[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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                 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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