[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
 DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND URBAN DEVELOPMENT, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2011

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED ELEVENTH CONGRESS
                             SECOND SESSION
                                ________
   SUBCOMMITTEE ON THE DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND 
         URBAN DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS
                 JOHN W. OLVER, Massachusetts, Chairman
 ED PASTOR, Arizona                 TOM LATHAM, Iowa
 CIRO RODRIGUEZ, Texas              FRANK R. WOLF, Virginia
 MARCY KAPTUR, Ohio                 JOHN R. CARTER, Texas
 DAVID E. PRICE, North Carolina     STEVEN C. LaTOURETTE, Ohio
 LUCILLE ROYBAL-ALLARD, California  
 MARION BERRY, Arkansas             
 CAROLYN C. KILPATRICK, Michigan    

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

                                ________

                                 PART 5
                                                                   Page
 Department of Housing and Urban Development......................    1
 Sustainability in Practice.......................................  243
 Sustainability and Livability Initiatives........................  331
 Federal Housing Administration Fiscal Year 2011 Budget...........  389
 Housing and Transportation Challenges Within Native American 
Communities.......................................................  453
 Member's Request to the Subcommittee.............................  529
 Outside Witnesses Written Testimony..............................  589

                                ________

         Printed for the use of the Committee on Appropriations
PART 5--TRANSPORTATION, AND HOUSING AND URBAN DEVELOPMENT, AND RELATED 
                           AGENCIES FOR 2011
                                                                      ?

 DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND URBAN DEVELOPMENT, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2011

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED ELEVENTH CONGRESS
                             SECOND SESSION

                                ________

   SUBCOMMITTEE ON THE DEPARTMENTS OF TRANSPORTATION, AND HOUSING AND 
         URBAN DEVELOPMENT, AND RELATED AGENCIES APPROPRIATIONS
                 JOHN W. OLVER, Massachusetts, Chairman
 ED PASTOR, Arizona                 TOM LATHAM, Iowa
 CIRO RODRIGUEZ, Texas              FRANK R. WOLF, Virginia
 MARCY KAPTUR, Ohio                 JOHN R. CARTER, Texas
 DAVID E. PRICE, North Carolina     STEVEN C. LaTOURETTE, Ohio
 LUCILLE ROYBAL-ALLARD, California  
 MARION BERRY, Arkansas             
 CAROLYN C. KILPATRICK, Michigan    

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

                                ________

                                 PART 5
                                                                   Page
 Department of Housing and Urban Development......................    1
 Sustainability in Practice.......................................  243
 Sustainability and Livability Initiatives........................  331
 Federal Housing Administration Fiscal Year 2011 Budget...........  389
 Housing and Transportation Challenges Within Native American 
Communities.......................................................  453
 Member's Request to the Subcommittee.............................  529
 Outside Witnesses Written Testimony..............................  589

                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 62-353                     WASHINGTON : 2010

                                  COMMITTEE ON APPROPRIATIONS

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

                 Beverly Pheto, Clerk and Staff Director

                                  (ii)


 DEPARTMENT OF TRANSPORTATION, HUD AND RELATED AGENCIES APPROPRIATIONS 
                                FOR 2011

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

                                        Tuesday, February 23, 2010.

THE NEED TO INVEST IN HOUSING AND ECONOMIC DEVELOPMENT: THE FISCAL YEAR 
2011 BUDGET REQUEST FOR THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                                WITNESS

HON. SHAUN DONOVAN, SECRETARY OF THE U.S. DEPARTMENT OF HOUSING AND 
    URBAN DEVELOPMENT

                    Chairman Olver's Opening Remarks

    Mr. Olver. The Subcommittee will come to order. Today we 
welcome Secretary Shaun Donovan of the Department of Housing 
and Urban Development to the Subcommittee.
    Mr. Secretary, you have been on the job for just over a 
year and you have nearly all your entire leadership team now in 
place. I know that because I hear you have finally named the 
Regional Administrator in my district, so therefore the whole 
leadership must be just about in place. I have had the 
opportunity in the last month to sit down with many of these 
leaders and want to commend you on the quality of talent that 
you have been able to attract and recruit for the Department.
    The President's budget before us today requests $48.5 
billion, excluding proposed receipts, for the Department of 
Housing and Urban Development and attempts to balance the 
complex and competing goals of minimizing budget deficits while 
providing support to families struggling to find stability 
during the ongoing economic recovery.
    Although unemployment levels have begun to decline, 
foreclosure rates remain high and there continues to be 
increased demand for access to affordable housing. Your written 
testimony reads like a blueprint for at least three years of 
work to progress and hopefully much longer than that.
    I am particularly pleased to see that the fiscal year 2011 
budget continues HUD's commitment to the Sustainable 
Communities Initiative. HUD has been a leader in recognizing 
the importance of coordinating transportation, housing and 
energy in community planning efforts. I look forward to hearing 
more about the newly announced Office of Sustainable Housing 
and Communities and how the $150 million budget request will 
facilitate livable communities.
    This budget also provides notable increases for the Project 
and Tenant-Based Section 8 programs and continues the 
Department's efforts to fully fund these housing assistance 
programs. I am also very pleased to see that the budget 
requests an increase of $190 million for Homeless Assistance 
Grants. As you know, there is a strong bipartisan support for 
this program among members of the Subcommittee and a 
recognition that homelessness rates for families in both rural 
and urban areas have increased sharply during the economic 
recession.
    However, I do have some concerns with the Department's 
budget request. In particular, I am concerned about the 
decision to cut elderly and disabled housing programs by $550 
million--this is the 202 program--and $210 million from the 811 
program, the disabled program, respectively. This means a cut 
of 67 percent to the elderly program and a 70 percent cut to 
the program for housing for persons with disabilities.
    Over the past 3 years, this Subcommittee has made it a 
priority to invest in housing for senior and disabled 
populations and does not believe continued investments and 
program reform are mutually exclusive goals. It is my 
understanding that many, if not most, of the reforms necessary 
in the 202 and 811 programs can be made administratively--maybe 
two-thirds of them or so by the money that you are providing--
and I look forward to discussing the Department's plan to make 
these reforms quickly.
    In addition, I am disappointed that this budget does not 
reflect the number of agreements that were hashed out on 
contentious issues last year. For instance, HUD's budget again 
replaces the HOPE VI program with the Choice Neighborhoods 
Initiative. It might be prudent to wait on authorization of 
this program and to review results of the demonstration project 
funded in the fiscal year 2010 bill before fully transitioning 
to the Choice Neighborhood Initiative.
    The Department's fiscal year 2011 budget also includes many 
special initiatives and new programs such as the Transforming 
Rental Assistance Program and the Catalytic Investment 
Competition Grants. I appreciate that the Department is looking 
for innovative solutions to address longstanding issues in 
housing and economic development. However, I have concerns 
about beginning new programs that have not gone through the 
normal authorization process.
    Furthermore, I want to explore the Department's second year 
request for Transformation Initiative funding. While I strongly 
agree that HUD's information technology systems are in 
desperate need of modernization, I have reservations about a 
policy that allows the Department to shift funds away from its 
core housing programs at a time when demand for affordable 
housing is rising.
    Finally, my largest concern is that the budget is 
predicated upon the assumption that a number of proposed 
legislative changes in FHA's loan program will result in $5.8 
billion in receipts.
    As you may remember, last year the CBO did not agree with 
the Department's assumptions regarding FHA receipts, resulting 
in significant consequences for the level of resources this 
Subcommittee was able to provide. I fear we may be in a similar 
situation again this year if CBO does not agree with the 
Department's assumptions, so good luck with the CBO.
    Moving forward, I want to reinforce the continued need by 
both this Subcommittee and the Department to be vigilant in 
providing strong program oversight. HUD has done an adequate 
job of expeditiously distributing housing and community 
development funds provided under the Recovery Act, but 
continued effort is needed to ensure local authorities deliver 
quality projects on time and without waste.
    Additionally, as the FHA's share of the mortgage market 
continues to increase, adherence to stringent standards and 
strong oversight of FHA's portfolio reserves becomes 
increasingly important. We have an obligation to the taxpayer 
to ensure that the FHA acts responsibly where the private 
financial markets failed.
    Mr. Secretary, while there are areas within the budget 
request that this old dog may need to learn new tricks about, I 
am committed to working with you towards our shared goal of 
strengthening HUD's ability to provide affordable housing, and 
I greatly appreciate the leadership you have demonstrated over 
the last year.
    With that, I will recognize our Ranking Member, Tom Latham, 
for any opening remarks that he would like to make.

                      Mr. Latham's Opening Remarks

    Mr. Latham. Thank you very much, Mr. Chairman. I am not 
sure which old dog you are talking about here, but anyway. 
Welcome.
    Mr. Olver. I said this old dog.
    Mr. Latham. This old dog. I am sorry. I would never refer 
to you that way. Anyway, welcome, Mr. Secretary. I want to 
thank you for your testimony, and I especially want to thank 
you for coming by and meeting this morning. That is very, very 
helpful. It is welcome.
    It is a welcome change to have a HUD Secretary who is 
familiar with all the challenges and opportunities that are at 
HUD, and I feel confident that if anyone can make a change at 
HUD that you are the man, okay? I think you have a very, very 
good chance.
    I think there is a lot of good things in the budget. Some 
of the reforms you propose for FHA and the homeless programs 
are worth a good look I think, and serious consideration. I 
think transforming rental assistance is an area where we should 
all give it a good, strong second look.
    I also have a few concerns. FHA's solvency in the housing 
market is a huge concern to all of us, and I know it certainly 
is to you also. There is no good way to project what is going 
to happen a few years down the road, and the consequences, as 
we have seen the past couple years, can be devastating if we do 
not act with some caution. I really wish we would have a 
hearing on FHA alone this year.
    I am also concerned that in this economic situation where 
some are claiming recovery, but every indicator shows that 
unemployment is going to stay probably 9 to 10 percent for the 
next year or 2 and more and more people are going to be looking 
to HUD for your basic HUD services, services that we all know 
HUD and the housing communities do not always deliver all that 
well.
    Your budget contains a number of new initiatives, clearly 
the result of your experience, optimism and support of the 
White House. However, I am concerned that in this time when we 
need to deliver basic housing services better to more people 
more efficiently and effectively, we are too ambitious maybe in 
trying to start up too many new initiatives requiring the 
coordination of other Federal agencies.
    I am not saying anything about the substance of the 
initiatives, but rather HUD's ability to do it all. I do not 
think there is anyone up on this dais or behind you who thinks 
that HUD has mastered their job today. And again, I have a lot 
of confidence in you and I think we can have a productive 
dialogue over the next couple months as we go through the 
budget process.
    Despite not having an FHA hearing, the Subcommittee has 
planned a number of hearings on sustainability, Native American 
issues and housing for vulnerable populations. I am going to 
reserve a lot of the questions on those topics for those 
hearings, as I assume that someone knowledgeable from your 
Department will be in attendance to present testimony and 
taking questions at that time where we will have the 
opportunity to delve more deeply into those issues. I assume 
that is correct, Mr. Secretary. I will look forward to hearing 
from your Department at that time.
    Well, we do not have a lot of time, but we have a lot of 
ground to cover so I want to with that thank you and look 
forward to your questions and answers, and I yield back the 
balance of my time, if I had a balance of time.
    Mr. Olver. Thank you, Mr. Latham.
    Mr. Secretary, as usual your complete written testimony 
will be included in the record, and because this is as I found 
last night lengthy and dense testimony, I am going to take the 
Chairman's prerogative to allow you to go as much as 10 minutes 
if you need it to get through what you want to say to us. Mr. 
Secretary.

                      Secretary Donovan's Remarks

    Secretary Donovan. Thank you so much, Mr. Chairman, and I 
promise, given how lengthy and detailed the written testimony 
was, to try to be brief today, and I will promise not to take 
the full 10 minutes that you have just generously granted.
    Ranking Member Latham, thank you for your statement as 
well, and to all the Members of the Subcommittee thank you for 
the opportunity to testify regarding the fiscal year 2011 
budget for the Department of Housing and Urban Development, 
Investing in People and Places.
    I appear before you to discuss this budget in a far 
different environment from that of a year ago when our economy 
was hemorrhaging 700,000 jobs each month, housing prices were 
in freefall and economic observers warned that a second Great 
Depression was a real possibility. Today, though there is still 
a long way to go, it is clear that our housing market has made 
significant progress towards stability. Instead of declining by 
5 percent last year as economists expected, home prices rose 
for the first time in 3 years.
    What that has meant to middle class families is clear. 
First, security. As a result of stabilizing home prices and 
lower financing costs, by the end of September home equity had 
increased by over $900 billion, $12,000 on average for each of 
the nation's 78 million homeowners.
    Second, confidence. While still fragile, consumer 
confidence has recovered from record lows in the fall of 2008, 
helping the economy grow at the fastest rate in 6 years and 
beginning to create jobs.
    Third, money in families' pockets. Mortgage rates, which 
have been at near historic lows over the past 10 months, have 
spurred a refinancing boom over the past year that has helped 
nearly four million borrowers save an average of $1,500 per 
year, pumping $7 billion annually into local economies and 
businesses.


                                  FHA


    The Federal Housing Administration has been essential to 
this improved outlook, in the past year helping more than 
800,000 homeowners refinance into stable, affordable fixed rate 
mortgages, protecting an additional half million families from 
foreclosure, guaranteeing about 30 percent of home purchase 
loan volume and fully half of all loans for first time home 
buyers.
    With FHA's temporarily increased role, however, comes 
increased risk and responsibility. That is why HUD's fiscal 
year 2011 budget represents a careful, calibrated balancing of 
FHA's three key responsibilities: Providing responsible home 
ownership opportunities, supporting the housing market during 
difficult economic times and ensuring the health of the MMI 
fund.
    FHA has rolled out a series of measures over the last year 
to mitigate risk and augment the MMI Fund's capital reserves: 
First, to increase the mortgage insurance premium; second, to 
update the combination of credit scores and downpayments for 
new borrowers; third, to reduce seller concessions to industry 
norms; and, fourth, to implement a series of significant 
measures aimed at increasing lender responsibility and 
enforcement.
    With the help of Congress, FHA has also begun implementing 
a plan to ensure its technology infrastructure and personnel 
needs reflect this increased responsibility. With $6.9 billion 
in projected FHA and Ginnie Mae receipts that result from these 
changes, this budget proposes net funding 5 percent below 
fiscal year 2010, allowing us to rebuild reserves for FHA and 
reduce the Federal deficit.
    The details of these proposals are in my written testimony 
and I would be happy to answer your questions about that, but 
in my remaining time allow me to highlight a few key 
initiatives. The first is HUD's multiyear effort called 
Transforming Rental Assistance or TRA.


                     TRANSFORMING RENTAL ASSISTANCE


    It does not take a housing expert to see that HUD's rental 
assistance programs desperately need simplification. HUD 
currently provides deep rental assistance to more than 4.6 
million households through 13 different programs, each with its 
own rules administered by three operating divisions.
    In my past work in both the public and private sectors, it 
was a constant struggle to integrate HUD's rental assistance 
streams and capital funding resources into the local, state and 
private sector financing that was necessary to get the job 
done. But I dealt with HUD's subsidy programs for a simple 
reason: Because 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 has proven as powerful as unlocking a broad 
range of public and private resources to meet the capital needs 
of affordable housing.
    That said, the status quo is no longer an option. With a 
public housing program that has unmet capital needs upward of 
$20 billion, now is the moment to permanently reverse the long-
term decline in the nation's public housing portfolio and 
address the physical needs of an aging assisted housing stock.
    This initiative is anchored by four guiding principles. 
First, that the complexity of HUD's programs is part of the 
problem, and we must streamline and simplify our program so 
that they are governed by a single, integrated, coherent set of 
rules and regulations that better aligns with the requirements 
of other Federal, state, local and private sector financing 
streams.
    Second, that the key to meeting the long-term capital needs 
of HUD's public and assisted housing lies in shifting from the 
federal, capital and operating subsidy funding structure we 
have today to a Federal operating subsidy alone that leverages 
capital from private and other public sources.
    Third, that bringing market investment to all of our rental 
programs will also bring market discipline that drives 
fundamental reforms. Only when our programs are built, financed 
and managed like other housing will we be able to attract the 
mix of incomes and uses and stakeholders we need.
    And, fourth, that we must combine the best features of our 
tenant-based and project-based programs to encourage resident 
choice and mobility. TRA reflects HUD's commitment to 
complementing tenant mobility with the benefits a reliable 
property-based, long-term rental assistance subsidy can have 
for neighborhood revitalization efforts and as a platform for 
delivering social services.
    To be clear, this commitment to tenant choice and mobility 
is not to restart old ideological debates about play space 
versus people-based strategies. To revitalize neighborhoods of 
concentrated poverty and segregation we need the best of both 
approaches. That is why we look forward to working with the 
Subcommittee and authorizers on our Choice Neighborhoods 
initiatives to make the redevelopment of distressed public and 
assisted housing the anchor of broader community development 
efforts.

                          CHOICE NEIGHBORHOODS

    Choice Neighborhoods reflects the lessons of HOPE VI; not 
only that investment at scale can effect dramatic change at the 
community level, but also that for an investment to be game 
changing it must take into account more than housing alone.
    For too long HUD's community development programs have 
lacked such a play space, targeted tool for creating jobs. This 
is why our budget proposes $150 million for a Catalytic 
Investment Fund designed to help distressed communities 
reorient their economies for the twenty-first century.
    HUD cannot afford to make housing investments in isolation 
from community development investments, particularly when so 
many communities are ahead of us in terms of combining housing, 
economic development and transportation. This is why it was so 
important that we launched our Sustainable Communities 
Initiative in 2010 to support these efforts.
    I want to thank the Subcommittee for making this possible 
and emphasize the need for continued funding in fiscal year 
2011. I recognize that I have asked you to help HUD make these 
investments in a difficult fiscal climate that has forced us to 
propose reductions in a number of programs. Our approach has 
been to target resources where we get the biggest bang for the 
buck, and nowhere is this clearer than the area of homelessness 
where we have seen a 30 percent reduction in chronic 
homelessness over the last 4 years.

                              HOMELESSNESS

    Our budget request reflects HUD's commitment to its own 
targeted homeless programs with a $200 million increase, but as 
the Chair of the Interagency Council on Homelessness as well 
charged with producing a Federal strategy to end homelessness 
later this spring, it also reflects a commitment to working 
across silos to end homelessness, embodied by our proposed 
Joint Housing and Services for Homeless Persons Demonstration 
with HHS and the Department of Education.

                       TRANSFORMATION INITIATIVE

    Lastly, let me say with your help HUD's fiscal year 2010 
Transformation Initiative is allowing us to take long overdue 
steps to upgrade and modernize our Department, helping us 
replace computer programs written in the 1980s, building the 
capacity of communities and demonstrate what works and what 
does not. It has also begun to provide us with the flexibility 
we need to create cross-cutting initiatives.
    But a critical next step for fiscal year 2011 is to take 
this approach to the next step. In part it is a matter of 
additional funding to move forward with large, multi-year 
projects and demonstrations, but just as important is the 
flexibility to use up to 1 percent of HUD's budget as 
unexpected needs arise during the year.
    For example, to revamp FHA as it has had to step up in the 
mortgage market in the last few years or to provide technical 
assistance to communities trying to use neighborhood 
stabilization funds in the most impactful way. These are the 
kinds of flexible investments cutting edge organizations have 
the ability to make, and they are essential to building the 
more nimble, results-oriented agency our nation needs and that 
this Subcommittee deserves.
    And so, Mr. Chairman, this budget continues the 
transformation begun with your help. With the housing market 
showing signs of stabilization, our economy beginning to 
recover and the need for fiscal discipline crystal clear, now 
is the moment to reorient HUD for the challenges of the twenty-
first century. With your help, Mr. Chairman, and to the entire 
Committee, I believe we can and will. Thank you.
    [The information follows:]

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                     TRANSFORMING RENTAL ASSISTANCE

    Mr. Olver. Thank you, Mr. Secretary. Let me try to 
understand your Transforming Rental Assistance program a little 
bit more.
    You had mentioned that we are doing assistance on 4.6 
million units that are assisted, and part of that assistance is 
through the project-based 202s and the project-based 811s, and 
the other part of that group of 4.6 million is the ones that 
are under PHAs where we provide an operating fund that makes 
those persons whole in their 30 percent of income as a maximum 
that they can pay.
    Now, in the budget submission, as I see it, the Project-
Based and the Tenant-Based Assistance Programs, Rental 
Assistance programs, are increased by a total of about $1.8 
billion. At that same time, there is a decrease in the amount 
of money for new 202 and 811 housing by a total of about $750 
million.
    Now, to replace this it would appear--if I am following 
this correctly--you are having a $350 million increase or set-
aside in the budget provided within the Transformation Rental 
Assistance Program, which I think the testimony as I read it 
leads me to believe that the major portion of that is going to 
be going to try to create new contracts as part of the Public 
Housing Authority's operations.
    And that will cost a little bit of additional money because 
in the project-based program the assistance per unit is 
somewhat greater than what the assistance is for those that are 
at least what appears in the operating fund for the Public 
Housing Authority, yet it is my impression we are going to be 
keeping the same number of units, but shifting them around a 
little bit.
    And the Capital Fund for public housing units is proposed 
to be down, but that is not used for this kind of assistance. 
That is used for actual renovations of facilities. That one is 
down. And the 811 and the 202 funds, those are down by that 
$750 million so we are not going to be building any more 202s 
or 811s during that period of time. We are going to be shifting 
some that are presently under PHAs. I think that is what I 
understand you to be doing.
    At the same time, we have groups out there. AARP says that 
there are nine people on a waiting list for any project-based 
unit that comes available, and we also know that our fastest 
growing portion of the population is rather elderly elders, 
that portion of the population over 80 years of age, so the 
need out there from a variety of sources seem to be for a 
continuing increase of numbers of units.
    Are you proposing here only a 1-year hiatus because of the 
ARRA funding and you expect in a year or something like that to 
come back and start putting more money back into the 202s and 
811s for new construction in those places? Can you help me 
understand this? This is a tangle that I have been going 
through with my staff.
    Secretary Donovan. So I think there are a number of pieces 
that you raised there, but let me try to get to all of them.
    First of all, let me say broadly, as I mentioned in my 
testimony and as I think you have heard the President say 
repeatedly, that this is a very different budget year than we 
were facing last year, and given the overall constraints on the 
budget, the need to reduce the deficit, we have had to make 
some very difficult choices.
    Broadly speaking, the approach that we took was to preserve 
existing units that were helping families--vouchers, public 
housing operations, project-based Section 8--to fully fund 
those accounts, even though because of the economic crisis 
tenant incomes are not rising. In fact, in many cases they are 
falling, and the amount of subsidy per unit as a result of the 
economic crisis has increased in a number of those programs. So 
there was a requirement if we were going to fully fund those 
programs for the increases that you talked about. Those are not 
related to Transforming Rental Assistance.
    At the same time as we made those choices, it required if 
we were going to prioritize fully funding the existing programs 
of vouchers, Project-Based Section 8, Public Housing Operating 
Fund, as you know those represent a vast majority of the 
resources in HUD's overall budget and that that created very 
difficult choices for other programs, and we proposed cuts in a 
number of capital programs across the board, including 202 and 
811. So that was the overall approach. That big increase in 
Section 8 is not related to the Transforming Rental Assistance.

                            SECTIONS 202/811

    More specifically on 202 and 811, here are the issues 
around that. Again, very difficult choices to make, but what 
has happened over time is that the way that we produce housing 
for seniors, housing for people with disabilities, has shifted 
more and more from the 202 and 811 program to the Low Income 
Housing Tax Credit Program because more and more over time the 
202 and 811 funding that we have has been increasingly eroded 
by the renewals to the point where we now produce about 1,000 
units a year through the Section 811 program and about 4,000 a 
year through the Section 202 program.
    If you look at the Low Income Housing Tax Credit Program 
today, we produce almost 12 times that number of units for 
people with disabilities and about seven times that number of 
units for seniors, so again the vast majority of units for 
seniors and people with disabilities today are produced by the 
Tax Credit Program.
    As the 202 and 811 program has shrunk relatively in terms 
of new units it can produce, at the same time there are a 
number of difficulties and challenges with the program that are 
developed, and I know this very personally from having worked 
on it both in the private sector and the public sector.
    So, for example, today the grants are not sufficient in 202 
and 811 to cover the cost of development and so in almost every 
single case you are not only using 202 and 811; you are also 
using-low income housing tax credits, maybe some home money, a 
range of sources, and what it has meant is that it has become 
incredibly complex to produce those 202 and 811 units because 
the program was always set up to be a one-stop shop program, 
not to be done in this mixed finance environment.
    There are a range of other issues. The way that we target 
those to different markets, we now have, despite the waiting 
list that you talked about, a number of 202 and 811 
developments that are going unfilled, and we have had to issue 
waivers to lower the ages for admissions to those developments 
and so we have to look at as one of the reforms how we target 
that assistance.
    We also need to look at streamlining environmental 
requirements and a whole range of other things along the lines 
that I talked about that might have made sense when the program 
was a one-stop shop, but no longer make sense when 202 and 811 
is only providing a small share or a partial share of the 
overall development cost.
    The last thing I would say, and this is a point that you 
raised in your question. In a world where we produce 8 or 10 
times as many units for seniors and people with disabilities 
with the tax credit as we do with 202 and 811, I think it is 
important for us to think about targeting 202 and 811 to 
seniors or people with disabilities with needs that would not 
be met by the Tax Credit Program alone. I think particularly 
frail seniors where we could combine 202 and 811 with PEACE or 
other initiatives that HHS has are very versatile areas for us 
to look to be able to carry out some of these reforms, so those 
are a set of the issues and challenges that we see on 202 and 
811.
    I want to be clear, finally, to get to the last point in 
your question, that we believe that if we can make fixes to the 
program that the program has an enormous value. I want to make 
sure that that is communicated. This is not that we think the 
program should be eliminated or that there is no need for it 
going forward. There is obviously a real need. We have to align 
the program with those needs and make it operate more 
efficiently, and we look forward to working with the 
authorizers, as well as this Committee, on those reforms.
    Mr. Olver. Mr. Secretary, I was not aware that what I had 
asked raised so many different points, but in any case that was 
a very thorough answer.
    I do think I understand that the increase in funding for 
project-based and tenant-based does not include any new 
vouchers particularly, and neither does the TI Transforming 
Rental Assistance Initiative, end up producing any more units. 
That is not where the units are produced. The units continue to 
be produced by what you are suggesting is almost on average 8 
to 10 times the rate of what we are doing by our building the 
202s and 811s by using the tax credit procedures. Is that 
basically correct?
    Secretary Donovan. The Low-Income Housing Tax Credit 
Program alone, without 202 and 811, produces eight to 10 times 
that number of units.
    Mr. Olver. Okay.
    Secretary Donovan. Yes.
    Mr. Olver. Thank you. Mr. Latham. I am sorry to come back. 
I had used all of my five minutes to ask the question, and you 
have gone much farther, and then I took another moment to go 
beyond. Go ahead.
    Mr. Latham. Does that mean I am out of time? All right.
    Mr. Olver. That was the time I had used. His answer was his 
own.
    Mr. Latham. Does that count, your comment? Does that count 
against my time? Anyway, on the 811 program and the 202, you 
have had personal experience in your previous life. What did 
you see? If there was one big problem in these as far as 
administering them, what would you identify that problem to be?
    Secretary Donovan. Well, just to elaborate on Chairman 
Olver's question and my response, as Commissioner of Housing in 
New York City we produced some of the first ever 202 
developments using low-income housing tax credits. That was 
only allowed a few years ago.

                     LOW-INCOME HOUSING TAX CREDIT

    And I will tell you it was enormously complex. It took us 
probably 8 to 12 months on average with those. We were some of 
the first in the country, and to be honest we had I think, some 
of the most sophisticated development partners, non-profit 
organizations that were quite strong. These programs are 
limited to nonprofit developers, and they struggled quite 
mightily to try to bring together the funding that was 
necessary.
    They never could have developed them with just the 202 and 
811 financing alone because the limits on it were not enough to 
construct the units, and that has been one of the real issues, 
having costs run away from the ability of the program to fund. 
On the other hand, if we allowed more funding per development 
we would stretch even more thinly across the country the 
current allocation of money because it is so few units at this 
point it reaches very few places and so there is an inherent 
tension there that is very difficult.
    So it is that complexity that drove the difficulty of 
developing with it that I think is the single most important 
reform that we need to look at. There are a number of others 
that I mentioned, but that one alone I think if we cannot 
change the program so that it can be used as one in a series of 
financing streams without completely upending the process, then 
we have not really solved the fundamental issue.
    Mr. Latham. Got you. Okay. You are to be commended, to 
change the subject; commended for your work to ensure the 
solvency of the FHA, and I applaud your recently proposed 
legislative initiatives that continue to restore the capital 
count of the program. I am still very concerned that FHA 
remains about 30 percent of the overall single family mortgage 
market; you said I think in your statement 50 percent of the 
new home purchases.
    Your budget recommendation assumes that private capital 
will return to the conventional mortgage market. Could you give 
us just a historic perspective of what percentage FHA had say 5 
years ago? Where do you expect it to be at the end of 2010, 
2011, just to give us an idea?

                            CREATION OF FHA

    Secretary Donovan. I am happy to do that. So I guess the 
first historical point I would make is that FHA was set up in 
the wake of the Great Depression for exactly this kind of 
situation. I think Congress recognized at that time that 
mortgage capital was too important to American families and 
communities to allow in situations like the economic crisis we 
have just gone through for mortgage capital to disappear 
completely or to become so expensive that average American 
families could not access it.
    And so while we are concerned about FHA remaining at such a 
large share of the market on a temporary basis I think it is 
playing exactly the role that Congress intended when it was set 
up, and the fact that we continue to have mortgage capital 
available at near record low interest rates during this crisis. 
You compare that to small business lending or commercial real 
estate lending. I think you see the important impact that FHA 
has had by continuing to make capital available.
    Having said that, we do believe it should be a temporary 
step. We do want to see the private market start to come back. 
One of the important elements of the reforms that we propose is 
an increase in our mortgage insurance premiums. We believe 
that, along with other steps, will help to bring private 
capital back into the market; not only help to restore our 
reserves, but also bring capital back.
    Typically our market share, although it has fluctuated very 
strongly, has been in the 10 to 20 percent of the market range. 
Interestingly, if you look back during the worst years of the 
crisis, the subprime crisis, FHA, because we fully documented 
incomes, because we only did owner-occupied, because we only 
did 30-year fixed rate mortgages, we shrunk to about 2 percent 
of the market and so just 2 years ago we were almost an 
insignificant piece of the market and have grown rapidly only 
as subprime lenders and others have retreated.
    So that gives you a little bit of the history. Our 
expectation is that we come back to that 20 percent or lower 
rate.
    Mr. Latham. You could not compete with the people who had 
no standards basically.
    Secretary Donovan. Yes, and I think it is important to 
point out that we did not compete in fact and that we retained 
our--and really that is one of the reasons why today even 
though I have concerns about FHA's condition and we have to 
watch what is happening very carefully, the share of business 
that we did in the worst years of the crisis was very, very 
small.
    And so the impacts that it has had on our balance sheet, 
while the performance of those years of loans have been poor 
because of what is happening in the economy, because of what 
happened to house prices, we still see that it is a relatively 
small share of our business relative to our overall book, very 
different from subprime lenders or Fannie Mae and Freddie Mac 
or other players in the market.
    Mr. Latham. Okay. Thank you, Mr. Chairman.
    Mr. Olver. At this point we will go back and forth in order 
of when people came to the Committee room. Ms. Kilpatrick.
    Ms. Kilpatrick. Thank you, Mr. Chairman. It is certainly 
good to be first after my Chairman and Ranking Member. Mr. 
Secretary, good to see you again.
    Secretary Donovan. Good to see you again.
    Ms. Kilpatrick. I want to commend, first of all, both you 
and President Obama for doing what you said you were going to 
do a year ago when you and Secretary LaHood sat in that seat.
    The Neighborhood Stabilization Program I and II has been 
awesome. The whole issue of Sustainable Communities and Choice 
Neighborhoods is well on its way. We were happy and very 
delighted--thank you very much--that 12 of our cities working 
with our housing authorities submitted to you a plan that also 
included our land bank states, our largest county and others to 
do just what you said you were going to do when you sat there, 
and we want to commend you for that.
    I do not know if you know this, but those 12 cities are 
represented by three Republicans and three Democrats in our 
Congress in our state of Michigan, so we are very proud of that 
as well. It is an awesome way to begin the development and 
saving homes, keeping people in their homes, land massing and 
rebuilding, so I just wanted to say thank you for that.
    Secretary Donovan. Thank you for saying that.
    Ms. Kilpatrick. When you came before us in Michigan a 
question came from the press. I am a proponent of the stimulus 
plan, the ARRA. I think it is doing a fine job. You talked 
about what was obligated at that time and what had already gone 
out the door. That was a month or two ago now. Where do we 
stand now with HUD dollars related to that?

                       HUD'S RECOVERY ACT FUNDING

    Secretary Donovan. So since we last spoke about that we 
have significantly increased both our obligations of money, as 
well as the spending. As of today--in fact, at the one year 
anniversary of the Recovery Act--we had obligated 98 percent of 
all of HUD's funding, including our competitions, all of the 
different programs, and we are about $3 billion actually spent.
    I want to make an important point about that. When we 
obligate money that means we sign contracts with our partners 
so that money gets to work, jobs start being created, et 
cetera. Just like a homeowner, we do not pay for work. If you 
are renovating your kitchen or a bathroom, you do not pay for 
that work until it is actually completed.
    The same thing is true of our Recovery Act programs is that 
we only reimburse money or actually fully disburse that money 
once work is actually complete. So even though we are about 30 
percent at this point actually spent, 98 percent of the money 
is at work creating jobs.
    We have completed spending on a lot of rehabilitation, 
which takes a shorter period of time. What takes a longer 
period of time is neighborhood stabilization or new 
construction activities that require often 2 years to be 
completed and so the actual spending of the money takes a 
longer time, but as soon as we have obligated it it begins to 
create jobs and stimulate the economy because folks are at work 
before they come back to us for reimbursement.
    Ms. Kilpatrick. Can you give us that? Can you give this 
congressperson? I want Michigan, but I am sure my colleagues--
can you tell us that?
    I mean, we read it all the time. I know it is working in 
Michigan. We are one of the most devastated, distressed states 
at the moment. But I need that. I need something to give me the 
picture--words and paragraphs and maps or graphs or whatever 
you have.
    Secretary Donovan. Yes.
    Ms. Kilpatrick. It would help tell the story, and it would 
keep people energized because they want to stay in their home. 
I mean, they have lost value, and you spoke to that a bit in 
your opening remarks. The value of housing has decreased across 
the country and in some areas like mine more than others.
    I think it would give us the hope. The $30 billion that was 
just announced by the Secretary of Treasury a couple weeks ago, 
$30 billion to Community Development Financial Institutions to 
help small businesses begin to loan so people can stay in their 
houses and otherwise. Is HUD a partner with that too?
    I like the coordination between HUD, Transportation and 
EPA. I just think that with the new Treasury part that is 
another piece that can help sustain all of this.
    Secretary Donovan. We do work very closely with Treasury on 
the full range of initiatives, including the CDFI initiative 
that you talked about. That is part of a broader effort to make 
sure that small businesses, community-based businesses, have 
access to capital at this point.
    CDFI, Community Development Financial Institutions, is a 
very important source of funding, but there is also the $30 
billion that you talked about which will go to smaller 
community banks to be able to increase their lending for small 
businesses as well.
    Just the last thing I would say is I would be happy to 
follow up with any members of the Committee around our data on 
the Recovery Act. We do have the website that is available that 
has every single investment, but we have also broken it down by 
jurisdiction, state and localities, and in fact we are actively 
reaching out.
    I spoke to your governor just a few weeks ago about every 
single one of our programs, where they are in spending. We are 
following up with mayors, housing authorities, a range of them, 
through play space reporting meetings that we are doing in 
every one of our regions around the country, so we are actively 
following up to make sure that money gets out as quickly as 
possible.
    Ms. Kilpatrick. Okay. I think that is very important.
    Secretary Donovan. It has already created tens of thousands 
of jobs, but we want to make sure it gets out quickly.
    Ms. Kilpatrick. Once you say it we have to see it, so I 
would like a little publication from HUD that----
    Secretary Donovan. Absolutely.
    Ms. Kilpatrick [continuing]. A tenth grader could 
understand so I could take it out and talk about it. I mean, 
that is what we need. I mean, it is one thing to see it in 
graphs and all that, but you have to make it simple. People 
have to know what is happening. I see it and its capability and 
what it could be in the next 5 years. Thank you for that.
    Secretary Donovan. Thank you.
    Mr. Olver. Mr. LaTourette.
    Mr. LaTourette. Thank you, Mr. Chairman. Welcome, Mr. 
Secretary. We had the pleasure of having Secretary LaHood here 
a couple weeks ago, and I think the Chairman thought my 
questions to him were a little harsh. As a result, I was 
feeling bad. I did not get my TIGER Grant that was announced on 
the 17th, but then I checked with Pastor and he did not get one 
either and he sucked up to LaHood, so I will attempt to be 
gentle.
    I know your testimony was written. I do not think it was 
written today, and I just want to correct the record just a 
little bit. You correctly indicate that consumer confidence 
rose for 3 straight months, but it omits what came out today. 
Consumer confidence fell 11 months in the February survey, down 
from 57 to 46.
    In addition, as you know, it is made up of two parts. How 
people are feeling about how things are going now dropped from 
29 to 19, and whether or not they think the next 6 months are 
going to be good or bad fell from 77 to 63. As I read the 
Conference's summary it seems to be tied into a great deal of 
uncertainty relative to jobs and the fact that there are not 
any and unemployment continues to stagnate despite the 
Administration's best efforts.
    Are you following up on Ms. Kilpatrick's observation? The 
President a couple weeks ago or just last week was out in 
Nevada with Senator Reid, and he unveiled a $1.5 billion 
program to assist five states--I think Michigan being one of 
them, Nevada, Arizona--with foreclosures. Did you have a hand 
in that?
    Secretary Donovan. I am very familiar with it and have 
worked closely with the White House and Treasury around all the 
housing efforts.
    Mr. LaTourette. I thought so. Let me just indicate that my 
friend from Cleveland, Ohio, Congressman Kucinich, who if he 
had just had a couple more thousand dollar hits could be 
President of the United States today, sent a letter to the 
President and basically suggested that perhaps the formula for 
how these states were selected is funny, and funny by I 
understand it is based upon a 12.5 percent unemployment--Ohio 
is at 11.5--and it is based upon not the number of homes in 
foreclosure, which is at an all-time record in the state of 
Ohio, but instead based upon a loss of property value of 20 
percent or more.
    And so I certainly understand why a state like California 
qualifies because I think the median home price out there is 
like $600,000 and Ohio is about $78,000, and so I guess are you 
willing to go back and meet with your boss and the Treasury 
Secretary and perhaps look at this program to see if you have 
used the right metrics?
    Even though I just have a small slice of Cuyahoga County, 
which is where Cleveland is located, the only county in the 
country that will have lost more population between the last 
census and this census is Orleans Parish, and they had a 
hurricane.
    I read someplace that the gentlelady's town of Detroit, the 
median home price is like $7,000. I mean, these places are 
really hurting, and I think to have it based upon a 20 percent 
property decline rather than the sheer percentage of people who 
are losing their homes, because quite frankly 20 percent, I 
think you have to be rich.
    You know, we are always trying to tax the rich people a 
little bit more. In order to lose 20 percent of your home value 
you probably have a pretty sweet house. Now, the guy that has 
an $80,000 house and loses 5.4 percent, he is hurting just as 
much or more as the person in California. So, one, are you 
willing to go back and look at the metrics? Two, if not, or if 
so, is this just the first step and you are getting ready to 
unleash a wave of five additional states coming up?
    Secretary Donovan. I appreciate the question. I do think it 
is important in answering that to sort of put this program in 
context.

                       STABILIZING HOUSING MARKET

    This is a billion and a half dollars, one piece in a much 
broader effort around stabilizing the housing market. To be 
clear, Michigan was one of the states included there. I think 
some similar issues to Ohio, but much significantly deeper 
declines there.
    What we were specifically trying to get to with the effort 
you are talking about is dealing more extensively with the 
issue of negative equity, and that obviously has been steepest 
in places with the deepest housing declines.
    Recognizing that Ohio has particular challenges that are 
longer standing, frankly foreclosure--I was there just 
recently. Foreclosures have been rising for 10 years in a row.
    Mr. LaTourette. Right.
    Secretary Donovan. And so it is not a result of a housing 
bubble and a run up in price. It is a result of longer term 
issues, which I think we can better attack with other 
strategies.
    Congresswoman Kilpatrick mentioned the Neighborhood 
Stabilization program. A part of that, Ohio was one of the 
states in the country that got the most competitive funding out 
of that program, over $175 million which we announced just a 
few weeks ago, which I think deals more directly with the 
challenges that Ohio is facing in terms of long-term property 
abandonment and decline than the more recent program with the 
HFAs would have with negative equity problems.
    And so I think that, combined with the other efforts we 
have around modifications, refinancings, can be more effective 
for Ohio than the kind of programs that we announced last week.
    Mr. LaTourette. With the Chairman's indulgence if I could, 
I agree with you on Neighborhood Stabilization, but HAMP. Those 
stats are out as well. Ohio is 48 out of 51. We threw in the 
District of Columbia as well. Forty-eight out of 51 in terms of 
mortgages that have successfully been modified using the HAMP 
program.
    So I do not know what you all need to do to help Ohio, but 
I would ask you to go back and give it your best effort. Thank 
you, Mr. Chairman.
    Mr. Olver. Mr. Pastor.
    Mr. Pastor. Thank you, Mr. Chairman, and welcome, 
Secretary.
    Secretary Donovan. Good to see you.
    Mr. Pastor. Good to see you again. First of all, thank you 
for part of the action that we got on that TARP $1.5 billion. 
We spoke one time almost 8 months ago in Arizona. We had the 
foreclosure and also the problems we were having because the 
bubble burst in the southwest, so we thank you for that 
additional money.
    Also, we have taken to heart in Maricopa County. We have 
just finished the 20 mile light rail system, and last year your 
staff here in Washington and San Francisco and in Phoenix 
worked very hard to ensure that a large apartment complex that 
was two blocks away from the light rail that were in 
foreclosure, and it worked very hard with the City of Phoenix 
and now the Parkley Apartments are part of the City of Phoenix 
and are being renovated so that we are completing at least our 
model with the initiative that you and Secretary LaHood have of 
making affordable housing next to a light rail system.
    With that in mind, the reason I am going to ask you is 
because I think from the City of Phoenix again we are taking 
advantage of the light rail system that we have, and I think 
there is a HOPE VI application because it will be moved 
somewhat closer to the light rail.
    But one of the things I wanted to talk to you about, and I 
am going to ask you three questions and then you can answer 
them. Last year we funded $65 million as a demonstration 
project, Choice Neighborhoods, and we kept $135 million in HOPE 
VI. For 2011, you zeroed out HOPE VI and you have gone to the 
Choice Neighborhoods.
    Anticipating that Choice Neighborhoods is going to be 
authorized, my three questions are what is the timeline on the 
authorization of Choice Neighborhoods? What happens if it is 
not done this year? Are you asking the Subcommittee to fund 
Choice Neighborhoods as a demonstration project and eliminate 
HOPE VI?
    And the third question is how will you evaluate current 
grants or current applications for HOPE VI that are in the 
pipeline? Will you look at what were the model HOPE VI 
evaluation tools or are you going to be using evaluation tools 
that you are proposing for Choice Neighborhoods?
    The problem I have is that the Omnibus Appropriations Bill 
passed in December, and this demonstration project probably 
counting months at best has been 2 months in existence and yet 
within seven months of 2010 you want to eliminate HOPE VI. I am 
a little bit concerned, so that is why I ask the three 
questions.

                    CHOICE NEIGHBORHOODS V. HOPE VI

    Secretary Donovan. And I am glad you did because I think 
this is a very important point in terms of what is possible.
    First of all, just to give you some background on where we 
are, at the urging of the Committee we have been working very 
closely with the authorizers. We have shared draft legislation, 
had a number of discussions. We have had a whole range of 
stakeholder meetings around the legislation, and I will be 
testifying in just a few weeks with the House authorizing 
committee on the legislation, so we are moving forward on that 
front.
    Just to be very clear, every project that is eligible for 
HOPE VI, public housing, would be able to be funded through 
Choice Neighborhoods. This is not choosing not to fund HOPE VI. 
In fact, what this is saying is that HOPE VI has been so 
successful that we believe we ought to take the same tool and 
allow it to be used not just for public housing, but for 
troubled multifamily housing or even privately-owned housing.
    The examples you use are perfect ones. Parkley Apartments 
that you mentioned. That is an example where we have some of 
the most distressed housing that is causing enormous 
neighborhood problems in communities that is not public 
housing, but it is privately owned assisted housing, and yet it 
has never before had the ability to access funding like HOPE VI 
to do comprehensive redevelopment.
    We, in fact, have many neighborhoods where you have sitting 
literally across the street from each other a public housing 
development and assisted housing development. HOPE VI can help 
to redevelop one of them, but not the other. Choice 
Neighborhoods would change that. It would allow you to 
redevelop both of them.
    In fact, Phoenix is a great example. I have heard this as I 
have traveled around the country. HOPE VI is enormously 
popular. I understand your concern because it has been such an 
effective program, but I also hear from mayors, from housing 
authorities. You know, the problem is we have redeveloped these 
three blocks, but across the street I have got 10 foreclosures 
that are threatening the neighborhood.
    Particularly as we have seen the foreclosure crisis happen 
that has become the leading problem in many neighborhoods from 
a housing point of view, and yet HOPE VI does not have the 
flexibility to be able to buy up and renovate or do something 
about that foreclosed housing.

                          CHOICE NEIGHBORHOODS

    So what Choice Neighborhoods would do would allow a housing 
authority to come in, apply for money to redevelop the public 
housing, but also perhaps buy the eight or 10 foreclosed houses 
on the next block that are going to be the big neighborhood 
issue going forward and to include home ownership in the 
redevelopment, for example.
    So I do not think it is fair to say that it is a 
demonstration program like some other demonstration program 
that is not tested. In fact, what we are doing is simply saying 
let us take the successes of HOPE VI and allow that same 
success to be used for assisted housing, privately owned 
housing, and include those in a more comprehensive neighborhood 
revitalization strategy and, I think even better for those 
housing authorities, to bring other resources.
    We have been talking with the Department of Justice about 
their Weed and Seed program, Department of Education about 
Promise Neighborhoods, to be able to bring not just the housing 
resources, but to bring other resources that could help 
comprehensive redevelopment in that neighborhood as well.
    So we fully expect that under Choice Neighborhoods the 
large majority of the funding would go to redevelop public 
housing to housing authorities. It would just provide more 
flexibility to be able to serve some additional types of 
housing as well and to do more comprehensive redevelopment.
    Mr. Pastor. With your indulgence, the second question dealt 
with if it is not authorized what do you expect the 
Subcommittee to do?
    Secretary Donovan. As you rightly said, there is funding 
for HOPE VI in the 2010 bill. Unless the Committee, the 
Authorizing Committee, is able to get legislation finished, we 
would move forward with a RFP under HOPE VI as we have in past 
years. If the legislation would allow us to move it into Choice 
Neighborhoods quickly enough to be able to get the money out, 
then we would combine them and be able to move forward in that 
direction. But it really does depend on what the authorizing 
legislation, what the timing is and what it would allow us to 
do.
    Mr. Pastor. I do not know if we are going to fund it or 
not. Are you going to ask this Committee, if it is not 
authorized to fund Choice Neighborhoods as a demonstration 
project but take all the money, $250 million, and say we have 
now zeroed out HOPE VI and now this is Choice Neighborhoods?
    Secretary Donovan. You mean for 2011? I thought you were 
talking about the 2010.
    Mr. Pastor. 2011.
    Secretary Donovan. I am sorry.
    Mr. Pastor. Okay, 2011.
    Secretary Donovan. For the 2011 funding, honestly, I think 
that is a discussion with the Committee. Just as we had last 
year, we had a lot of discussions and back and forth about this 
depending on the timing. And I think ultimately by the time we 
get to finalizing the budget, a lot of that depends on whether 
authorizing legislation has passed through the House and the 
Senate or not. I am not sure I can provide a more detailed 
answer than that at this point.
    Mr. Olver. I do not think the Secretary's plan on moving 
the 2010 budget HOPE VI on allotment to Choice Neighborhoods, 
that was not a done deal. Mr. Carter.
    Mr. Carter. Thank you, Mr. Chairman. Mr. Secretary, 
welcome. I believe when you made your joint appearance with 
Secretary LaHood it was about the same time I came on this 
Subcommittee, so I probably am still, and I can assure you I am 
still in a learning process, I think you are just the man to 
educate me. And some questions I am just curious about, they 
may be simple or they may not be. Foreclosures are anticipated, 
I think, to be around 19 million people by the end of 2010, and 
this is really kind of the linchpin of our economic recovery 
when we get down to it, and based upon what the Administration 
has done thus far it seems that the strategy is refinancing at 
lower interest rates to try to keep people from going 
underwater.
    And I guess I have a couple of questions about that. I 
guess the Administration intends to continue to tackle this 
problem using some form of refinancing to work our way through 
this. Will this effort be sufficient with everybody that is 
involved so we will be able to keep everybody from going 
underwater? And what about those people that refinance and 
still go underwater, will we refinance again? And finally, some 
of those financial pages have been raising issues about will 
Ginnie Mae and maybe FHA go the way of Fannie Mae and Freddie 
Mac if they continue down this road? I do not know what they 
base that on, I do not know whether that is a valid criticism 
or not a valid criticism and I would welcome your comment.
    Secretary Donovan. So, first of all I would say that 
refinancing has been a critical part of the strategy, I talked 
about it in my statement in terms of the fact that it has 
reached about 4 million homeowners, about $1,500 a month on 
average--I am sorry--annually for those families. And that in 
total talking about probably $7 billion a year in savings and 
frankly economic stimulus more broadly from those savings. But 
we have also been very focused on increasing the pace of 
modifications.

