    [Senate Hearing 111-983]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 111-983

                                                            Senate Hearings

                                     Before the Committee on Appropriations

    _______________________________________________________________________

                                              Departments of Transportation

                                                      and Housing and Urban

                                                    Development and Related

                                                    Agencies Appropriations

                                                                Fiscal Year
                                                                       2011

    111th CONGRESS, SECOND SESSION

                                                          H.R. 5850/S. 3644

            DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
            DEPARTMENT OF TRANSPORTATION
            NATIONAL RAILROAD PASSENGER CORPORATION (AMTRAK)
            NONDEPARTMENTAL WITNESSES
            WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY

     Departments of Transportation and Housing and Urban Development, and
           Related Agencies Appropriations, 2011 (H.R. 5850/S. 3644)

                                                            S. Hrg. 111-983

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2011

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

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                         ONE HUNDRED ELEVENTH CONGRESS

                                 SECOND SESSION

                                       ON

                               H.R. 5850/S. 3644

    AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF TRANSPORTATION AND
    HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES FOR THE FISCAL YEAR
               ENDING SEPTEMBER 30, 2011, AND FOR OTHER PURPOSES

                                   __________

                  Department of Housing and Urban Development
                          Department of Transportation
                National Railroad Passenger Corporation (Amtrak)
                           Nondepartmental witnesses
                 Washington Metropolitan Area Transit Authority

                                   __________

             Printed for the use of the Committee on Appropriations

           Available via the World Wide Web: http://www.gpo.gov/fdsys

                                   __________

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                          COMMITTEE ON APPROPRIATIONS

                       DANIEL K. INOUYE, Hawaii, Chairman
    ROBERT C. BYRD, West Virginia        THAD COCHRAN, Mississippi
    PATRICK J. LEAHY, Vermont            CHRISTOPHER S. BOND, Missouri
    TOM HARKIN, Iowa                     MITCH McCONNELL, Kentucky
    BARBARA A. MIKULSKI, Maryland        RICHARD C. SHELBY, Alabama
    HERB KOHL, Wisconsin                 JUDD GREGG, New Hampshire
    PATTY MURRAY, Washington             ROBERT F. BENNETT, Utah
    BYRON L. DORGAN, North Dakota        KAY BAILEY HUTCHISON, Texas
    DIANNE FEINSTEIN, California         SAM BROWNBACK, Kansas
    RICHARD J. DURBIN, Illinois          LAMAR ALEXANDER, Tennessee
    TIM JOHNSON, South Dakota            SUSAN COLLINS, Maine
    MARY L. LANDRIEU, Louisiana          GEORGE V. VOINOVICH, Ohio
    JACK REED, Rhode Island              LISA MURKOWSKI, Alaska
    FRANK R. LAUTENBERG, New Jersey
    BEN NELSON, Nebraska
    MARK PRYOR, Arkansas
    JON TESTER, Montana
    ARLEN SPECTER, Pennsylvania

                        Charles J. Houy, Staff Director
                      Bruce Evans, Minority Staff Director
                                     ------

     Subcommittee on Transportation and Housing and Urban Development, and
                                Related Agencies

                       PATTY MURRAY, Washington, Chairman
    ROBERT C. BYRD, West Virginia        CHRISTOPHER S. BOND, Missouri
    BARBARA A. MIKULSKI, Maryland        RICHARD C. SHELBY, Alabama
    HERB KOHL, Wisconsin                 ROBERT F. BENNETT, Utah
    RICHARD J. DURBIN, Illinois          KAY BAILEY HUTCHISON, Texas
    BYRON L. DORGAN, North Dakota        SAM BROWNBACK, Kansas
    PATRICK J. LEAHY, Vermont            LAMAR ALEXANDER, Tennessee
    TOM HARKIN, Iowa                     SUSAN COLLINS, Maine
    DIANNE FEINSTEIN, California         GEORGE V. VOINOVICH, Ohio
    TIM JOHNSON, South Dakota            THAD COCHRAN, Mississippi (ex
    FRANK R. LAUTENBERG, New Jersey          officio)
    ARLEN SPECTER, Pennsylvania
    DANIEL K. INOUYE, Hawaii (ex
        officio)

                               Professional Staff

                                  Alex Keenan
                              Meaghan L. McCarthy
                                 Rachel Milberg
                                  Dabney Hegg
                             Jon Kamarck (Minority)
                            Ellen Beares (Minority)
                            Rachel Jones (Minority)

                             Administrative Support
                                  Michael Bain

                                C O N T E N T S

                                  ----------

                            Thursday, March 4, 2010

                                                                       Page

    Department of Transportation: Office of the Secretary............     1

                            Thursday, March 11, 2010

    Department of Housing and Urban Development: Office of the
      Secretary......................................................    61

                            Thursday, April 29, 2010

    Department of Transportation: Federal Railroad Administration....   121
    National Railroad Passenger Corporation (Amtrak).................   145

                             Thursday, May 6, 2010

    Department of Transportation: Office of the Secretary............   179
    Department of Housing and Urban Development: Office of the
      Secretary......................................................   191

                             Thursday, May 13, 2010

    Department of Housing and Urban Development: Federal Housing
      Administration.................................................   225

                            Wednesday, May 19, 2010

    Washington Metropolitan Area Transit Authority...................   285
    Nondepartmental witnesses........................................   345

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2011

                                  ----------

                            THURSDAY, MARCH 4, 2010

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:31 a.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray, Kohl, Specter, Bond, and Collins.

                          DEPARTMENT OF TRANSPORTATION

                            Office of the Secretary

    STATEMENT OF HON. RAY LaHOOD, SECRETARY
    ACCOMPANIED BY CHRIS BERTRAM, ASSISTANT SECRETARY FOR BUDGET AND
                PROGRAMS AND CHIEF FINANCIAL OFFICER

                   opening statement of senator patty murray

        Senator Murray. Good morning, the subcommittee will come to
    order.
        This morning, we're going to be holding our first hearing
    on the President's budget request for the Department of
    Transportation.
        I want to welcome Secretary Ray LaHood. Thank you so much
    for being here today.
        The transportation budget that we have before us today is
    important for families, commuters, communities across the
    country, and it's about more than just dollar amounts and more
    than just the sum of the programs and provisions; it really is
    a statement of values and a reflection of priorities. It's an
    issue that touches every American, every day. It affects the
    men and women who commute to work and need safe roads or new
    public transportation options, it affects the parents who strap
    their young kids into the back seat of the family car and need
    to be confident that their government has the resources to make
    sure that passenger vehicles used by American families are
    safe. It affects communities around the country that are facing
    immense fiscal challenges and depend on Federal resources to
    maintain and improve their transportation infrastructure.
        The transportation budget has a real impact on real people,
    people who are struggling in these tough economic times. Last
    year, we passed a recovery package that is now working to
    create jobs and rebuild infrastructure and lay down a strong
    foundation for long-term economic growth. It was a good start,
    but we cannot stop working until our economy is steadily
    growing again and any American who wants a job can find one.
        That's why we are building on the Recovery Act with new
    targeted jobs bills to help workers get back on the job and
    make investments that strengthen our competitiveness in the
    long term, including investments in transportation. And its
    why, as we examine this budget request, we need to make sure
    that it builds on those efforts and continues moving us
    forward, creating jobs, and investing in our communities, long
    term.
        Today's hearing comes shortly after the Senate passed an
    extension of the surface transportation programs. But,
    unfortunately, as we know, this extension was not passed in
    time and almost 2,000 DOT employees were furloughed without pay
    for the first half of this week. The gap in funding didn't just
    hurt those Federal employees, it also left State governments
    wondering about the future of funding that they desperately
    need. In my home State of Washington, a reimbursement payment
    of $13.5 million for federally-sponsored projects, that was due
    on Tuesday, was left in limbo.
        Seeing these programs shut off, even just for a short time,
    is especially troubling since Senator Bond and I have worked so
    hard to bring stability to the highway safety and transit
    programs authorized under SAFETEA-LU. Two years ago, we
    included a transfer of funds to prevent the Highway Trust Fund
    from going bankrupt. Last year, we provided an additional $650
    million for the highway program, an increase of $400 million
    for transit, despite the absence of a new authorization law to
    provide for such increases.
        And now, when our communities need jobs and Federal
    investments in infrastructure more than ever, they're facing
    shutdowns of the highway and transit programs and instability
    in their funding streams. The uncertainty of this brings--
    undermines essential planning by our States and local
    jurisdictions. That's why we need to move quickly toward a
    long-term authorization of the highway, safety, and transit
    programs, one that brings solvency to the Highway Trust Fund
    and stability to our States and communities, and I am committed
    to getting that done in the near future.
        Before I get to the budget request, I want to take a few
    minutes to commend Secretary LaHood and the DOT on meeting some
    significant challenges this past year. Immediately after the
    Recovery Act was enacted, the Department began working to
    distribute highway and transit grants to State and local
    governments. The law set very aggressive deadlines for all of
    the programs it funded, and to its credit, the DOT has met each
    one and it has worked hard to help our State and local
    governments meet their deadlines, as well. That was absolutely
    critical as we worked to create jobs, invest in our
    infrastructure, and accelerate economic recovery. I was very
    happy with the DOT's work on two programs, in particular, the
    Inner-City and High-Speed Rail Grants, and TIGER, the program
    that I helped create, that supports significant projects across
    almost every mode of transportation. I fought to include those
    programs in the Recovery Act, because I know that getting
    commerce and commuters moving is an important part of our
    recovery efforts. I was proud that my home State of Washington
    received $590 million for high-speed rail upgrades along the
    Pacific Northwest Cascades Corridor. And I recently was out in
    the State and visited the North-South Freeway in Spokane, and
    the Mercer Street Corridor in Seattle; both projects had been
    awarded TIGER grants.
        The project in Spokane will create about 100 jobs, and the
    Seattle grant is the final piece required to finish a project
    that will create thousands of jobs. These are projects that
    will help families and small businesses in their communities,
    get workers back on the job, and help lay the foundation for
    long-term economic growth. And I'm sure Secretary LaHood has
    seen plenty of great projects like that that are in the works,
    helping communities across the country.
        This subcommittee included an additional $600 million in
    the fiscal year 2010 bill to continue provided Federal
    resources to support these types of regional transportation
    investments, and I look forward to working with the Department
    as it moves forward in the coming year to get to a new round of
    investments out of the door.
        But, now, as we look toward this year's budget, it's clear
    that the DOT is going to have to find ways to do more with
    less, especially given the President's announcement of an
    overall cut in nondefense, domestic discretionary spending.
    But, even in this challenging environment, I'm encouraged by
    many of the items I do see in the budget request. The request
    includes increased funding for safety inspectors for aviation,
    rail, and pipelines, an investment of $1.1 billion for NextGen
    efforts at the Federal Aviation Administration, another $1
    billion in grants for inter-city and high-speed rail, and
    continued investment infrastructure to support our airports,
    roads, bridges, highways, transit systems, and Amtrak.
        I still have some questions about some of the decisions
    reflected in this budget request. I'm certain Senator Bond has
    some of his own, as well. For example, why is it necessary to
    create a new agency at the Department for awarding multimodal
    grants, especially when we have seen DOT agencies work together
    on the TIGER grants? And why did the administration choose not
    to request any funding for positive train control? PTC is an
    important technology for preventing rail collisions and
    derailments.
        But, the biggest question on my mind, and on the mind of
    many families I hear from, is whether the Department has been
    doing enough to oversee the safety of our cars and our trucks.
    The American people deserve to have faith in the safety of the
    cars and trucks they drive to work, to school, to soccer
    practice with their kids every day. Questions have been raised
    about whether the National Highway Traffic Safety
    Administration has adequate expertise and resources to
    investigate safety defects among the 246 million passenger
    vehicles--246 million passenger vehicles--in the United States.
        Given that NHTSA opened and closed four narrowly-focused
    investigations into sudden, unintended acceleration in Toyota
    vehicles between 2003 and 2006 without a significant finding of
    a defect trend, I question whether additional resources would
    have resolved consumer complaints of sudden, unintended
    acceleration. NHTSA must ensure the industry is honest in
    disclosing defects, and timely in alerting drivers,
    particularly when these defects can result in fatal accidents.
    To do this, they need to be more strategic about their
    workforce and use the expertise of their employees more
    effectively.
        NHTSA finally does have strong leadership in place, with
    the recent confirmation of Mr. Strickland, as well as from you,
    Mr. Secretary. I am hopeful that you will reenergize the
    agency's vehicle safety mission to focus on enforcement and
    strengthen its electronic expertise. Families across America
    rely on the DOT to be a leader in improving transportation
    safety and to provide expertise on what safety issues need to
    be addressed.
        I'm also glad to see a request for additional resources to
    allow the Federal Transit Administration to oversee transit
    safety. However, this activity is not yet authorized; and,
    importantly, the FTA's proposal to oversee transit safety came
    out only after severe deficiencies were found in the safety of
    the Washington Metro system, right here in our backyard.
        I look forward to hearing from you, Mr. Secretary, on where
    the greatest risks exist in rail transit and what steps the
    Department can take to make transit safer for the millions of
    Americans who rely on it for their daily commutes.
    Unfortunately, too much of the Department's work is initiated
    in reaction, now, to a crisis situation. We've seen this
    before; most recently, the Federal Aviation Administration
    revisited its safety standards after the tragic crash of the
    Colgan Air flight, a year ago.
        The DOT is doing good work in so many areas, but we can
    never ignore the core mission of this agency: to make sure the
    safety of our Nation's transportation system is there for all
    of our families. Over the course of this hearing this morning,
    we'll have an opportunity to discuss all of these issues in
    more--greater detail.
        But, Mr. Secretary, thank you again for your participation
    today, and I look forward to your testimony.
        With that, I'd like to turn it over to my partner, Senator
    Bond, ranking member, for his opening remarks, as well.

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you very much, Madam Chair.
        And welcome, Mr. Secretary. I'm pleased to join with the
    chair and Senator Collins in welcoming you to testify on the
    Department's 2011 budget.
        There are plenty of people in Washington who don't think
    transportation spending is glamorous. They'd rather spend money
    on anything else other than roads, bridges, and infrastructure.
    But, in my way of thinking, ensuring America has an updated
    transportation infrastructure is a key responsibility of
    government. And I--it's no secret that I am a huge proponent of
    spending to improve our transportation spending and create jobs
    and get the infrastructure we need; but it has to be done well.
    It's an economic climate where we need to invest our scarce
    resources in areas, like infrastructure, that will not only
    build roads and bridges, but help rebuild our economy.
        But, while investing in our transportation infrastructure
    is critical, we can't just wish it to be. With a $12 trillion
    and growing deficit, we cannot continue to throw Federal funds
    at projects, willy-nilly. We need a clear-cut, coherent, and
    detailed blueprint, detailing how taxpayer dollars will be
    spent to reach our transportation infrastructure goals.
        Unfortunately, the administration proposal misses this
    mark, once again. In fact, there is little ``print'' in the
    administration's supposed ``transportation blueprint.'' As I
    said earlier this year, this budget is making me feel a lot
    like Bill Murray in ``Groundhog's Day.'' Instead of a serious
    plan to tackle our Nation's transportation policy challenges,
    the administration is repeating last year's mistake.
        We're facing the same issues, Mr. Secretary, which we faced
    last year when you came before the subcommittee. I understand
    there are many difficult transportation challenges facing our
    Nation, but refusing to deal with them, or putting off the
    tough choices, is not a responsible way to go about it.
        Once again, the budget assumes an extension of SAFETEA. We,
    once again, need to bail out the Highway Trust Fund with
    general revenue to get us through the fiscal year, much less
    get us through fiscal year 2011. And, once again, we have to
    bail out the mass transit account with general funds to get us
    through fiscal year 2011.
        There are no broad reauthorization proposals or solutions
    to any of these challenges. Instead, this budget actually adds
    to our already daunting challenges by including various pet
    project initiatives that would wait, like everything else, for
    a full reauthorization to occur.
        In addition to a lack of realistic decisionmaking, this
    budget adds to our challenges by failing to provide a national
    rail plan and a cost-to-complete estimate of what we are trying
    to accomplish with the $10.5 billion we've already
    appropriated, much less the additional billions, which I fear
    will be in the hundreds and hundreds of billions of dollars,
    this budget requests. Where are we going to spend all of that
    money? Where are we going to get all of that money? What's it
    going to do?
        Finally, we have another $4 billion request for what, this
    year, is called the National Infrastructure Innovation and
    Finance Fund. Last year, it was called the National
    Infrastructure Bank. You might have changed the name of the
    program, but the details remain the same. By that, I mean there
    are no details, once again, no legislative language about the
    specifics of this $4 billion proposal.
        I also must point out what is a general theme of this
    budget: a continuation of the American Recovery and
    Reinvestment Act and its broad--and I mean very broad--
    grantmaking authorities and requests. Your budget asks for
    Congress to write you a blank check, to the tune of $527
    million in grants, under a new Office of Livability. Your
    budget also asks Congress to write you another blank check for
    $53 million in greenhouse gas and energy reduction grants. Your
    budget asks Congress to write you another $1 billion check for
    high-speed rail. Do you really want us to give you another
    bunch of pots of money from which to make earmarks, with no
    accountability? I want to know where is Congress' role in
    deciding how these tax dollars will be spent.
        As you will recall, Mr. Secretary, Congress gives the--is
    given, by the Constitution, the responsibility to appropriate
    money. Why should all of the decisions about spending our
    scarce Federal resources be made by unelected and unaccountable
    bureaucrats with no involvement of the representatives of the
    people in Congress or a full disclosure to them?
        Equally important, where is the transparency in the
    process? I thought I heard the clear, unambiguous promise that
    this administration would be the most transparent ever. I've
    continued to ask questions on exactly how the administration is
    making their earmark decisions, awarding these transportation
    grants, what criteria are being used. I continue to get no
    answer.
        It's critical that the process be transparent so Congress,
    and the taxpayers we serve, knows how taxpayer dollars are
    being used. It's essential that we shine needed sunlight on the
    funding of transportation projects to date, and it hasn't
    happened.
        Mr. Secretary, I believe that if this grantmaking process
    is continued in our bill, it needs to be done in a far more
    transparent and accountable way. Grants that are applied for by
    communities and States should be posted on the Internet for
    every taxpayer to see and evaluate, not just delivered by a
    lobbyist to the Department of Transportation, with no
    transparency. Cost shares, the leveraging of funds, should be
    readily available on the Internet so that we, and our
    constituents, have access to information about other sources of
    Federal, State, or private funds that may be used to augment
    these grant awards.
        We have continued to demand that Congress be notified of
    award decisions 3 days prior to the Department of
    Transportation's announcement, with backup material and
    information on the methodology of award selections, including
    information on how the selected projects fit into our
    transportation goals. We have not been getting that, and it is
    very awkward to have to tell our constituents that you didn't
    even bother to tell us where the grants are going, why they are
    going there, and how they were selected.
        Now, it's unclear to me the extent to which the Department
    is funding projects for which there are no traditional sources
    of funding, as you indicated was the priority for the TIGER
    funds when you testified before our subcommittee last year. Mr.
    Secretary, last year when I asked you what Congress' role in
    all of this, you indicated that, ``Congress' role ended when
    the check was signed.'' I think the American taxpayer deserves
    more, deserves better. The administration has pledged to
    provide transparency, lobbying reform across all programs. This
    commitment must extend to the billions of taxpayer dollars
    spent on our transportation projects.
        Our transportation infrastructure, like our highways,
    roads, and bridges, are the lifeblood of our economy and key to
    future economic growth and economic recovery. We cannot afford
    to pass the buck on difficult challenges; we cannot afford to
    spend billions of dollars, with no transparency, oversight, or
    accountability, if we are to create a modern transportation
    infrastructure, new jobs in our community, safer travel for our
    families, and economic development across the Nation.
        For many of these challenges, there are no easy or popular
    solutions, but we cannot afford to keep putting the problems
    down the road, or there won't be a road to drive on.
        Mr. Secretary, obviously I look forward to your testimony.
        Senator Murray. Thank you, Senator Bond.
        Senator Collins, do you have an opening statement?

                       STATEMENT OF SENATOR SUSAN COLLINS

        Senator Collins. Thank you, Madam Chairman.
        First, let me thank you and the ranking member for your
    strong leadership on this subcommittee, and your advocacy.
        I do have an opening statement which I'm going to submit
    for the record, but I did just want to take a moment to talk
    about the TIGER grants that were authorized in the Recovery
    Act.
        It's my understanding that the Department of Transportation
    received nearly 1,400 TIGER grant applications, totaling $56.9
    billion. The Recovery Act included $1.5 billion for TIGER
    grants. I think this--the figures show what an overwhelming
    demand there is for infrastructure spending along the lines
    that both of you have outlined.
        A project submitted in the State of Maine, alone, totaled
    $236.2 million. Obviously, due to the high volume of
    applications, the vast majority of these projects were not able
    to be funded. There were two in Maine that were of particular
    importance. One, I'm going to discuss when the questions come
    around; it has to do with more than 200 miles of track in
    northern Maine that the railway in question is seeking to
    abandon, which would be devastating for northern Maine.
        The second is a very innovative program that New Hampshire
    and Maine have come together on, and that is to repair a major
    bridge that links the two States. And that, too, is an
    innovative project that I hope might be able to secure future
    funding.
        But, again, it just is evidence of the overwhelming need
    for investment in infrastructure. And I look forward to working
    with you and the ranking member, both of whom are such
    effective advocates in this area, and as well as with the
    Secretary.
        Thank you.
        [The statement follows:]

                  Prepared Statement of Senator Susan Collins

        Our Nation continues to face serious economic challenges and the
    transportation sector is certainly not immune to these hardships.
    During consideration of the American Recovery and Reinvestment Act, I
    advocated for a strong investment in transportation funding.
    Unfortunately, our investment came up short. While we secured over $48
    billion for all modes of transportation, this funding represented less
    than 7 percent of Recovery Act spending. I find that troubling as
    investments in transportation infrastructure are strongly needed in all
    States and a sure way to create good-paying jobs.
        Maine was the first State in the Nation to obligate 100 percent of
    its Recovery Act highway funds. I applaud the quick action of my State
    to get Recovery Act funds out the door and create much needed jobs. I
    often hear from my constituents in the construction industry that the
    investments we made in transportation funding saved the industry from a
    dismal year and significant lay-offs.
        As many of the Recovery Act funds are now spent, the transportation
    industry faces difficult times ahead if we do not act to make the
    necessary investments in our transportation infrastructure.
        I am particularly pleased that the administration has taken steps
    to invest in projects of regional and national significance through the
    creation of a National Infrastructure Innovation and Finance Fund. The
    high number of applicants for the Transportation Investment Generating
    Economic Recovery (TIGER) Grant program funded by the Recovery Act
    shows the need for continued investments in this area.
        The Department of Transportation received 1,381 TIGER grant
    applications totaling $56.9 billion. The Recovery Act included $1.5
    billion for TIGER grants. The need for funding is great. Projects
    submitted in Maine alone totaled $236.2 million. Due to the high volume
    of requests, most of these projects were funded.
        One project in particular that did not receive a TIGER grant is the
    Montreal, Maine and Atlantic (MMA) Railway in northern Maine. Because
    of the economic downturn, it is not financially viable for MMA to
    operate its full 745 miles of rail line, and the company, therefore,
    has filed to abandon 233 miles in Aroostook County. This will be
    devastating for Maine's economy. Once a rail line is abandoned, it is
    almost impossible to bring that line back into service. I look forward
    to working with the subcommittee and the Secretary to ensure that Maine
    has the resources we need to maintain our transportation
    infrastructure.

        Senator Murray. Thank you very much, Senator Collins.
        Mr. Secretary, again, welcome to this morning's hearing,
    and I will turn it over to you for your opening statement.

                          STATEMENT OF HON. RAY LAHOOD

        Secretary LaHood. Thank you very much, Madam Chair, Ranking
    Member Bond, Senator Collins, for the opportunity to discuss
    the administration's fiscal year 2011 budget request for the
    U.S. Department of Transportation.
        I've traveled to more than 32 States and 72 cities in the
    last year, and I've seen firsthand how much our citizens depend
    on a safe, modern, and reliable transportation system to access
    jobs, healthcare, and other essential services.
        The President's request for next year totals $79 billion, a
    $2 billion increase over fiscal year 2010 levels. These
    resources will support the President's and DOT's top
    transportation priorities for safety on the roads, in the air,
    and also making communities livable and sustainable, and
    modernizing our infrastructure.
        Safety is our highest priority at DOT. Our leadership
    campaign against the perils of distracted driving, which kills
    thousands of Americans every year, has been very effective.
    It's critical we continue to lead the charge on this; that's
    why we're seeking $50 million for the National Highway Traffic
    Safety Administration to develop an incentive-based grant
    program encouraging more States to pass laws prohibiting the
    unsafe use of cell phones and texting while driving. The
    President is also asking for 66 additional personnel assigned
    to highway and vehicle safety at NHTSA.
        Turning to aviation, the President's plan includes $1
    billion for next-generation technology, the program to
    modernize our air traffic control system. That's a $270
    million, or 32-percent increase, over fiscal 2010 levels. These
    funds are essential for transitioning from a ground-based radar
    surveillance system to a more accurate satellite-based one.
    This system is already in use in the Gulf of Mexico, and we
    look forward to working on building on our success.
        Our groundbreaking investments in high-speed passenger rail
    service, which have generated tremendous excitement around the
    country, will go a long way to enhance livability in many
    communities. Our budget seeks $1 billion to continue the 5-
    year, $5 billion pledge made in this year's budget. I want to
    thank Congress for its commitment and leadership on high-speed
    rail; the $2.5 billion provided to the Department for high-
    speed rail grants last year, combined with $8 billion we
    announced recently, brings us closer to ushering in a new era
    for passenger rail service in this country.
        In the area of transit safety, we're seeking $30 million to
    establish a new rail transit safety oversight program within
    the Federal Transit Administration. This program will carry out
    a comprehensive safety oversight strategy by establishing
    common safety standards nationwide, as envisioned in the
    administration's transit safety bill. This is an important step
    forward for the rail transit industry, which has suffered
    recent accidents in Washington, DC, Boston, and San Francisco.
    This is unacceptable, and we must put strong remedies in place
    as soon as possible. I urge Congress to pass this legislation
    this year.
        Going forward, we must find new ways to finance
    infrastructure. We're requesting $4 billion to establish a new
    Infrastructure Innovation and Finance Fund. These first-year
    funds would be used to invest in multimodal transportation
    projects of regional and national significance. Our
    crosscutting, outcomes-based approach to funding will enable us
    to move away from the silo mentality that has long hindered our
    ability to respond to local and regional needs.
        On authorization, the President proposes to continue
    spending levels with $42.1 billion for highway and bridges, and
    $10.8 billion for transit. This request includes $150 million
    to enable the Washington Metropolitan Area Transit Authority to
    address much-needed safety-related infrastructure improvements.
    Transportation must not only be safe, but also contribute to
    livable, sustainable neighborhoods. The President's plan
    provides record-level investments to make our communities more
    livable.
        Specifically, we're seeking $527 million for Livable
    Communities, which will help us build on the tremendous
    successes we have achieved through our sustainable partnership
    with HUD and the EPA. Together, we're helping State and local
    governments make smarter investments in their transportation,
    energy, and housing infrastructure, with better outcomes for
    our citizens.
        Finally, we're seeking $30 million to make long-overdue
    infrastructure improvements at the Merchant Marine Academy,
    which our Nation depends on to educate and train a new
    generation of military and civilian maritime leaders. I've been
    to Kings Point a number of times, and I know these investments
    will have a lasting, positive effect on this institution.
        I look forward to your questions.
        [The statement follows:]

                     Prepared Statement of Hon. Ray LaHood

                                  INTRODUCTION

        Chairman Murray, Ranking Member Bond and members of the
    subcommittee, thank you for the opportunity to appear before you today
    to discuss the administration's fiscal year 2011 budget request for the
    U.S. Department of Transportation.
        The administration's fiscal year 2011 budget request for the U.S.
    Department of Transportation reflects the importance of strengthening
    our Nation's transportation system. In my first year as Transportation
    Secretary, I have travelled throughout the country and I know first-
    hand how important a safe and reliable transportation system is to all
    Americans. The President's request totals $79 billion, a nearly $2
    billion increase over fiscal year 2010 levels. These resources will
    support the President's top transportation priorities: improving
    transportation safety, investing for the future, and promoting livable
    communities.

                                 HIGHWAY SAFETY

        Safety is and will continue to be our top priority, and reducing
    highway fatalities is one of the Department's High Priority Performance
    Goals. The budget contains a number of new initiatives to increase
    road, transit, and aviation safety. One of the most serious issues
    facing drivers today is distracted driving. We must end the dangerous
    practice of unsafe cell phone use or texting while driving. Too many
    lives have been lost already due to distracted driving. Working
    together, I believe that we can stop this dangerous practice--and save
    lives. The President's budget requests $50 million for the National
    Highway Traffic Safety Administration's (NHTSA) for a new incentive
    grant program to promote State laws to curtail unsafe cell phone use
    and eliminate texting while driving. Today, our children don't think
    twice when they ``buckle up''--and our goal is that tomorrow, our
    future generations won't think twice about putting down their cell
    phone so that they can drive safely. This new program will work
    alongside NHTSA's other highway safety programs in making our highways
    safer for everyone. The President is also asking for funds to support
    66 additional personnel for NHTSA to be assigned to highway and vehicle
    safety issues, and $7 million for the Federal Motor Carrier Safety
    Administration for 118 new truck safety personnel.

                                    NEXTGEN

        The future of aviation is in our hands. The President's fiscal year
    2011 plan includes over $1 billion--an increase of $275 million over
    the fiscal year 2010 levels--for ``NextGen''--the program to modernize
    the air traffic control system. Currently, the Federal Aviation
    Administration is undertaking a long-term effort to improve the
    efficiency, safety, and capacity of the aviation system. But while we
    are talking about the future of aviation, I'm pleased to report that
    it's happening now. The funds requested under the fiscal year 2011
    budget request will support the transformation from a national ground-
    based radar surveillance system to a more accurate, satellite-based
    surveillance system. This system is already being used in the Gulf of
    Mexico, which is improving the safety and accuracy of air traffic
    services in the gulf. We will be building on the successes of our
    research and development, to improve capacity to the flying public. We
    will be developing more efficient routes through the airspaces, and
    improving aviation weather information. As always, as we launch these
    critical new applications, we will continue to keep our strong focus on
    safety. Under my budget request, our vision of a modernized air traffic
    control system is becoming a reality.

                                HIGH SPEED RAIL

        The budget also continues President Obama's vision to better
    connect communities with a new, high-speed rail network. The budget
    includes an additional $1 billion for High Speed Rail. This request
    builds on the historic $8 billion down payment provided through the
    Recovery Act, and continues the 5 year, $5 billion pledge made in the
    fiscal year 2010 budget. The $2.5 billion provided to the Department
    for high speed rail grants last year along with our recent
    announcements of the first awards of the High Speed Rail Program will
    put us one step closer to making High Speed Rail a reality.
        This is an exciting time for the Nation. Looking ahead, high-speed
    rail will one day provide the traveling public with a practical
    alternative to flying or driving, particularly in highly congested
    areas. With trains efficiently connecting city and business centers,
    travelers will enjoy a new level of convenience not available in many
    parts of the country today.

                              RAIL TRANSIT SAFETY

        The President's request also includes resources to address rail
    transit safety. While rail transit is safe, we must take substantive
    steps now to make it even safer for the future. We are all well aware
    that rail transit has the potential for catastrophic accidents
    resulting in multiple injuries, considerable property damage, and
    heightened public concern. Following the recent tragic accidents in
    Washington, DC, Boston, and San Francisco, it is clear that we need to
    strengthen the safety oversight of transit rail operations. Our budget
    requests $30 million to establish a new transit safety oversight
    program within the Federal Transit Administration, which has never
    before been granted safety oversight authority. This program will
    implement a comprehensive safety oversight strategy, as proposed in the
    administration's transit safety bill, to establish common safety
    standards nationwide and to ensure the safety of our Nation's transit
    riders.

                   INVESTING IN TRANSPORTATION INFRASTRUCTURE

        As we continue to focus on improving transportation safety, we must
    also rethink the way we invest in our future transportation
    infrastructure. That is why the President's plan includes $4 billion to
    establish the new National Infrastructure Innovation and Finance Fund
    (Infrastructure Fund). This is the first year of a 5-year plan to
    capitalize the fund with $25 billion. This fund will invest in projects
    of regional or national significance, and marks an important departure
    from the Federal Government's traditional way of spending on
    infrastructure through mode-specific grants.
        Instead, the Infrastructure Fund will directly provide resources
    for projects through grants or loans, or a blend of both, enabling us
    to effectively leverage non-Federal resources, including private
    capital. The projects funded under the Infrastructure Fund will be
    based on demonstrable merit and analytical measures of performance.
    Only the most worthwhile projects from around the Nation will be
    selected. Projects eligible for funding from the Infrastructure Fund
    consist of multi-modal projects that include highway, transit, rail,
    aviation, ports and maritime components. This marks a bold new way of
    thinking about investments in our transportation infrastructure and
    will become a key component of the administration's future surface
    transportation proposal.
        The reauthorization of the Nation's surface transportation programs
    is complex and has critical long-range implications for the future.
    While the President and the Congress continue to work on a long-term
    strategy for surface transportation, the President's plan continues the
    current levels of spending: $42.1 billion is proposed for highways and
    bridges and $10.8 billion for transit. Within this funding, $1.8
    billion is included for ``New Starts'' and ``Small Starts'', and $150
    million to enable the Washington Metropolitan Area Transit Authority to
    focus on badly needed safety-related infrastructure improvements.
    Reauthorization is a challenging issue facing our Nation and I look
    forward to working with the Congress to design a new Federal surface
    transportation program that leads to higher performing investments,
    increases transportation options, and promotes a sustainable
    environment.

                                   LIVABILITY

        The President's plan also provides a record investment to make our
    communities more livable. Our budget request allocates over $500
    million toward investments that support the President's multi-agency
    Partnership for Sustainable Communities. We have joined with the
    Department of Housing and Urban Development and the Environmental
    Protection Agency to stimulate comprehensive regional and community
    planning efforts that integrate transportation, housing, energy and
    other critical investments. Together, we will help State and local
    governments make smarter investments in their transportation
    infrastructure, to better leverage that investment and advance
    sustainable development.

                                  RECOVERY ACT

        February 17 marked the 1-year anniversary of the Recovery Act and I
    am pleased to report that much has been accomplished to improve
    transportation infrastructure throughout the Nation. Overall, the
    Recovery Act provided $48.1 billion for transportation programs to be
    used for improvements to our Nation's highways and bridges, transit
    systems, airports, railways, and shipyards. To date we have obligated
    $36 billion on more than 13,700 projects nationwide.
        In addition, section 1512 of the legislation calls upon Recovery
    Act fund recipients to report on the number of jobs created on
    individual projects. We have now completed two rounds of recipient jobs
    reporting. Based on the recent October-December 2009 reporting period,
    we have created about 41,000 direct full time equivalent jobs for
    transportation programs nationwide. I want to emphasize that the jobs
    estimates included in this report are only those directly associated
    with the individual transportation projects and do not include the many
    other jobs created due to increased demand on supply chains and other
    supporting services. When these indirect jobs are also taken into
    account, it is clear that the Recovery Act resources have made a
    significant impact on jobs and we expect these numbers to hold steady
    as some of the larger transportation projects continue to come on-line.

                                   CONCLUSION

        Finally, I am proud of the proposed investments the President's
    budget makes in the U.S. Merchant Marine Academy--one of our Nation's
    five service academies. I have visited the young men and women at Kings
    Point, and I'm greatly concerned about the conditions of their
    facilities. They are old and badly in need of basic repair. The
    President's plan includes $26 million to make long overdue capital
    improvements that will help ensure midshipmen have a positive learning
    environment.
        Thank you for the opportunity to appear before you to present the
    President's fiscal year 2011 budget proposal for the Department of
    Transportation and discuss some of the successes of the Recovery Act.
    This plan supports our Nation's key transportation priorities, and
    makes investments that will benefit all for years to come. I look
    forward to working with the Congress to ensure the success of our
    newest initiatives.
        I will be happy to respond to your questions.

                                 TOYOTA RECALLS

        Senator Murray. Secretary, thank you very much.
        Let me begin with the safety aspect that I talked about in
    my opening remarks, which is what Americans really count on to
    know what is happening. And I'm concerned that, despite the
    recall of 6 million vehicles here in the United States and 8\1/
    2\ million now worldwide, it's likely that engineers have not
    yet discovered the problem with the sudden, unintended
    acceleration in Toyotas. There is speculation that another
    problem may be in Toyota's electronics or software that manage
    the throttle operations. And I realize that Toyota and NHTSA
    are now investigating those possible causes, but I'm concerned
    because today I'm seeing another news articles that some Toyota
    owners say they're still having trouble with unintended
    acceleration after their recalled cars were repaired.
        Now, I know this isn't an easy issue, but I want to be sure
    that we understand how you are making the American people aware
    of what the problems are, and which problems the recalls can
    actually resolve, and what issues still need to be resolved.
    And I wanted to ask you this morning, what advice do you have
    today for consumers?
        Secretary LaHood. Well, first of all, they should look at
    our Web site, DOT.gov. We list all of the cars that have been
    recalled by Toyota, and every other manufacturer; and if their
    car is on that list, they should return it to the dealer and
    have the car repaired.
        I don't think we would have had the kind of testimony
    before the Senate or the House if it hadn't been for our people
    holding Toyota's feet to the fire. I personally requested Mr.
    Toyoda come to America, talk to Members of Congress, talk to
    its customers. I had a personal meeting with him.
        We have held Toyota's feet to the fire on these safety
    issues, and we will continue to do that. We're not going to
    rest until every Toyota is safe to drive. That's our pledge,
    because safety is our No. 1 priority.
        Senator Murray. Well, if the new stories are accurate and
    the reports are accurate, that the fix is not working,
    Americans who went online, saw that their car was supposed to
    go back in, took it back in, and they're still out there
    driving it, and that didn't work. What are we doing now to fix
    the problem?
        Secretary LaHood. We're suggesting to people, if your car
    is not working properly, take it to the dealer and have them
    address or fix----
        Senator Murray. But, that's what they did. They took it in
    and had it fixed----
        Secretary LaHood. They need to take it back. They need to
    take the car back if it's not running properly.
        And on the electronics issue, Madam Chair, I want you to
    know that, we did look into that, and we've listened to Members
    of Congress and from testimony that was given, both in the
    House and Senate. We are doing a complete review, looking at
    every aspect of the electronics in Toyota.
        Senator Murray. How long will that take?
        Secretary LaHood. It'll take some time, because we want to
    look at some studies that were previously done. We want to get
    the best experts we can; we want to get the best electrical
    engineers. I don't want to put a time on it, because we want to
    do it right, we want to do it thoroughly, and we want to make
    sure that, when we produce answers, it's done with the best
    possible research and background and review that we can do.
        Senator Murray. Well, I know it's not an easy problem, but
    it is very challenging to somebody who owns a car, did the
    right thing, took it in for a recall, and now they're hearing
    that perhaps that fix didn't work for them, and now they're
    sitting there with a car in a driveway and kids waiting to take
    to school. I mean, they're----
        Secretary LaHood. Yes.
        Senator Murray [continuing]. Concerned about it.
        Secretary LaHood. Well, I want you to know that we're not
    sitting around on our hands; we're addressing this. There was a
    woman that testified, at a House hearing, about a Toyota that
    she owned. We have purchased that vehicle, because she believed
    the electronics were what caused her to accelerate to a very
    high speed. We have purchased that vehicle, and we're going to
    do everything we can to investigate, look into, and check out
    the electronics on that car.

         NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION BUDGET REQUEST

        Senator Murray. Okay. Well, the President's budget
    requested 46 positions for vehicle safety. How many of those
    positions will be used to hire software engineers?
        Secretary LaHood. Well, the President is requesting 66 new
    positions, which will all come to NHTSA. I'll get back to you,
    for the record.
        If the Congress passes our budget, we're going to see where
    these experts are needed. We know they are needed in our
    opportunity to really look at cars and complaints and really
    make sure we have the right staff and also the right
    professionals to handle the kind of complaints that we're
    receiving from people.
        [The information follows:]

        Of the 66 additional personnel requested in the President's fiscal
    year 2011 budget, 46 positions (46 full time positions-FTPs; 23 full
    time equivalents-FTEs) would support electrical vehicle safety, light
    vehicle and heavy duty truck fuel economy and labeling standards, and
    import surveillance of automotive equipment coming into the United
    States from foreign countries. NHTSA retains outside experts in
    electronics and other fields as necessary to supplement its permanent
    Federal workforce. NHTSA is still assessing the agency's needs to
    determine what additional staff with expertise in electronics, computer
    science, or other areas of specialization are needed.

        Senator Murray. Okay. Also, are you going to be expanding
    your staff with expertise in electrical and computer
    engineering for both vehicle safety investigations and
    regulations?
        Secretary LaHood. Yes.
        Senator Murray. You are. Okay.
        Secretary LaHood. Yes. We do have some electrical engineers
    on staff, but we feel, now that this issue of the electronics
    has been raised, more resources are needed. While you all are
    working on our budget, we may look for some outside help on
    this, for some electrical engineers who can really help us with
    this.
        Senator Murray. Okay. The issue of sudden and unintentional
    acceleration in Toyotas has focused attention on the actions of
    Toyota and NHTSA officials, and the relationship between the
    two entities. Safety advocates have been complaining that NHTSA
    officials failed to push Toyota to find the root cause of this
    problem, and worked with vehicle manufacturers to
    inappropriately limit investigation. Now that you have new
    leadership at NHTSA, which I'm pleased to see, what actions are
    being taken now to ensure that there's a strong enforcement
    where culture exists and is encouraged?
        Secretary LaHood. There are laws on the books that prohibit
    former employees of NHTSA working on matters where they were
    intimately involved at NHTSA. We've checked out the two
    individuals, and we've determined that they did not come back
    to us and were involved on issues that they worked on in the
    Department.
        But, I've said at other hearings, Madam Chair, I think this
    law needs to be tightened up. I think the appearance of it
    causes great concern for people, and I'm willing to work with
    Congress to tighten that kind of exiting of employees. I'm
    willing to work on tightening that up.
        But, I will tell you this, it was our people who went to
    Japan and met with Toyota, because we thought they were a
    little safety deaf in Japan. We knew their people here in North
    America were making recommendations, but apparently they
    weren't hearing it in Japan. That's the reason I got on the
    phone with Mr. Toyoda and talked to him. I met with him when he
    came here. I think they get it now, I think they understand
    they have serious issues.
        The perception is that many of their cars, particularly the
    ones that are listed on the recall list are not safe. There've
    been some improvements in communication, thanks to the diligent
    effort of our people at NHTSA, to hold their feet to the fire.
        Senator Murray. Yes. And, I do understand that NHTSA has
    widened its investigation and requested documents about how and
    when Toyota learned of the defects. When do you expect NHTSA to
    complete that inquiry?
        Secretary LaHood. It'll be several months. I mean, we've
    asked for a voluminous amount of material to make sure that
    what they told us in 2004, 2005, 2006, and even prior to that,
    was everything they should have told us. The only way we can do
    that is to look at documents that they have. It's going to take
    us a while to pore through these documents.
        Senator Murray. Do you think the Department's authority to
    level civil enforcement penalties is sufficient?
        Secretary LaHood. I do.

                     CHILDREN IN AIR TRAFFIC CONTROL TOWER

        Senator Murray. All right. Well, we'll be following that
    very closely. But, before my times up, I wanted to ask you
    another question on safety. And I, for one, was very disturbed
    about the report yesterday about a young child who was allowed
    to direct traffic at the Air Traffic Control Center at New
    York's Kennedy Airport, apparently speaking with pilots and
    clearing flights for takeoff. This subcommittee spent a lot of
    time talking with DOT, and you, and the Federal Aviation
    Administration about the FAA's culture of safety. How does this
    incident reflect on the FAA's culture of safety?
        Secretary LaHood. Well, this is a stunning example of a
    lack of professionalism, not following the rules, not using
    common sense. The air traffic controller and his supervisor are
    on administrative leave, and we are doing a thorough and
    complete investigation. The idea that a young child would be
    directing planes in and out of an airport is totally
    unacceptable. It's an abuse of all of the rules that----
        Senator Murray. Are there rules in place that children
    cannot be allowed in control towers?
        Secretary LaHood. There are, today.
        Senator Murray. Were there, yesterday? Just out of
    curiosity.
        Secretary LaHood. Yes, but they weren't followed.
        Senator Murray. Yes. Well, I think this is extremely
    disconcerting. I know during the Nisqually earthquake in
    Seattle, when air traffic controllers immediately had an
    emergency where they had to land every single airplane; after
    9/11, when we had a serious----
        Secretary LaHood. Right.
        Senator Murray [continuing]. Emergency; or a plane goes
    down--I think every one of the flying public, and all of the
    public, wants to know that those air traffic controllers' minds
    are on their jobs. This is extremely demanding, challenging,
    important safety aspect of our FAA, and I'm hopeful that this
    will be followed up.
        Secretary LaHood. Yes. I, too, want to congratulate NATCA.
    The head of NATCA, which is the union that represents air
    traffic controllers, spoke out very strongly on this being a
    violation of every rule and regulation that any controller has
    been taught.
        Senator Murray. Okay. Thank you very much, Mr. Secretary.

              NATIONAL INFRASTRUCTURE INNOVATION AND FINANCE FUND

        Senator Bond.
        Senator Bond. Mr. Secretary, I have a lot of questions
    about details, as I indicated. And let's start with the
    National Infrastructure Innovation Finance Fund Policy Board.
    Who's going to be appointed? What's the process? Who will be
    the selections? Will they come before the Senate for
    confirmation?
        Secretary LaHood. You know what, Senator Bond? I don't know
    all the answers to that. I know that the idea of an
    infrastructure bank, as it was commonly referred to earlier on,
    has been kicked around Congress for a long time. The Department
    of Transportation is trying to find ways to do all the things
    that we all want to do.
        Senator Bond. Right.
        Secretary LaHood. And without raising the gasoline tax. We
    feel that the Infrastructure Fund is a way to do that.
    Specifically, I'll get back to you.
        But, if this is enacted into law, and if this comes about,
    we will work with, obviously, members of this subcommittee and
    Congress on the way forward for the implementation of it.
        [The information follows:]

        The details of the National Infrastructure Innovation and Finance
    Fund's (I-Fund) policy and investment council are still being
    finalized. The Department will soon issue proposed statutory language
    for the I-Fund that will include details on the composition of this
    council.

        Senator Bond. Well, I appreciate that, Mr. Secretary, but
    let me just say, I'm from the ``Show Me'' State. And before I
    can support this, I want to know: Who's going to be on it?
    Who's going to appoint them? What the criteria will be for
    selecting them? Will Congress have a role? Will they be
    available for comment on--the people on the board? What are the
    criteria on which these grants are going to be made?
        And just to make it simple, so we don't get any confusion,
    I am not going to vote for it until I have that path laid out,
    because if we're going to try to fund that board with $4
    billion, I think that--we have had real problems knowing how
    money is going out the door, and I am not excited about sending
    any money--more money out the door unless I know, in advance,
    how it's going to go.
        I don't disagree with you. We need funding--infrastructure,
    bonding issues--there are a lot of--private-sector
    cooperation--there are a lot of good ideas, and we will work
    with you on those ideas. And we have seen where there are a lot
    of ways--toll roads are very controversial, but a lot of places
    are getting--they're getting badly needed highways built by
    toll roads. We want to see those ideas, and work with you on
    those. But, for my part, no blank checks until we see what
    you're going to do. And we'll be happy to work with you----
        Secretary LaHood. Thank you.
        Senator Bond [continuing]. But we need to know in advance.
        And as I said--I've mentioned earlier--I think, when the
    administration prepares to make these grants, it would be
    appropriate for the administration to follow the same policy
    that Congress makes when we select some things. Posting--for
    example, posting all of the applications on the Internet, along
    with the cost shares, funds leveraged. What are the metrics and
    evaluation criteria on how the projects will be selected?
        Congress has, rightly, reformed our earmarking process, and
    we've tried to make it as transparent as possible. Do you agree
    it's time for the administration to have the same kind of
    transparency?
        Secretary LaHood. Well, Senator, I would say this. I've
    been around 30 years--I served in Congress for 14, and I was a
    staffer for 17; I served on the Transportation and
    Infrastructure Committee. I don't know of a more transparent
    administration than this one. If there's information you want,
    Senator, we'll be helpful in getting it to you.

                                HIGH SPEED RAIL

        I will tell you this, Senator, when it comes to the ``Show
    Me'' State, high-speed rail did very well; TIGER grants did
    very well. I was in a room with over 200 people, in Kansas
    City, announcing a TIGER grant; I heard not one word of
    complaint about the 40--or about the $50 million that went to
    Kansas City for a project that everybody in that room, in that
    region of your State, was very much for. I heard no complaining
    about the high-speed rail money that's going to connect Chicago
    to St. Louis to Kansas City. High-speed rail is coming to
    Missouri, thanks to the Economic Recovery Plan, and thanks to,
    I think, a lot of good staffwork with people in Missouri who
    want this. I think we've been very transparent about this.
        Senator Bond. Mr. Secretary, I've never had a problem being
    well received when I brought money. Only thing better is if
    you're bringing a free lunch and some beer. And they'll not
    object to you coming in when you bring the money. But, what I'm
    saying is that all of us need to know--and as far as I can
    tell, there's been--there has been an almost complete absence
    of transparency--how you're selecting them, where are you
    going? All right, great, it comes down like a gift from Santa
    Claus. And, sure, my State got some, every State gets some, but
    we have a right, these days, to know: What were the criteria?
    What were the applications? Whose were the ones who were
    disappointed? Who did not get it? How were they selected?
        I mean, no question, when you throw money into
    infrastructure projects--everybody likes money in
    infrastructure projects. But, we need to see how the process
    works. And I'll be damned if I can figure out how that process
    worked. That's what I'm just saying. You know, we work very
    hard to find out what the priorities are, and when we come
    before our colleagues in Congress to present them, we lay out
    the--who has applied, we go on the floor and debate them. And
    I've had a lot of debates on why these are good projects--
    before they ever get the money. But, you know, you come in
    and--well, I'll get around to high-speed rail a little bit
    later on. But, before we put money into these things, we'd like
    to know that there is going to be advance information; there's
    going to be disclosure of--I mean, you don't let lobbyists in,
    but obviously they prepare the information, and they bring
    applications to you. When those applications come in, maybe
    there are some applications--if you're going to be making the
    earmarks, maybe we would like to comment, say, ``Here, you've
    got 12 applications from my State, or 250 applications from our
    intelligence and investigation. Here are several that really
    meet the needs, and we can tell you why.'' We----
        Secretary LaHood. Well----
        Senator Bond [continuing]. We didn't know where they were
    going.
        Secretary LaHood. Okay. Well, let me respond to some of
    this. Because----
        Senator Bond. Sure.
        Secretary LaHood. The truth is we put guidance up for the
    $1.5 billion, look on our Web site. It's up there now. We have
    another $600 million that you all provided to us, thankfully,
    in our budget. We're going to put guidance up.
        So, the guidance is up there. Everybody knows what the
    criteria are and then people begin to submit applications. I
    don't know of one lobbyist that darkened our door with an
    application. I don't know of one lobbyist that came to our
    office with the idea that they were going to have some kind of
    an edge because they're a lobbyist.
        Okay. So, we put the guidance up, and then we took time to
    review them all. I'll be honest with you, Senator, we heard
    from a lot of Senators and Members of the House, who called me
    and said, ``How many applications from my State? What are
    they?'' and we heard from Governors, too. So, the idea that
    nobody weighed in on this from Capitol Hill is not accurate. I
    got phone calls every day from House Members, from Senators,
    from Governors, saying: How many applications did you receive
    from my State? What are they? How much are they for? What are
    they going to do?'' We shared all that information.
        Senator Bond. Well, it would be very easy, if you'd just
    put it on the Web site, save you all those calls.
        Secretary LaHood. Well, I would have been happy to take a
    call from you, Senator, about anything in Missouri. And on
    the----
        Senator Bond. Well, I----
        Secretary LaHood [continuing]. High-speed rail--let me tell
    you about the high-speed rail. There is a rail plan. We put a
    rail plan together before we decided to go out and figure out
    what we were going to do with our $8 billion. We funded 13
    regions in the country. Missouri did very well, by the way,
    because you're going to be connected with some other States.
    Then we received these applications, we evaluated them, we met
    with the people, and we awarded $8 billion. Thanks to all of
    you, we have an additional $2.5 billion this year. If anybody
    in Missouri had questions about high-speed rail, we sat down
    with them, we answered them. I talked to your Governor on
    several occasions about high-speed rail. So, the idea that
    people don't have access to information is absolutely not
    accurate. It's not. I'll give you a list of my phone log and
    show you how many Members of Congress have called me, and how
    many Governors.
        Senator Bond. Well, I remember talking to you back in June.
    I said, ``How are you going to spend the money that you got in
    the ARRA?'' If I remember correctly, you said, ``You gave us
    some money, and we'll spend it.'' That's what----
        Secretary LaHood. Well----
        Senator Bond [continuing]. We heard.
        Secretary LaHood [continuing]. You know what, Senator, I'll
    look back on the record----
        Senator Bond. Well----
        Secretary LaHood [continuing]. But, I doubt if I put it
    that way.
        Senator Bond. Well----
        Secretary LaHood. We'll get a copy of the record and see.
        Senator Bond. Well, this----
        Secretary LaHood. You know----
        Senator Bond [continuing]. This is----
        Secretary LaHood [continuing]. Look it----
        Senator Bond [continuing]. This is----
        Secretary LaHood  [continuing]. I have----
        Senator Bond [continuing]. This is the----
        Secretary LaHood [continuing]. Very----
        Senator Bond [continuing]. Question we had----
        Secretary LaHood [continuing]. High regard----
        Senator Bond [continuing]. In the S. 128.
        Secretary LaHood. Okay. Well, look I have a very high
    regard for Members of Congress, having been one, and I----
        Senator Bond. I--and I----
        Secretary LaHood [continuing]. I don't think----
        Senator Bond [continuing]. Have a high regard for you, sir.
        Secretary LaHood [continuing]. And I----
        Senator Bond. But----
        Secretary LaHood [continuing]. Don't take----
        Senator Bond [continuing]. I'm just saying----
        Secretary LaHood [continuing]. Lightly questions----
        Senator Bond. Yes.
        Secretary LaHood [continuing]. From Members----
        Senator Bond. There's no information----
        Secretary LaHood [continuing]. Of Congress.
        Senator Bond [continuing]. On the waiting. You've got some
    big, broad--I'm going to ask you how you define livability and
    all those things. I mean, wow. You know, it's like saying we're
    going to oppose pornography. What are you going to oppose? How
    are you going to support livability? We'll get into that in the
    next round.
        I have a great personal admiration for you; we've been good
    friends for a long time.
        Secretary LaHood. Yes, sir.
        Senator Bond. I'm just saying, the system is not working,
    and I need to know, before we put more money in. And more
    questions to follow.
        Thank you.
        Senator Murray. Do you need some more coffee, Senator?
        Senator Bond. No.
        Senator Collins. I--we could offer to get you some.
        Senator Bond. Thank you, it's working.
        Senator Murray. Senator Collins.

                                  FREIGHT RAIL

        Senator Collins. Thank you Madam Chairman.
        Mr. Secretary, I want to take advantage of this opportunity
    to bring to your attention, and the attention of my colleagues,
    a very serious problem that we're facing in northern Maine. And
    the best way for me to do this is to refer to a map that we're
    providing to each of the members and to you. Thank you, I'm
    glad that you have it.
        First, let me tell you a little bit about the geography.
    The area in question in Maine includes the largest county east
    of the Mississippi in our country. And it is facing the
    imminent loss of virtually all the freight rail service for
    this area. The Montreal, Maine, and Atlantic Railway has filed
    with the Surface Transportation Board to abandon 233 miles of
    rail. It's signified on the map by the red line. And, as you
    can see, it's an enormous area. In fact, the only freight rail
    that would remain is a little strip at the very northern border
    between Madawaska and Van Buren.
        This area of our State has an unemployment rate that is
    almost 10 percent. It's higher than the national average, and
    it's higher than Maine's overall rate of 8.3 percent. If this
    rail line is abandoned, it will be devastating to the economy
    of northern Maine. There are about 20 major shippers that rely
    on this line. That includes a major paper mill that is in
    Madawaska; it includes a potato processing plant; and there are
    a variety of smaller shippers that also rely on the line.
        I want to read to you a quotation from the Maine
    transportation commissioner, because it sums up well just how
    important this is. ``The Maine Department of Transportation
    feels very strongly that we cannot allow this line to be
    abandoned. It is inconceivable that the largest county east of
    the Mississippi''--this is Aroostook County, it's my home
    county in Maine--``a county whose economy is primarily
    manufacturing and agrarian-based, would be completely cut off
    from rail service. That would truly be unprecedented. The
    outright abandonment of freight rail service would have an
    immediate and direct negative economic effect on the
    companies''--and I would add, all the employees--``that are
    located in this county.''
        Everyone, Mr. Secretary, is trying to work together--the
    State, the shippers, the local officials, county officials,
    State officials--but, it's obviously going to take an
    investment of capital to save this service. I am so committed
    to saving freight rail service for northern Maine. As you can
    see, it's an enormous area of our State. And I want the
    chairman of this subcommittee, and the ranking member, to
    understand that a contribution of Federal funding is going to
    be essential in saving this line. It's going to be one of my
    top priorities for the bill that we worked so hard on.
        Mr. Secretary, I know that the decision on whether or not
    to allow abandonment does not fall to you, it falls to the
    Surface Transportation Board. However, the Department does have
    funding options. And today I'm asking you to work with me, to
    work with this subcommittee, to work with the State of Maine to
    come up with a solution. We simply cannot allow 233 miles of
    line to be abandoned, when there's no other freight service for
    this large area of Maine. It would have a devastating impact on
    the economy, an economy that is already very fragile.
        So, today I'm asking you to work with me to try to identify
    solutions where the Federal Government can be a partner in
    trying to save this necessary freight service.
        Secretary LaHood. Well, Senator, thank you for your
    leadership on this. Freight rail is very, very important. It's
    a big, big component of our transportation system around
    America, and I know it is for Maine. You'll have my full
    commitment. What I'd like to offer up is for our rail
    administrator to go to Maine, as quickly as possible, to meet
    with all of the stakeholders and all of the people that are
    involved, and we'll figure out some kind of a funding
    opportunity to make sure that this line is not closed down,
    because, it's like an interstate system. You can't close down a
    part of the interstate that connects so many other parts of the
    State.
        We get it. I'm committed to helping you. I'll have our rail
    administrator in Maine, whenever we can get all the
    stakeholders together, and we will work with you on a plan to
    get this funded.

                                   SAFETEA-LU

        Senator Collins. Thank you so much. It's so important, and
    I very much appreciate your commitment.
        I want, next, to discuss an issue that my colleagues have
    talked about, and that is the expiration of the 2005 highway
    reauthorization law. I'm very proud of the fact that Maine was
    the first State in the Nation to obligate all of the funding
    provided by the Recovery Act. That is a credit to Governor
    Baldacci, to State officials, but it also shows you what an
    overwhelming need that there is for funding for infrastructure
    in my State.
        And it was brought home recently when a construction
    company executive came to meet with me. He talked about the
    fact that he had hired 150 workers as a result of the funding
    from the stimulus bill, but he's very concerned that there's no
    long-term highway funding plan on the horizon.
        Given the unfortunate reality that it looks unlikely that
    Congress will pass a highway reauthorization bill this year,
    what actions are the administration taking to ensure that the
    Highway Trust Fund has adequate funding?
        Secretary LaHood. Well, actually, the bill that you all
    passed--that's pending in the House today, and I think there'll
    be a vote on it--which extends our program through the end of
    the year, is an enormous help to the States. These 30-day
    extensions do them no good. As a matter of fact, States begin
    to lose money, and it's impossible to hire contractors. I mean,
    we like the bill that you all passed, and we're encouraging the
    House to pass it today, because it takes us right up to the end
    of the calendar year. It gives us time to work with all of you
    on another authorization bill, to find the money to do all the
    things we want to do. That bill, alone, is an enormous lift for
    all of these States.
        Senator Collins. I couldn't agree with you more that it's a
    real problem that we're passing just these short-term
    extensions. I supported and helped advance the bill----
        Secretary LaHood. Thank you.
        Senator Collins [continuing]. In question, because--the
    contractors simply can't plan. And the State does not dare
    enter into contracts if it's not assured that funding is going
    to be forthcoming.
        And finally, Mr. Secretary, I do want to mention the TIGER
    grant applications. The demand was enormous for that funding,
    as you know even better than I--nearly 1,400 applications were
    submitted, including several from Maine. We're grateful for the
    port funding that we received. But, there are other projects
    that are so important--the rail project that I just mentioned--
    but also what I believe is an innovative project that Maine and
    New Hampshire brought forth, to rebuild the bridge from
    Kittery, Maine, to Portsmouth, New Hampshire. The two States
    collaborated on a TIGER grant application. It has unanimous
    support from both the Maine and New Hampshire delegations, both
    of our Governors. And I hope, as you do the second round of
    TIGER grant applications--I believe it's $600 million----
        Secretary LaHood. Yes.
        Senator Collins [continuing]. More that you have available
    this year----
        Secretary LaHood. Yes.
        Senator Collins [continuing]. That you'll take a hard look
    at that application. This is a major thoroughfare connecting
    our two States. It's important for commerce, for tourism, for
    day-to-day travel by residents. And I urge you to take a close
    look. It's unusual for two States to collaborate together in
    filing an application, but that's what we've done.
        Secretary LaHood. Yes. Senator, let me just suggest that
    maybe we could work with your staff and get the stakeholders
    from both of the States together. We could review their
    application, in anticipation of us posting up our guidance for
    the next round, and that may be helpful to them. If we could
    work with your staff to get a few of those people gathered
    together, we can talk about the previous application and the
    way forward.
        Senator Collins. Thank you very much, Mr. Secretary.
        Thank you, Madam Chairman.
        Senator Murray. Thank you, Senator Collins.

                            PENNSYLVANIA EXPRESSWAY

        Senator Specter.
        Senator Specter. Thank you, Madam Chair, and good morning,
    Mr. Secretary.
        Secretary LaHood. Good morning.
        Senator Specter. Thank you for accepting the position in
    the administration to provide a breath of bipartisanship. We
    can use it around here. And thank you for being so accessible
    and the many trips you have made to Pennsylvania to take a look
    at our needs that come within the purview or your Department.
        As I have mentioned to you in our private conversations, I
    think that Pennsylvania ought to be getting more on the next
    round of disbursements. I understand the problems you've had,
    but the fraction allocated to my State has been relatively
    small.
        Picking up on some of the specifics, a very important
    project in Pennsylvania is the Mon Valley Expressway, and it
    connects Uniontown, in Fayette County, to the city of
    Pittsburgh, and is indispensable for economic growth in that
    area, an area which has been really hard hit with steel and
    coal, et cetera.
        PENNDOT requested some $401 million from the stimulus high-
    speed, but no funding was awarded. And we're searching for the
    concerns which the U.S. Department of Transportation has. And
    this is a matter which has to be worked out at the staff level,
    but I want to make the request, to you, to use the power of
    the--your office to see if we can't move that along so that
    we're in a position to answer whatever questions there are.
    That--the Mon Valley Expressway is really of critical
    importance to southwestern Pennsylvania.
        Turning now to the so-called Lackawanna Cutoff between
    Scranton and Hoboken, New Jersey, to establish a line which
    would set the stage for a Wall Street West, which would be very
    important for Wall Street and very developmental for New Jersey
    and also for northeastern Pennsylvania, the request was made
    for $401 million from Stimulus High-Speed. And, here again, we
    do not know what the problems were, and I'd like to get that
    worked out, at the staff level, so we can figure out to----
        Secretary LaHood. Yes, sir.
        Senator Specter [continuing]. Correct whatever problems you
    see.
        The Schuylkill Valley Metro is a project you know, because
    you came to Norristown and graciously participated in a meeting
    out there. We have received substantial funding over the years,
    but it hasn't gone forward. But, there is a fund of $24 million
    which has not been obligated. And I wrote you, back on December
    23, asking you not to reprogram the money, and I'd appreciate
    your taking a look at that and honoring our request, because
    that really is vital to take pressure off the Schuylkill
    Expressway. And one day we're going to get it worked out with
    existing sector rail lines called R6 and other lines which can
    be used to work all the way up to Reading.
        The Maglev issue has been on the table for a long time, and
    there have been plans to allocate $90 million--half in the west
    and half in the east. And finally, yesterday--and I thank you--
    there was a release of the $950,000 which you and I talked
    about a long time ago. It was reduced to $889,200, but thank
    you for liberating it.
        Secretary LaHood. Thank you for jogging my memory on it.
        Senator Specter. Well, I'm glad you have a memory, once
    jogged, and even gladder, if there is such a word, that we got
    some of that money.
        Mr. Secretary, without carrying on a monologue, where do
    you see Maglev heading, what kind of a timeframe do you see for
    a decision to make an allocation of the $45 million to
    Pennsylvania?
        Secretary LaHood. Maglev is very expensive, Senator, and we
    really need to sit down with the stakeholders and look at their
    plans and determine what kind of commitment there will be from
    others. To be honest with you, it is a very expensive project,
    and we just need to make sure we know where all the money is
    going to be coming from, and that the plans are in place so
    that if somebody makes a decision to go ahead with this, that
    the commitments will be there, not only from us, but from those
    that want to implement this program.
        Senator Specter. Mr. Secretary, whom are you looking toward
    to be at the table? Because I'd like to move ahead, and I would
    certainly take the lead in organizing the meeting. Who----
        Secretary LaHood. Well, I think we need to get people in
    the State that are interested in this program, and members of
    your delegation who have expressed an interest, together and
    have a meeting. We'd be happy to help you organize that--or if
    you want to take the lead. I think we should do that.
        Senator Specter. Well, I'd be glad to take the lead, and I
    will follow up with you on that. Maglev is present in other
    countries. I've rode on a pilot project in Hamburg; it must
    have been a decade ago. The train is designed to run close to
    300 miles an hour. You go from Philadelphia to Pittsburgh in 2
    hours and 7 minutes, with intermediate stops in Lancaster,
    Harrisburg, Altoona, Johnstown, and Greensburg. And you
    wouldn't have to take your shoes off to get on the train. It
    would cut down on a lot of vehicular traffic and have all the
    ingredients we talked about on high-speed rail--high-speed
    travel. And I think it is a technology which is expensive, but
    I think it would be worth it. But, let's pursue the----
        Secretary LaHood. Yes, sir.

                              INFRASTRUCTURE FUND

        Senator Specter [continuing]. The dialogue we've had.
        We're working, on the Environment and Public Works
    Committee, on the highway bill--highway and transit--and we're
    talking about a figure of $600 billion. Is that realistic, from
    the point of view of the administration? I hope so.
        Secretary LaHood. Well, if you look at the bill that's been
    put together in the House, it's about a $450 to $500 billion
    bill. Everywhere I've gone, I've said the President wants a
    robust, comprehensive transportation program. We need to find
    the money to do it. One of the ways that the President
    suggested, in the budget that you're all considering, is an
    infrastructure fund. Some people like it and some people don't,
    but it would be a fund that would allow for significant
    outstanding projects around the country.
        We need to think outside of the box. The President is not
    for raising the gasoline tax when unemployment, nationally, is
    just below 10 percent. So, the Highway Trust Fund is not
    sufficient to do all the things we all want to do, and we need
    to think about an infrastructure fund, we need to think about
    tolling, we need to think about alternatives that help us do
    the things that we all want to do.
        Senator Specter. Mr. Secretary, what would the source of
    the revenue be for the so-called infrastructure fund? Would
    there be bonds? How would we----
        Secretary LaHood. That is correct.
        Senator Specter. How would you--put a little flesh on the
    bones. How would you proceed on it?
        Secretary LaHood. There are big, significant projects
    around the country that people don't have the money for,
    whether it's a bridge between two States, an interchange, or an
    extension of an interstate system to connect one State to
    another. The way I envision it, if Congress allowed this kind
    of a fund, to receive proposals for significant projects and
    then work with the States on the cost. The bonds would allow
    the money, then, to begin to flow, over a period of time.
        Senator Specter. Well, it certainly would be a----
        Secretary LaHood. I can tell you this, Senator. The Buy
    America Bond Program is wildly popular, oversubscribed. This is
    not exactly the same thing, but I'm just saying alternative
    funding is what we really need to think about, because there's
    just not enough money in the Highway Trust Fund.
        Senator Specter. Well, I've given you some homework, and
    you've given me some homework. And I'll proceed to look at
    that. It's the kind of legislation that I would favor and would
    be inclined to introduce, and we'll proceed.
        Well, my red light just went on.
        Thank you very much for your----
        Secretary LaHood. Thank you, sir.
        Senator Specter [continuing]. Service, Mr. Secretary.
        Thank you, Madam Chair.
        Senator Murray. Thank you, Senator Specter.

                                HIGH SPEED RAIL

        Senator Kohl.
        Senator Kohl. Thank you very much, Senator Murray.
        Secretary LaHood.
        Secretary LaHood. Yes, sir.
        Senator Kohl. On January 28, the White House announced the
    recipients of $8 billion in high-speed rail grants, including
    two projects, as you know, in Wisconsin.
        Secretary LaHood. Yes.
        Senator Kohl. Connecting Wisconsin's major metropolitan
    areas through high-speed rail will yield both immediate and
    long-term benefits. Ultimately, this link will help develop
    both Madison and Milwaukee's economies, creating long-term
    growth for each city, as well as the cities in between.
        In the short-term, the projects will create thousands of
    jobs, and Wisconsin is anxious to get started, as I'm sure you
    can well understand. My understanding, Mr. Secretary, is that
    the Wisconsin Department of Transportation is ready to assign
    contracts next month, and could begin construction this coming
    fall. If our goal is quickly creating jobs, then getting money
    out the door seems to be the most important and the most
    effective thing that we can do.
        I'd like to ask you what the Federal Railroad
    Administration's timeline is for getting this funding to the
    States. Will the FRA be able to get the funds to Wisconsin in
    time for our fall construction season?
        I want to be clear, Mr. Secretary, this is about jobs--we
    all understand that--now and in the future. And I'd like to
    hope that you will do everything you can to make sure that this
    process is well expedited and that transportation departments
    are able to put people to work quickly. Do you have some sense
    or knowledge about how the FRA might be able to act quickly on
    the Wisconsin----
        Secretary LaHood. We want to enter into agreements with
    these regions, of which, obviously, Wisconsin is ready to go,
    as quickly as we can so that people can begin working on high-
    speed rail and Americans can begin to see the results of this
    economic recovery. Our plan is to do that very quickly, sign
    these agreements with the States, and begin as soon as the
    States are ready to go. Our people are, right now, putting
    together documents and will meet with the stakeholders, like
    the State of Wisconsin, very, very soon, like within the next
    10 days or 2 weeks, to begin to say, ``Here are the documents,
    here's what we think needs to be signed so that you can
    begin.''
        Senator, let me just say something that I talked to you
    about privately. I want to compliment your Governor. I think
    the reason that Wisconsin is in the high-speed rail business is
    because Governor Doyle stepped up, a year ago. He came to see
    me and said, ``How do we get into the high-speed rail business?
    This is something we've been planning.'' Thanks to the
    leadership of your delegation and your Governor, you all are
    going to be at the forefront of the Midwest Region by
    connecting your State with other States that are in that
    region. I want to compliment, not only you and Senator Feingold
    but also Governor Doyle, because he was early at the starting
    gate on this. We want to make it happen quickly, because we
    know there'll be thousands of jobs provided when they start
    building the train sets and the infrastructure and all the
    things that will be needed.
        Senator Kohl. Well, that is really encouraging to hear.
    And, of course, you are right about Governor Doyle. He has been
    out front and has exhibited the foresight to see this coming
    down the road and seeing that Wisconsin was there in time,
    fully planned and organized to take advantage. It's nice for me
    to know that you are fully aware of it and that you want to
    expedite----
        Secretary LaHood. Yes, sir.
        Senator Kohl [continuing]. You know this particular project
    just as quickly as you can. I know he'll be happy to hear it. I
    think people all over our State will be happy to hear it, and I
    express my appreciation to you.
        Secretary LaHood. Thank you.
        Senator Kohl. Thank you.

                                 TIGER PROGRAM

        Senator Murray. Thank you very much, Senator Kohl.
        Mr. Secretary, DOT has, as you know, recently awarded
    grants under the TIGER program that we funded under the
    Recovery Act. And, under that, it was necessary to give
    priority to projects that could be completed over the next few
    years. However, the funding that we provided for fiscal year
    2010 has a new set of requirements, and it can be used for
    longer-term projects. I know there are a lot of projects across
    the country that need this funding. I've talked to you about
    one in Washington State, the Columbia River Crossing Project
    that's so important for mobility for cars and trucks and
    transit and bicycles and pedestrians; it's one of the worst
    bottlenecks we have on the I-5 corridor.
        I wanted to ask you, this morning, how will the different
    requirements for the 2010 funding affect the kinds of projects
    that you'll be able to fund under the TIGER program?
        Secretary LaHood. Right now, Madam Chair, we're probably
    looking at the same guidance that we provided for the other
    TIGER grants. And, frankly, we'd like to try and get some of
    this money out the door this year, so we can continue the
    progress that we've made with our economic recovery. We know
    that the $600 million will provide jobs. That's our goal.
    That's the reason you put this money in the bill, so people
    could go to work.
        I don't think the guidance will be that much different. We
    also will probably look at some applications that were very
    close in the first competition. The projects that if we'd had
    more than $1.5 billion, they would have gotten funded. We're
    advising----
        Senator Murray. You don't expect to see new requirements,
    even though we have said this funding can be for longer-term
    projects.
        Secretary LaHood. I want to try and get the money out the
    door as quickly as possible so we can provide jobs.

                              RAIL TRANSIT SAFETY

        Senator Murray. Okay. The budget that you submitted
    includes $24 million and 100 positions to establish a new Rail
    Transit Safety Oversight Program. That proposal, obviously,
    follows on the heel of rail transit accidents in Boston and San
    Francisco and, tragically, here in Washington, DC, and supports
    the legislation the administration transmitted to Congress in
    December. I know you're hopeful that Congress will approve that
    legislation this year. In the meantime, I wanted to ask you
    what you've been able to do, within your current authority that
    you have, to make sure transit systems are safe without that
    legislation.
        Secretary LaHood. We're prohibited by law from doing that,
    Senator. That's the reason we proposed to all of you a bill.
    Because the law says we can't do it. For some strange reason--I
    guess it was because, years ago, people thought since we were
    divvying up the money, we shouldn't have the responsibility for
    the safety aspect of it.
        Senator Murray. Can you provide training or technical
    assistance?
        Secretary LaHood. Peter Rogoff, our transit administrator,
    is looking at best practices from around the country, and then
    trying to make sure that transit systems know what that is.
    But----
        Senator Murray. So you really need that legislation.
        Secretary LaHood. We do, absolutely. We need the legal
    authority that only a law can give us, to really get into this
    up to our eyeballs, and really do a good job in making sure
    that these transit systems are safe.

                             POSITIVE TRAIN CONTROL

        Senator Murray. Okay. Positive train control is an
    important new technology that will help, we believe, and
    prevent some of these train-to-train collisions and
    derailments. Recognizing the safety benefits of this
    technology, the NTSB included positive train control on its
    most-wanted list for 18 years, and they took it off the list
    only after Congress mandated its use. For fiscal year 2010,
    this subcommittee provided $50 million for a new program that
    would support the development of positive train control, but
    you've requested no funding for the program this year. Can you
    explain to the subcommittee why the budget request doesn't
    include any funding?
        Secretary LaHood. Well, we have a rule pending. We believe
    positive train control is something that is absolutely critical
    to safety. I'm going to ask Chris--you all know Chris Bertram,
    go ahead.
        Mr. Bertram. Yes. We did not include any funding for that.
    There is, as the Secretary mentioned, a rule pending at OMB
    that would mandate positive train control.
        Senator Murray. But, you've requested no funding.
        Mr. Bertram. Correct.
        Senator Murray. And you don't believe it needs any funding?
        Mr. Bertram. I think the FRA will take a look at the money
    that Congress provided, and evaluate the effectiveness of that.
        Senator Murray. From last year.
        Mr. Bertram. From last year, yes.
        Senator Murray. Okay. Well, I may submit another question
    on the record on that.

                                 FERRY FUNDING

        I wanted to ask you about ferry systems. As you know,
    ferries are, just, a critical part of transportation systems in
    my home State, connecting communities between Puget Sound and
    across the Columbia River system. In fact, the ferry system in
    my home State is the largest ferry system in the United States,
    with over 40 percent of U.S. ferry passengers, and about three-
    fourths of the vehicles, carried nationwide. Last year, I
    introduced legislation to reauthorize the Federal Ferryboat
    Discretionary Program and expand the Federal investment in our
    Nation's ferry system, and that legislation built directly on
    what we did in SAFETEA-LU to give priority to ferry systems
    that carry the most passengers and most vehicles and have
    access to critical areas. I wanted to ask you, Mr. Secretary,
    this morning, if I have your commitment to work closely with
    us, following that directive in SAFETEA-LU, to allocate ferry
    funding in 2010.
        Secretary LaHood. Absolutely. I had the privilege, when I
    was in Seattle, to use the ferry system. I know how important
    it is as a part of the overall comprehensive transportation
    system in the Northwest, and you have my commitment.
        Senator Murray. To work on the criteria.
        Secretary LaHood. Absolutely.

                                 MEXICAN TRUCKS

        Senator Murray. Great, one last question for you. I wanted
    to ask you a question on a topic that we talked about at this
    hearing last year: cross-border trucking with Mexico. Last
    year, you talked about the work you were doing with the various
    departments to craft a plan to resume cross-border trucking
    with Mexico in a way that would address the safety concerns
    raised during the pilot and in the tariffs that have now been
    imposed by the Mexican Government. Those tariffs were imposed
    on over 90 U.S. products and they undermine the competitiveness
    of many agricultural products in my home State of Washington.
    If we're not able to find a path forward with Mexico on this
    issue, these tariffs are going to send American jobs north to
    Canada as our growers and our processors and our packers are
    being forced to relocate, and it is threatening the livelihood
    of many communities in my State.
        Now, I appreciate there's a lot of concern about
    implementing this cross-border trucking, but we've got to work
    with Mexicans to address this impasse and move forward. I met
    with Ambassador Kirk a few weeks ago. I wanted to ask you, this
    morning, to give us an update on your discussions with the
    administration and with Mexico, to give us a sense of when we
    will see the plan from the administration.
        Secretary LaHood. We are finalizing a plan. The reason it's
    taken so long is because there's a lot of different moving
    parts, including about five different Cabinet officials. Every
    time we make a tweak or a change, everybody has to sign off on
    it. But, we're very near a proposal that we think will meet all
    of the safety concerns that I heard when I talked to 25 Members
    of Congress. We're close to talking to all of you about what we
    think are----
        Senator Murray. Okay, well, we're----
        Secretary LaHood [continuing]. Our way of addressing the
    safety concerns that Congress brought to us.
        Senator Murray. Okay, Mr. Secretary, I appreciate that. And
    you and I have had this discussion; I know you're working on
    it. This is critical to a number of our agricultural industry
    now in my State. Would you please tell the folks you're talking
    to in the White House, and others, that we need to get this
    done?
        Secretary LaHood. I will.
        Senator Murray. Thank you, Mr. Secretary.
        Secretary LaHood. Thank you.
        Senator Murray. I'm going to turn this over to my ranking
    member, Senator Bond. I have to get to another hearing. He has
    kindly agreed to be very nice to you. No.
        Secretary LaHood. Thank you, Madam Chair, for all of your
    leadership on transportation. We really appreciate your
    forward-looking on transportation issues, and it's a joy to
    work with you and your staff on these things that we all really
    want to get done. So, thank you for your leadership.
        Senator Murray. Thank you, Mr. Secretary.
        I will turn this over to Senator Bond. He is going to ask
    his questions and recess the meeting for me. And I really
    appreciate your doing that.
        Thank you.

                                   LIVABILITY

        Senator Bond [presiding]. Thank you, Madam Chair. If you
    will continue to keep the E&W meeting going, I will look
    forward--I'd have some friendly questions to ask Secretary Chu.
        But, Mr. Secretary, let's go back to a couple of the
    questions we were talking about, about the standards. The TIGER
    grants, you said, the strategic plan is for safety, economic
    competitiveness, state of good repair, and livability. What's
    livability?
        Secretary LaHood. Communities where people have access to
    many different forms of transportation and affordable housing
    and the ability to really have access to all of the things that
    are important to them, whether it's a grocery store, a drug
    store--access. It's not dissimilar to the neighborhood, for
    example, that the Department of Transportation is located in.
    After the ballpark went there, there was a Metro stop, there
    were new bus stops, there are new condominiums, there's access
    to affordable housing. What it is, Senator, it's an opportunity
    for people who want to live in neighborhoods--maybe they don't
    want a car--so they can walk to work, they can take mass-
    transit to work, they can take a bus to work, they can go to a
    grocery store. These are communities and neighborhoods where
    people want to live, where they have access to all the things
    that they want.
        Senator Bond. Well, I mean, how do you measure that? I
    mean, the--I don't think the Department of Transportation is in
    the business of determining the state of the communities. We
    do--we try to help build community plans that are locally based
    community plans, that come to the request from HUD for
    neighborhood stabilization, economic development; and the plans
    must come from the localities. And I've supported access--
    transportation access--the BRT program in Kansas City--bus
    rapid transit--it's been very important. But, that supplements
    a local plan, where transportation is just one part of it,
    where there is a much broader plan for the housing, the
    facilities, and what the State is doing. And livability, to
    me--you know, I've got a lot of constituents for whom
    livability means having a decent highway. They've got to drive
    on the highway because they live in a rural area and they've
    got to drive from one town to another town or maybe from one
    town to a city. And we are killing those people on the roads.
    We have--we lose three people a day on highways, in Missouri,
    and at least one-third of those deaths are due to poor highway
    conditions. This is not a question of convenience; this is a
    question of staying alive.
        So, livability, in some areas, has a different meaning. And
    I just question--if we're building--if we're looking at all
    these dollars to go in and build urban livability sections, I
    think there needs to be broader criteria, as well. That's why
    I'm questioning----
        Secretary LaHood. Well, Senator, let me just give you an
    example in your home State. The $50 million that we gave to
    Kansas City is for some of the simplest things that you and I
    take for granted. In this neighborhood--it's a 150-block
    neighborhood, in your colleague Congressman Cleaver's district.
    That money is going to be used to do simple things, like make
    sure people have a sidewalk to walk on, and to make sure that
    there are curbs. Now, that may sound silly to you----
        Senator Bond. No, it's not--it's----
        Secretary LaHood [continuing]. But when I went there for
    the announcement, I took a tour with Mr. Cleaver, and what we
    found was an abandoned neighborhood, because there are no
    sidewalks, there are lousy streets, and people can't even drive
    down the streets. So, what Congressman Cleaver and a whole
    group of community people did is put together a plan--$50
    million of our money and some HUD money--to build affordable
    housing so that people that want to stay in this neighborhood
    can stay in the neighborhood. That's what Livable Communities
    is all about.
        Senator Bond. Mr. Secretary, I have the highest respect for
    Congressman Cleaver. A former mayor I've worked very closely
    with. I don't know what's going on in Kansas City. But, when
    did it become the responsibility of the Federal Department of
    Transportation to build sidewalks?
        Secretary LaHood. When you all put it in the----
        Senator Bond. I think that----
        Secretary LaHood. No. When you all put it in the
    transportation bill for the amenities for neighborhoods,
    whether----
        Senator Bond. This is----
        Secretary LaHood [continuing]. Its streetscape or medians,
    or whatever it is, you all did it. I was a part of it. I was a
    Member of Congress that did it, too.
        Senator Bond. To go in and be building sidewalks, when
    there is a--there are such transportation needs. You--I know
    that heel-and-toe is transportation, but what I'm saying is,
    there are other priorities that I think come ahead of that. And
    I just question how much money is going to be spent on
    sidewalks, when we need highways and we need bridges. That's
    where--and I--any--this is a----
        Secretary LaHood. Senator, if you look at----
        Senator Bond. It's a question of priorities.
        Secretary LaHood. If you look at our portion of the
    economic recovery--you all provided $48 billion--the lion's
    share of it went to highways--$28 billion; $8 billion for
    transit, $8 billion for high-speed rail, $1.5 billion for so-
    called TIGER grants, $28 billion for highways. That's----
        Senator Bond. That is----
        Secretary LaHood. That's your priority.
        Senator Bond. Well, unfortunately----
        Secretary LaHood. That's where the lion's share of the
    money went.
        Senator Bond [continuing]. It was a drop in the bucket--out
    of $787 billion----
        Secretary LaHood. I'm talking about----
        Senator Bond [continuing]. That was far too little--no, but
    I'm--I think we might be on the same side, on that one. I think
    it was far too little, because we could have used a whole lot
    more for highways and bridges.
        But, my problem is that every dollar we're spending in that
    stimulus bill, and a lot of other things we're doing, is going
    on the deficit. We are borrowing from our children and our
    grandchildren. And I am kind of embarrassed to tell my son
    and--if he and his wife have children, tell my grandchildren--
    ``Oh. I'm sorry. We've been spending--we spent your--we spent
    on your credit card.'' And I think there is a growing
    realization that we need to get these deficits under control,
    and spend only on things that we can justify to our children
    and grandchildren. That's the problem.
        And high-speed rail, again--I don't know if you saw it, but
    the Wall Street Journal had a--had an article by Wendell Cox,
    on January 31 called the ``Runaway Subsidy Train.'' Did you see
    that?

                                HIGH SPEED RAIL

        Secretary LaHood. No, sir.
        Senator Bond. I'll give you a copy of it.
        Secretary LaHood. Okay.
        Senator Bond. It's very critical, and I think raises
    questions that need to be answered. It says, ``Proponents claim
    that high-speed rail is profitable, but this is off the mark.
    Internationally, only two segments have ever broken even--Tokyo
    to Osaka and Paris to Lyon.'' And they did that because they
    had $4 gasoline--equivalent of $4 gasoline and highway tolls of
    $40 to $100, respectively. If that--if you want to make it
    profitable, you have to have those kinds of tolls.
        It--the question that I have, generally, about high-speed
    rail is what's going to be the total cost? I know that--let's
    see, I guess the estimate in California is that--let's see--
    California high-speed rail, Los Angeles to San Francisco, $40
    billion to $60 billion. Totally taxpayer subsidized taxpayer
    money. Same time, we've got airlines flying there that are not
    flying on the--they're not being subsidized by the taxpayer
    dollar. The people who drive on the roads are paying taxes that
    not only pay for roads, but also help subsidize high-speed
    transportation. I want to know what the total cost of all these
    wonderful high-speed rail plans are and what is the
    justification. How is it going to be--how are we going to know
    that these are valuable? There seems to be--there are many,
    many questions about why--whether some of these routes are
    going to be much faster than when the trains were, back in the
    1930s and 1940s. I know we got $34 million in Missouri. That's
    nice. That will probably provide some amenities, like extra
    sidings for trains to--freight trains, or even passenger
    trains, if needed, to pull off so they can get passed. But,
    what are the projections for ridership between St. Louis and
    Kansas City? How many billions of dollars is it going to cost
    to build a high-speed rail through there? Can we justify that
    to the taxpayers--not just to Missouri, but to the Nation--for
    what we'd have to spend? These are questions I think we have a
    responsibility to ask when we are working in a deficit
    situation.
        And even if--you know, always glad to see money in
    Missouri. But, before we continue to spend that money, I want
    to make sure we're spending it properly. That's the big concern
    I have. Are we spending it properly?
        I'll give you that and--we had another couple of Wall
    Street Journal editorials that I think----
        Secretary LaHood. You want me to answer these for the
    record, Senator, or----
        [The information follows:]

        Ensuring proper use and distribution of funds remain high
    priorities for the Department of Transportation. As the Department
    moves forward in the development of each of the State corridors, we
    will be working with our State partners to develop reliable cost
    estimates for programs to develop specific high-speed rail corridors
    recognizing the challenges associated with predicting costs for
    projects that might span decades. We will also be looking for the
    States and other interest parties to become part of both the planning
    and corridor development process.
        Each program will include several projects. As we move to project
    level decisions that involve commitment of funds for construction, we
    will be refining cost estimates, refining ridership and benefit
    estimates, and refining commitments from stakeholders and interested
    parties. In this merit-based competitive program, those corridor
    projects that move to construction are the ones that are expected to
    generate the largest benefits to the U.S. taxpayers.

        Senator Bond. Oh, I----
        Secretary LaHood [continuing]. Do you want me to answer
    them?
        Senator Bond [continuing]. Well, yes, answer these for the
    record. Or, I mean, if you've got any comment----
        Secretary LaHood. Okay, all right.
        Senator Bond. I'll let you----
        Secretary LaHood. I know you want to go to another
    committee meeting, so I'll answer them for the record for you.
        Senator Bond. Okay. And if you have any comments on my
    comments, I'd welcome those now. I mean----
        Secretary LaHood. Of course, I have comments. Yes. I didn't
    know if----
        Senator Bond. Good. No, I----
        Secretary LaHood [continuing]. You wanted to go on to
    another hearing, or not.
        Senator Bond. But, this is important, so--but I mean----
        Secretary LaHood. Yes.
        Senator Bond [continuing]. For these things I gave you, if
    you may want to look at them and have----
        Secretary LaHood. Okay.
        Senator Bond [continuing]. Indepth comment, but----
        Secretary LaHood. Yes.
        Senator Bond [continuing]. You--I want to let you----
        Secretary LaHood. No, look it----
        Senator Bond [continuing]. Have an opportunity----
        Secretary LaHood. Senator, you know----
        Senator Bond [continuing]. For anybody who's still
    listening, I want you to make sure you have your time to----
        Secretary LaHood. Sure.
        Senator Bond [continuing]. Express your view.
        Secretary LaHood. I appreciate that.
        Senator Bond. Sure, no. That's----
        Secretary LaHood. No, I appreciate that.
        When President Eisenhower signed the Interstate Highway
    bill, nobody knew where all the lines were going to go, and
    nobody knew how we were going to pay for all of it. So, I'm not
    going to sit here and tell you I know where all the money's
    going to come from for high-speed rail. I know this: Americans
    want high-speed passenger rail. We did not have one of the 13
    regions turn us down in their opportunity to receive some of
    the $8 billion. There are so many people around America that
    want good passenger rail transportation. I can tell you, when
    the announcement was made in Missouri, there was a big hue and
    cry that went up. I didn't hear one word of criticism about it
    from your Governor or any of the elected officials there,
    because it's going to connect opportunities for people.
        You know this as well as I do, Senator. If you build it,
    they will come. The interstate system is an example of that.
    What an economic engine the interstate system has been for
    places all over America. What's happened in Europe and Asia,
    their governments have made a huge investment and these
    corridors have become a huge economic engine everywhere that
    they are.
        I can cite chapter and verse. You build a transit line, you
    build a busline, you build an interstate or a--improve a
    street--you build it, and they will come.
        I know this. There's going to be a lot of private
    investment. We had a meeting with all of the companies that
    build train sets, not only in Europe, but in Asia. And we had
    them come to the Department, and what we said to them----
        Senator Bond. Oh man, they--I mean, they--they love it.
    They're the ones who are going to build it. They're going to--
    yes, that--they're----
        Secretary LaHood. Yes, but they're also going to make an
    investment of some of their money, because they know this is an
    opportunity to get into the high-speed, inner-city rail----
        Senator Bond. Yes, right.
        Secretary LaHood [continuing]. Business in America.
        Senator Bond. Now, they're going to make some money off of
    it, but how much----
        Secretary LaHood. They're going to invest----
        Senator Bond [continuing]. Is it going to cost--how much is
    it going to cost----
        Secretary LaHood [continuing]. The money too, Senator.
        Senator Bond [continuing]. The taxpayer?
        Secretary LaHood. They're going to invest a lot of money,
    too, Senator----
        Senator Bond. And where they do----
        Secretary LaHood [continuing]. The way they have in
    Europe----
        Senator Bond [continuing]. They're going to invest in----
        Secretary LaHood [continuing]. And in Asia.
        Senator Bond [continuing]. Where they get some money out of
    it.
        Secretary LaHood. The----
        Senator Bond. I--I've talked to the people who are building
    toll roads, and they love it, because they know they are going
    to make money. But, here, as I said, two rail--two high-speed
    rail lines are profitable--I will--as Governor, I supported
    Amtrak. I started subsidizing Amtrak, and we could--the State
    of Missouri, I think, is still subsidizing Amtrak. But have
    they come in large numbers? No. I've--I rode it, and I've seen
    how a few people are on it. We have Amtrak from--between Kansas
    City and St. Louis. Yes. I'd like to see that. But, am I
    willing, on the thought that they will come, to spend billions
    of dollars more? I haven't seen it, so far.
        And to make that into a high-speed----
        Secretary LaHood. Well, you were willing to put----
        Senator Bond [continuing]. Rail----
        Secretary LaHood. As Governor, and certainly, as a Senator
    here, you've been willing to stake a claim on the idea that if
    we build a bridge between Illinois and Missouri, people are
    going use it.
        Senator Bond. I will put a whole lot more money on that
    one----
        Secretary LaHood. I know you will; you already have.
        Senator Bond [continuing]. Than on spending billions on--
    spending billions on high-speed rail. You and I both need that
    bridge. We want you----
        Secretary LaHood. The principle is that----
        Senator Bond. We want you Illinois people to come over and
    watch the Cardinals. We're not----
        Secretary LaHood. Well, I'm looking forward to being with
    you to dig the first spade of dirt. But, I'm----
        Senator Bond. Yes.
        Secretary LaHood. Senator, you know this. When that bridge
    is built, people are going to use it. You build it and they
    will come. I don't think you would have staked a claim to that
    unless you thought people were going to use it and that it was
    needed. And I can----
        Senator Bond. We've seen the projection----
        Secretary LaHood. The same principle is true for high-speed
    inter-city passenger rail.
        Senator Bond. I'm sorry, I believe we have an experience
    with the highways. We know how important they are. We have a
    good track record. The track record, unless you're looking at
    Tokyo to Osaka, or Paris to Lyon, is not that good. So, I just
    would like to know the total estimated cost, where the funding
    is going to come from to ensure the things you are starting
    now, and what commitment, by State, localities, and private
    companies, are going to meet the required need, before we
    invest--before we commit to--I don't care whether it's St.
    Louis to Kansas City, St. Louis to Chicago, Chicago to
    Milwaukee, or Portland to Seattle--how much is it going to
    cost? What do you project the ridership? How much is that
    ridership going to be per person? Sometimes those numbers are
    pretty scary, because it's the taxpayer dollar that we're
    putting at risk. Well----
        Secretary LaHood. Those are all very good questions----
        Senator Bond. Yes.
        Secretary LaHood [continuing]. And I'll do my best to
    answer them.
        [The information follows:]

        The administration's support of the high-speed rail program
    highlights the significance that this intercity passenger rail
    initiative is expected to have on American way of life and our economy.
    This initiative will help relieve congestion, is environmentally sound,
    and ultimately promotes more livable communities across the country.
    Although the cost of a national high-speed rail system is unknown at
    this time, the closest analogy that we can make is the Interstate
    Highway program, which began in 1956. DOT did not estimate the cost to
    complete the Interstate System, but the benefits to the United States
    were immeasurable.
        The $8 billion appropriated under ARRA, as well as the $2.5 billion
    that was appropriated in fiscal year 2010, and the $1 billion requested
    in fiscal year 2011 President's budget, are reflective of the
    administration's commitment to advance the building of the
    infrastructure necessary to make high-speed intercity passenger rail
    transportation a reality. These resources are the down payment for this
    long-term infrastructure effort. We are working closely with the States
    and the rail industry to develop preliminary estimates and longer-term
    infrastructure requirements and plans. We commit to keep the
    subcommittee informed as we validate requirements and assemble more
    tangible plans.

        Senator Bond. Good, good. And I--and I--those are--that's
    what I'm asking, because this is not like--we all know what--
    when you build a highway, when you build a bridge--and you and
    I know that a good friend of ours, when I was fighting for the
    highway bill and I proposed a bridge, he complained that there
    was a--``You should not be using highway money to build a
    bridge.'' Well he happened to come from a very dry State, and I
    explained to him, ``In the Heartland, highways don't work
    unless you have a bridge across the river.'' So, I fought--I've
    fought that battle. I know----
        Secretary LaHood. I know.
        Senator Bond [continuing]. That battle.
        Secretary LaHood. I know.
        Senator Bond. I know it from both sides. That's why I raise
    it.

                                 CYBER SECURITY

        Now, I've got a very--one very serious question that we are
    not going to discuss at length in a--in an open hearing. You've
    got $30 million for cybersecurity. I'm not going to ask you to
    go into the threats. I'm on the Intel Committee, and I know
    what the threats are. Do you have a plan for how that money is
    being spent?
        Secretary LaHood. Yes, sir. I'll be happy to come up and
    brief you on that.
        Senator Bond. Okay.
        Secretary LaHood. I'd like to do that.
        Senator Bond. We would like--I think Chairman Feinstein and
    I, on the Intel Committee, are also----
        Secretary LaHood. Yes, sir.
        Senator Bond [continuing]. On Appropriations. If you would
    arrange to send your staff up--is the plan completed?
        Secretary LaHood. It is.
        Senator Bond. And who was responsible for preparing it?
        Secretary LaHood. We have hired a very, very experienced
    person to deal with this issue.
        Senator Bond. Has it been completed, in cooperation with
    other agencies?
        Secretary LaHood. Absolutely. It's being coordinated with
    other agencies, of course.
        Senator Bond. Has it--have you coordinated with NSA?
        Secretary LaHood. Of course.
        Senator Bond. Okay. Let me just say--I was hoping that they
    would be here, but my--all right. Lewis Tucker, on my staff,
    and David Grannis, on Chairman Feinstein's staff, would like to
    work with you to prepare a full staff briefing, and then we
    would like to have an opportunity--Brian Smith, from the Budget
    Office, in the Intel Committee. This is a very, very important
    investment, and we want to work with you on it to make sure----
        Secretary LaHood. Yes, sir.
        Senator Bond [continuing]. It is done--that the money that
    you need is available, that it's well designed, and it's----
        Secretary LaHood. Yes, sir.
        Senator Bond [continuing]. Well carried out, because this
    is----
        Secretary LaHood. We will do it.
        Senator Bond. No further comments on that one, here, but
    just know that we appreciate how serious it is.
        Secretary LaHood. Yes, sir.

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Bond. And we'd work with you to make sure it's
    done. At this time I would ask the subcommittee members to
    submit any additional questions they have for the record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                  Questions Submitted by Senator Patty Murray
        Question. Mr. Secretary, your budget request includes $4 billion
    for a new agency at DOT--the Infrastructure Fund, or I-Fund. This
    proposal goes beyond the TIGER program that we funded in the Recovery
    Act and the regular 2010 bill. The I-Fund would not only evaluate
    project applications, but it would also look for projects to fund,
    whether or not the project even considered applying to DOT.
        Giving this authority to DOT would be granting the Department an
    unprecedented amount of discretion over taxpayer dollars.
        Senator Bond and I are both responsible for making sure that DOT
    conducts its programs with a fair and open process.
        Mr. Secretary, how would this kind of authority be consistent with
    running the Department with transparency and accountability?
        Answer. At the Department of Transportation, we are absolutely
    committed to accountability and full transparency, and the operations
    of the National Infrastructure Innovation and Finance Fund (NIIFF)
    would be handled in the same manner. The Infrastructure Innovation Fund
    would take a relatively small portion of the overall Federal
    expenditure for transportation infrastructure and focus on funding
    projects of national and regional significance that help us achieve our
    national goals, such as economic competitiveness and livability. The
    ability to dedicate a portion of Federal transportation resources to
    fund these projects through a merit-based process, based on performance
    and outcomes of the projects, is an important part of our overall
    approach to address our most critical transportation infrastructure
    needs. We have been clear about the criteria we have established to
    evaluate these projects and about the analysis that we expect
    applicants to prepare to support them. We would be happy to work with
    you and your staff to develop appropriate ways of achieving the
    transparency and accountability that we all agree will be essential in
    this program.
        Question. Why should such an ambitious program be considered before
    we even know what is in the administration's reauthorization proposal?
        Answer. The Department has committed to releasing principles for a
    reauthorization bill as soon as they are ready. We hope to use the time
    between now and the end of the year, when the current extension of the
    surface transportation program runs out, to make progress in developing
    long-term legislation. The I-Fund's merit based evaluation process will
    be an important part of our overall approach to address the most
    critical transportation infrastructure needs. Every project selected
    through the TIGER discretionary grant and the National Infrastructure
    Investment (TIGER II) grant process will require specific performance
    measurements so we can track actual outcomes against the estimates
    provided in the submitted applications. This will provide a new
    knowledge that will help inform the Department's other surface
    transportation programs, as we work to better identify the highest-
    priority needs, and how to address them, through the Reauthorization
    process.
        Question. In any competitive program, there will always be
    questions about how funding decisions were made. And the TIGER program
    was the Department's first experience running a discretionary program
    of that size.
        Mr. Secretary, as you go through the process of awarding TIGER
    grants funded in 2010, how will you ensure the Department follows a
    fair and open process?
        Answer. DOT has made a significant amount of material available to
    the public about the criteria used to select projects, description of
    the process used to evaluate applications and list of the applications
    received. More than just making information available, DOT has
    aggressively reached out to the Congress and public to answer questions
    about the TIGER process, through webinars, conference calls and face-
    to-face meetings.
        The fiscal year 2010 appropriations act provided $600 million to be
    awarded by the Department of Transportation for National Infrastructure
    Investments (``TIGER II Discretionary Grants''). To ensure a fair and
    open process, the TIGER II Discretionary Grants will be awarded on a
    competitive basis by measuring grant applications for eligible projects
    against the selection criteria specified in the program's Federal
    Register notice (an interim notice was published on April 26 and a
    final notice was published on June 1).
        The ``Primary Selection Criteria'' include:
      --Long-term Outcomes.--The Department will give priority to projects
            that have a significant impact on desirable long-term outcomes
            for the Nation, a metropolitan area, or a region.
        The following long-term outcomes will be given priority:
      --State of Good Repair.--Improving the condition of existing
            transportation facilities and systems, with particular emphasis
            on projects that minimize life-cycle costs;
      --Economic Competitiveness.--Contributing to the economic
            competitiveness of the United States over the medium- to long-
            term;
      --Livability.--Fostering livable communities through place-based
            policies and investments that increase transportation choices
            and access to transportation services for people in communities
            across the United States;
      --Environmental Sustainability.--Improving energy efficiency,
            reducing dependence on oil, reducing greenhouse gas emissions
            and benefitting the environment; and
      --Safety.--Improving the safety of U.S. transportation facilities and
            systems.
      --Job Creation & Economic Stimulus.--While the TIGER II Discretionary
            Grant program is not a Recovery Act program, job creation and
            economic stimulus remain a top priority of this administration;
            therefore, the Department will give priority (as it did for the
            TIGER Discretionary Grant program) to projects that are
            expected to quickly create and preserve jobs and stimulate
            rapid increases in economic activity, particularly jobs and
            activity that benefit economically distressed areas.
        The ``Secondary Selection Criteria'' include:
      --Innovation.--The Department will give priority to projects that use
            innovative strategies to pursue the long-term outcomes outlined
            above.
      --Partnership.--The Department will give priority to projects that
            demonstrate strong collaboration among a broad range of
            participants and/or integration of transportation with other
            public service efforts.
        The Department will give more weight to the Long-term Outcomes and
    Job Creation & Economic Stimulus criteria than to the Innovation and
    Partnership criteria. Projects that are unable to demonstrate a
    likelihood of significant long-term benefits in any of the five long-
    term outcomes will not proceed in the evaluation process. For the Job
    Creation & Economic Stimulus criterion, a project that is not ready to
    proceed quickly is less likely to be successful.
        Pursuant to the fiscal year 2010 appropriations act, the Department
    will also strive for an equitable geographic distribution of funds, an
    appropriate balance in addressing urban and rural needs and investment
    in a variety of transportation modes.
        The June 1, 2010, notice published in the Federal Register provides
    additional guidance on how the Department will apply the selection
    criteria.
        Question. The Rail Safety Improvement Act of 2008 mandates that
    railroads implement positive train control over large areas of their
    track by the end of 2015. Such widespread use of Positive Train Control
    will require a large investment by the public sector, as well as
    significant investments by the Federal Government. Mr. Secretary, what
    are you doing to make sure that railroads are able to meet this
    mandate?
        Answer. The Department has taken a number of steps to assist
    railroads in meeting the December 31, 2015 mandate. The Federal
    Railroad Administration (FRA), in partnership with its Railroad Safety
    Advisory Committee (RSAC), published a final rule on January 12, 2010,
    that addresses the requirements of the Positive Train Control (PTC)
    mandate.
        A critical step in achieving PTC implementation was the requirement
    that each applicable railroad submit a PTC implementation plan (PTCIP)
    by April 16, 2010. Each PTCIP was to map out: (1) the railroad's lines;
    (2) the lines meeting the criteria requiring PTC; (3) the manner in
    which the railroad will provide for interoperability within its PTC
    system of movements of trains of other railroad carriers over its
    lines; and (4) implementation of PTC on its line segments prioritized
    by areas of greater risk to areas of lesser risk. FRA received 40
    implementation plans and has assembled a team of subject matter experts
    and is on target to complete the review and approval of the plans
    within 90 days. To support railroads during their PTC system testing
    and implementation phase, FRA's PTC Specialists will oversee the
    testing and implementation and otherwise address PTC-related issues.
    The PTC Specialists will be further supported by FRA Signal Engineers
    and Specialists, as well as a small cadre of Senior Engineering staff.
        To minimize duplication of effort by railroads and vendors, and
    facilitate PTC system certification, FRA established a process where
    railroads may share common PTC system information. For example,
    railroads using the same PTC product only need to provide railroad-
    specific information necessary to certify the PTC product on their
    property.
        To address technical issues and facilitate interoperability, in
    fiscal year 2010, FRA is targeting the $50 million available under the
    Railroad Safety Technology Grant Program to address common PTC
    interoperability questions. This decision maximizes the utility of
    these limited resources by making investments in projects that benefit
    the railroad industry, verses using these grant resources to procure
    PTC equipment for few individual railroads.
        Finally, FRA is supporting the railroads and their suppliers by
    actively participating in meetings, reviewing draft documents, and
    providing feedback on the implementation of PTC. FRA, with the support
    of the Railroad Safety Advisory Committee, has crafted regulations that
    limit the scope of PTC implementation to a level consistent with
    enhancing the safety of railroad employees and the general public.
    Individual stakeholders may have strong feelings regarding the most
    appropriate way to achieve this goal. Consequently, FRA has provided
    mechanisms to allow individual railroads to demonstrate that the
    railroads' proposed actions provide an equivalent level of safety for
    employees and the public.
        Question. Mr. Secretary, your budget request redirects $200 million
    from the regular highway program, and puts that money into livability
    grants that would help transportation planning organizations.
        I understand the need for these planning grants, but I also believe
    that we need to invest in our Nation's highways. This past year,
    Senator Bond and I worked hard to provide an increase of $600 million
    for the Federal highway program.
        I don't know if that is something we'll be able to do again this
    year. The budget resolution hasn't been developed, and the subcommittee
    does not have its allocation yet.
        Mr. Secretary, can you please explain your decision in funding
    livability grants out of the highway program?
        Answer. The President's budget marks a bold new way of thinking
    about investments in our transportation infrastructure and will become
    a key component of the administration's future surface transportation
    proposal. The President's budget requests $200 million to fund a
    competitive livability program within FHWA, which is compatible with
    the legislative intent of the Federal-aid Highway Program (FAHP). This
    benefits State and local governments, helping to modernize outdated
    planning and regional models and improve data needed to make
    transportation investment decisions. Because of competition for scarce
    resources, sometimes innovative solutions can take a back seat to the
    more pressing needs of maintenance and repair. By targeting some
    investment funding, DOT hopes to demonstrate that smart investment up
    front can save communities tax money over time by strengthening
    communities and lowering infrastructure costs.
        The $200 million request to leverage a proportional takedown from
    funding authorized for FAHP activities is a wise and much needed
    investment that will allow for the better leveraging of public funds
    for future transportation investments. This program will provide
    transportation practitioners with the tools, resources, and capacity
    they need to develop transportation systems that provide transportation
    choices, save people money, protect the environment, and efficiently
    move goods.
        Question. The Department is also requesting a new office within the
    Office of the Secretary. You are also requesting additional OST staff
    to work on livability issues, but they would not be a part of this new
    office.
        Congress is working on the reauthorization of most transportation
    programs. This legislation will also take a look at the Department's
    overall structure.
        Mr. Secretary, why is it necessary to create a new office at this
    time?
        Answer. The Partnership for Sustainable Communities and the DOT's
    livability initiative are a high priority for this administration.
    Because this is a new emphasis for the Government, however, there is
    substantial analysis and policy-making required to remove barriers and
    align the Federal programs and funding requirements to support the
    principles of livability. The Livable Communities Program within the
    Office of the Secretary will house full time employees that support
    this initiative. The Office will coordinate livability programs across
    DOT's operating administrations and assess the effectiveness of various
    programs in supporting livability. It will also assist in coordinating
    interagency efforts for the Partnership for Sustainable Communities,
    lead in developing metrics and performance measures for livability, and
    assist in the selection and management of grant and technical
    assistance programs for seeking greater input and buy-in from the
    public.
        Question. Mr. Secretary, you have spoken many times on the topic of
    livability. Often, you talk about the importance of giving our
    communities a variety of transportation options. And how people
    shouldn't be forced into driving a car wherever they want to go.
        But the biggest initiatives in your budget for livability don't
    focus on funding specific projects. Instead, your new initiatives are
    about giving planning organizations access to better data and
    analytical tools, supporting public outreach efforts, and providing
    technical assistance.
        In the end, different communities will have their own definition of
    what is livable. For some it's a traditional road that just happens to
    include room for bicycles and pedestrians. For others, it's nothing
    short of a new transit line.
        How important is the planning process to DOT when it evaluates the
    livability of a transportation project?
        Answer. A livable community is one with transportation choices,
    housing choices and destinations located close to home. Because
    coordinating transportation with other investments like housing, water
    infrastructure and economic development initiatives is at the heart of
    creating a livable community, a strong planning process is essential to
    generating the sorts of projects that improve livability. However,
    these kids of comprehensive planning efforts require good data, tools
    and staff, and often this is difficult for struggling communities in
    difficult budget times.
        USDOT is, therefore, proposing to provide communities with the
    resources necessary to take a comprehensive look at their land-use
    decisions in conjunction with their housing, transportation, and
    environmental infrastructure plans. The result will be projects that
    provide a higher return on investment to the Federal taxpayer.
        Question. What standards is the Department using now to judge the
    livability of transportation projects?
        Answer. While the Partnership is working to determine performance
    measures that can be used for livability projects, the current
    standards used are those listed in the Notice of Funding Availability
    (NOFA) for TIGER and TIGER II grants. The livability of transportation
    projects is judged by: enhanced mobility by creation of more
    transportation options; improved connectivity; increased accessibility
    to economically disadvantaged populations, non-drivers, senior
    citizens, and persons with disabilities; and the result of a planning
    process which coordinated land use and transportation planning
    decisions and involved community participation in the project.
        Question. DOT's budget request includes $527 million for new
    initiatives that would support community livability.
        In addition, the Department of Housing and Urban Development is
    requesting $150 million as part of the administration's sustainability
    initiative. This request builds on the funding this subcommittee
    provided HUD for fiscal year 2010.
        Mr. Secretary, I am glad to see that over the past year, DOT has
    worked hard to coordinate with HUD and the EPA on matters of livability
    and sustainability. However, it is still unclear how your livability
    requests fit with the work that HUD started this year.
        Can you explain to me how your new initiatives on livability will
    work with HUD's ongoing livability program?
        Answer. In the fiscal year 2011 budget request, the three agencies
    divided up the roles in order to reduce overlap and redundancy and save
    taxpayer money. The focuses of the agencies represent which agency will
    act as the lead on this topic. DOT's program will focus on capacity
    building. The goal is to increase capacity at all levels of government
    to integrate transportation, housing, economic development and water
    infrastructure investments in urban and rural communities. The funds
    could be used to improve modeling and data collection, provide
    training, fund household transportation surveys, and support
    organizational changes to better reflect integrated planning.
        On the other hand, HUD's program has a focus on planning. Their
    goals are to improve regional planning efforts that integrate housing
    and transportation decisions, and update land use plans and zoning
    codes. They will be able to award funds to housing, transportation, and
    environmental stakeholders who are focused on planning efforts.
        Without the support to build institutional capacity to do the sort
    of comprehensive planning that HUD is promoting, communities may simply
    find an outside contractor to develop the plan without having the
    internal capacity to implement it and adjust it in the long term. DOT
    and HUD's programs rely on one another to reach the highest levels of
    success.
        Question. The relationship between DOT and HUD is an important one,
    and Federal departments should coordinate and work together--whether
    it's on livability or any other issue area. But we need to make sure
    that this relationship is sustained by more than the force of
    personalities.
        Mr. Secretary, what are you doing to make this new relationship
    between DOT and HUD something that will live beyond the current
    administration?
        Answer. Ensuring that this Partnership continues in the long-term--
    beyond the term of this administration--is a top priority. We are
    working together to institutionalize changes that will support this
    priority. We have begun this effort by creating offices at DOT, HUD,
    and EPA to head up the important work of encouraging livable
    communities. Our initial goals include joint NOFAs for planning grants
    and joint funding application review, evaluation and award processes.
    We also have been identifying institutional barriers and addressing
    them, such as HUD's ban on multi-family housing on a cleaned up
    brownfield or replacing the New Starts cost-effectiveness review for a
    more broad cost-benefit analysis that includes economic development,
    housing and environmental impacts.
        Question. The DOT budget request includes $1.1 billion for the
    FAA's effort to modernize the air transportation system--called
    ``NextGen''. And an essential part of NextGen is the replacement of
    radar surveillance with satellite-based technology.
        However, for this program to work, each aircraft that uses the air
    traffic control system must be equipped with compatible technology. The
    FAA has mandated such equipage by the year 2020, but there is no
    guarantee that airlines will be able to meet this mandate.
        Mr. Secretary, your budget proposal includes no funding to support
    NextGen equipage.
        Do you believe that the airlines can afford to meet the mandate on
    their own?
        Answer. The FAA has not currently mandated any NextGen equipage by
    aircraft owners and operators. We are in the final stages of
    considering industry comments on a proposed rule that would mandate
    Automatic Dependent Surveillance-Broadcast (ADS-B) ``Out'' in certain
    airspace by 2020. The final rule is expected to be published soon. ADS-
    B is one of several components of NextGen and is capable of
    broadcasting (``Out'') and receiving (``In'') information regarding the
    location of other aircraft. Equipage mandates generally require
    following rulemaking procedures, including cost benefit analysis and
    public comments.
        The administration has been exploring various options to
    incentivize NextGen equipage prior to any mandatory due dates. The
    primary focus of our work has been to accelerate equipage above that
    which may occur naturally. Operational incentives for early adopters
    (``best equipped, best served'') could help to alleviate concerns
    regarding the financial ability of aircraft owners and operators to
    equip their aircraft with NextGen technologies in the near-term.
        Question. Secretary LaHood, I appreciate the work we've done
    together to promote sustainable communities and address climate change.
    As you may know, about one-half of the emissions in my home State of
    Washington come from the transportation sector--which is much higher
    than the national average. So it's really important to me to work to
    address this important issue.
        That's why I created the Transit Investments for Greenhouse Gas and
    Energy Reductions in the Recovery Act. The program was such a huge
    success and we were able to include fiscal year 2010 funding as well.
        Secretary LaHood, can you tell me what lessons have been learned in
    establishing this new program?
        Answer. There is a great deal of interest and demand for such
    programs and assistance. The Federal Transit Administration (FTA)
    received over 560 project proposals and reviewed more than $2 billion
    in applications for the $100 million made available through the
    American Recovery & Reinvestment Act (ARRA) of 2009. Forty three
    proposals were selected from across the country as part of a nationwide
    competition, which rated projects on such factors as readiness to
    implement, applicant capacity, degree of innovation and national
    applicability.
        We also learned that there are a wide variety of technologies or
    operational efficiencies that can be implemented to reduce the energy
    and/or greenhouse gas emissions of our transit agencies. For example,
    among the projects funded within this competitive environment, Alabama
    will replace gasoline and diesel buses with electric hybrids,
    Massachusetts will construct wind energy generation turbines and
    Vancouver, Washington, will install solar panels at transit facilities.
    Ultimately, there are many innovative ideas that need to be researched
    and actions that can be taken to assist our transit agencies become
    more efficient as well as sustainable.
        Question. What lessons have been learned from projects selected for
    Grant Agreements?
        Answer. Due to the great variety of selected projects, we are just
    now beginning to understand some of the challenges we will need to
    address going forward such as how to more accurately calculate and
    document energy use and savings claims. We have learned, for example,
    that transit agencies need help measuring their carbon footprint, and
    that the source of their energy is ultimately a factor in moving the
    country forward toward sustainability.
        Question. Washington State is very appreciative of the $590 million
    you have approved for the NW High Speed Rail Corridor projects in
    Washington State. As a State, we've put a lot of investment into this
    corridor and these funds are going to help build on this to
    dramatically improve passenger service.
        Our State has nearly $280 million in projects that can turn dirt
    and put nearly 2,000 people to work during the 2010 spring and summer
    construction season. This includes a lot of work that is ready to begin
    within 60 days.
        However, Washington State DOT is waiting for approval from FRA to
    proceed, and it's unclear how long this approval process may take. It
    is very important we get these WA projects underway as well as others
    around the country and put people to work during this upcoming
    construction season.
        I'd like your commitment to have your staff look into this and work
    with the Washington State DOT on an acceptable schedule.
        Answer. The Federal Railroad Administration (FRA) is working
    closely with Washington State DOT to implement these projects as
    quickly as possible. Among the things FRA is collaborating on is
    completion of the environmental review required under the National
    Environmental Policy Act (NEPA) and other laws. These environmental
    approvals are necessary before FRA can complete and execute the grant
    agreement. FRA is also working with Washington to finalize the scope,
    schedule, and budget of each of the large projects planned as part of
    the anticipated $590 million in infrastructure improvements.
        The Department understands the urgency of beginning construction as
    soon as possible. As a result, FRA has reached out to Washington and
    the host railroads (BNSF and Sound Transit) to provide them guidance on
    the appropriate ways in which they might begin construction of certain
    projects in advance of the signed grant agreement with the goal of
    maximizing the likelihood that the State and host railroad could be
    reimbursed later with grant funds. FRA looks forward to continued
    progress in our productive on-going collaboration with Washington
    State.
        Question. Two projects in Washington State--the North-South Freeway
    in Spokane and the Mercer Street Corridor in Seattle--have been awarded
    TIGER grants recently.
        They are both great projects. The project in Spokane will create
    about 100 jobs--and the Seattle grant is the final piece required to
    finish a project that will create thousands of jobs.
        Would you please comment briefly on the role of infrastructure
    investment in supporting local and regional economies?
        Answer. Infrastructure spending has an immediate, primary, impact
    in creating employment in the communities while the infrastructure is
    being built. We estimate that the $48.1 billion in infrastructure
    investment funded by the Recovery Act will produce 523,000 job-years of
    employment, many of which take the form of jobs produced when increased
    employment at construction sites leads to increased spending at local
    and regional businesses producing consumer goods and services.
        In the longer run, transportation infrastructure investment helps
    to shape communities' economic options. Manufacturers of high-value,
    high-volume semiconductors or electronics depend on air shipments to
    move their products to markets around the globe. Commodity agriculture
    or raw materials producers depend on access to bulk freight
    transportation infrastructure. Manufacturers of complex, high value
    products like automobiles depend on multi-modal freight links.
        Equally important are the benefits that good personal
    transportation options can confer on communities in the era of a
    global, knowledge-based economy. Livable communities are better able to
    attract clusters of high-skill, high-paying knowledge-based industries
    and workers, to the benefit of residents, communities, and the U.S.
    economy as a whole. Building livable communities requires collaboration
    across levels of government and between the public and private sector.
        One of my highest priorities is to work closely with Congress,
    other Federal departments, the Nation's Governors, and local officials
    to help promote more livable communities through sustainable surface
    transportation programs.
        Question. In September 2009, the Department of Transportation
    Inspector General issued a Management Advisory to PHMSA raising strong
    concerns with the management and processing of special permits to
    transport hazardous materials. PHMSA developed an action plan and began
    a process to review the fitness of special permit holders to rectify
    the agency's fundamental failure to appropriately review: (1) an
    applicant's safety history; and (2) an applicant's proposed alternative
    safety packaging and transport plan.
        How many special permits have been reviewed to date? Of those
    special permits reviewed, how many have been suspended, revoked, or
    denied?
        Answer. From November 1, 2009 to May 11, 2010, there have been
    1,155 Special Permit applications reviewed. Of those reviewed, 10 were
    terminated and 12 were denied.
        Question. What is your projected caseload for the processing of
    special permit applications in fiscal year 2011?
        Answer. PHMSA expects a significant increase in the projected
    caseload of special permits and approvals applications in fiscal year
    2011 due to policy changes for trade associations.
        PHMSA is in the process of modifying (or terminating when
    appropriate) special permits and approvals granted to association
    members collectively. For any special permit issued to association
    members collectively, PHMSA has started the process of providing notice
    of modification or termination to the association and each individual
    member whose name and address is on file with PHMSA. This notice
    provides information for the individual members to determine whether
    the activity authorized by the special permit or approval will
    eventually be incorporated into the regulations or will continue to
    need a special permit or approval.
        When a special permit or approval is not incorporated into the
    regulation, the individual members must submit an application for a
    special permit or approval. This will result in an increase in the 2011
    caseload that could be up to 20,000-30,000 applications.
        As of April 2010, PHMSA has approximately 6,000 pending
    applications, which include applications received more than 180 days
    ago in addition to applications received less than 180 days ago. The
    6,000 applications on file are divided into 2 categories--Approvals
    (5,400) and Special Permits (600).
        Question. In the President's proposed budget for fiscal year 2011,
    you are eliminating $900,000 for contractor support to assist in
    executing the agency's full-scale review of existing special permits to
    fulfill the IG's recommendations.
        With this proposed cut in funding, will you have the resources
    necessary to appropriately process the estimated 5,500 special permit
    holder's requests for approvals consistent with the new PHMSA action
    plan guidelines and Inspector General recommendations?
        Answer. PHMSA's 2011 budget request included $1.5 million to
    annualize 20 positions enacted in fiscal year 2010 in support of the
    special permits and approvals action plan to enhance management and
    oversight of this hazardous materials safety program.
        Question. The Department of Transportation Office of Inspector
    General is due to issue a second management advisory to PHMSA regarding
    the review and authorization of explosive classifications and
    insufficient oversight of the four labs authorized by PHMSA to examine
    and test explosives.
        When will PHMSA be providing its personnel with the necessary
    guidance for classifying and approving explosives?
        Answer. PHMSA has formed a cross-functional team to review all
    previous guidance, both formal and informal, and existing regulatory
    provisions for classifying and approving explosives. The team has
    developed a draft guidance manual that covers three separate audiences:
    (1) guidance for persons applying for an explosive classification
    recommendation; (2) guidance for the authorized explosive test
    laboratories for testing and examination; (3) Standard Operating
    Procedures for PHMSA related to approving authorized test agencies, and
    evaluating and approving explosive classifications. This guidance
    manual is under review and will be formalized by September 2010.
        Question. How many explosives classifications and approvals has the
    agency processed annually for the past 5 fiscal years?
        Answer. See table.

