invest in public housing should require
owners and HUD to commit to the longest-term use restriction
legally allowed. All PETRA owners should be required to accept
and renew Section 8 subsidy contracts as long as Congress
provides funds with no discretion to the future Secretary.
NAHT proposes a budget-based subsidy principle like the
original project-based Section 8 program which based subsidy
levels on actual operating costs, plus capital grants or
minimal debt service for required repairs and limited fee for
owners. This will achieve transparency and simplification.
PETRA should also require HUD and owners to maximize
capital grant sources to meet these needs, including an
increase in public housing modernization grant to preserve
housing at the least long-term costs of the Federal Government.
HUD has justified PETRA as a means to simplify 13 diverse
programs and reduce complexity and confusion. But bringing
complexity of multi-housing into public housing will do the
opposite.
We urge Congress to conduct an independent cost comparison
of three funding models outlined in our written testimony to
meet public housing repair backlogs for embarking on PETRA.
With these changes, NAHT stands ready to work with HUD,
Congress, and our tenant leaders for public and voucher housing
to realize the positive aspects of PETRA to save our homes.
Thank you.
[The prepared statement of Ms. Montanez can be found on
page 111 of the appendix.]
The Chairman. Next, we have Ms. Damaris Reyes, who is the
executive director of the Good Old Lower East Side, and she is
here on behalf of National People's Action.
STATEMENT OF DAMARIS REYES, EXECUTIVE DIRECTOR, GOOD OLD LOWER
EAST SIDE, ON BEHALF OF NATIONAL PEOPLE'S ACTION
Ms. Reyes. Good morning. Thank you, Chairman Frank,
Congresswoman Waters, Congresswoman Velazquez, and members of
the committee, for inviting me here today to speak about PETRA.
My name is Damaris Reyes, and I am a public housing
resident and the executive director of Good Old Lower East Side
in New York City. I speak to you today on behalf of National
People's Action, a network of community organizations from
across the country that works to unite everyday people in
cities, towns, and rural communities throughout the United
States, including thousands of public housing residents and
subsidized housing residents who demand a voice in their
housing and a voice in decisions that will affect them.
The stated goal of PETRA is to streamline funding and
policies for all social housing in America. The main advantage
of the proposal, we are told, is to turn our public housing
assets into leveraged properties eligible for mortgage to
banks. According to HUD, this is necessary because of tens of
billions of capital needed to make the needed repairs to our
public housing stock.
We are here today discussing this bill because this country
has starved public housing of necessary resources. It is
because previous Administrations, Congress, and Congresses as a
whole have failed to act. As a country, we have turned our
backs on families, the elderly, and the disabled who live in
HUD-assisted housing.
So now we are looking to the private market to save our
public assets. Let us not forget that this is the same private
market that just crashed our economy, took billions in
taxpayer-funded bailouts, and aren't fixing the mess they
created.
We cannot put ourselves at the mercy of the market, and it
is imperative that if we propose solutions for filling the gap
in capital needs, we do it right. If we go down this road, we
won't easily be able to go back.
National People's Action does not support PETRA in its
current form. There are several areas in PETRA we feel must be
changed and strengthened in order to for us to support this
bill.
We have to ensure that the affordable housing units we have
now, a number that is, frankly, far below the number needed,
stay affordable in perpetuity, that the human rights and
dignity of all public and subsidized housing residents are
enshrined into law, and that protections are in place to retain
hard housing units and keep units from reverting to the private
market via foreclosure or bankruptcy.
It would seem that we have not learned anything from the
current subsidized housing crisis. Thousands of units are
currently bleeding out of the system as landlords, who were
given subsidized mortgages and tax credit financing, reach the
end of the contract term that kept the units affordable.
As PETRA is currently written, converting units would be
subject to a 30-year use restriction with a 20-year renewable
subsidy contract. We have an opportunity now not to repeat the
same mistakes of the past or to literally mortgage our futures.
Permanent use restrictions must be included for any
conversion plan for public housing. Permanent land use
restrictions or land trust arrangements can be written into the
law that would maintain the affordability and perpetuity while
enabling leverage on the structures themselves. Maintaining
hard housing units, Section 8 tenant-based vouchers are not a
replacement for hard affordable units of housing.
Tenant-based vouchers can be a good option for some
families as a way to enable mobility and choice, but they
should always be in addition to brick-and-mortar units. In the
majority of cities and States, it is perfectly legal for
landlords to discriminate and refuse to rent an apartment to a
family holding a voucher.
Vouchers come with hard dollar limits. In some markets,
vouchers are extremely difficult to use, for example, in the
Lower East Side in New York City.
In addition, this proposal should not cause families
already on the waiting list to wait any longer.
PETRA proposed to allow landlords to voucher up to 50
percent of the hard units that were before conversion publicly
owned and permanently affordable units. Under this plan, half
the units could disappear likely forever; and once the units
are gone, our experience is that they don't come back.
Section 5(D) of the PETRA draft is particularly disturbing.