                       MAKING HOME AFFORDABLE ACT

    We have reached only 1 year after the President announced 
the Making Home Affordable effort, the modification portion of 
that has reached over a million homeowners, and on average 
their reductions have been about $500 a month in terms of their 
payments, so over $2 billion of reduced payments in total to 
those families already. We have had some challenges with the 
servicers converting those to permanent modifications, we have 
made some changes, we are beginning to see better pickup in 
terms of that where we have reached almost 200,000 permanent 
modifications either signed by the borrowers or approved by the 
lender and provided to the borrowers.
    So we are starting to see some acceleration, we are going 
to keep pushing on that front, I think that could be a big 
benefit. What I would say though is, you know, to be frank, we 
are not going to be able to save every home or to keep every 
homeowner in their home. Some folks simply bought too much 
house. We are going to do everything we can around unemployed 
or other homeowners that are doing the right thing and can 
afford to stay in the house long term, but we also have been 
working with servicers and others to try to provide 
alternatives to foreclosure that would allow a family to move 
on without damaging their credit rating and to be able to move 
more quickly so that if they have a job in another town or 
another community that they can move as quickly as possible as 
well.
    So those efforts around what we call short sales and deed-
in-lieu are also an important part of the effort as well to 
make sure that if we cannot keep every family in their home, 
which we cannot, that we are still minimizing the impacts 
whether it is to their credit ratings that, you know, 
foreclosure would damage their credit rating forever, and, 
frankly, for the community so that the house does not sit 
vacant for a number of months and bring down everybody's 
property value in the community even further.
    So with those broad efforts, that is really what we are 
aimed at. And again, a year ago when we started this effort, 
the consensus forecast was that the housing market was going to 
decline another 5 percent last year. In fact, housing prices 
actually went up last year for the first time in three years, 
average homeowner built about $12,000 in equity from about 
April on last year. And so we have seen some broad 
stabilization in the market, we have got a ways to go before we 
are sure that we are out of the woods, but those efforts have 
all worked together to make some real progress and we have a 
number of other things, including the announcement we made last 
week, that we will continue to do to try to move forward to 
help those homeowners that really can make it through as 
homeowners on a sustainable basis.
    Mr. Carter. And my time is probably up, but what about the 
question of some of the financial pages saying we have got to 
be cautious that they do not go the same way as Fannie Mae and 
Freddie Mac? I can remember the huge epic, at least in Texas, 
of HUD foreclosures in the 1970s, where that was the HUD 
foreclosures were everywhere, you know, people making all kinds 
of bargains on the HUD foreclosures. Are we being cautious that 
we are not overextending FHA and Ginnie Mae?

                       STRICTER FHA REQUIREMENTS

    Secretary Donovan. What I will say is we have had, it is a 
very important balancing act that we have been trying to 
achieve between ensuring that credit is available--because if 
we were to withdraw completely we would push home prices down 
even further and hurt the market--while also making sure that 
we are being responsible about the loans that we are making. 
That is why we have, in the last 6 months we have suspended 
about 270 lenders from FHA--we were concerned about some of the 
subprime lenders migrating over so we have been very aggressive 
about enforcement, and that is also why we have raised our 
downpayment requirements for the riskiest borrowers--and we 
have raised our premiums and we are proposing in the budget to 
raise them somewhat further on the annual side if we can get 
legislative authority to ensure that we are bringing the fund 
back to a level of reserves that we are comfortable with.
    Mr. Carter. Thank you.
    Mr. Olver. Thank you. Mr. Price.
    Mr. Price. Thank you, Mr. Chairman. Mr. Secretary, welcome.
    Secretary Donovan. Good to see you.
    Mr. Price. Appreciate your testimony and your good work. I 
want to ask you about the SHOP program, the Self Help 
Homeownership Opportunity Program. I am sure that will not 
surprise you, there have been a number of questions raised 
about your handling of that in this budget. But first let me 
say, I have been listening very carefully to the exchange 
between Mr. Pastor and you on HOPE VI and Choice Neighborhoods, 
and I am baffled that you have come in with a proposal that 
continues to insist on ending one program to start another.
    Now, maybe I am missing something but I heard the praise 
you gave for HOPE VI, this is a program in its prime. Took us a 
lot of years to get there, but it is a program in its prime. I 
can certainly testify to that with the projects that have been 
on budget, on time, actually ahead of time in Raleigh, North 
Carolina, a good project in Durham, they have made a lot of 
difference. We are part of the backlog too, we have another 
very strong proposal in the pipeline.
    So I think I and other Members are open to the need to 
reauthorize HOPE VI, the need to incorporate new ideas in HOPE 
VI. Some of the ideas you mention today for Choice 
Neighborhoods sound to me like very good ideas. I do not 
understand why we are going through this rigmarole of trying to 
shut down one program and start another, particularly since 
there are authorization problems, and it just is baffling to me 
because we do have a strong program in HOPE VI, everyone seems 
to agree with that.
    We struggled for years, the Chairman, I, lots of others, 
through the Bush Administration to avoid zeroing it out. Now we 
seem to have a chance for this Program to realize its full 
potential and we are faced with this proposal for a totally new 
approach, although it is not totally new really. It seems to be 
in the realm, as you yourself said, it seems to be in the realm 
of a new and improved HOPE VI. It is not clear to me why that 
requires a new start. I will invite you to comment further on 
that if you want to, but let me say what I want to say about 
SHOP, and then maybe you can answer both at once.
    Here again we have a program that many of us have witnessed 
in our districts as a success, it particularly involves Habitat 
for Humanity, as you well know. And many of us have seen the 
collaborative efforts of Habitat to combine private funds and 
sweat equity and Federal dollars to provide housing 
opportunities to low income home buyers. So you can imagine 
HUD's request to eliminate funding for SHOP has alarmed many in 
the Habitat community and others involved in volunteer efforts 
to provide decent housing.
    So I hope you can provide this Committee right now orally 
or anything more you want to provide for the record with an 
explanation of the Department's evaluation of the SHOP program. 
You requested funding last year, we upped that funding. Why are 
you proposing that this funding be eliminated, what do you see 
as the potential in the future, if not for this program then 
for the function that it performs?
    Secretary Donovan. So, I think SHOP is one example of a 
number of areas where we felt--and I think, let me come back to 
the HOPE VI and Choice Neighborhoods question but I think there 
is a similar question there--we have seen, I think, over time 
that we have many many smaller specialized programs that are 
targeted at creating or starting new kinds of partnerships, new 
efforts, and in fact we have some efforts similar to that in 
the budget that we have proposed where a focused effort like 
SHOP on self help homeownership, like Habitat does, is very 
very important.

                                  SHOP

    What I would say is, that effort has succeeded, that what 
we now see is that the vast majority of funding that goes to 
efforts like Habitat pursues in the self help area are funded 
much more by HOME and our other programs than they are by SHOP, 
in fact SHOP remains a relatively small amount of funding 
relative to the overall investment that we make in Habitats and 
other similar programs around the country. So we felt, rather 
than maintain a small amount of funding in SHOP where HOME, 
every activity that is eligible can be funded through HOME and 
in fact a large amount of it is funded through HOME, we felt it 
made more sense, particularly at a time where we are trying to 
streamline the Department's programs and simplify them, to 
focus on the home funding and consolidate it there.
    Mr. Price. Well, excuse me, why are you cutting HOME then? 
Why are you proposing that the HOME funds be cut by $200 
million?

                                  HOME

    Secretary Donovan. As I said at the outset, we made a 
series of decisions about prioritizing funding this year where, 
given the overall budget constraints, funding for new capital 
development was reduced in a range of programs to be able to 
maintain full funding for Project Based Section 8 vouchers, and 
other programs. So I am not going to say those are not 
difficult decisions and that, I certainly think HOME is 
achieving good things, I used it, you know, very extensively 
in----
    Mr. Price. Well, you have just argued, you have just argued 
that not only is it achieving good things but it can absorb the 
functions of other items elsewhere in the budget that you are 
eliminating.
    Secretary Donovan. My point was that more units of self 
help ownership get funded through HOME than do through the SHOP 
program itself, and we felt to maintain two separate programs 
that are achieving the same thing did not make sense 
administratively, to combine those to be able to do them 
together.
    Mr. Price. All right, that logic still escapes me, but and 
believe me I understand very very well the virtues of the HOME 
program, I was on the Financial Services Committee when the 
HOME program was authorized and I think that is a unique 
program in its flexibility and its uses, including perhaps some 
overlap with SHOP. But the notion that you are eliminating SHOP 
and saying it might be absorbed into the HOME program and then 
whacking $200 million off the HOME program, you will have to 
acknowledge, that does not seem exactly like a strong, robust 
argument for working more with Habitat and these other 
organizations that are dependent on SHOP.
    Secretary Donovan. I think those capital cuts, not just in 
HOME but in all the programs that we proposed are difficult 
choices, and they will make it harder to produce new units of 
affordable housing in a range of areas, I do not deny that, and 
these were difficult choices. However, having two separate 
programs, I think, that accomplish those same things is not a 
direction I think that we ought to be going long term. I think 
that is similar to your point about Choice Neighborhoods and 
HOPE VI. The fundamental point I would make is that this is not 
ending HOPE VI, this is expanding what HOPE VI can achieve.

                          CHOICE NEIGHBORHOODS

    Every single project that would be eligible under HOPE VI 
could be funded under what we are proposing for Choice 
Neighborhoods. And so what does not make sense, I think in my 
view, is if we were to continue in the long term a HOPE VI 
program and a separate Choice Neighborhoods program, if you 
have a community that has public housing on one side of the 
street and assisted housing on the other side of the street and 
you want to do a comprehensive neighborhood revitilization, you 
would have to come in and apply to two different competitions 
to be able to be funded.
    What we are proposing is to say, let us make this program 
flexible enough to be able to do both as part of a single award 
doing neighborhood revitilization, to be able to include 
foreclosed homes. Again, very clearly, everything that is 
eligible to do under HOPE VI would be eligible under Choice 
Neighborhoods, but there would be more options, more 
flexibility, and more partnering funding streams that you could 
access as part of it.
    Mr. Olver. Okay, look we will need to move on, thank you.
    Mr. Price. Thank you, Mr. Chairman.
    Mr. Olver. Mr. Rodriguez.
    Mr. Rodriguez. Thank you, Mr. Chairman. Mr. Secretary, 
thank you very much for being here today, and I want to thank 
you, I know you visited very briefly San Antonio. I wanted to 
make sure to see if you could come in with a little more time, 
one of our concerns that are there and I want you to maybe 
comment later on is in terms of, how do we, existing 
infrastructure that we have out there in terms of revitalizing 
some of that infrastructure and improving on that quality of 
life issue as it deals with this crisis and improving on the 
conditions, how that might come about I would ask you to kind 
of comment on that because we do have an existing 
infrastructure that is still in pretty bad shape in some areas, 
number one.
    Number two, I want to congratulate you on moving forward on 
the homelessness effort and adding some of those resources 
there. You talked about coordinating with the Department of 
Education and HHS, and I would ask you to comment on that in 
terms of the type of coordination, but also as it deals with 
the VA. I know Secretary Shinseki with the VA has talked about 
trying to wipe out homelessness when it comes to veterans, and 
one out of every four homeless is in that category. So I was 
wondering if you would might make comments in that area.
    And thirdly, you have commented on it but I want to get a 
better picture in terms of the move, especially with the 
conditioning that we are in now with the economic condition, 
you seem to, I do not know if there is a mismatch there between 
authorizing and appropriating, but also as it deals with 
increasing the private sector, how do we leverage the private 
sector during this particular difficult times or how do you 
plan to do that? Okay.
    Secretary Donovan. Just making sure I get to all your 
questions here.
    Mr. Rodriguez. Okay.
    Secretary Donovan. I am glad you raised the issue of 
veterans' homelessness because the idea that we have over 
100,000 veterans that sleep on our streets or in shelters in 
any given night is unacceptable. And I think General Shinseki, 
Secretary Shinseki, has been very vocal about this and we have 
begun a very strong inter-agency partnership around this, and 
in fact I want to thank this Committee. One of the, I think, 
really transformative pieces of the Recovery Act was the 
Homeless Prevention and Rapid Rehousing Program.

            HOMELESS PREVENTION AND RAPID REHOUSING PROGRAM

    The Federal government has never before been able to really 
focus resources on preventing homelessness. We have seen in 
this crisis a 56 percent increase in rural and suburban family 
homelessness, a 9 percent increase overall in family 
homelessness, but a 56 percent increase for rural and suburban 
families in homelessness. So that funding was able to allow us 
to really reorient the way that our local partners respond to 
homelessness. And in particular, one of the ways that that 
funding has been used most effectively is around veterans.
    We have been able to partner with a whole range of VA 
hospitals around the country to be able to target that funding 
so that we prevent veterans from becoming homeless or those who 
have fallen into homelessness to rapidly rehouse them as 
quickly as possible. So that is one example of the kind of 
partnerships that we have had. One of the things that we are 
finding, importantly, is that it is often much more cost 
effective to prevent somebody from falling into homelessness 
than responding to it in the first place.
    So, using prevention money to pay, you know, a month's 
utility bills or if a family has lost their home a security 
deposit for them to move in to a new rental apartment, saves 
money over them ending up in a shelter or even worse in 
hospitals or other, you know, much more expensive facilities. 
So that is an approach that we have taken out of the Recovery 
Act that this Committee provided funding for that has helped us 
significantly on the veterans side.
    There is a range of other efforts that we would be able to 
pursue with the increase in funding, including more supportive 
housing, almost 10,000 units of new supportive housing, a 
significant share of which would go towards veterans, and a 
range of other issues that are proposed in the budget as well. 
So I think that is a very important part of the collaboration, 
and I think you will see that when we release our Federal plan 
on homelessness in May that a focus on veterans will be a very 
important part of it.
    Mr. Rodriguez. On the leveraging of the private sector 
during these difficult times?

                   MIXED HOUSING AND PRIVATE CAPITAL

    Secretary Donovan. We have focused a lot of effort on 
ensuring that private capital comes back into the market. 
Another thing that you did that has been very effective on the 
Recovery Act is to focus money towards the low income housing 
tax credit market withdraws private equity investment into 
affordable housing. We have seen, while the low income housing 
tax credit market has not recovered completely, it has come a 
long way, and there are some other steps that we are looking at 
to continue to allow it to recover.
    But we have also seen through FHA and other sources the 
ability to continue to provide capital, just as on the single 
family side FHA was set up to provide capital in times when the 
private sector withdraws, the same thing is true on the 
multifamily side. And so we have seen our demand on our multi-
family programs increase significantly and continue to provide 
capital.
    But let me just say one other thing on this. Part of the 
point that we are making, it is not just being able to bring 
more capital in to be able to improve units that are there, it 
is also the point that when we have a system, say like public 
housing or some of our others, where the housing unit is 100 
percent funded by public operating subsidy and public capital, 
it is almost impossible to mix that housing with other forms of 
housing. And so you end up with a very difficult situation.
    If you want to have a public housing unit as part of a 
larger apartment building that might have market rate and is 
truly mixed-income, which is one of the real lessons we have 
learned over the last few years is that mixed-income works, it 
helps to produce better housing, it is almost impossible to do 
that. Some heroic housing authorities have done it, but it is 
very very difficult with the current system that we have with 
public housing purely funded through both operating and capital 
from the Federal government.
    Instead, if we moved to a system of operating subsidies 
that allow private capital to come in, it will become much 
easier to create the kind of mixed income developments, mixed 
use developments, that we know can be more successful. So it is 
not just bringing in the private capital, but also allowing it 
to be mixed with other forms of housing that is so important 
about the TRA initiative.
    Mr. Rodriguez. Thank you.
    Mr. Olver. Thank you. Ms. Roybal-Allard.
    Ms. Roybal-Allard. Welcome, Mr. Secretary. To some degree 
you may have answered the question that I have in your response 
to Mr. Rodriguez, but I would like to go to the rental 
assistance programs, and I was very pleased by the fact that 
the President's budget substantially increases HUD's core 
rental assistance program. However, as you well know that 
really much more is needed. If you look at the current 
situation, particularly given this economic crisis that we are 
in, on any night for example in Los Angeles there are 28,000 
people, or 70 percent of the city's homeless population, have 
no options whatsoever for shelter or on any given night the 
waiting list for housing choice vouchers in Los Angeles is, 
right now it is currently closed because of the excess demand.
    Now, my question is, given the limitations we have in terms 
of the monies, what other things can HUD do, can the Committee 
do to meet the housing needs of these very vulnerable 
populations beyond, you know, the rental assistance programs? 
And I know that there was some discussion in your investing in 
people and places with regards to streamlining the Department's 
rental assistance programs, and if you could just elaborate a 
little bit about that?
    Secretary Donovan. Yes. Well, I think particularly for you, 
Congresswoman, given that you are on the Labor HHS 
Subcommittee, one of the most important things that we can do, 
that I think has been one of the great lessons that we have 
learned over the last decade or so in the progress we have made 
with the chronically homeless, is that unless we can begin to 
connect folks who are chronically homeless not just with 
housing but also with the broader service funding that they 
need--for example, a large share of the chronically homeless 
have a range of disabilities--and unless we can get them, 
whether it is Medicaid or other services that they need to 
really deal with those problems long term, it is going to be 
hard to keep their housing stable and get their lives back on 
track, frankly.

                 INCREMENTAL VOUCHERS FOR THE HOMELESS

    And so one of the things that we have proposed, I have been 
working very closely with Secretary Sibelius and her team 
around how do we connect our vouchers in particular to the 
mainstream sources of benefits that they have at HHS that could 
help to stabilize lives. And what we have proposed in the 
budget is 10,000 incremental vouchers. It is a relatively small 
number, but it would allow us to begin to connect more 
explicitly what we do with HHS's efforts.
    Just to be very specific, on the family side we are 
proposing about 6,000 vouchers that would be competed to state 
agencies that are willing to connect their TANF funding and can 
also get schools in those communities connected as well. We now 
know, and Secretary Duncan has been very active on this, we 
have lots of early warning indicators in schools when we have a 
child who is at risk of homelessness or has fallen into 
homelessness, and yet we have not been targeting those families 
even though we know that they are at risk of homelessness.
    As I said earlier, often much cheaper to catch them before 
they fall into homelessness than to let them fall in and then 
deal with the crisis that comes from that. And so, we are 
targeting 6,000 vouchers toward a combination of state efforts 
that can target TANF money as well as school targeting efforts 
together. Four thousand vouchers that would work in a similar 
way for the chronically homeless connected with substance abuse 
and mental health resources from HHS. So those are early 
efforts, demonstrations if you will, to see if we can make 
those connections work better and ultimately, frankly, save 
money. The best efforts around chronic homelessness have showed 
us that we can actually save overall resources from the 
taxpayer if we target these effectively, the people that are 
most at risk.
    Ms. Roybal-Allard. Okay, thank you. The President's budget 
proposes a reduction to the Public Housing Capital Fund, and 
again I refer to Los Angeles which alone faces $500 million in 
deferred maintenance, and around the country public housing 
agencies face $20 to $30 billion in capital needs, and this is 
even after the $4 billion infusion from the American Recovery 
and Investment Act. My question is that, you know, given the 
need for capital improvements to public housing and the fact 
that addressing these needs would also create jobs at a time 
when they are so critically needed, is this really the right 
time to reduce the funding for these housing capital funds 
since we could really get a double whammy on this?
    Secretary Donovan. So, two things I would say on that. 
Again, as I have said a number of times, this was not a year of 
easy decisions in terms of the budget. Given the focus that we 
had on fully funding vouchers, Project-Based Section 8 which 
make up the vast majority of our budget, we had some very 
difficult choices to make. We had to reduce in other programs, 
and we chose a strategy of reducing some of the capital 
programs. We obviously believe that public housing preservation 
is incredibly important, it is why we supported so strongly the 
$4 billion that was in the Recovery Act, and I think even with 
these reductions we will end up with public housing that is in 
substantially better condition than where we were a year ago 
before the Recovery Act.

                      PUBLIC HOUSING CAPITAL FUND

    The only other thing I would say is that long term, if we 
are really going to deal with the challenges on the capital 
side facing public housing, we are going to need to leverage, 
as I said earlier, other forms of capital, both private capital 
as well as low income housing tax credits and a range of other 
types of investments. And that is exactly what our TRA, 
Transforming Rental Assistance, proposal is doing. And in fact, 
as we move, we have proposed operating subsidies that would 
actually be somewhat higher for the units that would be moved 
over to Transforming Rental Assistance.
    What that would allow us to do is reduce the amount of 
capital spending from the Public Housing Capital Fund that 
would need to go to those units. Because they are getting an 
operating stream that allows them to raise other capital we 
would no longer need Public Housing Capital Fund money to do to 
those units. So over the long term, we believe that moving to a 
single operating subsidy that can take care of both operating 
and capital needs, that will be a more effective way to fund 
those units, will allow the kind of mixed income, mixed use 
developments that I talked about earlier, as well as alleviate 
the need for the Public Housing Capital Fund in the long run.
    Ms. Roybal-Allard. Great, thank you.
    Mr. Olver. Thank you. Mr. Secretary, we are going to need 
to be out of here fairly soon so we are going to try to go 
fairly quickly in the second round here and keep both the 
question and the answers within a 5-minute period.
    Secretary Donovan. Freudian slip there? I will try and keep 
my answers brief.
    Mr. Olver. On the homelessness, I think everybody up here 
is pleased to see the $200 million added. Not everybody is so 
pleased to see the zero funding for VASH--since it was this 
Subcommittee that put the focus on the veterans issue, and it 
would appear that veterans had been largely forgotten at an 
earlier stage. Now, the $200 million more that is there, in 
your testimony you pointed out that for a period of five years 
from 2005 through 2008 essentially that the chronic 
homelessness had gone down 30 percent.
    I wonder, do you think that getting that down 30 percent, 
that is quite a major accomplishment as you point out in your 
testimony, my guess is that it will be much harder to make the 
next 30 percent reduction, that that is one of those cases that 
we have already hit the low hanging fruit, essentially, and I 
realize that the $200 million that is there is supposed to 
provide some additional units in that place, in that expansion, 
in that program. What is your feeling, how many people are you 
going to take care of by that and why do you think you are 
going to be able to do that? And I am very interested in making 
certain that Secretary Shinseki and you are working together or 
I think that veterans will end up being left behind as they had 
been previously.

                         VETERAN'S HOMELESSNESS

    Secretary Donovan. So, a few things I would say. If you 
look at the VA budget around homelessness, substantial 
increases in proposed funding across the board there. So I 
think if you look at the Administration's approach overall to 
veterans' homelessness, I think you will see that it is not 
only not forgotten but it is a major effort and focus of ours. 
Around, just to deal with VASH specifically, we now have 30,000 
VASH vouchers that have been authorized, we have been working 
very closely with VA to try to get those out.
    Frankly, there have been some barriers to getting those out 
on the street quickly. We have spent a lot of time trying to 
streamline that and make sure it is effective. In Washington, 
D.C. in particular we have been enormously successful in 
setting up connections between the VA hospitals and our 
continuums of care, which has accelerated the use of those 
dramatically. I think in our view, if we can ensure that the 
program is working effectively and those veterans are getting 
out, then we would certainly support further VASH vouchers 
getting out there.
    Mr. Olver. Does that suggest that your very positive 
comment about what happened between 2005 through 2008 with the 
30 percent drop that that really was not applicable to 
veterans' homelessness during that period? Because otherwise we 
would be getting out those additional vouchers that we finally 
did provide for veterans in the 2008 and 2009 budgets, those 
would have been getting out much more quickly.
    Secretary Donovan. What I would say is we have made 
progress on veterans' homelessness--because veterans make up a 
substantial portion, I think it is 15 percent, of the 
chronically homeless, as we have reduced chronic homelessness 
overall we have made some progress in reducing veterans' 
homelessness. In fact, the latest numbers show a reduction just 
over the last year of about, I think the numbers are something 
like 130,000 down to just over 100,000. So we have been seeing 
reductions.
    What I would say is that what we have not been able to do 
is leverage the VA hospitals and their efforts through the VASH 
vouchers as well as we would like. So I think that is, that is 
not indicative of a overall problem in reducing veterans' 
homelessness, I think it is an issue around the specific 
connections between--VA hospitals are healthcare providers, 
they have not been used to approaching homelessness in a 
comprehensive way, and so it is really about reorienting their 
approach, which is really beginning to happen, so I am hopeful 
that we are making progress there.
    Mr. Olver. Mr. Latham.
    Mr. Latham. Thank you, Mr. Chairman. The HECM program, some 
of the proposed cuts and the principal limit factor and 
increases in the premium is going to have some effect obviously 
on the average senior. Can you tell us what that would be, what 
you think as far as participation in the program, and what 
would happen if we were not going to appropriate the $250 
million? I know last year we changed the program somewhat so 
that it was in essence budget neutral, and considering the huge 
cost and risks in the program, really should we be continuing 
this program?

                                  HECM

    Secretary Donovan. I believe if the program is self 
sustaining and that we increase the oversight that we have on 
counseling and in a range of other areas to ensure that the 
program is being used in the right way, is being used safely, 
that we should continue the program, that it is a valuable tool 
for seniors used in that way. We are proposing this year to 
increase the premium. The reason that we asked for an 
appropriation, albeit a significantly smaller than last year 
because of the increase that we are proposing in the premium as 
well as some reduction in the principal limit factor, is 
because in order to make it self sufficient this year, self 
financing, we would have had to propose an additional 21 
percent reduction in the principal limit factor.
    That translates for the average senior to between $23,000 
and $27,000 lower than they would be able to get on that 
mortgage, and so we felt that would make the program not 
unusable but much less effective. The issue here really is that 
HECM, unlike our other FHA programs, is far more sensitive to 
long term house price changes, and because of what we have seen 
happen to house prices over the last few years it has caused us 
to have to adjust those principal limit factors and also to 
have this appropriation. But we do feel with some other reforms 
to the program that I talked about earlier that it is a program 
that is valuable and worth continuing to pursue.
    Mr. Latham. Okay. I tell you what, in the interest of time, 
I think I will yield back, Mr. Chairman. Thank you.
    Mr. Olver. Thank you. Mr. Pastor.
    Mr. Pastor. On the same type of question that Mr. Latham 
had, last year you could not persuade the Subcommittee on the 
HECM because it was, zero funding was to make it budget 
neutral, is that what I understand? And what will the $250 
million do this year as he is requesting? I will ask either one 
of you guys.
    Mr. Olver. See what we can do with it.
    Mr. Latham. To keep from reducing the amount available on 
the loans.
    Secretary Donovan. That is right.
    Mr. Latham. Right.
    Secretary Donovan. In other words, neutral, if we had 
proposed to have no appropriation whatsoever, we would have had 
to reduce the amount that someone could borrow, the average 
senior could borrow, somewhere between $23,000 and $27,000, 
which would make it a much less effective program for a large 
number of seniors. That is an option, we could have pursued 
that, and obviously we will have to have further discussions 
with the Committee as we did last year about those options, but 
we are concerned that reducing the principal limit factor that 
much further would really damage the program in terms of its 
reach to seniors who really particularly at this time could 
benefit from it.
    Mr. Pastor. One of the themes that I have heard throughout 
this testimony is, it has been painful to make these cuts but 
we have to do it under the economy as it is and the deficit et 
cetera. And looking to the budget, just I looked at the policy 
development and research, which almost doubled or increased by 
80 percent, and as I read the statement, a question that came 
to my mind was, even though it is maybe not, you know, it is 
not in hundreds of millions, why could not some of this stuff--
is not this being done, some of the initiatives that you have, 
are they not being done by the private sector?
    This year we are doing the census, so that deals with your 
first initiative. The second one, well, and my first impression 
was that why are we going into these three initiatives when I 
believe that possibly a lot of this work is being done and it 
is being done by private associations whose interest may be 
housing, building deficiency, et cetera. So is this good money 
going after something that is causing pain to another sector 
and maybe I do not see the benefit as you might see it?
    Secretary Donovan. Yes, it is a fair question, Congressman. 
First of all, and you said this yourself, the amount of money 
we are talking about for policy development and research is 
relatively small compared to the scale of the reductions that 
we had to take overall.
    Mr. Pastor. But every bit counts.

                    POLICY, RESEARCH AND TECHNOLOGY

    Secretary Donovan. Every bit, absolutely. So I think the 
more important point there is that we have, one of the problems 
with HUD and the way it has operated, frankly, is that it has 
not been based on facts and real research and really 
understanding what programs are working, how cost effective 
they are, and what is not working. And ultimately, I believe 
very strongly, particularly after, you know, major reductions 
in research and policy development over the last eight years, 
was one of the areas of HUD that was most cut under the last 
Administration, I believe that unless we can rebuild a 
relatively strong ability to monitor our programs, to evaluate 
them, to understand what works and what does not in the housing 
world, that we will waste a lot more money on the 
appropriations side than we save by not investing in that 
research.
    I strongly believe that research is something that allows 
us to do a better job and more effectively spend appropriations 
dollars to get more housing for less money through what we are 
doing on the other side. So, obviously there is a balance 
there, and we felt that these investments were targeted in a 
way that we really would get a long term return on that 
investment, if you will, by making sure that we understand how 
our programs are working and being able to push money in the 
future towards the things that are having the most effect on 
whether it is reducing homelessness, improving housing 
conditions, improving economic development in communities. So I 
see them not as in tension in the long term but as an 
investment and something that will help us do a better job in 
all of our appropriated programs going forward.
    Mr. Olver. Thank you. Mr. Rodriguez--Mr. LaTourette, excuse 
me.
    Mr. LaTourette. I will be real quick, Mr. Chairman, and 
thank you. And I really do not have a question, I just want to 
commend you, one, for your testimony today and also for the 
manner in which your Department has shepherded the stimulus 
funds, I think you are to be commended, and if other 
Departments within the government had the same attitude that 
you have exercised we would be further along, I think, and 
perhaps more jobs would be created.
    And I made a note that, you know, when you were talking to 
Congresswoman Kilpatrick about the fact that 80 percent of your 
funds have been obligated but not spent because you have 
adopted this strange notion that we do not pay for the job 
until it is completed, that that is certainly I think the way 
that things should work and you are to be commended for that. 
And, just when you go back and you are talking to the boss, he 
has got this big meeting in a couple of days on healthcare, and 
perhaps if the other parts of the Administration adopted that 
same philosophy that if you are going to collect taxes it is 
probably not a good idea to start the benefits in 2013, you 
should probably start them when you collect the taxes. But 
thank you so much for your appearance.
    Secretary Donovan. Thank you.
    Mr. Olver. Thank you. Mr. Rodriguez.
    Mr. Rodriguez. Thank you very much. And let me just also 
add, I want to thank you for your testimony, I know you have 
been handed a pretty difficult task, and that is to, we know 
that on the authorizing side there is a lot of things we want 
to accomplish, the appropriating side is a little different in 
terms of the amount of actual resources you have to operate 
through, and I know that that is probably one of the 
difficulties that exist there.
    I just want to share, because I know my colleagues talked 
about areas where the population is reducing and there is a lot 
of difficulty handling with that, I want to give you just the 
opposite, where the people are moving to and we are still 
encountering a lot of difficulties. We have 20 to close to 
30,000 Katrina people in San Antonio alone that have decided to 
choose to stay there, and that is great. We still have waiting 
lists that are there to try to cope with in terms of resources. 
And I am glad, I know that during also difficult times it is a 
good time to, as you say, look back in terms of how we are 
expending our resources and how do we best move forward on some 
of these programs and these efforts.
    And I know that with the census coming up we will get a 
better picture in terms of where the pockets are in terms of 
need and that kind of thing, but we do find ourselves with an 
area where we still have a lot of problems with the old 
facilities and some of the areas really need some investment in 
that area, and as well as, you know, the huge waiting lists and 
in some cases we have stopped looking at getting people on the 
list because there is over, you know, I know in San Antonio the 
last time it was close to 3,000, I do not know if it is down 
2,000 or so on that waiting list.
    But I do want to thank you for your testimony and for 
working hard on these efforts, and hopefully as we move forward 
we will be able to get some additional resources for some of 
these areas. And again, as the Chairman has indicated, on your 
efforts in dealing with the issue of homelessness, and 
hopefully we might be able to make a dent in that area. Thank 
you.
    Secretary Donovan. Thank you.
    Mr. Olver. Well, Mr. Secretary, thank you very much for 
your testimony. Obviously you have held us in the palm of your 
hand here for the last 2 hours. Let me just ask one last 
question, which is meant to be something that you can hit right 
out of the park, and that is, how confident are you that CBO is 
going to go along with your estimates of the FHA receipts?
    Secretary Donovan. Well, we sat down with them yesterday.
    Mr. Olver. And what evidence do you have for that 
confidence?

                              FHA RECEIPTS

    Secretary Donovan. We sat down with them yesterday, we are 
trying to make sure that we can get to agreement. I cannot make 
you a promise based on that meeting that we are, you know, 
going to see it completely eye to eye. I think there is a 
history, frankly, that they are concerned about that HUD has 
not always had as good a handle as it should have on what the 
budget projections look like. I would say a couple things about 
that. First of all, that we have used a conservative house 
price appreciation assumption, which is the single most 
important variable, if you look at what the performance of the 
FHA fund is going forward, that is the single most important 
variable.
    If you use CBO's house price numbers, our presentation to 
the Committee would have probably had about $4 billion more in 
receipts than what we showed. So given that, it would be 
surprising to me for CBO to be able to come back and say, your 
numbers are too high, when their house price assumptions were 
much more favorable than ours. So that would be one point. A 
second is that a big part of the issue that we have seen over 
the last few years is the Seller Funded Down Payment Program, 
and when Congress eliminated that, they eliminated the single 
most important source of losses for FHA that went beyond the 
numbers that we had predicted in our budget.
    So that is the single most important explanation of the 
variance between predictions from FHA 2 or 3 years ago from 
where it came out over the last few years. And then the last 
thing I would say is that, since we put the numbers together 
for the budget with an expectation, I think it is of a 6 
percent decline in house prices for 2011, is that right? In any 
case, since we put the numbers together--that is for actuarial 
study--since we put the numbers together, the house price 
assumptions that we have used have turned out to be more 
conservative than reality.
    And so in fact today our reserves are higher than we 
projected they would be when we did the actuarial study, and so 
if anything, our most recent forecasts have underestimated what 
our returns would be, what house prices would do. So I think 
all of those things together would make me believe strongly 
that what we have put in the budget for 2011 should if anything 
be an underestimate. But we will continue to work with CBO, and 
if there is anything my team can do working with yours to get 
to a resolution as quickly as possible that you would suggest, 
we are more than prepared to do that. And again, we have 
already begun those discussions with them.
    Mr. Olver. Goodness, you may be producing a cash cow. 
Several people up on this side have commended you for your 
leadership and openness and your testimony here today, and I 
concur in that. I just hope that CBO is hopefully equally 
commendative.
    Secretary Donovan. We will do everything we can to work 
with them. Thank you very much.
    Mr. Olver. Thank you very much, Mr. Secretary. The hearing 
is adjourned.

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                                         Wednesday, March 10, 2010.

                       SUSTAINABILITY IN PRACTICE

                               WITNESSES

ROSEMARIE S. ANDOLINO, COMMISSIONER, CHICAGO DEPARTMENT OF AVIATION, 
    EXECUTIVE DIRECTOR, O'HARE MODERNIZATION PROGRAM (OMP), CHICAGO, 
    ILLINOIS
FRED HANSEN, GENERAL MANAGER TRI-COUNTY METROPOLITAN (TRIMET) 
    TRANSPORTATION DISTRICT, PORTLAND, OREGON
TOM DARDEN, EXECUTIVE DIRECTOR, MAKE IT RIGHT FOUNDATION, NEW ORLEANS, 
    LOUISIANA
WILLIAM McDONOUGH, ARCHITECT AND FOUNDING PARTNER, WILLIAM McDONOUGH 
    AND PARTNERS, COFOUNDER, McDONOUGH BRAUNGART DESIGN CHEMISTRY

                    Chairman Olver's Opening Remarks

    Mr. Olver. The subcommittee will come to order. Thank you 
all for being here today. Today is the continuation of the 
subcommittee's effort to incorporate sustainable planning and 
desired principles in the Federal Transportation and Housing 
programs. Through holistic approaches that break down silos we 
can ensure that resources, be it land, energy, affordable 
housing or transportation investments, are being optimally 
utilized on all Federal infrastructure projects.
    Before us we have a distinguished panel of experts and 
practitioners who have been on the forefront of developing 
sustainable projects, not because they were required to, but 
because they determined that a sustainable approach made 
economic sense and best met the needs of their communities.
    Rosemarie Andolino is Commissioner of the Department of 
Aviation for the city of Chicago. Thank you, Rosemarie, for 
being here.
    Fred Hansen is the General Manager of the Tri-County 
Metropolitan Transportation District in Oregon.
    Tom Darden is the Executive Director of the Make it Right 
Foundation, operating mainly in New Orleans.
    And Bill McDonough is founding principal of William 
McDonough and Partners architectural and community design and 
cofounder of William McDonough & Partners Architectural and 
Community Design, and Cofounder of McDonough Braungart Design 
Chemistry. Also he is the Chairman of the Architecture 
Department at the University of Virginia.
    Mr. McDonough. Former Dean.
    Mr. Olver. Former Dean, okay of the College of Architecture 
for quite a number of years.
    So thank you all for being here and I look forward to 
hearing each of your stories, not perhaps as long as your 
written testimony is. Those were dense testimonies I must say, 
and required a certain amount of attention to be paid to them.
    Recognizing that a one-size-fits-all approach is not 
appropriate for our diverse infrastructure needs, I am 
particularly interested to hear what lessons you believe are 
transferable to projects of different sizes and to varying 
communities and what role you can see the Federal Government 
playing in facilitating the incorporation of sustainability 
principles into transportation and housing projects.
    The testimony will set the tone for our second panel, 
during which we will hear from the Department of 
Transportation, the Department of Housing and Urban Development 
on the fiscal year 2011 budget requests for their respective 
livability and sustainability initiatives.
    Mr. Olver. With that, let me recognize my active Ranking 
Member, Steve LaTourette, who serves a district in Northeastern 
Ohio, and where I think sustainability and livability issues 
are quite important.

                    Mr. LaTourette's Opening Remarks

    Mr. LaTourette. Well, I thank you, Mr. Chairman. And the 
great thing about Northeastern Ohio is we sustain ourselves. I 
am sitting in for Mr. Latham today. He is over at the Ag 
Appropriations hearing, and he apologizes to you all for not 
being here. And I will do my level best to fill in.
    I was told the Chairman was going to be brief and he was 
brief in his opening remarks. I am looking forward to your 
observations. And I have read what it is that you have done in 
your cities and areas, and you are to be commended.
    I think the question I have is, aside from the fact that 
Chairman Olver invited you to be here while you are in front of 
the Appropriations Committee of the United States Congress as 
opposed to in front of the city councils or town councils from 
where you are from, and my concern is, Mr. Chairman, that not 
the concepts--it is the skimming of about $500 million out of 
the Highway Trust Fund.
    And there is a great publication here on Capitol Hill, 
Transportation Weekly, I don't know how much that makes, but he 
wrote an editorial on pages 11 and 12. And he said the one 
thing these programs have in common relative to Highway Trust 
Fund spending is that none of the projects that are considered 
under--and it is sort of like a soup sandwich, the six 
principles on sustainability and livability. Well, maybe he can 
put some flesh behind them and tell us what they are all about.
    The one thing they have in common, none of the users of any 
of the six principles, as I read them, pay any money into the 
Highway Trust Fund, and it is broke. So I look forward to your 
testimony. And, again, I commend you for what you have done in 
your communities, I am just not so sure that we are heading in 
the right direction here.
    I thank the Chair.
    Mr. Olver. Well, you have been handed a challenge that I am 
reasonably confident that you will be up to. So let's start 
with you, Ms. Andolino. And all of your testimonies will appear 
in the record in their fullest form. So state it somewhere in 5 
to 7 minutes or so, if you would, please, thank you.

                     Ms. Andolino's Opening Remarks

    Ms. Andolino. Thank you, Mr. Chairman and Congressman 
LaTourette and my distinguished fellow panel members. I am 
truly honored to be here today. My name is Rosemarie Andolino 
and I am the Commissioner of the Chicago Department of 
Aviation.
    I appreciate the opportunity to be here to talk about the 
sustainable initiatives that we have implemented at our 
airport. And one of the things to directly address Congressman 
LaTourette's question about our being before the city council--
one of the things I would like to say is our mayor, Mayor 
Daley, has actually been one of the greenest mayors in the 
country. In fact, our city council fully supports green 
initiatives and we have been implementing green initiatives in 
the city government for the almost 20 years that Mayor Daley 
has been in office, and is fully supported by not only the 
mayor, again, but by our city council.
    And so this is to further provide opportunity, education to 
others, about how we have implemented something unique at the 
Chicago airport system. So the Chicago airport system--we are 
in charge of O'Hare and Midway International Airports--it is 
under the leadership of Mayor Daley. And we are committed to 
increasing efficiency, capacity, safety and environmental 
sustainability of our airports.
    Chicago's airports play a key role in the global aviation 
system, and today O'Hare and Midway handle just under 82 
million passengers annually and provide travelers with direct 
and nonstop service to more than 230 cities worldwide. The 
city's plan to modernize O'Hare International Airport through 
the O'Hare Modernization Program, or OMP, is reconfiguring 
O'Hare's outdated intersecting runway system. You have a map in 
front of you there, and it is creating a parallel runway 
configuration which will substantially reduce delays and 
increase capacity at O'Hare well into the future.
    In addition, it complements the actual aviation system and 
the airspace issues that affect us all.
    We have already completed three major infrastructure 
projects in 2008. We opened a new runway, the first one, 
O'Hare, since 1971. Also in 2008 we completed a 3,000 foot 
extension to O'Hare's busiest runway, as well as a new air 
traffic control tower that, I must add, is the first to be LEED 
silver-certified. All three of these projects opened on time or 
ahead of schedule. I would like to emphasize that all three of 
these projects opened on time or ahead of schedule and nearly 
$40 million under budget while incorporating sustainable 
principles throughout our construction and design process.
    To date these projects have helped increase O'Hare's 
arrival rate by 22 percent. Design and planning efforts for the 
completion phase of the OMP, which includes two additional 
runways, the extension of another runway, as well as our new 
South Air Traffic Control Tower, a western terminal complex and 
related facilities has begun. We expect to begin construction 
on the completion phase later this year.
    Now, when the city embarked on construction of the OMP back 
in 2003, it looked at ways to incorporate sustainability into 
the program order to meet Mayor Daley's commitment to 
incorporating green initiatives into projects across the city 
of Chicago. At this time, there were no existing standards for 
airports. So the city assembled a group of aviation, 
environment, and industry experts, environmental and industry 
experts, to create our own guidelines essentially based off the 
United States Green Building Council, or LEED.
    The result was the OMP Sustainable Design Manual, or SDM, 
which the city introduced in December of 2003. The manual 
divided our projects into four categories: Civil Airside; Civil 
Landside; Occupied Buildings; and Unoccupied Buildings. And 
also we developed a rating system to recognize and reward 
design and construction accomplishments and to monitor our 
progress.
    The SDM was just the beginning. In 2009 we created an 
updated and enhanced Sustainable Airports Manual, or SAM, which 
was unveiled by Mayor Daley. With your permission I would like 
to ask that it be submitted for the record. In fact, this is a 
hard copy of our manual, but before you is a jump drive, and 
that jump drive in our efforts to be sustainable has the entire 
document on it as well.
    The SAM integrates airport specific sustainable planning 
and practices from the design process, through construction, 
operations and maintenance, and all airport functions and those 
of its tenants into one manual for green airports.
    The development of SAM has truly been a collaborative 
effort, incorporating contributions from nearly 200 airport 
executives, environmental experts and industry leaders. An 
example of our sustainable initiatives include our Balanced 
Earth Work program which has handled more than 17 million cubic 
yards of soil to build our runways in supporting infrastructure 
projects. This is approximately enough soil to fill up the 
interior of the Sears Tower, or Willis Tower now, eight times. 
All of this soil has been kept on site, instead of being 
installed or hauled away and dumped at area landfills. This has 
resulted in savings of over $120 million to our program, while 
reducing congestion and wear and tear on our local roadways and 
minimizing emissions from haul trucks traveling off site, as 
well as the tipping fees of landfills.
    Based on a review of our 19 construction projects, the OMP 
recovered nearly 98 percent of all construction and demolition 
materials and we use them on site. To date, the OMP has 
realized almost $3 million in savings in the reclamation and 
reuse of crushed concrete and asphalt materials on site.
    And the creation of our green roof spaces, a key component 
to going green across the city of Chicago and in our airports. 
By incorporating green roof coverage atop our airport 
facilities we are helping to counteract the urban heat island 
effect typically found at an airport, as well as reducing 
operating costs. There are currently six green roofs at O'Hare 
and five more already in design and construction phases.
    As has been discussed during the testimony, there is a lot 
of interest in the aviation industry and actions taken by my 
airports to establish the sustainability programs or reduce 
environmental impacts of their operations. Going green does not 
have to cost a lot of green. In fact, it can actually save 
money, too. As there are currently no independent organizations 
whose sole mission is to focus on airport stability, the CDA is 
working with industry experts on a new initiative called the 
airport sustainability program. The concept calls for an 
independent, not-for-profit organization that will promote 
sustainability performances and standards and could objectively 
assess and rate airports, certify their sustainability level, 
and recognize their achievements, just like LEED does, but 
something that is actually tailored to our industry.
    The purpose of this program is to promote an enterprise 
approach to sustainability by recognizing performance in five 
key areas of human and environmental health, workplace 
transportation, construction, supply chain, and human resource 
management. The CDA is working with Members of Congress and 
other airports and industry partners to win broad support of 
these important initiatives. As we continue to implement 
environmentally friendly practices at Chicago's airports, we 
are also helping to promote green jobs in our industry.
    Airports nationwide have recognized that green alternatives 
do exist, and many of them are employing them today, and that 
more are being created every day. The industry also realizes 
the massive potential for a whole new economy from creating 
manufacturing and implementing green technologies.
    We are grateful for the support and encourage the Congress 
to continue these critical efforts. So thank you very much for 
the opportunity to speak to you today.
    Mr. Olver. Isn't that amazing, she stayed exactly within 
the 7 minutes that I allow, even though that has been flashing 
sort of red for the last 2 minutes.
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    Mr. Olver. Mr. Hansen.

                      Mr. Hansen's Opening Remarks

    Mr. Hansen. Thank you, Chair Olver, Ranking Member as well. 
Thank you for the opportunity to appear before you today. I am 
Fred Hansen, for the record, the general manager of TriMet that 
is the provider of all public transportation within the greater 
Portland region.
    When I left the Environmental Protection Agency in 1998 as 
its deputy administrator and joined TriMet, I was committed to 
being able to establish a greening process within TriMet for 
all of our activities. The Portland region, first and foremost, 
has found that the connection between transportation and land 
use is paramount to be able to make both public transportation 
work but also to achieve our environmental goals.
    Our land use requirements have in fact led us over the past 
decade, most recent for which data are available, to see a 
total daily vehicle mile traveled reduction of approximately 8 
percent. During that same decade, the U.S. as a whole increased 
its daily vehicle miles traveled by about 8 percent. And the 
connection between land use and transportation has been key to 
being able to achieve that.
    From our standpoint, it has resulted in having the Portland 
region be the seventh highest per capita ridership in the 
Nation. For a younger Western city to be able to have that has 
been very important to be able to make those connections.
    Today I would like to be able to focus on three areas that 
are there, some of what you have heard from Chicago, but in a 
transit setting: specifically on construction, on operations, 
and ultimately on equity.
    First, from a construction standpoint, we have done many of 
the things that you have heard about from Chicago; that is, 
recycling of concrete onsite to be able to use for roadbed; 
support to be able to do a whole series of other things.
    But I would like to be able to use two examples that I 
think particularly capture the goals we have. Number one, in 
landscaping, historically landscaping has been something to 
make it beautified. And as a result, there oftentimes are 
species that are introduced that require lots of attention, 
pruning, water, fertilizers and pesticides. We have gone 
through nature-scaping, and really ended up using native 
plants. For us that has lowered our overall cost, because it 
means for water, for example, we require that there be 
irrigation for the first 2 years so that plants can become 
established, but specifically indicate that we are not to have 
any additional irrigation. Likewise, because they are native 
species, we have been able to cut down on fertilizer and on 
pesticide use, and it has been very important.
    Second, we have ended up using recycled materials in a 
number of our construction areas. We have used railroad ties 
that are not wood or steel, but plastic made from recycled 
gasoline tanks from automobiles. It has not only been a cheaper 
alternative, it lasts better. And because it is not metal, some 
of the grounding that is necessary for electric light rail 
operations can be avoided, thereby saving us even more money. 
And that has been very important.
    Second, let me turn to operations. Operations, obviously 
critically important to be able to reduce our environmental 
impact. We are the largest purchaser of diesel fuel in the 
State of Oregon, about 6.5 million gallons per year. Anything 
we can do to be able to improve our fuel efficiency makes for 
lots of improvements. Not only have we done things like 
ensuring the tire pressure is up, our steering mechanisms are 
tight, we are not losing to friction, but we have also 
introduced what I like to refer to as Ralph Cramden meeting 
NASCAR.
    The typical bus engine is 285 horsepower, about 45 of those 
horsepower are used to mechanically--for mechanical functions 
of engine, particularly water pumps and other mechanical 
elements. We have been able to, in a joint effort with EMP, be 
able to introduce electrification of those, what are called 
``parasitic loads'' on the engine. As a result we have been 
able to gain between 5 and 7 percent higher fuel efficiency 
from just that one area.
    Third, let me address specifically the area of social 
equity. We have found that as we are building large projects 
and we are building it through communities, we have made a 
commitment that said that those communities will in fact be 
able to benefit from our construction activities not only in 
terms of direct hire, but in terms of the contracting and 
subcontracting that is done to build those projects. And we are 
very proud that we have set the bar very high. As a result, we 
have been able to achieve some of the highest levels of 
participation of minority and women-owned businesses that have 
been on any public project within the State of Oregon.
    Let me give you two examples of the areas that we have done 
that has been so successful. Number one is that many of our 
small, minority-owned businesses in the trucking field are 
really very small businesses, one or two trucks per company. 
But to be able to have them move to the ability to be able to 
participate in a large construction project is just too much 
effort for the general contractor.
    What we did was put together a collation in one of our 
neighborhood associations whereby the general contractor could 
go to this coalition, and just as different needs for a daily 
basis, a truck or two at this location, three at this location, 
they would just go down through the list of these very small 
businesses, and being able to have them allocate that truck to 
that location. It meant that the general contractor was able to 
be operating efficiently, but it also meant that those 
businesses were able to participate in large construction 
projects that would not have occurred otherwise. Not only did 
we get quality, we got price as well in that.
    Second, we have really broken down our contracting into 
very small pieces that thereby allows for smaller firms, again 
minority- and women-owned businesses, to be able to participate 
by being able to get bite-sized pieces of work that is 
critically important.
    Well, this work has not only been at Oregon. I have also 
chaired the effort on behalf APTA, the American Public Transit 
Association, to be able to lead sustainability efforts there. I 
am very pleased to note that we now have a framework for all 
transit properties or transit-related businesses to be able to 
sign up to sustainability principles, to be able to be a 
signatory to that, and to be able to achieve higher levels of 
participation.
    With that, I would just like to to stress that I think it 
is very important to be able to see least-cost planning type 
concepts applied to sustainability, because I believe that in 
the long run, when we in fact utilize least-cost planning, we 
will see that over time, when one looks at costing, that the 
investments in sustainability not only make good sense for the 
environment, they make good economic sense as well. Thank you.
    Mr. Olver. Thank you very much.
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    Mr. Olver. Mr. Darden. I am beginning to wonder if any 
staff told you all that I was going to allow 7 minutes. Mr. 
Darden.