    ----------------------------------------------------------------------------------------------------------------
                                                                                                              2010
                     Approval Type                     2005       2006       2007       2008       2009      (YTD)
    ----------------------------------------------------------------------------------------------------------------
    Explosives....................................        733      1,626      1,752      1,930      1,681      1,364
    Fireworks.....................................        505      5,201      4,933      4,599      2,579      2,265
    ----------------------------------------------------------------------------------------------------------------

        Question. What processes and internal certifications will you
    develop to ensure that all authorized testing labs comply with PHMSA
    guidance for classifying and approving explosives?
        Answer. As of March 2010 PHMSA requires on-site inspections by
    PHMSA for all new and renewal approvals applications for all
    certification agencies. The on-site inspection will determine whether
    the certification agency, including explosive testing labs, is fit and
    capable of operating in accordance with the specifications outlined in
    the approval. The inspection will include review of the specific
    requirements and criteria under the requested special permit or
    approval, including:
      --Test procedures and equipment
      --Internal quality assurance/control measures
      --Spatial Requirements
      --Security policies/procedures
      --Personnel and subcontract qualifications
      --Employee training and certifications
      --Independent and impartial operations
        The four PHMSA authorized explosive examination laboratories were
    inspected between March and April 2010. The PHMSA inspection team found
    all four laboratories fit to perform the examination and shipping
    classification recommendation functions authorized under approval. Some
    minor violations related to training, marking, labeling, and reporting
    were noted, which the audit team determined not to adversely impact
    their fitness capability under the approvals.
        Question. How are you improving your oversight of PHMSA's approved
    explosives testing labs and who specifically will be accountable for
    the lab's safety reviews, fitness inspections, and regulatory
    compliance?
        Answer. The Special Permits and Approvals Office is responsible and
    accountable for certification agency oversight. PHMSA is developing
    more detailed application, inspection, reporting, and accountability
    provisions to ensure impartial and quality performance of the
    laboratories. We plan to require each laboratory to reapply under these
    new terms. These guidelines require an initial inspection from PHMSA
    staff prior to issuing the approval, and compliance inspections by our
    enforcement staff.
        Question. Please use the attached table to provide a complete
    listing by year of employees who received retention bonuses during the
    years 2006-2010. For each year, please include each employee's name,
    title, grade, salary, and retention bonuses.
        Answer. The information for fiscal year 2007-2010 is provided
    below. Data prior to fiscal year 2007 is not readily available due to
    FAA's conversion to the Delphi accounting system in 2006.
        Some employees have more than one entry for a given fiscal year.
    Since retention bonuses are calculated using base salary, if that
    changes during the course of a year then separate retention bonus
    amounts must be calculated against each separate base salary. Adding
    the multiple retention bonus amounts listed equals the employee's total
    retention bonus earned for that year. The amounts in the ``Salary''
    column, however, are not additive.

    ----------------------------------------------------------------------------------------------------------------
                                                                                                         Retention
               Employee Name                      Title                   Grade             Salary         Bonus
    ----------------------------------------------------------------------------------------------------------------
    Fiscal Year 2007:
        BORO, THOMAS R.................  SUPV PERSONNEL          J.....................     $104,500       $8,068.20
                                          MANAGEMENT SPEC.                                   106,200       22,408.60
        CLAYTON, ROBERT J..............  SUPV PERSONNEL          K.....................      127,000       15,877.40
                                          MANAGEMENT SPEC.
        DIX, MARY E....................  DEP ASST ADMIN FOR HR   02....................      146,193        2,849.76
                                          MGMT.                                              148,678        9,660.00
        GIBSON, VENTRIS C..............  ASST ADMIN FOR HUMAN    01....................      155,653       11,592.00
                                          RESOURCE  MGMT.
        GOMES, GARY R..................  SUPV AVIATION SAFETY    K.....................      124,800          556.80
                                          INSPE.                 K.....................      124,800        2,153.28
                                         SUPV AVIATION SAFETY
                                          INSPECTOR.
        JUBA, EUGENE...................  SR VICE PRESIDENT FOR   01....................      164,100       11,592.00
                                          FINANCE.
        KERWIN, PETER J................  SUPV AVIATION SAFETY    K.....................      127,000       16,279.20
                                          INSPECTOR.
        MINIACE, JOSEPH N..............  DEP ASST ADM STRATEGIC  02....................      145,785        3,864.00
                                          LABOR MGT  REL.
        PUNWANI, RAMESH................  ASST ADMIN FOR          01....................      161,400       11,082.40
                                          FINANCIAL SERVICES.                                164,100       30,590.00
        RITMAN, ALLISON W..............  SUPERVISORY ACCOUNTANT  K.....................      127,000        2,771.20
                                         SUPV ACCOUNTANT.......  K.....................      124,792          674.48
                                                                                             127,000          519.60
        WILLETT, ANTHONY J.............  PROGRAM MANAGER.......  K.....................      127,000        2,771.31
        WILLIAMS, CLIFFORD J...........  AIRWAY TRANSPORTATION   H.....................       61,335       11,254.00
                                          SYS SPEC.
        WILLIAMS, HAROLD F., III.......  AIRWAY TRANSPORTATION   H.....................       78,657       14,433.00
                                          SYS SPEC.
                                                                                        ----------------------------
          Fiscal Year 2007 Total.......  ......................  ......................  ...........      178,997.23
                                                                                        ============================
    Fiscal Year 2008:
        AMANN, GORDON K................  AIR TRAFFIC CONTROL     LH....................      110,711        3,527.82
                                          SPEC (C).
        ANDERSON, THEODORE H...........  SUPV AIR TRAFFIC        LJ....................      148,960          920.16
                                          CONTROL SPEC (C).
        ANGLE, THEODORE W..............  AIR TRAFFIC CONTROL     LH....................      133,122        3,268.44
                                          SPEC (T).
        AUSTIN, THOMAS P...............  AIR TRAFFIC CONTROL     LH....................      133,625        4,139.19
                                          SPEC (C).
        BACILE, MICHAEL J..............  AIR TRAFFIC CONTROL     KH....................      120,165        3,910.20
                                          SPEC.
        BAHLER, GARY C.................  AIR TRAFFIC CONTROL     LH....................      126,402        4,027.86
                                          SPEC (T).
        BALL, RANDALL R................  AIR TRAFFIC CONTROL     LH....................      140,319        3,445.26
                                          SPEC (T).
        BARBIERI, JOHN R...............  AIR TRAFFIC CONTROL     KH....................      120,165        3,910.20
                                          SPEC.
        BEADLE, MARK R.................  AIR TRAFFIC CONTROL     HH....................       91,568        1,417.98
                                          SPEC (T).
        BERRA, PATRICK M...............  AIR TRAFFIC CONTROL     FH....................       90,802        2,068.08
                                          SPEC (T).
        BIGGERS, JACK H................  AIR TRAFFIC CONTROL     KH....................      120,165        2,346.12
                                          SPEC.
        BLACK, NELSON K................  AIR TRAFFIC CONTROL     FH....................       74,705        2,187.54
                                          SPEC (T).
        BLAIS, MICHAEL J...............  AIR TRAFFIC CONTROL     LH....................      126,400        6,265.56
                                          SPEC (T).
        BLITTERSDORF, JEFFREY E........  AIR TRAFFIC CONTROL     GH....................       83,814        1,908.90
                                          SPEC.
        BOELTER, TIMOTHY T.............  AIR TRAFFIC CONTROL     LH....................      126,402        4,027.86
                                          SPEC (C).
        BONE, MICHAEL D................  AIR TRAFFIC CONTROL     LH....................      129,524        3,094.98
                                          SPEC (T).
        BORO, THOMAS R.................  MANAGER, LABOR &        J.....................      106,200        1,179.40
                                          EMPLOYEE REL BRACH.                                109,000       23,278.80
                                         SUPV PERSONNEL          J.....................      106,200        8,255.80
                                          MANAGEMENT SPEC.
        BOWE, JOHN R...................  AIR TRAFFIC CONTROL     LH....................      126,402        4,475.40
                                          SPEC (C).
        BOYLE, DANIEL P................  AIR TRAFFIC CONTROL     LH....................      129,524        4,088.88
                                          SPEC (T).
        BROKER, BARBARA A..............  AIR TRAFFIC CONTROL     LH....................      119,178        3,797.82
                                          SPEC (T).
        BURTON, CARL JR................  SUPV AIR TRAFFIC        KJ....................      141,029          460.08
                                          CONTROL SPEC.
        BURZYCH, CRAIG A...............  AIR TRAFFIC CONTROL     LH....................      126,402        1,342.62
                                          SPEC (T).
        BUSSE, JUDITH A................  SUPV AIR TRAFFIC        LJ....................      140,908          460.08
                                          CONTROL SPEC (T).
        BYRNE, JOHN J..................  SUPV AIR TRAFFIC        LJ....................      142,230        2,760.48
                                          CONTROL SPEC (C).
        BYTHEWAY, DAVID L..............  AIR TRAFFIC CONTROL     HH....................      104,010        3,745.80
                                          SPEC (T).
        CARMICHAEL, DAVID L............  AIR TRAFFIC CONTROL     LH....................      133,122        3,238.62
                                          SPEC (C).
        CARVER, STEVEN T...............  SUPV COMPUTER SPEC....  K.....................      115,015       21,187.20
        CATOE, RALPH D.................  AIR TRAFFIC CONTROL     IH....................      102,216        1,995.48
                                          SPEC (T).
        CERAMI, JOSEPH S...............  AIR TRAFFIC CONTROL     LH....................      130,011        4,137.39
                                          SPEC (C).
        CLAYTON, ROBERT J..............  SUPV HUMAN RESOURCES    K.....................      130,000       24,096.00
                                          SPECIALIST.            K.....................      127,000       10,103.80
                                         SUPV PERSONNEL                                      130,000        6,024.00
                                          MANAGEMENT SPEC.
        CLEAVER, MICHAEL D.............  SUPV AIR TRAFFIC        KJ....................      139,353        1,360.26
                                          CONTROL SPEC.                                      141,030        3,671.04
        COLFER, STEVEN L...............  AIR TRAFFIC CONTROL     LH....................      133,625        5,978.83
                                          SPEC (C).
        CONTRERAS, CARLOS..............  AIR TRAFFIC CONTROL     LH....................      115,783        3,689.82
                                          SPEC (C).
        COPPA, MICHAEL F...............  AIR TRAFFIC CONTROL     HH....................      102,216        4,320.00
                                          SPEC (T).
        DOBRINICH, DAVID A.............  SUPV AIR TRAFFIC        LJ....................      147,123          460.08
                                          CONTROL SPEC (T).                                  148,893        3,680.64
        DOEGE, BLANE S.................  AIR TRAFFIC CONTROL     LH....................      125,928        1,719.60
                                          SPEC.
        DRESSLER, ROBERT K.............  AIR TRAFFIC CONTROL     LH....................      122,788        5,651.88
                                          SPEC (T).
        DRISCOLL, CHARLES F............  AIR TRAFFIC CONTROL     LH....................      126,402        4,922.94
                                          SPEC (C).
        DYER, STANLEY J................  SUPV AIR TRAFFIC        LJ....................      144,045        2,970.36
                                          CONTROL SPEC (T).
        EWING, MICHAEL L...............  AIR TRAFFIC CONTROL     LH....................      133,122        3,268.44
                                          SPEC (T).
        FRAWLEY, EDWARD J..............  SUPV AIR TRAFFIC        LJ....................      160,414        1,980.24
                                          CONTROL SPEC.                                      162,344        3,960.48
        FREDRICKSON, THOMAS E..........  AIR TRAFFIC CONTROL     KH....................      128,892        1,677.60
                                          SPEC (T).
        FUNKHOUSER, BRADLEY C..........  AIR TRAFFIC CONTROL     JH....................      120,954        1,574.16
                                          SPEC (C).
        GALASSINI, DEBRA A.............  AIR TRAFFIC CONTROL     LH....................      122,788        3,912.84
                                          SPEC (T).
        GIBBS, BRENDA E................  AIR TRAFFIC CONTROL     KH....................      120,165        3,910.20
                                          SPEC.
        GIBSON, VENTRIS C..............  ASST ADMIN FOR HUMAN    01....................      155,653        6,762.00
                                          RESOURCE  MGMT.                                    159,544        7,920.96
        GISH, EDMUND C.................  SUPV AIR TRAFFIC        LJ....................      164,168          920.16
                                          CONTROL SPEC (T).
        GOODNOUGH, DAVID W.............  AIR TRAFFIC CONTROL     GH....................       90,802          609.96
                                          SPEC (T).
        GRATYS, JOHN G.................  SUPV AIR TRAFFIC        LJ....................      140,908        2,760.48
                                          CONTROL SPEC (C).
        GRIFFIN, CHARLES W.............  AIR TRAFFIC CONTROL     LH....................      118,733        1,249.38
                                          SPEC (T).
        GRIMM, CYNTHIA J...............  AIR TRAFFIC CONTROL     LH....................      121,658        6,030.36
                                          SPEC (T).
        GROENE-BRASS, LISA C...........  AIR TRAFFIC CONTROL     HH....................       92,617        2,109.66
                                          SPEC (T).
        GROFF, BRYAN W.................  AIR TRAFFIC CONTROL     LH....................      133,122        4,626.60
                                          SPEC (C).
        HAGEN, SHAWN C.................  AIR TRAFFIC CONTROL     LH....................       61,328          860.40
                                          SPECIALIST (T).
        HALL, MICHAEL A................  AIR TRAFFIC CONTROL     LH....................      133,122        1,400.76
                                          SPEC (T).
        HASENPFLUG, JEFFREY D..........  AIR TRAFFIC CONTROL     JH....................      129,058        3,554.40
                                          SPEC.
        HOCKING, ROBERT G..............  AIR TRAFFIC CONTROL     LH....................      110,605        4,738.60
                                          SPEC (C).
        HOFFMAN, ROBERTA S.............  AIR TRAFFIC CONTROL     LH....................      130,011        5,063.52
                                          SPEC (T).
        HORNER, WILLIAM T..............  AIR TRAFFIC CONTROL     KH....................      125,405        4,080.60
                                          SPEC (T).
        HOUSE, MARK S..................  DIR FIN ANALYSIS &      02....................      144,848        4,830.00
                                          PROCESS REENGI-  NEER.                             148,469       18,812.28
        HURLEY, WILLIAM J., JR.........  AIR TRAFFIC CONTROL     HH....................       90,042        1,757.88
                                          SPEC (T).
        HYLAND, JOHN L.................  AIR TRAFFIC CONTROL     JH....................      117,682        1,148.76
                                          SPEC (C).
        JEANES, JOSEPH A...............  AIR TRAFFIC CONTROL     IH....................      116,303        4,162.62
                                          SPEC (T).
        JONES, MELVIN B................  AIR TRAFFIC CONTROL     LH....................      129,524        3,537.12
                                          SPEC (T).
        JUBA, EUGENE...................  SR VICE PRESIDENT FOR   01....................      164,100        6,762.00
                                          FINANCE.                                           168,200       19,802.40
        KERWIN, PETER J................  SUPV AVIATION SAFETY    K.....................      127,000        5,997.60
                                          INSPECTOR.                                         130,000          887.52
        KEYES, ROBERT C................  AIR TRAFFIC CONTROL     LH....................      130,011        4,142.88
                                          SPEC (T).
        KHATCHERIAN, PAUL..............  SUPV AIR TRAFFIC        LJ....................      142,230        2,300.40
                                          CONTROL SPEC (C).
        KOOS, MARK.....................  AIR TRAFFIC CONTROL     LH....................      135,543        1,380.30
                                          SPEC (C).
        KUHN, GEORGE W.................  AIR TRAFFIC CONTROL     LH....................      111,843        3,564.00
                                          SPEC (C).
        KUZANEK, DWIGHT M..............  AIR TRAFFIC CONTROL     LH....................      122,788        4,782.36
                                          SPEC (T).
        LADNIER, DARRYL A..............  AIR TRAFFIC CONTROL     KH....................      113,300        1,105.92
                                          SPEC.
        LANGSTON, MILES H., JR.........  AIR TRAFFIC CONTROL     KH....................      125,405        2,448.36
                                          SPEC (T).
        LAWRENCE, TONY H...............  AIR TRAFFIC CONTROL     LH....................      125,928          429.90
                                          SPEC (T).
        LEWIS, KEITH C.................  AIR TRAFFIC CONTROL     LH....................      118,733        1,249.38
                                          SPEC (T).
        LIGNELLI, ROBERT J.............  AIR TRAFFIC CONTROL     LH....................      133,122        4,089.96
                                          SPEC (T).
        LIZZIO, MICHAEL J..............  SUPV AIR TRAFFIC        LJ....................      131,855        2,300.05
                                          CONTROL SPEC (C).
        LOVETT, STEVEN B...............  SUPV AIR TRAFFIC        KJ....................      142,837        1,394.28
                                          CONTROL SPEC.                                      144,556        3,762.72
        MARKS, ROBERT L................  AIR TRAFFIC CONTROL     LH....................      122,329        3,861.54
                                          SPEC (T).
        MATHEIS, ULRICH R..............  AIR TRAFFIC CONTROL     LH....................      133,625        5,059.01
                                          SPEC (C).
        MAURICE, LOURDES Q.............  CHIEF SCIENTIFIC &      03....................      138,516        5,777.28
                                          TECHNICAL ADVISOR.
        MCCONAHAY, KENNETH C...........  AIR TRAFFIC CONTROL     LH....................      133,122        2,693.52
                                          SPEC (T).
        MCCORMICK, MICHAEL J...........  AIR TRAFFIC CONTROL     LH....................      129,524        1,362.96
                                          SPEC (T).
        MIETH, DOUGLAS R...............  AIR TRAFFIC CONTROL     LH....................      133,625        4,139.19
                                          SPEC (C).
        MINER, MATHEW M................  AIR TRAFFIC CONTROL     LH....................      133,122        1,400.76
                                          SPEC (T).
        MINIACE, JOSEPH N..............  DEP ASST ADM STRATEGIC  02....................      145,785        9,016.00
                                          LABOR MGT  REL.                                    149,430       21,122.56
        MISNER, JOHN E.................  AIR TRAFFIC CONTROL     LH....................      126,402        2,685.24
                                          SPEC (C).
        MOFFAT, JAY....................  AIR TRAFFIC CONTROL     LH....................      122,788        3,043.32
                                          SPEC (T).
        MOLLICA, ANTHONY J.............  AIR TRAFFIC CONTROL     HH....................       92,235          664.32
                                          SPEC (T).
        MORALES, DAVID A...............  AIR TRAFFIC CONTROL     EH....................       70,600        1,378.44
                                          SPEC (T).
        MORRISON, ROBERT M.............  SUP ATCS (C/T-I)......  K.....................      130,000        5,640.00
        NASH, CHARLES F................  AIR TRAFFIC CONTROL     GH....................       83,814        1,090.80
                                          SPEC (T).
        NELSON, BARRY J................  AIR TRAFFIC CONTROL     EH....................       76,950        1,759.32
                                          SPEC (T).
        NEMCEK, RICHARD M..............  AIR TRAFFIC CONTROL     LH....................      126,402        4,027.86
                                          SPEC (C).
        NICHOLAS, ROBERT M.............  AIR TRAFFIC CONTROL     LH....................      133,625        5,059.01
                                          SPEC (C).
        OSEKOWSKI, CRAIG P.............  SUPV AIR TRAFFIC        KJ....................      144,738          470.94
                                          CONTROL SPEC.                                      146,480        3,813.12
        PALLONE, MARK A................  AIR TRAFFIC CONTROL     LH....................      125,928          859.80
                                          SPEC (T).
        PARMAN, DENNIS J...............  AIR TRAFFIC CONTROL     LH....................      129,524        1,747.20
                                          SPEC (T).
        PASSIALES, JAMES J.............  SUPV AIR TRAFFIC        LJ....................      127,548        2,709.72
                                          CONTROL SPEC (C).
        PATT, LAWRENCE K...............  AIR TRAFFIC CONTROL     LH....................      129,524        4,997.52
                                          SPEC (T).
        PETRE, PHILIP J................  SUPV AIR TRAFFIC        KJ....................      127,159        2,482.56
                                          CONTROL SPEC (T).
        PRATT, THOMAS J................  SUPV AVIATION SAFETY    K.....................      127,000        1,864.28
                                          INSPECTOR.                                         130,000       18,642.80
        PUGH, DENNIS W.................  AIR TRAFFIC CONTROL     GH....................       83,814        2,533.68
                                          SPEC (T).
        PUNWANI, RAMESH................  ASST ADMIN FOR          01....................      164,100       11,270.00
                                          FINANCIAL SERVICES.                                168,200       31,353.80
        QUINN, GLENN P.................  AIR TRAFFIC CONTROL     KH....................      127,032          447.48
                                          SPEC (T).
        RAWLINGS, KEVIN S..............  AIR TRAFFIC CONTROL     HH....................       94,798        3,393.06
                                          SPEC (T).
        RAY, MARK A....................  AIR TRAFFIC CONTROL     LH....................      137,237        4,140.18
                                          SPEC (C).
        REGRUTO, SANDRA G..............  AIR TRAFFIC CONTROL     FH....................       81,884        4,368.00
                                          SPEC (T).
        REINERT, KURT A................  AIR TRAFFIC CONTROL     FH....................       84,643        3,029.40
                                          SPEC (T).
        RHEA, RODNEY R.................  AIR TRAFFIC CONTROL     GH....................       83,814        1,908.90
                                          SPEC.
        RITMAN, ALLISON W..............  MANAGING DIR OF FINC    02....................       135,93        3,212.66
                                          RPTNG & CONTROLS.      K.....................      130,000          180.72
                                         SUPERVISORY ACCOUNTANT  K.....................      127,000        1,212.42
                                                                                             130,000          180.72
        ROESKE, DAVID W................  AIR TRAFFIC CONTROL     LH....................      126,402        4,027.86
                                          SPEC (C).
        ROY, KIM A.....................  AIR TRAFFIC CONTROL     KH....................      127,032          447.48
                                          SPEC (T).
        RUIZ, DAVID R..................  AIR TRAFFIC CONTROL     LH....................      129,524        4,997.52
                                          SPEC (T).
        SACKETT, GREGORY A.............  SUPV AIR TRAFFIC        KJ....................      146,290          951.96
                                          CONTROL SPEC.                                      148,050        3,853.92
        SANOCKI, MICHAEL H.............  AIR TRAFFIC CONTROL     LH....................      130,011        5,984.16
                                          SPEC (T).
        SCOTT, ROBERT E................  AIR TRAFFIC CONTROL     LH....................      109,000        1,929.60
                                          SPEC (C).
        SEACAT, GARY D.................  AIR TRAFFIC CONTROL     HH....................       92,617          301.38
                                          SPEC (T).
        SICKLES, STEPHAN J.............  AIR TRAFFIC CONTROL     LH....................      133,122        4,202.28
                                          SPEC (T).
        SMITH, TERRY R.................  AIR TRAFFIC CONTROL     LH....................      122,329          429.06
                                          SPEC (T).
        SNYDER, FREDERICK J., JR.......  AIR TRAFFIC CONTROL     KH....................      125,568        1,435.32
                                          SPEC (C).
        SNYDER, THOMAS G...............  AIR TRAFFIC CONTROL     GH....................       83,814        1,636.20
                                          SPEC.
        STANKOWICZ, JOSEPH M...........  AIR TRAFFIC CONTROL     LH....................      133,625        4,139.19
                                          SPEC (C).
        STAROS, JOHN D.................  AIR TRAFFIC CONTROL     LJ....................      128,572        2,731.32
                                          SPEC (T).
        STEINBERG, FREDERICK W.........  AIR TRAFFIC CONTROL     GH....................       84,550        2,577.12
                                          SPEC (T).
        STEINWEDEL, ROBERT P...........  AIR TRAFFIC CONTROL     KH....................      120,165        2,346.12
                                          SPEC.
        STRONG, ROBERT L...............  AIR TRAFFIC CONTROL     JH....................      125,568          864.60
                                          SPEC.
        SWITCH, JAY M..................  AIR TRAFFIC CONTROL     KH....................      120,165        3,519.18
                                          SPEC.
        TIGHE, GRACE...................  AIR TRAFFIC CONTROL     GH....................       93,531        2,738.88
                                          SPEC (T).
        TOTH, DANIEL A.................  AIR TRAFFIC CONTROL     LH....................      126,402        3,580.32
                                          SPEC (C).
        VANDERWEEL, PETER J............  AIR TRAFFIC CONTROL     IH....................      116,303        1,135.26
                                          SPEC (T).
        VELLA, ANTHONY C...............  AIR TRAFFIC CONTROL     LH....................      129,524        4,997.52
                                          SPEC (T).
        VERONICO, JAMES N..............  AIR TRAFFIC CONTROL     LH....................      130,011        6,435.94
                                          SPEC (T).
        WALSH, STEPHEN G...............  AIR TRAFFIC CONTROL     GH....................       88,474        1,151.52
                                          SPEC.
        WAWRZYNSKI, DAVID B............  AIR TRAFFIC CONTROL     LH....................      125,928        1,324.98
                                          SPEC (T).
        WAZOWICZ, PAUL J...............  AIR TRAFFIC CONTROL     LH....................      130,011        5,976.23
                                          SPEC (T).
        WHEELER, DAVID A...............  AIR TRAFFIC CONTROL     KH....................      127,941        2,497.68
                                          SPEC (T).
        WHITE, LARRY D.................  AIR TRAFFIC CONTROL     HH....................       92,617        1,205.52
                                          SPEC (T).
        WHITMAN, STEPHEN S.............  AIR TRAFFIC CONTROL     LH....................      137,237        4,140.18
                                          SPEC (C).
        WIEGMANN, DARRYL L.............  AIR TRAFFIC CONTROL     LH....................      143,599        1,380.24
                                          SPEC (T).
        WILLENBRINK, WAYNE C...........  AIR TRAFFIC CONTROL     GH....................       93,531        3,347.52
                                          SPEC (T).
        WILLETT, ANTHONY J.............  PROGRAM MANAGER.......  K.....................      127,000        6,466.41
                                                                                             130,000       19,276.80
        WILLIAMS, CLIFFORD J...........  AIRWAY TRANSPORTATION   H.....................       61,335        3,310.00
                                          SYS SPEC.                                           61,337        1,324.00
                                                                                              63,226        4,279.41
        WILLIAMS, HAROLD F., III.......  AIRWAY TRANSPORTATION   H.....................       78,657        4,245.00
                                          SYS SPEC.                                           78,660        1,698.00
                                                                                              81,770        5,533.65
        WISHOWSKI, DONALD A............  AIR TRAFFIC CONTROL     LH....................      140,842        5,981.04
                                          SPEC (C).
        WITTMAN, MARK A................  AIR TRAFFIC CONTROL     JH....................      122,080        2,101.50
                                          SPEC.
        WOLVIN, MICHAEL S..............  AIR TRAFFIC CONTROL     HH....................      100,334        1,958.76
                                          SPEC (T).
        WYNKOOP, DOUGLAS J.............  AIR TRAFFIC CONTROL     LH....................      123,598        2,109.60
                                          SPEC (T).
        ZAROBA, PAUL B.................  AIR TRAFFIC CONTROL     LH....................      129,524        3,094.98
                                          SPEC (T).
                                                                                        ----------------------------
          Fiscal Year 2008 Total.......  ......................  ......................  ...........      719,405.04
                                                                                        ============================
    Fiscal Year 2009:
        ALLEGRINI, KEVIN J.............  AIR TRAFFIC CONTROL     GH....................       68,424        3,583.68
                                          SPEC.
        ALLSOP, KEVIN L................  AIR TRAFFIC CONTROL     FH....................       93,531        6,121.74
                                          SPEC (T).
        ANDERSON, THEODORE H...........  SUPV AIR TRAFFIC        LJ....................      148,960        3,220.56
                                          CONTROL SPEC (C).                                  155,663       21,165.10
        ANGLE, THEODORE W..............  AIR TRAFFIC CONTROL     LH....................      133,122          466.92
                                          SPEC (T).
        AUSTIN, THOMAS P...............  AIR TRAFFIC CONTROL     LH....................      133,625       20,337.73
                                          SPEC (C).              LI....................      135,772          464.75
        BACILE, MICHAEL J..............  AIR TRAFFIC CONTROL     KH....................      120,165       16,858.32
                                          SPEC.
        BAHLER, GARY C.................  AIR TRAFFIC CONTROL     LH....................      126,402       19,792.56
                                          SPEC (T).
        BALL, RANDALL R................  AIR TRAFFIC CONTROL     LH....................      140,319       22,292.10
                                          SPEC (T).
        BARBIERI, JOHN R...............  AIR TRAFFIC CONTROL     KH....................      120,165       16,858.32
                                          SPEC.
        BEADLE, MARK R.................  AIR TRAFFIC CONTROL     HH....................       91,568        4,099.62
                                          SPEC (T).
        BERRA, PATRICK M...............  AIR TRAFFIC CONTROL     FH....................       90,802       10,068.36
                                          SPEC (T).
        BIGGERS, JACK H................  AIR TRAFFIC CONTROL     KH....................      120,165       18,441.12
                                          SPEC.
        BINNER, ROGER A................  AIR TRAFFIC CONTROL     LH....................      140,319          993.24
                                          SPEC.
        BLACK, NELSON K................  AIR TRAFFIC CONTROL     FH....................       74,705       12,682.62
                                          SPEC (T).
        BLAIS, MICHAEL J...............  AIR TRAFFIC CONTROL     LH....................      126,400       17,506.86
                                          SPEC (T).
        BLINK, CHARLES L...............  AIR TRAFFIC CONTROL     HH....................       92,235        6,636.84
                                          SPEC (T).
        BLITTERSDORF, JEFFREY E........  AIR TRAFFIC CONTROL     GH....................       83,814       13,683.72
                                          SPEC.
        BOELTER, TIMOTHY T.............  AIR TRAFFIC CONTROL     LH....................      126,402       19,792.57
                                          SPEC (C).
        BONE, MICHAEL D................  AIR TRAFFIC CONTROL     LH....................      129,524       20,897.58
                                          SPEC (T).
        BORO, THOMAS R.................  MANAGER, LABOR &        J.....................      109,000        7,351.20
                                          EMPLOYEE REL BRACH.                                110,800       23,917.20
        BOWE, JOHN R...................  AIR TRAFFIC CONTROL     LH....................      126,402       19,335.42
                                          SPEC (C).
        BOYLE, DANIEL P................  AIR TRAFFIC CONTROL     LH....................      129,524       19,642.56
                                          SPEC (T).
        BRANNIGAN, TIMOTHY W...........  AIR TRAFFIC CONTROL     GH....................       67,342        3,527.04
                                          SPEC.
        BROKER, BARBARA A..............  AIR TRAFFIC CONTROL     LH....................      119,178       19,088.10
                                          SPEC (T).
        BROMLEY, DANA L................  AIR TRAFFIC CONTROL     GH....................       79,154        4,663.44
                                          SPEC.
        BRYAN, JEFFREY L...............  AIR TRAFFIC CONTROL     IH....................      104,966        5,154.30
                                          SPEC.
        BURTON, CARL JR................  SUPV AIR TRAFFIC        KJ....................      141,029        3,220.56
                                          CONTROL SPEC.                                      147,375        3,310.30
        BURZYCH, CRAIG A...............  AIR TRAFFIC CONTROL     LH....................      126,402       22,987.74
                                          SPEC (T).
        BUSSE, JUDITH A................  SUPV AIR TRAFFIC        LJ....................      140,908        3,220.56
                                          CONTROL SPEC (T).                                  147,248       20,319.36
        BYRNE, JOHN J..................  SUPV AIR TRAFFIC        LJ....................      142,230        3,220.56
                                          CONTROL SPEC (C).                                  148,630       18,749.30
        BYTHEWAY, DAVID L..............  AIR TRAFFIC CONTROL     HH....................      104,010       15,799.32
                                          SPEC (T).
        CARGIULO, LUIS P., JR..........  HUMAN RESOURCES         I.....................       84,626        5,836.80
                                          SPECIALIST.
        CARMICHAEL, DAVID L............  AIR TRAFFIC CONTROL     LH....................      133,122       20,761.38
                                          SPEC (C).
        CARVER, STEVEN T...............  SUPV COMPUTER SPEC....  K.....................      115,015        7,945.20
        CATOE, RALPH D.................  AIR TRAFFIC CONTROL     IH....................      102,216       15,686.34
                                          SPEC (T).
        CERAMI, JOSEPH S...............  AIR TRAFFIC CONTROL     LH....................      130,011       20,346.93
                                          SPEC (C).
        CHAMBERLIN, MARK J.............  AIR TRAFFIC CONTROL     GH....................       86,141        2,256.00
                                          SPEC (T).
        CHIASSON, MICHAEL P............  SUPV AIR TRAFFIC        IJ....................      118,893        3,502.44
                                          CONTROL SPEC.
        CLAYTON, ROBERT J..............  SUPV HUMAN RESOURCES    K.....................      130,000       10,542.00
                                          SPECIALIST.                                        132,200       18,715.20
        CLEAVER, MICHAEL D.............  SUPV AIR TRAFFIC        KJ....................      141,030        3,212.16
                                          CONTROL SPEC.                                      147,376       18,650.94
        COLFER, STEVEN L...............  AIR TRAFFIC CONTROL     LH....................      133,625       18,459.37
                                          SPEC (C).
        CONTRERAS, CARLOS..............  AIR TRAFFIC CONTROL     LH....................      115,783       18,544.14
                                          SPEC (C).
        COPPA, MICHAEL F...............  AIR TRAFFIC CONTROL     HH....................      102,216       14,824.80
                                          SPEC (T).
        DOBRINICH, DAVID A.............  SUPV AIR TRAFFIC        LJ....................      148,893        3,220.56
                                          CONTROL SPEC (T).                                  155,593       17,292.12
        DOEGE, BLANE S.................  AIR TRAFFIC CONTROL     LH....................      125,928       20,766.60
                                          SPEC.
        DRESSLER, ROBERT K.............  AIR TRAFFIC CONTROL     LH....................      122,788       17,450.46
                                          SPEC (T).
        DRISCOLL, CHARLES F............  AIR TRAFFIC CONTROL     LH....................      126,402       18,878.28
                                          SPEC (C).
        DUNPHY, DANIEL P...............  AIR TRAFFIC CONTROL     IH....................      110,732       18,817.68
                                          SPEC (T).
        DUTTON, RANDELL L..............  AIR TRAFFIC CONTROL     IH....................      114,201        4,111.80
                                          SPEC.
        DYER, STANLEY J................  SUPV AIR TRAFFIC        LJ....................      144,045        3,465.42
                                          CONTROL SPEC (T).                                  150,527       19,157.28
        EWING, MICHAEL L...............  AIR TRAFFIC CONTROL     LH....................      133,122       21,616.32
                                          SPEC (T).
        FRAWLEY, EDWARD J..............  SUPV AIR TRAFFIC        LJ....................      162,344        3,465.42
                                          CONTROL SPEC.                                      166,959       21,618.78
        FREDRICKSON, THOMAS E..........  AIR TRAFFIC CONTROL     KH....................      128,892       20,628.72
                                          SPEC (T).
        FUNKHOUSER, BRADLEY C..........  AIR TRAFFIC CONTROL     JH....................      120,954       18,961.92
                                          SPEC (C).
        GALASSINI, DEBRA A.............  AIR TRAFFIC CONTROL     LH....................      122,788       19,665.85
                                          SPEC (T).
        GIBBS, BRENDA E................  AIR TRAFFIC CONTROL     KH....................      120,165       20,005.20
                                          SPEC.
        GIBSON, VENTRIS C..............  ASST ADMIN FOR HUMAN    01....................      159,544        6,930.84
                                          RESOURCE  MGMT.                                    164,011        9,159.48
        GISH, EDMUND C.................  SUPV AIR TRAFFIC        LJ....................      164,168        3,220.56
                                          CONTROL SPEC (T).                                  166,959       21,165.09
        GOODNOUGH, DAVID W.............  AIR TRAFFIC CONTROL     GH....................       90,802       15,297.96
                                          SPEC (T).
        GOSS, NORBERT L., JR...........  AIR TRAFFIC CONTROL     GH....................       74,501        4,876.50
                                          SPEC (T).
        GRATYS, JOHN G.................  SUPV AIR TRAFFIC        LJ....................      140,908        3,220.56
                                          CONTROL SPEC (C).                                  147,248       18,749.30
        GREEN, JEFFREY S...............  AIR TRAFFIC CONTROL     EH....................       65,107        4,261.14
                                          SPECIALIST (T).
        GRIEST, DIANE L................  SUPV AIR TRAFFIC        LJ....................      159,567          920.16
                                          CONTROL SPEC.                                      166,747        8,985.10
        GRIFFIN, CHARLES W.............  AIR TRAFFIC CONTROL     LH....................      118,733       20,563.98
                                          SPEC (T).
        GRIMM, CYNTHIA J...............  AIR TRAFFIC CONTROL     LH....................      121,658       17,285.04
                                          SPEC (T).
        GROENE-BRASS, LISA C...........  AIR TRAFFIC CONTROL     HH....................       92,617       13,605.30
                                          SPEC (T).
        GROFF, BRYAN W.................  AIR TRAFFIC CONTROL     LH....................      133,122       24,295.19
                                          SPEC (C).
        HABER, SELIM...................  GENERAL ENGINEER......  K.....................      132,200        4,539.36
        HALL, MICHAEL A................  AIR TRAFFIC CONTROL     LH....................      133,122       22,599.24
                                          SPEC (T).
        HARDIMAN, MATTHEW J............  AIR TRAFFIC CONTROL     GH....................       67,342        3,527.04
                                          SPEC.
        HASENPFLUG, JEFFREY D..........  AIR TRAFFIC CONTROL     JH....................      129,058       20,105.28
                                          SPEC.
        HAYNES, DARRYL A...............  AIR TRAFFIC CONTROL     JH....................      130,974        5,014.02
                                          SPEC.
        HEINTZ, ROBERT B...............  AIR TRAFFIC CONTROL     GH....................       68,970        3,612.48
                                          SPEC.
        HOFFMAN, ROBERTA S.............  AIR TRAFFIC CONTROL     LH....................      130,011       19,417.08
                                          SPEC (T).
        HOLDGATE, FREDERICK I..........  AIR TRAFFIC CONTROL     GH....................       85,520        4,479.36
                                          SPEC.
        HOLLAND, JEFFERY K.............  AIR TRAFFIC CONTROL     IH....................      104,966        4,467.06
                                          SPEC.
        HORNER, WILLIAM T..............  AIR TRAFFIC CONTROL     KH....................      125,405       17,593.33
                                          SPEC (T).
        HOTRUM, GLENN M................  AIR TRAFFIC CONTROL     LH....................      115,133       21,978.01
                                          SPEC (T).
        HOUSE, MARK S..................  DIR FIN ANALYSIS &      02....................      148,469        6,930.84
                                          PROCESS REENGI-  NEER.                             152,626        8,141.76
        HURLEY, WILLIAM J., JR.........  AIR TRAFFIC CONTROL     HH....................       90,042       13,817.04
                                          SPEC (T).
        HYLAND, JOHN L.................  AIR TRAFFIC CONTROL     JH....................      117,682       18,065.64
                                          SPEC (C).
        IMUNDO, RICO F.................  SUPV TRAFFIC MANGEMENT  JJ....................      124,448        8,698.20
                                          COORDINA-  TOR.
        JEANES, JOSEPH A...............  AIR TRAFFIC CONTROL     IH....................      116,303       15,551.70
                                          SPEC (T).
        JONES, MELVIN B................  AIR TRAFFIC CONTROL     LH....................      129,524       19,553.16
                                          SPEC (T).
        JUBA, EUGENE...................  SR VICE PRESIDENT FOR   01....................      168,200        6,930.84
                                          FINANCE.                                           171,100        8,141.76
        KELLY, THOMAS C................  SUPV AIR TRAFFIC        LJ....................      164,740        8,740.19
                                          CONTROL SPEC.
        KEYES, ROBERT C................  AIR TRAFFIC CONTROL     LH....................      130,011       20,340.76
                                          SPEC (T).
        KHATCHERIAN, PAUL..............  SUPV AIR TRAFFIC        LJ....................      142,230        3,220.56
                                          CONTROL SPEC (C).                                  148,630       19,235.03
        KOOS, MARK.....................  AIR TRAFFIC CONTROL     LH....................      135,543       23,631.42
                                          SPEC (C).
        KRAKOWSKI, HENRY P.............  CHIEF OPERATING         1A....................      211,000       25,762.24
                                          OFFICER.
        KUHN, GEORGE W.................  AIR TRAFFIC CONTROL     LH....................      111,843       17,512.20
                                          SPEC (C).
        KUZANEK, DWIGHT M..............  AIR TRAFFIC CONTROL     LH....................      122,788        6,558.36
                                          SPEC (T).
                                         SUPV AIR TRAFFIC        LH....................      122,788       11,780.10
                                          CONTROL SPECIALIST.
        LADNIER, DARRYL A..............  AIR TRAFFIC CONTROL     KH....................      113,300       18,876.12
                                          SPEC.
        LAMBERT, DAWN E................  SUPV AIR TRAFFIC        LJ....................      132,494        2,344.50
                                          CONTROL SPEC.
        LANGSTON, MILES H., JR.........  AIR TRAFFIC CONTROL     KH....................      125,405       19,245.24
                                          SPEC (T).
        LASH, WILLIAM C................  AIR TRAFFIC CONTROL     LH....................      125,928       23,062.80
                                          SPEC (C).
        LAWRENCE, TONY H...............  AIR TRAFFIC CONTROL     LH....................      125,928       22,082.58
                                          SPEC (T).
        LESTER, CRAIG S................  AIR TRAFFIC CONTROL     FH....................       90,802        2,972.40
                                          SPEC (T).
        LEWIS, KEITH C.................  AIR TRAFFIC CONTROL     LH....................      118,733       20,142.60
                                          SPEC (T).
        LEWIS, TIMOTHY R...............  AIR TRAFFIC CONTROL     KH....................      123,598        6,068.70
                                          SPEC.
        LICON, RUBEN...................  AIR TRAFFIC CONTROL     LH....................      129,524       23,162.28
                                          SPEC.
        LIGNELLI, ROBERT J.............  AIR TRAFFIC CONTROL     LH....................      133,122       19,633.32
                                          SPEC (T).
        LIZZIO, MICHAEL J..............  SUPV AIR TRAFFIC        LJ....................      131,855        3,220.07
                                          CONTROL SPEC (C).
        LOVETT, STEVEN B...............  SUPV AIR TRAFFIC        KJ....................      144,556        3,292.38
                                          CONTROL SPEC.                                      151,061       16,390.45
        MANCHESTER, RICHARD D..........  AIR TRAFFIC CONTROL     GH....................       68,424        3,583.68
                                          SPEC.
        MARKS, ROBERT L................  AIR TRAFFIC CONTROL     LH....................      122,329       18,550.38
                                          SPEC (T).
        MATHEIS, ULRICH R..............  AIR TRAFFIC CONTROL     LH....................      133,625       19,398.55
                                          SPEC (C).
        MAURICE, LOURDES Q.............  CHIEF SCIENTIFIC &      03....................      138,516        4,493.44
                                          TECHNICAL ADVISOR.                                 142,394        7,391.12
        MCCARTNEY, WILLIAM A...........  AIR TRAFFIC CONTROL     LH....................      129,524       23,162.28
                                          SPEC (T).
        MCCONAHAY, KENNETH C...........  AIR TRAFFIC CONTROL     LH....................      133,122       21,228.84
                                          SPEC (T).
        MCCORMICK, MICHAEL J...........  AIR TRAFFIC CONTROL     LH....................      129,524       22,432.56
                                          SPEC (T).
        MCKEE, DAVID C.................  AIR TRAFFIC CONTROL     LH....................      122,329       22,435.92
                                          SPEC (T).
        MICHAEL, GLENN W...............  CAST OUTREACH PROGRAM   K.....................      132,200        9,951.36
                                          MGR.
        MIETH, DOUGLAS R...............  AIR TRAFFIC CONTROL     LH....................      133,625       20,337.73
                                          SPEC (C).
        MINER, MATHEW M................  AIR TRAFFIC CONTROL     LH....................      133,122       23,055.72
                                          SPEC (T).
        MINIACE, JOSEPH N..............  DEP ASST ADM STRATEGIC  02....................      149,430        9,241.12
                                          LABOR MGT  FREL.                                   153,614        9,498.72
        MISNER, JOHN E.................  AIR TRAFFIC CONTROL     LH....................      126,402       21,163.99
                                          SPEC (C).
        MOFFAT, JAY....................  AIR TRAFFIC CONTROL     LH....................      122,788       20,114.46
                                          SPEC (T).
        MOLLICA, ANTHONY J.............  AIR TRAFFIC CONTROL     HH....................       92,235        1,992.96
                                          SPEC (T).
        MOORE, DIANNA H................  MANAGEMENT AND PROGRAM  I.....................       63,698        7,525.44
                                          ANA.
        MOORE, GEORGE E................  AIR TRAFFIC CONTROL     LH....................      129,524       23,162.28
                                          SPEC.
        MORALES, DAVID A...............  AIR TRAFFIC CONTROL     EH....................       70,600       10,603.92
                                          SPEC (T).
        MORRISON, ROBERT M.............  SUP ATCS (C/T-I)......  K.....................      130,000        5,640.00
        NASH, CHARLES F................  AIR TRAFFIC CONTROL     GH....................       83,814       13,374.99
                                          SPEC (T).
        NELSON, BARRY J................  AIR TRAFFIC CONTROL     EH....................       76,950       13,889.89
                                          SPEC (T).
        NELSON, MATTHEW F..............  AIR TRAFFIC CONTROL     JH....................      114,418        5,243.28
                                          SPEC (T).
        NEMCEK, RICHARD M..............  AIR TRAFFIC CONTROL     LH....................      126,402       19,792.56
                                          SPEC (C).
        NICHOLAS, ROBERT M.............  AIR TRAFFIC CONTROL     LH....................      133,625       19,398.55
                                          SPEC (C).
        OSEKOWSKI, CRAIG P.............  SUPV AIR TRAFFIC        KJ....................      146,480        3,336.48
                                          CONTROL SPEC.                                      153,072       18,142.81
        OTERO, CARLOS V................  SUPV AIR TRAFFIC        GJ....................       95,385        4,995.84
                                          CONTROL SPEC.
        PALLONE, MARK A................  AIR TRAFFIC CONTROL     LH....................      125,928       21,643.92
                                          SPEC (T).
        PARMAN, DENNIS J...............  AIR TRAFFIC CONTROL     LH....................      129,524       21,546.42
                                          SPEC (T).
        PASSIALES, JAMES J.............  SUPV AIR TRAFFIC        LJ....................      127,548        3,161.34
                                          CONTROL SPEC (C).                                  133,287       18,748.44
        PATT, LAWRENCE K...............  AIR TRAFFIC CONTROL     LH....................      129,524       18,717.90
                                          SPEC (T).
        PETRE, PHILIP J................  SUPV AIR TRAFFIC        KJ....................      127,159        2,896.32
                                          CONTROL SPEC (T).                                  132,881          870.00
        PRATT, THOMAS J................  SUPV AVIATION SAFETY    K.....................      130,000        3,728.56
                                          INSPECTOR.
        PUGH, DENNIS W.................  AIR TRAFFIC CONTROL     GH....................       83,814       12,414.60
                                          SPEC (T).
        PUNWANI, RAMESH................  ASST ADMIN FOR          01....................      168,200       11,551.40
                                          FINANCIAL SERVICES.                                171,100       16,962.00
        QUINN, GLENN P.................  AIR TRAFFIC CONTROL     KH....................      127,032       23,860.08
                                          SPEC (T).
        RABINOWITZ, BRIAN R............  AIR TRAFFIC CONTROL     GH....................       49,145        2,402.18
                                          SPEC.
        RAWLINGS, KEVIN S..............  AIR TRAFFIC CONTROL     HH....................       94,798       16,090.15
                                          SPEC (T).
        RAY, MARK A....................  AIR TRAFFIC CONTROL     LH....................      137,237       20,343.60
                                          SPEC (C).
        REGRUTO, SANDRA G..............  AIR TRAFFIC CONTROL     FH....................       81,884       12,531.12
                                          SPEC (T).
        REINERT, KURT A................  AIR TRAFFIC CONTROL     FH....................       84,643       14,089.09
                                          SPEC (T).
        RHEA, RODNEY R.................  AIR TRAFFIC CONTROL     GH....................       83,814       14,232.48
                                          SPEC.
        RITMAN, ALLISON W..............  MANAGING DIR OF FINC    02....................      135,933          755.92
                                          RPTNG & CONTROLS.
        RITMILLER, JOHN M..............  AIR TRAFFIC CONTROL     LH....................      129,524        1,833.60
                                          SPEC (C).
        RIXEY, WILLIAM S...............  AIR TRAFFIC CONTROL     GC....................       33,700          147.12
                                          SPEC.                  GG....................       44,500        1,748.16
                                         AIR TRAFFIC CONTROL     GC....................       33,700          147.12
                                          SPEC (T).
                                         AIR TRAFFIC CONTROL     GG....................       44,500          194.24
                                          SPECIALIST.
        ROESKE, DAVID W................  AIR TRAFFIC CONTROL     LH....................      126,402       19,792.56
                                          SPEC (C).
        ROY, KIM A.....................  AIR TRAFFIC CONTROL     KH....................      127,032       23,860.09
                                          SPEC (T).
        RUBIN, BARRY E.................  AIR TRAFFIC CONTROL     JH....................      104,612        4,451.46
                                          SPEC (C).
        RUIZ, DAVID R..................  AIR TRAFFIC CONTROL     LH....................      129,524       18,502.42
                                          SPEC (T).
        SACKETT, GREGORY A.............  SUPV AIR TRAFFIC        KJ....................      154,712       17,815.20
                                          CONTROL S.             KK....................      160,900          508.86
                                         SUPV AIR TRAFFIC        KJ....................      148,050        3,372.18
                                          CONTROL SPEC.          KK....................      160,900        2,544.30
        SANOCKI, MICHAEL H.............  AIR TRAFFIC CONTROL     LH....................      130,011       18,460.14
                                          SPEC (T).
        SCAVILLA, JASON R..............  AIR TRAFFIC CONTROL     GH....................       49,373        2,586.24
                                          SPEC (.
        SCOTT, ROBERT E................  AIR TRAFFIC CONTROL     LH....................      109,000        2,701.44
                                          SPEC (C).                                          110,800       16,128.96
        SEACAT, GARY D.................  AIR TRAFFIC CONTROL     HH....................       92,617       16,041.54
                                          SPEC (T).
        SECIA, PAULA E.................  AVIATION ASSISTANT....  E.....................       35,687        1,869.12
        SICKLES, STEPHAN J.............  AIR TRAFFIC CONTROL     LH....................      133,122       19,797.72
                                          SPEC (T).
        SLOSEK, CARRIE A...............  AIR TRAFFIC CONTROL     GH....................       67,342        3,527.04
                                          SPEC.
        SMITH, TERRY R.................  AIR TRAFFIC CONTROL     LH....................      122,329       22,840.98
                                          SPEC (T).
        SNYDER, FREDERICK J., JR.......  AIR TRAFFIC CONTROL     KH....................      125,568       23,647.86
                                          SPEC (C).
        SNYDER, THOMAS G...............  AIR TRAFFIC CONTROL     GH....................       83,814       14,234.16
                                          SPEC.
        STANKOWICZ, JOSEPH M...........  AIR TRAFFIC CONTROL     LH....................      133,625       20,337.74
                                          SPEC (C).
        STAROS, JOHN D.................  SUPV AIR TRAFFIC        LJ....................      128,572        3,186.54
                                          CONTROL SPEC (T).                                  134,357       18,898.92
        STEINBERG, FREDERICK W.........  AIR TRAFFIC CONTROL     GH....................       84,550       14,271.84
                                          SPEC (T).
        STEINWEDEL, ROBERT P...........  AIR TRAFFIC CONTROL     KH....................      120,165       18,441.12
                                          SPEC.
        STRONG, ROBERT L...............  AIR TRAFFIC CONTROL     JH....................      125,568       22,650.24
                                          SPEC.
        STYER, MICHAEL J...............  AIR TRAFFIC CONTROL     LH....................      129,524       10,254.72
                                          SPEC.
        SUTPHEN, SCOTT S...............  AIR TRAFFIC CONTROL     HH....................       89,675        3,815.76
                                          SPEC (T).
        SWITCH, JAY M..................  AIR TRAFFIC CONTROL     KH....................      120,165       20,400.90
                                          SPEC.
        TIGHE, GRACE...................  AIR TRAFFIC CONTROL     GH....................       93,531       13,122.96
                                          SPEC (T).
        TOOREN, JUERGEN G..............  SUPV FOREIGN AFFAIRS    L.....................      150,327       10,828.48
                                          SPECIALIST.
        TOPHAM, PATRICK M..............  SUPV AIR TRAFFIC        GL....................       98,746        5,171.52
                                          CONTROL SPEC.
        TOTH, DANIEL A.................  AIR TRAFFIC CONTROL     LH....................      126,402       20,249.70
                                          SPEC (C).
        VANDERWEEL, PETER J............  AIR TRAFFIC CONTROL     IH....................      116,303       18,615.54
                                          SPEC (T).
        VELLA, ANTHONY C...............  AIR TRAFFIC CONTROL     LH....................      129,524       18,712.56
                                          SPEC (T).
        VERONICO, JAMES N..............  AIR TRAFFIC CONTROL     LH....................      130,011       17,982.62
                                          SPEC (T).
        WACHTER, MARK V................  AIR TRAFFIC CONTROL     GG....................       48,100        2,519.04
                                          SPEC.
        WALSH, STEPHEN G...............  AIR TRAFFIC CONTROL     GH....................       88,474       15,028.93
                                          SPEC.
        WAWRZYNSKI, DAVID B............  AIR TRAFFIC CONTROL     LH....................      125,928       21,808.38
                                          SPEC (T).
        WAZOWICZ, PAUL J...............  AIR TRAFFIC CONTROL     LH....................      130,011       18,003.53
                                          SPEC (T).
        WEBER, GLENN M.................  AIR TRAFFIC CONTROL     GH....................       83,814        1,097.52
                                          SPEC (T).
        WHEELER, DAVID A...............  AIR TRAFFIC CONTROL     KH....................      127,941       20,052.10
                                          SPEC (T).
        WHITE, LARRY D.................  AIR TRAFFIC CONTROL     HH....................       92,617       14,823.42
                                          SPEC (T).
        WHITMAN, STEPHEN S.............  AIR TRAFFIC CONTROL     LH....................      137,237       20,343.60
                                          SPEC (C).
        WIEGMANN, DARRYL L.............  AIR TRAFFIC CONTROL     LH....................      143,599       23,899.93
                                          SPEC (T).
        WILKS, RANDY O.................  AIR TRAFFIC CONTROL     KH....................      123,598        2,427.48
                                          SPEC.
        WILLENBRINK, WAYNE C...........  AIR TRAFFIC CONTROL     GH....................       93,531       13,119.24
                                          SPEC (T).
        WILLETT, ANTHONY J.............  PROGRAM MANAGER.......  K.....................      130,000        6,746.88
                                                                                             132,200       14,972.11
        WILLIAMS, CLIFFORD J...........  AIRWAY TRANSPORTATION   H.....................       63,226        1,728.23
                                          SYS SPEC.                                           65,692        5,160.98
        WILLIAMS, HAROLD F., III.......  AIRWAY TRANSPORTATION   H.....................       81,770        2,234.75
                                          SYS SPEC.                                           85,646        6,729.16
        WISHOWSKI, DONALD A............  AIR TRAFFIC CONTROL     LH....................      140,842       18,042.66
                                          SPEC (C).
        WITTMAN, MARK A................  AIR TRAFFIC CONTROL     JH....................      122,080       19,881.80
                                          SPEC.
        WOLVIN, MICHAEL S..............  AIR TRAFFIC CONTROL     HH....................      100,334       15,397.08
                                          SPEC (T).
        WYNKOOP, DOUGLAS J.............  AIR TRAFFIC CONTROL     LH....................      123,598       19,951.20
                                          SPEC (T).
        ZAROBA, PAUL B.................  AIR TRAFFIC CONTROL     LH....................      129,524       20,004.30
                                          SPEC (T).
                                                                                        ----------------------------
          Fiscal Year 2009 Total.......  ......................  ......................  ...........    2,998,201.46
                                                                                        ============================
    Fiscal Year 2010:
        ALLEGRINI, KEVIN J.............  AIR TRAFFIC CONTROL     GH....................       68,424        2,090.48
                                          SPEC.                                               70,477        2,467.20
        ALLSOP, KEVIN L................  AIR TRAFFIC CONTROL     FH....................       93,531       10,408.26
                                          SPEC (T).
        BINNER, ROGER A................  AIR TRAFFIC CONTROL     LH....................      140,319        3,476.34
                                          SPEC.                                              145,974        4,132.80
        BLACK, NELSON K................  AIR TRAFFIC CONTROL     FH....................       74,705        1,711.92
                                          SPEC (T).
                                                                                              77,715        2,040.48
        BLINK, CHARLES L...............  AIR TRAFFIC CONTROL     HH....................       92,235        9,041.74
                                          SPEC (T).
        BLITTERSDORF, JEFFREY E........  AIR TRAFFIC CONTROL     GH....................       83,814        1,920.66
                                          SPEC.                                               87,191        2,289.12
        BORO, THOMAS R.................  HUMAN RESOURCES         J.....................      110,800        7,552.80
                                          SPECIALIST (ER/LR).                                114,100       10,435.21
                                         MANAGER, LABOR &        J.....................      110,800        1,258.80
                                          EMPLOYEE REL BRACH.
        BRANNIGAN, TIMOTHY W...........  AIR TRAFFIC CONTROL     GH....................       67,342        2,057.44
                                          SPEC.                                               69,362        2,428.16
        BROMLEY, DANA L................  AIR TRAFFIC CONTROL     GH....................       79,154        1,813.56
                                          SPEC.                                               82,344        9,179.40
        BRYAN, JEFFREY L...............  AIR TRAFFIC CONTROL     IH....................      104,966        2,405.34
                                          SPEC.                                              109,196       11,143.44
        CARGIULO, LUIS P., JR..........  HUMAN RESOURCES         I.....................       84,626        6,809.60
                                          SPECIALIST.                                         86,742        8,024.00
        CERAMI, JOSEPH S...............  AIR TRAFFIC CONTROL     LH....................      130,011          464.62
                                          SPEC (C).
        CHAMBERLIN, MARK J.............  AIR TRAFFIC CONTROL     GH....................       86,141        1,974.00
                                          SPEC (T).                                           89,612        2,352.96
        CHIASSON, MICHAEL P............  SUPV AIR TRAFFIC        IJ....................      118,893        2,724.12
                                          CONTROL SPEC.                                      121,865        3,199.68
        CLEAVER, MICHAEL D.............  SUPV AIR TRAFFIC        KJ....................      147,376        3,376.80
                                          CONTROL SPEC.                                      151,944        3,989.28
        CONDLEY, GARY R................  FAA ACADEMY             02....................      146,505        8,014.00
                                          SUPERINTENDENT.
        DUTTON, RANDELL L..............  AIR TRAFFIC CONTROL     IH....................      114,201        2,616.60
                                          SPEC.                                              118,803       12,967.44
        FLEMMING, JOHNNIE M............  DIRECTOR OF HUMAN       K.....................      132,200        2,884.80
                                          RESOURCES.                                         136,200       11,920.00
        FRAWLEY, EDWARD J..............  SUPV AIR TRAFFIC        LJ....................      166,959        3,562.02
                                          CONTROL SPEC.                                      171,133        4,132.80
        GIBBS, BRENDA E................  AIR TRAFFIC CONTROL     KH....................      120,165        2,753.52
                                          SPEC.                                              125,008        3,282.24
        GOSS, NORBERT L., JR...........  AIR TRAFFIC CONTROL     GH....................       74,501        8,291.10
                                          SPEC (T).
        GREEN, JEFFREY S...............  AIR TRAFFIC CONTROL     EH....................       65,107          178.49
                                          SPECIALIST (T).
        GRIEST, DIANE L................  SUPV AIR TRAFFIC        LJ....................      166,747       15,580.07
                                          CONTROL SPEC.
        GROFF, BRYAN W.................  AIR TRAFFIC CONTROL     LH....................      133,122        3,297.84
                                          SPEC (C).                                          138,487        3,956.64
        HABER, SELIM...................  GENERAL ENGINEER......  K.....................      132,200        2,269.68
        HARDIMAN, MATTHEW J............  AIR TRAFFIC CONTROL     GH....................       67,342        2,057.44
                                          SPEC.                                               69,362        2,428.16
        HAYNES, DARRYL A...............  AIR TRAFFIC CONTROL     JH....................      130,974        3,190.74
                                          SPEC.                                              136,252        3,817.44
        HEINTZ, ROBERT B...............  AIR TRAFFIC CONTROL     GH....................       68,970        2,107.28
                                          SPEC.                                               71,039        2,487.04
        HOLDGATE, FREDERICK I..........  AIR TRAFFIC CONTROL     GH....................       85,520        2,612.96
                                          SPEC.                                               88,086        3,083.52
        HOLLAND, JEFFERY K.............  AIR TRAFFIC CONTROL     IH....................      104,966        2,405.34
                                          SPEC.                                              109,196       11,889.73
        IMUNDO, RICO F.................  SUPV TRAFFIC MANGEMENT  JJ....................      124,448       15,107.41
                                          COORDINA-  TOR.
        JEANES, JOSEPH A...............  AIR TRAFFIC CONTROL     IH....................      116,303          761.40
                                          SPEC (T).
        JEFF-CARTIER, JOLAINA..........  HUMAN RESOURCES         J.....................       87,349        2,071.29
                                          SPECIALIST (LR).
        KELLY, THOMAS C................  SUPV AIR TRAFFIC        LJ....................      164,740          920.02
                                          CONTROL SPEC.          LK....................      164,740       14,260.30
        KRAKOWSKI, HENRY P.............  CHIEF OPERATING         1A....................      211,000       15,007.52
                                          OFFICER.
        LAMBERT, DAWN E................  SUPV AIR TRAFFIC        LJ....................      132,494        3,282.30
                                          CONTROL SPEC.                                      136,601        2,000.23
        LESTER, CRAIG S................  AIR TRAFFIC CONTROL     FH....................       90,802        2,080.68
                                          SPEC (T).                                           94,461        2,480.16
        LEWIS, TIMOTHY R...............  AIR TRAFFIC CONTROL     KH....................      123,598        2,832.06
                                          SPEC.                                              128,579       13,120.57
        MANCHESTER, RICHARD D..........  AIR TRAFFIC CONTROL     GH....................       68,424        2,090.48
                                          SPEC.                                               70,477        2,467.20
        MCKEE, STEVEN W................  HUMAN RESOURCES         I.....................       93,300        9,156.00
                                          SPECIALIST.
        MICHAEL, GLENN W...............  CAST OUTREACH PROGRAM   K.....................      132,200        4,353.72
                                          MGR.                                               136,200        2,580.32
        MOORE, DIANNA H................  MANAGEMENT AND PROGRAM  I.....................       63,698        4,052.16
                                          ANA.                                                66,437        3,645.12
        NELSON, MATTHEW F..............  AIR TRAFFIC CONTROL     JH....................      114,418        2,621.64
                                          SPEC (T).                                          119,030       11,771.53
        NICHOLAS, ROBERT M.............  AIR TRAFFIC CONTROL     LH....................      133,625          464.75
                                          SPEC (C).
        OSEKOWSKI, CRAIG P.............  SUPV AIR TRAFFIC        KJ....................      153,072          501.06
                                          CONTROL SPEC.
        OTERO, CARLOS V................  SUPV AIR TRAFFIC        GJ....................       95,385        2,914.24
                                          CONTROL SPEC.                                       98,342        3,442.56
        PARDEE, JAY J..................  DIR, OFF OF ACCIDENT    02....................      162,695        7,232.40
                                          INVEST & PREV.
        RABINOWITZ, BRIAN R............  AIR TRAFFIC CONTROL     GH....................       49,145        1,257.39
                                          SPEC.                                               52,469          915.53
                                                                  LH...................       68,496          338.00
        RAWLINGS, KEVIN S..............  AIR TRAFFIC CONTROL     HH....................       94,798        2,172.24
                                          SPEC (T).                                           98,618        2,589.12
        REINERT, KURT A................  AIR TRAFFIC CONTROL     FH....................       84,643        1,939.56
                                          SPEC (T).                                           88,054        2,312.16
        RHEA, RODNEY R.................  AIR TRAFFIC CONTROL     GH....................       83,814        1,920.66
                                          SPEC.                                               87,191        2,289.12
        RITMILLER, JOHN M..............  AIR TRAFFIC CONTROL     LH....................      129,524        3,208.80
                                          SPEC (C).                                          134,744        3,849.60
        RIXEY, WILLIAM S...............  AIR TRAFFIC CONTROL     GH....................       48,100        1,469.44
                                          SPECIALIST.                                         52,469        1,836.80
        RUBIN, BARRY E.................  AIR TRAFFIC CONTROL     JH....................      104,612        2,396.94
                                          SPEC (C).                                          108,828       11,134.56
        SACKETT, GREGORY A.............  SUPV AIR TRAFFIC        KJ....................      154,712        3,545.22
                                          CONTROL S.                                         161,365        4,132.80
        SANOCKI, MICHAEL H.............  AIR TRAFFIC CONTROL     LH....................      130,011          465.24
                                          SPEC (T).
        SCAVILLA, JASON R..............  AIR TRAFFIC CONTROL     GH....................       49,373        1,508.64
                                          SPEC (.                                             52,469        1,836.80
        SCHMITT, RICHARD A.............  SATCS, OPERATIONS       GJ....................       85,247        1,678.68
                                          SUPERVISOR.
        SECIA, PAULA E.................  AVIATION ASSISTANT....  E.....................       35,687        1,090.32
                                                                                              36,793        1,288.32
        SLOSEK, CARRIE A...............  AIR TRAFFIC CONTROL     GH....................       67,342        2,057.44
                                          SPEC.                                               69,362        2,428.16
        SNYDER, THOMAS G...............  AIR TRAFFIC CONTROL     GH....................       83,814        1,920.66
                                          SPEC.                                               87,191        2,289.12
        STANKOWICZ, JOSEPH M...........  AIR TRAFFIC CONTROL     LH....................      133,625          464.75
                                          SPEC (C).
        STYER, MICHAEL J...............  AIR TRAFFIC CONTROL     LH....................      129,524       12,934.56
                                          SPEC.
        SUTPHEN, SCOTT S...............  AIR TRAFFIC CONTROL     HH....................       89,675        2,054.64
                                          SPEC (T).                                           93,289       10,156.92
        SWITCH, JAY M..................  AIR TRAFFIC CONTROL     KH....................      120,165        2,753.52
                                          SPEC.                                              125,008        3,282.24
        TOOREN, JUERGEN G..............  SUPV FOREIGN AFFAIRS    L.....................      150,327        3,989.44
                                          SPECIALIST.
        TOPHAM, PATRICK M..............  SUPV AIR TRAFFIC        GL....................       98,746        3,016.72
                                          CONTROL SPEC.                                      101,807        3,118.64
        VERONICO, JAMES N..............  AIR TRAFFIC CONTROL     LH....................      130,011          464.62
                                          SPEC (T).
        WACHTER, MARK V................  AIR TRAFFIC CONTROL     GG....................       48,100        1,469.44
                                          SPEC.                                               49,543        1,734.40
        WALSH, STEPHEN G...............  AIR TRAFFIC CONTROL     GH....................       88,474        2,027.34
                                          SPEC.                                               92,039        2,416.80
        WAZOWICZ, PAUL J...............  AIR TRAFFIC CONTROL     LH....................      130,011           20.24
                                          SPEC (T).
        WEBER, GLENN M.................  AIR TRAFFIC CONTROL     GH....................       83,814        1,920.66
                                          SPEC (T).                                           87,191        2,289.12
        WICKS, EDWIN D.................  HUMAN RESOURCES         I.....................       93,300        7,518.40
                                          SPECIALIST.
        WIETHORN, MICHAEL R............  AIR TRAFFIC CONTROL     KH....................      113,300          385.26
                                          SPEC.                                              117,866        3,213.60
        WILKS, RANDY O.................  AIR TRAFFIC CONTROL     KH....................      123,598        2,832.06
                                          SPEC.                                              128,579        3,375.84
        WILLIAMS, CLIFFORD J...........  AIRWAY TRANSPORTATION   H.....................       65,692        2,007.04
                                          SYS SPEC.                                           67,334        2,357.12
        WILLIAMS, HAROLD F., III.......  AIRWAY TRANSPORTATION   H.....................       85,646        2,616.88
                                          SYS SPEC.                                           87,787        3,073.28
                                                                                        ----------------------------
          Fiscal Year 2010 Total.......  ......................  ......................  ...........      519,137.07
    ----------------------------------------------------------------------------------------------------------------

        Question. Other than FAA, do any other offices within DOT provide
    retention bonuses? If so, under what circumstances and restrictions?
        Answer. Yes. The following agencies have provided retention
    bonuses: FHWA, NHTSA, FRA, PHMSA, SLSDC, OST, RITA, OIG, and STB.
        The Department of Transportation follows the guidelines in DPM 575-
    1, Payment of Recruitment and Relocation Bonuses and Retention
    Allowances. Retention incentives are used to retain current employees
    with unique competencies that are critical to the Department's mission.
    In most cases, retention incentives are used to keep individuals who
    are eligible for and who have indicated they will be retiring. However,
    they may also be used to retain staff with unique and very marketable
    competencies who could otherwise earn a higher salary in the private
    sector.
        Question. The budget includes $24 million and 100 positions to
    establish a new Rail Transit Safety Oversight Program. This proposal
    follows on the heels of rail transit accidents in Boston, Los Angeles,
    San Francisco, and Washington, DC and supports the legislation the
    administration transmitted to Congress in December.
        In the meantime, however, what can FTA do within its current
    authority to ensure transit systems are safe, without new legislation,
    be it through training, technical assistance or other efforts?
        Answer. Even without authorization legislation in place, FTA could
    still take important steps to stand up its safety program if Congress
    provides the necessary funds, including:
      --Hiring new program staff (as opposed to field safety inspectors)
            with special expertise in areas of safety, engineering, and
            behavioral experts.
      --Undertaking research and demonstration projects in the area of
            transit safety.
        Moreover, FTA currently is taking steps to strengthen State Safety
    Oversight Agencies (SSOAs). FTA provides stakeholder outreach
    (informational exchanges, best practices, lessons learned, program
    guidance) through a variety of efforts, including:
      --Two State Safety Oversight workshops per year including one for
            SSOAs and one for both SSOAs and Rail Transit Agencies.
      --Two Safety & Security Roundtables per year co-sponsored by TSA and
            attended by safety and security officials from the largest 50
            transit agencies.
      --FTA's Safety and Security Web site, which contains resource
            documents, program guidance, training course listings.
      --``Dear Colleague'' letters issued to industry stakeholders about
            best practices.
        Question. Please explain the need for Federal regulation and
    oversight of rail transit safety. What information does FTA have on the
    current performance of the State Safety Oversight Agencies in
    overseeing safety on rail transit systems, including their safety
    standards, level of oversight, and ability to enforce compliance? What
    kind of enforcement actions would FTA be able to take?
        Answer. Concerning the need for Federal regulation and oversight,
    FTA does not have regulatory authority or the resources to oversee
    safety performance of transit agencies. This responsibility currently
    resides at the State and local levels. Without field verification
    audits, FTA cannot confirm that (1) rail transit agencies have adopted
    the appropriate safety standards for track, vehicles, signals and train
    control, operating practices, and electrification systems and (2) that
    the adopted standards are being implemented. Nor do we have the
    authority to require States and rail transit agencies to address
    critical safety issues, such as fatigue (hours of service), medical
    qualification (to include sleep apnea and other sleep disorders),
    incorporation of automatic systems and technology into track
    inspection, and information management systems to enhance communication
    between and across operating and maintenance departments regarding the
    reporting and analysis of safety hazards and concerns.
        In December 2009, FTA transmitted to Congress authorization
    legislation that would expand FTA's responsibilities to help ensure the
    safety of the Nation's transit systems. The legislation would allow FTA
    to create an oversight program focused on transit safety, with the
    ability to develop safety regulatory standards and with increased
    enforcement authority. We urge Congress to take up this important
    legislation as soon as possible.
        Regarding State safety oversight (SSO) agencies, FTA obtains
    information on the requirements, activities, and performance of the SSO
    agencies and the rail transit agencies from several sources including:
      --The SSO Initial Submission.--Made prior to entering the program.
            FTA uses a checklist to review the initial submission and
            corresponds with the SSO agency until all open issues are
            resolved. At the current time, all 27 SSO agencies have Program
            Standards that have passed the basic initial submission review
            and approval process.
      --The SSO Annual Submission.--Made to FTA by March 15 of each year.
            This report includes information on the personnel devoted to
            implementing the SSO program, the training received that year
            by personnel, the use of contractors to support the State's SSO
            program, as well as the accidents that were investigated at the
            rail transit agency.
      --SSO 3-Year Reviews.--Each State also submits any 3-year reviews
            completed at the rail transit agencies in its jurisdiction. FTA
            uses this information to develop its Rail Transit Safety
            Statistics Report and to track the level of effort expended by
            each State to meet 49 CFR part 659 requirements. Three-year
            review reports also provide valuable snapshots of the rail
            transit agencies and their activities to implement their System
            Safety Program Plans.
      --Periodic Submission.--FTA has the authority to collect information
            from the State safety oversight agencies periodically to
            address special requests. Working with the States, FTA collects
            information on specific rail transit agency issues in response
            to publicly submitted complaints. For example, FTA has used
            this authority to investigate complaints involving rail transit
            agencies in Atlanta, Detroit and Memphis. In addition, FTA
            works with the States to get information from rail transit
            agencies in special studies, such as on fatigue management,
            track inspection, on-site reviews and audits, or managing
            safety in extensions and major capital projects.
      --Audit Program.--FTA audits each State no less than once every 3
            years. As part of the audit process, FTA requests an extensive
            list of materials that the State collects from the rail transit
            agency, including the rail transit agency System Safety Program
            Plan, hazard tracking log, all accident investigations
            completed in the last year prior to the audit, all internal
            audit reports, and any special studies or investigations
            performed by the rail transit agency or the State. Each audit
            report provides an in-depth look at how each State is
            implementing 49 CFR part 659. As appropriate, in certain cases,
            FTA can also make determinations regarding how well the rail
            transit agency is performing specific safety functions, such as
            internal auditing, hazard identification and analysis, accident
            investigation and corrective action management. FTA does not,
            however, conduct independent inspections to verify that track,
            vehicles, and equipment are being operated and maintained
            within specified standards. Nor does FTA review or approve any
            standards adopted by the rail transit agency.
      --National Transit Database.--FTA compares the accidents and safety
            information being reported by the rail transit agencies to the
            Safety and Security Reporting Module of the national Transit
            Database with the information being reported to the States to
            ensure that States are notified of the accidents they should be
            notified of and that information is reported accurately to the
            NTD.
        Collectively, information received from these sources provides FTA
    with a reasonable picture regarding the level of staffing, expertise,
    training and activity being performed to carry out safety functions in
    the States and the rail transit agencies. Further, we have a strong
    analytic handle on the types and frequency of accidents occurring in
    the rail transit industry, their causes and the typical actions being
    taken to prevent recurrence. It is the information culled from these
    sources that has contributed to the administration's conclusion that
    the status quo is inadequate and is in dire need of reform.
        Question. FTA has requested $30 million in fiscal year 2011 for
    this new program. What does FTA project this program will cost in
    subsequent years and how does it plan to use these funds?
        Answer. As you know, the fiscal year 2011 budget includes $30
    million and 130 FTE to support policies and activities included in the
    administration's transit safety legislation, the ``Public
    Transportation Safety Program Act of 2009'' transmitted to Congress on
    December 7, 2009. We believe these resources will enable FTA to
    institute an effective regulatory system for the rail transit industry.
    Looking ahead, we will assess any potential additional resource
    requirements as part of the fiscal year 2012 budget.
        Question. What is FTA doing to help the Washington Metropolitan
    Area Transit Authority get back on track in terms of safety? Do you
    believe the Tri-State Oversight Committee as currently organized, can
    provide appropriate oversight of WMATA?
        Answer. FTA's greatest contribution has been the audit we recently
    conducted in December 2009 of both Tri-State Oversight Committee (TOC)
    and WMATA. This audit enabled us to identify priority actions to
    support both agencies in strengthening their safety programs. TOC and
    WMATA recently submitted their initial plans for addressing the audit
    findings and we believe positive steps are being taken as a result of
    our action. Moving forward, FTA has planned quarterly meetings on-site
    with WMATA and TOC to review their progress in addressing and closing
    our audit findings.
        In terms of technical assistance, through the Transportation Safety
    Institute (TSI) FTA has provided safety training, including training on
    internal auditing and hazard management on site at WMATA in late 2009.
    We are currently working with WMATA to schedule additional training
    deliveries for their employees in the next few months including the
    following courses.
      --Instructors Course for Rail Trainers
      --Current Trends in Transit Rail System Safety
      --Transit System Security
      --Effectively Managing Transit Emergencies
      --Transit Rail Incident Investigation
      --Transit Rail System Safety.
        In June, FTA is bringing a new Track Inspection Refresher Training
    Workshop to WMATA with three offerings. This 2-day workshop is designed
    to reinforce critical skills and safety practices of employees in
    WMATA's track inspection program.
        FTA has also participated with WMATA, TOC and the Federal Railroad
    Administration (FRA) in supporting WMATA's Roadway Worker Protection
    Working Group to overhaul and improve WMATA's existing rules and
    procedures for protecting workers on the right of way.
        In terms of funding, the Passenger Rail Improvement Act of 2008
    authorized a special appropriation for WMATA of $150 million per year.
    Congress appropriated as much in fiscal year 2010 and FTA requested
    funding for fiscal year 2011. Under this program, the Secretary will
    use his authority to approve grants to ensure that available funds
    first address WMATA's most critical safety needs. Maintenance and
    repair needs are also addressed through formula grants funded from both
    the Urbanized Area and the Fixed Guideway Modernization programs. These
    grants are in addition to the $150 million appropriation.
        Regarding the Tri-State Oversight Committee's oversight, we
    recognize that the current three jurisdiction committee organization
    presents challenges to the TOC in effectively carrying out its
    important safety oversight mission. It has suffered from inadequate
    resources, lack of authority and lack of permanent technical staff.
        The Obama administration's Public Transportation Safety Act of 2009
    that was submitted to Congress this past December will address these
    and other shortcomings of the current SSO framework on a National
    basis.
        As far as TOC's current status, we appreciate that the Commonwealth
    of Virginia, the State of Maryland, and the District of Columbia have
    come together to address some of the challenges TOC confronts with its
    current legal and organizational structure. In response to an FTA
    finding from the December audit, TOC jurisdictions have created a TOC
    Executive Committee. This committee recently had its first meeting, and
    took action with both the WMATA Interim General Manager and the WMATA
    Board to request monthly safety reporting and to ensure that WMATA
    follows its hazard reporting and accident notification thresholds.
    These are good first steps.
        In addition, Virginia Governor Bob McDonnell, Maryland Governor
    Martin O'Malley and Washington, DC Mayor Adrian Fenty recently released
    a white paper documenting their proposal for enhancing TOC's existing
    authority and resources. Phase 2 of this plan calls on the
    jurisdictions to create a distinct legal entity--the Metro Safety
    Commission--that would have additional authorities beyond the existing
    program.
        The best long term solution to the problems faced by TOC and the 26
    other SSO agencies around the Nation are for Congress to take prompt
    action on the Obama administration's safety reform proposal.
        Question. In January, the Department announced it will now consider
    other important factors in addition to reduced commuting time when
    evaluating new transit projects. Cutting commuting times is clearly
    important, but this change signals a more holistic approach that
    considers the impact on congestion, the environment, and local
    economies. All contribute to making the places we live and work more
    vibrant and sustainable.
        When will the draft rule to be made public?
        Answer. FTA published an Advance Notice of Proposed Rulemaking
    (ANPRM) in the Federal Register on Thursday, June 3, 2010, asking for
    public comment on how to change the way major transit project proposals
    seeking Federal funding are rated and evaluated.
        Question. How will this change affect the importance of cost
    effectiveness when the Department considers future transit projects?
        Answer. Cost-effectiveness will continue to be evaluated as one of
    the six statutory project justification criteria, but will not be the
    only consideration in making funding recommendations. Through a
    rulemaking, FTA will develop measures for better capturing the
    environmental, community and economic development benefits provided by
    transit projects, including a revised cost effectiveness measure that
    will recognize these benefits. This Advance Notice of Proposed
    Rulemaking (ANPRN) will invite feedback on what benefits should be
    included in the evaluation process and issues related to baseline
    alternatives, travel demand modeling, and New Starts and Small Starts
    streamlining. The New Starts and Small Starts projects funded in the
    fiscal year 2011 budget were selected using the current project rating
    criteria. The earliest any revised rating criteria could be utilized
    would be for the fiscal year 2013 budget.
        Question. What is the Department's opinion on allowing transit
    agencies discretion to use transit assistance funding for operating
    costs during these difficult economic times?
        Answer. Secretary LaHood has stated that DOT will work with Members
    of the House and Senate this year to see if we can allow transit
    agencies more flexibility to use a portion of their Federal funds to
    cover operating costs during these tough economic times. However, he
    has also stated that this cannot be open-ended, and that such
    assistance would be temporary, not the normal course of business.
        Question. What is the estimated capital needs backlog of transit
    systems?
        Answer. There is no one single estimate or a simple method to
    determine the capital backlog needs of the Nation's transit systems.
    That said, we know that transit agencies in general are facing
    significant funding shortfalls. For example, an April 2009 FTA report
    to Congress identified a $50 billion repair and replacement backlog at
    the seven largest rail transit agencies in the country. Moreover, when
    you expand the universe from the 7 largest rail operators to 690
    separate rail and bus systems, the estimated funding shortfall to bring
    the entire transit system in a state of good repair grows from $50
    billion to $78 billion.
        FTA is proposing to merge its Bus and Bus Facilities and Fixed
    Guideway Modernization programs into a new $2.9 billion Bus and Rail
    State of Good Repair program to better address the tens of billions of
    dollars in rail and bus transit assets that are in marginal or poor
    condition. The funding request represents an 8 percent increase above
    the equivalent 2010 appropriation, which is significantly more than is
    proposed for most other FTA programs--all in a budget that increases
    funding for the FTA by just 1 percent.
        Question. Transit rail passenger cars purchased across the United
    States are relatively unique. A few cars can be used on different
    systems, for example, Virginia Railway Express (VRE) can use Chicago
    Metra commuter cars, but many others are designed specifically for
    their systems' infrastructure and preferences. This uniqueness may
    increase the costs to procure transit rail cars as it results in
    smaller orders, sometimes limiting the economies of scale that could be
    obtained from larger orders.
        Has FTA considered supporting efforts to increase standardization
    in rail cars or new systems, to help keep the cost of transit rail cars
    down? Why or why not? Might this also have safety benefits?
        Answer. FTA is supporting the efforts of the American Public
    Transportation Association (APTA) in developing consensus standards for
    the North American rolling stock industry. APTA, as a Standards
    Development Organization (SDO), has developed standards for commuter
    rail cars, light rail vehicles, buses, and other rolling stock funded
    in part by FTA. While FTA encourages the use of these standards by our
    grantees we do not have regulatory authority to require their use.
        FTA's financial assistance has also enabled APTA to support
    development of rail car crashworthiness standards by another SDO--the
    American Society of Mechanical Engineers.
        Conceivably standardization in rail cars and new systems, such as
    improved crashworthiness standards and crash avoidance systems, will
    have safety benefits, but there may be additional costs associated with
    achieving standardization, at least initially.
        FTA is statutorily prohibited from directly establishing transit
    vehicle standards. As a result, FTA has been unable to implement
    recommendations from the National Transportation Safety Board related
    to transit vehicle crashworthiness, event recorders and other vehicle
    safety features. As a result of this limited authority to improve
    safety, Secretary LaHood delivered the Obama administration's
    legislative proposal entitled the Public Transportation Safety Act of
    2009 to the Congress this past December. We take this opportunity to
    urge Congress to take prompt action on this proposal.
        Question. Has FTA taken steps to support transit agencies' efforts
    through joint procurement, etc? If so, what are some examples of these
    steps?
        Answer. Yes, in addition to supporting the APTA standards
    development efforts, FTA has conducted research into joint vehicle
    procurements and procurement incentive systems for our section 5307 and
    5311 Formula Grants. Specification standardization and joint vehicle
    procurements have been promoted by FTA on a limited basis with mixed
    results.
        FTA recently completed a study for Congress that included an FTA
    concept for a shared procurement for FTA funded rolling stock. See
    FTA's Report to Congress on the Results of the Cooperative Procurement
    Pilot Program at: http://www.fta.dot.gov/publications/
    publications_11548.html.
        Based on the results of the five completed final projects, FTA
    found the following:
      --The additional Federal share allowed in the pilot program did not
            sufficiently induce greater use of pooled procurement;
      --Savings from cooperative procurement are more likely to be realized
            by agencies purchasing a small number of vehicles. Agencies
            already purchasing a significant number of vehicles are less
            likely to achieve savings through additional economies of
            scale; and
      --Difficulties in forming consortiums, the administrative burden
            placed on lead agencies and the reluctance of the other
            participating agencies to relinquish control over the process
            to the lead agencies pose considerable obstacles to the use of
            cooperative procurements.
        In an August 2008 study, FTA addressed joint vehicle procurements
    in its Report to Congress on Incentives in Federal Transit Formula
    Grant Programs, http://www.fta.dot.gov/publications/
    publications_8674.html.
        Some of the findings from this report were the following:
      --Barriers and difficulties that contributed to the limited
            implementation of these procurement systems include:
        --Transit Culture.--``Agencies Believe They Are Unique . . . The
                agencies are justifiably proud of their corporate cultures
                and heritage, and their pride may have many positive
                effects. However, if the industry is to realize the full
                benefits of standards, the systems must weigh their
                traditions against the benefits of standards and make the
                collective effort that is necessary to settle on safety
                standards and adhere to economical design standards.''
        --Joint procurements involve significant administrative efforts
                because the agencies must reconcile their requirements and
                practices to each other's.
        --Conflicting legal issues, differing operating requirements, and
                differing professional opinions must be resolved.
        Question. What other options or authorities might FTA consider
    seeking to reduce transit railcar costs?
        Answer. As mentioned previously, FTA has focused on developing
    standards and specifications to reduce the capital and operating costs
    of new rail vehicles. In recent years, FTA has funded APTA's efforts to
    develop technical requirements for the design and procurement of new
    LRV type vehicles. APTA is responsible for coordinating and managing
    this effort.
        Question. On September 10, 2009, FTA issued an Advance Notice of
    Proposed Rulemaking on capital project management. FTA is considering
    whether to require some type of financial plan for all fixed guideway
    capital projects. Further, it is considering the extent to which it
    should use Project Management Oversight Contractors (PMOCs) to oversee
    projects other than Major Capital Projects (those costing $100 million,
    among other requirements). Finally, transit properties over time have
    indicated that Federal oversight can increase the time, and thus the
    cost, it takes to build a new rail transit line or extension.
        How will these potential changes impact the PMOC and FMOC budgets
    as well as the funds necessary to oversee PMOCs and FMOCs?
        Answer. Several items included in FTA's ANPRM on capital projects
    management were aimed at soliciting comments and suggestions from the
    industry on how to improve overall project management of major capital
    projects based on experiences to date. FTA is currently reviewing input
    provided by stakeholders as it prepares the Notice of Proposed
    Rulemaking, and has not determined what additional oversight, if any,
    is necessary. Looking ahead, FTA will consider resource requirements
    for its oversight program as it develops its fiscal year 2012 budget.
        FTA oversight of public transportation systems is necessary to
    safeguard the taxpayer's investment. FTA has designed its oversight
    process to minimize the intrusion on grantees while protecting tax
    payers' dollars. One tool that has provided tangible benefits is FTA's
    risk-informed project management system, which assists grantees in
    identifying costly risks at a stage of development which subsequently
    allows grantees to mitigate those risks and avoid enormous costs. The
    latest innovation by FTA is the incorporation of the New Starts
    Engineering Workshop into our outreach program. This workshop is
    designed to provide a roadmap for prospective and existing capital
    project sponsors on how to prepare for FTA's project management
    oversight review process. FTA believes that outreach of this kind will
    assist the grantees in being better prepared to make quality submittals
    and shorten the time it takes for oversight reviews.
        Question. FTA is proposing that funding guidelines for major
    transit projects be based on livability issues such as economic
    development opportunities and environmental benefits, in addition to
    cost and time saved, which are currently the primary criteria. This
    would change how projects are selected to receive Federal financial
    assistance in the FTA New Starts and Small Starts programs. In making
    funding decisions, the FTA will now evaluate the environmental,
    community and economic development benefits provided by transit
    projects, as well as the congestion relief benefits from such projects.
        Will the proposed changes in economic development criteria increase
    the number of projects that may be eligible for New Starts or increase
    the back log?
        Answer. Because the New Starts program is a complex program and the
    new criteria under development have not been finalized, it is not
    possible to predict how potential changes to the evaluation criteria
    would impact the number of projects eligible for funding in the future.
    That said, the aim of making these changes is to more fully recognize
    the various types of benefits that are generated by investments in
    transit services and to ensure that all prospective projects receive
    due consideration.
        Question. How will FTA determine the value of the economic
    development opportunities and community and environmental benefits when
    making funding decisions?
        Answer. As announced by Secretary LaHood on January 13, FTA plans
    to use the rulemaking process to better capture in its evaluation and
    rating process the wide range of benefits New Starts projects can
    provide. On Thursday, June 3, FTA published an Advance Notice of
    Proposed Rulemaking (ANPRM) in the Federal Register asking for public
    comment on how to change the way major transit project proposals
    seeking Federal funding are rated and evaluated.
        Question. In October 2008, FTA issued a report ``Transit State of
    Good Repair: Beginning the Dialogue'' highlighting the importance of
    maintaining the condition of our transit and the fact that much of
    existing bus and rail assets are in poor or marginal condition. The
    fiscal year 2011 budget request includes $2.3 million for bus and rail
    state of good repair program activities (along with decreases in fixed
    guideway modernization and bus and bus facility grants).
        How does FTA plan to implement this ``program'' and distribute the
    funds, and how would it differ from the way funds in the existing
    programs are distributed?
        Answer. Under the proposed State of Good Repair program, funds
    would be distributed by formula. Though the specifics of such a formula
    have yet to be developed, the goal would be allocate funds to both rail
    and bus transit systems by formula. FTA looks forward to working with
    Congress on developing the program as Congress begins work on 2011
    appropriations legislation.
        Question. How will this program help rail transit agencies replace
    aging transit car fleets?
        Answer. One of FTA's highest priorities is to maintain our Nation's
    transit assets in a state of good repair (SGR) so they can provide
    safer and more efficient service. This new focus will involve
    emphasizing the SGR activities in our existing programs, initiating new
    activities to address unique local needs, and providing analysis
    products that will help decisionmakers better understand their options
    for managing the condition of their aging infrastructure. Accordingly,
    for fiscal year 2011 FTA has proposed to merge its Bus and Bus
    Facilities and Fixed Guideway Modernization programs into a new $2.9
    billion Bus and Rail State of Good Repair program. The funding request
    represents an 8 percent increase above the equivalent fiscal year 2010
    appropriation, which is significantly more than is proposed for most
    other FTA programs. The fiscal year 2011 budget also requests $4.61
    billion for the Urbanized Area Formula Grant Program for allocation of
    funds to urbanized areas (UZAs) around the Nation for maintenance and
    capital investment in bus and rail systems.
        We also very much appreciate that in fiscal year 2010 Congress
    supported FTA using $5 million in research funding to help improve
    transit asset management practices. This critical funding will fund
    enhanced data collection, asset management, technical assistance, and a
    pilot SGR project. Because FTA is currently exploring how transit
    agencies should implement SGR practices, it has not determined whether
    having an asset management plan should be a necessary criterion for
    receiving Federal funds.
        Question. What is known about the effects of aging infrastructure
    on rail transit safety?
        Answer. Rail transit is statistically among the safest modes of
    transportation. A rail transit passenger is over 100 times less likely
    to be killed in an accident than is an automobile passenger. That said,
    FTA is aware that there is a backlog of rail transit infrastructure
    maintenance and renewal. FTA's previous study of the seven largest rail
    transit systems estimated a $50 billion shortfall, but did not
    correlate the investment shortfall to safe operations. There is an
    obvious intrinsic correlation and transit agencies must carefully
    manage their operations and maintenance to keep the system safe in
    spite of aging infrastructure. If done properly, this will affect
    frequently service before it affects safety. For example, track
    infrastructure may have more defects as it ages, but operations can
    continue safely at lower speeds. Given the extent that rail transit
    operators are relying on older equipment and capital stock, the need to
    enact transit safety legislation is all the more urgent.

                              SUBCOMMITTEE RECESS

        Senator Bond. Well, with no further questions, the hearing
    stands--is in recess.
        And March 11 at 9:30, we'll take testimony from Secretary
    Donovan on the budget request for 2011 Housing and Urban
    Development.
        [Whereupon, at 11:16 a.m., Thursday, March 4, the
    subcommittee was recessed, to reconvene at 9:30 a.m. Thursday,
    March 11.]

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2011

                                  ----------

                            THURSDAY, MARCH 11, 2010

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:32 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray, Leahy, and Bond.

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                            Office of the Secretary

    STATEMENT OF HON. SHAUN DONOVAN, SECRETARY

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. This subcommittee will come to order.
        This morning, this subcommittee will conduct an oversight
    hearing on the Department of Housing and Urban Development's
    budget for fiscal year 2011. We are pleased that Secretary
    Donovan is with us today to discuss his Department and his
    budget.
        Today, the country faces daunting challenges. Unemployment
    remains high. Credit is tight. Housing stability is fragile,
    and the number of homeless Americans is growing. HUD programs
    respond to challenges across the spectrum of this crisis from
    stabilizing the housing market to providing assistance to the
    Nation's most vulnerable.
        This subcommittee's job is to provide the oversight and
    resources to make sure that HUD can effectively fulfill its
    responsibilities. At the same time, we must also continue to
    make investments that will strengthen our economy, create jobs,
    and support our communities, both large and small.
        Just over a year ago, we passed the American Recovery and
    Reinvestment Act, making key investments in public housing,
    community development, and affordable housing to help those in
    need and weather the crisis. I commend HUD for getting this
    funding out the door quickly. And today, we can see it making a
    difference in our communities, improving housing, creating new
    housing, and putting people to work.
        I have seen these dollars at work in my own State. For
    example, in Vancouver, Washington, a Housing Authority is using
    $2.5 million in public housing capital funds to support
    construction and rehabilitation of housing. The jobs created
    from these projects are critical to Clark County, where
    unemployment has now topped 14 percent.
        In Yakima, Washington, where for years we have struggled to
    provide affordable and adequate housing to local workers,
    recovery funds have gone to renovation efforts that have
    improved the lives of families, many with children, who live
    well below the poverty line. But as this funding goes to work
    and as our economy moves toward recovery, we must remain
    focused on stabilizing the housing market.
        As we all know, for most Americans, the family home is
    their largest investment, an asset that provides them with a
    roof over their heads and financial security. This security
    gives Americans the confidence to spend and invest and plan for
    the future.

                         FEDERAL HOUSING ADMINISTRATION

        Stabilizing and improving the housing market is critical to
    the Nation's economic recovery, and the Federal Housing
    Administration has played a vital role in this effort. When the
    private sector became skittish about mortgage lending and
    credit froze, FHA stepped in to make sure that Americans could
    still get a mortgage, and this has helped to stabilize the
    market.
        That is exactly what FHA was created to do. But taking on
    this increased role comes with risks of its own. FHA has gone
    from insuring only 2 percent of the market in 2006 to nearly 30
    percent today. This dramatic increase in business requires
    sufficient staff and the technical capacity to protect FHA from
    risk and fraud.
        Even as FHA's new business grows, it must also continue to
    manage loans that were made during the height of the housing
    boom. Unfortunately, FHA is not immune from the wave of
    foreclosures devastating the housing market. These losses have
    taken their toll on FHA's finances.
        This fall, FHA's capital reserve fund fell below the
    mandatory 2 percent required by Congress. While this does not
    mean that FHA requires Federal relief, it is a cause for
    concern.
        For each of these last 3 years, Senator Bond and I have
    held hearings on FHA to focus attention on the solvency of its
    Mutual Mortgage Insurance Fund. The recent losses to the
    capital reserve fund have now brought this issue into focus for
    others for the first time. FHA must continue to seek ways to
    strengthen the position of its capital reserve fund to ensure
    taxpayers will not be left on the hook to pay for risky or
    fraudulent mortgages.
        Mr. Secretary, I commend you and FHA Commissioner Stevens
    for moving swiftly to assess FHA's risks and to implement
    reforms to reduce its exposure and recapitalize the reserve
    fund. These changes both protect the American taxpayer and
    ensure FHA can continue to provide needed liquidity in the
    market.
        Some of the reforms proposed require a legislative change.
    One of these would allow HUD to increase annual premiums on FHA
    mortgage insurance and is included as part of the budget. I
    will have questions today on this change, and specifically, how
    it would protect FHA from future losses.
        Now, despite some positive signs in the housing market, the
    crisis we face is not over. And for the more than 2.8 million
    Americans facing foreclosure, positive national trends offer
    little comfort. So while I am encouraged today by reports that
    foreclosure filings appear be slowing, and Washington State
    fell 13 percent from this time last year, there are still many
    people at risk of foreclosure.
        Areas in Washington State continue to experience severe
    declines in home values, and nearly a quarter of a million
    Washington State homeowners are underwater today. So for
    families living in Clark and Pierce County, Washington, we want
    to know how the Federal Government can help them hold onto
    their homes and regain economic security.
        Providing help isn't easy, and we don't want to reward
    borrowers that took on mortgages that they could not afford.
    But while so many of the early foreclosures resulted from
    subprime and other exotic mortgages, many of the homeowners
    today who are in trouble are those that are impacted by the
    recession. These are unemployed homeowners and those who owe
    more on their mortgage than the home is worth because of those
    plummeting home values.

                             MORTGAGE MODIFICATION

        Several efforts have been launched to help struggling
    homeowners, including the Home Affordable Modification Program,
    but servicers have been slow to provide permanent
    modifications. To date, only 116,000 homeowners have received
    permanent modifications, which is far short of the
    administration's goal of 3 million to 4 million.
        The President recently announced a new program to help five
    States that have been particularly hit hard by this crisis.
    While this initiative does attempt to address the problems of
    unemployed and underwater borrowers, its geographic
    restrictions will limit its impact on the overall market,
    including other parts of the country, like Washington State's
    Clark and Pierce Counties.
        Your testimony today mentions other ways that we might
    assist struggling homeowners. So, today, I want to discuss how
    we can improve current programs and what other steps may be
    taken to protect families from foreclosure.
        HUD has a broad and important mission. The President's
    budget requests more than $48 billion in fiscal year 2011 in
    recognition of the role the Department plays in supporting
    housing, especially for some of the most vulnerable in our
    society.

                         SECTION 8 AND NEW INITIATIVES

        This funding would maintain critical rental assistance to
    help millions of low-income Americans who rely on section 8
    vouchers or live in project-based or public housing. The
    President's budget also provides funding to continue or expand
    initiatives started in 2010, such as Sustainable Communities
    and Choice Neighborhoods. The budget also proposes new
    initiatives, including Catalytic Investment Competition Grants
    and vouchers for homeless individuals and families.
        The largest new proposal is the $350 million Transforming
    Rental Assistance initiative. This ambitious proposal seeks to
    address the capital needs of public and HUD-assisted housing.
    By fundamentally changing the way this housing is funded, the
    administration hopes to leverage significant private sector
    resources to preserve this irreplaceable stock of affordable
    housing.
        However, the budget offers few details on the changes HUD
    would make or in the long-term costs. While the concept may
    have merit, this subcommittee does not take its
    responsibilities lightly. We require more information if we are
    to give the proposal serious consideration. So I want to have a
    discussion about the long-term plan for this and the cost of
    this initiative.

                                 PROPOSED CUTS

        Now, Mr. Secretary, among the promising reforms included in
    the budget, there are several drastic cuts to important
    programs you and I have talked about, including the housing for
    the elderly and disabled. HUD justifies these cuts by citing
    program deficiencies. If these programs aren't working
    effectively, let us fix them. But the President's budget
    doesn't propose any changes. Instead, it brings the programs to
    a halt with a promise to just fix them later.
        I am also concerned by other cuts proposed in this budget
    to programs like the Native American Housing Block Grants and
    the highly successful HOME program. While the President's
    budget made some difficult choices in order to freeze
    discretionary spending, this subcommittee may well be forced to
    consider even further reductions.
        The President's budget assumed receipts from FHA totaling
    $5.8 billion. These receipts would offset some of the spending
    included in the HUD's budget for next year. Last Friday,
    Congress received the Congressional Budget Office's re-estimate
    of the President's budget.
        As a result of continued uncertainty about the housing
    market, CBO concluded the budget would only generate $1.8
    billion in offsetting FHA receipts. That means there could be
    potentially a shortfall of $4 billion just to pay for the
    program increases proposed in the President's budget. That is a
    staggering amount, given the housing needs of this country.
        This subcommittee is going to face a very difficult task to
    provide resources to this Department so that it can continue
    the programs that serve so many Americans across the country,
    from homeless veterans, to first-time homeowners, to families
    that need help accessing affordable housing. Secretary Donovan,
    you have worked very hard to improve HUD's programs, and I hope
    you can offer us suggestions on how to tackle the complex
    housing and community development needs that are facing this
    Nation with limited resources.
        So thank you so much for being at this hearing today. I
    look forward to your testimony in just a few minutes.
        But before we have that, I want to turn it over to my
    partner and ranking member, Senator Bond.

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you very much, Madam Chair, and thank
    you for holding the important hearing.
        We are always pleased to welcome our distinguished
    Secretary of Housing and Urban Development, Secretary Donovan,
    who is passionate about housing and community development. He
    has been working hard to remake the Department, a task that is
    Herculean, to say the least. We wish him well on his efforts,
    but we do have some questions, as the chair has outlined.
        Now it is no surprise to anyone here that there are
    significant deficit issues facing the entire Federal
    Government. Making an already bad situation worse, the
    Congressional Budget Office re-estimated the President's budget
    would add $8.5 trillion to the national debt by 2020, with a
    deficit of $1.5 billion in this fiscal year and another $1.3
    billion in 2011. CBO projects the national debt will balloon to
    some 90 percent of the economy by 2020, while interest payments
    on the debt will soar by $800 billion over the same period.
        But that is only if the interest rates stay the same. And
    no one I know who is versed in finance or economics generally
    will propose that interest rates will not rise significantly
    when lenders see the deficit spending and the tremendous debt
    we have built up. In other words, we are facing a drowning in
    debt with interest rates skyrocketing and adding to an
    increasingly high debt spiral.
        I do not believe, as some in the administration do, that
    making the Federal Government larger is the solution to fixing
    our economic woes. Nevertheless, we are in an unprecedented
    budget crisis, which is domestic and global in nature,
    something we have never faced in my career in Government
    service.
        And as you know, many of the decisions we make on the
    budget and appropriations will be critical to the future
    economic health of the Nation. That includes finding the right
    balance of spending in HUD with regard to both HUD's current
    programs, as well as the dramatic new proposals contained in
    the HUD 2011 budget request.
        I believe a number of your HUD policy and reform
    initiatives are bold and thoughtful, but I am very concerned
    about the cost of these initiatives in both the 2011 budget, as
    well as the potential huge cost in out-years. For the HUD
    budget, this is of particular concern since we recently
    received word, as the chair has noted, that there will be a
    loss of some $4 billion in FHA receipts. That $4 billion hit
    will make funding many of the HUD initiatives even more
    difficult in 2011 and possibly limit funding for this
    subcommittee's other priorities, like transportation and
    infrastructure projects.
        As you well know, Mr. Secretary, I have long warned about
    FHA and the potential consequences to the budget of the
    Department, the appropriations available for this subcommittee,
    and the impact on our national economy. We need to be asking
    tough questions like where is money for new programs going to
    come from.
        If the President is serious about promising fiscal
    restraint, he has to quit treating taxpayer dollars like
    Monopoly money. Our children and grandchildren are going to
    have to pay in the future for every extra dollar we borrow and
    spend, and that is not something I want to be able to tell
    them.

                                 PROPOSED CUTS

        While HUD is proposing to create new or expand existing
    programs at great cost to the taxpayer, the Department is also
    proposing to eliminate or cut funding for a number of important
    and proven programs that serve our most vulnerable populations
    like seniors and the disabled, as had been mentioned by the
    Chair, and homeless veterans, something which she and I have
    led the battle to fund. And to say that we are not pleased by
    the budget recommendations I would say, at least for my part,
    is a huge understatement.
        Cuts to these programs like section 202 elderly housing,
    the 811 housing program for persons with disabilities, and the
    capacity-building funding for LISC and Enterprise will make it
    more difficult for low-income seniors or disabled Americans to
    find safe and affordable housing.
        Of all the capacity-building entities I have seen, LISC and
    Enterprise seem to be the ones that are working. I think they
    should be the model, and I think they should continue to have
    the resources they need and not have the funds distributed over
    a wider area, where they do not have the same skills and
    abilities.
        The HUD staff has claimed all of these programs will
    receive funding once needed reforms are made. It seems much
    more likely the non-profits will begin to lose their experts
    during a zero funding year, a brain drain that will only get
    worse if there is not a significant infusion of new funds in
    the very near future. Funding in future years will likely be
    marginal at best, with HUD and the administration arguing that
    202 and 811 will be unneeded once the Transforming Rental
    Assistance, or TRA, program is fully funded, including any
    provisions targeted to the elderly and disabled.

                               RURAL HOUSING FUND

        Also, I was disappointed to see the administration wants to
    eliminate a $25 million rural housing fund, something I fought
    with Senator Harkin to include for many years. This small
    program offers a unique opportunity for HUD's housing and
    community programs to partner with rural development at the
    USDA.
        It is a mistake for the administration to ignore the
    housing needs in our rural communities. Everybody knows the
    housing programs in the city because people see them all the
    time. I live in the rural areas. I see them. I travel the rural
    areas, and I know the need is great. And this budget does not
    recognize it.
        In addition to the dollars and cents, rural versus urban
    questions, I have overall concerns about the proposal we have
    received from HUD. Not to keep using a tired, old analogy, but
    the proposal I received from the Department of Transportation
    and the budget blueprint has left me feeling a little bit like
    Bill Murray in ``Groundhog Day.''
        In other words, the budget blueprint this year asks for
    Congress to write a big check, fails to provide details on the
    programs we are supposed to fund. I have been there. I have
    seen that before. I have done that. And at least Bill Murray
    got smart in ``Groundhog Day,'' and I don't see any of us
    getting smarter or better as we see Groundhog Day come back
    again.

                         TRANSFORMING RENTAL ASSISTANCE

        Despite not having the proposed actual language for TRA,
    HUD's 2011 budget calls for some $350 million for the program,
    with projected annual costs of some $1.5 billion when fully
    implemented. There is an old story, an old saw about a pig in a
    poke, but I won't go into that any further.
        Also before Congress is going to sign any check, we need to
    see the program details. Members of Congress need to see
    specific legislative language for proposed programs, and it has
    to be passed. So there are some guidelines in place. You may
    have good ideas. We may even like those good ideas. We may
    propose them, and they may not come out on the other end of the
    sausage factory.
        So I, for one, have real concerns about potential
    unintended consequences of the TRA that could impact low-income
    families assisted under public housing or other low-income
    housing programs. Broad waiver language will not do the trick
    since there is a widespread risk of abuse and a great danger of
    the lack of transparency.

                        CHOICE NEIGHBORHOODS VS. HOPE VI

        Another program where I need to see some details--and
    Congress and our constituents, the taxpayers, deserve answers--
    is on Choice Neighborhoods. Now, we have discussed Choice
    Neighborhoods many times, and you know that I would like to
    claim some credit for HOPE VI. And this $250 million program is
    replacing HOPE VI as the next evolution in affordable housing
    and revitalizing distressed communities.
        And if we can make it better, that is always good. I am
    willing to do that. But in particular, Choice Neighborhoods
    proposes to transfer and merge into its account for 2011 all
    remaining HOPE VI funding, despite having account language that
    is very broad and which has no metrics for measuring success or
    for understanding the grantmaking and implementation process.
        While Choice Neighborhoods appears to be a much more
    ambitious program than HOPE VI, we need more information to
    understand the evolution from HOPE VI to Choice Neighborhoods.
    I was there at the beginning when HOPE VI was a mere idea until
    it became a major program, ultimately going beyond housing and
    transforming entire communities. And I personally know how
    important HOPE VI has been to communities across the Nation.
        Some of our great successes have been in HOPE VI. And that
    is why I don't want to waste the successes of HOPE VI on Choice
    Neighborhoods unless and until we see it is a truly viable
    successor to HOPE VI. I want to ensure this new program is
    designed and implemented in a manner that will revitalize and
    grow our low-income communities beyond the greatest potential
    of HOPE VI. You have assured me that that will happen. I
    believe you said that in good faith, but it is time that we got
    to work on the details.

                                      FHA

        In addition to specific program concerns, I remain very
    concerned, as the Chair has indicated, about the future of FHA
    mortgage insurance. Mr. Secretary, you inherited the FHA
    problems. To your credit, you acknowledged them. You have taken
    a number of important steps to address them.
        Under your guidance, HUD is proposing a number of new
    reforms to put FHA mutual mortgage insurance on a solid
    footing. The proposed reforms include an increase to annual
    premiums, as well as credit-related fix, which would allow
    these borrowers with a FICO score of 580 and above to make a
    3.5 percent down payment, while borrowers with a FICO score
    between 500 and 580 would be required to make a minimum down
    payment of 10 percent. Borrowers with FICO scores below 500
    would be ineligible for FHA mortgage insurance.
        It is not that we are not concerned about those people. But
    before we put somebody in housing, try to get them into owning
    housing we need to make sure that they can afford to pay it.
    When they can't afford to pay it, when they don't have any skin
    in the game, they don't have the means to make the payments and
    then the American dream becomes the American nightmare. Their
    communities suffer, and we have seen the tremendous hardship
    and harm that a whole raft of those mortgages gone badly has
    caused our entire economy and the world's economy.
        While the reforms are important, the FHA still faces many
    challenges. I remain concerned that FHA is a powder keg that
    could explode, leaving taxpayers on the hook for yet another
    bailout.
        When we look at the numbers, just as recently as 2007, FHA
    accounted for less than 4 percent of housing and now, as the
    chair indicates, dominates the market with a share of between
    30 and 60 percent, including refinances. This puts FHA smack in
    the middle of the housing crisis, and I want to be sure that
    FHA is dealing with it despite the obvious staffing and
    expertise shortfall.
        I want to know how HUD is dealing with mortgage default
    litigation problems, especially in light of proposed new FHA
    reforms. How will these reforms impact homeowners with a
    mortgage default crisis who are seeking help from FHA? Have
    mortgage defaults become primarily a Fannie Mae and Freddie Mac
    problem, or is HUD proposing alternative relief?
        While I expect to raise many FHA issues at a scheduled FHA
    budget hearing later this month, an understanding of the
    foundation of current FHA requirements now would be useful.

                           TRANSPARENCY FOR TAXPAYERS

        The last point I make is most important, and that is
    transparency for taxpayers, as we have discussed briefly. I
    discussed at the hearing for the Department of Transportation,
    on its budget for the coming year last week, I am still waiting
    for real transparency in the current administration grantmaking
    process. Congress has role and a responsibility not only in
    authorizing and appropriating Federal funds, but also in
    ensuring that the funds are awarded according to objective and
    understandable criteria, including clear benchmarks to measure
    success.
        This was a particular problem for me and others when HUD
    awarded some $2 billion in competitive neighborhoods
    stabilization programs under the stimulus bill. I have yet to
    receive, and I look forward to getting an understanding, how
    HUD cherry-picked the winners. We saw a lot of--we found out
    later about a lot of good projects which failed. And we want to
    know how the winners were chosen.
        Where is the promised transparency in the HUD grant
    process? It is critical that the process be transparent, so
    Congress and our constituents and those seeking the dollars
    know how the taxpayer dollars are being allocated. In fact, I
    think the process should be no less transparent than the
    current requirements for congressional decisionmaking.
        There has been a lot of criticism of Congress. We cleaned
    up our act. We make it transparent. At a minimum, the criteria
    and process by which grantmaking decisions are made in the
    administration should be posted on the Internet for every
    taxpayer, every potential applicant to see, to understand so
    that community leaders and local people won't be coming to us,
    saying, ``What happened? Where is it going? Why is it going
    there?''
        Cost shares and leveraging of funds also should be made
    available. Information should be on the Internet so they and we
    have access to information about other sources of Federal,
    State, or private funds that may be used to augment grant
    awards.
        In particular, we in Congress expect to be notified of
    award decisions 3 days prior to HUD announcement, with backup
    materials and information on the methodology of the award
    selections, including how these awards meet our housing and
    community development goals. It is critical that the Nation,
    Congress, and the administration fully understand the process
    and decisionmaking of how the billions of Federal housing and
    community dollars are spent.
        Mr. Secretary, I thank you very much, and I look forward to
    your testimony.
        Senator Murray. Thank you very much, Senator Bond.
        I will turn it over to the Secretary for his testimony. And
    just to forewarn you, both Senator Bond and I also have to go
    to an energy and water hearing for a short amount of time. We
    may be changing the gavel back and forth.
        But we will both be very attentive to your statement, and
    we both have a number of questions. So, with that, I will turn
    it over to you, Mr. Secretary.

                        STATEMENT OF HON. SHAUN DONOVAN

        Secretary Donovan. Madam Chairwoman, Ranking Member Bond,
    and 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 than that of a year ago when our economy
    was hemorrhaging over 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 toward stability.
        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 the
    Nation's 78 million homeowners.
        Second, confidence, though it is still fragile, homeowner
    equity is key to consumer confidence and to bringing new
    borrowers back into the market, helping the economy grow at the
    fastest rate in 6 years and creating jobs.
        Third, money in families' pockets, mortgage rates, which
    have been near historic lows over the past 10 months, have
    spurred a refinancing boom that has helped nearly 4 million
    borrowers save an average of $1,500 per year, pumping $7
    billion annually into local economies and businesses,
    generating additional revenues for our Nation's communities,
    and benefiting our economy more broadly.

                                      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--and that, Senator Bond, I would note, is through
    our loss mitigation programs that you asked about, one-half a
    million families in 2009--guaranteeing approximately 30 percent
    of home purchase loan volume and fully one-half of all loans
    for first-time home buyers.
        With FHA's temporarily increased role, however, as you
    said, Madam Chairwoman comes increased responsibility and risk.
    That is why HUD's fiscal year 2011 budget presents a careful,
    calibrated balancing of FHA's three key responsibilities--
    first, providing responsible home ownership opportunities;
    second, supporting the housing market during difficult economic
    times; and third, ensuring the health of the MMI Fund.
        FHA has rolled out a series of measures over the last year
    to mitigate risks and augment the MMI Fund's capital reserves--
    first, to increase the mortgage insurance premium; second, to
    raise the combination of FICO scores and down payments 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. All of these
    changes will lead to increased receipts for FHA for the 2011
    budget.
        Last Friday, as you mentioned, the Congressional Budget
    Office released its re-estimate of the President's 2011 budget,
    including their view on FHA's proposed changes. Although the
    CBO re-estimate includes a more conservative assessment of how
    new loans made through FHA's MMI Fund will perform in coming
    years, both CBO and the administration forecast that with our
    proposed FHA changes, such credit activity will result in
    significant net receipts to the Government. We differ, however,
    on the amount.
        While the President's budget forecasts, as you said, Madam
    Chairwoman, $5.8 billion in net receipts resulting primarily
    from insurance premiums and other fees, CBO re-estimated these
    net savings at $1.9 billion. In addition, CBO agrees with FHA
    that Ginnie Mae and our GI/SRI fund will produce another
    roughly $1 billion in receipts.
        While recognizing that such a difference with CBO
    complicates budget resolution development, it is important to
    note that the forecast used in the President's budget will
    determine the receipts transferred to FHA's capital reserve
    account. This will help have that fund get back on track to be
    capitalized with the statutorily mandated 2 percent of
    insurance in force. I would also note that based on extensive
    modeling and analysis, we remain confident in our forecast for
    FHA.
        Even with increased FHA receipts, however, because of
    broader need for fiscal responsibility, we have had to make
    very difficult choices in this budget. We have chosen to
    prioritize existing rental assistance in section 8, public
    housing--public housing operating fund, and other areas, which
    has required us to propose difficult cuts in a number of our
    capital programs, as you mentioned, and to target our funding
    to the most catalytic uses.

                         TRANSFORMING RENTAL ASSISTANCE

        On that note, allow me to highlight some key initiatives.
    The first is HUD's multiyear effort called Transforming Rental
    Assistance, or TRA. 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
    different operating divisions.
        In my career both in the private and public 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 subsidy programs for a simple
    reason--because the engine that drives capital investment at
    the scale needed is reliable long-term, market-based stream of
    Federal rental assistance.
        No other mechanism has ever proven as powerful at 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
    upwards 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
    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 them 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 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 that 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 that 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 mobility is not to
    restart old ideological debates about place-based 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 continuing to work
    with the subcommittee and authorizers on our Choice
    Neighborhoods initiative to make the redevelopment of
    distressed public and assisted housing the anchor of broader
    community development efforts.

                              CHOICE NEIGHBORHOODS

        Choice Neighborhoods builds on and expands the lessons of
    HOPE VI. Not only that investment at scale can affect 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 place-based, targeted tool for creating jobs.
    That is why our budget proposes $150 million for a catalytic
    investment fund designed to help distressed communities
    reorient their economies for the 21st century. HUD can't 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.

                            SUSTAINABLE COMMUNITIES

        That 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 2011.
        I recognize that I have asked you to help HUD make these
    investments in a difficult fiscal climate. 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
    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 joint housing
    and services for homeless person demonstration with the
    Department of Health and Human Services and the Department of
    Education.

                           HUD'S 2010 TRANSFORMATION

        Last, let me say a few words about HUD, how it's
    transforming the way it does business at the agency. With your
    help, HUD's 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, build the capacity of communities--Senator Bond, you
    mentioned this, and we have been growing our resources for
    technical assistance--and demonstrate what works and what
    doesn't.
        It has also begun to provide us with the flexibility we
    need to cross-cutting initiatives. But a critical next step for
    2011 is to take this approach further. In part, it is a matter
    of additional funding to move forward with large, multiyear
    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 stepped up in the mortgage
    market or to provide technical assistance communities trying to
    use neighborhood stabilization funds in the most impactful way.
    These are the kinds of flexible investments other cutting-edge
    organizations have the ability to make, and they are essential
    to building the nimble, results-oriented agency our Nation
    needs and this subcommittee deserves to oversee.
        And so, Madam Chairwoman, 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 21st
    century. With your help, I believe we can and that we will.
        Thank you.
        [The statement follows:]

                    Prepared Statement of Hon. Shaun Donovan

        Madam Chairwoman, Ranking Member Bond, and members of the
    subcommittee, thank you for the opportunity to testify today regarding
    the fiscal year 2011 budget for the Department of Housing and Urban
    Development, Investing in People and Places.