Properties that convert public housing buildings to project-
based vouchers will only be allowed to retain subsidy on 40
percent of the units. What is the plan for the other 60 percent
of the tenants who were, until conversion, living in stable,
affordable housing?
We need more clarity on this issue. We would never consider
mortgaging our national monuments, our park systems, but this
proposal seeks to mortgage our Nation's homes.
The current economic crisis should stand as a sharp
reminder of what can happen when the private market is given
free reign. It is essential that we put every possible
safeguard in place to ensure that these assets are not
forfeited to the private ownership through foreclosure or
bankruptcy.
In the case of bankruptcy or foreclosure, HUD is not
compelled to buy the properties back, and there is no guarantee
that even if HUD wanted to buy them back, the money would be
available to do so.
This is not enough. We must require that all mortgages
taken out against converted properties have FHA multifamily
insurance on the first lien. Beyond that, strictures must be
put in place so that FHA cannot privately market these REOs.
HUD must retain its right to own the properties or sell them
only to tenants who have organized to purchase their homes.
In conclusion, over the last several months, I have been
part of a series of convenings hosted by HUD with public and
subsidized residents from around the country. We were told,
when you go to sleep at night, it will be public housing. When
you wake up in the morning, it will be public housing. It seems
what was meant to be said was that while you may go to sleep in
public housing, there is a nightmare coming.
We can do better, and we call on Congress to work with us
to make this proposal one that actually can work to increase
capital without decreasing opportunity. Thank you.
[The prepared statement of Ms. Reyes can be found on page
134 of the appendix.]
The Chairman. Next is John Rhea, who is the chairman of the
New York City Housing Authority.
STATEMENT OF JOHN B. RHEA, CHAIRMAN, NEW YORK CITY HOUSING
AUTHORITY (NYCHA)
Mr. Rhea. Chairman Frank, Ranking Member Capito,
Congresswoman Velazquez, and other distinguished members of the
committee, I appreciate being given the opportunity to testify
today.
I am John B. Rhea, chairman of the New York City Housing
Authority. NYCHA is the country's first and largest housing
authority. In May of 1935, 75 years ago, Eleanor Roosevelt
opened First Houses; and I am proud to report that First Houses
still provides decent, affordable public housing for 126 low-
income families.
Today, NYCHA operates more than 178,000 units of public
housing in 334 developments and provides assistance through
Section 8 to more than an additional 250,000 New Yorkers in
cooperation with private landlords. If NYCHA was a city, it
would rank as the 20th largest in the United States, with more
than 650,000 New York City residents served by NYCHA public
housing and Section 8 programs.
Nearly half of the community that NYCHA serves is made up
of working families. Another 42 percent receive assistance from
Social Security Supplemental Security Income, veterans
benefits, or a pension; and this population is growing, aging,
and diversifying.
There is a strong need for additional affordable housing
stock in New York. We must build new housing, and we must
preserve our existing housing. There is a waiting list in New
York City for public housing that includes nearly 131,000
families; and the Section 8 waiting list is currently closed,
with an additional 128,000 families waiting for a voucher.
So I speak today in support of HUD's Transforming Rental
Assistance initiative. I support PETRA's goal of preserving the
Nation's public housing stock. There is a national backlog of
unmet capital needs between $20 billion to $30 billion, an
enormous obstacle to overcome that continues to grow.
NYCHA alone has a backlog that is estimated as exceeding $6
billion. Unfortunately, I do not anticipate Congress will
provide grant outlays that would address such a large
requirement. Although this is a very large amount, it
translates into a little more than $35,000 per unit, which is a
relatively modest amount, especially compared to replacement
costs.
Therefore, the best resource to address these capital needs
is to use our assets and long-term financial assistance
agreements to leverage private market funding. Only by engaging
the private markets and using all of our assets will housing
authorities be able to preserve the national investment that
has been made to public housing.
Transforming Rental Assistance mirrors New York City Mayor
Michael R. Bloomberg's new housing marketplace plan to create
or preserve 165,000 affordable housing units by 2014. The City
is well on its way to achieving the mayor's target, with
100,000 units already created or preserved.
With HUD assistance, NYCHA has converted 2,200 apartments
from public housing to Section 8 voucher assistance and plans
to convert up to an additional 6,200 more. We also federalized
20,000 public housing units by leveraging Federal stimulus
funding to access $400 million in public and private market
funding.
Residents will continue to pay 30 percent of their rent
income under PETRA. The contract rent must cover reasonable
operating costs, including a management fee, debt service on
previous capital borrowings, the costs of newly accrued capital
needs as identified in each agency's 5-year capital plan, and
an initial reserve for replacement.
I am concerned that, under PETRA, HUD appears to have the
sole authority to increase or decrease contract rent. My
suggestion is to refer to data submitted by the local housing
authorities, including independent studies of the local rental
markets, and let that data play a significant role when
determining the levels of contract rent.
Any private market capital financing should be insured by
the Federal Housing Administration or should be subject to a
government guarantee.