                      Mr. Darden's Opening Remarks

    Mr. Darden. Good morning. My name is Tom Darden and I am 
the Executive Director of Make it Right. Thank you, Chairman 
Olver and Congressman LaTourette, for inviting me to speak with 
you today.
    Make it Right builds well-designed, safe, sustainable, and 
affordable homes for working families. We believe these 
qualities are not mutually exclusive, and we aim to be a 
catalyst for change in the building industry. The idea for Make 
it Right began when actor Brad Pitt saw the Lower Ninth Ward, 
previously the neighborhood with the highest rate of 
homeownership in the city, devastated and abandoned 2 years 
after Hurricane Katrina. He resolved to do whatever he could to 
help.
    In this once vibrant, historic neighborhood, more than a 
thousand people died and over 4,000 homes were lost in the 
greatest natural disaster suffered by our Nation. Still, Lower 
Ninth Ward residents, some living in FEMA trailers where their 
homes once stood, and many more scattered across the country, 
were determined to come home and rebuild. Residents told Brad 
that while Katrina exposed their vulnerability, the crisis also 
created an opportunity to build something better than what 
existed before. Out of these discussions came the principles 
that would define our work, design, safety, sustainability and 
affordability.
    Make it Right's immediate goal is to build at least 150 
safe, healthy, green and affordable homes for former Lower 
Ninth Ward residents. To accomplish this, our organization has 
become a unique laboratory for testing and implementing new 
construction methods, technologies, and materials through 
learning through trial and error.
    So we set out to create highly sustainable homes first, and 
then figure out how to get the cost down, second. We assess all 
materials, systems, and appliances used in our homes by 
analyzing whether they are healthy for humans and safe for the 
environment. This process is based on cradle-to-cradle 
thinking, a philosophy developed by one of Make it Right's core 
partners, Bill McDonough, who you will hear from next.
    We strive for energy efficiency in every aspect of our 
homes. The building envelope is inflated to be as much as ten 
times tighter than a typical home, allowing smaller heating and 
cooling systems that save energy. We also collect rainwater 
from the roofs to recycle onsite. And every roof has solar 
panels and Energy Star-rated appliances. We have engineered 
wall sections that use 30 percent less lumber, but are five 
times stronger than a traditional structure.
    So what is the cost? We set a goal of building LEED 
Platinum homes, the highest rating award by the U.S. Green 
Building Council. Through design and creative determination, 
Make it Right was able to reduce the cost of building a LEED 
Platinum home in New Orleans by 50 percent in our first 
attempt. We are currently building at $20 per square foot over 
market rate, but this is an extreme situation with houses built 
to be storm-resistant and using the most advanced technologies 
available.
    We expect to achieve market rate construction costs while 
still building LEED Platinum homes by the end of this year. And 
the Lower Ninth Ward now has more LEED Platinum homes than any 
other community in the world. Our residents' energy bills 
average $35 a month, ten times less than a traditional home.
    I actually brought two energy bills here today. The first 
is my personal bill, which is $350. I also brought an energy 
bill from one of our families' homes of about the same size for 
about the same period, and theirs is $30. So think about what 
that savings means to a working family.
    While some new products and associated training costs are 
higher, the learning curve is steep and lower operating costs 
quickly offset any up-front premium. And we always look for 
other ways to achieve savings by eliminating waste. Make it 
Right experiments with various types of construction methods, 
enabling us to review and compare data on cost, materials used, 
energy efficiency, and other variables to determine which 
methods are most cost-effective. We focus on low-hanging fruit 
and the highest cost systems to find cost reductions.
    We have significantly lowered cost by providing training in 
solar panel installation, pouring pervious concrete, and many 
other advancements to local contractors who had not previously 
worked with these technologies. By elevating contractors' skill 
sets, we increase speed and efficiency on the job site and 
thereby reduce cost.
    Our solar installation cost has dropped in half since we 
started. We hope that our simple yet committed adapted approach 
to building sustainably will generate lessons learned from the 
Lower Ninth Ward that will help others seeking to provide 
affordable housing while simultaneously addressing the complex 
ecological challenges of our time.
    We are making our methods and data available to anyone. We 
are creating by far the largest green housing research project 
anywhere. Forty tour buses a day visit our site and people come 
to New Orleans just to see what we are doing, so we will have 
an opportunity to share our message.
    The government has an important role to play in promoting 
homes that are healthy and safe for people in the environment. 
You can help make sustainability a reality in more American 
communities by setting standards, investing in green jobs, and 
encouraging broad partnerships. Do not allow the construction 
industry to put our economic and environmental futures at risk. 
If we continue to build inefficient or unhealthy buildings, 
society will carry this burden for many decades.
    Make green building your baseline, not a theoretical ideal. 
Sustainability should be an essential element of the Federal 
Government's housing, transportation and infrastructure efforts 
as well as energy-related legislation. Offer tax credits, grant 
funding, support for research and development and other 
initiatives to taxpayers, businesses, and nonprofits that 
prioritize sustainability. Invest in green jobs and establish 
national and regional resource centers for shared knowledge.
    As we at Make it Right have learned, investment in 
experimentation, research and testing lead to cost savings 
innovations.
    Locate these resource centers in cities like Detroit, 
Pittsburgh, and New Orleans which are fertile ground for 
tomorrow's breakthroughs. America loves a good comeback story, 
and if you don't believe me, just ask the New Orleans Saints.
    Thank you for allowing nonprofits to participate directly 
in Federal housing efforts such as the Neighborhood 
Stabilization program. You can multiply the benefits to the 
environment and the economy by making a broader array of 
organizations available for such programs. Sustainability is 
not an unattainable goal. It is a daily practice in the Lower 
Ninth Ward. Please join us in our effort to create a 
sustainable future by rethinking the way our buildings are 
built. Thank you for your time.
    Mr. Olver. Thank you very much.
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    Mr. Olver. Bill McDonough.

                    Mr. McDonough's Opening Remarks

    Mr. McDonough. Thank you, Mr. Chairman. Hello, everybody. I 
am a designer, and as a designer I realize that design is the 
first signal of human intention. When I was the Dean at the 
University of Virginia, I had the privilege of living in a 
house designed by Thomas Jefferson. And as such, I got to see 
Jefferson as a designer and I think he saw himself as a 
designer, too, because if you look at his last design, which 
was his tombstone, it says: Thomas Jefferson, author of the 
Declaration of American Independence, the Statue of Virginia 
for Religious Freedom, and father of the University of 
Virginia. You will notice that he is only recording the things 
he designed. There is no mention of his jobs like President of 
the United States. So he is recording his legacies, not his 
activities.
    I think what we see in the legacies in the work that we 
have heard about today here, what we are seeing is that there 
is this notion that we can have human work while we support the 
natural world around us. There is no reason that business has 
to equal destruction of the natural world.
    We have heard about green roofs. We put the first green 
roof in for Mayor Daley in Chicago, in City Hall, way back 
when. And we did the Fort Rouge project for Bill Ford in 1999. 
We have a picture here. I will just give you a sense of what 
happens when you think this way. Ford Motor Company had this 
big site. When we were hired to do this plant, we had a $48 
million contingent liability for meeting the Clean Water Act 
for stormwater management, almost 4 miles of concrete pipes and 
chemical treatment plants. We designed using the screen roof; 
it saves the building over 50 percent of its energy. And the 
bottom line was that it saved $35 million in stormwater 
management costs, which meant that when I had to present it to 
Ford's board for approval, it took a minute and a half. I used 
the language of cars, I said: This green roof will save you, 
day one, $35 million in cap backs; and with Ford Taurus, at a 4 
percent margin out of Chicago, this was equivalent of an order 
for $900 million worth of cars. Do you want it? Approved, next.
    So if we start to think about this we realize that that 
design would never have happened if we benchmarked and started 
with metrics, if you simply said let's use less chemical 
treatment plants, or less concrete, or less randomize, void, 
reduce. All of this minimization language that come out of eco-
efficiency is going to kill us, because if all we know how to 
do is be less bad, then we will never learn how to be more 
good. And being less bad is bad by definition, just less so.
    So we actually need to be able to turn around and do 
something productive and more good. If you look at this roof, 
that is a habitat of 10\1/2\ acres. The birds started landing 
on it within 5 days, and it has produced tremendous economic 
benefits to the company, not because we were seeking lower 
metrics, what we were seeking is the natural world to be 
supported by humans, and therefore we enjoy it.
    Peter Drucker pointed out that it is the manager's job to 
do something the right way, but it is the executive's job to do 
the right thing. Because if you are doing the wrong thing the 
right way, you are pernicious. The question becomes: What is 
the right thing to do at this point? And Warren Buffet, with 
whom we worked on their carpet company, Shaw Industries, as 
part of Buffet's company, Berkshire Hathaway, we looked at the 
carpet industry in America and right now there is 1.45 billion 
pounds of carpet waste in the United States every year. So we 
developed a carpet with Shaw that is infinitely reusable. The 
top is nylon 6, can go back to capital Act and the underlying 
term is plastic polyolefin, infinitely recyclable. So now we 
have a carpet that can be recycled into carpet forever; and it 
won't be done in China, it will be done in the United States. 
It is the last remaining textile industry in the U.S.
    And so there are hundreds of products that can be developed 
this way that will never offshore. It is really astonishing. 
When you think about the security of this country, just 
remember this: The Chinese will never capture an American 
photon. So if we move on, we realize this cradle-to-cradle 
approach which is focused on the generation of local industry, 
ecologically intelligent, and based on the idea of profit and 
accrual of assets to society, to the environment, and to human 
beings, we start to realize that there is this gaping hole in 
our economy that we totally have missed since the Second World 
War, and it is time to bring it back. And that is why we go 
cradle-to-cradle.
    If you look at it now, I work with the senior management of 
companies whose annual revenues exceed a trillion dollars 
developing their protocols, including Wal-Mart. I am a senior 
advisor to Wal-Mart sustainability. When you see the systems we 
now have, Proctor & Gamble will send product to a Wal-Mart 
where it will then move, and that is oil and transportation, a 
few jobs making soap, and that will move through a Wal-Mart as 
a demand site tool, and come out the other end and go to Waste 
Management onto a landfill or an incinerator. That is cradle-
to-grave and that is what we do today.
    If we stop and think for 2 seconds, if Proctor & Gamble 
talked to Waste Management and we got their designs 
coordinated, all of a sudden you could have things coming out 
the back end of the Wal-Mart, go to consumers and customers, go 
to Waste Management, and go back to Proctor & Gamble to close 
the cycles. That is cradle-to-cradle, and that means we have to 
design these polymers to be safe and healthy, et cetera, and 
have secure feedstocks which are national.
    Right now the feedstocks are all coming from offshore, and 
then we throw them away. It is a really great design if you 
think about it. And humans need to be quite humble about our 
design sense, because we must remember it did take us 5,000 
years to put wheels on our luggage.
    So what we realize is the things we have been hearing are 
signals of the future: safety, health, delight, job creation, 
economic benefit, and so on.
    And just to amplify what Mr. Darden said, we can look at 
the notion of Make it Right as a story. And recently in New 
York, one of the residents got up and told this story. She and 
her family had been in Texas, waiting and waiting, and thought 
they could never go home. And then they saw the Make it Right 
houses going up, and they called Make it Right and they got 
taken all the way through the process of being able to come 
home. And now she says they live in a house designed by an 
internationally famous architect. It is delightful for them. 
The children each have their own bedroom, she has her own 
office. She hasn't figured out all of the smart lighting yet, 
but she is enjoying playing with it. But the marvelous story 
for me is not just that; it is that her mortgage is $400 a 
month and her energy bill is $50. And she said now her children 
can take the karate and dance lessons they always wanted. This 
is a very powerful quality-of-life strategy we are seeing.
    But beyond that, something particularly interesting to me 
since we selected all materials for cradle-to-cradle attributes 
is that she said, oh--and she just said it parenthetically--oh, 
my daughter has asthma. And you know what it is like waking up 
in the morning and your child goes wheezing, and she wants to 
be a dancer? Ever since they moved into the house at Make it 
Right, her asthma has gone away and now she can be a dancer.
    Our job is to design the future, safe, healthy, and it 
serves a simple goal. We seek a delightfully diverse, safe, 
healthy, and just world with clean air, water, soil and power, 
economically, ecologically, equitably, and elegantly enjoyed, 
period. Thank you.
    Mr. Olver. Thank you very much.
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                       CRADLE-TO-CRADLE BUILDING

    Mr. Olver. Well, I must say I am blown away by the 
testimony today. I actually did read it; maybe it will come out 
that I have. The greatest admiration for the principals and 
processes that you have gone through in reaching where you are. 
And I want to say in the case of Mr. McDonough, I wanted to 
quote to everybody--by the way, I am a chemist.
    Mr. McDonough. Polyvinyl chloride.
    Mr. Olver. All right, polyvinyl chloride. So you mentioned 
PVC, and I just didn't then see exactly what it was. But what a 
wonderful thing to manage to figure out how to get beyond that.
    I want to just quote to you from Mr. McDonough's, what I 
found the most interesting one sentence of his testimony, maybe 
it is two sentences, actually, and I am going to quote it.
    ``From my designer's perspective, I ask why can't I design 
a building like a tree? A building that makes oxygen, fixes 
nitrogen, sequesters carbon, distills water, builds soil, 
accrues solar energy as fuel, makes complex sugars and food, 
creates micro-climates and changes colors with the seasons, it 
is a delightful prospect.''
    And it seems to me that much of what you are doing, it is 
the cradle-to-cradle concept as you have laid it out, that 
little section about a tree.

                                  LEED

    Anyway I commend the full testimony to all of you, whether 
you happen to be from HUD, from Transportation, EPA or others 
who are here, because you are involved in the sustainability 
business. These folks have really done an excellent job of 
laying out the situation that we are in, and I do commend that 
to you.
    We are now on the 5-minute and I am going to have to 
control myself here or I wouldn't have any questions at all 
here. I do want to not acknowldge that we have had enormous 
innovations since the LEED process began. And, Mr. Darden, you 
have mentioned that you are now planning to do, in the 2010 
production that you do, LEED Platinum.
    Mr. Darden. That is correct. We do it now, so our goal is 
to build LEED Platinum houses.
    Mr. Olver. From now on.
    Mr. Darden. From now on, absolutely; but also at the same 
price that market rate construction costs in New Orleans.
    Mr. Olver. Okay. Now, I note in the case of both Chicago 
and Portland, the references are mostly, if not all, in the 
testimony to LEED Silver. I trust that because these 
capabilities to produce the stronger positions, these have been 
advancing because of innovation year by year. So what you do in 
your areas, too, and the 2009 manual, the SAM manual you 
mentioned, I hope is going to be functioning at Platinum level 
rather than Silver level. My guess is that the additional cost 
that that implies is paid back within 3 to 5 years, and the 
savings from so doing goes on for the next 50 years.
    So it seems to me that we should be following, tracking as 
quickly as possible, the advancement of these because of 
innovations in all of the areas that you work.
    Ms. Andolino. Absolutely, sir. In fact, the struggle we 
had, unfortunately, is a tower doesn't really fit into LEED, 
because LEED really deals more with residential buildings or 
office space, not a building that has a base and a tower on top 
and just a means of ingress and egress in between. So in our 
attainment of LEED, we were only able to achieve LEED Silver 
because otherwise there weren't enough points in the system 
essentially to meet the needs of a tower.
    And that why we are focusing on getting an independent 
organization to put together a process that deals with our 
industry airports and the unique buildings we have. Like many 
of my colleagues have had now LEED-certified terminals in 
Boston, in Atlanta they are planning one, Indianapolis has one. 
And so there are many great things going on. But, again, it is 
sort of a square peg/round hole, and LEED is a great start but 
we need truly something that is a little bit more reflective of 
our organization, our type of business, and that is where we 
are promoting kind of a LEED for airports.
    Mr. Olver. Okay. I will get an additional chance. I am sure 
we are going to continue with 5-minute processes here, so we 
will follow up with more thoughts. Mr. LaTourette.

                           HIGHWAY TRUST FUND

    Mr. LaTourette. Thank you, Mr. Chairman, thank you all for 
your testimony. I don't want to be misunderstood when I said at 
the beginning I think you are all doing great work. You are all 
doing great work. That is not the point of my objection to what 
is going on.
    The point of my objection is, as I understand the 
administration's proposal, and now being given over to Mr. 
Olver's stewardship, is to break down silos and to create 
livable and sustainable communities, and integrate 
transportation with affordable housing and some other things. 
What I heard is silo, silo, silo, silo.
    Now my big problem is, I get the HUD piece, I understand 
why HUD would be making investment in what you are doing, Mr. 
Darden--by the way, Thom Darden was my favorite player ever 
from the University of Michigan.
    Mr. Darden. No relation.
    Mr. LaTourette. Well, actually he spelled it Thom Darden, 
we used to call him Thom.
    I don't get why we are invading the Highway Trust Fund. 
Highway Trust Fund. It is paid for by Federal excise tax on 
gasoline, it is a user fee. And the deal we make with the 
traveling public is you buy gasoline, you pay into the trust 
fund, and it builds infrastructure.
    A decision was made a number of years ago--I love transit 
and I think the $56 billion, roughly, out of the 6-year bill is 
a good investment, but it should come out of the general fund, 
as should what you are doing, because all of the things that 
you are engaged in are not contributing to the trust fund.
    So that is my problem and that continues to be my problem. 
And the same with the airport improvement program. I think the 
airport improvement program, when I pay PFV or whatever, I 
don't check bags anymore because I have to pay 20 bucks.
    Ms. Andolino. Thirty.
    Mr. LaTourette. But all of those fees, I expect what you 
have done in Chicago, a runway, I expect to be able to get 
there on time, if at all possible, and I expect good 
infrastructure. So I don't quibble with anything that you are 
doing.
    I think it is all great work, but my problem is where it is 
coming from. Why should we--and, Mr. Hansen, you started in the 
seventies. How much Federal investment was made when you began 
your great work in the 1970s? Well, you weren't there, but 
Portland was.
    Mr. Hansen. Well, certainly we in the Greater Portland 
Region believe that what is important is mobility and that 
mobility is really providing people choices, whether that be 
driving their car, or whether it be using public 
transportation, or whether it be addressing it through biking 
or pedestrian activity.
    But that connection from our standpoint has always been 
about mobility, and the Highway Trust Fund allows us to be able 
to have, obviously, a certain amount of flexibility in how 
those investments are made. And we think that the local area in 
fact is better to be able see how to break down those silos, 
or, as some would say cylinders of excellence. But the issue 
for us is really how do you integrate that? And I think that 
that is something that the administration is making a very real 
effort at; that is, HUD, EPA and DOT.
    Mr. LaTourette. I am not quibbling with you, but why does 
it have to come out of the Highway Trust Fund? Why can't you 
get your dough out of the general fund? You can. You can make 
the same choices, right?
    Mr. Hansen. Certainly something that the Congress can 
choose to be able to do. But to a very large degree, the 
Highway Trust Fund has created some of the very problems that 
we are seeing from air quality, from a carbon intensity 
standpoint and others. And to be able to solve that does seem 
to me to be a legitimate purpose and use of the trust fund.

                    REBUILDING THE LOWER NINTH WARD

    Mr. LaTourette. We are going to respectfully disagree, but 
I would tell you that I think the sustainability people are the 
old sprawl people. And I am okay with that. But I would say 
that if you are going to attack sprawl and if you are going to 
have interconnectivity and intermodalism in all the cities, you 
have to reverse the tax policy, what we have around since the 
end of the Second World War, that indicates we are going to 
subsidize home ownership in this country. That is what creates 
sprawl. You can chicken-and-egg the thing, and say because I 
get to write off the interest on my mortgage and because I get 
to write off other things, I am going to buy a house that is 30 
miles outside of Cleveland, and you are going to have to build 
a road to it or somebody build a road, and so I moved out 
there. Until you reverse those things you are not going to 
really affect that.
    I am happy that Mr. Pastor is here because I was interested 
in your discussion of native plants that you are planting 
along--I don't think he has any native plants out there, maybe 
cacti, so he probably will save on water a lot.
    Mr. Darden, you said you are currently building these 
Platinum houses at $20 a square foot over market rates?
    Mr. Darden. That is right, $150 a square foot. And keep in 
mind that it is a unique situation. We are building disaster-
resistant houses in an area----
    Mr. LaTourette. I got it; I am just trying to figure out 
what it is. So this house over here, how much did that cost?
    Mr. Darden. If it is a prototype design, then the budget is 
about $200 per square foot. That was one of the first of that 
particular design that we built, so more like $200,000.
    Mr. LaTourette. Two hundred thousand dollars for the house. 
How many square feet is it?
    Mr. Darden. About 1,400.
    Mr. LaTourette. And the other problem when we come back, is 
that--Denver is not here, but one of the problems with this 
notion of building housing and connecting it to rail is you are 
pricing the people out. You are not doing affordable housing in 
some cities. What you are doing is letting rich people buy nice 
places in cities, and they can take the train to work, which is 
nice. But that sort of defeats the purpose of affordable 
housing, in my mind. Thank you.
    Mr. Darden. To address that, all of the families that we 
work with are former residents of the Lower Ninth who lost 
their homes during the storm. And so if we are indeed building 
a house that is a prototype, then we don't pass that cost on to 
the family. So the family's sale price is fixed at our target 
construction cost, fixed at market rate. And so we raise money 
privately to fund that extra cost that we incur, and that 
allows us to experiment and then drive down costs on future 
houses.
    Mr. LaTourette. I get that. But, again, you are dealing 
with a situation where that house is subsidized. I think New 
Orleans is a different situation than most parts of the country 
because of devastation down there. Going to Denver, they are 
building nice houses and rich people are moving into them, and 
people who make modest means can't afford to buy them, to get 
on the train to go to work.
    Mr. Darden. We know how to build houses that are green and 
affordable. Those lessons could be applied anywhere in the 
country.
    Mr. Olver. Thank you. Mr. Pastor.

                           AFFORDABLE HOUSING

    Mr. Pastor. Thank you. We do have native plants and I 
invite you to come to Arizona, and you can go up to Flagstaff 
and see the pines, or stay in Phoenix and see the swarels and 
the grasses that we have. So I ask you to come over and we can 
go to Glendale also.
    One of the problems that I think we have--and I follow with 
Mr. LaTourette--is once you start building housing, you aim to 
be affordable housing; and before you know it, without some 
subsidies or the ownership being a public sector, that you tend 
to get to higher costs because it attracts people with money 
and they get to the game and walk around a lot.
    It is a problem, I think, and the question goes to this: 
About 4 years ago, or 2 years ago, we started this initiative 
in Phoenix. We now have the first 20 miles of a light rail 
system. And we have open areas and areas that are built out, 
downtown area. And we are trying to bring affordable housing so 
that we have that equity in terms of people who have middle 
incomes, lower incomes, can be able to live and get to work, 
because they are the ones that will use the public system. They 
are the ones that will use the buses and the transit system.
    And since you have had some experience, all of you have had 
some experience, since HUD and the Department of Transportation 
are developing this initiative and what grants to give, what 
would you suggest to them in terms of what would meet our goals 
and, at the same time, that money is used wisely so that we can 
have equity, affordable housing, and lower the imprint that we 
are--quality of life we are all trying to attain.
    So as these people are getting their initiative pretty much 
started, what would you suggest to them of what they need to do 
in these grants so that the city of Phoenix, the city of 
Portland, or Maricopa County can achieve what we all want to 
achieve? All four of you can take a shot at it.
    Mr. Hansen. Let me begin. First, I think it is very 
important that affordable housing is a key element of being 
able to make our cities work, our regions work, and certainly 
to make public transportation work.
    The issue, from at least the Portland region, is that we 
often look at what the total cost of being able to both buy 
that house, but also to have that transport necessary to get to 
and from the necessary activities of life. And when you add 
those two costs together, that is the true cost of that sprawl, 
if in fact it means that that individual must have or that 
family must have multiple vehicles, must, in fact, pay lots in 
terms of transportation costs, that is part of that housing 
choice.
    So first I think one needs to look at it realistically 
about what the costs are of the housing and the housing 
location.
    Number two is we do believe very fundamentally that what in 
fact the Department of Housing and Urban Development under 
Secretary Donovan, Shelly Batista in the Sustainability Office, 
is doing, as well as Secretary LaHood and Administrator Rogoff 
at FTA, and that is how do you integrate these things so that 
you actually achieve in a community the ranges of affordability 
for housing, the ability to be able to have alternatives to get 
around, to be able to walk at least for some of those trips or 
take public transit.
    We in the Portland region have done that and think it is 
very important. We also realize that in the Portland region, 82 
percent of our riders are what we call choice riders; that is, 
they have a vehicle or access to a vehicle, but still make use 
of public transport. So it has become a part of the community. 
It is not for rich, it is not just for poor, though transit 
dependency is a very key element.

                           HIGHWAY TRUST FUND

    Ms. Andolino. One of the things I want to address is we 
talked about the Highway Trust Fund and roadways. One of the 
things that is unique about what we have done is the fact we 
have dealt with the civil side, heavy civil, roadways, bridges, 
which are runways. I mean, a runway is essentially a roadway, 
and we have relocated bridges and rail lines and roadways as 
part of our program.
    And what we did is that we went into this consciously to 
look at how we can build it in a sustainable manner. No one 
told us to. There were requirements that were had by the FAA, 
but our program was more sustainable and more of a commitment 
to the environment than even they required of us in our 
environmental impact statement.
    With that we went in again, knowingly in our design as well 
as our construction, of how we could respect the environment. 
When I say ``the environment,'' mind you, O'Hare is surrounded 
by communities all around us. If we would have taken that 17 
million cubic yards of soil and filled those trucks up and 
dumped them in landfills, that would have been over 500,000 
trucks on those highways, on those roadways, destroying them 
and creating greater impact. In addition, it would have been 
releasing particulate into the air, and then traversing through 
the communities as well as congesting those streets.
    So by thinking proactively, we made a business decision and 
it became part of our culture right in the beginning to figure 
out ways, how we could minimize our impacts to the community 
and do the right things. In doing so, there was a business case 
there as well that saved us $120 million. We used our resources 
more wisely.
    And many times, we are already doing some of these 
initiatives; we are just not doing them consciously because 
they are good business decisions.
    And now, as you heard, the recycling of aggregate and the 
reuse of projects, many people are doing that because, again, 
it makes good business sense. But you are not using virgin 
material, you are utilizing product onsite.
    In fact what we have done is collected product onsite, 
stored it, accumulated it, brought in a crusher, crushed it to 
our specs, and then again reused it into our program, 
minimizing hauling trips on and off which normally would happen 
otherwise.
    So I think when you are looking at a budget, a highway fund 
that has challenges, if you think about it consciously and how 
you can proactively go in, make the right choices, do things 
that are sustainable, you can actually save money and then pave 
more roads or fix more highways. You know, there is a positive 
end to that.
    Mr. Pastor. I think she was answering Steve's question, not 
mine.
    Mr. Olver. I think that is true. I allowed you to do so, 
but I will play off that one, you know. In doing what you are 
doing by taking all those trucks, all those trucks out of the 
neighborhood roads, they paid monies into the trust fund. And 
by doing what you have done, you are in fact causing less money 
to go into the trust fund. So I am thinking, trying to put my 
head where Steve was at an earlier point here.
    Mr. LaTourette. Good luck to you.
    Mr. Olver. He is going to answer. He is going to come back 
at me for that, I am quite sure.
    Mr. LaTourette. I am minding my own business.
    Mr. Olver. I want to cover a lot of, a couple of other 
things here. Mr. Hansen, you have this wonderful chart in here 
which shows the miles traveled per capita in Portland and how 
it has declined over time and so forth. And it looks to me, you 
give the data for Portland alone. You give the data for 
Portland to Vancouver, which, I take it, means the whole 
Cascadia grouping. Is it just Portland and Vancouver?
    Mr. Hansen. Portland and Vancouver, Washington which is a 
sister city and it is within the SMSA.
    Mr. Olver. Oh. Ah. Okay. So that suggests--oh, all right. 
Okay. Now, I was reading that a little bit different. When you 
said Portland to Vancouver, I was reading it Portland to 
Vancouver, Canada and trying to bring in a comparison of what 
Vancouver, Canada and Seattle and Tacoma and Portland, the four 
major cities in that area. Okay.
    Mr. Hansen. That is Vancouver, as the mayor likes to say, 
of the United States.
    Mr. Olver. Okay. Now, if I read that carefully, then, 
Vancouver, Washington is a bit more green than Portland, 
Oregon. Is that what that chart says?
    Mr. Hansen. No, it would actually say just the opposite. 
They are a relatively lower population area, a bit more spread 
out, so that the vehicle miles traveled will be a bit greater 
just because of the land use patterns. But it is not 
dramatically different. It is, as you can tell, it is not, 
those bars for the two or the lines for the two are roughly the 
same and moving certainly in the same direction.

                         AIRPORT SUSTAINABILITY

    Mr. Olver. I will have to think about that little bit 
further. Clearly my thinking process came up with a quick 
decision in the wrong direction. But each of you has provided 
templates for how to do this. And I would like to ask you, 
Rosemary, what, your testimony is largely about, the process 
that you followed in the case of O'Hare. Does that apply 
equally? Can that apply equally to the renovation of a 
constrained piece of territory like Midway and to Logan and to 
Los Angeles, the downtown Los Angeles airport, constrained in 
where you had some capacity to do and renovate with all the 
tools that you could put together to achieve a result.
    And I am also interested a little bit in whether the 
economies of scale that would be involved in smaller projects 
are, then worth it. Or is it that there, you can put all these 
things together in the case of Chicago and the whole of this 
ends up being, producing a much better result.
    Ms. Andolino. In fact, Midway, like you said, it is a 
constrained site. We are moving forward with a consolidated 
rent-a-car facility there. That rental car facility, at its 
onset, was not designed originally with the sustainable design 
manual that we have. What we did, we are ready to go now and 
build this product. We went back to our designers and said, we 
want you to fix it before we put this out to bid. That process 
now is going to have many sustainable elements as well, 
recycling of gray water, as well as native landscaping, green 
walls, photo voltaics on lighting.
    So you can tailor this to any project and any size airport. 
The issue is you have to do it knowingly, and you go in there 
with that thought process and its about, in a sense, changing a 
culture, thinking about things differently and making like, at 
airport safety is a given.
    Mr. Olver. I guess what I was thinking was that there is a 
critical mass of things that you can do and the savings kind of 
cascade in a situation like that, and I was wondering whether 
that is going to be as applicable in small projects.
    Ms. Andolino. It is because each project is individually 
stands on its own. But you have multiple, you get a larger bang 
again when you have a project like O'Hare that is doing to 
multiple elements to it. But O'Hare, interesting enough, is a 
constrained site. We sit on 7,000 acres, but most of it does 
have infrastructure on it already. So we had to, again, think 
through our earth work management plan because those 500,000 
truck trips that I talked about that did not go off site stayed 
on those 7,000 acres. So we used larger equipment to do it. So 
everything is unique.
    Mr. Olver. My time is up. Mr. LaTourette.

                           HIGHWAY TRUST FUND

    Mr. LaTourette. Well, thank you, Mr. Chairman. I don't want 
to disappoint the chairman, so I am going to come back to the 
point that he was making. Referring again to the aforementioned 
Transportation Weekly, and ask unanimous consent that page 11 
and 12 go into the record of this hearing. Here is the, I 
couldn't have said it any better than it is written here. And 
it says this: ``The stated aim of the groups and legislators 
that support livability, sustainability, is to get a higher 
percentage of trust fund dollars dedicated to non highway 
programs like transit and livable sustainable communities in 
the next reauthorization bill.'' Now, all of your goals and all 
of your projects are worthy. That is not the point of my 
observation. To phrase it another way, they want to spend a 
higher percentage of proceeds from a dedicated Federal excise 
tax to support new programs to encourage people to stop paying 
the excise tax. To put it another way, imagine a new proposal 
to start a Federal spending program that would write large 
checks to people who are currently paying income taxes on the 
condition that they just stop paying their income taxes.
    That is the, this is a limited resource thing, and so I am 
not--I think you have all, I will say it again, doing wonderful 
work. It is a question of where the dollars come from. And I 
heard, how many Federal highway trust fund dollars were used on 
your project?
    Ms. Andolino. Zero. But we did contribute.
    Mr. LaTourette. Well, sure you did. That is exactly the 
point. So if you are able to do it, you have been able to do 
all your great work, you have been able to do all your great 
work. Why do you want to steal money from the trust fund to do 
what you are already doing?
    Ms. Andolino. The issue that we are looking at doing is 
trying to make sustainability something that is part and parcel 
of everyday responsibility; and to do that, we need to have 
standards and guidelines to allow people to do it responsibly 
and just like there is now, a program, let's say with lead or 
other elements to show how to build things in a sustainable 
manner.
    Mr. LaTourette. I don't disagree with you. But what do you 
need to take money out. I mean, you are not answering my 
questions. Why do you have to take $307 million----
    Mr. Olver. Could I get an answer from this philosophical 
argument out of the philosopher at the table?
    Mr. LaTourette. Excellent.
    Mr. Olver. All right. Bill McDonough, what do you have to 
say about this one?
    Mr. McDonough. Well, I must say that my history of work has 
been in the commercial sector and we see commerce as the real 
engine of change in this regard; and that the guardian, which 
we call you, represents another level of activity. And so the 
way we put the two together is to recognize that humans have 
developed two syndromes of survival, commerce and the guardian. 
And the guardian is slow. It is serious.
    Mr. LaTourette. What are you pointing at me for?
    Mr. McDonough. You are all guardians. You are the guardian.
    Mr. Olver. We know that the Congress is slow.
    Mr. McDonough. Everybody who is up a foot. Okay. But it is 
meant to be slow and serious. It reserves the right to kill. 
And it, and when you look at commerce, we are very quick, we 
are very creative, we are highly effective, highly efficient 
and we can move out. And we are meant to be honest always 
because you can't do business with someone if you are not 
honest. And so we have to avoid what we call these monstrous 
hybrids where you get two things confused. And so from my 
perspective we work in the commercial sector. We see the 
delivery of these kind of possibilities with commercial 
realities. So that is the key element that you are hearing here 
is that where the pots of money are is almost a separate 
question. The work we have done is without any subsidy at all.
    And what we are looking at there is saying how can the 
commercial sector get creative enough to play this thing out. 
But what I would like to add is another dimension of quality 
because the danger we have is that people start with metrics 
and say I want to be less bad or I want to save some money or 
do this or that. And if you start with metrics, you can move to 
tactics, you can get to strategies, and you might get to goals 
and you might try to figure out where the money comes from. But 
you won't have change the design because you can't innovate if 
you are benchmarking. So what we like is to have people start 
with values, like we all believe in the kinds of things that 
Congressman LaTourette was pointing out. We all believe in this 
stuff. This is good stuff. That is principled activity. And 
then we go from principled activity to setting our goals.
    And I told you ours which I haven't heard one argument 
from. Even President Bush brought me to the White House twice 
to explain this to the OMB. These are good commonsensical 
things that we are talking about and nobody will argue that we 
want to have poisonous products and things like that. Then we 
move from the goals to the strategies to the tactics and then 
we discover the metrics. That is what is so beautiful about 
what you are seeing here today. The real magical part of this 
is the fact that everybody at this table is a principled 
operator.
    And then the metrics appear after they perform on a 
principled level. And that is what is exciting, gets to your 
question about what happens when $150,000 house is all of a 
sudden worth $250,000, and the neighborhood gets gentrified, 
and what happened to the affordable housing, right? I mean, 
that is a fundamental question. It is ironic that you end up 
gentrifying your own protocol for affordable housing just 
because you did a good job. But if we don't do a great job, 
then what are we really doing?
    And I would like to spend, since you have some chemistry in 
the background, I would just like to give you one second on 
some of the chemistry. What terrifies me is that if you look at 
the affordable housing in America, and you actually look at the 
level of the molecule with the microscope, what you will see is 
endocrine disruption, heavy metal contamination, volatile 
compounds, formaldehydes. All the things that gave this young 
girl asthma are being pumped out in the name of affordability. 
And if we are going to create affordable housing for people and 
then send them into our health care system with really unknown 
and strange effects that will hit them in life and where young 
girls will lose their sexual development because of endocrine 
disruption, these are really scary things that we ought to 
focus on.
    And this group ought to be quite aware of because the 
question is not just lowest cost, it is also highest quality 
for our citizens. And in fact, that is part of our health care 
package. And strange things like PVC, you know, recycled PVC 
gets points in lead. That means you are recycling cancer and 
you are giving people points for recycling cancer in the home. 
And we are discovering that the plasticides and the thallates 
coming out of that PVC are going into the flesh of humans.
    And our children, we worry about the weight, and Mrs. Obama 
worries about children's weight. These PVCs are putting out 
plasticides that are lodging in our flesh. And do you know what 
your body does when it has a piece of something in your flesh 
that was delivered by your bloodstream? It surrounds it with 
fat molecules. Isn't that interesting? We are actually 
surrounding ourselves with a soup of chemicals that is going to 
lead to things like obesity and ill health and hormone 
disruptions and things like that. It is not okay to say, oh, I 
made it on the numbers, and then put people into gas chambers. 
It is not okay.
    Mr. Olver. I think that is a profound statement that you 
have just made. And we will go on to Mr. Pastor.
    Mr. LaTourette. Could I have some of my time back? I mean, 
I think he just spent 4 minutes on your time.
    Mr. Olver. You were already on the red.
    Mr. LaTourette. I was not. I was green. We are all about 
green here Mr. Chairman. I just really just want to make one 
follow up, if I can, because I really do think you took like 3 
minutes of my time, Mr. Chairman.
    Mr. Olver. Really?
    Mr. LaTourette. Yeah. I am paying attention down here. I 
think you all, your answer to the chairman's question that took 
all my time really is the point. And again, I don't think we 
are disagreeing with any of your goals, any of the great 
projects you are doing. My question is, why are we siphoning 
money out of the highway trust fund? And nobody--well, okay. Go 
ahead.
    Mr. Hansen. I mean it seems to me that a decision that the 
Congress made in the early 1990s, when a 5 cent gas tax was 
approved, made a decision about how to be able to allocate 
those resources and to be able to provide for a general overall 
goal. Obviously, as the Congress, you can revisit that issue. 
But it was a very conscious decision that was made in that, and 
I think, from my perspective, I think very appropriate.
    Mr. LaTourette. Well, I do too, back in the 1990s. But I 
think there are 57 diversions from the highway trust fund. I 
mean, we have got a covered bridge program. We have got CMAQ. 
We have got enhancements. Now, you guys want to do the 
sustainability thing. So pretty soon, I mean, I really think 
that if you want to do these programs at DOT, that they should 
come out of the general fund and not just continue to raid the 
highway trust fund. And the professor down there, I think he 
agrees with me in a long roundabout way, but I think he is on 
board. So thank you.
    Mr. Olver. Okay. All right. Mr. Pastor.

                        SUSTAINABLE COMMUNITIES

    Mr. Pastor. Not raiding the trust fund, but there are now 
initiatives that HUD and Transportation have come together and 
say we are going out, and these are the values and this is what 
we want to accomplish. And I read in your, that, I guess, at 
least in the HUD part, transit is not mandated in one of their 
sustainable communities, part of it. So the question is this: 
These initiatives are being thought out, they are going to send 
out proposals, request for proposals for communities to say, 
you are going to be able to plan or you are going to be able to 
do these things and the money will be going out.
    Please send us a proposal. What I am trying to get from you 
since you guys are practitioners, what would be your 
recommendation to HUD and transportation to say, in order to 
achieve what Congress intends, and what we think is good for 
the American people, we would suggest you do these three things 
in your request for proposals so that we don't screw up the 
trust fund and we do what we want to do in terms of having 
sustainable communities.
    So that is the question I am trying to get to and get your 
remarks on that in the short time that I will have. So I will 
start with you and you can go down.
    Mr. McDonough. Well, I would say just based on what we just 
heard from the other Congressman is I think going back to first 
principles. I would look at these funds and simply say what 
were they for. And if you say it is for mobility of people, I 
don't know that that has to be strictly defined around lots of 
concrete for cars. It could also be defined around other ways 
to create the mobility that people need. And if there is an 
appropriate linkage to the principles used for the allocation 
of those funds in another way, that serves the purpose in a 
more effective and sustaining manner, then I think is 
appropriate to evaluate all the terms based on what principles 
were used when they were established.
    Mr. Pastor. Well, it is not only mobility. It is also to 
create an environment of affordable living and quality of life. 
I mean, so all those things other values that we are trying to 
include.
    Mr. McDonough. We just did an analysis the other day, just 
to give you a feeling for what is out there that you are about 
to see. We just did an analysis of all the that are available 
to do sustainable power for communities and universities, and 
we discovered the most amazing thing. In the private equity 
world, there are huge funds--I don't know if you know this--
that are dedicated to not having any interest paid as long as 
the funds are used for public purpose and for schools. Zero 
interest desired on the part of the investors. You take that 
kind of parsing of all the monies that are available, and you 
do an optimization and it turns out you can solar power 
municipalities for free. Isn't that amazing?
    That is coming at us now and the job creation is 
magnificent. And that is what is coming. And so you have to 
integrate that side of it with your side of it and say, okay, 
how do we create these affordable communities with safe healthy 
homes? Tom and his teams are working on how to do that 
physically. We are hearing the infrastructure, people building 
infrastructure, are figuring out how to do that very 
efficiently and effectively. And I think we just have to sit 
down, as commerce and guardian and do an optimization of your 
funds and our funds and say, okay, what is our goal and how do 
we deploy it? It is going to require us to talk to each other.
    Mr. Olver. Let's go down the line.
    Mr. Pastor. Thank you, Mr. Chairman.
    Mr. Olver. You have about a minute each.

                          DOT/HUD PARTNERSHIP

    Mr. Darden. Sounds good. We think that HUD and 
transportation are definitely on the right track with 
initiatives like sustainable communities. And so if we were 
going to look, I mean, one of the things that we are trying to 
do is integrate infrastructure into the area that we are 
building these very sustainable houses. So we are looking at 
things like pervious concrete to capture stormwater in New 
Orleans. It probably not a major problem for your State, but in 
New Orleans, stormwater management is a huge problem, and so 
every time it rains, the streets flood. So can we use what was 
an impervious surface to actually capture that storm water and 
then that saves on the costs of having to then pump that storm 
water back over the levee system.
    So we are looking at that that integration of 
infrastructure and landscape as well into the neighborhood that 
we are building. And so we think that that integration is the 
right approach. Just in terms of the potential savings in that 
initiative there were mandates like the use of smart meters or 
even just energy saving light fixtures, savings could be, say, 
20 percent in conservative estimates on energy costs for the 
families, which you know, translates to a few thousand dollars 
per year, which translates over 100 million houses let's say to 
$50 billion is a conservative estimate.
    So that type of money, if that type of money can be saved, 
you know, I am no expert in congressional budgets or Federal 
budgets, but we should get the money to implement the savings 
or the technologies that achieve those types of savings 
wherever we can.
    Mr. Hansen. I think that the integration between HUD and 
the Department of Transportation under this administration has 
been really hitting the exact mark that needs to be there. When 
we look at something, for example, such as affordable housing 
for seniors, multi family affordable housing for seniors, what 
oftentimes happens is that they look for the lowest land price 
to be able to buy that property to build it. But it is then far 
away from public transportation so that the connectivity, the 
livability, the quality of life is lost to that.
    And I think what under this initiative, a chance to be 
really able to integrate that is there. My recommendation is 
that it really has to have as we are planning this, not in 
Portland, because we do already, but in other places, is to 
require public transportation to be at the table as these 
issues are being developed. I think that will, in fact, move us 
a long way forward, and again, very frankly, what HUD is 
already, is starting to launch right in this process now, I 
believe.
    Mr. Olver. One minute.
    Ms. Andolino. Yes. I think the concept here is ideal 
because you are talking something that has had a sustainable 
component to it, like you have heard the great things that Fred 
and Tom talked about, as well as Bill, about vertical 
buildings, construction, and how we are working our way and 
making that extremely green and sustainable. But what has been 
off the table has been the infrastructure, the roadways, the 
access to those areas, whether it be public transit or again 
just surface that gets you to those vertical structures. We 
need to look at this in a complete package from the vertical, 
with the horizontal, because the two do come together. You need 
both. So therefore, we are just saying the awareness needs to 
now, and sustainability has to be applied consciously to the 
flat work, to the horizontal work, so that you get the best 
results in our progress to continue to employ those new 
technologies as you talked about, Congressman, and make our 
program sustainable from the start to the finish.

                     SUSTAINABLE BUILDING TEMPLATE

    Mr. Olver. Okay. Thank you. I would go through another 
round--well, we will see whether Mr. LaTourette comes back. He 
may have decided that he has made his point. Mr. Darden, I want 
to, you too have a template. I mean the templates that have 
been shown in airports and in a city and so forth, in totality 
in a city with what they have been trying to do and so many 
others are trying to do, that is great. You have a template 
that is very greatly enhanced by the megaphone of Brad Pitt, I 
think, at its base, at its base.
    Now, can we move that template without Brad Pitt? Can we 
move it with what Bill is talking about, about those funds, 
those investors who are willing to take zero interest? And it 
would take me a while. I am going to have to go back to what 
you actually said and try to understand it step by step because 
you were carrying us through several steps in quick order. Give 
me your thoughts.
    Mr. Darden. Sure. I think that we have to find ways to 
implement, whether it is the template that we are using for 
housing or the templates that my other colleagues here are 
using.
    Mr. Olver. I mean you have done wonderful things getting 
all those different architects, famous architects to come and 
do this, but the guy that brought them I think was probably the 
involvement of Brad Pitt in large measure.
    Mr. Darden. Absolutely. I think that Brad was frustrated by 
the lack of progress in rebuilding after Hurricane Katrina. He 
wanted to do whatever he could do to help. So for him, that was 
his passion about architecture, so he reached out to experts 
like Bill McDonough and asked them to all come together and 
think creatively about what the future of rebuilding in the 
lower 9th ward should look like.
    So going back to McDonough's statement, we started first 
with our values and then we worked into, you know, how to make 
these designs affordable, and that is something that we are 
working on constantly. But you are right. I mean, the template 
that we have developed for reducing costs is a template that 
could be applied to any type of housing project, any type of 
construction really, and it is quite simple. Everyone can do 
this. And so we have to figure out whatever it takes to get 
people to do this, and I think that is part of the reason that 
we are here.
    Mr. Olver. You have actually got a template that is not so 
far in cost from what Bill has just described as the way we 
always did that kind of thing, which is so disastrous.
    Mr. Darden. That is exactly right. So we are striving to 
build houses that use materials that are healthy for humans and 
the environment. And we are trying to do that. At the same 
time, we are really, really close to being able to do that in 
the lower 9th ward even with elevated houses and storm-
resistant houses, and we believe that we can do that elsewhere 
in the country very easily at the same cost of standard 
construction.
    Mr. Olver. Essentially, my view comes down close to we 
shouldn't be putting any public dollars into anything that is 
less than LEED platinum these days, given the state of 
innovation and such.
    Mr. McDonough. I think we should go beyond LEED platinum.
    Mr. Olver. I said that isn't anything less than LEED 
platinum. And we are going to innovate. Every couple of years, 
we advance on this stuff. We have got to track the 
advancements.
    Mr. McDonough. Well, I was just going to say that one of 
the fun things about the cradle-to-cradle approach is that it 
allows to look to the parts per billion and not just become 
toadies of industry. And so if we look at what happened that 
make it right, you should see these houses were studied. They 
were built with stick, modular, panelized and manufactured 
techniques to study which systems would result in the cheapest 
possible houses of the highest possible quality. And it has 
been a great experiment. That is what it was, a laboratory to 
find out how to get these houses built at low cost and high 
quality. And we are happy to share that with everybody who 
wants to know.
    Mr. Olver. Fred you wanted to make a quick comment because 
I have got to give 2 minutes to my ranking member and 2 minutes 
to----
    Mr. Hansen. Very quick. A foundation in the last several 
years decided to be able to move to a building and to be able 
to create it at platinum, at LEED platinum. It was terrific to 
be able to do that. But by relocating, they moved from a place 
where the vast majority of their workers were, in fact, getting 
to that site by bicycle, by walking or by public transport, 
very little auto use. They moved to a place that was only 
serviceable by roads, by auto use. And if we don't integrate 
that transportation and that land use, it doesn't do us any 
good just to be able to, as Rosemary said, to do the vertical. 
It has got to be the integration. The 9th ward had and has 
great public transport. That makes that then really sustainable 
over the long run. But we have got to make sure that at other 
places across this country that we do integrate that land use 
and transportation, and I do believe that is kind of the 
direction we are starting to move.
    Mr. Olver. Okay. Mr. LaTourette, you are going to have the 
last word here since we have got to move on. I would have given 
you the word before mine and mine would have been the last 
word, so I am conceding here.

                   CONGRESSIONALLY DIRECTED SPENDING

    Mr. LaTourette. Thank you. And I will be mercifully brief. 
Mr. McDonough, is the roof that you are talking about at the 
River Rouge facility, is that the Ford Building?
    Mr. McDonough. Yes, it is.
    Mr. LaTourette. Let me just, and this has nothing to do 
with you. But both Parties, it is in the news that both 
Parties, the Honorable Speaker of the House, and we have got a 
guy named Jeff Flake from the gentleman's State of Arizona, is 
calling a special conference this week to discuss the whole 
notion of congressionally directed spending. And some people 
call them earmarks.
    They are not earmarks. They are congressionally directed 
spending. It is my understanding that that roof at River Rouge 
in Dearborn, Michigan was a congressionally directed spending 
earmark in the EPA budget and would not have been accomplished 
if the Member of Congress or Senator from that area hadn't had 
the foresight to engage in that. So it is just a commercial. 
And thank you.
    Mr. Olver. Thank you very much for your testimony this 
morning. You have laid out a lot of things for us to think 
about. Have a good day.
                                       Wednesday, March 10, 2010.  

 HUD AND DOT'S SUSTAINABILITY AND LIVABILITY INITIATIVES IN THE FISCAL 
                        YEAR 2011 BUDGET REQUEST

                               WITNESSES

HON. RON SIMS, DEPUTY SECRETARY, DEPARTMENT OF HOUSING AND URBAN 
    DEVELOPMENT
HON. ROY KIENITZ, UNDER SECRETARY, DEPARTMENT OF TRANSPORTATION

                    Chairman Olver's Opening Remarks

    Mr. Olver. The committee will come back to order please. 
For our second panel, I want to welcome Ron Sims, the Deputy 
Secretary for the Department of Housing and Urban Development 
and Roy Kienitz, the Under Secretary for the Department of 
Transportation to the subcommittee. You have just heard from 
four leaders in sustainable practices and we will use the 
lessons learned through that discussion as a broad framework 
through which to consider your respective fiscal year 2011 
budget requests. I am pleased to see that HUD and DOT are 
working together with EPA and the Partnership for Sustainable 
Communities, and that each of your budgets reflect this 
partnership. While the issues that we are discussing today may 
be called varying things, for example, sustainability, 
livability and smart growth, we are all working toward the same 
goal, investments in our communities that bring together 
housing and transportation resources, that draw on the 
expertise of each agency and that consider energy and land use, 
along with affordability and mobility factors in the planning 
and design of healthy areas. With that, let me recognize my 
ranking member, Tom Latham, for any comments that you would 
like to make.