                             A CHANGING ENVIRONMENT

        I appear before you to discuss this budget in a far different
    environment from that faced by the Nation and the Department just 1
    year ago. At that time, the economy was hemorrhaging over 700,000 jobs
    each month, housing prices were in freefall, residential investment had
    dropped over 40 percent in just 18 months, and credit was frozen nearly
    solid. Many respected economic observers warned that a second Great
    Depression was a real possibility, sparked of course by a crisis in the
    housing market. Meanwhile, communities across the country--from central
    cities to newly built suburbs to small town rural America--struggled to
    cope with neighborhoods devastated by foreclosure, even as their
    soaring jobless rates and eroding tax base crippled their ability to
    respond.
        One year later, though there is clearly a long way to go, it is
    clear that the Nation's housing market has made significant progress
    toward stability. Through the combination of coordinated efforts by
    Treasury, HUD, and the Federal Reserve to stabilize the housing market,
    we are seeing real signs of optimism.
        As measured by the widely referenced FHFA index, home prices have
    been rising more or less steadily since last April. As recently as
    January 2009 house prices had been projected to decline by as much as 5
    percent in 2009 by leading major macro-economic forecasters. This is
    all the more surprising since most forecasters had underestimated the
    rise in unemployment that has occurred over the past year.
        Allow me to briefly explain what halting the slide in home prices
    and housing wealth has meant to middle-class families.
        First, security. According to the Federal Reserve Board, as a
    result of stabilizing home prices and lower financing costs nationwide,
    home owner equity started to grow again in the second quarter of 2009
    and by the end of September home equity had increased by over $900
    billion, or $12,000 on average for the Nation's nearly 78 million
    homeowners.
        Second, confidence. Homeowner equity is key to consumer confidence
    and is now helping bring new borrowers back into the market. And we all
    know the important role confidence plays in helping our economy grow--
    which it did in the last quarter of 2009 at 5.7 percent, the fastest
    rate in 6 years.
        Third, money in families' pockets. Mortgage rates which have been
    at or near historic lows over the past 10 months have spurred a
    refinancing boom that over the past year that has helped nearly 4
    million borrowers to save an average of $1,500 per year on housing
    costs--pumping an additional $7 billion annually into local economies
    and businesses, generating additional revenues for our Nation's cities,
    suburbs, and rural communities.
        At the same time we have taken steps to reverse falling home
    prices, we have also worked to help families keep their homes. In
    partnership with the White House, the Department of Treasury, and other
    Federal regulatory agencies, HUD has helped develop the Making Home
    Affordable plan, and implement its two major initiatives--the Home
    Affordable Refinance Program and Home Affordable Modification Program
    (HAMP). These programs have helped to preserve homeownership for more
    than 1 million families. More than 900,000 households in participating
    trial modifications under HAMP currently are saving an average of over
    $500 per month in mortgage payments. To date, program participants have
    saved more than $2.2 billion.
        And the Federal Housing Administration (FHA) has stepped up to
    fulfill its countercyclical role--to temporarily provide necessary
    liquidity while also working to bring private capital back to credit
    markets. Indeed, the FHA has in the past year alone helped more than
    800,000 homeowners refinance into stable, affordable fixed-rate
    mortgages and deployed its loss mitigation tools to assist an
    additional half million families at risk of foreclosure.
        Of course, just as this crisis has touched different communities in
    different ways, so, too, have they rebounded at different paces. As a
    result, some regions continue to face difficulty, even as others are
    moving toward recovery. That is one reason why the President recently
    announced $1.5 billion in funding to help families in States that have
    suffered an average home price drop of over 20 percent from the peak--
    including an innovation fund that will expand the capacity of housing
    finance and similar agencies in the areas hardest-hit in the wake of
    the housing crisis.
        The President's announcement continues the administration's
    response to assist homeowners and stabilize neighborhoods, including
    through the nearly $2 billion that HUD has obligated under the
    Neighborhood Stabilization Program to address the problem of blighted
    neighborhoods, targeting hard-hit communities across the country and
    including major awards in Ohio, Illinois, New Jersey, Pennsylvania and
    other areas that have been deeply affected by the current housing
    problems. The administration continues to explore and refine ways to
    assist homeowners and stabilize neighborhoods struggling with
    foreclosures.
        In addition, HUD has played a key role in implementing the American
    Recovery and Reinvestment Act (ARRA), which, according to the
    nonpartisan Congressional Budget Office is already responsible for
    putting as many as 2.4 million Americans back to work and has put the
    Nation on track toward a full economic recovery--and I would like to
    say a particular word of thanks to this subcommittee for making our
    role in that effort possible.
        HUD has now obligated 98 percent of the $13.6 billion in ARRA funds
    stewarded by the Department--and disbursed $2.9 billion. I would note
    that a portion of HUD's ARRA funding is fully paid out, or expended,
    only once construction or other work is complete--just as when
    individual homeowners pay after they have work done on their homes.
    Therefore, some of HUD's obligated, but not yet expended, funds are
    already generating jobs in the hard hit sectors of housing renovation
    and construction for the purposes of modernizing and ``greening''
    public and assisted housing, reviving stalled low-income housing tax
    credit projects, and stabilizing neighborhoods devastated by
    foreclosures. Additional HUD-administered ARRA funds are providing
    temporary assistance to families experiencing or at risk of
    homelessness in these difficult economic times.
        While the economy has a long way to go to reach full recovery, and
    the promising indicators emerging steadily are not being experienced by
    all regions or communities equally, it is clear that we have pulled
    back from the economic abyss on which the Nation stood a year ago.

                           ROADMAP TO TRANSFORMATION

        HUD's fiscal year 2010 budget, then, reflected a singular economic
    moment. During the last administration, the Department's annual budget
    submissions chronically underfunded core programs, and many observers
    came to regard the agency as slow moving, bureaucratic, and
    unresponsive to the needs of its partners and customers. HUD's fiscal
    year 2010 budget request, $43.72 billion (net of receipts generated by
    FHA and the Government National Mortgage Association, or ``Ginnie
    Mae'') was a 7 percent increase over the fiscal year 2009 enacted level
    of $40.72 billion and sent the clear message that HUD's programs
    merited funding at levels sufficient to address the housing and
    community development needs of the economic crisis. It also reflected
    this administration's belief that HUD could transform itself into the
    more nimble, results-driven organization required by its increased
    importance.
        In response to HUD's fiscal year 2010 budget proposal, Roadmap to
    Transformation, Congress--with key leadership by this subcommittee,
    working with your counterparts in the House--provided a vote of
    confidence for which I want to express my deepest appreciation. The
    fiscal year 2010 appropriations legislation provided HUD programs
    $43.58 billion (net of receipts), funding needed to stabilize the
    Department's programs across-the-board. Critically, the budget also
    targeted $258.8 million to the Department's proposed Transformation
    Initiative, the cornerstone of the agency's efforts to change the way
    HUD does business. For the first time, HUD has the flexibility to make
    strategic, cross-cutting investments in research and evaluation, major
    demonstration programs, technical assistance and capacity building, and
    next generation technology investments to bring the agency fully into
    the 21st century.
        I appreciate the level of trust this action showed in the new HUD
    leadership and look forward to updating you on the progress we are
    making with this new flexibility.

                         INVESTING IN PEOPLE AND PLACES

        As a result of all this work--by Congress, HUD and across the
    administration--we no longer confront an economy or a Department in
    extreme crisis. Still, much work remains, in much changed fiscal
    circumstances. Now that the economic crisis has begun to recede,
    President Obama has committed to reducing the Federal deficit,
    including a 3 year freeze on domestic discretionary spending. HUD's
    fiscal year 2011 budget reflects that fiscal discipline. Net of $6.9
    billion in projected FHA and Ginnie Mae receipts credited to HUD's
    appropriations accounts, this budget proposes overall funding of $41.6
    billion, 5 percent below fiscal year 2010. Not including FHA and Ginnie
    Mae receipts, the budget proposal is $1.6 billion above the 2010
    funding levels. These figures meant that we had difficult choices to
    make--and we chose to prioritize core rental and community development
    programs, fully funding section 8 tenant-based and project-based rental
    assistance, the public housing operating fund, and CDBG.
        Indeed, at the same time, the budget cuts funding for a number of
    programs, including the public housing capital fund, HOME Investment
    Partnerships, Native American Housing Block Grants (NAHBG), the 202
    Supportive Housing Program for the Elderly, and the section 811
    Supportive Housing Program for Persons with Disabilities. In some
    instances, these are programs that received substantial ARRA funding
    (e.g., public housing capital and NAHBG), reducing the need for funds
    in fiscal year 2011. In the case of reductions to new capital grants--
    in public housing, section 202, and 811--the Department is recognizing
    that HUD's partners must increasingly access other private and public
    sources of capital as HUD and the Federal Government are facing severe
    resource constraints. During this fiscal year, we will modernize these
    programs to reflect changed fiscal and operational circumstances.
    Simultaneously, the Department has made the difficult decision to
    target HUD's housing investments and target them to their most crucial
    and catalytic uses, primarily rental and operating assistance that best
    enables those partners to leverage additional resources.
        As such, we believe this is a bold budget, with carefully targeted
    investments that will enable HUD programs to: house over 2.4 million
    families in public and assisted housing (over 58 percent elderly or
    disabled); provide tenant based vouchers to more than 2.1 million
    households (over 47 percent elderly or disabled), an increase of 28,000
    over 2009; more than double the annual rate at which HUD assistance
    creates new permanent supportive housing for the homeless; and create
    and retain over 112,000 jobs through HUD's housing and economic
    development investments in communities across the country. In total, by
    the end of fiscal year 2011, HUD expects its direct housing assistance
    programs to reach nearly 5.5 million households, over 200,000 more than
    at the end of fiscal year 2009.
        And in terms of reform, this budget proposes fundamental change
    beyond the Department's fiscal year 2010 proposal. A year ago, urgent
    circumstances called for HUD's programs to be taken largely ``as is''
    in order to pump desperately needed assistance into the economy in time
    to make a critical difference. With the infusion of ARRA and fiscal
    year 2010 funding having stabilized HUD's programs, the time has come
    to begin transforming them--to make HUD's housing and community
    development programs, and the administrative infrastructure that
    oversees them, more streamlined, efficient, and accountable.
        This budget is a major step in that direction. Specifically, it
    seeks to achieve five overarching goals, drawn from an extensive
    strategic planning process that engaged over 1,500 internal and
    external stakeholders in defining the Department's high priority
    transformation goals and strategies.

    GOAL 1.--STRENGTHEN THE NATION'S HOUSING MARKET TO BOLSTER THE ECONOMY
                             AND PROTECT CONSUMERS

        With housing still representing the largest asset for most American
    households, it is essential that home prices continue to stabilize in
    order to restore the confidence of American consumers. Americans held
    roughly $6.2 trillion in home equity in the third quarter of 2009, up
    from its lowest point of $5.3 trillion in the first quarter of 2009.
    The central role of housing in the U.S. economy demands that Federal
    agencies involved in housing policymaking rethink and restructure
    programs and policies to support housing as a stable component of the
    economy, and not as a vehicle for over-exuberant and risky investing.
        With that in mind, the fiscal year 2011 budget represents a
    careful, calibrated balancing of FHA's three key responsibilities:
    providing homeownership opportunities to responsible borrowers,
    supporting the housing market during difficult economic times and
    ensuring the health of the MMI Fund.
        FHA provides mortgage insurance to help lenders reduce their
    exposure to risk of default. This assistance allows lenders to make
    capital available to many borrowers who would otherwise have no access
    to the safe, affordable financing needed to purchase a home. As access
    to private capital has contracted in these difficult economic times,
    borrowers and lenders have flocked to FHA and the ready access it
    provides to the secondary market through securitization by Ginnie Mae--
    FHA insures approximately 30 percent of all home purchase loans today
    and nearly one-half of those for first-time homebuyers. The increased
    presence of FHA and others in the housing market, including Fannie and
    Freddie, has helped support liquidity in the purchase market, helping
    us ride through these difficult times until private capital returns to
    its natural levels.
        Not only is FHA ensuring the availability of financing for
    responsible first time home purchasers, it is also helping elderly
    homeowners borrow money against the equity of their homes through the
    Home Equity Conversion Mortgage (HECM). This program has grown steadily
    in recent years, to a volume of $30.2 billion in fiscal year 2009.
        It is also providing several outlets of relief for homeowners in
    distress. First, and perhaps most significantly, it is helping
    homeowners extricate themselves from unsustainable mortgages by
    refinancing into 30 year, fixed-rate FHA-insured loans at today's much
    lower rates. Given how important this is as a route to greater borrower
    stability, we are exploring additional ways to leverage the refinance
    option at FHA to help still more distressed homeowners. Further, FHA is
    continuing to assist those already in FHA-insured loans who are facing
    difficulty making payments to stay in their homes through a variety of
    aggressive loss mitigation efforts, which have assisted more than half
    a million homeowners at risk of foreclosure since the beginning of
    2009.
        And finally, FHA is playing an important role in protecting
    homeowners and helping prospective homeowners make informed decisions.
    It is providing counseling to homeowners to help them avoid falling
    into unsustainable loans. And it is fighting mortgage fraud vigorously
    on all fronts, having suspended seven lenders, including Taylor, Bean
    and Whitaker, and withdrawn FHA-approval for over 300 others since last
    summer.
        To support these important efforts, the budget includes $88 million
    for the Housing Counseling Assistance program, which is the only
    dedicated source of Federal funding for the full spectrum of housing
    counseling services. With these funds we also plan to continue our work
    to expand the number of languages in which counseling is available. In
    addition, the budget continues FHA's Mortgage Fraud initiative ($20
    million) launched in fiscal year 2010 as well as implementation of
    sweeping reforms to the Real Estate Settlement and Procedures Act
    (RESPA) beginning in January 2010 and the Secure and Fair Enforcement
    (SAFE) for Mortgage Licensing Act beginning in June 2010.
        With this budget, HUD is projecting that FHA will continue to play
    a prominent role in the mortgage market in fiscal year 2011.
    Accordingly, it requests a combined mortgage insurance commitment
    limitation of $420 billion in fiscal year 2011 for new FHA loan
    commitments for the Mutual Mortgage Insurance (MMI) and General and
    Special Risk Insurance (GI/SRI) funds. The proposed total includes $400
    billion under the MMI Fund, which supports insurance of single family
    forward home mortgages and reverse mortgages under HECM; and $20
    billion under the GI/SRI Fund, which supports multifamily rental and an
    assortment of special purpose insurance programs for hospitals, nursing
    homes, and title I lending. The budget requests a direct loan
    limitation of $50 million for the MMI Fund and $20 million for the GI/
    SRI fund to facilitate the sale of HUD-owned properties acquired
    through insurance claims to or for use by low- and moderate-income
    families.
        With FHA's temporarily increased role, however, comes increased
    risk and responsibility. That is why FHA has rolled out a series of
    measures over the last year to strengthen its risk and operational
    management. It has hired its first chief risk officer in its 75 year
    history and created an entire risk management organization and
    reporting structure, tightened its credit standards significantly and,
    as I mentioned, expanded its capacity to rein in or shut down lenders
    who commit fraud or abuse.
        On January 20 of this year, Commissioner Stevens proposed taking
    the following steps to mitigate risk and augment the MMI Fund's capital
    reserves: increase the mortgage insurance premium (MIP); update the
    combination of FICO scores and down payments for new borrowers; reduce
    seller concessions to industry norms; and implement a series of
    significant measures aimed at increasing lender responsibility and
    enforcement. And to strengthen its operational capacity, FHA has begun
    implementing a plan to significantly upgrade its technology
    infrastructure and increase its personnel, to ensure that both are in
    keeping with the increase of its portfolio and responsibility.
        These changes merit additional explanation, as they not only put
    FHA on firmer footing and increase reserves, but also generate
    additional revenues in fiscal year 2011 to contribute to deficit
    reduction. First, insurance revenues from single family loan guarantees
    will grow by increasing the upfront premium to 225 basis points across
    all FHA forward product types (purchase, conventional to FHA
    refinances, and FHA to FHA refinances). The upfront premium increase
    was implemented by mortgagee letter issued on January 21, 2010 and will
    apply to all applications received on or after April 5, 2010.
        Second, FHA is also proposing a ``two-step'' FICO floor for FHA
    purchase borrowers, which would reduce both the claim rate on new
    insurance as well as the loss rate experienced on the claims incurred.
    Purchase borrowers with FICO scores of 580 and above would be required
    to make a minimum 3.5 percent down payment; and those with FICO scores
    between 500-579 would be required to make a minimum down payment of 10
    percent. Applicants below 500 would be ineligible for insurance. These
    changes are being proposed after an exhaustive review of FHA's actual
    claim performance data, which demonstrates that loan performance is
    best predicted by a combination of credit score and downpayment--simply
    raising one element without recognizing the impact of the layering of
    risk factors is not sufficient. We are considering how these changes
    might be applied to refinancing borrowers as well. FHA is proposing to
    publish the two-step FICO proposal in the Federal Register in short
    order with implementation later in 2010. In combination, these
    reforms--which are already permitted under current law--can be expected
    to produce $4.2 billion in offsetting receipts in fiscal year 2011.
        In addition, as noted in the proposed budget, while HUD is moving
    to increase the upfront premium to 225 basis points we are ultimately
    planning to reduce that premium to 100 basis points, offset by a
    proposed increase in the annual premium to 85 basis points for loans
    with loan-to-value ratios (LTV) up to and including 95 percent and to
    90 basis points for LTVs above 95 percent. That change to the annual
    premium will require legislative authority, and we are looking forward
    to working with the authorizing committees as part of that effort. This
    new premium structure is sound policy. This premium structure is also
    more in line with GSE and private mortgage insurers' pricing, which
    facilitates the return of private capital to the mortgage market.
    Indeed, if these changes are adopted during the current fiscal year,
    the estimated value to the MMI Fund would be $200 million in additional
    funds each month, providing better underwriting for FHA loans and
    replenishing capital reserves.
        If implemented, in combination with the two-step FICO floor, this
    change in the premium structure is projected to result in the $5.8
    billion in offsetting FHA receipts reflected in the budget appendix. In
    sum, FHA has taken the kinds of steps necessary to make sure that it
    will remain strong and healthy enough to continue to fulfill its
    mission of serving the underserved and playing a vital counter-cyclical
    role in the housing market.

           GOAL 2.--MEET THE NEED FOR QUALITY AFFORDABLE RENTAL HOMES

        Several recent national indicators have pointed to increasing
    stress in the U.S. rental housing market. Vacancy rates are on the rise
    as a result of the dampened demand and additional supply repurposed
    from the ownership market. Spreads between asking rents and effective
    rents are widening. Asking rents are now $65 higher than effective
    rents (6.6 percent of the effective rent)--the largest gap over the
    past 4 years. While some new renters have been the beneficiaries of
    this softness, drawing concessions from distressed property owners, the
    budgets of many more low-income renters have been strained as household
    incomes fall, due to unemployment and lost hours worked.
        Loss of income stemming from the recession is likely offsetting
    affordability gains from declining rents. Vacancies in the lower end of
    the market remain considerably lower than market levels overall, and
    the number of cost burdened low-income renters is on the rise. Based on
    estimates from the 2008 American Community Survey, 8.7 million renter
    households paid 50 percent or more of their income on housing, up from
    8.3 million renter households in 2007. These figures do not include the
    over 664,000 people who experience homelessness on any given night.
        As HUD Secretary, as well as the current chair of the Interagency
    Council on Homelessness under President Obama, I am committed to making
    real progress in reducing these tragic figures. To do so requires
    substantial investment even in this difficult fiscal year. For this
    reason, the budget provides $1 billion for capitalization of the
    National Housing Trust Fund, to increase development of housing
    affordable to the Nation's lowest income families.
        In addition, HUD's rental assistance and operating subsidy programs
    have never been more needed, nor has the imperative to operate them
    efficiently been clearer. This budget takes three critical steps to
    meet this challenge.

    Increases Investment in Core Rental Assistance and Operating Subsidy
            Programs
        This budget invests over $2.2 billion more than in fiscal year 2010
    to meet the funding needs of the Tenant-based Rental Assistance (TBRA)
    program, the Project-based Rental Assistance (PBRA) program, and the
    public housing Operating Fund.
                Tenant-based Rental Assistance
        The section 8 TBRA or Housing Choice Voucher (HCV) program is a
    cost-effective means for delivering decent, safe, and sanitary housing
    to low-income families in the private market, providing assistance so
    that participants are able to find and lease privately-owned housing.
    In fiscal year 2009, HUD assisted over 2 million families with this
    program; and, in fiscal year 2010, we plan to assist over 76,000 more
    families through new incremental vouchers.
        This budget continues HUD's bedrock commitment to its largest
    program. The calendar year request for 2011 is $19.6 billion, a $1.4
    billion increase over the 2010 Consolidated Appropriations Act and an
    amount estimated to assist 2.2 million households. This represents an
    increase of 34,466 families from fiscal year 2010 projections and
    112,304 more than at the end of fiscal year 2009.
        Of the $19.6 billion request, $17.3 billion will cover the renewal
    of expiring annual contribution contracts (ACC) in calendar year 2011;
    with $1.8 billion for administrative fees; $125 million for tenant
    protection vouchers; $60 million to support family self-sufficiency
    (FSS) activities; and up to $66 million for disaster vouchers for
    families affected by Hurricanes Ike and Gustav. In addition, this
    budget requests $85 million for incremental vouchers to help homeless
    individuals, at-risk families with children, and families with special
    needs stabilize their housing situation and improve their health
    status, as well as $114 million for the shift of the renewal of
    mainstream vouchers from the section 811 account to the TBRA account.
        Through this budget, the Department reaffirms its commitment to
    improving the section 8 program by designing a comprehensive
    development strategy to improve HUD Information Technology systems to
    better manage and administer the voucher program; implementing an
    improved section 8 management assessment program (SEMAP) that will
    ensure strengthened oversight, quality control, and performance metrics
    for the voucher program; continuing the study to develop a formula to
    allocate administrative fees based on the cost of an efficiently
    managed PHA operating the voucher program; developing a study to
    evaluate current housing quality standards and improve the unit
    inspection process; and eliminating unnecessary caps on the number of
    families that each PHA may serve.
                Project-based Rental Assistance (PBRA)
        PBRA assists more than 1.3 million low- and very low-income
    households in obtaining decent, safe, and sanitary housing in private
    accommodations. This critical program serves families, elderly
    households, disabled households, and provides transitional housing for
    the homeless. Through PBRA funding, HUD renews contracts with owners of
    multi-family rental housing--contracts that make up the difference
    between what a household can afford and the approved rent for an
    adequate housing unit in a multi-family development.
        HUD is requesting a total of $9.382 billion to meet PBRA program
    needs. This includes $8.982 billion to be available in fiscal year 2011
    (in addition to the $394 million previously appropriated) and $400
    million to be available in fiscal year 2012. For fiscal year 2011, HUD
    estimates a need of $8.954 billion of new budget authority for contract
    renewals and amendments. The need for section 8 amendment funds results
    from insufficient funds provided for long-term project-based contracts
    funded primarily in the 1970s and 1980s, when long-term contracts (up
    to 40 years) made estimating funding needs problematic, leading to
    frequent underfunding. The current practice of renewing expiring
    contracts for a 1-year term helps to ensure that the problem of
    inadequate funded contracts is not repeated. However, some older long-
    term contracts have not reached their termination dates and, therefore,
    have not yet not entered the 1-year renewal cycle and must be provided
    amendment funds for the projects to remain financially viable. The
    Department estimates that total section 8 amendment needs in 2011 will
    be $662 million. The budget request continues the Department's
    commitment to provide full 1-year funding for contract renewals and
    amendments.
                Public Housing Operating Fund
        The public housing Operating Fund provides operating subsidy
    payments to over 3,100 public housing authorities (PHAs) which serve
    1.2 million households in public housing. The fiscal year 2011 budget
    requests $4.8 billion, which will fully fund the operating fund. Full
    funding is essential to the proper operation of public housing,
    provision of quality housing services to residents, and effective use
    of capital fund resources.
    Begins to Streamline the Department's Rental Assistance Programs
        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
    3 operating divisions with separate field staff. Too often over time,
    additional programs designed to meet the needs of vulnerable
    populations were added without enough thought to the disjointed system
    that would result. This unwieldy structure ill serves the Department,
    our Government and private sector partners, and--most importantly--the
    people who live in HUD-supported housing.
        In my last job, as commissioner of the New York City Department of
    Housing Preservation and Development, I personally experienced the
    challenges of working with HUD rental assistance to preserve and
    develop affordable housing at a large scale. While implementing the
    city's 165,000 unit New Housing Marketplace plan, it was a constant
    struggle to integrate HUD's rental assistance streams, and capital
    funding resources for that matter, into the local, State, and private
    sector housing financing that was absolutely necessary to leverage to
    get the job done.
        But I was willing to deal with the transaction costs of engaging
    with HUD's less-than-ideally aligned subsidy programs for a simple
    reason: the engine that drives capital investment at the scale needed,
    in a mixed-finance environment, is typically a reliable, long-term,
    market-based, stream of Federal rental assistance. Historically, no
    other mechanism--and no other source of Government funding--has ever
    proven as powerful at unlocking a broad range of public and private
    resources to meet the capital needs of affordable housing. While highly
    imperfect, HUD's rental assistance programs are irreplaceable.
        This said, tolerating the inefficiencies of the status quo is no
    longer an option. The capital needs of our Nation's affordable,
    Federally-assisted housing stock are too substantial and too urgent.
    The Public Housing program in particular has long wrestled with an old
    physical stock and a backlog of unmet capital needs that may exceed $20
    billion. (1) To be sure, nearly two decades of concentrated efforts to
    demolish and redevelop the most distressed public housing projects,
    through HOPE VI and other initiatives, has paid off. The stock is in
    better shape overall than it has been in some time; and (2) the $4
    billion in ARRA funds targeted to public housing capital improvements
    are further stabilizing the portfolio. But this very progress has
    created a unique--but time limited--opportunity 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.
        My many years of experience of dealing with affordable housing on a
    large scale--both in New York and overseeing HUD's multi-family
    assisted housing programs during the 1990s--have drilled home two key
    lessons. First, it is far more costly to build new units than to
    preserve existing affordable housing. And, second, an affordable
    housing project can limp along for some time with piecemeal, ad hoc
    strategies to address its accumulating capital backlog, but eventually
    the building will reach a ``tipping point'' where its deterioration
    becomes rapid, irreversible and expensive. This moment in time calls
    for a timely, crucial Federal investment to leverage other resources to
    the task of maintaining the number of safe, decent public and assisted
    housing units available to our Nation's poor families--an objective
    that at some point, soon, will cost the taxpayer substantially more to
    achieve by other means.
        Nor can we afford to sustain the disconnect between HUD's largest
    rental and operating assistance programs, given the disproportionate
    impact of the recession on the recipients of HUD assistance and the
    communities where much of HUD's public and assisted housing stock
    remains. More than ever, communities of concentrated poverty need their
    public and assisted housing stock--even the most distressed projects
    that are the targets of our proposed Choice Neighborhoods Initiative--
    to serve as anchors of broader neighborhood revitalization efforts.
    Simultaneously, in this challenging economy, tenants of HUD-subsidized
    projects also need the option to pursue opportunities for their
    families in other neighborhoods and communities as and when they arise,
    without losing the subsidy that is so crucial to maintaining their
    housing stability. Today, we lack the seamless connection that should
    exist between HUD's largest project-based assistance programs--PBRA and
    public housing--and the Housing Choice Voucher program, which leaves
    tenants of PBRA and public housing with limited ability to move to
    greater opportunity.
        To address these issues and move HUD's rental housing programs into
    the housing market mainstream, HUD proposes to launch an ambitious,
    multi-year effort called the transforming rental assistance (TRA)
    initiative.
        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 programs so that they
    are less costly to operate and easier to use at the local level.
    Ultimately, TRA is intended to move properties assisted under these
    various programs toward a more unified funding approach, governed by an
    integrated, coherent set of rules and regulations that better aligns
    with the requirements of other of 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--which
    exists in a parallel universe to the rest of the housing finance
    world--to a Federal operating subsidy that leverages capital from other
    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 truly open to private capital will
    we be able to attract the mix of incomes and uses and stakeholders
    necessary to create the sustainable, vibrant communities 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 that a reliable, property-based, long term
    rental assistance subsidy can have for neighborhood revitalization
    efforts and as a platform for delivering social services. And in a
    world where the old city/suburb stereotypes are breaking down, and our
    metropolitan areas are emerging as engines of innovation and economic
    growth, we have to ensure our rental assistance programs keep up.
        In 2011, the first phase of TRA will provide $350 million to
    preserve approximately 300,000 units of public and assisted housing,
    increase administrative efficiency at all levels of program operations,
    leverage private capital and enhance housing choice for residents. With
    this request, we expect to leverage over $7.5 billion in other public
    and private sector capital investment. PHAs and private owners will be
    offered the option of converting to long-term, market-based, property-
    based rental assistance contracts that include a resident mobility
    feature, which we are working to define in close collaboration with
    current residents, property owners, local governments and a wide
    variety of other stakeholders.
        Most of the fiscal year 2011 downpayment on TRA, up to $290
    million, will be used to fill the gap between the funds otherwise
    available for the selected properties--in most cases the public housing
    Operating Fund subsidy--and the first-year cost of the new contracts.
    As noted above, a reliable funding stream will help place participating
    properties on a sustainable footing from both a physical and a
    financial standpoint, enabling owners to leverage private financing to
    address immediate and long-term capital needs, and freeing them from
    the need for annual capital subsidies.
        Under this voluntary initiative, HUD will prioritize for conversion
    public housing and assisted multifamily properties owned by PHAs.
    Notably, in this regard, TRA delivers on the promise of over a decade's
    worth of movement in the field of public housing toward the private
    sector real-estate model known as ``asset-management,'' by finally
    providing public housing authorities with the resources to successfully
    implement this model in the projects they will continue to own. Three
    types of privately-owned HUD-assisted properties will also be eligible
    for conversion in this first phase: section 8 moderate rehabilitation
    contracts administered by PHAs, and properties assisted under the Rent
    Supplement or Rental Assistance Programs. With this step, we can
    eliminate three smaller legacy programs that have become ``orphans'' as
    new housing programs have evolved. This consolidation will preserve
    these properties for residents, improve property management, and
    streamline HUD oversight to save the taxpayer money.
        Much of the remaining funding, up to $50 million, will be used to
    promote mobility by targeting resources to encourage landlords in a
    broad range of communities to participate in the housing voucher
    program and to provide additional services to expand families' housing
    choices. A portion of these funds also may be used to offset the costs
    of combining HCV administrative functions in regions or areas where
    locally-designed plans propose to increase efficiency and effectiveness
    as part of this conversion process.
        By the spring of 2010, the administration will transmit to the
    relevant authorizing committees in Congress proposed legislation to
    authorize the long-term property-based rental assistance contracts,
    with a resident mobility feature, that would be funded by the budget
    request. Enactment of a number of the provisions in the section 8
    Voucher Reform Act is also an integral part of the transforming rental
    assistance initiative. The administration looks forward to working with
    Congress to finalize this vital legislation.
        Without this subcommittee's work on HOPE VI and the Quality Housing
    and Work Responsibility Act, this opportunity would never have arisen.
    In fiscal year 2011, we can together begin to put both public and
    assisted housing on firm financial footing for decades to come, and
    start to meld HUD's disparate rental assistance and capital programs
    into a truly integrated Federal housing finance system. I hope that you
    will help HUD make this breakthrough by funding the TRA initiative.

    Increases Investment in Proven and Restructured HUD Homeless Assistance
            Programs
        Fiscal year 2011 also marks the first year for implementation of
    the Homeless Emergency Assistance and Rapid Transition to Housing
    (HEARTH) Act, which--when signed by President Obama in the spring of
    2009--restructured HUD's homeless assistance programs to incorporate
    nearly two decades of research and on-the-ground experience in
    confronting homelessness. To support implementation of this important
    legislation, the budget requests $2.055 billion for homeless assistance
    funding--a nearly $200 million increase compared to fiscal year 2010.
        This additional investment in homeless assistance programs is
    called for even in a difficult fiscal environment. Culminating in the
    HEARTH Act, HUD's homeless programs have evolved into a more
    performance-driven, outcome-based system for targeting and leveraging
    Federal resources at the local level to combat homelessness. This
    subcommittee played an indispensable role in this process. In the late
    1990s, when less than 20 percent of HUD homeless assistance grants were
    supporting permanent housing solutions for the most disabled homeless
    individuals and families, this subcommittee in fiscal year 1999 joined
    your colleagues in the House in requiring that at least 30 percent of
    these grants be spent annually on the evidence-based practice of
    permanent supportive housing, and set forth the ambitious goal of
    creating 150,000 units of permanent supportive housing for the
    chronically ill, chronically homeless. Over time, the research
    foundation for this targeted investment has only solidified--attached
    to my testimony is a summary of key studies, including several
    published in the Journal of the American Medical Association,
    demonstrating that permanent supportive housing both ends homelessness
    for individuals whom many thought would always live on our streets and
    in shelters, and saves taxpayers money by interrupting their costly
    cycling through shelters, emergency rooms, detox centers, prisons, and
    even hospitals.
        As a consequence of the permanent housing set aside, maintained
    each year by this subcommittee, HUD's homeless assistance grants
    produced an average of 8,878 permanent supportive housing beds annually
    from fiscal year 2001 through fiscal year 2008, and a cumulative total
    of 71,000 beds, with an increasing percentage targeted to the
    chronically homeless (66 percent in fiscal year 2008 compared to 53
    percent in fiscal year 2005, the first year HUD tracked such data). The
    impact was clear and dramatic. In the 4 years from 2005 through 2008,
    the number of chronically homeless individuals dropped by 30 percent,
    certainly one of the greatest social welfare policy achievements of the
    past decade.
        One of the key provisions of the HEARTH Act was its codification of
    the 30 percent permanent housing set aside pioneered by this
    subcommittee. Coupled with the level of funding this budget requests,
    and the alignment of homeless assistance grants with other HUD rental
    assistance subsidies (1 year terms), this provision is projected to
    yield over 9,500 new units of permanent supportive housing for disabled
    individuals and families. This will enable continued progress toward
    ending chronic homelessness.
        The HEARTH Act also codifies the unique competitive process, known
    as the continuum of care (``CoC''), in which HUD homeless assistance
    funding and priorities are incorporated within a robust local planning
    and implementation process. The CoC system provides a coordinated
    housing and service delivery system that enables communities to plan
    for and provide a comprehensive response to homeless individuals and
    families. Communities have worked to establish more cost-effective
    continuums that identify and fill the gaps in housing and services that
    are needed to move homeless families and individuals into permanent
    housing. The CoC is an inclusive process that is coordinated with non-
    profit organizations, State and local government agencies, service
    providers, private foundations, faith-based organizations, law
    enforcement, local businesses, and homeless or formerly homeless
    persons. This planning model is based on the understanding that
    homelessness is not merely a lack of shelter, but involves a variety of
    unmet needs--physical, economic, and social.
        Fiscal year 2011 marks the first year for implementation of this
    and other key features of the HEARTH legislation including: increased
    investment in the evidence-based practice of homelessness prevention;
    improvement in the accuracy of the definition of homelessness; support
    for the project operation and local planning activities needed to
    continue the movement of the HUD-supported homeless assistance system
    to a more performance-based and outcome-focused orientation; and
    provision of assistance that better recognizes the needs of rural
    communities.
        In this period of economic hardship, which in many respects mirrors
    the early 1980s when widespread homelessness reappeared for the first
    time since the Great Depression, communities will need all of the tools
    authorized by the HEARTH Act--and the additional resources requested in
    this budget--to meet the needs of those experiencing homelessness,
    including too many of our Nation's veterans. In particular, I am
    concerned that HUD's Annual Homeless Assessment Report data showed a 9
    percent rise in family homelessness from 2007-2008 and the Department's
    more recent quarterly PULSE data from a small number of geographically
    diverse localities across the country that suggests a continued
    increase in homelessness.

      GOAL 3.--UTILIZE HOUSING AS A PLATFORM FOR IMPROVING QUALITY OF LIFE

        A growing body of evidence points to the role housing plays as an
    essential platform for human and community development. Stable housing
    is the foundation upon which all else in a family's or individual's
    life is built--absent a safe, affordable place to live, it is next to
    impossible to achieve good health, positive educational outcomes, or
    reach one's full economic potential. Indeed, for many persons with
    disabilities living in poverty, lack of stable housing leads to costly
    cycling through crisis-driven systems like emergency rooms, psychiatric
    hospitals, detox centers, and even jails. By the same token, stable
    housing provides an ideal launching pad for the delivery of healthcare
    and other social services focused on improving life outcomes for
    individuals and families. As noted above, a substantial level of
    research has established, for example, that providing permanent
    supportive housing to chronically ill, chronically homeless individuals
    and families not only ends their homelessness, but also yields
    substantial cost savings in public health, criminal justice, and other
    systems--often nearly enough to fully offset the cost of providing the
    permanent housing and supportive services. More recently, scholars have
    focused on housing stability as an important ingredient for children's
    success in school--unsurprisingly, when children are not forced to move
    from place to place and school-to-school, they are more likely to
    succeed academically.
        Capitalizing on these insights, HUD is launching efforts to connect
    housing to services that improve the quality of life for people and
    communities. The fiscal year 2011 budget proposes the following
    important initiatives:

    Connects Formerly Homeless Tenants of HUD-housing to Mainstream
            Supportive Services Programs
        The Department requests $85 million for incremental voucher
    assistance for the new Housing and Services for Homeless Persons
    Demonstration to support groundbreaking collaborations with the
    Department of Health and Human Services (HHS) and the Department of
    Education. This demonstration is premised on the administration's firm
    belief that targeted programs alone cannot end homelessness. Mainstream
    housing, health, and human service programs will have to be more fully
    engaged to prevent future homelessness and significantly reduce the
    number of families and individuals who are currently homeless. Two
    separate initiatives will be funded in an effort to demonstrate how
    mainstream programs can be aligned to significantly impact
    homelessness.
        One initiative will focus on individuals with special needs who are
    homeless or at risk of homelessness. This initiative is designed to
    model ways that resources across HUD and HHS can be brought to bear to
    address the housing and service needs of this vulnerable population.
    Recently released data shows that over 42 percent of the homeless
    population living in shelters has a disabling condition. The
    demonstration would combine Housing Choice Vouchers with health,
    behavioral health and other support services to move and maintain up to
    4,000 chronically homeless individuals with mental and substance use
    disorders into permanent supportive housing.
        Vouchers will be targeted to single, childless adults who are
    homeless and who are already enrolled in Medicaid through coverage
    expansion under State Medicaid waivers or State only initiatives. In
    addition, HHS is seeking $16 million in its fiscal year 2011 budget
    request to provide wraparound funding through grants administered by
    the Substance Abuse and Mental Health Services Administration to
    promote housing stability and improvements in health outcomes for this
    population. HUD and HHS will jointly design the competitive process and
    conduct and evaluation to determine: (1) the cost savings in the
    healthcare and housing systems of the proposed approach; (2) the
    efficacy of replication; and (3) the appropriate cost-sharing among
    Federal agencies for underwriting services that increase housing
    stability and improve health and other outcomes.
        Another initiative will establish a mechanism for HUD, HHS and
    Department of Education programs to be more fully engaged in
    stabilizing homeless families, ultimately resulting in reducing the
    costs associated with poor school performance and poverty. This
    initiative strategically targets these resources to: (1) identify
    families who are homeless or at risk of homelessness, (2) intervene
    with the appropriate array of housing assistance, income supports, and
    services to ensure that the family does not fall into the shelter
    system or onto the street (or if already homeless that the family is
    stably housed and does not return to homelessness), and (3) provide the
    tools necessary to assist the family to build on its resources to
    escape poverty and reach its highest possible level of economic
    security and self-sufficiency.
        HUD will make available a minimum of 6,000 Housing Choice Vouchers
    on a competitive basis and jointly design the competitive process with
    HHS and the Department of Education. Winning proposals will have to
    show that the new vouchers are being targeted to communities with high
    concentrations of homeless families. With guidance from HHS, States
    will need to demonstrate how they will integrate HUD housing assistance
    with other supports--including TANF--these families will need to
    stabilize their housing situation, foster healthy child development,
    and prepare for, find, and retain employment. HHS will provide guidance
    to State TANF agencies and other relevant programs to explain this
    initiative and their role in both the application for the vouchers and
    the implementation of the program. DOE will assist with identifying at-
    risk families with children through their network of school based
    homelessness liaisons, and providing basic academic and related
    supports for the children. Locally, applicants will need to show that
    they have designed a well-coordinated and collaborative program with
    the TANF agency, the local public schools, and other community partners
    (e.g., Head Start, child welfare, substance abuse treatment, etc.).
        Collectively, these initiatives represent an unprecedented, ``silo-
    busting'' alignment of Federal resources to address the needs of some
    of the country's most vulnerable individuals and families. At the same
    time, we believe they will save the taxpayer significantly in the long
    run. This innovative approach will also involve some collaboration
    across subcommittee jurisdictional lines, and we look forward to
    working with the members of this panel in determining how best to
    facilitate that joint action.

    Modernizes the 202 and 811 Supportive Housing Programs for the Elderly
            and Disabled
        As the Department begins the process of restructuring its rental
    assistance programs, it must also ensure that its programs providing
    capital grants and rental assistance that are sized to the actual costs
    to operate a project (``budget-based'' or ``operating cost-based'') are
    well designed for the world of housing finance in the 21st century.
    Beyond public and assisted housing--the focus of the TRA initiative--
    the most prominent examples of such funding streams are the section 202
    and 811 programs, which couple housing and services for the Nation's
    poor elderly and disabled, respectively.
        Although they have provided critical housing for thousands of
    residents, these programs are in need of modernization. Project
    sponsors no longer receive enough funding per grant for the 202 and 811
    programs to be a ``one-stop shop'' to capitalize and sustain a project,
    yet they are subject to a level of bureaucratic oversight that suggests
    they are. This regulatory structure also makes it difficult for project
    sponsors to work with other financing streams, such as low income
    housing tax credits, even as the average grant size requires accessing
    other capital sources. As a result, project development is slowed and,
    coupled with outdated geographic allocation formulae, limited resources
    are spread too thin to reach scale at either the project or national
    programmatic levels. In 2009, the 202 program produced only 3,049 units
    with an average project size of 44 units and the 811 program produced
    only 661 units with an average project size of 10 units.
        Already 10 times as many units are produced under the Low Income
    Housing Tax Credit program. And under the status quo, the total annual
    production of units will continue to decrease as the cost of supporting
    existing 811/202 properties consumes more and more of the overall
    funding allocation. This threatens to make the programs increasingly
    marginal for the Nation's elderly and disabled.
        Accordingly, HUD requests a suspension of funding for section 202
    and 811 Capital Advance Grants in fiscal year 2011 in order to redesign
    the programs to better target their resources to meet the current
    housing and supportive service needs of frail elderly and disabled very
    low-income households. The redesigned programs will maximize HUD's
    financial contribution through enhanced leveraging requirements and
    will also encourage or require partnerships with HHS and other services
    funding streams to create housing that, while not medically licensed,
    still effectively meets the needs of very low-income elderly and
    disabled populations unable to live fully independently. The program
    reforms for both 202 and 811 will include the following: (1) new
    requirements to establish demand to ensure meaningful impact of dollars
    awarded; (2) raised threshold for sponsor eligibility to ensure the
    award of funds only to organizations with unique competency to achieve
    the program goals; (3) streamlined processing to speed development
    timeframes; (4) broader benefits of program dollars achieved by
    facilitating supportive services provided by Medicaid/Medicare Waiver
    programs such as the Program of All-inclusive Care for the Elderly
    (PACE) model services to 202 project residents, (5) encouraging better
    leveraging of other sources of funding, such as low income housing tax
    credits and (6) integrating 811 programs within larger mixed finance,
    mixed use projects.

        GOAL 4.--BUILD INCLUSIVE AND SUSTAINABLE COMMUNITIES FREE FROM
                                 DISCRIMINATION

        The Department's approach to this objective is informed by the
    Obama administration's landmark, Federal Government-wide review of
    ``place-based'' policies for the first time in over three decades.
        Place is already at the center of every decision HUD makes. HUD's
    programs today reach nearly every neighborhood in America--58,000 out
    of the approximately 66,000 census tracts in the United States have one
    or more units of HUD assisted housing. But we have taken this
    opportunity to renew our focus on place, with the result that the
    proposed fiscal year 2011 budget allows HUD to better nurture
    sustainable, inclusive neighborhoods and communities across America's
    urban, suburban, and rural landscape.
        One aspect of HUD's refined place-based approach involves making
    communities sustainable for the long-term. Sustainability includes
    improving building level energy efficiency, cutting carbon emissions
    through transit-oriented development, and taking advantage of other
    locational efficiencies. But sustainability also means creating
    ``geographies of opportunity,'' places that effectively connect people
    to jobs, quality public schools, and other amenities. Today, too many
    HUD-assisted families are stuck in neighborhoods of concentrated
    poverty and segregation, where one's zip code predicts poor
    educational, employment, and even health outcomes. These neighborhoods
    are not sustainable in their present state.
        This budget lays the groundwork for advancing sustainable and
    inclusive growth patterns at the metropolitan level, communities of
    choice at the neighborhood scale, and energy efficiency at the building
    scale. Specifically, the fiscal year 2011 budget calls for the
    following series of programs and funding levels.

    Supports and Improves the Federal Government's Premier Community
            Development Program
        The economic downturn and foreclosure crisis have significantly
    depleted resources in State and local governments while increasing
    demand for services. Revenue declines often turn quickly into layoffs
    and cuts in services for the poor. Meanwhile, community development
    investments have a heightened role in economic redevelopment and
    stabilization for neighborhoods and regions across the country. During
    these difficult economic times, it is critical that the administration
    support and enhance community development programs and to partner with
    grantees in developing strategies to increase economic vitality, build
    capacity, and build sustainable communities and neighborhoods of
    opportunity. Since 1974, the Community Development Block Grant (CDBG)
    program has provided formula grants to cities and States to catalyze
    economic opportunity and create suitable living environments through an
    extensive array of community development activities.
        The fiscal year 2011 budget proposes a total of $4.380 billion for
    the Community Development Fund, which includes:
      --$3.99 billion for CDBG formula distribution, to meet the
            President's campaign promise to fully fund CDBG.
            Simultaneously, the Department proposes a number of
            improvements to the CDBG program, including revamping the
            consolidated plans developed by State and local governments,
            greater accountability, and better performance metrics.
      --$150 million in funding for the second year of the Sustainable
            Communities Initiative. The initiative has four components in
            2011, described below. HUD plans to work with the relevant
            authorizing committees in order to refine these proposals.
        --Sustainable Communities Planning Grants administered by HUD in
                collaboration with the Department of Transportation (DOT)
                and the Environmental Protection Agency (EPA). These grants
                will catalyze the next generation of integrated
                metropolitan transportation, housing, land use and energy
                planning using the most sophisticated data, analytics and
                geographic information systems. Better coordination of
                transportation, infrastructure and housing investments will
                result in more sustainable development patterns, more
                affordable communities, reduced greenhouse gas emissions,
                and more transit-accessible housing choices for residents
                and firms.
        --Sustainable Communities Challenge Grants to help localities
                implement Sustainable Communities Plans they will develop.
                These investments would provide a local complement to the
                regional planning initiative, enabling local and multi-
                jurisdictional partnerships to put in place the policies,
                codes, tools and critical capital investments to achieve
                sustainable development patterns.
        --The creation and implementation of a capacity-building program
                and tools clearinghouse, complementing DOT and EPA
                activities, designed to support both Sustainable
                Communities grantees and other communities interested in
                becoming more sustainable.
        --A joint HUD-DOT-EPA research effort designed to advance
                transportation and housing linkages at every level our
                agencies work on.
      --$150 million for the Catalytic Investment Competition Grants
            program to create jobs by providing economic development and
            gap financing to implement targeted economic investment for
            neighborhood and community revitalization. For too long,
            communities have lacked the kind of place-based, targeted,
            ``game-changing'' Federal capital investment program in the
            community and economic development arena that HOPE VI has
            proven to be with respect to severely distressed public
            housing. The Catalytic Investment Competition would rectify
            that imbalance by providing ``gap financing'' for innovative,
            high impact economic development projects at scale that create
            jobs. The program will create a competitive funding stream that
            is responsive to changes in market conditions, leverages other
            neighborhood revitalization resources (including formula CDBG
            funds), and ultimately increases the economic competitiveness
            of distressed communities and neighborhoods.
          Under this proposal, my office would be permitted to consider how
            much and to what extent the project will complement and
            leverage other community development and revitalization
            activities such as the Choice Neighborhoods Initiative, Promise
            Neighborhoods, HOPE VI, Sustainable Communities, or other
            place-based investments in targeted neighborhoods to improve
            economic viability, extend neighborhood transformation efforts,
            and foster viable and sustainable communities. Applicants must
            develop a plan that includes measurable outcomes for job
            creation and economic activity, exhibit capacity to implement
            such plan, and demonstrate approval for the plan from the local
            jurisdiction. Applicants will be required to leverage other
            appropriate Federal resources, including but not limited to,
            Community Development Block Grant formula funding and section
            108 Loan Guarantees. This will support HUD's effort to partner
            with grantees to more effectively target community development
            investments toward neighborhoods with greatest need,
            disinvestment, or potential for growth.

    Enhances and Broadens Capacity Building for our Partners
        The fiscal 2011 budget provides $60 million for a revamped Capacity
    Building program. HUD must embrace a 21st century vision for supporting
    the affordable housing and community development sector and will
    reframe the section 4 program, including renaming the program
    ``Capacity Building'', in order to reflect that vision. The objective
    is to expand HUD's funding capabilities, and encourage open competition
    through mainstream and consistent program funding for these activities.
        Working with cities and States to readily understand how to meet
    the needs of their communities, leverage private and other kinds of
    resources, and align existing programs is fundamental to building
    resilience in tough economic times. Increasing capacity at the local
    level is critical as jurisdictions partner with the administration in
    implementing key initiatives such as Choice Neighborhoods, Sustainable
    Communities, and the Catalytic Competition and work to restore the
    economic vitality of their communities. This enhanced program will
    include local governments as technical assistance service recipients.

    Takes Choice Neighborhoods to Scale
        The administration will also propose authorizing legislation for
    Choice Neighborhoods, funded at $65 million in fiscal year 2010 on a
    demonstration basis, and at $250 million in the budget. I am
    appreciative that Congress was willing to fund Choice Neighborhoods on
    a demonstration basis in fiscal year 2010, and HUD is now requesting
    that the program be expanded to a level where its impact can be
    significantly broader.
        This initiative will transform distressed neighborhoods where
    public and assisted projects are concentrated into functioning,
    sustainable mixed-income neighborhoods by linking housing improvements
    with appropriate services, schools, public assets, transportation, and
    access to jobs. A strong emphasis will be placed local community
    planning for school and educational improvements including early
    childhood initiatives. Choice Neighborhood grants would build upon the
    successes of public housing transformation under HOPE VI to provide
    support for the preservation and rehabilitation of public and HUD-
    assisted housing, within the context of a broader approach to
    concentrated poverty. In addition to public housing authorities, the
    initiative will involve local governments, non profits and for profit
    developers in undertaking comprehensive local planning with input from
    the residents and the community.
        Additionally, HUD is placing a strong emphasis on coordination with
    other Federal agencies, with the expected result that Federal
    investments in education, employment, income support, and social
    services will be better aligned in targeted neighborhoods. To date, the
    Departments of Education, Justice and HHS are working with HUD to
    coordinate investments in neighborhoods of concentrated poverty,
    including those targeted by Choice Neighborhoods. Again, we will be
    working with the House and Senate authorizing committees on these
    efforts.

    Protects Consumers From Discrimination in the Housing Market and
            Affirmatively Furthers the Goals of the Fair Housing Act
        The budget proposes $61.1 million in support of the fair housing
    activities of HUD partners. Some sources estimate that more than 4
    million acts of housing discrimination occur each year. To meaningfully
    address that level of discrimination, the Department, in addition to
    directing its own fair housing enforcement and education efforts, must
    engage outside partners. Therefore, this budget funds State and local
    government agencies to supplement HUD's enforcement role through the
    Fair Housing Assistance Program (FHAP) and provides funding also to
    nonprofit fair housing organizations that provide direct, community-
    based assistance to victims of discrimination through the Fair Housing
    Initiatives Program (FHIP). The entities participating in the two
    programs both help individuals seek redress for discrimination they
    have suffered and help eliminate more wide-scale systemic practices of
    discrimination in housing, lending, and other housing-related services.
    This budget provides $28.5 million to State and local agencies in the
    FHAP and $32.6 million to fair housing organizations through the FHIP.
        While this budget does not continue a $10 million initiative within
    the FHIP program, funded in fiscal year 2010, specifically directed at
    mortgage lending discrimination, fair housing funding, generally, and
    FHIP funding, in particular, remains substantially higher than in
    fiscal year 2009. Overall, the $61.1 million requested this year for
    fair housing activities overall represents a 12 percent increase over
    the fiscal year 2009 enacted level of $53.5 million, and the $32.6
    million requested for FHIP, in particular, is fully 18 percent above
    the $27.5 million in fiscal year 2009.
        Since its passage in 1968, the Fair Housing Act has mandated that
    HUD shall ``affirmatively further fair housing'' in the operation of
    its programs. This requires that HUD and recipients of HUD funds not
    only prohibit and refrain from discrimination in the operation of HUD
    programs but also take pro-active steps to overcome effects of past
    discrimination and eliminate unnecessary barriers that deny some
    populations equal housing opportunities. To assist recipients in
    meeting these obligations, the Department is revising its regulations
    to clearly enumerate the specific activities one must undertake to
    ``affirmatively further fair housing'' and the consequences for failure
    to comply. To support this effort, $2 million of the FHIP budget will
    support a pilot program whereby fair housing organizations help HUD-
    funded jurisdictions comply with these regulations.
        Finally, I want to emphasize that as HUD works through the Choice
    Neighborhoods initiative and across all of its programs to revitalize
    neighborhoods, as well as enable families to choose to move to other
    neighborhoods with lower poverty and greater economic opportunity, HUD
    will strive to ensure that newly revitalized neighborhoods remain
    affordable, inclusive places for low-income people to live.

                  GOAL 5.--TRANSFORM THE WAY HUD DOES BUSINESS

       In light of recent natural disasters and the housing and economic
    crises, last year HUD saw a pressing need for adaptability and change.
    To become an innovative agency with the capacity to move beyond legacy
    programs, shape new markets and methods in the production and
    preservation of affordable housing, green the Nation's housing stock,
    and promote sustainable development in communities across America, the
    Department had to remake itself.
        To accelerate the Department's transformation, the fiscal year 2011
    budget makes the following vital reforms.

    Develops a Basic Data Infrastructure and Delivers on Presidential
            Research and Evaluation Priorities
        HUD requests $87 million for the Office of Policy Development and
    Research, an increase of $39 million from fiscal year 2010, to continue
    the transformation of PD&R into the Nation's leading housing research
    organization. The role of housing issues in starting the economic
    crisis, and the importance of housing issues to the Nation's economy,
    shows the urgent need for this housing research. These funds would be
    used for three critical activities:
        Basic Data Infrastructure.--Continue the investment made in fiscal
    year 2010 to support the collection and dissemination of the core data
    needed to support effective decisionmaking about housing. HUD's request
    for this purpose is $55 million, which is $7 million more than the
    fiscal year 2010 appropriated level of $48 million. This will be used
    to conduct housing surveys--including full funding for the American
    Housing Survey--support enhanced research dissemination and
    clearinghouse activities, and underwrite a Young Scholars research
    program.
        Presidential Research and Development Initiative.--As part of the
    administration's Research and Development initiative that is tied to
    the President's national goals of energy, health and sustainability,
    the Department proposes to administer $25 million for research on the
    linkages between the built environment and health, hazard risk
    reduction and resilience, and the development of innovative building
    technologies and building processes.
        Presidential Evaluation Initiative.--Also for fiscal year 2011, the
    President is proposing to fund rigorous evaluations of critical
    programs to inform future policy discussions. The $7 million proposed
    will supplement funding from the Transformation Initiative set-aside to
    support rigorous evaluations of the Family Self-Sufficiency Program,
    potential Rent Reform strategies, and the Choice Neighborhoods program.

    Maintains the Department's Existing Technology Infrastructure
        HUD requests $315 million for the Working Capital Fund, to cover
    the steady State operations, corrective maintenance of HUD's existing
    technology systems, and the re-competition of HUD's infrastructure
    support contract. As with fiscal year 2010, this does not include the
    ``next generation technology'' development that would be funded through
    the Transformation Initiative, as described below. The bulk of the
    fiscal year 2011 request ($243.5 million) would be in the form of a
    direct appropriation. In addition, HUD seeks a $71.5 million transfer
    from FHA to pay for its share of infrastructure costs and system
    maintenance.

    Provides Flexibility and Resources Needed to Fuel Agency Transformation
        As in fiscal year 2010, the Department again seeks the authority to
    set-aside up to 1 percent of HUD's total budget for an agency wide
    Transformation Initiative.
        HUD's fiscal year 2010 Transformation Initiative was intended to
    indeed be transformational. The resources it provides are allowing us
    to take long-overdue steps to upgrade and modernize our Department and
    allow it to function as a 21st century organization. As one example, it
    is helping us replace computer programs written in COBOL in the 1980s
    with those written in the flexible and powerful languages of 2010. In
    addition, HUD has not conducted a major demonstration since the 1990s,
    when the Moving to Opportunity study was conducted. This demonstration
    is still yielding important evidence on how mobility and rental
    assistance interact that guides policy. And local government capacity
    to effectively use Federal resources varies widely and leaves some
    communities at risk of always lagging the pack.
        Further, even in the instance that efforts such as technical
    assistance were adequately funded, they were funded in silos--making
    cross-cutting initiatives that achieve the biggest bang for the buck
    next to impossible.
        The TI approach we propose--allowing for the flexibility to take up
    to 1 percent of our budget and devoting it to four key areas--is
    similar to the approach applied by most cutting-edge institutions. This
    recognizes not only the need to have targeted funding to overhead--but
    the ability to respond to changing circumstances that may require
    overhead to consume an increased share of the budget, a change in the
    mix of activities funded and cross-cutting initiatives.
        While reprogramming requests to the Appropriations Committee
    provide some flexibility along these lines, these are inherently
    limited in comparison to TI funding because of absolute caps in
    statutory appropriations accounts.
        The flexibility inherent in this TI structure allows for the more
    nimble, responsive agency required in a long budget process where
    individual research ideas or investment proposals made in January might
    have been usurped by developments through the course of the year. A
    good example would be the $50 million in Neighborhood Stabilization
    technical assistance HUD made available to communities through ARRA.
    Full funding of the Transformation Initiative will enable HUD to take
    such an approach to scale and continue the delivery of a new level of
    technical assistance and capacity building to Federal funding
    recipients, recognizing that human capital, technical competence and
    institutional support are critical for the success of HUD's partner
    organizations.
        And while we appreciate that the subcommittee did recognize this
    reality in funding this effort for fiscal year 2010 at $258 million,
    which has begun an important process of increasing investment and
    bridging silos, we renew our request for authority to use up to 1
    percent. I would note that this past year we received 110
    groundbreaking research, information technology and technical
    assistance proposals internally--but we were only able to fund a little
    over one-half of these requests. Further, of the demonstrations and IT
    projects that were funded in 2009, many were multi-year projects that
    we have had to plan and operate, in all but the most urgent
    circumstances, with single-year funding.
        Salaries and Expenses Central Fund.--Building on the principle of
    the Transformation Initiative, the budget requests the creation of a
    Salaries and Expenses Central Fund, funded through a 1 percent transfer
    from each of HUD's salaries and expenses accounts. The Fund will
    provide targeted, temporary infusions of resources to any of HUD's
    program offices in order to increase our responsiveness to
    unanticipated crises and new challenges through the hiring of staff
    with appropriate expertise. One example of how this type of funding
    might be used would be in the instance of a national disaster--in
    response to which HUD would be expected to play a key role. Another
    would be FHA, which inside of 3 years has temporarily expanded from
    insuring 2 percent of the market to, as mentioned previously,
    approximately one-third.
        As you know, HUD staff has been meeting with the bipartisan,
    bicameral appropriations staff to discuss our plans in this area, and
    have recently submitted a detailed report on our proposals. And so,
    while I appreciate the level of trust this subcommittee showed in HUD
    leadership for fiscal year 2010, I would hope that the progress we have
    demonstrated and the extraordinary need to build on these successes
    would warrant full funding for the coming fiscal year.

                                   CONCLUSION

        In sum, this budget continues the transformation begun with the
    2010 budget--a budget I recognize simply would not have been possible
    absent the leadership and commitment of this subcommittee. 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 21st century--
    retooling its programs and initiatives so it can better fulfill its
    mission to serve American households and communities more effectively
    and more efficiently over decades to come. I am proud of the progress
    we have begun to make in these areas with this subcommittee's support,
    and I look forward to our continued progress through the proposals
    outlined in the fiscal year 2011 budget. Thank you again for the
    opportunity to appear before you to discuss HUD's proposed budget. And
    with that, Madam Chairwoman, I would be glad to answer any questions.
      --HUD is currently conducting a definitive Capital Needs study of the
            public housing portfolio.
      --Preserving Safe, High Quality Public Housing Should Be a Priority
            of Federal Housing Policy, Barbara Sard and Will Fischer,
            October 8, 2008 (noting that ``90 percent of developments meet
            or exceed housing quality standards, although most developments
            are more than 30 years old, and many will need
            rehabilitation.'').

                                      FHA

        Senator Murray. Thank you very much for your statement, Mr.
    Secretary.
        Let me start because you talked a little bit about your
    opening statement, I did as well, that OMB and CBO differ
    considerably on the amount of receipts that they estimate FHA
    mortgages are going to generate in fiscal year 2011, a
    difference of about $4 billion. How would a reduction of that
    magnitude impact HUD programs?
        Secretary Donovan. Obviously, that kind of reduction would
    be substantial. Again, let me point to the fact that CBO does
    agree that the changes we are proposing in legislation would
    have a positive impact on the fund.
        My FHA Commissioner is testifying today on the House side
    in front of the authorizing committee on those changes. I
    believe it is critical that we do get the authority to increase
    our annual premium and that we continue to do the kind of risk
    management changes and others that we need. CBO fundamentally
    agrees that those changes will add to the receipts.
        We have begun to work closely with CBO to look at the
    reasons for the discrepancy. We would be happy to work closely
    with this subcommittee, as well as the Budget Committee, to
    look at the reasons for that discrepancy. Obviously, as you
    know, while the CBO view is important, it is ultimately
    advisory, and the Budget Committee can make a determination on
    its own about which of the forecasts make the most sense and
    what it is going to choose as the path for the budget.
        And I would further add that, as I mentioned in my
    testimony, we have substantially increased our capacity at FHA
    to monitor the health of the fund, made numerous changes and
    improvements in the way we project it. And in fact, thus far
    this year, we are running ahead of our projections in terms of
    losses and receipts to the FHA Fund.
        I would also add that to ensure that we were being
    conservative in the President's budget we did use a relatively
    conservative house price forecast that has been below what has
    actually happened in the housing market since then.
        So for all of those reasons, I continue to be confident in
    our projections, and we would be happy to provide whatever
    information you and the Budget Committee might need to make a
    final determination about the path of the budget.
        Senator Murray. And are you working with the Budget
    Committee on that?
        Secretary Donovan. We have been working closely with OMB on
    it, and they have been leading discussions with the Budget
    Committee.
        Senator Murray. Okay. Well, one of the paths that you just
    talked about had to do with increasing the premiums on the FHA
    mortgages, those premiums that are used to cover any claims on
    mortgages. But the losses in recent years have caused the
    capital reserve for the FHA to fall below that mandatory 2
    percent. In order to recapitalize that, you are planning on
    increasing the premiums.
        Under existing authority, FHA will increase up front, I
    think, 2.25 percent in April. But you also are saying you need
    authorizing language to do that. How is your progress going
    with the authorizing language, with the authorizing committees
    on that?

                           INCREASE IN ANNUAL PREMIUM

        Secretary Donovan. So we have proposed and we do have the
    current authority to raise the upfront premium to 2.25 percent.
    We believe, and I think there is broad agreement, however, that
    it is a better approach, both safer for homeowners and
    ultimately better for the health of the FHA Fund, to have a
    combination of an increased upfront premium, as well as an
    increase in the annual premium. And we currently do not have
    the authority to raise the annual premium. That is the
    authority that we are seeking through legislation.
        We have had numerous meetings with both sides of the aisle
    on the authorizing committees; have heard a lot of support. In
    fact, Ranking Member Capito introduced her own bill yesterday
    that included a broad range of the proposals that we have. And
    so, I am encouraged by the progress that we are making with the
    authorizing committees on that.
        I would make two other notes. One is that not only is
    increasing the premiums something that is important for the
    health of the fund, but in addition to that, increasing the
    premiums, I think, is the single most important thing FHA can
    do to encourage the private market to return. We are already
    hearing, once we announced the increase in our upfront
    premiums, a number of private mortgage insurers and others
    beginning to move back into the market. And so, I think it----
        Senator Murray. Once you announced the 2.25 percent?
        Secretary Donovan. The 2.25 percent. And so, I believe it
    is important, given that we believe FHA's current role is a
    temporary role, that we want to see the private market return,
    that raising the premiums sends the right signal to the broader
    market and will help others return to the market.
        The last thing I would note is that we do have the current
    authority to raise the upfront premium even further. So
    increased receipts along the lines proposed in the budget are
    not completely dependent on the legislation.
        Senator Murray. Increase above the 2.25?
        Secretary Donovan. Above the 2.25.
        Senator Murray. Do you have authority to do that without--
    --
        Secretary Donovan. We do have the ability to go up to 3
    percent currently. However, and again, there is wide agreement
    on this, it is a better path not to raise the upfront premium
    that far or even to keep it at the 2.25 that we have already
    proposed to raise it to, but to increase the annual premium
    further in order to provide more security for homeowners as
    well and a better deal for homeowners and to build the fund
    more quickly.
        Senator Murray. Are you making any progress in the Senate
    Banking Committee?
        Secretary Donovan. We have had very good discussions with
    them on it as well. The House has taken the lead with their own
    bill, but we have heard bipartisan support around many of the
    changes that we have proposed.
        Senator Murray. If we were to get that kind of legislation
    passed, when would you anticipate the capital reserve funds
    will be at or above the required 2 percent? How long would it
    take?
        Secretary Donovan. Based on our numbers, we believe that
    the 2 percent is achievable by 2012 or 2013, based on
    conservative assumptions in house prices.
        Senator Murray. When would the legislation have to be
    enacted in order to have that date?
        Secretary Donovan. One of the keys about getting the
    legislation enacted as quickly as possible is that our
    estimates are that every month sooner we get the legislation is
    another $300 million in net receipts to the FHA Fund. So every
    month that we get that either later or earlier has a $300
    million impact on those funds.

                          STATE OF THE HOUSING MARKET

        Senator Murray. Okay, all right. Well, let me move on.
        It seems that every day there is a new report out there on
    the state of the housing market. But the reality is that
    economists often arrive at completely different conclusions
    from the same housing market data.
        You have testified that housing prices have held steady or
    risen since last April, which provides reason for optimism.
    However, in January, new home sales plummeted to the lowest
    level in 50 years, and many regions in my State continued to
    experience some severe home value losses.
        Do the reductions in home sales that we saw in January make
    you concerned about the stability of the market, and when do
    you expect that we may see home prices stabilize?
        Secretary Donovan. What I would say about that data, widely
    expected with the original expiration of the home buyer tax
    credit that there would be a decline in sales during December
    and January. I would say that the decline in January was
    somewhat worse than expected. Part of that was weather driven,
    frankly. But even beyond that, there were, I think, notes of
    concern that we took from those numbers.
        I think what it highlights most of all is that the levels
    of prices in home sales continue to be fragile. They are still
    above where they were a year earlier, which is, I think, an
    important benchmark. But one of the reasons we supported the
    extension of the home buyers tax credit, as well as we continue
    to support the importance of FHA, the GSEs, and other
    interventions keeping interest rates low is that we are
    concerned about the fragility of the housing market.
        Overall, again--and this goes to your point earlier--when
    we came into office, widely predicted economists on both sides
    of the aisle, and more broadly across the spectrum, expected on
    average another decline of 5 percent in home prices last year.
    That did not happen with the support of the administration.
    Home prices were basically level during last year.
        So I think we have had the impact of stabilizing the
    market. But it is fragile, and we need to continue to focus and
    do more to ensure that we are on the right path with home
    prices.
        Senator Murray. One of the programs that the Federal
    Reserve is going to end is the purchase of mortgage-backed
    securities that has helped quite a bit, and the home buyer tax
    credit is going to expire here shortly. Are you concerned that
    if we don't extend those important initiatives, we are going to
    add to that fragility?
        Secretary Donovan. Typically, the home buying season is
    slowest during these winter months, and we will all be watching
    very closely the sales numbers as we move into the spring and
    as we get closer to the expiration of the tax credit. I would
    say that it is too early to decide that.
        My strong belief based on the indicators that we have seen
    is that the Federal Reserve is taking a very measured approach
    to stepping back that program and will be watching the market
    very closely. We will be doing the same.
        But I think it highlights the fact that with FHA, while we
    have significantly stepped up our risk management, increased
    underwriting requirements, down payments, raising premiums,
    that we must take a balanced approach and not go too far to
    exclude buyers that can be successful in the market. And so,
    that balanced approach, I think, is critical, as well as
    watching the numbers over the next few months in the spring
    buying season very, very closely.
        Senator Murray. Okay. Senator Bond?
        Senator Bond. Do you want to continue your questions and do
    those, and then let me do mine? Then go on, go to E&W, and let
    me--I will, if you trust him to my tender mercies?

                         MAKING HOME AFFORDABLE PROGRAM

        Senator Murray. All, Mr. Secretary, we have reached a
    gentleman's agreement here. I am going to finish the question
    that I need to ask you right now and then turn the gavel over
    to Senator Bond, who is going to ask his questions and then
    come to the Energy Committee, if that is okay with you?
        So I wanted to ask you about the Making Home Affordable
    Program. One of the programs in that, the Home Affordable
    Modification Program, HAMP, reduces a homeowner's monthly
    payments by lowering interest rates or spreading a mortgage out
    over a longer period of time.
        That program was supposed to help about 3 million to 4
    million families by 2012. But as of January, only about 116,000
    homeowners have received permanent modifications under that. We
    are hearing that servicers have been struggling with burdensome
    changing rules, and borrowers are confused. And wondered what
    changes you were looking at on that program?
        Secretary Donovan. So, first of all, I would say that there
    is no question that there were early implementation problems
    with servicers who did not have the capacity to be able to
    reach borrowers and that there has needed to be, and there has
    begun to be, a significant increase in focus, as well as
    resources, at the servicers. We have also taken a number of
    steps to streamline the process, streamline documentation, and
    simplify the process.
        One of the most important changes is that we have announced
    that we will be requiring all documentation to be gathered up
    front, rather than at two different points--at the beginning of
    the trial modification and before permanent. That should
    greatly simplify the process.
        And we have also done an enormous amount of outreach in
    locations around the country to bring homeowners and servicers
    together with fairs and a whole range of other events and
    direct connections. We have folks under the direction of the
    servicers literally going door-to-door to try to get homeowners
    qualified.
        What I would point out is that based on all of those
    efforts, we were able to reach just 1 year after the creation
    of the program--just 1 year after the creation of the program
    more than 1 million homeowners with trial modifications. And I
    think it is very important to point out that those trial
    modifications are having a significant positive impact for
    those families, average savings per month of over $500 and
    significant benefits to them.
        So, based on that, we are on track to reach the 3 million
    to 4 million homeowners that we originally committed to. We are
    concerned that the permanent modifications have not been moving
    quickly enough. We have significantly increased the pace of
    that. And we today are seeing about 50,000 new permanent
    modifications a month, based on our recent experience. And so,
    I do believe while we still have some improvements to go, that
    we are making significant progress in terms of home affordable
    modification.
        I would finally just say that--and by the way, we have
    almost 20,000 of those in the State of Washington. I would be
    happy to share more detailed information with you on that.
        Finally, I would say that that is only a part of the
    broader strategy. And with the announcement the President made
    that you referenced in Nevada just 2 weeks ago, as well as a
    number of other steps that we are taking, I believe we are----
        Senator Murray. Yes. Let me ask you about that. You
    announced this program to help these five States that--in
    Nevada a few weeks ago. What is the specific timetable for
    implementing that program, and when would we start seeing
    results on that?
        Secretary Donovan. So, on that program, what we determined
    is that we have a number of national efforts. We continue to
    examine new national efforts, but that the challenges facing
    those places are quite different depending on the State. For
    example, Michigan's challenges are very different from Nevada's
    or California's.
        And so, what we did was to ask the five States, their State
    housing finance agencies, to come in and propose tailored
    programs for those States that would most effectively target
    the problems that they are seeing. We have seen very effective
    State programs in a number of places, Pennsylvania and others,
    along these lines, particularly targeted at unemployed
    homeowners and underwater homeowners.
        We have asked the States to come in and propose to us
    within the next few weeks plans. We will then review those
    plans, and we hope to be able to approve them within the next
    month to 6 weeks and then to be able to start implementing
    those programs immediately at that point. Again, many of these
    State agencies already have programs up and operational that we
    could enhance or change that could get going very quickly.
        Senator Murray. Okay. Are you looking at expanding that
    all? In my home State, we have about a quarter of a million
    Washington State homeowners today who are underwater,
    representing about 16 percent of our homes, especially in two
    of our counties, Pierce and Clark Counties. Are you looking at
    expanding this to any of the other States?
        Secretary Donovan. What we are looking at, Madam Chair, is
    broader national efforts around negative equity and
    unemployment that could target the issues that you are talking
    about in your State.
        One of the reasons we wanted to take the approach on the
    program that the President announced in Nevada is to test
    models that then potentially could be used in other States. So
    we don't have any immediate plans to expand it until we have
    begun to see the results. But we are working on other efforts,
    which I would be happy to follow up with you on, and talk more
    about, that would nationally target the negative equity issue
    and unemployment that could have real benefits in Washington.

                 BACKLOG IN PUBLIC HOUSING CAPITAL IMPROVEMENTS

        Senator Murray. Okay. We would like to hear more about
    that.
        I wanted to ask you about the backlog in capital
    improvements needs in public housing now estimated at over $20
    billion. The President's budget proposes the first phase of an
    ambitious plan designed to leverage significant private sector
    resources to tackle that backlog and preserve those assets.
        I agree. We have got to find a long-term solution on this,
    but I am concerned about the absence of detail in the proposal
    so far and its cost.
        For 2011, the administration is looking for $290 million in
    additional subsidies in order to leverage those private sector
    dollars. When fully implemented, I understand the program is
    going to cost about $1.4 billion each year. How would you
    accommodate this major new requirement, given the President's
    commitment to freeze discretionary spending over the next 3
    years?

                          PUBLIC HOUSING CAPITAL FUND

        Secretary Donovan. I think one of the important points to
    make about this initiative is that the fundamental change that
    we are talking about is shifting from an operating and capital
    approach to one which has only an operating stream. So while
    there are increases that we are proposing in operating
    subsidies in the budget, we will have, particularly over the
    longer term, significant savings and, ultimately, not require
    any capital funding for public housing in a separate account.
    And so, that is one way that we have offsetting savings that
    come from the way that we are proposing this.
        A number of other points, though. That does not account for
    efficiencies that this will achieve. I talked in my testimony
    about the enormous complexity of the current range of programs
    and how difficult it is to achieve mixed financing and other
    things. Part of that are operational costs at the Department,
    which we have the potential to do significant savings on. We
    have begun to estimate those. Those are not simple to estimate.
        Senator Murray. Sure. Are you going to put forward
    proposals to cut the operating stream side of it, expenses?
        Secretary Donovan. The capital?
        Senator Murray. Yes.
        Secretary Donovan. Yes. There will be offsetting reductions
    possible in the public housing capital stream as a result
    because we will be moving to a system where there would only be
    operating subsidy going to those developments. And they would
    use--just as is currently done in almost every other program
    that we have, funding could be raised privately or from tax
    credits or other sources to pay for the capital needs.
        And so, that we would go from this more complex two-subsidy
    system that we have today with public housing to a one-subsidy
    stream. It would require the operating subsidy to be higher,
    but it allows us to offset to a great extent that increased
    cost to the operating subsidy with reductions and, ultimately,
    elimination of the capital stream.
        There will also be significant savings in terms of reduced
    complexity for the developments themselves. The management,
    oversight, the soft costs of hiring lawyers, and all kinds of
    other things around transactions that----
        Senator Murray. It sounds really good. I just want to see
    how it works on paper so we have accountability in the system
    and we know it works.
        Secretary Donovan. And I know that we have been working
    with your staff to try to get more details about the long-term
    costs and savings around the proposal.

                         TRANSFORMING RENTAL ASSISTANCE

        Senator Murray. We will need to see those. Okay, good.
        One of your proposals is to transform rental assistance to
    make sure that tenants have mobility options, even though from
    what I see, the funding is going to be tied to a particular
    unit. Now I understand that you are modeling this proposal on
    one of the provisions of the section 8 Tenant Based Rental
    Assistance Program. Under the existing program, PHAs are
    allowed to commit or project-base a voucher to a particular
    unit.
        Secretary Donovan. That is right.
        Senator Murray. This enables the PHAs to leverage private
    resources to finance the construction or rehabilitation of
    those units. But with project-based vouchers, PHAs are able to
    make sure residents have mobility by providing them with
    another tenant-based voucher from their existing supply if a
    person decides to move.
        However, your proposal would allow participation by
    entities that don't have voucher programs, whether they are
    public housing authorities or owners of other HUD-assisted
    housing. The lack of vouchers would appear to be a barrier to
    mobility in these systems. In these cases, how do you provide
    residents living in this type of housing with mobility options?
        Secretary Donovan. It is an excellent question. And
    mechanically working out the operations of linking those
    housing developments with vouchers is a very important part of
    the proposal. And I would just say broadly, we have been
    spending a lot of time working with stakeholders, talking with
    OMB, within the administration, and also reaching out to the
    authorizers, as well as your staff, to discuss a lot of these
    issues. And we expect not only to have authorizing language,
    but also far more detail based on the input that we are getting
    from stakeholder meetings and others that we are doing.
        On this mobility point specifically, first of all, what we
    are looking to do is to make sure that if a housing authority
    or another entity does not have control of a voucher program
    themselves, that we link them with a voucher program in the
    area where the project is located to ensure that there are
    vouchers available for those families that would move. What we
    are looking at is sizing exactly how big that pool would be and
    to ensure that we are not creating too much of a need for
    additional vouchers to be able to do that because, as you
    rightly said, the cost of that and the potential pressure on
    the voucher program overall is important.
        We believe based on our latest modeling that we can achieve
    significant mobility, if not complete mobility, with the
    existing resources that we have. But we want to come back to
    you with a number of options on that that would say if we want
    to do this amount of mobility, here is what we could do.
        Senator Murray. This is what it would cost.
        Secretary Donovan. If we wanted to do further mobility
    among a broader population, here is what the cost would be, and
    here is how we might be able to work it. So we are working
    through a lot of detail on that and look forward to sitting
    down with you.
        Senator Murray. Okay. We want to be continually updated on
    where you are with that.
        Secretary Donovan. As always, you have hit on a very
    important piece of this, an important point about how we
    achieve that mobility.

                                HUD-VASH PROGRAM

        Senator Murray. Okay. And lastly, I wanted to ask you about
    the HUD-VASH program. You know this is really important to both
    Senator Bond and I. We have worked very hard to include it in
    our budgets and appropriations over the last several years.
        I have heard wonderful stories from veterans in my home
    State, in Walla Walla, Washington, that have gotten jobs,
    gotten healthcare, and gained sobriety because they have these
    vouchers. There are similar stories across the country. But I
    know this program has faced some challenges in implementation
    in some parts of the country, and the VA is, as you know,
    struggling to quickly hire case managers and adapt to this new
    model of permanent supportive housing.
        Based on the most recent data, it appears that now only
    about half of the vouchers that we provided in fiscal years
    2008 and 2009 are actually being used. Can you tell me what HUD
    and VA are doing to overcome these problems and make it
    successful? Because we know when it gets out there and people
    are using it, it makes a huge difference for our veterans. But
    having administrative challenges at any level here on the
    ground is a disservice to the veterans.
        If you can talk to me about what HUD and VA are doing?
        Secretary Donovan. Absolutely. And let me just start by
    saying your support and championing of this program has been
    absolutely critical, and we believe it is having a tremendous
    impact on veterans, despite some of the challenges that you
    talked about.
        I also would put it in the context of the commitment that
    the President and Secretary Shinseki have made to end veterans'
    homelessness. VA has included a $265 million increase in
    funding for veterans homelessness in its proposal for 2011. So
    this is in the context of broad support for the intent of the
    program and, more broadly, ending veterans homelessness.
        The way I would characterize the challenges largely are
    that VA is an expert in healthcare. What has been required in
    order to make the program effective and to fully utilize the
    vouchers has been building a capacity beyond healthcare that
    includes community-based outreach and the ability to connect
    the healthcare and other services available at VA hospitals
    with the housing and other support services that may be
    necessary.
        Where we have seen great success is where VA hospitals have
    built that capacity, and we have begun to connect them with our
    continuums of care, community-based providers where they can
    form links to ensure they are finding veterans where they are,
    whether it is on the streets or in shelters, as well as helping
    to build their capacity and understanding about the latest
    techniques of whether it is housing first, supported housing,
    and others.
        And so, whether it is in Washington, DC or in many other
    places, we are seeing significant increases in utilization of
    those vouchers with those targeted strategies. And we have now
    developed with VA a plan to try to more broadly spread those.
    We have spoken about this, and you had a number of good points
    the last time we spoke about this that we are incorporating
    into that thinking, and we want to come back with you with a
    response on that.
        Senator Murray. Okay. Well, my subcommittee really wants to
    work with both you and the VA to get this out. I was really
    disappointed the President's budget didn't include any funding
    for 2011. We can't let administrative lack of dialogue or lack
    of working on problems keep these vouchers from going to our
    vets.
        So we want to keep working with you on the implementation,
    and clearly, that remains a high priority for this
    subcommittee, and I thank you for being committed to that and
    working with the VA on that.
        Secretary Donovan. Thank you.
        Senator Murray. Senator Leahy has joined us. Senator Leahy,
    I will just let you know I have to run to the Energy and Water
    Committee really quickly. Senator Bond is on his way back. I am
    going to, without asking you, turn the gavel over to you and
    allow you to go ahead and question the Secretary.
        Senator HUD will be--Senator HUD, he would love that.
        Senator Bond will be back shortly. And if you finish before
    he gets back, if you could just put it in temporary recess, he
    will be here within----

                                 RURAL AMERICA

        Senator Leahy [presiding]. Of course, and I am going back
    to a mark-up in Judiciary. But I was able to get permission to
    leave the Judiciary meeting, funny how that works.
        Thank you, Madam Chair. And thank you for the tremendous
    job you do on this and other appropriation matters.
        Secretary, it is good to see you, and I appreciate having
    you here to discuss the administration's budget request. So
    many of the programs in your Department have served my State
    very well, you have got one heck of a portfolio, and there are
    probably days when you wish it wasn't quite as much. But I
    would welcome you up to Vermont sometime to see the good things
    HUD has done to provide affordable housing, especially in our
    rural communities.
        We always think of housing in urban settings, but my home
    State has only 660,000 people, and a lot of it is very rural.
    But something that works in rural Vermont could also work in
    rural California, or New York, or Texas, or elsewhere.
        Now I know others have asked you about the Department's
    proposal to cut the budgets of the 811 and 202 programs and the
    HOME program. I worry about this because as I look at the
    budget, I am afraid there is a shift of priorities from rural
    areas, rural America to urban areas, and I remind everybody
    that rural America still is a third or more of America's
    population.
        Of course, back at the time of Franklin Roosevelt, they
    were concerned about rural America, and we had rural
    electrification, a number of other programs that made an
    enormous difference in society. I know it did with my
    grandparents in Vermont and others.
        But Vermont and other rural States rely on these programs
    to build affordable housing for low-income, elderly, and
    disabled residents. So if Congress agrees with your budget
    proposals, how are you going to deal with the problems of rural
    America?
        Secretary Donovan. Senator, thank you for the question. I
    look forward to visiting you in Vermont. It is, I probably
    shouldn't say this in a Senate hearing, one of my favorite
    States. I spent a lot of time there----
        Senator Leahy. Mine, too.
        Secretary Donovan [continuing]. Growing up, and just a
    beautiful, beautiful place.
        So let me say a couple things about this. First of all, we
    had to make some very difficult choices in the budget this
    year, given the broader outlines of the Federal budget deficit,
    and we made a fundamental choice to focus on existing
    households that we serve and ensuring that we were fully
    funding our major rental assistance programs. That required
    capital cuts in a number of different areas. Just to be clear,
    those rental assistance programs are critical in rural areas of
    the country as well, and we would be happy to get you more
    detail on how they support rural areas.
        I would also say that, today, the single most important way
    that we fund housing for the elderly and disabled in rural
    areas and other areas is through the tax credit program. Eight
    times more senior housing is developed through tax credits than
    through 202 and over 10 times more for people with
    disabilities. And so----
        Senator Leahy. But I still come back to my basic point. I
    worry about the way this is set up, that we are seeing a shift
    from rural to urban, and that is what I am going to be most
    concerned about. Because there is no way I could support--I
    could support an appropriation that did that.
        Secretary Donovan. And I believe that that is, in fact, not
    the case. Section 202 and 811 are equally available in a range
    of areas. But let me point to a few things that I think are
    particularly targeted to rural areas in the 2011 budget
    proposal.

                            SUSTAINABLE COMMUNITIES

        First of all, we will, for the first time ever, be
    establishing a program specifically targeted to rural
    homelessness in 2011. That has never been done before. We
    have--because of the work of this subcommittee, in our 2010
    budget, we will be making Sustainable Communities funding
    available for the first time with a specific 25 percent set-
    aside for smaller communities, and that is a critical effort.
    We are also building on our experience in investing in rural
    economic development through a proposed catalytic investment
    fund, which will be an important resource available in rural
    areas as well.
        So not only do I believe that we have housing resources
    specifically for constructing senior housing and housing for
    people with disabilities in rural areas, but that we are
    actually increasing our focus on rural areas with a number of
    different proposals in the budget.

                             SHARED EQUITY PROGRAMS

        Senator Leahy. Thank you. I look at some of the different
    things you have done--the administration has done and Congress
    has supported to promote home ownership. In HUD's previous
    budget request, the Department expressed interest in an
    innovative home ownership model known as shared equity. It is
    typically run by nonprofits.
        They promote home ownership among low- and middle-income
    families by providing down payment assistance. The
    affordability of the home is retained. When the buyer
    eventually sells the home, the nonprofit recoups what they put
    for the down payment and also part of the appreciation. They
    also usually have the right of first refusal to buy the
    property. If Congress included funding for a pilot program to
    increase shared equity programs, is that something your
    Department would support?
        Secretary Donovan. We certainly not only believe in shared
    equity models, but there are a number of ways that we have
    begun to support those. What I would suggest is that we would
    love to sit down with your staff and explain what we are
    already doing around shared equity and see if there is a way we
    could get to a pilot of the kind that you are talking about,
    even under existing authority, and then describe, be able to
    figure out what additional authority might be needed to achieve
    what you are----

                         MAKING HOME AFFORDABLE PROGRAM

        Senator Leahy. Thank you. And we will. Whenever you would
    like, we will make sure we have our folks ready.
        And in your prepared remarks that were read earlier, you
    spoke about the housing market. You noted that a lot has been
    done by the administration to right the ship, and I am pleased
    that many Americans have been helped by the Making Home
    Affordable Program. I think we all know the societal value of
    home ownership and community value and everything else, to say
    nothing about the economic well-being of the country.
        I am concerned about some who have slipped through the
    cracks. One of the concerns I hear most often on housing when I
    am home in Vermont is that some of the lenders in the program
    aren't abiding by the rules. The homeowner has been having a
    hard time getting straight answers, and it is frustrating
    because I will hear questions, whether walking down the street
    or at the grocery store or wherever. They say, ``We can't get a
    straight answer.''
        Is your Department and Treasury looking at this issue of
    whether this is happening in States? Because it is to all our
    benefit if people can be homeowners, but they are going to have
    to have--they are going to have to be able to get the answers
    they need.
        Secretary Donovan. There is no question that particularly
    in the early months of the program, servicers--there were
    significant problems with servicers. There continue to be
    significant problems in some cases.
        We have both pushed servicers to create better
    communication, more resources, and more people in their call
    centers, going door-to-door to do that. But we have also
    created very specific standards for exactly what the timelines
    need to be for servicers to get back to homeowners with a clear
    response on whether they are eligible or not. We did that just
    a month or so ago.
        And in addition to that, we have begun to impose penalties
    on servicers who are not following those guidelines. So, yes,
    we are hearing those issues, and we are taking action on them.
        Senator Leahy. Good. I must admit, and as Senator Bond
    knows, when somebody corners you in the grocery store and they
    have got a concern, they have got a concern. And I sometimes
    find those--actually, I like that. In a small State like ours,
    everybody knows everybody. And nobody hesitates to come up and
    ask you the questions. And this thing is occurring too often to
    make me think it is just a random issue.
        Senator Bond is here, who knows these issues as well as
    anybody, and I am going to turn the gavel over to him.
        Senator Bond. Well, I appreciate getting the gavel back
    from my good friend. Senator Leahy has outlined the concerns we
    have in rural America. I had raised those earlier, Pat, before
    you came, and they had--we had one little $25 million rural
    housing program for HUD to work with USDA, and that was gone.
        So I was interested to know that the Secretary had said
    while they have zero budgeted, that something new is going to
    spring full-blown out of somewhere. And I can assure you that
    those of us who live in places where we don't have a rush hour,
    we have a rush minute, there are--they can't even--radio
    stations can't even sell drive time advertising because nobody
    is in the car that long unless they are driving to another
    city. And then that is----
        Senator Leahy. If the Senator would yield? Last week,
    Marcelle and I were in Vermont, and I got in the car. We were
    driving somewhere. And as I go out of the driveway, I started
    to reach for the radio to hear the traffic report, as I do when
    I am driving back and forth in Washington. And I am like,
    ``What am I doing? There is no traffic.''
        But I have been in some of the rural areas of your State,
    which is so beautiful, it made me think of home. But the needs
    are the same. And with that, now that we have done our bit----
        Senator Bond. A little soft shoe there.
        Senator Leahy [continuing]. To show you that we care about
    rural America, but Secretary Donovan, I know you do, too. So
    thank you.

                               RURAL HOMELESSNESS

        Senator Bond. Thank you, Pat.
        And Mr. Secretary, maybe you would want to comment on that?
    You have got a new rural housing initiative to replace rural
    housing?
        Secretary Donovan. Well, I mentioned as you were coming in,
    a range of efforts in the budget. That is an issue I know you
    care a lot about. We will be implementing the first-ever rural
    homelessness effort specifically in the budget and that is
    something that, particularly given that we have seen a 56
    percent increase in rural and suburban family homelessness over
    the last year, absolutely critical.
        We are expanding efforts for economic development. The $25
    million that you talked about was targeted to economic
    development, and we are proposing a $150 million fund in the
    budget, which would have a portion of it specifically targeted
    for rural areas. So I don't believe that we are not going to
    have the kind of effort----
        Senator Bond. I will just ask the question. Are you going
    to work with the USDA on rural development?
        Secretary Donovan. Absolutely.

                          TRANSPARENCY IN HUD PROGRAMS

        Senator Bond. That is one of the secrets because you need
    the housing. You need what USDA can bring. And I think it is
    important that you maintain that collaboration. If you are
    talking about moving 25 to 150, I am happy with that. But I
    just--I want to work with you to make sure that it continues to
    work because, as Senator Leahy said and I know, there are
    problems there.
        Let me go to the issue of transparency, and I mentioned to
    you before I sat down that I am concerned that HUD
    decisionmaking is open and objective. Are there political
    decisions which enter into that? Do you get directives from
    either the top of the administration or Congress on how you
    make those? Are those transparent?
        Secretary Donovan. Absolutely.
        Senator Bond. And to what extent are those involved in the
    decisionmaking?
        Secretary Donovan. Let me be very clear. My ``absolutely''
    was to the transparency. We make our decisions, particularly on
    competitive grants, in a highly transparent way. We publish the
    criteria for those as we did with NSP2. We have--with every
    single Recovery Act grant, have made those available on
    recovery.gov, our Web site, with detailed information about
    where the money is going, how it is being used.
        We have every applicant who wants to sit down with us and
    go through the details of how their application was reviewed
    and scored, we respond to those requests. We would be happy to
    sit down with you about any specifics around that.
        As you know, whether it is HOPE VI or a range of others, we
    run competitions, and we follow very, very strict guidelines in
    terms of how they are evaluated and----
        Senator Bond. Is there any notification or transparency as
    to those who apply? We hear about some, but we don't even know
    if we know all of the ones that are coming from our State so we
    can follow them. Is there a posting of the applications?
        Secretary Donovan. We notify members in advance of making
    those announcements.
        Senator Bond. Yes. But when you get the applications, do
    you notify? Is there any public notice of the application? Who
    is in there? Do you advise the representatives in Congress of
    those in advance of the process?
        Secretary Donovan. I will say I am not sure if we have a
    standard process for notifying members about applications in
    advance. We can certainly get back to you with more detail on
    the process we do follow.
        Senator Bond. My staff has some questions about that, and
    we are a little concerned. We look forward to working with you
    on that.
        Secretary Donovan. Okay.

                       SUSTAINABLE COMMUNITIES INITIATIVE

        Senator Bond. Because I think most members, certainly over
    on the Senate side and, I would assume, on the House side,
    would like to know if there are 3, 10, 15, or 20 coming in from
    our State. Because we want to work with them, and we may be
    able to shed some light on community support because we are out
    there. We are listening to the people. We know some of the
    challenges they face, what the State and local priorities are
    as well, and we want to see those taken into account.
        If the State is putting money into it and the locality has
    some skin in the game, to me, that is a very good indicator
    that this is something the Feds should look at carefully.
        Let me ask some questions about--a major question about
    sustainability. Your DOT friends call it ``livability.'' I
    don't know if that debate has been going on for a long time.
    But I want to make sure, once again, that the Federal
    Government is not forcing conclusions on local communities.
        How do you make these sustainability decisions? Do you do
    it with DOT and EPA? How much involvement do the State and the
    local governments have in working with you to make those
    sustainability determinations?
        Secretary Donovan. Let me say two things about that. First
    of all, we here--the fundamental issue here is that more and
    more American families are spending a huge portion of their
    budgets--the average family today spends 52 percent of their
    budget on housing and transportation combined. And not only
    that, they are sick of sitting in traffic rather than seeing
    their family or having long commutes in rural areas in some
    cases to get to jobs. There is a whole range of challenges that
    we see.
        And so, we feel we are responding to local needs and
    choices on that front. But the problem has always been that
    housing and transportation investments haven't been coordinated
    at the Federal level because there wasn't the kind of
    partnership that we are talking about.
        So we have begun to coordinate very closely with the
    Department of Transportation, with DOE--Department of Energy--
    and Environmental Protection Administration, just to give you
    an example. On the recent TIGER grants that were awarded as
    part of the Recovery Act, we had HUD staff and EPA staff
    actively involved in the process, first time it has ever
    happened, of evaluating TIGER grants, to look at the connection
    of those to housing. So that is an example of that.
        On the State and local piece of this, we believe very
    strongly that this is not a one-size-fits-all. And so, the very
    first initiative we are undertaking in our Sustainable
    Communities initiative is to provide, thanks to the
    subcommittee's leadership, planning grants for local
    communities to be able to decide how they want to coordinate
    housing and transportation. This is not about us telling them.
    This is us providing help to them so that they can do the kind
    of planning and coordination, provide technical assistance.
    What are the best practices?
        And in fact, I don't know if you were here, 25 percent of
    that planning money is specifically directed to smaller places
    to ensure that this isn't just an urban or even suburban
    investment, but that we are doing planning. Tom Vilsack is very
    eloquent about this. We have worked a lot with him and his
    Department.
        Is how do we ensure in rural areas, whether it is main
    street where stores are leaving, that main street, whether it
    is figuring out what to do with upper floors of buildings along
    those main streets in small towns, whether it is connecting
    seniors to the services that they need, with kinds of transit
    that you wouldn't see in larger urban areas. A whole range of
    ways that we can work together and those planning grants are
    the key first step, funded by our 2010 budget, to be able to
    help local communities decide how they want to meet these
    challenges.

                            STAFFING FOR INITIATIVE

        Senator Bond. Well, I think that is very important that you
    have a right to ask of the local communities or regional areas
    what their plans are, and that is something I have worked on
    for about 40 years. And making sure they have it all together
    and know what they are doing is important. And we would hope
    that the Federal agencies would make sure there are good plans
    that support the plans.
        Now, how many FTEs at HUD are working on this? Are you
    adding people? Are you reallocating people from other areas?
    How many folks do you have working on that?
        Secretary Donovan. I just asked my folks to get me the
    precise details. We have established an Office of Sustainable
    Housing and Communities. It is a small office. And the idea of
    that office is to coordinate, as I just talked about, with
    other departments that are working on this, as well as within
    the agency.
        So, for example, where we are retrofitting public housing,
    what we want to make sure of is we don't have three different
    standards or different approaches to our multifamily programs,
    our public housing programs. So we are creating unified best
    practice standards that we would apply across the Department.
    And so, that is the nature of that office.
        For 2010, and this was a discussion I believe we had in
    some significant detail with your staff on the subcommittee, we
    have 20 FTEs in total for 2010. And we expect for 2011 to have
    23 FTEs. So it is a relatively small office, again coordinating
    just policy and programs across--between the departments, as
    well as across different silos within HUD.
        Senator Bond. I know the coordination is very good. You
    ought to decide with DOT whether it is sustainability or
    livability would be helpful. If you could at least agree on a
    title, that would be a good--a good start.
        On the FTEs, our big deal is are you dealing with the
    overall staff problems, making sure you have enough in FHA
    while you are moving people around? We know you need help, but
    do you have the FTEs you need?
        Secretary Donovan. Thanks to both the investments you made
    in the 2009 budget, as well as the investments in 2010 and some
    flexibility that you gave us in 2010, one of the concerns that
    I had when I came in--and we have worked very collaboratively
    with you--is that we had created very specific restrictions
    across nine different pieces of HUD in terms of FTEs. And the
    flexibility that you have given us has allowed us to increase
    hiring substantially.
        In FHA, we have literally hundreds of additional staff that
    we are bringing on to do that while trying to make sure that we
    are not overall increasing the size of the staff of the
    Department beyond what is necessary.

                         SECTIONS 202 AND 811 PROGRAMS

        Senator Bond. Now I have--as I indicated, I have some
    concerns about if there is a cutback in the 2012 budget based
    on problems with the deficit. I would like to know how HUD
    plans to deal with it, and when you have put funding on hold
    for 202 and 811. Are you going to make sure that those
    programs--we will not overlook the people who are served by 202
    and 811 while you push the current priorities. How are we going
    to make sure that those people are covered?
        Secretary Donovan. So, first of all, I think one of the
    most important things to recognize is that the vast majority of
    housing for seniors and people with disabilities today gets
    produced not by 202 and 811, but by the tax credit and other
    funding sources.
        The issue--and I will tell you very honestly, I dealt with
    this very directly in my prior work, both in the private and
    public sector. It is very, very difficult, close to impossible
    in some communities to develop new 202 and 811s because the
    program is really designed, frankly, for the 20th century, not
    the 21st century.
        And because of the amount of funding that is available, the
    way that it is distributed, the rules that apply there is
    almost no case where a community can develop a 202 or an 811
    without finding tax credits and a range of other sources to
    complement it. And yet, at the same time, the rules are not
    built so that you can combine those funding sources.
        So what we are proposing, just to be very clear, is not
    that we eliminate the program. We believe the intent of the
    program is absolutely critical. But what we need to do is
    reform the program so that it works efficiently with today's
    way of producing affordable housing for seniors and people with
    disabilities.
        There is a reform bill that is being discussed on the House
    side where we agree with a large number of those changes. In
    addition, we believe there are other steps that could be taken,
    for example, to link up with the health funding streams at HHS
    that are often necessary, like PACE, for seniors as they age in
    202s. And we need to make sure that we get the program right,
    we believe, before we continue to build new units under 202.
        Senator Bond. What I am worried about, I guess we are
    letting loose of the trapeze bar, and I want to see a trapeze
    bar there to hang onto. And the other thing is to manage, to
    continue the services and providing services in many of these
    target populations is critical.
        That is why Senator Murray and I promoted the VASH program
    to bring the VA and HUD together because the homeless veterans
    are very near and dear to my heart. They have some very serious
    problems that cannot be fixed with housing alone. I want to
    make sure that we continue those services.
        Certainly, you will have no argument from me on a need to
    clarify, consolidate, and simplify the HUD programs. That has
    been--that has been the thicket that every HUD Secretary I have
    known has found to be unmanageable. At the same time, as
    Senator Murray referred to it, I personally have a minimum
    amount of high confidence in the authorizing committees'
    ability to deal successfully with these legislative changes in
    time to ensure there is not a gap.
        And we are going to have to work with you on that because
    anybody who looks at the legislative calendar in the United
    States Congress knows that even getting our appropriations
    bills done is going to be a challenge. And we are going to have
    to have some discussion because the banking committees are
    trying to bite off financial regulation and that one is not
    going to be a simple mark-up in 2 days on the floor, at least
    in the Senate. And man, there is not enough time to do it.

                         TRANSFORMING RENTAL ASSISTANCE

        So we need to work with you on that. The TRA program, it is
    very optimistic. I would just ask you, what do you see as the
    key elements and the advantages of the TRA program over current
    programs?
        Secretary Donovan. So, today, given the way particularly
    let us take public housing as an example operates. Because it
    functions with both an operating subsidy and a capital subsidy,
    it is essentially 100 percent Government funded. And because of
    that, it is almost impossible, short of HOPE VI, to create with
    public housing the kind of mixed income, mixed use, 21st
    century housing that I believe our residents deserve and that
    our communities deserve.
        And so, fundamentally, what TRA is trying to achieve,
    beyond the simplification and all the benefits that come with
    that, is to bring public housing and our other programs into
    the mainstream, to stop having them be in some ways a parallel
    universe, if you will, from the way the rest of our housing
    market operates.
        And if you look at whether it is tax credits or the new
    ways that we develop affordable housing, they have all of those
    benefits public housing has not been able to get. At the same
    time, public housing has been underinvested in because it
    hasn't been able to access, whether it is tax credits or, more
    broadly, private capital or other forms of public capital.
        The fundamental reason for that is because we have this
    dual system of operating subsidy and capital subsidy. So what
    may seem deceptively simple at one level, but I think has very,
    very powerful benefits is not just consolidating all these
    programs, but shifting to a system where we have one operating
    stream that allows public housing to leverage private debt, mix
    uses, mix incomes. All of the things that we do in the best
    public--best affordable housing today, we can achieve by
    shifting from this.
        And the last thing I would say is the fact that a low-
    income family has to make a choice between keeping their
    subsidy or moving, whether it is to get a job in a different
    community or a different neighborhood, to follow family, or for
    whatever reason they may choose to move, that fundamental
    choice that they have to make today, I believe, isn't fair. And
    so, one of the key areas of the program would try to change
    that is to say let us give families more choices for mobility
    as we do in certain of our programs today but, at the same
    time, ensure that we keep the project-based, long-term stream
    of funding available for that property that I know you believe,
    and I agree, is so important to our efforts to keep communities
    strong.
        Senator Bond. I think when TRA was promised, was proposed--
    the legislation was promised this month--it is clearly a big
    and controversial effort, had lots of questions with it. And I
    think we need to have discussions with you about it and debate,
    I hope, sometime. I don't know when we can ever get floor
    debate, but have it brought up for thorough congressional
    debate.
        So when are we going to see it, and how much legislation is
    needed? My staff is saying that perhaps 90 percent of it can be
    done by regulation. What do you see as the process? When will
    we see the product? When will we get to start on the process?
        Secretary Donovan. So, first of all, let me just say I
    completely agree with you that this is an ambitious, large-
    scale effort, and I want to be clear, this will not be achieved
    in 1 year or one budget cycle. And so, what we have proposed is
    to begin it in 2011, focused on 300,000 units out of a much
    broader stock that is probably 10 times that size.
        So we don't believe that it is achievable, I think this
    aligns with what you just said, that all of this cannot be done
    in 1 year. It is going to take some time. Having said that, we
    will--we have been working very closely within the Department
    with stakeholders, begun discussions with the authorizing
    committees as well about legislation.
        We are committed to meeting the timeline that we laid out
    to get draft legislation put forward, and I would suggest that
    we would be happy to sit down as soon as possible with you and
    your staff to begin to answer any questions that you have and
    go through the details.
        Senator Bond. Well, we want to see what needs to be done.
    And if you are focusing on 300,000 units, that goes back to my
    initial concern. All the other programs that are being zeroed
    out, what is going to happen to those needs in areas that are
    not covered by the 300,000 units?
        So, I mean, there are a lot of questions, and I think we
    will have to--we will know the scope of the questions when we
    see your proposal.
        So we need to have that soon, and at least in the
    appropriations process, we need to have that and to deal with
    it where we can and see what regulations need to be done, what
    has to be fixed legislatively or by appropriations or by
    regulation.
        Secretary Donovan. Yes.

                          CHOICE NEIGHBORHOODS PROGRAM

        Senator Bond. And the other thing, I appreciate you
    mentioning my old friend, HOPE VI again. How is Choice
    Neighborhoods better, bigger, longer, stronger an improvement,
    and what is going to be different about Choice Neighborhoods?
        Secretary Donovan. So let me try and be as specific as
    possible in terms of some of those changes.
        Senator Bond. Capsulize it, if you can.
        Secretary Donovan. I go to places all the time and hear how
    great HOPE VI is. And I want to be very clear; this program is
    building on HOPE VI, not doing away with it in any means.
        One of the constant issues I hear is we have done this
    wonderful HOPE VI redevelopment. But across the street is a
    project that is assisted with a different HUD program that we
    have no tool to be able to redevelop. And specifically, what I
    mean is our multifamily programs don't have that same option.
        Or there are 10 or 20 foreclosed homes on the next block
    that are the real problem in that neighborhood. They are
    creating crime. They are bringing down values. And yet we don't
    have the flexibility in HOPE VI today to be able to include
    that kind of housing as well.
        So what we want to do with Choice Neighborhoods is to say
    it has been so effective on public housing, let us allow it to
    be used for our privately owned assisted housing or for other
    housing in a community. And that could be combined with public
    housing.
        In other words, the housing authority could come in and
    say, ``We are going to do this public housing development, but
    we are also going to do the assisted housing across the
    street.'' We have got many examples where they are in the very
    same neighborhood or even across the street.
        Or if the most challenging thing that you have in St. Louis
    or any other community is not a public housing development--and
    I know a number of them in St. Louis, for example, or Kansas
    City. But it is, in fact, a privately owned housing development
    that is the real problem. This would be a tool available to
    redevelop that housing.
        So I think that, in some ways, is the most fundamental
    change is that it takes what has been so successful in HOPE VI
    and expands it to our broader program. It just doesn't make
    sense to me, frankly, Senator, that if simply because we fund
    something with a different program at HUD--and this is a little
    bit the theory behind TRA--that we ought to have totally
    different rules and programs available to them. This is trying
    to spread the lessons and broaden HOPE VI to other forms of
    housing.
        Senator Bond. Is that something, what you are talking about
    in needing to reach out and deal with others; is this something
    that should be fixed? Can it be fixed by the HOME funds that
    are given to localities?
        Secretary Donovan. I don't believe, fundamentally, that it
    can be fixed by the HOME funds. Because traditionally, the way
    HOME funds are used is either in moderate rehabilitation or new
    construction. These are much more complex, really neighborhood
    revitalization schemes and redevelopments. And so----
        Senator Bond. We want to know how--I mean, are we wasting
    money on HOME. I thought that HOME was going to do that. So we
    have a limited pot of money available, and I want to work with
    you to make sure we use those dollars the best way we can.
        Secretary Donovan. You know HOPE VI as well as anybody, and
    I think you know that what has been the secret of it is that it
    goes beyond just the bricks and mortar. HOME is a bricks and
    mortar program. And so, I think the fundamental difference is
    that whether it is HOPE VI or Choice Neighborhoods allows you
    to build in, whether it is a community room that has computer
    services available, whether it is the services that are
    available for literacy or other things for families,
    educational programs--all of those pieces that have really made
    HOPE VI so successful because it is about more than the bricks
    and mortar is something that Choice Neighborhoods would allow
    us to do. HOME is a bricks and mortar program.

                              FHA MORTGAGE REFORM

        Senator Bond. As you know, I have worked long and hard to
    get child care centers and education centers and community
    centers. But when you are talking about a bunch of foreclosed
    houses, you have got a bricks and mortar problem in the
    community.
        Well, anyhow, this is a lot more discussion to be had
    later. Let me ask a final question on FHA mortgage insurance
    reform. How are you dealing with the mortgage default problems,
    especially in light of the proposed FHA reforms?
        How will the reforms impact the homeowners who are seeking
    help with mortgage defaults? Are these defaults primarily a GSE
    problem, or is FHA going to get in and start and put more
    taxpayer credit cards on the line explicitly rather than the
    implicit situation we have now?
        Secretary Donovan. So, going forward, we clearly believe--
    and this is why we have proposed the legislation and the
    changes that we have--that there are things we need to be doing
    to tighten to avoid future defaults. It is why we have
    suspended over 170 lenders last year, to say we would no longer
    do business with them.
        We have taken a number of steps that we are proposing
    legislatively to allow us to have greater powers to get rid of
    not just lenders, but the principles of those lenders from our
    programs. So we have a range of things we need to do more
    strongly.
        What I would say, though, is if you look at what has
    happened over the last year, defaults in FHA have certainly
    risen, but they have risen much more slowly than subprime and
    even prime mortgages at the GSEs to the point where, today,
    subprime defaults are triple what we see in FHA.
        So there is definitely more that we can do, but I think our
    full underwriting, fixed rate, no liar loan, all of the things
    that we have done traditionally and that we are strengthening
    to ensure we don't make the same mistakes that were made in the
    subprime movement have helped us not have the same level of
    defaults.
        The only other thing I would say is we have the most
    extensive, most aggressive loss mitigation set of tools that
    exist. They allowed us to help about a half a million
    homeowners, last year, stay in their homes, despite the fact
    that they were struggling to make their payments.
        And so, that, along with the Home Affordable Modification
    Program and other new options that we have introduced, I
    believe allow us not just to avoid future defaults, but also to
    ensure that existing families that are struggling with
    unemployment remain in their homes where possible. We are not
    going to stop every foreclosure, nor should we. But I think we
    have taken very aggressive actions to do that.
        Senator Bond. I appreciate knowing about that. In Missouri,
    we had a very aggressive U.S. attorney who files a number of
    criminal indictments, and some of these are not just people who
    should be disbarred. But I hope where you find the requisite
    potential criminal intent, you refer them for criminal
    prosecution because some of this is shoddy, but in some
    instances, it is criminal.
        Obviously, there is much more to discuss. But the good news
    is I am being advised that I am running late for a whole bunch
    of things that are stacked up. So we will have to let you go
    with thanks. We look forward to continuing to work on many of
    these things. We have just started the discussion.

                         ADDITIONAL COMMITTEE QUESTIONS

        The hearing record will remain open for additional
    questions.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                  Questions Submitted by Senator Patty Murray

                         AFFORDABLE HOUSING FOR SENIORS

        Question. Thank you for your testimony Mr. Donovan. The Nation's
    shortage of affordable housing for seniors is significant. Currently,
    there are at least 10 seniors vying for every available section 202
    unit. By 2020, an additional 730,000 senior housing units will be
    needed to address the growing housing needs of low-income seniors. Yet,
    the administration has proposed to eliminate construction funding for
    new 202 developments in order to redesign the 202 program. While I
    support efforts to reform the section 202 program, there is no doubt
    redesigning the program will be a lengthy process. How long does HUD
    propose to continue this funding freeze?
        Answer. HUD intends to return back to Congress in June with a
    legislative proposal. In addition, HUD will be working concurrently to
    implement a range of administrative reforms. While the goal is to
    effect the reform of the program as quickly as possible, at this point
    it is too soon to forecast how long this implementation process will
    take.
        Question. Why is HUD not able to work on redesigning the program
    while continuing to fund new projects?
        Answer. HUD is currently working on developing a roadmap for reform
    of the section 202 and 811 programs. This reform and redesign will
    increase the programs' cost effectiveness. While this redesign effort
    is underway, given overall budgetary constraints, HUD must focus its
    limited resources on its core rental and operating assistance programs
    (including renewals for existing section 202 programs). It is these
    programs that can best leverage additional private and public
    resources.
        Question. What is the administration's interim plan to address the
    growing demand for affordable senior housing while the redesigning
    process takes place?
        Answer. The administration's fiscal year 2011 budget preserves
    critical resources for the elderly by maintaining full funding of core
    rental assistance programs such as section 202 operating renewals,
    Project Based Rental Assistance, the Public Housing Operating Fund, and
    Housing Choice Vouchers. In addition, new units will continue to come
    on line through the low-income housing tax credit program which
    produces approximately 10 times the number of affordable senior housing
    units as section 202. In addition, approximately 5,800 units of section
    202 will become available to for the elderly in fiscal years 2011 and
    2012 as a result of prior year funding commitments.

                     SUPPORTIVE HOUSING FOR THE ELDERLY ACT

        Question. As you may know, Senator Schumer and I have introduced
    the section 202 Supportive Housing for the Elderly Act (S. 118), which
    would promote new construction, preservation, and conversion of section
    202 housing by streamlining and simplifying administrative processes.
    Is it possible for HUD to make any of the suggested reforms to the
    section 202 program through report language or bill language included
    in S. 118?
        Answer. HUD generally supports the direction that S. 118 takes the
    section 202 program. S. 118 includes facilitation of mixed finance
    structures, enhances preservation of existing projects, and refines the
    geographic allocation issues. However, a number of further items are
    currently being reviewed by HUD staff which are not fully addressed in
    S. 118. For example, we need more work to be done on building synergies
    with Health and Human Services and State Medicaid and Medicare programs
    to make sure that we bring into our section 202 projects elderly
    residents who can best take advantage of PACE and other Medicaid home
    and community based waiver programs. Staff will be looking at all of
    the items contained within S. 118 and can certainly work with the
    Congress to determine whether the reform plan can best be effected as
    stand alone legislation or as part of a revised S. 118 bill.

               SECTION 202 SUPPORTIVE HOUSING FOR THE ELDERLY ACT

        Question. Alternatively, can HUD implement any of the proposed
    changes administratively through the processing of applications or in
    the notices of funding availability (NOFAs)?
        Answer. Yes. HUD anticipates implementing a wide range of
    administrative changes, in addition to proposing statutory changes, to
    affect a comprehensive reform of the section 202 program.

                 SECTION 202 AND LOW-INCOME HOUSING TAX CREDITS

        Question. Based on your testimony, HUD will make it easier to take
    advantage of low-income housing tax credits (LIHTCs). While I am
    supportive of this effort, I want to be clear that the neediest
    seniors, such as those eligible for section 202 housing, may not
    benefit from this change given that section 202 units must be
    affordable to tenants at or below 30 percent of area median income, as
    opposed to LIHTCs, which require that housing be affordable to those at
    or below 60 percent of area median income. Can you expand on this
    initiative? Specifically: How does HUD plan to account for the housing
    needs of the most vulnerable seniors, such as the 202-eligible
    population, through increased use of LIHTCs?
        Answer. As part of the overall reform vision, HUD anticipates
    modernizing the section 202 program to make it easier for sponsors to
    work with other funding sources, such as the Low-Income Housing Tax
    Credit program (LIHTC). This reflects the fact that the section 202
    program is no longer a ``one-stop shop'' to capitalize and sustain a
    project but rather serves as the critical final piece of an overall
    financing structure. Layering LIHTC with section 202 funding does not
    reduce affordability relative to section 202 program requirements;
    rather it makes LIHTC work to support a lower-income population. By
    leveraging LIHTC, which in recent years produced 10 times as many units
    of low-income housing for the elderly as the section 202 program, more
    projects can be made financially feasible and the reach of the section
    202 program can be effectively expanded.
        Question. Current law allows section 202 developers to use LIHTCs
    in conjunction with HUD funding. How will HUD specifically make this a
    more streamlined and accessible process?
        Answer. The level of regulatory oversight associated with section
    202 is commensurate with that which would be associated with full
    Federal funding of the development costs of construction. Yet even
    today, the program is expected to leverage a range of funding sources,
    often including low income housing tax credits. These other sources of
    funds bring with them important oversight, whether through State
    Housing Finance Agencies or local municipal lenders or from the
    involvement of tax credit investors and commercial lenders. These
    parties provide layers of accountability which HUD should generally not
    need to duplicate. As part of HUD's on-going review of the program, HUD
    will be looking to simplify its processing and oversight to better
    reflect its expected role in these kinds of projects.

                         LOW-INCOME HOUSING TAX CREDITS

        Question. Does HUD envision using 202 and 811 project rental
    assistance contract (PRAC) to subsidize LIHTC units as is currently
    done with tenant-based section 8 assistance?
        Answer. For sponsors who are able to bring other sources of funds
    to a project such that they don't require any capital advance funds
    from HUD, but otherwise are able to comply with the requirement of the
    section 202 or section 811 programs, HUD may consider the option of
    providing them with operating assistance only. Under this scenario,
    these projects would still serve the same populations, but at a much
    lower upfront cost to HUD. It's not clear at this time that this
    scenario would have significant utilization given the challenges
    sponsors generally face in identifying capital funds.

                                  SECTION 202

        Question. Lastly, I want to applaud HUDs proposed changes to make
    section 202 a platform for the delivery of supportive services so that
    seniors can age in place. However, section 202 housing must serve a
    varied senior population, not just frail elders that qualify for
    nursing home-level care. In your testimony and budget submission you
    mention the Program of All Inclusive Care for the Elderly (PACE). Is it
    HUD's intent to limit the section 202 program to seniors who are frail
    and/or participants in the PACE program?
        Answer. HUD is working with stakeholders and its counterparts at
    the Department of Health and Humans Services to answer that question.
    It's HUD's understanding that PACE must be considered only one of a
    number of programs serving frail or near frail elderly in the
    community, particularly because PACE is only available in 30 States.
    Medicaid Home and Community-Based Service (HCBS) waivers is another
    program that has applicability to the section 202 program; HCBS waivers
    are found in 49 States. The section 202 program is an independent
    living program which does not require licensure, so it is unlikely that
    it would make sense for HUD to require all residents in a given
    building to be frail. Today, estimates suggest that 38 percent of
    current section 202 residents are frail or near-frail.