I support Chairman Frank's draft of the Public Housing
Preservation and Rehabilitation Act that includes a full faith
and credit guarantee.
I also support the preservation bill's proposed provision
of grants in lieu of tax credits for the rehabilitation of
qualifying public housing.
I support the basic concept of one-for-one replacement.
PETRA provides greater flexibility than we have seen in other
measures on the same issue.
I support the bill's provision on allowing replacement
units offsite within the neighborhood or within the
metropolitan area. It is important that this should be done in
consideration of fair housing standards and the need to
deconcentrate poverty. There may be situations when one-for-one
replacement is not appropriate.
I support the bill's provision on using tenant-based
vouchers in narrow circumstances.
I support allowing portability after 24 months of
residence.
However, I am concerned about the one out of three
provision that would allow one-third of turnover vouchers to be
held and reserved for families who may one day opt to move.
This would be unfair to all households on the waiting list for
Section 8. My suggestion is to draw portability from an annual
appropriation of incremental vouchers or from the Tenant
Protection Account.
PETRA incorporates Section 3, and I support passage of
Representative Velazquez's Earnings and Living Opportunities
Act to reform Section 3. Resident Opportunities and Self
Sufficiency, known as ROSS, authorizes a full range of job
training and employment opportunities. If we are serious about
resident employment, it is time for ROSS to be funded
separately at $1 billion, with the vast majority going to job
training and resident employment initiatives.
The Transforming Rental Assistance initiative is a multi-
year program. The current public housing and Section 8 programs
will continue for years to come. I urge Congress to provide
housing authorities with the flexibility to administer their
current portfolios, including full fungibility between their
capital funding, operating funding, and Section 8 funding,
allowing housing authorities with this excess cash flow to use
these funds to cover debt and addresses capital needs.
I have prepared formal responses to your earlier questions
and would like to submit them for the record as well. Thank
you.
[The prepared statement of Mr. Rhea can be found on page
140 of the appendix.]
The Chairman. And Mr. Mark Taylor, who has already been
introduced by the ranking member of the subcommittee.
Mr. Taylor.
STATEMENT OF MARK TAYLOR, EXECUTIVE DIRECTOR, CHARLESTON-
KANAWHA HOUSING AUTHORITY, CHARLESTON, WEST VIRGINIA
Mr. Taylor. Thank you, Chairman Frank.
Chairman Frank, Ranking Member Capito, and members of the
committee, my name is Mark Taylor. I am the executive director
of the Charleston-Kanawha Housing Authority located in
Charleston, West Virginia. I am honored to present our views
regarding the Administration's TRA proposal. I want to thank my
Representative, Congresswoman Shelley Moore Capito, for the
invitation to testify on this important and ambitious proposal.
TRA, if authorized, will have a profound impact for housing
authorities like mine. I want to acknowledge the commendable
effort made by the Department to gather comments on this
proposal from stakeholders. There remain, however, a number of
unanswered questions.
Charleston-Kanawha Housing Authority is the largest
assistance agency in West Virginia. We provide housing
assistance to more than 4,400 families. We manage 12 public
housing communities, serving more than 2,000 residents; and we
manage over 2,900 rental assistance vouchers, serving nearly
7,000 residents.
We are changing the face of public housing in our area by
redeveloping our 3 oldest communities, all of which are more
than 50 years old. This is being done using private and public
financial resources, including utilizing low-income housing tax
credits, leveraging one-third of our capital funds, and
accessing private loans. This effort will result in 500 public
housing and project-based units.
We estimate our modernization needs for preserving our 9
remaining housing communities to be as much as $84 million over
the next 20 years. With this in mind, we will need a variety of
tools to enable us to preserve our remaining stock of
affordable housing and produce desperately needed new units. I
believe the conversion of public housing to a known and
reliable form of assistance like project-based rental
assistance, assuming it remains voluntary, moves us in the
right direction.
At my housing authority, the conversion to project-based
assistance would likely succeed for smaller developments 50 to
100 units which are less than 30 years old and have more modern
design features. Securing modest financing for modernization
upgrades would be relatively simple. Larger 100-plus unit
developments that are more than 40 years old without outdated
designs would not be viable for conversion without either major
redevelopment or modernization funding as provided through the
capital fund.
We have been very fortunate in the timing of resources
available to us to redevelop our aging developments, including
$4 million in NST funds and $6 million in TCAP funds.
While I only have limited information regarding the
proposed aging program, I am concerned about the acceptance of
the marketplace, especially to the lending community, given the
number of secondary policy objectives aging would impose. The
imposition of Section 3 requirements, community service, fair
hearings upon converted developments are all examples of well-
intended policy goals not required in the private sector, all
of which will add cost.
With regard to the ``Resident Choice'' feature in the
current proposal, my immediate concern is that it essentially
allows clients who are already receiving rental assistance to
jump the voucher waiting list and receive one out of every
three vouchers that becomes available, which in our housing
authority's case would be approximately 150 vouchers annually.