                Ranking Member Latham's Opening Remarks

    Mr. Latham. Thank you very much, Mr. Chairman. Welcome the 
panel. I want to thank Mr. LaTourette for filling in for me 
today. I had another hearing. I really thank you for coming to 
testify on the President's budget. I know the members of the 
first panel strike at the heart of the chairman's interest, but 
my immediate interest is looking at what the President is 
requesting for fiscal year 2011, what your two agencies have 
done with any similar funds that you received in 2010, and how 
those activities rate on our list of priorities as we move 
forward in determining how the final bill will shape up for the 
next year.
    That really is the whole purpose of this committee. We have 
heard from both of your secretaries earlier this year. 
Unfortunately, we had only 2 hours with each to go over the 
entire budgets and departmental activities, so we weren't able 
to get into much detail on the livability and sustainability 
initiatives. I will say there are some concerns expressed on 
both sides of the dais about what various members viewed as 
deficiencies in each of the budgets. There is a lot of concern 
that there is no surface reauthorization coming from DOT, and 
that turns to irritation when you see then that the Department 
is proposing to skim off highway and transit formula dollars, 
dollars that come from the bankrupt highway trust fund, and 
take those dollars from states and localities to fund a new 
program from the DOT boutique program.
    We have also got a crisis on the reauthorization front, a 
crisis that you have seen firsthand as you had to furlough 
about 2,000 employees when the authorization lapsed, but a 
crisis that is being seen and dealt with every day in every 
state DOT across the country, and by every contractor and road 
builder across the country as they try to deal with the economy 
and the plans to make roads and bridges safer and more 
effective with few dollars and short funding windows. Instead 
of responding to that great crisis, the DOT has chosen to take 
more funds out of the highway trust fund to fund this 
livability initiative.
    We just transferred yet another $20 billion to fund, from 
the general fund to the highway trust fund, another 20 billion. 
Instead of roads you are proposing to finance planters, 
basically. I am not sure that is what we all had in mind. At 
the HUD hearing we heard a lot about the tough choices the 
Secretary had to make this budget season. I appreciate the spot 
that he was in. We face it every year here too, when we have to 
squeeze these programs into our allocation.
    But there was a bipartisan concern that the HUD budget was 
attempting to do too many new initiatives too quickly, when all 
experience says that HUD and its partners are challenged to 
even manage existing portfolio programs in a competent manner. 
We aren't talking about minor grant programs, but our concern 
is the life sustaining programs like Section 8 and tenant-based 
housing assistance. The HUD budget contains no new veterans 
vouchers and no new grants for elderly or disabled housing 
construction. That poses a real problem for many of us on this 
subcommittee. And I am not opposed to a region looking at its 
communities and population and its challenges and opportunities 
and making some decisions and investments that will bring the 
greatest amount of good for the people who live there.
    I fully support those activities. I know both of you have 
some examples of cities and towns that have done just that. 
What I question is the Federal role in these local decisions 
and the reason to take more and more Federal dollars for these 
purposes where there is already an existing set of programs and 
funds to do just this, should the community decide to revamp 
their plans.
    Now, I like and respect both of the secretaries. I think 
they are doing an outstanding job. I am eager to hear what your 
plans are, and hoping you have some concrete answers as to what 
you are going to accomplish with the funds you have requested. 
I can tell you, everyone up here has heard or will hear from 
just about every constituent group in their districts or their 
State this month about what is important to them back home. And 
if you are in my office, you see the parade coming in hour 
after hour after hour right now. We will get some information 
and determine how your request either fills those needs or gets 
prioritized against those needs. I thank you for your testimony 
and look forward to your answers and I yield back, Mr. 
Chairman.
    Mr. Olver. Thank you, Mr. Latham. We will move on to the 
panel then. Your complete written testimony will go into the 
record, but I am going to allow you at least 7 minutes rather 
than what has often been 5 minutes. We have so many hearings 
going on that we will be able to get through at least a couple 
of rounds of questions in this hour and a half. So with that, 
we will take the Deputy Secretary for the Department of HUD in 
order of being, some sort of pecking order. Okay.

                       Mr. Sims' Opening Remarks

    Mr. Sims. Thank you very, very much Mr. Chairman and 
ranking member Latham and other distinguished members of the 
committee, it is a pleasure to be here today and thank you for 
the opportunity to testify. It is also a great pleasure to be 
here with my colleague, Roy Kienitz, from the U.S. Department 
of Transportation. Along with Secretary LaHood, Roy and others 
at DOT, they have been tremendous partners in our joint efforts 
which include also the Environmental Protection Agency and the 
Department of Energy and other agencies that we are now working 
with. As the subcommittee is well aware, the built environment 
is the primary major contributor to global warming. The same 
factors that account that also create and exacerbate some of 
the most serious social challenges that we have.
    So for HUD, sustainability, certainly includes more energy 
efficient buildings and smarter development. Just as important, 
sustainability also means creating geographies of opportunity, 
places that effectively connect people to jobs, quality schools 
and other amenities. Too many families are stuck in 
neighborhoods of concentrated poverty and segregation, where 
one's ZIP code does predict anywhere in the country, 
educational benefits, employment, and even health outcomes. 
These neighborhoods are not sustainable in their present state. 
HUD's commitment to sustainable housing and community aims to 
take that challenge head on. HUD, DOT and EPA have formed an 
interagency partnership for sustainable communities to help 
improve access to affordable housing, expand transportation 
options and lower transportation costs while protecting the 
environment communities and growing out their economies.
    Having served as a full-time elected official for 25 years, 
including 12 years as the elected county executive in King 
County, which I was honored to serve the citizens there, I can 
say that the level of collaboration and cooperation among 
agencies, starting at the top with Secretary Donovan, LaHood 
and Administrator Jackson and extending to the staff in each 
agency has been nothing short of remarkable. Absolutely 
remarkable. We are getting better every day at aligning where 
it makes most sense and assigning specific responsibilities to 
the appropriate agency based upon their resources and their 
expertise. Another exciting example is the partnership between 
HUD and DOE. We are working on energy efficiency and affordable 
homes and apartments.
    One joint project is to develop a low cost consumer 
friendly tool to provide homeowners with better information 
about their homes' energy use, options for saving energy, and 
the cost that it will save. HUD and DOE have also worked 
together to eliminate duplicative, unnecessary rules that 
impede the use of Federal weatherization assistance program 
funds to retrofit multi family properties. Other similar 
partnerships are information or early development. We are 
especially optimistic about potential collaboration with the 
Department of Agriculture to ensure we are as effective in 
helping deliver sustainable solutions in rural areas and small 
towns as we are in larger and more urban communities.
    Thanks to this subcommittee's support, we have created a 
new Office of Sustainability, Housing and Communities under my 
direction to coordinate HUD's efforts. The office has already 
made significant progress on several fronts. First, the 
sustainability communities initiative which will provide a 
total of $150 million to a wide variety of multi jurisdictional 
and multi sector partnerships and consortia from metropolitan 
organizations to State and local governments to non profit and 
philanthropic organizations. These grants will be designed to 
encourage regions and communities to build their capacity to 
integrate economic development, land use, transportation and 
water infrastructure investments to integrate work for 
development and transit oriented development.
    For the first time ever, we will provide Federal money to 
support planning grants that will be selected, not only by HUD, 
but also by DOT and EPA, because when it comes to housing, the 
environment and transportation policy, it is time for the 
Federal Government to speak with one voice. And as a local 
official it is always important that the Federal Government 
align itself. It is the difference between a cacophony and a 
symphony, and we are looking to be more symphonic and 
collaborative. The first 100 million in funding is for regional 
integrated planning initiatives through planning grants to 
support regional planning efforts that address interdependent 
challenges of economic growth, social equity and environmental 
impact simultaneously.
    An additional 40 million will be available to help 
communities implement smart policies in zoning and land use. I 
have traveled in this first 9 months of my HUD tenure to 34 of 
HUD's 81 region and field offices. It has been exhilarating and 
exhausting, but I have learned that there is much to be learned 
and taught to us outside of Washington, D.C. And at HUD, we 
recognize that we have much to learn in our program from 
leaders on the ground. We have issued an advanced notice and 
request for comment for the sustainability program.
    So rather than do the NOFA, we decided that we would have 
listening sessions prior to writing it. And it has been 
literally--we have gotten incredible feedback. We are inviting 
feedback through a new on-line future at HUD's Web site. We 
have Web casts and through extensive listening tours around the 
country that I have participated in, we have heard from a lot 
of people, hundreds, hundreds.
    We are working hard and listening closely to ensure these 
funds are useful for rural and smaller communities as well as 
larger ones and for places that are just starting to think more 
about sustainable growth and development, as well as those that 
are more advanced. The Office of Sustainable Housing and 
Communities is also focused on scaling up energy efficient and 
affordable housing. Our fiscal year 2010 appropriation also 
included 50 million for an energy innovation fund. We are using 
half of the funding to expand a market for energy efficient 
mortgages and half the funding to explore innovations and more 
energy efficient multi family housing.
    In our fiscal year 2011 budget, HUD is seeking $150 million 
for the second year of our sustainable communities initiative. 
We will also use funds requested for additional planning and 
challenge grants under the program we have launched this year. 
We would also use funds requested under our joint HUD, DOT and 
EPA research effort designed to advance transportation housing 
linkages throughout all of our agencies. As Secretary Donovan 
and I say, our ultimate goal is to harness the entire HUD 
budget for creating greener homes and communities and enhancing 
our economic growth. We are looking forward to working with the 
subcommittee to advance that goal. Indeed, it was a pleasure 
and honor. Thank you for the opportunity to testify.
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    Mr. Olver. Thank you very much.
    Mr. Kienitz.

                     Mr. Kienitz's Opening Remarks

    Mr. Kienitz. Yes, sir. Thank you, Mr. Chairman, Mr. Ranking 
Member, Mr. Rodriguez, Mr. LaTourette. As you know, the 
President's budget for the Department of Transportation 
includes a new proposal to establish a livability effort here 
at the Department and to support the partnership that Mr. Sims 
talked about with the other agencies. This is clearly a change, 
a little bit of a change in our focus and our objectives and in 
our language, so before I sort of go into the details of that, 
I would like to sort of talk about that a little bit. When we 
sat down together, Ron and I and our teams, after the 
Secretaries had decided that they wanted to start this up, we 
came up with a list of sort of six principles that are guiding 
this, and I will go through them briefly.
    It is to provide more transportation choice, promote 
affordable housing, enhance economic competitiveness, support 
existing communities, coordinate policies, leverage our 
investments between agencies, and value what is unique about 
each community, whether urban, suburban or rural. So those are 
the principles we are trying to use to guide ourselves in the 
development of the proposals you see today and in a sort of 
implementation of things that we are doing at the agencies.
    That said, that all sort of sounds a little theoretical so 
I want to try to address it in a little bit maybe more 
practical terms. What we are trying to do here is, I think, 
respond to a trend that is already underway in which families, 
home buyers, businesses, developers, local officials, have all 
been making choices about where to live, where to work, and 
where to invest for at least a decade. That has sort of added 
up to something that is now sort of called the livable 
communities movement. But to be clear, it is not something that 
we are trying to invent. We are trying to follow.
    The attributes that these communities generally have is the 
ability to get things done in normal life without having to 
drive everywhere, housing, shopping and jobs that are 
integrated rather than separated, different types of housing 
mixed together that appeal to different incomes, ages and 
background, and more emphasis on public space, and public 
interaction. And the communities that sort of have these 
characteristics are becoming more prevalent really because of 
people's preferences. The government has really tended to be 
either a bystander here or even an obstacle, and our goal is to 
sort of change that. In particular, state and local government 
has really been starting to respond to this. I think local 
government, first and most directly, because they are most 
impacted and they are closest to the ground.
    State government has been trying to respond. And what we 
don't want to do is have the Federal Government get left behind 
as this trend picks up steam. So a big part of our effort has 
been sort of first in the barriers area. What are the barriers 
that the Federal Government has? A lack of coordination between 
agencies and multiple points of input if you want to get 
assistance. So that is a big barrier. So this trend is really 
driven, being driven by the sort of personal and economic 
preferences of individuals and businesses. But there are larger 
policy objectives that are achieved.
    For example, recent studies have shown that where people 
have more transportation choice, and more likelihood of 
walking, biking or using transit, transportation costs are 
lower and foreclosure rates are lower because the pressure on 
family budgets is smaller. Better integrated planning can save 
taxpayers billions of dollars for infrastructure investment, 
for water, highways, transit, sewer, and things like that.
    And Utah is a great example of that, where they looked out 
20 years and looked at what their investment needs would be, 
and adopted a different way of growing that was focused more 
around rail. And that has actually reduced costs in a whole 
bunch of other areas--costs on the taxpayers.
    In our world, places with compact, connected, 
transportation networks have better highway safety rates, lower 
rates of fatalities, lower rates of injuries. And consumer 
surveys have found recently that, you know, a third of 
consumers say that the type of community they would prefer to 
live in is ones that are walkable and connected, with access to 
things. 15 years ago, those same surveys were saying that the 
thing that was at the top of the list was recreational 
amenities like golf courses. But consumer preferences have 
slowly changed. But over time, that change has added up to a 
fairly strong difference in consumer preference. The biggest 
metric really is that demand for these communities out-paces 
supply. And that really gets to the heart of the matter. That 
gets to the heart of the affordability matter too because when 
demand out-paces supply, people bid against each other, and 
prices go up. And so we have tried to adopt a very conscious 
policy of not just taking a hands off attitude towards that.
    And part of it is all the affordable housing strategies 
that HUD has spent years developing. But part of it also is if 
you've got more demand than supply, make more supply. That is 
what is going to constrain the ability of the price to go up 
and people to be priced out. So we also, I think it is 
certainly Secretary LaHood's view that this is not like a city 
phenomenon. It is not just Portland or New York City. The 
principles here can apply anywhere. And I think the first 
livable community was a small town in a rural area with a main 
street with shopping, housing, stores and jobs located all in 
proximity to one another. So it is a very old idea that we are 
just, I think newly seeing the value of again and trying to 
figure out: is there a way that the Federal Government can be 
supportive of people who want to do that, rather than in 
opposition to them.
    So a little bit about our budget request. We have got $20 
million requested in the Office of the Secretary for the sort 
of coordination, evaluation functions. In FTA, they have a 
number of existing programs that we are proposing to reorient 
slightly. That is about $300 million, but it would really be 
sort of basing off those existing programs. In highways, that 
is probably the one that has been the most controversial I 
know. That is $200 million which we are proposing to reorient 
to help the Federal Highway Administration work with its 
partners, States and MPOs to help them sort of build capacity 
and modeling and data collection to understand better how to 
sort of interact with stuff. Two hundred million dollars is a 
lot of money but it is a half a percent of the contract 
authority at highways.
    And so we, I think, in sum, view our budget proposal as, 
frankly, a modest first step toward something that maybe could 
end up being a bigger deal over time. But we understand that we 
are just starting. And the way to start is with something 
relatively modest in size, get our feet under ourselves and 
give everyone in the community an experience of what it might 
look like and to try to build confidence that this is something 
that people out there actually want. And with that, I would be 
happy to answer any questions.
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                       SUSTAINABILITY PRINCIPLES

    Mr. Olver. Okay. We are going to now follow 5-minute 
questioning by myself and my Ranking Member and then the other 
members who are present. I thank you both for your testimony. 
And I commend the testimony of the previous panels. Surely 
there were people here for you who will get that testimony. I 
think they were quite brilliant in their presentations. The 
understanding of the words sustainability and livability is 
very regional.
    Sustainability in Portland, Oregon may be quite different 
from what sustainability may be in Cleveland or Toledo, Ohio. I 
am trying to reach my member of the Subcommittee from close to 
Cleveland at least, and also from Toledo who doesn't happen to 
be here. There are a number of other Committees that are 
meeting this morning. And similarly, sustainability is going to 
be quite different when considered from growing metropolitan 
areas, of which we have many, including Portland, from the 
previous panel, and in Iowa where a good many, nearly a third 
of the counties are losing population.
    So how do you see the sustainability principles being used 
to build local economies? Can you make a connection? Would you 
think about and give me your thoughts on making the connections 
to the building of local communities, economies of the 
sustainability principles.
    Mr. Sims. Our effort, well, what we did with the--let's 
talk about sustainability of funds we have, the $150 million. 
We recently went on a tour of various communities, and then 
yesterday we met with the associations representing small 
counties, rural counties, small cities and rural cities, and we 
are not going to define sustainability for them. Here is what 
we are going to tell them. You know, there is no one size fits 
all. King County is different from Portland, which is just 200 
miles away.
    Through the listening tours, we have learned, and through 
the discussions we have had, that people just want the 
opportunity to define what they believe is how they wish to 
live in a manner that allows them to grow out their communities 
and enhance their communities economic growth, still provide 
housing and opportunities.
    So what we are saying to them is fine. We will give you 
those grants. Give us back that narrative. But it is really 
clear because even in the rural areas they say we want to talk 
to other rural areas so that we are not just talking about our 
community. It is a collaboration of communities, how will we 
grow in an area and be like, for, in the State of Washington, 
we would just call it the Yakima valley. They would begin to 
form their group, that would be the Wapatos, the Tapanishes, 
the Yakimas, the Prossers, small communities on their own that 
can't define sustainability but as a group they could. What are 
their transportation needs? What are their housing needs? What 
do they want EPA to do? What do they want from the Department 
of Education?
    So we will see in regards to the grants we have put out 
them come back with it. We believe that our responsibility is 
not to tell anybody what to do. It is to ask them to work 
collaboratively with the Federal funds they have as a catalyst 
to organize themselves so they can address all of these various 
needs, whether it is the housing, whether it is their economic 
growth. And we believe we will see that. It has been very clear 
in our listening tours and in our meetings that we have had.
    We decided to go out and ask the question before we wrote 
our NOFA. We said, you know, people are shocked. The common 
response we get is HUD actually asked us before you wrote your 
notice of funding availability? And our answer is yes, 
particularly on sustainability. We have been to Miami, Denver, 
St. Louis, Los Angeles, Albuquerque, Cleveland, Hartford, 
Connecticut and yesterday we met the small and rural regions.
    And our NOFA, when it goes out, will basically say, you 
tell us how you wish to grow in a sustainable fashion, how you 
are going to address housing, transportation, integrate those. 
How are you going to grow your economies and what can we do, 
whether it is USDA, HHS or HUD at assisting you grow out your 
economies. So the Federal Government approached those 
communities with a single voice.

                  SUSTAINABLE COMMUNITY--DUBUQUE, IOWA

    Mr. Olver. Thank you. Mr. Kienitz.
    Mr. Kienitz. I will give a very practical response to that, 
which is, a place where we have actually already given a grant 
most recently was in Dubuque, Iowa. What is going on there is 
that it is an older community along the river. It had a long 
history in the mill business and a lot of that business went 
away. For a long time it was one of those shrinking communities 
that you are talking about. But left over is a really strong 
infrastructure of this district that had been built up and 
their vision in that community was to bring in employment, 
using, you know, their good quality school system, well-
educated work force, but a community where people are going to 
want to live.
    So their strategy for attracting employment was make this a 
place where people are going to want to live, where companies 
are going to want to come, and is going to be a good place for 
the employees. And so their strategy was, street 
reconstruction, transit, parks, and amenities in this mill work 
district. And, in fact, they have gotten IBM to come in and 
make really a very large investment, and they are going to be 
bringing 1,500 employees into that community. And when you talk 
to the IBM people and you ask them why did you choose this 
community, it was that they had a strategy for how to make this 
a good corporate home for us and they had a strategy about how 
to make it a place to attract and retain the employees that are 
going to make our business succeed.
    But it is not about sort of the traditional economic 
development tools of business taxes and things like that. Those 
are important, but it was actually about sort of community 
values and what that community looked like and how it 
functioned.
    Mr. Olver. Thank you very much. Mr. Latham.
    Mr. Latham. Thank you very much, Mr. Chairman. And I guess 
the concern that I have I think a lot of folks do is, you know, 
you cited the small rural communities, Dubuque, Iowa. They did 
that by themselves, didn't they?

                  FEDERAL HIGHWAY TRUST FUND STRUCTURE

    Mr. Kienitz. So far, but then they asked us for help.
    Mr. Latham. Apparently they have been successful doing it 
themselves. Does anyone here argue that the trust fund is not 
broke?
    Mr. Kienitz. I sure don't.
    Mr. Latham. Do you argue the Highway Trust Fund, we had to 
backfill $20 billion out of the General Fund. The fact that we 
are spending actually hundreds of billions of dollars 
subsidizing home loans in the suburbs there is a huge 
investment in that; is that correct?
    Mr. Sims. Yes, sir, you are correct.
    Mr. Latham. So we are subsidizing all of the homes out in 
the suburbs away from what you are talking about, the 
sustainable communities, and now we are going to take a whole 
bunch of money out of the Trust Fund to subsidize communities 
so that people don't have to pay into the Trust Fund and so the 
Trust Fund continues to go down and you are taking more money 
out. I know a couple of years ago when the bridge collapsed in 
Minneapolis, the whole idea was safety, highway safety, we have 
to have all these dollars in the highways and roads and bridges 
because it is not safe for the population.
    So what we are talking about is, in fact, taking even more 
money to battle hundreds of billions of dollars that we are 
subsidizing today to build houses out in the suburbs away from 
these centers, so we are talking now hundreds of millions of 
dollars as kind of basis you are talking about to expand this 
program as the start in to take even more money--the idea that 
you cited rural communities. I come from a very rural area, and 
my hometown is 165 people. I actually lived in the suburbs on a 
farm outside of town there most all of my life, but those towns 
are dying.
    You talk about that is where the jobs are, that is where 
the community is. And the Chairman noted how many counties in 
the State of Iowa the populations are declining and those are 
exactly the kinds of examples that you are using of what is the 
ideal here for these proposals. I guess my general question is 
how can we justify taking that much money out of the Trust Fund 
that is broke to subsidize people who now are not going to pay 
into the Trust Fund and still continue to spend the hundreds of 
billions of dollars that HUD does today to subsidize people to 
not live in these communities?
    Mr. Kienitz. That is perhaps the key question of all of 
this, so obviously we have thought about it. The first thing I 
will say is that no one will argue the point that the current 
financial structure of the Highway Trust Fund was, it was, a 
great run for 45 or 50 years when you had a system whereby the 
amount of driving that people did and the amount of gasoline 
they used grew at the same rate as the economy. You take a 
slice of that and you spend it on the system, and it is a 
stable predictable system over time. What has happened is that 
relationship no longer exists.
    There is no longer a relationship fixed between growth in 
the economy and how much people drive. When the economy 
shrinks, it is even worse, but in fact, when the economy was 
growing, it was growing at 3 or 4 times the rate at which the 
revenue was going to the Highway Trust Fund, and that was 5 or 
8 years ago, and it has only gotten worse since then.
    So unfortunately we are all now living in the time in which 
the system designed by our forebears--and the great system it 
was--doesn't work anymore for larger social reasons that are 
beyond any of our control.
    It is our responsibility to fix it, however. That is going 
to be the toughest transportation policy issue that I am sure I 
will face in my time here and that any of us will face. I am 
not here with an answer to it, other than to say we recognize 
the severity of the problem.
    Point number 2 is that during this extended period of 
difficulty--it is true because of that--perhaps the easiest 
thing to say is, well, we shouldn't do any more renovation 
during this difficult period because resources are already 
strained. And the resources are absolutely strained. I guess 
personally I guess that is not where I come down. Where I come 
down is during times of plenty, it is time to innovate and 
times of scarcity, it is perhaps more important to innovate.
    So we view this as a small start, but a very important 
start, because we think that the fundamental benefits for 
society, whether it is safety or social or environment, that 
can be gained by re-orienting our transportation program just 
at the beginning and in a small way--even in a time of 
scarcity--are so great that we need to start. But that does not 
at all affect the validity of your point that all of our 
biggest jobs is to affect that larger issue.

               PARTNER WITH SMALL COMMUNITIES AND CITIES

    Mr. Latham. Do you have any comments?
    Mr. Sims. I have two responses, sir. In the meeting that we 
had yesterday with the small cities and the rural communities, 
people are actually very welcoming of our intervention. They 
wanted to tell us not to tell them what to do but partner, and 
that is what we said we would do. We are not interested in 
telling people, we are interested in forming those 
partnerships. And their whole fear was we were only going to 
deal with large metropolitan areas and that we forgot to deal 
with small communities. And we said, no, 25 percent of our 
focus would be on small and rural communities and forming those 
kinds of partnerships that allow them to do the process that 
they believe they need on a planning process that allows them 
to focus the attention of other Federal agencies on what they 
believe they needed as jurisdictions to achieve both their 
economic stability and to deal with the other kinds of problems 
they were having, whether they were transportation issues or 
whether they were housing issues. So we felt very welcome, 
yesterday was a very lively but I think a very, very productive 
meeting over how to do that.
    On the issue of how we spend other funds, it is not just 
HUD, those funds went beyond just HUD's domain in regard to 
programmatic responses to what we were witnessing with regard 
to mortgage defaults and the crisis that would precipitate 
here. We have watched throughout the country large areas have 
major foreclosures and defaults, leaving communities fairly 
disrupted.
    So the intervention I believe if the President really 
wanted to intervene, was not just to let this happen, but 
figure out if there is a way to reduce the number of people and 
the amount of money we would lose and stabilize the financial 
system of the country. And I think stabilizing the financial 
system of the country was a very, very important message to 
send not only domestically, but internationally as well. So I 
understand your concerns.
    Where I look at sustainability is I am from an old school, 
my parents were pretty modest in the amount of money they have, 
and what sustainability requires is the efficient use of 
capital, it really does. How we invest, especially with the 
Federal Government, the Federal Government always talked to us 
in silos. And to me, sometimes it didn't make sense because one 
side didn't know what the other side was doing, so we had 
inherent conflicts. Sometimes we could call them head 
scratchers where we would say can you guys just talk to each 
other so the investments we are making locally are going to be 
complemented by your regulations and investments of other 
Federal agencies.
    Sustainability is to create that vision that is moved by 
the community requiring us to coordinate our actions with them, 
which I think is an efficiency long overdue. I was in a large 
jurisdiction, yes, but the Federal Government never spoke as 
one voice and that was maddening to us. We couldn't do that at 
the local level because of our constraints on the funding so we 
have to be very efficient programmatically and work across 
silos.
    What this represents is the fact that the silos walls that 
existed between HUD and U.S. DOT are now down, those between 
EPA are now down. And I thought that would be easy to do; it 
hasn't been because people love those silos, but the silos were 
not solutions. And so we are driving to those efficiencies as 
smart use of capital in the program.
    Mr. Latham. I would love to get yet another chance.
    Mr. Olver. Mr. Rodriguez.
    Mr. Rodriguez. Thank you very much, and thank you very much 
for your testimony. I know that you mentioned that you have had 
a chance to travel. I want to ask you to see if you can come to 
south Texas, a lot of people go to Dallas and Houston, but 
don't go south. I would encourage you to come to San Antonio if 
possible or El Paso.
    We have a major dilemma during the transportation in the 
stimulus package in Texas. A lot of us from the border area, 
not just me, it is Congressman Reyes, Congressman Ortiz, 
Congressman Cuellar, Congressman Gonzalez and myself, Hinojosa 
and all those of us who represent the entire border area felt 
that a lot of those resources were expended elsewhere to the 
north of Texas versus the south and we have always had those 
concerns and for good reason.
    And then came the TIGER Program, and it went to the north. 
And so I was wondering if you can give me some kind of guidance 
in terms of how is that going to be redirected in the future. 
We know also that in urban areas throughout the country, the 
inner cities are revitalizing, but at the same time, the poor 
are being displaced in terms of what plans are there to see how 
we can help and we have made some serious moves at doing away 
with a lot of the old housing, some 4 million in the last so 
many years, 8 or 10 years and only replaced it with about a 
million.
    So we have got a real serious problem in terms of 
displacing the poor in the inner cities and where they are 
headed. I represent west Texas, I have probably the largest 
district in the Nation, a lot of rural communities. I would ask 
you to see how you would respond to looking to rural 
communities as well, as well as urban communities and some of 
the disparities that exist out there. And we try to fight in 
terms of trying to get that money directly to communities, we 
couldn't, they had to go through the states. But I am hoping 
the Federal also takes into consideration--of course, they 
argued that some of the projects were not shovel ready; they 
were the ones who do the prioritizing in terms of what is ready 
and what is not ready. And our communities were not ready and 
they still probably will not be ready. So I just ask you to 
respond to those comments.

                             TIGER PROGRAM

    Mr. Kienitz. Yes, sir. This business of sort of project 
readiness is something that really has ended up being a real 
difficult area for us. One of the sort of great advertising 
points for the TIGER Program was it was one of the few pieces 
of Recovery Act funding that was not required to go through 
States. We had a number of States come to us and say, well, 
here are the projects in my State that we are recommending, but 
a lot of the communities, I think, were wise enough to also 
come to us directly and say, ``I may or may not be on some 
State-recommended list, I want you to look at my project 
individually based on its merits,'' and we did that. And the 
balance between funding that is going directly to communities 
as opposed to through States is fairly even, I would say, which 
is not the norm.
    What we did run into is exactly what you said, because a 
lot of those communities had been trying to go through the 
standard project development process and had been told, ``Well, 
your project is not a very high priority.'' What they had was 
an idea, but they didn't have final design, permits and 
reliable schedules that could get them these projects begun and 
ended by the Recovery Act deadlines that we were working with 
for the TIGER Program. And, for example, I am familiar with a 
couple of proposals in San Antonio and I know that that was a 
bit of an issue there.
    One of the things we worked with the Chairman with last 
year for the fiscal year 2010 TIGER money, that there is some 
availability for what we sort of are calling kind of a project 
development grant. Because a lot of what we saw in the TIGER 
pipeline was people who had interesting ideas who weren't 
ready. And we were under very strict deadlines to say we could 
only fund projects that really are ready to go and to get 
started.
    But we also recognize there are a lot of folks out there 
who don't have the resources to get their projects designed, 
permitted, all that stuff so that they are ready to go. So we 
want to have some ability in the future to sort of find the 
folks who maybe need a little more help who frankly tend to be 
in smaller areas in more rural areas. We got proposals from New 
York City too,--they had a really fantastic proposal,--and boy 
that thing was ready to go; they knew what they were doing. 
That is because the city of New York has the larger 
transportation staff--larger than half the States. So our goal 
is really to try to find a way to do better in those areas.
    Mr. Rodriguez. The inner cities, we are trying to address 
the issue of all of a sudden property values pick up in the 
inner cities where a lot of the poor live, and they are having 
a rough time keeping what they have because of the property 
values and I know that they are being displaced. Are we doing 
any kind of assessments or studies as to where are these people 
going?
    Mr. Sims. Congressman, HUD has become incredibly focused at 
what we call areas where we have large populations of color and 
poverty in regards to what our approach would be in those 
communities. Earlier in my remarks I was talking about our 
ability to predict by ZIP codes health outcomes and illnesses, 
morbidity rates, lifetime earnings of children, levels of tooth 
decay. All of those can be pulled out by ZIP code. And when I 
came to HUD, I told Secretary Donovan that we had to move HUD 
as a matter of policy to having a ZIP code being an address but 
not be a life determinant. And so our strategy in looking at 
those communities is to talk about how do we rebuild them, 
whether it is our work with U.S. DOT or whether it is our work 
with Health Housing Human Services, whether it is our work with 
EPA but they have a coordinated effort as to how to rebuild 
communities so we can get better outcomes.
    I moved into an abandoned neighborhood, but it transformed 
over time, and we think to the best. But our biggest concern 
when we were there is the displacement of people who had 
previously lived there, so rather than deny somebody their 
equity because people are entitled to get fair equity we simply 
said there we wanted to invite additional development to occur 
in our community so that we would maintain both our racial 
diversity and economic diversity. As a matter of policy, HUD 
will be moving in that direction.
    So we will say where we see property values go up, we will 
still come in with grants and measures and work with local 
jurisdictions and say can you continue to provide what we call 
those opportunities for people to live in traditional 
communities as well as to look at other options outside of 
those communities so that people have what makes America a 
greatest choice.
    But we are not going to be indifferent to what we call the 
impacts of increased detention to cities and the loss of that 
housing. We are saying no, we have to make sure that that 
housing type and variety is maintained throughout the city and 
we are going to work very diligently on that.
    I will be in San Antonio actually. I saw this on the board 
this morning, I look forward to working with that office when I 
come down.
    Mr. Rodriguez. Please let me know when you are coming down.
    Mr. Sims. Thank you, I will do that. Did I answer all of 
your questions, sir? I want to make sure I did.
    Mr. Rodriguez. Yes, thank you very much.
    Mr. Olver. Thank you, Mr. LaTourette.
    Mr. LaTourette. Thank you both for your testimony. I want 
to sort of piggyback on where Mr. Latham was, I don't think my 
objection, and I assume his has anything to do with the stated 
goals, it has to do with where the money is coming from and the 
timeframe. And from HUD's perspective, I think Mr. Latham has 
eloquently laid out, unless you change and asked the last panel 
this, that unless you change the tax incentives that has been 
geared since the end of the Second World War to live in single 
family homes, you are not going to be successful.
    And likewise, you talk about the economic crisis that we 
are in, you know, Fannie and Freddie Mac have not had a good 
couple of years and their whole recovery strategy is based upon 
convincing people to move into the suburbs in big old energy 
wasting homes or else the economy doesn't recover. Unless we 
change that mind-set we fail. And from the Department of 
Transportation I heard you say that it is only 1 half of 1 
percent of the contract authority. But you begin to add up 
those one half of 1 percent for the Covered Bridge Program, for 
the CMAQ program, for the enhancement program, the $56 billion 
for transit and, you know, it begins to become real money and I 
think it is too soon.
    And again, in response to Mr. Latham's query, I get that 
you want to innovate and I get that you want to start new 
things, but in your answer, Mr. Secretary, you indicate that 
the big issue is what are we going to do with the Trust Fund 
model started by Dwight Eisenhower in 1956 and it doesn't work 
anymore? Well, if this Administration were going to deal with 
that problem and have this new initiative, I wouldn't have any 
problem, but you are not.
    When Secretary LaHood was before this Subcommittee a couple 
of weeks ago, he said you are not even going to look at this 
until March--even here, until a reauthorization of a 6-year 
bill until March of 2011. I heard the Secretary from HUD talk 
about a listening tour, and Secretary LaHood saying he is going 
on an 18-month listening tour around the United States to see 
what should be done with the highway program. I will give the 
Administration this tip of the hat, they are great listeners. I 
mean, you know, the President had everybody down to the Blair 
House to listen, but he talked more than anybody else he 
invited down there. So I really hope if you are going to 
listen, you listen. But on this issue you don't have to listen. 
You know, how long have you been with DOT?
    Mr. Kienitz. One year exactly, but I have been in the 
business for 20 years.
    Mr. LaTourette. Then you are a babe. But I am going to tell 
you that we knew when we reauthorized SAFETEA-LU it was due in 
2003, we couldn't convince President Bush that you needed to do 
something on the revenue side. And so his bean counters, his 
OMB guys got together and said you can only have $256 billion 
for 6 years, when his own Department of Transportation said it 
was $475 billion, we fought for 2 years, delivered it 2 years 
late, had no predictability in the States and got a lousy bill 
quite frankly. Now you guys don't even want to give us a lousy 
number, you don't want to do a bill.
    Now in the construction trades 27 percent unemployment, it 
is not just the people that build roads and bridges and operate 
the heavy machinery, it is people who make the concrete and the 
asphalt and everything else. And the people who serve sloppy 
joes to the guys at lunch break. All of these people are 
hurting for work. And they want to know why when you are not 
going to fix the solvency problem of the highway trust fund you 
think it is a good idea to come in and take $305 million, which 
by the way we had the jobs bill, and I love my Democratic 
colleagues now. Not one of them laughed when they called it a 
jobs bill last week. But that the $305 million is about what 
California got out of the jobs bill last week. And my folks 
want to know, why won't you help put people back to work, why 
are you coming up with these things until you have solved the 
other problems?
    Mr. Kienitz. I'll try to respond in order, although the 
list is lengthy. I am not sure my notes are good enough. I hope 
you can remind me if I go off topic.

                       MORTGAGE INTEREST PAYMENTS

    Mr. LaTourette. I will remind you.
    Mr. Kienitz. I would say on the matter of the mortgage 
interest deduction, that has been debated around here certainly 
in the 20-some years since I first came to the Hill. I view 
that as certainly above my pay grade, whether or not we have 
mortgage infrastructure in America. I am somewhat heartened by 
the fact that in spite of the belief that that creates a strong 
pressure for the old style of development, that there is still 
so much of the new style, even if there are enormous incentives 
working against it. That tells me that people must really want 
this. And if people really want it, then why shouldn't we try 
to help them? So----

                            REAUTHORIZATION

    On the question of the reauthorization, you know, I have 
only worked in the Administration a year, but the first highway 
bill I worked on was 1987. This will be my fifth one or 
something like that. So as you know, the big elephant in the 
room here is tax increase, and who is voting yes for a tax 
increase. I don't have a vote, but obviously hopefully we are a 
key part of the process whenever that happens, but I don't see 
the politics for that right now. But, you know, maybe I am 
wrong, but once again, a little bit above my pay grade.

                       FEDERAL HIGHWAY TRUST FUND

    On the third question about the trust fund, which is when 
the original concept of the trust fund was created--the 
beautiful thing about the trust fund is that it gave the 
political system enough confidence to actually enact a new tax 
and dedicate that tax. The fear at the time was we got the vote 
to enact this tax because everyone knew what it was going to be 
for.
    Once we got this, now there is revenue coming in and 
everyone is going to want it. So we are going to create a trust 
fund and we are going to create a wall there and there will be 
no diversions from the trust fund. And this a system that 
worked very, very well for a long time. The actual underlying 
situation has reversed itself which is it is no longer a case 
of the transportation community having a big dedicated source 
of revenue there when everyone wants access to it.
    The answer is actually that the transportation community 
has now a small source of revenue that is far too small to meet 
their own needs, and in fact, general funds are now being put 
into transportation routinely. First it was $8 billion, then it 
was $6 billion. I gather this bill is now going to move in the 
Senate in a couple of days and that will be another 20. So now 
up to $35 billion of general funds. So the whole equation is no 
longer a question of protecting ourselves from them. I think 
now they have to worry about protecting themselves from us. So 
through happenstance, we have ended up with a mixed funded 
system in which you have some dedicated tax and some general 
fund going in. I think in that realm, it is reasonable to say 
should we have a somewhat broader view of what the purposes of 
those funds are if we, in fact, do have a de facto ongoing.
    Mr. LaTourette. And I would say it is reasonable if there 
weren't 57 diversions from the Highway Trust Fund when it was 
started in 1956.
    Mr. Sims. This has gone on for quite some time.
    Mr. Kienitz. We were in here for the first panel.
    Mr. Olver. Now he is taking time from me and that is more 
serious.
    Let me just try to place some things into perspective here. 
I don't think that anyone on this Subcommittee, whether we are 
here or not here, would dispute at all that there is an 
enormous need for infrastructure, that the need is at least 
twice and you have given the numbers already, at least twice 
the size of the last authorization bill. I have not seen 
anybody who is quite ready to pay for the resources that that 
implies. There is not as you have already just suggested, there 
is not much indication that there is anybody that wants to 
raise that kind of taxes to do a trust fund that is of the size 
that would support by itself that kind of an infrastructure 
program.
    We do need the resources, there is absolutely no question. 
We need that, nobody would dispute that. But what we also need 
is a better use of those resources, which is the subject of 
sustainability.
    Now my good friend from Ohio who just finished, started out 
his comments by saying it is too soon, too soon for 
sustainability. Well, what the hell? We have had a whole 
generation where we have spent billions of dollars on 
subsidizing sprawl off into the suburbs, which absolutely 
violates all the principals that we now, at least in the 
sustainability community, think are important and look as if 
there are ever more important for the future. And I would hope 
that in HUD, we are not spending hundreds of millions of 
dollars contributing to that very thing which violates the 
possibilities of sustainability in the future, but that is what 
it was, Administrations were for at least the last generation, 
this can't be corrected overnight. It is the beginning of 
correction dealing with it as we are trying to do.
    Now, I think the time has long since passed for 
sustainability, that would be my comment on this, you don't 
need to answer at all. I am going to go back to my--unless you 
want to make any comment to what I said. And otherwise I will 
go back to the Ranking Member. We will go to Mr. Latham.
    Mr. Latham. Thank you, Mr. Chairman. I wonder how a guy 
with a degree in aquatic biology got into this mess.
    Mr. Kienitz. I wonder sometimes myself.
    Mr. Latham. Why is it impossible, or in your minds--my 
concern, I think you talked about silos, we are building 
another silo here. We already have the Freddie Mac/Fannie Mae, 
all the incentives that HUD has, that what the tax code does is 
not going to change and we had how many hundreds of billions of 
dollars we bailed out Freddie Mac, Fannie Mae from, billions of 
dollars in tax subsidies everything else to move people out in 
the suburbs. And now we are building another silo so they are 
going to compete each other again, take more money out of the 
trust fund. And I don't know how many people are aware actually 
that the $20 billion that was put in to make the trust fund 
good didn't cost anything, just intergovernmental transfer.
    Mr. Kienitz. It is a bizarre system.
    Mr. Latham. Does anybody understand that we don't have $20 
billion to start with? I mean, that we are borrowing $20 
billion someplace to backfill this.
    Why can't following the example of the successful projects 
that have been made, build up, you mentioned Dubuque and other 
larger metropolitan areas around the country that have done 
this, why can't we just say to the States that if you want to 
use part of the trust fund dollars to take away from your roads 
and bridges and infrastructure, why can't you do that, rather 
than to have a dedicated fund here at the Federal Government 
that probably is going to slow down the process if you--I mean, 
there is testimony earlier that people had to wait for the 
government, they went ahead and did stuff in spite of this.
    You know, why isn't that a viable option? If they choose to 
do it, let them do it.

                             TIGER PROGRAM

    Mr. Kienitz. I would say at least in my personal view that 
is certainly part of any answer and that there has actually 
been a trend for the last 20 years which really started in the 
ISTEA Bill in 1991, of taking a more hands-off attitude and 
saying we are not going to prohibit you from doing things that 
might not have been in the traditional program. We are going to 
open that up to you.
    I would say part of the experience of the TIGER Program 
when that was created, it was explicitly written that this is 
for the transportation infrastructure investments without 
regard to all of the 50 years of accumulated rules about what 
was eligible and what was not eligible and what you could and 
couldn't do. The very basic things required, environmental 
analysis and a couple of other things and Buy America, but 
other that that the rules didn't apply.
    That allowed us to experiment into the question of what 
would happen if it was completely open. And what we found is a 
number of things. A lot of people came in for very traditional 
projects that were the next thing on their list where they 
didn't have enough money and some of those were funded. A lot 
of people came in for things that were on local roads, not on 
roads that traditionally got Federal funds, would not have 
otherwise been eligible. And so that is where taking the rules 
off does make a difference.
    We actually ended up the single biggest category investment 
ended up being in freight rail, which as an enormous safety 
benefits, social benefits, economic benefits, but is not an 
authorized traditional category for Federal investment, but 
maybe now that we are going to go do some of that, and people 
look at the results, maybe thinking about that might change. So 
I think it is a combination, it is a combination of taking the 
structures off to some degree to let States and localities do 
what they want. But it is also what is the phrase they use in 
the education world right now, which is the race to the top; it 
is a little bit of that mentality. Yes, we want to loosen the 
structures and let you pursue your own goals, but we also want 
to find the high fliers, the people who really have the most 
interesting, most innovative, newest thing and actually go try 
that and actually pick that out of the pile and say let's go 
try this and then let everyone else look at it.
    And hopefully, there will be successes. Rarely is 
everything in life all successes, there will probably be some 
failures. But I think there is some value in having a balance 
between a majority of formula funds that go out to everyone to 
pursue what they want to do, but some portion of funding that 
is sort of dedicated on the top.

                         LIVABILITY INVESTMENT

    The livability investment funds, I think, we are asking for 
are really sort of more planning, capacity building and 
administration. The real issue is people plan and build their 
capacity and decide what they want and have a capital need. 
That is where I think the gentleman is correct, which is even 
if you do want to go in this new direction, what does it end up 
with at the end of day? It ends up with billions and billions 
of dollars in need for capital investment. So I think on that 
we are together. The types of projects that come out of this 
might be different than the other types of projects that lead 
in the same direction.
    Our budget proposal--which is not the subject--for flexible 
infrastructure innovation fund, I guess I really view that as 
the place that all of this leads to, at least in 
transportation: an actual capital source for funding to be able 
to go out and do this on a large scale in many places around 
the country and actually have innovation occur on the ground. I 
know that is a controversial concept in it's own way but at 
least it is sort of real capital dollars that have been brought 
into transportation from the general fund that aren't going 
through the highway trust fund, but OMB has allocated to the 
DOT proposal extra $4 billion to this issue. I hope there is 
some value added in that.
    Mr. Sims. Congressman, we are seeing our market change 
already. It is interesting when we look at default rates, what 
were people--what were they spending at the time they ran into 
their own financial problems personally, and we found that one-
third of the income was on transportation. That will result in 
a market shift as it always does. And so the key for FHA, 
Freddie and Fannie will be able to respond to the market, which 
is going to be looking for more dense places to live and to 
probably look at smaller footprints. That happened in the 
county I was in where we saw people look for a variety of new 
housing types that would respond to their economic interest, 
but the key is that they were looking for places that would 
allow them to efficiently get back to work, to get to school, 
to do their shopping. So I think what we are going to see with 
Freddie and Fannie and FHA is to have to respond to a changed 
market.
    We are working on location incentives and energy incentives 
to be built into the mortgage environment as they assess the 
individual coming in so they can say, look, if you are out 
here, here is your energy cost. If you are out here, this is 
your transportation cost so we can get them to rethink their 
market choice.
    Internally where HUD is headed is incentivizing people to 
actually think through what we call cost factors, we will do 
that through our tax credit systems. Our transformation of 
rental assistance because we want people to actually make 
really good financial decisions that either will be able to 
reduce government costs, or actually help them in terms of the 
management of their own finances.
    I remember being in a meeting where I went to developers 
and I said, can we get you to look at new housing types because 
we were all single family, and the bigger the single family 
dwelling, the better. And they said I don't know. So a 
developer who fought me the most decided to go into row houses 
and found out he couldn't build them fast enough. Our major 
builders in our county were looking at how to build new 
neighborhoods, because it was not the size of the house, but 
the quality of the neighborhood that attracted people. Did it 
have a park nearby? Did it have a path nearby? Was there 
shopping nearby?
    So the--I believe the pattern we have seen up until now 
with Freddie's and Fannie's and the FHA, they may not be the 
market driver, but how you grow will be the market driver and 
they will have to change their mortgage instruments. So I look 
at sustainability as being able to capture. Like I said, it is 
a conservative tool because underlying it is the use of capital 
and money and affordability, but they are going to change. I 
can't sit here and speak for Fannie and Freddie and FHA, there 
are people better at it than I. But sustainability will be 
inculcated within HUD in every one of its programs. So at least 
our $44 billion that we spend will be directed toward saying 
this is a new era for how the government is going to spend its 
money, how it is going to invest its money, and how can we 
ensure that we have a high quality of life in every community.
    Mr. Olver. Mr. LaTourette.
    Mr. LaTourette. Thank you, and I just want to focus on, I 
guess my observation that prompted the Chairman to say what the 
hell.
    By talking about too early, what I mean is timing. I agree 
with you, if we don't start going, you don't get going and you 
are not going--at this point in time Mr. Rodriguez's comments 
and our first panel pretty clearly indicated because it is in 
infancy, one of an unintended consequences from housing 
standpoint, and I think you raised, the demand is outstripping 
supply. And so what you are doing is displacing people who 
should be our target for affordable housing in the short run. 
And the question is today when the trust fund is bankrupt, and 
we will take Mr. Latham as example, if he's hemorrhaging, 
bleeding profusely, and has a limited amount of health care 
dollars, rather than fixing his bleeding, should we give him a 
facelift. Now that might be a good idea later, but is it a good 
idea now? That is what I am talking about. And I think you get 
it.
    And to the Chairman's point that nobody--Chairman Oberstar 
has a proposal, and he is trying to sell it to anybody that 
will listen. The Speaker won't let him bring the bill to the 
floor, your Secretary has testified before this Subcommittee 
that they don't even want to hear from us until March of 2011. 
This is one of those issues, it is like the middle class 
entitlements of Social Security, and Medicare. This is a tricky 
issue, a lot of my classmates came here because of the 4.3 
cents when the gas tax was increased in 19--I get it. But 
people--you are either going to have leaders in the 
Administration and the Congress say this is a need, and we are 
going to figure out how to do it, a combination of tolling, 
vehicle miles, travel, gas tax, bonding or not.
    And at this moment in time, I have to tell you that there 
is a stark lack of leadership from the Administration on this 
issue and from the leadership of this House. And I will tell 
you right now we will get Republican votes for that, but 27 
percent unemployment, we can't put up with that, you just can't 
put up with that. And at the same time, say we are going to 
give Latham a facelift by the way, it is just not right. That 
is it, thanks for the time, Mr. Chairman.

                            HUD PARTNERSHIPS

    Mr. Olver. You want to comment?
    Mr. Sims. I will respond on the HUD side and Mr. Latham, 
you don't need a facelift.
    One of the things that we found in HUD was what we were 
siloed as well. So when Mr. Rodriguez raised his question about 
how do you handle inflating, we are now doing and HUD is saying 
can we get you to focus on what the community is going through 
and coordinate our tax credit, our multifamily systems, our FHA 
systems, our various tenant-based and project-based so we can 
actually replace the housing.
    Remember, my issue is that everybody is entitled to get 
equity out of your home, I firmly believe in that. But our 
issue is how then do you build into that the ability to 
continue to provide opportunities for people to live. And that 
required a fundamental change within HUD and that is occurring. 
We are not only going to try to break our silos between cabinet 
agencies, we are trying to break down our own internal silos as 
well.
    Mr. Kienitz. I would like to respond briefly. The gentleman 
thinks it is too early and the Chairman thinks it is too late, 
and perhaps we can compromise that now is a good time.
    Mr. LaTourette. Oh.
    Mr. Olver. That was very well done, that was very well 
done. We are going to finish up here very quickly and I will 
take a short amount of time here. Three years ago we started on 
this sustainability thing, this Subcommittee started it with an 
effort to get FTA and HUD to speak together.
    And they did so sort of haltingly and the GAO did us a 
report on what was going on. And you folks have gone far beyond 
what is necessary by that process, but you have taken on--we 
could go on to what other things need to be involved in this 
program as sustainability. It would have education department 
and maybe an agriculture department even in that process. But 
we are working on the ones you have got. One of the things that 
the GAO in their report was criticized for was there wasn't 
very good data on the whole business of housing in relation to 
transportation where the housing units were. Are we now in your 
listening sessions and whatever else we are doing, are we 
collecting the data that allows us to be more precise about 
what are the possibilities, what are the opportunities, what 
actually is on the ground first of all.