                           SELF-HELP HOUSING PROGRAM

        Question. The Housing Assistance Council, as authorized by Public
    Law 110-246, receives funding to help support housing efforts in rural
    communities through the Self-Help Housing program. The HUD budget
    removed the funding for the Self-Help Housing program and instead
    merged it with the Capacity Building program in HUD. Unfortunately, the
    Capacity Building program as proposed by HUD is only funded at $60
    million for fiscal year 2011, a decrease of $12 million from last year.
    I am deeply concerned about cutting funding to this program. Self-help
    housing and, more specifically the Housing Assistance Council have
    helped create affordable housing for rural communities across the
    country. These cuts may defer much needed resources to rural
    communities and limit housing options for rural residents. How is HUD
    going to ensure that rural communities will be able to access funds as
    the programs are merged together?
        Answer. The Self-help Homeownership Opportunity Program (SHOP) is
    not proposed for merger into the Capacity Building program. In the
    fiscal year 2011 budget request, HUD proposed to merge SHOP into the
    HOME Investment Partnerships Program (HOME). Self-help housing,
    including activity costs for land acquisition and infrastructure
    improvements, is already eligible under both HOME and the Community
    Development Block Grant Program (CDBG). Significant amounts of HOME and
    CDBG funding are already available to State and local grantees to fund
    self-help housing opportunities for low-income households, including in
    rural areas. In fact, the State CDBG program provides funding
    exclusively to all non-metropolitan areas of the State, including rural
    areas, far exceeding the coverage area, and funding level, of all of
    the SHOP grantees combined. It is true that self-help housing will be
    competing with other eligible activities for State or local HOME or
    CDBG funding, but Housing Assistance Council and other SHOP providers
    should be able to make a case for a share of the funding based on their
    past successful performance in SHOP.
        In addition, HUD has requested increased funding for a newly
    designed Capacity Building program totaling $60 million, $10 million
    more than the $50 million appropriated to the current section 4
    Capacity Building program within HUD's SHOP account.
        Finally, $25 million of fiscal year 2010 funding is being made
    available for competition in HUD's Rural Housing Innovation program
    specifically targeted to rural communities.
        Question. How will HUD split the funding between self-help housing
    and the capacity building entities such as LISC and Enterprise
    Community Partners?
        Answer. In the fiscal year 2011 budget request, the Self-help
    Homeownership Opportunity Program (SHOP) is proposed to be merged into
    the HOME Investment Partnerships Program (HOME). Self-help housing,
    including activity costs for land acquisition and infrastructure
    improvements, is already eligible under both the HOME and the Community
    Development Block Grant Programs (CDBG). Significant amounts of HOME
    and CDBG funding are available to State and local grantees to fund
    self-help housing opportunities for low-income households, in both
    urban and rural areas.
        The fiscal year 2011 budget HUD has requested increased funding for
    a newly designed Capacity Building program totaling $60 million, $10
    million more than the $50 million appropriated to the current section 4
    Capacity Building program within HUD's SHOP account. These funds would
    be made available for competition through a Notice of Funding
    Availability.
        Recipients will include national and regional intermediaries with
    local affiliates and partnerships, and consortia of intermediaries with
    demonstrated expertise. Funding for assistance will support
    organization and core skills of line staff and management so they can
    be partners with the administration as they implement key initiatives
    such as Choice Neighborhoods, Sustainable Communities, and the
    Catalytic Competition and work to restore the economic vitality of
    communities with significant needs.
                                     ______

                Questions Submitted by Senator Patrick J. Leahy

                                  SECTION 811

        Question. The Final Rule for the HUD 811 program published in the
    Federal Register on September 13, 2005 section 891.809 lists a number
    of limitations on capital advances under that program including: (c)
    facilities currently owned and operated by the sponsor as housing for
    persons with disabilities, except with rehabilitation as defined in 24
    CFR 891.105. However, recent HUD NOFAs for the 811 program essentially
    precludes funding applications involving such rehabilitation by stating
    that the refinancing of any Federal funded or assisted project or any
    project insured or guaranteed by a Federal agency is not permissible
    under section 811 and also that if the housing already serves persons
    with disabilities it can be rehabilitated as long as it hasn't operated
    as housing for persons with disabilities for longer than 1 year prior
    to the application deadline. Recognizing the importance of supportive
    housing to prevent homelessness and the fact that it is at least half
    as expensive to preserve existing units as to create new ones, would
    HUD consider allowing in the next NOFA the possibility of funding
    capital advances when rehabilitation is occurring as defined in 24 CFR
    891.105? If not, would HUD entertain an 811 pilot in Vermont in which
    rehabilitation of units housing people with disabilities takes place?
        Answer. Section 891.809 is in subpart F of the regulations and
    these regulations govern the mixed finance feature of the section 811
    Program. HUD's understanding is that the intent of this mixed finance
    feature was to encourage the construction of additional units. The
    Department believes that it is important to use its limited resources
    to increase the supply of affordable housing for this population of
    very low-income households. Various policy changes for the overall
    program are currently under review.

                                  SECTION 202

        Question. In Vermont, as well as in other rural and urban areas of
    the country, section 202 housing serves a varied senior population,
    including a substantial number of very frail elders. In my home State
    we are developing a service delivery model that would layer very nicely
    onto HUD 202 housing and meet the wide range of needs our seniors
    have--needs that no single existing program can meet. In the
    Department's budget submission to Congress, the rational for zeroing
    out the 202 was program is that it needs improvement. I understand that
    most of the reforms to the section 202 program can be made
    administratively in your processing of applications or in the NOFAs.
    What is HUD's timeline for the internal process of reform and is it
    possible to finish these reforms in time for the fiscal year 2011
    funding round if Congress provides funding for section 202 this year?
    Can we help implement any of those changes through report language or
    bill language included in the subcommittee's bill?
        Answer. We plan to return back to Congress in June with a
    legislative proposal. Our proposal will be based on analysis of the
    section 202 program by HUD staff as well as feedback solicited from
    stakeholder groups. We look forward to working with Congress to
    determine the best way to implement these recommended changes.
                                     ______

                Questions Submitted by Senator Dianne Feinstein

            NEIGHBORHOOD STABILIZATION PROGRAM FUNDING DISTRIBUTION

        Question. California is at the center of the home foreclosure
    crisis. The California metro areas of Stockton, Merced, San Bernardino
    and Riverside in particular have among the highest foreclosure rates in
    the country. And while the national annual increase in foreclosures
    appears to be leveling off, nearly 140,000 foreclosures were filed in
    California this year--one of the highest rates in the country.
        It is concerning to me that some of the hardest-hit areas of the
    country, such as Fresno, Merced, and Stockton, have been entirely left
    out for funding under the Neighborhood Stabilization Program (NSP)
    under the American Recovery and Reinvestment Act.
        On January 14, 2010 the Department announced the second round of
    NSP awards totaling $318 million in investment for California, yet
    nearly all applications submitted by projects in the Central Valley
    were rejected, despite a foreclosure rate of 13 percent in that area.
    This raises serious concerns to me that a Federal program designed to
    stabilize and rehabilitate the hardest-hit communities could have
    completely overlooked the Nation's epicenter for foreclosures.
        Why are areas with the highest foreclosure rates being denied NSP
    funding?
        Answer. The Neighborhood Stabilization Program 2 (NSP2) funds were
    distributed on a competitive basis as required by the Recovery Act. The
    Department reviewed 482 applications that requested, in aggregate, more
    than $15 billion, more than 7\1/2\ times the available funding. The
    Department established a thorough process to review applications and
    was ultimately able to fund 56 applications, less than 12 percent of
    total. Of the funded applications, 31 received less than the amount
    requested in order to increase the total number of applications
    receiving funding.
        NSP2 applicants had to respond to six factors: Need in Target
    Geography; Demonstrated Capacity; Soundness of Approach; Leveraging of
    Other Funds or Removal of Substantial Negative Effects; Energy
    Efficiency Improvement and Sustainable Development Factors; and
    Neighborhood Transformation. Every applicant for NSP2 funding had to
    demonstrate a high level of need in order to be eligible to apply for
    assistance but this was only one aspect of the competition. The bottom
    line is that NSP2 was a competition and some grantees responded in a
    more comprehensive manner than others. Ultimately, HUD's review process
    awarded funds to the highest rated applications and need represented
    only one aspect of that competition.
        Question. What specific measures is the Department using to
    determine the funding distribution for NSP?
        Answer. The Neighborhood Stabilization Program 1 funding was
    distributed through a formula, and the criteria for that formula were
    identified in the Housing and Economic Recovery Act (HERA) of 2008. The
    criteria included: number and percent of foreclosures; number and
    percent of subprime mortgages; and number and percent of mortgages at
    risk of default.
        Neighborhood Stabilization Program 2 funding was distributed
    through a competitive program, using 6 factors: Level of need in Target
    Geography; Demonstrated Capacity; Soundness of Approach; Leveraging of
    Other Funds or Removal of Substantial Negative Effects; Energy
    Efficiency Improvement and Sustainable Development Factors; and
    Neighborhood Transformation. Further detail on the factors can be found
    in the Notice of Funding Availability (NOFA) issued on May 4, 2009.
    This NOFA can be viewed on the HUD Web site at: http://www.hud.gov/
    offices/cpd/communitydevelopment/programs/neighborhoodspg/pdf/
    nsp2.nofa.pdf.
        Question. What is main rationale for not including additional
    funding for this important program in the fiscal year 2011 budget?
        Answer. While the Department did not request NSP funding as part of
    the fiscal year 2011 budget, Secretary Donovan has announced his
    support for an additional $2.1 billion for NSP funding to continue
    efforts already in place and to help address foreclosure and
    abandonment problems in communities that have not been reached via NSP1
    or NSP2.
        The administration also announced plans to reallocate funds awarded
    through NSP1 that have not yet been committed to specific projects in
    order to drive more funding to the hardest hit communities. HUD has
    already awarded nearly $6 billion in NSP grants to help State and local
    governments respond to rising foreclosures and falling home values.
    Nearly $4 billion funded NSP1 through the Housing and Economic Recovery
    Act of 2008 (HERA) and an additional $2 billion funded NSP2 through the
    American Recovery and Reinvestment Act of 2009 (Recovery Act). The
    initial NSP1 funds provided each State government with a ``base
    allocation'' of $19.6 million without regard to varying degrees of
    need. Eighteen months later, the Department will recapture money from
    communities that have not yet committed NSP1 funding, and reallocate it
    to city and county governments with very high foreclosure and/or
    vacancy rates and their jurisdiction, based on the most recent data.
    HUD estimates that 70 percent of the $3.9 billion in NSP1 funds would
    be obligated by the 18-month deadline this Fall, in September and
    October 2010, for a recapture of approximately $1 billion.
        Through the recapturing process, HUD is working to use the
    resources we have already received and build on the success and lessons
    from NSP1 and NSP2, ideally with additional funding for a third round,
    to best target the recovery in hard hit areas based on their
    foreclosure and delinquency rates, vacancy problems and unemployment.
    We also want to go a step further by providing funds to help homeowners
    avoid foreclosure.

       COMMUNITY DEVELOPMENT FUND CATALYTIC INVESTMENT COMPETITION GRANT
                                  DISTRIBUTION

        Question. The new Catalytic Investment Competition Grant program
    proposed under the Community Development Fund in the administration's
    budget request would provide economic development and gap financing to
    implement targeted investments for neighborhood revitalization. I am
    encouraged to see HUD further its efforts to help communities with the
    greatest need and potential for growth. How would the proposed $150
    million grant program take into account areas that are high-cost, such
    as California, to ensure they are not left out?
        Answer. The Catalytic Investment Competition will use the
    authorities of CDBG to provide capital for high impact, innovative
    economic development projects and to capitalize meaningful investments
    for neighborhood and community revitalization. Unlike CDBG, consortia
    including high capacity non-governmental entities may apply along with
    governmental entities.
        While HUD has not fully developed the competition framework, please
    be assured any program design will provide a level playing field for
    all applicants including those in high cost areas. Applicants will be
    required to develop a plan that includes measurable outcomes for job
    creation and economic activity and exhibit capacity to implement the
    plan. They will be encouraged to leverage other public and private
    community development and revitalization programs and to augment other
    place-based strategies, such as Choice Neighborhoods, Promise
    Neighborhoods, HOPE VI, and Sustainable Communities to help strengthen
    existing and planned investments in targeted neighborhoods to improve
    economic viability, extend neighborhood transformation efforts, and
    foster viable and sustainable communities.

                   SECTION 202 HOUSING FOR LOW-INCOME SENIORS

        Question. The administration's budget proposes to reduce funding to
    support the construction of housing for very low-income elderly. The
    Department's section 202 housing program was funded at nearly $825
    million in fiscal year 2010, but the administration has requested $274
    million for fiscal year 2011. This is a cut of nearly 67 percent to a
    program that many elderly Californians rely on for affordable housing.
    How will the Department continue to offer affordable rental housing to
    low-income seniors despite such a major budget cut?
        Answer. The $274 million requested for section 202 in fiscal year
    2011 will cover the cost of project renewals only; no new production
    funds are being requested. These renewal funds will support the nearly
    400,000 elderly residents who currently live in section 202 housing. In
    addition, in fiscal year 2011, HUD expects to house over 2.4 million
    families in public and assisted housing of which 58 percent are elderly
    or disabled and provide tenant based vouchers to more than 2.1 million
    households of which 47 percent are elderly or disabled. As well, HUD
    anticipates approximately 5,800 new units of section 202 will come on
    line during fiscal years 2011 and 2012 because of prior year funding
    commitments. The Department will submit a section 202/811 legislative
    proposal in June that will address these issues.

                SELF-HELP HOME OWNERSHIP PROGRAM (SHOP) FUNDING

        Question. The administration's proposed budget does not request
    funding for the Self-help Home Ownership Program, which helps non-
    profit organizations leverage funds from outside private organizations
    to assist home buyers.
        The budget request proposes that the HOME Investment Partnerships
    Program could instead fund SHOP projects, yet the funding for HOME is
    also proposed to be cut from $1.82 billion in fiscal year 2010 to $1.64
    billion in fiscal year 2011.
        It is my understanding that SHOP makes revolving funds available to
    non-profit organizations for future land development. In many urban
    areas, there are local funds that work in cooperation with HOME. In
    small and rural communities, however, there are seldom such funds
    available, making SHOP particularly important for these communities.
        How will the Department help support non-profit organizations that
    assist low income families despite eliminating the SHOP program and
    reducing funding for the HOME program?
        Answer. HOME funds are distributed by a needs based formula and all
    States, including those with significant rural area, are guaranteed a
    minimum HOME formula allocation. By statute, HOME funding for housing
    programs must be used for low-income families, including those that
    live in rural areas. In addition to HOME funds, a significant amount of
    State Community Development Block Grant funding is made available to
    local communities that are rural in nature.
        Most current affiliates of SHOP grantees (non-profit organizations)
    already qualify, or can easily qualify, as a Community Housing
    Development Opportunity (CHDOs) in the HOME program. This would make
    them eligible for funding for self-help home ownership activities from
    the 15 percent minimum set-aside of HOME funds specifically for
    qualified CHDOs, giving them an advantage over other groups competing
    for funds. In addition, CHDOs are eligible to retain proceeds from
    development activities, and annual funds for CHDO operating expenses.
    The CDBG program may also be used to create revolving loan funds at the
    State and local level for community development and housing activities
    in rural areas. The State CDBG program provides funding for these
    activities exclusively to jurisdictions in non-metropolitan areas.
        SHOP funding is structured as direct funding to grantees for
    immediate use--it does not provide funding specifically for revolving
    loan funds. Two current SHOP grantees, the Housing Assistance Council
    and Habitat for Humanity, are national organizations that require their
    local affiliate organizations to repay 20 and 25 percent of the SHOP
    funds distributed to them for local self help home ownership programs
    back to these national organizations for deposit in their revolving
    loan funds. However, these loan funds are not necessarily used for
    self-help housing, but for a variety of other community development
    activities.
                                     ______

               Questions Submitted by Senator Frank R. Lautenberg

                          PUBLIC HOUSING CAPITAL FUND

        Question. The President's budget request proposes a $456 million
    cut in the Public Housing Capital Fund. The $4 billion provided for the
    fund in last year's economic recovery act was meant to supplement
    regular appropriations, not replace them.
        Given the substantial backlog of capital needs--estimated by your
    own agency to be as high as $24 billion--what is the justification for
    cutting funding that is so critical for the long-term sustainability of
    public housing?
        Answer. The Department agrees that there is a substantial backlog
    of deferred capital needs in the public housing program. Given fiscal
    constraints, the Department cannot realistically request enough funding
    to solve the backlog of capital needs through annual Capital Fund
    appropriations. For this reason, the Department is proposing to launch
    a multiyear effort called Transforming Rental Assistance (TRA). This
    initiative will preserve HUD-funded public and assisted housing, stem
    the loss of affordable units, enhance housing choice for residents and
    streamline the administration of HUD's rental assistance programs. In
    2011, the first phase of this initiative would provide $350 million to
    preserve approximately 300,000 units of public and assisted housing by
    leveraging over $7 billion in private investment.
        At this point, PHAs have access to post transfers for operating
    purposes from Recovery Act formula funding ($3 billion), Recovery Act
    competitive funding ($1 billion) and Capital Funds allocated pursuant
    to the standard annual appropriation for 2009 ($2.2 billion). In June,
    the Department will post transfers for operating purposes ($2.3
    billion) from the Capital Funds pursuant to the 2010 appropriation.
    PHAs, therefore, will have access to more Capital Funds in 2011 because
    of the large amount of Capital Funding made available in 2009 and 2010.
        In previous years, PHAs have funded 8-11 percent of their Capital
    Funds to operations in order to make up for a shortfall in Operating
    Funds. The Department's fiscal year 2011 budget request for the
    Operating Fund is for 100 percent of the eligible costs. Given the
    higher level of funding for the Operating Fund, PHAs will be able to
    keep an extra 8-11 percent in the Capital Fund account rather than
    funding it and will, therefore, be able to address more Capital Fund
    needs.
        Furthermore, PHAs continue to be able to obtain private financing
    through the Capital Fund Financing Program (CFFP) and through mixed
    finance transactions. PIH anticipates that PHAs will be able to borrow
    over $100 million in CFFP financing alone in 2011 (not including
    amounts leveraged in mixed finance transactions).
        Ultimately the Department believes that PHAs will have their best
    opportunity to address the backlog in capital need through
    participation in the Transforming Rental Assistance (TRA) initiative.
    PHAs that convert properties from the public housing program to a
    project based contract model under TRA can expect to position those
    properties to take advantage of private sector financing and leveraging
    to address capital needs backlog in a way that is not possible under
    the conventional public housing program.

                            DRUG ELIMINATION PROGRAM

        Question. Public housing authorities in New Jersey and around the
    country continue to face safety and security issues as a result of
    drugs and criminal activity. Prior to fiscal year 2002, public housing
    authorities were able to fund safety, security, and drug- and gang-
    prevention activities through the Public Housing Drug Elimination
    Program (PHDEP). Since that program has been eliminated, public housing
    authorities have struggled to find the funding they need to keep their
    properties free of drugs and crime. Does HUD have any plans to
    reinstate PHDEP? Is your agency willing to work with this subcommittee
    to get this program restored this year?
        Answer. Safety and security of the public housing residents is part
    of the overall mission of the Department. Any capital improvements that
    improve the safety and security of public housing developments are an
    eligible use of the Capital Fund. However, some PHAs face greater needs
    stemming from unanticipated immediate needs that increase the threats
    to the safety and security of their residents. Emergency Capital Need
    in the amount of $5 million of the 2009 funding had been made available
    to address the needs for 2009 and $2 million of the 2010 funding is
    being made available to address the needs in 2010. The 2010 amount may
    be increased depending on the demand for funds from other types of
    emergencies and non-presidentially declared disasters. The Department
    is issuing a notice in June 2010 that defines the safety and security
    emergencies that will be covered by this funding and details the
    application process. The Department is always willing to discuss any
    ideas that will effectively improve the safety and security of our
    program recipients.

                            EMERGENCY CAPITAL NEEDS

        Question. In both fiscal year 2009 and fiscal year 2010, Congress
    allocated $20 million to address the emergency capital needs of public
    housing authorities, including ``safety and security measures necessary
    to address crime and drug-related activity.'' As of February of this
    year, no applications had been received for this funding, largely
    because HUD had not issued any notices or guidance. Last December, I
    sent you a letter requesting that you make this guidance available as
    soon as possible. In your response dated February 5, 2010, you stated
    that you intended to ``make this information available to PHAs in the
    near future.''
        Has HUD provided public housing authorities with a formal
    notification of this funding?
        When do you expect eligibility guidelines, especially as they
    relate to the safety and security portion of this funding, to be made
    available to public housing authorities?
        Answer. Safety and security of the public housing residents is part
    of the overall mission of the Department. Any capital improvements that
    improve the safety and security of public housing developments are an
    eligible use of the Capital Fund. However, some PHAs face greater needs
    stemming from unanticipated immediate needs that increase the threats
    to the safety and security of their residents. Five million dollars of
    the 2009 funding had been made available to address the needs for 2009,
    and $2 million of the 2010 funding is being made available to address
    the needs in 2010. The 2010 amount may be increased depending on the
    demand for funds from other types of emergencies and non-presidentially
    declared disasters. The Department is issuing a notice in June 2010
    that defines the safety and security emergencies that will be covered
    by this funding and details the application process.

                 SECTION 202 SUPPORTIVE HOUSING FOR THE ELDERLY

        Question. The President's budget request includes a drastic cut to
    the section 202 Supportive Housing for the Elderly program. Although I
    understand the need to redesign and modernize this program, demand for
    section 202 housing remains high and I am concerned about the effect
    this proposal will have on the Nation's stock of senior housing. Why is
    it necessary to suspend funding in order to reauthorize and modernize
    section 202?
        Answer. In the context of severe resource constraints, the
    administration's fiscal year 2011 budget targets housing investments to
    their most crucial and catalytic uses, primarily rental and operating
    assistance that best enable HUD's partners to leverage additional
    resources. HUD requested the suspension of sections 202 and 811 Capital
    Advance Grants in fiscal year 2011 in order to put both programs
    through a thorough review. Both programs have suffered from a lack of
    updating and an overhaul was needed to better target HUD's resources to
    more cost-effectively meet the current housing and supportive service
    needs of frail elderly and disabled very low-income households. The
    Department will submit a section 202/811 legislative proposal in June
    that will address these issues.
                                     ______

                  Question Submitted by Senator Susan Collins

                                 HOUSING FIRST

        Question. Housing First is an approach to ending homelessness that
    centers on providing homeless people with housing quickly and then
    providing services as needed. Maine has one Housing First model called
    Logan Place, a low income housing property serving 30 chronically
    homeless people. A second Housing First model, Florence House, is
    expected to open at the end of this month and will serve 25 chronically
    homeless women.
        Studies have shown that the Housing First model is highly effective
    at helping people maintain housing stability when they have a history
    of homelessness and disabilities. The Housing First approach does not
    require tenants to be sober or engage in services at the time of entry;
    rather, they are moved directly from the streets or emergency shelters
    and the services required to help them remain housed are provided to
    them.
        An in-depth study was performed in Maine on the cost of housing
    people vs. their remaining homeless, which assessed 99 participants,
    including most of the residents at Logan Place. The study concluded
    that housing people cost less than allowing people to remain homeless,
    and services were delivered in a more cost-effective manner.
        Is the administration considering the advantages of a Housing First
    approach to help address the growing number of homeless people?
        Answer. HUD's McKinney-Vento funded Permanent Supportive Housing
    (PSH) program grantees are given flexibility to design programs that
    meet the community's needs--including PSH programs that use the Housing
    First model. New HEARTH Act legislation allows this flexibility to
    continue for PSH programs. In general, communities have moved away from
    offering shelter-only alternatives, into service-based interventions
    such as safe havens, outreach, housing first and permanent supportive
    housing. By encouraging Continuum of Care (CoC's) to shift from funding
    services to housing activities, HUD shifted millions of dollars from
    services funding into funding for housing activities. Persons with
    disabilities, including the Housing First target population of
    primarily chronically homeless persons, will continue to be targeted
    with 30 percent of annual homeless assistance awards. In the past, HUD
    has met and exceeded the Congressional requirement of 30 percent for
    permanent housing for persons with disabilities, which remains a
    requirement under HEARTH.
                                     ______

                  Questions Submitted by Senator Thad Cochran

                              MANUFACTURED HOUSING

        Question. Mr. Secretary, manufactured housing production has
    dropped to an annual rate of fewer than 50,000 homes, compared to
    nearly 400,000 units in 1998. Can you explain why the new FHA title I
    program rules for manufactured housing, which were authorized by
    Congress in the Housing and Economic Recovery Act of 2008, have not
    been issued?
        Answer. The new Federal Housing Administration (FHA) title I
    program rules for the Manufactured Home Loan Program were issued on
    April 14, 2009, by title I letter, TI-481.
        The Housing and Economic Recovery Act of 2008 (HERA) provided for
    several changes to FHA programs to be initially implemented by notice
    in order to facilitate implementation of long-desired changes to FHA
    programs without having to wait for the often 12-month period it takes
    for a formal rule to be issued. On this basis, HUD implemented the HERA
    changes to FHA title I Manufactured Home Loan Program by title I
    letter. Although HUD implemented the new requirements by letter, HUD
    solicited comment on HUD's implementation of these requirements through
    an April 21, 2009 Federal Register publication.
        HUD is currently developing the final rule, which takes into
    consideration the 7 public comments received in response to the April
    21, 2009 solicitation of comments. HUD believed that it was prudent to
    ensure sufficient public comment and did not rush to codify new
    regulations based on the title I letter, TI-481, issued April 14, 2009.
    HUD believed that before codifying these requirements, it would benefit
    by seeing how the new requirements worked in practice, and whether
    clarifications or modifications would be needed before formal
    codification. HUD believes that it has benefitted from the year-long
    experience it has had in seeing how the rules in the title I letter
    have worked. HUD is developing the rule for codification, and will not
    only take into consideration the 7 public comments received, but also
    the experience to date of HUD and industry operating under the new
    requirements for the past year. However, until that rule is issued,
    title I Letter, TI-481, dated April 14, 2009, remains the rule
    implementing document.
        Question. You say in your statement that ``the Federal Housing
    Administration (FHA) has stepped up to fulfill its countercyclical
    roll--to temporarily provide necessary liquidity while also working to
    bring private capital back to credit markets'', but this has not been
    the case for manufactured housing. Do you believe that a non-career
    administrator for the manufactured housing program would address this
    disparity?
        Answer. The FHA Commissioner has taken the leadership to address
    this disparity by responding to an invitation from Representative
    Donnelly of Indiana. Both the Congressman and the Commissioner will be
    meeting on June 2 in Elkhart, Indiana with key lenders along with
    Ginnie Mae, Fannie Mae, Freddie Mac and manufacturers to identify the
    issues for which these parties are seeking further clarification and
    information regarding the complex financial problems in both the
    primary and secondary markets.
        Question. Manufactured housing plays an important role in the
    housing market by providing families, often with a limited income, an
    opportunity for home ownership. What is HUD doing to help promote the
    manufactured housing marketplace, including international
    opportunities?
        Answer. HUD has worked to highlight the home ownership and
    community opportunities available with manufactured housing. This has
    included reports to help builders understand how manufactured housing
    could be used in their construction efforts. It is HUD's general
    position that factory built construction (including manufactured,
    modular, and panelized) provides many opportunities and can contribute
    to local development activities. In addition, HUD provides Federal
    insurance through the FHA for loans to finance the purchase of
    manufactured homes.
        Also as noted in the response to question No. 4, HUD is working
    closely with the State Department and USAID on a variety of
    international housing development and urban policy issues. In meeting
    with representatives of other governments, HUD officials will take
    advantage of these new opportunities to highlight the benefits of U.S.
    factory built housing and related construction materials and products.
        Moreover, many housing products produced in the United States can
    be used internationally. HUD has worked with builders and manufacturers
    to help them understand how they might take advantage of opportunities
    for international sales. The manufactured housing building code (the
    HUD-code) is unique to the Unites States and may not be accepted in
    other countries. Therefore, manufacturers of HUD-code homes may elect
    to offer similar products produced on the same production line or
    produce other types of factory-built housing that can be more easily
    shipped such as panelized housing. In many cases, the manufactured
    housing production line could be used for many similar products.
        Question. I understand that you will be attending the United
    Nations World Urban Forum. This is especially unusual as HUD seldom, if
    ever, plays a role in international housing issues. Nevertheless, this
    is an opportunity to note the potentially inexpensive cost and housing
    opportunities represented by manufactured housing in many parts of the
    world. I urge you to use this opportunity to highlight the benefits and
    promote the use of manufactured housing to the international audience.
        Answer. HUD has engaged in international exchange programs for
    several decades. However, under the Obama administration, HUD has
    considerably expanded the scope and nature of its contacts with other
    governments and international organizations. The administration
    believes that many lessons can be learned from experience of other
    countries, and has seen value in these relationships. HUD is working
    closely with the State Department and USAID on a variety of
    international housing development and urban policy issues. In meeting
    with representatives of other governments, HUD officials will take
    advantage of these new opportunities to highlight the benefits of U.S.
    factory built housing and related construction materials and products.
        Moreover, many housing products produced in the United States can
    be used internationally. HUD has worked with builders and manufacturers
    to help them understand how they might take advantage of opportunities
    for international sales. The manufactured housing building code (the
    HUD-code) is unique to the Unites States and may not be accepted in
    other countries. Manufacturers of HUD-code homes may elect to offer
    similar products produced on the same production line or produce other
    types of factory-built housing that can be more easily shipped such as
    panelized housing. In many cases, the manufactured housing production
    line could be used for many similar products.
        Question. There have been a number of articles recently regarding
    the sale of thousands of manufactured housing units by FEMA into the
    marketplace. People have raised serious concerns about environmental
    and cost issues regarding these units. As the housing regulator for the
    Nation, what is your opinion on the potential impact on the marketplace
    for new manufactured units? What is HUD's role in the resale of units,
    especially since another Federal agency is involved? If there are
    environmental issues, who is looking at those issues, and who is
    responsible for any related decisions?
        Answer. HUD has no role in GSA's resale of the temporary housing
    units as HUD's regulatory role is limited to new sales and not resale.
    HUD regulates only how the home was designed, the compliance of the
    home when the manufacturer provided it to the first purchaser, and the
    first installation of the home. A small fraction of the units FEMA is
    selling through GSA are HUD-code manufactured housing. These
    manufactured housing units were produced to the same standards as all
    manufactured housing and have received periodic inspections and
    maintenance during their use. The small size of the FEMA manufactured
    homes is in stark contrast with the size of most of the manufactured
    housing units available in the United States. It appears unlikely a
    home buyer interested in a larger home would purchase one of these
    units instead of a new manufactured home. We anticipate the FEMA
    manufactured homes entering the resale market will be less expensive
    than new units, a result of the units being used and the smaller,
    single wide form. This could provide to some degree, increased home
    ownership opportunities for families of modest means. Following
    Hurricane Katrina, many manufacturers in the region produced units
    under contract to FEMA that are now available for resale. It is
    reasonable to expect that local retailers would be involved in the
    purchase, inspection, resale and installation of the units. HUD is not
    involved in the safety aspects of the units being sold through GSA and
    these issues rest with FEMA and questions should be addressed to FEMA.

                              SUBCOMMITTEE RECESS

        Senator Bond. The subcommittee will hold the next hearing
    on Thursday, March 25, at 9:30 a.m., on the Federal Housing
    Administration.
        Thank you very much, Mr. Secretary.
        Secretary Donovan. Thank you, Senator. And let me just
    recognize the great work and partnership that we have with Ken
    Donohue, who is our inspector general, around a lot of these
    fraud issues. I don't want to let the record close without
    recognizing his partnership.
        Senator Bond. A very important additional tool that you and
    we have and we appreciate his good work.
        Thank you.
        Secretary Donovan. Thank you.
        [Whereupon, at 11:20 a.m., Thursday, March 11, the
    subcommittee was recessed, to reconvene at 9:30 a.m., Thursday,
    March 25.]

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2011

                                  ----------

                            THURSDAY, APRIL 29, 2010

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:30 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray, Dorgan, Lautenberg, and Bond.

                          DEPARTMENT OF TRANSPORTATION

                        Federal Railroad Administration

    STATEMENT OF HON. JOSEPH C. SZABO, ADMINISTRATOR

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Good morning. The subcommittee will come to
    order.
        This morning, we are going to be holding a hearing on the
    President's budget request for the Federal Railroad
    Administration (FRA) and the budget request of the National
    Passenger Railroad Corporation, Amtrak.
        We're going to be hearing testimony from two panels this
    morning. The first panel will include the Administrator of the
    Federal Railroad Administration, Mr. Joseph Szabo. The second
    panel will consist of three witnesses: Amtrak's President and
    CEO, Mr. Joe Boardman; Amtrak's inspector general (IG), Ted
    Alves; and the deputy inspector general for the Department of
    Transportation, Ms. Ann Calvaresi-Barr.
        I want to welcome all of our witnesses at this time and
    thank you for being here this morning. I look forward to
    hearing all of your testimony.
        Efficient rail transportation in America ties our community
    together. It creates jobs and boosts the economy and reduces
    the prices of goods being shipped. And it helps commuters
    around the country get to work. That's why I'm so glad this
    administration has expressed a level of interest in rail
    transportation we haven't seen in a long time. They understand
    the important role railroads play in our transportation system.
        This subcommittee has seen too many budget requests from
    previous administrations that would have guaranteed the
    bankruptcy of Amtrak, which would have been devastating to
    commuters and communities across the country.
        I know families in my home State of Washington deeply value
    our Amtrak service. The Cascade line has set a new record for
    ridership this year. And I've personally heard from a lot of
    people who depend on it.
        I know that communities around the country value their rail
    service, as well. That's why I'm so glad that this year the
    administration's request for grants to Amtrak would support the
    railroad, although it does not meet all the needs identified by
    Amtrak itself.
        In addition, the administration is again requesting $1
    billion for grants to support intercity and high-speed rail.
    This funding builds on the $10.5 billion provided for these
    purposes through the fiscal year 2010 appropriations act and
    the American Recovery and Reinvestment Act, including $590
    million to improve high-speed rail in Washington State.
        And finally, rail transportation is being included with
    roads and mass transit in discussions about the Nation's larger
    network of surface transportation.
        In the Recovery Act, we were able to provide States with
    the flexibility to invest their formula grants in freight and
    passenger rail. Rail transportation has also played an
    important part in the Department's Transportation Investment
    Generating Economic Recovery [TIGER] grant program that I
    fought to include.
        But, we still need to recognize that all of this work, as
    well as recent proposals for additional funding, are happening
    at a time when financial constraints are increasing and likely
    to become even greater. As families across the country look for
    ways to tighten their belts, leaders here in Washington, DC
    need to redouble our efforts to get Federal spending under
    control and reduce our debts and deficit. That's why the budget
    President Obama sent to Congress freezes domestic discretionary
    spending, and the budget resolution recently passed in the
    Senate Budget Committee goes a step further by reducing the
    spending by an additional $4 billion.
        We owe it to future generations to not burden them with
    debt. But, we also owe it to them to continue making the
    investments we know will strengthen our economy and make our
    country more competitive in the long term. That's why I'm
    looking carefully for areas to cut spending. But, I also know
    that lower spending levels will make it more difficult for
    Congress, and for this subcommittee, in particular, to find
    ways to pay for important infrastructure programs.
        I know many people think the answer to this problem lies in
    funding--finding a source of funding outside of the annual
    appropriations process. The Highway Program and the Highway
    Trust Fund offer an easy example of a dedicated, and what has
    historically been a stable source of funding for transportation
    infrastructure. But, we should all understand that the
    financial constraints are just as real outside of the
    appropriations process. The Highway Trust Fund has been
    threatened with insolvency for more than 2 years, and we still
    have not seen any realistic proposals to stabilize the Trust
    Fund throughout the next authorization period.
        This subcommittee has turned to appropriating funds
    directly from the general fund in order to provide additional
    investments in our Nation's roads and transportation
    infrastructure during the current fiscal year.
        So, there is no silver bullet and there's no way to avoid
    making difficult decisions in setting priorities. And while I
    believe that the administration's budget request would make
    important investments in rail transportation, there are still
    significant concerns that this subcommittee will have to
    consider for fiscal year 2011.
        The administration has failed to request any funding for
    positive train control, an important new technology for
    preventing rail collisions and derailments. And the
    administration's budget request for grants to Amtrak does not
    address the railroad's need to modernize its aging fleet.
        During this hearing, we will have the opportunity to look
    at those important issues. In addition, we'll be able to get
    additional details on the administration's effort to improve
    rail safety, and specifically its progress in implementing a
    risk-based safety program.
        However, one of the biggest questions is how well the new
    leadership at the Federal Railroad Administration and at Amtrak
    can manage our investments in rail transportation over the long
    term. In the very beginning of the Obama administration, the
    FRA was tasked with awarding $8 billion in grants for intercity
    and high-speed rail. The program was brand new and, as part of
    the Recovery Act, it needed to be set up immediately.
        Adding to these challenges, the FRA had never before
    administered such a significant grant program. Recent rail
    legislation has also added significantly to the agency's
    workload. FRA needs to manage its new responsibilities and
    build a workforce that has the skills necessary to successfully
    complete all of that work.
        Amtrak also has new leadership, and there's a new level of
    cooperation between its board and management team. They've
    worked aggressively to complete a new strategic plan, build the
    system for prioritizing capital needs, and develop a plan for
    modernizing its fleet. But, the real test of Amtrak's new
    leadership team will be as the railroad implements its new
    plans.
        This subcommittee needs to see that the leadership at the
    FRA and at Amtrak administer their programs and manage their
    funding effectively and responsibly. Both organizations face
    significant challenges in the years ahead, but we cannot afford
    to waste taxpayer dollars or squander this unique opportunity
    to make our railroads work better for commuters, businesses,
    and communities across the country.
        With that, I will turn it over to my ranking member,
    Senator Bond.

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you very much, Madam Chair.
        And I join you in welcoming all of our witnesses today.
        And I thank you for outlining the tremendous budget squeeze
    we're going to be facing this year. And it is going to take a
    great deal of work to deal with the challenges we have and the
    limits on--which are placed on us.
        And as the Chair said, making an already bad situation
    worse, the Congressional Budget Office projects that the
    national debt will balloon to 90 percent of the economy by
    2020. If interest payments on the debt remain at this same
    interest-rate level, we'll have to pay $800 billion. Nobody who
    knows anything about finance thinks we won't have a significant
    increase in interest rates when our debt gets that high.
        In other words, we're drowning in debt. And the situation
    is going to get worse. The decisions we make on the budget and
    appropriations will be critical to the future economic health
    of our Nation. And we have to find the right balance, spending
    to fund critical national priorities.
        And, Madam Chair, as you've--as you have already described,
    our general revenue programs compete against one another. It's
    transportation versus housing. Both programs have strong
    proponents, as well as very compelling needs. And they seek to
    maximize funding for their priorities. High-speed rail, Amtrak
    capital assistance, and fleet are all in direct competition for
    funding with other transportation priorities, as well as
    critical housing and community development programs for the
    poor.
        HUD is also in this same pool--is seeking significant
    funding for the coming year: $250 million for Choice
    Neighborhoods, $350 million for transforming rental assistance.
    In addition, these programs, in total, are likely to cost
    several billion dollars more in each subsequent fiscal year.
        At the same time, HUD is proposing the elimination of
    dedicated funding for housing programs that help the elderly
    and disabled. These are very important programs. There is great
    need, and obviously there's great support in Congress for them.
    How we balance those funding needs, both old and new programs
    in HUD, are difficult, under whatever allocation we receive for
    the year, let alone in competition with substantial old and new
    transportation funding requests, and especially rail, which are
    likely to require not just significant, but huge increases in
    the subsequent fiscal years.
        Personally, I grew up as a railroad fan. I always loved
    trains. First time I got a chance to ride on a train, I loved
    it. I rode on a train. When I got to be Governor, I started
    State funding for Amtrak. And there was nothing greater than
    taking my very young son from Jefferson City to Kansas City, or
    to the State fair at Sedalia. So, I come here as a rail fan.
        But, at the same time, if we increase funds for
    transportation projects like Amtrak, when we have these other
    needs, we are, in a very real way, in danger of railroading the
    poor, using limited general revenues to pay for rail, rather
    than housing programs. And housing programs are not optional.
    We have people who depend on housing. And we can't walk away
    from them.
        I think it's important, first, to take a look at the
    unprecedented amount of money rail projects have already
    received. No one can deny that there's a lot of money going to
    fund the rail these days, following the passage of the American
    Recovery and Reinvestment Act of 2009 [ARRA]. In fact, the
    biggest winner within the Department of Transportation,
    government-wide, has been the FRA. They are trying to manage
    grants, beyond their wildest dreams, when the Passenger Rail
    and Investment Improvement Act of 2008 was signed into law. Who
    would have anticipated the rail would be the beneficiary of so
    much general revenue paid for by the American taxpayer? These
    are not dedicated funds, as the chair has pointed out, paid for
    by users of passenger rail or freight. These are general funds
    paid by all our taxpayers.
        Amtrak received a record $1.3 billion in 2009 for capital
    grants, while high-speed rail received $8 billion, with an
    additional $2.5 billion in 2010. FRA had some experience in
    managing Amtrak grants, but a whole new $10.5 billion program
    on top of Amtrak and all of the safety programs they are
    responsible for overseeing has to be a work in progress for any
    modal administration.
        With this sudden new influx of billions of taxpayers'
    dollars, I want to ensure American taxpayers that not only are
    they getting what they are paying for, but also know what
    they're paying for. With billions more taxpayer dollars poured
    into Amtrak, which has--let's be honest--has had management
    problems in the past, I want to ensure that these dollars are
    not victims of waste, fraud, and abuse.
        To ensure that taxpayers get the oversight and transparency
    they deserve, I've asked the Government Accountability Office
    to review the first $8 billion awarded for high-speed rail
    grants. I believe the American taxpayers need to know how the
    administration chooses the projects to fund with their money.
    That includes how projects are reviewed, ranked, and scored
    within the Department.
        Taxpayers also deserve to know how the Department applied
    its criteria for selection and the process used in evaluating
    awardees. They need to know how the score is given to each of
    these projects selected, and those which were rejected for
    funding in the first round. It's critical for our subcommittee
    to understand the nature of the projects funded and to what
    extent they represent a departure from, or a continuation of,
    existing rail service and networks, and how they will fit in to
    the National Rail Plan due to the subcommittee on September 15
    of this year.
        What's the future of rail in America? What does the
    unprecedented amount of new funding mean? This, to me, is a
    very important question. The American public and the private
    sector are unclear on if the recent funding for rail in America
    is just a blip or if rail is here to stay. Are we looking to
    fund beyond the $1 billion proposed, per year, by the
    administration, for high-speed rail? Are we supportive of
    Amtrak's new fleet proposal, which, over the period of 2040,
    will cost approximately $23 billion, in 2009 dollars? When
    taxpayer dollars are already scarce, where's the money coming
    from? Will it come at the expense of critical programs under
    HUD or the fund--the funding needs of traditional
    transportation programs, like highways, roads, and bridges?
        Last year, $1 billion in the budget for high-speed rail
    turned into $2.5 billion when we went to conference with the
    House. This was due, in part, to artificially inflated budgets
    for transportation without any details or plans for a National
    Infrastructure Bank. When the National Infrastructure Bank
    failed to get--garner needed congressional support, we had
    general fund money on the table that, in my view, should have
    gone to critical programs to help struggling families or
    deficit reductions, rather than the rail industry.
        If Congress goes even further to fund high-speed rail this
    year, we're definitely railroading the poor to pay for
    passenger rail. Especially true this year, when there's not a
    unified National Rail Plan that includes passenger rail, high-
    speed rail, Amtrak, State rail plans, freight rail, and a cost-
    to-complete estimate.
        Right now, when it comes to rail, no one has a complete
    picture--we're looking--of what we're looking to build; a map
    of the plan; how we're going to pay for it, or how much it will
    cost us.
        Under last year's appropriations bill, we're supposed to
    get the plan on September 15. That plan should contain a map--
    which corridors have been identified as high-speed rail
    investment priorities for the administration. We need cost
    estimates for these corridors, and we should have benchmarks,
    an idea of how incremental improvements along existing rail
    networks will benefit the traveling public. And they have to be
    fully integrated with State rail plans and Amtrak existing
    lines.
        We should know the full cost of the equipment necessary to
    run the system. Today, to be quite honest, despite our
    inquiries, we don't know what we're building, how much it will
    cost, and whether or not rail investment in America is here to
    stay, without dedicated funds, because the cost seems to be
    going out the roof.
        The proposals, so far, have been just a handout of general
    revenue, with no funding source attributed to it, when our
    country, as I have indicated earlier, is going further and
    further into debt.
        The worst part is, under the Recovery Act and grants in
    2010, we don't even know what they're building and whether the
    use of taxpayer dollars for this purpose is an appropriate use
    of funds, because, as I said, we don't have the plan.
        In March, Secretary LaHood testified before us on the
    budget, and claimed that, quote, ``When President Eisenhower
    signed the Interstate Highway bill nobody knew how we were
    going to pay for all of it. So, I'm not going to sit here and
    tell you that I know where all the money's going to come from
    for high-speed rail''.
        Well, I was impressed with that statement. It turned out--
    but, it turns out that statement is simply false. According to
    research done by Transportation Weekly, the national interstate
    map predated the Interstate Act--the map predated the act by 10
    years. The 1944 Highway Act directed 48 States to designate,
    jointly, a map for a national system of interstates, up to
    40,000 miles. The State--the States designated 37,700 miles.
    And a map was approved by Congress in August 1947. The map
    remained pretty much unchanged, although added miles have been
    designated and constructed, throughout the years.
        On the cost of the map, Congress did have an idea of the
    cost, because Congress asked the Department of Commerce to
    conduct a comprehensive highway study--a cost study--and submit
    it by February 1995. And Congress required an updated State-by-
    State cost estimate of the interstate system every 4 years.
        Will your National Rail Plan due to us September 15 include
    a detailed map, a cost-to-complete estimate? I'm afraid I must
    assume the answer to those questions is ``no.''
        For that reason, in this year's appropriations bill, I
    asked that you provide us with a description of the funds
    necessary for you to complete a true cost--add a true cost-to-
    complete study map. We have to have that.
        In addition, I'd like your input, Mr. Administrator, on how
    much you believe a study would cost, and how this could be
    worked into you current plans for completion of the National
    Rail Plan. Until we have this information, in my view, it would
    be irresponsible for the subcommittee to give the high-speed
    rail program any additional funds.
        Along with the high-speed rail plan, we have Amtrak, which
    should be included in the National Rail Plan. And I think you
    would agree. I think the Department would include Amtrak's
    capital needs and fleet requirements in the plan.
        I'm pleased that, for the first time, Amtrak submitted a 5-
    year capital budget plan along with its annual appropriations
    request. However, as soon as we get a comprehensive plan, we
    find an addendum to the plan, which is a sizable investment of
    $446 million in the Amtrak fleet. Is Amtrak going to amend this
    year's capital budget request to include fleet where we can see
    what priority new fleet plays, versus Amtrak traditional
    capital requirements and Americans with Disability Act
    requirements? When we're dealing with general fund
    appropriations, I think we need the answer to these questions
    before we provide the resources.
        Amtrak sent our subcommittee its addendum to their budget
    submission on March 22 of this year. It's not been cleared by
    OMB, and is not part of Amtrak's regular 5-year capital plan.
    These are additional capital funds Amtrak's seeking for its
    aging fleet. It's not included in all of the planning and
    included in the budget on which--with which we have to work.
        I'm thankful that--don't get me wrong--they've finally
    submitted a fleet plan. At least there's a plan and a cost-to-
    complete estimate, unlike our National Rail Plan and high-speed
    rail plan. But, once again, there are no funding sources
    identified other than general funds and loans paid with paid
    interest by the general fund. In other words, these loans are
    going to be a burden on future general revenue.
        Once again, Amtrak is competing with HUD and, potentially,
    other forms of transportation and, potentially, railroading the
    poor, if this subcommittee agrees to pay $446 million in
    additional capital for a fleet or agrees to incur additional
    debt service using general funds for loans they may take out on
    fleet in 2011 and beyond.
        All of these resources should be contained in one
    comprehensive National Rail Plan. If you agree with Amtrak's
    fleet plan, Congress will agree, over the next 30 years, to pay
    $23 billion, in 2009 dollars--$46 billion in escalated
    dollars--or more, to provide replacement fleet to Amtrak's
    system by 2040. Whichever approach is taken, it will be a very
    costly endeavor to acquire the fleet replacement at the same
    time that we're attempting to build high-speed rail and, in the
    mind of the administration, enhance State service of passenger
    rail.
        What's the priority? We've got to establish some
    priorities. Rail supporters have to know that there are limits,
    even in the best of times, to these pie-in-the-sky requests and
    to those of us who are rail fans, or who used to be, I'd have
    to say. Given our current deficit, you have to admit, the
    initial request of $446 million outside of the budget and
    capital plan is inappropriate. Why is Amtrak asking for
    replacement of locomotives on the Northeast corridor and
    single-level long-distance cars?
        Now, replacing aging locomotives along the Northeast
    corridor might be acceptable, because at least they're
    operating on a much lower cost per mile and per passenger
    subsidy than other routes for Amtrak. But, long-distance
    service last year only had 1.7 million riders, with a cost-per-
    passenger subsidy of $153. Replacement of long-distance cars in
    Amtrak's fleet, in 2009 dollars, is $4 billion. These are the
    most costly routes on the current Amtrak system. And Amtrak is
    proposing to ask for some of these cars first.
        Where's the proposed money supposed to come from? Who's
    going to pay? Will it be the taxpayer paying for rail once
    again, at the expense of the poor? If Amtrak chooses to go the
    loan route for the fleet, this subcommittee would have to pay
    for debt service far into the future. We're really bilking the
    poor in the future to pay for rail. Long after I have stepped
    aside, general funds would be needed to pay for out-year
    budgets for funding decisions that would be made now.
        My closing note is that all this doesn't even touch the
    safety side and unmet funding needs for positive train control
    by 2015. Last year, our subcommittee provided $50 million in
    grants for positive train control. The new regulation is
    estimated to cost upwards of $13 billion to $15 billion for the
    rail industry alone, and $2 billion for the transit industry,
    and there's nothing in the budget for the safety program. With
    a $12-trillion-and-growing Federal budget, we just can't throw
    Federal funds at projects willy-nilly. We need to answer these
    tough questions. We need a roadmap for the future. And we need
    to balance scarce taxpayer dollars.
        I apologize, Madam Chair, for the time, but I think the
    magnitude of the problems--of the prioritizing problems we face
    deserve some answers.
        With that, I look forward to the testimony of the
    Administrator.
        Senator Murray. Thank you very much, Senator Bond. I
    appreciate it.
        And, Mr. Szabo, we will turn to you for your opening
    statement.

                       STATEMENT OF HON. JOSEPH C. SZABO

        Mr. Szabo. Very good. Thank you, Madam Chair, Ranking
    Member Bond, and members of the subcommittee.
        Appreciate the opportunity to appear before you today to
    discuss FRA's fiscal year 2011 budget request.
        Our $2.9 billion request reflects the administration's
    commitment to keeping the national rail transportation system
    safe and supports the administration's pledge to provide the
    traveling public with sound transportation alternatives to
    flying or driving.
        Without question, this is a transformational time at FRA.
    The impact of the Rail Safety Improvement Act, which requires
    more than 40 rulemaking studies and reports, the passenger--the
    passage of the Passenger Rail Improvement and Investment Act
    and its new initiatives in bringing the States in as partners
    if the development of passenger rail, and then, of course the
    American Recovery and Reinvestment Act has just set about an
    unprecedented time at our agency.
        Over the past year, FRA has executed its rail safety
    regulatory mission while simultaneously implementing an
    entirely new line of business, the design and management of a
    multibillion-dollar high-speed rail grant program. And
    transformation does not come without obstacles, challenges, and
    lessons learned.
        Considering FRA's fiscal year 2011 budget request, I hope
    the subcommittee recognizes the care that was taken to present
    a request that supports our key mission--rail safety--while
    also enhancing our capacity to manage high-speed rail programs.
        And I want to emphasize that when we put this budget
    together, we didn't just take last year's budget and start
    making adjustments to it; we sat down with a blank sheet of
    paper and started from scratch, taking a look at all of our new
    requirements, all of our priorities, and from there, developing
    a fresh budget.
        For fiscal year 2011, we're proposing a strong blend of
    safety program enhancements and technical budget changes.
    Currently, all of FRA's administrative and operational
    expenditures and several safety-related programs are funded
    under a single account entitled ``safety and operations.''
        In fiscal year 2011, we propose to eliminate this account
    and break it into two new accounts: Railroad Safety and Federal
    Railroad Operations. The proposed new account structure is more
    transparent and will provide greater insight into the cost of
    FRA's safety-specific program activities and internal
    administrative operations.
        Programmatically, under the new Rail Safety account, a
    total of $49.5 million is requested to carry out FRA's mission-
    critical railroad safety functions and activities. A total of
    $153.8 million and 948 full-time equivalents [FTEs] are
    requested under the new Federal Railroad Operations account to
    fund FRA's administrative activities, such as payroll,
    information technology infrastructure, and other shared costs,
    and provide the necessary human resources to ensure sound
    stewardship of our FRA safety programs. This includes 62 new
    positions that will enable FRA to make measured progress on the
    responsibilities mandated by the Rail Safety Improvement Act,
    PRIIA, and the administration's high-speed rail initiative.
        Finally, FRA's 2011 budget activities include a rail safety
    user fee, which is modeled after the FRA-administered fee
    between 1991 and 1995. FRA estimates that $50 million could be
    generated for defraying the salaries and benefit costs of up to
    330 of our rail safety inspectors across the country.
        A total of $40 million is requested to support FRA's
    Railroad Research and Development Program. Specifically, in
    fiscal year 2011, FRA will focus added resources on railroad
    system safety, train control testing and evaluations, and the
    newly authorized Rail Cooperative Research Program.
        Although the foundation for a Federal-State partnership
    began with the passage of the Passenger Rail Investment and
    Improvement Act [PRIIA], it was the $8 billion provided in ARRA
    that has truly advanced the high-speed rail initiative. This
    year's $1 billion request continues funding to advance
    passenger rail infrastructure and includes up to $50 million
    for program administration and oversight activities, $50
    million for planning grants, and $30 million for high-speed
    rail research and development.
        FRA and Amtrak have shared a strong partnership for
    decades. The fiscal year 2011 budget request for Amtrak, which
    totals $1.637 billion, is a reflection of this administration's
    continuing support of this relationship. Within the overall
    request, $563 million is requested for Amtrak operations and to
    support their ongoing efforts to reshape the company by
    undertaking meaningful reforms.
        A total of $1.052 billion is requested for Amtrak's capital
    needs and debt service. And this includes $281 million to
    finance Amtrak's ADA requirements.
        Finally, $22 million is requested for a direct grant to the
    Amtrak Office of Inspector General.

                               PREPARED STATEMENT

        The past 18 months have just been filled with exciting but
    challenges at FRA. But, it's been a great challenge. And it's--
    even though it's been a challenge, it's been fun. And we're
    continuing to enhance the safety of our Nation's freight and
    passenger rail systems, while also driving forward this vision
    of investment in high-speed passenger rail.
        So, with that, I look forward to the subcommittee's
    questions.
        [The statement follows:]

                   Prepared Statement of Hon. Joseph C. Szabo

        Chairwoman Murray, Ranking Member Bond, and members of the
    subcommittee: Thank you for the opportunity to appear before you today
    to discuss the Federal Railroad Administration's (FRA) fiscal year 2011
    budget request.
        This request, which totals $2.9 billion, reflects the
    administration's commitment toward keeping the Nation's rail
    transportation systems safe, secure, and efficient. In addition, this
    request supports the administration's pledge to provide the traveling
    public with a practical, energy efficient, and environmentally sound
    alternative to flying or driving, particularly where there is
    congestion in the air or on the roads, through strategic investments in
    high-speed rail.
        As you know, in April 2009, I was appointed as the FRA
    Administrator. I arrived to find FRA in the midst of a grand
    realignment. The entire organization was focused not only on the
    effective implementation of the Rail Safety Improvement Act (RSIA) and
    the Passenger Rail Improvement and Investment Act (PRIIA) that were
    enacted in October 2008, but on the requirements of the American
    Reinvestment and Recovery Act (ARRA), which was passed in February
    2009. The impact of these mandates on FRA has been significant. RSIA
    and PRIIA mandated new and expanded safety mission responsibilities and
    programs, while ARRA appropriated an unprecedented $9.3 billion in
    resources for intercity passenger rail programs.
        Over the past year, FRA has executed its rail safety regulatory
    mission, while simultaneously implementing an entirely new line of
    business--the design and management of a multibillion-dollar,
    discretionary high-speed rail grant program. As expected, this
    transformation has not come without obstacles, challenges, and lessons
    learned. However, the support this subcommittee has given to FRA has
    enabled our agency to acquire the staff and resources to fortify our
    continued success. In fact, we are making good progress in building our
    workforce. We have hired and/or made offers to nearly one-half of the
    20 new positions that were funded in fiscal year 2010 and have active
    recruitments for the remaining positions. I expect within a few months,
    FRA will have the majority of the new staff in place.
        In considering FRA's fiscal year 2011 budget request, I hope the
    subcommittee recognizes the great care that was taken to present a
    request that fully supports the heart of our mission--rail safety--
    while continuing to enhance our capacity to manage the comprehensive
    management and oversight requirements of the high-speed rail grant
    program.

                                RAILROAD SAFETY

        For fiscal year 2011, we are proposing a strong blend of safety
    program enhancements and technical budget changes.
        Currently, all of FRA's administrative and operational expenditures
    (i.e., salaries, benefits, GSA rent, Working Capital Fund
    contributions, etc.) and several safety-related programs (Automated
    Track Inspection Program (ATIP) and Railroad Safety Information System
    (RSIS)) are funded under a single account titled ``Safety and
    Operations.'' In fiscal year 2011, the major technical change proposed
    is the elimination of the overarching Safety and Operations account and
    the establishment of two new, more targeted accounts: (1) Railroad
    Safety; and (2) Federal Railroad Operations. The proposed new account
    structure is more transparent and provides insight into the cost of
    FRA's safety-specific program activities, as well as FRA's internal
    administrative operations. The new structure will allow FRA to be more
    precise in its reporting and accountability and directly supports the
    administration's transparency initiatives.
        Programmatically, under the new Railroad Safety account, a total of
    $49.5 million is requested to carry out FRA's mission-critical railroad
    safety functions and activities. This new account captures the costs
    associated with FRA's major rail safety program activities, which were
    previously funded under Safety and Operations. Activities proposed to
    be funded under the new Railroad Safety account include: Automated
    Track Inspection Program (ATIP), the Risk Reduction Program (RRP), and
    FRA's safety inspector-related travel.

                       FRA MANAGEMENT AND ADMINISTRATION

        A total of $153.8 million and 948 full-time equivalents (FTE)/979
    positions are requested under the new Federal Railroad Operations
    account to fund: (1) FRA's administrative activities such as, payroll,
    information technology infrastructure, and other shared costs; and (2)
    provide the necessary human resources needed to accomplish a myriad of
    priorities and to ensure the sound stewardship of FRA rail safety
    compliance, research and development, and financial assistance
    programs.
        Included in this request are 62 new positions that will enable FRA
    to continue to make measured progress on accomplishing the
    responsibilities mandated by RSIA, PRIIA, and the administration's
    high-speed rail initiative. These new positions minimize FRA's
    operational risk and will allow the agency to hire additional staff
    with the specialized skills and experience (e.g., civil and mechanical
    engineers, environmental specialists, and financial analysts) necessary
    to fully support FRA expanding programs and mission-essential
    activities.
        Finally, FRA's fiscal year 2011 budget includes a rail safety user
    fee. The rationale for this fee is consistent with that of other DOT
    Modal Administrations that have a fee structure to help finance, in
    whole or in part, costs associated with safety mission programs and
    activities. This user fee is modeled after a rail safety user fee FRA
    administered between 1991 and 1995. As proposed, in fiscal year 2011,
    FRA estimates $50 million in collections could be generated for use in
    defraying the salary and benefit costs of up to 330 rail safety
    inspectors across the country.

                         RAIL RESEARCH AND DEVELOPMENT

        A total of $40 million is requested to support FRA's railroad
    research and development program and agenda. Specifically in fiscal
    year 2011, FRA will focus added resources in the areas of railroad
    systems safety, train control testing and evaluations, and the newly
    authorized ``Rail Cooperative Research Program.'' This new initiative
    will enable FRA to efficiently gather input from stakeholders to
    identify and validate rail research priorities and accelerate the real-
    world impact of FRA's research and development program by strengthening
    the academic and industrial railroad technical communities.

                                HIGH-SPEED RAIL

        In less than 2 years, we have witnessed the notion of intercity
    transportation change across the county. Although the foundation for a
    Federal-State partnership to focus on the development of high-speed
    rail began with the passage of PRIIA, it was the $8 billion provided in
    the ARRA that has truly advanced this initiative. Delivering on the
    administration's vision and realizing the benefits of high-speed rail
    requires a long-term commitment at both the Federal and State levels.
    For this reason, last year, the administration proposed a multiyear
    initiative to invest $5 billion over the next 5 years to leverage
    resources at the State and local levels, as well as in the private
    sector. This initiative will fund strategic investments that yield
    tangible benefits to intercity rail infrastructure, equipment,
    performance, and intermodal connections over the next several years,
    while building capacity for future corridor development. This
    particular program is also expected to have a positive impact on the
    Nation's rail-related manufacturing sector, which has declined over the
    past two to three decades. As the major corridor projects are awarded,
    the steel and rolling stock necessary to build and operate the
    infrastructure can be supported by our country's factories and a
    talented workforce.
        The $1 billion requested in the 2011 budget is the second year of
    the administration's 5-year high-speed rail initiative. These resources
    will continue support of the administration's vision to provide a
    sustainable 21st-century rail transportation solution that is energy-
    efficient, environmentally sound, and leverages State, local, and
    private sector resources and partnerships. This request continues
    funding to advance the high-speed rail infrastructure capacity across
    the Nation and includes up to $50 million for program administration
    and oversight activities, $50 million for planning grants and
    activities, and $30 million for high-speed rail research and
    development activities.

                  NATIONAL PASSENGER RAIL CORPORATION (AMTRAK)

        FRA and Amtrak have shared a strong partnership for decades, and we
    continue to successfully collaborate on critical issues such as: (1)
    ensuring rail safety; (2) promoting environmental quality; and (3)
    addressing national passenger rail transportation priorities and
    policies. The fiscal year 2011 budget request for Amtrak, which totals
    $1.637 billion, is a reflection of this administration's continuing
    support of this partnership.
        Within the overall request, $563 million is requested for Amtrak
    operations and to support Amtrak's ongoing efforts to advance its
    mandate to reshape the company by undertaking meaningful reforms and
    controlling spending. This Federal assistance will supplement Amtrak's
    traditional corporate revenues, which are generated through passenger
    revenue (ticket, food and beverage sales), State-supported revenues
    (State contracts related to route performance), and its ancillary
    business revenue.
        A total of $1.052 billion is requested for Amtrak's capital needs
    and debt service. Included in this funding level is $281 million to
    finance Amtrak's fiscal year 2011 Americans with Disabilities Act (ADA)
    requirements. Finally, $22 million is requested for a direct grant to
    the Amtrak Office of Inspector General.

                                   CONCLUSION

        The past 18 months have been filled with exciting challenges for
    FRA. We have continued to enhance the safety of our citizens and
    communities that live and use the Nation's freight and passenger rail
    systems, while designing the policies, programs, and infrastructure
    necessary to advance the vision and investment of high-speed passenger
    rail across our country. With this, I am happy to respond to your
    questions and concerns.

                                  AMTRAK FLEET

        Senator Murray. Well, thank you very much, Mr. Szabo, for
    your testimony.
        Let me start by mentioning that, last February, Amtrak
    published its plan for replacing its aging fleet of locomotives
    and rail cars. And as part of that plan, they requested $446
    million to fund the fleet plan in fiscal year 2011. Can you
    explain to the subcommittee why the Department's request had no
    additional funding for replacing Amtrak's fleet?
        Mr. Szabo. Well, I think, as you know, that anytime you're
    putting a budget together, there are a lot of very, very hard
    and very difficult choices that have to be made. But, clearly,
    we think that that fleet plan is a--you know, it's an excellent
    plan. And it's a good vision. It has the opportunity to
    invigorate domestic manufacturing. And we're sitting down with
    Amtrak and trying to discuss some financing alternatives.
        Senator Murray. Well, they have structured their fleet plan
    so that it could support a domestic industry for manufacturing
    rail equipment by spreading the orders over a 30-year period.
    Their demand for rail equipment may be large enough and
    reliable enough to actually support a domestic industry. Right
    now, we don't have any domestic manufacturers of rail
    equipment, but that could help revitalize a very important
    sector of American manufacturing, and support the kinds of jobs
    we all want to see to get our economy back on track.
        But, for this plan to work, manufacturers have to believe
    that Amtrak really is going to be a reliable source of funding
    for its rail orders. I know they're looking at a variety of
    ways to pay for the fleet plan, and have requested funding from
    this subcommittee, and understand that it may apply for a loan
    through the FRA's Railroad Rehabilitation and Improvement
    Financing (RRIF) program.
        Can you share with us what kind of financing you think
    would help give our domestic manufacturers the kind of
    assurance they need to be confident that Amtrak will actually
    be able to purchase rail equipment well into the future?
        Mr. Szabo. Yes. Let me say, first, Madam Chair, that I
    think you're absolutely on the mark, that, in order to
    reinvigorate domestic manufacturing, there needs to be the
    belief that this is going to be sustainable.
        You know, the Secretary pulled in all of the foreign
    manufacturers, domestic manufacturers, all rail manufacturers
    into a summit over at the DOT, back in December. And if we
    heard one thing, it was, they, you know, clearly articulated
    the need to ensure that these orders can be smoothed out over a
    period of time. And so, you're not constantly going through
    these peaks and valleys, and that, if the orders were truly
    smoothed out over a period of time, and they believed it was
    sustainable, that this would be what it would take to truly
    make the investment, as a businessman, that they would need to
    make in the plant and equipment, you know, and sink these costs
    into establishing these types of facilities here in the United
    States.
        As far as the financing solutions--again, we're at the
    table with Amtrak, and I think it's going to have to take a
    blend. I'm not sure that there's this one single silver bullet
    that's going to just solve all the problems for financing the
    other plan. But, you know, certainly there's the potential for
    possibly a RRIF loan, commercial lending, direct
    appropriations. I mean, I think we need to take a look at all
    of the alternatives and make sure that we come up with a sound
    financing plan.
        Senator Murray. Well, this is really important. This
    subcommittee is a strong supporter of infrastructure spending.
    That's what we do, and we believe in it. But, we have to have
    consistent priorities and know that that funding is going to be
    consistently there, if we want domestic manufacturers to begin
    to develop that. And if we get a request this year, and we fund
    it, but we don't know what's going to happen next year, I don't
    think that is going to be enough for a domestic manufacturer to
    make a decision to make that kind of investment. Wouldn't you
    agree?
        Mr. Szabo. Yes. I would agree. I mean, again, your remarks
    directly align with what we heard from the manufacturers back
    in December. They need to know that there is stability.
        Senator Murray. So, what I'm saying to you is, we all need
    to have a concrete plan, not just for an appropriation here or
    there, but for how we're going to do this, long into the
    future, if we want to really achieve the goal I think some of
    us want to achieve.
        Mr. Szabo. Yes, I would agree that there needs--again,
    there needs to be the appropriate mix. We need to find what
    that appropriate mix is.

                             POSITIVE TRAIN CONTROL

        Senator Murray. Okay.
        Well, let me turn to another issue, because, under the Rail
    Safety Improvement Act, railroads are supposed to deploy the
    positive train controls (PTC) by 2015. Senator Bond mentioned
    it in his opening statement. We know that's an important safety
    technology designed to prevent train collisions and
    derailments. But, this is going to cost billions of dollars.
    Now, you announced, I think, $50 million in the 2010
    appropriations request for Rail Safety Technology grants. I
    want to know what you hope to accomplish with that funding, and
    what are some of the additional challenges that need to be
    resolved so we can deploy the PTC?
        Mr. Szabo. Well, what we intend to do with this initial $50
    million is, instead of giving grants out to a single railroad
    or a small combination of railroads, using it for those kind of
    things that can be broadly shared; those initial costs that, in
    essence, would benefit the industry as a whole.
        And so, I--frankly, that was part of the reason why we
    didn't make an additional request for 2011. We wanted the
    opportunity to roll out the initial $50 million in 2010, kind
    of test the waters with that. And then the opportunity exists
    for these broader-based funding programs that the DOT--whether
    it's the TIGER grants, whether it's through the high-speed rail
    program, or whether it's through the proposed Infrastructure
    Bank for the--you know, for the funding of positive train
    control.
        Senator Murray. Well, as Senator Bond mentioned, we're
    talking about billions of dollars. Do you have a plan for how
    to get there?
        Mr. Szabo. Well, at this point, those funding requirements
    belong to the railroads. And, you know, certainly we're looking
    at those alternatives that might offer some help. But, again,
    the responsibility, at this point, belongs to those rail
    carriers that the regulation applies to.
        Senator Murray. Well, according to FRA's regulations,
    railroads have to deploy positive train control on any line
    that carried passengers or certain hazardous materials in 2008.
    But, for a lot of reasons, these routes shift before the 2015
    deadline that's coming at us. In that case, the original
    rationale for deploying positive train control on those lines
    may no longer exist. Now, railroads will be given the
    opportunity, I understand, to apply for an exemption to the PTC
    requirement along those rail lines. But, can you share with the
    subcommittee what criteria you will use to determine whether or
    not to grant an exception?
        Mr. Szabo. The key is that it's all about safety. And there
    has to be a baseline from where you start. And so, we believe
    that the regulation that we've drafted has a sufficient level
    of flexibility that we start with where we're at today. But, as
    those routes change, there's the ability to come in and
    verify--you know, they--the carriers would need to verify to us
    the fact that the routes have changed. And it allows for the
    appropriate level of checks and balances that--as modifications
    are made, for us to ensure that they're the appropriate
    modifications and that public safety is maintained.
        Senator Murray. Okay. Thank you very much.
        Senator Bond.

                       ALTERNATIVE FUNDING SOURCES/GRANTS

        Senator Bond. Thank you very much, Mr. Administrator.
        I am concerned that you talked about, ``We need to find
    some alternatives. We don't know what they are. We have a
    request for $446 billion--million out of the--outside of the
    budget for--OMB's budget--for Amtrak. And yet, we don't know
    how that's going to be paid for.'' We don't have our budget
    allocation. And I can guarantee you that we're going to have to
    start making some hard choices, because there are a whole lot
    of wonderful things out there for railroad, but we need some
    specifics to know what your priorities are.
        No. 1, if you have plans for the alternative source of
    funding, what are they? I mean, don't just tell us
    ``alternatives,'' because we're appropriating what we have. If
    you're going to get us more money, how are you going to get us
    more money?
        Mr. Szabo. Well, I'd say we've just recently sat down and
    started those discussions with Amtrak. So, you know, again, we
    need to flesh out what those alternatives are and get you----
        Senator Bond. Yes.
        Mr. Szabo [continuing]. The answers.
        Senator Bond. I can't approve any dollars that haven't been
    flushed out--or fleshed out--whichever way you put it--sorry.
    On, you know, ARA--ARRA gave Amtrak $1.3 billion, and
    apparently the inspector general of Amtrak is going to tell us
    that these programs are, perhaps, not meeting--going to meet
    the February 17, 2011, timeline. Would you comment on the
    oversight that FRA provided in making this grant--making these
    grants to Amtrak?
        Mr. Szabo. Well, let me say this. First off, I had a
    sitdown with the Amtrak inspector general just this week, and
    we discussed some of his findings in the report. And we welcome
    that. You know, that's the purpose of the inspector general, is
    to uncover potential areas of problems, whether the problems
    exist today or whether it's the potential of developing. And
    they did identify one that they have a concern with, you know,
    regarding the extraordinary measures that FRA is requiring----
        Senator Bond. Paying double overtime, I understand, on some
    of----
        Mr. Szabo. Yes.
        Senator Bond [continuing]. Those projects?
        Mr. Szabo. And I think the key is--what they said was, it
    has the ``potential.'' We're comfortable that, through our
    discussion with Amtrak and through the oversight that we're
    providing, that we're going to achieve that appropriate balance
    between the need to quickly create jobs--because that was the
    intent of these projects--while also ensuring that there isn't
    any waste. So----
        Senator Bond. But, what did you do in advance? You're
    talking about the IG looking at the--have you ever turned
    down--denied a grant to Amtrak?
        Mr. Szabo. I don't know, but I can get you that answer.
        Senator Bond. What criteria----
        Mr. Szabo. I mean, have I, in the past year? I have not.
    But, we can get an answer of what FRA's history is on that.
        Senator Bond. Maybe you can tell us what criteria you used,
    what judgment you excised in making that money available. If
    you'd provide that for the record, what criteria do you go
    through before making those grants to Amtrak, to make sure they
    were shovel-ready?
        Mr. Szabo. Definitely.

                              5-YEAR CAPITAL PLAN

        Senator Bond. And, in your view, should the 5-year capital
    plan include fleet, other rail assets, and the ADA requirements
    in one comprehensive fleet plan? Is that part of--is that going
    to be part for the plan?
        Mr. Szabo. Well, let me say this. One of the challenges,
    historically, in preparing our budget request is that,
    historically, there has been a mismatched cycle between FRA's
    budget request and the budget that Amtrak has prepared. And the
    good news is that, under Joe Boardman's leadership, and D.J.
    Stadtler, their Chief Financial Officer, that's changing, which
    means their budget cycle will be more in sync with ours. So, in
    the future, when FRA makes its budget application to this
    subcommittee, it'll be based on more sound facts, rather than
    us trying to estimate what we believe Amtrak might need, and
    then, their budget being developed a month or two later. And--
    --
        Senator Bond. Yes. Well, Mr. Administrator, I suggest
    that's your problem, not ours. But, when you pass that----
        Mr. Szabo. Well, and--like I say----
        Senator Bond [continuing]. Off onto to us----
        Mr. Szabo [continuing]. And the good news is----
        Senator Bond [continuing]. We're up against----
        Mr. Szabo [continuing]. It's being addressed.
        Senator Bond [continuing]. We're up against the wall now.
        Mr. Szabo. Right.
        Senator Bond. And should we----
        Mr. Szabo. But, it's being addressed.
        Senator Bond. Are there things in your budget request that
    you have submitted that you would like to reduce, to offset,
    and to cover some of the $446 million fleet request for Amtrak?
        Mr. Szabo. We believe that we have a very sound budget
    request that appropriately----
        Senator Bond. Okay.
        Mr. Szabo [continuing]. Directs----
        Senator Bond. So, we should absolutely ignore the $446
    million request for Amtrak.
        Mr. Szabo. I don't think you ever ignore any information
    that----
        Senator Bond. Well, unless the----
        Mr. Szabo [continuing]. Somebody brings----
        Senator Bond [continuing]. Unless----
        Mr. Szabo [continuing]. To this subcommittee.
        Senator Bond [continuing]. Unless----
        Mr. Szabo. Well, sir? No, wait a minute, please, please.
        Senator Bond. Yes.
        Mr. Szabo. Please allow me to answer.
        You know, as I said, when we develop our budget, there's
    always difficult choices that we have to make. And so, we make
    some decisions, and we present our vision to you. But, that
    doesn't mean that you should ever ignore new information or
    additional information or different information that somebody
    else brings to you.
        Senator Bond. I assure you, Mr. Administrator, we will have
    to do that. But, what we want to have, going in, is your best
    assessment. If you think the budget should be amended to take
    account of the $446 million request from Amtrak, or some part
    of it, we would ask you to provide that to us, because, at
    least we would have some grounds to know. We need to look at
    your budget request as a whole. And I--this coming in over the
    transom gives us mixed signals on what the administration's
    priorities are. And based on what you've said, and what we've
    seen in the past, I would have to say that this subcommittee is
    being asked by the administration to fund other things, but
    not--at--to the exclusion of the Amtrak request. So, that's
    something you're going to have to resolve, is whether you think
    that some of the requests for locomotives on the Northeast
    corridor should be included, and other projects that you've
    requested should be eliminated to make room for them.
        And finally, you're telling me that positive train control
    and all that is totally the freight rail--the $13 billion to
    $15 billion--is the freight rail's responsibility, and you're
    not going to recommend money for it.
        Mr. Szabo. No, that's not what I said. What I said was, we
    do have other funding alternatives that are available through
    these broadbased transportation programs, whether it's the
    TIGER grant process for passenger rail, potentially through the
    high-speed rail program, through the proposed Infrastructure
    Bank, or even through RRIF loans. So, we do have some
    alternatives. But, again, the responsibility--now, we can give
    some help--we can give some help--but, the responsibility does
    remain with those rail carriers.
        Senator Bond. Well, I'd be--I hope we will see that in the
    plan. And I'm sure the rail carriers will want to know how much
    they're going to be expected to pick up.
        Thank you, Madam Chair.
        Senator Murray. Thank you, Senator Bond.
        Senator Lautenberg.

                               EQUIPMENT REFRESH

        Senator Lautenberg. Yes. Thanks, Madam Chairman.
        One thing, I think, that's generally acknowledged, and that
    is that Amtrak is critical for our society to function--
    critical. And, you know, when you see a disaster, like
    September 11 or Hurricane Katrina, it's Amtrak that is called
    upon to move Americans out of harm's way.
        And in the Northeast corridor, Amtrak operates the only
    high-speed rail service in the country. And, as a matter of
    fact, if we didn't have Amtrak running there, be in the
    Northeast corridor, you'd have to run 243 more flights every
    day, with the densely congested airspace in our country. You'd
    also have to add, as an afterthought, 30,000 more cars on
    highway I-95. Amtrak offers so many positive additions to our
    well-being.
        And included in that is the commitment that all of us have
    made here, and that is to create jobs in this society. And
    you're not going to build the rail cars overnight. You're going
    to--how long does it take, do you think, Mr. Szabo, to--from
    the time equipment's ordered until the time that it's
    delivered?
        Mr. Szabo. Well, actually, Mr. Boardman could probably give
    you a more accurate line on that.
        Senator Lautenberg. Do you----
        Mr. Szabo. But, certainly----
        Senator Lautenberg. You don't know----
        Mr. Szabo. I'd say, roughly--Mark, what are we talking
    about--a year--from order to delivery. Roughly 3 years.
        Senator Lautenberg. Roughly 3 years. And the fact of the
    matter is, that as we look at what Amtrak adds--reduces our
    dependence on foreign oil, reduces the cost of--reduces
    pollution. It adds so many things and also says, ``You can get
    there on time.'' Surprise, you can get where you're going on
    time, if--98 percent of the time--if you take Amtrak.
        I took an airplane flight the other day, Madam Chairman. It
    was a 45-minute flight up to LaGuardia Airport, but it took us
    an hour and a half to take off. So, that made the 45-minute
    flight a heck of a lot longer.
        Amtrak's fleet of cars is rapidly deteriorating. The
    average age of an Amtrak passenger car is over 24 years old.
    And some are more than 60 years old. The fact that I regard
    that as young has nothing to do with--what we've--with what
    happens in a railcar. And I ask you, do we--how essential is
    it, in your judgment, for us to get replacements for the cars
    that we have on the railroad right now in order for Amtrak to
    be the functioning railroad we'd like to see? Is it important?
        Mr. Szabo. It's important, I would say, from both a safety
    standpoint, as well as a reliability standpoint.
        Senator Lautenberg. Is it critical, would you say?
        Mr. Szabo. It's getting very close to critical.
        Senator Lautenberg. You mean it's--we're not yet at
    criticality?
        Mr. Szabo. It's close.
        Senator Lautenberg. Mr. Szabo, you're too well informed not
    to be able to say yes to that.
        Ride the railroad. I don't--do you ever take the railroad?
        Mr. Szabo. Every chance I can get.
        Senator Lautenberg. How often is that?
        Mr. Szabo. I would say at least a couple of times a month.
    You know, when I----
        Senator Lautenberg. Well, I----
        Mr. Szabo [continuing]. Lived in Chicago, several times a
    month; now that I'm out here in the District of Columbia----
        Senator Lautenberg. Yes.
        Mr. Szabo [continuing]. A couple of times a month, whether
    it's to go to----
        Senator Lautenberg. I do it----
        Mr. Szabo [continuing].--New York.
        Senator Lautenberg. I do it every week. And I can tell
    you--my handwriting was never my best skill, but when I get off
    of the Amtrak train, and I try to write some things that I have
    to take care of, it's barely readable, because it shakes,
    rattles, and rolls. And it is ridiculous. If we want to make
    this railroad the thing that America should be proud of, invest
    like China or Spain or the countries that are far less able to
    do these things than we. And we're like a third, or even a
    fourth-rate country, in terms of railroading. It's shameful
    what happens with us.
        So, I agree with my colleagues here when we talk about
    replacing equipment. We need that $400-plus million for new
    equipment. And we've got to get those orders out there.
        How much cash does it require on the barrelhead in order to
    get these orders going?
        Mr. Szabo. For----
        Senator Lautenberg. For when you pay a deposit--you know,
    like if you want to buy a car, you pay a deposit.
        Mr. Szabo. It would be roughly $70 million.
        Senator Lautenberg. Okay. So, that sounds like a start to
    me, and we ought to work like the devil. And I--I've heard you
    say that it was--that there's no silver bullets and it's--then
    these are difficult decisions. All of that, those tales of woe,
    Mr. Szabo, they're interesting, but they don't get the job
    done.
        And so, when we looked further--I wrote a rail safety law
    that mandated that railroads install positive train control on
    certain routes by the end of 2015. And it created a grant
    program to help railroads meet this safety requirement.
    However, the President's budget eliminates funding for this
    critical grant program. What's the administration going to do--
    I think, Senator Bond, that--to help public and private
    railroads meet this deadline? Are they going to do anything
    about it?
        Mr. Szabo. Yes. Again, we would have funding available
    through, potentially, the TIGER Program for the passenger
    railroads, possibly the high-speed rail program, the proposed
    Infrastructure Bank, and potentially through RRIF loans. So, we
    do believe that there are some options out there.
        Senator Lautenberg. Do you have any idea as to the amount
    of resource or funding that might be available?
        Mr. Szabo. Well, again, that would--it would depend on the
    amount of TIGER money that is made available. You know, these
    different pools--it would vary over time.
        Senator Lautenberg. Everything depends on something else.
    We know that.
        In my State, New Jersey, we have a rail bridge known as the
    ``Portal Bridge.'' It's over 100 years old, in critical need of
    being replaced. One of the biggest factors is--in delays on the
    Northeast corridor--is the Portal Bridge. What's FRA's plan to
    replace this bridge so that high-speed rail service on the
    Northeast corridor can be seriously developed?
        Mr. Szabo. Well, as I think you're aware, we, through our
    high-speed rail program, have already allocated $38.5 million,
    which is also being matched by $16.5 million from the State of
    New Jersey to fund the final design of the replacement to the
    bridge. And we'll continue to work with the State DOT to see
    what alternatives are appropriate.
        Senator Lautenberg. The--if I might, Madam Chairman, just
    one last thing.
        The last environmental impact statement for the Northeast
    corridor was completed in 1978, in order for the corridor to
    receive this kind of high-speed rail investment that it needs,
    this assessment will need to be updated. Last year, Congress
    provided $50 million to the Department of Transportation to
    move forward on this assessment. Do you know what the status of
    this review is and when it will be complete?
        Mr. Szabo. Yes. The Secretary has asked for submissions
    from the Governors to establish the Northeast Corridor
    Commission, the study commission. That's been established and
    we'll be putting together the appropriate plans to bring the
    corridor to the--you know, to the next step, to the next level.
    So, we're committed to that.
        Senator Lautenberg. Madam Chairman, thank you very much.
        I assume that we'll have the record open so that we can
    submit questions for the record.

                                  RAIL SAFETY

        Senator Murray. Absolutely. Thank you.
        Mr. Szabo, funding for high-speed rail has dramatically
    changed the workload at the FRA. We can't forget that the FRA
    is a safety organization. You are requesting 26 new positions
    for rail inspectors and rail safety staff. Can you describe for
    us your workforce strategy for those new positions?
        Mr. Szabo. Roughly one-half of those will be field
    inspectors, and then the remaining will be at headquarters,
    being utilized to make this shift away--you know, we have to
    always maintain a strong inspection program while we also shift
    to the more creative approaches through our risk reduction
    programs and the direction that the Congress sent us on, under
    the Rail Safety Improvement Act. And so, the remaining half
    would be the bench strength that we need to put together our
    new rail safety initiatives.
        Senator Murray. Okay. Well, you've proposed covering part
    of that with the $50 million in user fees from the industry.
    That's a lot of money, especially when we're asking them to
    also do positive train control. Can you explain to us the
    rational for charging user fees?
        Mr. Szabo. Well, it's not unprecedented, when it comes to
    safety inside the DOT. Not only is it utilized in a couple of
    other modes at DOT, but there's some history of using it at
    FRA. As I--as you might be aware, we had such a user fee
    through the mid-1990s--roughly from, I think, 1990 to 1995. And
    so, again, there's a basis for doing this. And we believe it's
    appropriate to try and come up with revenue sources and that,
    in some way, we try and supplement the cost of the railroad
    safety program. Again, it's about public safety. It's about
    ensuring that we have the resources and the inspectors that we
    need to keep the Nation's railroads safe.

                                HIGH-SPEED RAIL

        Senator Murray. Okay. In another arena--before the Recovery
    Act, States didn't expect the Federal Government to provide a
    significant amount of money for high-speed rail; and in less
    than 2 years, the Federal Government has now committed $10.5
    billion to intercity and high-speed rail. That is an important
    long-term investment. We all know it's not realistic to expect
    high-speed rail corridors to begin operations in the next year.
    But, can you give us an idea of what timeframe you think will
    be necessary to see the development of high-speed rail
    corridors, and the beginning of service?
        Mr. Szabo. Well, I think you need to keep in mind that
    Congress developed this program as a State-driven process. And
    so, it's the States and the regions that develop their vision
    for their service, and then they apply to the Federal
    Government for capital money to construct. And I would say each
    of those States and regions are in a different maturity level,
    as far as where they're at with their plans.
        You know, in the case of those that got some of the early
    awards, these are State DOTs that have been investing and
    planning in rail, through their State programs, for many years.
    In the case of California, the case of your State, Washington
    State, in the Midwest, North Carolina--these States have been
    at this for almost a decade.
        You know, true 200-mile-an-hour service like California is
    going to take a long time to build out. Now, there can be small
    pieces that can be up and running and carrying passengers much
    more quickly. But, frankly, it's going to be projects more like
    the Midwest plan, the Midwest Regional Rail Initiative that can
    have service at 110-mile-an-hour quickly in the next couple of
    years, as it continues to build out and develop. And Washington
    State, too.
        Senator Murray. Well, you've requested a billion dollars.
    Can you tell us how much you expect to use for intercity
    projects and how much for high-speed rail corridors?
        Mr. Szabo. Well, under the $2.5 billion that we rolled out
    this year, we allocated, roughly, about 85 percent of that to
    high-speed rail and, roughly, about 15 percent more toward the
    intercity projects. And if you take a look at the percentages
    on the $8 billion that we put out, you know, roughly--I want to
    say, roughly, about 45 percent was in that category of true
    high-speed rail of over 150 miles per hour. Roughly, another 40
    percent went to what I would call ``emerging high-speed rail,''
    you know, those in that 110- to 125-mile-an-hour category, and
    then, roughly, about 15 percent into the smaller projects and
    conventional service. So, that seems to be, you know, a good
    balance, a good match.
        Senator Murray. Okay. Well, in order to decide which
    projects you're going to fund through this program, you're
    going to have to rely on forecasts of ridership levels and
    revenues and public benefits, projects costs. And, so far, we
    haven't seen you develop these strong requirements. And I know
    the Department's inspector general is starting to investigate
    best practices. Can you tell us what you're doing to make sure
    that the grant awards are based on sound forecasts of projects
    based on costs and benefits?
        Mr. Szabo. Yes. I mean, clearly, it has been, from day one,
    a merit-driven process. And we do make these types of analyses.
    But, again, there has to be an acknowledgment that this is a
    brand new program. You know, it's in its infancy. In less than
    a year's time, we've just----
        Senator Murray. Well, are you----
        Mr. Szabo [continuing]. Given birth to the program.
        Senator Murray [continuing]. Developing those?
        Mr. Szabo. Precisely.
        Senator Murray. And when will we----
        Mr. Szabo. Precisely. And that's kind of why I go back to
    its--a lot of it is about the lessons learned. You know, when
    it comes to ridership forecasts----
        Senator Murray. Well, will we see this in writing?
        Mr. Szabo. Well, I think ultimately, we will be developing
    rules. But, again, we're just going through----
        Senator Murray. Do you have a timeframe for that?
        Mr. Szabo [continuing]. Utilizing the grant guidance. We
    really need to get this first round under our belt, you know,
    and experience the--you know, the--we have to execute the first
    round before we can start taking a look at those tweaks that
    need to be made in future rounds.

                        AMERICANS WITH DISABILITIES ACT

        Senator Murray. Okay. Well, I have one more question. Under
    the Americans with Disabilities Act (ADA), all Amtrak stations
    are supposed to be accessible by July 26 this year. Amtrak has
    already admitted that it will not be able to meet that
    deadline, and started a 5-year effort to invest in station
    improvements and come into compliance. Do you believe that,
    over the years, Amtrak did everything it could have done to
    comply with ADA?
        Mr. Szabo. Well, I think, as this subcommittee is probably
    aware, historically, no administration has ever made an ADA
    request on behalf----
        Senator Murray. Right.
        Mr. Szabo [continuing]. Of Amtrak. And so, I mean, it
    really put them behind the eight ball. You know, and that is
    one of the reasons why we came forward this year and have, in
    fact, made the $281 million request to start funding those
    legitimate needs.
        Senator Murray. Okay, all right. Thank you.
        Senator Bond.
        Senator Bond. Thank you, Madam Chair.
        I would just note one thing. As a former Governor, I can
    tell you that looking to the States to make massive investments
    in high-speed rail is not going to happen anytime soon, until
    the States get out of the holes they're in. And California,
    you've mentioned, probably is in--somewhere up there between
    Greece and Spain in having budget problems.
        But, Madam Chair, I'm going to submit questions in writing
    for the record, and I need to have a lot more specifics--firm
    priorities, amounts--not just, ``We're going to work on a
    plan,'' but a plan, criteria, priorities--before I can support
    any of these requests. I need to know how they fit in our
    overall budget.
        So, thank you for your testimony, Mr. Administrator. And we
    have other witnesses. And we'll be communicating with you.
        Thank you.
        Senator Murray. Thank you very much, Senator Bond.
        Mr. Szabo, that would--will conclude our questions at this
    time. There will be questions from the subcommittee that we
    will need responses from you in writing.
        Thank you very much for your testimony today.
        And with that, I'd like the second panel to come forward.
        Mr. Szabo. Thank you.
                NATIONAL RAILROAD PASSENGER CORPORATION (AMTRAK)

    STATEMENT OF HON. JOSEPH H. BOARDMAN, PRESIDENT AND
                CHIEF EXECUTIVE OFFICER
        Senator Murray. All right. I'd like to welcome our second
    panel today.
        And, Mr. Boardman, we'll begin with you.
        You want to turn your microphone on, please.
        Mr. Boardman. Okay. Thank you, Madam Chair.
        And I appreciate the opportunity to speak with you today.
        Before I begin the discussion about Amtrak's funding needs,
    I'd like to share with the subcommittee some good news that was
    announced on April 8. Amtrak is on pace to break its annual
    ridership record, carrying a best-ever 13.6 million passengers
    during the first 6 months of fiscal year 2010. And with the
    historically busier summer travel season ahead, comparing March
    2010 to 2009, ridership increased by 13\1/2\ percent to a
    record 2.4 million passengers for the month. In addition, every
    single Amtrak route carried more passengers, with several
    experiencing double-digit growth.
        Furthermore, one of the, I think, important things to see
    today is that we've had other wins. A win with Moody's--Moody's
    has upgraded the rating for Amtrak from an A2 to an A1 just
    this last month. There have been no material weaknesses found
    in our audits. This is the first time since 2004 that that's
    occurred. And ridership on long-distance trains increased by 16
    percent in March, and is up 5.2 percent for the first two
    quarters of 2010.
        In every one of the services, whether the Missouri River
    Runner, where Senator Bond is, it's up by 24.2 percent for
    March, to--and 15.8 percent for the first half of Amtrak year.
    Cascade's increased by 11.4 percent. And March saw a 16.7
    percent increase for the first 6 months of the fiscal year.
        These numbers reinforce what so many of us know about
    passenger rail; if you provide a safe, reliable, user-friendly
    system, the traveling public will use it.
        What I'd like to do, though, is spend time talking about
    what I think is the most important piece of what we're asking
    for. And I know, in the last hearing, there were several
    questions on it. And it's the ``Amtrak Equipment Plan and
    Needs,'' which is by your table right now.
        And just as an introduction, the fleet truly is the key for
    customer perception and willingness to use our system. The
    operating reliability is particularly important. And the cost
    of maintaining a fleet is critical for us for the future.
        The railroad belongs to you. It belongs to the United
    States. It belongs to the administration and the Congress, and
    it has for the last 40 years. We cover 80 percent of our
    operating costs from revenue. We are the most efficient
    railroad in the United States. We cover none of our capital
    costs. Just like highways, capital support comes from the
    Federal Government. And the payment on debt comes from the
    Federal Government. And that will continue to be that way for
    as long as you, the owners of this railroad, decide to operate
    a railroad.
        Amtrak has suffered insufficient Federal capital investment
    over the full 40 years that it's been here. ADA has been around
    for 20 years, and every administration has failed, and every
    Congress has failed, to deliver what it passed as a law to fund
    the ADA requirements for Amtrak. And that is not the case with
    highway. It is not the case in the rest of the modes. These
    modes are not pitted against the poor. These modes are pitted
    against highways and aviation and rail. Nowhere is that more
    evident in the railcar fleet and locomotive fleet.

                              AMTRAK'S AGING FLEET

        The fleet needs to be recapitalized. The average age of the
    fleet was already said to be 25 years old--or ``more than 24''
    are, I think, the words that were used. Domestic production is
    needed both for employment and to secure a Nation as we enter a
    much higher cost of energy for the future. We need railroads
    and passenger railroads.
        In the first table, just to identify for you the planned
    car locomotive procurement, you can see as red and yellow
    lines. The yellow lines are the cars, and the red lines are the
    locomotives. And the two high marks on the yellow lines are
    when you replace train sets, like the Acela services, and
    that's why they're higher.
        In the second table, what you see is the average annual
    miles, in thousands, that the cars operate for Amtrak. And on
    the far right of this table, what you find is that all of the
    Amtrak cars are operating, in some cases, 180,000 miles a year,
    in comparison to all the transit operators, which are on this
    side of the table, Tri-Rail being the most, at 66,000 miles a
    year. And the utilization, then, for Amtrak--all of these
    Amtrak cars--is much higher than any other operation in the
    United States, period. And they're all older.
        If you look at the third page, you find the same kind of
    information for the average annual mile--locomotive mileage.
    And what you see is, the closest competitor--and they aren't a
    competitor, they're a host--is BNSF, which has an 83,000 mile
    annual locomotive use, where Amtrak is 160,000 mile--almost
    double what the mileage is by our private railroads.
        But, I think perhaps the most compelling slide in the deck
    that you have in front of you is the last one, because it's a
    snapshot of the present. It is the locomotives that we're
    talking about replacing, which is the electric locomotive on
    the Northeast corridor. It's the AEM-7--from the 1980s category
    in utilization you saw a couple of minutes ago. It's the
    Heritage baggage car that was built in the 1950s. It is the
    Viewliner sleeper cars, which are the newest ones on this
    fleet. The Heritage diner, which is the same age I am. I was
    born in 1948, and this diner was born in 1948.

                               PREPARED STATEMENT

        And it's one of the things that keep our speed down on the
    Northeast corridor. You can only operate 177 kilometers per
    hour; that's 110 miles an hour. And when we replace these,
    we'll be able to immediately go to 200 kilometers per hour, or
    125 miles an hour, by replacing these older cars, which then
    reduces the time it takes to travel on the Northeast corridor.
    And then the Amfleet coaches and the lounge cars, from 1981 to
    1983. This is the Florida-bound Silver Star, at Seabrook,
    Maryland, and I think it really demonstrates what we need for
    fleet for the future.
        Thank you for the opportunity to speak.
        [The statement follows:]

                 Prepared Statement of Hon. Joseph H. Boardman

        Good morning, Madam Chair, Ranking Member Bond, and members of the
    subcommittee. Today is my first time appearing before this subcommittee
    as President of Amtrak, and I thank you for the opportunity to testify
    on Amtrak's fiscal year 2011 operating and capital needs. I took this
    position in November 2008; prior to that I was the Federal Railroad
    Administrator.
        Before I begin the discussion about Amtrak's fiscal year 2011
    funding needs, I would like to share with the subcommittee some very
    good news that was announced April 8. Amtrak has posted the best first
    half in its history, carrying 13.6 million passengers during the first
    6 months of fiscal year 2010. Comparing March 2010 to March 2009,
    ridership increased by 13.5 percent to a record 2.47 million passengers
    for the month. In addition, every single Amtrak route carried more
    passengers, with several experiencing double-digit growth.
        Ridership on long-distance trains increased by 16 percent in March
    and is up 5.2 percent for the first two quarters of fiscal year 2010.
    In the Chicago hub, ridership on the Lincoln Service (Chicago to St.
    Louis) showed significant growth with an 18 percent jump in March and
    11.6 percent for the 6 month period. The Hiawatha Service (Chicago--
    Milwaukee) continues to grow with a 14.3 percent increase in March over
    the previous year and a 4.8 percent increase for the fiscal year to
    date. Elsewhere in the Midwest, the Missouri River Runner (Kansas
    City--St. Louis) is up 24.2 percent for March and 15.8 percent for the
    first half of the Amtrak fiscal year, while the Blue Water (Chicago--
    Port Huron) increased by 21.7 percent in March and 5.2 percent for
    fiscal year to date. In the West, Amtrak Cascades (Eugene, Oregon--
    Vancouver, B.C.) increased by 11.4 percent in March and saw a 16.7
    percent increase for the first 6 months of the fiscal year.
        These numbers reinforce what so many of us know about passenger
    rail. If you provide a safe, reliable, and user-friendly system, the
    traveling public will use it. I want to personally thank Chairwoman
    Murray and this subcommittee for the funding that has helped make this
    growth possible and helped prove our belief in this system and mode to
    be well founded. Between the funding provided by this subcommittee to
    Amtrak and the Federal Railroad Administration's (FRA) High Speed and
    Intercity Passenger Rail Grant Program through the fiscal year 2010
    appropriations bill and the Recovery Act, you have truly ushered in a
    new era of intercity passenger rail development in the United States.
        With the funding you have provided Amtrak, we have rededicated
    ourselves to our mission of developing the Nation's intercity passenger
    and high speed passenger rail system, aiming to grow the quality,
    utility, and breadth of our network. We are also working intensely on
    this year's capital investment program, split-funded with $420 million
    in General Capital Funds and $590 million in Recovery Act funds.
    Equally important, we are also working with our State partners and the
    FRA to implement the first round of grants awarded under the High Speed
    and Intercity Passenger Rail grant program and are in the midst of
    collaborating with State for second-round applications due this spring
    and summer. Together with the Northeast Corridor States, we have also
    just completed the first phase of our 3 year Northeast Corridor Master
    Planning Process, and will be transmitting the final version of the
    Master Plan document to Congress and the administration in mid-May.
    Supplementing this effort, we have also just begun an initial phase of
    our Northeast Corridor Next Generation High Speed Rail Study, led by
    our new High Speed Rail department, to look at the feasibility of a new
    dedicated high speed system in the NEC to serve as successor to the
    Acela service, with greatly reduced trip times, increased frequencies,
    and top speeds of 200 mph or more for our high speed express trains.
        Central to all of these endeavors to strengthen or grow the Amtrak
    system is our need to replace our aging and hard-run fleet with modern
    equipment. Per Congress's instructions, we completed our first
    comprehensive fleet strategy for the entire system and provided it to
    the subcommittee on February 1. I testified before the House
    Appropriations Committee last month to explain the urgency of our
    financial needs, particularly our need to replace aging rolling stock,
    and I want to repeat and, if possible, amplify this appeal. New
    equipment is an urgent need. We must begin replacement of our aging
    cars and locomotives next year, and the arrangement of financing for
    these acquisitions is a priority. If we continue to delay, we risk a
    significant worsening of the mechanical problems and failures that
    degrade our service quality and increase the already considerable
    maintenance expenses associated with the maintenance and repair of a
    fleet far past its prime.

                            FISCAL YEAR 2011 REQUEST

        For fiscal year 2011, Amtrak initially requested a total of $2.1
    billion, consistent with the Passenger Rail Investment and Improvement
    Act of 2008 (PRIIA) authorizations. About $592 million of that total is
    requested for operating support, and $1.025 billion will cover capital
    needs, while a total of $305 million would go for debt and debt
    retirement opportunities. Another $231 million will be needed for ADA
    compliance requirements. On March 22, Amtrak submitted a supplemental
    request to Congress for an additional $446 million to address our most
    urgent unfunded need, replacement of our aging fleet. This will raise
    our total fiscal year 2011 request to about $2.5 billion.

                                   FLEET PLAN

        The $446 million requested for new equipment represents the first
    and most urgent investments we need to make in replacing our aging
    rolling stock. It will include the cost of purchasing 130 single level
    long distance cars to replace our 1950s-era ``Heritage Fleet'' of
    dining and baggage cars--the last rolling stock we inherited from the
    freight railroads that's still in daily revenue service. The average
    annual mileage of these cars is enormous, as you will see on this first
    slide (see attachment). The typical Heritage car averages 451 miles per
    day--that's like running it from Washington to Boston every single day
    of the year. And we're putting these miles on cars whose automotive
    equivalent would be a Studebaker or Packard. This is the fleet we are
    going to replace. If you go to the next slide, you can see the
    situation we face with our locomotive fleet. Our diesel electric
    engines are comparatively new, but the electric fleet that powers our
    Northeast Regional and Keystone trains is aging and requires
    replacement.

        The plan we have put together is shown on this third slide. Many
    stakeholders have been anxious for the release of this plan, which was
    required by Congress in the fiscal year 2010 THUD appropriations bill.
    Amtrak has spent a year developing a comprehensive fleet plan that's
    designed to replace all of our existing rolling stock as it reaches the
    end of its useful life. It calls for the replacement of equipment in
    manageable annual increments, which will allow us to identify and fix
    issues with new designs before they become problems. This is not only a
    procurement plan but a strategy designed to develop and support a
    domestic rail manufacturing industry. It supports an administration
    goal and an Amtrak goal, as a stable domestic manufacturing and supply
    base should help spur innovation and reduce costs for us. Our fleet
    strategy affords States an opportunity to join their orders to ours,
    with unit cost savings for everyone--a goal set by Congress with
    passage of PRIIA. To further this, we are working with the FRA and the
    States through the PRIIA section 305 Next Generation Corridor Train
    Equipment Pool Committee to ensure that our new fleet shares common
    designs and specifications with the equipment needed by the States so
    that this equipment is interoperable and easily maintained. All of
    these are excellent goals, and Amtrak supports them wholeheartedly--but
    we need to take the first step, which is funding the initial
    procurement of a new single-level long distance fleet. We must give
    potential suppliers reason to believe there is a long-term commitment
    to retain Amtrak and to fund additional State procurements of intercity
    passenger rail equipment in the United States. Otherwise, they will not
    make the type of investments in facilities and workers necessary to
    bring the United States back to the position it once occupied, in the
    forefront of railcar manufacturing, and the 60-year old cars you see in
    this fourth slide, which date from that era, will remain in service as
    long as our maintenance and operating crews can keep them rolling.

        Amazingly, Amtrak managed to increase its ridership by 32 percent
    between 2002 and 2008 without buying new equipment and our ridership
    continues to grow today. We are using ARRA funding to return stored and
    wreck-damaged equipment to service, and I'm very pleased with the job
    that our Beech Grove and Bear shop staffs have done. This extra
    equipment now back in service is a contributing factor to our increased
    ridership. But there are limits to what we can accomplish, and we can't
    put cars that don't exist back into service. Right now the margins for
    our equipment, particularly our single-level sleeper and diner fleets,
    are razor-thin. A single major accident could potentially require us to
    terminate or reduce certain services, particularly on the long-distance
    trains.

                      ACCESSIBLE STATIONS DEVELOPMENT PLAN

        This July 26 will mark the 20th anniversary of the enactment of the
    Americans with Disabilities Act (ADA), and Amtrak is proud of its role
    as an important mode of travel for people with disabilities and of our
    special services to the disabled community. We look forward to
    celebrating this ADA milestone, but there remains much work to be done.
    Last year, 288,000 riders took advantage of the discounted pricing
    Amtrak offers to passengers with disabilities, and that number is on
    pace to increase by 6 percent this year. All of our front-line
    employees are trained to provide special service to passengers with
    disabilities, and we have resources and policies in place to
    accommodate those with unique service requests, such as at-seat meals.
    All of Amtrak's trains meet or exceed the requirements of the ADA,
    while each and every one of our new rail cars is designed to be
    accessible. Amtrak offers reserved spaces to park wheelchairs,
    accessible seating into which passengers can transfer from a
    wheelchair, accessible bedrooms on all long-distance trains, accessible
    restrooms, and other accessibility features and services. We're also in
    the process of modifying our train cars to allow for on-board storage
    of Segway devices for those passengers who use them for mobility
    assistance.
        Currently, 94 percent of Amtrak passengers board at accessible
    stations. While our stations must be fully compliant with the terms of
    the act by July 26, 2010, unfortunately, as the subcommittee knows, we
    will miss this deadline. But we are focused on making each of the 529
    stations we serve fully accessible, a challenge that requires
    significant funding. We are conducting a capital improvement program to
    bring all covered stations we serve up to the necessary standards at a
    cost of nearly $1.6 billion based on the comprehensive study we
    completed in February 2009. In this fiscal year alone, Congress
    allocated $144 million for station accessibility improvements.
        Adding to this complication is the annual funding challenge. On
    February 1, 2009, Amtrak advised in our report under section 219 of the
    PRIIA that nearly $1.6 billion was needed to bring the entire system
    into compliance with ADA, assuming that current ADA regulations on
    platform boarding remain unchanged. (As the Congress may well be aware,
    a proposed Federal Department of Transportation rulemaking is pending
    that would call for level boarding at all stations covered by the ADA.
    If that rule were to be promulgated and become law, the basic
    assumptions and parameters of Amtrak's current stations compliance
    program would be nullified and both the time and cost to achieve
    compliance would be increased exponentially.) This investment amount
    represents a year-old estimate for both Amtrak's responsibility and
    third-party responsibilities.
        In our fiscal year 2011 request, we asked for $281 million for our
    fiscal year 2011 Accessible Stations Development Plan, to continue the
    work to bring the stations we serve into compliance with the ADA.
    However, today I am here to report to you that we are revising that
    number downward to $231 million. Due to the challenges of reaching
    agreements with all parties with ownership interests at the stations,
    we have to take into consideration the 3 months of experience since our
    fiscal year 2011 request was submitted, and we do not think it will be
    feasible for us to spend $281 million in fiscal year 2011. If you or
    your staff would like more details on this issue, we can certainly
    follow up with you on that.
        In closing, I am optimistic about our future and the future of
    intercity and high-speed passenger rail. Our intercity passenger rail
    system is one of the few readily available solutions to the
    transportation challenges facing our country--and we are ready to turn
    investments in rail into benefits for the environment, the economy, and
    our mobility. What it needs is continued investment and leadership. We
    look forward to working together in the coming months to ensure that
    Amtrak obtains the public funding it needs to sustain its system and
    fleet for generations to come and to realize the goals of a stronger
    Amtrak and a stronger intercity passenger rail network.

        Senator Murray. Thank you very much, Mr. Boardman.
        Mr. Alves.
    STATEMENT OF THEODORE ALVES, INSPECTOR GENERAL
        Mr. Alves. Good morning, Madam Chair, ranking member, and
    members of the subcommittee. And thank you for the opportunity
    to discuss Amtrak's 2011 budget request.
        I'd like to start by thanking Mr. Carper, Amtrak's
    Chairman, its Board of Directors, President Boardman, and
    members of this subcommittee for the support I've received
    during the past 5 months as Amtrak's new inspector general.
        I'm also pleased to report that Amtrak management and the
    OIG have agreed to a new relationship policy, and that the
    inspector general of the Farm Credit Administration found that
    the new policy is consistent with the letter and spirit of the
    IG Act. I want to thank the subcommittee for including this
    very helpful requirement in last year's appropriations act.
        Today, I will discuss the significant opportunities Amtrak
    has to provide increased levels of high-quality passenger rail
    service and four important challenges management must address
    to take advantage of these opportunities.
        First, the opportunities. The Passenger Rail Investment and
    Improvement Act fundamentally changed Amtrak's role within the
    national passenger rail system. Rather than relying on Amtrak
    to lead development of new intercity passenger rail services
    alone, PRIIA calls on States, supported with Federal grants, to
    share in developing new corridor and high-speed rail services.
    As a result, Amtrak will become one of many choices States have
    to provide rail services, rather than the only practical
    option.
        The first challenge is that Amtrak needs to organize
    properly and operate more efficiently. Amtrak is making
    organizational changes to help it successfully compete for new
    contracts, and has taken steps to operate more efficiently.
        To illustrate, the company has made significant progress
    implementing reliability-centered maintenance practices in
    response to a 2005 OIG report. Using reliability-centered
    maintenance on the Acela fleet reduced costs and generated $16
    million in new revenue in 2009. Amtrak should continue applying
    this maintenance concept across its fleet.
        However, Amtrak can do more. For example, we recently
    identified opportunities to adopt European best practices,
    including better asset management systems and more advanced
    technologies.
        Second, Amtrak needs to improve its human capital
    management practices. In a May 2009 report, we made several
    recommendations that management agreed to implement. As a
    result, Amtrak is focusing on strategic workforce planning,
    including identifying its critical skills and competencies,
    implementing a total compensation philosophy, and improving
    recruitment and retention practices. Fully implementing these
    corrective actions will require a concerted effort over several
    years.
        Third, significant IT investments always involve risks.
    Amtrak has four major technology initiatives underway, and has
    taken a number of measures to address the risks, including:
    establishing disciplined procedures to guide both project
    management and technology development; forming an independent
    team to enforce standards; and implementing reviews to ensure
    that projects meet quality standards before proceeding to the
    next development phase. To ensure that these projects stay on
    track and achieve anticipated benefits, Amtrak should closely
    watch progress, address emerging problems quickly.
        The fourth challenge is managing risks associated with the
    Recovery Act projects. Specifically, Amtrak may have to take
    measures that could reduce productivity, adversely impact
    project quality, or significantly diminish railroad operations
    in order to finish some projects by February 2011.
        Amtrak faces this issue, in part, because the terms of the
    FRA grant are stricter than the terms in the act. The act
    requires Amtrak to take measures to complete the projects by
    February 2011. The FRA grant, on the other hand, requires
    Amtrak to take continuing measures, and even extraordinary
    measures, to complete projects by that date.
        As projects face slippages, Amtrak is now considering
    taking extraordinary measures to meet the completion date.
    These measures include adding second or third shifts, which
    studies indicate have a negative impact on productivity, and
    reducing the scope of projects, which reduces the benefits
    associated with the final product. Although the term
    ``extraordinary measures'' has not been defined, we do not
    believe that Amtrak should take actions that would
    significantly reduce productivity, adversely impact the quality
    of the final products, or significantly diminish railroad
    operations.

                               PREPARED STATEMENT

        Madam Chair, this concludes my testimony, and I'll be happy
    to answer any questions.
        [The statement follows:]

                      Prepared Statement of Theodore Alves

        Good morning Madam Chair, ranking member, and members of the
    subcommittee and thank you for the opportunity to testify about
    Amtrak's fiscal year 2011 operating and capital budget request. Amtrak
    has made considerable progress positioning itself to meet the
    challenges it faces to compete effectively in this new era of intercity
    passenger rail. The intercity passenger rail system includes the long
    distance routes, High Speed Rail corridors, State sponsored corridors,
    and the Northeast Corridor (NEC). Accomplishments include completing a
    new strategic guidance, a 5 year financial plan, and a long-range fleet
    plan. Although fiscal year 2009 saw a decline in ridership and revenue
    from fiscal year 2008 as the economy continued to struggle, both
    ridership and ticket revenues came in at the second highest level in
    company history. The last several months have also seen sustained
    increases in passengers and revenue.
        Before I discuss Amtrak's funding request, let me thank Mr. Carper,
    Amtrak's Chairman, its Board of Directors, President Boardman, and
    members of this subcommittee for the support I have received during the
    past 5 months as Amtrak's new Inspector General (IG). Last year's
    appropriations act directed Amtrak management and the OIG to agree upon
    a set of policies and principles for working together that are
    consistent with the letter and spirit of the IG Act. On March 17 of
    this year, Carl Clinefelter, the IG of the Federal Credit
    Administration and Vice Chairperson of the Council of the Inspectors
    General on Integrity and Efficiency, reported that the new relationship
    policy is consistent with the letter and spirit of the IG Act. I want
    to thank the subcommittee for inserting this very helpful requirement.
        Amtrak is requesting $2.6 billion for fiscal year 2011. A total of
    $592 million is for operating support, $1.8 billion for capital needs--
    including $446 million for replacing its aging fleet, and $281 million
    to meet the Americans with Disabilities Act requirements--and the
    remaining $277 million for debt retirement. This amount, along with
    last year's American Recovery and Reinvestment Act (Recovery Act)
    funding of $1.3 billion would be a significant infusion of funds and
    would help Amtrak move toward its long-term goal of providing
    efficient, high quality passenger rail service that is cost and trip
    time competitive with other modes.
        Today, I would like to discuss the significant opportunities that
    Amtrak has to provide increased levels of high quality passenger rail
    services, as well as important challenges it must address to take
    advantage of these opportunities.
        First, the Opportunities.--Congress passed the Passenger Rail
    Investment and Improvement Act (PRIIA) in October 2008. PRIIA
    recognized that passenger rail services, particularly connecting large
    cities, can provide significant public benefits, including road and air
    congestion reductions, environmental benefits, fuel usage reductions,
    and increased mobility choices for the travelling public.
        PRIIA not only reauthorized Amtrak; it fundamentally changed
    Amtrak's role within the national passenger rail system. PRIIA also
    contains many provisions aimed at spurring Amtrak to operate more
    efficiently and to improve services on its existing routes. In
    addition, the Recovery Act provided $8 billion through PRIIA grant
    programs to States to assist in improving Amtrak's national network and
    begin developing new High Speed Rail corridors. Amtrak also received
    $1.3 billion through the Federal Railroad Administration (FRA) to
    improve its infrastructure, facilities, and security.
        Essentially, rather than relying on Amtrak to lead the development
    of new intercity passenger rail services alone, PRIIA calls on States,
    supported with Federal grants from FRA, to share in the development of
    both new corridor services and High Speed Rail services. While Amtrak
    is still presumed to be the national operator, PRIIA provides greater
    flexibility to the States in determining who will plan, develop, and
    operate these new services.
        With States playing a larger role in planning for and funding
    passenger rail service, Amtrak will become one of many choices States
    have to provide services, rather than the only practical option. Amtrak
    can still be the provider of choice in this new competitive
    environment, but only if it is perceived as an efficient organization
    that provides quality and cost-effective service.
        In fact, Amtrak has many competitive advantages, including its
    statutory access to host railroads, existing liability regime, and
    experience in planning, engineering, maintenance, and operations. For
    example, Amtrak already operates a number of commuter rail routes in
    key markets and has a nationwide reservation system that can be
    extended to support new services, allowing significant economies of
    scale. Amtrak can leverage these advantages to help States plan for
    these new services and to become the operator of choice for new
    services.
        Now, the Challenges.--As Amtrak moves into this new era of
    passenger rail, it faces four interrelated management challenges. Those
    challenges include:
      --Competing successfully for new State supported corridor and high
            speed rail services and then delivering high quality cost-
            effective service.
      --Improving human capital management practices, including strategic
            workforce planning, and training and development.
      --Managing risks associated with the modernization of Amtrak's
            information technology systems and infrastructure.
      --Managing risks associated with projects funded through the Recovery
            Act.

     CHALLENGE 1.--COMPETING SUCCESSFULLY FOR NEW STATE SUPPORTED SERVICES
            AND THEN DELIVERING HIGH QUALITY COST-EFFECTIVE SERVICE

        Growth in State supported services, including the development and
    operation of new high-speed rail corridors, creates new challenges for
    Amtrak. To retain its dominant position in the market, Amtrak must
    elevate its customer focus, improve service quality, and become a more
    nimble and dedicated partner. Competition for routes should also
    challenge Amtrak to implement significant operating efficiencies that
    will improve all lines of business.
        The strategic direction and additional Federal funding that PRIIA
    authorized, along with appropriations support, has given Amtrak a
    unique opportunity to expand and enhance its rail passenger operations.
    However, Amtrak will face challenges to compete successfully in a
    market place that has increasing levels of both domestic and foreign
    competition. The competition is evidenced by two recent examples:
      --The Virginia Railway Express operating and maintenance service
            contract was recently awarded to the U.S.-based subsidiary of a
            French firm. Amtrak had been providing the services since the
            commuter rail operations began in 1992.
      --Caltrans selected a different French firm to renovate all 66 bi-
            level intercity passenger vehicles from its California car
            fleet. The renovations will take place in a newly-opened
            maintenance facility in California. While Amtrak did not
            compete for this work, it represents the growing marketplace
            for equipment-related work.
        To thrive in this newly competitive environment, Amtrak must
    significantly improve its operating efficiency. In fact, we believe the
    very existence of competition will provide the incentive Amtrak needs
    to focus more attention on operating more efficiently.
        Amtrak deserves to be commended for its recent decision to
    establish a new High Speed Rail department reporting directly to Mr.
    Boardman. This new department should help the company focus on the
    planning and development activities required to successfully compete
    for high speed rail contracts. As it implements this new organization,
    Amtrak will need to also focus on ensuring that it is positioned to
    deliver efficient and high quality services. A heightened emphasis on
    operating more efficiently and controlling costs will be needed to
    ensure that Amtrak remains the service provider of choice.
        Amtrak has taken some commendable steps to improve operating
    efficiencies in recent years, but more needs to be done. For example, a
    recent OIG report \1\ concluded that, although Amtrak's Engineering
    department has effectively reduced its operating expenses by 15 percent
    between 2002 and 2007, the company still spends about $50 million more
    per year than the average comparable European railroad, and $150
    million more per year than the ``best'' European railroads to maintain
    and renew its infrastructure assets. Although American and European
    railroads are not entirely comparable and some of these opportunities
    are outside Amtrak's direct control, Amtrak can implement many European
    practices that would reduce costs. For example, we recommended that
    Amtrak implement better asset management systems and procure more
    advanced technology/equipment.
    ---------------------------------------------------------------------------
        \1\ ``Amtrak's Infrastructure Maintenance Program'', September
    2009, OIG Report Number E-09-05.
    ---------------------------------------------------------------------------
        Amtrak is well along in implementing a new asset management system
    but it will be several years before it is fully operational.
    Additionally, Amtrak is exploring new technologies along the Northeast
    Corridor. The key now is for Amtrak to follow through on these
    recommendations to ensure that these changes are implemented
    effectively.
        In 2005, we issued a report on Amtrak's Mechanical Maintenance
    Operations.\2\ We estimated that Amtrak had an opportunity to save $100
    million per year by adopting a Reliability Centered Maintenance
    strategy along with other efficiency improvements. Amtrak has made
    significant progress in this area. For example, implementing
    Reliability Centered Maintenance for the Acela fleet allowed Amtrak to
    reduce maintenance costs and to increase available train sets from 14
    to 16 per day, generating additional revenues of $16 million during
    fiscal year 2009 alone. The experience with the Acela fleet is a strong
    indicator that significant additional benefits can be realized as this
    practice is expanded throughout Amtrak's conventional fleet. Amtrak
    needs to ensure that momentum is maintained to apply this important
    maintenance concept across all Amtrak fleet assets. We are currently
    conducting a follow-up review on this important program.
    ---------------------------------------------------------------------------
        \2\ ``Amtrak Mechanical Maintenance Operations'', October 2005, OIG
    Report Number E-05-04.
    ---------------------------------------------------------------------------
        We also note that Amtrak's financial projections do not reflect
    significant improvements in operating efficiency. One key indicator of
    efficiency that Amtrak uses is loss per passenger mile. The chart below
    shows the operating loss per passenger mile increasing by approximately
    45 percent from fiscal year 2008 to fiscal year 2010, and then
    remaining relatively constant from fiscal year 2010 to fiscal year
    2014. During a period when ridership is expected to grow beyond the
    levels experienced in fiscal year 2008, we would expect to see the loss
    per passenger mile return to the levels experienced in fiscal year 2008
    or even improve on those levels. Only through a renewed focus on
    efficiency improvement will Amtrak be able to achieve this.