We currently have over 2,000 families on the voucher waiting
list, with our average wait approximately 12 to 18 months.
Unfortunately, 150 fewer of these unassisted families per year
would receive assistance under this proposal.
Public housing residents in my housing authority clearly
have choice. Approximately 25 percent of our residents choose
to leave their units annually. In this past year, about 66 of
those residents were provided the opportunity to receive a
voucher. They also had the opportunity to transfer to other
public housing sites. Therefore, public housing residents are
no more constrained in their housing choices than any of the
low-income families.
With respect to regionalization, while the voluntary
consolidation of housing choice voucher programs or the
adoption of multi-agency portability agreements would not be
required in the current proposal, I believe using this as
grounds for qualification will lead to regionalization becoming
a requirement for participation.
The decision to enter into a regional agreement should be
left to local authorities. I think PHAs, including my own,
would be far more likely to enter into cooperative agreements
if the Department implemented statutory language that increased
flexibility through regulatory administrative measures.
Mr. Chairman, I believe at this point there are far too
many unanswered questions concerning TRA. For example, it is my
understanding that the Department's proposal will be phased in
over the next several years. Assuming this remains a voluntary
program, what can those who do not convert expect? Would the
Department continue to request capital funding resources
sufficient to address the ongoing modernization needs for those
who do not convert?
There also seems to be no consideration for the authorities
that have currently obligated their capital funds for
preservation efforts under the current Capital Fund Financing
Program. Would they be able to access replacement housing
factor funds?
In conclusion, who would administer the set-aside poor
Resident Choice vouchers? Where will housing authorities that
do not administer housing choice vouchers that are required to
exercise rent choice obtain exit vouchers? The revised TRA
proposal presently does not provide details on key elements
that authorities like mine need to know. Should you choose to
advance conversion legislation this year, I would strongly
suggest first implementing a PILOT to assess its merits in a
variety of markets.
Thank you for this opportunity to testify, and I am happy
to answer any questions that you may have.
[The prepared statement of Mr. Taylor can be found on page
146 of the appendix.]
The Chairman. Thank you. This has been very useful, and
this is obviously a very major step. We have the Choice
Neighborhoods bill before us, and we have already voted out of
this committee the separate bill, the reform of vouchers. As a
practical matter, I think it is unlikely that we will also in
the remaining time this year, given this committee has spent so
much time on financial reform, be able to finalize any action
on this, but we want to get it started. And I appreciate the
Secretary's fundamental impulse here, which is to get more
money into public housing because it is a shame that we have
done so little for the poorest people.
But I have my fundamental question, and I will ask you all
to think about this: I worry about a situation in which units
that are now owned publicly are foreclosed upon and become
privately owned. I think that raises serious issues
constitutionally of the diminution of rights you have against a
public entity versus a private entity.
I think mayors might feel somewhat different about this.
There are mayors who now have large numbers of public housing
units in their city. The mayors in my experience have some
influence over who is head of the public housing authority.
These would now be purely privately owned. There is the
question about how long it stays there. And part of the dilemma
here is, what my colleague from Texas, who is sitting in the
ranking member's chair, has now mentioned. To the extent that
you write safeguards in for the tenants, you would to some
extent diminish the incentive to lend.
So what I want to ask people to work on is this: I
appreciate the importance of getting more money in. I certainly
agree with the witness who suggested that we should not have to
do this, but we do. But is there a way to access the private
market that incentivizes loans but does not put public
ownership of this asset at risk? I would be very reluctant to
do that. The public hasn't been a great trustee, but I think
abandoning the whole notion that the public has some role here
would be a mistake and is unlikely in the long term to work. So
let me ask preliminarily, are there things we could do that
could incentivize private lending? Going to project-based
Section 8 is not a problem to me. The problem--and getting,
accessing private capital is obviously an advantage. The
concern that I have is that if the price of accessing private
capital is to put public ownership at risk, that may be too
high a price.
Do any of the witnesses have any ideas about how we might
access private capital in this way with alternative forms of
security other than taking over a public housing authority,
which I must say to many lenders probably wouldn't be their
first choice how to spend their time anyway. The notion that
you get to be the housing authority isn't one that is
necessarily going to unlock great pools of capital. But does
anyone have any ideas about that?
Mr. Rhea. Chairman Frank, my view on this is the biggest
risk to foreclosure is too much leverage on these properties.
One way to approach this with not dealing with your immediate
issue about not having a risk of foreclosure and the private
market having ownership in public housing is to ensure that the
underwriting standards in which private investors and banks
would participate in don't.
The Chairman. And I agree with that. But, as you said, that
wasn't my question. I don't mean to be rude but I would rather
talk about my question. That is a dilemma. Now, again, there
may be other ways to do this that may involve alternative
guarantees. But I do want to be clear that is my approach.
Mr. Gleason?
Mr. Gleason. Mr. Chairman, I think your questions to the
Secretary and your comments hit this issue right on point. I
don't think as they currently--
The Chairman. Well, I am glad someone does.