                  HUD POLICY, DEVELOPMENT AND RESEARCH

    Mr. Sims. Mr. Chairman, we have Assistant Secretary Raphael 
Bostick from our Department, and who is in charge of the office 
of Policy, Development and Research. PD&R has been working with 
all the agencies, GIS systems, to put them in--access of them 
and look at data with precision. The are all updated, they are 
superbly done. And we will be very, very targeted and able to 
tell you how a neighborhood is functioning, we can broaden it 
out to a neighborhood or community by using a GIS systems 
maintained by this government.
    Mr. Olver. All right. Yeah.
    Mr. Kienitz. I would also respond. I know that Ron's 
department has actually been involved in an effort trying to 
map this housing affordability and transportation cost combined 
index. And I know that has been ongoing for a couple years 
before we got here. We are now sort of partnering with it to 
try to figure out how to roll out data sets that cover most the 
country with regard to that, so you can sort of see where the 
opportunities and challenges are, either around transit or not 
around transit.
    Mr. Olver. I have seen data that showed that for low income 
families, the cost of housing and transportation together can 
be 60 percent of the whole budget, and this is the sort of 
thing that what you are doing in breaking down the silos should 
begin to tell us where, what we--how we can counter that and 
how we can make--that is part of the sustainability basically, 
that is a major portion of the sustainability.
    What you are doing with--I want to go with something that 
Mr. Rodriguez had said, that question of capacity building that 
I think you are using project development grants, I think that 
was the term that was--I think that is very important. There 
are places that know exactly how to get the most out of Federal 
funds and there are other places that have much greater need 
and just don't know how to do it. So if you are building some 
capacity along the way, that is all the good for this Nation it 
seems to me for the equity that goes along with it.
    I think that is very important. And then I would say the 
trust fund has for years and years, I don't know how long, 
whether it is a whole generation, because I wasn't here a whole 
generation ago, but had FTA in its operations, FTA, as you 
said, Mr. Kienitz, is 300 million of what you are proposing, is 
the operations that come out of the FTA. And that goes back to 
where public transportation and the expansion of public 
transportation which we had testimony in the previous panel, 
the effectiveness of that public transportation, and in 
reaching the goals, at least in that one city, Portland have 
been very well reached by that.
    That seems to answer part of the problem, it gets down to 
that too. In my mind, it gets down to we are arguing about 
whether the $200 million that you have suggested it is not 
quite that because 20 million at the beginning is for planning 
and capacity building and so on, that that other $200 million 
should be under question, should be worried about for that half 
of 1 percent. Would you like to sum up and make another 
explanation in defense of that?

                           CAPACITY BUILDING

    Mr. Kienitz. I would. Thank you for the opportunity. I will 
say two things: The first of which is on this sort of capacity 
building side, that is certainly a portion of the livability 
proposal that we have made, that Federal transit would do, some 
of that with their grantees, and Federal highway would do some 
of that and OST would have a coordinating function centrally.
    Honestly it was fascinating to see Fred Hansen sitting up 
here on behalf of TriMet. He is someone who is well known here 
in Washington from his many years here. And they are 
intelligent, sophisticated; they understand all the rules of 
the system; they know how to put their projects together in a 
perfect way to get them through the system and have done that 
very, very well. And of all communities, Seattle has sort of 
started behind but has gotten ahead and the Denver's and Salt 
Lake's and New York, they are all fixing it out. But you have 
to feel for San Antonio; they don't have 30 years of experience 
of winding their way through the system. That is a big part of 
it. Because the money we are talking about in the Department's 
proposal is not enough to go out and do big capital 
investments, it is really more aimed at that question, which is 
that there are people out there who want something but don't 
know quite exactly what it is they want, it isn't exactly 
designed or permitted, and they don't know how to navigate the 
Federal system.
    And our hope, and I really know Ron's hope is this, is an 
equal opportunity thing where the fact that you got an early 
start doesn't mean you are always at the front of the line.

                       FEDERAL HIGHWAY TRUST FUND

    Mr. Olver. Well, Mr. Rodriguez was talking about El Paso 
and Laredo and Brownsville and other places, not just San 
Antonio. Although San Antonio is, of course, given the size of 
San Antonio, it is a little bit of a shock that they are having 
some troubles.
    Mr. Kienitz. The only other thing I will say is that on the 
question of Trust Fund. I mean, interestingly the modern day 
conversation that were diversions from the trust fund actually 
began in 1982 when the first transit site of the trust fund was 
created, which was actually done under Ronald Reagan and with a 
partially, you know--so I guess I view that as something over 
which there is still disagreement, but after 28 years, to some 
degree, I think it is a decided issue there is a split here. 
And so the real question is what is the right split? How can it 
be well managed? How do we get the most for our money?
    Mr. Olver. The real ultimate question is where are we going 
to get the resources?
    Mr. Kienitz. Exactly.
    Mr. Olver. Mr. Latham.
    Mr. Latham. Thank you, Mr. Chairman. I am pleased we are 
getting back on subject here. Mr. LaTourette calls you a babe.
    Mr. LaTourette. I am sorry to use insulting language.
    Mr. Olver. And worried about----

                        SUSTAINABLE COMMUNITIES

    Mr. Latham. Okay. Mr. Sims, you said something earlier a 
couple rounds ago that because of the initiatives, the cost of 
moving into these sustainability communities, the rents are 
higher, the costs of the homes are higher, so we are 
subsidizing something that will increase the cost of the 
housing.
    And the next thing you said, to maintain the diversity of 
the community and make sure every one can live there, we are 
going to subsidize people to their rents, or somehow subsidize 
them to live in those communities. How--where does it end? We 
are subsidizing one thing to cause behavior for us to have to 
subsidize something else.
    Mr. Sims. I think in sustainable communities, what we find 
is that you are never going to be able to cap market. The issue 
then, what are strategies going to be to make sure that we can 
minimize the displacement of people. And their are communities 
and sustainability that have done it very, very well. There are 
a number of communities that have stood up and done that to 
maintain the mix of housing types.
    We did that with HOPE VI, and hopefully will do that with 
Choice Neighborhoods. We are doing that with tax credit 
assistance. So those tools are useful and they are market 
driven.
    Mr. Latham. Okay. So we are subsidizing people because they 
can't afford to live in the communities because we subsidize 
the community that is now unaffordable. That is, in essence--I 
don't want to belabor the point.
    I want to ask, I know we have to end here, but one kind of 
one big question, we are spending $150 million to this year to 
have you guys be able to talk together in essence.
    Mr. Kienitz. They say talk is cheap, but I guess not.
    Mr. Latham. Not in Washington. $150 million for you guys to 
be able to sit down and work together. Where does it end? Ten 
years from now, how much money are we going to be laying out in 
the sustainable communities when you talk about loans, when you 
talk about guarantees, grants, subsidies, how much will this 
cost 10 years from now?

                           CAPITAL INVESTMENT

    Mr. Kienitz. I will respond from my part, I think we are 
appropriately starting this effort with sort of process: 
organization, outreach, education, capacity building, planning. 
Those are all the things one should do at the beginning of 
something new. That has a certain cost: it was 150 for them 
last year, now theirs is the same for this proposal, and we are 
somewhat a larger department so ours is somewhat larger in 
size. I don't know that those sort of front end efforts get a 
great deal more expensive than that. But it is what I mentioned 
a second ago, which is if you are doing that work right, there 
are communities all over America that say, ``hey, I want a 
streetcar or light rail or HOPE VI, I want park infrastructure 
or renewable energy or green buildings,'' or all of those other 
things.
    Then the question is how does the government organize 
itself around those capitally? Some of those are appropriately 
private sector, some of those are appropriately things that 
developers are doing, things that office developers are doing, 
retailers are doing, things that Wal-Mart is doing. But some is 
on the public side, some of it is water infrastructure, 
transit, things like that. So the question of what is the 
ultimate magnitude on the capital investment side. I don't 
think any of us know because I don't think we know how many 
times are ultimately going to buy this vision. The--hopefully 
if the theory is right, the net capital investment to grow 
smarter is equal or less than the net capital investment to do 
it otherwise, that is what the Utah experience has really been 
about, that is what drove them. It is not like Utah is this 
sort of hot bed of--it ain't Cambridge. It was really driven by 
them saying if we keep growing horizontally in the way that we 
have in the past, I have to send water lines to every one of 
those places, and I have to do sewer collectors to every one of 
those places, I have got to do electrical infrastructure, I 
have got to do broadband, I have got to do streets, I have got 
to do trash collection, and I have to do fire protection, and I 
have got to do hydrants and all of that.
    And their vision was really to create a growth pattern for 
their community which had a lot less of those things, 30 
percent less of all that. It meant 200 percent more transit, 
but with way more transit you get somewhat less of everything 
else. So hopefully, if the theory is right, the net necessarily 
isn't greater. I don't think we know yet because we are at the 
beginning.
    Mr. Olver. Mr. McDonough, earlier in the earlier panel 
called what you just described doing it wrong, but then 
deciding to do it more efficiently, which doesn't make it 
right, it stays wrong, but rather than doing it right and then 
once you have got it doing it right, you become more efficient 
at that and it grows in the right direction.
    Mr. Latham. I am glad you clarified that.
    Mr. Olver. Well, if you read his whole testimony, that is 
essentially what he was saying, I was paraphrasing, you won't 
find the exact phrases in his testimony. But what I think you 
are saying is that this in 10 years, everybody will be doing 
this because it is clearly the right way for sustainability in 
the long term.
    Mr. LaTourette.
    Mr. LaTourette. Thank you, as my mom would say, if 
everybody is jumping off a bridge are you going to jump off a 
bridge? No.
    I would wish the administration would just think about 
this, that why don't you just make the sustainability thing 
eligible under CMAQ. It deals with congestion, mitigation, air 
quality, you don't steal $300 million out of the trust fund 
that is already strapped for cash, and then the communities can 
figure out if they want to use it for planning, they want to 
use it for whatever they do. And then you can make all the 
people that used to be sprawl people who are now sustainability 
people happy because it is eligible. I wish you would think 
about that.
    Mr. Kienitz. We are happy to consider it.
    Mr. LaTourette. I am done, thank you.
    Mr. Olver. Okay, thank you, very much. This has been an 
interesting discussion and what we have heard today, I think, 
has been a really stunning presentation of all parts and a good 
discussion in both sessions. I appreciate what you are doing 
and we will do our best to keep going.
    Mr. Kienitz. Thank you, sir.
    Mr. Sims. Thank you sir, thank you, members.

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                                         Wednesday, April 21, 2010.

THE STATUS OF THE FEDERAL HOUSING ADMINISTRATION INCLUDING THE FY 2011 
                             BUDGET REQUEST

                                WITNESS

DAVID STEVENS, COMMISSIONER OF THE FEDERAL HOUSING ADMINISTRATION

                      Mr. Olver's Opening Remarks

    Mr. Olver. This hearing will come to order. I welcome David 
Stevens, Commissioner of the Federal Housing Administration. 
You have a complex title being an Assistant Secretary and also 
Commissioner of the FHA.
    You have been on the job now for just about 10 months 
during a period in which FHA's role in the mortgage market has 
expanded significantly. Given your extensive experience in the 
housing and financial industries, I believe you are the right 
person to lead FHA at this particular juncture.
    We are all painfully aware that many Americans are still 
struggling in the current financial crisis. FHA has played an 
important role for first-time home buyers and those refinancing 
their homes by providing affordable, 30-year, fixed rate 
mortgages. Since 2006, FHA's share of the mortgage market has 
increased from under 2 percent to over 30 percent of loans 
originated. These steps have helped some homeowners. However, 
it is obvious that much more remains to be done as the crisis 
is far from over.
    Every day we hear of financial institutions reporting 
billions of dollars in profits. At the same time we hear from 
constituents that the same institutions are not interested in 
providing relief to struggling homeowners. Program after 
program has been proposed to incentivize these institutions, 
including the most recent announcement from FHA and the 
Treasury, but we have yet to see real progress.
    I look forward to hearing about your new program and why 
you think it will attain the success that has eluded the 
predecessors. I am also interested to know more about the 
actions you have taken to provide stronger oversight of the 
lenders participating in FHA programs. Since you were sworn in 
as Commissioner in July, more than 350 FHA approved lenders 
have been removed from the program, more than eight times the 
number that were removed in total between 2006 and 2008.
    You have also taken numerous steps, including increasing 
insurance premiums, to ensure that the FHA manages its 
portfolio risk responsibly and that the programs operate 
without cost to the taxpayer. As we both know, HUD's fiscal 
year 2011 budget was predicated upon the assumption that a 
number of proposed legislative changes to FHA's loan program 
would result in $5.8 billion in receipts. In early March, CBO 
released its analysis and credited FHA with only $1.9 billion 
in receipts for the mortgage insurance program, leaving a gap 
of $3.9 billion.
    For the last 2 years, HUD and CBO have differed widely--
almost wildly--on this issue, and I expect FHA to address the 
reasons for this discrepancy. Implications of your budget 
extend beyond the FHA and impact resources available for the 
remainder of HUD's housing programs and therefore for 
transportation programs.
    Commissioner, your responsibility is to ensure that the FHA 
operates responsibly as an affordable option for average 
Americans. I look forward to hearing your testimony and 
discussing the opportunities and challenges facing the FHA 
today and in the future.
    Before we hear from you, I will recognize our Ranking 
Member, Tom Latham, for any opening remarks that he would like 
to make.

                      Mr. Latham's Opening Remarks

    Mr. Latham. Thank you, Mr. Chairman, and I thank you for 
joining us today, Mr. Stevens. I really want to thank the 
Chairman for scheduling this hearing to examine the challenges 
and budget issues that face the FHA.
    Commissioner Stevens, the Administration should be 
commended for trying to stem the tide of FHA losses through the 
proposed legislative changes that were recently transmitted to 
Congress and those changes that have been done administratively 
over the last year. The changes and suggestions are, I think, a 
common sense proposal that are long overdue and sorely needed 
to ensure the solvency of FHA.
    But even with these proposals, however, FHA still really 
has a very steep hill to climb with FHA experiencing 
foreclosures at a rate of about 7,500 a month, a 90-day or more 
delinquency rate of over 9 percent and tens of thousands of 
loans in loss mitigation and preforeclosure and an economy 
staggering along at 9.7 percent unemployment.
    I am looking forward to hearing how you think FHA cannot 
only avoid a taxpayer funded bailout, but restore the capital 
reserve of 2 percent within the next 5 years. These numbers 
really paint a very grim picture, and given housing's critical 
role in both putting us into this crisis and hopefully helping 
us out of it, it is a pivotal time for the FHA to remain 
solvent and to begin to restore its balance sheet.
    The new FHA short refinancing program that was announced 
last month seems to be just the type of program to prevent FHA 
from returning to solvency and may expose FHA and the taxpayer 
to additional significant losses. While the program is well 
intentioned, I have a serious concern about this initiative and 
really look forward to exploring this issue in this hearing 
today. With that, thank you for joining us, and I would yield 
back.
    Mr. Olver. Commissioner, your statement will be included in 
the record in its entirety. If you could keep your oral summary 
to five to seven minutes today? We do not seem to have an 
enormous number of people on this side. We should be able to 
have a decent chance at learning something more in the direct 
questioning.
    Mr. Stevens. Okay.

                   FHA MORTGAGE MODIFICATION PROGRAMS

    Mr. Olver. Your turn.

                      Mr. Stevens' Opening Remarks

    Mr. Stevens. Okay. Well, first of all, Chairman Olver, 
Ranking Member Latham, it is great to be here, Members of the 
Subcommittee. I have a tough talk about FHA, the 
Administration's recent reforms, legislative proposals, 
contributions to the budget and other topics you may wish to 
discuss today.
    It is definitely clear that we are at a moment where the 
housing market has made significant progress towards stability 
coming from where we have been, this past year's record low 
mortgage rates. Thanks in large part to the initiatives of this 
Administration, more than four million homeowners have 
refinanced their mortgages to more affordable levels. It helped 
save homeowners collectively more than $7 billion last year.
    More than one million families are saving an average of 
$500 per month through the Administration's mortgage 
modification programs. These efforts have begun to restore the 
confidence we need to get our economy moving, creating 162,000 
jobs last month, the best job support in three years.
    FHA has been essential to this improved outlook. In the 
past 18 months, more than 1.1 million homeowners refinanced 
into stable, affordable, 30-year, fixed rate mortgages 
protecting 650,000 families from foreclosure, ensuring 1.4 
million new purchase loans. More than 80 percent of our 
purchase loans are for first-time home buyers. The increased 
presence of FHA and the GSEs in the housing market has helped 
support liquidity to the purchase market, helping us ride 
through these difficult times until private capital can return 
to the market.
    We do see challenges. Our strategy to address the housing 
crisis needs to evolve because our challenges are evolving. 
Last month we announced the FHA refinance option in conjunction 
with revisions to the Administration's HAMP modification 
program to tackle the challenge of underwater borrowers. It is 
one of the biggest threats to our continued housing recovery.
    The FHA refinance option will provide more opportunities 
for lenders to restructure loans for families who owe more than 
their home is worth due to price declines in their communities. 
This option is voluntary for lenders and borrowers, and to 
qualify for a new FHA insured loan under this option a borrower 
must meet our fully documented underwriting requirements, they 
must be current on their mortgage, and the lender must reduce 
the principal balance by at least 10 percent in order for the 
borrower to qualify.
    We have also included incentives to encourage the private 
sector to write down second liens. This option will give some 
homeowners a path to regain equity in their homes and an 
affordable monthly payment. The vast majority of the burden of 
writing down these loans will fall where it belongs--on lenders 
and investors, not the taxpayer. It is because FHA is in a 
stronger position today that we are able to facilitate these 
efforts to help assist more struggling homeowners.
    With FHA's temporarily increased role, however, did come 
increased risk and responsibility. In addition to several 
policy changes that we have made since taking office on January 
20 of this year, we have proposed several reforms to mitigate 
risk and replenish FHA's capital reserves. Some of these steps 
require legislative authority, but it is important to know that 
the policies we made balance three priorities, and these were 
our guiding principles in all our changes that we made.
    Improving FHA's loan performance and capital reserves was 
the number one principle. Number two is continuing to support 
the broader housing market and recovery, and preserving FHA's 
role is number three, and providing home ownership 
opportunities to responsible underserved borrowers.

                   FHA'S MORTGAGE INSURANCE PREMIUMS

    So we are asking Congress for authority to restructure 
FHA's mortgage insurance premiums. We would like to reduce the 
up front premium to 100 basis points and increase the annual 
premium to between 85 and 90 basis points to increase FHA's 
capital and help return that strength for the mortgage market. 
We greatly appreciate the cooperation in Congress to support 
these reforms. A bipartisan bill to enact these changes which 
will further strengthen FHA's reserves and overall stability 
was introduced yesterday in the Financial Services Committee.

                              FICO SCORES

    Secondly, FHA is proposing a new FICO two step process 
where borrowers with FICO scores less than 580 will be required 
to put a minimum 10 percent down payment, while those above 580 
will be able to continue to qualify for as high as 96.5 percent 
financing as in the traditional program.
    Some have suggested we raise the down payment to 5 percent 
across the board. We have actually gone further in our program. 
We have taken the worst credit risk in the program in requiring 
a 10 percent down payment, not a 5 percent down payment, with 
the FHA program. I would be glad to talk about this further.

                           SELLER CONCESSIONS

    The third policy change we are proposing is to reduce the 
maximum seller concessions from 6 percent to 3 percent, which 
is in line with industry norms.

                           LENDER ENFORCEMENT

    And fourth is to increase lender enforcement. In our fiscal 
year 2009 actuarial review, the independent actuarial projected 
that more than 71 percent of our losses over the next five 
years will come from loans already on our existing books. That 
is why we are interested in accountability.
    Since fiscal year 2009, we have taken action on more than 
six times the number of lenders than FHA had done in the past 
decade, and we are seeking congressional authority to extend 
FHA's ability to hold all lenders to the same standard and 
permit FHA to recoup losses, to require indemnification for 
loans that were improperly originated or in which fraud or 
misrep was involved.
    These policy changes that FHA has proposed in the fiscal 
year 2011 budget would provide an additional $4.1 billion 
additional receipts to FHA and will have a much more moderate 
impact on the overall housing market. In addition, this year we 
are requesting an appropriation of $250 million to support our 
reverse mortgage product, the equity conversion mortgage, 
otherwise known as HECM.
    We have conducted extensive analysis to identify the 
maximum policy change that we could perform to reduce risk to 
the taxpayer and yet maintain viability of this program. The 
program is valuable in assisting the critical population. HUD 
has requested an appropriation to maintain the viability of 
this option while we evaluate the program more broadly for 
other changes that we can make to the HECM program to make it 
successful for the long term.
    Finally, as you know and as was stated earlier, the 
Congressional Budget Office (CBO) released its re-estimate of 
the 2011 Budget, which included their view of the FHA changes. 
The CBO re-estimates include a significantly more conservative 
assessment of how new loans made through FHA's MMI Fund will 
perform in coming years. Both CBO and the Administration 
forecast, however, propose that looking at FHA's changes in 
both cases will create net receipts to the government and will 
not require a subsidy. We differ, however, on the specific 
amount.
    While recognizing that such a difference with CBO 
complicates budget resolution development, it is important to 
note that the $5.8 billion in receipts forecast in the 
President's Budget will determine any receipts transferred to 
FHA's capital reserves. This will help the Fund get back on 
track to be capitalized with the statutorily mandated 2 percent 
of insurance in force. I would also note that we remain 
confident in our forecasts.
    I have submitted a more detailed testimony, which has been 
submitted to all of you, which covers the comprehensive set of 
reforms that we wish to implement to improve loan performance, 
hold lenders accountable, increase revenues to the FHA fund, 
while making sure that we also continue our role in serving the 
overall recovery of the housing market and serve our mission in 
providing home ownership and financial opportunities for 
responsible borrowers and seniors.
    With that, I appreciate the opportunity to be here and 
would look forward to any questions you may have.
    [The information follows:]

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                                  FHA

    Mr. Olver. Thank you very much. We will follow the usual 
procedure of roughly five minute questioning and go back and 
forth from the two ends of the podium.
    Commissioner, we all appreciate the countercyclical role 
that the FHA has played in the economy since the Great 
Depression really. We have seen in the past few years in 
particular the effect of this countercyclical model and 
recognize that FHA's loan volume jump from less than 2 percent 
of all loans to more than 30 percent of all loans is probably a 
temporary state.
    If that premise that it is a temporary state is true, when 
do you anticipate returning to a more sustainable volume level, 
or is it always sustainable at that kind of level? What is the 
long-term sustainable volume for the FHA?
    Mr. Stevens. Let me try to answer it this way. One, I 
believe that the level that FHA is participating in the market 
right now is very unhealthy. Private capital needs to return to 
the housing and finance system. It should not depend on a 
Federal program such as FHA to support the housing market. I 
believe this and so does the Secretary.
    Our traditional level, if you go back during more normal 
market periods, and I have been in this industry for three 
decades now. FHA has typically been about 10 percent of the 
market, let us say approximately 10 percent of total mortgages 
originated during a more normalized market period if you go 
back through the decades.
    When we were 2 percent of the market, that was a sign of 
unhealthy activity as well. That was a period dominated by 
private label securitizations that originated stated incomes, 
subprime loans, 100 percent financed, using non-amortizing 
products where there was little to no documentation, and it was 
that product set that really reduced FHA to being 2 percent of 
the market.
    We were a pretty boring business during that period of 
time. We do 30 year, fixed rate, fully amortizing loans. Every 
loan is fully documented, and 100 percent of those loans are 
primary residence, owner occupied loans. It just was not that 
exciting during the heyday of the house of cards period during 
which this housing bubble was created, and that is why we 
shrunk to such a small amount.
    So I expect that to happen, and we are already seeing some 
initial signs of private capital coming back in to buy mortgage 
backed securities as the fed steps out of subsidizing the low 
interest rate market like we have done over the last year. I 
think that is the first sign to show some return of private 
capital. As confidence returns, as home prices begin to 
stabilize, I believe there will be more investment capital 
coming back into the market.
    Mr. Olver. In going from the 2 percent to 30 percent of the 
loans----
    Mr. Stevens. Yes.
    Mr. Olver [continuing]. Over the last couple of years, how 
many actual loans have been secured, guaranteed by FHA in the 
process?
    Mr. Stevens. FHA? Last year it was about 1.9 million loans 
in 2009. In 2008, it was about 1.1 million loans. In 2007, it 
was about 465,000 loans. So you can see the significant ramp up 
and transition over to FHA.
    Again, I would articulate that if we think about going back 
to the financial services markets it was really August of 2007 
that the major collapse of the financial markets occurred 
beginning with many of those Wall Street firms which are now 
being sort of relooked at, given the Goldman Sachs news lately.
    Those were the institutions that began to collapse. That is 
when the massive transition began to occur was that fourth 
quarter of 2007 in the calendar year, which was really the 
first fiscal quarter of 2008 for FHA, beginning that fall of 
2008. You will see the significant ramp up in FHA volume at 
that time.
    One point I would make is because there was really very 
little risk management oversight at FHA under previous 
organizations, a lot of what transitioned FHA in the late 2007 
year was not very good quality mortgages. The average credit 
score actually dropped significantly during that period as 
subprime loan originators and other types of originators began 
looking at FHA loans as a way to stay in business.
    You know, that quality has improved dramatically. In the 
last year particularly, our average credit scores have risen 70 
points back----
    Mr. Olver. Right. Now, you have been able to tell me 2007, 
2008 and 2009 how many, and I suppose if you did it quarter by 
quarter it would also show----
    Mr. Stevens. Yes.
    Mr. Olver [continuing]. Some very interesting, significant 
changes.
    Mr. Stevens. Right.
    Mr. Olver. It would be pretty low in the beginning quarters 
of 2007 would be my guess.
    Mr. Stevens. That is correct.
    Mr. Olver. And that whatever number it was, it was really 
beginning to ramp upward.
    Mr. Stevens. That is right.

                        HOPE FOR HOMEOWNERS/HAMP

    Mr. Olver. Can you also show the various efforts on the 
part of the government on a similar chart or on the same chart 
during the same timeframe of what the homes--what was it in the 
HERA bill? What was it? Hope for Homeowners Program. What 
impact it has in its lifetime and then the HAMP programs----
    Mr. Stevens. Yes.
    Mr. Olver [continuing]. As they have gone through different 
iterations over the last year or so, how many of those have 
ended up producing in the way of renegotiations?
    Mr. Stevens. Yes.
    Mr. Olver. Is it possible to provide that kind of 
information?
    Mr. Stevens. Yes. We have that information in detail. I can 
articulate it in general terms now.
    Mr. Olver. All right. Please do so.
    Mr. Stevens. All right.
    Mr. Olver. I will not ask more questions at this moment.
    Mr. Stevens. Yes. So a couple of things. Hope for 
Homeowners, quite frankly, has not been successful. I could 
sugar coat the program. Obviously it was a legislatively 
created program. It had the absolute right intention to deal 
with at-risk homeowners.
    It has been very problematic operationally, and to date we 
have done about 57 mortgages in the entire Hope for Homeowners 
program.
    Mr. Olver. In the whole thing? Okay.
    Mr. Stevens. In the whole thing. As of March 31, 2010, we 
have received 1,164 applications.
    Mr. Olver. And under HAMP?
    Mr. Stevens. Under HAMP, those numbers get released by 
Treasury, and we went over these actually with some of the 
staff of this committee just a few days ago, but under HAMP 
about 1.1 million homeowners are right now in trial 
modifications within the HAMP program, and that ramp up in HAMP 
activity really began around July of last year.
    It had been introduced earlier, I think April, but it 
really began to increase dramatically from July on and actually 
exceeded forecast estimates of how many were going to be going 
into trial modifications during that period, putting us well 
ahead of what was expected. Now, we have other issues with 
that.
    Mr. Olver. All right. I am going to return to that----
    Mr. Stevens. Okay.
    Mr. Olver [continuing]. In my next round I think----
    Mr. Stevens. Sure.
    Mr. Olver [continuing]. Because that one really interests 
me. Mr. Latham.

                         FHA'S REFINANCE POLICY

    Mr. Latham. Thank you, Mr. Chairman. On the short 
refinancing program, what are your projections for how many 
lenders and borrowers will take advantage of the program? What 
are your projections as for how many of these loans will be in 
default? Do you have any idea at this point?
    Mr. Stevens. I want to answer this as directly as possible 
without sounding evasive, but it is a bit of a moving target so 
let me explain to you how we went through this process.
    The short refinance program is really not a new program. It 
is using actually existing FHA refinance policy. There is no 
new policy changes associated at all with this refinance 
option, and that was one of the reasons why it was adopted is 
that it takes existing refinance policy options, which are 
readily available to Wells Fargo and all the major lenders, any 
lender who is approved with FHA. All it does is it clearly 
communicates to all the industry participants how to use it 
more effectively and adds some TARP incentives to second lien 
write down and things of that sort to try to bring the various 
groups together. So when we went through the analysis, and let 
me just tell you how we got there. There are between 11 and 15 
million underwater borrowers in America today, as most 
academics and Mark Zandi----
    Mr. Latham. What is the number again?
    Mr. Stevens. Eleven to 15 million negative equity borrowers 
currently today. Mark Zandi of moodys.com has the highest 
figure at about 15 million. Some more conservative estimates 
put it around 11 million.
    When you take out second homes, investor properties, loans 
over the loan limits, so all those loans that do not qualify, 
that number gets whittled down pretty dramatically. Just to put 
it in perspective, second home and investor properties alone 
are about half of that number.
    So you begin whittling that down. You then look at those 
loans that are most likely to be utilized by the investors and 
the servicers together, who have to really work together to 
make this happen, and the borrower population that would 
actually qualify.
    At the end of the day, the reality is most investors are 
not going to write down a loan that they think is going to 
perform, so you will have some negative equity borrowers who 
will not be provided a solution because it is their option and 
their expense that is paying all this cost, so at the end of 
the day it will be that at-risk population.
    We have looked at the range of potential impact to be 
between a few hundred thousand to over a million, and that 
range, the way we have looked at the risk expectations, is 
based on the worst case scenario. In other words, we are 
assuming that we do the maximum amount that might come in with 
a mix of seconds and firsts, and we are assuming default rate 
expectations and then when we look at the risk side of it.
    But again the range may vary, and I would understate it. I 
do not believe that this is going to be effective for more than 
sort of the lower end of the range. I think this refinance 
option becomes sort of part of this variety of options now that 
the Administration has rolled out to deal with the housing 
crisis, none of which are easy, but nevertheless it has just 
added more fire power in essence to the options that are 
currently available to deal with the at-risk borrower 
population and try to deal with it in the most responsible way.
    But again in total we expect this to be more towards the 
few hundred thousand range that will ultimately adopt usage of 
the program. By the way, we are going to monitor it closely, 
and we pledge to report on it monthly.

                            SECOND MORTGAGE

    Mr. Latham. I have a concern on writing down the second 
mortgages. As you are well aware--I mean, your industry 
background--there were a lot of home equity lines of credit. 
People set those up for vacations, to buy cars, second cars, 
boats, all kinds of discretionary, fun stuff.
    Do we have a moral hazard here going on saying that we are 
going to bail these people out because they wanted a nice car 
and the neighbor who is paying his mortgage did not?
    Mr. Stevens. I think you ask a great question. I will tell 
you I spent a lot of time consulting with industry executives. 
I was in Des Moines many times talking to Mike Hayden, the team 
at Wells and other institutions, as well as academics, about 
this particular risk. I think there is a possibility that some 
of those kinds of stories will be involved potentially, but I 
would like to talk about how we address the moral hazard and 
how we think that these loans will most likely be addressed.
    First of all, the second lien extinguishment schedule that 
is offered by the TARP funds is very meager in terms of what is 
paid out of the taxpayer funds used for TARP. The 
extinguishment schedule provides on average maybe six cents on 
the dollar, so for the lender to write down the second they are 
paying 94 cents of that, on average more in many cases, more 
than that in many cases, but that is about what the schedule 
will pay out on average buyer expectation.
    So really the vast majority of the weight of that second 
lien write down and 100 percent of the weight of that first 
lien write down is on the investors themselves, so they are 
going to have to come together and say what is the risk of 
default and does this put the loan ultimately back in a 
position of likely reperformance.
    Yes, there are the cases. I recently had a conversation 
with David Lowman of Chase, who runs their mortgage operation, 
about a story of someone who took a home equity line of credit 
to buy boats and was defaulting on his first. The reality is 
that when we look at the vast numbers during the heyday 
particularly of the private label securitization market many 
homes were purchased using a combination of a first and a 
second mortgage. They were called 90/10 or 80/20 mortgages 
where the lender would lend 80 percent of the value, and a 20 
percent second would be done by a bank.
    The vast majority of the loans that we believe will be 
impacted were structured on that kind of context, but again we 
are not going to direct how banks write down their seconds 
because, quite frankly, we are not paying them virtually 
anything to do it. They are going to be taking that vast 
majority of the risk themselves. If ultimately it brings a 
borrower back into a performing loan and we know that their 
incentives will not be----
    Mr. Latham. These are performing loans to begin with.
    Mr. Stevens. They are performing loans, the seconds. They 
may have not been performing over time.
    Let me give you the classic example. It could be someone 
who has been working in the State of Michigan, which is our 
worst performing state. Someone who has been working in the 
State of Michigan, lost their job or a member of the family 
lost his or her job or perhaps had income curtailment.
    They now cannot afford the mortgage payment as it currently 
sits, yet their home has dropped in value by 10, 15, 20 or 30 
percent and so they cannot refinance out. There are absolutely 
no options for this borrower today to get sort of re-right 
sized given the impacts of the recession.
    If an investor and a servicer look at that borrower, that 
family, and say look, they are under water. They are immobile. 
They have no options. Their income has been reduced. If we 
reduce their payment by 20 percent we save this home from going 
into foreclosure.
    The advantage of that for all of us is that the average 
severity rate for us in Michigan is about 95 percent and so you 
end up keeping a home with a family in it and it also helps 
stop to some degree that rapid price drop that occurs when a 
home goes into foreclosure. That is relative, but I do 
recognize your point and it is something that we want to 
monitor closely in the process.
    Mr. Latham. I would love to follow up with that. I am out 
of time I see.
    Mr. Olver. Mr. Rodriguez.
    Mr. Rodriguez. Good morning.
    Mr. Stevens. Good morning.

                      MINORITY-PURCHASED FHA LOANS

    Mr. Rodriguez. On your testimony I think you indicate that 
51 percent of African-American home buyers, as well as about 45 
percent of Hispanic families, purchase homes through FHA and 
that you are leading in that area. Do we know the actual 
numbers, for example, of the ones you mentioned in foreclosure? 
Do you have those figures?
    Mr. Stevens. I can get you those figures. I would tell you 
that we look at this very carefully and we look at performance 
by every demographic possible down by what we call cohort 
level, by state, by credit score, et cetera, and how it 
impacts.
    I will tell you that the 51 percent of African-Americans 
and a similar number for Latinos is from 2008 Federal Reserve 
HMDA data. I believe that number is probably higher today. We 
will know when the actual data comes out, but we clearly play a 
significant role in those particular demographics, and there is 
a high concentration of underserved markets also associated 
with that demographic.
    Mr. Rodriguez. If you can provide that also and single 
parents I would appreciate it. Let me ask you----
    Mr. Stevens. Mr. Congressman, single parents we may not be 
able to get for you. We will see if we can look at that 
particular----
    Mr. Rodriguez. How do you advertise? As you identify them, 
how do you advertise to the minority areas in terms of actual 
services? Can you also compare based on the numbers and then 
who is actually getting services?
    Mr. Stevens. Yes. In terms of advertising, we are not a 
direct lender so FHA just obviously insures loans. We are 
basically one big insurance company, and we insure loans that 
are originated by lenders around the country, so it is 
individual lenders that conduct their own advertising.
    Now, we monitor and police those activities in a very 
significant way, and actually just last week in our Mortgagee 
Review Board we took actions against institutions that we felt 
were using improper approaches to advertising to the markets, 
but it is done locally and broadly nationally by either major 
institutions down to small mortgage brokers who are approved to 
originate FHA loans.

                              HAMP PROGRAM

    Mr. Rodriguez. So when we talk about the HAMP program, Home 
Affordability Modification Program, you do not know how many 
African-Americans or Hispanics are participating?
    Mr. Stevens. I do not have that HAMP data. That data might 
be available from Treasury. Fannie Mae is tasked with tracking 
and reporting the specific data on that borrower population, 
and I know we are trying to get more refined data reporting 
through the HAMP program, but we can check back with Treasury 
and get you----
    Mr. Rodriguez. I would like to see the numbers there and 
then how many of them were actually taking advantage of those 
opportunities like through HAMP to restructure their mortgage.
    Mr. Stevens. We will look and try to get as much 
information back to you on that.
    Mr. Rodriguez. Now, we had some calls at our district. One 
of them was a person that I knew personally who had a home that 
was worth about $150,000. She only owed about $30,000 or 
$40,000, something like that, and she was having difficulty 
paying for it and they were going to take her home away.
    I went to a realtor to try to help her out and they could 
not based on her--but if she only owed $30,000 and it could 
have been repurchased and stuff she probably could have paid 
that monthly payment. Do we have any programs such as that that 
could respond to her?
    Mr. Stevens. Any of the variety of our programs should have 
helped that particular borrower, and there are a couple of 
things that she can do. If she calls her lender and they are 
not going to be satisfactory, there is a hotline.
    Mr. Rodriguez. No. They are not even talking to her. You 
know, they want the house. It might be a private lender too. I 
do not know.
    Mr. Stevens. There is a national hotline available under 
the Making Home Affordable Program. Do you know the number 
offhand? 1-800-HOPE NOW.
    Mr. Rodriguez. 1-800?
    Mr. Stevens. HOPE NOW. And I do believe that there is 
actually a special line that can be used for Members of 
Congress. We will look to try to provide that back to this 
committee so that you have that available.
    That particular hotline is a way to report activities or 
for homeowners to particularly call if they feel they are not 
getting fair treatment in the HAMP program. We encourage it, 
and we take action on a variety of cases.
    Mr. Rodriguez. I mean, she works hard. She works as a hair 
stylist----
    Mr. Stevens. Yes.
    Mr. Rodriguez [continuing]. But she does not make that much 
money. She has been paying on that home for the longest time. 
They went up on the rent for her little business and stuff. I 
know the $30,000 that she owes, she can pay $300 a month.
    Mr. Stevens. There should have been a solution based on the 
way you describe it, and I have personally handled many calls 
like this myself and I have personally spoken to borrowers in 
similar situations.
    So I would highly encourage using the number. We will try 
to get you the specific line that can be used for Members. 
Please reach out to my office if there is lack of satisfaction 
if you identify a case in your particular area that you want us 
to address.
    Mr. Rodriguez. Thank you.
    Mr. Stevens. Yes.
    Mr. Olver. Mr. Carter.

                      FHA DOWNPAYMENT REQUIREMENTS

    Mr. Carter. Thank you, Mr. Chairman, and welcome. We are 
glad to have you here. Prior to the 1990s, FHA generally served 
the alternate A borrowers. These were considered less credit 
worthy than prime borrowers, who were served in the 
conventional market. Alternate A borrowers met the GSE credit 
score requirements, but they did not meet the standard 
requirements for documentation, property type, debt ratio, loan 
to value ratio.
    Beginning in the 1990s, however, credit increasingly became 
available for borrowers with weak credit, which we have been 
talking about. Instead of turning down those loan requests, 
lenders began charging higher interest rates to compete for 
additional risk. This market initially began as a cash out 
refinance market. It evolved into a preferred subprime market.
    Now, as the government and what we have been talking about, 
the plans that you have here, are we still encouraging the 
risky subprime lending by allowing homes to be purchased with a 
mere 3.5 percent down payment as outlined in FHA policy? Do you 
think we are still in that business?
    Mr. Stevens. Thank you for the question. First of all, if I 
could, I would like to clarify a few things.
    I have been in the mortgage lending industry for three 
decades. I bought my first home with an FHA loan back in the 
late 1970s, and I was working for a large, reputable financial 
institution in 1980 in Denver, Colorado. FHA loans have always 
been fully documented. There has never been stated income. They 
have always been owner-occupied loans only, and they have 
always been fully amortizing loans.
    So the growth of the subprime industry, the growth of those 
other products was outside of FHA. It is actually one of the 
reasons why FHA's business actually declined so much is that 
these risky products were coming into the market and an old, 
boring, 30 year, fully documented loan, quite frankly, was not 
as interesting to many in the industry.
    So the other thing I would highlight to you is that the 
down payment alone is not a variable that assures performance 
levels. I bought my first home with a 3 percent down payment 
with FHA when I first got married, and that same program is 
basically the way it exists today.
    If I could, I would like to show you without going into 
sort of granular detail. This is just one example. We believe 
that what causes defaults in mortgage markets is a layering of 
risk, and layering of risk comes from going to high LTV, high 
loan to value, on top of which allowing very low credit scores, 
waiving documentation requirements and then putting a mortgage 
instrument that has an adjustable rate feature or an interest 
only feature or some sort of what we call a spike which will--
after a couple of years.
    When you layer all those risks together, you are almost 
guaranteed to have something that is going to explode when 
markets correct, and that is literally the environment we have 
just come through. However, high loan to value can be done 
responsibly and has been done for decades in this country if 
you combine it with the appropriate credit qualification, full 
documentation and make sure that the qualifying ratios meet the 
standards that you would expect for some ability to perform.
    This is just a simple chart that shows relative performance 
of loans, and all it shows, and I would highlight these two 
quadrants here. If you ever have interest, I have a deck this 
thick on FICO loan LTV performance in about an eight font that 
is about 20 pages thick, so we can take this down to any micro 
level we need.
    But for simplicity purposes, on a relative performance 
scale what this shows is that a low credit score, a low credit 
score below 580 if you cut the loan to value will perform a 
little worse actually than a higher credit score at the top 
loan to value that FHA allows today.
    And in a simplistic way what this is meant to articulate is 
that the way we drafted our policies we said look, if you are 
above 580 we will let you do the maximum loan to value of FHA, 
but if you drop below 580 you are going to need a 10 percent 
down payment, so we made it a lot more difficult for a borrower 
who does not have the right credit score to borrow at the 
maximum loan to value.
    This has been modeled by not FHA, but by our independent 
actuarial. Many academics have looked at our new policy 
guidelines, and based on actual performance we believe that 
high loan to value financing will work responsibly if you make 
sure you have all those other standards in place and do not 
allow that other risk layering to occur.
    Mr. Carter. To follow up on that, when you bought that 
first house, and that was about the time I bought my first 
house. I think we have never had a falling value market until 
now in that period of time----
    Mr. Stevens. Well, again I----
    Mr. Carter [continuing]. With the exception of the HUD 
disaster that hit us in the 1980s.
    Mr. Stevens. Well, you were in a better market than I was. 
I actually was in----
    Mr.Carter. I sure was.
    Mr. Stevens [continuing]. Denver, Colorado, and Chevron 
left our state. I was in the heart of the oil patch crisis, and 
we actually had falling values during that period of time.
    You are absolutely right, however, if you are pointing to 
there is a risk in declining markets of equity erosion, and if 
a person is under water and they have to sell, that does pose a 
problem. That is a real risk at high loan to value financing 
that we do recognize.
    A couple of things I would just articulate is that FHA is a 
little unique for a couple reasons. One, our loans are fully 
assumable, which no other loan product in America is assumable, 
and at record low rates today we believe that our loans are 
going to be very attractive for future buyers and will create 
incentives for people to buy an FHA loan rather than having to 
buy another home and get a higher rate, so we believe it will 
be easier to work out negotiations that create mobility in the 
future.
    All loans come with some level of risk, and it is a matter 
of how well we manage it. If we wanted to make it easy from a 
performance standpoint, we could go to the top right section on 
that chart. We could say everybody has to have a 680 FICO score 
and no higher than 90 percent loan to value, but by doing so we 
would create without question a second collapse in the housing 
market because there would be no financing available.
    And so the process we implemented was an attempt, and I 
understand there is debate in how we drew that line, but it was 
an attempt to try to responsibly address FHA's risk, get the 
capital restored, but not tip the housing market back into a 
re-recession. That is why we allowed the maintaining of the 
high loan to value if in fact the borrower met certain 
qualifying hurdles. If they do not, they are going to have to 
come up with a much larger down payment.
    It was through that process that we thought we dealt most 
aggressively and effectively with the risks in FHA while not 
creating some other unintended consequence in the housing 
market.
    Mr. Carter. Just a comment.
    Mr. Stevens. Yes.
    Mr. Carter. I do think that all the people in the real 
estate business in my part of the world are looking for FHA to 
rescue this market. I mean, that is all you hear and so I hope 
you do, but you still come back to all those people who did not 
have skin in the game and are still worried about not having 
skin in the game.
    I cannot stop remembering that the last big foreclosure 
market was almost 90 percent HUD foreclosure because you could 
go out and buy a HUD house. That is what everybody that did not 
have any money was going out and looking for to buy a HUD 
foreclosure. So I do not want to get the government in that 
position.
    Mr. Stevens. And I fully appreciate and I can assure you 
that the decisions we have made already have the builders and 
the realtors and many people involved challenging me and 
parading into my office telling me how I am going to hurt them 
with what I have done so far. Others think that we have not 
gone far enough. That is really a delicate line.
    I will tell you that the housing crisis, if we look at it, 
most of the housing risk is concentrated in a limited number of 
states. The private label securitization market was heavily 
concentrated in what has become known as the sand states--
Nevada, Arizona, California, Florida--where FHA has virtually 
no market share.
    Where we are getting the worse impact for FHA today are in 
what is called the rust belt states. In Michigan, for example, 
we are having terrible performance. It is not necessarily 
because of the loans themselves. It also has a lot to do with 
what has happened to the manufacturing industry during this 
recession and the automobile industry and just massive 
unemployment that impacted those markets and that combined and 
resulted in a significant downturn in real estate.
    That is a fairly unique anomaly. I am not sure either one 
is better, but ours is at least a little more understandable 
than doing this option arm, max LTV on second homes and 
investment properties and people who bought books called The 
Automatic Millionaire thought that real estate was an 
investment strategy rather than a shelter strategy, and I think 
that is one of the things we are learning right now.
    Mr. Carter. Thank you, Mr. Chairman.
    Mr. Olver. Thank you. You call that a simple chart. I am 
still trying to interpret, to understand that chart. I probably 
will need a whole seminar in order to so do, so I am not going 
to go there because that would take a lot of time.
    Let me ask a couple of quickie questions. How many total 
mortgages are there in this country? What is the order? What is 
basic? What do you think?
    Mr. Stevens. Excuse me. That data, I should have that right 
in my head. Approximately 55 million mortgages.
    Mr. Olver. Forty-five to 50 million?
    Mr. Stevens. Right.
    Mr. Olver. Really? Okay. So there is then a lot of people 
who do not have mortgages.
    Mr. Stevens. That is right.
    Mr. Olver. The total number is 45 or 50, but that puts 
somewhere like a quarter of all of them are under water, so to 
speak, although you then say half of those are investor and 
second home----
    Mr. Stevens. Right.

                            SECOND MORTGAGES

    Mr. Olver [continuing]. Kinds of situations. Now, how many 
of those? That took half of those out. How many get taken out 
if you take into account the kinds of situations that Mr. 
Latham was talking about or the folk who have done special 
refinancing to do a few things to up their home mortgages? Is 
that not fair to even try to make a category of them? They 
sound like a category.
    Mr. Stevens. The challenge is identifying that borrower 
population.
    Mr. Olver. Yes, and how you define it, what pieces.
    Mr. Stevens. The easiest way to define it is when was that 
second mortgage put onto the property. If it was done at 
purchase time, at time of purchase, if the second mortgage was 
secured at time of purchase, then your assumption is it was 
used to help finance the acquisition of that real estate.
    If the home equity line of credit or second mortgage was 
put on after the transaction was settled, then you assume that 
had a higher probability of being used for some of the things 
that Congressman Latham talked about, but even in those 
instances there could have been other reasonable uses for those 
funds.
    You know, a lot of people had home equity lines--some of 
you here may have had them--that were not used for whimsical 
spending, but there clearly was an abuse of financing in the 
last----
    Mr. Olver. Okay. Within the last few days there have been a 
number of articles or TV exposes or whatever about what are 
called strategic foreclosures, and if I remember correctly 
there was a suggestion that 20 percent of the underwaters were 
strategic foreclosures.

                         STRATEGIC FORECLOSURES

    Mr. Stevens. So strategic foreclosures. Strategic default 
risks is another phrase----
    Mr. Olver. Yes.
    Mr. Stevens [continuing]. That has been used. I saw the 
Today Show clip yesterday morning with my good friend, John 
Courson, who was interviewed.
    We have analyzed deeply the strategic default risk in the 
country. So has Freddie Mac and Fannie Mae, and we have had a 
lot of academics involved from universities and also investment 
groups like Laurie Goodman from Amherst Securities looked at 
the strategic default risk, et cetera. Most do not think it is 
that high.
    We think the strategic default risk is increasing, that it 
could be as high as 9 percent roughly of the foreclosure market 
today, but the scariest thing about this strategic default risk 
I think that we are all addressing right now is it is becoming 
socially acceptable, or I guess the question is is it becoming 
socially acceptable to walk away from your mortgage in certain 
communities where the frequency becomes higher?
    Mr. Olver. It sounded as if in those stories as if 
something that you described as somebody who had lost their job 
and then was stuck in a home and in order to take a job 
someplace else really had to bail out where they were.
    Mr. Stevens. Right. So the challenge----
    Mr. Olver. Sort of like the Ohio/Michigan case.
    Mr. Stevens. That is right. There are a couple challenges 
like that where some economists have said the challenge with 
negative equity is it creates immobility.
    Mr. Olver. Yes.
    Mr. Stevens. That people cannot move and so if they lose 
their job and they are offered a job in another state or some 
other area where they have to move to go take the job and their 
home is under water and there is no solution for them, they 
have no choice but to go into default.
    Mr. Olver. There are a lot of moving parts in this process.
    Mr. Stevens. Absolutely.
    Mr. Olver. Since I am not going to understand this 
entirely, I am just sort of fishing around to see if I can get 
it. I am under water on this one essentially.
    Mr. Stevens. Yes.
    Mr. Olver. Really under water. I am just trying to get a 
little breath every once in a while of understanding into the 
complexity of what has been going on.
    In your verbal testimony you mentioned that there were 1.1 
million trial adjustments, or maybe it was my first set of 
questions; 1.1 million that were undergoing trial adjustments 
when I asked how many had gone through HAMP.
    Well, my next question there is how many have actually 
completed and have come to a new deal and how many are just 
going around and around and around----
    Mr. Stevens. Yes.
    Mr. Olver [continuing]. Through trial adjustments and so 
forth when more and more data is being asked?
    Mr. Stevens. Right.
    Mr. Olver. This goes back to the comment that I made in my 
opening remarks when I said we are hearing constituents that 
the same institutions are not interested in providing relief to 
the struggling homeowners, but just keep asking them more 
questions and so forth.
    Mr. Stevens. Yes.
    Mr. Olver. Taking the data again and again and again and 
never coming to a conclusion, which sounds as if my guess is 
that each one of these iterations of the HAMP program has made 
it a little bit more favorable to the lending institutions who 
do not want to lend, do not want to readjust these things. Am I 
wrong?