     CHALLENGE 2.--IMPROVING HUMAN CAPITAL MANAGEMENT PRACTICES, INCLUDING
           STRATEGIC WORKFORCE PLANNING, AND TRAINING AND DEVELOPMENT

        Improved human capital management and strategic workforce planning
    are critical to ensure that Amtrak has the right people with the right
    operational and leadership skills to improve services and expand
    operations efficiently and effectively.
        Historically, Amtrak had been operating on budgets that allowed it
    to maintain the railroad and deliver adequate passenger services, but
    provided limited resources to invest in long-term planning, including
    human capital initiatives. It maintains a relatively stable work force,
    with long-term employees who operate the railroad with reasonable
    efficiency, instituting improvements as time and resources allow.
        Two significant factors will change this environment:
      --Amtrak's workforce is aging. Over the next 5 years, 30 percent of
            its work force, representing thousands of employees, will be
            eligible to retire. Replacing them will be a daunting task
            considering Amtrak employs about 20,000 people.
      --Amtrak has received a large injection of capital funds to improve
            its infrastructure, facilities, and security capabilities--this
            has strained its ability to provide people with the right skill
            sets to oversee these investments while continuing to run the
            railroad.
        Strengthening human capital practices remains a significant
    challenge across Amtrak, a challenge which will intensify as workloads
    increase at the same time that experienced employees in key positions
    retire or migrate to other business opportunities.
        In May 2009, we issued a report that compared Amtrak's human
    capital management practices to other companies.\3\ In preparing the
    report we interviewed over 125 Amtrak managers and employees, obtained
    results from benchmarking studies, and visited two other Class I
    railroads to see how they managed their human capital.
    ---------------------------------------------------------------------------
        \3\ ``Human Capital Management'', May 2009, OIG Report Number E-09-
    03.
    ---------------------------------------------------------------------------
        Our report made specific recommendations that covered four critical
    areas. Amtrak agreed with all major recommendations and has been taking
    steps to implement them. However, fully implementing these
    recommendations will require a concerted effort over several years.
        Strategic Work Force Planning.--We found that Amtrak lacks a
    strategic workforce planning process to ensure that it has a workforce
    with the knowledge and skills to meet future needs. We recommended a
    stronger focus in this area that includes identifying the critical
    skills and competencies needed to achieve Amtrak's current and future
    business requirements. The company has made progress by identifying
    employees who are eligible to retire and preparing talent profiles for
    non-agreement covered positions. While this is a good start, the
    company has not yet identified its mission critical and other key
    positions or developed a strategic workforce plan.
        Total Compensation.--Amtrak also lacks a total compensation
    approach to ensure that pay practices are applied consistently and are
    aligned to support Amtrak's strategic goals. Total compensation is the
    complete pay package an employee receives, including money, benefits,
    and services. Our recommendations focused on the need to define and
    implement an overall compensation philosophy and strategy. Since our
    report, the Human Resources Department has conducted a compensation
    review as part of an effort to develop a new pay structure that will
    help attract, motivate, and retain highly skilled and talented
    employees. Amtrak has not yet, however, revised its pay structures.
        Recruitment.--Successful companies recognize the importance of
    having a clearly defined recruiting strategy linked to the company's
    identified workforce needs. Recruiting at Amtrak is decentralized and
    manually driven. While the company has been successful in filling its
    recruitment needs during the past 2 years, as the economy recovers
    Amtrak risks losing skilled craftsman and technical expertise faster
    than it can replace them. Our recommendations focused on how the
    company could improve the recruitment process to reduce the cost and
    time to hire while attracting highly qualified candidates. The company
    is working to deploy an automated system that should help improve
    recruitment.
        Retention.--Each time a company loses an employee, it costs money.
    Amtrak's overall turnover rate has averaged about 10 percent annually,
    which is lower than most companies. Once employees reach 5 years of
    service with Amtrak, the majority tend to stay for the entire career.
    The problem is that in recent years a high proportion of Amtrak
    employees leave before completing 5 years, resulting in an overall
    workforce that tends to be skewed toward employees approaching
    retirement age. Amtrak's challenge, therefore, is to retain employees
    beyond the first 5 years of employment in order to smooth out this
    imbalance. Our recommendations focused on the need for a corporate
    retention strategy that aligns with and supports an overall strategic
    human capital plan.
        Amtrak is heavily engaged in implementing the Employee Information
    Management (EIM) system, a sophisticated human resource management
    system that provides a basis to more effectively track and guide the
    career paths for its employees. Amtrak needs to ensure that it also
    makes timely progress in addressing the strategic Human Capital issues
    by continuing to implement our recommendations.
        We also recently completed a separate and more detailed review
    focusing specifically on training and employee development. Our October
    2009 report,\4\ found that because Amtrak's training program is largely
    decentralized, it cannot ensure that training efforts are aligned to
    meet the company's strategic needs. We also found that Amtrak needs to
    develop an effective corporate-wide strategy for developing management
    employees to assume the future leadership roles in the company.
    ---------------------------------------------------------------------------
        \4\ ``Training and Employee Development'', October 2009, OIG Report
    Number E-09-06.
    ---------------------------------------------------------------------------
        We made a series of recommendations to improve the effectiveness
    and efficiency of training and employee development, focusing on
    developing and implementing a corporate-wide training and employee
    development strategy. This would ensure that training aligns with the
    overall corporate strategy and provides employees with the skills
    needed to assume leadership roles in the future.
        Management recently agreed with all of our recommendations and
    provided a plan to implement them. It is important, however, for
    management to stay focused on making near-term improvements, because
    effective training and development practices will be a key component of
    Amtrak's ability to deliver high quality services.

       CHALLENGE 3.--MANAGING THE RISKS ASSOCIATED WITH AMTRAK'S GOAL OF
       MODERNIZING ITS INFORMATION TECHNOLOGY SYSTEMS AND INFRASTRUCTURE

        Significant IT investments always involve risks, and achieving
    anticipated benefits depends on managing the risks and implementing
    business process improvements to streamline and improve internal
    operations.
        Amtrak recognizes that a number of its key information systems and
    the underlying technological infrastructure are outdated and
    increasingly prone to failure. Modernizing these information systems
    also provides a major opportunity for Amtrak to better harness
    information to make decisions and operate more efficiently. Amtrak is,
    therefore, taking measures to mitigate the potential for system
    problems while at the same time leveraging more up-to-date systems
    technology to drive operational improvements and more effective
    decisionmaking.
        Amtrak currently has four major technology initiatives under way:
      --Strategic Asset Management (SAM).--SAM is a multiyear program to
            transform and integrate key operational, financial, supply
            chain, and human resource processes. SAM is expected to help
            Amtrak meet managerial accounting requirements mandated by
            PRIIA and replace legacy financial, procurement, materials
            management, and operational systems.
      --eTicketing and Next Generation Reservation (RES-NG).--Amtrak's
            current reservation and ticketing system is critical for sales
            booking, ticketing, customer service, and train operations.
            eTicketing is a major program that aims to replace current
            paper-based ticketing processes with an airline-style
            electronic ticketing system. This program will also automate
            the onboard ticket processing and simplify and streamline the
            revenue recognition and accounting functions.
      --Amtrak Information Management (AIM).--The objective of this program
            is to make critical business information reliable and easily
            accessible to Amtrak's managers and executives. It will
            integrate information from various internal and external
            sources, and will include sophisticated capabilities such as
            business intelligence, document management, and train
            communications.
      --IT Infrastructure Improvement (ITII).--This initiative focuses on
            upgrading Amtrak's IT infrastructure to improve service levels
            and lower current costs. Under new outsourcing contracts signed
            during 2009, IBM is responsible for data center operations and
            seat management, while AT&T is responsible for data and voice
            networks. Amtrak is also moving its current data center to two
            new locations over the next several months.
        Because large IT acquisitions involve significant risk, they must
    be carefully managed. The fact that these programs are taking place
    concurrently and have a number of inter-dependencies heightens these
    risks. For example, the AIM program will need to make use of
    information that is being made available by other programs such as SAM
    and eTicketing. Also, many changes to business processes and
    operational procedures will occur in quick succession, challenging the
    organizations ability to absorb the changes.
        Amtrak is aware of these risks and has taken a number of measures
    to manage them, including:
      --Reorganizing the IT department to foster partnerships and improve
            communications with business customers.
      --Establishing a Project Management Office, separate and distinct
            from the technology delivery team, to establish standardized,
            disciplined procedures to guide both project management and
            technology development.
      --Forming an independent Enterprise Architecture team to develop,
            monitor, and enforce architectural standards.
      --Dividing each major project into phases and implementing
            comprehensive peer reviews for each phase, to ensure that
            projects meet quality standards before proceeding to the next
            development phase.
      --Instituting progress reports to keep management and the Board
            informed about the status of each technology project.
        To ensure that these projects stay on track, Amtrak will need to
    closely watch progress and take steps to address emerging problems
    quickly. We also recently initiated an audit of the largest and most
    complex of the four programs--the SAM project--to evaluate how well
    management and control measures are mitigating risks.

     CHALLENGE 4.--MANAGING RISKS ASSOCIATED WITH PROJECTS FUNDED THROUGH
                                THE RECOVERY ACT

        Recovery Act spending creates many opportunities to improve
    infrastructure, facilities, and security, but the large amount of funds
    combined with tight spending deadlines create a challenge to spend
    money efficiently and effectively and to ensure that projects provide
    long-term economic benefits.
        The Recovery Act included $1.3 billion in capital grants to fund a
    variety of projects to help Amtrak improve its infrastructure,
    facilities, and security posture. The act also required the Secretary
    of Transportation to take measures to ensure that projects would be
    completed within 2 years of enactment (February 17, 2011).
        In March 2009, the Federal Railroad Administration (FRA) provided a
    $1.3 billion grant to Amtrak. The grant agreement requires Amtrak to
    complete all projects funded through the Recovery Act no later than
    February 17, 2011 and to continuously take actions to ensure projects
    are completed by that date. Amtrak is allowed to request a waiver for
    projects that cannot be completed by February 17, 2011, but must
    demonstrate that it has taken ``extraordinary'' measures to complete
    the project on time.
        Amtrak currently has hundreds of individual projects under way that
    are funded through the Recovery Act. Examples of important projects
    include: replacement of the Niantic River Bridge, refurbishments of
    several other bridges, improved communications, power upgrades,
    modernization of stations, improvements for customer and workplace
    safety, and the return to service of dozens of locomotives and
    passenger cars.
        This week we plan to issue a draft report to Amtrak that analyzes
    project risks associated with key engineering projects funded by the
    Recovery Act. Of the nine projects (totaling $293 million) that we
    evaluated, five contained a significant number of high-risk areas that
    need to be managed effectively to ensure the project's success. These
    projects included the Niantic River Bridge project and Positive Train
    Control projects. Of the 10 risk categories that we examined, risk
    associated with acquisition, environment, schedule slippage, and
    technology were identified by program managers as areas of the highest
    concern. In general the program managers were quick to recognize the
    high-risk items and to put forward tactics that they believed would
    adequately manage the associated risk.
        However, neither the program managers nor Amtrak's executives are
    in a position to mitigate the most significant concern, which is that
    the grant between the FRA and Amtrak requires Amtrak to take
    extraordinary measures to ensure that all projects are completed by
    February 17, 2011. Although the Recovery Act requires that Amtrak take
    measures to complete the projects by February 2011, it does not require
    ``extraordinary'' measures. The March 19, 2009, FRA grant not only
    requires that Amtrak take continuing measures to complete projects
    within 2 years, but requires Amtrak to identify the extraordinary
    measures taken to meet the February 17, 2011, completion date when
    applying for a waiver.
        This requirement to take extraordinary measures may have the
    unintended consequence of encouraging Amtrak to take actions that
    increase the risk of waste and inefficiency or even to take shortcuts
    that could increase the risk that the project will not perform as well
    as expected and will not provide the benefits expected. Although the
    term has not been defined, we consider extraordinary measures as any
    action that would significantly reduce productivity, increase the
    potential for waste or inefficiency, negatively impact the quality of
    the final products, or significantly impact the smooth operation of the
    railroad.
        Amtrak executives, including the President and the Chief Financial
    Officer, are committed to ensuring that funds are utilized effectively
    and represent an appropriate use of taxpayer funds. They are in the
    process of making decisions about how to balance the need and desire to
    implement these projects against the need to spend taxpayer funds
    efficiently and effectively. In fact, when Amtrak awarded contracts, it
    had taken measures to complete the projects on time--those measures
    were reflected in a contract completion date that met the requirement.
        However, as projects face slippages that threaten the completion
    date, which is not unusual for large construction projects, Amtrak
    executives are faced with either taking extraordinary actions to meet
    the completion date, or cancelling the project and identifying a
    substitute project that can be completed in time. Extraordinary actions
    that have been proposed by Amtrak include the addition of second or
    even third shifts on construction projects and reducing the scope of
    projects to accomplish less than originally planned. Identifying
    substitute projects at this point in time also involves risks and might
    result in spending on lower priority projects that will bring fewer
    benefits than the originally selected project.
        Because the grant agreement is driving these ``extraordinary''
    measures rather than the Law, we are recommending that Amtrak apply to
    the FRA to amend the grant provisions that require Amtrak to continue
    to take ``extraordinary'' measures to complete projects by February 17,
    2011, if those measures would significantly increase the risk of waste,
    inefficiency, reduced project benefits, or disrupt operations.
        In closing, let me briefly discuss the OIG' s budget request.
        We are requesting $22 million as a direct appropriation to the OIG
    for fiscal year 2011, which is consistent with our authorized funding
    level. Although it represents a $3 million increase over our 2010
    appropriation, I would note that the OIG appropriation has not kept
    pace with inflation for the prior 3 years.
        The request will provide additional leadership positions to support
    needed restructuring of our operations as well as positions to
    strengthen our internal operations. For example, in the past, the
    Amtrak OIG relied heavily on support from Amtrak management units for
    Human Resource and procurement activities. While I plan to continue to
    rely on Amtrak support, it is essential that we have adequate in-house
    capabilities to ensure that we can operate independently and
    effectively. Finally, our request funds required upgrades to our IT
    systems.
        We have developed a new strategic plan for the OIG that will help
    us to focus on the major goals Amtrak is trying to achieve and we have
    provided that plan to the subcommittee. This additional fiscal year
    2011 funding will help us to implement our new strategy of focusing our
    attention on the most significant issues Amtrak faces. We expect to
    identify significant cost savings and program improvements in important
    areas, including Amtrak's $250 million annual healthcare expenditures.
        We are also working closely with Congress and this subcommittee to
    provide timely information that will be helpful in the legislative and
    oversight process. We hope you agree that your investment in the Amtrak
    OIG serves to strengthen Amtrak's operations, improve efficiency,
    prevent and deter fraud and abuse, and provide the transparency needed
    in an organization that receives large Federal subsidies. To
    illustrate, in February of this year, Amtrak released a Fleet Strategy
    outlining a multibillion-dollar plan to replace its aging fleet and to
    provide additional fleet to handle the growth in demand. At the request
    of this subcommittee, we plan to review this important initiative.
        Madam Chair, this concludes my testimony and I will be happy to
    answer any questions.

                          DEPARTMENT OF TRANSPORTATION

                          Office of Inspector General

        Senator Murray. Thank you very much.
        Ms. Ann Calvaresi.

    STATEMENT OF ANN CALVARESI-BARR, DEPUTY INSPECTOR
                GENERAL
        Ms. Barr. Chairman Murray, members of the subcommittee,
    thank you for the invitation to discuss ongoing efforts to
    strengthen the Nation's passenger rail network.
        As you know, recent legislation calls for significant
    investment in rail, an investment that demands rigorous
    oversight to ensure passenger rail goals are achieved and
    taxpayer dollars are used wisely.
        My statement today focuses on FRA's expanded role and
    responsibilities under PRIIA and the Rail Safety Improvement
    Act, the challenges FRA faces in effectively carrying out its
    new role, and the progress Amtrak has made in improving its
    operating and capital financial management processes.
        PRIIA and the Safety Act dramatically expanded FRA's role.
    Together, these mandates call for FRA to develop, from the
    ground up, a multibillion-dollar high-speed rail program and to
    undertake several new safety and passenger rail service
    enhancement initiatives.
        Among the tasks set out for FRA are the development of
    performance metrics for minimum passenger rail service
    requirements, such as on-time performance levels, and the
    establishment of a discretionary grant program to develop and
    deploy positive train technologies. This expanded role presents
    several challenges for FRA, especially as they relate to
    implementing the high-speed rail program. To ensure program
    success, FRA must develop a sound implementation strategy.
        While FRA has developed project selection criteria, it has
    yet to provide grant applicants with the detailed methodologies
    needed to adequately complete their applications. For example,
    FRA has not issued guidance on how to prepare forecasts of
    project ridership and revenue, costs, and public benefits for
    high-speed and intercity passenger rail. Without such guidance,
    FRA is not positioned to effectively assess the merits of rail
    grant applications and ensure sustainability of the service.
        FRA must also enhance its internal policies and practices
    in order to effectively oversee these larger project grants.
    According to the Office of the Secretary of Transportation
    [OST], plans for program monitoring and administration are in
    development.
        Finally, FRA must obtain adequate staff with the right
    skill mix to oversee program implementation.
        The Recovery Act greatly accelerated FRA's rollout of the
    high-speed rail program, further exacerbating FRA's challenges.
    Within 10 months after its enactment, FRA was required to issue
    a strategic high-speed rail plan, establish interim guidance,
    and process all applications for the $8 billion stimulus
    investment.
        Balancing other PRIIA responsibilities with its traditional
    responsibilities create even more challenges for FRA. For
    example, PRIIA requires FRA to coordinate with hundreds of
    public and private stakeholders to establish a National Rail
    Plan that addresses interconnectivity with other modes of
    transportation, informs the development of State rail plans,
    and recognizes the need for a sustainable funding mechanism. At
    the same time, FRA must not lose sight of its traditional
    responsibilities; chief among them, ensuring rail safety and
    oversight of Amtrak.
        Effectively managing these critical rail programs will
    require sustained focus and oversight by FRA and the DOT OIG.
    We have begun to shift resources accordingly. Specifically, we
    have underway an evaluation of best practices for forecasting
    high-speed rail ridership and revenue, costs, and public
    benefits; an audit of infrastructure access agreements between
    the States and freights to ensure access agreements adequately
    address cost, schedule, and performance goals; and a
    quantitative analysis of Amtrak's delays that will help FRA
    ensure investments yield the highest return.
        Given the important role Amtrak plays in intercity
    passenger rail, our work on Amtrak's financial management is
    relevant to FRA's efforts. Amtrak established key performance
    indicators to measure both the efficiency and effectiveness of
    its operational and financial performance. For example, Amtrak
    developed a cost-recovery indicator to measure the proportion
    of expenses covered by revenues and ridership growth. This
    approach appears to be a more efficient way to monitor and
    improve operating and financial performance than its previous
    approach of tracking savings from specific reforms.
        Our ongoing work also indicates that Amtrak has improved
    its long-term capital planning. Specifically, Amtrak has
    developed long-term plans for its fleet and infrastructure, a
    transparent process for prioritizing its capital needs, and
    guidance on conducting post reviews of its capital investments.
    Clearly, Amtrak's success hinges on effective implementation.

                               PREPARED STATEMENT

        In closing, while we are dedicating additional resources to
    oversee FRA and its expanded role, we are encouraged that the
    Amtrak's OIG, under its new leadership, will enhance its
    oversight of Amtrak-related work.
        Chairman Murray, this concludes my prepared statement. I
    would be happy to answer any questions that you or other
    members of the subcommittee may have.
        Thank you.
        [The statement follows:]

                    Prepared Statement of Ann Calvaresi-Barr

        Madam Chairman and members of the subcommittee: Thank you for
    inviting me here today to discuss ongoing efforts to strengthen the
    Nation's passenger rail network. As you know, recent legislation has
    called for significant investment in rail--an investment that demands
    additional scrutiny and oversight to ensure legislative goals are
    achieved and taxpayer dollars are used wisely.
        My testimony today focuses on: (1) changes in the Federal Railroad
    Administration's (FRA) role and responsibilities under the Passenger
    Railroad Investment and Improvement Act of 2008 (PRIIA) and the Rail
    Safety Improvement Act of 2008 (RSIA); (2) the challenges FRA faces in
    effectively carrying out its new role; and (3) the progress Amtrak has
    made in improving its operating and capital financial management. My
    testimony is based on our recent and ongoing work related to FRA,
    Amtrak, and rail issues in general.

                                   IN SUMMARY

        PRIIA and RSIA dramatically realigned FRA's role and expanded its
    responsibilities. Together these two pieces of legislation have called
    for the implementation of a high speed rail program, improvements in
    intercity passenger rail services, and safety enhancement initiatives.
    Each new mandate carries a unique set of challenges for FRA, especially
    as they relate to implementing the high-speed rail program. Challenges
    include developing written policies and practices to guide the
    program's grant lifecycle process and oversight activities, and
    obtaining adequate staff to oversee implementation. The American
    Recovery and Reinvestment Act of 2009 (ARRA) exacerbated these
    challenges by accelerating timelines and providing FRA an additional $8
    billion. At the same time, FRA must continue to carry out its prior
    responsibilities, including its oversight of Amtrak. While our work has
    found that Amtrak has improved its financial management of operating
    and capital planning activities, new PRIIA mandates and ARRA funding
    could require Amtrak to heighten its improvement efforts. In light of
    these issues, the Department of Transportation (DOT), Office of
    Inspector General (OIG) has several audits--completed or under way--to
    monitor FRA's efforts to carry out its traditional and new roles and
    responsibilities.

                                   BACKGROUND

        Within the last 2 years, new legislation has been enacted with
    major ramifications to intercity passenger rail in the United States.
    On October 16, 2008, the President signed into law RSIA, or the Safety
    Act, and PRIIA. The Safety Act is the most comprehensive new railroad
    safety law in the past 30 years. In addition to reauthorizing FRA, the
    Safety Act contains new mandates for freight railroads, commuter
    railroads, and the National Railroad Passenger Corporation, better
    known as Amtrak. PRIIA reauthorizes Amtrak and strengthens the U.S.
    passenger rail network by tasking Amtrak, DOT, FRA, States, and other
    stakeholders with improving service, operations, and facilities. PRIIA
    focuses on intercity passenger rail, including Amtrak's long-distance
    routes and the Northeast Corridor, State-sponsored corridors throughout
    the Nation, and the development of high speed rail corridors.
        ARRA was signed into law on February 17, 2009, to preserve and
    create jobs and promote economic recovery through investments in
    transportation, environmental protection, and other infrastructure.
    ARRA provided $8 billion to FRA for discretionary grant programs to
    jump start the development of high-speed rail corridors and enhance
    intercity passenger rail service. ARRA also directed $1.3 billion to
    Amtrak for capital investments. In addition, ARRA designated $20
    million to DOT OIG through fiscal year 2013 to conduct audits and
    investigations of DOT projects and activities funded by ARRA. In
    response, OIG developed a work plan using a three-phase approach to
    conduct audit and investigative work by emphasizing high-risk areas and
    promptly reporting results. Between March and December 2009, OIG issued
    two reports outlining the risks and challenges to DOT program offices
    related to ARRA, including FRA.\1\
    ---------------------------------------------------------------------------
        \1\ OIG Report MH-2009-046, ``American Recovery and Reinvestment
    Act of 2009: Oversight Challenges Facing the Department of
    Transportation,'' issued March 31, 2009 and OIG Report MH-2010-024,
    ``DOT's Implementation of the American Recovery and Reinvestment Act:
    Continued Management Attention is Needed to Address Oversight
    Vulnerabilities,'' issued November 30, 2009. OIG reports and testimony
    are available on our Web site: www.oig.dot.gov.
    ---------------------------------------------------------------------------
                  LEGISLATION DRAMATICALLY EXPANDED FRA'S ROLE

        Historically, FRA was a small agency, focused primarily on
    promoting and overseeing railroad safety. FRA was responsible for: (1)
    promulgating railroad safety regulations; (2) administering several
    small grant and loan programs, such as the Rail Line Relocation grant
    program and the Railroad Rehabilitation and Improvement Financing loan
    program; and (3) overseeing Amtrak's operations and disbursing Amtrak's
    annual grant funds. PRIIA and RSIA, however, dramatically realigned
    FRA's role and expanded its responsibilities. Together, these mandates
    call for FRA to undertake several new safety and passenger rail service
    enhancement initiatives and to develop from the ground up a multi-
    billion dollar high-speed rail discretionary grant program.

    PRIIA Added Several New Initiatives to Enhance Intercity Passenger Rail
            Service
        PRIIA tasked FRA with numerous significant responsibilities--among
    them the creation of a new High-Speed Intercity Passenger Rail (HSIPR)
    grant program. Other new PRIIA mandates include initiatives to improve
    existing intercity passenger rail service and to promote the expansion
    of intercity passenger rail. PRIIA requires FRA to design a long-range
    national rail plan that promotes an integrated, efficient, and
    optimized national rail system for the movement of people and goods.
    FRA issued its preliminary plan on October 15, 2009, and must submit
    the final plan to Congress on September 15, 2010.
        PRIIA also required FRA to develop performance metrics that
    establish minimum passenger rail service requirements--such as minimal
    on-time-performance levels and other service quality measures--and
    provide a framework for improved passenger rail service. The metrics
    were developed in conjunction with Amtrak and in consultation with the
    Surface Transportation Board, Amtrak's host railroads, States, Amtrak's
    labor organizations, and rail passenger associations. FRA is required
    to publicly report performance results quarterly. Other Amtrak-related
    responsibilities that PRIIA requires FRA to carry out include
    monitoring and conducting periodic reviews of Amtrak's compliance with
    applicable sections of the American's with Disabilities Act and
    monitoring Amtrak's development and implementation of performance
    improvement plans for its long-distance routes.

    RSIA Highlighted and Expanded FRA's Traditional Safety Role
        RSIA amended existing railroad legislation to make the safe and
    secure movement of people and goods FRA's highest priority. Most
    notably, RSIA requires FRA to establish a discretionary grant program,
    with authorized funding of $50 million per year for fiscal years 2009
    through 2013, to support the development and deployment of positive
    train control technologies. FRA issued a Notice of Funds Availability,
    Solicitation of Applications for this program on March 29, 2010; a
    status report on positive train control implementation is due to
    Congress by December 31, 2012.
        RSIA also requires FRA to perform several safety-related studies.
    One study will assess the risks posed to passengers with disabilities
    boarding and alighting from trains where there is a significant gap
    between the train and the platform. Another study addresses the risks
    associated with the use of personal electronic devices by railroad
    personnel while on duty. This body of work will position FRA to carry
    out its role as the Nation's rail safety enforcement agency as it
    undertakes increasing passenger rail responsibilities.
            fra faces significant challenges in meeting its mandate
        The new legislative mandates present unique challenges for FRA.
    Effectively implementing the HSIPR program is key among these
    challenges. Specifically, FRA must: (1) assess the net benefits of
    high-speed rail; (2) develop written policies and procedures for grant
    management; and (3) determine staffing needs. The $8 billion in ARRA
    funding exacerbated these vulnerabilities as it accelerated
    implementation. In addition to implementing the HSIPR program, FRA must
    balance its increased workload under PRIIA with prior legislative
    requirements, including its oversight of Amtrak. While FRA has made
    several steps toward meeting these challenges, it has recognized that
    more resources are needed to successfully carry out its mandate.

    HSIPR Success Depends on an Effective Implementation Strategy
        To ensure HSIPR project grantees follow sound management practices,
    FRA must develop a sound implementation strategy. First, FRA must
    develop guidance for forecasting project ridership, revenue, costs, and
    public benefits for high-speed and intercity passenger rail. According
    to DOT's Office of the Secretary (OST), FRA has developed detailed
    evaluation criteria to determine a proposed project's merit and
    feasibility. However, FRA has yet to issue formal guidance for grant
    applicants to use in preparing forecasts.
        Second, FRA must develop written policies and practices to guide
    the program's grant lifecycle process and oversight activities. We
    identified certain risks associated with awarding grants without a
    fully documented program implementation strategy and grant lifecycle
    process. As a result, FRA delayed the awards until early 2010. However,
    according to OST, FRA is still in the process of reviewing its grants
    management manual for final approval and developing monitoring plans
    and grant administration standard operating procedures.
        Finally, FRA must obtain a sufficient number of staff with the
    skills needed to oversee program implementation. To address its initial
    lack of capacity to start up and effectively manage the HSIPR program,
    FRA has completed a workforce assessment, which we have yet to
    validate. As a result of that assessment, FRA requested and received
    funding for 27 additional staff resources in its fiscal year 2010
    budget. However, FRA has been slow to fill these vacancies.
        ARRA's tight deadlines for spending funds have greatly accelerated
    FRA's rollout of HSIPR, exacerbating program challenges. Deadlines for
    obligating funds under Track 1 (``ready to go projects'') and Track 2
    (``corridor development programs'') are September 2010 and September
    2011, respectively. Within 10 months after ARRA's enactment, FRA issued
    a strategic plan, established interim guidance, and processed all Track
    1 and 2 applications, as required.

    Managing Other New and Traditional Legislative Responsibilities Further
            Challenge FRA
        Balancing new PRIIA responsibilities with its traditional
    responsibilities create additional challenges for FRA. With regard to
    PRIIA, FRA must coordinate with hundreds of public and private
    stakeholders to establish a national rail plan that addresses
    interconnectivity with other modes of transportation and recognizes the
    need for a sustainable funding mechanism. As the market for intercity
    passenger rail carriers grows, tracking and reporting their performance
    results could become a challenge for FRA. For example, FRA will have to
    establish a standardized mechanism for collecting performance data from
    multiple carriers who may have different procedures than currently used
    for reporting the proposed metrics and standards.
        At the same time, FRA must continue to carry out its prior
    administrative responsibilities for its existing grant and loan
    programs. Specifically, FRA must effectively manage the Rail Line
    Relocation discretionary grant program, the Railroad Rehabilitation and
    Improvement Financing loan program, and the Amtrak grant program.
    Together, these programs account for 37 percent of FRA's $4.374 billion
    fiscal year 2010 budget.
        Effectively managing these critical rail programs in the face of
    the public scrutiny of the HSIPR program will require sustained focus
    and oversight by FRA and OIG. OIG has begun to shift resources to
    provide the appropriate level of oversight in order to inform FRA's
    efforts and monitor its progress. For example, our evaluation of best
    practices for forecasting high-speed ridership, revenue, and public
    benefit should assist FRA in its efforts to assess the economic and
    financial viability of proposed projects and ensure Federal investments
    are allocated to the most worthy projects. Our audit of the risks
    private freight railroads pose to the HSIPR program should help FRA
    ensure that access agreements adequately address cost, schedule, and
    performance goals, and that HSIPR benefits are achieved. Finally, our
    quantitative analysis of the causes of Amtrak delays will inform
    efforts by Amtrak and the freight railroads to improve Amtrak's on-time
    performance and clarify the relative value of investing Federal funds
    to expand freight rail capacity as a means to address delays.

              AMTRAK HAS MADE IMPROVEMENTS IN FINANCIAL MANAGEMENT

        Our work on Amtrak's financial management is extremely relevant to
    the HSIPR program, given the important role Amtrak will play in FRA's
    development of intercity passenger rail service. Since we began
    reporting regularly to Congress \2\ on Amtrak's operating performance
    and its progress in reducing Federal operating subsidies, Amtrak has
    shifted its financial management approach from implementing various
    strategic reform initiatives (SRI) to establishing key performance
    indicators (KPI). The KPIs appear to be a more efficient way for
    management to monitor operating performance. Results of our mandated
    audit on Amtrak's 5-Year Capital Planning, which we are finalizing,
    also indicate that Amtrak has made significant improvement to its long-
    term capital planning including a more transparent prioritization
    process.
    ---------------------------------------------------------------------------
        \2\ The Transportation/HUD Division of the Consolidated
    Appropriations Act of 2010, Public Law 111-117 changed OIG's reporting
    requirement on Amtrak's savings from quarterly to semi-annually.
    ---------------------------------------------------------------------------
    Management's New Approach to Measuring Reform Initiatives Through Key
            Performance Indicators Appears Reasonable
        Since fiscal year 2006, we have reported on Amtrak's savings
    achieved as a result of operational SRIs at the corporate level, by
    business line, and at the route level.\3\ The SRIs were intended to
    improve Amtrak's operating efficiencies and lower its dependence on
    Federal operating subsidies. For example, one SRI aimed to reduce
    losses through enhanced service flexibility and the outsourcing of
    certain services, such as food and beverage. The SRI approach was
    established to provide a comprehensive analysis of potential and
    realized operating savings for the longer term provision of a more
    efficient and financially feasible intercity passenger rail service.
    However, as we stated in our fiscal year 2009 fourth quarter report,
    Amtrak did not include any new savings from operational reform
    initiatives in its fiscal year 2009 budget.
    ---------------------------------------------------------------------------
        \3\ Transportation, Treasury, Housing and Urban Development, the
    Judiciary, District of Columbia, and Independent Agencies
    Appropriations Act (TTHUD), 2006; Public Law 109-1 15.
    ---------------------------------------------------------------------------
        Amtrak's 2009 Strategic Guidance provided further details on
    possible savings from future operational reforms through KPIs--criteria
    that will measure both the efficiency and effectiveness of Amtrak's
    operational and financial performance. For example, Amtrak established
    cost recovery ratio KPIs to measure the proportion of Amtrak expenses
    covered by revenues and ridership growth. Recently, officials told us
    that because the KPIs are derived from the annual budget and Amtrak
    operates to its budget targets, the KPIs provide a more streamlined way
    of evaluating performance to budget.\4\ Amtrak officials also noted
    that because KPIs are linked to monthly financial statements, KPIs are
    tracked and updated much more frequently, allowing management to react
    quicker to changes in operating and financial conditions. The updates
    should also allow management to drill down into KPI detail in real-time
    to determine what is driving any changes, and consequently react
    quicker, rather than waiting until the next month for the next round of
    financial statements. The Strategic Guidance states that KPIs will be
    used to evaluate management and to ensure that leadership's attention
    and effort are properly focused.
    ---------------------------------------------------------------------------
        \4\ March 31, 2010, semi-annual review.
    ---------------------------------------------------------------------------
        While Amtrak's new approach appears to be a more efficient way to
    monitor and improve operating and financial performance, Amtrak has
    continued to pursue improvement initiatives tied to the original SRIs.
    Further, Amtrak officials stated that management will not measure the
    net impact of individual initiatives because it is too difficult to
    determine the incremental impact of any given initiative or project on
    one metric. For example, if Amtrak's marketing department invests
    additional funds to promote Acela and revenues increase for that route,
    there is no clear way to determine if or what portion of the increase
    is due to higher gasoline prices, deteriorating airline service, or the
    marketing campaign. Instead, executives will discuss the results of
    improvement initiatives, and when intended outcomes are not achieved,
    they will require the relevant departments to take action to address
    the targeted KPIs. If the departments achieve the KPIs, then the
    improvement initiatives will be deemed successful.
        Because the KPIs have only been in place for 6 months, the ultimate
    success of this new approach has yet to be determined. As we stated in
    our fiscal year 2009 fourth quarter report, in addition to reporting on
    a semi-annual basis Amtrak's financial performance, we will track and
    evaluate Amtrak's efficiency KPIs. Our Amtrak semi-annual report, which
    will be issued next month, will provide more detail on our evaluation
    of Amtrak's operating performance through March 2010.

    Progress Has Been Made in Long-Term Capital Planning, but the Measure
            of Success Will Be Determined Through Implementation
        Since 1999, we have also reported \5\ on Amtrak's progress in
    determining its long-term capital needs. Previous reviews by our
    office, GAO, and Amtrak's OIG have looked at various aspects of
    Amtrak's capital budget and requirements and outlined concerns,
    including a number of which focused on Amtrak's lack of a comprehensive
    long-term planning strategy with clearly defined goals, as well as a
    process for monitoring performance.
    ---------------------------------------------------------------------------
        \5\ OIG Report CE-1999-116, Report on the Assessment of Amtrak's
    Financial Needs Through fiscal year 2002. Issued July 21, 1999.
    ---------------------------------------------------------------------------
        In our current review, we have found a number of operational
    changes that have been implemented to improve Amtrak's long-term
    capital planning process, which are primarily due to legislative
    requirements dictated by PRIIA and leadership from its Board of
    Directors and senior management. Specifically, Amtrak has developed
    long-term plans for its fleet and infrastructure, a transparent process
    for prioritizing its capital needs, and guidance on conducting post-
    reviews of its capital projects. However, the success of these efforts
    depends on Amtrak's ability to effectively implement and sustain many
    of its new policies and procedures. We look forward to issuing our full
    report within the next couple of months. Our office is also in various
    stages for other PRIIA mandated reviews, which are planned for issue
    over the next 12 months.

                                   CONCLUSION

        High-speed intercity passenger rail is expected to greatly enhance
    the Nation's transportation system. Yet meeting the goals of PRIIA,
    RSIA, and ARRA will be a significant challenge, especially given the
    transformation required of FRA. While ARRA was enacted to jump start
    the U.S. economy, FRA's decision to move forward deliberately is
    prudent and should help it make the most of its ARRA funds. Further, it
    has given OIG a unique opportunity to ensure proper oversight controls
    are built into the program. We have begun to position ourselves to
    oversee FRA developments while continuing our ongoing and newly
    mandated work on Amtrak. However, we are hopeful that Amtrak's OIG,
    under new leadership, will pick up appropriate work, allowing us to
    dedicate additional resources to oversee FRA's implementation of the
    HSIPR program.

        Senator Murray. Thank you very much.
        Mr. Boardman, under Amtrak's new leadership, we've seen
    some important improvements in how the railroad has been
    managed, and instead of limiting its focus to getting through
    each day, the management team now has a strategic vision and
    has started to look at long-term planning.
        Amtrak's overall capital plan and the accompanying fleet
    plan reflect that new priority on strategic decisionmaking, but
    Amtrak is still making separate requests for its capital plan
    and for its fleet plan. If you do not get all of the funding
    you've requested for fiscal year 2011, how are you going to
    decide on funding between these two separate plans?

                      CAPITAL PLAN AND FLEET PLAN FUNDING

        Mr. Boardman. I think you're referring to--basically--we're
    almost a billion dollars over where the request came in from
    the administration. And it's accounted for, all in capital.
    We're talking about fleet, and we're talking about all the
    projects that are capital-related on the Northeast corridor and
    on ADA and on all the other projects that are needed. So, as
    Amtrak has done in the past, and as Amtrak needs to look,
    today, to the future, we look at every opportunity for us to
    gain those dollars, one of them being the appropriation
    process, another being--and I think the Administrator talked
    about it a little bit--we are in discussion with the
    administration about--either a Federal loan or even going out
    into the commercial market to borrow money.
        But, in the end, it all comes back to Congress, because all
    capital is subsidized by Congress, in one fashion, form, or
    another, just like all capital for the highway or the aviation
    side is subsidized through Congress. They have a different
    methodology. They have a program that provides user funds for
    highways, but those user funds also are distributed to transit,
    which are not necessarily--and I think we talked about it a
    little bit earlier--they're not paid for by the transit rider,
    they're paid for under the same structure that the highway
    receives those funds and the same way that aviation receives
    those funds; it all comes back to the Congress in making a
    decision.
        The need for Amtrak is to put on the table to Congress what
    our capital needs are, and we have not been bashful about doing
    that, because we need to rebuild the railroad.
        Senator Murray. Okay. Well, in addition to replacing your
    aging locomotives and railcars, as I talked about earlier, this
    could revitalize a domestic industry for manufacturing rail
    equipment and really help us focus on manufacturing jobs here
    in the country. But, realizing that goal, as I mentioned
    earlier, is going to require companies to have the confidence
    that Amtrak has a reliable, long-term source of funding for its
    fleet plan. What will it take, do you believe, for U.S.
    manufacturers to believe that passenger rail equipment is a
    viable line of business?
        Mr. Boardman. Like that commercial on television says,
    ``Buy my product.'' Fund my plan.
        Senator Murray. So, you need to know that there's a--that
    they will need to know that there is----
        Mr. Boardman. Yes. And----
        Senator Murray [continuing]. A consistent----
        Mr. Boardman [continuing]. There's a new----
        Senator Murray [continuing]. Source of funding.
        Mr. Boardman. Chairwoman, there is a new understanding
    across the world today, I think, that we are in a very
    different competitive environment for--not only the economy,
    but for energy for the future. And every country today is
    looking at how they are going to solve this problem. And rail
    becomes a key part of that. We've already seen that, as a key
    part of it, in terms of what the investments are with transit.
    But, transit needs to be connected to the rest of the country
    and there are two key elements that Amtrak brings to the table.
    One is its workforce, its key competitive advantage in the
    people that operate this railroad and know what needs to be
    done. And the other is the connectivity across this country, up
    and down from border to border and from coast to coast. This
    railroad will be a key reason why this Nation can live in a
    more prosperous position in the future.
        Senator Murray. So, what you're saying is, if we have that
    goal, as a country, and it's very clear and consistent, it will
    send a message to domestic manufacturers that we're in it.
        Mr. Boardman. Yes. And I think that message is already
    getting there.
        Senator Murray. Okay.
        In the past, Amtrak has purchased rail equipment from
    Bombardier, a company based in Canada. Is Amtrak currently
    purchasing rail equipment or overhaul service from Bombardier,
    and will it do so in the near term?

                           UPGRADING THE AMTRAK FLEET

        Mr. Boardman. Yes. We continue to enhance our relationship
    with Bombardier, with GE, and with other manufacturers across
    the United States.
        Senator Murray. Okay. I understand that Amtrak is still
    trying to decide on the best strategy for replacing the Acela
    fleet, which was originally provided by Bombardier. One option
    is to purchase additional cars for the Acela fleet in order to
    expand capacity along the Northeast corridor, even though these
    new cars would be replaced after just a couple of years, along
    with that original Acela fleet. How likely is it that Amtrak
    would purchase additional Acela cars from Bombardier, before
    updating all of the equipment for the Northeast corridor?
        Mr. Boardman. Well, what we really looked at was that the
    Acela fleet on the Northeast corridor actually covers 121
    percent of its costs. So, you're actually making money on
    Acela, as compared to----
        Senator Murray. Right.
        Mr. Boardman [continuing]. Other modes and services on the
    corridor. So, we looked at that. We can improve the amount of
    revenue and enhance ridership if we could extend the number of
    trains that we operated that were Acela-like train sets. So,
    the opportunity is for us to increase our revenues, if we can
    find about five train sets that we could add to the corridor
    for high-speed service.
        Certainly, the Bombardier products that exist are already a
    proven design, and we don't have to spend the time to go
    through to test an entirely new technology to provide that
    service. So, there's a great--I'm trying to find the right
    word--there's a great opportunity for us to be able to do that
    with Bombardier. But, we haven't made that decision. We haven't
    decided that that's----
        Senator Murray. Not decided.
        Mr. Boardman [continuing]. What we're going to do.
        Senator Murray. Okay.
        In my opening statement, I talked about the fact that I'm
    glad the administration is not submitting budget requests that
    would guarantee the bankruptcy of Amtrak anymore. But, their
    request for capital grants is still lower than the railroad's
    own request, by about $500 million. What impact would the
    administration's budget have on your capital investment?
        Mr. Boardman. It'll just make more shovel-ready projects
    available for us to do for the future, if funding becomes
    available. And I--what I mean is that we have, as every State
    DOT, and at--every competent operation has a list of projects
    that need to be done, especially when you have a $5 to $7
    billion backlog, just on the Northeast corridor.
        But, there are a lot of other projects that could be done.
    I know Senator Dorgan may be here, talking to me about one in
    particular, in Devils Lake. So, we have opportunities, should
    the money become available, to get a----
        Senator Murray. On the capital----
        Mr. Boardman [continuing]. Job done.
        Senator Murray. What about on the operating side? I think
    their request is $40 million less than yours. Will that have an
    impact?
        Mr. Boardman. It will not cause, if the question really is,
    us to cut back services.
        Senator Murray. That's what I'm asking.
        Mr. Boardman. We're looking for a way that we can make sure
    that those services are continued to be provided.
        But, some decisions--for example, I still get messages,
    from those who ride from Albany to New York City, asking,
    ``When are we going to return the cafe car?'' which we don't
    have on there any longer. We eliminated that in order to reduce
    costs.
        Senator Murray. Right.
        Mr. Boardman. But, it--so, it impacts us, that it's not as
    convenient for people to ride the service now as it was before.
        Senator Murray. Okay. Thank you very much.
        Senator Bond.
        Senator Bond. Thank you, Madam Chair.
        Mr. Boardman, we just heard Mr. Alves testify that second
    and third shifts are reducing productivity and compromising the
    work that's done. We thought that--I understood that the $1.3
    billion in ARRA funds were for shovel-ready projects. Were they
    not shovel-ready? Was Amtrak not shovel-ready? Why have you had
    to take these extraordinary steps, which apparently are more
    costly and less productive?

                                 ARRA PROJECTS

        Mr. Boardman. I think all the projects were shovel-ready.
    And I think that the IG did an excellent job looking at the
    risks for us along the way. But, of the nine projects that he
    really looked at--one of them was the Niantic Bridge, there
    were two positive train control projects, and there was a
    frequency converter replacement project and the Los Angeles
    maintenance facility--there were the top five that they were
    worried about for risk.
        When you looked at the number of points--and they looked at
    acquisition, environment, schedule, objectives, technology,
    size, complexity, financial, human capital, management, and
    fraud--what you wound up with was 10 points for each of the
    first 3 that they were worried about, 9 for 4, and 8 for 5. And
    when you look at the 10, what you find is the risk is really
    environmental and size and complexity. The things that Ted and
    his staff found is it's costing us more, as it does in every
    capital area, when you try to get it done as quickly as we were
    really trying to get it done and you had to put on the second
    or third shift.
        Senator Bond. So, that was a mistake, trying to put the
    time deadline on it. That had----
        Mr. Boardman. Well, if----
        Senator Bond. That was a mistake, in terms of cost,
    productivity. So, that is a signal not to put timelines on it.
    I would hope that the requests you have would have reasonable
    timelines that are achievable. And I didn't have any----
        Mr. Boardman. Absolutely. We agree with you.
        Senator Bond. I didn't have anything to do with that bill,
    so I can't speak to that.
        You've mentioned you're taking a look at different types of
    funding for Amtrak. And you mentioned, as it--high on the
    priority list, borrowing in the private market. Correct me if
    I'm wrong; if you borrow, that means this budget--this
    subcommittee's budget will have to pay the interest costs and
    the debt service every year. So, that will really be a charge
    on this budget.
        Are there any dedicated sources of funding that you're
    looking at, outside of putting Acela-type trains on, that
    generate a profit, making things profitable that will give you
    the money you need?
        Mr. Boardman. No.
        Senator Bond. Thank you----
        Mr. Boardman. All capital comes from this--from the Federal
    Government.
        Senator Bond. Okay. Well, I would urge you to find out ways
    to emphasize that--what is profitable, and de-emphasize that
    which is not profitable, because we are up against the wall, as
    you probably heard me say, earlier.
        Mr. Boardman. None of it is profitable, Senator.
        Senator Bond. Okay. Well--but, it has to be less costly.
    Right now----
        Mr. Boardman. And that is happening. But, it's not----
        Senator Bond. Yes. Well, it's not----
        Mr. Boardman. Even if it----
        Senator Bond. But----
        Mr. Boardman. Even if it's less costly, though, sir, it
    doesn't mean we can pay the capital with it. It means we can
    pay the operating. We----
        Senator Bond. Well, it's--we----
        Mr. Boardman. We----
        Senator Bond. They come out of the same pot of funds. If
    you're looking here--doesn't matter whether you call them
    capital or operating, your capital is going to compete with
    your operating, which is going to compete with housing.
        Let me turn to Mr. Alves. This is sort of a two-part
    question.
        I know you're new to the office at--of inspector general.
    We welcome you. The--in 2009, Amtrak outlined a strategic
    guidance document, and I'd like to know how it is being
    implemented. And to what extent are Amtrak managers or others
    being held responsible for achieving the key performance
    indicators that have been developed? And are they affecting pay
    and promotion?
        Mr. Alves. I'm not sure I can fully answer that question,
    but I'll do my best.
        The strategic guidance identifies the key things that
    Amtrak is trying to achieve. And Amtrak has been taking steps,
    under a new performance measurement system, to develop
    performance measures and goals for its key executives, and to--
    and then to flow those through the system to subordinates to be
    able to----
        Senator Bond. Are there--is there tie-in between pay, or--
    is there any performance bonus for those who meet it or
    penalties for those who don't?
        Mr. Alves. I'm not sure about a bonus, but I do know that
    the rating and the pay is going to be tied to those measures.
        Senator Bond. All right.
        Ms. Barr, welcome. You have spoken about the problems that
    apparently came from putting too much money, too many
    requirements on FRA. In other words, you were--I think I
    understood you to say that a bunch of money was dumped on them
    with a bunch of requirements that were impossible to meet. And
    that's why there have been failures to achieve what is expected
    from FRA. Is that a fair assessment?

                                  ROLE OF FRA

        Ms. Barr. Yes, I think the assessment, and the point that I
    really want to make is, looking at FRA and what its traditional
    role really was, was a small regulatory agency that's been
    asked to transform into a large grant-making organization. So,
    not only do they have to issue their own grants, develop their
    own internal policies for good, solid project management and
    oversight, but they have to oversee a larger grant operation on
    behalf of Amtrak.
        Overlay that with all of the new safety requirements that
    came out of the Safety Act as it relates to positive train
    control, as it relates to the Americans with Disabilities Act,
    and a whole host of other things, that is a big challenge.
    That's a hugely expanded role. And I think if I had to
    characterize what it's like, it's like needing to design and
    implement at the same time. That's very difficult.
        Senator Bond. Are they able to handle the resources and the
    demands that they are expecting now? Are they still have a--are
    they able to handle it?
        Ms. Barr. I think they're on their way.
        Senator Bond. Okay.
        Ms. Barr. They've requested the FTEs, but they're nowhere
    close to where they need to be.
        Senator Bond. Okay.
        And finally, who's going to--with the DOT IG, Amtrak OIG,
    how are you going to relate the roles of the two IGs?
        Ms. Barr. Okay. I can start first. Ted and I had
    discussions about this, as well. We're thrilled that he is in
    place and can pick up, traditionally, what--where we've been
    focused, on some of the Amtrak issues. The way--I guess I would
    divide the responsibilities. I think it laid out pretty well
    the challenges that FRA has before it. And I think you,
    Senator, indicated this National Rail Plan is something that
    needs to be looked at very, very closely.
        Senator Bond. That will be your----
        Ms. Barr. That would be something we would look at. We
    would look at all of the other mandates, the requirements, how
    well they're overseeing project oversight. And we would hope
    that the Amtrak IG can continue doing what he's doing, looking
    at some of those internal policies and practices and management
    challenges, going forward, with their new requirements.
        Senator Bond. Okay. You've got the FRA ball. Mr. Alves,
    you've got the Amtrak ball.
        Mr. Alves. I would like to say a couple words about this,
    if I could. I agree with what Ann is saying. And the Amtrak
    inspector general, I think, has some very capable people, and
    has done some very good work. But, I think that our focus needs
    to be on the major challenges that Amtrak faces and its
    strategic goals that are outlined in that strategic guidance.
    And we have put together a new strategic plan that builds on
    that strategic guidance and, basically, directs us. Our goal is
    going to be to spend much more of our resources addressing the
    big, major issues. And so, I think that will fit with what
    you're looking for.
        Thank you----
        Senator Bond. We look forward to your sharing with us. My
    apologies, Madam Chair, to you and my colleagues.
        Senator Murray. Senator Lautenberg.
        Senator Lautenberg. One of the things that has been talked
    about with a degree of frequency, and that is, searching for
    new corridors, where we can bring rail--good quality rail
    service to these places.
        Where would we--how would we fund the equipment, the
    tracks, the infrastructure, we--when we can't handle the
    equipment needs for Amtrak, as it exists? We're talking about
    other corridors. How is that going to be paid for?
        Mr. Boardman. No, no. Directed to me, Senator?
        Senator Lautenberg. Yes.
        Mr. Boardman. It's good to see you.
        Senator Lautenberg. Please.

                               FUNDING CORRIDORS

        Mr. Boardman. First of all, I think there are a lot of
    those corridors that we can extend the use of our existing
    equipment. For example, Springfield, Mass., to New Haven, for
    example--that's one of the things being funded. And, certainly,
    there has been a lot of activity about how that'll get financed
    for the future. When we extended the corridor to Lynchburg,
    Virginia, we were able to use equipment that was available that
    extended from the Northeast corridor to provide that service.
        But, there are areas, as you say--for example, one of the
    corridors that I think has great promise is the Milwaukee-to-
    Madison corridor, for example, for the future. That will
    require the rebuilding of the tracks, and it will require
    additional equipment. And you have a State that's made a strong
    commitment, in regard to that, being Wisconsin, and--both in
    terms of equipment that they would buy and pay for--in some
    cases, on their own--and also applying for and rebuilding the
    line between Milwaukee and Madison, or at least part of that
    line that they own.
        And I think that's where the key for PRIIA came, was that
    the States would take a leadership role in those corridors, for
    the future, not only with adding tracks and facilities, but
    also with the equipment. We're there to help them, but they're
    going to have to take a role in that process and also use the
    Federal money that's become available.
        Senator Lautenberg. The question that arises here--you
    know, I look at this, and one thing that we all know, here,
    whether we like to look back and talk about all of the years of
    neglect in investment that we made--I mean, if you compare what
    Amtrak--what's happened with Amtrak on an annual basis, I think
    it runs something over a billion dollars a year, over the--
    since the 1970s, when it became Amtrak, as we know it.
        And when you look in other places and commitments that are
    made--$10 billion a year in Germany for--get--to get high-speed
    rail to--going. And they did it. And it doesn't do us a lot of
    good to beat our chests here about that. But, the fact of the
    matter is, this has been a case of sheer neglect on our part,
    to step up to the plate.
        So, when you look at these amounts of money, this isn't
    something that is coming in out of the blue. It's trying to
    make up for some lost time.
        Mr. Boardman. Well said, sir.

                               FLEET MAINTENANCE

        Senator Lautenberg. And, you know, when we look at, for
    instance--I want to ask a couple questions about the equipment.
    You were--you pretty well gave an endorsement to the
    continuation of a--buying Bombardier equipment.
        And how about the maintenance costs for Bombardier, how
    about the durability of the equipment, because I've heard,
    chatting around, that the maintenance costs right now are
    outrageously high. Is that not true? That's--is that because
    the equipment was over--has been overworked? Or----
        Mr. Boardman. Well, right now--and I don't mean to
    interrupt you, if you're----
        Senator Lautenberg. No.
        Mr. Boardman. Right now, we're actually rebuilding them at
    the midlife--it's 10 years. So, the cost, right now, is
    somewhat higher. We expect these trains have to last 20 years.
        One of the things we did with the fleet plan was we began
    to recognize that there was a commercial life and there was a
    useful life. There were no manufacturers, other than
    Bombardier, in the United States that really built the heavy-
    duty, long-lasting, intercity rail cars in the United States.
    So, we really had to have a spec on regular--I'm kind of mixing
    terms here--but, we're--we really had to have a spec that was
    heavy-duty for the future that would drive domestic
    manufacturing.
        Part of the reason that we're committed to Bombardier is
    because we're committed to Bombardier. We have 20 train sets
    out there that are operating, and I want to get things done and
    keep things moving. And I truly believe that--right to my core
    that we're sitting on the precipice of huge increases again in
    fuel cost, and our need to deliver for our Nation and for the
    community is going to mean that we need to move faster.
        Somebody said--asked the question earlier, how long does it
    take to get these cars in here? Three years? Maybe, if we push
    them, 2 years? We're at $80 a barrel. We're going to be headed
    to 100, at least by some estimates, and maybe beyond that. It's
    when that happens that you begin to see a total breakdown in
    the aviation business model for short distance. And those are
    the kinds of things that railroads can provide in the most
    efficient manner.
        So, I don't want to say that we have to buy Bombardier for
    the high-speed rail sets. And I want a new generation of high-
    speed rail that's open and competitive. But, right now, in
    order for us to really move things the way we think we need to
    move them, we need the relationships with Bombardier. And we
    also need relationships--and we are improving our relationships
    with General Electric, for example, that we have--over 200 of
    our diesel locomotives are General Electric locomotives that--
    we're improving our relationship with them so that they will
    become longer-lasting, and we're looking at the potential for a
    new-generation tier-3----
        Senator Lautenberg. In the meanwhile, can we get any
    acceleration of the speeds--you held out some hope there, and
    made me glad for a minute; in this environment, that's pretty
    hard. But, the fact is that, with new equipment, you projected
    a real shortening of the trip from here to New York. The
    example that----
        Mr. Boardman. We believe the time savings can be improved.
        Senator Lautenberg. If we--the midlife repairs that you
    talked about. Does that give you the kind of equipment
    advantage that in any way enhances the amount of time that we
    have to go on the Northeast corridor to get to destination?
        Mr. Boardman. Well, some, but it doesn't get us up to the
    speed of the Acela. And it's not going to improve your
    handwriting, because we need to have that infrastructure fixed,
    as well.
        Senator Lautenberg. We don't do old habits like that, huh?
        Mr. Boardman. Yes, sir.
        Senator Lautenberg. Thank you. Thank you, Mr. Boardman.
        Thank you, all of you.
        Senator Murray. Senator Dorgan.
        Senator Dorgan. Thank you very much.
        So, Mr. Boardman, thank you for being here. And Senator
    Lautenberg and I were just talking about the fact that both of
    us think you're doing a good job, and we were reminiscing, with
    Mr. Gunn, who used to run Amtrak, who I thought was a superb
    leader, as well. But, thanks for sinking your teeth into this.
        This is a big challenge, because you've not gotten the
    money from the Congress for capital to do what's necessary.
        I was in Russia recently, and was on a fast train from
    Moscow to Saint Petersburg, and I'm thinking, ``Wait a second.
    Why is it there's a fast train, with faster and better
    equipment in Russia than here?'' It makes no sense to me.
        Well, I'm a big supporter of Amtrak. I think rail passenger
    service is an important part of the transportation network. And
    I think Congress just has to do better. And I know we have some
    among us, here in Congress, who believe we shouldn't do this at
    all, ``The private sector won't do it, it shouldn't be done.''
    I'm not one of those. I think this is a very important adjunct
    to America's transportation system.
        Now, having said all that, and complimented you
    sufficiently, let me----
        Mr. Boardman. Is Devils Lake on your mind, Senator?
        Senator Dorgan. Yes it is. Yes it is.
        You know, you mentioned, I think that the Empire Builder is
    probably one of the most successful long-distance trains in----
        Mr. Boardman. Yes, sir.

                                  DEVILS LAKE

        Senator Dorgan [continuing]. On the Amtrak system. The
    Senator from Washington knows that, because that's where the
    Empire Builder ends up. Over a half a million people get on
    that train, from Chicago to Seattle. It goes through North
    Dakota. And we face a problem. As you know, we have a chronic
    lake flooding that's been going on for a dozen years now in
    what is called ``Devils Lake.'' It's dramatic flooding. I think
    it's the only circumstance, other than that of the Great Salt
    Lake, where you have a closed basin. We don't quite understand
    where all this is going to go, but the Lake has increased in
    height, I think, 25 feet now. And it just continues to rise.
    This year, it's expected to rise again.
        We have a bridge, near Churchs Ferry, on a track owned by
    BNSF Railway where Amtrak, I believe, slows down to 25 miles an
    hour in order to----
        Mr. Boardman. Yes.
        Senator Dorgan [continuing]. Go over that bridge. But, if
    the water goes much higher, perhaps another foot and a half,
    you won't be able to go over that bridge. And we met, in
    January, about that. I'm hoping that quick action can be taken
    to begin the work to resolve that issue.
        I don't think you want to avoid stopping at Grand Forks,
    Devils Lake, Rugby, along the route of the Empire Builder. You
    get a lot of traffic in that area.
        So, tell me where we are, in your minds, and what can we do
    to fix this, and do it on an urgent basis?
        Mr. Boardman. We've been regularly meeting, in regard to
    this----
        Senator Dorgan. I'm aware of that.
        Mr. Boardman [continuing]. With the State and with BNSF and
    so forth. And nobody has stood up and volunteered to pay for a
    new bridge, for example, which is perhaps understandable. But,
    it's time. It's time for all the parties to decide, what part
    of this do they need to help pay for? And how do we move this
    forward?
        So, I would propose to you--with your blessing, I hope--
    that we meet with the State, in a more structured way, with our
    senior folks, to find a way to not only design and engineer,
    but finance, the appropriate bridge that solves this problem
    for the future.
        Senator Dorgan. Now, the track and the bridge belong to
    BNSF?
        Mr. Boardman. They do.
        Senator Dorgan. And what will the design and the
    engineering cost be?
        Mr. Boardman. You know what, I had it and----
        Senator Dorgan. All right.
        Mr. Boardman [continuing]. Was supposed to remember it, and
    it's gone. But, I can provide that to you for the record.
        I think the construction of the bridge was around $60
    million, and usually it's about 10 percent of that, but I
    think--I think it was, like, between $4 and $6 million to
    design it; and then, the more--maybe more difficult part for
    the future was, we had to replace some rails for the future,
    and maintain it, which brought the whole thing up to, maybe, in
    the $100,000-plus-or-minus category.
        Senator Dorgan. You mean $100 million.
        Mr. Boardman. Yes, $100 million. If it was 100,000, we'd
    take care of it.
        Senator Dorgan. Yes, we'd----
        Mr. Boardman. Sorry. I was trying to convert, you know----
        Senator Dorgan. Senator Murray----
        Mr. Boardman [continuing]. Kilometers per hour to----
        Senator Dorgan [continuing]. Would fund that out of
    personal funds, $100,000.
        Mr. Boardman. You got me.
        Senator Dorgan. We seldom ever hear numbers like that.
        Well, let me make a suggestion. I wonder if perhaps we
    shouldn't do a conference call next. My staff has been involved
    with all of these calls. I mean, we've had some weekly calls;
    but, frankly, nothing is happening.
        Mr. Boardman. Yes, sir.
        Senator Dorgan. I mean, nothing constructive is happening,
    and I wonder if we shouldn't do a conference call with the CEO
    of BNSF, Mr. Rose, yourself, the Governor, the congressional
    delegation; and, in that call, decide who's going to do what,
    when, and how we're going to get this fixed. Because, I worry
    very much that we could come up to a time here, in just a
    matter of weeks, when something--structural issues or others--
    could persuade you that you can't any longer run that Amtrak
    train through Grand Forks, North Dakota--Devils Lake, North
    Dakota--Rugby----
        Mr. Boardman. You were persuasive to me, in the meeting we
    had in January, that I would continue to operate----
        Senator Dorgan. Well, I tried to be persuasive.
        Mr. Boardman. Yes.
        Senator Dorgan. But, let me suggest that we put together a
    conference call of principals, first. Make some judgments there
    about who's going to do what and when.
        Mr. Boardman. Yes, sir.
        Senator Dorgan. But, again, you want this railroad to run
    well. You believe in passenger service, as I do. And I think
    that the chairman of this subcommittee, I know, has very strong
    feelings about it. You just heard Senator Lautenberg--nobody's
    been stronger in the Senate than Senator Lautenberg. You
    understand you've got a very strong supporter in the Vice
    President's office.
        Mr. Boardman. Yes.
        Senator Dorgan. We watched him, as a Senator, spend a lot
    of time on Amtrak, as well.
        So, I really want you to succeed. We need to find a way to
    get enough capital into this rail passenger system so that you
    can make decisions in the intermediate and longer-term. It's
    the only way we're going to get to where we want to be, and
    need to be, to have a healthy rail passenger system that works
    well.
        So let me, Madam Chairman, thank you for the time.
        And I'll look forward to talking to you either late today,
    Mr. Boardman, or tomorrow.
        Mr. Boardman. Yes, sir, Senator.
        Senator Dorgan. And we'll set up that call.
        Thank you very much.
        Mr. Boardman. Thank you.
        Senator Murray. Thank you very much.
        I have one final area, and that is in fiscal year 2010,
    Amtrak committed to spending $144 million on station
    improvements to bring the rail system into compliance with the
    ADA. The original budget request for 2011 included $281 million
    for the second year of its 5-year plan for ADA compliance, but,
    today Amtrak is lowering that estimate, I understand, by $50
    million, because of difficulty getting the money out the door
    this year. And I understand that part of that is due to the
    fact that you don't own all the facilities.
        But, I wanted to ask you today, Mr. Boardman, if you still
    believe that Amtrak will be able to bring all of its stations
    into compliance with the ADA within the next 5 years.
        Mr. Boardman. I don't know that we can, Chairwoman. I'm not
    happy with my organization that reduced the amount from the
    $281 million down to the $231 million. And I don't yet have the
    answers from them as to what we're going to do to make that 5
    year deadline. If we have to drop it--$50 million right this
    minute--for me to testify to you that we can deliver it in 5
    years, I don't think would be the appropriate thing for me to
    do.
        Senator Murray. Well, I just want you to know, this is a
    high priority for me.
        Mr. Boardman. Yes.
        Senator Murray. It's about people's civil rights. And it's
    not going to get any easier in the next 5 years, so I'm going
    to continue to press you on this.
        Mr. Boardman. Yes, ma'am.
        Senator Murray. With that, I don't believe we have any
    other members that have questions. So, I want to thank all of
    our witnesses for their testimony.

                              SUBCOMMITTEE RECESS

        And I will recess this hearing until May 6, at 9:30. At
    that time, we will be taking testimony from HUD Secretary
    Donovan and DOT Secretary LaHood on the administration's fiscal
    year 2011 budget request related to community livability and
    sustainability.
        Thank you very much.
        [Whereupon, at 11:24 a.m., Thursday, April 29, the
    subcommittee was recessed, to reconvene at 9:30 a.m. Thursday,
    May 6.]

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2011

                                  ----------

                             THURSDAY, MAY 6, 2010

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:30 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray and Bond.

                          DEPARTMENT OF TRANSPORTATION

                            Office of the Secretary

    STATEMENT OF HON. RAY LAHOOD, SECRETARY

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Good morning. This subcommittee will come
    to order.
        I want to welcome both of our witnesses today and thank you
    for coming here and being a part of this today.
        Last year, the administration launched the Interagency
    Partnership for Sustainable Communities. This partnership,
    among the Departments of Transportation, Housing and Urban
    Development, and the Environmental Protection Agency,
    represents an effort to use Federal resources more effectively
    to help our communities create livable and sustainable
    communities.
        This morning, we are pleased that DOT Secretary LaHood and
    HUD Secretary Donovan are here today to talk about their
    Departments' funding requests to support that partnership. This
    hearing provides us a very important opportunity for us to hear
    how these Departments are working together and how their budget
    proposals will help communities across the country.
        All across the country, Americans are making decisions
    about where to live, where to work, where to raise their
    families. They are evaluating where they can get a job, where
    they can afford to live, how much time and money their commute
    will cost, and what schools and services a community can offer.
        As the most significant expenses for most families,
    transportation and housing are central to those decisions. But
    the costs aren't limited just to dollars and cents. The
    tradeoffs impact quality of life and future opportunities.
        In communities across our country, in small towns and large
    urban centers, local leaders understand the issues facing their
    communities, and they are seeking ways to address the
    challenges of congestion and affordable housing, pollution, and
    lack of jobs. Importantly, they recognize that the health of
    their communities depends on taking a comprehensive approach to
    those challenges.
        The economic crisis has made the obstacles to affordable
    housing and economic competitiveness that much greater. We have
    seen millions of families become overwhelmed by unaffordable
    housing costs, entire communities devastated by the foreclosure
    crisis, and local economies struggle with the loss of entire
    industries.
        But as we know, efforts to create sustainable communities
    can be part of the solution. Many of our communities are still
    growing and need to decide for themselves what they want to
    look like as they develop. This isn't always about whether or
    not we should build a road, but where and how to build those
    roads so they get people where they need to go and how to
    create transportation alternatives so people don't have to get
    in their car if a bus or a bike or a subway could work better.
        Other communities aren't growing. Instead, they are trying
    to figure out the right way to reduce their size and create
    viable neighborhoods and a smaller footprint, ones that are
    connected to jobs in retail and essential services. Taking a
    comprehensive approach to housing and transportation is not
    about dreaming and idealism. It is about real decisions that
    our communities make each day.
        There is a perfect example of this in my home State of
    Washington. For years, leaders of the city of Bellevue have
    worked with residents and local businesses on a coordinated
    approach to developing the Bellevue-Redmond Corridor, which
    serves as a major thoroughfare connecting Bellevue and the city
    of Redmond.
        This Bell-Red Corridor plan is a perfect example of the
    type of comprehensive approach to sustainable, environmentally
    conscious development we are trying to encourage with the
    Sustainable Communities Initiative. It is a plan that melds
    housing, transportation, and investments to support economic
    growth and job creation.
        By better aligning Federal programs, this partnership among
    HUD, DOT, and EPA can support the work that is already
    happening in Bellevue and other communities across the country,
    unfortunately, because many of our Federal programs are based
    on outdated rules and regulations and thinking, they do not
    reward innovation and collaboration.
        Distinct programs and funding sources managed by different
    agencies and governed by different and often conflicting rules
    can make it difficult to coordinate funding streams. And sadly,
    the Federal Government provides little incentive for
    communities to think comprehensively about housing and
    transportation. That is why I worked last year to include the
    TIGER program in the Recovery Act and in the fiscal year 2010
    appropriations act.
        That program offers communities the opportunity to fund the
    best solution to their transportation needs without the Federal
    Government prescribing whether that solution should be a road
    or a transit service or railroad. But I believe that
    traditional programs should also help communities coordinate
    their housing and transportation plans.
        On the Federal level, we need to do more to reward and
    promote innovation. These incentives should not change the
    fundamental principle that choices about housing and
    transportation and economic development are best made at the
    local level. At the same time, Federal policies do impact the
    choices that communities make, and we should be designing
    policies that promote economic competitiveness, affordable
    housing, and energy efficient and healthy communities.
        HUD, DOT, and EPA have developed livability principles to
    serve as a foundation for their partnership. But the hard work
    will come in applying those principles. The President's budget
    includes several new proposals for sustainable communities,
    including $527 million for programs at the Department of
    Transportation and $150 million for programs at the Department
    of Housing and Urban Development. This is a significant
    investment, and the budget materials provide few details on how
    these resources would be used.
        I want to understand the long-term benefits of those
    investments to our communities and our transportation system
    and our economy. This subcommittee must decide how to allocate
    resources to meet the various transportation and housing needs
    across the country, and because our resources are so limited,
    we need to closely examine all budget proposals. So I will have
    questions today on the specific criteria for each of these
    programs and the standards that we will be using to evaluate
    their success.
        I will also have questions on the appropriate role for each
    of the Departments. The administration has laid out a framework
    by which HUD will be the lead on planning, DOT will provide
    capacity building, and EPA will deliver technical assistance.
    While I understand the importance of defining clear roles for
    each of the agencies, I am concerned that these roles may
    unintentionally reinforce existing silos.
        Within HUD, the fiscal year 2011 budget requests an
    additional $150 million for the Sustainable Communities
    Initiative, which Congress first funded in fiscal year 2010.
    This funding is intended to help communities on a regional and
    local level gain the tools and capacity to develop and
    implement comprehensive plans that integrate transportation and
    housing.
        In order to develop its NOFA for the fiscal year 2010
    funding, HUD has spent a great deal of time working with DOT
    and EPA to get feedback from communities and other stakeholders
    on how to most effectively design these programs. I support
    these efforts to make sure these policies are designed to meet
    the needs of communities. But at the same time, there needs to
    be clarity of purpose for this initiative and for these Federal
    resources.
        So I will have questions on how to balance the need to
    provide communities with the flexibility to address their
    specific needs with the need to have some structure at the
    Federal level to make sure they are sound Federal investments.
        The budget proposal from the Department of Transportation
    includes $200 million for grants to provide transportation
    planners with the analytical tools to develop more reliable
    forecasts. The administration has proposed paying for these
    grants with funds taken from the regular highway program, and I
    have very serious concerns about that.
        DOT's proposal also includes $307 million in existing
    transit funds that have been combined into a new livable
    communities account, but without any apparent change in the
    purpose. I look forward to hearing more rationale for this
    proposal, and I will also have questions about how these
    proposals for DOT fit into our larger debate over
    reauthorization.
        Americans have long realized that quality transportation
    and housing are critical elements for vibrant communities that
    can foster private sector investment and create good jobs. I
    believe this interagency partnership has the potential to
    address many of the challenges that communities are facing and
    help them achieve those goals.
        There is no one-size-fits-all approach to the many
    transportation and housing challenges our communities face. The
    Federal Government cannot prescribe the solutions, but it
    should be able to assist communities in developing them and
    prove the appropriate incentives to do so.
        Changing practices and thinking in our Federal Departments
    and local communities will not be easy. People are always
    comfortable with what they know, and change is difficult. So I
    commend each of you for the leadership you have demonstrated in
    breaking down silos and pushing for leaders on the Federal and
    community level to think in a new way about the best way to
    make Federal investments.
        With that, I will turn it over to my ranking member,
    Senator Kit Bond for his opening statement.

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Thank you, Madam Chair.
        And welcome, Secretary LaHood and Secretary Donovan. We
    appreciate both of them coming today, good friends who are
    working with us on things that are very, very important in our
    States and throughout the country.
        And today's hearing is about coordinating Federal housing
    and transportation investment in our communities. If done
    properly, this cooperation between Government agencies could be
    a way to stretch responsibly taxpayer dollars and truly get the
    best bang for the buck.
        However, as I indicated to you gentlemen prior to the
    hearing, I have a philosophical question about that because
    this seems to indicate that the Federal Government is the one
    that is going to decide what makes a community livable. And I
    am concerned that we are looking to the Federal Government to
    be involved in the decisionmaking.
        Now we already know that the Federal Government helps fund
    the planning agency. We have got planning agencies at home, the
    MPOs, the RPCs. Their job is to work local officials and get
    local input and decide which way their communities should grow,
    what they need, and I want to support that effort.
        The chair mentioned Bellevue, Washington, and I could go
    around the State of Missouri to tell you about Columbia,
    Missouri, which wants bike paths. Everybody else wants roads.
    They want bike paths. We fought to get them bike paths. St.
    Charles needs a river dredged. We want to try to help St.
    Charles get the river dredged.
        I am not as confident that entrusting Federal
    decisionmakers in Washington to lead the process and tell
    communities how they should go is the right way to grow. I have
    fought for years to say that we have the plans at the local
    level, and we want to work with you to make sure that your
    agencies carry out their core responsibilities to provide our
    communities the roads, highways, and bridges they need and the
    affordable, low-cost housing and public housing that are
    needed.
        And I want to make sure that these decisions are supported
    by the Federal Government. I do not see it as the
    responsibility of any Federal agency to tell our towns and
    cities what would make their communities more livable or
    sustainable or even to try to define the term of what they want
    their communities to be.
        They want it livable. They want it sustainable. I am
    concerned about it, and I have, for example, I have mentioned
    previously when you asked people in Missouri, the part of
    Missouri I live in what makes--how DOT can help us make a
    livable community. Their answer is going to be to make the
    highways safer because, well, in rural areas people have to
    travel.
        They work on farms. They live in dispersed cities. They
    have to travel. Their children have to go to school. Their
    elderly have to get healthcare. Our roads and bridges in
    Missouri are out of date. We kill over 1,000 people a year,
    almost 3 people a day, and at least one-third of those deaths
    are attributable to unsafe highway conditions.
        And on the other side, there are housing shortages. There
    are rental housing shortages in some areas. There are things
    that we need to work on, and we appreciate the working
    cooperation with HUD to make sure we take care of those needs.
        But I want to see these decisions made at the local level,
    but I want to thank HUD especially for the efforts that you
    have made. We have got some, what is it, 900 pages of comments
    on what they want at the local level.
        Well, I--just to be frank, I don't have any question--I
    know planners, and I have worked with planners. And if you go
    out and tell a bunch of planners that we would like to get your
    plans to see how you could spend the money to plan to take care
    of our priorities, they would be more than happy to submit
    plans for how they are going to use more money to plan. And if
    it is only 900 pages, they are just not trying.
        But I want to see those planning efforts focused on
    planning at the local level for what they need to do.
        And again, I share the same concerns that the chair
    mentioned that we have a very tight budget, and I have
    complained about this before. We have got so many demands at
    the same time we have a record budget this year of $1.6
    trillion, 10.6 percent of our GDP. We are borrowing that from
    our children and grandchildren, and we have to keep our
    spending under control.
        And I am concerned about committing scarce dollars, an $827
    million program that we can't even name, when we have really
    pressing needs in transportation and housing that we have
    already identified. And I would like to see the money in
    highways spent on highways. We need a lot more of it there, and
    we have tremendous needs in the housing area.
        And I am still looking, Mr. Secretary, for the rationale on
    which HUD awarded the $2 billion in competitive neighborhood
    stabilization program grants. I would like to see some more
    transparency in that process. And I would like to see the
    criteria on which the TIGER grant applications were awarded and
    what were their ratings.
        Basically, we want to see more transparency at the Federal
    level. But I am very interested in making sure that the dollars
    that we have available go to the core responsibilities that you
    have and that we don't take money away from programs which I
    believe are already pressed, and that is the housing program,
    the transportation program. We have got more needs than we can
    reasonably afford with what is likely to be people tell me a
    tight budget allocation.
        And I would close by just saying that we hope that you will
    go back to the process that we have specified in law before and
    will again that Congress be notified 3 days prior to
    announcement with backup materials and information on how
    awards were made, where they are discretionary awards made by
    HUD, where those monies are going, and we would like to know--
    and how they were selected. We would like to know the same
    thing from the Department of Transportation.
        But I thank you very much for the work that you have done
    on it. I am still confused about what we are trying to do. If
    you all can't agree whether it is livability or sustainability
    and the fact that you will know it when you see it, if that is
    going to be the criterion, I think that is a criterion that the
    local leadership can choose and can apply better than we in
    Washington can.
        Thank you, Madam Chair.
        Senator Murray. Thank you very much, Senator Bond.
        With that, again we welcome both of our witnesses today,
    and Secretary LaHood, we are going to begin with your
    testimony.

                          STATEMENT OF HON. RAY LAHOOD

        Secretary LaHood. Madam Chair and Ranking Member Bond,
    thank you for your leadership on so many of these issues that
    we deal with on a daily basis. We are grateful to you for all
    that you do to enable us to carry out the mandates of Congress,
    and we also thank you for the opportunity to discuss the
    Department of Transportation's efforts to promote livable
    communities through our current programs and to highlight our
    related budget request for fiscal year 2011.
        Over the last 16 months, I have traveled to 80 cities in 38
    States, and everywhere I go, Americans are asking for more
    public transportation, more walkable neighborhoods, less
    congestion, and less sprawl. Livable communities are in great
    demand because they make financial and economic sense.
        Transportation and housing are the two largest household
    expenses for the average American family. In order to reduce
    those costs and strengthen our communities, we must rethink our
    planning, our priorities, and our investments in the Nation's
    transportation infrastructure.
        We need a new approach that will improve the quality of
    life in cities and towns across this country while helping us
    to save billions in infrastructure and energy costs through the
    application of livable and smart growth principles we have
    developed with our friends at HUD and EPA. We are already
    making substantial progress by creatively leveraging our
    existing programs, and we have clearly demonstrated that the
    American people believe we are headed in the right direction.
        We recently funded a project in Dubuque, Iowa, to design
    streets that are attractive, convenient, and safe for a broad
    range of transportation users. Dubuque's efforts helped to
    attract an IBM employment center of more than 1,500 people to
    the city.
        In Seattle's Mercer Corridor, a hub for biotechnology
    companies, we are investing in better roads with bicycle lanes,
    improved access to transit, and upgrading local water, sewer,
    and electrical infrastructure. These improvements will help
    attract and retain a well-qualified workforce to Seattle's
    biotech community.
        And one other noteworthy project, which I have mentioned
    before when I have been here, Kansas City, Missouri, where they
    are taking a 150-block distressed urban community called Green
    Impact Zone to significantly expand transit and pedestrian
    facilities for the first time in the community's history. This
    offers residents brand-new access to clean, reliable
    transportation to get to jobs, schools, hospitals, and connect
    with the rest of downtown.
        This project in particular is a national model
    demonstration of integrating place-based investments--how
    place-based investments can apply the principles of
    sustainability to help transform a community. In addition, our
    decision earlier this year to include a range of livable
    criteria evaluating transit capital projects through FTA's New
    Starts program also elicited a huge outpouring of support.
        Meanwhile, we are helping to educate and empower local
    communities on how to make livable projects a reality by
    providing information and training in new ways. This includes
    guidance on transit-oriented development we have prepared with
    HUD. Elected officials, planners, and developers should find
    this information very valuable.
        We released a notice of finding for a pilot program
    administered by the FTA that will enable urban and rural
    communities to put more buses, trolleys, and other local
    transit on the street. And along with our friends at EPA, we
    are sharing our expertise in support of HUD's efforts to award
    planning and challenge grants to help communities become
    laboratories for sustainability.
        Looking ahead to 2011, the President's budget includes $520
    million for a livable community program that will accomplish
    several key objectives. It will establish an Office of
    Livability to ensure we lead and coordinate our livable-related
    programs and grants DOT wide and create appropriate performance
    measures.
        Too often local governments and planners do not have access
    to the best, most comprehensive information that is essential
    to making better, more informed transportation investments that
    generate the desired outcomes. We must remedy that in
    partnership with our friends at HUD and EPA.

                               PREPARED STATEMENT

        We will fund transit and capacity-building initiatives that
    give State and local governments the tools, resources, and
    assistance they need to better coordinate transportation,
    housing, land use planning, and water infrastructure. Our
    livable proposal is a starting point for a bold new approach to
    revitalize the Nation's transportation infrastructure. The
    President's budget and the administration's future surface
    transportation proposals reflect these and many other
    innovative ideas.
        We look forward to your questions following Secretary
    Donovan's testimony.
        Senator Murray. Thank you very much, Mr. Secretary.
        [The statement follows:]

                     Prepared Statement of Hon. Ray LaHood

        Thank you for inviting me to appear before you today to discuss the
    Department of Transportation's (DOT) current efforts to promote livable
    communities through our existing programs and our budget request for
    fiscal year 2011.

              INTERAGENCY PARTNERSHIP FOR SUSTAINABLE COMMUNITIES

        As a Nation, we pride ourselves on the livability of our
    communities, one in which every American has access to affordable
    housing, good transportation choices and access to jobs. Making
    America's communities more livable is a key part of the President's
    agenda, and the administration is already making important advancements
    in this area. Last June, DOT joined forces with the Department of
    Housing and Urban Development (HUD) and the Environmental Protection
    Agency (EPA) to stimulate comprehensive regional and community planning
    efforts that integrate transportation, housing, energy and other
    critical investments. Together, we will help State and local
    governments make smarter investments in their transportation
    infrastructure, in order to better leverage that investment, and to
    advance sustainable development.
        The Department's budget allocates over $500 million toward this
    effort. It's an investment that is already receiving national
    attention. As I have traveled around the country soliciting input on
    our Surface Transportation Reauthorization, I heard resounding support
    for our livability initiative. The feedback has been clear: it's time
    to rethink how we are investing in our Nation's communities.
        Toward this effort, DOT, HUD, and EPA have developed the following
    principles to guide our shared efforts to promote livability:
      --Provide More Transportation Choices.--Develop safe, reliable and
            economical transportation choices to decrease household
            transportation costs, reduce our Nation's dependence on foreign
            oil, improve air quality, reduce greenhouse gas emissions and
            promote public health.
      --Promote Equitable, Affordable Housing.--Expand location- and
            energy-efficient housing choices for people of all ages,
            incomes, races and ethnicities to increase mobility and lower
            the combined cost of housing and transportation.
      --Enhance Economic Competitiveness.--Improve economic competitiveness
            through reliable and timely access to employment centers,
            educational opportunities, services and other basic needs by
            workers as well as expanded business access to markets.
      --Support Existing Communities.--Target Federal funding toward
            existing communities--through such strategies as transit
            oriented, mixed-use development and land recycling--to increase
            community revitalization, improve the efficiency of public
            works investments, and safeguard rural landscapes.
      --Coordinate and Leverage Federal Policies and Investment.--Align
            Federal policies and funding to remove barriers to
            collaboration, leverage funding and increase the accountability
            and effectiveness of all levels of government to plan for
            future growth, including making smart energy choices such as
            locally generated renewable energy.
      --Value Communities and Neighborhoods.--Enhance the unique
            characteristics of all communities by investing in healthy,
            safe and walkable neighborhoods--rural, urban or suburban.

                      CURRENT DOT AND PARTNERSHIP EFFORTS

        DOT has already begun using these principles in its programs.
        For example, the recent change in the criteria for FTA's New Starts
    grants will ensure that the Department considers livability in its
    funding recommendations of transit capital investments. Previously,
    cost-effectiveness was the primary factor used in making a
    recommendation for construction funding, a criterion that uses travel
    time savings to quantify a project's benefits as a comparison to
    project cost. FTA will now equally consider cost-effectiveness, and
    economic, environmental, and livability factors to determine the best
    use of funds.
        We are also making tools available to transportation professionals
    and the public to build their capacity to implement livability projects
    at the community level. For example, DOT and HUD produced an action
    guide last November to help planners implement mixed-income transit
    oriented development and regional transit corridor planning. This
    guide, now available online, takes planners step-by-step through the
    data gathering and planning process. DOT is also working to develop an
    online database for transit-oriented development, which includes over
    4,000 existing and planned rail/transit stations. This database will
    provide a central resource of transit planning information for
    developers, and will be available to the public by the end of the
    summer.
        To foster the preservation and enhancement of urban and rural
    communities by providing better access to jobs, healthcare and
    education, DOT released a Notice of Funding Availability (NOFA) in
    December for two new pilot programs that would provide funding for
    livability projects from existing funds: up to $150 million is
    available for bus livability projects and $130 million for urban
    circulator grants.
        DOT and EPA are also supporting the development of HUD's NOFA for
    sustainable community grants authorized in the fiscal year 2010 budget.
    DOT and HUD collaborated in the grant selection process and are
    providing staff to assist communities that received EPA's smart growth
    technical assistance grants. Through these discretionary grant and
    technical assistance dollars, DOT, HUD, and EPA are providing States
    and communities with opportunities to build the livable communities
    that are so important to their economic growth and quality of life.

                  LIVABLE COMMUNITIES PROMOTE QUALITY OF LIFE

        Citizens are changing their preferences toward livable communities,
    and State and local governments are responding to constituent demands.
    In fact, EPA has found through consumer surveys that at least one-third
    of the consumer real estate market prefers a mixed use, transit-
    oriented community. The needs and desires of the U.S. home buyer also
    are changing: many consumers in the early 1990s had a preference for
    golf courses and other recreational amenities. Today, surveys indicate
    that many consumers prefer walkable communities--communities
    characterized by pedestrian access and a sense of connection,
    community, and diversity.
        Livable communities are in high demand because they make financial
    and economic sense. Transportation and housing are the two largest
    expenses for the average American household. Reducing the need for
    private motor vehicle trips by providing access to other transportation
    choices can lower the average household expenditure on transportation,
    freeing up money for housing, education, and savings. Realtors,
    developers, and investors recognize that an increase in walkability
    translates into a higher home value.
        The application of livability strategies can also save billions in
    infrastructure investment. For example, Envision Utah brought together
    residents, elected officials, developers, conservationists, business
    leaders, and other interested parties to participate in the development
    of a growth plan for Salt Lake City and the surrounding area. The
    process, which included outreach and comprehensive planning efforts,
    will help preserve critical lands, promote water conservation and clean
    air, promote public health, improve the region-wide transportation
    systems, and provide housing options for all kinds of residents. By
    coordinating investments, the plan saved $4.5 billion in infrastructure
    costs over the last decade. This example shows that as we make our
    communities more livable, we can also decrease the strain on natural
    resources, decrease greenhouse gases, improve air quality, and promote
    public health by supplying more efficient options for transportation
    and housing--all while decreasing infrastructure costs and the burden
    on the American taxpayer.

         LIVABLE COMMUNITIES' INVESTMENTS SUPPORT BOTH RURAL AND URBAN
                                  COMMUNITIES

        Livability also can play a substantial role in small towns and
    rural communities. The concept of livability comes from rural towns
    with a town center that is walkable and accessible to all ages and
    income groups. Rural communities, however, face special challenges that
    threaten traditional community design. Past transportation policies
    have resulted in many rural Main Streets being bypassed by the
    interstate highway system, which contributed to the decline of once-
    vibrant business centers. Many rural communities located close to
    cities have lost farm land and open space as urban areas subsume them.
    Transportation costs are often significantly higher for residents of
    rural communities, especially those with longer commutes to employment
    centers. Better coordination of housing and transportation will lead to
    policies and programs that protect and safeguard open space and
    agricultural land in rural areas, preserve the historical culture of
    rural city centers, and provide rural residents with transportation
    options that decrease their household costs.
        Livability will certainly take a different form in rural areas than
    in urban city centers, but a small town with a walkable, main street
    lined with spaces for retail, employment and housing is something we
    can all picture. Franklin, Tennessee is a small city 25 miles southwest
    of Nashville that has adopted land-use plans and has adjusted their
    zoning ordinances to promote higher density mixed-use development. Bath
    is a small town in southwest Maine whose historic downtown area is a
    model of a livable community. The town provides two trolley loops to
    transport residents and tourists through downtown, reducing the need
    for on-street parking. Bath's street design encourages citizens to get
    out of their cars, which in turn supports local merchants through
    increased foot traffic.
        My favorite example is Dubuque, Iowa, which I had the pleasure of
    visiting last year. In its Historic Millwork District, Dubuque is
    redeveloping old factories and mills--dormant since the early part of
    the 20th century--to create new mixed income housing, workplaces and
    entertainment. Sustainable transportation options are important to this
    plan. The city's trolley bus now connects the Millwork District to
    downtown. We also funded a project to design streets in this district
    that are attractive, convenient and safe for a broad range of users,
    including drivers, public transit, pedestrians, bicyclists, people
    without access to automobiles, children and people with disabilities.
    Dubuque's efforts, in part, attracted IBM to move its employment center
    to the area, where it will provide over a thousand new jobs for the
    city. With its ``Smart City'' partnership with IBM, Dubuque has become
    a model for other cities seeking new livable uses for its established
    infrastructure.
        We are seeing this emphasis on livability not only in rural
    communities, but in urban and suburban communities as well.
        In September, Secretary Donovan, Administrator Jackson, and I
    visited Denver's La Alma/Lincoln Park neighborhood, which is a
    predominantly Latino neighborhood and also one of Denver's oldest. The
    10th and Osage station, which adjoins an industrial area, a diverse
    existing housing stock, and the Sante Fe Arts District, is serving as a
    catalyst for Lincoln Park's redevelopment. The South Lincoln Park Homes
    redevelopment, planned around the 10th and Osage station, calls for
    developing mixed-use, mixed-income housing within walking distance of
    the station, to create a more dense and walkable community. It also
    focuses on improving transportation connections within the La Alma/
    Lincoln Park neighborhood for its residents to improve job access.
        Portland is planning for the growth and development of its city
    center and transit systems, strengthening policies to form a denser
    bike network, and investing in streetcar and light rail. Our TIGER
    grant program has helped them with this by funding over $23 million
    toward the reconstruction of a complete street on their waterfront--
    including three traffic lanes, dual streetcar tracks and pedestrian and
    bicycle facilities--allowing increased access to the central business
    district.
        In Seattle, we are helping to invest in turning a major roadway
    into a multi-modal boulevard. They have instituted smart growth
    policies and transportation investments that encourage urban living and
    reduce dependence on cars, as well as encourage strong sustainable
    building standards.
        When I was in Minneapolis in January, I got a chance to tour a 9.8
    mile light rail transit line between the downtowns of the twin cities,
    Minneapolis and St. Paul. By balancing our cost-effectiveness criteria
    with equity considerations in our transit program, we will be able to
    help fund three additional stops on this line to serve underserved and
    lower income communities that otherwise would not have had access to
    this mode of transportation.
        Kansas City, Missouri, is another great example. DOT recently
    awarded a $50 million TIGER grant to Kansas City for their Green Impact
    Zone project, which will provide better access to regional
    opportunities through expanded transit and pedestrian facilities. This
    project will improve infrastructure in a 150-block area in the urban
    core of Kansas City, Missouri that has been impacted over the years by
    high rates of poverty, unemployment, crime, and high concentrations of
    vacant and abandoned properties. Partners in the Green Impact Zone are
    creating a national model that demonstrates how integrated, place-based
    investments, centered on principles of sustainability, can transform a
    community.

                        FISCAL YEAR 2011 BUDGET REQUEST

        The President's Budget includes $527 million for livable community
    efforts in DOT. This funding will support three areas: a Livable
    Communities Program within the Office of the Secretary (OST); transit
    funding to support livable communities in the Federal Transit
    Administration (FTA); and a capacity-building grant program in the
    Federal Highway Administration (FHWA). The purpose of these programs is
    to provide transportation practitioners with the tools, resources, and
    capacity they need to develop a transportation system that provides
    transportation choices, saves people money, protects the environment,
    and efficiently moves goods.
        This budget request was developed in coordination with the requests
    for HUD and EPA. As you will hear from Secretary Donovan, HUD's program
    focuses on improving regional planning to integrate housing and
    transportation decisions. EPA's role is designed to administer
    technical assistance to communities to pursue infrastructure
    improvements in ways that protect public health and the environment.
        DOT's program supports two vital needs: capacity building in
    transportation planning and financial assistance to initiate innovative
    infrastructure investments. This benefits State and local governments,
    which currently use outdated planning and regional models and poor data
    to make their transportation investment decisions. Because of
    competition for scarce resources, sometimes innovative solutions can
    take a back seat to the more pressing needs of maintenance and repair.
    By targeting some investment funding, DOT hopes to demonstrate that
    smart investment up front can save communities tax money over time by
    strengthening communities and lowering infrastructure costs.
        The President's budget includes $20 million to establish a new
    Livable Communities Program, including a new Office of Livability
    within OST. This Office will lead and coordinate livability programs
    across the Department's modal administrations and provide grants and
    technical assistance for improving local public outreach. It will serve
    as the focal point for interagency efforts such as the Partnership for
    Sustainable Communities and spearhead efforts such as developing
    metrics and performance measures for livability.
        Three hundred and seven million dollars is requested to refocus
    existing FTA programs to expand transit access for low-income families,
    provide effective transportation alternatives and increase the planning
    and project development capabilities of local communities.
    Consolidating the Job Access and Reverse Commute formula grants,
    Alternatives Analysis grants, and formula grants for State and
    metropolitan planning will allow DOT to better coordinate efforts with
    HUD and EPA to develop strategies that link quality public
    transportation with investments in smart development.
        The President's budget requests $200 million to fund a competitive
    livability program within FHWA. This discretionary grant program aims
    to improve modeling and data collection, provide training, and support
    organizational changes to better carry out integrated planning. This
    assistance would be available to States, local governments, and tribal
    partners.

                                LOOKING FORWARD

        What I have described so far is just the starting point for what we
    hope to be a robust livability initiative, both within DOT and among
    our partnering agencies. The President's budget marks a bold new way of
    thinking about investments in our transportation infrastructure and
    will become a key component of the administration's future surface
    transportation proposal. The programs requested in the President's
    budget have been designed to further the goals of the Partnership for
    Sustainable Communities and to assist regions and communities in need
    of Federal assistance to pursue their own planning and development
    needs. By providing capacity building, planning funds, and technical
    assistance, DOT, HUD, and EPA can help communities meet the demands
    that they face for developing these types of neighborhoods.
        Looking forward, reauthorization of our surface transportation
    programs will provide an important opportunity to focus on livable
    community investments that foster transit-oriented, pedestrian and
    bike-friendly development, provide more transportation choices, and
    offer better access to jobs and housing.
        Thank you for the opportunity to appear before you today to discuss
    the efforts of our Partnership for Sustainable Communities and the
    Department's fiscal year 2011 budget request to support this effort. We
    look forward to working with Congress and our stakeholders to make this
    a reality.
        I will be happy to answer any questions you may have.

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                            Office of the Secretary

    STATEMENT OF HON. SHAUN DONOVAN, SECRETARY

        Senator Murray. Secretary Donovan.
        Secretary Donovan. Thank you, Chairwoman Murray, Ranking
    Member Bond. I want to thank you for this opportunity to
    provide an update on HUD's efforts to help urban and rural
    areas across the country create more sustainable homes and
    communities.
        I also want to take a moment to thank Ray and his entire
    team, as well as Lisa Jackson, for their just tremendous
    partnership on this effort.
        I have submitted more complete testimony for the record,
    but today I would like to use my time to report on the progress
    we have made, thanks to this subcommittee's support through the
    Recovery Act and the $200 million Office of Sustainable Housing
    and Communities appropriation for our fiscal year 2010, and to
    share with you our plans in the coming months.

                 OFFICE OF SUSTAINABLE HOUSING AND COMMUNITIES

        In February, HUD launched this office to help coordinate
    our investments with the Departments of Transportation, EPA,
    and Energy, and other agencies at the Federal level, as well as
    allowing us to work directly with communities to support
    innovation at the local level.
        With a combination of housing and transportation costs now
    averaging more than 50 percent of income for American families,
    we formed a sustainability partnership with DOT and EPA because
    when it comes to housing, environmental, and transportation
    policy, it is time the Federal Government spoke with one voice.
    And the partnership is working.
        In addition to the examples that Ray cited, in cities like
    Detroit, you can see that we are not only talking to one
    another, we are making funding decisions together that improve
    outcomes for local communities. In the first round of DOT's
    TIGER grant program under the Recovery Act, DOT awarded $25
    million for the Woodward Avenue Streetcar Project in Detroit.
    All three agencies reviewed the city's application.
        HUD brought to DOT's attention community development
    activities already planned or underway in the Woodward Avenue
    Corridor, which made the site a more attractive investment for
    DOT. The EPA was able to highlight brownfield remediation
    efforts in the vicinity of the project, which will allow
    abandoned properties along the streetcar line to be recycled
    for economic development and affordable housing.
        As a result, we believe this transportation investment has
    the potential to fundamentally transform one of the most
    historic neighborhoods of the city and is an example of the
    more effective award process in communities throughout the
    country.
        A similar process will unfold with the selection of HUD's
    regional planning and local challenge grants this year. With
    this subcommittee's support, we are preparing to launch a $100
    million sustainability planning grant program to encourage
    metropolitan and rural regions to plan for integration of
    economic development, land use, and transportation investments.
        We issued an advance notice and request for comment for the
    program, inviting feedback through a new online Wiki accessible
    via HUD's Web site and through an extensive listening tour
    around the country. We wanted communities to tell us what
    works, what isn't working, and how we can better help them
    build sustainably.
        Just as important, we hope to send a very important signal
    that we in the Obama administration are serious about being the
    kind of partner that listens and learns. And the response has
    exceeded even our expectations. We received over 900 written
    comments, met with over 1,000 stakeholders in 7 listening
    sessions, and staged Webcasts that touched thousands more.
        And the feedback we received was overwhelmingly positive as
    well, from mayors and other officials of both small and large
    communities to business leaders in growing regions to Governors
    of States that have been hit hard economically. One example of
    how this feedback changed our thinking is with respect to small
    towns and rural areas. The White House convened a special focus
    group to discuss the needs of such communities, and in this
    session and the many letters we received, we heard concerns
    that larger communities in central cities might receive
    preference for these funds despite the great need in rural
    America.
        Indeed, Madam Chairwoman, while rural communities generally
    have less access to public transportation, higher poverty
    rates, and inadequate housing, at HUD we recognize that
    residents of these communities also face unique challenges when
    it comes to accessing healthcare, grocery stores, adult
    education opportunities, and many other services. This is
    something it is with communities like St. Peter, Minnesota,
    which Deputy Secretary Sims visited last month with the
    Department of Agriculture, and how they have responded to these
    challenges that we will ensure that small towns and rural
    regions have a better shot at competing in this NOFA through a
    special category of funding.

                             ENERGY INNOVATION FUND

        While these funds are targeted at the regional level,
    another $40 million will support local efforts through a
    Community Challenge Planning Grant. With these funds, HUD has
    chosen to issue a joint NOFA with DOT for its TIGER II planning
    grant program. At the same time, with our $50 million Energy
    Innovation Fund as part of the 2010 budget, we are developing
    new and innovative low-cost financing for single and
    multifamily programs, including taking an energy-efficient
    mortgage product to scale.
        It could provide key incentives to both buyers and sellers
    who want to make much-needed energy improvements in their
    homes. But this office isn't limited to the successful
    implementation of these funds alone. The Office of Sustainable
    Housing and Communities is also active in other partnerships as
    well.
        Over this past year, HUD has been working with the
    Department of Energy to eliminate duplicative rules that
    sharply limited the $5 billion in Federal weatherization funds
    from being available to retrofit multifamily properties. By
    simply cutting through red tape, we have helped pave the way
    for Rhode Island to allocate $7 million, one-third of its
    weatherization funding, to multifamily housing, and Colorado to
    weatherize an expected 1,000 multifamily units by June of this
    year and another 1,600 in the next fiscal year.
        As a result, thousands of low-income families living in
    multifamily housing across the country stand to see their
    utility bills reduced. The President has set a goal of
    weatherizing 1 million homes per year. As part of the HUD-DOE
    partnership, we have made income eligible more than 1.5 million
    units of HUD-qualified homes that could potentially use
    weatherization funding.
        Indeed, we at HUD have set a goal of retrofitting or
    building 159,000 energy-efficient homes over the next 2 years,
    including 85,000 funded through the Recovery Act. Obviously,
    this is only a sample of the work we are doing. My written
    testimony offers a more complete picture of the scope of our
    sustainability work to date.
        As you know, we are requesting $150 million for the second
    year of the Sustainable Communities Initiative in our fiscal
    year 2011 budget, including a second round of regional planning
    grants administered by HUD in collaboration with DOT and EPA
    and additional investment in challenge grants to help
    localities implement these plans.
        Senator Dodd has also introduced legislation that would
    make some of our initiatives permanent and look forward to
    working with him and your counterparts on authorizing
    committees toward that end.
        But Madam Chairwoman and Ranking Member Bond, I hope you
    can see that this funding is producing real results at the same
    time it is helping to fundamentally transform the way the
    Federal Government does business. It is helping us prove that
    the Federal role isn't about dictating what localities can or
    can't do and how to do it, but rather offering them the
    resources and tools to help them realize their own visions for
    achieving the outcomes that we all want, outcomes like less
    time commuting and more time with family, neighborhoods where
    kids can play outside and breathe clean air, and communities
    with opportunities for people of all ages, incomes, races, and
    ethnicities.

                               PREPARED STATEMENT

        That is the goal of these efforts, and it is why I am so
    proud to work with my partners in the administration and this
    subcommittee.
        Thank you for this opportunity.
        [The statement follows:]

                    Prepared Statement of Hon. Shaun Donovan

        Chairman Murray, Ranking Member Bond and distinguished members of
    the subcommittee, thank you for this opportunity to provide an update
    on HUD's expanding efforts to help urban and rural areas across the
    country create more sustainable homes and communities. Thanks to this
    subcommittee's support, both through the American Recovery and
    Reinvestment Act and through this year's appropriation to support new
    sustainable housing and communities grant programs, we have been able
    to make substantial progress on an ambitious agenda in our first year.
    I am pleased to share with you today our early results and plans for
    the future.
        My testimony has three main sections. The first highlights the
    results to date of HUD's Recovery Act investments in sustainable
    housing and communities, which has laid the foundation for much of our
    continuing commitment. The second summarizes the groundbreaking
    sustainability partnerships HUD has formed with other Federal agencies,
    building the framework for unprecedented collaboration and impact on
    the ground. The third describes the major activities HUD has underway,
    led by the new Office of Sustainable Housing and Communities, which
    will focus our efforts to ensure this agenda remains an enduring
    priority for the Department. First, however, I want to provide context
    for HUD's commitment in this area.

       THE NEED FOR FEDERAL LEADERSHIP TO ADVANCE SUSTAINABLE HOMES AND
                                  COMMUNITIES

        While the consequences of climate change are complex and far
    reaching, we know that the increasing emissions of greenhouse gases,
    the primary cause of global warming, are largely a result of energy use
    in our ``built environment.''
        As a Federal cabinet agency focused on the built environment,
    strengthening communities, and expanding opportunity for all Americans,
    HUD recognizes the urgent need for aggressive action to combat climate
    change. The positive news, and the powerful opportunity, is that we can
    cut greenhouse gas emissions, while creating jobs and expanding
    opportunity for all Americans through proven strategies for creating
    more sustainable homes and communities.
        Residential housing and the built environment are major
    contributors to energy consumption and global warming. Residential
    buildings alone account for 20 percent of U.S. carbon emissions, with
    the vast majority coming from detached single-family houses. It may be
    surprising to many, but all types of buildings combined actually
    account for more emissions than the entire transportation sector. The
    transportation sector accounts for about another one-third of carbon
    emissions, among many factors because sprawling development patterns
    separate jobs and houses that, without adequate public transportation
    systems, necessitate long commutes and increased dependence on car
    travel.
        This is no coincidence. During the housing boom, many real estate
    agents suggested to families that couldn't afford to live near job
    centers that they could find a more affordable home by living farther
    away. Lenders bought into the ``Drive to Qualify'' myth as well--giving
    easy credit to home buyers without accounting for how much it might
    cost families to live in these areas or the risk they could pose to the
    market. While some home buyers were aware of the risk they were taking
    on, others were not. And all of these families found themselves
    vulnerable to gasoline price fluctuations, as they drove dozens of
    miles to work, to school, to the movies, to the grocery store, spending
    hours in traffic and spending nearly as much to fill their gas tank as
    they were to pay their mortgage. And some places more--like Atlanta,
    where housing and transportation costs total 61 percent of family
    income or East Palo Alto, California where they consume over 70 percent
    of family budgets.
        The social equity implications of current growth patterns have also
    become more apparent. As metropolitan areas continue to sprawl outward
    and jobs become increasingly dispersed, fewer low-wage earners and
    renters are able to find housing near their work. Nationally, 45
    percent of all renters and two-thirds of low-income renters live in
    central cities. Low-income families, many of them minorities, live in
    neighborhoods that limit access to quality jobs, good schools and
    opportunities to create wealth. Indeed, some studies have found that
    zip code predicts poor educational, employment, and even health
    outcomes. The unbalanced nature of metropolitan housing development has
    strained urban, suburban and rural household budgets, as commutes
    lengthen: the combination of housing and transportation costs now
    average a combined 60 percent of income for working families in
    metropolitan areas.
        With few exceptions, the Federal Government has historically not
    been up to the task of addressing these critical trends. Federal
    programs dealing with housing, transportation and energy issues remain
    largely separate from each other, precluding smart, integrated problem
    solving. Federal policies and rules are narrowly defined, poorly
    coordinated and often work at cross purposes. The silo driven nature of
    Federal policies and programs extends to planning, data collection,
    performance measurement and research and evaluation. To address these
    and other issues, the administration has launched the first
    comprehensive review of ``place based'' Federal policies since the
    Carter administration, with sustainability as a central focus--asking
    each agency to determine whether Federal policies enable and encourage
    locally-driven, integrated, and place-conscious solutions, or obstruct
    them.
        Place of course is already at the center of every decision HUD
    makes. Today, HUD's programs reach nearly every neighborhood in
    America; 58,000 out of the approximately 66,000 census tracts in the
    United States have one or more unit of HUD assisted housing. Now we
    have seized this opportunity to renew our focus on place, to better
    nurture sustainable, inclusive communities across America's urban,
    suburban, and rural landscape.
        A major component of HUD's place-based approach involves making
    communities sustainable for the long-term. For HUD, ``sustainability''
    includes improving building level energy efficiency, cutting greenhouse
    gas emissions through transit-oriented development, and taking
    advantage of other locational efficiencies. Critically, we believe
    sustainability also means creating ``geographies of opportunity,''
    places that effectively connect people to jobs, quality public schools,
    and other amenities.
        But it's not just about what we think at HUD or in the Federal
    Government. Sustainability means different things to different kinds of
    communities. If you asked John Hickenlooper, the Mayor of Denver, where
    they are building more than 100 miles of new light rail, commuter rail,
    and bus rapid transit lanes, linking the 32 communities surrounding
    Denver proper, he'd tell you sustainability is about building inclusive
    neighborhoods of opportunity--binding communities to work together as a
    region so that they not only share problems, but solutions as well. If
    you asked Dan Kildee, who was Genesee County Treasurer for many years,
    he'd tell you sustainability is about the very economic survival of a
    city like Flint, Michigan--where years of population loss and economic
    decline have left a surplus of housing and more vacant land than can be
    absorbed by redevelopment. For Flint, sustainability is about being
    smaller but stronger and smarter.
        And so, the Federal role within each of these efforts is clear: not
    to dictate what localities can and can't do or how to do it, but rather
    offering them the resources and tools to help them realize their own
    visions for achieving the outcomes we all want: less time commuting and
    more time with family, neighborhoods where kids can play outside and
    breath clean air, and communities with opportunities for people of all
    ages, incomes, races and ethnicities.
        Partnering with communities so they can make choices that work for
    them--for their needs, and their marketplaces--is an example of what I
    would call a ``New Federalism'' that President Obama is proposing--and
    it's something we are committed to practicing at HUD.

     LAYING THE FOUNDATION--RECOVERY ACT INVESTMENTS IN SUSTAINABLE HOMES
                                AND COMMUNITIES

        HUD has played a key role in implementing the Recovery Act, which,
    according to the Council of Economic Advisors, is already responsible
    for putting about 2.5 million Americans back to work, putting the
    Nation on track to create or save 3.5 million jobs by the end of the
    year.
        HUD has now obligated 98 percent of the $13.6 billion in Recovery
    Act funds stewarded by the Department--and disbursed over $3.9 billion.
    Nearly all of HUD's Recovery Act funding is fully paid out, or
    expended, only once construction or other work is complete--just as
    when individual homeowners pay after they have work done on their
    homes. Therefore, HUD's obligated but not yet expended funds are
    already generating jobs in the hard hit sectors of housing renovation
    and construction.
        While our top priority with Recovery Act funds is creating jobs and
    economic activity, we are also seizing the opportunity to lay a
    foundation for HUD's new direction in our Recovery Act investments.
    When President Obama signed the Recovery Act into law last year, it was
    designed to do three things: create jobs, help those harmed by the
    economic crisis, and lay a new foundation to make America competitive
    in the 21st century. By putting people back to work greening homes in
    cities like Philadelphia and building high-speed rail in places like
    Milwaukee and Madison, this administration is using our response to the
    economic crisis as a catalyst to build good neighborhoods, more
    resilient communities, and the strong, interconnected regional
    backbones our economy needs to create and sustain these jobs.
        Nearly one-third of HUD's Recovery Act funds can be used for
    ``greening'' America's public and assisted housing stock, making homes
    healthier and more energy efficient. At the same time, this investment
    will prepare a new generation of professionals, from mechanics and
    plumbers, to architects, energy auditors, and factory workers building
    solar panels and wind turbines, all of whom are needed to design,
    install, and maintain the first wave of green technologies.
        These investments include:
      --$600 million for energy retrofits of 226 public housing
            developments and 35 more green newly constructed and
            substantially rehabilitated public housing developments.
      --$500 million for housing on Native American lands, which HUD is
            encouraging and supporting tribal housing groups to provide in
            an environmentally sustainable manner.
      --$250 million for green retrofits of 16,600 units of privately owned
            HUD-assisted housing. (HUD received applications for more than
            $700 million.)
      --$100 million to eradicate lead paint and create healthy homes.
        Importantly, energy efficiency and other environmental criteria--
    and results--are also present in larger HUD programs funded by the
    Recovery Act, such as $3 billion in formula funding for public housing
    and $2 billion through the Neighborhood Stabilization Program.
        The Recovery Act investments we are making to help families and
    communities save energy and live in healthier homes are teaching us
    what works and how we can be a more effective partner to builders,
    owners and residents who want the opportunity to live in greener
    communities. These lessons and feedback from our partners are informing
    and improving our continuing efforts to increase environmental
    benefits, lower costs, and measure the benefits in affordable housing.

     BUILDING THE FRAMEWORK--HUD'S SUSTAINABILITY PARTNERSHIPS WITH OTHER
                                    AGENCIES

        Creating more sustainable housing and communities at scale--making
    sustainability the ``default option'' for our partners and the people
    we serve--requires an interdisciplinary approach and intense
    collaboration across the traditional silos of Federal policy. That is
    why we are so pleased to be working closely with a number of Federal
    agencies to leverage the skills, resources and partnerships that each
    can bring to truly transforming our built environment.
        As you know, HUD, the Department of Transportation (DOT) and the
    Environmental Protection Agency (EPA) have formed the Interagency
    Partnership for Sustainable Communities to help improve access to
    affordable housing, expand transportation options and lower
    transportation costs while protecting the environment in communities
    nationwide. Through a set of guiding Livability Principles and a
    partnership agreement that frames our collective efforts, the
    partnership is coordinating Federal housing, transportation, and other
    infrastructure investments to an unprecedented extent to protect the
    environment, promote equitable development, and help to address the
    challenges of climate change. When it comes to housing, environmental,
    and transportation policy, it is time the Federal Government spoke with
    one voice. (The Livability Principles are attached as Appendix A.)
        Having served in, and worked with, various levels of government for
    many years, I can say that the extent of collaboration and cooperation
    among our agencies has been nothing short of remarkable--starting at
    the senior leadership level where Secretary LaHood, Administrator
    Jackson and I have developed an excellent working relationship, and
    extending to the staff in each agency. Every day, we are getting better
    at aligning where it makes most sense and assigning specific
    responsibilities to the appropriate agency based on resources and
    expertise. One example was DOT's inclusion of HUD and EPA in the review
    of competitive applications for DOT's $1.5 billion TIGER Grant program
    funded under the Recovery Act. We would by no means suggest that we
    have perfected the collaborative approach. Decades of statutes,
    regulations and habits, in some cases, create real challenges to the
    partnership results all three of our agencies aspire to achieve. But
    the good news is we are making consistent progress, moving forward
    despite the barriers, and we always welcome ideas and assistance from
    interested parties, including this subcommittee.
        Another exciting example is the partnership between HUD and the
    Department of Energy that is working to increase energy efficiency in
    affordable homes and apartments. One joint project is to develop a
    streamlined, low-cost, consumer friendly tool to provide homeowners
    with better information about their home's energy use, options for
    saving energy, and the cost savings that would result. We are also
    exploring options for providing financing for consumers to pay for the
    cost of energy saving home improvements, described more below.
        HUD's partnership with DOE is delivering results in multi-family
    low-income housing as well. Our agencies have worked together to
    eliminate duplicative and unnecessary rules that impeded the use of
    Federal Weatherization Assistance Program funds to retrofit multi-
    family properties. Thousands of low-income families are now in better
    position to benefit from the $5 billion in weatherization funds
    provided under the Recovery Act as a result.
        For instance, Rhode Island's Office of Energy Resources, has
    allocated $7 million to weatherize multi-family housing--this set aside
    was in response to the HUD/DOE MOU published in May of last year. Rhode
    Island anticipates a large number of applications for this program.
        Colorado is allocating $80 million for its weatherization program.
    GAO and IG reports have identified Colorado as a high performing State.
    Currently, about $30 million of the ARRA funding has been expended to
    weatherize multi-family homes throughout the State.
        In addition, I have appointed Deputy Secretary Ron Sims to
    represent HUD on the Steering Committee for the White House Council on
    Environmental Quality, the Office of Science and Technology Policy, and
    the National Oceanic and Atmospheric Administration interagency process
    to produce a set of recommendations for Federal actions that will help
    society adapt to climate change. This group is developing
    recommendations on how Federal agencies can effectively create and
    implement climate change adaptation policies and strategies.
        Other similar partnerships are in formation or early development.
    We are especially optimistic about potential collaboration with the
    Department of Agriculture to ensure we are as effective in helping
    deliver sustainability solutions in rural areas and small towns as we
    are in larger and more urban communities.

         ENSURING HUD'S LONG TERM LEADERSHIP ON SUSTAINABLE HOMES AND
                                  COMMUNITIES

        Thanks to this subcommittee's support, we have created a new office
    that will ensure that the foundation laid by our Recovery Act
    investments, and the framework we are building in partnership with
    other agencies, is buttressed and built upon by institutionalized
    capacity within HUD. The Office of Sustainable Housing and Communities,
    under the direct supervision of Deputy Secretary Sims, will help
    provide and expand that capacity among HUD staff and stakeholders.
        Shelley Poticha, nationally recognized for her leadership to create
    more location efficient communities, is in place as Director of the
    office and we have begun to assemble a talented team that brings the
    technical skill sets and deep commitment our sustainability initiatives
    demand. Just as important, we are creating teams of staff in HUD's
    regional and field offices to serve as partners and points of contact
    with stakeholders in our sustainability agenda, listening to local
    ideas and delivering HUD's solutions in real time. Staff playing these
    roles will be current HUD employees who are trained in additional
    skills and work with their colleagues from DOT, EPA and other agencies
    in our communities.
        The office has already made significant progress advancing several
    new initiatives totaling $200 million. This subcommittee's early
    support for these initiatives will be key to their ultimate success.
    First is the Sustainable Communities Regional Planning Grant Program,
    which will provide a total of $100 million to a wide variety of multi-
    jurisdictional and multi-sector partnerships and consortia at the
    regional level, from Metropolitan Planning Organizations and State
    governments, to non-profit and philanthropic organizations and another
    $40 million to foster reform and reduce barriers, at the local level,
    to achieve affordable, economically vital and sustainable communities.
    These grants will be designed to encourage regions and local
    jurisdictions to build their capacity to plan for integration of
    economic development, land use, transportation, and water
    infrastructure investments, and to combine workforce development with
    transit-oriented development. Second is the $50 million Energy
    Innovation Initiative to enable the Federal Housing Administration
    (FHA) and the Office of Sustainable Housing and Communities to catalyze
    innovations in the residential energy sector that can be replicated and
    help create a standardized home energy efficient retrofit market.
    Finally, another $10 million is set aside for research on a
    transportation/housing affordability index. I will discuss these
    initiatives in greater detail below.
    Sustainable Communities Regional Planning Grants
        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, environmental and
    transportation policy, it's time the Federal Government spoke with one
    voice.
        As indicated above, the first $100 million in funding is for
    regional integrated planning initiatives through a Sustainable
    Communities Planning Grant Program. The goal of the program is to
    support multi-jurisdictional regional planning efforts that integrate
    housing, economic development, and transportation decisionmaking in a
    manner that empowers communities to consider the interdependent
    challenges of economic growth, social equity and environmental impact
    simultaneously. We are committed to encouraging these regions to engage
    residents and other local stakeholders to build long-lasting alliances.
        HUD recognizes that while the core principles of the program are
    not new, the Federal Government has never attempted to directly support
    local leaders in articulating and realizing them. In recognizing that
    we can learn from our leaders on the ground, we issued an Advanced
    Notice and Request for Comment for the program. We invited feedback
    through a new online ``Wiki'' accessible via HUD's Web site
    (www.hud.gov/sustainability) and through an extensive listening tour
    around the country. We want communities to tell us what works, what
    doesn't work, and how we can build sustainably. Just as importantly, we
    hope to send a very important signal that we in the Obama
    administration are serious about being the kind of partner that listens
    and learns.
        We received over 900 written comments, met with over 1,000
    stakeholders in 7 listening sessions, and staged web casts that touched
    thousands more. The feedback we received was overwhelmingly positive--
    from the mayors and other elected officials of both small and large
    communities, to business leaders in growing regions, to Governors of
    States that have been hit hard economically.
        One example of how this feedback changed our thinking is with
    respect to small towns and rural areas. The White House convened a
    special focus group to discuss the needs of such communities. In those
    sessions, we heard concerns that larger communities and central cities
    would receive preference for these funds despite the great need in
    rural America.
        Indeed, Madam Chairwoman, while rural communities generally do not
    have access to public transportation, at HUD we recognize that these
    residents still face unique challenges when it comes to accessing
    healthcare, grocery stores, adult education opportunities, among other
    things. We are very much aware that there are high rates of poverty and
    inadequate housing in rural areas.
        That is why we are looking at creating a separate, special funding
    category for small towns and rural places as we prepare the Notice of
    Funding Availability (NOFA) for the fiscal year 2010 Sustainable
    Communities Regional Planning Grant funds--and, indeed, are
    incorporating many of the ideas submitted to us.
        HUD formed an interagency team to draft the NOFA. This team
    included deep engagement from staff within the Federal Transit
    Administration and Federal Highway Administration within DOT; EPA's
    Brownfields, Water, and Smart Growth offices; all of HUD's key program
    offices; the Office of Management and Budget; and the Domestic Policy
    Council within the White House.
        We also consulted with the Department of Agriculture, the Federal
    Emergency Management Agency, the Department of Education, and the
    National Endowment for the Arts. Our fiscal year 2010 NOFA is now in
    clearance. Applicants will be given at least 60 days to submit
    proposals. With DOT and EPA, we aim to announce approximately 40
    winners--from small and rural areas, mid-sized regions, and large
    metropolitan areas.
        The $100 million investment from this fund could potentially be
    game-changing and will leverage additional public and private dollars.
    We will also be working hard and listening closely to ensure it is
    truly useful for rural and smaller communities, as well as larger ones.
    The program is designed to address the needs of places that are just
    starting to think about more sustainable growth and development, as
    well as those that are more advanced. Congress has directed us to share
    our plans for the entire Sustainable Communities Initiative and we will
    submit a formal report on our plans to the subcommittee.
        Finally, as briefly noted above, with $10 million of the Office of
    Sustainable Housing and Communities' budget, we are working with the
    Department of Transportation and the Environmental Protection Agency to
    develop an Affordability Index to educate consumers who want to buy
    homes in more sustainable places by accounting for that housing's
    proximity to jobs and schools. Congressman Blumenauer is preparing
    legislation on this subject and we look forward to continuing to
    discuss this proposal with him going forward.
    Community Planning Challenge Grant Program
        HUD's fiscal year 2010 budget provided $40 million to support the
    detailed planning and code reform efforts that cities and counties must
    undertake to realize their sustainability goals. Consistent with the
    administration's intent to be more transparent and ``user-friendly,''
    HUD has chosen to issue a joint NOFA with DOT for its ``TIGER II''
    planning grant program (up to $35 million.) This NOFA will be published
    at the same time that DOT publishes its TIGER II Capital Grants NOFA.
    The key difference between the DOT planning grant program and HUD's
    Community Planning Challenge Grant program is in the types of
    activities that could be funded. DOT's program funds planning
    activities that relate directly to a future transportation capital
    investment, while HUD's program funds land-use related planning
    activities that would be linked to a future transportation investment.
    HUD and DOT will jointly develop selection criteria that will apply to
    all proposals submitted in response to the joint NOFA and will jointly
    review the proposals.
        DOT and HUD believe there is great value in aligning the two
    planning programs in order to create synergies between transportation
    and land use planning and to set the stage for future linkages between
    the three Partnership agencies' various programs. Furthermore, we
    believe this proposal has the potential to encourage and reward more
    holistic planning efforts and result in better quality projects being
    built with Federal dollars.
    Energy Innovation Grants
        Another area where the Office of Sustainable Housing and
    Communities is focused is scaling up energy efficiency in affordable
    housing. Our fiscal year 2010 appropriation includes $50 million for an
    Energy Innovation Fund. Pursuant to Congress' direction, we are
    developing new and innovative low-cost financing for single- and multi-
    family programs, including taking an Energy Efficient Mortgage product
    to scale that would allow homeowners to wrap energy improvements into
    property tax assessments where the up-front cost can be amortized.
        In both cases, our aim is to use these Federal funds to pilot
    approaches that FHA and the private sector financial institutions will
    take to greater scale in the market.
        Under the leadership of the Office of Sustainable Homes and
    Communities, HUD has also launched a transformative program to develop
    uniform investment policies, performance goals, and reporting and
    tracking systems to support national objectives for energy efficiency.
    HUD is working together with DOE to support the achievement of the
    President's goal of weatherizing 1 million homes per year by enabling
    the cost effective energy retrofits of a total of 1. 2 million homes in
    fiscal year 2010 and fiscal year 2011. As part of this initiative HUD
    intends to complete cost effective energy retrofits of an estimated
    126,000 HUD-assisted and public housing units during this time.
        As we are developing new approaches to the Energy Efficient
    Mortgage, we are also exploring the potential for Location Efficient
    Mortgages (LEM's). LEM's take into account the lower costs of
    transportation in transit rich, walkable communities. This is part of a
    larger effort that HUD is considering housing affordability through the
    lens of the combined costs of housing (including utility costs) and
    transportation, rather than looking at them separately. This work,
    while early in the research and development stage, holds significant
    promise. These efforts are motivated by a belief that markets work best
    when there is reliable and useful information for consumers and
    communities alike--and that by making information on utility and
    transportation costs widely available, we can drive a much broader
    scale of change than Government ever could alone, ensuring that we
    never again foster a culture of ``Drive to Qualify.''
        As you know, we are requesting $150 million for the second year of
    the Sustainable Communities Initiative. Additionally, Senator Dodd and
    Rep. Perlmutter have introduced legislation that would make some of our
    initiatives permanent, and we will work in consultation with the two
    authorizing committees as the legislative process moves forward.
    Working closely with this subcommittee and the authorizing committee,
    we would use these funds for the following:
      --A second round of Sustainable Communities Planning Grants
            administered by HUD in collaboration with DOT and EPA. As
            described above, these grants will catalyze the next generation
            of integrated metropolitan transportation, housing, land use
            and energy planning using the most sophisticated data,
            analytics and geographic information systems. Better
            coordination of transportation, infrastructure and housing
            investments will result in more sustainable development
            patterns, more affordable communities, reduced greenhouse gas
            emissions, and more transit-accessible housing choices for
            residents and firms.
      --Additional investment in Sustainable Communities Challenge Grants,
            also as described above, to help localities implement
            Sustainable Communities Plans they will develop. These
            investments would provide a local complement to the regional
            planning initiative, enabling local and multi-jurisdictional
            partnerships to put in place the policies, codes, tools and
            critical capital investments needed to achieve sustainable
            development patterns.
      --The creation and implementation of a capacity-building program and
            tools clearinghouse, complementing DOT and EPA activities,
            designed to support both Sustainable Communities grantees and
            other communities interested in becoming more sustainable.
            HUD's focus will be on buttressing the capacity of land use and
            housing stakeholders, while DOT will focus on building capacity
            and providing tools for transportation professionals. EPA will
            bring their decade-long expertise in technical assistance and
            research to the Partnership.
      --A joint HUD-DOT-EPA research effort designed to advance
            transportation and housing linkages at every level where our
            agencies work together.
      --All three agencies will collaborate on providing guidance to fiscal
            year 2011 Sustainable Communities grantees to assist them to
            implement their projects and programs.
        I also would like to say a word about the various roles of the
    three agencies within the interagency partnership. Each agency has
    clear and defined roles: HUD will take the lead in funding, evaluating,
    and supporting integrated regional planning for sustainable
    development, and will invest in sustainable housing and community
    development efforts. DOT will focus on building the capacity of
    transportation agencies to integrate their planning and investments
    into broader plans and actions that promote sustainable development,
    and investing in transportation infrastructure that directly supports
    sustainable development and livable communities. EPA will provide
    technical assistance to communities and States to help them implement
    sustainable community strategies, and develop environmental
    sustainability metrics and practices. The three agencies have made a
    commitment to coordinate activities, integrate funding requirements,
    and adopt a common set of performance metrics for use by grantees.
        Allow me to explain to the subcommittee how our interagency
    collaboration--and your support--is already producing results. In the
    first round of DOT's TIGER grant program under the Recovery Act, DOT
    awarded $25 million for the Woodward Avenue streetcar project in
    Detroit. Both HUD and EPA brought critical information and perspectives
    to the table when the three agencies reviewed Detroit's application.
    HUD was able to bring to DOT's attention community development
    activities already planned or underway in the Woodward Avenue corridor.
    EPA was able to highlight Brownfield remediation efforts in the
    vicinity of the project which will allow abandoned properties along the
    streetcar line to be ``recycled'' for economic development and
    affordable housing. In the past, DOT would not have had access to this
    information and a project with so much promise might not been selected.
        This is a prime example of how I believe, Secretary LaHood
    believes, and President Obama believes, Federal agencies must begin to
    partner with one another to make the biggest possible impact on the
    ground.
        Finally, I want to say that with our Choice Neighborhoods
    demonstration, which will be soon underway, HUD will be aiming to prove
    that neighborhoods can be a platform for a new kind of sustainability--
    bringing to bear private capital and mixed-use, mixed income tools to
    transform all housing in a neighborhood.
        But creating true neighborhoods of choice--where lower-income
    families can find opportunity and higher income families would choose
    to live, for their location, their uniqueness, and their amenities--
    requires we bring HUD's fair housing policies, which have remained
    largely unchanged since the Fair Housing Act was passed in 1968, into
    the 21st century. With consultation from Ron Sims, HUD's Assistant
    Secretary of Fair Housing and Equal Opportunity, John Trasvina, is
    adopting a broader definition of fair housing that includes not only
    the racial makeup of housing, but also its orientation to opportunity--
    to public transportation and job centers.
        Armed with this broader set of criteria with which we can better
    understand segregated development patterns, HUD can not only help
    communities identify longstanding demographic and development
    challenges with new technologies such as geospatial data analysis--more
    importantly, we can help them with new development strategies and
    targeted technical assistance. This is not just enforcement--but what
    the law calls ``Affirmatively Furthering Fair Housing.''
        Building on this direction, Deputy Secretary Sims and I have
    instructed Shelley to collaborate with Assistant Secretary of Community
    Planning and Development Marquez toward that end as we develop HUD's
    new Consolidated Plan.
        With housing-specific resources like vouchers, counseling and
    Choice Neighborhoods, to new financing tools for transit-oriented
    development, to incentives that encourage the repurposing of polluted
    land for affordable housing development, we can help communities
    coordinate the use of all available resources to turn segregated
    neighborhoods of concentrated poverty into integrated, healthy,
    sustainable communities.
        That is why I believe this office reinforces President Obama's
    commitment to ensuring all Americans have the opportunity to
    participate in real community change.