Mr. Gleason. I don't think there is a perfect solution as
the market currently works. I think your suggestion just now
about alternative guarantees is probably the only way that you
can ensure that will take place. It would seem that those
guarantees to ensure that there is public ownership after the
fact would have to come from a public entity guaranteeing that.
The Chairman. Again, my colleaguefrom Texas' question
started out, I am afraid of falling between two schools of
writing in so many protections for the tenants which I support,
but nobody wants to lend them the money, or incentivize lending
the money at the price of not having the protection of the
tenants. And that leads me to think of a third way.
The gentleman from Texas.
Mr. Marchant. Thank you, Mr. Chairman. I would like to ask
unanimous consent to submit a letter signed by nine multi-
family housing providers.
The Chairman. Without objection, it is so ordered. I have a
list here: Public Housing Authority's Director, Mr. Rod
Solomon; Massachusetts Public Housing Tenants; 19 urban
academics; the Multi-Family Housing Institute of Los Angeles
Housing and Human Rights; the Los Angeles Coalition on Hunger
and Homeless; Chicago Housing and Human Rights; and others, a
list which will be made public. I ask unanimous consent to
insert their submissions in the record. Without objection, it
is so ordered. And whoever gave me this, thoughtfully added at
the end for me an instruction that says, to close the hearing,
say this hearing is adjourned and bang gavel. I appreciate
being so instructed, but whoever wrote that should say, but
don't do it too soon, stupid. And the gentleman from Texas is
now recognized.
Mr. Marchant. Mr. Taylor, you have also raised concerns
about how lenders would respond to a new and untested program.
Have you had any opportunity to visit with lenders about this
and what effect it would have?
Mr. Taylor. No, I have not visited with lenders at this
point. In other transactions we have done thus far they are
more familiar with the project-based voucher. I can tell you
when we closed those deals, at the onset they were very
interested in getting those contracts in hand that are signed
that commit those funds to those units for the first 20 years
with that renewal. I am not sure what their response would be
to this. And my concern in Charleston is that it would slow our
process down. We are in the middle of redeveloping these
housing authorities or these housing properties, and I am
concerned changing to this new type voucher they may kind of
back off some.
Mr. Marchant. You have expressed some concerns about the
mobility in a clause in TRA. What would you suggest as an
alternative to the Administration's proposal to address the
matter?
Mr. Taylor. I am not really fond of the choice component. I
understand it. A person with a tenant-based voucher already has
the right after a year to move and report their voucher to
other States. That program is working. And also in a project-
based unit, after a year, that tenant can choose to get a
tenant-based voucher and relocate as well, and that seems to be
working fine.
Mr. Marchant. Okay. Thank you. Ms., is it ``Koenig?''
Ms. Preston-Koenig. Yes.
Mr. Marchant. You indicated and you signed a letter that
says that your industry group characterizes the changes by the
Administration as being an undefined hybrid of the project-
based voucher system. Can you explain to the committee what you
meant by that?
Ms. Preston-Koenig. Essentially, they really haven't given
a great deal of detail on exactly how they expect all of this
to take place. We have the sort of framework for how they
anticipate some of these attributes of the conversion of the
program will take place, but they haven't really told us all of
the attributes of how they anticipate it will shape up. For
instance, they really don't explain where they will get forward
funding from for the capital, where they will get other funding
from, and they really don't explain all of the rules and
regulations they intend to modify and change going forward. It
is not transparent.
Mr. Marchant. Do you believe that it places too much
discretion in the hands of the HUD Secretary?
Ms. Preston-Koenig. Absolutely.
Mr. Marchant. And do you believe that will have a chilling
effect on any syndication or any group of people who
traditionally put together these housing deals?
Ms. Preston-Koenig. Yes, I do.
Mr. Marchant. Is that your major client?
Ms. Preston-Koenig. Yes, it is.
Mr. Marchant. And do your clients have any ideas about how
this capital could be put into the public system to their
satisfaction that would create this battle that the chairman
has talked about?
Ms. Preston-Koenig. Well, right now, the system that they
are working with, my public housing clients, they are working
with the replacement housing factor and their capital funds and
they are blending that with the existing programs that are
available. So they are utilizing things like tax credits, green
community funding, and other opportunities to do preservation
and create opportunities that are available to them. So there
are existing tools that they are using to preserve their stock.
Mr. Marchant. Do they access the tax exempt financing
credits?
Ms. Preston-Koenig. Yes, they use the tax exempt bond
financing.
Mr. Marchant. To the State housing?
Ms. Preston-Koenig. To the State housing finance program.
Mr. Marchant. So they are using that in addition to the tax
credits?
Ms. Preston-Koenig. Yes. They get the 4 percent tax credits
back into the bond program, and then they balance that with the
additional funds they have access to.
Mr. Marchant. The last question would be, if you convert
public to private, do you have any property tax issues that
would raise the expenses on the project whereas a project now
might have a tax exempt status and have no property tax
liability, whereas if you put it into private hands you would
have an immediate, the expense would go up immediately and that
would be a big burden on the system?