                              HAMP PROGRAM

    Mr. Stevens. Well, I think you are accurate in a variety of 
points, and so if I could. The HAMP program, and I watched it 
from the outside when it was first announced. I ran two large--
pretty good sized--financial institutions at the time.
    I was concerned about the HAMP implementation; that it 
would be complex, that it might tire down the road, as it were, 
by just modifying payments and not really dealing with the 
underlying issues. A lot of that got resolved by the time they 
rolled out the first introduction to HAMP earlier last year.
    Mr. Olver. March of last year----
    Mr. Stevens. Right.
    Mr. Olver [continuing]. Then they first rolled it out, but 
there have been several changes.
    Mr. Stevens. So here is what happened. When they rolled it 
out in March, servicers did not really adopt it very quickly 
and there was a building frustration that we announced this big 
problem, had a goal of three to four million homeowners by 
2012.
    Mr. Olver. What was happening was very similar to the Hope 
for Homeowners----
    Mr. Stevens. Right.
    Mr. Olver [continuing]. In the beginning.
    Mr. Stevens. So in July, Secretaries Geithner and Donovan 
called a meeting in Washington and asked all the major lenders 
to come in--about 30 of them came to D.C., their executives--
and laid it on the line with press in the room that you guys 
better get on board and start adopting the HAMP program.
    And so suddenly they did and it went like wildfire. From 
there until about November, about half a million trial mods 
occurred in a very short timeframe, far ahead of what we 
expected actually.
    Mr. Olver. And were completed so the mods----
    Mr. Stevens. No.
    Mr. Olver [continuing]. Were secured and finalized?
    Mr. Stevens. Here was the problem. In the trial mod period, 
because there was such activity and there was such pressure to 
get this thing up and it had been so slow to develop, the 
lenders--many of the lenders, not all of them--went in and just 
put people in trial mods without actually getting their 
documentation to make sure that they would qualify for the 
trial mod.
    And so we ended up getting many people in the early months 
who were put in the trial mods, but not necessarily could 
qualify for permanent conversion, and that has been the 
struggle that we have to deal with. Now those rules are all 
changed.
    Mr. Olver. So they never intended to go to a final 
conversion?
    Mr. Stevens. They were hoping they might qualify. Maybe 
they stated income that ultimately got curtailed by the time 
they actually submitted formal qualifying documents, but the 
way the HAMP program works is you have to qualify to be able to 
make your payments under the guidelines of HAMP.
    And so we are seeing a significant change. A lot of the 
policy changes that have been announced for HAMP since then 
have been designed to fix some of the mistakes we identified 
that just were not being effective in the early rounds.
    Today we have about 200,000 home borrowers in the trial 
period that have actually converted to permanent. That number 
is actually increasing pretty significantly, and we expect----
    Mr. Olver. So it is 200,000 out of the 1.1 million----
    Mr. Stevens. That is correct.
    Mr. Olver [continuing]. Are actually completed?
    Mr. Stevens. That is right. We expect many more of those to 
convert, and all new borrowers coming into the HAMP program are 
getting all documentation done up front, so we expect the 
conversion rate to be significantly higher for all future HAMP 
modifications that come through.
    Mr. Olver. Okay. We may return to this, but I ought to get 
to something else. Mr. Latham?
    Mr. Latham. I am glad that clarified things for you.
    Mr. Olver. A little. A little.
    Mr. Latham. Just going back to the short refinancing 
program----
    Mr. Stevens. Yes.
    Mr. Latham [continuing]. I guess a couple things. A lot of 
the second mortgages are current and the primary are not 
because that is a revolving line of credit for the individuals, 
so what is the incentive for anyone carrying a second to make 
use of this program?
    Mr. Stevens. Look, it is challenge. I mean, that is why I 
am erring to the lower side of the volume numbers. So let me 
just give you one data point. About 50 percent of all negative 
equity homes have a second mortgage. Fifty percent do not. So 
to one degree, there is an opportunity for the loans that will 
be refinanced. Clearly if they do not have a second, that is a 
probable option to use.
    There are a bunch of the seconds. You are right. The 
default rates on firsts do not necessarily mean there is a 
default rate on the second, particularly if it is a home equity 
line of credit and if there is money available on the line----
    Mr. Latham. Right.
    Mr. Stevens [continuing]. That they can still draw down on, 
but some of them are not current and some of them also have no 
money open on the line, so banks will look at a subportion of 
that portfolio if a borrower is in distress and the bank will 
say our likelihood of default on this particular family is 
probably pretty high right now because they are maxed out on 
their second, they are under water on their first, their income 
was curtailed.
    Hey, if we right size this whole thing we can get them into 
a loan that is going to work over time, but it will not be a 
huge number and that is why--I mean, you have highlighted 
absolutely. It is one of the attributes.

                             CREDIT RATING

    Mr. Latham. Is this another potential moral--not a moral 
hazard; whatever you want to call it--to have people say if 
they are current on their second and they know this program is 
out here to basically borrow all they can on the second, on 
their line of credit, and then default, knowing that you are 
going to bail them out?
    Mr. Stevens. Yes. I do not think that is the case, and let 
me try to articulate why. First of all, the program is fully 
optional for the servicer and the investor. There is no 
guarantee. So a borrower who is going to purposefully default 
is risking their credit rating and risking their home if they 
could otherwise pay their bill because there is no guarantee 
they are going to get it.
    As I have said, a very small percentage really of the 
negative equity borrower population is going to get this short 
refinance option provided to them and so let us look at human 
behavior. You have to really say look, I am going to ruin my 
credit and go through this default process and the 
embarrassment and the harassment and all else that occurs 
naturally anyway with the risk that I may ultimately get this 
option, which is not guaranteed to me in any way, shape or 
form.
    We think there are natural barriers. Maybe too many, but 
there are natural resistance factors to this being sort of 
applicable to the kind of borrower who says I am going to roll 
the dice and hope that I get this solution and risk my home.
    Mr. Latham. I mean, you bring up a point about your credit 
rating. Are you saying that someone who is no moral hazard, 
they have done everything right, but they are just in Michigan 
and value has dropped 50 percent, they are under water----
    Mr. Stevens. Yes.
    Mr. Latham [continuing]. And you are saying they are not 
mobile because they are under water in their home, so they go 
through this process. Are you saying it does not affect their 
credit when they move to Colorado?
    Mr. Stevens. It will affect their credit if they go through 
the process. Any borrower who goes through a short--so the fact 
of the matter is here is how I think it will function. The 
borrower will truly be in distress. They do not have a choice 
and so it is not like they have a choice of deciding for the 
previous sort of concept. Maybe I will ruin my credit and take 
the risk.
    These are borrowers, the homeowners who are absolutely in 
distress, have no other option. It is either that or go to 
foreclosure and so they are going to try down this path and 
hope they get rescued. And in fact, if they are in negative 
equity the investor looks at it and says look, this is real. We 
have checked their income. We believe as well they are likely 
to default. We will reduce the balance and take the loss on our 
side in order to give them a loan that they can actually 
afford.
    The borrower is still going to have their credit impaired. 
There is no way to avoid that credit impairment no matter which 
way they go, but that is why there is that natural resistance 
to this moral hazard. You know, there is no get out of jail 
card free here for anybody. I mean, they signed a contract for 
a mortgage.
    Mr. Latham. Right.
    Mr. Stevens. We all suffered in this economy. We want to 
give solutions, but there will not be some form of pain to 
their credit rating as a result of making this move. That is 
something we will deal with in years down the road.
    Mr. Latham. Right. So they have now become mobile. They 
move to an area where there is more opportunities for 
employment, but they get into that situation as far as their 
credit rating.
    Mr. Stevens. Right.
    Mr. Latham. Their interest rates are certainly going to be 
higher under that scenario.
    Mr. Stevens. If they can get a mortgage.
    Mr. Latham. If they can get a loan.
    Mr. Stevens. That is right. I mean, I think we would all 
agree--hopefully we would all agree--that one thing we learned 
out of this last crisis is not everybody should own a home. 
That is step number one.
    Mr. Latham. And if I could just----
    Mr. Stevens. Sorry.
    Mr. Latham. Well, the homeowner that is under water, cannot 
make his payments, how do you say if you are in Detroit, 
Michigan, you have a homeowner you are going to bail out, but 
the renter right beside him and the other citizen who has lost 
his job, you are not doing anything for them?
    Mr. Stevens. Yes.
    Mr. Latham. I mean, it is not fair.
    Mr. Stevens. Here is how we believe it actually helps. 
First of all, you are right. Those situations will occur. There 
will be borrowers who are making their payments, and the next 
door neighbor lost his or her job, cannot make his payment and 
gets bailed out. The neighbor is going to say hey, what about 
me?
    Mr. Latham. Right.
    Mr. Stevens. We are not making those calls. The investors 
are making the calls in terms of what to write down. The United 
States Government is not directing this at all. The investor is 
taking the total loss.
    I do believe this, and I think we all know it from the 
communities where we all live today. If a home goes into 
foreclosure on your street, it drives down the value of your 
home as well and everybody else's. You know, there is a factual 
relationship by maintaining homes from the foreclosure market 
to maintaining values in communities.
    Mr. Latham. And the rental market too. I mean, if you are 
putting people out on the street or people are not making the 
rent payments, that has a huge impact, the same as ownership. I 
am sorry, Mr. Chairman.
    Mr. Stevens. No. It is a very real hazard, and I am 
completely aligned with the concern. It is something we have 
discussed at length.
    We tried to make the program with parameters in place that 
had enough friction involved so that only those that are 
severely at risk, but would be at no fault of their own and 
could qualify for this new mortgage, would be the most likely 
ones to be given that write down by the investor.
    One of the consequences if the one you have discussed, 
which is so what about the other people who do not get it in 
the same neighborhood? There is a fact, and I have seen it. I 
live in northern Virginia, and I have seen it in Manassas and 
areas like that. When the first housing crush hit it drove down 
property values throughout all of western Fairfax County pretty 
significantly due to the foreclosure market.
    You probably get complaints today that I cannot sell my 
home for what it is really worth because foreclosure sales are 
selling for so much less that they are driving down my value. 
There is a real pragmatic--and granted it is an economic 
argument, not a social argument, but there is a real pragmatic 
argument that says if we can stop foreclosures or in some 
measured way reduce the number of foreclosures, you stop that 
further home price decline, and that is one of the variables I 
think that offsets that to some degree.
    Mr. Latham. Okay. Thank you, Mr. Chairman.

                     LENDER ENFORCEMENT ACTIVITIES

    Mr. Olver. It seems to me there is another end of the scale 
here where in some of the markets somebody--mortgage writer, 
mortgage companies--just set up an office for a while and wrote 
mortgages for anybody that moved----
    Mr. Stevens. Right.
    Mr. Olver [continuing]. Because they were supposedly safe. 
The securitization was going to be covering that. This is an 
enormous Ponzi scheme----
    Mr. Stevens. Yes.
    Mr. Olver [continuing]. In essence at that point, and 
nobody has gone to jail for it as far as I can tell. Nobody has 
gone to jail for it. You do not need to answer to that, but 
that is my impression. If you want to give me the list of those 
who have gone to jail for this, I would be very interested in 
knowing about it.
    I am pleased with your lender enforcement activities. The 
last thing we need, it seems, is fraudulent lenders, and that 
is what I am sort of addressing. This is clearly fraudulent 
lending that was going on.
    Mr. Stevens. Yes.
    Mr. Olver. What has been the response within the lender 
community as you stepped up the enforcement by FHA?
    Mr. Stevens. Well, the good news is they all know me, and I 
have worked with them for decades. You know, as you see in the 
numbers that were in my written testimony, we have withdrawn 
the approval of over 550 lenders in the 8 months I have been in 
this job. That is more than the last 21 decades combined.
    Mr. Olver. So my data were completely outdated. It is 550. 
That is more than was done over a 2 decade period.
    Mr. Stevens. Two sixty eight in 2009 and 314 so far in 
2010, and so it has been a large number.
    You know, FHA did not do a good job policing its lender 
group. Before I got to FHA there was not even a risk report. 
There was never a meeting to discuss lender performance. They 
never analyzed any default rates.
    Mr. Olver. You are saying FHA did not do a good job and 
there were other places that were not doing any job at all on 
this, no policing whatsoever----
    Mr. Stevens. Well, I think you are right.
    Mr. Olver [continuing]. Of this process.
    Mr. Stevens. I talk to groups about this all the time. 
During the growth period of this mortgage finance system this 
over exuberance for housing took over all rationale.
    You know, I heard this debate on Bloomberg this morning 
about derivative trading and should it even be allowed. I mean, 
the entire structural basis of the housing finance system was 
based on models that proved themselves to be entirely wrong. 
And you could do no wrong in America. You could finance any 
home. It was going to appreciate, and everybody got rich.
    I do not think anything was really policed, and most people 
did not have the decades of background in the business like 
some of us still had. There were a lot of nouveau players in 
the housing finance system who became instant millionaires by 
being able to play.
    You know, we are shutting them down, and we are going to 
continue to shut them down in FHA. We cannot have them in a 
taxpayer run financial services business inside the government. 
The private sector needs to do the same, and I think financial 
reform, however we feel about that piece of legislation, I 
think financial reform will go a great deal to curtailing and 
requiring that sort of skin in the game for institutions that 
participate on that side.

                                  HECM

    Mr. Olver. There has been an enormous destruction of 
wealth, but there has also been an enormous shifting of wealth 
from the middle class, some of it caught up legitimately or 
illegitimately in this whole process, to a very small people 
who are now again making big bonuses and making big profits at 
the upper end. We have not put a stop to it.
    Let me ask you something about the HECM mortgages to get 
off on a slightly different topic here for a moment. In your 
testimony you said it was important for seniors to age in place 
and so forth with the kind of expenses that they can 
anticipate, and I happen to agree with you, but now we are 
coming up with a request for $250 million. How many HECM 
mortgages are you ensuring in 2010?
    Mr. Stevens. George, do you have that number? An estimated 
70,000.
    Mr. Olver. Seventy thousand. And these are all done by you? 
The HECM mortgages are all yours?
    Mr. Stevens. All done by us, yes.
    Mr. Olver. Okay. My understanding is it has decreased by 
some percentage.
    Mr. Stevens. It is decreasing.
    Mr. Olver. Twenty percent or so in the past year?
    Mr. Stevens. It decreased a lot. We have noticed a direct 
decline. We worsened our loan factor, which measures the amount 
a borrower can borrow, or principal limit factor it is called, 
PLF, by about 10 percent in November of last year.
    And we have seen about a 20 percent decline just since that 
one reduction that we implemented last year, so it definitely 
has a direct impact on the borrower pool every time we make a 
change in that program.
    Mr. Olver. Well, what happens to the program? Is there a 
default mechanism? What happens if we just cannot find the $250 
million in this hole that has been blown in our budget with the 
CBO scores and the whole issue? We do not yet know what our 
302(b) is----
    Mr. Stevens. Right.
    Mr. Olver [continuing]. Going to be and so forth.
    Mr. Stevens. What happens?
    Mr. Olver. What happens?
    Mr. Stevens. So just to back up, in the 2011 budget we are 
proposing actually raising the mortgage insurance premiums, 
which we currently collect 50 basis points annually, to 125 
basis points. Even by doing that, it requires $250 million. Had 
we not done it, it would have been close to $1 billion.
    So we did it, and that adjusts the program even further. 
Unlike anything else we are doing in FHA, it is the one program 
where we had put in a subsidy in 2011 simply because the 
program is so important for seniors who in many cases have no 
other way to access financing.
    Mr. Olver. And we have to take that into account. If we 
feel that we cannot do more than $200 million, then you are 
going to have to up that again.
    Mr. Stevens. Yes. What we would do is we would worsen the 
borrowing, the factors, by about another 21 percent, which 
would reduce the amount a borrower can borrow by about another 
30 percent in actual loan amount that they would be able to 
take out of their home. It would be a huge reduction in the 
program and limit it even further.
    The reverse mortgage program----
    Mr. Olver. At what point does it become useless?
    Mr. Stevens. Well, that is the question we have asked. Now, 
we are working carefully and very close to some alternative 
proposals with the reverse mortgage program which we think 
would get the program back on track and offset some of the 
subsidy need in future fiscal years.
    But you are right. It is a program that is at severe risk 
right now. The average borrower in a reverse mortgage is not a 
wealthy senior citizen. It is a very low income senior citizen 
who owns their home free and clear and this is their sole 
source to survive in their home.
    Without the reverse mortgage program they would not qualify 
for a normal refinance and it would leave them no option other 
than family bailing them out or perhaps having to move into a 
different kind of living environment altogether.
    Mr. Olver. A much more expensive one.
    Mr. Stevens. Much more expensive or a subsidized one in an 
elderly care facility or something like that.
    Mr. Olver. Thank you. Mr. Latham?

                    PRIVATE SECTOR REVERSE MORTGAGES

    Mr. Latham. Would anybody in the private sector make those 
loans if you were not guaranteeing them?
    Mr. Stevens. The reverse mortgages?
    Mr. Latham. Yes.
    Mr. Stevens. You know, we used to, and the private sector 
was making them for years, in fact the GSEs made them. They 
would do them on an adjustable rate mortgage, not a fixed rate 
mortgage, which is the way they are done today, and 
unfortunately there is no secondary market for the adjustable 
rate portion. So I guess the answer right now is evident by the 
fact that nobody is making them. I would just say, however, 
private sector is not making any mortgage loans right now 
without the government backing them. Freddie Mac, Fannie Mae, 
FHA are 98 percent of the housing finance system right now.
    Mr. Latham. But this was even before the meltdown.
    Mr. Stevens. The reverse mortgage contraction was occurring 
beforehand, it is a complex mortgage, it is equity based, it is 
very formulaic, but the GSEs were making them. It was the 
collapse of the securitization market for the arm portion of 
the reverse mortgage that really eliminated Fannie Mae's large 
participation in the program. But they were very big in the 
reverse mortgage at one point.
    Mr. Latham. I am still concerned that, you know, you pay 
off and it goes into foreclosure, you pay it off, the person 
stays in the home and the bank owns the house after they--
vacates it somehow.
    Mr. Stevens. Right.
    Mr. Latham. I mean the total weight of the liability is on 
the taxpayer.
    Mr. Stevens. Yes, I mean if you think about the formula, 
obviously it is based on----
    Mr. Latham. And no one gets kicked out of their house.
    Mr. Stevens. Right, I mean it is based on taking a home 
that is worth $250, maybe lending $110 on it, and based on 
their age and expected life span and appreciation of the home 
and what interest rate forecasts are, and you can build a model 
that is conservative and could potentially work. It is 
definitely a very difficult program given this context of 
declining home prices, longer life spans, borrowing the maximum 
amount on their reverse mortgage when you are younger, I mean 
there is a lot of movement going on in the program that makes 
it difficult.
    Our revisions to the program, which we would love to come 
back and explain to you or the Committee staff, we think will 
get the program back on track and I think you will appreciate 
it, it is very fiscally sound in terms of what we are working 
on right now. We hope to have something in the next, you know, 
30 to 60 days to begin talking about.

                          FHA'S RECOVERY RATE

    Mr. Latham. Just to change the subject, still talking about 
foreclosures I guess, but the FHA's recovery rate is about 40 
cents on the dollar. And if you are Freddie Mac or Fannie Mae 
or in the private sector, it is usually about 60 cents or more. 
Why, why are you so much lower?
    Mr. Stevens. So I think we are all seeing including the 
GSEs right now if you look at the current data are getting 
lower recovery rates, higher severity rates on their mortgage 
population. It is my view of why the FHA is, one, we are 
concentrated, we do lower dollar size loans. A lot of 
foreclosure costs are fixed costs, fixed dollar costs, and we 
have fixed dollar costs on a lower average loan amount. Our 
average loan amount today is about $175,000. GSEs are over 
$100,000 higher than that.
    So when you take recoveries and ex out the fixed cost 
portion of it our recovery rates are naturally going to be 
worse. We also tend to have concentrations in some pretty hard 
hit markets. I mean FHA was much more predominant in the Rust 
Belt. And, you know, as I said earlier, Michigan has proven 
itself to be, you know, it is a terrible market. Unemployment 
has wreaked havoc on home prices, our recovery rates in 
Michigan right now are running about 5 percent. And that drags 
down, the number we have about 55,000 mortgages or roughly 
something like that on an annualized basis in Michigan. So, you 
know, that is a hard hit market that actually weighs down the 
curve for the FHA portfolio, but we are all seeing more 
severities right now, and so is Freddie and Fannie.
    Mr. Latham. So what happens, and I guess the projection is, 
tell me if I am wrong, is you are looking at 85 to 100,000 more 
foreclosures this year?
    Mr. Stevens. Our actuarial studies forecast actually 
125,000 foreclosures for the fiscal year. We are actually 
running behind that right now. As you said, we are running 
about 7,000 a month, and that is actually, it is ramping up, we 
do expect to hit the 125, but we actually have less 
foreclosures to date than what the actuarial study expected 
that we would have. We do expect to hit the full 125 on the 
year. I would articulate that that is included and all those 
losses were factored in to our capital reserve studies. So that 
is great news.
    Mr. Latham. That is factored in?
    Mr. Stevens. Yes.

                               TARP FUNDS

    Mr. Latham. What is the difference between getting money 
from TARP or having Treasury? I mean you already got 
authorization for Treasury to, if you get into a deficit 
situation have Treasury write you a check. What is the 
difference between using TARP funds and having just Treasury 
write you a check?
    Mr. Stevens. Well, TARP funds under EESA just are not 
legally allowed to come to FHA.
    Mr. Latham. But you are asking for TARP funds.
    Mr. Stevens. We are not asking for any TARP funds.
    Mr. Latham. Well, potentially.
    Mr. Stevens. No TARP funds at all for FHA. There is no 
request. The Short Refinance Program has some TARP funds that 
would go to a lender who puts in a claim and Treasury will pay 
a portion of that claim for the lender, leaving FHA's risk 
slightly lower. But we are not getting any funds at all from 
TARP.
    Mr. Latham. Okay.
    Mr. Stevens. They will be paying a claim like a flood 
insurance policy or some other kind of insurance policy would 
pay a claim to a lender, we always pay the net of any other 
money that has been used to pay a claim.
    Mr. Latham. In that case why would you go after TARP funds?
    Mr. Stevens. Why would we ask for TARP funds on the Short 
Refi Program? Quite frankly because when we modeled it we had a 
wide range of risks that could potentially be associated with 
the Short Refinance Program. We looked at the extreme and we 
were unwilling to risk the FHA to take the burden of that risk 
to pay all the claim to a lender. If they originate a bad loan, 
TARP is stepping in to provide some loss coverage to that 
lender which actually reduces our overall exposure.
    Mr. Latham. I guess my point is there is not anybody at FHA 
or any place in HUD I would hope that thinks that there is 
actually money sitting there in TARP.
    Mr. Stevens. Even appropriations----
    Mr. Latham. No, but you know, I do not care whether it 
comes out of this pocket or that pocket, we have got to borrow 
the money.
    Mr. Stevens. Right. Yeah, it is different.
    Mr. Latham. There is no money there.
    Mr. Stevens. As you know, though, as you know, the only 
thing I would articulate is that the original TARP money that 
was allocated is the original TARP money that is being spent. 
Granted, nobody put a check and deposited it into a checking 
account that is signed on.
    Mr. Latham. We have to go borrow it.
    Mr. Stevens. Right.
    Mr. Latham. Right. Okay, thank you, Mr. Chairman.
    Mr. Olver. Mr. Berry.
    Mr. Berry. Thank you, Mr. Chairman. Mr. Commissioner, I am 
old enough I remember the time when you could not borrow the 
money to build a house in the county that I live in. The 
commercial banks which were pretty much the only source of the 
credit did not loan money to build houses, and if you did not 
have the money you just did not build them. And we suffered for 
many many years and worked through the state government and 
slowly through the Federal government to try to improve the 
credit for housing, and apparently did a hell of a job, 
considering where we have ended up here where anybody at one 
time that wanted a loan could get it.
    Whether they could pay it back or not, that seemed to have 
very little bearing on all that. Listening to you this morning 
certainly does not give me any comfort. I am not trying to put 
the blame on you or burden you. If you are guilty of making the 
situation worse you will have to live with that. On down the 
road you will not need me to bring it up one way or the other. 
And I trust that you have got all these things in mind as you 
work through this mess that you have inherited. I am in 
agreement with the Chairman that there is not enough people in 
jail, in my opinion.
    I used to have a customer when I worked in the drug store 
and he would come to get his medicine, and he always thought it 
was too high and he said Jesse James rode a horse. We have had 
a lot of Jesse James operating in the housing markets and lots 
of the markets apparently, and very few of them have even been 
identified. And so I hope that you are continuing to do that. 
My question is this. FEMA is currently in the process and 
pretty well down the road in identifying new areas that they 
consider to be likely to flood. And they are requiring people 
that have not had to have flood insurance before to now add 
from $50 to $200 a month to their mortgage payments to pay 
flood insurance.

                               FLOOD MAPS

    Now, the head of FEMA says that he is the CEO of the flood 
insurance program and that his job is to make it fiscally 
sound. I do not doubt that, even though I question some of the 
authorities that he claims under the law. Is this having any 
impact on you all, and is it making it more difficult for your 
people that you have loaned money to or making it more likely 
for them to default? Can you answer any, do you have any 
knowledge of that?
    Mr. Stevens. You ask a very good question. I have been 
aware of flood map changes over the decades I have been in the 
business and how that ultimately causes homeowners to pay 
higher flood insurance. And it actually is not a surprise to me 
that we would be revising that given some of the weather 
patterns and flooding that we have seen around the country. I 
am not aware of how the specific impact is to FHA. If it is 
okay I would like to have my team go back and look and we will 
see what impacts the maps have. Actually it is a question that 
we have not even thought about and something we should do is 
take the new maps and overlay them on the markets and look at 
what that does to the homeowners who are in those markets.
    Mr. Berry. Well, before I used the FEMA maps I would get 
somebody that knows that water runs downhill to evaluate them. 
Thank you.
    Mr. Stevens. Thank you.

             FHA FINANCING FOR NURSING FACILITIES/HOSPITALS

    Mr. Olver. Thank you, Mr. Berry. Now you are going to leave 
it to me to filibuster until Mr. Latham comes back. 
Commissioner, under FHA you have a 232 and a 242 program. The 
232 program, if I remember correctly, is for nursing homes, 
financing of nursing homes, and 242 is for financing of 
hospitals?
    Mr. Stevens. Correct.
    Mr. Olver. I suppose that the new healthcare legislation 
could have some impacts upon that but we will not know what 
those impacts will be for a number of years so that does not 
come into the game at all. But I have, anecdotally, and I 
confirmed the accuracy of the anecdotal evidence, that there is 
quite a backlog of requests under 232, and maybe on 242 as 
well, and I am curious exactly how many, if you know, how many 
requests there are and how expeditiously those get handled. If 
you can speak to that for a minute?
    Mr. Stevens. Sure, absolutely. So let me just give you a 
few background components. On the 232 program, last year we did 
about 100 transactions in the 232.
    Mr. Olver. A hundred?
    Mr. Stevens. A hundred transactions.
    Mr. Olver. In the 232.
    Mr. Stevens. So far this year we have done 147. So, so far 
this year we have done 147, we have a backlog right now of 175 
transactions of nursing homes that are in process.
    Mr. Olver. How many were a backlog when you first came in?
    Mr. Stevens. Much smaller. This is anecdotal, but I 
remember it was very small because I was tracking it, it was 30 
to 40 or something like that. So it has increased 
significantly.
    Mr. Olver. So if you have done 100 in 2009----
    Mr. Stevens. It is increasing significantly.
    Mr. Olver. And you have already done 147?
    Mr. Stevens. Correct.
    Mr. Olver. You say the backlog was much smaller?
    Mr. Stevens. No, the backlog is 175 right now.
    Mr. Olver. 175 now.
    Mr. Stevens. And was much smaller.
    Mr. Olver. Do you know how many had not been acted upon 
when you first came in, that were sitting there in the queue?
    Mr. Stevens. They are all in a queue and they all get done, 
it is just the queue has gotten longer so the turn times are 
greater.
    Mr. Olver. Why has the queue gotten that much longer in 
such a short period of time?
    Mr. Stevens. The queue has gotten longer, if you look at 
all our businesses, single family, our multifamily business, 
and our healthcare business, just like in the single family 
side, there is no capital available to finance, or limited 
capital available in the private sector, to finance any of 
these business lines. And so nursing homes previously which 
could go to private banks, Deutsche Bank, investors on Wall 
Street, who would finance these nursing homes and hospitals, 
today much of that financing is constrained.
    We have heard recently a big hospital story in New York 
that ultimately not getting any financing and they had to shut 
down. This is a huge issue right now facing the lending 
industry both on the commercial and residential side, and 232 
is no exception. So the reason why the nursing home volume is 
so high is simply because there is no alternative to finance 
these structures right now, and FHA needs to--if they can get 
FHA insurance on this structure a bank is willing to lend them 
money. Without the FHA insurance the bank will either not lend 
them money or lend it at such a high rate that that business 
would not cash flow and would have to shut down.

                          NURSING HOME BACKLOG

    Mr. Olver. When did the privates stop lending? I mean it 
would seem to me that the pattern would be just a clogging 
without anything much being dealt with as one moved from 2007 
into 2008, and then from 2008 into 2009 so that the number of 
those sitting waiting to be dealt with would be going up, but 
somehow it sounds as if the market--why are there so many more 
nursing homes coming into you now?
    Mr. Stevens. Well, here is what is happening, this is a 
commercial market issue, right? So a general financing in the 
commercial market is very constrained, and the nursing home 
environment, and similar with hospitals, most of these were 
financed through sort of commercial type lending vehicles that 
were on intermediate term mortgages or balloon mortgages tied 
to short term financing. So they were like LIBOR based loans 
that ballooned in 5 years or 3 years or 8 years.
    These loans are now, you know, as they come due, the 
lenders that originally had that financing will not lend any 
further. So now they are having to come to FHA to try to get 
FHA insurance. So we are just extraordinarily backlogged. By 
the way, in the multifamily side, we have already done more 
multifamily transactions this year, year to date, than we did 
all of last year. And in the single family side, you know about 
the demands on the single family, all of FHA, my entire 
organization, is running at, you know, maximum capacity, some 
could say above maximum capacity.
    And so all the goods are constrained. That backlog in the 
nursing home organization is natural. I would tell you that 
between the 2010 and what is in the 2011 plan, all of FHA has a 
6 percent growth rate in personnel. For the healthcare 
organization, we are growing the healthcare group by 36 
percent. So they are going to get a more significant increase 
in staffing than any of the other groups in terms of percentage 
increase. It is a 36 percent increase to try to deal with some 
of this backlog, but the backlogs will continue and I am not 
going to expedite these transactions because there is too much 
risk associated with them.
    Mr. Olver. Am I recognizing correctly then that where in 
our original documentation or thinking about this you had 2 
percent of the mortgages for a period of time on the housing 
side.
    Mr. Stevens. Right.
    Mr. Olver. And now you are up to 30 percent.
    Mr. Stevens. Yes.
    Mr. Olver. So you were at even lower percentage probably of 
these healthcare issues couple of years ago, and you must be in 
the position where nothing except what gets through your 
process is getting done?
    Mr. Stevens. Well, fortunately it is not quite that 
extreme, but clearly our market share has definitely grown, our 
market share. But our market share has definitely grown in 
nursing homes, hospitals, and apartment buildings. And we are 
making a lot of changes there, just so you know. In the 
apartment building side we have added actually a bunch of 
credit policy changes like in single family to try to tighten 
up some of that market. And on the healthcare side, I have a 
pretty in depth scrutiny process that I personally engage in at 
certain insured amount levels where I personally review the 
transaction. So it is a problem. There is a lack of capital, 
the nation is not lending in the private sector even on the 
commercial front or the residential front, and that is a real 
challenge.
    Mr. Olver. Well, my next question written down here on my 
sheet is, why has the processing been so slow on these loans? 
It sounds to me as if you are processing quite a few.
    Mr. Stevens. Yes.
    Mr. Olver. That you were not, I mean you are way up in your 
total processing.
    Mr. Stevens. That is right.
    Mr. Olver. And you have said you are not going to do these 
without looking at them carefully.
    Mr. Stevens. That is right.
    Mr. Olver. And you are upping the staff. So you seem to be 
making some effort to reduce the back log, but you are the only 
game in town at the most present time for this stuff.
    Mr. Stevens. There you go. I would just tell you, I will 
not go through the steps, we have done a bunch of steps to make 
the processing of the nursing homes quicker. I am not going to 
cut corners in terms of quality, and to your point, you know, 
there is a lot of impacts to nursing homes, and the one thing I 
would tell you, if a nursing home goes into default there is no 
other use for it, it becomes an empty shell and the Government 
takes the full loss on those things, usually at pennies on the 
dollar when a nursing home fails.
    So, you know, my fiscal management background tells me that 
I will do everything I can from a process efficiency side, and 
we brought in process efficiency experts for our nursing home 
group, they have done a great job and we have actually improved 
some processing flows so that we can work the system better, 
but I am not cutting corners on what we review, in fact we are 
stepping up what we review.
    Mr. Olver. All right, well look, under the new health law, 
we are going to be doubling the number of community health 
centers. Some nursing homes, if they were in the right places, 
and that would be only randomly so, but in some cases they 
might be perfectly good places to do community health centers.
    Mr. Stevens. Right.
    Mr. Olver. If you are lucky enough to fund those and then 
they may have a different use, an additional usage.
    Mr. Stevens. Yes, right.

                           FHA STAFFING NEED

    Mr. Olver. All right, we have upped the staffing in total 
for these programs quite a bit over the last 2 or 3 years. Do 
you think you have the personnel necessary to be able to deal 
with this?
    Mr. Stevens. Here is how I would answer the question. One 
thing FHA, one thing my Department has not done well is hire 
the people that you have given us in past years. When I walked 
into the job in July the fiscal year was ending in just a few 
months and we were woefully behind in a hiring process to get 
our group fully staffed in a timely way. Now, this year, my 
team, and I brought in a new General Deputy Assistant Secretary 
to help manage it who manages like a pit bull on a project, we 
are right on target to get everybody hired.
    I think, are we rightly staffed? I think, you know, if we 
were going to maintain these kinds of volume levels in all our 
business lines for the long term foreseeable future I would 
probably be, you know, banging the drum saying we need to 
really relook at how this whole group gets managed. I do not 
anticipate that any of these business lines will stay at these 
levels, I think private capital will come back and help us 
shrink on our own, it needs to come back.
    But at the level, all I would tell you right now is, we 
will get the group hired, I think we can manage the process. We 
may get some complaints that we are not processing nursing 
homes quick enough for some areas, but you know, these are 
delicate and very complex actual financial structures with 
different owners and operators and very unique kinds of 
financial statements and odd ways of reserving and managing 
inflation. These are things we need to carefully look at. So I 
think we are okay.
    Mr. Olver. Sometimes I get myself in trouble by asking 
questions about how one is going to use staff, but we do not 
know just when there is going to be a new budget so you should 
not hold your breath, but I suppose you could shift people if 
there is a case to be made for handling more expeditiously in 
these areas.
    Mr. Stevens. Right.
    Mr. Olver. I do not know how big, I know roughly how big, 
it looks like it is sizeable in the nursing home, I do not know 
in the hospital cases. Not very large, I take it.
    Mr. Stevens. No, in hospitals we have done, just we have 
six current hospitals in process right now, but they are big.
    Mr. Olver. Okay. Mr. Latham.

                        RISKS TO FHA'S PORTFOLIO

    Mr. Latham. Thank you, Mr. Chairman. You are well aware 
more so than anyone else probably, that, you know, the FHA's 
role in the past as far as guaranteeing what you could say 
questionable loans. And someone, you know, your risk management 
background, where did they go wrong? Where did FHA go wrong? 
And probably the follow up to that is, what are you doing 
differently?
    Mr. Stevens. So I come from the private sector, so 
sometimes I am not politically correct, and I apologize for 
this.
    Mr. Latham. God bless you, you are the only person we talk 
to----
    Mr. Stevens. The thing that I looked at from the outside is 
I do not think anybody really understood the industry, I do not 
think anybody saw the risks that were going on in the market, 
and I do not think there was a concerted effort to try to 
manage that risk. And from myperspective----
    Mr. Latham. Is that confined just to FHA, or I mean you 
look at Freddie Mac, Fannie Mae?
    Mr. Stevens. Well, look, Freddie and Fannie and the Wall 
Street thing, that is a whole other discussion which we could 
all debate, but that is a lot of smart people with an esoteric 
knowledge skill that nobody stopped and said, hey, are you sure 
those models are right? FHA was really a different story. We 
all knew. I knew from the outside, I testified about it from 
the private sector when we were talking about seller funded 
down payment assistance loans. I ran a company, I would not 
allow my company to do seller funded down payment assistance 
loans and all our loan officers complained because we would not 
let them do them.
    You know, institutions took advantage of FHA, certain 
products like seller funded DPA performed terribly, a 34 
percent cumulative default rate. That product alone is going to 
cost FHA an estimated $10.4 billion in the years to come, which 
is really, that alone, if we did not have that single product 
we would not have had the capital call that became such a 
crisis over the last many months. So, you know, in my opinion, 
you know, we need to have professionals who understand finance.
    We are running a large financial services company, we are 
running the biggest insurance company in the world right now, 
and we need experts who have that skill to be able to run this 
size of a business. And my worry of that is that as we think 
about future Administrations, no matter who is in the Office, 
this cannot be a job that people put friends in or try to take 
care of people, it has got to be experts who have that acumen 
to be able to run this organization. And fortunately, you know, 
Secretary Donovan, he pulled me in from the private sector, I 
declined the job several times before, he said he would not 
take no for an answer.
    But, you know, I brought in, my Chief Risk Officer who I 
brought in has an extraordinary reputation in the industry, and 
he is, you know, thoughtful and conservative, and he is 
watching this place like a hawk. I mean that is the kind of 
skill sets we ultimately need to run this place. And I think 
fortunately now we have got the right team in place and we are 
going to get our arms around this risk and we are going to get 
capital reserves back up over 2 percent, and, you know, 
hopefully we will leave this thing on a better course going 
forward with risk reporting and data accuracies and things of 
that sort that just did not exist here before.
    Mr. Latham. And there is a lot of people that can do much 
better on the outside and personally financially, I mean it has 
got to be a real hit for a lot of people coming out of that 
industry.
    Mr. Stevens. It was a massive reduction. But honestly, it 
was the most exciting time you could ever come in, and we were 
all worried about FHA and we wanted to come in.
    Mr. Latham. This is exciting?
    Mr. Stevens. I think it is exciting. I mean it is terrible, 
but we will all look back and remember this time period that we 
all together marshaled through and hopefully we will be better 
off.

                              FHA RESERVES

    Mr. Latham. If legislative changes are not enacted, how 
soon will FHA become insolvent if market conditions do not 
change, and how do we protect FHA? And also I guess the follow 
up, if the interest rates start going up, which a lot of people 
predict the end of this year or next year.
    Mr. Stevens. Right.
    Mr. Latham. What impact is that going to have on your 
reserves?
    Mr. Stevens. Yes. So, interestingly, it is sort of odd how 
interest rates could actually help us maybe a little bit if 
they were to go up. They also help if they go down in a 
different way. So let me start with, if you look at, this is 
really too soon to say anything.
    Mr. Latham. You become very political.
    Mr. Stevens. I know, but I could give a technical answer on 
both. Higher interest rates help actually the reserves because 
all our capital reserves earn interest, and if the discount 
rate is better we just are going to get a better return and 
that actually draws a lot of money into the capital reserve. 
One of the impacts of the CBO scoring, why it is worse than the 
OMB budget that was submitted, is because they are assuming a 
significantly higher prepayment rate on our mortgages, that our 
mortgages are going to be paid much faster on an annualized 
basis, which means we will not recognize the insurance premiums 
off of these mortgages today and they will turn over.
    And if rates to up that prepayment rate will drop 
significantly, the loans will never prepay, and so that would 
change the CBO scoring. I am not asking anybody to redo the 
math but I think they would acknowledge that. So it is just, 
you know, to some degree higher rates actually will mean that 
the loans on the books will stay longer, it is a very high 
quality book. It will also mean we probably have inflation 
meaning the market is recovering and so home values will be on 
the right path.
    So that actually could be helpful. It would reduce the new 
premium coming in from future books because I think it will 
probably stall volume a little bit, particularly refinance 
volume. So there is a bit of a tradeoff, and we look at how 
those things impact the overall portfolio. Here is what I would 
just say about the forecast. We are razor thin on the capital 
reserve. In terms of real capital, we reserve for 30 years 
worth of losses, so even if thecapital reserve would go to zero 
we still have $30 billion in a financing account which is held 
separately, and separate line item and shows up in the budget as a 
separate line item.
    And that, it would take years to actually erode those real 
dollars. However, you know, anything could tip this thing back, 
and so that is why it is so important to get our premium 
increases into market, get the policy changes into market, and 
hope that home prices and the market stabilization occurs so 
that we end up better off. Where we are at today, our capital 
today is over $32 billion. We are actually higher than when we 
were--when we announced our dropping below minimum levels in 
October, and we are much better than we were in 2009 in total 
capital in reserve.
    In terms of delinquency rates, our 30-, 60-, 90-day 
delinquency rates dropped in January and dropped again in 
February. So our real delinquency rates are actually improving. 
Now, I think it is a short-term anomaly, some others think, 
optimists about FHA on the outside think that our changes may 
be impacting that. I think a lot of it has to do with home 
price values and employment. You know, the reality is home 
prices are the single biggest driver, HPI forecasting, is the 
single biggest driver to the FHA risk.
    If we are stabilizing, which right now home prices have 
dropped less than what we forecasted so far this year. If we do 
not go into a double dip and home prices are stable and 
actually begin to rise, I can say right now that FHA's future 
will be a great story to tell. If we go back into a double dip, 
home prices decline further, FHA's capital reserves are margin 
thin, we cannot afford to have that strong a drop. All 
actuarial studies, the independent study, even CBO's budget 
says that we are going to actually produce positive profits or 
receipts to the Government, and CBO's is the most conservative 
look we have seen on any of the forecasts.
    But to your point, and we have all done forecasting in 
different ways, there are a lot of variables at stake. I do 
think the changes we made are critical, and getting this piece 
of legislation through, which has bipartisan support which has 
been, you know, great on both sides between Congresswoman 
Waters and Capito supporting this effort. You know, this is an 
important piece of legislation to get this huge business within 
the United States government back on track.
    Mr. Latham. Thank you.
    Mr. Olver. Do you have additional questions?
    Mr. Latham. Yes, when are we leaving?

                            CBO'S ESTIMATES

    Mr. Olver. Well, I am wondering at this point, with your 
discussion about interest rates going up and what happens if 
interest rates go up or if they go down, and then the other 
thing that has already escaped me again in the last few minutes 
of something else that you were----I am wondering whether the 
CBO estimates and your differences with CBO on the scoring, how 
they depend upon the two interest rate issues. Maybe you 
explained that, but it just escaped me along the way. Which is 
better for this Subcommittee, let's put it that way?
    Mr. Stevens. The two biggest differences--by the way, OMB 
differed with us with our actuarial, so everybody, good smart 
analysts will come up with different conclusions, I think we 
all know that pretty well. The OMB budget, that ultimately the 
President's Budget submitted, was over, you know, five and a 
half billion roughly in terms of net receipts from the FHA 
program in the 2011 fiscal budget. The CBO's study is, you 
know, about a billion and a half. And so that is a big 
difference. Both are positive in receipts but that is a big 
difference.
    The two biggest drivers in the CBO that we noticed that are 
different in their work that was done were based on, one, 
prepayment speeds, and they expect much higher prepayment rates 
on our mortgages which is purely interest rate driven. So the 
number one thing that is going to drive prepayment speeds 
higher is rates drop, everybody refinances off and goes 
somewhere else, and you never get that premium on your balance 
sheet. So that is their--the prepayment speeds is one huge 
impact.
    The other is they are predicting much higher severity rates 
than what we modeled, so that we are going to have even higher 
loss rates than what were currently seen on the book of 
business, and that is really a fundamental relationship with 
home prices. And all I can tell you is, at least so far year to 
date, home prices are performing much better than even we 
forecasted, which was more liberal than I would guess others 
have. And it is interesting that even the CBO forecast actually 
has a better home price forecast than we had, but they still 
are forecasting worse severity rates on the FHA portfolio.
    So while we have not gotten inside as to why that is, I am 
sure they have, you know, very sound judgment in terms of their 
view, and groups will differ on the analytics. But, you know, 
it is interesting just purely that impact of interest rates has 
a direct impact to the budget. So, you know, the thing I would 
step back to say is, so far much of the data we are seeing is 
actually better than what we even had in our actuarial study.
    Mr. Olver. But you also in your testimony said that you 
stand by your basic estimates, of what that ought to be. So if 
you sort of think that if all things go well that those will 
prove out in the long run maybe?
    Mr. Stevens. Yes. Well you know, it is funny, I talk to 
economists all the time.
    Mr. Olver. Maybe not in my lifetime.
    Mr. Stevens. Well, I talk to economists all the time and I 
am sure they have testified here and you have talked to them, 
economists are only as good as the data they have today. If 
something significant changes in the economy for better or for 
worse, you are going to change the forecast. Right now, 
everything--I am not dancing, I mean I think that is a real 
answer, and the reality is that right now all the data we are 
seeing is actually slightly better than what the actuarial was 
bid on. So we stand by our actuarial study and what our 
forecast is, and that is correct. From a budget standpoint we 
stand by what the OMB and the President's budget was submitted.
    Mr. Olver. Yes. Well finally the other question came to 
my--I messed up that question. I had heard you talking about 
interest rates going up and interest rates going down, and then 
you talked about going back into a double dip and what that 
might mean in terms of loss of your margins.
    Mr. Stevens. Right.
    Mr. Olver. Of your 2 percent.
    Mr. Stevens. That is right.
    Mr. Olver. That one versus the economy going forward.
    Mr. Stevens. Right.
    Mr. Olver. And it seems to me when you take those two 
binary situations, you have four different options out of 
combinations, and I was actually trying to be somewhat 
facetious but not totally so, in trying to see if you could 
sort out for me what the correct moving parts were going to be 
best for this Subcommittee. That is what I had in my mind at 
that point.
    Mr. Stevens. I hate to say this, but the three moving parts 
which are going to have impact will be interest rate 
forecasts--and we would have to think about what is better, 
higher or lower, George and I could discuss that a little bit 
and maybe talk it over--I think for the CBO budget probably 
higher rates might actually be better for us. I would have to 
think about that, so it depends on how much it impacts volume.
    Mr. Olver. Oh, I am glad that you do not know the precise 
answer.
    Mr. Stevens. Well, you know, the precise answer is, because 
higher rates will stop the runoff so you will not have the 
prepayment rates, but it will also slow your volume and so you 
will not have new premium coming in, and that correlation is 
very sensitive, and I would be interested to see what CBO would 
think about, if we did higher rates it would take away their 
prepayment concerns most likely, but it may also curtail the 
new premium coming in, and that is where analysts get into--
that is why you have such disparity.
    Mr. Olver. I am sorry I asked the question.
    Mr. Stevens. I am sorry for giving such a complex answer.
    Mr. Olver. Do you have anything else to say, do you want to 
continue for a second here?
    Mr. Latham. Well, no, I just want to commend you. I think 
Secretary Donovan, I am very pleased that he insisted that you 
go to work here, because I think you are someone who really 
gets it and I appreciate that very much. I still have real 
concern about the Short Refinancing Program, about the moral 
hazards involved and some of the reaction that you may have in 
the marketplace, people abusing it. But I think you are someone 
if it can work you will make it work. So I appreciate it very 
much and your testimony today.
    Mr. Stevens. Thank you very much.
    Mr. Olver. I could reiterate exactly the same thing. I 
appreciate the comment from the Ranking Member. I feel that if 
I were to spend, I do not know how much time, but I have a 
feeling that if I spend a certain amount of time as a fly on 
the back of your coat, I might learn about this whole system, 
which would ease my anxiety. Thank you very much for the 
service that you are giving us and thank you for your testimony 
today.
    Mr. Stevens. Thank you.
    Mr. Olver. We will end the hearing.

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                                         Wednesday, March 24, 2010.

     HOUSING AND TRANSPORTATION CHALLENGES WITHIN NATIVE AMERICAN 
               COMMUNITIES AND THE FY2011 BUDGET REQUEST

                               WITNESSES

SANDRA B. HENRIQUEZ, ASSISTANT SECRETARY FOR PUBLIC AND INDIAN HOUSING, 
    U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
RODGER J. BOYD, DEPUTY ASSISTANT SECRETARY FOR NATIVE AMERICAN 
    PROGRAMS, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
GREGORY G. NADEAU, DEPUTY ADMINISTRATOR OF THE FEDERAL HIGHWAY 
    ADMINISTRATION, U.S. DEPARTMENT OF TRANSPORTATION
JOHN R. BAXTER, ASSOCIATE ADMINISTRATOR FOR FEDERAL LANDS HIGHWAY 
    PROGRAM, U.S. DEPARTMENT OF TRANSPORTATION
JEFFERSON KEEL, PRESIDENT, NATIONAL CONGRESS OF THE AMERICAN INDIANS

                    Chairman Olver's Opening Remarks

    Mr. Olver. The subcommittee will come to order.
    It is an unfortunate fact that I am able to state without 
hyperbole that the condition of housing and transportation 
infrastructure on many Indian reservations is appalling.
    In 2003, the U.S. Commission on Civil Rights estimated that 
there was an immediate need for 200,000 units of new housing 
within Indian communities and that more than one out of five 
Native Americans experience severe housing needs. Conversely, 
billions in backlogged maintenance on Indian roads and bridges 
contribute to a fatality rate that is more than three times the 
national average.
    In order to help us understand how the Federal Government 
can better address the basic needs of tribal communities, we 
will be hearing testimony from the Department of Housing and 
Urban Development and the Department of Transportation on their 
respective fiscal year 2011 budget requests related to funding 
in Indian country.
    Specifically, I would like to welcome Sandra Henriquez, the 
Assistant Secretary for Public and Indian Housing from HUD; 
Roger Boyd, the Deputy Assistant Secretary for Native American 
Programs at HUD; Greg Nadeau, from DOT, the deputy 
administrator of the Federal Highway Administration; John 
Baxter, from the DOT, associate administrator for Federal Lands 
Highway Program; and then, on my far right, Jefferson Keel, 
president of the National Congress of American Indians.
    Now, first and foremost, I am interested in hearing what 
progress we have made with the funds provided for your programs 
in the Recovery Act. I would like to know about where we are 
with distributing these funds and how they are meeting the 
needs in Indian country. I am also interested in hearing about 
what insight you have gained from these funds, especially with 
the quick obligation timelines and the competition for funds in 
the Native American Housing Block Grant. I particularly would 
like to hear about any lessons that we have learned that can 
now be applied to our regular yearly programs.
    Second, the subcommittee required that HUD use some of its 
funding for the Transformation Initiative to conduct a new 
housing assessment of Native American communities. Such data 
are crucial to understanding the need as well as how to better 
focus Federal investments to ensure tribal authorities deliver 
quality projects on time and without waste. Another item we 
want to see from the Transformation Initiative is HUD's study 
and demonstration on the use of sustainable building practices 
on Native American land.
    And I might add that, in particular, the data that I 
mentioned from the U.S. Commission on Civil Rights is most of a 
decade old now, and it is about time we had some new data. And 
I think that it is important that we do that. Maybe our census 
will provide that also very well.
    In addition, I look forward to discussing how HUD and DOT 
can provide technical assistance to build the capacity of 
tribal agencies. It is oftentimes the tribes that are most in 
need of Federal transportation and housing resources that tend 
to have the most difficulty submitting grant applications and 
successfully managing projects due to a lack of expertise or 
fiscal resources.
    Finally, I want to express my concern that HUD's budget 
request proposes cutting Native American Block Grants by $120 
million, or roughly 17 percent. This subcommittee has 
repeatedly stated its strong commitment to the program and 
believes there are significant opportunities to address the 
infrastructure deficiencies and reduce high unemployment rates.
    With that, let me recognize the ranking member, Mr. Latham, 
for his comments.
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                Ranking Member Latham's Opening Remarks

    Mr. Latham. Thank you, Mr. Chairman.
    And welcome to all of the witnesses here today. As you are 
probably aware, Chairman Olver has a particular interest in the 
nexus of housing and transportation in the various communities, 
so it makes sense that you are all here today.
    I think everyone will agree that there is a need for 
improvement in the housing and transportation conditions and 
results we see at some of the tribal nations and lands across 
the country. The big question is, how should it be changed? We 
have spent almost $8 billion over the years on the programs, 
and I am not sure what we exactly have to show for it.
    I think it is also hard to answer all the questions without 
the Bureau of Indian Affairs at the table, as it is the primary 
agency that interacts with each and every tribe in the United 
States. I understand and appreciate that BIA is under the 
jurisdiction of another subcommittee, but I think, until we get 
an idea of the total Federal picture, what it looks like, I am 
not sure we can effectuate too much change simply between our 
two agencies that are here today.
    Perhaps the Secretaries will create a new livability 
initiative, Mr. Chairman, at the Department of Interior.
    Mr. Olver. It would be quite a unique one.
    Mr. Latham. It would be.
    Mr. Olver. Survivability.
    Mr. Latham. It would have to be, yeah. That would be more 
appropriate.
    Mr. Olver. We will add that to the list.
    Mr. Latham. With that, I will yield back and look forward 
to the testimony. Thank you.
    Mr. Olver. Thank you.
    Your testimonies will be printed in the record, and I would 
hope that you can keep your comments within somewhere close to 
5 to 6 minutes or so. We are likely to end up with a series of 
votes here fairly soon, and I would like to get on to the 
questioning, even though I spoke a long time.
    Ms. Henriquez.