                                   CONCLUSION

        My testimony today has focused largely on the work and agenda of
    HUD's Office of Sustainable Housing and Communities. We recognize that
    $150 million alone is not sufficient to meet the demand for sustainable
    communities. That is why I believe the real size of my sustainable
    budget is really $44 billion. That is the size of HUD's fiscal year
    2010 budget--and we intend to begin using every dollar of it to put
    more power in the hands of communities and more choices in the hands of
    consumers.
        These efforts are motivated by a belief that when you choose a
    home, you don't just choose a home. You also choose transportation to
    work and to school. You choose public safety for your children. You
    choose a community--and the choices available in that community. And I
    believe that our children's futures should never be determined--or
    their choices limited--by their zip code.
        We want to again express our deep appreciation for the
    subcommittee's support for this bold, and necessary, new initiative. As
    I say frequently, our ultimate goal is to harness the entire HUD budget
    as a force for creating greener homes and communities everywhere in
    America. We look forward to working with the subcommittee to advance
    that goal and I look forward to our continued progress through the
    proposals outlined in the fiscal year 2011 budget.

                                   APPENDIX A

    HUD-DOT-EPA Interagency Partnership for Sustainable Communities
                Livability Principles--June 16, 2009
        Provide More Transportation Choices.--Develop safe, reliable, and
    economical transportation choices to decrease household transportation
    costs, reduce our Nation's dependence on foreign oil, improve air
    quality, reduce greenhouse gas emissions, and promote public health.
        Promote Equitable, Affordable Housing.--Expand location- and
    energy-efficient housing choices for people of all ages, incomes,
    races, and ethnicities to increase mobility and lower the combined cost
    of housing and transportation.
        Enhance Economic Competitiveness.--Improve economic competitiveness
    through reliable and timely access to employment centers, educational
    opportunities, services and other basic needs by workers, as well as
    expanded business access to markets.
        Support Existing Communities.--Target Federal funding toward
    existing communities--through strategies like transit oriented, mixed-
    use development, and land recycling--to increase community
    revitalization and the efficiency of public works investments and
    safeguard rural landscapes.
        Coordinate and Leverage Federal Policies and Investment.--Align
    Federal policies and funding to remove barriers to collaboration,
    leverage funding, and increase the accountability and effectiveness of
    all levels of government to plan for future growth, including making
    smart energy choices such as locally generated renewable energy.
        Value Communities and Neighborhoods.--Enhance the unique
    characteristics of all communities by investing in healthy, safe, and
    walkable neighborhoods--rural, urban, or suburban.

                            REGIONAL PLANNING GRANTS

        Senator Murray. Thank you very much to both of you for your
    testimony today.
        We will begin a round of questions, just so everybody
    knows, this is the Senate. We are going to have a vote here in
    a few minutes, apparently. So I will begin by asking my
    questions, and when the vote is called, I will turn it over to
    Senator Bond, and I will go and come back. So, hopefully, we
    can keep this moving.
        As we engage our stakeholders in discussions about the
    partnership for sustainable communities, it is really apparent
    that the terms ``sustainability'' and ``livability'' aren't
    easily defined. And the reality is, there isn't one type of
    sustainable or livable community.
        The administration has been clear that plans for
    sustainable communities will be locally driven, but at the same
    time as the subcommittee considers the administration's funding
    request, it is important to understand what types of projects
    will fit into these principles of livability developed as part
    of the interagency partnership.
        So, Secretary Donovan, let me start with you. What specific
    criteria is HUD going to be using to determine if regional and
    community plans meet the goals of sustainability?
        Secretary Donovan. I think there are a number of key things
    that we are looking for up front in the applications for these
    grants. And then I want to be clear, and I think you said this
    well in your opening statement, we need to make sure that this
    is about local efforts because one size doesn't fit all, but we
    also have to set clear standards for accountability and showing
    results.
        Those results will be dependent on the specifics of the
    local plan, but will include a range of outcomes like lower
    cost of living for households, including the combined costs of
    housing and transportation, lower infrastructure costs for
    communities as well. And what we will see as a result of that
    is more disposable income and more resources available at the
    State and local level available, as Secretary LaHood said,
    because we will be able to lower costs for infrastructure
    investment and other forms of investment.
        In terms of the criteria, we are looking for very clear
    regional partnerships in our regional planning grants. There
    must be evidence of collaboration among the various local
    jurisdictions that will be competing. We are looking for
    capacity to use and leverage funds effectively, and we are
    looking for real evidence of the capacity to do planning
    efforts, whether it is through direct capacity at the local or
    regional government level or whether it is with non-profit or
    other types of partners like regional planning organizations or
    councils of government that often play the lead function in
    these kind of planning efforts.
        Senator Murray. So I am hearing you say that you are more
    interested in the integrated planning process rather than the
    specific details?
        Secretary Donovan. I was talking about the regional
    planning grants. Those will be the key criteria. That is right.
        Senator Murray. Okay. And I am going to turn it over to
    Senator Bond because the vote has been called and let him do
    his questions, and I will come back and have a number of
    additional questions that I will ask.

                          NON-MOTORIZED TRANSPORTATION

        Senator Bond [presiding]. Thank you, Madam Chair, and thank
    you for your statements gentlemen.
        Secretary LaHood, I have a letter that I assume you have
    seen from the Transportation Construction Coalition dated--what
    was the date of this letter? We received it yesterday. Ah,
    Bella has kindly passed it up.
        These are the associations engaged in road building and the
    unions that engage in it. And I thought they raise some good
    questions. They state that any definition of ``livability''
    must recognize that non-motorized transportation is a viable
    solution in certain areas, and in our major cities, we
    appreciate the support for mass transit.
        And I told you Columbia, Missouri, is the one city in the
    State that has really gone wild with bicycles. They love to
    bike, and they have theirs. But there are a lot of communities,
    good-sized communities that don't have public transportation,
    and it is too far to bike. And the conditions are not safe.
        And they are concerned that--another concern they have is
    that transportation goals and transportation policy is usually
    set in multiyear reauthorization bills. They are concerned that
    the proposal that takes $200 million out of the highway measure
    to put it in livability, as I think the chair mentioned, may
    reflect a view that we want to get rid of auto transportation.
        I don't know if this quote is accurate, but I have an
    article stating that last year at a National Press Club event,
    a panel moderator said--and some of the highway supporter
    motorists groups have been concerned by your livability
    initiative. He said is this an effort to make driving more
    tortuous and to coerce people out of their cars?
        And according to the article, you answered, ``It is a way
    to coerce people out of their cars.'' Is that an accurate
    reflection of what you said?
        Secretary LaHood. Well, first of all, I haven't seen the
    letter. I was in Houston yesterday.
        Senator Bond. Oh, okay.
        Secretary LaHood. And they didn't provide the courtesy to
    present the letter to me. So I don't have access to it.
        Senator Bond. It was addressed to us, and I thought----
        Secretary LaHood. Senator Bond, I have been all over the
    country. I have been to 80 cities. I have been to 35 States. I
    was in Houston yesterday, which probably has more highways
    maybe than any other place in the country. We had a meeting
    there around the authorization bill. It is our fourth meeting
    that we had.
        We have had one in New Orleans. We had one in Minneapolis.
    We had one in Los Angeles, and we had one in Houston
    yesterday--and nobody has more highways than Texas does.
        What I told those folks is what I have told people all over
    the country not only at these meetings, but everywhere I have
    gone. We have a state-of-the-art interstate system in America.
    We have very good roads, and at DOT, we have an obligation to
    maintain our roads to make sure they are fixed up. In places in
    the country where they need more capacity, we are for that. So
    the idea that we are giving up on our road program, or we don't
    care about it, or we don't care about our highways is nonsense.
        But I can tell you this. Wherever I go, people are sick and
    tired of being stuck in cars and in congestion. People want
    other alternatives. When we hear that, we feel an obligation,
    as the U.S. Department of Transportation, to help create the
    kind of opportunities that people want.
        In some communities, people want more transit. Now that can
    be light rail. It can be a bus. It can be a streetcar.
    Streetcars are coming back to America. In some communities, it
    can be a walking path or a biking path, and in some
    communities, it may be more capacity on an interstate, like
    they have done in Miami, where they put another lane right down
    the middle of the----

                               HIGHWAY TRUST FUND

        Senator Bond. Mr. Secretary, I am beginning to run short of
    time, and I have worked on all those things, and I have made--I
    have asked for grants for things like that, and we talked about
    the place-based green city in Kansas City. That is something
    that came from the bottom up, from the leaders of the community
    with the leadership of my good friend Congressman--and we call
    him Reverend--Emanuel Cleaver has been very strong on that, and
    I have supported that. That comes from the bottom up.
        Now a lot of these things, they all want money that most of
    it comes out of the Highway Trust Fund. And the Highway Trust
    Fund is strangled, and they want to know why we have got all of
    these non-motorized uses for highway--for the Highway Trust
    Funds when we have a lot of roads, a lot of areas that need
    better roads in Missouri.
        But the basic question I asked was this is a quote from the
    American Spectator, I guess April 19 of this year, talking
    about last year. Did you say at the National Press Club it's a
    way to coerce people out of their cars?
        Secretary LaHood. Yes sir.
        [The information follows:]

        I believe you are referring to a question that came up at a speech
    I gave at the Press Club in early 2009. The moderator asked if this was
    an effort to make driving more difficult and to ``coerce people out of
    their cars''. I said that it was, and that people already dread getting
    stuck in their cars in traffic for hours. My point was that people want
    to get out of their cars and it's our role to create those
    opportunities for people who want to use streetcars, bicycles, or light
    rail.

        Senator Bond. That is inaccurate? Well, I think a lot of
    people may see that and be very much concerned because----
        Secretary LaHood. Well, I have been quoted a lot of places
    around the country, Senator. There have been a lot of quotes
    that people have used. But I wish--and that is the reason that
    I----
        Senator Bond. Well, that is all right. I gave you the
    opportunity to answer it and say it wasn't--you didn't say
    that. So that is good.
        Secretary LaHood. No, but look----
        Senator Bond. You answered the question.
        Secretary LaHood. I have been to 80 cities in 35 States, so
    I have been quoted a lot. I have given a lot of speeches, and
    what I just told you is the accurate point of view from the
    Secretary of Transportation about our priorities. We have a
    state-of-the-art interstate system. We are not giving up on it.
    If people need more capacity, they will tell us that.
        Senator Bond. We are telling you that. We need it in
    Missouri----
        Secretary LaHood. I know you are telling me that, but I am
    also telling you what other people are telling me about other
    kinds of things they want in their community.

                               HIGHWAY TRUST FUND

        Senator Bond. Okay. Well, I will tell you something. Your
    basic responsibility is the core transportation needs, and we
    put money into the Highway Trust Fund, and taking it out for
    livability, sustainability, that is greeted with a minimum
    amount of high enthusiasm by the people who need the roads. So
    I think we all have the same goal. We all have the same goal to
    make sure that the communities in States around this country
    and areas that are too dispersed even to be considered a
    community, where people necessarily live and farm are part of
    and thriving parts of every State in the Union.
        And what I am concerned about is the focus that we--I know
    you like to bike, and I certainly want to respect bikers, but
    we need a lot of roads. And we are working on bridges, and we
    appreciate your coming to help get us another bridge across the
    Mississippi River. I had a battle on the floor with a good
    friend of mine who comes from a very dry State who didn't know
    why we were spending any highway dollars on a bridge.
        I said in your State, you don't need bridges. But if you
    live in Missouri and want to get to Illinois, you better have a
    bridge or a car with water wings. Now you were there to help us
    meet one of the top priorities. That was a priority identified
    by the leaders in the community, the people in the community.
        And that is what I'm saying. I'm saying these should come
    from the bottom up. And to the extent that we pay into the
    Highway Trust Fund, we need those dollars and we need more
    dollars in the Highway Trust Fund than we are able to put on
    the--lead on the target now.
        But let me go on to another question. Can you explain the
    difference between livability and the FTA's definition of
    transit-oriented development?
        Secretary LaHood. Well, Senator, let me, first of all, just
    say that this bottom-up idea, that is the reason I have been to
    35 States and 80 cities. I agree with that. The reason we go
    out to these places is so we can listen to people and hear what
    they have to say.
        In some places in the country, people do want more roads,
    and they want more capacity, and we feel at DOT that has to be
    part of our priority. I would say just as counter to--I know
    the Highway Trust Fund is set up out of the receipts that come
    from the gasoline tax. But I will tell you, sir, that when you
    all extended the program, twice now, and extended it through
    December, the $35 billion, almost $40 billion to pay for that
    came from the general fund----
        Senator Bond. Right.
        Secretary LaHood [continuing]. Which is taxes paid by all
    the taxpayers. So, the idea that we are trying to take Highway
    Trust Funds and use them for other things than highways--part
    of the money came from the general fund, which is paid for by
    all the taxpayers, who, in some instances, want something more
    than just roads. I just--I have to put that on the record.
        Senator Bond. We know that, and we need to have your
    recommendations for funding the Highway Trust Fund and also
    funding all the transportation needs. And when we get to
    electric cars, we are having more and more electric cars. That
    is good for the environment. It saves gasoline. It reduces
    imports. How are we going to make sure that the electric cars
    that are on the roads--and I happen to live in a small
    community which is assembling electric cars, and we believe in
    them.
        But how do you get the trust fund--how do you get the money
    into the basic high programs because these little supersized
    golf carts need to drive on highways, too? I hope you will have
    a recommendation for that.

                          TRANSIT-ORIENTED DEVELOPMENT

        Secretary LaHood. Well, let me answer your question about
    FTA and the criteria. We changed the criteria because almost
    from the first day that I appeared before any of these
    committees on the Senate side, every Senator would ask how come
    it takes 10 or 12 years to get a New Starts program?
        Because our criteria was very limited, and by expanding the
    criteria, we can shorten the period of time within which New
    Starts can begin and really give more communities more
    opportunities to really begin the kind of New Starts and
    transit that they want to do. That is the reason that we really
    wanted to change the criteria.
        Senator Bond. Well, one of the things that was most
    important, we worked very hard on the SAFE-T, and I happened to
    be the head of the subcommittee in EPW that worked on it. We
    put some streamlining in there to make sure that all of the
    relevant questions were asked and answered, but one time only
    because the cost of starting has been delayed so much and there
    is so much additional cost by all of the regulations,
    overlapping regulations that are added without considering
    reducing existing limitations.
        I hope that you will look at how you can streamline that
    to--they are telling me I have got one minute left on the vote.
    Oh, well. You win some. You lose some.
        But I hope that you will do that, and I am sorry I haven't
    had a chance to discuss with you, Mr. Secretary, some of my
    concerns about this. We will submit those for the record. And I
    guess it would be appropriate to say that the subcommittee will
    stand in recess until the return of the chair.
        And I thank you very much, gentlemen.
        Secretary LaHood. Thank you.
        Senator Bond. It is always enlightening. I am sorry,
    Secretary Donovan, we will have more of a chance to talk later.
        Thanks.
        Senator Murray [presiding]. I bet you are glad to see me
    back.
        Secretary LaHood. We are very glad to see you, Madam Chair.

                      METROPOLITAN PLANNING ORGANIZATIONS

        Senator Murray. I am glad to see you as well. Sorry for the
    pause and I appreciate both of you waiting for us. We are back
    in session again.
        Let me go right back to my questioning, and I wanted to
    turn to you, Secretary LaHood. As part of the fiscal year 2011
    budget, you have requested $200 million to increase the
    capability of metropolitan planning organizations, MPOs. Under
    this proposal, will you select those MPOs based on their need
    to improve their planning capabilities or their interest in
    livability projects?
        Secretary LaHood. Well, first of all, we think the MPOs
    play a very important role. In your absence, Senator Bond was
    talking about how these ideas need to bubble up from the
    communities. And we believe in that. And we believe that the
    MPOs are a very good mechanism to do that. As I said to Senator
    Bond, I have been to 80 cities in 35 States. We have held four
    hearings around the country around the idea of transportation
    policy tied into with our friends at HUD and EPA.
        What we are hearing from people is that we are always going
    to need roads, but there are lots of other things that
    communities want in terms of transportation. Some communities
    want light rail. Some want more buses. Some want to get into
    the streetcar business. Some want more walking and biking
    paths. So our decisions will be based on what bubbles up from
    the MPO.
        I think people recognize that we have a pretty good system
    of highways and roads around the country, and I think what the
    MPOs are going to be hearing about is other opportunities for
    transportation that can be tied into affordable housing. So, I
    think some of it will be based on what the MPOs have to say,
    but I think everybody knows now that livability and
    sustainability include not only roads, but they include a lot
    of other things, too.
        Senator Murray. But when you look at those proposals and
    you are evaluating them, are you looking at whether they have
    put in place good planning and are capable of doing that? Or
    are you looking more at whether it actually is livability?
        Secretary LaHood. I think we are probably going to look at
    it in terms of what their capacity has been to do the planning
    and to do it on a regional basis and incorporate a lot of
    different forms of transportation. In some instances, I think
    we will try to enhance their ability to do that.
        For example, in Houston yesterday, I talked to the mayor,
    and she is very concerned about how far a reach her MPO goes
    and who should be included and those kind of things. In some
    instances, MPOs do need some enhancement, and some more staff
    capability to try to incorporate livability not only in an
    urban area, but also there are great concerns about rural
    transportation and rural areas, and how do you incorporate
    their priorities?
        So I think we are going to be looking at the capability of
    MPOs, what their thinking is, and how we can really enhance
    their ability to carry out the agenda that the community wants.

                          SMALL AND RURAL COMMUNITIES

        Senator Murray. Okay. The idea of a sustainable or livable
    community sometimes doesn't resonate in some of our smaller or
    rural communities. The terms that are associated with concepts
    like ``increased density'' and ``congestion pricing'' and
    ``transit-oriented development'' just don't resonate in small
    communities. But small and rural communities do need improved
    planning and need to address land-use issues, which is really
    actually why this subcommittee included a set-aside within the
    regional planning grants to support planning efforts in regions
    with populations of less than 500,000.
        Secretary Donovan, can you explain how HUD will make sure
    that smaller regions benefit from these grants and maybe give
    us some examples?
        Secretary Donovan. Sure. First of all, I think the set-
    aside is very important. In fact, one of the things that we
    heard in the feedback that we got and the sessions we have done
    around the planning grants is that, in fact, 500,000 may be too
    large in some cases. And so, one of the things that we are
    looking at is finding ways to ensure we get even to smaller
    regions and communities beyond the 500,000.
        So I think that was a clear piece of feedback that we heard
    and one of the ways that we are looking at right now. I guess
    another thing I would say is I think you make a very important
    point about not painting livability with too broad a brush
    because it does vary so much by community. Secretary LaHood was
    just talking about how we need to listen to those local
    communities.
        One of the things we consistently hear around smaller towns
    and rural areas is for seniors in those communities, the
    difficulty of linking up housing with transportation options.
    And obviously, you are not going to put in a streetcar line or
    you are not going to have the same kinds of solutions, but
    there are very important transportation solutions like vans or
    other kinds of transit options that can be flexible in rural
    areas that are available particularly for seniors, and we have
    been looking at ways to link up housing to those kinds of
    efforts as well.
        So there are very specific things like that, examples like
    that that we have heard out of these sessions and that we are
    incorporating into the criteria that we will have for those
    smaller places, as well as implementing the set-aside and
    looking at ways to even to get to smaller places. So those are
    a few examples.

                     DATA COLLECTION FOR SMALL COMMUNITIES

        Senator Murray. Okay. Secretary LaHood, your proposal seeks
    to increase the capacity of MPOs by improving data collection
    and computer modeling capabilities. Oftentimes, those things
    work better for large communities with really complex
    transportation challenges. How will those grants benefit
    smaller MPOs and communities, or communities that don't have an
    MPO?
        Secretary LaHood. Well, we think there needs to be some
    reform to MPOs to make sure that in past instances where the
    rural communities have not been at the table, that they can be
    at the table, that their transportation, housing and other
    needs are really being addressed. There are a couple of
    programs that Secretary Donovan mentioned in which transit
    districts have established contracts with smaller communities
    where they do provide transportation services so people can
    make a doctor's appointment or go to the grocery store or go to
    some other opportunity that they want in a larger city.
        We are going to work with MPOs on the idea that there has
    to be the kind of outreach that incorporates transportation and
    other needs that people have in rural communities. We know that
    many people want to retire in the communities where they have
    raised their children, where they farmed, or where they have
    lived all their lives, and still have access to the larger
    metropolitan areas.
        So, we have funded in the past some transportation
    opportunities for some communities, but we really need to make
    sure the MPOs are taking these kinds of considerations into
    account when they are putting together their plans.

                           FUNDING FOR INFRASTRUCTURE

        Senator Murray. Okay. Well, most of the transportation
    planning is done by the MPOs. Elected officials sit on the
    boards of MPOs, but they are still different organizations than
    the State or local governments who actually fund transportation
    projects.
        Secretary LaHood, your planning grants mainly go to those
    MPOs, but State and local governments tell us they have huge
    backlogs of infrastructure needs, and the Federal Government
    needs to find a way to fund more of the transportation
    projects. And I think we all agree there is a tremendous need
    to invest in our Nation's infrastructure.
        So how do you address the concerns that are given to us by
    State and local governments who are trying to find a way to
    fund their infrastructure needs?
        Secretary LaHood. We hope that you all in Congress will
    consider the kind of opportunities that were presented to
    communities for direct funding through the TIGER program. We
    had $1.5 billion. We had $60 billion worth of requests. That
    $1.5 billion went directly to communities, directly to transit
    districts, bypassed other bureaucracies.
        When you get $60 billion worth of requests, which we did,
    you get a lot of creative ideas and a lot of good ideas. The
    reason there is such a pent-up demand is for the reason that
    you just said--because they have been overlooked by either a
    State government or a larger metropolitan area. We think this
    program worked very well, the way it was intended, to go
    directly to very creative ideas in communities that have been
    bypassed.
        So the MPOs also should incorporate elected officials. If
    there is a small town mayor, they ought to have a seat at the
    table and be a part of the planning process. I think there will
    be some debate about whether they have an equal voice or not,
    but the point is they ought to be at the table.
        The TIGER program worked well because it went directly to
    very creative ideas that have been bypassed for years.

                                CHALLENGE GRANTS

        Senator Murray. All right. Well, as I mentioned in my
    opening statement, cities across the country like Bellevue in
    my home State have already developed projects like the Bel-Red
    Road that really exemplify both of your efforts to build
    livable communities. Bellevue has already done its planning and
    permitting. So I want to hear from both of you on what you
    would tell Bellevue or other cities like that where they would
    now look for Federal funding for the next phase of Bel-Red Road
    or similar projects that have finished their planning and
    permitting processes.
        And Secretary Donovan, let me start with you.
        Secretary Donovan. And let me just build on the prior
    question as well. It is one of the reason we felt that having
    the challenge grants that would go directly to local
    governments were an important complement. We realized that, I
    think as Ray said, the regional component of this, making sure
    that the regional organizations, whether it is an MPO. In rural
    areas, there are many places where you have regional
    organizations that aren't MPOs, but there are other types of
    organizations that cut across.
        Those are important, but also we have to go directly to
    local governments for the kind of planning and implementation
    that is important as well. So I think we have a balanced
    approach that recognizes you have to work with both kinds of
    organizations.
        In this case that you are talking about, I think it is the
    Bel-Red project that is there, there are a couple of things I
    would say on the HUD side, and Secretary LaHood could talk
    about the DOT side. Specifically, what we often see with these
    kinds of projects is that they create the opportunity for
    significant new housing development.
        They create demand around the stops on a line like that.
    And the challenge grants, as well as the DOT TIGER II planning
    grants that we are looking at putting together in one
    application or one NOFA process, those could be used, for
    example, to do zoning studies and really build out all of the
    specifics around the development that would take place around
    those transit stops. That is one example of how specifically it
    could be used there.
        A second would be our CDBG funding, which could be used for
    street improvements or a range of supporting investments to the
    actual transit line. This is exactly the kind of synergy I was
    talking about with the Detroit investment that the TIGER grant
    was made there. So those are a couple of examples of the way
    what we can do through this sustainability partnership would
    support the kind of investment and planning that they have
    already done.
        Senator Murray. Okay. Secretary LaHood?
        Secretary LaHood. We think that the collaboration that we
    are doing will enable people to have affordable housing and
    affordable transportation, in some communities, it could be a
    streetcar line, in other communities, it could be light rail,
    in other communities, it will be transit through bus services.
        The collaboration enables not only other forms of
    transportation besides an automobile, but affordable housing
    along the way. We have been around the country and seen where
    this has worked very, very well. Where there is good planning,
    you can make it happen, and you can actually talk about livable
    neighborhoods. Then, really building on the whole livable
    community's idea, you create not only affordable housing and
    the amenities that go in neighborhoods, but also good
    transportation that goes along with it.

                           TRANSPORTATION INVESTMENTS

        Senator Murray. Okay. As both of you know, each State and
    local government has a different relationship with their MPO.
    In some cases, the plans are a valued part of the process. But
    in others, they are largely ignored. How can you be sure that
    investments in better planning will actually lead to better
    investments in transportation projects?
        Secretary LaHood. These MPOs have to be very inclusive.
    They have to include the rural areas.

                              SMALL TOWNS AND MPOs

        Senator Murray. So you will be looking at that?
        Secretary LaHood. Absolutely, small towns and the
    connectivity that can be created around the metropolitan areas.
    In the city of Denver, the mayor brought all of the suburban
    Denver area in, and collaborated with them on plans. Now they
    have one of the really unique transit plans in the country,
    which runs six transit lines into their Union Station, where
    there will be an Amtrak capability.
        So, you create the kind of capacity for people from the
    suburban areas, and you take their ideas about the mobility
    that they want around the urban area. It has to be very
    inclusive, and it has to include rural and suburban in the case
    of a city like Denver or even Chicago, which Mayor Daley has
    done the same thing and been very inclusive with the suburban
    area.
        So, you have a couple different systems: you have the metro
    system that delivers people from the suburban area into the
    city of Chicago, you have the Chicago Transit Authority, where
    people can get around there, and you have trains that go to the
    airport, and it is connected. This is the kind of thing that
    really needs to be done if you are really going to provide the
    kind of alternatives that people want.
        Senator Murray. Okay.

                              MEASUREMENT CRITERIA

        Secretary Donovan. I would just add to that I think in
    addition to the important work we will obviously do in
    evaluating these applications, are the plans credible? Is there
    real evidence of collaboration, as Secretary LaHood is talking
    about, across jurisdictional lines?
        I also think it is critical that we set up specific
    measurement criteria as a result of the process. Again, we are
    not going to impose a single set of criteria up front. That has
    to come from the ground up. But it is clear that having impacts
    like reducing costs of combined housing and transportation,
    reduction in----
        Senator Murray. So you will set that out up front, this is
    what we expect to see?
        Secretary Donovan. Exactly. To say, out of these
    applications, we are going to agree to a set of criteria. We
    want to see the criteria that you are proposing. We will work
    with you on those, and then we will agree to a set of metrics
    that will have to be met from the plan.
        And that way, everybody knows what success looks like up
    front. We are not going to dictate that, but we have to at
    least know that there is something to be accountable to.

                                   LIVABILITY

        Senator Murray. Well, following on that, what changes would
    you expect to see from a community after it has developed this
    integrated plan? Do you see the community using Federal housing
    programs like CDBG or section 8 in a different way?
        Secretary Donovan. I certainly think that we will see lower
    costs, and that is in a range of different areas. I would hope
    that we would see lower commuting costs, which would also be
    able to bring down emissions as well. We would see families
    with more income available. And certainly, I would expect to
    see lower costs on the HUD side for the taxpayer as well.
        What we see with the investments we have made from the
    Recovery Act in greening our housing stock, typically we see
    those investments pay for themselves in 3 to 5 years. So any
    savings that go beyond that, and these are annual savings, is
    net savings to the taxpayer. So we certainly expect to see
    lower utility costs in the long term that will help on the
    budget side with, as you know, what we have seen under the
    recession, increasing costs in section 8 and other programs. So
    I think this is a significant advantage as well.
        Senator Murray. So I am assuming that one of the things you
    are looking at in proposals is, at the end of the day, does
    that community envision having lower costs as a result of their
    planning?
        Secretary Donovan. Absolutely. How we measure those costs
    may be different in different communities, but in just about
    every example that I have seen--urban, rural, different types
    of metro areas--we see that.
        We see more efficiency in infrastructure investment, and
    this is one of the things that I think is so important about
    these principles is where we have a community, whether it is
    because of brownfields or red tape from HUD is standing in the
    way of making investments in places that already have
    infrastructure, we should be able to achieve lower
    infrastructure costs because we can recycle, if you will,
    existing infrastructure that is there, improve it rather than
    having to have to continue to sprawl in ways that have negative
    impacts on families, but also on infrastructure cost.
        Secretary LaHood. Can I just say that as a result of the
    work that you have done, Madam Chair, this idea of these kinds
    of transportation opportunities coming from the grassroots up,
    the whole ferry service, which is very unique to your part of
    the world, and there probably aren't any--there are very few
    other places around the country like this. But that is an
    integral part of the transportation for people to get back and
    forth to work, to housing, or to schools or whatever.
        Those opportunities to create multimodal forms of
    transportation have to come from the ground up, have to come
    from the MPOs, and have to come from the idea that not one size
    fits all.

                           CAPACITY-BUILDING FUNDING

        Senator Murray. Okay. Let me turn to some questioning about
    the roles and responsibilities of the agencies.
        In last year's funding we provided to HUD for the
    Sustainable Communities Initiative, the administration has
    worked to clarify the roles that each agency is going to play
    in this partnership. And under those new defined roles, HUD is
    going to focus on integrated planning efforts and updating
    zoning codes. DOT is going to focus on capacity building. EPA
    will focus on administering technical assistance.
        Now I understand that those roles were established in part
    to avoid duplication of effort among the different agencies,
    and that is important. But I am concerned that when we make
    those distinctions up front, we just are reinforcing the old
    stovepipes.
        So, Secretary LaHood, can you provide some more detail on
    what you see as DOT's role in providing capacity-building
    funding?
        Secretary LaHood. Well, I don't know if there has been
    another time when three agencies, three big agencies of the
    Government have ever sat down at a table together and began
    discussions about how we were going to share resources, how we
    were going to collaborate. This is an extraordinary
    opportunity, I think, for the country as we get into an
    authorization bill, as we get into a transportation policy, as
    we try to provide affordable housing.
        We each have our expertise, and we have our resources. The
    point here is, we are willing to share our expertise and some
    of our resources if it can be brought to bear on affordable
    housing and where people want to live. We know what our role
    is, but obviously, we have expertise in transit, and we have
    expertise in highways, and we have expertise in other forms of
    transportation.
        But collaborating with where people want to live and have
    affordable housing, has not really ever been done before. So,
    we are going to bring our own expertise, and look at a holistic
    point of view, not from a sort of a tunnel vision that you
    build a road here and then you hope that maybe somebody will
    build some houses. Or you see some houses, and how people are
    really going to gravitate around these communities.
        I think the key point here is that we are really looking at
    it from a holistic point of view and coordinating and
    collaborating and getting good ideas from people who are in
    these communities.

                                   HUD'S ROLE

        Senator Murray. Secretary Donovan, you are supposed to
    focus on planning, but it seems to me that planning is about
    capacity building. So maybe define for me better what you see
    your role as.
        Secretary Donovan. I think you raise a very important
    question, I think, about how we make sure that we are not
    duplicating roles because I think that a lot of the work that
    we have done to try to define clear roles is to make sure that
    we are not replicating expertise that Ray has in his agency, at
    HUD that we are not hiring more folks than we need or spending
    more than we need to spend in terms of making these happen.
        But also recognizing, as you said correctly, that the lines
    are not perfectly clear and if we try to make them too hard
    that we can end up replicating the silos, and I think it is the
    right balance to strike.
        Let me maybe use an example in what we are looking at with
    the planning grants that we have, our challenge grants. We
    looked at this, and we said, look, DOT has $35 million in funds
    that could be used for similar purposes, but not exactly the
    same. We are going to come together to evaluate, but we will be
    awarding these funds depending on the specifics of what that
    community needs.
        If it really is more of a transportation planning effort
    that is specifically around, say, a streetcar line or something
    like that or a ferry line or whatever it might be, Secretary
    LaHood's team would provide the funding there. We might provide
    the funding if it is more specifically, say, an inclusionary
    zoning effort or a transit-oriented development around there.
    And there may be examples, too, where we would both combine
    funding and provide them.
        In those cases, we are going to be providing some capacity
    building as well because we are going to be working so
    extensively with the regional planning organizations, the MPOs,
    and others. There is real expertise at Department of
    Transportation in doing that. That is why we felt it was
    appropriate for them to be the lead.
        They being the lead doesn't mean we wouldn't also provide
    technical assistance----
        Senator Murray. So you don't see that as the sole
    responsibility is going to be them?
        Secretary Donovan. It is not a sole, but it is making sure
    we understand who is leading and who is following. If there is
    a more specific issue, for example, around zoning codes, land
    use, those issues, we would step in. If there is a brownfields
    issue, obviously, EPA would step in and be able to provide the
    technical assistance.
        But really, the leadership and the greatest experience on
    this was in DOT. That is why we felt like on that technical
    assistance side, they ought to be leading that effort. I hope
    that clarifies it.

                         BARRIERS TO NEW STARTS PROGRAM

        Senator Murray. Yes, it does. And what I hear you saying is
    you are using your own expertise, you are sharing it, which is
    new, and you are not exclusively limiting yourself to your one
    area?
        Secretary Donovan. Right. And the biggest risk here, we
    don't want to reinvent the wheel----
        Senator Murray. Yes.
        Secretary Donovan [continuing]. Where we have that
    capacity. It is more cost effective, and that means we have to
    be in the same room and understand who is leading and who is
    following.

                               COST EFFECTIVENESS

        Senator Murray. Okay. All right, very good.
        Secretary LaHood, I wanted to talk with you, I was really
    happy to see your announcement in January that the Department
    is now going to consider other important factors in addition to
    cost effectiveness when it is evaluating new transit projects.
    Cost effectiveness is obviously important, but I am really
    happy to see a more holistic approach that also considers the
    potential impacts of congestion and the environment and the
    economy because we know all of that is important to the places
    where we live and want to make them more vibrant and
    sustainable.
        That announcement also highlighted the proactive steps that
    DOT and HUD can take to remove barriers that stand in the way
    of smart development, and I wanted to ask both of you today if
    you can tell me what your Departments are doing now to identify
    and eliminate obstacles that are within your power to change?
        Secretary LaHood. Well, by proposing changes rather than
    just using economic development, which is an important,
    obviously, criteria. But taking into consideration several
    other factors, we think we can speed up opportunities for
    funding of New Starts. Really, I think the main obstacle to
    really expediting New Start opportunities and providing funding
    for it was that we were encumbered by our own guidelines.
    Expanding the guidelines and taking other criteria in will
    shorten the time within which we can really make these
    allocations and approve these projects.
        In your absence, I told Senator Bond that the most common
    complaint that I heard at the beginning of my tenure was, why
    does it take 10 or 12 years to get a New Starts program going?
    Well, because of all the bureaucracy, I guess, and all the
    hoops that we were making people jump through.
        It is not that we are not going to be taking a careful
    look. We are going to be doing that, but we are going to be
    looking at other criteria, such as livability and
    sustainability and the environmental benefits of each. The
    economics are important, and they always will be. But there
    will be other things that we will look at, and I think it will
    speed up the process.
        Senator Murray. I am told there is a list available
    somewhere in the administration of the barriers that exist. Is
    that available? We have been asking for it for over a year now.
        Secretary LaHood. Well, it is available as far as I am
    concerned. We will see if we can get you a copy of it.
        [The information follows:]

        The Federal Transit Administration (FTA) has, in the past year,
    rigorously examined each stage of the project development of New and
    Small Starts and implemented measures in an effort to make the process
    move more smoothly and quickly. FTA has revised its internal business
    practices and policies as well as the regulatory framework of the New
    and Small Starts program to expedite project delivery.
        A number of significant improvements have been made. A major change
    occurred in January 2010, when Secretary LaHood rescinded the test
    established in 2005 requiring New and Small Starts projects to have a
    Medium or better Cost-Effectiveness rating to be considered for a
    funding recommendation in the President's annual budget. Consideration
    for project funding recommendations are now available to projects that
    achieve a Medium or better Overall rating, as required by statute.
    Cost-Effectiveness no longer trumps all the other statutory evaluation
    criteria. Project funding recommendations are now based on the full set
    of statutory criteria, including ``livability'' criteria like
    environmental benefits and economic development effects. This change is
    expected to expedite the project development process because it removes
    the need for project sponsors to repeatedly rescope projects to lower
    their costs in an effort to meet a Medium cost effectiveness threshold.
        To provide better technical support to applicant project sponsors
    as they advance toward construction funding, FTA issued new and
    clarified guidance. FTA also works with sponsors to develop
    ``roadmaps,'' mutually developed action time lines for advancing
    projects.
        FTA revised its organizational structure by creating an office
    solely devoted to New and Small Start project development and by
    revitalizing its New Starts project development teams that work one-on-
    one with applicant sponsors. FTA reduced the number of submittals
    required from sponsors. FTA introduced streamlining policies such as
    allowing project sponsors to automatically move forward with certain
    procurement and early construction activities, using local funds
    eligible for later Federal reimbursement upon compliance with
    environmental requirements.
        Of particular note, FTA has just issued an Advanced Notice of
    Proposed Rulemaking (ANPRM) effort to improve and simplify the
    methodology used to measure three important criteria used to evaluate
    New Starts projects. During this ANPRM effort and subsequent
    development of a new regulation, FTA will work with a broad range of
    stakeholders in public transportation and livable communities to make
    the New and Small Starts regulatory framework not only reflect a wider
    range of the benefits of transit, but to be more compatible with
    expedited project development timeframes.
        With those accomplishments behind us, the FTA also expects to
    announce a significant revamping of its project approval processes in
    the coming months to further streamline the project decision process
    and shorten the period it takes to advance projects to a Federal
    funding decision.

        Senator Murray. Okay. We would like that, all right.
    Secretary Donovan.
        Secretary Donovan. I think this is such an important
    question, and it goes back a little bit to the issue that was
    raised before. Is the Federal Government dictating, absolutely
    not. We want to work with local communities.
        One of the things we consistently hear from local
    communities, and I think in some ways is our first
    responsibility, is the Hippocratic Oath, which says ``first, do
    no harm,'' and I think that is a principle we need to follow on
    this side as well.
        One of the great benefits of us coming together in the way
    that we have and reaching out to local communities is that we
    have heard a lot about where our rules--Ray talked about some
    of them, where our rules stand in the way of sustainability at
    the local level. In fact, I am not sure which list exactly you
    might be referring to. We have a list of 300 comments we have
    gotten from our input around the country that is barriers we
    ought to try and work on.
        Senator Murray. Okay.
        Secretary Donovan. We have begun to work on those. Let me
    give you just two quick examples. Let me just give you two
    quick examples of the things that we have started to work on
    already and the things that we have done.
        One of the things we have consistently heard is that our
    standards, both for ensuring multifamily buildings or
    subsidizing them require outdated environmental reviews that
    are not state-of-the-art and often limit how much commercial
    income a property could have. Well, what are the effects of
    that?
        We make it way too hard to reinvest in existing communities
    that might be close to transit or other things, and we stand in
    the way of doing mixed-use development, which is key for
    livable communities. So that is one example.
        A second, by working with--and we have changed that, by the
    way. We have now begun to incorporate state-of-the-art
    environmental standards into the work that we do.
        A second example is with the Department of Energy. As we
    started to look at their weatherization funding and whether it
    could be used on multifamily, what we found was the Department
    of Energy partners had to go literally family by family and
    check their incomes to make sure that they were low income,
    even though HUD is already doing that work each and every year
    to check their incomes.
        It was a big barrier to doing it. So what did we do? We
    changed it. We put out an MOU with Secretary Chu that says here
    is a list of 1.5 million apartments in HUD programs that are
    automatically eligible for weatherization assistance because of
    the income level.
        Those are just two examples of the kind of barriers that we
    have identified already and moved on. And obviously, there is a
    significant list of others that we have heard feedback from
    that we are beginning to work on as well.
        Senator Murray. Okay. If you could share that with the
    subcommittee, it would be great. My understanding is there is a
    joint list developed by DOT and HUD, and if you could share
    that with us and some of the ones that have been removed or
    what the challenges are, I would really appreciate it.
        Secretary Donovan. Yes.
        Secretary LaHood. Can I just list for the record the six
    criteria--you know I mentioned cost effectiveness in the past,
    but we have mobility improvements, environmental benefits, cost
    effectiveness, operating efficiencies, economic development
    effects, and public transportation supportive land use. That is
    the expansion that I was talking about, in addition to cost
    effectiveness.
        Senator Murray. Okay, very good.
        Well, I appreciate both of your responses to this and look
    forward to working with you on that.
        Secretary LaHood, I have one other question for you that is
    not about sustainable communities, but that is very important
    to me. And we will have a number of Senators who will be
    submitting questions to both of you.

                                 MEXICAN TRUCKS

        And Secretary LaHood, I do need to ask you an important
    question. It is one I brought up with you when you were before
    our subcommittee before, and that is about the cross-border
    trucking issue with Mexico and the devastating effect of
    Mexican tariffs on my Washington State farmers now.
        Back in March, I urged you and the administration to move
    quickly to craft a plan to resume this cross-border trucking in
    a way that would address the safety concerns that were raised
    during the pilot and the tariffs that are imposed right now.
    You told me at that time that a resolution was going to be
    forthcoming soon.
        You should know and I want you to know that the effects of
    that Mexican tariff have been absolutely devastating to the
    farmers and families in my home State now. The tariffs are
    really undermining our farmers' competitiveness. They are
    killing jobs, devastating communities.
        In fact, in the 2 months since we last talked and you came
    before the subcommittee, the ConAgra potato processing plant
    that is located in Prosser, Washington, shut down and
    eliminated hundreds of really good-paying jobs. If we don't
    address this soon, that is just going to be the first of what
    we see. We literally have thousands of jobs at stake and are in
    serious jeopardy over this.
        I sat down last week with the Mexican ambassador to the
    United States in my office because I wanted him to know how
    harmful this was, and I told him that I feel very strongly that
    our Washington State farmers and our families should not be
    punished for a diplomatic dispute they had nothing to do with.
        Well, he told me that Mexico's president, as you know, is
    planning to be here in a few weeks and is bringing this issue
    up with President Obama. So my question to you this morning is
    I want to know what you can tell me about the administration's
    progress toward fixing this problem, are you prepared to
    resolve this issue with Mexico during the state visit later
    this month?

                             CROSS BORDER TRUCKING

        Secretary LaHood. Well, since the program was suspended, we
    have worked very hard with the White House and other members of
    the Cabinet, President Obama's team has worked very hard to put
    a proposal together. We will be announcing it very soon, and we
    will come to Capitol Hill and brief every Senator that has an
    interest in what it says and get feedback.
        President Obama's administration's intention is to restart
    this program. It is a part of NAFTA. It needs to be restarted.
    We believe if it is restarted that these tariffs will be
    lifted, which we know have had a devastating effect not only on
    the State of Washington, but on many other States across the
    country.
        We are very close to briefing you and other Senators on the
    proposal----
        Senator Murray. Is ``very close'' sooner than ``soon?''
        Secretary LaHood. It is closer than ``soon.''
        Senator Murray. Okay. Well, this is extremely important to
    us. So I will stay in touch with you on this.
        Secretary LaHood. Yes.
        Senator Murray. And we are hoping with the President coming
    later this month that we can have a resolution of this and move
    on.
        Secretary LaHood. Yes. Thank you.
        Senator Murray. Okay. Thank you.

                         ADDITIONAL COMMITTEE QUESTIONS

        I would ask at this time that if the subcommittee members
    have any additional questions that they submit them for the
    record.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                   Questions Submitted to Hon. Shaun Donovan
               Questions Submitted by Senator Christopher S. Bond

                                  TRANSPARENCY

        Question. Secretary Donovan, as discussed during this and previous
    hearings, I am still waiting for real transparency in the current
    administration grant making process: in other words, at a minimum,
    Congress and the American people need to know the substance of the
    implementation of the program and the decisionmaking through the
    Internet or the Federal register, including such information as the
    basic requirements for receiving a grant, a list of all grants awarded,
    to whom and for how much, and what were the requirements that the
    grantee met in order to qualify for a grant, how the grant was awarded
    (who made the decision, under what basis), what are the minimum
    expectations, and a bi-annual review of the status of each grant
    including what has been accomplished in contrast to the benchmarks
    established for a successful grant, and what benchmarks apply for the
    length of the grant, including in all cases the rate of obligation and
    the rate of expenditure and whether the expenditures are consistent
    with the requirements of the grant. It seems to me that cost shares and
    the leveraging of funds also should be readily available on the
    Internet so we have access to information about other sources of
    Federal, State or private funds that may be used to augment these grant
    awards. In brief, what does HUD believe should be the minimum
    requirements for transparency? What issues should not be subject to
    transparency? What steps is HUD currently taking to ensure that HUD
    grant decisionmaking is open and objective with benchmarks on the award
    of grants as well as a process to determine whether grants are meeting
    program goals and requirements? Is there a political review process at
    HUD which allows political decisionmaking once the underlying objective
    criteria process is complete?
        Answer. For our programs, both NOFAs clearly stated the process
    that would be used to evaluate and rate projects.
        HUD issued an Advance Notice of Funding Availability and the Office
    of Sustainable Housing and Communities organized a public listening
    tour with DOT and EPA in advance of the NOFA publication that directly
    influenced the structure of the funding notices. Each and every
    application for HUD programs is reviewed, evaluated and rated as stated
    in the Notice of Funds Availability (NOFA). There is no political
    process that is done once the objective process is complete.
        Additionally, both grant programs will involve a Logic Model that
    has specific performance indicators and there is also $8.5 million
    specifically for research and evaluation out of the fiscal year 2010
    funding. The $8.5 million is derived by an appropriation of $10 million
    less $1.5 million for the Transformation Initiative. The evaluation
    funds will be used to see how the grantees are performing. Specific
    information can be found on the Sustainable Housing Web site (HUD.gov/
    sustainability). There is a list of applicants for both grants and a
    summary of those that were funded. The NOFAs contains what criteria
    were used and how the grantees applications were weighted.

     RELATIONSHIP BETWEEN HUD, EPA AND DOT IN THE SUSTAINABLE HOUSING AND
                        COMMUNITIES INITIATIVES PROGRAM

        Question. HUD has established a new Office of Sustainable Housing
    and Communities with an appropriation of $150 million which will be
    available for regional planning efforts that integrate housing and
    transportation decisions as well as to increase State, regional and
    local capacity to incorporate livability, sustainability and social
    equity principles into land use and zoning. One hundred million dollars
    will be for regional integrated planning initiatives. HUD, EPA and DOT
    are directed to work together to bring coherence to the planning
    process. HUD is also asking for another $100 million for fiscal year
    2011.
        This program remains very ambiguous. A dialogue on livability and
    sustainability represents a good and healthy debate; however, we must
    be careful about not becoming too prescriptive or start to rely too
    much on Federal mandates to force certain conclusions. One size does
    not fit all--instead we must encourage flexibility and not try to
    purchase conclusions through grants. What is the current relationship
    between DOT, EPA and HUD as to sustainability/livability? How do the
    agencies work together and what are the problems?
        Answer. When we formed the Partnership for Sustainable Communities,
    the Department of Housing and Urban Development (HUD), the Department
    of Transportation (DOT), and the Environmental Protection Agency (EPA)
    agreed to collaborate to help communities become economically strong
    and environmentally sustainable. Through the Partnership and guided by
    six Livability Principles, the three agencies are coordinating
    investments and aligning policies to support communities that want to
    give Americans more housing choices, make transportation systems more
    efficient and reliable, reinforce existing investments, and support
    vibrant and healthy neighborhoods that attract businesses. Each agency
    is working to incorporate the principles into its funding programs,
    policies, and future legislative proposals. The Partnership breaks down
    the traditional silos of housing, transportation, and environmental
    policy to consider these issues as they exist in the real world--
    inextricably connected. This results in better results for communities
    and uses taxpayer money more efficiently, because coordinating Federal
    investments in infrastructure, facilities, and services meets multiple
    economic, environmental, and community objectives with each dollar
    spent. As part of this effort, the three agencies have been working to
    identify barriers that exist.
        Additionally, in June 2010 HUD and DOT joined together to issue a
    joint Notice of Funding Availability to support integrated housing and
    transportation planning to eligible States, tribal governments,
    regions, and local units of government, making up to $75 million
    available for these activities.

      HUD, EPA AND DOT CONTRIBUTIONS TO SUSTAINABLE HOUSING AND COMMUNITY
                               INITIATIVE PROGRAM

        Question. How much is each agency contributing to this initiative
    and what is the relationship of the different funding streams?
        Answer. HUD, DOT, and EPA have identified a set of priorities and
    roles that guide our individual and joint efforts. Within the
    Partnership for Sustainable Communities, each agency will incorporate
    the six Livability Principles into their policies and funding programs
    to the degree possible and adopt a common set of performance metrics
    for use by grantees that helps align and leverage Federal funds. As
    laid out in the agencies' joint fiscal year 2011 budget proposal, the
    agencies each propose to take the lead in different areas as further
    described below.
      --HUD will take the lead in funding, evaluating, and building the
            capacity for integrated regional and local planning for
            sustainable development, and will invest in sustainable housing
            and community development efforts.
      --DOT will focus on building the capacity of transportation agencies
            to integrate their planning and investments into broader plans
            and actions that promote sustainable development, and investing
            in transportation infrastructure that directly supports
            sustainable development and livable communities.
      --EPA will provide technical assistance to communities and States to
            help them implement sustainable community strategies, and
            develop environmental sustainability metrics and practices.

                       REQUIREMENTS FOR RECEIVING A GRANT

        Question. What are the underlying requirements for receiving a
    grant under sustainability?
        Answer. We respectfully refer you to the Notices of Funding
    Availability that were issued on June 24, 2010 for the two Sustainable
    Communities grant programs, which describe the program requirements for
    each program.
        Sustainable Communities Regional Planning Grant Program.--http://
    www.hud.gov/offices/adm/grants/nofa10/scrpgsec.pdf.
        Community Challenge Planning Grant Program.--http://www.hud.gov/
    offices/adm/grants/nofa10/huddotnofa.pdf.

                         SUSTAINABILITY VS. LIVABILITY

        Question. Why does HUD call this initiative sustainability and DOT
    calls it livability?
        Answer. DOT uses the term ``livable,'' and by extension
    ``livability,'' to describe a community where an individual or family
    does not need to get in a car in order to do such things as go out to
    dinner, go to a movie, or a park. DOT defines livability to mean
    building communities that help Americans live the lives they want to
    live--whether those communities are urban centers, small towns or rural
    areas. Whereas DOT's definition of livability reflects its
    transportation mission, HUD uses the terms ``sustainable communities''
    and ``sustainability'' in its programs because of HUD's broader
    mission.
        Although HUD has not defined the term ``sustainability,'' it
    defines ``sustainable communities'' to mean ``urban, suburban, and
    rural places that successfully integrate housing, land use, economic
    and workforce development, transportation, and infrastructure
    investments in a manner that empowers jurisdictions to consider the
    interdependent challenges of: (1) economic competitiveness and
    revitalization; (2) social equity, inclusion, and access to
    opportunity; (3) energy use and climate change; and (4) public health
    and environmental impact.''
        Given its broader mission, which includes promoting such things as
    economic competitiveness, social equity, and public health, HUD has
    chosen to use what it considers to be a term that has a broader
    meaning. We do not see these terms as being in conflict, but rather
    represent a coordinated approach between our agencies.

                              PRIORITIZING FUNDING

        Question. Secretary Donovan, as you know, there are significant
    deficit issues facing the entire Federal Government. As I discussed, we
    are facing a $1.6 trillion deficit this year; a record $1.6 trillion
    deficit this year--10.6 of the Nation's GDP--the highest since World
    War II, and the future only looks worse, especially for future
    generations. The HUD budget is filled with new agenda items, such as
    Choice Neighborhood, Sustainable Communities, Transforming Rental
    Assistance with its future multi-billion out-year costs and Catalytic
    Investment Competition. How will these stack up with HUD's core
    programs like HOME, CDBG, public housing and section 8 with the two
    previous programs requiring increased additional costs for each fiscal
    year just to preserve the housing safety net for low-income families?
    There are many other housing and Transportation programs that will also
    need funding and are widely supported both in the Congress and
    throughout the Nation. How do you plan to prioritize funding?
        Answer. HUD's fiscal year 2011 budget request takes into
    consideration our core programs such as CDBG, public housing and
    section 8 rental assistance. In an effort to not only preserve the
    safety net that many of HUD's programs provide to low-income families
    and tenants, HUD sought to fundamentally change the way that our
    programs work to make them more efficient, serve more families and
    communities and preserve affordable rental housing options.
        HUD's request compliments our core programs with new initiatives
    like Choice Neighborhoods and Sustainable Communities. The Choice
    Neighborhoods Initiative modernizes the HOPE VI program so that
    neighborhoods and communities can access funding that will improve
    existing HUD-assisted housing as well as support other community
    development needs. The Sustainable Communities Initiative will help
    regions, communities and neighborhoods create comprehensive development
    plans that link housing, transportation and job opportunities together.
    These programs in addition to HUD's core programs will enable States,
    cities and regions to continue to serve low-income families, create
    more affordable housing options and spur economic development in a way
    that makes sense to that area.

                                   LEVERAGING

        Question. Secretary Donovan, HUD is looking at requiring or perhaps
    providing points in the grant process for matching or leveraging of
    funds or ``in-kind'' matches. The in-kind matching sounds like little
    more that crediting an additional staff to a Sustainability program?
    How do you plan to measure or identify this match which seems hard to
    quantify?
        Answer. Matching funds are not required. However, applicants must
    provide 20 percent of the requested funding amount in leveraged
    resources in the form of cash and/or verified in-kind contributions or
    a combination of these sources. Successful applicants must have the
    required amount of leverages resources (20 percent) at the time of
    signing the cooperative agreement. In-kind contributions may be in the
    form of staff time, donated materials, or services. Please see section
    VIII.C. for a list of possible in-kind contributions. All assistance
    provided to meet this requirement must be identified by their dollar
    equivalent based upon accepted salary or regional dollar values. Cash
    contributions may come from any combination of local, State, and/or
    Federal funds, and/or private and philanthropic combinations dedicated
    to the express purposes of the proposal. Applicants will receive credit
    for leveraging resources greater than 20 percent of the requested
    amount, as described in section V., Rating Factor 4. If an applicant
    does not include the minimum 20 percent leveraged resources with its
    appropriate supporting documentation, that application will be
    considered ineligible. Please see section III.F., Threshold
    Requirements.
        We respectfully refer you to the Notices of Funding Availability
    that were issued on June 24, 2010 for the two Sustainable Communities
    grant programs, which describe how leveraging is defined and evaluated
    in each program.
        Sustainable Communities Regional Planning Grant Program.--http://
    www.hud.gov/offices/adm/grants/nofa10/scrpgsec.pdf.
        Community Challenge Planning Grant Program.--http://www.hud.gov/
    offices/adm/grants/nofa10/huddotnofa.pdf.

                                    STAFFING

        Question. Secretary Donovan, how many staff do you have in the
    Office of Sustainable Communities and Housing? How many staff do you
    expect to hire and by when? Where will they be located and what will be
    there primary functions? How do you plan to perform grant review and
    selection? Will you or other political staff be part of the review and
    selection process? If yes, in what way?
        Answer. As of June 15, 2010, 14 of the allocated 19.5 full-time
    employees (FTEs) have joined the Sustainable Housing and Communities
    (OSHC). Another FTE will begin work on June 21. The remaining FTEs will
    join the Office over the next 2 months. They will be located in HUD
    Headquarters in Washington, DC. The primary functions of staff will be
    to establish the Office, administer and oversee the two grant programs,
    and coordinate with DOT, EPA and other Federal agencies involved in the
    Partnership for Sustainable Communities and related energy efficiency
    programs.
        We respectfully refer you to the Notices of Funding Availability
    that were issued on June 24, 2010 for the two Sustainable Communities
    grant programs, which describe the grant review process, selection
    criteria and rating factors for each program.
        Sustainable Communities Regional Planning Grant Program.--http://
    www.hud.gov/offices/adm/grants/nofa10/scrpgsec.pdf.
        Community Challenge Planning Grant Program.--http://www.hud.gov/
    offices/adm/grants/nofa10/huddotnofa.pdf.
        As noted in the NOFAs for both grant programs, a senior review team
    will be created for each grant program to review qualifying grant
    applications that receive qualifying scores from review teams comprised
    of career staff from HUD, DOT, EPA and other Federal agencies. For the
    Sustainable Communities Regional Planning grants, we also anticipate
    using representatives from philanthropy as review team members to
    supplement teams with outside expertise on sustainability and regional
    planning. The Senior Review teams will review qualifying applications
    using the same criteria and rating factors, but will not change project
    scores. The Director of the Office of Sustainable Housing and
    Communities will recommend selected projects to the Secretary for
    recommended funding based on the overall review process as described in
    the NOFAs for both grant programs.

                          SUSTAINABILITY VS LIVABILITY

        Question. What is HUD's relationship with DOT and these
    Sustainability and Livability programs? One of the primary goals is for
    DOT and HUD, and to some extent EPA, to work together on related issues
    under each department's jurisdiction to assist jurisdictions and joint
    jurisdictions to find common themes and activities that will facilitate
    the development of projects and help grow better communities through
    the interaction of these agencies.
        Neither HUD nor DOT appear to be making any real progress in
    growing their relationship and finding ways to join hands on grants and
    projects in order to improve the overall quality of life in that
    jurisdiction or jurisdictions.
        I am especially concerned that HUD calls its programs and
    activities ``sustainability'' and DOT calls its programs
    ``Livability''. Why not a common name and definition? As you know, from
    a legal viewpoint, the use of different concepts infers that the
    concepts and activities are different. If the departments cannot come
    to a common concept for this program, how will you plan to reach a
    common working relationship?
        Answer. Given its broader mission, which includes promoting such
    things as economic competitiveness, social equity, and public health,
    HUD has chosen to use what it considers to be a term that has a broader
    meaning but is still consistent with the objectives incorporated within
    the term of Livability. We do not see these terms as being in conflict,
    but rather represent a coordinated approach between our agencies.
    Within the joint-NOFA issues by HUD and DOT for Community Challenge/
    TIGER 2 Planning grants, both terms are used and described in terms of
    eligible activities and a focus on integrated housing and
    transportation planning.

                                   OVERSIGHT

        Question. Secretary Donovan, it appears that Sustainability funding
    could go to a variety of different activities with the planning grants
    especially focused on staff and planning costs. These are often
    difficult funds to verify as to use. What are your plans to provide
    adequate oversight? This is a particularly sensitive issue now where
    jurisdictions are often surviving under very tight budgets--how will
    you ensure these funds are being used well for the intended purpose and
    not merely to maintain existing staffing?
        Answer. Grants made under both grant programs will be in the form
    of cooperative agreements, providing HUD greater opportunity to provide
    oversight in working with grantees. Grantees are required to develop
    detailed work plans within 60 days of grant execution and there are
    additional bi-monthly reporting requirements, all of which provide HUD
    the opportunity to verify use of funds and the on-going progress and
    eligibility of grantee activities. In addition, Congress included $10
    million in the fiscal year 2010 appropriation for a joint HUD-DOT
    research effort that includes a rigorous evaluation of the Sustainable
    Communities Regional Planning Grant and Community Challenge Planning
    Grant programs.

                                 STAFF TURNOVER

        Question. Secretary Donovan, planning grants at the local level are
    intended to last 3 years and then hopefully we will reach a project
    decision in conjunction with a DOT project. How will jurisdictions
    demonstrate they will be able to transition the cost of staff from
    Sustainability to other resources?
        Answer. You are correct that these are 3-year planning funds. The
    work plans and budgets developed by grantees cover work to be performed
    only during that timeframe. Applicants will be rated on their capacity
    to see these plans through to implementation, which includes plans to
    address turnover and a limited time horizon for funding toward staff
    costs.

                                 PROJECT COSTS

        Question. After the planning stage, how much does HUD estimate the
    project stage will cost annually? Rough estimate--how can we be
    expected to even fund planning if we have no hard cost estimates for
    project costs especially with expected very tight budgets?
        Answer. Given the significant variation that we anticipate to see
    from each region as it develops its own regional and community plans,
    HUD is not able to forecast or estimate a number to answer this
    question. We do not advocate a one-size fits all, cookie cutter
    approach and these are decisions that will be made at the regional and
    local level, not by the Federal Government. Furthermore, the plans that
    will be developed will include consideration of Federal, State, local
    and private sector finance. As noted in the Livability Principles
    included as factors within the grant programs, however, the Partnership
    for Sustainable Communities places a strong focus on leveraging
    investments and coordinating policies and plans to achieve economic
    efficiency. We have seen in some regions such as Salt Lake City, UT
    substantial cost savings from avoided infrastructure costs as a result
    of integrated regional planning.

                              CHOICE NEIGHBORHOODS

        Question. Secretary Donovan, HUD is proposing to fund Choice
    Neighborhoods at $250 million in fiscal year 2011 and Sustainability at
    another $150 million in fiscal year 2011. Both programs require the
    consultation and integration of program requirements under other
    agencies, including primarily DOT and HUD. What is the difference
    between these programs and why fund both when the goals are nearly the
    same. At a time of tight projects, shouldn't we fund one or the other,
    not both?
        Answer. HUD's Choice Neighborhoods Initiative focuses on the
    redevelopment, replacement and community integration of distressed
    public and HUD-assisted housing that cannot be funded through current
    annual funding formulas. The goal of the Choice Neighborhoods
    initiative is to provide investment targeted to distressed, high-
    poverty neighborhoods, to create opportunity in those neighborhoods and
    improve quality of life for residents. Choice Neighborhoods builds off
    of the HOPE VI program, which focuses on the rehabilitation and
    replacement of severely distressed public housing units, but takes it
    one step further to include HUD-assisted housing and encourage other
    types of community development. Where possible, HUD will coordinate
    with the Department of Education's Promise Neighborhoods program, which
    aims to improve schools and education-related activities in high
    poverty areas, the Department of Justice's Byrne Innovation program,
    which has been proposed to replace Weed and Seed, and other Federal
    programs to help grantees maximize the impact of Federal investments.
    Improvements in housing, access to educational opportunities and other
    community amenities will promote economic growth in low-income
    neighborhoods and resident self-sufficiency.
        The Sustainable Communities Initiative focuses more on holistic
    community planning at the metropolitan, regional, or county level, so
    that areas can then implement their own community development plans
    that take into account access to public transportation, community
    amenities and affordable housing. The Sustainable Communities
    Initiative is a collaboration with the Department of Transportation and
    the Environmental Protection Agency to address land-use, housing and
    transportation planning in order to promote more accessible and livable
    communities. These integrated plans may serve as a road map for
    transportation, infrastructure and housing investments in the future.
        Each of these initiatives does focus on better community and
    neighborhood planning and development, however, they have two different
    goals. The Sustainable Communities Initiative works at a larger
    geographic scale to assist local governments in coordinating housing,
    transportation and other amenities to reduce transportation costs and
    developed mixed-income and mixed-use housing in order to create a more
    viable community. The Choice Neighborhoods Initiative focuses more
    specifically, in distressed neighborhoods, on redeveloping and
    rehabilitating distressed public and/or HUD-assisted housing and
    improving economic and other opportunities in those neighborhoods.

        Senator Murray. I want to thank both of you for your work
    on this issue and for being here today and look forward to
    working with you in the coming months and years.
        Thank you very much.

                              SUBCOMMITTEE RECESS

        With that, this hearing is recessed. We will reconvene on
    May 13 at 9:30 a.m. with testimony from Commissioner Stevens on
    fiscal year 2011 budget request for FHA.
        [Whereupon, at 10:57 a.m., Thursday, May 6, the
    subcommittee was recessed, to reconvene at 9:30 a.m. Thursday,
    May 13.]

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2011

                                  ----------

                             THURSDAY, MAY 13, 2010

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:32 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray and Bond.

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                         Federal Housing Administration

    STATEMENT OF HON. DAVID H. STEVENS, COMMISSIONER
    ACCOMPANIED BY KENNETH M. DONOHUE, INSPECTOR GENERAL

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Good morning. This subcommittee will come
    to order.
        This morning we welcome Commissioner Stevens to his first
    appearance before our subcommittee as we examine the Federal
    Housing Administration and its role in the housing market.
        As we sit here today, millions of Americans are out of work
    and many more are struggling with unaffordable mortgage
    payments, negative home equity, or foreclosure. During the
    housing boom, millions of Americans achieved the dream of home
    ownership, but for far too many Americans, these dreams were
    based on false premises and fueled by investors and lenders
    that were chasing profit while ignoring risk. The consequences
    of these risky behaviors have rippled through the national and
    global economies with mounting foreclosures, a crippled housing
    market, and a financial sector in turmoil. We continue to clean
    up the mess created by predatory lenders and Wall Street greed.
        Fulfilling the same role as it did when it was created
    during the Great Depression, the FHA has stepped forward to
    help provide liquidity and restore stability to the housing
    market. FHA's increased role in the housing market is as
    critical as it is daunting. As recently as 2007, when this
    subcommittee held the first in a series of annual hearings on
    FHA, its share of the market was only 3 percent. Today FHA
    represents nearly 30 percent of all new home sales. FHA has
    played a critical role supporting the housing market while
    private financing has been nearly frozen.
        However, FHA has been plagued by longstanding management
    challenges, challenges that continue to raise concern about its
    ability to manage its outsized role in stabilizing the market.
    Commissioner Stevens, you have acknowledged the challenges you
    inherited when you took over the agency and have moved quickly
    to assess and seek solutions to the problems facing FHA. The
    most glaring of these are antiquated information technology
    systems and an inadequate workforce, both of which are critical
    to equipping the agency to meet the challenges that face us. A
    well functioning FHA is vital to maintaining the solvency of
    the Mutual Mortgage Insurance Fund and protecting the American
    taxpayers from having to pay for risky or fraudulent mortgages.
    This subcommittee provided additional resources to help FHA
    address its shortcomings both in 2009 and 2010. We provided
    funding to help FHA modernize its IT systems and hire
    additional staff to better manage and oversee a growing
    portfolio.
        Equally important to these new tools is fostering a culture
    at FHA focused on risk. Commissioner Stevens, one of your first
    actions after taking office was to appoint FHA's first chief
    risk officer. This position was long overdue and sends an
    important signal to lenders, borrowers, and taxpayers that FHA
    understands the risks it faces and is working to mitigate them.
    I am pleased that the FHA is increasingly using its authority
    to investigate lenders that are not playing by the rules. It
    must be absolutely clear to lenders engaging in fraudulent and
    risky practices that they are not welcome in FHA programs and
    will not be supported by taxpayer dollars.
        Despite some important progress, FHA still faces
    significant challenges. Foreclosures have taken their toll on
    FHA's finances, leaving the capital reserve fund below the 2
    percent required by Congress. This is a cause for concern since
    any significant setbacks in the housing market could result in
    additional and possibly unaffordable losses to the fund.
        In an effort to strengthen the agency's finances and
    protect itself from future risk, HUD has proposed a series of
    reforms, including increasing premiums, setting minimum FICO
    scores, increasing downpayment requirements for riskier
    borrowers, and expanding enforcement authorities. Some of these
    changes are already underway but others will require
    legislation.
        Today I will have questions about these reforms, what they
    mean for fulfilling FHA's mission to provide access to
    affordable mortgages, as well as how they impact the solvency
    of the MMI Fund as we look to the future. It is clear that the
    solvency of the MMI Fund and the strength of FHA depend on the
    recovery of the housing market. This is evident by CBO's re-
    estimate of receipts that FHA is expected to generate in 2011.
    Continued uncertainty about the housing market, as well as
    lingering doubts about FHA's ability to realistically assess
    its risks, resulted in CBO's much more conservative estimate of
    $1.9 billion in receipts instead of the $5.8 billion projected
    by the administration.
        The concerns expressed by CBO are real. Relatively stable
    home prices and increasing home sales suggests the market is
    stabilizing. Yet, large segments of the housing market remain
    fragile and there are looming problems that could undermine the
    progress we have made. Over 2 million homes are currently in
    foreclosure and that number is expected to grow through 2010.
        To date, the administration's Home Affordable Modification
    Program has had limited success in stemming the tide of
    foreclosures. There have only been 230,000 permanent
    modifications made under this program far short of the 3
    million to 4 million homeowners expected. And as banks and
    servicers determine whether a modification is in their best
    interest, many families are left waiting as they face the
    agonizing prospect of losing their home. I continue to hear
    that servicers are unresponsive to borrowers and in some cases
    unwilling to explain why modifications are denied. Americans
    trying to get assistance are frustrated and rightfully so. They
    have watched as banks have received billions of dollars in
    taxpayer assistance and yet many of these same banks are
    unwilling to assist homeowners facing foreclosure. This cannot
    be tolerated. Servicers must be held accountable. At the very
    least, servicers must communicate with those trying to receive
    assistance and provide an explanation if borrowers are not
    approved.
        The success of HAMP was also limited because it failed to
    address two of the major problems facing troubled borrowers
    today: unemployment and negative equity. I have seen this
    tragic combination devastate families firsthand in communities
    across my State. In Clark, Snohomish, and Pierce Counties,
    communities are struggling with both unemployment and
    foreclosure, and unfortunately, home prices have yet to
    stabilize in Washington State, so families are continuing to
    see the equity of their homes decline. Nearly 16 percent of all
    Washington homeowners are under water and they are not alone.
    Over 11 million families in the country today are under water
    on their mortgages as a result of falling home prices and
    growing debt. That represents nearly one out of every four
    mortgages.
        Just a few months ago, the administration announced plans
    to change HAMP in order to address these problems. The plans
    include offering increased relief for unemployed borrowers as
    they look for work and get back on their feet, as well as
    incentives for lenders to permanently write down the principal
    of these mortgages instead of addressing interest rates. These
    changes were necessary to more effectively address the
    foreclosure crisis, but I remain concerned that since this
    program is voluntary, it will fail to meet its goal.
        So I expect the administration to compel lenders to provide
    real aid to families that want to and, with a fair deal, could
    stay in their homes. As part of these announcements, FHA's
    refinance program is also set to be expanded. This is an
    important tool that will assist homeowners to get into a truly
    affordable mortgage through incentives and write-downs of both
    first and second liens. While these loans will be subject to
    FHA underwriting standards, there is still an increased risk
    associated with those loans. In order to mitigate the effects
    of these riskier loans on the health of FHA's insurance fund,
    the administration has set aside $14 billion in TARP funds.
        However, many of the details surrounding this proposal are
    still being worked out, and I am concerned this could result in
    additional losses to the MMI Fund, losses the fund simply
    cannot absorb. So I will have questions today about the design
    of this program and how we can be assured this program will not
    cost American taxpayers anything more than what was already set
    aside from the TARP funds.
        Amidst all these efforts to modify mortgages so families
    can stay in their homes, there are a growing number of
    homeowners deciding to strategically default. Many of these
    homeowners can afford their mortgage payments, but because of
    the severe negative equity, they feel it is in their financial
    interests to simply walk away. The potential impact of this on
    home values and market stability would be devastating.
        There is also the very real concern about what is called
    the ``shadow inventory.'' These are houses that are facing
    foreclosure or have already been repossessed by the bank but
    are not yet on the market. Hopefully the impact of these will
    be lessened by an increase in permanent modifications, but if a
    large number of homes were to suddenly flood the market, all of
    our gains in home values could be erased.
        These issues demonstrate how fragile the housing market
    remains, but we are beginning to test its stability. The
    Federal Reserve ended its purchase of mortgage-backed
    securities at the end of March and the homebuyer tax credit
    ended last month. Even as we watch with some anxiety as these
    supports are withdrawn, it is clear the Government cannot
    continue to play the outsized role in the housing market it has
    taken on over the past 2 years. The long-term health of the
    housing market and the economy depend on the return of the
    private market.
        It is also clear we must address the future role of Fannie
    Mae and Freddie Mac in the housing market. There is no doubt
    that the GSEs had a hand in exasperating the housing crisis,
    and just as there needs to be consequences for Wall Street,
    there must also be consequences for the GSEs. The spigot of
    taxpayer dollars flowing into the GSEs cannot stay on
    indefinitely. As the administration debates the future of the
    GSEs, I like most Americans are growing impatient and my
    impatience only increases as the cost to the American taxpayers
    grows with no end in site.
        The administration must put forward a real plan on how to
    reform the GSEs. GSEs currently provide important support to
    the housing market, and so this plan has to be thoughtfully
    done with care not to reverse the hard-won progress made to
    date. The plan must include a clear understanding of how any
    changes will impact the housing market and Americans' ability
    to buy a home for their families, but it is simply not enough
    to say it is complicated and we have a plan soon. It is not
    easy. It deserves an honest and open dialogue about its future,
    but there needs to be a sense of urgency that has been lacking
    so far.
        As we try and tackle the complex set of challenges facing
    the housing market today, the Federal Government must play a
    role in supporting the market but it must also protect the
    taxpayers.
        Commissioner Stevens, this has been your task since taking
    on the FHA, and I want to commend your commitment to addressing
    the challenges at FHA while working to ease the recovery of the
    housing market. I look forward to hearing your testimony today.
        And with that, I turn it over to my partner and ranking
    member, Senator Bond, for his opening statement.

                OPENING STATEMENT OF SENATOR CHRISTOPHER S. BOND

        Senator Bond. Good morning, Madam Chair.
        And thank you very much, Commissioner Stevens, for being
    with us today.
        The chair has outlined the very significant problems that
    we have in the whole area of housing, not just in FHA, but I
    found her comments on the GSEs very similar to my concerns. We
    are in a real problem, and your efforts with FHA and your
    guidance on other things may be of help to us in trying to find
    a way out.
        We are pleased to have on the front row Ken Donohue, the
    HUD inspector general. Over the years, he in particular has
    been a true partner working with me and others to eradicate
    fraud and abuse in the mortgage market. And that is not to
    diminish all the hard work both he and his staff perform in
    their oversight capacity in the Office of the HUD inspector
    general. This may be our last time to have a little gathering
    like this, Mr. Donohue, but you have my sincere thanks for
    being the uninvited guest at the garden party at so many of
    these hearings where you have had to tell the truth, and I am
    just lucky that you--we are both lucky that you did not get
    tarred and feathered for having warned us in advance of the
    problems we are facing. Now that we are seeing those problems,
    we can call you a guru, I guess, for having warned of many of
    the problems.
        Well, with that beginning, Mr. Commissioner, as you know,
    FHA's history is marked by longstanding challenges in balancing
    the financial risk to FHA which we are seeing is significant
    and also very important is the goal of expanding home
    ownership, especially for low-income and first-time home
    buyers. This is the promise of FHA.
        Unfortunately, much of the financial risk in the housing
    market, which is a risk to all of us as taxpayers, is
    uncertain. It is especially problematic since FHA still faces
    many challenges and is still evolving to limit FHA's financial
    exposure. Additional reforms we need to discuss, and I am still
    concerned the FHA is a powder keg that could explode, leaving
    the taxpayers on the hook for another bailout. To borrow the
    term from the gulf and the recovery efforts there, I think you
    are trying to put a cap on the well. We just hope it is more
    successful than the ones they have tried in the Gulf of Mexico.
        As recently as 2007--okay, I stretched it a little bit.
    Okay, all right. I know when I get that look from the chair she
    is saying where is he going with this one. That is off the
    record. You can scratch that.
        As recently as 2007, FHA accounted for less than 4 percent
    of the single family housing market, whereas FHA, as we all
    know, now dominates market with a share of about 30 percent of
    new mortgages and another 20 percent of refinances. While this
    market share may help the Federal oversight of home purchases,
    there is nothing predictable in FHA's enhanced role in the
    market for assessing the potential for financial risk to the
    FHA, the Mutual Mortgage Insurance Fund, the MMIF that has
    already been referred to, and those of us as taxpayers.
        There is no guarantee the housing market is on the rebound
    or that it will not collapse again, even though prospects are
    certainly more encouraging than they were a year ago. But with
    continuing high unemployment as well as the explosive and
    escalating Federal debt, I think the problems have not gotten
    much less severe. One of the essential questions we must ask is
    are we digging a grave with spending or filling one in.
        As recently as late last year, FHA was unable to meet its
    statutory requirement of holding capital reserves equal to 2
    percent of FHA's insurance in force. I am a born optimist and I
    could be optimistic that FHA will be able to meet this
    requirement in the future, but there remains wide disagreement
    as to the health of FHA's MMIF, with OMB's budget estimate for
    FHA receipts in 2011 at some $5.8 billion, as the chair
    indicated, which is about $4 billion more generous than the
    CBO's re-estimate. This disparity both underlines the
    unpredictability in the future of the overall housing market,
    as well as uncertainty as the financial risk to FHA's single
    family mortgage insurance programs.
        The CBO re-estimate also means we will likely have to
    tighten our belts with regard to other programs within the
    jurisdiction of the THUD appropriations subcommittee. Let me
    assure you that others coming in here before us have grand
    schemes of how much money they want to spend, but there is a
    lot of money in this area we have to spend. So we need to get
    an idea of how much we will be called upon to produce.
        Nevertheless, Mr. Commissioner, I believe you are moving
    FHA in the right direction, as I told you earlier, and
    particularly HUD and FHA currently are proposing some
    significant changes to shore up the FHA single family mortgage
    insurance program by including an increase to annual premiums,
    as well as implementing a credit-related risk assessment. That
    assessment, as I understand it, would allow borrowers with a
    FICO score of 580 and above to make a 3.5 percent downpayment
    while home buyers with a FICO score of between 500 and 580
    would be required to make a minimum downpayment of 10 percent.
    Borrowers with FICO scores below 500 would be ineligible for
    FHA mortgage insurance.
        Some people are better off renting until they have the
    downpayment, and that is a point we have made before. We need
    to make sure rental housing is available so that people who
    cannot afford to buy a house do not get pushed into buying a
    house that they cannot afford. This has been a mistake that has
    been endemic in policymakers for the last 20 years in
    Washington. I will not cite the list of Members of Congress who
    pushed for it. I would say that it has been bipartisan at the
    administration level, and for 8 years, I fought the Bush
    administration pushing for the American dream no-downpayment
    home, which I characterized then, with some little guidance
    from the inspector general, as being a recipe for turning the
    American dream into the American nightmare.
        But I think that the changes you are implementing, while
    they continue to promote home ownership, should lower the risk
    of financial exposure to the Federal taxpayer and the Federal
    Government. I know you have proposed a number of other reforms
    designed to protect the integrity of FHA and MMIF, including
    reforms to the appraisal process and a proposal to increase net
    worth requirements for FHA lenders.
        These are controversial, but I am a firm believer that our
    financial system will be much stronger if people up and down
    the line; borrowers and securitizers and everybody else, has
    skin in the game. You look at Canada; they require a lot of
    skin in the game. They have a higher percentage of home
    ownership and much lower problems than we do because people
    there have to have skin in the game, which is the name of
    business.
        Reforms are important but FHA still faces many challenges.
    I am concerned about the programs for default mitigation. We do
    not want to leave homeowners behind unless the financial
    criteria demand such an approach. If there is no way they can
    get out, we need to resolve it as humanely as possible and move
    on.
        What role is HUD expecting to play over the next few years
    with regard to the administration's foreclosure mitigation
    policies and how will HUD reforms impact these policy efforts?
        And while FHA seems to have been the administration's
    initial choice for implementing the administration and
    Congress' foreclosure mitigation strategies--congratulations on
    getting the ball on that one--much of the emphasis now seems to
    have shifted to Treasury and the GSEs, especially Fannie Mae
    with their GSE losses buried in TARP payments. It would be very
    helpful for us to understand Fannie and Freddie's new role in
    the mortgage crisis, especially since the GSEs recently
    reported fourth quarter losses, I believe, totaling $18 billion
    with an overall request of some $76 billion from Treasury's
    unlimited credit line. That is a number that should scare all
    of us. Last Monday, Fannie reported losses of another $8.4
    billion. That is beginning to mount up to real money.
        We cannot fool ourselves that these are just losses from an
    old book of business. Instead, Freddie was directed by the
    administration to buy back troubled loans from investors and
    obviously is taking losses on these mortgages. In fact, this
    policy appears to bail out lenders on their risky investment
    but it does little to save a home with a risky loan for a
    homeowner. And I am asking myself and others why. Why are we
    bailing out investors? That to me is a major concern.
        As of last month, the opportunities to forestall housing
    foreclosures were virtually limited to wishful thinking where
    families could receive test funding for foreclosure mitigation
    but where the majority of these families would not qualify for
    mortgage reform and more permanent mortgage reform options.
        Despite the administration's more optimistic view, without
    more options by the administration, families are destined to
    fall deeper in debt and be unable to meet the needed
    qualification for the mortgage reform permanent option. In
    other words, it is extremely unlikely that more than a
    scintilla of homeowners with looming mortgage foreclosures and
    high debts will qualify for the more permanent, long-term
    program.
        That is bad news. The worse news is the longer we wait, the
    worse it will get. I think there are a number of other issues
    that have to be investigated somewhere, and I guess that we are
    about the only ones interested in it. There have been a number
    of articles that claim the affordable housing program under
    which Fannie and Freddie were required by law to invest in low-
    income housing helped to destabilize the GSEs. More troubling
    were Congressman Frank's efforts to tax Fannie's and Freddie's
    profits at more than $1 billion annually to benefit favored
    nonprofits and I would mention the infamous ACORN. These
    legislative requirements I think reinforce losses and undermine
    the financial credibility of the GSEs in the financial markets.
        Most important, we need to know the administration's
    overall plan for revitalizing the housing industry and what
    will be the overall menu of tools for addressing the mortgage
    default crisis under FHA, the GSEs, Treasury, as well as other
    entities.
        Finally, not everyone will be eligible for foreclosure
    mitigation relief, especially those without permanent
    employment or other income. Nevertheless, as we move forward,
    it is important that we all understand the contours of the
    various foreclosure mitigation programs and the potential
    exposure for additional financial losses in the housing
    marketplace both to the Federal Government as well as to other
    entities, families, and individuals.
        I am very interested in how many homeowners we are likely
    to help and how many are likely to lose their homes. The answer
    is likely to be very troubling, as evidenced by a very negative
    report in March by the National Association of Homebuilders in
    its index which tracks home purchases.

                            FHA STAFFING SHORTFALLS

        In addition, I am anxious to hear how FHA is addressing its
    staffing and expertise shortfalls as well as its plans to
    update fully the FHA IT systems. While there have been a number
    of comprehensive briefings with congressional staffs on these
    issues with FHA recently submitting a comprehensive staffing
    plan to Congress on its progress toward hiring an additional
    118 FTEs for FHA-related activities, much remains to be done.
    The sooner we understand fully HUD's capacity and funding needs
    in these areas, the better we will able to respond through
    appropriations to the needs of HUD and FHA.
        Finally, congratulations on your efforts on the mortgage
    and the mortgage insurance fraud. We cannot understate the fact
    that enforcement against mortgage fraud remains an area of
    overall weakness throughout the Nation, the mortgage market and
    likely FHA. I understand, however, FHA is making substantial
    progress with reforms in its mortgage programs, especially by
    eliminating the participation of bad lenders in the FHA program
    that should not be there.
        In the predecessor to this subcommittee, the VA, HUD
    subcommittee, Senator Mikulski and I learned that these reforms
    are likely to be the tip of the iceberg, and now I would urge
    HUD and the HUD inspector general to continue to work with the
    Department of Justice and Treasury, along with other agencies,
    to develop a set of coordinated plans to put predatory lenders
    who are criminally at fault in prison. Seeing some of these
    people in orange jumpsuits may be one of the best remedial
    actions we can take.
        Now not only does FHA require larger net worth requirements
    for all of its FHA lenders, it is also reviewing lender
    enforcement activities. In particular, as your written
    testimony indicates, since July 2009, FHA has referred some 365
    cases of mortgage fraud or negligence to the Mortgagee Review
    Board. These investigations have resulted in the withdrawal of
    approval to underwrite FHA loans for some 354 lenders and the
    suspension of underwriting authority for another 6 lenders. It
    would be helpful to know what additional legislative
    authorities may be needed by HUD and the HUD inspector general
    to stop mortgage fraud and abuse around the Nation, including
    the laws that require jail sentences when some form of mortgage
    fraud is the subject of criminal action.
        With that pessimistic statement, I look forward with
    optimism and enthusiasm to hearing your testimony, Commissioner
    Stevens.
        Senator Murray. Thank you very much, Senator Bond.
        Mr. Stevens, we will turn to you for your opening
    statement.

                       STATEMENT OF HON. DAVID H. STEVENS

        Mr. Stevens. Thank you, Chairwoman Murray and Ranking
    Member Bond. And thanks for the opportunity to be here to
    testify about the Federal Housing Administration's recent
    reforms, legislative proposals, contributions to the 2011
    budget, and any other subjects that may be of interest.
        I also do want to recognize, as you did, Senator, the
    involvement of the inspector general. He has been a very
    valuable advisor to me coming into this role with all the
    challenges we face, and we have had some great opportunities to
    partner. I share the zeal for enforcement on fraud and other
    issues, not just in the single family area, but the inspector
    general has been helpful in advice on multifamily issues and
    health care issues as well. So it is a critical partnership
    that I value very highly.
        I appear before you at a moment when it is clear that the
    housing market has made significant progress toward stability.
    With the past year's record-low mortgage rates, thanks in large
    part to the administration's initiatives, more than 4 million
    homeowners have refinanced their mortgages to more affordable
    levels. This helped save homeowners more than $7 billion last
    year. More than 1 million families are saving an average of
    $500 per month through the administration's mortgage
    modification program, otherwise known as HAMP. Home equity has
    increased on average by more than $13,000 for homeowners in the
    last three quarters of 2009, and these efforts have begun to
    restore the confidence we need to get the economy moving,
    creating 290,000 jobs last month, the largest monthly increase
    in 4 years.

                                      FHA

        There is also encouraging news relating to foreclosures.
    Just this morning, RealityTrac released its latest monthly U.S.
    foreclosure report which shows foreclosure activity actually
    decreased 9 percent in the month of April. And FHA's second
    fiscal quarter numbers show our early delinquencies are better
    than expected. The number of loans in early default and claims
    has declined 15 percent since December, a strong indicator that
    the loan quality is improving.
        The FHA has been essential to the improved outlook in the
    housing market. In the past 18 months, FHA protected 650,000
    families from foreclosure, enabled more than 1.1 million
    homeowners to refinance into stable, affordable, fixed-rate
    mortgages, and insured 1.4 million new purchase loans, more
    than 80 percent of which were first-time home buyers. Indeed,
    as access to private capital has contracted in these difficult
    times, borrowers and lenders flocked to FHA, and the increased
    presence of FHA has help support liquidity in the purchase
    market, helping us ride through these difficult times until
    private capital returns.
        During that time, Fannie and Freddie under conservatorship
    have also played an important role in stabilizing the market.
    The administration strongly supports the need for reform of the
    Government-sponsored enterprises and looks forward to working
    with Congress to enact meaningful reform in a manner that does
    not disrupt the Federal housing markets, nor increase the cost
    and reduce the availability of mortgages for American
    households. Toward this goal, we strongly support efforts to
    require thoughtful and thorough review, public commentary, and
    final study of reform options going forward.
        While progress is clearly being made on many fronts, we
    continue to see challenges. The administration's strategies to
    address the housing crisis has evolved because our challenges
    have evolved. On March 26, we announced the FHA refinance
    option in conjunction with provisions to the HAMP modification
    program to tackle the challenge of underwater borrowers, one of
    the biggest threats to our continued 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. These
    adjustments support principal reduction efforts already
    underway in the private market and offer incentives to expand
    their reach. 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 more struggling homeowners.
        With FHA's increased role, however, there is risk and
    responsibility. In addition to several policy changes that I
    have made since taking office on January--or we have made since
    January 20 of the year, we proposed several reforms to mitigate
    risk and replenish FHA's capital reserves. Some of these steps
    require legislative authority.
        Thank you for the opportunity to explain these proposals in
    more detail in conjunction with the contributions to HUD's
    budget for the fiscal year 2011.
        These policy changes have three guiding principles that we
    are balancing in all of them. First is how does it improve the
    capital reserves of FHA. Second, how does it impact the broader
    housing market and the recovery? And third, how does it impact
    FHA's role to provide opportunities for the underserved?
        So first, 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 85 or 90 basis points, depending on the
    LTV. To more substantially increase FHA's reserves and
    facilitate the return of private capital to the mortgage
    market, these changes are needed.
        We greatly appreciate the cooperation of Congress in
    support of these reforms, and on April 27, the House Financial
    Services Committee passed H.R. 5072, the FHA Reform Act, on a
    voice vote. The bipartisan authorizing bill would enable FHA to
    enact these proposed changes, which will further strengthen
    FHA's reserves and overall stability. And we look forward to
    working with this subcommittee and the Senate Banking Committee
    to enact similar legislation in the Senate as quickly as
    possible. If these changes are adopted during this current
    fiscal year, they would increase the value of the MMI Fund by
    approximately $300 million per month, which would replenish
    FHA's capital reserve even faster than if the authority was
    provided through the annual appropriations process.
        Second, FHA is producing a two-step FICO floor for FHA
    purchases. Purchase borrowers with FICO scores of 580 and above
    would be required to make the minimum 3.5 percent downpayment.
    Those with FICO scores between 500 and 579 would be required to
    make a 10 percent downpayment. Anything below 500 would not be
    allowed.
        Some have suggested that FHA raise the minimum requirement
    to 5 percent across-the-board as a way to improve loan
    performance. As you can see, we have gone further to 10 percent
    for low FICO scores to ensure that we are only insuring
    responsible loans. We determined, after extensive evaluation,
    that an across-the-board 5 percent proposal would be inadequate
    to control risk for some borrowers and excessive to control
    risk for responsible borrowers, which would adversely impact
    the housing market recovery. Increasing minimum downpayments to
    5 percent across-the-board would translate to 300,000 fewer
    responsible first-time home buyers having access to home
    ownership and would have significant negative impacts to the
    broad housing market recovery. It would forestall the recovery
    of the housing market and potentially lead to a double dip in
    home prices by significantly curtailing demand. The policy
    changes that FHA has instead proposed in the 2011 budget would
    contribute an additional $4.1 billion in additional receipts to
    FHA and continue to support the broader housing market
    recovery.
        The third policy change we are proposing is to reduce
    maximum seller concessions from its current 6 percent to 3
    percent, which is in line with industry norms.
        Our fourth proposal is to increase lender enforcement. In
    our 2009 fiscal year actuarial review, the independent actuary
    projected more than 71 percent of FHA's losses over the next 5
    years will come from loans already on our existing books. That
    is why we have renewed our focus on enforcement and
    accountability, and since 2009, we have taken more action on
    more than six times the number of lenders than FHA had done in
    the past decade.
        This year, we are requesting an appropriation of $250
    million for FHA's reverse mortgage product. The HECM program
    provides seniors with a means to access their home equity to
    make ends meet and provide funds to pay for long-term health
    care and afford necessary home repairs and housing expense. We
    have conducted extensive analysis to identify the maximum
    policy changes we could perform to reduce risk to the taxpayer
    and maintain viability of the program. Without the budget
    request, we would be forced to reduce the amount of funds that
    would be available to seniors by more than 30 percent, which is
    an average of $23,000 to $27,000 in impact. Given the value of
    the program in assisting this critical population, HUD has
    requested an appropriation to maintain viability of the program
    for seniors while we are evaluating a broader range of program
    changes that may be necessary to ensure the success of HECM for
    the long term.
        Finally, as you know, the CBO released its re-estimate of
    the 2011 budget, including the review of the FHA changes.
    Although the CBO estimate includes a significantly more
    conservative assessment of how these new changes made through
    the FHA's MMI Fund will perform in the coming years, both CBO
    and the administration forecast that with our proposed FHA
    changes, such credit activity will result in net receipts to
    the Government. We differ, however, on the amount. While the
    President's budget forecasts $5.8 billion in receipts, CBO re-
    estimated those net savings at $1.9 billion. In addition, CBO
    agreed with our forecast that Ginnie Mae and our GI SRI fund
    will result in roughly $1 billion more in net receipts.
        While recognizing 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 forecast.

                              PREPARED STATEMENTS

        I have submitted a more detailed testimony for the record,
    but Madam Chairwoman, as you can see, we have proposed a
    comprehensive set of reforms to improve loan performance, hold
    lenders accountable, and increase revenues to the FHA fund,
    while also ensuring that FHA continues to support the overall
    recovery of the housing market, continues to serve its mission
    of providing home ownership and financial opportunities for
    responsible borrowers and seniors. We look forward to working
    with Congress closely on all the issues and hope to gain your
    support for our budget proposal and legislative requests to
    further reduce the risk to the American taxpayer.
        And with that, I am happy to answer questions.
        [The statements follow:]

                  Prepared Statement of Hon. David H. Stevens

        Chairwoman Murray, Ranking Member Bond, and members of the
    subcommittee, thank you for the opportunity to testify today regarding
    the Federal Housing Administration's (FHA's) recent reforms,
    legislative proposals, and contributions to the HUD fiscal year 2011
    budget request. FHA remains focused on providing access to home
    ownership, while minimizing the risk to the American taxpayer is of the
    utmost importance.

                    HELPING PREVENT AN ECONOMIC CATASTROPHE

        As you know, when this administration took office just over 15
    months ago, the economy was hemorrhaging over 700,000 jobs each month,
    housing prices were in free fall, residential investment had dropped
    over 40 percent in just 18 months, and credit was frozen nearly solid.
    Many respected economic observers warned that a second Great Depression
    was a real possibility, sparked of course by a crisis in the housing
    market. Meanwhile, communities across the country--from central cities
    to newly built suburbs to small town rural America--struggled to cope
    with neighborhoods devastated by foreclosure, even as their soaring
    jobless rates and eroding tax base crippled their ability to respond.
        As we move beyond the peak of the recent global financial crisis,
    though there is still a long way to go, it is clear that the Nation's
    housing market has made significant progress toward stability. Through
    the combination of coordinated efforts by Treasury, HUD, and the
    Federal Reserve to stabilize the housing market, we are seeing real
    signs of optimism.
        As measured by the widely referenced FHFA index, home prices have
    significantly stabilized since last April. As recently as January 2009
    house prices had been projected to decline by as much as 5 percent in
    2009 by leading major macro-economic forecasters. This housing
    stabilization is all the more surprising since most forecasters had
    underestimated the rise in unemployment that has occurred over the past
    year.
        Homeowner equity started to grow again--increasing by over $1
    trillion by the end of December, or $13,000 on average for the Nation's
    nearly 75 million homeowners, and helping our economy grow at the
    fastest rate in 6 years in the fourth quarter of last year.
        And mortgage rates which have been at or near historic lows for
    more than a year have spurred a refinancing boom that has helped nearly
    4 million borrowers in 2009--freeing up an additional $7 billion
    annually, some of which will be spent in local economies and
    businesses, generating additional revenues for our Nation's cities,
    suburbs, and rural communities.

                           FHA--FACILITATING RECOVERY

        While there remains uncertainty about whether this progress will
    continue at this pace going forward, what is not in doubt is that the
    FHA has been central to much of this improvement.
        Created by President Franklin Roosevelt at a time when two million
    construction workers were out of work and housing prices had collapsed,
    the FHA was designed to provide affordable home ownership options to
    underserved American families and keep our mortgage markets afloat
    during tough times.
        And by insuring almost 30 percent of purchases and 20 percent of
    refinances in the housing market, FHA is certainly doing so today.
        We know the critical role first-time home buyers are playing in the
    market, including purchasing REO and vacant properties, helping
    stabilize home prices and communities alike. More than three-quarters
    of FHA's purchase-loan borrowers in 2009 were first-time home buyers,
    and nearly one-half of all first-time buyers in the housing market in
    the second half of last year used FHA loans.
        FHA provides mortgage insurance to help lenders reduce their
    exposure to risk of default. This assistance allows lenders to make
    capital available to many borrowers who would otherwise have no access
    to the safe, affordable financing needed to purchase a home.
        As access to private capital has contracted in these difficult
    economic times, borrowers and lenders have flocked to FHA and the ready
    access it provides to the secondary market through securitization by
    Ginnie Mae. The increased presence of FHA and others in the housing
    market, including Fannie Mae and Freddie Mac, has helped support
    liquidity in the purchase market, helping us ride through these
    difficult times until private capital returns to its natural levels.
        And with 51 percent of African Americans home buyers and 45 percent
    of Hispanic families who purchased homes in 2008 \1\ using FHA
    financing, FHA is far and away the leader in helping minorities
    purchase homes.
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        \1\ Federal Financial Institutions Examination Council (FFIEC) 2008
    Home Mortgage Disclosure Act (HMDA) data. Published on December 23,
    2009, this is the most recent data available.
    ---------------------------------------------------------------------------
        FHA has stepped up to fulfill its countercyclical role--to
    temporarily provide necessary liquidity while also working to bring
    private capital back to credit markets. Indeed, the FHA has in the past
    year alone helped more than 800,000 homeowners refinance into stable,
    affordable fixed-rate mortgages.
        At the same time FHA has taken steps to reverse falling home
    prices, it has also worked to help families keep their homes, deploying
    its loss mitigation tools to assist a half million families at risk of
    foreclosure.
        Not only is FHA ensuring the availability of financing for
    responsible first time home purchasers, it is also helping elderly
    homeowners borrow money against the equity of their homes through the
    Home Equity Conversion Mortgage (HECM). This program has grown steadily
    in recent years, to a volume of $30.2 billion in fiscal year 2009.
        And finally, FHA is playing an important role in protecting
    homeowners and helping prospective homeowners make informed decisions.
    It is providing counseling to homeowners to help them avoid falling
    into unsustainable loans. And it is fighting mortgage fraud vigorously
    on all fronts, having taken enforcement actions on more than six times
    as many lenders since fiscal year 2009 than those over the fiscal year
    2000-2008 period combined.
        The central role of housing in the U.S. economy demands that
    Federal agencies involved in housing policymaking rethink and
    restructure programs and policies to support housing as a stable
    component of the economy, and not as a vehicle for over-exuberant and
    risky investing.
        With that in mind, the President's budget for 2011 represents a
    careful, calibrated balancing of FHA's three key responsibilities: (1)
    providing home ownership opportunities to responsible borrowers, (2)
    supporting the housing market during difficult economic times and (3)
    ensuring the health of the FHA Mutual Mortgage Insurance (MMI) fund.
        With this budget, HUD is projecting that FHA will continue to play
    a prominent role in the mortgage market in fiscal year 2011.
    Accordingly, it requests a combined mortgage insurance commitment
    limitation of $420 billion in fiscal year 2011 for new FHA loan
    commitments for the Mutual Mortgage Insurance (MMI) and General and
    Special Risk Insurance (GI/SRI) funds. The proposed total includes $400
    billion under the MMI Fund, which supports insurance of single family
    forward home mortgages and reverse mortgages under HECM; and $20
    billion under the GI/SRI Fund, which supports multifamily rental and an
    assortment of special purpose insurance programs for hospitals, nursing
    homes, and title I lending. The budget requests a direct loan
    limitation of $50 million for the MMI fund and $20 million for the GI/
    SRI fund to facilitate the sale of HUD-owned properties acquired
    through insurance claims to or for use by low- and moderate-income
    families.
        The budget also includes $88 million for the Housing Counseling
    Assistance program, which is the only dedicated source of Federal
    funding for the full spectrum of housing counseling services. With
    these funds we also plan to continue our work to expand the number of
    languages in which counseling is available. In addition, the budget
    continues FHA's Mortgage Fraud initiative ($20 million) launched in
    fiscal year 2010 as well as implementation of sweeping reforms to the
    Real Estate Settlement and Procedures Act (RESPA) which began in
    January 2010 and the Secure and Fair Enforcement (SAFE) for Mortgage
    Licensing Act beginning in June 2010.

                       REBUILDING FHA'S CAPITAL RESERVES

        As important as FHA is at this moment to our Nation's economy, FHA
    has not been immune to the hard times for the housing sector. Late last
    year, we reported to Congress that FHA's secondary reserves had fallen
    below the required 2 percent level--to 0.53 percent of the total
    insurance-in-force. However, when combined with reserves held in the
    Financing Account, FHA reported with its fiscal year 2009 actuarial
    review that it holds more than 4.5 percent of total insurance-in-force
    in reserves--$31 billion set aside specifically to cover losses over
    the next 30 years.
        As such, the independent actuary concluded that FHA's reserves will
    remain positive under all but the most catastrophic economic scenarios.
        Further, while its Capital Reserve Account has decreased too
    quickly, FHA is not ``the next subprime'' as some have suggested.
        Subprime delinquencies are 240 percent higher than FHA's for a
    reason--subprime loans had much weaker underwriting standards than FHA.
    While others participated in investor-owned markets or were exposed to
    exotic mortgages such as option-ARMs and interest-only loans, and while
    some tolerated lax underwriting standards, FHA stuck to the basics
    during the housing boom: 30-year, fixed rate traditional loan products
    with standard underwriting requirements. Unlike subprime lenders, FHA
    requires that borrowers demonstrate they can pay their mortgage by
    verifying their income and employment.
        All of that said, Madam Chairwoman, we've learned from recent
    history that the market is fragile, and we have to plan for the
    unexpected. That uncertainty is complicated by an organization we
    inherited that, to be honest, was simply not properly managing or
    monitoring its risk.
        Credit and risk controls were antiquated. Enforcement was weak. And
    our personnel resources and IT systems were inadequate.
        Little of this may have been obvious when FHA's market share was 3
    percent as recently as 2006. But when our mortgage markets collapsed,
    and home buyers increasingly turned to the FHA for help, the potential
    consequences of these lapses in risk management became very clear.

                                REFORMS TO DATE

        From my first day as FHA Commissioner, I began a thorough review of
    our loan practices and organizational capacity and gaps. We have
    already taken several steps within our existing authority to shore up
    the FHA and continue to improve our operations to ensure that taxpayers
    are not put at risk.
        In addition to steeply increasing lender enforcement, we've
    strengthened credit and risk controls--toughening requirements on our
    Streamlined Refinance program, made several improvements to the
    appraisal process, and published a final rule in the Federal Register
    on April 20 to increase net worth requirements for all FHA lenders.
        Long overdue, FHA hired its first Chief Risk Officer, Robert Ryan,
    to provide the most comprehensive and thorough risk assessment in the
    organization's history--and ensure that the assumptions going into our
    modeling reflect the most current economic conditions.
        In addition, with Congress' help, we are working to increase
    staffing and technical capacity and upgrade our technology systems--and
    though we still have a long way to go, we delivered FHA's first
    comprehensive technology transformation plan to Congress in September.
    We have continued to make progress on both fronts. We recently issued
    and received several responses to a Request for Information to begin
    upgrading our risk and fraud tools and we delivered a FHA Staffing
    Report to Congress, which outlines our significant progress toward
    hiring the 118 FTEs that we thank Congress for appropriating to FHA in
    fiscal year 2010, along with details on an aggressive training and
    human capital development plan that includes managerial and technical
    skill building training as well as on-the-job mentoring.
    Lender Enforcement
        Under the Obama administration, FHA has significantly increased its
    lender enforcement activities to protect the MMI Fund, consumers, and
    address a number of bad actors that were previously not held
    accountable.
        Since July 1, 2009, the Mortgagee Review Board (MRB) has
    investigated 365 cases, resulting in withdrawal of approval for 354
    lenders and suspension of an additional 6 lenders. The number of cases
    that have been investigated by the MRB since July 2009 are greater than
    those investigated in the years 2002-2008 combined.\2\ We take our
    responsibility to oversee lenders with the utmost seriousness. I would
    also like to emphasize that FHA's intent is to protect the Fund through
    a commitment to lender enforcement, but FHA in no way intends to punish
    responsible lenders. We are working closely with lenders to identify
    best practices and share them among the lending community, proactively
    identify problem situations and identify means to improve performance,
    to the benefit of lenders, consumers, and the FHA.
    ---------------------------------------------------------------------------
        \2\ See Appendix for Historical Data on Mortgagee Review Board
    Actions.
    ---------------------------------------------------------------------------
             JANUARY POLICY ANNOUNCEMENTS AND LEGISLATIVE REQUESTS

        On January 20 of this year, I proposed taking the following steps
    to mitigate risk and augment the MMI Fund's capital reserves: increase
    the mortgage insurance premium (MIP); impose a firm floor on allowable
    credit scores, and further tighten the minimum credit score required
    for borrowers with low down payments; reduce the maximum permissible
    seller concession to match the industry norm; and implement a series of
    significant measures aimed at increasing lender responsibility and
    enforcement. Thank you for the opportunity to explain these policies in
    more detail.
        I would like to be clear that many of these reforms were long
    overdue as FHA did not respond effectively to changes in the
    marketplace that happened during the housing boom and the subsequent
    decline--inaction was and is not an option. In addition to the
    Congressional mandate to take action to bring FHA's capital reserves
    back up above 2 percent, FHA also has a responsibility to protect
    consumers from irresponsible lending practices, protect the taxpayer
    from excessive claims on the MMI fund, and facilitate the return of
    private capital to the mortgage market. We take these responsibilities
    seriously, as evidenced by the series of policies that we have already
    enacted and those that we request Congressional authority to enact.
        FHA conducted an exhaustive review of loan performance in its
    portfolio and a thorough policy development process to ensure that
    these policy changes balance three guiding principles: (1) improve FHA
    loan performance and capital reserves, (2) continue to support the
    broader housing market and recovery, and (3) preserve FHA's role in
    providing home ownership opportunities to responsible underserved
    borrowers. Each one of our policy changes fulfills these three
    priorities. Additionally, FHA evaluated several dozen other policy
    options which ultimately were not chosen as they did not strike the
    appropriate balance. With these factors, in mind, FHA has proposed a
    series of balanced policy proposals that fulfill our responsibility to
    the American taxpayer and recognizes the important role that FHA is
    currently playing in the recovery of the housing market.
    Restructuring FHA Mortgage Insurance Premiums
        First, insurance revenues from single family loan guarantees will
    grow by increasing the upfront premium to 225 basis points across all
    FHA forward product types (purchase, conventional to FHA refinances,
    and FHA to FHA refinances). The upfront premium increase was
    implemented by mortgagee letter issued on January 21, 2010 and became
    fully effective in the market for all applications received on or after
    April 5, 2010. I would like to thank Congress for providing FHA with
    the flexibility to increase the upfront premium to a maximum of 300
    basis points through passage of the Housing and Economic Recovery Act
    (HERA) in 2008. While we have not chosen to increase the upfront
    premium to the maximum, this flexibility has enabled FHA to take
    immediate action to begin rebuilding our capital reserves. Similarly,
    we request flexibility in our legislative proposal to increase the
    annual premium to 150 basis points although we have not proposed to
    increase the annual premium to that level in our fiscal year 2011
    budget proposal.
        As noted in the proposed budget, while HUD is moving to increase
    the upfront premium to 225 basis points we are ultimately planning to
    reduce that premium to 100 basis points, offset by a proposed increase
    in the annual premium to 85 basis points for loans with loan-to-value
    ratios (LTV) up to and including 95 percent and to 90 basis points for
    LTVs above 95 percent.
        This change to the annual premium will require legislative
    authority. We are extremely grateful that the House Financial Services
    Committee recently passed H.R. 5072--the FHA Reform Act of 2010--which
    provides this authority as well as several other provisions to further
    strengthen FHA. This legislation is now awaiting passage by the full
    House of Representatives. Given the importance of these issues to FHA's
    ability to facilitate our housing recovery while protecting the
    taxpayer, we hope that the Senate will similarly move to pass this
    legislation as expeditiously as possible.
        We believe this new premium structure is sound policy--more in line
    with GSE and private mortgage insurers' pricing, and is intended to
    facilitate the return of private capital to the mortgage market.\3\
    Indeed, if these changes are adopted during the current fiscal year,
    the estimated value to the MMI fund would be approximately $300 million
    per month, which would replenish FHA's capital reserves even faster
    than if this authority was provided through the annual appropriations
    process.
    ---------------------------------------------------------------------------
        \3\ See Appendix for detailed information about the effect of
    proposed premium rate changes on home buyers.
    ---------------------------------------------------------------------------
        This restructuring of FHA's mortgage insurance premiums will
    accomplish two very important goals: (1) increase the homeowner's
    equity in each mortgage transaction and reduce the risk to the FHA
    fund; and (2) facilitate the return of private capital to the mortgage
    market.

                Increasing Equity in FHA Loans
        As stated earlier, if granted legislative authority to increase the
    annual mortgage insurance premium, FHA proposes to reduce the upfront
    mortgage insurance premium from 225 basis points to 100 basis points.
    Borrowers typically finance the upfront mortgage insurance premium in
    their loan balance, increasing the effective loan-to-value and reducing
    the amount of equity in their home. The reduction of the upfront
    premium will lower the loan balance as well as add an additional 125
    basis points of equity to each loan purchase.
                Facilitating the Return of Private Capital to the Mortgage
                        Market
        As noted, the elevated role FHA is currently playing in the market
    is temporary. In addition to being more equitable for borrowers and
    generating more receipts for FHA, this change to the FHA premium
    structure brings FHA's pricing more in-line with the private mortgage
    insurance industry and enables more robust private competition. In
    fact, in response to FHA's announced policy changes, MGIC, the largest
    U.S. private mortgage insurer, announced on February 23 that it would
    be adopting a new pricing scale.\4\
    ---------------------------------------------------------------------------
        \4\ ``MGIC Lowers Rates to Compete With U.S.-Backed Mortgage
    Insurers,'' Bloomberg, February 23, 2010.
    ---------------------------------------------------------------------------
    Updating Credit Score/Downpayment Guidelines
        FHA is also proposing a ``two-step'' FICO floor for FHA purchase
    borrowers, which would reduce both the claim rate on new insurance as
    well as the loss rate experienced on those claims. Purchase borrowers
    with FICO scores of 580 and above would be required to make a minimum
    3.5 percent down payment; and those with FICO scores between 500-579
    would be required to make a minimum down payment of 10 percent.
    Applicants below 500 would be ineligible for insurance. FHA plans to
    publish the two-step FICO proposal in the Federal Register soon, with
    implementation planned later this fiscal year.
        Careful analysis of the existing FHA loan portfolio shows a clear
    performance difference between loans that were made below the proposed
    FICO/LTV guidelines. Loans below the guidelines are currently more than
    four times as likely to be seriously delinquent than loans above the
    guidelines. Loans below the guidelines demonstrate a seriously
    delinquent rate of 31.1 percent, while loans above the guidelines
    currently demonstrate a seriously delinquent rate of 7.6 percent. Of
    the total FHA loan portfolio, approximately 6 percent of loans fall
    under the proposed guidelines; however, due to improved quality of
    recent FHA loans, only 1.5 percent of loans endorsed in fiscal year
    2009 would be excluded under the proposed guidelines.

                                         LOAN PERFORMANCE BASED ON PROPOSED UPDATED CREDIT SCORE/DOWNPAYMENT GUIDELINES
                                                                          [In percent]
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                 Seriously
             Proposed Two Step Rule             Outstanding       30-Day          60-Day          90-Day      In Foreclosure   In Bankruptcy    Delinquent
                                                   Loans                                                                                         (90-Day+)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Excluded................................             6.2            12.1             6.7            19.9             8.1             3.0            31.1
    Still Qualify...........................            93.8             5.0             2.1             4.9             2.0             0.7             7.6
                                             ---------------------------------------------------------------------------------------------------------------
          Total.............................           100.0             5.5             2.4             5.9             2.4             0.8             9.1
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Source: U.S. Department of HUD/FHA; February 2010.

        If implemented, in combination with the proposed mortgage insurance
    premium structure, the updated FICO/LTV guidelines are projected to
    result in the $4.1 billion in additional offsetting FHA receipts as
    reflected in the President's budget.
                Minimum Downpayment for FHA Loans
        Some have suggested that FHA raise the minimum required downpayment
    to 5 percent across the board and also remove the option of financing
    the upfront insurance premium into the loan balance for all
    transactions as a means to increase homeowner equity. We share the goal
    of increasing equity in home purchase transactions, but determined
    after extensive evaluation that such a proposal would adversely impact
    the housing market recovery.
        To determine the impact of requiring a minimum 5 percent
    downpayment for all transactions, FHA evaluated the loan files of a
    large sample of past endorsements to identify the number of borrowers
    who had sufficient assets at time of loan application to contribute the
    additional 1.5 percent of equity at closing. As illustrated in the
    table below, such a policy change would reduce the volume of loans
    endorsed by FHA by more than 40 percent, while only contributing $500
    million in additional budget receipts. This translates to more than
    300,000 fewer first-time home buyers and would have significant
    negative impacts on the broader housing market--potentially
    forestalling the recovery of the housing market and potentially leading
    to a double-dip in housing prices by significantly curtailing demand.
    In contrast, the combination of policy changes proposed by FHA in the
    fiscal year 2011 budget would contribute an additional $4.1 billion in
    additional receipts to FHA while having a much more moderate impact on
    the broader housing market.

       IMPACT OF FISCAL YEAR 2011 POLICY OPTIONS ON FHA RECEIPTS AND LOAN
                                     VOLUME
                            [In billions of dollars]
    ------------------------------------------------------------------------
                                                                 FHA Loan
                  Policy Option                FHA Receipts    Endorsements
    ------------------------------------------------------------------------
    Baseline without policy changes.........             1.7             246
    Minimum 5 percent downpayment for all                2.2             139
     transactions...........................
    Fiscal Year 2011 Budget Proposal with                5.8             223
     all proposed policy changes............
    ------------------------------------------------------------------------
    Source: U.S. Department of HUD/FHA; February 2010.

        Furthermore, downpayment alone is not the only factor that
    influences loan performance. The combination of downpayment and FICO
    score is a much better predictor of loan performance than just one of
    those components alone. For instance, loans with a loan-to-value (LTV)
    above 95 percent and a FICO score above 580 perform better than loans
    with LTV below 95 percent and a FICO score below 580, while loans with
    a LTV above 95 percent and a FICO score below 580 perform significantly
    worse than all other groups, as illustrated below.

       FHA SINGLE FAMILY INSURED LOAN CLAIM RATES RELATIVE EXPERIENCE BY LOAN-TO-VALUE AND CREDIT SCORE VALUES \1\
                      [Ratios of each Combination's Claim Rate to that of the Lowest Risk Cell \2\]
    ----------------------------------------------------------------------------------------------------------------
                                                                          Credit Score Ranges \3\
               Loan-to-Value Ratio Ranges            ---------------------------------------------------------------
                                                          500-579         580-619         620-679         680-850
    ----------------------------------------------------------------------------------------------------------------
    Up to 90 percent................................             2.6             2.5             1.9             1.0
    90.1-95 percent.................................             5.9             4.7             3.8             1.7
    Above 95 percent................................             8.2             5.6             3.5             1.5
    ----------------------------------------------------------------------------------------------------------------
    \1\ Based on experience of the fiscal year 2005-fiscal year 2008 insurance cohorts, as of February 28, 2010.
      These ratios represent averages of the cell-level ratios in each cohort.
    \2\ Claim rates in the first row and last column are the low-risk cell and are represented by a ratio value of
      1.00. Values in all other cells of this table are ratios of the cell-level claim rate to the claim rate of the
      low-risk group.
    \3\ Loan-level scores represent the decision FICO scores used for loan underwriting. This analysis includes all
      fully-underwritten loans, purchase and refinance, but excludes streamline refinance loans.

    Source: U.S. Department of HUD/FHA; March 2010.