Ms. Preston-Koenig. First, I would say in many cases,
public housing authorities pay a PILOT (payment in lieu of
taxes) to their community so they have some tax requirements,
real estate tax requirements. When you modify and include a tax
credit to it, there are a lot of States that have some sort of
element written into their tax code that have a modified
structure, so that there is a tax component that does apply to
the property itself. Most of the time public housing authority
is the sponsor, so it is not technically privatizing because
they have brought in their private entity as a minor member and
they hold ownership and retain ownership and it converts to
them after the 15-year compliance period.
Mr. Marchant. With some of these school districts, States
being strapped right now, I would suggest that if there is a
major change to this program, that State legislatures may begin
to look at and use this as an opportunity to kind of come back
in and redefine their exempt status on some of these projects.
Ms. Preston-Koenig. I would agree.
The Chairman. The gentlewoman from New York.
Ms. Velazquez. Thank you, Mr. Chairman. And I would like to
take this opportunity to welcome my constituent from New York,
Damaris Reyes. Damaris, if I may, I would like to address my
first question to you, and I would like Ms. Martens to comment
on it, as well. According to Secretary Donovan, PETRA will
strengthen tenants' rights and those of tenants' organizations
in all properties, not just those at greatest risk of losing
project-based assistance.
Do you agree with the Secretary's assertion, and if not,
what should we do to strengthen tenant rights going forward?
Ms. Reyes. We worked with HUD and we do feel that there was
a considerable amount of work that was done to include some of
our suggestions regarding resident and tenant rights. There
were a few minor issues around organizing, for example, like
there is no clarity around the tenant participation funds which
are essential in helping folks to organize, and so there is not
a dollar amount. And the program itself is at the discretion of
the Secretary, and with all due respect, Secretaries change and
so does political will, right? And so in those areas, we are a
little concerned. I think there were some places where we
missed opportunities, for example, where folks who have been
involved in activities on or off properties who become
ineligible for public housing can be evicted, and those we
should have commented or tried to address those issues for
those families and we didn't address that, or like community
services, things like that. So there were some good things, but
you know, there are still some questions, in particular around
the grievance procedures.
Ms. Velazquez. Do you have anything else to add?
Ms. Montanez. I think both public housing and multi-family
housing have a very strong presence. I would like to organize
regulations like 245 and 964, and I think they should stay
strongly in place--most of us agreed that we have. Many of the
aspects of those regulations can be coordinated together as
one. The $25 funding, it should be in place but it has to be
very clear that it needs to be completely independent of owners
and public housing employees and management agents so that
there would be no interference and no conflict of interest, as
well as the resources for organizers and tenants to be also
independent of the organizers, and that would strengthen the
right to organize.
Ms. Velazquez. Thank you. Mr. Rhea and Mr. Taylor, PETRA
applies the current requirements of the Section 3 program to
convert the properties. What kind of changes do you suggest to
a Section 3 program under this new subsidy scenario to maximize
economic opportunities for low-income tenants?
Mr. Taylor. My reference to Section 3 wasn't so much a
better way of implementation of it, and we actually have a
Section 3 plan with our redevelopment. We do our best and our
utmost to encourage folks in our community to apply for these
jobs and make sure they are aware of them and monitor
contractors. My point I bring up in my testimony, which is to
say that while we do these programs in public housing and we
are required to do these programs and we do them, there is an
added cost to that. If we are to be funded like a private
sector, I think it is something the private sector doesn't face
that we do.
Mr. Rhea. A couple of things, obviously, as we have
discussed this before, there is no current funding in place for
implementing Section 3 on the part of public housing authority,
so it is an unfunded mandate that requires a substantial amount
of investment.
Ms. Velazquez. But it will have a greater economic impact
for the local housing authorities in the sense that if you have
a person who is unemployed and is in public housing get
training and then employed will make their income, will have
better revenues, generate better revenues for housing
authorities.
Mr. Rhea. Well, I feel strongly, and I am sure all my
colleagues strongly support, the ideals of Section 3, and we
have done a lot at the New York City Housing Authority to
implement it. We spend $5 million a year on implementing
Section 3 with no actual funding from HUD or from Congress to
implement the program. This is not an issue of do we have the
will or the commitment to it; it is how can you support and
sustain it in light of the other constraints.
The other piece is that when we look at job training and
the things that will move people to work and take them from
underemployment to better jobs and better wages, that has a
substantial cost beyond what the housing authority on its own
can do, and so we have worked on developing partnerships with
not-for-profits and with the private sector that is focused on
training residents and low-income Americans to put them to
work. So we think partnerships and ways to encourage
partnerships could be an important piece of this.
And lastly, as I mentioned in my formal testimony, we
believe funding of ROS is the best direct way to do it. That
program was set up to ensure that there is support for
residents economically, and we would suggest that is the place.
Ms. Velazquez. Thank you.