                    Ms. Henriquez's Opening Remarks

    Ms. Henriquez. Good afternoon, and thank you, Mr. Chairman 
and Ranking Member Latham. Thank you for inviting me to testify 
before this committee on the challenges we face in the 
development of housing in Indian country. There are many 
challenges, and, with this committee's assistance, we have been 
and can continue to make progress in addressing them.
    As you indicated in your opening remarks, I am joined here 
by Roger Boyd, who is the Deputy Assistant Secretary for the 
ONAP programs at HUD.
    We administer six programs specifically targeted to 
American Indian, Alaskan Native, and Native Hawaiian 
individuals and families. In implementing all of these 
programs, the Department recognizes the right of tribal self-
governance and the unique relationship between the Federal 
Government and the government of Indian tribes.
    There are 564 such federally recognized tribes in the 
Nation today, each with its own history, culture, traditions, 
and goals. And we strive to balance respect for these 
individual tribes with regulations and procedures that assure 
accountability and consistency nationwide.
    We have a number of programs which I would like to talk 
about over time, but they include the Native American or Indian 
Housing Block Grant, the single-family loan guarantees 
programs, the loan guarantee Title VI program, programs for 
Native Hawaiian Housing Block Grants, and the Indian Community 
Development Block Grant Program.
    On February 17th in 2009, President Obama signed the 
Recovery Act into law. And I want to thank the subcommittee, 
and particularly you, Mr. Chairman, for your role in providing 
funds to tribal areas. And, as a result, HUD has invested $510 
million in American Indian, Alaskan Native, and Native Hawaiian 
communities across the country, of which $255 million was 
distributed by formula to 362 recipients, representing 542 
tribes, and that was accomplished within 35 days after the 
Recovery Act became law. As of March 14th of this year, formula 
grantees had expended more than $103 million, or about 41 
percent of those funds committed, of the $255 million.
    They also gave out $242 million to 102 IHBG recipients that 
applied to a NOFA dated March 27th. And, as of this date--we 
got 327 applications. We funded them upon receipt if they came 
in beginning July 13th of 2009. And, as of this time, we have 
found that recipients have expended $54 million, or about 22 
percent of those funds thus far.
    In addition, $10.2 million was awarded to the Department of 
Hawaiian Home Lands in May, and another $10 million was 
provided for the ICDBG program through the Community 
Development Fund.
    For the fiscal year 2011 budget, you know that our 
President's budget requested $580 million for the Indian 
Housing Block Grant Program, with $2 million set-aside for 
Title VI activities; $10 million for Native Hawaiian housing; 
$9 million for the Section 184 loan guarantee program, which 
will leverage $994 million in such guarantees; and $65 million 
in the ICDBG Program.
    There is a perception that tribes have not spent funds that 
Congress appropriated in years past, and it is due in part to 
the timing of grant funds. Tribes do not receive current fiscal 
year funding until relatively late in the fiscal year. And, in 
fact, most of the 364 tribes that have received such funds by 
formula have swiftly put these funds to good use. Since the 
inception of the program in fiscalyear 1998, grantees have made 
use of 88 percent of their available funding.
    The budget process from the time the funds are appropriated 
by Congress and the bill is signed into law by the President to 
the time ONAP receives the funds for disbursement can take 
several months. And we are working to streamline this process 
by shifting from an annual deadline to quarterly submissions 
based on each tribe's fiscal year end. We are also trying to 
move to align programs to operate and report more like the 
public housing grant programs do, particularly on capital. ONAP 
has consulted with tribes on how to accomplish this, and it is 
a subject for discussion at the negotiated rulemaking sessions 
that are currently being conducted.
    There are approximately 5 million American Indian and 
Alaskan Native people living in the United States, slightly 
less than half of whom live on Indian lands. Welfare reform has 
caused many Native Americans to go back to their reservations, 
creating a demand of even more for housing and for basic 
services.
    HUD's Office of Policy Development and Research, PD&R, 
using 2000 census data, determined that, nationwide, almost 
543,000 Native American and Alaskan Native households have 
severe housing needs, defined as living in conditions that are 
overcrowded, substandard, or cost-burdensome.
    A 2002 Harvard University study found that approximately 40 
percent of on-reservation housing is inadequate, as compared 
with roughly 6 percent nationwide. And at least 90,000 Indian 
families live in either overcrowded or substandard conditions, 
and there is a need for more than 200,000 new housing units.
    The Department is taking action to transform and to improve 
its programs for Native Americans. And there are fundamental 
challenges, that we have found to housing development that 
tribes face every single year: remote rural locations of many 
tribes; extreme weather conditions in both northern and 
southern climes that limit the building seasons; the high cost 
associated with obtaining and shipping construction materials 
to these remote areas; the lack of qualified construction 
companies with skilled labor; an inordinately high cost of 
infrastructure in these areas; the need to coordinate among 
several Federal agencies to complete a housing project; 
technical capacity of the housing staff on some reservations; 
the lack of access to capital; the lack of understanding of the 
sovereignty of tribal nations; and jurisdictional issues with 
tribal courts are just beginning to give you a flavor of the 
challenges that are faced.
    But there are also opportunities to mitigate against these 
and other challenges, and my office is working with tribes 
toward that end. We consult with tribal program grantees and 
participants on every major programmatic change to ensure that 
our programs are working as Congress has intended. Last 
December, for example, we participated in listening sessions 
with the National American Indian Housing Council's legal 
symposium to discuss early on the innovations and challenges 
associated with implementation of the Recovery Act.
    We are about to conduct a comprehensive housing needs study 
to help inform future budget requests and improve program 
implementation. And our PD&R department will manage that study, 
with input from tribal communities nationwide. To prepare for 
this, ONAP will hold outreach meetings in each of its six 
regions and in Hawaii to make sure that the views of 
stakeholders and our partners are considered. Our objective is 
to ensure that the study reflects fully current conditions and 
current and future needs within Indian country.
    We are also preparing to issue a new Indian Housing Plan/
Annual Performance Report. The new form will be automated for 
importing data and conducting basic calculations, and it should 
make it easier to complete and less burdensome for our 
stakeholders and our partners.
    As I said earlier, this month we began a negotiated 
rulemaking process with tribal representatives to implement 
amendments to NAHASDA. That was my first such session, and we 
go back again next week. This marks the third time, though, 
that HUD has participated in a negotiated rulemaking with 
tribal representatives to develop program regulations, and we 
believe that this process helps make our programs more user-
friendly and more appropriate to Indian country. We are 
committed to increasing the collaboration, both internally and 
externally, to improve program delivery to tribal communities.
    In the last 12 months, you are aware that Secretary Donovan 
has partnered with heads of other Federal agencies to visit 
tribal communities in Montana and Alaska. Such opportunities 
continue at the Cabinet Secretary level as well as with the 
Deputy Secretary and Assistant Secretaries at HUD. These 
meetings with community leaders look at the issues such as 
housing, education, transportation, energy, communication 
infrastructure, and agriculture to foster a more holistic 
approach to community and economic development in Indian 
country.
    I want to thank you, Mr. Chairman, for the opportunity to 
appear before you today to discuss these unique challenges to 
the development of housing in Indian country. And I look 
forward to working with you and the members of this 
subcommittee on these issues now and in the future.
    My colleague and I are happy to answer any questions that 
you may have.
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    Mr. Olver. Thank you very much.
    Mr. Nadeau, if you could try to stay closer to the 5 or 6 
minutes.
    Ms. Henriquez. I am sorry.
    Mr. Olver. Thank you.

                      Mr. Nadeau's Opening Remarks

    Mr. Nadeau. Chairman Olver, Ranking Member Latham, members 
of the subcommittee, thank you for inviting me to testify today 
on the transportation challenges facing Native American 
communities and programs that the Federal Highway 
Administration administers to assist tribes in addressing these 
challenges.
    Accompanying me today is John Baxter, the Federal Highway 
Administration's associate administrator for the Federal Lands 
Highway Program.
    Thank you, Mr. Chairman, for making my full statement part 
of the record of this hearing.
    The Indian Reservation Road system consists of more than 
120,000 miles of roads and 8,000 bridges that link housing, 
schools, emergency services, and workplaces, as well as 
facilitate tourism and resource use.
    More than 8 billion vehicle miles are traveled annually on 
the IRR system, even though it is among the most rudimentary of 
any transportation network in the U.S. More than 60 percent of 
the system is unpaved, and about 24 percent of the bridges are 
classified as deficient. These conditions make even the most 
basic travel associated with a livable community difficult for 
residents of tribal communities.
    The Administration is committed to providing safe, 
efficient transportation for both residents and visitors to and 
within Indian lands and Alaska Native villages, while 
protecting the environment and cultural resources.
    The Indian Reservation Roads program, administered by the 
Federal Highway Administration in partnership with the Bureau 
of Indian Affairs, serves 564 federally-recognized Indian 
tribes and Alaska Native villages in 32 States. In many cases, 
this program is the only source of funds for transportation 
improvements.

                 THREE KEY AREAS TO ADDRESS CHALLENGES

    Today, I would like to focus on three key areas where our 
agency has been working to address the transportation 
challenges in Indian country. These areas include our safety 
initiatives, outreach and capacity-building programs, and 
implementation of the Recovery Act.
    As you know, Secretary LaHood has stated that safety is the 
Department's number-one priority. Despite reaching record-low 
traffic deaths last year on all our Nation's roads, the annual 
fatality rate on Indian reservation roads is still more than 
three times the national average. To address this serious 
problem, FHWA has cosponsored six State-based safety summits in 
the past 2 years to focus on this issue and to bring safety 
partners together.
    The agency also continues to implement SAFETEA-LU programs, 
such as the Highway Safety Improvement Program and the Safe 
Routes to School program, which benefit tribes as well as 
States, and are aimed at reducing traffic fatalities and 
injuries on public roads through the implementation of 
infrastructure improvements.
    In addition, FHWA supports tribes through outreach and 
capacity-building programs. Strategies such as road safety 
audits and community-based enforcement are proving to be 
effective tools for reducing fatalities on tribal lands. The 
agency also maintains seven Tribal Technical Assistance Program 
centers that provide a variety of training and professional 
development programs, technology updates, and technical 
assistance to improve road management and safety. These centers 
are a key resource for basic services and help many tribes 
become self-sufficient as sovereign nations in transportation 
delivery.
    The Recovery Act has supplemented SAFETEA-LU funding for 
tribal communities by providing an additional $310 million for 
the IRR program. During the 13 months since President Obama 
signed the Recovery Act into law, the Federal Highway 
Administration has been working diligently to ensure that the 
funds for these projects are distributed quickly, wisely, and 
withunprecedented transparency and accountability. Much of the 
IRR portion of the Recovery Act funding has been dedicated to improving 
roads that provide critical links between tribal residences and vital 
community services such as schools and health care facilities.
    We recognize that transportation is a critical tool for 
tribes to improve the quality of life and the economy in their 
communities. FHWA is committed to improving transportation 
access to and through tribal lands by providing safe and 
innovative roadways that blend into or enhance the existing 
environment, by providing technical services to the 
transportation community, and by coordinating our efforts with 
partner agencies such as HUD, EPA, and the BIA. We are also 
focused on building more effective day-to-day working 
relationships with Indian tribes that respect the rights of 
self-government and self-determination based on principles of 
tribal sovereignty.
    Mr. Chairman, thank you again for the opportunity to appear 
before the subcommittee. I will be pleased to answer any 
questions you may have.
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    Mr. Olver. Thank you. Thank you very much, Mr. Nadeau.
    Mr. Keel.

                       Mr. Keel's Opening Remarks

    Mr. Keel. Thank you, Mr. Chairman.
    On behalf of the National Congress of American Indians, I 
want to thank you for holding this hearing and allowing us the 
opportunity to provide testimony. We have written testimony 
that will be provided for the record, and I will try to 
summarize this and stay within the time frame.
    Infrastructure development is critical to economic 
development, recovery, creating jobs, and improving living 
conditions for individuals and families in Indian country. 
Housing is a necessary link to provide stability for and safety 
to tribal families.
    Tribes have increased capacity to address the disturbing 
housing and infrastructure conditions in Indian country through 
developing and managing their own programs and, in many cases, 
leveraging Department of Housing and Urban Development funding.
    Building a transportation system that allows for safe 
travel and promotes economic expansion helps strengthen tribal 
communities, while at the same time making valuable 
contributions to much of rural America. Surface transportation 
in Indian country connects and serves both tribal and non-
tribal communities.
    The United States recently faced one of the most 
significant housing crises in the Nation's history. However, 
many forget that Indian housing has been in crisis for 
generations. Forty percent of on-reservation housing is 
considered substandard, compared to 6 percent outside of Indian 
country, and nearly one-third of homes on reservations are 
overcrowded. In order to meet current housing demand in 
reservation communities, 200,000 units are needed immediately, 
requiring a Federal investment of around $1 billion.
    Eleven percent of native households lack kitchen 
facilities, 17 percent lack telephone service, and 12 percent 
lack complete plumbing, while less than 1 percent of the U.S. 
general population lacks any of these facilities.
    Finally, of the 60,000 homes being maintained by Federal 
housing assistance programs serving Native Americans, it is 
estimated that 70 percent, or 42,000 homes, are in need of 
retrofitting, such as windows, insulation, efficient furnaces, 
air, elder or handicapped conversion, and those things.
    NCAI and tribal leaders are very alarmed at the proposed 
decrease to the Native American Housing Block Grant program in 
HUD, which constitutes one of the largest percent decreases 
proposed for any area of the President's budget that benefits 
Indian country. The proposed level would cut the Housing Block 
Grant program by 17 percent from the fiscal year 2010 enacted 
level.
    The administration's justification for these cuts is that 
the program is operating at a high volume due to Recovery Act 
funding. However, the ARRA funding was intended to be over and 
above regular appropriations. The proposed reductions also come 
at the same time that the President has requested a 3-year 
freeze in domestic spending.
    As Indian country works toward putting our citizens back to 
work, the proposed cuts would adversely affect the construction 
industry, which is one of the more stable industries with 
substantial employment in Indian country. NCAI urges this 
committee to work toward restoring the cut proposed for the 
Housing Block Grant funding for fiscal year 2011.
    The Indian Reservation Road system comprises over, as you 
heard, 120,000 miles of public roads with multiple owners, 
including the Bureau of Indian Affairs, Indian tribes, States, 
and counties. The IRR system is the most underdeveloped road 
network in the Nation, yet is the primary transportation system 
for all residents and visitors to American Indian and Alaska 
Native communities.
    Over 66 percent of the system is unimproved earth and 
gravel, and around 24 percent of the bridges are classified as 
deficient. These conditions make it difficult for residents of 
tribal communities to travel to hospitals,stores, schools, and 
employment centers.
    State governments spend between $4,000 and $5,000 per road 
mile on maintaining State roads and highways. In Indian 
country, road maintenance funding is less than $500 per road 
mile. Indian country has an unmet need of well over $258 
million in maintenance funding for roads and bridges and $310 
million in unmet new roads and bridge projects.
    For fiscal year 2011, the Department has included a new 
$200 million program in the Federal-aid Highway Program within 
the Federal Highway Administration, a competitive grant titled 
``Liveable Communities Grant Program,'' which is designed to 
assist State, local, and tribal governments in developing and 
coordinating smarter communities with transportation, housing, 
and commercial developments. This new program would be 
beneficial to tribes by effectively enhancing their economic 
development opportunities.
    Currently, Indian reservation roads make up nearly 3 
percent of Federal roadways, but they receive less than one-
half of 1 percent of total Federal Highway funding. At the 
current funding levels, the IRR program receives only about 
half of the amount per road mile that States receive.
    Indian country is a critical player as the Nation considers 
ways to promote jobs and to work toward economic recovery. When 
tribes have the necessary tools to exercise their inherent 
right to self-government, the results include strides toward 
improving the health and social and economic wellbeing of 
Indian country, non-native citizens residing on reservations, 
and off-reservation residents of neighboring communities.
    We applaud the administration's efforts towards investments 
in Indian country. We look forward to working with you to 
ensure that the needs of Indian country are addressed in the 
fiscal year 2011 appropriations process.
    Thank you very much.
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    Mr. Olver. Thank you, Mr. Keel.
    First of all, let me just say to HUD and to the Federal 
Highway Administration, I think that all of the indications, 
are that you have gotten the moneys out as quickly as they 
could be, the major sums going by formula to the various places 
they were needed to go. It is a question of how quickly, then, 
those moneys get into usage, it seems to me, which may be 
partly capacity at the other end.
    And what other things--we have had some testimony--after 
saying that, the other thing that I think needs to be said 
here: There is remarkable unanimity in your written testimony 
of the needs, of the level of the needs, and, in some cases, 
some pretty direct statistical measures. Mr. Keel and Ms. 
Henriquez, you agree that somewhere around 200,000 units of 
housing are needed. Now, I have seen those data in studies that 
go back to 2002 or thereabouts, so it is time that we brought 
those up to date. That certainly is so.
    We also seem to agree on the number of 120,000 or so miles 
of roads under the highway system. We only need to worry about, 
for this subcommittee, housing and transportation. If we could 
make headway here, then maybe it might provide ways, a route to 
do headway in other places. I am not quite sure.
    But when you get down to the details--I want to just ask a 
couple of general questions and then some more specific 
questions.

                 NATIONAL CONGRESS OF AMERICAN INDIANS

    But for you, Mr. Keel, the NCAI, is that a voluntary 
membership from the various recognized tribes? There are some 
550, 560, whatever the number is today, of recognized tribes. 
Are they all members? Or what is your membership? What is 
your----
    Mr. Keel. It is a voluntary membership organization. 
Currently, there are around 260 tribes that are members of the 
organization.
    Mr. Olver. Okay. Do you provide capacity building for those 
250, or do you go beyond the 250 members for other, sort of, 
peripheral tribes where you can? Do they come to you for 
assistance?
    Mr. Keel. Yes, they do. We provide assistance to any tribe 
that asks for assistance, regardless of whether they are 
members or not.
    Mr. Olver. And you are elected as president by that 
membership at a convention or something of that sort.
    Mr. Keel. Yes. Yes.
    Mr. Olver. So you are speaking, basically, primarily, for--
well, for all the tribes, but your membership is voluntary.
    Mr. Keel. The membership is voluntary----
    Mr. Olver. What percentage of the population of 
therecognized tribes would be among the 260 or 270 that are actually 
members?
    Mr. Keel. Of the total Indian population in this country, 
and Alaska Natives, NCAI represents around 70 percent of the 
total Indian population.
    Mr. Olver. So it is about half of the tribes, of the 
recognized tribes, but 70 percent of the population.
    Mr. Keel. Yes, sir.
    Mr. Olver. Maybe you can give us some verification of that.
    Mr. Keel. I will be happy to provide you with that 
information.

                           DATA DISCREPANCIES

    Mr. Olver. I understand that we are likely to have votes 
here fairly soon. Since we only have the ranking member and 
myself, I am going to use 10 minutes here and then give him 10 
minutes so that I can get a couple more thoughts out on the 
table. We are going to be somehow cut off by votes being called 
and another program that I suspect you will already be gone by.
    On the highway situation--and I have been thrashing over 
this with staff--the last data that we had, reliable 
departmental data that we had, said that there were about 
90,000 miles--that, I think, was 2002 or 2003 or thereabouts--
with a very interesting factor in there. Both of you seem to 
agree as to the percentage of bridges that are deficient. The 
data that I saw, as of 2003, was that there were about 7,000 
bridges on what is called the BIA group, and another--no, no, 
excuse me--on the State and county group of bridges, and fewer 
than 1,000 on the BIA operation.
    But somehow we have gotten from my data, 90,000, up to your 
now agreement that there is roughly 120,000. Something has 
happened during that time that I need you folks maybe to 
consult with each other. Maybe if both of you agreed that that 
is where the data came from, I would be comfortable seeing it 
come back to me in that kind of a form.
    But the one thing that I saw in that was that there were 
only something like eight bridges per mile on the BIA roads and 
35 bridges per mile on the ones that were State and local, 
Federal aid, whatever. And it is such a bizarre difference 
between those. Can you tell me something about why that might 
be?
    Mr. Nadeau. I am going to ask John, if you don't mind.
    Mr. Olver. I will let you think about that. I want to throw 
that one out. I just want to throw out the data on that. And 
what we have available was very discrepant, and I don't 
understand why that could be.
    Those data were 2006, my staff tells me, not 2003. But 
something has happened here. Something substantial has happened 
that changes the proportion of roads in the system.
    Well, let me pass on there. Let me just get that as a 
statistical discrepancy, and let me go on to another thing.
    While we agree that the housing is in terrible shape, what 
I need to understand is, what is a family in Indian country? 
What does it mean to be overcrowded? We are hearing that the 
units have a lack of plumbing and kitchen facilities in some 
instances, 200,000, I don't know.

                       INDIAN RESERVATION HOUSING

    Can you tell me roughly, Ms. Henriquez, how many housing 
units there are on the reservations?
    Ms. Henriquez. I don't know specifically. I am going to 
turn to my colleague, who has just told me 115,000.
    Mr. Olver. 115,000 units?
    Ms. Henriquez. Of housing.
    Mr. Olver. What, then, would be the need for 200,000 units, 
which both ends of the table have agreed to? There must be some 
discrepancy there that I am uncovering without knowing why or 
how it happens to be that we have uncovered that.
    Ms. Henriquez. I am going to ask Mr. Boyd----
    Mr. Olver. And then we are having some difficulty, I am 
having deep difficulty with the discrepancies in data given, 
the testimony that has been given in the written form and what 
we have been able to get on paper.
    On the programs, Title VI programs are family housing, or 
is that single-family housing? Are those multifamily housing? 
One of the programs must be multifamily.
    Ms. Henriquez. Generally, the housing that is produced in 
Indian country through HUD funds tends to be single-family 
housing. A few reservations, a few tribes are doing some rental 
housing, but it generally is single-family.
    Mr. Olver. Ah. Now, that is interesting that you say that. 
The Title VI loan guarantees are only a small number issued 
for--only 57 issued for something like 2,000 units. That must 
be multifamily housing. I don't understand how the data in your 
testimony would fit with that. And on the single-family home 
loan guarantees, that fits very closely with the idea that a 
unit of housing might cost $150,000 or thereabouts, something 
of that order.
    And I am wondering, with the size of families, is it four, 
five, six people? Do the housing units need to have three 
bedrooms for proper usage?
    Ms. Henriquez. Well, I was just out in the Pacific 
Northwest with the Puyallup tribe in Tacoma building lots of 
new housing and doing a ribbon-cutting. And they are units, 
single-family, but one of the new developments is probably--
there are some two-bedrooms and some three-bedrooms. But they 
are building units sized for the families in their tribe. They 
are also building some one- and two-bedroom stand-alone houses 
for seniors----
    Mr. Olver. Well, they have a variety of different programs 
which have been brought together. And sorting outhow they have 
functioned over time is somewhat difficult.
    If we have time, I want to go much more deeply into the 
main one. Because the one program covers probably 80 percent, 
at least, of the dollars, and that is the Indian Housing Block 
Grant.
    I will pass on to my ranking member for 10 minutes there.

                 HIGHWAY STIMULUS FUNDING DISTRIBUTION

    Mr. Latham. All right. Well, thank you, Mr. Chairman.
    Mr. Nadeau, in distributing and obligating the $310 million 
of highway funds from the stimulus package, do you have any 
major problems of getting those dollars to the tribes or to the 
reservations? And I guess another part of that is, how much 
actually goes directly to the tribes or to the Bureau of Indian 
Affairs?
    Mr. Nadeau. Of the $310 million for the IRR program. . .
    Mr. Latham. Is your mike on? State that again. How much?
    Mr. Nadeau. Let me try that again. Of the $310 million, 
first of all, our obligation right now is about--testing, one, 
two, three.
    I am sorry. Your question, again, was the obligation?
    Mr. Latham. I forgot. No, of the 310, what problems have 
you had getting the money out the door, number one? Number two 
is, how much of it goes directly to the tribes, and how much 
goes to the Bureau of Indian Affairs?
    Mr. Nadeau. Of the $310 million, $88 million is obligated 
and $75 million is pending. The Federal Highway 
Administration's obligation is about 74 percent of about the 
$54 million that we are distributing directly to the tribes. 
BIA, I understand, is at about 30 percent obligated and about 
40 percent pending.
    The deadline to achieve 100 percent obligation for the 
Indian Reservation Roads program is September 30, 2010. So, at 
this point, we expect to have a majority of funds obligated by 
early summer and absolutely expect to have all 100 percent of 
the funds obligated by the end of September.
    In the process of identifying the most effective method of 
distributing the funds to the tribes, a plan has already been 
established between the Federal Highway Administration, BIA, 
and the IRR coordinating committee to establish a 
redistribution plan for those funds that tribes are not able to 
expend. The estimate at this point is about $4 million will be 
remaining. And a plan to distribute that $4 million is already 
essentially agreed to and will be implemented over the coming 
weeks.
    So all of that adds up to a pretty high level of confidence 
that we will achieve 100 percent obligation by the deadline and 
hope to have most of it out by early summer.

                        DIRECT FUNDING TO TRIBES

    Mr. Latham. Well, why doesn't it all go to the tribes?
    Mr. Nadeau. If you don't mind, I am going to see if Mr. 
Baxter can address that.
    Mr. Latham. Sure.
    Mr. Baxter. Up to 4 percent of the funds are available for 
administrative purposes for the BIA. Beyond that, all the funds 
do go to the tribes.
    Mr. Latham. Directly?
    Mr. Baxter. Not directly. Through BIA or through agreements 
with----
    Mr. Latham. That is my point. Why?
    Mr. Baxter. Because these are funds available , Through the 
Department of Transportation----
    Mr. Latham. Why don't the tribes apply directly?
    Mr. Baxter. We are using the existing contracting 
mechanisms and the existing agreements that we have with tribes 
to administer the funds, and those are through BIA and FHWA.
    Mr. Latham. So why do some tribes go directly and some 
don't?
    Mr. Baxter. Well, some tribes can work directly with the 
Federal Highway Administration. That is a provision----
    Mr. Latham. Why can't they all?
    Mr. Baxter. They all can. That is a provision of SAFETEA-
LU. We have about 50 who have actually opted to do that. But, 
for a variety of reasons, the remaining tribes currently 
continue to work through BIA to administer their funds.

                      TRIBAL CAPACITY DEVELOPMENT

    Mr. Latham. Do you have any idea what the reason is?
    Mr. Nadeau. I think it is that capacity issue. Over the 
last 5 years, we have seen--since SAFETEA-LU was enacted--the 
ability for tribes to essentially have direct agreements with 
the Federal Highway Administration. We have gone from working 
directly with three tribes to 50, and we are expected to be at 
about 100 tribes by the end of this fiscal year.
    It is really the advent of capacity development. What we 
are obligated to do under the statute is to ensure, in order to 
enter into a direct agreement, that the capacity exists to 
properly administer the funds. So, as those agreements evolve, 
we estimate that we will be working directly with about 100 
tribes by the end the fiscal year.
    So it really comes down to their ability to administer the 
funds under the Federal regulation, and the tribes capacity as 
a group to do that is growing.
    Mr. Latham. So some people can write grant applications for 
projects and some can't.
    Mr. Nadeau. Some tribes have the staff capability, the 
training,literally the administrative capacity to administer a 
Federal program directly without working through BIA.

                 TRIBAL STIMULUS FUNDING--JOB CREATION

    Mr. Latham. Okay.
    In your testimony, you talk about a TIGER grant going to 
Pine Ridge Reservation in South Dakota. Because the stimulus 
was sold as a jobs bill, so naturally I am a little skeptical 
that a large grant goes to South Dakota that has the third-
lowest unemployment rate of 4.8 percent. Nebraska, right across 
the border there, has 4.6 percent. North Dakota, to the north, 
is the lowest in the Nation at 4.2 percent. But on the 
reservation, unemployment is about 80 to 85 percent.
    Is it your intention that the work being done with the 
TIGER grants will be done by residents of the reservation 
itself?
    Mr. Nadeau. It is highly desirable. And I am going to ask 
John to correct me if I am wrong. But, under the regular 
Federal aid program, local hiring preferences are prohibited. 
In the case of the IRR program, I believe there is some 
flexibility to ensure that funds expended in that program can 
develop an agreement whereby a lot of the work will be done by 
the tribal members.
    Mr. Baxter. This is a project that was developed with the 
State and tribe working together. So, most likely, they would 
be looking toward opportunities of having Native Americans work 
on those projects as part of the delivery.
    As you mentioned, Pine Ridge it is a very high unemployment 
area, and those counties have extremely high unemployment.
    Mr. Latham. But there is no assurance that those are the 
people who--85 percent unemployment--that those are the people 
who are going to be hired to do the project?
    Mr. Baxter. There is no assurance, but there are programs 
to help support that capability and provide training for 
certain job classifications, for roadway work, for example. So 
they would be working in cooperation to assure that that 
training is provided.
    Mr. Latham. Do you have any idea how much of the highway 
formula funding is actually done by Native American-owned firms 
or Native American employees?
    Mr. Baxter. I do not have that number.
    Mr. Latham. Okay.
    Mr. Keel, I welcome you. And I see you are Vice Governor of 
Chickasaw?
    Mr. Keel. Yes, sir, Lieutenant Governor of the Chickasaw 
Nation.
    Mr. Latham. I see. Excuse me. I have Chickasaw County in my 
district.
    Mr. Keel. All right.
    Mr. Latham. So come and visit. We will have a celebration 
of some kind.
    Mr. Keel. I will do that.

                  PROVIDING TRIBES WITH MORE CAPACITY

    Mr. Latham. And thank you for your service in the military.
    But do you have anything to--a comment? Why don't you have 
capacity? Why don't all the tribes have capacity?
    If all the tribes don't, does your organization have any 
kind of a clearinghouse or home of expertise to be able to help 
all these tribes so that they can all compete for these funds, 
rather than have to go through the Bureau of Indian Affairs?
    Mr. Keel. Our staff work with different tribal governments 
to help, not necessarily provide direct technical assistance, 
but at least get them in contact with the appropriate people to 
do the training.
    One thing that I would mention on the capacity, tribal 
capacity: There are tribes that have demonstrated that they 
have the capacity to operate these funds, these programs, and 
conduct the right types of arrangements regarding 
transportation and a whole range of program activity.
    The question that was asked about the assurance, whether 
tribal members would be able to do the work, I seriously doubt 
that that will happen, particularly because, in most of those 
areas, there are not construction companies that are tribally 
owned to perform that type of work.
    And so, in many areas, the tribes have to work with the 
State governments, the State departments of transportation in 
order to get those types of services to reach their 
reservations, and sometimes that is very difficult. You know, 
we would like to say that all tribes have a great working 
relationship with the State governments, but, in fact, that is 
not the case. Sometimes it is very tenuous, and it is very 
difficult to get agreement or cooperation with those programs.
    Mr. Latham. What you are saying is that we are going to be 
giving money to a project in a State with 4.8 percent 
unemployment and it is not going to employ any of the people on 
the reservation, where unemployment is 80 to 85 percent. So 
what you are doing is you are putting all this money into a 
State and into an economy that doesn't have unemployment 
problems and ignoring the tremendous need that is on the 
reservation itself.
    Mr. Keel. I have spoken with Assistant Secretary Larry Echo 
Hawk from the Department of Interior, the Assistant Secretary 
for Indian Affairs, about this particular dilemma that we are 
in with Indian reservation roads and how they operate that 
program and whether or not it is efficient. And we are looking 
at possibly coming up with some solutions and recommendations 
on how we can better get a handle on how it is managed. In 
fact, it has proven not to be a veryefficient program through 
the Bureau of Indian Affairs in the past, but I think that we can--we 
are looking at ways to improve it.
    Mr. Latham. Would you indulge me for one more question, Mr. 
Chairman?
    Mr. Olver. Surely.

                TRIBAL CONSTRUCTION BUSINESS DEVELOPMENT

    Mr. Latham. Can you give me any reason why someone on the 
reservation would not start their own--I mean, you have a major 
amount of money here. Is there some reason that someone 
wouldn't start a construction business or paving business on 
the reservation, if you know that you have all these people? Is 
there leadership that isn't saying, ``Let's do this''?
    Mr. Keel. I don't want to speak for every tribal government 
because, obviously, there are tribes that have ordinances or 
leadership that has looked at this problem or these types of 
activities. Some tribes are simply at a point where they don't 
have the resources to provide this.
    I am sure that--I know that there are individual Indian 
people who live on those reservations who would love to get 
into this type of business, to begin a business. Quite simply, 
they don't have the resources to get a start-up business going. 
It is very expensive.
    Mr. Keel. I know that we have worked with the Small 
Business Administration in terms of providing loans. The Bureau 
of Indian Affairs has some loan guarantee programs that have 
assisted. But, quite frankly, I couldn't answer that question 
for those Indian tribes.
    Mr. Latham. Okay.
    Thank you, Mr. Chairman.

          PERCENTAGE OF GRANT FUNDING FOR HOUSING CONSTRUCTION

    Mr. Olver. Okay. Let's try to stay somewhere close to where 
Mr. Latham has been here. I think the issue of capacity is 
absolutely critical. I wanted to ask, for the large IHBG, the 
big block grant, how much of that money is used for actual 
construction, the development of housing and construction of 
housing? Can you give me a sense of what the number might be?
    Ms. Henriquez. According to our records, about 73 percent, 
or 73 cents on the dollar, goes for hard costs, so the actual 
construction.
    Mr. Olver. Hard costs?
    Ms. Henriquez. Right.
    Mr. Olver. Seventy-three percent? Seventy percent? My 
goodness, we are about to have another whole discrepancy. The 
table that I have shows a much smaller identifiable--what is 
the----
    Ms. Henriquez. What chart are you looking at, Mr. Chairman?
    Mr. Olver. We are looking at a table that looks like this, 
talking about the 2009 IHBG.
    Ms. Henriquez. Yep, I have it.
    Mr. Olver. Okay. You have that?
    Ms. Henriquez. I do.
    Mr. Olver. Well, can you tell me what parts of that you 
consider to be hard costs?
    Ms. Henriquez. If you look at line items 1A through 2B, so 
activities----
    Mr. Olver. So you are including 1B, operating, as a hard 
cost? When I thought of hard costs of construction----
    Ms. Henriquez. It is 1A. I am sorry. It is 1A, which is the 
modernization.
    Mr. Olver. And 2 and 2B.
    Ms. Henriquez. And it is 2A--well, construction under 
rental, construction under homeownership----
    Mr. Olver. Right. Okay. Everything below that is soft?
    Ms. Henriquez [continuing]. And acquisition and 
rehabilitation in both rental and homeownership, as well.
    Mr. Olver. Yeah. Okay. Everything under the 2s.
    Ms. Henriquez. Right.
    Mr. Olver. But that comes to only $300 million, slightly 
less than $300 million, of the $640 million. The rest of it, 
the operating and the things at the bottom look--there must be 
some of those--I had heard a general estimate that it was 
roughly 50-50. You started suggesting it was close to 70. We 
are having a data discrepancy that we shouldn't be going 
through here in this kind of a way.
    Ms. Henriquez. I agree.
    Mr. Olver. We are going to have to have some discussion.

                      TRIBAL CAPACITY FOR HOUSING

    But I wanted to go through that in part to get back to the 
capacity issue, because--and it goes to your comment, Mr. Keel, 
of, under the President's budget, you are being hit with a 17 
percent loss or something of that order.
    In the case of the highway program, which is a $450 million 
program--and I think the request remains 450--were given, under 
ARRA moneys, a little over $300 million, $310 million, which is 
about 70 percent of a year's program. And nothing was taken out 
for the request for the 2011 year.
    In the case of the housing program, which has been 650 or 
thereabouts year by year, that one we added a new 510, which is 
about 75 or 75 to 80 percent of last year's program, in the 
ARRA bill. But now your program under housing is being proposed 
for a number that is cut by 17 percent from whatever the yearly 
program had been for the given year.
    I don't understand. I do not, from any of the testimony 
that I hear, I do not see any reason to think that health care 
or housing or infrastructure or law enforcement, detention 
facilities, or any of those, I do not see any reason to think 
that housing is either less needy--none of your testimony 
suggests that--nor have you done any poorer job of getting the 
money out. It has been suggested that somehow the housing money 
does not get out. But my impression is that the housing money 
has been delivered by formula to the places where it is needed.
    Then, if it is not happening as quickly, then it is a 
capacity issue. And I would like to try to pinpoint who it is 
that is responsible for the capacity. We have tribal colleges 
in various places. Several of them are technical colleges. 
There should be a way of getting some capacity there.
    I think there ought to be some responsibility on the part 
of the highway department and of HUD to build the capacity if 
it is not there. Because, clearly, if you have places that have 
needs and have the capacity and they get them going, they are 
doing well. And we like to see that, we want to see that in 
this kind of situation where the needs are so demonstrably 
great. And if they are not able to do it, then what are the 
barriers to being able to do it, and how do we get at those 
barriers?
    Now, if you folks want to comment to that, we have some 
votes coming up here fairly soon. Give me a minute and a half 
or so from each side, if you want to comment on: What is the 
responsibility? Where should we be looking for building the 
capacity? How do we do that? It must be a capacity problem.
    Ms. Henriquez. Mr. Chairman, I am going to ask Mr. Boyd if 
he would talk about that, both----
    Mr. Olver. One minute and a half for each side, and then I 
am going to go to my ranking member.
    Mr. Boyd. Well, Mr. Chairman, we clearly recognize the 
issues of capacity, but it is going to vary from tribe to 
tribe. As we mentioned, we have 564 federally recognized tribes 
around the country. And what we have been doing and one way 
that we have been approaching the capacity issue is, one, we do 
constant monitoring, working with our housing authorities 
throughout the country. And, as we begin to see any kind of 
deficiency within a respective tribal housing authority, then 
we have some funds that we can allocate directly towards that 
particular issue.
    Another thing that we have been trying to do over the past 
several years now is to help build the capacity within tribal 
housing authorities to really begin to leverage a lot of their 
funds with other Federal agencies, with State housing finance 
agencies. Until recently, tax credits--the learning and 
building the capacity to do tax credits in Indian country have 
grown and expanded quite rapidly.
    It is the whole new concept, I think, the financial concept 
within Indian country, in many cases, of learning the ability 
to do this kind of leveraging.
    Mr. Olver. Okay. All right.
    The business of doing housing capacity is very different 
from the capacity that goes on in highway building, I would 
guess. Go ahead. Let me get you your minute and a half.

                TRIBAL CAPACITY FOR HIGHWAY CONSTRUCTION

    Mr. Nadeau. I mentioned in my testimony the Tribal 
Technical Assistance Program Centers. We have seven of them 
around the country. And over the last several years, certainly 
since SAFETEA-LU, the ability to develop the capacity so that 
tribes can enter into direct agreements with the Federal 
Highway Administration will provide a much more direct delivery 
system. I think this will help develop people with the 
technical ability to administer the program that are much more 
grounded in the community and understand the community's needs. 
It also helps facilitate the connection between transportation 
investment, land use, and economic development. It brings all 
those disciplines together.
    So we have been engaged in a very aggressive way, working 
in cooperation with the Bureau of Indian Affairs and the 
tribes, to help develop that capacity. In the Federal aid 
program, for example, the way the system works is very simple. 
We have----
    Mr. Olver. You are filibustering now.
    Mr. Nadeau. Oh, I am sorry. I thought that was about a 
minute and a half.
    Mr. Olver. You are beyond the minute and a half here.
    Mr. Nadeau. I am sorry.
    Mr. Olver. Let's go to the minute and a half over here.
    Mr. Keel. Mr. Chairman, the obvious question about capacity 
building has already been stated. There are some tribes that 
have the capacity; there are some that do not.
    At NCAI, we strive to help those tribes who want to receive 
technical assistance to get that, but I would ask for a 
commitment from these administrations, from both HUD and from 
Federal Highway Administration, to work with us. And we would 
be happy to work with them to come up with a program that we 
could export to the tribes to make sure that they are capable 
of----
    Mr. Olver. Do you think, if you were part of that, that the 
export of such a thing to the tribes would be easier?
    Mr. Keel. I believe that we could help facilitate the 
exportation of that to the tribes.
    Mr. Olver. All right. Well, that might be the case.
    I have data here, in the case of the housing program, I 
have data that shows--well, my ranking member, your chance. I 
would go on.
    Mr. Latham. Go ahead, continue.
    Mr. Olver. I have data here on the housing side which is 18 
pages of data as to who got however much money out of the 
formula moneys that were distributed. And the formula moneys 
were supposedly roughly half and half, half soft and half hard. 
And you would expect the hard moneys would take longer to get 
out and make move the soft moneys, which are services and such, 
those could be gotten out fairly quickly.
    But there is a very large number of the recognized tribes 
who are getting under $100,000 as a distribution to the 
village, the tribe, the band, whatever it happens to be. There 
isn't even enough for a single unit there. Many of them don't, 
apparently, have housing authorities.
    I don't know what happens to the money that would be 
distributed to those that do not have a housing authority. What 
does happen under those circumstances? Does it just not get 
expended?
    Mr. Boyd. Well, Mr. Chairman, a number of these small 
tribes work under regional housing authorities. Alaska is a 
case in point where there are----
    Mr. Olver. So there is a regionalization that supposedly 
has the capacity to draw those together.
    Mr. Boyd. Correct.
    Mr. Olver. But the total amount for a particular village or 
band is so small that it can't do more than the rehabilitation, 
maybe, of a unit or two, or some services.
    Mr. Boyd. Right. Well, each one of those, under the 
umbrella, then, what they do--it is sort of an economy of scale 
then. What they do is they collectively take numerous tribal 
allocations, and then the regional housing authority, through 
their administrative capacity, then provides housing in that 
particular region.
    Mr. Olver. Okay. That is certainly part of the reason.
    In the case of the IRR, the Indian road program, there are 
a good many of the recognized tribes that don't have actually a 
reservation, so they wouldn't be getting anything. The number 
that is on these lists that I have of what allocation went for 
those, the number of total that got money is much smaller than 
in the case of housing, maybe through the mechanism of the 
regionalization--especially, there are so many that come from 
Alaska. This is a situation where it is nearly hopeless to try 
to understand all of the diversity and the complexity of how 
one gets these things done.
    Oh, we have to go for votes. We must go for votes. And by 
the time votes are over, then we have to close the hearing 
anyway.
    Oh, excuse me. Okay. We can continue for 5 minutes in this 
discussion.
    I am not sure, we are getting to the point where I am about 
to say that we really have to get you folks around a table with 
our staff and talk through these carefully without any--I am 
not trying to be argumentative; I am just trying to understand 
what the problems are.
    And I think the capacity issue is utterly critical in this, 
but we have to figure out what is the responsibility that you 
two agencies, who have a responsibility for a sizeable amount 
of money, what is your responsibility in helping to build the 
capacity. And are there legal reasons that you can't do so? The 
contracting stuff and so forth must be difficult, I can imagine 
that. But we have to be able to figure out how to deal with, or 
else we could put money and more money and so forth and we 
wouldn't be--as my ranking member said, I am not sure what we 
are getting for it in the process.
    I am absolutely convinced that the needs are enormous. In 
fact, Mr. Keel, you made the comment in your testimony about 
200,000 units. We have a discrepancy there. We have to figure 
out why that one is. Because we supposedly have 1.5 million or 
2 million living on reservations. They can't be living in 
115,000 units of housing, they can't be, unless those families 
are up in the 10 or 12--and maybe they are.
    Mr. Keel. In some places, they are, Mr. Chairman.
    Mr. Olver. Oh, goodness.
    Mr. Latham.

                TRIBAL ROADS DEVELOPMENT--CLASSIFICATION

    Mr. Latham. On the Indian Reservation Roads Program, I am 
just curious: In 2008, it identified 100,000 miles of roads, 
but since then the inventory has grown to 125,000 miles. Did we 
expand the reservation? I mean, where did the extra 25,000 
miles come from?
    Mr. Nadeau. It is really connected to the growth of that 
capacity. As tribes become more familiar with the process of 
road classification, as the inventory is updated on an ongoing 
basis----
    Mr. Latham. So the roads were there all the time; we just 
didn't know about it.
    Mr. Nadeau. Correct. It is a function of how they are 
classified and how they are considered within the inventory. 
And it is a combination of really an evolving capability for 
certain tribes to simply do a better job, and to understand the 
process of classification. And that is adding inventory, 
literally.
    Mr. Latham. Lieutenant Governor Keel, BIA probably has the 
biggest role with working with the tribes. But we also have the 
opportunity, or you do, to work directly with HUD and DOT.
    I am just wondering, which one is easier to work with? Now, 
you are going to make an enemy and a friend someplace. Why 
would you go one way or another?
    Mr. Keel. Historically, the tribal governments have hada 
difficult time working with all Federal agencies. So----
    Mr. Latham. That is a good answer. That is not just tribes 
either.
    Mr. Keel. Not just tribes. And it stems from--there are a 
lot of historic reasons for that, and there are a lot of 
reasons why. There has developed over the years, for the past 
150 or 200 years, of this adversarial relationship that tribes 
have experienced with the Federal agencies because of a lack of 
funding, a lack of resources for many reasons.
    We are getting a lot better now. The tribes are advancing 
and progressing in how they do business. They are developing 
capacity in many areas.
    As far as working with a specific agency, I don't know that 
one is any easier to work with than the other. I do know that 
we have a good working relationship now with all of our Federal 
agencies, in most cases.
    There are instances where tribal leaders and Federal 
agents, Federal officials will disagree. We are getting better 
at how we handle those disagreements and how we move and work 
through those.
    I will just leave it at that.
    Mr. Latham. You mentioned about being underfunded or 
whatever. Do you know how many billions of dollars or hundreds 
of millions of dollars are sitting at BIA that are unexpended 
over the years?
    Mr. Keel. I do not.
    Mr. Latham. Do you have any idea, anything close?
    Mr. Keel. I would say that there is probably a significant 
amount of funding----
    Mr. Latham. At least hundreds of millions of dollars.
    Mr. Keel [continuing]. Yes--that do not reach their 
intended targets.
    Mr. Latham. That could be part of your frustration.
    Thank you, Mr. Chairman.
    Mr. Olver. I am going to finish very quickly.
    I think, if you look at the bridge program, the question of 
what I described as an instant thing that struck me, that the 
number of bridges per mile was so discrepant between on 
reservation versus the things that connect to the rest of the 
world. The fact that the dollars into the bridge program has 
remained constant over a period of time, that is disastrous. 
The total amount going into the bridge program, I am convinced, 
without yet having fully looked at the exact data on that, is 
much less than it needs to be.
    I am allowing my passion to get ahead of my head.
    In the case of the housing, if we have families living 10 
and 12 in a housing unit that doesn't have kitchens and does 
not have plumbing and may not have good water and we are not 
able to get the money out, then shame on us, basically, for 
allowing that to go on.
    And I want to bring you, either one or two together, in to 
discuss both the data and what are possible solutions at other 
times. And, truly, I am not trying to be confrontational. I 
think you have done a great job of getting the money out there. 
It is out to where you think it ought to be used. But there we 
are.
    We are going to adjourn this hearing because Mr. Keel needs 
to make an airplane. And, by the time these votes get done, we 
can no longer be in a hearing, we must be done, because of 
other actions on the floor.
    So thank you very much for being here today, and we will 
talk with all of you again.
    Thank you very much.

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                                          Thursday, April 16, 2010.

                            MEMBER REQUESTS

                               WITNESSES

HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 
    OREGON
HON. JACKIE SPEIER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 
    CALIFORNIA
HON. HENRY C. ``HANK'' JOHNSON, JR., A REPRESENTATIVE IN CONGRESS FROM 
    THE STATE OF GEORGIA
HON. DIANE E. WATSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 
    CALIFORNIA
HON. LAURA RICHARDSON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 
    CALIFORNIA
HON. ELIOT ENGEL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 
    YORK
HON. JOHN GARAMENDI, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF 
    CALIFORNIA

                    Chairman Olver's Opening Remarks

    Mr. Olver. The hearing will come to order. It is no longer 
morning. We were supposed to be here this morning, but here we 
are. We are here to take testimony from Members of the House on 
issues related to the Transportation, Housing and Urban 
Development Subcommittee's jurisdiction. The subcommittee held 
a similar hearing last year, and it provided a good opportunity 
for our members to hear firsthand about the specific 
transportation and housing challenges Members are facing at 
home.
    Our responsibility is to craft a bill that meets important 
national goals as well as to respond to the needs of the 
communities we represent. We have an equal responsibility to 
provide careful oversight of Federal resources and evaluate 
project these questions to make sure they provide a good return 
to the taxpayer.
    I will recognize the ranking member, Mr. Latham, for any 
remarks that he wishes to make at this point.