        It is for these reasons, rooted in a thorough review of actual FHA
    loan performance data, that FHA has decided to reduce the upfront
    mortgage insurance premium, which is financed into the loan balance in
    the vast majority of transactions, and increase the annual mortgage
    insurance premium, which is paid over time and not financed into the
    loan balance, which is more aligned with the premium structure of
    private mortgage insurance companies.
        In particular, we have proposed to permit loans to borrowers with
    FICO scores above 580 with a minimum 3.5 percent downpayment and loans
    to borrowers with FICO scores between 500 to 579 with a minimum 10
    percent downpayment. It is also worth noting that these downpayment
    guidelines are minimums and many borrowers do in fact have
    significantly lower LTVs--in the fourth quarter of fiscal year 2009,
    more than 21 percent of endorsed loans had a LTV lower than 90 percent.
    Reducing Seller Concessions
        We are also proposing a third policy measure to reduce the maximum
    permissible seller concession from its current 6 percent level to 3
    percent, which is in line with industry norms. The current level
    exposes the FHA to excess risk by creating incentives to inflate
    appraised value. As seen in the table below, FHA's experience shows
    that loans with high levels of seller concessions are significantly
    more likely to go to claim. Experience to-date on loans insured from
    fiscal year 2003 to fiscal year 2008 suggests that claim rates on high-
    concession loans are 50 percent higher or more than those on low-
    concession loans.

       FHA SINGLE-FAMILY INSURANCE TO-DATE CLAIM RATE COMPARISON LOW (0-3 PERCENT) VS. HIGH (3.1-6 PERCENT) SELLER
                                                     CONCESSIONS \1\
                                                [As of December 31, 2009]
    ----------------------------------------------------------------------------------------------------------------
                                                                            Low            High
                         Endorsement Fiscal Year                        Concessions     Concessions   Ratio High/low
                                                                         (percent)       (percent)
    ----------------------------------------------------------------------------------------------------------------
    2003............................................................             6.5            10.7            1.65
    2004............................................................             6.6            11.6            1.76
    2005............................................................             7.2            11.2            1.54
    2006............................................................             6.5             9.5            1.46
    2007............................................................             4.6             6.3            1.36
    2008............................................................             1.0             1.5            1.60
    ----------------------------------------------------------------------------------------------------------------
    \1\ As a percentage of the home price. This analysis is only for home purchase loans.

    Source: US Department of Housing and Urban Development, Federal Housing Administration; January 2010.

    Increasing Lender Enforcement
        In its fiscal year 2009 Actuarial Review, the independent actuary
    projected that more than 71 percent of FHA's losses over the next 5
    years will come from loans already on our existing books, rather than
    from newly insured loans. That's why an important step we can take to
    minimize losses to capital reserves in the near term is to step up
    enforcement and make lenders more accountable. As mentioned earlier, we
    have renewed our focus on enforcement and lender accountability.
        Additionally, HUD is seeking Congressional authority to extend
    FHA's ability to hold all lenders to the same standard and permit FHA
    to recoup losses through required indemnification for loans that were
    improperly originated and the error may have impacted the original loan
    decision, or in which fraud or misrepresentation were involved. FHA
    currently has this authority for loans originated through the Lender
    Insured (LI) process, which accounts for 70 percent of FHA loan volume,
    but only 29 percent of FHA-approved lenders. FHA is asking that
    Congress grant explicit authority to require indemnification for loans
    that were improperly originated for the remaining 71 percent of FHA-
    approved lenders. FHA is simply requesting that Congress permit FHA to
    hold all lenders to the same standard; FHA is not asking for expansion
    of authorities beyond those already granted to FHA to oversee lenders
    participating in the LI program.
        As you can see, we have proposed a comprehensive set of reforms to
    improve loan performance, hold lenders accountable, and increase
    revenues to the FHA fund, while also ensuring that FHA continues to
    support the overall recovery of the housing market and continue to
    serve its mission of providing home ownership opportunities for
    responsible borrowers. We look forward to working with Congress closely
    on all these issues and hope to gain your support for our legislative
    requests to further reduce risks to the American taxpayer.

                                  CBO SCORING

       On March 5, the Congressional Budget Office released its re-
    estimate of the President's 2011 budget. Although the CBO re-estimate
    includes 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 that such credit activity will result in
    net receipts to the Government. We differ, however, on the amount.
    While the President's budget forecast $5.8 billion in net receipts
    resulting primarily from insurance premia and other fees assessed on
    FHA loans, CBO re-estimated those receipts at $1.9 billion.
    Accordingly, CBO's scoring suggests our policies will cost $3.9 billion
    more than we estimated in our submission to you.
        While recognizing that such a difference with CBO complicates
    budget resolution development, we remain confident that the $5.8
    billion in receipts forecast in the President's budget will be realized
    and transferred to FHA's Capital Reserve Account. This will help that
    fund get back on track to be capitalized with the statutorily mandated
    2 percent of insurance in force.

                     HOME EQUITY CONVERSION MORTGAGE (HECM)

        This year, we are requesting an appropriation of $250 million to
    support FHA's reverse mortgage product--the Home Equity Conversion
    Mortgage, or HECM, program. The HECM program provides seniors with a
    means to access their home equity to make ends meet. A survey conducted
    by AARP in 2006 showed that the product provided seniors with much-
    needed financial relief and was primarily used to pay for long term
    healthcare, enable home repairs, and provide piece of mind that housing
    expenses could be met.\5\ Another study, conducted by the National
    Council on Aging in 2005 showed how the program can help seniors access
    in-home healthcare services, an arrangement that allows households to
    ``age in place'' rather than undergoing disruptive transitions into
    nursing homes or other types of public facilities to receive health-
    related assistance. Keeping seniors in their homes and communities,
    close to familiar support networks, puts less pressure on our Nation's
    overextended nursing home infrastructure and the public resources that
    support it.
    ---------------------------------------------------------------------------
        \5\ ``Reverse Mortgages: Niche Product or Mainstream Solution?
    Report on the 2006 AARP National Survey of Reverse Mortgage Shoppers,''
    AARP Public Policy Institute Paper #2007-22. and ``Use Your Home to
    Stay at Home,'' National Coalition on the Aging, 2005. http://
    www.ncoa.org/news-ncoa-publications/publications/
    reversemortgagereportpublications.pdf.
    ---------------------------------------------------------------------------
        We have performed considerable analysis to perform the maximum
    policy changes that we could perform to reduce risk to the taxpayer and
    maintain the viability of the program, which is why we have proposed
    for fiscal year 2011 an increase in the annual mortgage insurance
    premium from 0.50 percent to 1.25 percent and a further reduction in
    the principal limit factors (PLFs) of approximately 1 to 5 percent
    depending on the age of the borrower, on top of the 10 percent
    reduction in PLFs that was implemented at the beginning of fiscal year
    2010.
        Without the budget request, we would be forced to reduce the PLFs
    by an additional 21 percent in fiscal year 2011. This would
    significantly reduce the amount of funds that would be available to
    seniors (more than 30 percent), which is on average a $23,000 to
    $27,000 impact.
        Any additional steep cut to the PLFs will result in serious decline
    in program level as HECMs would no longer be viable to many seniors who
    need to access their home equity while staying in their homes. It is
    important to note that the need for this type of program is greater now
    than it's ever been, due to increasing medical costs, declining
    employment/incomes, and less ``savings'' in various types of pension
    funds/retirement accounts.
        Forecasts suggest that future house prices will grow more slowly
    than in the past, and the HECM program costs are very sensitive to
    future house prices. As such, we have also assembled a working group
    with the Department to see what other kinds of broader program changes
    could be made going forward to make the program more viable even under
    stressful economic times.
        Given the value of this program in assisting this critical
    population, HUD has requested an appropriation to maintain the
    viability of this option for seniors while we evaluate the range of
    broader program changes that may be necessary to ensure the success of
    the HECM program into the future.

         HUD'S CENTRAL ROLE IN PREVENTING FORECLOSURES AND STABILIZING
                                 NEIGHBORHOODS

        On March 26, as part of the administration's continued efforts to
    assist homeowners to avoid foreclosure, HUD announced adjustments to
    the FHA program, referred to as the FHA refinance option, that will
    allow lenders to provide additional refinancing options to those
    borrowers who owe more on their home than it is worth if combined with
    a principal write down by their lender or mortgage investor. These
    adjustments will provide more opportunities for qualifying mortgage
    loans to be responsibly restructured and refinanced into FHA loans as
    long as the borrower is current on the mortgage and the lender reduces
    the amount owed on the original loan by at least 10 percent. We have
    also expanded the FHA loan modification program, known as FHA HAMP, to
    provide incentives for servicers to modify loans insured by the FHA.
    With the issuance of new rules on March 26 (Supplemental Directive 10-
    03), TARP-funded incentives will be available to borrowers and
    servicers whose loans are modified under the FHA-HAMP guidelines,
    corresponding to the pay-for-success HAMP incentive structure. In
    addition to efforts to improve the execution of the administration's
    Making Home Affordable program, HUD is utilizing long-existing
    mechanisms as well as additional authority provided in recently enacted
    legislation to aid distressed homeowners and to address community
    blight resulting from foreclosed and abandoned properties.
        FHA Refinance Option.--To address the challenge of underwater
    homeowners, we have made adjustments to Federal Housing Administration
    (FHA) programs that will permit lenders to provide additional
    refinancing options to homeowners who owe more than their home is worth
    because of large falls in home prices in their local markets. These
    adjustments will provide more opportunities for qualifying mortgage
    loans to be responsibly restructured and refinanced into FHA loans as
    long as the borrower is current on the mortgage and the lender reduces
    the amount owed on the original loan by at least 10 percent. This
    option will be made available in the market in early fall.
        The new FHA loan must have a balance less than the current value of
    the home, and total mortgage debt for the borrower after the
    refinancing, including both first and any other mortgages, cannot be
    greater than 115 percent of the current value of the home--giving
    homeowners a path to regain equity in their homes and an affordable
    monthly payment. By requiring a meaningful principal write-down in
    conjunction with the newly refinanced loan, borrowers will have a more
    sustainable loan that will be more affordable. Additionally, borrowers
    will have an opportunity to refinance into current interest rates,
    which remain low.
        The new loan must conform to FHA's underwriting requirements, so
    performance would likely fall within acceptable risk thresholds for
    FHA. That being said, there is reasonable concern that there may be a
    performance differential--these loans may perform worse than refinanced
    loans that were not previously underwater. As such, loans that conform
    to all guidelines of the FHA refinance option will be counted
    separately toward lender performance monitoring through Credit Watch--
    the system by which FHA suspends or terminates lenders for high default
    rates. Originating these loans will not hinder a servicer's ability to
    pursue other lines of business, mitigating a potential barrier to
    servicers' and investors' willingness to offer principal writedowns to
    borrowers.
        Of the $14 billion of TARP funds allocated to support the FHA
    refinance option, a portion will be made available to provide coverage
    for a share of potential losses on these loans, mitigating detrimental
    impacts to FHA's capital reserve from facilitating the private sector
    to provide principal writedowns to underwater borrowers in conjunction
    with these refinancings. No TARP funds will go to the FHA itself for
    any loans.
        This refinancing will help homeowners by setting monthly payments
    at affordable levels and decreasing the mortgage burden for families
    owing significantly more than their homes are worth. Keeping more
    responsible families in their homes should support the continued
    recovery of the housing market.
        Established FHA Loss Mitigation Efforts.\6\--Homeowners of FHA-
    insured loans have long been eligible for a variety of loss mitigation
    programs to help protect them from foreclosure. In 2009, more than
    450,000 families were assisted through a variety of methods, including
    forbearance, partial claim, loan modification, pre-foreclosure sale,
    and deed-in-lieu of foreclosure. In the first quarter of fiscal year
    2010, FHA assisted more than 122,000 through these programs. Servicers
    of FHA-insured loans are required to notify delinquent homeowners about
    the option(s) that are available to help them make their monthly
    payments and to implement loss mitigation efforts before they take the
    final step of initiating foreclosure proceedings.
    ---------------------------------------------------------------------------
        \6\ See appendix for description of FHA's loss mitigation programs.
    ---------------------------------------------------------------------------
        FHA-Home Affordable Modification Program (FHA-HAMP).--When
    initially introduced to the public, the Making Home Affordable program
    excluded FHA-insured mortgages and stated that FHA would develop its
    own stand alone program. On July 30, HUD announced final rules
    implementing the FHA's program--the FHA Home-Affordable Modification
    Program (FHA-HAMP)--which is an important complement to MHA and
    provides homeowners in default (or at-risk of imminent default) with
    greater opportunity to reduce their mortgage payments to a sustainable
    level. All servicers were expected to begin offering FHA-HAMP by August
    15. This new loss mitigation program was authorized under the ``Helping
    Families Save Their Homes Act of 2009,'' signed into law on May 20, and
    allows FHA to give qualified FHA-insured borrowers the opportunity to
    obtain assistance under terms roughly comparable to borrowers in other
    segments of the market, without increasing costs to the taxpayer. This
    program allows HUD to permanently reduce a family's monthly mortgage
    payment to an affordable level by offering a partial claim of up to 30
    percent of the unpaid principal balance. This defers the repayment of
    the mortgage principal reduction through an interest-free subordinate
    mortgage that is not due until the first mortgage is paid off.
        At the initiation of FHA HAMP in August 2009, it was projected to
    provide assistance to over 45,000 households over the next 3 years. As
    of January 31, 2010, lenders have sent over 15,000 trial plans and over
    10,000 borrowers have made at least 1 payment on their trial plan. FHA-
    HAMP loan volume is currently above projections for the 3 year
    milestone and all but one major lender has borrowers under a trial
    program.
        Pay for success payments were included for borrowers and servicers
    that utilized the conventional HAMP. However, at the time of its
    announcement, FHA-HAMP did not include Pay for Success payments for
    servicers or mortgagors that made on time payments as it required
    regulatory action to be eligible for FHA-insured mortgages. We have
    worked diligently to complete this process and FHA issued a mortgagee
    letter that enables FHA-HAMP borrowers and servicers to be eligible for
    Pay for Success payments. Consequently, it is expected that demand for
    FHA-HAMP will increase.
        Assistance for Borrowers Facing Imminent Default.--On January 22,
    2010, FHA announced that it was exercising authority granted to it by
    Congress through the Helping Families Save Their Home Act of 2009 to
    use its loss mitigation tools to assist FHA borrowers avoid foreclosure
    to include those facing ``imminent default'' as defined by the
    Secretary. Homeowners with FHA-insured mortgage loans who are
    experiencing financial hardship are now eligible for loss mitigation
    assistance before they fall behind on their mortgage payments.
    Previously, these homeowners were not eligible for such assistance
    until after they had missed payments. Now servicers will have
    additional options for those borrowers who seek help before they go
    delinquent, which increases the likelihood that the borrower will be
    able to retain their home.
        The borrower must be able to document the cause of the imminent
    default which may include, but is not limited to, one or more of the
    following types of hardship:
      --A reduction in or loss of income that was supporting the mortgage
            loan, e.g., unemployment, reduced job hours, reduced pay, or a
            decline in self-employed business earnings. A scheduled
            temporary shutdown of the employer, (such as for a scheduled
            vacation), would not in and by itself be adequate to support an
            imminent default.
      --A change in household financial circumstances, e.g., death in
            family, serious or chronic illness, permanent or short-term
            disability
        Improving Servicer Outreach and Performance in Preventing
    Foreclosures.--FHA is working closely with lenders and servicers to
    improve their outreach and performance in assisting borrowers to avoid
    foreclosure. In February 2010, FHA's Office of Single Family Asset
    Management and the FHA National Servicing Center began conducting
    lender visits to identify best practices that could be shared with the
    broader servicing community to improve foreclosure mitigation across
    the industry. The visits were conducted with five overall objectives:
    (1) better understand in specific detail the process variations that
    exist at each lender for providing a delinquent FHA borrower with
    options to avoid foreclosure; (2) discuss specific borrower trends the
    lenders are experiencing; (3) identify borrower circumstances that
    prevent them from being qualified for various foreclosure prevention
    options; (4) receive suggestions from the lender that might improve the
    process for FHA loss mitigation; and, (5) understand the differences in
    default/foreclosure statistics as compared to national averages.
    Several findings have already been identified and FHA has begun to
    share them with servicers, while continuing to meet with additional
    lenders to identify additional best practices that will enable
    underperforming servicers to improve their success with preventing
    foreclosures. It is worth noting that these best practices are not
    limited to the FHA population, and HUD's efforts in this area will
    benefit all homeowners, not only those with a FHA-insured mortgage, by
    collaborating with the servicer community to improve their foreclosure
    prevention activities across the entire industry.
        Counseling.--HUD is utilizing its vast network of counselors and
    other nonprofits to provide critical assistance to the record number of
    homeowners at-risk of foreclosure. It is estimated that more than one-
    half of all foreclosures occur without servicers and borrowers ever
    engaging in a discussion about potential options to prevent
    foreclosure. That is why we have directed HUD-approved counselors to
    educate homeowners about their various options, promote the MHA program
    in local communities, and assist distressed homeowners with navigating
    the system so they can reach servicers and obtain assistance to avoid
    foreclosure.
        HUD-approved counselors are located across the Nation and provide
    distressed homeowners with a wealth of information. The counselors
    provide assistance over the phone and in person to individuals seeking
    help with understanding the Making Home Affordable program, explain
    options available to FHA-insured homeowners, and often work with
    borrowers eligible for the administration's refinance or modification
    program to compile an intake package for servicers. These services are
    provided free of charge by nonprofit housing counseling agencies
    working in partnership with the Federal Government and funded in part
    by HUD and NeighborWorks America. In addition, HUD, working with
    Treasury and the Homeownership Preservation Foundation, encourages
    distressed borrowers to contact the Homeowner's HOPE Hotline at 866-
    995-HOPE to receive counseling and advice on avoiding foreclosures. The
    24 hours a day, 7 days a week hotline utilizes many HUD-approved
    counselors who can also help the homeowner reach and resolve issues
    with servicers.
        Neighborhood Stabilization Program (NSP).--HUD recognizes that
    concentrated foreclosures can wreak havoc on once-stable communities
    and is working to insure that the nearly $6 billion appropriated by
    Congress for NSP plays the intended role of helping to stabilize
    housing markets and combat blight through the purchase and
    redevelopment of foreclosed and abandoned homes and residential
    properties. NSP is starting to generate real results and is emerging as
    a vital resource in facilitating the transformation of foreclosed homes
    into affordable housing and other useful properties. HUD continues to
    monitor program activities, identify strategies that produce real
    results, and work to make program modifications that will help ensure
    that this funding is deployed quickly, wisely, and effectively.
    Additionally, FHA and HUD's Office of Community Planning and
    Development have created a working group to assist NSP grantees to
    better coordinate the use of NSP funds for the purchase of FHA REO
    properties.

             FACILITATING OUR RECOVERY, BUT PROTECTING THE TAXPAYER

        Madam Chairwoman and Ranking Member Bond, shoring up the FHA won't
    solve all our housing challenges--one reason the administration is
    working to produce a more balanced, comprehensive national housing
    policy that supports home ownership and rental housing alike, providing
    people with the options they need to make good choices for their
    families.
        Further, as important as the FHA is at this moment, I want to
    emphasize that the elevated role it is playing is temporary--a bridge
    to economic recovery helping to ensure that mortgage financing remains
    available until private capital returns.
        That means that while we must remain mindful that qualified,
    responsible families need the continued ability to purchase a home, the
    changes and legislative requests that we have announced are crafted to
    ensure FHA steps back to facilitate the return of the private sector as
    soon as possible. Until the private sector can step back up, they need
    the FHA--and so does our housing market.
        So, Madam Chairwoman, while FHA must remain a key source of safe
    mortgage financing at a critical moment in our country's history, we
    recognize the risks that we face and the challenges of this temporary
    role that we play in today's market. And the bottom line is this: the
    loans FHA insures must be safe and self-sustaining for the taxpayer
    over the long-term. With these reforms the administration is committed
    to ensuring that they are today--and into the future. Thank you.

                                               APPENDIX.--MORTGAGEE REVIEW BOARD HISTORICAL ACTIONS BY FISCAL YEAR
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             2000     2001     2002     2003     2004     2005     2006     2007     2008     2009     2010
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Number of Cases................................       61       92       14       63       47       38       21       18       95      593      360
    Fact Based Cases.....................................       61       92       14       63       47       38       21       18       30       21       40
    Recertification Cases................................  .......  .......  .......  .......  .......  .......  .......  .......       65      572      320
    Actions Taken:
        Withdrawal of Approval...........................       15       29        2        4        8       10        3        3       27      268      314
        Suspension.......................................        1        1  .......  .......  .......  .......  .......  .......        1        6        1
    --------------------------------------------------------------------------------------------------------------------------------------------------------

        Fact Based Cases.--Are those referrals to the board as a result of
    a review of the lenders origination, underwriting and/or operations;
    primarily the result of the Single Family Quality Assurance Division's
    lender monitoring reviews, but the board also receives referrals from
    the OIG, Multi-Family, etc.
        Recertification Cases.--Are referrals to the MRB from the Office of
    Lender Activities Lender Recertification branch and are the result of a
    lender's failure to follow our annual renewal process. The addition of
    this new category in fiscal year 2008 was primarily due to the new
    requirements issued from the decision by HUD's Administrative Law Judge
    in fiscal year 2008 that all lenders that do not comply with FHA's
    annual renewal requirements must go before the Board for administrative
    action.
        Withdrawal of Approval.--Terminates the FHA-approval of a lender,
    e.g. lenders lose their FHA Approval Status and have no authority to
    originate and/or underwrite FHA loans.
        Suspension.--Temporarily suspends an FHA-approved lenders ability
    to originate and/or underwrite FHA loans. It does not terminate their
    FHA Approval, just the ability to use it.

      FHA SINGLE FAMILY INSURANCE EFFECT OF PROPOSED PREMIUM RATE CHANGES ON HOME BUYERS WHO MAKE THE MINIMUM CASH
                                                       INVESTMENT
    ----------------------------------------------------------------------------------------------------------------
                                       With Current    With Interim     Difference     With Proposed    Difference
     Home Price and Mortgage Payment    MIP Values      225/55 MIP     from Current     100/90 MIP     from Current
               Components                (175/55)          Plan           Values           Plan           Values
    ----------------------------------------------------------------------------------------------------------------
    House price--Average Value......        $176,000        $176,000  ..............        $176,000  ..............
    Base Loan Amount (96.5 percent          $169,840        $169,840  ..............        $169,840  ..............
     LTV)...........................
    Loan Amount with UFMIP..........        $172,812        $173,661            $849        $171,538         -$1,274
    Interest Rate (percent).........            5.50            5.50  ..............            5.50  ..............
    FHA upfront MIP rate (percent)..            1.75            2.25  ..............            1.00  ..............
    FHA annual MIP rate (percent)...            0.55            0.55  ..............            0.90  ..............
    Principal and Interest payment..            $981            $986              $5           $ 974             -$7
    PITI payment \1\................          $1,355          $1,360              $5          $1,348             -$7
    PITI + FHA Mortgage insurance             $1,434          $1,439              $5          $1,475             $42
     payment (full mortgage payment)
    ----------------------------------------------------------------------------------------------------------------
    \1\ This assumes that property taxes and hazard insurance payments (TI) amount to 2.55 percent of the property
      value. This figure is backed into from the difference between the average mortgage payment ratio of FHA-
      insured borrowers and the payment without the TI portion. PITI refers to principal, interest, taxes, and
      insurance.

    Source: U.S. Department of HUD/FHA; February 2010. Average values are for FHA-insured home-purchase borrowers,
      October-December 2010.

               DESCRIPTION OF HUD'S LOSS MITIGATION PROGRAM TOOLS

    Formal Forbearance
        A short term repayment plan to postpone, reduce, or suspend payment
    due on a loan for a limited and specific time period. A formal
    forbearance is normally entered into when a borrower is in imminent
    default or early delinquency and can be as simple as a promise-to-pay.
    Special Forbearance
        A long term repayment plan that may provide for periods of reduced
    or suspended payments when there is reasonable likelihood the borrower
    can resume normal or increased payments.
    Mortgage Modification
        Provides a permanent change in the monthly mortgage payment by
    capitalizing the accumulated arrears and establishing a new mortgage
    term of up to 30 years.
    Partial Claim
        A promissory note and subordinate mortgage to cover the advance for
    delinquent mortgage payments is issued in the name of the Secretary of
    HUD. Mortgagee advances funds on behalf of the Mortgagor in the amount
    of the Partial Claim advance to reinstate the delinquent loan.
    FHA-HAMP
        FHA-HAMP allows qualified FHA-insured borrowers to reduce their
    monthly mortgage payment to an affordable level by permanently reducing
    the payment through the use of a partial claim combined with a loan
    modification. The partial claim defers the repayment of a portion of
    the mortgage principal through an interest-free subordinate mortgage
    that is not due until the first mortgage is paid off. The remaining
    balance is then modified through re-amortization and in some cases, an
    interest rate reduction.
    Pre-foreclosure Sale
        Homeowner sells the property at a price less than the outstanding
    mortgage balance and HUD pays an insurance claim to the mortgagee for
    the resulting loss.
    Deed-in-lieu of Foreclosure
        Voluntary transfer of property title to the lender or directly to
    HUD.
                                     ______

                    Prepared Statement of Kenneth M. Donohue

        Chairman Murray, Ranking Member Bond, and members of the
    subcommittee, thank you for inviting me to submit written testimony
    today. I very much appreciate the opportunity to speak on the
    importance of the role of the Federal Housing Administration (FHA) in
    addressing the housing crisis currently confronting our Nation. It was
    a year ago, when I last testified before you on this topic and much has
    transpired during the intervening time as well as some aspects, such as
    the stagnancy of the housing market, unfortunately remaining the same.
    We have not yet weathered the economic storm but hopefully in its
    aftermath we will see some clearer skies and renewed prosperity. This
    much is known 1 year later however--the current degree of FHA
    predominance in the market still is unparalleled.

                                   BACKGROUND

        The mission of the Department of Housing and Urban Development
    (HUD) is to increase home ownership, support community development, and
    increase access to affordable housing free from discrimination. The FHA
    provides mortgage insurance to private lenders that finance single
    family homes, multifamily projects, healthcare facilities, loans for
    property improvements and manufactured homes. The FHA has provided
    mortgage insurance to over 37 million single family homes and over
    51,000 multifamily projects since its inception over 75 years ago. Most
    of the industry has adhered to the FHA and industry standards in
    assisting the American home buyer. Unfortunately, there are those that
    seize upon the opportunity for ``greed'' in exploiting the system.
        As I stated previously, the last number of years have seen enormous
    and damaging developments in the mortgage market: the dissolution of
    the subprime and Alt-A loan markets; dramatic drops in housing prices
    in most areas of the country; a concomitant rise in default and
    foreclosures arguably drawing comparisons to levels of distress
    experienced in the Great Depression; financial insecurity in the
    mortgage-backed securities markets represented by the Government
    takeover of Fannie Mae and Freddie Mac; the collapse of credit markets;
    and, as a primary vehicle to address these issues, an urgent reliance
    on the FHA to bolster the mortgage market.
        The FHA was established under the National Housing Act of 1934 to
    improve housing standards and conditions, to provide an adequate home
    financing system by insuring mortgages and rental projects, and to
    stabilize the mortgage market after the devastation of the Depression
    and massive losses of home ownership during that time. It was created
    to be the standard setter and the standard bearer for the mortgage and
    housing communities in areas such as underwriting standards and ethical
    behavior. It had, in my estimation, as history will attest, abdicated
    this important role--too often slow on the upside, as we saw during the
    recent expansion of FHA in the marketplace, and slow on the downside.
    It had a responsibility which frankly it sidestepped.

                             HISTORICAL PERSPECTIVE

        The FHA Commissioner in his testimony a number of weeks ago
    regarding policy and legislative reforms, stated that ``. . . many of
    these reforms were long overdue as FHA did not respond effectively to
    changes in the marketplace that happened during the housing boom and
    the subsequent decline.'' In his view ``. . . inaction was and is not
    an option.'' I applaud these remarks and state for the record that in
    my 8 years as HUD inspector general, this FHA Commissioner has tried to
    do more in the last year than I saw in all the previous years combined.
    As you know from my many years of testimony before this subcommittee
    and others, I agree with his statement that the ``organization they
    inherited was simply not properly managing or monitoring its risk.''
    Many of his proposals and initiatives are long overdue and meritorious.
    That said, we still have much to do and have much uncertainty facing
    this Department--some within the control of departmental officials and
    some outside their sphere of influence. While it is difficult to
    predict the future--as an old adage goes if you have five economists in
    the room you'll have eight different forecasts--I am not as optimistic
    as some are with where we are today or even going in the near future
    but I do agree that the program is attempting to move ahead in a good
    direction.
        In late 2008, a BusinessWeek article generated a buzz with a
    picture of a wolf on the cover representing the pernicious side of the
    mortgage industry coming at the FHA. I was quoted at the time
    expressing my concern about the groundswell of loans that were going to
    come in to the program and the types of loans that might be coming with
    the onslaught of new lenders. The FHA disputed my statements. Also
    quoted in the article was Michael Ashley, a chief official of a New
    York mortgage lending firm who had switched its strategy from subprime
    to FHA-backed mortgages. The article reported that in 2008 alone the
    company, Lend America, made $1.5 billion in loans and Ashley is quoted
    as stating that the ``FHA is a big part of the future.'' I was
    perturbed reading his blatant bravado regarding how the FHA had become
    his meal ticket because of our open investigation of him and his
    company at the time and our previous prosecution against him years
    earlier for engaging in similar activity.
        When I highlighted this case to you in previous testimony, I was
    frustrated with the vulnerabilities in the FHA approval system that
    allowed Mr. Ashley to come back into the program and to publicly and
    brazenly brag about his participation. I am pleased to state, however,
    that we did receive an injunction against Mr. Ashley banning him
    permanently from ever engaging in Federal mortgage programs. A local
    newspaper reported when we took initial action against him that there
    was a Mercedes Benz car in the company parking lot with a license plate
    ``RefiFHA.'' Hopefully, with the actions that the FHA is trying to put
    into place today we will not see such bombastic industry behavior. I am
    also pleased that this Commissioner has recently taken action against
    over 300 lenders sending a very distinct message to the lending
    community. I had highlighted in reports that the Department's Mortgagee
    Review Board was broken and I applaud his action to reinvigorate the
    process. I do think that this Commissioner is dealing with the
    consequences of departmental inactions that took place prior to his
    tenure and that our perceptions at the time have, despite the agency's
    attempts then at refutation, come to pass in terms of volume, types of
    participants, and ramifications to the portfolio.
        For example, another recent OIG case underscores large fraud
    schemes and losses to the program. At Taylor Bean and Whitaker (TBW)
    Mortgage Corporation and Colonial Bank we uncovered various schemes.
    Federal search warrants were simultaneously executed at both TBW and
    Colonial Bank. The FHA then suspended TBW from participation and the
    company filed for bankruptcy. Colonial Bank was taken over by the FDIC
    and then sold to BB&T Bank. HUD's suspension was based on TBW failing
    to submit an audited financial statement, misrepresenting that there
    were no unresolved issues with an independent auditor and its failure
    to disclose it was the subject of two examinations into its business
    practices. At the point of seizure, TBW was servicing Federally insured
    and guaranteed loans with a remaining principal balance of about $26
    billion.
        Lastly, I had said that, through the multitude of our work in
    auditing and investigating many facets of the FHA programs over the
    course of many years, we have had, and continue to have, concerns
    regarding FHA's systems and infrastructure to adequately perform its
    current requirements and services. This was expressed by the OIG to the
    FHA through audits and reports regarding a wide spectrum of areas prior
    to the current influx of loans coming into the program and prior to the
    consideration of the numerous proposals that expanded its reach. Some
    of these were long-standing concerns that went back to unresolved
    issues highlighted in our work products from as far back as the early
    1990s.

                             THE CURRENT LANDSCAPE

        The past 2 years have certainly produced a lot of changes and
    initiatives. In response to increasing delinquencies and foreclosures
    brought about by the collapsing subprime mortgage market, the FHA
    Secure program to refinance existing subprime mortgages, the Housing
    and Economic Recovery Act's (HERA) Hope for Homeowners program, the
    Helping Families Save Their Homes Act, and The Making Home Affordable
    Program were created to assist homeowners.
        As we turn to today's environment, the size of the Single-Family
    FHA-insured loan portfolio has enlarged by nearly 50 percent from $466
    billion in fiscal year 2008 to over $697 billion in fiscal year 2009.
    During the month of March of this year, the FHA's total mortgage in
    force was over $6.1 million with an aggregate outstanding balance of
    over $800 billion. Single-Family market comparisons from the first
    quarter of fiscal year 2010 show that FHA's total endorsements have
    increased to 74 percent of the insured mortgage market which includes
    both home sales and refinances. As recent FHA testimony states, the FHA
    program is insuring almost 30 percent of purchases and in the past year
    alone helped more than 800,000 homeowners refinance.
        I still remain concerned that the FHA will be challenged to handle
    its expanded workload or new programs that require the agency to take
    on riskier loans than it historically has had in its portfolio. The
    surge in FHA loans is overtaxing the current infrastructure, making
    careful and comprehensive lender monitoring difficult. Through our
    cases we see the consequences of allowing in dubious lenders who then
    inflicted the program with problematic loans. In addition, our
    experience in prior high FHA volume periods (such as from 1989-1991 and
    1997-2001) shows that the program was vulnerable to exploitation by
    fraud schemes, most notoriously flipping activities, that undercut the
    integrity of the program. I support many of the recent initiatives
    proposed by the Secretary and the FHA Commissioner, of which I will
    elaborate on later, and a new departmental attitude to address these
    issues head on.
        We testified last year that the FHA had to contend with a
    significant and complex situation in balancing the risks to, and fiscal
    vitality of, the Mutual Mortgage Insurance (MMI) Fund against the need
    to assure financial mortgage markets continue to function properly
    during the downturn of the economy. Among the issues we spoke to were
    the adequacy of resources available to FHA for staffing, training,
    oversight, and system enhancements. We cited the increasing risks the
    FHA faced that needed to be addressed by both its front-end risk
    assessment processes as well as its back-end monitoring and corrective
    action processes.
        Since that time the FHA has undertaken a number of actions to
    mitigate some of those risks and protect reserve fund balances. The FHA
    has banked on the accuracy of its actuary's projections in assessing
    the health of the Fund and has faith that it is experiencing improved
    performance with its 2009 and 2010 portfolio. Economists cannot agree
    the direction the economy is going and I equally am not a proficient
    prognosticator. We are in a fluid and dynamic situation that too often
    has not been predictable or readily knowable. The FHA, like the average
    American, is still searching for clearer horizons and a break in the
    tempest.
        The FHA's latest report shows that for last quarter, the net losses
    on claims were averaging close to 60 percent which is 13 percent higher
    than was predicted. In layman's terms, the FHA is recovering only 42
    cents on the dollar (i.e., what it loses after it pays a claim and
    sells foreclosed property). In the State of Michigan, however, it is
    only recovering 16 cents on the dollar. It currently has approximately
    45,600 properties at a value of $5.7 billion in the real estate owned
    (REO) inventory. Moreover, its credit subsidy rate is one-half percent
    which after adjustment for present value means revenues are a one-half
    percent ahead of claims. That's positive but by a very slim margin. The
    FHA is taking a number of steps to mitigate losses and keep the fund
    positive.
        While the FHA's confidence in actuarial numbers brings it hope, we
    believe vigilance is needed until the marketplace has stabilized. Like
    any American family in today's uncertain times, the FHA will have to
    continuously monitor its financial position and take proactive steps to
    keep ahead of the curve when reality dictates corrective action is
    required. The FHA has a number of tools at its disposal to increase
    revenue or to reduce losses accomplished through mechanisms such as
    loss mitigation or vigilant oversight of lenders and brokers. Most of
    the major actions proposed to mitigate risk will not go into effect
    right away so we need to understand that such actions may have little
    effect on loans already in the portfolio. With the current state of the
    economy, will there be enough new loans to bail out the old loans? This
    is where due diligence today is imperative as well as an overall
    proactive approach.

           FHA POLICY CHANGES TO ADDRESS RISK AND STRENGTHEN FINANCES

    New Loan-to-value and Credit Score Requirements
        Loans to borrowers with a credit score of less than 580 will
    require a minimum 10 percent down payment. Loans to borrowers with a
    credit score of 580 or above will require the traditional minimum of
    3.5 percent down payment. This change, if approved, will go into effect
    this summer after going through the Federal Register notice and comment
    process.
        We are in general agreement with the move to strengthen down
    payment requirements. We, however, believe there are some caveats.
    While this requires borrowers with the riskiest loans (below 580) to
    put more, to quote an earlier comment by Senator Bond, ``skin in the
    game,'' this will more than likely have minimal impact on the Fund in
    terms of bringing in additional premiums. Loans for borrowers with
    credit scores below 580 are less than 1 percent of new activity. So
    these additional requirements may likely end most activity in this
    category. It might, however, reduce future claims but the volume of
    these loans will not bring in a significant amount of premium payments
    to cover current losses. The chart below from LPS Applied Analytics
    shows the proportion of FICO credit scores over the last 23 months.

        As seen in the lowest color segment of the bar chart for FICO
    scores below 620, the percentage of loans that would be potentially
    subject to the new 10 percent down payment requirement has steadily
    decreased to less than 1 percent. This is both good news and bad news
    because it shows that from a financial perspective the FHA's riskiest
    business is falling off but from a social perspective the potential
    homeowners that it traditionally has served may be priced out of the
    market. Importantly, we are also seeing defaults and claims affecting
    higher credit score loan holders and there are some vocal advocates who
    think a higher down payment may be required for a wider spectrum of
    credit score categories. Further, the 580 credit score threshold is
    well into what is traditionally considered subprime territory in the
    conventional marketplace with 620 being the usual demarcation for
    subprime. We believe that to have a higher down payment requirement at
    the 620 level may have a more meaningful impact due to the larger
    volume of loans at this level.
        In assessing the most recent year's book of business, it needs to
    be understood that underwriting is like a three-legged stool. FICO
    scores are only one leg--the other two legs are the value of the
    property and the future employment of the borrower. While it is true
    that FICO scores have risen from an average of 626 in fiscal year 2008
    to 695 in the first quarter of fiscal year 2010, we should also note
    that the loan-to-value ratios have also gone up during this timeframe.
    In FHA's recent Quarterly Report, the loan-to-value ratio for the 96-98
    percent category had risen from 48.8 percent of the loans written in
    the first quarter of fiscal year 2009 to 69.1 percent in the first
    quarter of fiscal year 2010. This may mean that any gains realized from
    reduced risk for having higher FICO scores may be offset by the
    increased risk of higher loan-to-value ratios. In other words,
    borrowers are putting less of a down payment into purchased homes. As
    we said in previous testimony opposing seller-funded down payment
    assistance plans, less ``skin in the game'' often means that there are
    increased chances for the owner to walk away if delinquencies occur.
    Further, any benefit from the increase in the average FICO scores may
    be tempered by a commensurate rise in claims generated from those
    loans.
        So while the FHA believes that they may have an improved book of
    business in terms of increased volume and FICO scores, the jury is
    still out if the additional cash generated by the new book of business
    will be sufficient to cover the unknown amount of losses in the short
    term or if the premise that high FICO scores are equivalent to soundly
    underwritten loans still holds. Economic instability is creating
    counter-intuitive trends in consumer behavior.
    Up-front Mortgage Insurance Premium Increased to 2.25 Percent
        The FHA is pursuing legislative authority to increase the statutory
    cap on the annual Mortgage Insurance premium. OIG supports this change
    in the premium structure. Any business needs to be able to adjust its
    pricing in order to continue to operate efficiently. The FHA needs the
    ability to adjust premium prices without requiring legislative action
    each time that may impede its ability to react quickly. The FHA will
    need, however, to ensure that a process is developed to link future
    insurance premium changes to actuarial forecasts.
    Reduce Allowable Seller Concessions From 6 Percent to 3 Percent
        The FHA is seeking an action to conform to industry standards and
    to reduce potential value inflation. It is anticipated to go into
    effect this summer after appropriate notice and comment time. The OIG
    supports this measure. We believe that the FHA needs to be consistent
    with industry practices so as to avoid pressure to raise prices to
    cover seller concessions.
    Increase Enforcement Efforts to Ensure Compliance With FHA Guidelines
            and Standards
        The FHA: (a) Will use a scorecard system to evaluate and report
    lender performance to compliment current information available from
    Neighborhood Watch data (this was implemented in Mortgagee Letter 2010-
    03); (b) will enforce indemnification provisions through section 256 of
    the National Housing Act and cover those loans found to contain
    material errors in underwriting (this is anticipated to go into effect
    this summer after posting and comment periods); (c) asked for
    legislation to apply section 256 to require indemnification provisions
    for all direct endorsement lenders in order that all approved
    mortgagees assume liability for the loans originated and underwritten
    by them; and (d) will move to increase capital requirements from $250
    thousand to $1 million in 1 year, and then to $2.5 million after the
    final rule is published, and hold the lender responsible for the final
    underwriting.
        We support the FHA's decision to enhance risk management by, among
    other things, hiring a senior level risk management officer. Its
    decision to use a scorecard system will certainly assist it in
    uncovering problem companies. We note that the FHA has returned to
    conducting a 5 percent sample of lender endorsement reviews by its
    contractors. The number had slipped to 2 percent last year because it
    could not keep up with the volume. We also support FHA's request for
    legislative authority to create separate areas for the purpose of
    review and termination under the Credit Watch Initiative.
        The FHA's intent to strengthen enforcement of its indemnification
    provisions in section 256 is important to an overall enhanced
    enforcement strategy. OIG reviews of indemnifications found recovery
    was hampered by firms going out of business, thereby rendering some
    indemnifications worthless. In a recent OIG Inspection and Evaluation
    report, we found that the FHA serviced $187.5 million of
    indemnification and civil money penalty debt due from lenders for the
    period fiscal year 2005 through fiscal year 2008. The FHA collected
    $124.4 million or a 66 percent recovery rate (a collection rate that
    compares favorably with that of the Veterans Administration's Housing-
    Guaranteed and Insured Loans program and private collection agencies),
    however $8.7 million was uncollectable primarily the result of the
    debtor lender going out of business.
      --OIG Concerns Regarding Anti-flipping Waiver.--One change the FHA
            recently instituted this year was the decision to waive its
            anti-flipping provisions for 1 year. This action was not vetted
            with us through normal departmental clearances and we,
            unfortunately, had no opportunity to opine on the matter. While
            we understand the underlying reasoning to turnaround foreclosed
            properties in a quicker manner, we believe its imposition may
            open a new round of fraud-related flipping abuse and we would
            have liked to express our concerns or to press for more
            compensating controls.
          Current housing market conditions have created a bulge in HUD's
            real estate owned inventories that provide a ready source of
            properties for potential flipping schemes. To eliminate
            inventories, lenders and the FHA's own contractors often
            significantly discount the sales price from acquisition costs
            and appraisal values in a more normal housing market. The
            discounts provide the necessary margin for flipping
            opportunities, legitimate as well as illegitimate.
            Historically, the illegitimate flip involved a conspiracy
            between investors, loan officers and appraisers, allowing for
            the financing of the re-sale to be done at an inflated value,
            justified by market conditions of increasing housing values.
          When the anti-flipping rule had been originally promulgated, the
            FHA, primarily at the request of the OIG, sought to protect the
            MMI Fund from this vulnerability by prohibiting financing of
            property re-sales until 90 days had elapsed after the purchaser
            acquired the property. This waiting period effectively
            protected the FHA from flip abuses such as ``double escrows''
            and same day closings. The FHA states the waiver is designed to
            help reduce REO inventories. There is, however, a real risk
            that the waiver could serve as an invitation to investors
            willing to engage in abusive schemes or to try to skirt the
            rules. Indeed, we almost immediately saw discussions on the
            Internet among investors. Moreover, with the increase in the
            FHA's loan limits to greater levels, high-end, as well as
            traditionally low-end, properties could be targeted by the
            unscrupulous.
          While an attempt was made by the FHA to mitigate improper
            activity by requiring an explanation of any price increase over
            20 percent, as a law enforcement agency we know that it can be
            just as easy to fabricate documents for this as it can be to
            inflate the appraisal itself. We see little to deter the wide-
            scale flipping that occurred before the practice was stopped by
            a 90 day waiting period. While we recognize that keeping the
            status quo may delay closing, we believe that it is preferable
            to the alternative risk that such an action may unleash. A
            safer approach may be to limit the wavier to GSE-held
            properties or to those sold through State and local
            rehabilitation programs such as the Neighborhood Stabilization
            Program where closer scrutiny of rehabilitation costs can be
            made.
      --Enhanced Up-front Reviews.--We believe it is important that the FHA
            become more aggressive in the areas of monitoring and detection
            and analysis of red flags. We endorse FHA's Mortgage Fraud
            Initiative which seeks to use fraud detection technology to
            identify loans likely to contain fraudulent information. We
            have stated previously our belief that FHA needs to take
            advantage of commercial off-the-shelf pre-screening loan
            software. We have also long voiced our concerns that the
            process to become an FHA approved lender and correspondent was
            not rigorous enough to keep out the known bad actors. When the
            conventional markets started to decline, we expressed our
            concern that the same individuals and companies that
            precipitated the conventional market collapse would seek
            shelter in the FHA markets and use similar tactics that led to
            poor underwriting. We believe that this did in fact occur.
          In the case which I referred to earlier in this testimony
            regarding the New York company Lend America, Michael Ashley,
            who carefully did not place himself as a principal in the firm
            but as a business strategist, had had a long history of legal
            troubles (including with the HUD OIG) and was working as a top
            manager for one of the most rapidly growing lenders in the
            FHA's portfolio. Court filings show that Ashley fostered an
            environment that encouraged sales staff to originate FHA loans
            even when the borrowers were not eligible. Sales staff could
            make 10 times the commission on FHA loans than on standard
            mortgages and almost 4 times the commission than on a subprime
            loan.
          Mr. Ashley pled guilty in 1996 in Federal court to two counts of
            wire fraud relating to a mortgage scam at another company his
            family once owned. He was sentenced to 5 years probation and
            ordered to pay a fine and his father was sentenced to nearly 4
            years in prison. He appealed his suspension and debarment with
            HUD which later was reduced to a ban that expired in 1998. Once
            served, the FHA allowed him to resume operations. He then went
            to another firm that again HUD issued a notice of violation.
            After leaving that firm, he became affiliated with the most
            recent company. Although this case is still open, it is clear
            to say that the Federal court would not have permanently banned
            Mr. Ashley if it were not concerned about the current
            operations of his affiliated company. The President of the
            company was also debarred at the same time but for a specific
            period of time--in this case 18 months.
          This again calls for the establishment of a new mindset at the
            FHA to know your participants and not just the entity. It can
            be a very arduous process for the OIG acting as the
            investigators for the Department of Justice to work to get a
            court-ordered injunction. Mr. Ashley was quoted in the press as
            grumbling that the inspector general's office tried its best to
            constantly go after him and put him out of business. Although
            he was complaining to the judge at the time, his quote is
            revealing in that we had to keep following him from one dubious
            enterprise to another. It can be frustrating. If current
            regulations and statutes are impeding the FHA's ability to
            create a watch list or to know its providers complete
            backgrounds or to keep out permanently those from entering whom
            it does not want to participate in its program--it has a duty
            to let Congress know it needs legislative relief to enhance its
            administrative remedies (i.e., more permanent debarment
            authority, enhanced civil monetary penalty fines) in order to
            accomplish this goal. I do not believe in years past, when it
            was striving to increase its market share, that this was a
            goal. But I do believe that with the large influx of loans and
            lenders coming at the program recently it may now see how
            imprudent such inaction can be.
          A systemic weakness revealed in this case and others showed that
            FHA-related monitoring and oversight reports typically cited
            the lending firm without naming the individuals associated. The
            FHA had argued that without specific citations against
            individuals it could not link principals of a defunct company
            to those same individuals who would go on to form new entities.
            We see this type of maneuver too often and it makes the FHA
            program too easy a target for those intent on abusing the
            program. We recommend that FHA ensure in a more significant way
            that those individuals affiliated with lender entities (either
            as principals or as staff) are clear of indictment, conviction,
            debarment and suspension, limited denials of participation and
            unpaid Federal debt before applications are approved.
          The FHA should also consult with other HUD offices to determine
            whether applicants are subject to unresolved findings and
            ensure that application fees received are reconciled with the
            related applications. More importantly, if the Mortgagee Review
            Board concludes that a company has participated in improper
            activities and recommends removing the company's ability to
            participate in the FHA loan program, the Board also needs to
            recommend permanent removal of the principals and other
            individuals involved from any future FHA and HUD programs. I
            know in my conversations with the Commissioner this is an area
            on his radar screen.
          The Commissioner testified at his recent hearing, and I lauded
            earlier in my testimony, that over the last year the FHA has
            withdrawn 300 licenses from poor performing lenders. We believe
            that many of these could have been screened more vigorously at
            the time of their application before the consequences of their
            admission came to bear in terms of losses or resources applied
            to investigate and to prosecute. Only time will tell how many
            more significant failures are yet to be uncovered but we do see
            more on the horizon. We believe that more stringent
            requirements, in addition to enhanced net worth requirements,
            are needed to keep predatory firms and individuals from
            conducting FHA business.
          I would like to take the opportunity to also draw a parallel
            issue with the Government National Mortgage Administration
            (Ginnie Mae) approval process. We believe Ginnie Mae equally
            needs to strengthen its approval process. While the funding
            level for its reserves are in a better financial position than
            that of the FHA, it too has experienced increasing default
            rates and has suffered unusual substantial losses due to the
            failure of Taylor, Bean and Whitaker and Lend America. More due
            diligence needs to be done by Ginnie Mae in approving and
            recertifying its issuers and I look forward to seeing
            meaningful recommendations for statutory and regulatory
            improvements akin to what the FHA has recently proposed. It
            also has to shift its mindset away from a business-oriented
            mentality to let problem issuers remain in the program while
            they work out the details. This attitude toward the industry is
            no longer feasible unless it wants to absorb large losses. I
            will speak more to my concerns with Ginnie Mae later in the
            testimony.
          We commend the FHA for endeavoring to expand its enforcement and
            note that it has very much needed to implement a more robust
            early warning system that would alert FHA to precipitous sales
            price increases. We also see the need for FHA to enhance its
            Neighborhood Watch system (i.e., allow for tracking of
            information relating to loan officers, loan processors, and
            real estate agents) and the Credit Watch Termination
            Initiative.
      --Lack of Affirmative Certification Statement.--In this same vein, we
            would like to update the subcommittee on a matter we brought
            before you a year ago. At the time, I shared with the members
            an exhibit showing the current application form to become an
            approved FHA lender or Ginnie Mae issuer. I pointed out to the
            subcommittee that unlike the Ginnie Mae section which contained
            an affirmative statement that required the applicant to attest
            that they had not knowingly made a false statement and could be
            subject to applicable civil or criminal penalties, and despite
            the large volume of new applicants coming into the FHA program,
            the FHA certification and recertification inexplicably
            contained no such requirement. Even more puzzling is the FHA's
            response from the Director of the Office of Lender Activities
            to my recommendation in an audit of the lender approval
            process. The FHA stated it did not agree with the finding and
            stated that ``the OIG has not sufficiently demonstrated that
            because of its certification language FHA is unable to
            successfully take legal action against lenders violating its
            program requirements'' and requested its removal from the
            audit.
          The Department of Justice as chair of the National Procurement
            Fraud Task Force has recommended that all agencies put in
            language for grantees of Federal funds the requirement that the
            participant certify that the statements made in the application
            are true and correct and that it understands that any false
            statements made as a part of these certifications can be
            prosecuted.
    Requirements to Better Manage Brokers Such as New Rules for Audited
            Financial Statements and Adequate Capitalization
        OIG supports this initiative. We also believe that the annual
    financial statements for lenders lag too far behind to be useful. We
    believe there should be quarterly unaudited financial statements
    similar to the SEC's publicly-traded company requirement and suggest
    that there also be an effective review process of these statements.
    Billions of dollars flowing through the FHA are riding on the financial
    health of these firms. Timeliness of information is essential in making
    decisions and we would encourage such a change.

                               OPERATION WATCHDOG

        On January 12, 2010, FHA Commissioner Stevens and I jointly
    announced a new OIG initiative focusing on mortgage companies with
    significant claim rates against the FHA mortgage insurance program.
    This initiative was prompted in part by the Commissioner who was
    alarmed by the incidence of excessive default rates by a number of poor
    performing FHA lenders and reached out to the HUD OIG for assistance.
    Our office served subpoenas to the corporate offices of 15 mortgage
    companies in 11 States across the country demanding documents and data
    related to failed loans which resulted in claims paid out by the FHA
    fund. We identified these direct endorsement companies from an analysis
    of loan data focusing on companies with a significant number of claims,
    a certain loan underwriting volume, a high ratio of defaults and claims
    compared to the national average, and claims that occurred earlier in
    the life of the mortgage. These may be key indicators of problems at
    the origination or underwriting stages. The firms were not selected for
    indications of wrongdoing on their part but we will aggressively pursue
    indicators of fraud if they should be uncovered during the analysis. We
    are a principal member of the President's Financial Fraud Enforcement
    Task Force and this initiative reflects our commitment to seek
    information on red flags that may arise from data analysis.
        While we are still in the data recovery and analysis phase, and
    cannot discuss at this time the initial results of our review, we do
    believe that this initiative will continue. We will carry out our line
    of inquiry until we have conclusive results to provide to the FHA, to
    the Congress and to the American taxpayer. It is important to know for
    the long-term viability of the FHA program whether these skewed high
    claims and default rates are a result of a weak economy or if companies
    are ignoring, or even purposefully violating, FHA regulations. We want
    to send a very distinct message to the industry that as the mortgage
    landscape has shifted, we are watching very carefully, and that we are
    poised to take action against bad performers. The American taxpayer
    demands, especially after the lessons of the subprime collapse, that
    oversight and monitoring must be rigorously implemented. While we may
    disagree from time to time with some of the actions the FHA has taken,
    we both share a common resolve to preserve home ownership at the same
    time as protecting the American taxpayer from further economic
    instability.
        In an audit on Single Family insurance claims, we found that the
    Department received and paid claims on loans for which the lender did
    not show the borrower was able to make the required monthly payments,
    made the minimum investment in the property, and was creditworthy. It
    paid the claims and did not review the loan files for compliance with
    requirements, fraud, and/or misrepresentations. Our initial review
    under Operation Watchdog reinforces the concerns we found in this
    claims audit. The Department should review claims for eligibility and,
    if feasible, independently determine that loans comply with program
    requirements and seek, from lenders, recovery or adequate support for
    final costs associated with those claims.
        Loan Binder Retention.--One issue that has arisen in our reviews of
    these poor performing lenders is the ramifications of the prior
    administration's policy to allow lenders to maintain original records.
    Through the issuance of a Mortgage Letter in 2005, the FHA enabled
    certain direct endorsement lenders to endorse FHA loans without a pre-
    endorsement review and generally relieved those lenders from the
    responsibility of submitting loan origination case binders to the FHA.
    The Federal Bureau of Investigation (FBI) and the HUD OIG, vigorously
    opposed the FHA's directive (as did HUD's own General Counsel at the
    time) to allow lenders the ability to retain documents. As a law
    enforcement and auditing agency, we were concerned that such a
    relaxation of control would hinder our ability to gather information
    for evidence if documents were tampered with or destroyed. Further, the
    guidance allowed lenders to maintain the files for only 2 years after
    closure. Statutes of limitations run 5 years in criminal fraud and
    generally 6 to 10 years in civil fraud matters.
        Unfortunately, our fears expressed then in testimony and in a
    letter-writing campaign are indeed coming to fruition today. As we
    proceed with Operation Watchdog, we have had difficulty obtaining files
    from a number of these lenders including encountering instances of
    missing case files despite OIG subpoena demands. We strongly recommend
    that the FHA again revisit this directive to ensure information
    critical to the loan origination and underwriting process is available
    for detection of issues and/or potentially fraudulent activity. In a
    time when the American public demands our mortgage industry is free of
    waste, fraud and abuse, such a policy change is essential.

                            FHA FINANCIAL CONDITION

        The results of the latest actuarial study produced last fall show
    that HUD has sustained significant losses in its Single Family program
    making a once fairly robust program's reserves smaller. The study shows
    that the FHA's Fund to cover losses on the mortgages it insures is
    contracting. As of September 30, 2008, the fund's economic value was an
    estimated $12.9 billion, an almost 40 percent drop from over $21
    billion the year before. By September 30, 2009 the reserve level
    dropped below the statutorily mandated 2 percent requirement to 0.53
    percent. The Fund's economic value was $3.64 billion compared to the
    $685 billion of outstanding insurance in force.
        Since its inception in 1934, FHA has been self-sustaining and
    premiums paid to the fund have covered the losses due to fluctuating
    defaults and foreclosures. We testified last year that given the
    current economic conditions, it is critical that the assumptions used
    to derive the current estimate of the health of the fund be supportable
    and not overly optimistic. We stated to the FHA during our audit of its
    financial statement that the model embraced by the FHA should include
    the study of past and current delinquencies and the ultimate resolution
    as to cures or claims. The current model is designed for long term
    claim projections and is based on historical claims paid experience.
    Therefore, the model does not reflect recent delinquency development
    and lacks the corresponding adjustment to the claims paid. We
    recommended that the FHA expand its financial cash flow model
    validation to include seriously delinquent aged loans data, case level
    historical recovery data, and other leading indicators; and to track
    reasons for default and determine whether other economic indicators,
    such as unemployment claims, may be useful to support near term
    estimates for claim payments.
        An assessment of the first quarter of fiscal year 2010 shows some
    trends that merit examination. With FHA's greatly increased Single-
    Family insured volume (a 24 percent change from the prior year and
    currently at more than three-fourths of a trillion dollars in
    insurance) comes an increasing default and claims paid rate. Add to
    this an increasing inventory of real estate owned properties that are
    managed by the FHA--with a falling recovery rate that has FHA now only
    recovering slightly more than 40 cents on the dollar and a ``days in
    inventory'' average of close to 200 days--and the picture becomes more
    disquieting. A significant problem facing the FHA, and the lenders it
    works with, is the fallout from decreasing home values. This increases
    the risk of default, abandonment and foreclosure, and makes it
    correspondingly difficult for the FHA to resell its REO properties.
        Approximately 8.8 percent of FHA loans are currently in default
    (i.e., more than 90 days non-payment status, foreclosure or
    bankruptcy), an increase from the prior fiscal year to date. A major
    concern is that even as FHA endorsement levels meet or exceed previous
    peaks in its program history, FHA defaults have already exceeded
    previous years. Claim rates have also increased and though numerically
    still quite small, it must be noted that many of the new defaults are
    still in the pipeline. We may see increasing claim rates on the
    horizon. The Secretary and the Commissioner hope to stave off the
    consequences of this trend with new approaches to business, but the
    congressional and executive branch budget offices' disagree with the
    impact of these approaches.
        In our estimation, this only reinforces the importance for FHA-
    approved lenders to maintain solid underwriting standards and quality
    control processes in order for the FHA to withstand severe adverse
    economic conditions. Another extensive problem confronting the FHA has
    been its inability to upgrade and replace legacy (developed in the
    1970s and 1980s) application systems that had been previously scheduled
    to be integrated. The FHA systems environment remains at risk and must
    evolve to keep up with its new demands though there has been increased
    funding and new plans formulated. I know in my conversations with
    congressional staff that they are frustrated with the amount of
    resources expended and the pace with which such replacement plans have
    proceeded over the years.

                             INCREASED RISKS TO FHA

        Mortgage Fraud.--Last year during testimony before this is
    subcommittee, I highlighted a variety of traditional mortgage fraud
    schemes impacting both the FHA and the conventional loan market
    including schemes in areas such as appraisal fraud and loan origination
    fraud, and identity theft as well as new forms of fraud such as rescue
    or foreclosure fraud (to include equity skimming and lease/buy-back
    plans), bankruptcy fraud, and Home Equity Conversion Mortgage (reverse
    mortgage) fraud (to include schemes involving flipping, annuity sales,
    unauthorized recipients, and onerous fee payments/consumer fraud). As
    the Department of Justice recently testified, all types of mortgage
    fraud are on the rise and we are working closely with other agencies in
    the President's Financial Fraud Enforcement Task Force and as part of
    the National Mortgage Fraud Team. We currently have over 2,290 case
    subjects involving Single Family investigations. We have also recently
    created a more robust civil fraud enforcement initiative to assist the
    Department of Justice in enhancing civil mortgage anti-fraud
    prosecutions. For example, we recently assisted the Department of
    Justice in filing a complaint against Capmark Finance Inc, a large
    originator of HUD-insured loans, for making false statements in
    connection with applications used to acquire two nursing home
    facilities (a discussion of nursing home issues appears later in this
    testimony). The following represents a sample of a few of the criminal
    fraud cases we have recently pursued:
      --In Operation Mad House, we conducted an undercover investigation to
            deal with the problem of escalating mortgage fraud in the
            Chicago area that had consistently placed it as one of the top
            five geographic areas for fraud. We received allegations that a
            number of mortgage operatives were involved in loan origination
            fraud including the creation of fictitious bank statements,
            false employment and inflated appraisals and we targeted an
            organized group of real estate industry professionals at all
            levels. We tracked the inflated appraisal and phony origination
            as well as the closing proceeds and how it was distributed.
            This investigation resulted in 22 individuals in 9 separate
            indictments being charged with multiple counts of fraud and a
            spin off whereby 4 new subjects were indicted late last year.
            All told, 26 principals in the mortgage industry including
            attorneys, brokers, loan officers, loan processors, appraisers,
            recruiters, and accountants have been charged.
      --Earlier this month in Atlanta, three members of a reverse mortgage
            fraud ring were indicted by a Federal grand jury for altering
            real estate records, using fake documents, and posing as
            realtors in an abuse that took money away from qualified
            seniors. The defendants in this case faked required down
            payments by senior citizens to establish the equity needed in
            the home to qualify for the reverse mortgage. They did this by
            using bogus gift letters in amounts between $50,000 and
            $105,000 and using fake HUD-1 Settlement Statements reflecting
            the sale of non-existent assets closed by fictitious law firms
            to show the source of the required down payments. All the down
            payments were actually supplied by the defendants, not the
            senior citizens, to be returned to the defendants upon the
            reverse loan closings along with profits far in excess of the
            true sales prices of the properties. Such payments were
            disguised as seller proceeds or lien payoffs and all the
            mortgages contained fraudulently inflated appraisals.
      --In another reverse mortgage case, on April 13, 2010, in Kansas
            City, Missouri, the Jackson County Prosecutor charged an
            individual with financial exploitation of an elderly/disabled
            person and forgery related to a fraudulent HECM (home equity
            mortgage conversion) loan. Our investigation revealed that the
            defendant allegedly obtained a quit claim deed on a Kansas City
            property belonging to an elderly man suffering from Alzheimer's
            disease and subsequently took out a fraudulent reverse mortgage
            in the victim's name. As a result of the scheme, the defendant
            deposited, by means of a forged Power of Attorney, reverse
            mortgage proceeds into a personal bank account as well as
            obtained a loan against the victim's life insurance policy.
      --In February of this year, the former president of a mortgage
            company was sentenced in Federal court in California to 156
            months in jail, 5 years probation and ordered to pay almost $30
            million in restitution to victims for a fraudulent loan
            origination scheme that knowingly caused loan applications
            containing fraudulent documents to be submitted to various
            lenders for FHA insurance so that unqualified mortgagors would
            appear qualified. His actions caused over 900 fraudulent loans
            to be FHA insured and subsequently default resulting in a
            substantial loss to the program.
        Nursing Homes/Section 232.--The FHA insures mortgage loans (section
    232) to facilitate the construction and rehabilitation of nursing
    homes, intermediate care facilities, board and care homes, and assisted
    living facilities. It also allows for the purchase or refinancing of
    existing projects not requiring substantial rehabilitation. It insures
    lenders against the loss on mortgage defaults. As of the end of
    calendar year 2009, HUD had 2,327 projects with an outstanding
    principal balance of $14.6 billion. This represents close to a 36
    percent increase in projects receiving initial endorsements from the
    previous year. As we noted in last year's testimony, the current
    section 232 regulatory agreement does not prevent transfer of the
    Transfer of Need associated with the property; does not include
    receivables in any security documents (which is a significant asset to
    the properties and can limit HUD's loss when retained); and does not
    require a lessee operating the project to abide by the same
    requirements as the owner. This allows lessees to use project funds for
    non-project expenses to the point of default with no recourse.
        With such a vulnerable population involved, the OIG has been
    recommending for years in numerous audits and investigations that the
    regulatory agreement needs to be changed. This status has not changed
    since approximately the fall of 2006. It is our hope that this can be
    done expeditiously.
        Appraiser Oversight.--Our review of the FHA appraiser roster
    identified critical front-end weaknesses as evidenced in the quality
    control review and monitoring of the roster. The roster contained
    unreliable data including the listing of 3,480 appraisers with expired
    licenses and 199 appraisers that had been State sanctioned. In a
    further review, we found that HUD's appraiser review process was not
    adequate to reliably and consistently identify and remedy deficiencies
    associated with appraisers. The FHA's current Single Family insured
    exposure totals over $800 billion representing over 6 million in FHA
    insured mortgages. Inflated appraisals correlate to higher loan
    amounts. If the properties foreclose, the loss to the insurance fund is
    greater.
        With significant increases in volume and new responsibilities in
    the mortgage marketplace, and appraiser fraud a significant problem
    highlighted in national studies, we do believe it may be time for the
    Department to return to an FHA Appraiser Fee Panel similar to the one
    dismantled by statute in 1994. It is essential if the mortgage industry
    wants to overcome perceptions regarding its integrity and its role in
    the current economic crisis that it ensures true market values are
    correctly estimated. Such a move would relieve pressures on appraisers
    to return predetermined values and would change a system based on
    misplaced incentives. A study indicated that 90 percent of appraisers
    had felt pressure ``to hit the number'' provided (i.e., on the sales
    contract). The old FHA Fee Panel was rotational and guaranteed work as
    long as the appraiser met certain HUD requirements. As can be deduced
    from the many cases and problematic issues discussed in this testimony,
    inflated appraisals often are at the heart of the scheme or of the
    questionable arrangement.
        Late Payment Endorsement Requirements Changed.--Last year, we
    testified on results from a number of other key audits that have noted
    significant lender underwriting deficiencies, inadequate quality
    controls, and other operational irregularities. We spoke to an audit in
    which we analyzed the impact of FHA late endorsement policy changes
    affecting FHA insured loans. Unfortunately, this still remains an issue
    and bears repeating. On May 17, 2005, the Federal Housing Commissioner
    issued Mortgagee Letter 2005-23, which significantly changed the
    requirements for late endorsements for Single Family insurance. A
    request for endorsement is considered late whenever the loan binder is
    received by the FHA more than 60 days after mortgage loan settlement or
    funds disbursement, whichever is later. The Mortgagee Letter removed
    the prior 6-month good payment history requirement for these loans and
    provided an additional 15 days grace period before the current month's
    payment was considered late.
        We conducted a review of this rule change and found that, although
    FHA asserted the change did not materially increase the insurance risk,
    FHA did not perform a risk analysis to support this determination. Our
    review of the performance of loans from seven prior OIG late
    endorsement audits (i.e., Wells Fargo, National City Mortgage, Cendant,
    etc.) found a three and one-half times higher risk of claims when loans
    had unacceptable payment histories within the prior 6 months. Since the
    issuance of the Mortgagee Letter, we found that the default rate for
    loans submitted late had increased and was significantly higher than
    the default rate for loans submitted in a timely manner. The HUD
    Handbook itself acknowledged the risk of unacceptable payment histories
    by stating that ``Past credit performance serves as the most useful
    guide in determining a borrower's attitude toward credit obligations
    and predicting a borrower's future actions.''
        In 2006, we recommended that HUD rescind the Mortgagee Letter until
    appropriate rule changes could be designed that were supported by an
    adequate risk assessment. The FHA disagreed with our audit report and
    declined to implement the recommendations. We referred this matter to
    HUD's Deputy Secretary who concurred with our recommendations on
    February 27, 2007 and ordered the FHA to immediately rescind the
    Mortgagee Letter.
        Initially, the FHA agreed to implement the Deputy Secretary's
    directive but failed to take action, instead taking efforts to again
    dispute our audit results. This continued until April 2008, when the
    Deputy Secretary's office again intervened, at our request, and
    instructed the FHA to publish the proposed rule change in the Federal
    Register reinstating the 6 month payment history requirement for late
    endorsements. In June 2008, the proposed rule change was published in
    the Federal Register for comment.
        Although the final rule rescinding the Mortgagee Letter was never
    published, FHA nevertheless closed the audit recommendation. In a
    memorandum dated March 18, 2009, we informed the FHA that, given the
    amount of time that had lapsed and the absence of a corrective action,
    the OIG would report this in our next Semi-Annual Report to Congress.
    Given the current mortgage crisis, concerns over losses to the
    insurance fund, and requirements for transparency, we believe that this
    is an important recommendation that should not be dismissed.
        Capturing Key Information in, and Upgrading, Data Systems.--Another
    major concern, touched on previously in testimony, is the integration
    and upgrading of FHA legacy systems which bears repeating since our
    original premise has not been acted on. While there has been much
    discussion of an overall plan, and what particular types of systems are
    needed to go forward, it would be useful at this juncture to reposition
    the discussion to ascertain which data should actually be collected,
    and maintained, in the system in order to control the new demands
    placed on the program. Our audit work and our investigative ``Systemic
    Implication Reports'' transmitted to the Department over the years,
    makes it clear that, at a minimum, we need the system to track
    identifying information on key individuals involved in the transaction
    such as the originating loan officer, loan processor, and real estate
    agent.
        The loan officer, for example, is central to the origination of the
    loan where due diligence should be exercised on the application
    material (i.e., credit scores, appraisal information, etc.). It would
    be useful to record the person's name and corresponding identifying
    information (i.e., license) in the same system the FHA uses to track
    underwriter and appraiser details. This will allow the FHA and OIG to
    key in on a vital part of the loan process--origination--where fraud
    typically can occur. If the system could also capture information on
    other key players such as the real estate agent for the seller and
    buyer, and other parties to the transaction, that too would be helpful
    for purposes of increasing integrity in the processes in our
    investigative and audit functions. It would also be valuable to the FHA
    in strengthening its risk management and monitoring efforts.
        Further, it could be beneficial for the FHA to participate more
    significantly in a unified lender oversight consortium with Fannie Mae,
    Freddie Mac, the Federal Deposit Insurance Corporation (FDIC), and
    Ginnie Mae in order to, among other things, create standardized forms
    that could produce common machine-readable data fields with consistent
    information as well as to leverage existing data systems.
        Earlier in the testimony, we described the TBW case and the
    weaknesses that it exposed in the FHA and the Ginnie Mae programs. As
    we are discussing the need for Federal entities to come together in a
    more unified manner, we would also like to highlight an issue that came
    to forefront in this case. Ginnie Mae mortgage-backed securities (MBS)
    are the only MBS to carry the full faith and credit guaranty of the
    United States. If an issuer fails to make the required pass-through
    payment of principal and interest to MBS investors, Ginnie Mae is
    required to assume responsibility for it. Typically, Ginnie Mae
    defaults the issuers and assumes control of the issuer's MBS pools.
        The FDIC temporarily froze the Ginnie Mae custodial bank accounts
    at Colonial Bank as well as the bank's mortgage payment lock box
    account. As a result, Ginnie Mae was forced to make an approximately $1
    billion pass-through payment (principal and interest) to investors.
    There needs to be better coordination between the FDIC and other
    Federal Government agencies so that losses absorbed because of its
    action can be mitigated by more cooperative and forward-thinking
    behavior. We are also very concerned with the extent that future bank
    failures and bankruptcies could have on the Ginnie Mae program. The
    FDIC stated in a recent report that over 200 banks are predicted to
    fail this coming year.
        The other disconcerting aspect of the TBW case involves the fact
    that Fannie Mae became aware of some unsettling practices at TBW, made
    it replace some loans and then stopped doing business with it. TBW then
    sold their servicing rights to another company and started doing
    business with Freddie Mac. Then, down the line, Ginnie Mae accepted
    pools from TBW. It appears that Fannie Mae's only interest was self-
    interest. A number of years ago, I testified before the House of
    Representatives regarding a case called First Beneficial in which
    Fannie Mae did not tell other entities of its discoveries at First
    Beneficial and then, by its silence and inaction, caused losses to the
    Ginnie Mae program. There needs to be mandated requirement of
    notification and penalty for failure to notify or we will continue to
    see instances of fraud cases being perpetrated on unknowing
    securitizers.

                              CONTINUING CONCERNS

        Though there have been incremental increases in funding to the FHA
    for a variety of staffing and system needs, including a planned
    increase of over 100 FTEs from fiscal year 2010 to fiscal year 2011, we
    believe there remains a need for either more, or a proper placement of,
    resources to the FHA in light of the dramatic percentage of increased
    loan volume and of its increased relevance to the eventual
    stabilization of the conventional mortgage marketplace. We would like
    to see more personnel dedicated to the Home Ownership Centers, which
    are responsible for monitoring loan origination and servicing
    practices, setting underwriting standards, and overseeing the
    disposition of HUD-owned properties, as well as to headquarters systems
    and technology until the IT infrastructure can be put in place in order
    to manage the program changes, and away from such activities as
    marketing since FHA has already proclaimed it wants to retreat from
    such a prominent place in the marketplace.
        We still remain concerned that increases in demand to the FHA
    program are having collateral implications for the integrity of Ginnie
    Mae. Like FHA, Ginnie Mae has seen an augmentation in its market share.
    For example, in December 2009, its Single Family issuances totaled
    nearly $40 billion and it had a remaining principal balance of over
    $880 billion. By comparison, its balance in December 2007 was exactly
    one-half at slightly over $440 billion. It too has stretched and
    limited resources to adequately address this increase.

                                   CONCLUSION

        Mortgage industry behavior was a precipitating factor in the
    present economic turmoil. As the Department has written about in its
    assessment of the foreclosure crisis, industry participants encouraged
    borrowers to take riskier loans with a high risk of default due to the
    high profits associated with originating the loans and packaging them
    for sale to investors. These lenders had little or no risk in the loan.
    There were many factors that made it possible for the mortgage market
    to make so many miscalculations and missteps. A primary factor was
    development during this period of the growth of the asset-backed
    securities market, which shifted the primary source of finance from
    Federally regulated institutions to mortgage banking institutions that
    acquired funds through the broader capital markets and were subject to
    much less regulatory oversight.
        Clearly the regulatory structure was not changing rapidly enough to
    keep with the pace of growth. Fraud may have had a significant
    contribution and analysis shows that there was a lack of adequate
    underwriting controls by lenders to oversee brokers' activities. The
    general regulatory structure did not work to provide adequate oversight
    to oversee the origination and financing of mortgages. The consequences
    were high risk lending and a resulting surge in delinquency and
    default. The lessons of the conventional side of the industry should
    not be lost on that of the FHA and Ginnie Mae programs as they too are
    now experiencing increasing delinquencies, defaults and claims. And it
    should not be lost on those tasked with rectifying the vulnerabilities
    that clearly came to the foreground regarding the lapse in oversight of
    the Fannie Mae and Freddie Mac Government sponsored enterprises.
        The conventional mortgage market is going back to the basics. It is
    embracing full underwriting standards including accurate verifications
    of income, employment and appraisal; it is demanding adequate cash down
    payments from borrower's own funds; and it is seeking rational debt-to-
    income ratios. Observations of current historic contagions of risk
    suggest that, in the marketplace today, yesterday's lower 600's FICO
    score is now today's higher 600's FICO score and that FHA's floor may
    be set too low. Nevertheless, this has to be weighed against the FHA's
    traditional mandate to assist homeowners that are low to moderate
    income and who may have poorer FICO scores. It also suggests that even
    high FICO borrowers with significantly distressed properties still
    default because of the rational choice to prevent years of principal
    payments just to break even. This makes it all the more important to
    have an active risk management department to monitor and rapidly
    develop policies as the traditional ``black-boxes'' adapt to the
    ``new.''
        Finally, we remain concerned that, although not within the control
    of the FHA, the fact that our nationwide mortgage lending system is
    fragmented with separate players embracing differing requirements
    creates opportunities for waste, fraud and abuse that a more unified
    approach could potentially ameliorate. We have not seen enough progress
    or initiative to try to overcome the vulnerability that lapses in
    coordination among Federal entities creates. Of one thing, however, we
    are sure--those intent on unscrupulous behavior know full well how to
    exploit the weaknesses in the system and to profit from such disorder.
    We do very much look forward to the implementation of many of the
    Secretary's efforts designed to mitigate many of the difficulties we
    have been highlighting in the last number of years and to working with
    him and the Department to try to improve programs so increasingly
    relied on by our citizenry during these trying economic times.
        As Chairman Murray has stated, stabilizing and improving the
    housing market is critical to the Nation's economic recovery but FHA's
    participation must be done in a way that it can effectively manage the
    loans that were made during the height of the housing boom so that it
    can provide a much-needed boost of liquidity to the market. We thank
    you for the opportunity to relay our thoughts on these important issues
    based on the body of our work and of our experience, and greatly
    appreciate the activities of the Congress to protect the Department's
    funds from predatory and improper practices and to ensure an effective
    response on oversight at this critical time.

                                    MMI FUND

        Senator Murray. Thank you very much, Mr. Stevens.
        Let me just start. This is your first appearance before our
    subcommittee, but FHA has been the subject of annual hearings
    since I have become chairman here. And together, Senator Bond
    and I have sounded the alarm on FHA and the solvency of the MMI
    Fund, and because of our concern, we did provide FHA with
    additional resources both for IT improvements and for increased
    staffing in order to give FHA the tools that they needed to
    protect the agency from fraud and risk and make sure that
    taxpayers never have to subsidize these mortgages.
        So I am, obviously, very concerned that FHA's capital
    reserve account has now fallen below the mandatory 2 percent
    required by Congress. In your testimony, you outlined several
    reforms that are designed to recapitalize the reserve fund and
    protect the solvency of the MMI Fund, some of which you said
    are already in place.
        But I would like you to share with us what is the current
    state of the MMI Fund and how does it compare with the
    projections that were set forth in the audit that Congress got
    last fall.
        Mr. Stevens. Thank you for the question.
        Let me just start with the--we released to you the first
    quarterly report of the fiscal year to Congress a month and a
    half or so ago. The second quarterly report will be released
    here in the next few weeks, so you will get some detailed
    information on the status of the MMI Fund.
        In particular, the current total reserves are actually
    higher than we reported when we announced that we had fallen
    below the 2 percent statutory level for the capital reserve
    fund. So today we are sitting at about a little over $32
    billion. When we reported in the fall, it was about $31
    billion. So they have actually increased.
        I will tell you that there are a couple of key drivers that
    will impact the fund the most. The first are, obviously, the
    real foreclosure numbers that will impact the real actual
    reserves in the fund. We are actually behind what was
    forecasted for the year at this point in time, but we did
    forecast that we would have 125,000 total defaults for the
    fiscal year, and given the trend line, I believe we still will
    be on track to hit the 125,000 number, based on the trend line
    that we are seeing now. But I do not expect us to exceed that
    number.
        The other impact to the fund will be the severity rate or
    the recovery rate, however you look at that. While we have some
    concerns in that area, the current recovery rates are generally
    remaining on track with what was forecasted.
        So in total right now, I would tell you that the overall
    dollars in the fund are growing, not shrinking, but we still
    remain on track with everything that was projected by the
    actuary when we released it in the fall.
        Senator Murray. Do you know when you are going to hit that
    2 percent level?
        Mr. Stevens. The forecast for the 2 percent level was
    forecasted to be in 2013, I believe. As you know and as I would
    strongly caution, there are so many moving parts in the market
    that go into these forecasts, that we could hit that sooner or
    later, obviously depending on market conditions.
        One example I would give you. In our actuarial forecast,
    our home price index expected roughly a 9 percent drop in home
    prices in the first quarter of the 2010 fiscal year. That has
    not been realized. However, there is still enough instability
    in the market that we do not know when the new actuarial study
    is done for the next upcoming fiscal year, what the home price
    forecast will look like. And if stability is on the horizon, we
    could end up having a better view of when the capital reserve
    will be hit. If the forecast is worse, it could put in jeopardy
    our existing forecast, and those are critical components that
    we are watching closely.

                               RECOVERY OF LOSSES

        Senator Murray. You noted in your testimony that most of
    the expected losses are the results of mortgages from previous
    years, and while you are limited in your ability to effect the
    performance of older loans obviously, you can hold lenders
    accountable for losses on FHA mortgages that were improperly or
    fraudulently underwritten. How successful have you been in
    recovering losses from some of those mortgages?
        Mr. Stevens. I think this is a real challenge, part of
    which is there are some limitations to what FHA is allowed to
    do. Fortunately, the inspector general has some additional
    authorities which have been implemented. I would tell you at
    this point that some of the measurements of that are the number
    of institutions that we have either withdrawn approval from or
    suspended completely. As was noted, there were 300 institutions
    in the fiscal year. There have actually been another 200 on top
    of that, in total well over 500 institutions that are no longer
    allowed to originate loans in the FHA.
        Our ability to go after performance on previous book years,
    borrowing fraud or misrepresentation or violations of the law,
    continues to be somewhat limited, and that is why we are asking
    for additional approvals to go after institutions whether they
    are DE lenders or LI lenders to be able to require
    indemnification at the institution level and that will help
    greatly. I do commend the inspector general.
        Senator Murray. That will take legislation.
        Mr. Stevens. That will take legislation.
        But addressing fraud issues has been a significant concern
    of mine, and we have a lot more work to do going forward.
    Obviously, we made some great visibility with companies like
    Taylor, Bean & Whitaker, shutting them down in the first few
    weeks while I was on the job, and Lend America, which really
    required partnership with the inspector general to get done.
    And these were stand-out institutions, but what people do not
    see are the little institutions committing fraud like the
    reverse lender in Hawaii who was taking reverse mortgages out
    for seniors and investing them in their own annuity investment
    fund which they owned and operated. Well, we got them too.
    That's just not a big headline-maker.
        And so it is a big job and it requires a lot of work. And
    that is why the first investment we are making on the
    technology front is in the fraud tools area. We released our
    RFP last week and it is a 30-day process. So we have bids
    coming in right now for that work, and that will be in the
    market hopefully as quickly as possible.

                                  GSES REFORM

        Senator Murray. Well, as we now work to reform Wall Street
    and the financial sector and prevent any future housing crisis,
    it is really clear that we have to address the future of the
    GSEs. During the housing boom, Fannie Mae and Freddie Mac kind
    of lost sight of their primary mission of facilitating
    liquidity for safe and affordable mortgages. Instead we saw
    their zeal for profit drive them to take some unnecessary
    risks.
        So we know reform is necessary and there has to be a clear
    plan for ending this unlimited taxpayer assistance for Fannie
    and Freddie. I think we need a very thoughtful approach as we
    do this. We have to protect our American taxpayers, but
    thoughtful deliberation cannot turn into delay or inaction. And
    we need to see the administration recognize the urgency of
    reforming GSEs.
        So I wanted to ask you, when can we expect to see the
    administration's plan for reforming the GSEs?
        Mr. Stevens. Senator, what I would respond by saying is to
    reiterate what you said in your opening statement, that this
    needs to be thoughtfully done with care not to disrupt the
    housing market, and we completely agree with that.
        We strongly agree with the need for reform. We all
    recognize that the housing system and the role of the GSEs or
    whatever structure exists going forward will not be the same as
    it was coming into this crisis. That is clear.
        And we support Senator Dodd's recommendation strongly to do
    a study with recommendations early next year.
        So to that extent, everything we do now has to be very
    carefully balanced with the need not to disrupt the markets
    because the GSEs are playing a critical role in the issuance of
    mortgages and mortgage-backed securities to keep the market
    stable under the current format.
        Senator Murray. Well, any kind of radical change in the
    role of the GSEs could also mean a dramatic change for FHA and
    Ginnie Mae, and I am concerned about the prospect of FHA taking
    on significant increase in new business, given all the current
    challenges we have.
        How do you see FHA fitting into this debate?
        Mr. Stevens. Without question, the needs in the future of
    the housing finance system under any normal view would have to
    consider all the participants that in some way, shape, or form
    have involvement by the U.S. Government, whether that is
    Federal Home Loan banks, FHA, Ginnie Mae, Freddie Mac, Fannie
    Mae, and whatever other solutions ultimately get considered.
        So the fundamental belief we have for FHA is in isolation.
    FHA plays a critical role, as it always has since the
    Depression, when it was first created. It is a countercyclical
    role. It has been consistent in the marketplace when other
    financing vehicles have not been available. Its role is too big
    today. It is unhealthy to run at 30 percent market share as it
    currently does. The emergence of private capital to be
    sustainable in a recovery market is absolutely the most
    important step to help FHA's role in the market begin to shrink
    back to more normalized levels.
        Senator Murray. Thirty percent is too much. We all agree
    with that. What do you think the market share for FHA should
    be?
        Mr. Stevens. You know, I think targeting a market share for
    FHA is something that gets any institution in trouble, but I
    will say that 2 percent was also an unhealthy level. That was a
    sign of subprime mortgages and option ARMs and private label
    securities wrapped by rating agencies and sold into various
    debt obligations to unknowing investors. That was an unhealthy
    world as well.
        So if you look back through normal times, going back
    through the decades of FHA, during traditionally stabilized
    markets, it typically runs in the 10 percent range, maybe low
    teens, and that is sort of the range where I think FHA would be
    shown as a healthy participant in the mortgage context.
        Senator Murray. How long would it take us to get from 30
    down to 10--low teens?
        Mr. Stevens. Well, I think that is why the dialogue is so
    frustrating, as you said in your opening comments, and both of
    you have articulated this concern about even decisions around
    the GSEs. We are in a very unique period now. Freddie Mac,
    Fannie Mae, and FHA are consuming about 95 percent of the
    mortgage finance system for single family housing, and we need
    private capital to emerge. The first sign, as you said, Senator
    Bond, in your comments, was that--or Senator Murray. I cannot
    remember whose comments--who made the point. But as the Fed
    steps out of buying mortgage-backed securities out of the
    market which have kept interest rates low, that range of
    movement in mortgage spreads will be a clear indication of the
    private sector's interest in getting back into the mortgage
    markets. And we will see. We have a variety of thought leaders
    that we have talked to.
        Senator Murray. So we do not know what the withdrawal of
    these supports is going to be. Yet, we are all kind of looking
    out there. Do you have a guess what it is going to do to----
        Mr. Stevens. Guessing is a dangerous game. I have been in
    this industry for 3 decades.
        Senator Murray. How about a thoughtful----
        Mr. Stevens. Here is my thoughtful view, Senator. I
    actually do not expect mortgage rates to back up as
    significantly as some of the extreme negative views are when
    the Fed steps out. That will be the first sign of health. The
    first-time home buyer tax credit ends here. The last
    applications are at the end of the month. It expires at the end
    of June completely. That will be an interesting move because
    2.2 million Americans filed for tax benefits under the First-
    Time Homebuyer Tax Credit Act. And so that will be a next test.
        Redwood Trust has already issued one mortgage-backed
    securitization in the private sector in the last couple of
    weeks. They are getting ready to do another one. The trade
    levels of those trusts we are looking at very closely.
        Each of these are indicators to me as to what will happen.
    Having been through a lot of--I lived in the oil patch crisis
    in Colorado and had branches in Missouri at the time many, many
    years ago working for a bank, and I do recall the impacts of
    going through that kind of cycle. You know, it takes confidence
    for investors to return. Private capital will come back when
    they believe there is strong regulation, that the rules of the
    road are clear, and that they believe that home prices are past
    the point of severe instability. There will always be
    variations, but stability is what people will invest in. The
    markets do not like instability whether it is in the equities
    markets or in the housing market.
        Senator Murray. Thank you very much.
        Senator Bond.

                                   FHA LOSSES

        Senator Bond. Thank you very much. Your questions and your
    responses raised a whole bunch of interesting areas.
        Let me start off. What are the current losses that FHA is
    realizing under the MMI Fund? How does it compare to last year,
    and what is your projection for the future?
        Mr. Stevens. If you give me just a moment, I would like to
    be as accurate as possible.
        Senator Bond. Okay.
        Mr. Stevens. So through the end of March, we have actually
    seen current delinquency rates have dropped for January--or
    excuse me--for February and March, we saw delinquency rates
    drop fairly significantly, 15 percent, over where they were in
    December. So while we are seeing delinquency rates drop, we are
    seeing foreclosures, actual, real foreclosures increase. And so
    what we expect to have occur for the year is 125,000
    foreclosures with an expected severity rate on each of those
    losses of somewhere in the range of 50 percent. And so, the
    specific losses to the fund at year end--and George, I do not
    know if you know the number that is in the MMI.
        Speaker. No, but like you said earlier, the capital
    resources have been increasing.
        Mr. Stevens. Yes. I mean, the reality is our capital
    resources have been increasing. So let me step back. We reserve
    very differently than a bank does. A bank under a Basel
    standard will hold for loan loss reserves for anywhere from 2--
    sometimes 1 year to a 3-year period they will hold for loan
    loss reserves. So the FHA's reserves function is we hold
    capital in reserves for a full 30 years' worth of losses. Much
    of that loss expectancy will not hit until peak default
    periods, 2, 3, 4, or 5 years into the amortization of a
    mortgage.
        So when we reported that we were below our 2 percent
    capital reserve, it was not our total capital, Senator. It was
    our secondary loss reserve, which is an additional loss reserve
    above our primary reserve account. And the two combined reserve
    accounts are actually in excess of about 4.5 percent of total
    capital. The 2 percent reserve requirement is based on the
    secondary account, which contributes to that. That is what had
    fallen below 2 percent, but our primary reserve account
    actually continues to grow simply because we are not seeing the
    losses that were fully expected when the actuarial audit was
    done.
        So without trying to sound evasive, the reality is that we
    are not seeing the real losses as yet. Our actual reserves are
    growing. The forecast is that under the existing book of
    business, we will exhaust the entire amount down to that
    remaining capital reserve of .53 percent. That forecast assumed
    that we do not originate any new loans. So as we continue to
    originate new loans of such high quality, the fund is actually
    rebuilding faster with better assets offsetting that loss
    reserve.
        Senator Bond. Have you got a number? How many billions will
    you experience in loss this year?
        Mr. Stevens. In this year?
        Senator Bond. You must have some forecast.
        Mr. Stevens. Do we have a forecast, George?
        Speaker. We are not forecasting.
        Mr. Stevens. Yes. So we forecast the reserve number. We do
    not forecast this current year number. But, Senator, if it
    would be all right, I would like to give you a more thoughtful
    answer.
        Senator Bond. Yes, we would like to know because we need to
    get a handle on this somewhere. We have got reserve accounts
    and reserve accounts are growing, but losses are out there.
    There is no question that there are losses out there, and we
    need to have a handle on where all this is going.
        Mr. Stevens. Senator, if I may, I would tell you that we
    would expect by year end that the fund would be either about
    where it is now or higher. The actual reserves will be about
    where they are now. What it will impact, unfortunately, from a
    budget standpoint will not be our actual losses. It will be
    what is forecasted in what we have to reserve against. So those
    will be very different numbers in terms of how we look at it.
    But I will submit to you a more thoughtful response to that
    question.
        Senator Bond. Okay. You mentioned that you are still
    confident in the official $5.8 billion estimate or whatever it
    was that OMB came up with. CBO came in with a $1.9 billion in
    receipts. What is the difference? How do we resolve this? We
    are kind of looking at hither and yon, but we need to have
    where we are rather than hither and yon.
        Mr. Stevens. So the challenge is both analyses are based on
    views on various performance characteristics. The difference in
    the CBO score, in particular, can be mostly isolated into two
    variables. One is they assumed much higher prepayment speeds on
    our portfolio than was in the OMB estimate. Interestingly,
    prepayment speeds are a derivative of interest rates. If
    interest rates drop dramatically, you get much higher
    refinancing and loans will pay off earlier. If interest rates
    remain stable or rise, you would actually expect prepayment
    speeds to be slower. And so depending on that forecast, you are
    going to have an impact to prepayment speeds, that combined
    with default rates.
        So that is one variable that is very different, and I would
    question the prepayment speed assumptions, but I am sure they
    are based on rational logic.
        The other one is the severity rate. So on your losses, you
    know, what is going to be percent of loss on each actual unit
    of real estate that goes into foreclosure. And the CBO score
    expects higher severity rates than the OMB score does. In that
    particular measure, I would say there is probably a little
    truth to both, and we will look at that very closely.
        But it is interesting that the prepayment speed issue--if
    you assume you are going to have losses and worse severities
    over the long term, you would assume that the market is
    worsening. My own internal logic would say that if interest
    rates are dropping, you are probably going to have increasing
    volumes of new home sales which may actually level or spur
    recovery.
        So while there may be some natural conflict there, I think
    both are based on rational input. Both expect positive receipts
    from FHA in either case. The amount differs because of those
    two variables.
        Senator Bond. You said in your first element was the
    prepayment, and that if interest rates go down, prepayment goes
    up. So you get better returns. But I do not see how, with the
    problems we have, which are too much like Greece's problems
    with our debt with an unending series of spending and declining
    tax revenues, somewhere those interest rates are going to go
    up. And I do not see--even though the Federal Reserve has been
    accommodative, perhaps overly accommodative, I do not see any
    prospect that interest rates are going to get lower. Are you
    predicting lower interest rates rather than higher?
        Mr. Stevens. I am not predicting lower interest rates. I
    think we would have to ask the CBO what variables they assumed
    for faster prepayment speeds on our portfolio than the OMB view
    was, or quite frankly, our own independent actuary had as well
    similar prepayment speeds to OMB.
        Senator Bond. I tell you what. We probably are not going to
    hash this out.
        Mr. Stevens. Yes.
        Senator Bond. I have got a staff that loves to get into
    those things, and maybe they can work with your staff and we
    can see if we can find some way to resolve those. And we will
    ask the inspector general and your actuary and everybody to get
    together and have a whole lot of fun working those things out.
        Mr. Stevens. That sounds great.
        Senator Bond. If you do not mind.
        Mr. Stevens. That is wonderful.

                                FINANCIAL REFORM

        Senator Bond. Now, while we are asking easy questions, as
    you have indicated and the chair has indicated, as you know, we
    are debating a financial regulation bill on the floor, and from
    what I have learned--and granted, some of it comes from the
    book, The Big Short--the problem of shaky subprime mortgages
    was exacerbated in Wall Street by creating mirror derivatives
    based on the subprime securitized mortgages. And these--I call
    them computer game shadow derivatives--magnified the impact. In
    other words, Wall Street was making a whole bunch of money on
    derivatives that mirrored the subprime but these were not
    actually based on the subprime loans themselves. But when the
    subprime loans went down, all of the value of those
    derivatives, which for some reason were successfully marketed
    to people who were willing to go out on a limb--is that an
    accurate assessment of what happened in the financial system?
        What kind of regulation would be necessary to rein in the
    risk that the excessive Wall Street manipulation of derivatives
    will not impose in the future the same kind of serious risks to
    the financial marketplace we have seen not just in America, but
    we managed to poison a lot of the world's economic systems?
        Mr. Stevens. Which question was easier, this one or the
    last one?
        Here is just a view that I would articulate, that the
    financial reform bill is critical. The risk retention
    component, just as one example, clearly under any of the
    amendments that are being offered, would require risk retention
    for those kinds of programs. Looking back at how these products
    were created and manufactured and being in the private sector
    and watching that occur, there was clearly a lack of alignment
    on incentives, short-term gain based on models that were not
    tested, and there was no recourse or skin in the game for that
    creation.
        I think to that end, whatever ultimately comes of the
    amendments on sort of vanilla programs or things offered by the
    Landrieu amendment or some of the other amendments that have
    been offered, I think one of the most critical values that will
    come of financial reform, if it gets passed, which I strongly
    encourage, is that without question, no one is carving out the
    products that you address. I think to that end, having to hold
    capital against loss is clearly--and you made that point about
    capital reserves that we are requiring at an institutional
    level. In my opinion, capital reserves on risk assets, putting
    a risk-based weighting against those, is the clearest way to
    require that skin in the game and interest in making sure that
    your evaluations of risk are appropriate to the real risks that
    you ultimately see.
        Senator Bond. I have run over my time.
        But the SEC has now come in full force in going after
    these. But it is my understanding that they or--I think they
    are the ones that should have been regulating these. And I
    heard a great Texas country band called Asleep at the Wheel
    recently and I was thinking about how that might be a good
    moniker for what went on in the regulatory agencies. Is the
    regulation of risk an SEC function? What agency should be doing
    this?
        Mr. Stevens. Without going back to the past and the
    multiple regulators----
        Senator Bond. Okay. Going forward, who ought to----
        Mr. Stevens. Going forward, one of the things that I think
    is also important about the financial reform bill is the
    creation of a CFPA, having a single regulator to oversee
    mortgage products that are directed to consumers. You know, I
    think to some degree you have articulated a very important
    point. When you have multiple regulators, specific ownership of
    specific risk attributes may become murky. And I am not sure
    that is the case in the past. I have personal opinions, but I
    know that Secretary Donovan and Secretary Geithner would have
    clear statements to that effect. But I would say that that is
    another value proposition in the financial reform bill to get
    this through, is to identify a single regulator responsible for
    regulating mortgage products.
        Senator Bond. Thank you, Madam Chair.

                         MAKING HOME AFFORDABLE PROGRAM

        Senator Murray. Thank you. Thank you very much.
        About a year ago, the administration launched their Making
    Home Affordable to help homeowners with foreclosure. One of the
    programs is this HAMP, Home Affordable Modification Program,
    was designed to make mortgages more affordable, lower interest
    rates, spread mortgages out, now by writing down principal. We
    were told that that program was supposed to help 3 million to 4
    million families by 2012, but as of the end of March, only
    about 230,000 homeowners had received any kind of permanent
    modification, which is far short, I think, of expectations.
        Can you tell us at what rate do we need to see permanent
    modifications occur in order to reach that 3 million to 4
    million goal?
        Mr. Stevens. So if I may, I would just like to back up to
    the initial program and kind of where we are today. When the
    program was first rolled out, we all know that adoption was
    slow in the program. Bank readiness to manage the HAMP program
    was not developed at a pace that was acceptable to the
    administration.
        In July of last year, both Secretaries Geithner and
    Donovan, asked in what became the infamous fly-in where all the
    CEOs of the banks involved in HAMP flew into Washington, and a
    lot of pressure was put on to get the program up and going and
    the announcement of the scorecard at that point.
        From July until the end of the year, there was a rapid
    ramp-up in trial modifications. Unfortunately, a lot of the
    initial modifications done by some of the institutions were
    modifications first without getting the appropriate
    documentation to ensure that they would be sustainable into
    permanent mods.
        And so what we may see is a relatively higher cancellation
    rate of that initial population.
        Since then, through a learned process, we have transitioned
    to where documentation and qualification is now going to be
    done up-front at the trial modification period, and we believe
    that there will be a high transition from trial to permanent
    mod on all mods going forward.
        So I just wanted to put that out there. We just this week
    had another fly-in with the executives of all the institutions
    in HAMP and reiterated and went through the details of the new
    process. I left with the feeling of confidence that at least
    that portion is done. We will not have that high fallout.
        I would say that we still have well over a million
    homeowners saving $500 a month in trial modifications, of
    which, to your point, the 230,000 have converted to permanent
    mods. We have 108,000 more that have accepted a permanent mod
    and are waiting to sign documents. You will see some rapid
    activity over the next 60 days because the institutions all
    involved in HAMP have pledged to clear out their pipelines of
    backlogs from that initial phase over the next couple of
    months. So we will see a big transition there.
        Senator Murray. So by the end of the summer, we will see
    better numbers?
        Mr. Stevens. I think we will see some interesting numbers
    for the next couple of months, as we see the backlog of
    nonpermanent modifications either go permanent or go into
    portfolio modifications that are not part of HAMP or perhaps
    pure cancellation. So there will be some noise there as they
    clean out the pipelines.
        We will then see, I believe, a regaining of activity on
    trials and permanence. That, combined with our enhancements to
    HAMP, which we just recently announced and the FHA program we
    believe will remain on track to hit the 3 million to 4 million
    homeowners that the administration committed to by 2012.
        Senator Murray. All right.
        At home I am hearing from a lot of counselors and
    homeowners about the problems that they are facing in getting
    permanent mortgage modifications. It is very frustrating. In
    fact, it is actually anger, especially when we hear about the
    profits that a lot of these banks are making in large part due
    to Federal taxpayer assistance. Since a lot of these banks have
    received direct or indirect Government assistance, is there
    anything the administration is doing to make sure that they are
    working in good faith now to assist these troubled homeowners?
        Mr. Stevens. There are several things that have occurred
    and I would be eager to follow up with either of your offices
    with additional information, but let me just say a couple of
    things.
        One is, I think you are all aware we have the Making Home
    Affordable Web site. We also have the Making Home Affordable
    hotline where consumers can call in, if they are not getting
    the response they think they need from their banks, and we have
    teams that will triage those and respond to them fairly
    quickly. So they do have a direct, non-institution channel if
    the point of frustration comes. So that is a backstop at the
    point where they are probably already frustrated.
        On the front end, that was one of the----
        Senator Murray. My front desk in my Seattle office would
    tell you that that is not working very well.
        Mr. Stevens. The hotline is not working?
        Senator Murray. Yes.
        Mr. Stevens. Okay, that is good feedback. I would love to
    hear more about that. We actually talked about that in our
    meeting this week.
        You know, the other issue that has gone on with the HAMP
    program is the banks did not staff up. People would call
    initially. They could not get someone on the phone. They would
    send in packages. We have heard stories of lost documents. We
    have done several things to try to address that environment.
        Senator Murray. Banks not returning phone calls forever.
        Mr. Stevens. That is right. And I get a lot of personal e-
    mails and phone calls from just consumers that I have to get
    involved with, just as I am sure your offices do, and their
    frustration level is very high.
        There are several things we are working on in the banks.
    One, from a readiness standpoint, they are clearly better off
    today than they were even 60 days ago. So we are hopeful that
    will happen; that they are onboard. We have made them all
    designate a czar or a head of the HAMP program within their
    institutions that is solely accountable for HAMP and has the
    authority to make decisions around HAMP. That was a directive
    of the meeting this week.
        Senator Murray. Will we know who those people are so we can
    direct our constituents to them?
        Mr. Stevens. I will work with that office, and we will try
    to make sure that list is made public for you.
        Senator Murray. If it is just one more phone number that
    they call that they cannot get to, it is not going to be very
    helpful.
        Mr. Stevens. Right, I recognize that.
        This is a directive. So we have asked them to identify that
    individual, make it clear. We want to assemble who the head of
    that is, and we are going to have a much increased frequency of
    meetings between the Treasury Department and HUD to meet with
    these heads for all the institutions to make sure they are
    staying onboard with the HAMP process.
        We have changed documentation standards. We have done field
    checks. We have gone out and done individual field visits with
    each of the institutions to investigate their process. We are
    sharing best practices.
        But without question, the frustration is real. The lack of
    activity and readiness was absolutely there. They were not
    ready. They continue to get ramped up and onboard from an
    operational standpoint. And then there are a lot of issues in
    just getting access to the homeowners, having them understand
    the paperwork involved from the trial modification to
    transition to the permanent modification.
        So all of these are real challenges, Phyllis Caldwell, who
    is heading up the office for Treasury, is a great resource and
    is very focused on it on a full-time basis solely on HAMP to
    try to make sure that these problems are resolved, but without
    question, I mean, quite frankly this was a huge program that
    was implemented. It has never been done before. The banks did
    not get ready quick enough. We have all collectively learned
    about what was not working through the process. I think a lot
    of----
        Senator Murray. Well, I guess from my point of view, I want
    to know that the banks are working to do this rather than doing
    everything they can to make it not work or stall it or not get
    involved.
        Mr. Stevens. We agree, and we made that point. I can assure
    you that the meeting that was held this week, which was
    attended by mostly CEO levels of all the major lenders--
    Assistant Secretary Herb Allison was very direct on that
    subject, as were all of us at the table about their needing to
    be ready to stop these customer responses, these consumer
    responses that are so frustrated. And I have personally spoken
    to them myself as well, and I feel without question their
    frustration and pain. They have committed to going there. They
    all acknowledge there are still going to be some missed--just
    because of the vast number of people, but we need to do as much
    as we can to eliminate that frustration.
        If it would be okay, I would actually like to have Phyllis
    Caldwell draft a response for you on this question----
        Senator Murray. I would really like that.
        Mr. Stevens [continuing]. To lay out with specificity what
    is going on so that if there are questions or concerns you have
    from there, we can respond further.
        Senator Murray. Okay, and to give her our feedback that
    this is a huge frustration for a lot of our constituents right
    now.
        Mr. Stevens. Yes. And she knows it and we have had meetings
    with many Senators and Members of the House on this issue. We
    all get it. We all know the score now, and the pressure has to
    be on these banks to get ready to view this as the same
    priority as they would originating a new loan through their
    sales force. They have pledged their commitment. They re-
    pledged it at a meeting that we made them fly in for this week.
    It was a very stern discussion on the subject. So we share your
    concern. We share the frustration, and it is a full court press
    from both Secretary Donovan and Secretary Geithner.
        Senator Murray. It may take more than being stern.
        Mr. Stevens. It might.
        Senator Murray. Also in my last few seconds of my time,
    there is an FHA HAMP program which applies only to FHA
    mortgages, and that is the one you have just been talking
    about. Okay.
        And if you want to, please comment on that, and I will turn
    it over to Senator Bond.
        Mr. Stevens. Yes. The HAMP program I was referring to was
    not FHA. It was the broader HAMP program, but that does include
    the FHA numbers. The FHA HAMP numbers are actually very small.
    They are in the low thousands, and I think the reason for that
    is FHA has a loss mitigation program that has been so
    successful and has been in the market for many, many years. We
    have just a greater experience with dealing with loss
    mitigation, and to that extent, we have addressed over 600,000
    in-distress homeowners in the last year on our own outside of
    HAMP. And I would be glad to report the resolution numbers on
    those, if you have interest.
        Senator Murray. That would be good.
        Mr. Stevens. Okay.
        Senator Murray. Thank you.
        Senator Bond.
        Senator Bond. Thank you, Madam Chair. That was an area that
    I wanted to explore, and you have done that, and we thank you
    very much, Commissioner, for your comments on it.
        Let me ask in a related area. It is my understanding
    Freddie Mac was directed to buy back troubled loans from
    investors, taking the losses on the mortgage. It seemed to me
    that that policy was designed to bail out lenders on their
    risky investments but did little to save a home with a risky
    loan for the homeowner. Am I missing something here? You want
    to keep the investors happy, but if they are losing their skin
    in the game, should we be bailing them out?
        Mr. Stevens. I apologize. I do not have the specifics on
    that. I will tell you that in meetings with Freddie Mac and
    Fannie Mae, which we have had, this week, the vast majority of
    their efforts are not there. The vast majority of their efforts
    are in working on the HAMP initiatives and modification and
    HAFA, the refinance program, and very little on the buybacks. I
    could guess, but I would rather not guess for you and get
    specifics back on what assets they bought. I do not know the
    size of it.

                HUD INSPECTOR GENERAL EFFORTS ON FRAUD AND ABUSE

        Senator Bond. We are interested in getting a handle on this
    because, as you have indicated, there are so many moving parts
    in this that we want to try to get a handle on as many as
    possible.
        We talked about the fraud and abuse efforts. Is there a
    joint oversight program with Justice, Treasury, HUD inspector
    general, and other agencies? You talked about 365 cases have
    been referred to the Mortgage Review board. Do you know how
    many of those cases have--question No. 1, is there a joint
    effort? Question No. 2, how many criminal indictments? Do you
    know offhand?
        Mr. Stevens. Senator, I would probably defer to the
    inspector general who is playing a huge leadership role in the
    fraud joint task force. So I would encourage----
        Senator Bond. Maybe we could invite Mr. Donohue to come to
    the table, if you do not mind, just briefly on this one.
        Mr. Donohue. First off, may I thank you very much. I would
    be remiss, Senator, if I did not respond back to your first
    comments. I am so grateful to you for your support. I would be
    remiss in not mentioning Senator Mikulski and Senator Sarbanes
    and Senator Murray as well and John Kamarck of your staff and
    Megan from yours, Senator Murray.
        This is not possible. You mentioned seller down payment
    assistance. I think if seller down payment continued, we would
    be having a different discussion here today. It is a result of
    your leadership that that is possible in support of that
    effort.
        We are very heavily engaged with the Department of Justice.
    We are involved in a major Federal fraud task force that I sit
    in with Attorney General Holder and his deputy staff. We had
    three summits recently: one in Miami, one in Detroit, and one
    in Phoenix, Arizona. And we had a chance to have people come in
    from the industry, people who are victims and talk about some
    of their concerns and also the law enforcement community as
    well.
        The reason I mention that, getting back to Senator Murray's
    concern, you were talking about the counseling which is very
    important to you. One of the things I do want to mention to you
    when you spoke to that is what we are finding and the concern
    to us is that we are finding fraudulent counseling going on----
        Senator Bond. Oh, really.
        Mr. Donohue [continuing]. Where people are going back out
    and being contacted and being approached to give certain fees
    of sorts. And of course, that person disappears in the night or
    continues on the fraudulent activity. That came out in all
    those three summits very actively. So it is not just the
    challenge of--the statements that the Commissioner made, but
    also we are seeing a significant amount of fraudulent activity
    as well.
        As far as our cases are concerned, we have about 2,400
    civil investigations on right now with regard to cases specific
    to the FHA fraud activity. We have created a civil fraud
    initiative. And you mentioned about the other agencies working
    together. I was on the National Bank Fraud Working Group back
    in the RTC days. And I think what we are seeing now is a
    collaboration of law enforcement working together.
        I think it is a great challenge, sir. I think that these
    regulatory agencies talking to each other, working with them
    collectively--I have spoken to the Commissioner about setting
    up a consortium with Fannie and Freddie and the other GSEs. The
    best practice. I would like to see standard forms applying with
    regard to this mortgage activity. I have spoken to that in my
    testimony.
        So we are very active. We are working well with regard to
    law enforcement agencies and, like yourself I share the same
    sentiment. I would like to see a lot more people in orange or
    red suits as much as I could on these cases.
        Senator Bond. I know by the fall of 2008, I was following
    very closely my home area. The Eastern District of Missouri
    U.S. Attorney had initiated three major actions with numerous
    parties involved. I have not had any follow-up or heard how
    many criminal prosecutions related to mortgage fraud. I do not
    know if they were all FHA--have been initiated, how many have
    been concluded with a successful conviction. Do you know that?
        Mr. Donohue. Well, sir, my semi-annual report I was just
    given, indictments and information from the period of April 1,
    2009 to September 30, 2009, 1,182 indictments and information;
    convictions, pleas, pretrial diversions, 847.
        Senator Bond. Good. That number needs to be publicized
    because that is the greatest prophylactic to let people know if
    they are going to do it.
        I was concerned to hear your comments about fraudulent
    counseling. A few years ago, Senator Dodd and I created a $180
    million foreclosure counseling effort. I talked with people all
    over my State who were involved in the counseling, and they
    were having some success, minimal success. But the one thing
    they emphasized to me was foreclosure counseling is not good
    enough. There has got to be pre-purchase counseling before
    somebody buys a home. We have to have an independent and maybe
    not a fee-based counseling program set up to sit down with the
    family, potential home buyer, explain to them what their
    obligations are, and look at their finances to see if they can
    buy a home.
        Commissioner, obviously you have got some thoughts on that.
        Mr. Stevens. Yes. We share the concern. In fact, I have
    been hosting meetings with industry participants to talk about
    financial counseling particularly related to managing personal
    finances and mortgage finances before you make the decision to
    buy a home. We have had the help of members of the Housing
    Policy Council and others come in and show us and make
    recommendations of how we might go down that path. It is very
    complicated to institute a whole new way of doing pre-purchase
    financial counseling as opposed to what most housing counselors
    are doing today, to your point. Given the huge volume of
    foreclosures in the market, most housing counselors are
    overwhelmed with homeowners in distress. So the ability to
    transition into being able to have the time and scope to do
    pre-purchase sort of financial literacy becomes more
    challenging.
        The other thing is most of the agencies in Washington that
    deal anywhere in the financial area have some sort of financial
    literacy classes that are available on their Web site, and so
    there is some opportunity to consolidate those together. But we
    are working on that right now and hopefully will be able to
    report back on that sometime in the future.
        Senator Bond. Well, thank you. I think that is very
    important. Senator Murray and I are concerned a whole lot about
    what happens in Washington State and Missouri. And the people
    on the ground are the ones who really need to do it. In our
    State, NeighborWorks has been a very good partner. And we look
    forward to seeing those efforts expand and perhaps more
    assistance is needed in that pre-purchase counseling.
        Mr. Donohue, I am disturbed to hear that there are
    fraudulent counselors. But again, the best place for them is in
    Government-restricted housing. I wish you the best in assuring
    their placement in that kind of facility.
        Mr. Stevens. It is interesting. The President even spoke
    about this when he first came into office. But if you watch TV
    and see someone helping someone walk away from their home, I
    think that was one of the things covered on the recent piece on
    strategic defaults. They called themselves counselors. They
    charge a couple $1,000 to counsel a family in distress, and
    they are not authorized. Free counseling is available, and
    getting that information to distressed homeowners is the big
    challenge.

                                   GSE LOSSES

        Senator Bond. One quick question. I do not know if you have
    the answer to this. On the GSEs, do you know how much of the
    losses are coming from their old books of business as opposed
    to the new business like foreclosure mitigation efforts like
    HAMP?
        Mr. Stevens. I recently just looked at some of their
    performance data, and Senator, like with the FHA portfolio the
    vast majority of these losses are on older books, 2006, 2007,
    and 2008 are just terrible portfolios. They are bad for FHA and
    they are bad for Freddie and Fannie. And it is those portfolios
    that we are going to be all experiencing losses on and paying
    the price for several years more to come.
        Senator Bond. Thank you very much. I hope that the new
    business does not catch up with the old business. Thank you
    very much.
        I have a commitment I have got to make, but I appreciate
    very much your testimony. We have got a lot of interesting
    follow-up that we are going to ask the staff to do.
        Thank you, Madam Chair.
        Senator Murray. Thank you very much, Senator Bond. And I
    would just say I have a financial literacy bill that we start
    teaching basic financial skills back in our elementary schools.
    You and I probably are the few here who remember our banking
    Fridays at school where we learned how to balance our
    checkbooks and how to read basic financial statements and that
    is lacking in education today.
        Senator Bond. The only thing I would add, I took a very
    high-level law school course on banking and bankruptcy. And I
    was having trouble with my checkbook, and the instructor said
    my checkbook never works out right. So I always take the bank's
    view from it.

                                      HAMP

        Senator Murray. A prevalent opinion today.
        Moving on, thank you very much, Senator Bond.
        I wanted to go back for a second to the HAMP program.
    Originally it was focused on reducing interest payments and
    spreading mortgages. The administration has changed that,
    focusing on principal write-downs and relief for unemployed
    borrowers and an expansion of the existing refinance program.
        In order to participate now, lenders are required to write
    down principal and make sure that a borrower's mortgage is
    affordable, as measured by total mortgage debt, including both
    their first and second liens. As I talked about in my opening
    statement, these mortgages do come with additional risk, and
    $14 billion in TARP funding has been set aside for that
    initiative.
        Commissioner Stevens, how much additional risk do you
    expect to find these refinanced mortgages to carry?
        Mr. Stevens. Senator, the way we are looking at the program
    is the allocation of the $14 billion in TARP funds will be to
    cover the incremental risk exposure on these loans. While we
    have modeled various paths of the loans that come in, the
    variability will be on seeing the actual loans as they are
    originated. So, for example, as you are aware, we allow a
    combined loan-to-value where a second lien holder can
    subordinate up to 115 percent. It is estimated that one-half of
    all negative equity loans in America have a second lien, but we
    do not know how many of those will come into the FHA portfolio.
    Those that have subordinated second liens are going to have a
    higher risk weighting on our portfolio, as we see them come in,
    than those that do not.
        Likewise, the FICO score distribution can have a wider
    range, and if the FICO distribution ends up being much lower on
    the scale, they will have a higher risk weighting than those
    that do not.
        So we have the $14 billion allocation from Treasury. We do
    not, but that will be assigned to offset the claims from the
    lenders. As the loan comes in, we will be evaluating that
    volume coming in. If it skews off the path, we have the ability
    in the program, as announced, to stop it with little notice.
    And our Chief Risk Officer, Bob Ryan, is tasked with managing
    that overview. We will have the data of all the loans coming in
    as they are being insured. So we will just watch the volume
    coming in, the distribution of all those attributes that can
    cause risk, what risk rating we assign to those, and we will
    stop the program at a point in time if the risk seems greater
    than what we originally foresaw.

                                  DEFAULT RATE

        Senator Murray. What is the default rate that you are
    assuming?
        Mr. Stevens. Without giving specificity--and the reason why
    I am trying to avoid is there is a wide range of default
    expectations. There is a high default rate, which would be
    something similar to what we are seeing on some of our worst
    books of business from the past years. There are some estimates
    by some economists who think this is actually going to be a
    better performing book than even a standard refinance because
    the borrower incentives to come into the portfolio are that
    much higher. So to that extent, we know we have a bucket of
    risk mitigation dollars from TARP that will be available to the
    lenders to pay their claims, and that is why it is important to
    watch what comes in because the distribution could be from very
    low to very high.
        It is kind of like stochastic modeling where you are
    looking at a variety of outcomes. We just know that we are
    going to use those real loans coming in to identify what path
    they are coming in on, and that will help us forecast as to
    when the funds will be exhausted.
        Senator Murray. How much of the $14 billion will actually
    cover the costs that are expected to result from additional
    risk and how much will be used to provide incentives to lenders
    or help extinguish second liens?
        Mr. Stevens. The only incentives that are being provided at
    all are incentives for second lien extinguishment. There are no
    servicer incentives provided in the FHA solution, and there are
    no first lien principal write-down incentives whatsoever. So
    the private sector will bear all the costs of writing down the
    principal balance and refinancing that mortgage into a new FHA
    mortgage. So the only variable on the $14 billion will be the
    second lien, and without again trying to be evasive, because of
    the various paths and what our expectancy is on how many of
    these will have second liens versus those that will not, we
    have a wide range. I would say for a simplistic view, we expect
    the second lien extinguishment portion to be a relatively small
    percentage of the $14 billion because it only pays pennies on
    the dollar anyway, and the vast majority of the $14 billion
    will be to offset risk to the FHA portfolio.
        We have pledged to report these numbers and share them with
    a high level of frequency with the Department of the Treasury.
    We are both going to be reviewing the actual assets coming in
    carefully together because our primary focus is not to add
    incremental risk to the FHA portfolio through this initiative.

                               STRATEGIC DEFAULTS

        Senator Murray. In my opening remarks, I mentioned the
    concern I have about strategic defaults, people who are
    defaulting because they are just making that decision to do it
    not because they are personally not able to make their mortgage
    payment. I am concerned that this could provide some serious
    instability in the market, and I wanted to ask you, is there
    any good data today on how serious this problem is or something
    that you are seeing with FHA-insured mortgages?
        Mr. Stevens. We have done a great deal of research into the
    strategic default area. There is no history on this. Strategic
    default is a new anomaly for this recession. And as I am sure
    you are concerned and I am concerned--I was interviewed on 60
    Minutes on Sunday on this subject. There is a significant moral
    hazard that will pervade the mortgage finance system for
    decades to come should this become a real problem.
        Based on estimates we have gotten from independent third
    party analysts which include the GSEs' view as well as
    economists like Mark Zandi, it is estimated that real strategic
    default risk is in the single digits as a percentage of overall
    foreclosures. So somewhere between 7 and 9 percent are sort of
    the current estimates of what are real strategic defaults.
        Now, the issue ends up being that negative equity is highly
    concentrated in five key States, the sand States plus Michigan.
    And in those States--in Nevada, which is the worst hit, for
    example, if you look at all negative equity loans, which is
    somewhere between 11 million and 15 million loans that have
    negative equity, about one-half of those are either second
    homes or investor properties, and some small percentage of
    those are also super-jumbo, million-plus dollar homes. So when
    you isolate back down to the rest of the borrowers that have
    negative equity, you break that down into two categories. The
    greatest category will be those--our default risk will be those
    that are in distress that have lost their jobs, had income
    curtailment.
        Laurie Goodman of Amherst Securities suggests that negative
    equity could contribute 1 percent to the unemployment rate
    because people just cannot accept a job somewhere else because
    they cannot get out of their home without going into
    foreclosure. That is where the focus of our efforts is.
        But our solution with FHA does allow an investor, if they
    think a strategic defaulter is going to walk away, to write
    down their principal too and put them into a refinance, if they
    will stay. But we do need to track this carefully over time and
    see, to the extent this becomes a greater hazard because the
    ramifications, as I am sure you would agree, go far beyond just
    the foreclosure risk to those communities. It will affect how
    loans are priced in the future if that is considered a real
    risk.
        Senator Murray. And the other question I wanted to ask you
    about is the so-called shadow inventory. We obviously have an
    oversupply of housing right now, and there is a concern that
    with all the newer imminent foreclosures that are coming or
    banks that are holding repossessed homes if those start
    flooding back on the market, what kind of impact that would
    have. Could you talk a little bit about how big perhaps the
    shadow inventory----
        Mr. Stevens. Again, this is another where there is great
    research on it. In fact, I have a couple of good studies I
    would be glad to send to Megan or however you want me to get it
    back to you that have been done independently.
        The shadow inventory is real. And the in-foreclosure
    numbers are clearly higher than the actual foreclosure numbers.
    I know that in the FHA portfolio and I see it in the numbers at
    both of the GSEs. So there are a lot of reasons why that has
    been built up, part of which is just the overwhelming volume
    that hit many of these counties that have to process
    foreclosures, moratoriums placed in various States or areas
    where the courts put a freeze or bans on foreclosures for a
    period of time. Clearly the loss mitigation efforts by FHA
    through HAMP, even portfolio modifications have also slowed the
    process down, and banks are obviously being much more
    aggressive to try to delay the foreclosure if they can find any
    way to work out a borrower's situation in most cases. And so
    the inventory of in-default is clearly rising.
        Now, there are some estimates that based on some home price
    appreciation forecasts, even modest ones, that a good
    percentage of those foreclosure problem cases could be resolved
    just by some slight improvements to unemployment and some
    slight improvements to home values, in other words, that they
    are close enough to the line that they could back into an
    affordability with some involvement on either forbearance or
    modification efforts that are being done today.
        But it is still--without question, the numbers are large.
    At FHA, for example, our in-foreclosure numbers are about
    double what they were a year ago in foreclosure, but our actual
    foreclosures are not double of what they were a year ago. That
    is why, even though we are behind on actual foreclosures today
    based on our forecasts, I expect them to rise based on what I
    am seeing in this shadow inventory that is coming in.
        So we are looking at the data very carefully. And again, I
    would be glad to share at least some independent looks that I
    may have available with your office.
        Senator Murray. I would really appreciate that very much.
        With that, I want to thank both of you, especially
    Commissioner Stevens, for your input today. It has been very
    valuable.