The Chairman. The gentlewoman from West Virginia.
Mrs. Capito. Thank you, Mr. Chairman.
Mr. Taylor, you heard me ask the question of the Secretary,
a point that you raised in your written testimony, about the
extension of 20 years of obligations that you put forth in the
very good replacement and regeneration of public housing, and I
commend you, you are doing a great job.
The way I heard his remark was that this will free up more
for development in a commercial, maybe some commercial
availabilities within the housing units or near and around. How
did you interpret what he said, and does it ease your mind a
little bit about some of the concerns that you raised in your
written testimony?
Mr. Taylor. Actually, it doesn't, because my concern is,
and in my testimony what I am saying is we leverage one-third
of our future capital funds over a 20-year period. Currently,
our houses will receive about $2.1 million annually in capital
funds. Over the next 20 years, right now, we will be paying
$600,000 of those funds. And those funds kind of come in what
we call clumped together; they are not assigned to any one
development. So if the capital fund decreases, we get whatever
is allotted to us minus that $600,000, which I will have to
have those funds to maintain the rest of the housing
developments.
Mrs. Capito. So your concern is on, as he said, decreasing
the capital fund by $300 million, that would decrease your,
whatever your, yes, and are you going to be able to meet the
mortgage payments that you have extended or the payments that
you have extended over the last 20 years? Am I understanding
that?
Mr. Taylor. You are. And I am not sure that we would
actually have an option to convert in this, because when we
signed that loan, we agreed Fannie Mae actually was our lender
in this case.
Mrs. Capito. Oh, that is good.
Mr. Taylor. But we agreed not to decrease our public
housing units because it is a form of the program for the
capital fund.
Mrs. Capito. Okay. Thank you for that.
Also on the one-to-one replacement, we have kind of gone
back and forth in this in a very small way. I can't imagine,
Mr. Rhea, what you go through in your units, your numbers are
so much greater than ours. How do you feel about one-to-one
replacement, and do you have the flexibility now and in this
bill to be able to either make the decisions to move in
different regions, different areas, different income groups;
how do you see that?
Mr. Taylor. Well, my concern about the one-for-one
replacement is we are piecemealing our developments to get them
done. And typically in West Virginia, because a lot of them are
tax credits, the 9 percent will allow us only to do about 44
units at a time. When we close those deals, I just don't know
that I can commit to, if I am tearing some units down at that
time or demolishing units, that I can actually commit to
replace those units at that point given in time. It is the
board's goal to replace the maximum units that we can back to
our original configuration. But when we close a deal with a
lender, and all the parties at the table, I just can't confirm
on that date by a given specific time in the future that I can
replace those units one-for-one. And we don't want to replace
back onsite because our oldest developments that we are
redeveloping, it is too dense, and it is better and safer for
our residents if we de-densify somewhat.
Mrs. Capito. Does anybody else have a comment on the one-
for-one replacement? Do you have a comment?
Mr. Rhea. Yes. Obviously, many of us are faced with legacy
communities that have strong concentrations of low-income and
poverty. We believe that the flexibility that is written in the
proposal is prudent in that it allows for one-for-one
replacement at the site but also to have one-for-one
replacement in other locations, which allows you to bring in
other families that would have the effect of deconcentrating
poverty in our existing housing authority locations as well as
allow you to build new housing in locations where acquisition
of land costs and other things are less prohibitive, ultimately
allowing you to bring new units on cheaper and to work with
some of the other objectives of economic deconcentration. So we
think that this is actually a move forward.
Mrs. Capito. Okay. Thank you.
Ms. Martens, this is a big question for not much time. You
have commented in your testimony about what you feel are
misaligned priorities of the Administration concerning
preservation and conversion. Can you help us understand why you
question that and how you would like to see those changes?
Ms. Martens. Yes. Our understanding of PETRA is that the
goals are noble and good and very broad. And, we understand
that in this society, there are always competing values, and we
always try to have it all, and having it all often gives us
consequences that are unintended. So our overarching statement
is that preservation must come first.
PETRA talks about goals of preservation, streamlining
programs, consolidating programs, creating opportunities for
residents. And our point is that we really need to make an
incremental step, because as the committee members have
expressed today the risk of loss is too great to make a
mistake. So what we are talking about is, first, the overriding
priority of migrating public housing to a real estate platform,
getting it stabilized, and from there addressing the rest of
the concerns that are the right ones, creating efficiencies,
creating opportunities for residents.
The Chairman. The gentleman from Missouri.
Mr. Cleaver. Thank you, Mr. Chairman.
Ms. Koenig, I was intrigued by your statement earlier about
PILOTs. In places where that occurs, who would be responsible
for the PILOTs?
Ms. Preston-Koenig. Could you repeat the question? I am not
sure I heard it.
Mr. Cleaver. You mentioned in some communities, they pay
PILOTs, payments in lieu of taxes.
Ms. Preston-Koenig. Payments in lieu of taxes. Particularly
a number of the housing authorities that I work with in
Wisconsin, their agreement with our communities is that they
will pay a PILOT.