                Ranking Member Latham's Opening Remarks

    Mr. Latham. I look forward to the testimony. And just for 
your information, I have got some appointments. So I may be 
stepping in and out here. But I will leave it in your trusted 
hands here to make sure the testimony is well received. Thank 
you.
    Mr. Olver. Okay. We will receive it respectfully.
    And Ms. Kilpatrick, you had sort of a unanimous consent 
request here. Would you make that?

                    Ms. Kilpatrick's Opening Remarks

    Ms. Kilpatrick. Thank you, Mr. Chairman.
    I have a unanimous consent request from Congresswoman Jan 
Schakowsky and Doris Matsui, who co-chair our Democratic Senior 
Task Force, who felt that they had missed the deadline. And I 
understand that they didn't from staff. They want to put into 
the record--and I have one both for you and Mr. Latham--a copy 
of their letter today dated April 15th, to ask that we reject 
the proposed cuts to the Department of Housing and Urban 
Development, Section 202, Senior Elderly Housing Program, and 
to provide some $800 million-plus for it.
    So, without objection, I would like to submit it for the 
record.
    Mr. Olver. Without objection, it will be submitted into the 
record.
    [The information follows:]

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    Ms. Kilpatrick. Thank you, sir.
    Mr. Olver. Thank you.
    Mr. Blumenauer of Oregon, Member from Oregon. We will take 
5 minutes of testimony from you, and your written testimony 
will be printed in the record. It is your floor.

                        Mr. Blumenauer's Remarks

    Mr. Blumenauer. Thank you very much, Mr. Chairman.
    First and foremost, I wanted to just come and extend my 
deep appreciation for the work the subcommittee has done. As 
you know, much of my work has been in what we call livable 
communities, how we make communities work better in housing, 
transportation, land use, so that families are safer, healthier 
and more economically secure.
    This subcommittee has really been the focus of pulling 
together, I am so excited, in terms of the linkage we have for 
the first time between housing and transportation. I hope there 
is some sense of satisfaction that the administration seems to 
be embracing work that you have pioneered and, in fact, moving 
it in directions that I find exciting.
    First and foremost, I wanted to add my voice to the support 
for those requests, often, that have, as I say, already have 
been pioneered. I was pleased to see President Obama request in 
his 2011 budget hundreds of millions of dollars in new funding 
for livable communities initiatives between HUD and the 
Department of Transportation. And I would strongly hope that 
you could meet that request and, if possible, even increase it.
    This funding will help communities implement plans that you 
have taken testimony on, looked at, transit-oriented 
development; expanding affordable housing; location-efficient 
housing; alternative and intermodal transportation networks; 
and creating safe, walkable neighborhoods. These are areas that 
historically the Federal Government has underinvested in and 
provide huge benefits in everything from improving the 
environment, economic development, stretching transportation 
dollars and adding mobility.
    I have a more extensive statement that I have submitted for 
the record, but I would touch briefly, if I could, on three 
projects that are in that spirit that I am requesting 
specifically in my community.
    There is one that would seek a small portion of money to 
reconstruct a bridge in my community, the Sellwood Bridge, that 
is a vital link. It is the busiest two-lane bridge in Oregon. 
It is something I have been concerned about since I was a local 
official responsible for the bridge. It is narrow, substandard, 
no sidewalks, no bike lanes. It has been load-limited, no bus 
or truck traffic, and it is in shaky repair. This will provide 
vital funding for a larger package, ultimately a third of it, 
of a billion dollars to modernize and replace it.
    I have a request for $2 million for the St. John's rail 
Relocation Project, providing construction and engineering to 
shift rail lines in an established residential neighborhood 
near our port's major freight entry way. It will prevent 
conflicts between rail traffic and community activity, 
relocating a Union Pacific line about 13 feet to the west, 
allowing for physical separation of rail, motor vehicle, 
pedestrian, and bicycle traffic. Again, it will have 
substantial economic benefits and improve the quality of life.
    Finally, $2.43 million request for improvements in the City 
of Gresham. It will widen current travel lanes by an additional 
20 feet to a full four-lane traffic section, upgraded curbs, 
sidewalks, bike lanes, drainage facilities, and will construct 
improvements for approximately 19 acres of vacant industrial 
land. It ties pieces together for multiple benefits again.
    Finally, I am hopeful that the committee, as it is looking, 
will find ways to support efforts for active transportation 
network projects. I have one that would make a difference in my 
community, but those are also opportunities around the country 
where there is no dedicated source of funding for active 
transportation projects, so that even though they are easy to 
do, they can be done quickly, virtually none of them are ever, 
quote, shovel ready, and as a result, they get to the end of 
the queue.
    This is an opportunity when we are concerned about morbidly 
obese, 400-pound sixth graders, when are concerned about air 
quality, when we are concerned about connectivity; this is an 
opportunity to really stretch these resources. And I hope that 
there will be opportunities for regional, active transportation 
demonstration projects around the country that will harness 
local resources and be able to make a big difference in the 
livability of communities from coast to coast.
    I appreciate your courtesy. And I really appreciate your 
work and am looking forward to supporting your efforts in the 
course of what I know what will be a difficult budget year.
    [The information follows:]

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    Mr. Olver. Well, thank you very much, Earl.
    I, too, would like to return the compliment. We appreciate 
very much the leadership that you provided in this livability, 
sustainability area over all the years you have been in the 
Congress. So anything that can be done now, you laid the ground 
work for that in the earlier stages.
    Let me just ask you one quickie. The Sellwood Bridge, that 
is one that has been funded previously, hasn't it?
    Mr. Blumenauer. You were kind enough to help us with some--
--
    Mr. Olver. So this is a continuation of the project?
    Mr. Blumenauer. Yes, sir. And I will say that the modest 
amount of money that you were able to put in didn't maybe look 
like a lot for the third of a billion dollar project.
    Mr. Olver. Third of a billion?
    Mr. Blumenauer. It provided--yes, sir. It provided a 
critical jump start to that process. And we found people come 
forward with a very substantial local share that has put 
forward--they put together $100 million local initiative. They 
are getting State money, Federal money, and it was this 
committee that really helped us provide a catalyst for people 
to find out that they could do a lot more than they thought 
they could. And this will help us sort of get across the finish 
line. I really appreciate it.
    Mr. Olver. Are there other questions?
    Thank you very much.
    Mr. Blumenauer. Thank you.
    Mr. Olver. I have a list here. I am going to go with my 
list. And my list tells me that I am to take Representative 
Speier.

                          MS. SPEIER'S REMARKS

    Ms. Speier. Thank you, Mr. Chairman and Ranking Member 
Latham. I appreciate the time you are giving to all of us to 
make our requests to you today.
    And my apologies to my friend and colleague, Congresswoman 
Watson.
    I just wanted to brief you in a macro sense. The way I have 
run my earmark process has been a totally public process. All 
of the requests have come to me, and then a citizens' oversight 
panel, made up of representatives who are formally elected 
officials, business people, health and educators, participate 
in a process where, over the course of 3 weeks at three 
different meetings, they hear from each of the requesters for 
15 minutes in a public setting. And then they rank them, and 
then they submit them to me. So this has been a very open 
process and one that I really endorse for all of us to look at 
in future efforts.
    I will point out that of all of the requests that you have 
before you, only one has received Federal funding before, and 
that is the Caltrain project. The Shelter Network project is 
remarkable in that it provides not just short-term and 
transitional housing, but it is a program. So at the end of the 
program, they actually are successful in life and employment 
skills, so that many of them go into permanent housing. And 
their request is for $200,000 on that project.
    The request for an Interchange Reconstruction Project at 
Highway 101 and Broadway is one that is critical to the hopes 
of having high-speed rail through that region in the near term. 
That is a $2 million request.
    The Great Highway planning in San Francisco is as a result 
of the December 2009 and January 2010 floods and winter storms 
that have eroded between 30 and 70 feet of bluff along ocean 
beach, creating a great deal of vulnerability for the Lake 
Merced Wastewater Tunnel. Again, that is a $3 million request.
    The fencing request for Caltrain is $500,000. Last year we 
had 19 fatalities on that right-of-way, and 11 of them were 
suicides. So this is really critical to try and stem the number 
of suicides that take place.
    The next request is for a Home Sharing Program. This is 
another unique program in the county where people who have been 
in their homes for long periods of time may need some 
additional help at this point, find someone to share their home 
with. And in so doing, it takes care of people who are homeless 
and also provides reduced housing costs to those who have the 
homes. This particular request for $250,000 will provide a 
means by which they can develop their implementation kit so it 
can be replicated throughout the State of California.
    The next project is for the county hospital and their long-
term care facility that is very outdated. This would support 
the upgrading of their ground floor to bring it to licensing 
standards and also provide 96 additional spaces for long-term 
care individuals. And that is a $1.2 million request.
    The final request that may or may not be in your list. So I 
wanted to point it out. And I do have copies that reflect it. 
It is for a nonprofit called Samaritan House. It would provide 
for the purchase of a replacement van and new truck with a lift 
that would allow them to distribute the donated groceries to 
low-income residents in the county. And that is for $73,000.
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    Mr. Olver. Thank you very much. I am deeply impressed by 
the procedure that you have set up in your district to get 
these. I take it this community procedure covers all of the 
territory from the north to the south, which, I don't know, it 
may only be 25 miles or so, something like that, from one end 
to the other of the district, but with all of that population, 
that is a very--a procedure which I am not sure that we all 
want to have to go through and process. I don't know that 
anybody else does this in quite the same way that you do. But 
it certainly legitimizes the interest on the part of the 
district itself for the items that you have identified.
    Ms. Speier. Mr. Chairman, I would just say that it actually 
makes it easier because you have the benefit of the input from 
a group of 10 or 12 community leaders, and everyone knows about 
it and is comfortable with the process and feels that they have 
a fair chance of being considered. So I actually think it makes 
it easier for us as Members.
    Mr. Olver. Thank you.
    Other questions?
    Thank you very much.
    Number three on my list is Hank Johnson.

                         Mr. Johnson's Remarks

    Mr. Johnson. Thank you, Mr. Chairman and Ranking Member.
    And again, my apologies to my esteemed colleague, 
Representative Watson.
    I want to thank you all for allowing me to come today and 
testify about some important projects that I have requested in 
the Fiscal Year 2011, Transportation, Housing and Urban 
Development and Related Agencies Appropriations bill.
    All of my requests have significant local support from 
mayors and county commissioners and also area residents and 
businesses. And I urge the committee to fund fully all of my 
projects at their requested levels.
    I would like to highlight a few projects today. First, the 
Glenwood Road Pedestrian Safety Improvements Project. Glenwood 
Road is a major thoroughfare running through the Fourth 
Congressional District in part. Pedestrians use this corridor 
to access our MARTA system, which is the Metropolitan Atlanta 
Rapid Transit Authority which runs buses as well as rail. And 
they use that to go shopping, to do their banking, to get to 
work. And it is a crucial corridor. And it has a long and 
serious history of pedestrian accidents. This project would 
upgrade the facilities in the entire corridor, including 
sidewalks, a continuous left turn lane, new traffic signals and 
additional lighting to provide access to the corridor.
    The Fourth District in this part of the Atlanta region is a 
one-time suburban area, but it is now rapidly urbanizing. The 
development pattern has been classic suburban sprawl. And 
during those good times, there was no ordinance in effect that 
would command sidewalks to be laid in. That has been corrected 
during my tenure on the DeKalb County Commission. But we have a 
lot of areas of crucial concern that don't have these 
sidewalks, and the Glenwood corridor is one of them. A 
continuous left-turn lane would be awarded or would be built. 
Also new traffic signals and additional lighting to provide 
safe access to the corridor. And we would be requesting 400--
excuse me--12 million--excuse me--2 million--let me see. I am 
sorry, $1.5 million for that project.
    Second, the MARTA bus facilities and security improvements 
project. MARTA, like many public transportation agencies is 
facing a severe budget cutback and shortfall in fiscal year 
2011. This project would allow MARTA to sustain its bus 
infrastructure and enhance safety of the bus transit system. 
This request would be used for facilities and equipment 
modernization, vehicle rehabilitation and replacement and for 
an onboard bus security camera system that would include up to 
8 digital cameras per bus. This project is a top priority for 
Georgia's largest public transit agency, which serves thousands 
of Georgians daily.
    Third, the Bouldercrest Road Improvements Project for which 
we are requesting $2 million would build additional lanes and 
improve sidewalks and safety in this growing area of southwest 
DeKalb County, Georgia. Making these improvements to this busy 
road would increase economic development opportunities in the 
area.
    Last, but not least, the MARTA I-20 transit corridor 
project, $300,000 was awarded last year for a study. Now we are 
asking for the $4.5 million for this proposed expansion which 
would begin in downtown Atlanta and extend eastward along the 
congested and growing I-20 Interstate Corridor into south 
DeKalb County in the heart of my congressional district. Anyone 
who has been in Atlanta will tell you that access to high-
quality public transportation is a challenge and that this is 
particularly true in this part of south DeKalb County, and that 
is why this project is extremely significant and will improve 
the quality of life for thousands of people who live, work and 
play in this area.
    And I know I am over my time. So I thank you for the 
opportunity to testify today. While I have a few of these 
projects of primary importance, there are a number of others 
that I included in my request. And I hope that you will choose 
to fund these projects as well as the others.
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    Mr. Olver. Thank you very much.
    Let me just ask you. Do you have part of the City of 
Atlanta or not?
    Mr. Johnson. No, I don't.
    Mr. Olver. That is all in Fulton County?
    Mr. Johnson. It is all in the Fifth Congressional District, 
which is represented by John Lewis.
    Mr. Olver. So you do not have any.
    Just for clarity, your second request, the MARTA project, 
what was the value of that? I don't remember in your comment 
that you had given what that is.
    Mr. Johnson. That is $12 million.
    Mr. Olver. $12 million. Okay.
    Mr. Johnson. And I would add also, sir, that Atlanta, 
basically the surrounding counties have become a great 
metropolitan area, urban living if you will, but according to 
suburban growth plan. So we are now, due to lack of forethought 
among our officials, we are having to play catchup and provide 
infrastructure that accommodates that growth pattern.
    Mr. Olver. How many miles of light rail or subways do we 
have in Atlanta, in the Atlanta metro area?
    Mr. Johnson. I think it is 166 miles, if I recall 
correctly. The system needs to be expanded. East of Atlanta is 
the area of least development, as far as MARTA is concerned, 
and of course, Fulton and DeKalb taxpayers, county taxpayers, 
are the only subsidy for operating expenses that goes to MARTA. 
We get no State funding at this time and never have had it. And 
so there has been a lot of growth out on the east side of 
Atlanta.
    So I think we have got elections coming up at the end of 
November, we will be electing a new Governor. And it is hoped 
by many in Georgia that we will be able to have a vision, a 
statewide vision as to our transportation plan. But we know 
that we need to expand MARTA. We know that MARTA, which other 
bus or rapid transit authorities feed into, it is just the hub 
of transportation, and it needs to be more fully utilized and 
supported.
    So we know that State government needs to step up to the 
plate and do some of this. But time for that is during fiscal 
times like we are in right now, things don't look good for that 
State funding coming on board immediately.
    Mr. Olver. Thank you very much. We will try to help.
    Mr. Johnson. Thank you, sir. I appreciate it.
    Mr. Olver. All right.
    Now, we have representative Diane Watson.
    Representative Watson, I think that I have understood that 
this will be probably the last time that you will appear before 
this subcommittee. I think we have had you at each of the times 
that we have held this kind of a Members hearing previously.
    Ms. Watson. I want to thank you----
    Mr. Olver. Thank you for your service.

                          Ms. Watson's Remarks

    Ms. Watson. Thank you, Chairman Olver and Ranking Member 
Latham and my good friend, committee member, Carolyn 
Kilpatrick.
    And thank you for the time allowed to me to testify before 
your subcommittee today concerning my two top priorities for 
fiscal year 2011 appropriations and for the 33rd Congressional 
District. And this is my last time.
    I have submitted before you 15 other requests. And it is my 
last opportunity to support the projects in my district that 
will enhance the quality of transportation. But I won't be 
going away. I will be busy and an activist within my district 
supporting these good projects. And I sincerely hope that 
today's testimony will encourage the subcommittee to fund these 
projects at the requested level.
    The first project request I have submitted is for 
$15,000,800 for the completion of the Crenshaw/LAX Transit 
Corridor Final Environmental Clearance and Preliminary 
Engineering at the behest of the Los Angeles County 
Metropolitan Transportation Authority. We refer to it as MTA. 
Two-thirds of the voters of Los Angeles County voted for 
Measure R in November of 2008, a one-half cent sales tax for 30 
years which specifically approved early construction of the 
Crenshaw/LAX light-rail line. It will include at least 6 new 
stations at last and be the primary passenger rail linking the 
Green Line to the Expo Line now underconstruction.
    By connecting downtown Los Angeles, the Westside and the 
South Bay to the busiest airport in the Western Hemisphere, the 
Crenshaw line will greatly facilitate mobility and provide 
critical economic development opportunities for the 
historically underserved south Los Angeles community through 
which the line will travel. Simultaneously, it will relieve 
traffic congestion and pollution while becoming the spine of 
the rail infrastructure that Measure R funds, and it will build 
to free Los Angeles from auto dependency. Praise the Lord.
    My second project request is for $1,260,000 for the Midtown 
DASH Community Circulator bus expansion project. DASH buses are 
neighborhood circulators providing transportation to essential 
destinations for primarily low-income transit dependent riders, 
disabled persons, students, seniors and commuters, providing, 
too, feeder service to regional metro buses and trains. To 
nontransit users, the project provides clean air and traffic 
congestion relief.
    Midtown DASH buses carry approximately 500,000 riders each 
year. The project seeks to expand the route through the 
purchase of three new buses for the Community DASH Circulator 
services in midtown Los Angeles. This is a critical service for 
local need, while also feeding into the larger regional transit 
system comprised of buses, metro rail and commuter trains.
    Mr. Chairman and Ranking Member and Member Kilpatrick, I 
thank you for this opportunity to testify before the 
subcommittee. And I hope you will give strong consideration to 
my top two projects that I request for fiscal year 2011. And as 
I mentioned, this will be my final session in the House, having 
served in Congress for 10 years. My advocacy for these 
appropriation projects and for no others is, I hope, my legacy 
to the community and constituents I have represented in public 
office since 1978. I ask that you look favorably upon my 
efforts, and I thank you sincerely.
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    Mr. Olver. Thank you very much.
    My only question here is, the project, the Crenshaw/Los 
Angeles Airport Corridor Project, has that been a recipient of 
either TIGER grants or other capital grants, such as regular 
FTA funding, small starts or very small starts? Anything of 
that sort?
    Ms. Watson. This major project that spans a distance of, I 
would say, maybe 15 to 17 miles has been a recipient for many 
grants. We always have our proposals in for whatever is 
available under transportation. It has been a long fight. I got 
involved with it at the end of the 1970s. We have had many 
environmental conditions along the way, and the project has 
been held up for several years until we mitigated the problems 
along the way. But now we have support for all of those 
communities within Los Angeles basin, and we see that we are 
getting closer to be able to finish this project. And I hope I 
can see it within my lifetime. It has been a long time.
    Mr. Olver. Thank you very much.
    Ms. Watson. Thank you.
    I appreciate the opportunity.
    Mr. Olver. Representative Richardson. Today is sort of 
California day.
    Ms. Richardson. That is right. It is. I know you like 
pictures, so here is a few.
    Mr. Olver. I can read them.

                        Ms. Richardson's Remarks

    Ms. Richardson. Last time when I met you, you asked me for 
pictures, so I brought some pictures. Okay.
    Chairman Olver and members of the Appropriation 
Subcommittee on Transportation, Housing and Urban Development 
thank you for convening this witness request day for the full 
year 2011.
    The 37th Congressional District of California, which I am 
proud to represent, embodies the Nation's transportation needs 
with the largest ports in the country, three airports, major 
freight rail lines, and 40 percent of the Nation's goods moving 
along our rails and four major interstate highways.
    As a member of the Transportation and Infrastructure 
Subcommittee of the whole, I advocate on behalf of all Members 
in this House to establish sound transportation and 
infrastructure investments which will make our Nation globally 
competitive and enhance the quality of life in our communities.
    I would like to set forth several recommendations before 
you today. First of all, the President's budget request of a 2 
percent increase of infrastructure funding I believe is very 
deficient. In light of the ``National Surface Transportation 
Policy and Revenue Steady Commission Report,'' which states 
that we must invest at least $225 billion annually for the next 
50 years to upgrade our existing system to a state of good 
repair, I, therefore, urge this committee to increase the 
transportation budget by $12 billion, specifically for bridges, 
highways, roads and rail projects that can put people to work 
and support businesses that build high-quality and long-lasting 
infrastructure.
    My second general recommendation is the consideration of a 
few projects that this committee would consider of national 
significance, in addition to Members, individual Member 
requests. I say that because one such project is the bridge to 
everywhere in my area. I am requesting $2 million to go towards 
the replacement of the Gerald Desmond Bridge.
    The Gerald Desmond Bridge is the de facto trade highway 
gateway to the Nation carrying 10 percent of the entire 
Nation's total goods. The I-710 and the Desmond Bridge is also 
the primary link to three intermodal rail yards.
    However, the bridge is now reduced to wearing a diaper, 
which you can see in the picture that I provided, to catch the 
concrete and debris that falls daily from its underside. It is 
imperative that we replace the most important bridge on our 
Nation's most active goods-movement corridor. This crumbling 
transportation link could not be a more vital piece to our 
economy and our health of our country.
    And I will divert from my comments just for a moment. This 
bridge did not receive TIGER funding. Unfortunately, 
California, with the infusion of the high-speed rail, they 
didn't consider it in this. We are hoping for SAFETEA-LU 
reauthorization. But as a member of that committee, I don't 
know when that will be.
    This bridge, when we originally were considering it, was 
going to cost $600 million; now, due to the delay, is $1.3 
billion. The ports have already allocated money. We are moving 
forward, and we can give you a more detailed break down of 
where the funding would come from. And so this modest request 
to assist us in this process would be helpful.
    In terms of my district's specific needs, and again, I want 
to stress that, for all Members believe all of their projects 
are most important and have regional significance, but clearly, 
no one can debate the fact that the Port of Los Angeles and the 
Port of Long Beach are the largest ports in this Nation and the 
fifth largest in the world. I don't mind being the bearer of 
that, but unfortunately, my district also has needs as well. 
And with your limited funds, I modestly put together a few 
other requests that I would hope you would consider.
    I am requesting $1.5 million to modify the configuration of 
the existing interchange of the Avalon Boulevard at Interstate 
405 Freeway in the City of Carson. The I-405 is one of the 
busiest highways in California and in the country, supporting 
both local traffic and truck traffic 7 days a week now that we 
have PierPASS. Over 500,000 cars and trucks use this 
interchange each day, 500,000. And these modifications would 
dramatically help ease congestion in my community from cars 
backed up trying to get onto the highway and to help improve 
overall traffic safety patterns. I am now on Page 5. The city 
has obligated the vast majority of its funds for this project 
and just needs a relatively small amount, again $1.5 million, 
of Federal funding to get this project started.
    I am also requesting $450,000 to purchase three DASH buses 
that would provide transportation to essential destinations for 
low-income transit-dependent residents, disabled persons, 
students and seniors, as well as commuters in the Watts area. 
In this community, with 21 percent unemployment and thousands 
of seniors, the ability to take one to increase their access 
out of their home, to go to a doctor or to take their child to 
school, is a basic current need that is going unmet.
    So far, all of my comments have referenced transportation 
needs. I have a number of housing and urban development needs 
in my district as well, including a project with the Aquarium 
of the Pacific that serves over 260,000 schoolchildren and 
teachers and a senior transit-orientated housing development 
that would be helpful.
    As I conclude my comments, I would be remiss in failing to 
highlight a few programmatic concerns that I have as well. The 
need for housing and redevelopment assistance is great,and 
thus, it is imperative that we increase the funding for Community 
Development Block Grants. And those of us who serve urban communities 
know how well that money is used. We must increase funding for the 
Neighborhood Stabilization Fund, NSF, above the $4.84 billion requested 
in the President's budget.
    I do not support the President's decision to request a 
reduction in funding for section 202, housing for the elderly 
program, and section 811, housing for persons with disabilities 
program, which funds the new construction of housing of those 
groups. We expect, by 2020, over one-third of our population 
will be over 65, and clearly, we are not ready.
    Finally we have tragically seen several bridge failures 
over the last past several years. And report after report has 
indicated our aging infrastructure needs that must be updated. 
That is why I am requesting that funding programmatically for 
the Federal Highway Administration's Bridge Fund be increased 
to $6.5 billion.
    I urge the committee to invest boldly in a wide array of 
programs to help rebuild our country, provide housing options 
and create jobs in this difficult economic time.
    I thank you, Mr. Chairman and members, for receiving my 
testimony and I yield back the balance of my time.
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    Mr. Olver. Well, thank you.
    I must say that by giving me pictures, you have arrested my 
consideration here at one point.
    And I need to ask a question. On the Avalon Boulevard at 
Interstate 405, you have indicated--the request is for $1.5 
million to modify the configuration of the existing 
interchange. The interchange by itself, for those who can make 
it out, is quite futuristic looking but when I look at it, I 
wonder whether cars in one or two places go off the end of the 
road where it stops or something or get lost completely and 
never return.
    Has the design of the interchange, the modification of the 
interchange already been completed? It looks to me as if this 
interchange reconstruction, would be a multibillion dollar 
project at the very least, wouldn't it? The actual redesign, is 
this money for design, or is this money for construction?
    Ms. Richardson. With all due respect, sir, the actual full 
request was $17 million. But I know we only have a limited 
amount of funds, and I know, from me being a member 
particularly of the committee, unlimited----
    Mr. Olver. Was that the design of it?
    Ms. Richardson. For the full construction, yes, is $17 
million. So out of respect to you, I was only requesting a 
modest amount to help us in that effort.
    What I would further say that you can't see from this 
picture, and I would be happy to give you an aerial one as 
well, what happens is it bottlenecks because of the lack of 
lanes coming into the community. At Avalon is where you have a 
very large mall that has now been completely reconfigured, 
great new business, new restaurants, and now they are going to 
do a whole new one with housing and some other things. So it 
just cannot support the traffic that will be exiting off of 
this interchange.
    Mr. Olver. Okay. Thank you.
    Thank you very, very much.
    Ms. Richardson. Thank you, sir.
    And thank you, Ms. Kilpatrick.
    I respectfully seek some help. And I tried to be modest, as 
I said, in my requests, based upon the amount of funds that we 
have.
    Thank you, sir.
    Ms. Kilpatrick. Can I just say one thing?
    Thank you, Mr. Chairman.
    As a member of the Transportation Committee how proud I am 
of you for how you serve on the Infrastructure Committee with 
Chairwoman Oberstar and the others, and your knowledge of 
transportation. Very few people come in and ask our committee 
based on what they think we have. I like your national 
perspective as it relates to your community as well as the 
specific projects you asked for your district. Very well done.
    Ms. Richardson. Thank you.
    Ms. Kilpatrick. And the pictures did add.
    Ms. Richardson. Thank you. If you don't mind me adding one 
tidbit to tell you how I take my responsibility very seriously, 
I brought out Deputy Secretary Porcari to my area. I took him 
in a helicopter way out past my district to the Colton 
Crossing. And the Colton Crossing got TIGER grant funding of 
$33.4 million. My bridge, I would have loved to have had that.
    So, sometimes, we all know as transportation members, we 
have to do what is right for the community. And people keep 
saying the reauthorization. In the meantime, the bridge is 
crumbling. So I appreciate that, and I consider myself an added 
team member to your team.
    Mr. Olver. This subcommittee would spend every penny we 
could get our hands on for infrastructure, I can assure you, 
and we still wouldn't have anywhere nearly enough.
    Ms. Richardson. That is correct, sir. I agree 100 percent. 
Thank you so much.
    Mr. Olver. Thank you.
    Representative Engel.

                          Mr. Engel's Remarks

    Mr. Engel. Thank you very much. Laura Richardson is a hard 
act to follow. I don't know. Is it is just my luck to be after 
her.
    Thank you, Congressman Olver, Congresswoman Kilpatrick and 
other members of the committee.
    Thank you, first of all, for holding today's hearing and 
for the opportunity to discuss some of my priorities for New 
York 17th District in Fiscal Year 2011, the Transportation, 
Housing, Urban Development Appropriations bill.
    I am really happy to be able to do this face to face. And I 
have been in Congress for 22 years, and rarely have we been 
afforded the opportunity to do this. So I really, really 
appreciate it. I want to thank you.
    We were told to submit a list for the first time to the 
Committee on Appropriations of our top 10 projects; in all of 
the appropriations bills, to come up with a list of 1 to 10. 
And the first project I want to discuss is not only my number 
one project here in this bill, but of all of the projects I 
have submitted for all of the bills, it is number one on my top 
10 list. So I wanted to really express my strong desire to get 
some funding for this project.
    The mayor of the City of Mount Vernon has told me that this 
is their number one priority. Mount Vernon is a city of 70,000 
people, overwhelmingly minority, that really can use 
revitalization funds. And this is the revitalization of 
Memorial Field Stadium in Mount Vernon, New York. It is really 
central to the community.
    And the $3 million in requested funds, although I have been 
around here long enough to take what I can get. I am asking for 
$3 million, but I understand you have many, many pullings and 
tuggings on the money. So I will take what I can get. It would 
allow the city to renovate a local landmark, including building 
a multisport synthetic turf field surface and eight-lane track, 
steeple chase grand stand, seating for 3,900 people, a grassy 
field area and a multipurpose community room. A renovated 
Memorial Field would greatly contribute to the health and 
wellness of the community, as well as providing for economic 
revitalization.
    Built in 1930, Memorial Field is a historic stadium in the 
city of Mount Vernon, a place which older generations hold in 
fond memory. It would be a good use of funds to revitalize the 
stadium so that future generations can enjoy local athletic 
events, fairs, festivals, concerts and other community events. 
And it is hoped that the renovations to the stadium will once 
again attract a Minor League baseball or football team 
providing a much needed economic boost to the area.
    The Memorial Field Stadium Renovation Project is located in 
an area that has experienced consistent economic distress. 
Accordingly, any avenue toward providing economic development 
is really my first priority. When I thought about ways to obtain 
Federal assistance for this project through the appropriations process 
this year, I looked in the past and saw that one of the initiatives 
from the past which was funded included a similar local stadium 
renovation in New Orleans several years ago where HUD Economic 
Development Funds were used. So I patterned this after the New Orleans 
project in which funds from the HUD bill were granted.
    So, as I am sure you are aware, some years back, the EDI 
program had a couple of benchmarks which potential initiatives 
were expected to meet. One was whether or not the project would 
contribute to improving employment numbers in the target area 
and thus contribute to local economic development. The second 
benchmark was whether or not the project would contribute to 
the local tax base, either through the added workers paying 
taxes and/or the assisted project paying or otherwise 
contributing to the local tax base through sales of 
merchandise, for example. In the case of this project, it will 
certainly add to the employment base, and it will expand the 
local tax base as well.
    In the guidance provided to us by the subcommittee, it 
stipulates that EDI funds should, among other criteria, go for 
construction, rehabilitation, and hard cost activities 
associated with public projects. Funds for this project would 
most certainly be used for hard cost activities in the 
rehabilitation process for the stadium.
    The historic architecture of Memorial Field Stadium 
consists of a brick and limestone grandstand building with a 
series of 12 Romanesque arches flanking either side of the main 
entrance. These arches are now crumbling with flaking paint, 
and the main entrance boarded up. It is a sad state of affairs 
that has let this grand stadium, once the pride of the City of 
Mount Vernon, into the wreck it is today.
    So I please urge the subcommittee to fully fund my request 
as best you can, to provide a symbol of wellness and definitive 
economic resurgence to the community. And again, the mayor was 
on bended knee talking to me about his major priority.
    The second project and my second choice I would like to 
request is $200,000 to renovate the Nepperhan Community Center 
located in Yonkers, New York. Funding would allow for 
renovations of the main level of the center, which has served 
the community for more than 68 years. The programs offered at 
the Nepperhan Community Center include assistance to children 
and families, youth sports, tutoring and veteran services, 
among many others designed to provide life skills to people of 
all ages. The community of Yonkers deserves to have a safe and 
modern center for improvement of their residents.
    My third request in order would be $350,000 to Joseph's 
Home, Homes For Heros, to rehabilitate an existing garage 
located on the property of a former vacant Army Reserve Center 
into a community room for use of all veterans in Rockland 
County. It is fitting that we would now use this land to create 
homes and a gathering place for veterans who have risked their 
lives to protect us and are doing so today in Afghanistan and 
Iraq.
    Our next project, number four, is $959,000 for the 
Riverspace Arts Center in Nyack, New York. Funding will be used 
to advance the promotion of community development and the 
building of an arts and educational center in downtown Nyack by 
conducting studies, architectural and design and acquisition 
costs to maintain site control. Restoring the heart of Nyack's 
downtown by building an outstanding arts, entertainment and 
education center will spur the creation of new housing and new 
businesses.
    And lastly, number five for me, is $500,000 for the Haitian 
American Cultural and Social Organization, called HACSO, to 
develop a cultural center for recent immigrants and refugees to 
better deliver social and health related services. I have the 
fourth largest Haitian community in the United States in my 
district, and HACSO has been in existence for over 35 years and 
the first organization specializing in serving Haitian 
immigrants in Rockland County. In the last 5 years, even more 
so since the earthquake in January, the agency has seen a 
tremendous increase in its clientele to include individuals, 
families and businesses utilizing the current and existing 
programs, but bringing in an array of new sets of unmet needs 
that are arising would really be helpful.
    So I would urge the subcommittee again.
    So thank you for listening, for the opportunity to testify 
before you. I appreciate this very, very much, and I look 
forward to working with you and answering any questions you may 
have on my requested projects.
    [The information follows:]

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    Mr. Olver. Thank you very much.
    Let me just ask you, you have quite a bit of the Bronx in 
your district.
    Mr. Engel. I do.
    Mr. Olver. How much is in the Bronx?
    Mr. Engel. Forty-four percent.
    Mr. Olver. Of the population?
    Mr. Engel. Of the population. I know that, because I am 
from the Bronx.
    Mr. Olver. Are you? Okay.
    I note that you have asked for projects in Yonkers and two 
in Rockland County and one in Mount Vernon. And the fourth one 
is, well, I am not sure.
    Mr. Engel. There were two, Mount Vernon and Yonkers are in 
Westchester County. And then three of them are in Rockland 
County, but I guarantee that in the other bills that I have 
submitted to the other subcommittee, there is plenty in there 
for the Bronx. My hometown, born and bred. I was born in Bronx 
Hospital. You can't get more Bronx than me.
    Mr. Olver. What community is the 350,000 which is entitled 
Joseph? What does that mean? What is Joseph? What community is 
that for?
    Mr. Engel. That is in Rockland. That is in Orangetown in 
Rockland County.
    Mr. Olver. Orange--oh, whatever.
    Mr. Engel. When you go over the Tappan Zee Bridge----
    Mr. Olver. I have a little map of your district in front of 
me, and I was just trying to identify where it might be in 
Rockland County from the map.
    Mr. Engel. If you look, the map shows you, when you go 
across the Hudson River from the Westchester part to the 
Rockland part, the 250,000 is right about there, a little bit 
to the south of there.
    Mr. Olver. Thank you very much for bringing these to our 
attention.
    Representative Garamendi.
    Mr. Engel. I was going to say we are not all California, 
had to have an East Coaster to kind of balance it out.

                    Mr. Garamendi's Opening Remarks

    Mr. Garamendi. Mr. Chairman and ranking members, and 
committee members and staff, it is a great pleasure to be here. 
I was listening with great intensity to my fellow Californians.
    Six months ago, I would have been advocating for every one 
of their projects. As a statewide official, it would have been 
my responsibility. Now I am more locally focused.
    I handed you a map. As I go through this, I will point out 
the specific projects. These are projects that were priorities 
in Ellen Tauscher's period of serving the 10th Congressional 
District, and I am picking them up and carrying them forward, 
hopefully to some successful conclusion.
    I will read a little bit and then get off the written 
record. This particular district has about 80 percent of all 
the traffic in and out of the Bay Area, both commute traffic 
and commerce. The 2007 study by the Texas Transportation 
Institute said the Bay Area had the second worst traffic 
conditions in the Nation. Most of those conditions exist in the 
10th District.
    There are, about 61 percent of all the Bay Area highways 
are in poor condition. And of course, it is very expensive, 
costing commuters in the Bay Area about a couple thousand 
dollars a year.
    I wanted to go through each of these projects with you 
because I think they are really important. The first is Travis 
Air Force Base, which is identified as number one. There is one 
main entrance to this extremely important Air Force Base. It is 
one of the largest bases on the West Coast, and it does provide 
logistical support around the world, both for military as well 
as humanitarian purposes. One viable access, the main gate, 
daily traffic jams prevent quick access, and any accident or 
any incident would prevent critical personnel from getting on 
the base.
    The North Gate Project is one that is a highest priority to 
the base and to the surrounding community. This project is 
coordinated with the base, as well as with other traffic 
improvements in the area. It is a $5 million project and 
provides for the street access to the main gate. There will be 
a request for, in the military appropriations, for the on-base 
portion of this project. Right now, one way to get into the 
base; not a good situation. This provides a second way.
    The second project is Highway 4 which is noted as number 
two on your map. This is in Contra Costa County in the city of 
Antioch. It is a heavily used commercial and commute highway 
from the California Delta and the east Contra Costa County into 
the Central Bay Area. The project is coordinated with the Bay 
Area Rapid Transit Districts' extension called eBART into the 
eastern Antioch City area. It expands from four lanes to six 
lanes and provides for the median for theBay Area Rapid Transit 
Districts. This is a major project. It is $40 million. It is a 
continuation of previous projects in the area continuing to extend 
Highway 4 eastward and BART eastward so the two are coordinated.
    The third project is the I-580 corridor improvements. Again 
this is a continuation. This is noted as number three on your 
map there. The I-580 is the interstate link between the Central 
Valley of California and the Bay Area. It is an extremely 
important road, and it is a mess. Daily traffic jams are 
counted in hours, nearly every hour of the day, thus delaying 
both commerce and commuters and running up the cost. This 
project widens the roads, puts in an HOV lane and also what is 
called a HOT lane, which is pay for the opportunity to access 
the HOV, a new way of raising money and paying for these lanes. 
This is a $10 million request.
    The fourth project is in Dixon, noted number four on your 
map in the upper right-hand side of the map. Dixon is a growing 
community. It has the major intercontinental rail line goes 
through the community. That is both for freight and the Capitol 
Corridor Commuter Rail. Trains pass through the community 
dozens of times each day. This is an over-crossing in the 
center of the community, vital for safety and local street and 
transportation improvements. Pedestrians, autos, commercial 
vehicles now await at the busy double tracks when trains are 
coming through, and on occasion, they don't wait, causing a 
serious problem. This is a $2 million project.
    All of these projects come from the local community. All 
are vetted by the local community. All are the priorities, 
transportation priorities, for the local communities whether it 
is Solano County for Dixon and for the Travis Air Force Base; 
for Contra Costa County, Highway 4 improvement; and for Alameda 
County, the I-580 improvement. So the vetting process that I 
used was first, as is consistent and actually I preceded the 
Democratic policy of no private earmarks. Secondly, I said the 
communities have to come up with their priorities. And in the 
case of transportation, they have to be the transportation 
agency's priority, and that is what all of these are.
    I know this is a lot of money, but I also know that the 
communities are in need; the Bay Area and the northern 
California and American economy in some ways require these 
necessary transportation improvements.
    With that, I thank you for your attention to it and would 
certainly appreciate all that the committee can do to assist.
    [The information follows:]

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    Mr. Olver. Thank you very much.
    The 80, that is Interstate 80 I take it.
    Mr. Garamendi. That is correct.
    Mr. Olver. Coming through. I am not sure I, try to clarify 
for me why it is the trains are going down the same corridor, 
the traffic jam that you get into. I must have missed something 
there.
    Mr. Garamendi. Well, what you missed is the rail line on 
the map. The rail line is slightly to the south of Interstate 
80.
    Mr. Olver. Right along side?
    Mr. Garamendi. Just to the east of Dixon. Well, it is 
actually in the Town of Davis, excuse me. To the east of Dixon, 
the rail line crosses from the northern north side of 
Interstate 80 to the south side and then runs----
    Mr. Olver. That is the old Union Pacific line?
    Mr. Garamendi. That is the one. And then, in Dixon, it goes 
through the middle of Dixon, and it then goes through 
Fairfield. There will be requests for improving the train 
stations in the Fairfield area. Those are for another year, but 
this is a very heavily used freight rail line, as well as a 
commuter rail line. The Capitol Corridor begins in Roseville, 
to the east of Sacramento, and then travels all the way down to 
San Jose, a major commuter line, as well as an interstate, 
excuse me, intercontinental rail line. TheFairfield area has 
great transportation needs. They chose as their priority access, the 
second access to the Travis Air Force Base, which is the heart of the 
economy in Solano County.
    Mr. Olver. Well, you really attract our attention, because 
what you have done is to give us as your one, two and three 
priorities, also your one, two and three priorities on your 
overall list for all subcommittees are the same as your one, 
two and three on this list. I wish I could assure you that you 
would get money on all of these for that reason----
    Mr. Garamendi. Well, your awareness----
    Mr. Olver. Or the money is going out in high-speed rail 
grants and TIGER grants and those discretionary things, which 
go competitively, in large numbers of dollars, quite often.
    Mr. Garamendi. Billions to be precise.
    Mr. Olver. Yes, 2 and a half in the case of California, but 
you are paying for it.
    Mr. Garamendi. Well, California stepped up and put together 
a $10 billion bond to pay for what was thought to be about a 
third of the cost of the high-speed rail system and is moving 
aggressively to build that system.
    I will add that, in 1988, when I was in the California 
Senate, Assemblyman Costa then, now Congressman Costa, and I 
authored legislation that established the first effort to build 
the high-speed rail system, legislative effort to build the 
high-speed rail system. Patience is an important part of any 
transportation system as I think all this committee knows.
    Mr. Olver. Indeed. And until you arrived in the Congress, 
Congressman Costa assured me repeatedly that he was the most 
knowledgeable person about high-speed rail in the country, and 
I think that may well be the case.
    Mr. Garamendi. I would not want to contest that.
    Mr. Olver. May well have been the case.
    Mr. Garamendi. Well, I won't parse out the verbs and the 
tense of the verbs with you, but I will say that it has been a 
pleasure working with him on that project and contesting with 
him on certain water projects.
    Mr. Olver. Any other questions?
    Mr. Latham. I just affirm that you are the most 
knowledgeable.
    Mr. Garamendi. How foolish of me not to have said that. 
There are things I need to learn. Thank you for the advice.
    Mr. Olver. Thank you very much for your testimony.
    Mr. Garamendi. Thank you.
    Mr. Olver. Have a good day. That concludes our hearing. 
Thank you very much.

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                               I N D E X

                              ----------                              

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                                                                   Page
Choice Neighborhoods......................................6, 41, 42, 47
Federal Housing Administration............................5, 35, 45, 56
HOME.............................................................    46
Home Equity Conversion Mortgage (HECM)...........................    53
Homeless Prevention and Rapid Rehousing Program..................    48
Homelessness.....................................................     7
HOPE VI..........................................................    41
Incremental Vouchers for the Homeless............................    50
Low-Income Housing Tax Credit....................................    35
Making Home Affordable Act.......................................    43
Mixed Housing and Private Capital................................    49
Opening Remarks, Chairman John W. Olver..........................     1
Opening Remarks, Hon. Shaun Donovan, Secretary of HUD............     4
Opening Remarks, Ranking Member Tom Latham.......................     3
Policy, Research and Technology..................................    55
Public Housing Capital Fund......................................    51
Recovery Act.....................................................    37
Sections 202/811.................................................    33
Self-help Homeownership Opportunity Program (SHOP)...............    46
Stabilizing Housing Market.......................................    40
Transformation Initiative........................................     7
Transforming Rental Assistance................................... 5, 32
Veteran's Homelessness...........................................    52
Written Statement, Hon. Shaun Donovan, Secretary of HUD..........     8

                       SUSTAINABILITY IN PRACTICE

Affordable Housing...............................................   318
Airport Sustainability...........................................   321
Congressionally Directed Spending................................   329
Cradle-to-Cradle Building........................................   315
DOT/HUD Partnership..............................................   326
Highway Trust Fund........................................316, 319, 322
LEED.............................................................   315
Opening Remarks, Chairman John W. Olver..........................   243
Opening Remarks, Hon. Steven LaTourette..........................   244
Opening Remarks, Mr. Fred Hansen, General Manager--TriMet........   257
Opening Remarks, Mr. Tom Darden, Executive Director--Make it 
  Right..........................................................   286
Opening Remarks, Mr. William McDonough, Founder--William 
  McDonough + Partners...........................................   301
Opening Remarks, Ms. Rosemarie Andolino, Commissioner--Chicago 
  Department of Aviation.........................................   245
Rebuilding the Lower Ninth Ward..................................   317
Sustainable Building Template....................................   327
Sustainable Communities..........................................   325
Written Statement, Mr. Fred Hansen, General Manager--TriMet......   260
Written Statement, Mr. Tom Darden, Executive Director--Make it 
  Right..........................................................   289
Written Statement, Mr. William McDonough, Founder--William 
  McDonough+ Partners............................................   304
Written Statement, Ms. Rosemarie Andolino, Commissioner--Chicago 
  Department of Aviation.........................................   248

               SUSTAINABILITY AND LIVABILITY INITIATIVES

Capacity Building................................................   372
Capital Investment...............................................   373
Federal Highway Trust Fund................................359, 365, 372
HUD Partnerships.................................................   370
HUD Policy, Development and Research.............................   371
Livability Investment............................................   368
Mortgage Interest Payments.......................................   365
Opening Remarks, Chairman John W. Olver..........................   331
Opening Remarks, Hon. Ron Sims, Deputy Secretary of HUD..........   333
Opening Remarks, Hon. Roy Kienitz, Under Secretary for Policy, 
  Department of Transportation...................................   347
Opening Remarks, Ranking Member Tom Latham.......................   331
Partner With Small Communities and Cities........................   360
Reauthorization..................................................   365
Sustainability Principles........................................   357
Sustainable Community--Dubuque, Iowa.............................   358
Sustainable Communities..........................................   373
TIGER Program..................................................362, 367
Written Statement, Hon. Ron Sims, Deputy Secretary of HUD........   336
Written Statement, Hon. Roy Kienitz, Under Secretary for Policy, 
  Department of Transportation...................................   350

         FEDERAL HOUSING ADMINISTRATION FISCAL YEAR 2011 BUDGET

CBO's Estimates..................................................   441
Credit Rating....................................................   426
FHA..............................................................   412
FHA Downpayment Requirements.....................................   419
FHA Financing for Nursing Facilities/Hospitals...................   434
FHA Mortgage Insurance Premiums..................................   392
FHA Mortgage Modification Programs...............................   391
FHA's Recovery Rate..............................................   431
FHA Refinance Policy.............................................   414
FHA Reserves.....................................................   439
FHA Staffing Need................................................   437
FICO Scores......................................................   392
Flood Maps.......................................................   434
HAMP Program...................................................417, 424
HECM.............................................................   429
HOPE for Homeowners/HAMP.........................................   413
Lender Enforcement.............................................392, 428
Minority-Purchased FHA Loans.....................................   417
Nursing Home Backlog.............................................   435
Opening Remarks, Chairman John W. Olver..........................   389
Opening Remarks, Mr. David Stevens, FHA Commissioner.............   391
Opening Remarks, Ranking Member Tom Latham.......................   390
Private Sector Reverse Mortgages.................................   431
Risks to FHA's Portfolio.........................................   438
Second Mortgages...............................................415, 422
Seller Concessions...............................................   392
Strategic Foreclosures...........................................   422
TARP Funds.......................................................   432
Written Statement, Mr. David Stevens, FHA Commissioner...........   394

     HOUSING AND TRANSPORTATION CHALLENGES WITHIN NATIVE AMERICAN 
                              COMMUNITIES

Data Discrepancies...............................................   498
Direct Funding to Tribes.........................................   500
Highway Stimulus Funding Distribution............................   499
Indian Reservation Housing.......................................   498
National Congress of American Indians............................   497
Opening Remarks, Chairman John W. Olver..........................   453
Opening Remarks, Mr. Gregory Nadeau, Deputy Administrator--
  Federal Highway Administration.................................   474
Opening Remarks, Mr. Jefferson Keel, President--National Congress 
  of the American Indians........................................   488
Opening Remarks, Ms. Sandra Henriquez, Assistant Secretary for 
  Public and Indian Housing--HUD.................................   459
Opening Remarks, Ranking Member Tom Lathan.......................   459
Percentage of Grant Funding for Housing Construction.............   503
Providing Tribes with More Capacity..............................   502
Three Key Areas to Address Challenges............................   479
Tribal Capacity Development......................................   500
Tribal Capacity for Highway Construction.........................   505
Tribal Capacity for Housing......................................   504
Tribal Construction Business Development.........................   503
Tribal Roads Development--Classification.........................   507
Tribal Stimulus Funding--Job Creation............................   501
Written Testimony, Mr. Gregory Nadeau, Deputy Administrator--
  Federal Highway Administration.................................   476
Written Testimony, Mr. Jefferson Keel, President--National 
  Congress for the American Indians..............................   490
Written Testimony, Ms. Sandra Henriquez, Assistant Secretary for 
  Public and Indian Housing--HUD.................................   463

                  MEMBER'S REQUEST TO THE SUBCOMMITTEE

Opening Remarks, Chairman John W. Olver..........................   529
Opening Remarks, Ranking Member Tom Latham.......................   529
Opening Remarks, Representative Carolyn Cheeks Kilpatrick........   529
Remarks, Representative Diane Watson.............................   558
Remarks, Representative Earl Blumenauer..........................   533
Remarks, Representative Eliot Engel..............................   573
Remarks, Representative Hank Johnson.............................   548
Remarks, Representative Jackie Speier............................   541
Remarks, Representative John Garamendi...........................   581
Remarks, Representative Laura Richardson.........................   563
Written Testimony, Representative Diane Watson...................   560
Written Testimony, Representative Doris Matsui...................   531
Written Testimony, Representative Earl Blumenauer................   535
Written Testimony, Representative Eliot Engel....................   576
Written Testimony, Representative Hank Johnson...................   550
Written Testimony, Representative Jackie Speier..................   543
Written Testimony, Representative Jan Schakowsky.................   531
Written Testimony, Representative John Garamendi.................   584
Written Testimony, Representative Laura Richardson...............   566

                  OUTSIDE WITNESSES WRITTEN TESTIMONY

American Indian Higher Education Consortium......................   589
American Public Transportation Association.......................   593
American Society of Civil Engineers..............................   600
Cook Inlet Housing Authority.....................................   605
Fond du Lac Band of Lake Superior Chippewa.......................   608
Illinois Department of Transportation............................   612
National AIDS Housing Coalition..................................   619
National American Indian Housing Council.........................   622
National Association of Railroad Passengers......................   629
National Recreation and Park Association.........................   634
University Corporation for Atmospheric Research..................   636

                                  
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