Mr. Cleaver. For the school district?
Ms. Preston-Koenig. They pay to support the basic
infrastructure where they hold housing. So they do not pay the
normal assessment that they would pay for any other entity. If
they were a for-profit entity, they would pay a payment in lieu
that supports the basic school district and water and utility,
fire fighting elements.
Mr. Cleaver. I am a former mayor, and we just generally did
that for, you know, tax abatements, tax income financing, that
kind of thing.
Ms. Preston-Koenig. It is fairly common for your public
entities to have an agreement with their local governments to
pay the basic levels to support that infrastructure.
Mr. Cleaver. Ms. Martens?
Ms. Martens. Could I add to that, because we have done
something similar in Boulder, where we have an agreement with
our local government to essentially parse the PILOT so that
schools and fire safety and the essential services are paid and
then the rest of it is not. Because the margins of managing
affordable housing are so thin that we are looking for every
increment.
Mr. Cleaver. That is why I was surprised at it because--
Ms. Martens. The parsing of PILOTs, I think, is not
uncommon.
Mr. Cleaver. To those of you who operate housing
authorities, do you think that this issue of mobility, the
mobility option, is a way for us to finally achieve scattered
site housing?
Mr. Graziano?
Mr. Graziano. I think the mobility question is really one
of fairness. There are thousands of people on the waiting list
for Section 8 and they, too, want to have mobility, they, too,
want to have affordable and decent housing. So I would make a
modest proposal to modify this currently written bill to say
that if people are in developments that are converted from
public housing to this new model, that they certainly can apply
for Section 8 and be put on the waiting list like everybody
else. And then that way, their name would come to the top of
the list in the same timeframe that somebody else's would. The
notion that somebody after 2 years would trump other people who
have been on the list for several years, I think is
problematic.
We certainly embrace the notion of choice, but it should be
equitably delivered. So I think we just say if your development
is converted you simply apply, which you can do anyway, for the
Section 8 program, your name will move up the list naturally.
The other point I would say about that is if it is within a
public housing inventory and some portion of the portfolio has
been converted and some has not, there could be provisions to
allow people to move from a converted site to a nonconverted
site within the public housing authority's portfolio, assuming
there were vacant units. Because currently you can apply to
transfer from one development to another, there is no reason
why we couldn't modify that to say you can go from a former
public housing site that was converted to another site that is
still public housing. So there are ways to deal with this that
are equitable.
Mr. Cleaver. But do we have a challenge? One of the
problems, at least when we have tried scattered site housing in
the past, is that when we go to the private market, the Section
8 voucher is not sufficient to live anywhere except another
low-income neighborhood.
Mr. Graziano. We have had very good success actually with
people using their vouchers to move not only throughout the
City, but the metropolitan area of Baltimore. You do have to
pay a higher rent in those areas, so therefore you have to have
that flexibility on the rent standard.
Mr. Cleaver. All right. Ms. Koenig?
Ms. Preston-Koenig. I think when you asked the question
about mobility, this mobility, this choice that they are
offering doesn't actually open up changes to how someone will
access housing in the greater nation. All it does is move
people up, jump them up in front of people who are waiting. It
doesn't change their access to housing around the Nation, it
just allows them to say, I no longer want to be here and now I
get one out of the next three available, so now the people who
have been waiting have to wait longer. It doesn't change their
ability to find other housing choices.
Mr. Cleaver. Thank you, Mr. Chairman.
The Chairman. I am going to go one more round. Mr. Taylor,
you intrigued me. You said you have a loan from Fannie Mae.
What kind of loan?
Mr. Taylor. Fannie Mae has a product called Modernization
Express.
The Chairman. Called what?
Mr. Taylor. Modernization Express. It is just a product
name. But in HUD now, there is a Capital Fund Financing
Program, we call CFFP, and again it is where you leverage one-
third of your capital funds. And when we put that out for bid,
and it may speak to lenders interested in this, I am not sure,
but when we put that out for bid, we had two responses: one
from Fannie Mae; and I think the other one was from Bank of
America.
The Chairman. And which one did you take?
Mr. Taylor. We took the Fannie Mae.
The Chairman. Why?
Mr. Taylor. They had a product that was more readily
approved.
The Chairman. When was this?
Mr. Taylor. We closed it actually last summer, but it has
been in process since 2004. We have been working on the deal
that long.
The Chairman. Is that a useful product, do you think, that
Fannie Mae has?
Mr. Taylor. Very useful.
The Chairman. Do you think we should abolish that product
before we come up with a replacement?
Mr. Taylor. Excuse me?
The Chairman. Should we abolish their ability to offer that
product without coming up with a replacement?
Mr. Taylor. I don't think so. I like that product.
The Chairman. Thank you. I hope you inspired some others.
The hearing is adjourned.
[Whereupon, at 12:30 p.m., the hearing was adjourned.]
A P P E N D I X
May 25, 2010
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