                         ADDITIONAL COMMITTEE QUESTIONS

        There will be questions submitted by a number of our
    subcommittee members. We will leave the record open in order to
    have you respond to those.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                  Questions Submitted by Senator Patty Murray

                                   FHA RISKS

        Question. As we have discussed, CBO recently came out with its re-
    estimate of the receipts that FHA will generate from mortgages insured
    in fiscal year 2011. The result is a loss of $4 billion in anticipated
    receipts. This is not the first time that CBO had disagreed with OMB's
    assumptions for receipts. Do the current models appropriately account
    for risk?
        Answer. FHA spends a great deal of time and effort studying the
    credit risk of its insured portfolios. The valuation models used for
    the single family insured portfolio have been developed over a 20-year
    period and capture all of the essential factors needed to value a
    national portfolio. Those include borrower credit quality, downpayment
    rates, house price changes, and interest rate movements.
        For its scoring of the fiscal year 2011 budget, the CBO did not
    have a similar credit risk model for FHA. They are in the process of
    building such a model for scoring the fiscal year 2012 budget. CBO
    also, but not unlike OMB, prefers to err on the side of conservative
    judgments, especially when there is uncertainly involved. The nature of
    any disagreements on the value of FHA loan guarantees generally comes
    down to uncertainty with respect to future housing market conditions.
    There is no right answer. There are only informed judgments, and
    persons of goodwill can differ markedly in their preference for some
    risk-adjustment factor in forecasting.
        The direct impact of larger economic risk adjustments in a budget
    forecast is to lessen the expected budget receipts generated from the
    FHA insurance programs, and thus lower the overall receipts the
    Congress has when formulating a budget. The indirect impact is to
    increase the probability that, in future years, there will be
    beneficial budget re-estimates for the affected cohorts of loan
    guarantees, and lessen the probability of adverse re-estimates.

                         FHA PRIORITIES FOR INVESTMENTS

        Question. As I mentioned in my statement, improving the information
    systems at FHA are critical. As you know from coming from the private
    sector, the systems at FHA are outdated and are in some instances
    opening FHA to unnecessary risk. Last year, we provided HUD with
    significant resources to invest in IT systems. This included funding
    for immediate fraud detection and mortgage fraud tools as well as
    longer-term investments. How are you prioritizing these IT investments?
        Answer. With respect to prioritization for Combating Mortgage
    Fraud, fiscal year 2010 funds are being used to address a broad range
    of risk and fraud management efforts within the Department. FHA has
    worked diligently to put in place contract vehicles which provide
    access to industry leading tools and professional services that will
    greatly enhance the Department's capabilities related to fraud
    detection/prevention and risk mitigation. Specifically, we are focused
    on the following three functional areas:
      --Counterparty Risk Management Functionality
      --Analytical Consulting Services for risk and fraud tool evaluation
            and selection
      --Consulting and Contracting Services for Loan-level File Review
        Through the acquisition process, HUD has focused on services that
    address the most critical and immediate areas of need within FHA to
    reduce the likelihood of insuring fraudulent and high risk loans,
    detect trouble spots among product types, improve targeting methodology
    for loans selected for review, significantly improve counterparty due
    diligence and review, and aggregate key information to make informed
    and reasoned decisions across the organization. To the extent feasible,
    these services are designed to have applicability across the FHA
    enterprise and may well reduce total organization contract expenditures
    on duplicative tools and services. However, the short-term application
    of this contract vehicle will be for the Single Family portfolio with
    downstream usage envisioned for multifamily and hospital financing.
        With respect to prioritization for longer-term FHA IT investments,
    the use of the Transformation Initiative funds for IT purposes requires
    detailed IT planning per Congressional requirements. Our modernization
    objectives align with the FHA IT Strategy and Improvement Plan (FHA IT
    Plan) submitted to Congressional committees in August 2009. As
    articulated in the FHA IT Plan, with many, if not all, of Housing's IT
    systems being old and outdated, our priority is to transform and
    upgrade FHA's infrastructure in line with modern financial services
    organizations. This initiative is being designed and planned to
    leverage the specific components of the Risk and Fraud initiative as
    they become a reality for FHA. This is how all of the Transformation
    work comes together. Tools selected through the Combating Mortgage
    Fraud Initiative will fit into the portions of the architecture that
    house aggregated capabilities for FHA. In addition, counterparty level
    information, required by the Risk and Fraud initiative, will flow into
    the front end of the FHA Infrastructure data area and provide valuable
    insight throughout the insurance lifecycle.
        Question. How quickly do you think you can make these IT upgrades?
        Answer. FHA has worked closely with internal (e.g., OCIO) and
    external (e.g., GAO, OMB) organizations to create measurable 6-, 12-,
    and 18-month deliverables for the FHA Transformation work. While our
    project planning materials indicate that this initiative will be a
    multiyear effort that spans longer than an 18-month timeframe, the
    initiative has been crafted to ensure that measurable value is
    delivered in as short a timeframe as possible.

                             NEW SHORT SALE PROGRAM

        Question. In the midst of all of the attempts being made to keep
    families in their homes, the administration recently announced its
    plans to implement a program to facilitate short sales. Through these
    sales, lenders and borrowers consent to take a loss by selling a home
    below the mortgage balance owed in order to avoid foreclosure. How much
    would this initiative cost?
        Answer. As this is an initiative led by the Department of the
    Treasury, it would be more appropriate that these questions be directed
    to that agency for response.
        Question. As with all of the housing programs, this would be a
    voluntary program, and lenders already have the ability to do short
    sales. Why do you believe that the relatively modest amount of
    incentive payment that would be offered will be enough to increase the
    number short-sales so that it has a real impact on the housing market?
        Answer. As this is an initiative led by the Department of the
    Treasury, it would be more appropriate if this question was directed to
    them for response.
        Question. Under this new program, participating owners would be
    required to sell their home if an offer is made at a pre-determined
    price. Under the proposal, this price would be determined by Real
    Estate agents. Given the inherent subjectivity of home value
    determinations, there is a concern that this program could be open to
    fraud and conflicts of interest. What protections will be put in place
    to mitigate these risks?
        Answer. As this is an initiative led by the Department of the
    Treasury, it would be more appropriate if this question was directed to
    them for response.

                      HOME AFFORDABLE MODIFICATION PROGRAM

        Question. One of the problems with HAMP has been the capacity of
    servicers to process the claims. Do you think that servicers have the
    capacity to manage a significant increase in short sales?
        Answer. As this is an initiative led by the Department of the
    Treasury, it would be more appropriate if this question was directed to
    them for response.

                              SUBCOMMITTEE RECESS

        Senator Murray. Again, thank you so much, both of you, for
    your participation today.
        With that, this hearing is recessed, and this subcommittee
    will hold its next hearing on Wednesday, May 19 at 3:30 on the
    fiscal year 2011 budget request for the Washington Metropolitan
    Area Transit Authority.
        [Whereupon, at 11:09 a.m., Thursday, May 13, the
    subcommittee was recessed, to reconvene at 3:30 p.m.,
    Wednesday, May 19.]

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2011

                                  ----------

                            WEDNESDAY, MAY 19, 2010

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 4:09 p.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray and Mikulski.
        Also present: Senator Cardin.

                 WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY

    STATEMENT OF HON. PETER BENJAMIN, CHAIRMAN, BOARD OF
                DIRECTORS

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Good afternoon. This subcommittee will come
    to order.
        Our apologies for being late this afternoon, we are having
    votes on the floor and could not get here in time. So I
    apologize to all of our witnesses and all those who are here,
    but we are here and ready to go.
        And this afternoon, we are holding a hearing on the
    President's budget request for the Washington Metropolitan Area
    Transit Authority [WMATA]. We are going to be hearing testimony
    from Senator Cardin. He is going to be joining us here in just
    a few minutes.
        We will have two panels. The first panel following Senator
    Cardin will include the Chairman of WMATA Board of Directors,
    Mr. Peter Benjamin, and Mr. Richard Sarles, the Interim General
    Manager.
        The second panel will consist of three witnesses: Ms.
    Jackie Jeter, who is the president of Local 689 of the ATU; Mr.
    Jack Corbett, director of MetroRiders.org; and Mr. Francis
    DeBernardo, chairman of the Riders' Advisory Council.
        I want to welcome all of our witnesses at this time and
    really appreciate your being here today.
        Metro has often been called the jewel of the Washington, DC
    area's transportation system. It is a web of rail and bus lines
    that reaches into almost every neighborhood across the region.
    On a typical work day, it carries passengers on more than 1.2
    million trips, making it the second-largest heavy rail and
    sixth-largest bus transit system in the Nation.
        Its trains and buses cross two States and the District,
    offering mobility, reducing congestion, and reducing air
    pollution. For those neighborhoods clustered around its
    stations, it is a proven engine for economic development. Its
    difficulties--management, financial, and especially safety--
    have been deeply troubling to this subcommittee, which have
    long been a champion of public transit and strong supporter of
    Metro.
        In the past year, 13 people have died in 4 separate
    accidents at Metrorail, including 8 passengers and 5 employees.
    All of these accidents were preventable, which is a tragic
    indictment of management and the agency's safety culture.
        Like many other transit systems around the country, Metro
    faces a severe operating budget shortfall, and its Board of
    Directors is considering significant fare increases that are
    required to restore the system's financial footing. Given the
    need to also replace much of Metro's aging rail fleet, parts of
    which date to the 1970s, and upgrade its track signaling
    systems, fare increases and other steps to increase revenues
    and control costs are unavoidable. They are also essential to
    any future growth of the system since financial stability is a
    key requirement for support from the highly competitive New
    Starts program administered by the Federal Department of
    Transportation.
        Tackling these challenges is the responsibility of Metro's
    board and its new interim general manager, Mr. Sarles, and they
    clearly have their work cut out for them. Just 2 weeks ago, we
    saw communications delays and confusion over what could have
    potentially been a serious incident at Wheaton station.
        That said, I am encouraged by the efforts to restore a
    culture centered on safety, where safety is considered and
    factored into every decision concerning operations. In recent
    weeks, Metro has hired a new Chief Safety Officer committed to
    filling key vacancies in its Safety Division, taken steps to
    increase track worker safety, and committed to address the
    findings of the FTA's highly critical review by the end of the
    summer.
        It is still early, and changing any complex organization,
    even one with large numbers of dedicated workers such as Metro,
    does not happen quickly. Metro's problems did not develop
    overnight, and some solutions will require time and commitment.
    For that reason, Metro must be relentless on this point. Its
    passengers, employees, and the taxpayers will expect nothing
    less.
        The real test for Metro's new leadership will be its
    ability to demonstrate continued progress, the most visible
    sign of which will be the absence of further accidents, as well
    as upgrading the system to better serve its riders. The Federal
    Government is supporting Metro's efforts to right itself, both
    through the technical assistance provided by the Department of
    Transportation, as well as through direct appropriations.
        Last year, Congress provided almost $200 million in
    stimulus funding on top of the $239 million in formula and bus
    grant funding awarded to Metro. For fiscal year 2010, Congress
    added a further $150 million to support Metro capital and
    preventive maintenance expenses, focusing on those investments
    that most improve safety. This was in addition to the $85
    million appropriated for the Dulles airport extension.
        I was pleased to see the administration continue both
    investments in Metro in its fiscal year 2011 budget, with
    another $150 million requested for capital expenses and $96
    million for the Dulles extension. I trust this strong
    demonstration of support will encourage Metro's three funding
    partners to continue to meet their responsibilities toward the
    system as well.
        During this hearing, we will have the opportunity to look
    into these important issues. It is impossible to imagine the
    Washington region without Metro. It has transformed the city
    and the region, and we owe it to present and future generations
    to not just maintain it, but to make it better.
        So I look forward to the testimony today, and I want to
    thank Senator Mikulski, who has been absolutely wonderful in
    helping us put this hearing together. Her adamant support of
    the system and making sure it works right is a real tribute to
    her work as a Senator from Maryland. And I am delighted she is
    here today.
        Senator Mikulski.

                    STATEMENT OF SENATOR BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Chairwoman Murray.
        I want to thank you for holding this very important hearing
    on the WMATA budget.
        I know that we will be very shortly joined by Senator
    Cardin, and I want to thank those in the audience for their
    patience while we were working through some parliamentary
    quagmire on the financial service bill.
        We want to thank you for your courtesy to allow us all to
    participate. As a member of the subcommittee, we appreciate
    that you have expanded it. Senator Warner is on the Banking
    Committee and is on the floor with Senator Webb. We hope they
    will join us.
        But Senator Murray, I also would ask unanimous consent,
    before I begin my remarks, to put into the record a letter from
    Governor O'Malley. Governor O'Malley wishes to inform you
    through me that he is committed to providing Maryland's full
    share for the regional funding to match the statutory Federal
    investment in WMATA.
        There was some confusion about that. He wanted to assure
    you in the strongest possible way that Maryland will meet its
    commitment. However, he does call for budget reform with WMATA
    and encourages that they go to a 6-year capital program,
    updates on their budget process, and so on. I would like to
    discuss that with you at a later time, but I ask unanimous
    consent that the Governor O'Malley letter be in the record.
        Senator Murray. The letter will be put into the record.
        [The information follows:]
                                        Office of the Governor,
                                       State of Maryland, May 18, 2010.
    The Honorable Barbara A. Mikulski,
    United States Senate,
    503 Hart Senate Office Building, Washington DC 20510.
        Dear Senator Mikulski: The State of Maryland is committed to
    providing its full share of the regional funding to match statutory
    Federal investment in the Washington Metropolitan Area Transit
    Authority (WMATA). In order to qualify for $1.5 billion in Federal
    funding dedicated for WMATA system preservation over 10 years, the
    Maryland Department of Transportation (MDOT) Consolidated
    Transportation Program (CTP) reflects annual on-going contributions of
    $50 million--100 percent of our share of the region's matching funds.
        To ensure these funds are programmed and managed responsibly, we
    and our partner jurisdictions are calling for WMATA to develop and
    implement a capital programming process much like the one the MDOT has
    used for over 30 years. The key elements of the process include:
      --A 6-year capital program period;
      --Formal annual updates as part of the budget process; and
      --Quarterly reviews focusing on project cost, schedule and scope
            changes, updated project cash-flow projections, and revised
            estimates of overall capital program components.
        I thank you for your efforts to secure dedicated Federal funding
    for WMATA as we all work to ensure the safety, security and reliability
    of transit in the national capital region. We were the first of the
    three jurisdictions to program our matching funds, have always
    fulfilled our funding commitments to WMATA, and assure you that WMATA
    funding will continue to be a top priority for Maryland in the years
    ahead. For further information, you may contact me at any time or
    direct your questions to MDOT Secretary Beverley K. Swaim-Staley at
    410-865-1001.
                Sincerely,
                                               Martin O'Malley,
                                                              Governor.

        Senator Mikulski. And to assure you of that.
        Also, Senator Murray, there was concern, and I would want
    to work with you on this, that as we go forward with our
    statutory requirement of $150 million, that States and
    localities do not reduce their money. That this money was in
    addition to the contributions that were pledged by State and
    local governments. So we are in addition to. We are not in lieu
    of what either Maryland, Virginia, or the District of Columbia,
    the Virginia localities would contribute.
        As we work on this bill, I would like to talk with you
    about a requirement that there be maintenance of effort by all
    of those who are signatories to their original agreements.
        Senator Murray. I would be happy to discuss that with you.
        Senator Mikulski. But, you know, we need the will, a
    wallet, and a way. While often this hearing focuses on the
    wallet, we have to talk about what is the way forward, and do
    we have the will and the methods to accomplishment?
        You rightly have identified that Metro's safety and
    operational reliability is absolutely critical. It affects
    daily riders for those who come to the Capital, for those who
    commute from within the region, or others who come from around
    the world. It is important to those who work at the Metro,
    operating the trains, fixing the tracks, managing the stations.
        Madam Chair, you have to know, and others, that we have
    been very impatient with Metro; we don't want any more
    promises, memos, or laundry lists. We need action on safety. I
    hope at today's hearing we can get into the specifics of what
    Metro has done already to improve safety? What do they plan to
    do? And how have we made progress?
        I would hope that we could get into their measurements in
    metrics to really identify, have they made progress in both
    improving their safety systems, the personnel involved in the
    safety systems, and in the leadership and the changing of the
    culture. You might be interested to know that Metro has no line
    item in its budget for safety, or maybe it has been recently
    added as a result of some of the new initiatives that we have
    encouraged them to take.
        Like you, I am very impatient over the fact that it has
    been almost 1 year since the deadly crash at Metro. Thirteen
    more people have died: eight Metro riders; and five Metro
    employees. These aren't numbers. These aren't statistics. These
    are human beings.
        We have had audits. We have reports. We have
    recommendations. We need action. Audits, reports, and
    recommendations are a pathway, but now we need action.
        I remain just as worried about the safety of Metro as I was
    last June. We are now 11 months from that tragic crash, and we
    need to have a sense of urgency. What results does Metro have
    to show? The Federal Transit Administration [FTA] audit found
    persistent, ongoing, and systemic problems, and a Metro Safety
    Department, actually, initially barely functional.
        At various points, Metro leadership was ignorant of safety
    when they made budget decisions, and also they were not getting
    regular safety reports. So, today, I hope we can see what is
    the change, how has it changed, and for the Federal
    Government's contribution of $150 million, what kind of change
    are we going to get for their money?
        Madam Chair, I want to acknowledge, both to you and to all
    here, all of us need to be safety officers. It is not only the
    people who operate who are charged at the Metro, but also all
    of us--those of us who fund it, and those of us who have
    political responsibility for it. We all need to commit
    ourselves to being safety officers.
        We need to know, as I said, what has Metro done to improve
    the safety, implement the FTA audit recommendations, and what
    are the mechanisms they have in place to measure their
    performance?
        Metro is America's subway. This is an annual dedicated
    funding that is authorized. We ask you to continue the $150
    million Federal contribution, but for our money, we want
    safety, operational reliability, and a way that will also be
    sustained. We really do want to insist on those outcomes.
        Senator Murray. Senator Mikulski, thank you so much for
    your opening statement.
        I know we are waiting for Senator Cardin. He will be here
    in just a minute. I would like both of our first witnesses, Mr.
    Sarles and Mr. Benjamin, to come up to the table, and we will
    take their testimony while we are waiting for Senator Cardin to
    do that.
        I am going to have to apologize. I have been called back
    over to the floor, Senator Mikulski. And I will ask Senator
    Mikulski to chair this hearing and to take the testimony. And
    if I am not able to return in time, Mr. Sarles and Mr.
    Benjamin, I do have questions from the subcommittee that I will
    submit to you for writing.
        But Senator Mikulski, if you would not mind, if I could
    turn the chair over to you for a short while here?
        Senator Mikulski. Be happy to do it. If you can come back,
    we will look forward it. If not, we will move expeditiously.
        Senator Murray. Okay. With that----
        Senator Mikulski. Mr. Benjamin and Mr. Sarles. Mr. Sarles
    is the Interim General Manager, and Mr. Benjamin is the
    Chairman of the Board.
        Senator Murray. Thank you.
        Senator Mikulski [presiding]. Okay. Thank you.
        You may proceed.

                        STATEMENT OF HON. PETER BENJAMIN

        Mr. Benjamin. Senator Mikulski, the comments that you have
    made and those by Chairman Murray are exactly right, and I am
    not sure that I can say them much better. I will try anyway to
    give my testimony.
        I am honored to appear before you today as the Chairman of
    the Board of Directors of the Washington Metropolitan Area
    Transit Authority. Metro's General Manager, Richard Sarles,
    will cover this agency's specific initiatives with regard to
    improved safety and service. I would like to provide the
    context for Metro's fiscal year 2011 appropriations request by
    giving the subcommittee some background about the Metro system
    and our capital needs.
        First, let me quote from a letter which President Lyndon
    Johnson wrote to Congress in 1965. ``The problem of mass
    transportation in the Washington area is critical. It is also a
    problem in which the Federal Government has a unique interest
    and responsibility. Improved transportation in this area is
    essential for the continued and effective performance of the
    functions of the Government of the United States, for the
    welfare of the District of Columbia, and for the orderly growth
    and development of the national capital region.''
        In 1966, Congress responded by authorizing the creation of
    the Washington Metropolitan Area Transit Authority as an
    interstate compact. Today, the Federal Government is uniquely
    dependent on Metro, something that distinguishes Metro from
    other U.S. transit systems. One-half of all Metro stations are
    located at Federal facilities, and over 40 percent of peak
    ridership consists of Federal employees.
        A quick listing of some of our rail stations demonstrates
    Metro's close connection to the Federal Government--Federal
    Triangle, Smithsonian, Capitol South, Navy Yard, Pentagon, and
    Arlington Cemetery, to name a few. The Federal Government is
    particularly reliant on Metro for special national events, such
    as inaugurals and state funerals, transportation of visitors to
    the Nation's capital, and persons doing business with the
    Federal Government.
        Without Metro, it is hard to imagine how this region would
    have handled the massive influx of visitors who came to attend
    the inauguration of President Obama in January 2009. Federal
    disaster recovery plans in this region rely heavily on Metro,
    and Metro played a key role on September 11 in moving people
    out of the downtown core.
        Congress recognized the Federal Government's unique
    relationship with Metro when it passed the Passenger Rail
    Investment and Improvement Act of 2008, PRIIA, which authorized
    $1.5 billion for Metro's capital and preventive maintenance
    needs to be equally matched by Metro's State and local funding
    partners.
        I want to thank this subcommittee and your colleagues in
    Congress for appropriating the first installment of that
    authorization last year. We are requesting that another $150
    million be appropriated in Federal fiscal year 2011, as
    provided for in the President's fiscal year 2011 budget.

                               PREPARED STATEMENT

        On behalf of Metro's Board of Directors, I thank you for
    your long history of support for Metro and your leadership in
    providing funding for the rehabilitation of Metro facilities
    and the replacement of Metro equipment. It is no understatement
    to say that just as the Federal Government depends on Metro,
    the future of Metro depends upon the Federal Government and the
    funding authorized under PRIIA.
        Thank you for allowing me to testify today. I look forward
    to answering your questions.
        [The statement follows:]
                   Prepared Statement of Hon. Peter Benjamin
        Madam Chairman, Ranking Member Bond, and members of the
    subcommittee, I am honored to appear before you today as the Chairman
    of the Board of Directors of the Washington Metropolitan Area Transit
    Authority (Metro). Metro's General Manager, Richard Sarles, will cover
    the agency's specific initiatives with regard to improved safety and
    service. I would like to provide the context for Metro's fiscal year
    2011 appropriations request by giving the subcommittee some background
    about the Metro system and our capital needs.

                      METRO SERVES THE FEDERAL GOVERNMENT

        The problem of mass transportation in the Washington area is
    critical. It is also a problem in which the Federal Government has a
    unique interest and responsibility . . . improved transportation in
    this area is essential for the continued and effective performance of
    the functions of the Government of the United States, for the welfare
    of the District of Columbia, [and] for the orderly growth and
    development of the National Capital region.----President Lyndon
    Johnson, 1965 letter to Congress.

        It may surprise you to learn that Metro's relationship with the
    Congress began over 100 years ago, just a few yards away from where we
    are sitting today. In 1906, when the subway was built connecting the
    U.S. Capitol to the Senate Office Building (now the Russell Building),
    people started thinking about building a subway for the city. The
    Washington Post published an article in 1909 titled, ``Why Not a Real
    Subway System for Washington?'' A 1931 Post article included a map of
    downtown Washington showing possible subway routes.
        In 1955, Congress became directly involved in the discussion, and
    approved $500,000 to have the National Capital Planning Commission
    conduct a ``Mass Transportation Survey'' for the Washington region. The
    results of that survey led to passage of the National Capital
    Transportation Act of 1960, which created an independent Federal agency
    to plan a regional system of highways and mass transit to serve the
    Nation's Capital. In 1966, Congress authorized the creation of the
    Washington Metropolitan Area Transit Authority as an interstate compact
    agency of the State of Maryland, the Commonwealth of Virginia, and the
    District of Columbia to plan, finance and construct a rail transit
    system for the region, and early the following year Metro was ``born.''
        Today, the Federal Government is uniquely dependent upon Metro,
    something that distinguishes Metro from other U.S. transit systems.
    One-half of all Metrorail stations are located at Federal facilities,
    and about 40 percent of peak ridership consists of Federal employees. A
    quick listing of some of our rail stations demonstrates Metro's close
    connection to the Federal Government: Federal Triangle, Smithsonian,
    Capitol South, Navy Yard, Pentagon, and Arlington Cemetery, to name a
    few. It is not surprising that in 2005, a ``Blue Ribbon'' report found
    that the Federal Government, the region's largest employer, is the
    ``largest single beneficiary'' of Metro.
        The Federal Government is particularly reliant on Metro for special
    national events such as inaugurals and State funerals, transportation
    of visitors to the Nation's Capital and persons doing business with the
    Federal Government. Without Metro, it is hard to imagine how this
    region would have handled the massive influx of visitors who came to
    attend the inauguration of President Obama in January 2009. Metro
    carried 1.5 million riders on Inauguration Day, providing attendees
    with a convenient--albeit crowded--transportation alternative.
        Federal disaster recovery plans in this region rely heavily on
    Metro, and Metro played a key role on September 11, 2001, in moving
    people out of the downtown core. People were able to rush home to their
    families because Metro employees stayed on the job, operating trains
    and buses, staffing stations, and coordinating service from a command
    center. Other Federal plans, such as the BRAC-related consolidation of
    Walter Reed Army Medical Center and Bethesda Naval Hospital, also
    depend upon Metro; the consolidated facility, which will serve tens of
    thousands of patients and visitors annually, will be located at the
    Medical Center Metrorail station.
        In fact, it is fair to say that Metro is the backbone of daily
    Federal Government operations. During the recent snowstorms, when it
    was impossible to operate Metrobuses safely on surface streets and to
    run Metrorail trains on above-ground tracks, the Federal Government
    decided to close. With well over 100,000 Federal employees regularly
    commuting by Metro, and thousands of others using Metro to access
    Federal facilities every day, the Federal Government depends heavily
    upon the system.

                             METRO'S CAPITAL NEEDS

        Congress recognized the Federal Government's unique relationship
    with Metro when it passed the Passenger Rail Investment and Improvement
    Act of 2008 (``PRIIA'', Public Law 110-432), which authorized $1.5
    billion for Metro's capital and preventive maintenance needs, to be
    equally matched by Metro's State and local funding partners. I want to
    thank this subcommittee and your colleagues in Congress for
    appropriating the first installment of that authorization last year. We
    are requesting that another $150 million be appropriated in Federal
    fiscal year 2011, as provided for in the President's fiscal year 2011
    budget request.
        Why is this funding so important to Metro? Because we have a 34-
    year old rail system, which is not like it used to be when it was new.
    It has old rail cars, track bed, power equipment, and communications
    systems. More than one-half of our bus garages are over 50 years old
    and some buses are 15 years old. As the equipment and facilities age
    they become less reliable, break down more often, and need more
    maintenance. We have to replace our tracks, trains, and buses, and must
    rehabilitate our stations, bridges, and maintenance facilities. We have
    30-year-old ventilation, lighting, and communications systems which
    must be maintained or replaced. Some of our station platforms are
    crumbling, our escalators and elevators need major repairs, and water
    is leaking into our tunnels. We must do all of the work required while
    providing service to hundreds of thousands of customers daily.
        We have been fortunate in that our funding partners--the Federal
    Government as well as the State and local jurisdictions that we serve--
    have demonstrated strong support for Metro's capital program. As a
    result, Metro has been able to build out and operate a full 106-mile
    rail system, run a fleet of 1,500 buses, and provide paratransit
    service to thousands of customers with disabilities. We have also been
    able to make a number of critical investments in the system, including,
    for the first time, running 8-car trains. (When the Metro system first
    opened in 1976, we ran 4-car trains--hard to imagine today!)
        Going forward, however, Metro needs increased investment to keep
    the system in a state of good repair. We are currently developing our
    capital program for the next 6 years. I expect that our State and local
    funding partners will not only continue, but will increase, their
    current level of funding to Metro, and in addition will match the new
    Federal funding stream authorized in PRIIA. The PRIIA funding itself is
    essential not just to leverage these additional contributions, but to
    help us at Metro address our most critical needs, such as replacing our
    oldest rail cars and rehabilitating our oldest segments of track.
        I hope that I have made clear why this funding is important to
    Metro. I hope that it is also clear why this funding should be
    important to the Congress. The PRIIA funds will allow us to make
    urgently needed investments in the aging infrastructure of our system
    so that we can continue to provide Federal employees, residents of the
    metropolitan area, and visitors to the Nation's capital from across the
    Nation and around the world, with safe and reliable service. Annual
    appropriations under PRIIA are essential if we are to keep our system
    in a state of good repair.
        On behalf of Metro's Board of Directors, I thank you for your long
    history of support for Metro and your leadership in providing funding
    for the rehabilitation of Metro facilities and replacement of Metro
    equipment. It is no understatement to say that just as the Federal
    Government depends upon Metro, the future of Metro now depends upon the
    Federal Government and the funding authorized under PRIIA. Thank you
    for allowing me to testify today, and I look forward to answering the
    subcommittee's questions.

        Senator Mikulski. Mr. Sarles, before I call upon you, may I
    recognize Senator Cardin.
        Senator Cardin.

                    STATEMENT OF SENATOR BENJAMIN L. CARDIN

        Senator Cardin. Thank you, Madam Chair. Senator Mikulski,
    thank you very much. You don't have to leave the table. I don't
    mind being associated with Metro, I'm a big supporter of the
    Transit Authority.
        As Senator Mikulski knows, we were interrupted because of
    some votes, and I apologize for being a few minutes late. But I
    would ask consent that my full statement and letter that I
    authored to President Obama in December be made part of the
    record.
        [The statement follows:]

                Prepared Statement of Senator Benjamin L. Cardin

        Thank you Chairman Murray and Ranking Member Bond for holding this
    hearing, and thank you Sen. Mikulski for inviting me to address the
    subcommittee about the Federal Government's increased commitment to
    invest in the Washington Metropolitan Area Transit Authority.
        Last year, the Greater Washington Congressional Delegation fought
    hard for the much needed transportation appropriation we secured for
    WMATA. In working with the members of this subcommittee and the full
    committee we were able to get it done and for that I am grateful. I
    appreciate that the appropriators recognize the important role Metro
    plays in the function of the Federal Government, including Congress.
        In December, I read a letter to President Obama urging him to
    include Metro in his budget. I ask for unanimous consent that a copy of
    this letter signed by Senators Mikulski, Webb, Warner and me be
    submitted for the record. I applaud and support the administration's
    request of $150 million in fiscal year 2011 for Metro.
        This demonstrates the President's commitment to smart growth, his
    recognition that it is in the Federal Government's interest to
    alleviate and not contribute to terrible traffic congestion in the
    Greater Washington Area--ranked the 2nd worst in the United States only
    behind Los Angeles, how integral a part of the region's transportation
    network Metro is and more broadly how transit fits into the Nation's
    transportation goals for the future. His budget request for Metro is in
    keeping with the October 9, 2009 Executive Order (No. 13514) on Federal
    Sustainability and the administration's efforts to reduce the Federal
    Government's carbon footprint, including its workforce.
        It also shows the administration's recognition of how important
    Metro and ``America's Subway'' system is to the function of the
    Government. We learned from this February's snowstorms that the Federal
    Government in fact cannot function without Metro. The Office of
    Personnel Management based its decision to shutdown the Federal
    Government on WMATA's inability to operate above-ground rail lines
    during the storms. This not only points out the Federal Government's
    reliance on Metro, but also highlights Metro's lack of resources to
    operate in weather conditions that other city transit systems like
    Chicago, New York or Boston could work through.
        Every work day, Metro provides tens of thousands of Federal
    employees rides to work. During peak ridership, more than 40 percent of
    riders on Metro are Federal employees and 10 percent of the overall
    ridership serves Congress and the Pentagon alone. Metrorail's alignment
    was designed to serve the Federal Government, with more than one-half
    of the system's stations located at or near Federal buildings. GSA has
    also established guidance that requires all new Federal facilities in
    the Greater Washington Area be Metro Proximate.
        I believe that the Federal Government has a clear financial
    interest in the operation of Metro. Likewise, I believe the Federal
    Government must play a greater role in ensuring the safety of Metro for
    its riders and employees.
        Safe and reliable operation of the Metro System is a top priority
    for me and the Greater Washington Area delegation.
        Revelations from the March NTSB hearing into the ongoing
    investigation of the June 22, 2009, fatal accident on the Red Line near
    Fort Totten, as well as discoveries made by the FTA through its Safety
    Audit of WMATA provided overwhelming evidence that Metro needs to look
    inward and make serious efforts to revise its approach to operating the
    system safely.
        Metro needs to work hard to establish a culture of safety that
    starts from the General Manager office and the Board of Directors on
    down through the various leaders of departments within WMATA and
    throughout the system's operators.
        We have heard directly from interim General Manager, Richard
    Sarles, and Board Chairman Peter Benjamin about the changes being made
    at Metro to improve safety. However, during our meeting last week in
    Senator Mikulski's office, on the afternoon of May 5, there was an
    emergency braking situation on the Red Line in Wheaton. The incident
    was not reported to the Tri-State Oversight Commission within 2 hours
    of the incident, as per WMATA's protocol, nor was the Board or General
    Manager immediately informed of the incident.
        I appreciate how forthcoming WMATA is with information surrounding
    this incident after the fact. I am pleased to know that even though the
    train operator may not have needed to take the actions he did, that he
    is not being punished for being cautious and causing the disruption.
    That said, this incident reveals that lapses in protocol are still an
    issue at WMATA.
        I am committed to working with my congressional colleagues, the
    Federal Transit Administration and the leadership at the Washington
    Metropolitan Transit Authority to make safety an operational priority
    at Metro and restore public confidence in the system. I want more than
    just verbal commitments to improve safety from WMATA and I want to see
    measurable results.
        If the Federal Government increases its investment in the system,
    it should also increase its oversight of operations and capital
    projects, so as to ensure that tax dollars are being well spent. I am
    confident that we will find a way forward through:
      --Increased Federal regulatory authority and oversight, as called for
            by the FTA; and
      --Increased openness and transparency at WMATA.
        The FTA is prohibited by law from establishing national safety
    standards, requiring Federal inspections, or dictating operating
    practices. However, Senators Dodd, Menendez, Mikulski, and I introduced
    The Public Transportation Safety Program Act that will require the
    Transportation Secretary to establish and implement a comprehensive
    Public Transportation Safety program.
        This legislation will give the FTA the ability to take decisive
    actions such as conducting inspections, investigations, audits,
    examinations of (Federally funded) public transportation systems. This
    legislation establishes the type of safety enforcement authority for
    the FTA that already exists within the Federal Railroad
    Administration's authority over safety rules for commuter rail systems
    or the Federal Motor Carrier Safety Administration's ability to
    establish enforceable safety guidance for commercial truck drivers.
        It makes sense for public transit systems that receive Federal
    funding to meet Federal safety requirements set by the FTA. It makes
    even more sense to grant FTA a degree of Federal authority to establish
    safety guidance, particularly when it comes to WMATA, given Metro's
    unique relationship to the Federal Government.
        In July 2009, FTA Administrator Peter Rogoff, in testimony before
    the House Oversight and Government Reform Committee made special note
    of the fact that WMATA does not have a dedicated revenue stream, rather
    it relies heavily on Congressional Appropriations which may fluctuate
    from year to year.
        While the President's request for $150 million for Metro is an
    example of such special appropriations, it sends an important signal
    that the Federal Government recognizes the need to invest in Metro.
        Fortunately, Congress has taken an important step forward to remedy
    this situation. The Senate recently passed a new Metro Compact further
    advancing the final step in authorizing a 10 year $1.5 billion
    authorization providing Metro with a dedicated funding stream to ensure
    the safe and efficient operation of the system.
        For years, while Metro was a relatively new transit system, Metro
    was the epitome of safe, reliable and modern public transit. After 34
    years of operation, the results of placing disproportionate resources
    toward growing the system rather than attending to the growing backlog
    of repairs and maintenance needs of the existing infrastructure,
    Metro's age is taking its toll on the safe operation and function of
    the system.
        Metro must reevaluate its operational priorities. It is one thing
    to develop detailed plans to improve safety, and yet another to do what
    FTA Administrator Rogoff noted in the FTA's Safety audit, and that is
    to change the business culture at Metro to take safety seriously and
    execute these new safety measures. Metro provides a vital service to
    the Government and the region and I stand ready to help improve the
    system.
        I thank the chair and Senator Mikulski for inviting me here today.
    I urge the subcommittee to include the President's fiscal year 2011
    budget request for Metro in the fiscal year 2011 THUD Appropriations
    bill.
                                     ______

                                          United States Senate,
                                     Washington, DC, December 10, 2009.
    The Honorable Barack Obama,
    President of the United States,
    The White House,
    Washington, DC 20500.
        Dear Mr. President: As you make final preparation for the
    submission of your fiscal year 2011 budget, we request that you provide
    $150 million to the Washington Metropolitan Area Transportation
    Authority (WMATA), the full amount authorized in the National Capital
    Transportation Amendments Act, included as title VI of division B of
    Public Law 110-432. This is a vital issue to both the effective and
    efficient functioning of the Federal Government as well as to the
    entire Washington, DC metropolitan area. WMATA's compact jurisdictions
    are committed to providing 50 percent matching funding.
        For the first time, both the U.S. Senate and the U.S. House of
    Representatives have included $150 million in appropriations for WMATA.
    This is the first installment of funding to support a 10 year
    authorization for the Washington region's transit system. We urge that
    your administration's fiscal year 2011 budget build on Congress's
    effort to provide WMATA with essential funding to maintain and improve
    systems operation.
        Sometimes known as ``America's Subway,'' WMATA was created in 1966
    primarily to serve the Federal Government. Many Metrorail stations were
    built at the request of the Federal Government, and nearly one-half of
    all stations are located at Federal facilities. Federal employees
    comprise 40 percent of WMATA's peak ridership, and millions of others
    use the WMATA system (Metrorail, Metrobus, and WMATA's paratransit
    program: MetroAccess) each year to visit the Nation's Capital or
    conduct business with the Federal Government.
        WMATA is also a critical component for ensuring continuity of
    Federal Government operations during an emergency, and Federal recovery
    plans rely heavily on WMATA, which played a key role on September 11,
    2001. Another key indicator of how important the system is to the
    functioning of the Nation's capital, WMATA handled 1.5 million trips in
    a single day during this year's inauguration and was the most viable
    transportation option during this event. For all of these reasons,
    Congress saw fit to provide a unique authorization for WMATA,
    recognizing the special responsibility the Federal Government has to
    the Metro system.
        Before the enactment of this legislation last year, WMATA operated
    the only major transit system in the country without a source of
    dedicated revenue. The result has been a system with burgeoning needs
    and shrinking resources. Recent fatal tragedies on Metrorail underscore
    the need for infrastructure repair and maintenance to ensure the safe
    operation of this aging system.
        The $150 million in capital funding is for projects included in
    WMATA's Capital Improvement Program and approved by WMATA's Board of
    Directors. The funds will be used to maintain the transit system in a
    state of good repair, including vehicles, facilities, and
    infrastructure. All of the funds are for capital improvements and none
    may be used for operating expenses.
        The enabling legislation provides, for the first time, two seats on
    the Board of Directors for the Federal Government, represented by the
    General Services Administration. For this reason, we recommend that the
    funding be provided through the GSA portion of your budget submittal.
    This is a unique Federal obligation related to the operations of the
    Federal Government, and this seems an appropriate place in the budget
    to demonstrate that relationship clearly. Regardless of its placement
    in the budget, however, we urge you in the strongest terms to include
    this essential funding in your fiscal year 2011 submission. It is vital
    to the region and the Nation. We believe it warrants your strong
    support.
                Sincerely,
                                            Benjamin L. Cardin,
                                                 United States Senator.
                                           Barbara A. Mikulski,
                                                 United States Senator.
                                                      Jim Webb,
                                                 United States Senator.
                                                   Mark Warner,
                                                 United States Senator.

        Senator Cardin. And Senator Mikulski, I want to thank you
    particularly for keeping our regional delegation focused on the
    importance of Metro, Metro funding, and the Federal
    Government's partnership with our Nation's subway system that
    is here and our transit system that is so important to the
    Federal Government.
        We fought hard, our regional delegation, last year to get
    $150 million put into the budget. It wasn't easy. And I want to
    thank the appropriators for making those funds available. It is
    critically important. And I strongly support President Obama's
    budget that adds $150 million this year to the Metro funding
    for fiscal year 2011. It is desperately needed. It is the right
    thing to do.
        This is the Nation's subway system. The Washington, DC area
    ranks second-worst in the United States as far as traffic
    congestion is concerned. This system is critically important to
    the operation of the region's Federal facilities. During peak
    ridership, more than 40 percent of the riders on Metro are
    Federal employees. Ten percent of the overall ridership serves
    Congress and the Pentagon. So this is how our employees get to
    work.
        And the Federal Government has a clear financial interest
    in the operation of Metro. Likewise, I believe the Federal
    Government must play a greater role in assuring the safety of
    the Metro system for its riders and employees, and there has
    been no stronger voice in the United States Congress on this
    issue than Senator Mikulski. I thank you very much for speaking
    out for the fact that, yes, we support the Federal Government's
    financial partnership with Metro, but we also believe that the
    Federal Government has a responsibility to make sure the system
    operates safely for the ridership, its patrons, and its
    employees.
        And the problems with safety continue. I know that the
    witnesses from Metro that you have before you have instituted
    changes, and there have been improvements made. But we need to
    change the culture of Metro so that safety is a priority, and
    that is a continuing process that will require greater
    oversight, and I urge us to set up a way that we can continue
    the oversight.
        May 5, there was an emergency braking situation on the Red
    Line in Wheaton, and fortunately the incident was handled by
    the operators and system controllers so as to avoid an
    accident, but some of the protocols were still not followed in
    regards to that particular episode. These missteps reinforce
    the need for stronger oversight on safety.
        I strongly support the legislation that Senator Mikulski
    has been involved with that would give the FTA the authority to
    set up safety standards for our transit system, so they can do
    it now for our rail. They can do it for the trucks. It seems to
    me that we should have the authority to set up Federal
    regulatory standards for our transit systems, and I would urge
    the Congress to take on that particular issue.
        The Senate recently passed the new Metro compact, further
    advancing the final steps of authorizing a 10-year $1.5 billion
    authorization for Metro with a dedicated funding system. That
    is critically important.
        But let me just point out one last point. This system is 34
    years old. It is an aged system. I have seen the crumbling
    platforms, and I tell you, I worry about the safety of Metro
    today. It needs maintenance funds. It needs attention. It needs
    to make sure that its current service areas are done in a safe
    way for its patrons and employees.
        I think, in the past, Metro has been divided as to whether
    to pay attention to its current system or seek expansion of its
    system. And we all believe that we have to expand the service
    that Metro provides. But the first priority needs to be to take
    care of the existing infrastructure of the current system, with
    its stations and with its cars and with the way that it manages
    the system for safety.
        And I would just urge this subcommittee in making the funds
    available. It is critically important the Federal Government
    live up to its commitment as a partner, but also to establish a
    way that we can be more actively involved as a partner with
    Metro in regards to the safety.
        And with that, Madam Chair, I thank you very much for
    allowing me to be here today.
        Senator Mikulski. Thank you, Senator Cardin.
        First of all, you have been a real champion of Metro
    funding, as mass transit, as well as MARC trains. In other
    words, safe, efficient mass movement of people. We want to
    thank you for your advocacy both on the Environment and Public
    Works Committee and on the Budget Committee. Like you, I join
    in wanting to continue the Federal partnership of $150 million,
    but I really think we have to be careful. I think we also have
    to be insistent on certain kinds of conditions and not give a
    blank check.
        So, thank you.
        Mr. Sarles, you have been one of the most patient people in
    the room, and we apologize. We thank you and, please, now go
    ahead and take as much time as you want to give us your views.

    STATEMENT OF RICHARD SARLES, INTERIM GENERAL MANAGER
        Mr. Sarles. Thank you, Madam Chair, and thank you for the
    opportunity to testify today.
        As you know, Metro has submitted a request for $150 million
    in fiscal year 2011. And as the subcommittee considers that
    request, I feel that it is important for you to know what we
    are doing to improve the safety and reliability of our system.
        My written statement includes a detailed description of our
    action plan. So I will just briefly summarize a few key points.
    I will be at Metro until the board selects a new permanent
    general manager. I don't know how long that will be, but while
    I am here, I am taking a back-to-basics approach. I want to
    strengthen the agency so that I leave it in better shape for my
    successor.
        The audit that you asked the FTA to conduct was extremely
    helpful to us as we developed our safety action plan. And
    frankly, I welcome your watchdog role, especially in the area
    of safety.
        In response to that audit, I am working, first and
    foremost, on strengthening our safety program so that it is
    robust and proactive, not just reactive. We are hiring more
    good people and getting them the training that they need. We
    are developing an incident management system so that we can
    analyze trends and spot issues before they become major
    problems.
        We are also improving protections for our track workers by
    updating our procedures and our training program for those who
    work in and around the track area.
        I am also refocusing the agency on addressing our state of
    good repair needs. We have an aging system, and things are
    starting to break down more often. We need to do more today to
    keep our system in a state of good repair than we did when it
    was 5, 10, or even 20 years old.
        We are developing a new capital program, which will allow
    us to meet the state of good repair needs. Our State and local
    partners are committed to increasing their contribution to
    Metro, but to meet these needs, we must also continue to
    receive the funds authorized by Congress in the Passenger Rail
    Investment and Improvement Act. I thank this subcommittee for
    providing the first installment of that funding last year.
        These are the building blocks that will lead to a stronger
    organization for our employees and better service for our
    customers. It will take time to address all these issues fully,
    and we are constantly working on improving. For example, while
    the emergency braking at the Wheaton station 2 weeks ago did
    not involve an actual hazardous condition, we have learned from
    that experience and taken action to improve notification
    procedures to our operations control center and our oversight
    agencies.
        I believe that we are making progress, but you don't have
    to take my word for it. Next month, Metro will begin posting an
    online performance scorecard so that members of the public can
    track how well we are doing.

                               PREPARED STATEMENT

        Thank you for the opportunity to testify today and for your
    consideration of our request. I would be happy to answer any
    questions.
        [The statement follows:]

                      Prepared Statement of Richard Sarles

        Madam Chairman, Ranking Member Bond, and members of the
    subcommittee, thank you for the opportunity to testify before you
    today. I am Richard Sarles, General Manager of the Washington
    Metropolitan Area Transit Authority, known as WMATA or Metro.
        I began my service as Metro's General Manager over 1 month ago. My
    career in rail and public transportation has spanned 40 years, during
    which time I worked with the Port Authority of New York and New Jersey,
    Amtrak, and most recently, New Jersey Transit. I have used the Metro
    system many times, and have always been impressed by Metro's services
    and how well they are delivered. But Metro is no longer new. We have
    requested an appropriation of $150 million in Federal fiscal year 2011
    to help us address some of the challenges associated with our aging
    system. As you consider that request, I want to let you know what Metro
    is doing to move forward on improving our system's safety, reliability,
    and financial stability.

                                     SAFETY

        As the subcommittee is aware, this region experienced an
    unprecedented tragedy on June 22 of last year, when two Metrorail
    trains collided on the Red Line north of the Fort Totten station. Nine
    people lost their lives and dozens of others were injured in an
    accident that has had ripple effects throughout the transit industry.
    The National Transportation Safety Board's (NTSB) investigation of the
    accident has focused on technological issues, not human error, as the
    key factor leading to the collision, and as a result, transit and rail
    providers across the country have been reexamining their track
    signaling systems for signs of the same potential failure that caused
    the June 22 accident.
        The NTSB's final report on the accident has not yet been issued,
    but Metro has already taken steps to improve safety on the rail system.
    We have been operating trains in manual mode since the accident, and we
    will continue to do so until the NTSB report is issued and any
    necessary modifications are completed. We have increased the frequency
    of computerized testing of track circuits, and we are holding the
    performance of those circuits to a higher standard than previously
    required. In addition, as recommended by the NTSB, we are working with
    a contractor to develop a real-time monitoring system which will
    provide an alert should a track circuit fail.
        In addition to the June 22 accident, Metro has experienced a number
    of other incidents over the past year that require us to re-assess the
    way that we go about ensuring the safety of our customers and
    employees. Our internal assessments and findings regarding safety have
    been supplemented by external agencies' reports, such as the March 2010
    audit of Metro's safety program by the Federal Transit Administration,
    requested by Senator Mikulski. These external reports have been and
    will be critically important in helping Metro identify where we need to
    improve with regard to safety. We have learned even from those
    incidents which were not hazardous in nature, such as the May 5
    emergency braking near the Wheaton station. Although there were no
    hazardous conditions present, we have taken action to improve reporting
    of such incidents to our operations control center and our oversight
    agencies.
        The following section describes a number of other actions that we
    have taken in recent months to address both internal and external
    findings in the areas of staffing, communications, track worker
    protection, and rail operations.

    Staffing
        The FTA audit and other assessments have identified lack of
    sufficient safety staff and expertise as an issue at Metro. To address
    that issue, Metro has hired a new Chief Safety Officer, James
    Dougherty, who began his duties on April 19. Mr. Dougherty brings 25
    years of experience in transit safety, occupational safety and health,
    industrial hygiene and environmental protection, and he will report
    directly to me. In addition, we have filled 6 of 12 new positions in
    the safety department, and we expect to fill the remaining vacancies
    within 60 days. These new positions will help us to effectively
    investigate incidents/accidents, review and document safety policies
    and procedures, ensure safety protocols are in place and implemented,
    and analyze safety trends. We have also arranged for needed training
    for our safety personnel with the Transportation Safety Institute, an
    arm of the U.S. Department of Transportation, with seven courses
    scheduled through September.

    Communications
        Lack of communications across and within departments has also been
    cited in various reports as a problem at Metro. We have recently begun
    several new communications initiatives. For example, to improve
    communication between the Safety Department and operational personnel,
    we now have safety officers assigned to each bus and rail division.
    These safety officers participate in regular meetings of the front-line
    staff in their division, as well as interacting on a daily basis with
    operations employees on safety-related matters.
        In addition, my predecessor held 6 ``Safety Action Report Out''
    meetings with 60 front-line superintendents to increase their awareness
    and accountability regarding safety. I intend to continue those
    meetings on a regular basis. We have also established a cross-
    departmental Safety Action Team tasked with finding ways to create a
    safer organization. The Team's first initiative is designed to further
    improve communications with front-line employees to ensure that safety-
    related information, as well as other messages, reaches all employees
    regardless of their work location.

    Track Worker Protection
        Employees who work on and around our track areas are exposed to
    dangerous situations each day they come to work. Protection of these
    workers must be robust and effective. Metro is committed to improving
    our current practices and has established a cross-departmental Roadway
    Worker Protection Work Group which includes representatives from
    several Metro departments, union representatives, and representatives
    from FTA and TOC. This group has drafted a new roadway worker
    protection manual which has been submitted to the TOC for review. The
    group is also in the process of developing a new roadway worker
    training plan, and will also test and evaluate new technologies and
    processes for use in the Metro system; these activities are expected to
    be complete by the Fall of 2010.
        Metro's track environment shares certain characteristics with other
    transit and rail systems, and we have reached out to our peers to learn
    from them and share best practices. Metro conducted a workshop in
    January with peer transit agencies, FTA, TOC, and union
    representatives, and convened a roundtable discussion in April with the
    Federal Railroad Administration and inter-city rail operators. The
    results of these discussions are reflected in the new draft manual and
    will be included in the training regimen being developed by the Roadway
    Worker Protection Work Group.

    Rail Operations
        In addition to the operational changes implemented in response to
    the June 22 accident, discussed above, Metro is continuing to respond
    to earlier NTSB recommendations. We expect to award a contract in the
    near future to begin building the cars to replace our oldest vehicles,
    the 1000 series cars, as the NTSB has recommended. In addition, we are
    continuing to add rollback protection for rail cars operating in manual
    mode, another NTSB recommendation. About one-half of our fleet
    currently has such protection, and we are working to install it on the
    remaining cars with completion anticipated by the end of calendar year
    2012.
    Six-month Action Plan--Safety
        While we have made progress with regard to safety, we still have
    work to do. We have established the following safety-related
    priorities:
      --Fill Remaining Safety Department Vacancies and Increase Training.--
            Specifically, we must continue to have front-line safety
            briefings while we develop more effective right-of-way training
            and identify other needed training for front-line staff. In
            addition, we have begun labor relations training for
            supervisors of represented employees, re-emphasizing the
            supervisors' role in safety; we intend to complete that
            training by the end of 2010.
      --Continue Accelerated Close-out of Open Safety-related Audit
            Findings.--With the approval of the TOC, Metro develops
            corrective action plans (CAPs) in response to findings from
            both external and internal audits and investigations. Metro has
            closed 190 CAPs since 2007, with the rate of closure increasing
            significantly in recent months. Currently 85 CAPs remain open
            (including CAPs that were recently added in response to the
            TOC's Roadway Worker Protection study and internal safety
            audits). I have communicated to Metro staff that continuing to
            close CAPs promptly is a top priority. I am particularly
            focused on responding to the recommendations in the FTA audit;
            we submitted a CAP for that audit to FTA on April 29. (Please
            see attachment No. 1 for details.)
      --Develop Incident Tracking and Safety Management Reporting System.--
            We are taking advantage of improvements in technology to
            develop a web-based tool to allow for communication of safety-
            related information and tracking across departments.
            Development is expected to be complete by the end of August
            2010.
      --Encourage Near-miss Reporting, Including Anonymous Hotline and
            Strengthened Whistleblower Protection.--David Gunn's report
            cited Metro for having a ``shoot-the-messenger'' culture. I am
            taking steps to end that perception. I have informed all
            employees of the existence of a safety hotline and safety e-
            mail address through which they can report safety concerns,
            anonymously if desired. In addition, we are updating Metro's
            whistleblower protection policy to encourage employees to raise
            safety-related concerns.
      --Complete New Right-of-way Worker Protection Manual and Revisions to
            Metrorail Safety Rules and Procedures Handbook (MSRPH).--When
            rules are outdated or unclear, they tend to be ignored. By Fall
            2010 we intend to complete work on a new set of rules for
            right-of-way workers as well as an updated MSRPH, with rules
            and procedures that are clear, up-to-date, and effective.
      --Complete Self-assessment of Safety-related Internal Controls and
            Initiate Thorough Assessment of Safety Culture.--We intend to
            complete further self-assessments in safety-related areas, the
            first of which is focused on internal controls. In addition, we
            have contacted the U.S. Department of Transportation, the AFL-
            CIO, and the American Public Transportation Association to seek
            their assistance in assembling a team of experts not only to
            review Metro's safety culture, but also to recommend specific
            measures to improve that culture and to provide assistance in
            implementing those recommendations. We intend to initiate this
            review by Fall 2010, while recognizing that organizational
            culture change is a long-term process.

                              SERVICE RELIABILITY

        According to the Washington Post, ``most riders give the (Metro)
    system high marks for comfort, reliability and generally the ability to
    take them where they want to go.'' (``In Survey, Metro Still Gets High
    Marks after a Year of Low Points,'' April 5, 2010). Still, we know that
    we need to do better. The quality of our customers' experience is the
    key to the continued success of our system. We are taking steps to
    improve the on-time performance of all of our modes--Metrorail,
    Metrobus, and MetroAccess--as well as the availability of our elevators
    and escalators which have a very direct impact on the quality of our
    customers' trips.
        For Metrorail, we have evaluated ways of improving service
    reliability through schedule adjustments and are preparing to implement
    the first adjustment on the Red Line. We have also implemented revised
    30-, 60-, and 90-day training performance reviews for newly certified
    train operators to ensure that they are meeting our standards for safe
    operations and customer service and to provide us with an on-going
    source of review regarding the effectiveness of our training programs.
        For Metrobus, we are in the process of replacing 148 older buses,
    with deliveries between March and September 2010. With newer vehicles
    we expect fewer equipment failures, leading to improved service
    delivery. We have also reorganized our bus transportation division,
    retrained operators and supervisors, and increased supervision of
    street operations to better monitor and address service reliability
    issues. We have implemented NextBus, which provides customers with
    real-time bus arrival information by phone or online, and have created
    a new online service disruption notification for bus customers. For
    MetroAccess drivers, we have developed a new training program and
    installed Drive-Cam in MetroAccess vehicles to record incidents for
    investigation and training purposes.
        With regard to elevators and escalators, we are consolidating our
    command and maintenance centers to eliminate reporting layers and
    improve accountability, a process which we expect to have fully
    implemented by the end of June 2010. Also by June, we intend to have
    restructured our technicians' shifts to create rapid response teams
    with responsibility for maintenance and repair in defined geographic
    areas.

    Six-month Action Plan--Service Reliability
        I have established the following priorities regarding service
    reliability:
      --Increase Training for Front-line Employees and Supervisors.--
            Specifically, we intend to provide additional training to all
            station managers with a renewed emphasis on customer service,
            as well as complete training that we have already begun related
            to the reorganization of our bus department, designed to
            improve management of operators, reduce accidents, and improve
            service.
      --Create Transparent Performance Tracking and Reporting Systems.--New
            performance measurement tools are currently under development,
            including web-based dashboards, a monthly vital signs report of
            key performance indicators, and an annual performance report to
            assess what is working well, what is not, and why. By the end
            of June 2010 we expect to release many of these new tools
            publicly to foster increased accountability and transparency.
      --Revise Inspection and Maintenance Procedures to Accommodate Changes
            in Operations.--As in the area of safety, our rules and
            procedures for inspections and maintenance need to be clear and
            relevant for our current operating environment. With changes in
            place related to manual operation and restricted speeds, our
            new vertical transportation command center, etc., we must start
            revising our related procedures accordingly.
      --Pilot Metrorail Schedule Adjustment on Red Line.--As I mentioned
            earlier, we intend to adjust schedules on the Red Line to
            improve service reliability and the quality of the customers'
            experience. The new schedules will reflect reality and allow
            for more time for customers to board and alight the trains at
            our busiest stations, and will involve more 8-car trains
            running to the ends of the line, which will maintain our
            passenger throughput capacity for the Red Line as a whole.
      --Initiate External Assessment of Elevator/Escalator Maintenance and
            Repair Programs.--We intend to contract with outside experts to
            conduct a review of these programs in order to assess their
            efficiency and effectiveness and make recommendations for
            additional improvements.
      --Continually Re-emphasize Safety and State of Good Repair as Top
            Priorities.--Maintenance of vehicles, track, structures,
            signals, and other infrastructure in a state of good repair has
            a direct impact on the safety and reliability of the Metro
            system, as it does for every transit agency in the country. If
            the condition of the Metro system is allowed to degenerate
            further, issues related to service reliability will continue to
            increase. The most effective action we can take to improve
            reliability is to improve the physical condition of our system.

                              FINANCIAL STABILITY

        Now let me turn to a topic which is integrally related to our
    ability to improve service reliability--Metro's budget and current
    funding constraints. Metro's proposed fiscal year 2011 budget totals
    $2.1 billion. That total is composed of Metro's operating budget, which
    supports the daily delivery of transit service (including personnel
    costs, fuel and propulsion costs, etc.), and the capital budget, which
    funds investments in the vehicles, equipment, facilities, and
    infrastructure of the transit system. Sources of funding for those
    needs include State and local funds; Federal funds (primarily for
    capital costs); passenger fares and parking revenues, and other sources
    (such as advertising and fiber optic revenue). Passenger fares cover
    about one-half of the cost of Metro's operations; broken out by mode,
    they cover more than 70 percent of Metrorail operations, about 30
    percent of Metrobus operations, and 5 percent of MetroAccess
    operations.
                Operating Budget
        Fiscal year 2011 is likely the most difficult year, financially
    speaking, that Metro has ever had to face. The economic slowdown is
    having a continued impact on Metro, as it is across the country. For
    the transit industry as a whole, the economic slowdown has meant that
    ridership and revenue are down, while costs continue to go up.
        Despite the encouraging ridership numbers that Metro has
    experienced in the last few weeks, Metrorail ridership for fiscal year
    2011 is projected to be just 2 percent above the fiscal year 2009
    levels, and on Metrobus, ridership growth over 2009 levels is only
    projected to be 1.5 percent. These projections are primarily due to
    continued high unemployment in the region combined with reduced
    spending by consumers. Lower Metrorail ridership has resulted in less
    revenue coming in from Metro parking facilities as well. Major cost
    drivers in the fiscal year 2011 operating budget include the rise in
    healthcare cost (which is in line with national trends), market losses
    in pension values, the increasing demand for MetroAccess service, and
    liability insurance and claims associated with the June 22 accident.
        The imbalance between projected revenues and expenses created a
    $189 million gap in our fiscal year 2011 operating budget, if
    jurisdictional subsidies (which cover about one-half of our operating
    costs) were held constant at fiscal year 2010 levels. In order to close
    that gap, I have proposed a budget that includes further layoffs, fare
    increases, some service reductions, and an increase in jurisdictional
    subsidies. Metro's Board is currently considering that proposed budget.
    Without knowing what they will decide, it is fair to say that balancing
    Metro's fiscal year 2011 budget will require hard choices. When we
    raise fares or reduce service, we have a direct impact on the people we
    serve every day, on their ability to get to jobs, school, medical
    services, and recreational opportunities. The economic downturn has
    affected everyone in this Nation, and unfortunately Metro is not
    immune.
                Capital Program
        Over the last 6 years, Metro has funded its capital program through
    a multi-year agreement with our jurisdictional partners, known as Metro
    Matters, which expires June 30, 2010. The stable funding stream
    provided by Metro Matters allowed us to, among other things, purchase
    667 new Metrobuses to reduce the age of our fleet from over 10 years to
    under 8 years; and purchase 122 Metrorail cars, expand rail yard
    maintenance and storage facilities, and upgrade power systems to run 8-
    car trains.
        Board Chairman Peter Benjamin's testimony addresses our capital
    needs, and I simply want to reiterate his point that the funding Metro
    has requested from this subcommittee in Federal fiscal year 2011 is
    urgently needed to allow us to maintain the Metro system in a state of
    good repair. (Please see attached spending plan.) However, due in part
    to national economic conditions and in part to declining revenues in
    the Federal Highway Trust Fund, both Federal and State/local sources of
    funding for capital projects are severely constrained. Even with the
    new Federal funding authorization and the associated State/local match,
    these constraints have required Metro to limit our capital investment
    for the next 6 years to only the most critical, ``must-do'' safety and
    system maintenance projects. ``Must-do'' projects include, for example,
    replacement of the 1000 series rail cars; replacement of our oldest
    buses; rehabilitation of the oldest segment of our rail line, and
    replacement and/or rehabilitation of decades-old bus facilities. ``Must
    do'' projects do not include other investments that should be made,
    such as investments to address crowding (more frequent bus service;
    more 8-car trains); more elevators/escalators in core stations; and
    system and fleet expansion to accommodate projected growth in demand
    over the next several decades.

    Six-month Action Plan--Budget
        By Fall 2010, we intend to accomplish the following objectives
    related to Metro's budget:
      --Implement Board-approved Fiscal Year 2011 Budget.--As I have
            discussed, the budget will include job cuts and likely some
            combination of fare increases and service reductions in order
            to fill the $189 million projected gap. Successful
            implementation of such changes will require timely and
            effective customer communication as well as operational changes
            such as reprogramming of farecard readers.
      --Manage Transition From Metro Matters Capital Funding Agreement to
            Next Capital Funding Agreement, Currently Being Negotiated.--I
            want to note that the National Transportation Safety Board is
            expected to issue its final report on the June 22, 2009, Red
            Line collision shortly before or during fiscal year 2011, and
            that report may contain recommendations that will have a cost
            associated with their implementation. Metro is committed to
            responding to those recommendations and that response may
            affect our ability to undertake some of the projects that have
            been planned for the next 6 years, absent additional funding.
      --Initiate a Discussion With Regional and Federal Stakeholders on
            Metro's Long-term Fiscal Outlook to Identify Both Challenges
            and Solutions.--The basic challenge is this: the Metro system
            must be brought into a state of good repair. Unless there is a
            renewed commitment to this goal, the system will continue to
            degrade.

                                   CONCLUSION

        Madam Chairman, in the Fall of this year, I intend to deliver to
    Metro's Board of Directors an interim performance assessment, along
    with recommendations for further improvement, in each of the areas I
    addressed above: safety, service reliability, and budget. But you do
    not have to wait until then to track our progress. Metro is developing
    products that will allow the public to see how we are doing on a more
    frequent basis. We expect to launch shortly a monthly ``Vital Signs''
    report, which will initially track operational performance and identify
    trends, with the goal of expanding the range of performance metrics to
    other areas in the future. We also plan to issue an annual performance
    report, beginning this September. Metro is committed to improving
    transparency and communication with our customers and other
    stakeholders, including Congress.
        Thank you for the opportunity to testify today. I greatly
    appreciate your leadership on these issues, and I hope that you will
    favorably consider our fiscal year 2011 appropriations request. I would
    be happy to respond to any questions.

     ATTACHMENT NO. 1.--WMATA RESPONSE TO RECOMMENDATIONS IN THE MARCH 4, 2010 FEDERAL TRANSIT ADMINISTRATION SAFETY
                                                          AUDIT
    ----------------------------------------------------------------------------------------------------------------
                Recommendation                   Actions Taken              Next Steps            Completion Date
    ----------------------------------------------------------------------------------------------------------------
    No. 1. Conduct assessment to identify   Developed statement of   Initiate and award       Final Report,
     resources and expertise necessary for   work for contractor      contract, with Board     including identified
     Safety Dept. to carry out activities    support.                 approval, received       needs and
     specified in System Safety Program                               April 22, 2010.          recommendations by
     Plan and Safety Rules and Procedures                                                      end of August 2010.
     Manual.
    No. 2. Use results of assessment to     Included in statement    Initiate and award       Issuance of Safety
     ensure adequate staffing levels and     of work under No. 1.     contract, with Board     Dept. staffing &
     expertise within Safety Department.                              approval, received       recruitment plan by
                                                                      April 22, 2010.          end of August 2010.
    No. 3. Increase Safety Dept.'s access   Established              Review process for       Formalize process by
     to operating & maintenance              Interdepartmental        information-sharing      end of August 2010.
     information and reports to ensure       Safety Working Group,    and quality of
     this information is being analyzed      now receiving monthly    information shared.
     for potential impacts on safety.        reports on operations/
                                             maintenance.
    No. 4. Develop internal process to      Initiated development    Develop process for      Complete development
     require communication of safety-        of web-based  tool.      identifying and          by end of August
     related info. across depts.,                                     evaluating maintenance-  2010.
     including impacts of budget                                      related safety issues.
     reductions & resource constraints on
     performance of safety-related
     maintenance activities/requirements.
    No. 5. Define and implement the         Chief Safety Officer     Continue weekly CSO      Completed by end of
     process for the top Safety Department   (CSO) now reports        meetings and reports     April 2010.
     position to communicate safety          directly to General      to GM; revise System
     priorities to the GM in a timely and    Manager.                 Safety Program Plan to
     consistent manner.                                               reflect relationship.
    No. 6. Identify technical skills        Included in statement    Initiate and award       Contractor to issue
     required to perform system-wide         of work under No. 1.     contract, with Board     needs assessment &
     hazard analysis; if needed, provide                              approval.                training plan by end
     training as soon as practicable.                                                          of August 2010.
    No. 7. Update the System Safety         Interdepartmental        Confirm design of new    Completed by end of
     Program Plan to develop a hazard        Safety Working Group     process with             September 2010.
     management process that ensures all     has met to design a      contractor support.
     departments participate in an on-       new process.
     going manner.
    No. 8. Institute process to ensure      Outreach to peer         Continue outreach to     Metrorail Safety Rules
     changes in operating rules are          transit agencies for     peer agencies and        and Procedures
     analyzed for safety impacts before      model forms and          consultation with        Handbook revisions
     system-wide implementation.             processes has begun.     union; revise rule       completed by end of
                                                                      book.                    September 2010.
    No. 9. Finalize right-of-way            Roadway Worker           Finalize new manual;     Roll out of new
     protection rules; develop training to   Protection Working       finalize new training    training program in
     implement new rules. Ensure all ROW     Group established; new   program.                 October 2010.
     employees & contractors receive         manual has been
     training before accessing ROW.          drafted; workshop and
                                             roundtable held.
    No. 10. Implement configuration         Included in statement    Initiate and award       Create action plan &
     management program described in         of work under No. 1.     contract, with Board     training program by
     System Safety Program Plan.                                      approvalreceived April   end of September
                                                                      22, 2010.                2010.
    ----------------------------------------------------------------------------------------------------------------

          WMATA RESPONSE TO FTA FINDINGS OF THE TOC THAT RELATE TO WMATA IN THE MARCH 4, 2010 FTA SAFETY AUDIT
    ----------------------------------------------------------------------------------------------------------------
                Recommendation                   Actions Taken              Next Steps            Completion Date
    ----------------------------------------------------------------------------------------------------------------
    Finding No. 1.--Require WMATA to        The update of both the   Seek permission to       MSRPH revisions to be
     complete a timely, thorough, and        SSPP and WMATA's         Initiate and award       completed by the end
     competent review and update of          Safety Rules and         contract with WMATA      of September 2010.
     WMATA's Safety Rules and Procedures     Procedures Manual will   Board approval.
     Manual.                                 be included as part of  Board Approval received
                                             the contractor SOW for   April 22, 2010..
                                             the Safety Assessment
                                             and Hazard Management
                                             Program.
    Finding No. 2.--Require WMATA to        The Safety Assessment    Seek permission to       Completed by the end
     develop (and TOC to review and          and Action Plan will     Initiate and award       of August 2010.
     approve) an internal WMATA safety       ensure that we have      contract with WMATA
     audit recovery plan for calendar year   personnel skilled in     Board approval.
     2010 and calendar year 2011.            auditing in the Safety  Board Approval received
                                             Department.              April 22, 2010..
                                            We also will receive
                                             contractor support in
                                             reviewing and updating
                                             our existing
                                             checklists and
                                             procedures.
    Finding No. 3.--Require WMATA to        We are working closely    In the May 4, 2010      The goal is to
     develop a recovery plan to complete     with TOC to address      submission, both TOC     completed 90 percent
     all open accident investigations        this finding and have    and WMATA will report    by the end of
     following procedures established in     made considerable        that a recovery plan     September 2010.
     TOC's Program Standard, WMATA's         progress.                of closing at least
     System Safety Program Plan and                                   ten open accidents
     WMATA's Accident Investigation                                   investigations per
     Procedure.                                                       month is accomplished.
    Finding No. 4.--Work with WMATA to      The contractor SOW for   Seek permission to       Completed by the end
     ensure that there is a process in       the hazard management    Initiate and award       of August 2010.
     place for evaluating Corrective         work will also address   contract with WMATA
     Action Plan (CAP) alternatives that     this issue.              Board approval.
     may be necessary as a result of                                 Board Approval received
     capital and operating program                                    April 22, 2010..
     resource limitations.
    Finding No. 5.--Require WMATA to        Interdepartmental        Seek permission to       Create action plan &
     develop and implement a comprehensive   Safety Working Group     Initiate and award       training program by
     and system-wide hazard management       to design new process    contract with WMATA      end of September
     program (as specified in 49 CFR part    has taken place and      Board approval.          2010.
     659.31).                                with contractor         Board Approval received
                                             support and will:        April 22, 2010..
                                             Integrate into web-
                                             based tool; Integrate
                                             into Internal Safety
                                             Audit process and
                                             Quality Assurance (QA)
                                             process; and Integrate
                                             into day-to-day
                                             activities.
    ----------------------------------------------------------------------------------------------------------------

       WASHINGTON METROPOLITIAN TRANSIT AUTHORITY (WMATA) PROPOSED PRIIA (DEDICATED FUNDS) PLAN AS OF MAY 17, 2010
                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                                     Budget
                                                                                           -------------------------
      CIP              Project Name                       Project Description                 Federal      Federal
                                                                                            Fiscal Year  Fiscal Year
                                                                                                2010         2011
    ----------------------------------------------------------------------------------------------------------------
            RAIL CAR FLEET REPLACEMENT
             AND REHABILITATION:
     CIP057     1000 Series Rail Car       This project will design and purchase 300             79.3         20.5
                 Replacement                7000 Series railcars, which will replace all
                                            1000 Series railcars that were purchased
                                            between 1974 and 1978. This project is one
                                            component of a long-term fleet plan to avoid
                                            repetitive developmental cost associated
                                            with new car design and procurement. The
                                            replacement of the 1000 Series with the 7000
                                            Series will improve reliability, reduce
                                            maintenance and operating costs and
                                            incorporate technology and enhancements of
                                            newly designed railcars.
     CIP063     Rail Rehabilitation        This project will procure major repairable            12.4         12.5
                 Program                    railcar components tosupport the overhaul of
                                            essential systems in the fleet. To maintain
                                            astate of good performance, major railcar
                                            components must berefurbished or replaced on
                                            a regular basis. These components includebut
                                            are not limited to wheels, trucks, brake
                                            systems, HVAC, and traction motors.
                                            Approximately 225 railcars, or 20 percent of
                                            the fleet, will receive major overhauls
                                            funded through this project.
     CIP067     Rail Car Safety and        This project will perform engineering                 12.1          2.5
                 Reliability Enhancements   analysis, diagnosis, testing and resolution
                                            of safety, maintenance and operational
                                            issues relating to the railcar fleet and its
                                            interaction with track work, automatic train
                                            control, communication, and power systems.
                                            The project work will resolve compatibility
                                            issues across the multiple series of
                                            railcars andinfrastructure related to
                                            changes in technology and
                                            components.Examples of specific issues to be
                                            resolved are emergency exterior
                                            doorreleases, wrong side door openings, and
                                            car roll back.
     CIP071     Test Track and Commission  This project will procure, design and                  5.2         17.5
                 Facility                   construct a test track andcommissioning
                                            facility that will be utilized for ongoing
                                            engineeringanalysis and enhancements to the
                                            fleet, as well as acceptance testing of new
                                            railcar procurements and will be in constant
                                            use. A dedicatedfacility will allow testing
                                            to be done and not impact night-time
                                            maintenance activities.
                                                                                         ---------------------------
                  Total                    .............................................        108.9         53.0
                                                                                         ===========================
            TRACK SAFETY IMPROVEMENTS:
     CIP018     Track Welding Program      This project will provide for the welding of           1.5          2.7
                                            approximately 500 openrunning rail joints
                                            throughout the Metrorail system and to
                                            purchaseflash butt welding kits. The track
                                            welding program will improve theelectrical
                                            conductivity of the rail, eliminate joint
                                            defects, reduce noiseand wear, reduce
                                            maintenance and inspection costs, and
                                            eliminatecross tie fires.
     CIP019     Track Floating Slab        This project will prevent services delays and          1.7          1.3
                 Rehabilitation             speed restrictions due to differential
                                            settlement of the track structure and
                                            reduces noise andvibration to the
                                            surrounding building and structures by
                                            replacing failedisolation pads and restoring
                                            the track structure to the proper elevation.
     CIP020     Replacement of Rail Track  This project will procure and install 3,000            1.0          1.1
                 Signage                    markers and 500 safety signs to replace old,
                                            illegible rail track graphic signs and
                                            various other signs indicating locations and
                                            warnings to employees, emergency responders,
                                            and the general public. Track graphics are
                                            essential for safe operations and emergency
                                            responses. Many signs throughout the
                                            Metrorail System are approximately 30 years
                                            old. Some of these signs require upgrading
                                            because they are damaged, deteriorated, or
                                            obsolete.
     CIP021     Track Pad/Shock Absorber   This project will maintain the integrity of            4.3          2.1
                 Rehabilitation             the track structure by rehabilitating 7,000
                                            linear feet of grout pads on Rhode Island
                                            and Minnesota Avenue Metrorail Station
                                            Aerials. Grout/plinth pads (concrete pads)
                                            located below the track provide elevation
                                            and support for the track and track
                                            fasteners. They are replaced as needed to
                                            restore the track structure to the proper
                                            elevation. Improper elevation can result in
                                            damage to the car's third rail collector
                                            shoes and the vibrations can potentially
                                            lead to structural cracking in the
                                            surrounding buildings and structures.
     CIP022     Track Structural           This project will be utilized for the                  2.3          1.5
                 Rehabilitation             rehabilitation of structural components and
                                            to restore the track structures, such as
                                            elevated platforms, bridges, and retaining
                                            walls to their designed load carrying
                                            capacity. These rehabilitations are
                                            critical, as the loss of one of these
                                            structures could result in the functional
                                            loss of an entire Metrorail line segment.
                                            The rehabilitation work includes the anchor
                                            bolts of 65 bridge piers on Minnesota Avenue
                                            Aerial and additional anchor bolts at
                                            Grosvenor and I-495. One down and under
                                            crane for underbridge inspections and
                                            rehabilitation will be procured.
     CIP023     Third Rail Rehabilitation  This project will replace the original third   ...........          5.5
                                            rail (5 miles annually) with the composite
                                            third rail. Original third rails have become
                                            worn throughout the Metrorail system. New
                                            aluminum and steel composite third rails
                                            will provide less resistance for eight car
                                            trains and allow trains to run more
                                            efficiently. This project will result in
                                            maintained tracks and fewer train delays.
     CIP024     Track Rehabilitation       This project will be utilized for the                 44.4         33.3
                                            procurement of material and specialized
                                            equipment to facilitate the removal and
                                            installation of the track and switch panels,
                                            which prevents service delays and speed
                                            restrictions. Track components (which
                                            include running rail, cross ties, direct
                                            fixation fasteners, third rail insulators,
                                            and turnouts) require replacement when,
                                            based on industry standards, they become
                                            worn or unserviceable due to deterioration,
                                            excessive wear, or defects. No. 8 turnouts
                                            will be upgraded from unguarded to guarded
                                            turnouts based on National Transportation
                                            Safety Board recommendations.
     CIP027     Switch Machine             This project will improve the safety and               0.9          1.0
                 Rehabilitation Project     reliability of the interlocking track
                                            structure by replacing 20 switch machines
                                            throughout the Metrorail Systems. Switch
                                            machines have a normal life expectancy of 10
                                            years; all the switches to be replaced have
                                            been in service over 10 years.
     CIP133     Wayside Work Equipment     This project is for the installation of a              4.1          3.1
                                            safety signaling system at rail portals and
                                            other locations to alert personnel to
                                            approaching trains. This project will
                                            provide for enhanced safety for customers
                                            and WMATA personnel.
                                                                                         ---------------------------
                  Total                    .............................................         60.2         51.5
                                                                                         ===========================
            TRACK EQUIPMENT:
     CIP025     Track Maintenance          This project is for the rehabilitation and            17.3         20.7
                 Equipment                  replacement of heavy-duty track equipment.
                                            Track maintenance equipment is essential to
                                            deliver quality service and for the safe and
                                            efficient execution of the track
                                            rehabilitation work. Timely rehabilitation
                                            and replacement of four selfpropelled prime
                                            movers will ensure equipment reliability,
                                            reduce the probability of delays due to
                                            equipment breakdowns, and allow for
                                            efficient use of the right-of-way track time.
     CIP066     Rail Shop Repair           This project funds the replacement of rail             2.2          4.2
                 Equipment                  shop equipment that has reached the end of
                                            its useful life. Purchases will include
                                            approximately 125 pieces maintenance
                                            equipment, 48 pieces shop test equipment,
                                            and 15 pieces shop machine equipment. Some
                                            examples of equipment to be purchased are
                                            overhead cranes, rail train lifts, hoists,
                                            industrial shop air compressors, service
                                            elevators, hoisting mechanisms, wheel truing
                                            machines, and electrical controls.
     CIP089     Track Fasteners            This project is for the replacement of track           2.1          2.1
                                            fasteners. Deteriorated track fasteners
                                            cause stray current and have been found to
                                            cause fires in the system. Track fasteners
                                            are an integral structural component of the
                                            track system that needs to be replaced
                                            periodically. Approximately 15,000 track
                                            fasteners will be replaced on the Red Line
                                            with thesefunds.
                                                                                         ---------------------------
                  Total                    .............................................         21.5         27.0
                                                                                         ===========================
            MAJOR RAIL LINE SEGMENT
             OVERHAUL:
     CIP110     Rail Rehabilitation Tier   This project encompasses engineering and              34.5         60.6
                 1.--National Airport to    design to begin rail line segment
                 Stadium Armory             rehabilitation of the Orange/Blue/Yellow
                                            Lines from National Airport to New
                                            Carrollton which includes 23 Stations with a
                                            route mileage of approximately 18.7 miles.
                                            Stations scheduled for rehabilitation were
                                            completed and put into service between 1977
                                            and 1978. Work to be initiated includes but
                                            is not limited to traction power, automatic
                                            train control and communication upgrades,
                                            track fastener replacement, tunnel
                                            ventilation, air conditioners, replacing
                                            suspended ceiling tiles, canopy roof
                                            replacements, platform rehabilitation
                                            lighting, public address, and CCTV system
                                            upgrades.
     CIP116     Rail Yard Facility         This project is a rail yard rehabilitation of  ...........         24.8
                 Repairs Tier 1.--          Alexandria, Brentwood and New Carrollton
                 Alexandria, Brentwood      Rail Yards that were put into service
                 and New Carrollton         between 1976 and 1983. The contract will
                                            include items from the Inventory Database
                                            and other items identified by rail
                                            operations and maintenance, security and
                                            environmental to enhance operations and
                                            maintenance activities and provide a better
                                            work environment. Work will include all
                                            systems and infrastructure to increase
                                            overall efficiency.
                                                                                         ---------------------------
                  Total                    .............................................         34.5         85.4
                                                                                         ===========================
            RAIL PREVENTIVE MAINTENANCE:
     CIP125     Rail Preventive            This project is for preventive maintenance            40.9         20.8
                 Maintenance                and related purchases for rail cars.
                                            Activities will include regularly scheduled
                                            maintenance of railcar components and
                                            systems at scheduled duty-cycle intervals.
                                            Purchases will include brake parts, truck
                                            parts, propulsion parts and other parts
                                            necessary for maintaining functionality of
                                            rail car features.
                                                                                         ===========================
            TRACK SIGNAL IMPROVEMENTS:
     CIP135     Train Control Signal       This project funds the initial engineering             1.0         10.3
                                            support for analysis of the train control
                                            signaling system in an effort to improve the
                                            system.
     CIP136     FCC Radio Frequency        This project will meet the new FCC ``narrow            0.2          1.0
                 Communication Changes      banding'' requirement that affects the
                                            agency's UHF radio system. Planned
                                            activities include specification
                                            development, engineering, prototype testing,
                                            and project management. The primary impact
                                            is to the infrastructure equipment (as
                                            opposed to the subscriber equipment--
                                            handheld and mobile radios).
                                                                                         ---------------------------
                  Total                    .............................................          1.2         11.3
                                                                                         ===========================
            NTSB RECOMMENDATIONS:
     CIP139     NTSB Recommendations       This project will allow Metro to implement            10.3         10.3
                                            any forthcoming NTSB recommendations as a
                                            result of the ongoing accident investigation.
                                                                                         ===========================
            BUS FLEET REPLACEMENT AND
             REHABILITATION:
     CIP006     Bus Replacement            This project will purchase 100 buses a year    ...........  ...........
                                            to maintain an average fleet age of 7.5
                                            years based on the 2009 fleet size of
                                            approximately 1,500 buses that range in size
                                            from 26 to 62 feet, and are a mix of
                                            conventional and articulated buses.
                                                                                         ===========================
            MAINTENANCE OF BUS GARAGES:
     CIP119     Bus Garage Facility        This project is a bus facility rehabilitation         18.9         25.7
                 Repairs Tier 1.--          of Western, Northern and Landover bus
                 Western, Northern and      garages and other auxiliary facilities,
                 Landover                   includes Metro Supply facility, Landover
                                            Open Storage and Blair Road Support Shop.
                                            The facilities in this project were
                                            originally put in service between 1906 and
                                            1989. Work will include all systems and
                                            infrastructure to increase overall
                                            efficiency.
                                                                                         ===========================
            BUS SAFETY IMPROVEMENTS:
     CIP007     Bus Camera Installation    This project is based on completing            ...........          3.0
                                            installation on remaining buses, which will
                                            ensure that all buses will be equipped with
                                            camera systems to reduce detrimental impact
                                            of fraudulent claims, reduce or eliminate
                                            vandalism, deter crime, assist in criminal
                                            prosecutions, and help employees assist
                                            customer concerns and complaints.
     CIP002     Automatic Vehicle          This project will begin the replacement of             3.7         12.1
                 Location Equipment         Advanced Vehicle Location (AVL) equipment on
                 Replacement                buses that was installed on buses prior to
                                            2002. The equipment, which allows monitoring
                                            of bus locations, has a life span of 7-10
                                            year. If Metro does not replace obsolete AVL
                                            equipment, Metro will not be able to monitor
                                            the location of buses with the old equipment.
                                                                                         ---------------------------
                  Total                    .............................................          3.7         15.1
                                                                                         ===========================
                  PRIIA Funds              .............................................        300.0        300.0
    ----------------------------------------------------------------------------------------------------------------

               MEASURING PROGRESS AND PERFORMANCE IN METRO SAFETY

        Senator Mikulski. Well, let me get right to some of my
    questions. A year ago, right after the accident, I was very
    intensely critical of Metro, and everybody knows it. What I
    said, though, is that I didn't want to be the manager of Metro.
    I don't think that is an appropriate congressional role. But
    one of the questions that I said at that time, I am not saying
    it this time, is that often solving the problem was having a
    meeting about the problem, and that was viewed as solving the
    problem.
        I asked about how was Metro--and at that time I placed
    responsibility on the board, but I throw this question open to
    both of you. When we talk about safety and operational
    reliability--but let us go to the safety, you need to have the
    systems in place. You need to have the training, and you need
    to also find out if those systems and training are working.
        So my question to you is how are you measuring progress and
    performance? What we have here in your testimony, and you and I
    have had the opportunity to speak before, is a rather
    comprehensive list of actions taken. Develop an incident
    tracking and safety management reporting system. Encourage
    near-miss reporting, like an anonymous hotline. Strengthen
    whistleblower protection so you don't shoot the messenger.
        In other words, these look promising. But we have been down
    the road of promises before, both the Federal Government, when
    we promised funding and broke that promise. So now it is our
    job not to break our promise. But the second is that with this
    list of things that you say will improve safety, you, sir, and
    you, Chairman Benjamin, how will you measure progress? How will
    you measure performance? What metrics are you going to use so
    that you would really know if this is going to work?
        Mr. Sarles. First of all, we have set deadlines for
    delivering certain items, when we are going to have the track
    worker protection manual done, for example. We have already
    completed the draft, but now we have a deadline for finalizing
    that and starting training.
        We set dates for starting training programs. Starting next
    week, there will be a series of training programs over the
    summer for people. We have these deadlines set. We are going to
    make these milestones, and we can be measured against that.
        Beyond that, in the longer run----
        Senator Mikulski. But how are you going to measure them?
        Mr. Sarles. By meeting those deadlines. If we say we are
    going to deliver a manual, the track worker protection manual
    by a certain date, we have to make that date. If we say we are
    going to conduct training, which we are, this summer between
    such and such a date and what those courses are, we will show
    that we made those dates and, in fact, people attended those
    sessions. Those are the close-on measurements, if you will,
    that if you say you are going to do something, you deliver on
    it.
        Beyond that, ultimately, what the performance measure is,
    measures that you will see safety wise are number of injuries,
    both employees and passengers, number of incidents or
    accidents, that sort of thing. That tells you over the long
    term whether you are actually seeing the right trends. And if
    you are not seeing the right trends, which all should be
    downward, then you have to take additional actions. And those
    are the types of things we will make public so people can see
    how we are doing as a scorecard.
        Senator Mikulski. Well, there was a woman, actually, a
    widow, after her husband's death in January, stepped forward to
    say that this was her description of safety training for her
    husband--now I am going back to before your arrival, but
    nevertheless--she said Metro's solution is having a safety
    meeting, putting on a video, and then handing out hard hats.
        They met a deadline. They had a meeting. They even had
    ``training,'' but it was a video. Her husband, according to her
    comments, had concerns about the vehicle that ultimately killed
    him. That it was too powerful, too dangerous, and that it had
    no backup camera. It had no backup sound and lights were
    disconnected. Metro didn't have floodlights. In other words,
    this is beyond giving out manuals and meeting deadlines.
        Mr. Sarles. Yes.
        Senator Mikulski. I mean, start with the manual. But that
    is the whole darned problem, which is that we hear they are
    giving out manuals, and they meet deadlines. So what the hell
    does that mean? Pardon me.
        Mr. Sarles. Yes, sure. You have the manual. Then you have
    to train to that manual so the workers understand exactly what
    the procedures should be and how they should operate in a safe
    manner. And then you see, through gathering of the statistics
    that support the performance measures that, in fact, we are
    having fewer incidents, and the goal is to be zero in terms of
    accidents.
        So you have to take the first steps, put it into place, do
    the training, and then measure the results of that training.
        Senator Mikulski. Well, I understand, and I want to go to
    Mr. Benjamin, that at your board meeting, up until very
    recently, you got no reports on safety?
        Mr. Benjamin. Senator Mikulski, we did get reports on
    safety. We always, on a monthly basis, were told how many
    accidents there were, how many incidents of various types there
    were, how many fatalities, how many injuries, and what the
    trend over time had been. What we did not get reports on and
    what we should have heard about and we now are getting reports
    on is the degree to which our safety staff was fully staffed,
    the degree to which we were responding to our oversight
    agencies effectively and meaningfully, and the degree to which,
    when findings were made, we were, in fact, carrying out those
    activities.
        So, yes, we got the big picture, but we weren't getting
    enough. And we have now changed that. We are getting more
    information, and we have asked our inspector general, as a
    separate path. Originally, the only path was going through the
    General Manager. The inspector general now reports directly to
    us as the Board to review all of those materials, make sure
    that activities were occurring at the schedules that were
    required, and that if we are not getting that activity
    occurring, to report directly to the Board.
        We have also asked the Tri-State Oversight Committee to
    brief the board directly so that if information is not flowing
    properly, we hear about it right away.

                         TOP SAFETY AND HAZARD CONCERNS

        Senator Mikulski. The FTA audit found that Metro didn't
    have a list of the top 10 safety and hazard concerns. Do you
    now have that list?
        Mr. Sarles. Yes.
        Senator Mikulski. Are you aware, Mr. Benjamin, of what
    those top 10 are?
        Mr. Benjamin. I am not aware of that particular list.
        Senator Mikulski. But those are the top 10 safety and
    hazard concerns. Look, please, and I am not trying to play a
    game of ``I gotcha,'' and I am not trying to embarrass you. I
    am trying to get to the point. We had the accidents. We have
    had the FTA audit. We are making corrections.
        One of the things that they said was Metro did not have a
    list of 10 safety and hazard concerns. Now, sir, you say you
    have the 10?
        Mr. Sarles. Yes. And I will give you a couple off the top
    of my head. One is strengthening the Safety Department, which
    we have done. We are moving forward on that. We have hired a
    new Chief Safety Officer, who is here with us today. We had a
    dozen positions added. We filled six of them. We are
    interviewing this week and next week to fill the remainder.
        Another issue was to replace the 1000 Series cars. I am
    expecting to go to the board very shortly to seek approval to
    acquire new cars to replace those 1000 Series cars. And----
        Senator Mikulski. I have a request.
        Mr. Sarles. Sure.
        Senator Mikulski. We will leave this open. I would like you
    to submit for the record the 10 top safety and hazard concerns.
        [The information follows:]

                       Ten Key Safety and Hazard Concerns

        Replace the oldest railcars in the fleet (Rohr 1000 Series
    railcars).
        Develop a new real-time automatic train control redundancy system.
        Strengthen the expertise of the Safety Department.
        Complete the Roadway Worker Protection Program.
        Develop a training and certification program for bus and rail
    personnel.
        Strengthen employee knowledge of rules and rules compliance.
        Develop an accident and investigation database.
        Create a strong internal training tracking database.
        Fill vacancies in the Safety Department.
        Improve the agency's safety culture.

        Mr. Sarles. Yes.
        Senator Mikulski. The actions taken on them, and then I
    would like you to give them to your own Board.
        Mr. Sarles. Will do and we have discussed most of them with
    the Board. We have presented some of those.
        Senator Mikulski. That is the point.
        Mr. Sarles. Yes.
        Senator Mikulski. Mr. Benjamin, you are a very dedicated
    public servant. I know your record. You are man of really civic
    engagement. Can you tell me why you didn't have the top 10?
        Mr. Benjamin. Well, as Mr. Sarles was saying, I think I did
    not recognize it as ``the top 10,'' as listed like that. But I
    am fairly certain from his statement that these are all issues
    that we have discussed, just not discussed as ``the top 10
    list.''
        Senator Mikulski. Sir, would you identify and would you
    agree that those are the top 10 things that need to be changed?
        Mr. Sarles. Yes.
        Senator Mikulski. In the order of priority?
        Mr. Sarles. Yes.
        Senator Mikulski. Well, I would like to really have a copy
    of those top 10 for us as well for the record. But I also would
    really recommend we call this the ``checklist for change.''
    That this is one of the basic lists that we will follow. It
    won't be the sole list, but it will be a primary list that we
    can all agree upon actions taken and progress measured. Would
    that be a good way to go?
        Mr. Sarles. That is fine.
        Senator Mikulski. Because we don't want to be you, but we
    need to know how you are doing.
        Mr. Sarles. And I welcome that, and that is part of the
    scorecard----
        Senator Mikulski. We need to know then how the board then
    focuses on that. Now we understand that the safety department
    has had 41 staff positions, but 10 were vacant. Now where are
    we on that?
        Mr. Sarles. Yes, and that is what I was referring to
    before----
        Senator Mikulski. Maybe you don't need all 41. Maybe that
    was from another era. But what we are concerned about is that
    since 2006, it was reorganized six times. That is what I mean
    about having a meeting, a meeting, a meeting, and then the
    meeting met the meeting, and then it met the deadline.
        Mr. Sarles. I will agree with you that there has been too
    much reorganization.
        Senator Mikulski. Not enough organization.
        Mr. Sarles. And I am trying to stabilize that. And one of
    the things that was done just before I got there--and it is the
    right thing--is that the Chief Safety Officer now reports to
    me. Ten positions were created. Actually, I think it was a
    dozen last December. Six of them have been filled. We are
    interviewing for the remainder. We expect to fill those within
    the next 45 days.
        Senator Mikulski. You will have that in 45 days?
        Mr. Sarles. Yes. And then, on top of that, the board
    authorized at their last meeting the hiring of outside
    expertise because I want to take a look at further
    strengthening the Safety Department to see if the staffing is
    appropriate, to see if they are trained properly.
        The board has authorized that. We are out now seeking
    proposals. And I expect within the next 2 weeks to award that
    contract.
        Senator Mikulski. So, what do you think will happen when
    you do that?
        Mr. Sarles. The key thing is that we look at the Safety
    Department and, as I said, see where it needs to be
    strengthened further. Is it organized exactly the way it should
    be? Get that outside expertise and also aid us in looking at
    the other safety aspects as part of our safety plan.
        Mr. Benjamin. Senator Mikulski, if I may?
        Senator Mikulski. Yes, please.
        Mr. Benjamin. I think one of the most important things that
    Mr. Sarles has focused on is the culture issue, which you
    mentioned earlier, and the fact that safety is not something
    that happens in a safety office and that safety officers who
    work in headquarters don't cause safety to come about.
        And one of the things that he has been working on is making
    sure that safety is, in fact, the way that we live, the way
    that we react, the way that everybody focuses on the actions
    that they take, starting, as you pointed out, from the
    Congress, through the Board, the General Manager, the
    supervisors, and everybody working throughout the system. And
    one of the things he has done right away is to make sure that
    there are safety people out in the field working with the
    various organizations, not just in an office sitting and
    keeping track of things.
        Senator Mikulski. Well, I would concur. Safety officers are
    not meant to be the bean counters, counting how many accidents
    happen. It is the major prevention team. So in the area of
    safety, you not only need to have first responders, the ability
    to get out of the cars fast. You know, a lot of what the
    National Transportation Safety Board [NTSB] is going to tell us
    is what to do after a crash, which is how to get out fast and
    to have a black box to tell you what happened. We are in the
    prevention business.
        Mr. Sarles. Exactly.

                              METRO MODERNIZATION

        Senator Mikulski. That is what we are. I think the biggest
    role of Congress is we are in the prevention business. I know
    we must be. I want to move in short order to modernization
    questions and then this will go to the question related to
    modernization. To what degree, when we look at technological
    problems and the survivability of the cars, is due to the fact
    that the Metro system is a system that is aged in place?
        Mr. Sarles. Certainly, when you have a----
        Senator Mikulski. Do you agree, first of all, that is aged
    in place?
        Mr. Sarles. Yes.
        Senator Mikulski. That it takes a lot to run it and
    maintain it?
        Mr. Sarles. And that is one of the things that has not
    occurred over the years, as I can see. The attention to
    maintenance, the attention to reinvesting in the system just to
    keep it in a state of good repair, sort of like-new condition,
    without having that continual reinvestment in the state of good
    repair, it does cause reliability issues. You are now repairing
    things. Things break down, even during the operation. That
    shouldn't be the way it operates.
        And I believe with the proposed capital program, that
    especially with the infusion of the $150 million for 10 years
    and the matching funds from the jurisdiction--that, combined
    with maintaining the same level of other jurisdictional
    contributions, will go a long way over a period of time to
    restoring this system to a state of good repair.
        It is not there now, and it has got to be changed. And that
    is what we are focused on.
        Senator Mikulski. Mr. Benjamin, do you want to comment on
    that?
        Mr. Benjamin. Yes. I agree entirely with the statement that
    you made. Our rail system is not brand-new anymore. It is 34
    years old. Senator Cardin made that point as well.
        It is a system which has not been reinvested in. You cannot
    have an infrastructure that hasn't been properly reinvested and
    parts of it maintained properly. Most of our escalators, one of
    the things that people complain about all the time, were
    designed to operate for 20 years. Many of them are 30 and 35
    years old.
        When you have equipment that old, maintaining it, keeping
    it operating is extremely difficult, and the result is you are
    compromising safety.
        When you have moving equipment that people ride on, you
    have to maintain it. You have to replace it when the time
    comes. And we have not made those investments, and that is what
    is critically necessary. And I believe that with the new
    funding that we have from the Federal Government, with the
    continued funding by each of the jurisdictions by their match
    to the funding from the Federal Government, we will be making
    progress.
        And probably, we will get to the point where we will be
    able to bring our system to a state of good repair. What we
    will then have is the challenge that we won't have enough money
    to really deal with the expansion of service that is necessary
    even within our given confines in order to allow us to serve
    more and more people that will need to use our existing system.
        Senator Mikulski. Well, I know you have just completed
    extensive public hearings over the fare box issues, and you
    have a pretty good sense that Metro, No. 1, is popular.
        Mr. Benjamin. Yes.
        Senator Mikulski. There is a lot of expectation of Metro.
    As I understand it a significant amount of your funds are now
    going into Metrobus and MetroAccess. Is that correct?
        Mr. Benjamin. In the increase that is in the proposed
    budget, the subsidy increase for bus goes up by about $20
    million, the subsidy increase for MetroAccess goes up by about
    $20 million, and the subsidy increase for rail is actually a
    decrease of $40 million. So what we are looking at is
    substantial subsidy going to bus and to paratransit and rail
    not getting as much. What we are doing then is charging our
    rail passengers more and having them pay that difference.
        Senator Mikulski. Well, that is a pretty startling kind of
    breakdown there because it is the rail that carries the
    majority of the passengers. I am not into allocation or
    disputing because I think you would be the first to say you
    need rail, bus, and then people with special challenges need
    the MetroAccess. We are not disputing any of that.
        But for the $150 million Federal contribution, what are we
    going to get? Are we going to get modernization? Are we going
    to get maintenance? Are these safety improvements? What would
    be the breakdown of the $150 million?
        Mr. Sarles. You are getting, first and foremost, safety
    improvements. The second is state of good repair improvements.
    That is just bringing the system back to where it was, and when
    you do that, you also improve the safety of the system because
    there are less breakdowns, which causes other problems. That is
    what the capital program is all about. It is safety and state
    of good repair and that is especially what the dedicated funds
    are going to, nothing else.
        As the chairman was mentioning before, we are not, in this
    program, at this time, investing in ways to expand the system
    either by adding more eight-car trains or expanding the number
    of buses. This is solely focused on the existing system's state
    of good repair and safety.
        Senator Mikulski. What about modernization?
        Mr. Sarles. Only in the sense that, say, for instance, when
    we replace the 1000 Series rail cars, we will, of course,
    design them and build them to the latest standards, both safety
    and functional and all the other standards. So, in that sense,
    there is a modernization. When you take something old and
    rehabilitate it, you bring it up to the most modern standard.
    So you get that kind of modernization that goes on.
        Senator Mikulski. Well, this takes me to the Federal
    responsibility that while we might be self-congratulatory that
    we are finally providing a guaranteed revenue stream of $150
    million, the fact is, is that helps maintain the status quo in
    good operating order.
        Mr. Sarles. Right.
        Senator Mikulski. I don't mean to overstate it, but is that
    kind of a good summary of it?
        Mr. Sarles. Exactly.
        Senator Mikulski. So, if we wanted to modernize, it would
    take additional revenue from either your Federal partners or
    other partners. Is that correct?
        Mr. Sarles. That is correct.
        Senator Mikulski. If you wanted to because we know there is
    going to be some rather robust NTSB recommendations. Those will
    probably in many ways deal with more modernization. Am I
    correct?
        Mr. Sarles. Yes, I would assume so.
        Senator Mikulski. Well, what I would like from you, as we
    discuss it among ourselves because this goes to national
    priorities for not only the Washington system, but for
    Americans' public transit, is how are we going to meet our
    responsibilities for capital improvement, modernization, and
    operational cost? These are national issues, and in some ways,
    you are right here. So we see you with the good, the bad, and
    the ugly.
        But I am going to go to the good, and a modern system needs
    to be continually modernized and from a management standpoint,
    modernization is not an event. It is a process.
        Mr. Sarles. You are right. It is a continuing process. As
    we rehabilitate, improve, we have to also bring it up to modern
    standards. And if you don't, you fall behind.
        Senator Mikulski. Well, I like to have hard, concrete
    things, as you hear me say, to measure against, for example the
    checklist for change. But when NTSB comes out with their
    report, apart from overall words like ``modernization,'' we
    would like to hear from you what would it take to implement it?
    And I think that is a fair question.
        We don't want to create unfunded mandates, but I think it
    is time that Congress has to take a realistic view of what it
    needs to do to provide in partnership--again, we are in
    addition to the stakeholders and the locales. But at the same
    time, if there are Federal requirements, there should be a way
    for assistance to meet those Federal requirements.
        Mr. Sarles. I would welcome that----
        Senator Mikulski. I am sure that is the way you see it.
    That, in some way, is out of the scope of the subcommittee. I
    mean, it goes to authorization. But I believe rail, whether it
    is heavy rail to move cargo in our corridors, whether it is--I
    will call it heavy rail, to move people in the Northeast
    Corridor, whether it is our MARC trains or the Virginia version
    of that, we need to have a real commitment to rail and mass
    transit in this country because, whether it is Purple Line, our
    Red Line in Baltimore, your Red Line here, but we are running
    into a lot of red ink. Isn't that the problem?
        Mr. Sarles. Yes.

                                BUDGET SHORTFALL

        Senator Mikulski. Now you have a $189 million shortfall?
        Mr. Sarles. Currently, right.
        Senator Mikulski. So, first of all, what you hear from the
    subcommittee is not shouts and chest pounding about how we are
    going to withhold the money until you do such things. We do
    believe, though, there has to be modernization. There has to be
    safety reform, and there has to be accountability. By
    accountability, we mean real measurements.
        So we are going to be talking with you over the next year.
    We have said a lot about what we think about you. I am not
    going to ask you what you think about us. But as Congress looks
    at what it needs to do, I am asking you what your
    recommendations would be to us about what a Federal partnership
    would mean for modernization, safety improvements, and
    increased operational reliability.
        Whether it is the escalator working, which we hear a lot
    of, or the fact that significant funds do go in buses.
    Significant funds do go into meeting the Federal mandate of
    access for people who are challenged. Am I correct?
        Mr. Benjamin. You are absolutely correct.
        Senator Mikulski. So do you have thoughts or
    recommendations you would like to make to us?
        Mr. Benjamin. Well, one of the issues, as you point out, is
    that we do have a number of requirements that are already upon
    us, one of those being providing service for persons with
    disabilities. And that is an ever-increasing cost to every
    transit system in the United States.
        It is a critical service for us to provide because we are,
    in fact, the lifeline for many of those people. It is the only
    way that they can become productive members of society, and
    therefore, it is critically important for us to provide the
    service.
        However, what we are discovering is that it is overwhelming
    in terms of the cost increases, particularly in this area. It
    is overwhelming our ability to also provide service for
    everybody else because we just don't have enough money to catch
    up with everything. So, to the degree that the Congress can
    help us in funding that portion, and that is actually everybody
    in the United States, every transit system in the United
    States, funding the increasing operating costs of that portion,
    it allows much of the State and local funding, which otherwise
    is going into those increases, to be used for improvements in
    bus and improvements in our rail service, which, as you point
    out, is where the vast majority of our people are.
        So we have got to draw a balance between providing a
    critical service for people that have no other choice and
    providing the really major service for the vast majority of the
    people in the region. So it is an area that is very, very
    important. And I would encourage the Congress to look at that,
    both for Metro here, but for everybody around the country.
        Senator Mikulski. That is what I was saying. This is a
    national issue, and it is a mandate. Well, I can only speak
    from personal experience. You know, about 10 months ago, I had
    a fall and cracked my ankle in three places. So I got around
    with a wheelchair. Then I got around with a walker. I had a
    space boot that was 3 feet long. But my situation was
    temporary.
        But I learned a lot from the temporary situation because I
    often thought about for many people, whether it is a returning
    Iraq or Afghan vet, whether it is a senior citizen, a child
    injured in an accident, mine was temporary, but for many, it
    would be permanent. But I mean, even for me, getting to
    doctor's appointments, returning to work, I had a car and
    somebody to help me.
        If I didn't have that, and you will be interested to know,
    when I came in to vote for Sotomayor and I came in from Mercy
    Hospital to meet my constitutional responsibility, I came in a
    mobility van. Not yours, but something provided by the Senate
    to move handicapped Senators or staff around. I thought, you
    know, there are people that do this every day, and they need
    it. I am really committed to them having that service.
        But what you are saying is commitment, social policy,
    economic policy, this would be an area where the Federal
    Government is not taking over the role of the State and locals,
    but it is meeting a Federal mandate. This is an area that would
    enable State and locals to use other of their funds. So now you
    are subsidizing the Federal mandate when the Federal Government
    should be paying the share for its own mandate.
        Mr. Benjamin. Extremely well said, Senator Mikulski.
        Senator Mikulski. Is that the way it would go?
        Mr. Benjamin. Absolutely.
        Senator Mikulski. Well, I think that is a very good
    direction to go in because as we ponder how to think about more
    money, again, the national systems--New York, San Francisco,
    Chicago, any big city, my own, the one in the Baltimore area--
    we don't want to get in the business of being the local
    government or the State government. But I think this is a very
    good guidance.

                            CORRECTIVE ACTION PLANS

        Before I go on to the other panel, I do have a question
    again about the FTA report. I understand that there were a
    number of open cases that were in the audit. I think there were
    63 open cases dating back to 2006. Could you tell me where you
    are on your open cases and the backlog, and were they resolved?
        Mr. Sarles. Sure. They are not all resolved yet. One of the
    things that we have been much more aggressive about is these
    corrective action plans, and there are old ones and new ones
    get added. We have actually become more aggressive in the last
    few months, upping the number of closeouts, if you will.
        I have given staff a goal of 10 a month so that when you
    look at where we are--we are about at 85 because others got
    added. But we are now cutting away at that backlog, if you
    will, and the goal is to get them down quickly.
        Senator Mikulski. How old is your oldest case?
        Mr. Sarles. It is several years old. I don't remember the
    exact date, but it is several years old.
        Senator Mikulski. In other words, are you moving the
    backlog?
        Mr. Sarles. We are going after the backlog, too, as well as
    the current stuff. Yes.
        Mr. Benjamin. Senator Mikulski.
        Senator Mikulski. Yes.
        Mr. Benjamin. This was the area that I was referring to
    that the board was actually very shocked when we discovered how
    many of these cases there were. There are two parts to it. One
    is the creation of a corrective action plan. That is responding
    to an audit finding and saying this is what we are going to do.
        We did reasonably well on that, but not very well; we had a
    lot of corrective action plans that had never been filed, never
    been created.
        The second part is actually implementing that plan and
    making sure you have done something. Now some of those you can
    do very quickly and easily. Some of those are very difficult
    because one of them, for instance, is a recommendation by the
    National Transportation Safety Board that we replace 300 1000
    Series railcars. Well, that takes a lot of money and takes a
    lot of engineering. So those take longer.
        So it is reasonable for some of them to be a little bit
    older and some of them to be newer. But one of the things we on
    the Board have said is we want to know what is out there and
    what progress we are making and we are now getting those
    reports.
        Mr. Sarles. To give you a more definitive answer, the
    oldest two are from 2004 and have to do with configuration
    management, which is how you make sure all the changes that
    take place on a particular event get integrated. Those are the
    two oldest.
        Senator Mikulski. Well, that is exactly what we are talking
    about, all the lessons learned.
        Mr. Sarles. Yes.

                                  METROACCESS

        Senator Mikulski. One last question and this is a budget
    question. How much does it cost you to run MetroAccess, and how
    much is the Federal contribution? Do you know that?
        Mr. Sarles. Off the top of my head----
        Mr. Benjamin. I can tell you what the Federal contribution
    is. It is zero. It is around $100 million----
        Mr. Sarles. Yes, that is the number. And there is no
    Federal contribution to our operating budget. So we absorb that
    totally. The jurisdictions do.
        Senator Mikulski. Well, I think that is an interesting
    insight.
        Well, we want to thank you, Mr. Benjamin. We want to thank
    you, Mr. Sarles. We know we are going to have a lot more
    conversations. You are excused from the testimony. If you want
    to stick around, we are happy to have you.

                            NONDEPARTMENT WITNESSES

        Senator Mikulski. We would now like to call up to the
    witness stand Ms. Jackie Jeter, the president of the
    Amalgamated Transit Union Local 689. We also wanted to hear
    from the riders. We wanted to hear from Mr. Francis DeBernardo,
    the chairman of the Metro Riders' Advisory Council, and Mr.
    Jack Corbett, the head of MetroRiders.org.
        So, Ms. Jeter, you represent a good bit, if not the
    majority of workers at WMATA. We would love to get your views
    on safety. And again, there were people who were members of the
    union who passed away at these terrible and horrific accidents,
    our sympathy and condolences to their families.
        But we feel that the way we can express sympathy is to make
    sure it doesn't happen again and again and again. So we welcome
    your testimony and your insights.
        And to the riders, we want to hear what you have got to say
    and uncensored, no holds barred.

    STATEMENT OF JACKIE JETER, PRESIDENT, AMALGAMATED
                TRANSIT UNION, LOCAL 689
        Ms. Jeter. Thank you.
        I would like to start off by thanking Chairwoman Murray, as
    well as you, Senator Mikulski, on your insight concerning the
    Federal Transit Administration's audit, also your introduction
    of Senate bill 1506 on WMATA safety. It shows the dedication
    that is needed on this particular issue.
        Every WMATA stakeholder has a vested interest in making
    sure that we discuss the issues, but more importantly, making
    sure that we find solutions that enable us to move forward. As
    a stakeholder, Local 689 is fully aware of each safety,
    funding, and operations issue is interdependent. It is
    incumbent upon all of us to rebuild the public's confidence in
    our good, but aging transit system.
        I will address each part of the questions that you ask. I
    will start with the budget. In order to realistically develop a
    plan of action that will address the various safety issues
    facing the transit system, we must begin with the funds
    necessary to operate and improve it. The infrastructure at
    WMATA rail system is over 30 years old, and as such, an
    investment must be made to improve technology, repair the
    places where the structure has weakened, and provide for growth
    of the system.
        Proper fiscal planning must be the cornerstone of this
    system. We have debated wage and benefit issues for the last 3
    years and have been victimized by WMATA's failure to adequately
    plan for expected labor cost increases. Beyond the impact of
    wages and benefits, it is the impact on the public, as service
    cuts are becoming standard practice to help close budget gaps.
        Further, insufficient capital funds have led WMATA into an
    environment where less than a state of good repair exists. For
    example, WMATA has identified $11.4 billion in capital needs
    over the next 10 years. Even with maintenance of efforts, the
    budget gap will not be completely closed and only maintaining
    the present system without providing an expansion.
        And in my written testimony, I go on, but I would like to
    also add that I would also recommend that requirements for
    meaningful whistleblower protection be included in the
    appropriations language. Some of the things that I talk about
    are the flexibility in the capital budget allocation in order
    to allow the use of capital funds to cover operating cost,
    making sure that the Federal transit benefit remains at the
    $230 a month; the two appointments for the Metro board, in our
    opinion, should at least be someone of a transit advocacy
    background, environmental group, or a labor union; and when we
    go down to safety, we have addressed this holistically by
    defining safety as a three-pronged stool. Our internal process;
    interaction with WMATA, and the need to keep the public safety
    at the forefront of our decisions and consideration for all
    other components of the plan, including funding, that impact
    everything that we do; the concerns of the Metro workers; and
    needed improvements.
         In the last several weeks, there has been an effort to
    look more closely at the overall safety issues affecting the
    system. Although I have been pleased to see some
    recommendations given to the Metro board, I am not confident
    that those changes will be implemented immediately. WMATA has
    inculcated a culture of deferment, which postpones needed
    improvements and changes in the system.

                               PREPARED STATEMENT

        Finally, I note the tendency to blame individual employees
    instead of looking for underlying systemic causes of safety-
    related incidents. We believe that it should be urgency and
    rapidity that causes Metro to do what is needed to improve the
    safety of the Metro employees.
        Thank you for your time and attention.
        [The statement follows:]

                       Prepared Statement of Jackie Jeter

        I would like to begin by thanking Chairwoman Murray for convening
    this hearing and allowing us to participate in this important
    discussion. Senator Mikulski, thank you for your insight concerning the
    Federal Transit Administration's audit that has identified several
    serious underlying safety problems. Your introduction of Senate bill
    1506 on WMATA safety shows the dedication that needs to be given to
    this issue.
        Every WMATA stakeholder has a vested interest in making sure we
    discuss the issues, but more importantly making sure that we find
    solutions that enable us to move forward. As a stakeholder, Local 689
    is fully aware that each safety, funding, and operations issue is
    interdependent. It is incumbent on all of us to rebuild the public's
    confidence in our good but aging transit system.
        I will address each part of this equation: (1) Fiscal year 2011
    budget request for WMATA; (2) Local 689's efforts to improve safety and
    operational reliability; and (3) concerns of metro workers and needed
    improvements.

                   FISCAL YEAR 2011 BUDGET REQUEST FOR WMATA

        In order to realistically develop a plan of action that will
    address the various safety issues facing the transit system, we must
    begin with the funds necessary to operate and improve it. The
    infrastructure of the WMATA rail system is over 30 years old and as
    such, an investment must be made to improve technology, repair the
    place where the structure has weakened, and provide for the growth of
    the system.
        While the need for more transportation has increased, the amount
    given to fund that necessity has not. That is evident from the current
    much publicized events at WMATA. The impact of insufficient funding has
    had a devastating effect on workers, riders, businesses and overall
    development in the three jurisdictions hosting the system. Public
    transportation will never be profitable; it is a public service. The
    critical nature of funding and the lack thereof has a major impact on
    the riding public and WMATA employees.
        Proper fiscal planning must be a cornerstone of this system. We
    have debated wage and benefit issues for the last 3 years and have been
    victimized by WMATA's failure to adequately plan for expected labor
    cost increases. Beyond the impact on wages and benefits is the impact
    on the public as service cuts are becoming standard practice to help
    close budget gaps. I will emphasize the need for flexibility in the
    capital budget allocation in order to allow the use of capital funds to
    cover operating costs. The ability to purchase a bus or rail car is
    only one part of the equation. If the Federal Government does not
    establish flexibility in the use of funds, it will be guilty of
    weakening the system. As users and providers, ATU Local has spent many
    hours developing and outlining these suggested measures:
      --Extend the Federal Transit Benefit at the $230 per month level
            (Currently set to expire and revert to $120 per month as of
            December 31, 2010.
      --Require the Federal General Services Administration to appoint the
            two remaining WMATA board members, (one voting, one non-voting)
            with at least one with a transit advocacy background, such as
            an environmental group or labor union.
      --Support the passage of the Carnahan/Brown Bill to permit large
            systems flexibility in use of Federal capital funds to cover
            operating costs.
      --Passage of an ``Emergency Assistance'' bill that would help transit
            agencies through this recession.
      --Move on 6-year Federal re-authorization bill that provides a
            permanent funding plan for transit agencies. (Extension of
            current authorization expires 12/31/2010. WMATA had recently
            proposed a $4.6 billion, 6 year capital program. The previous
            ``Metro Matters'' agreement spent $2.8 billion + $.2 billion in
            Stimulus Funds over a 6 year period. Adding the $1.8 billion in
            Federal and local ``dedicated funds'' would have been a $4.8
            billion program. Adding an inflation factor would make that
            total even higher. The current draft agreement provides for a
            level of spending just over $5 billion over the next 6 years.)
      --WMATA has identified $11.4 billion in capital needs over the next
            10 years. Even with ``maintenance of effort'' the budget gap
            will not be completely closed and only maintaining the present
            system without providing any expansion capacity.
      --The General Services Administration should be urged to locate new
            Federal facilities in the Washington area near Metro stations
            and restrict the number of parking spaces at such Federal
            facilities to a reasonable ratio of automobile vs. transit
            usage.
      --Support Obama's ``Public Transportation Safety Program Act'' (SB
            3015).
      --Review carefully the formula grant that is used as the basis for
            Federal funding to consider adjusting the percentage allocated
            to Metro.
      --Lobby to establish a dedicated funding source from the
            jurisdictions.
      --Consider recapturing tax incentives given to businesses that
            surround the Metro stations. They should bear a greater share
            of the costs because they gain a greater benefit as a result of
            their location.
      --The Federal transit benefit should be indexed to both increased use
            (riders) and inflation. It would get an annual increase
            automatically that reflects the real costs of providing
            increased services and any increase costs resulting from
            inflation.
      --Consider supporting the development of the outer spokes of the
            system to increase ridership and revenue from business
            development likely to occur around the stations.
       local 689's efforts to improve safety and operational reliability
        We have addressed this holistically by defining safety as a three
    pronged stool--our internal process, interactions with WMATA and the
    need to keep public safety at the forefront of our decisions, and
    consideration of all other components of a plan, including funding,
    that impact everything we do. Our Internal process includes:
      --In cooperation with WMATA, relying on the Joint/Labor Management
            Safety Committee to address issues as they occur.
      --In our orientation process and during union meetings we openly
            discuss safety issues and solutions.
      --Forging a proactive media campaign and release of public statements
            to apprise the public of issues and possible solutions to
            safety problems with Metro.
      --Testifying before local and Federal agencies in regard to safety
            issues, incidents and accidents to publicize the changes and
            improvements needed to ensure greater safety throughout the
            system.

               CONCERNS OF METRO WORKERS AND NEEDED IMPROVEMENTS

        In the last several weeks there has been an effort to look more
    closely at the overall safety issues affecting the system. Although I
    have been pleased to see recommendations given to the WMATA Board, I am
    not confident that those changes will be implemented immediately. WMATA
    has inculcated a culture of deferment which postpones needed
    improvements and changes to the system. Finally, I would note that
    there is a tendency to blame the individual employee, instead of
    looking for underlying systemic causes of safety related incidents.
        Local 689's experience concerning the investigations, leads us to
    the belief that to date, WMATA has not implemented several key measures
    that would make the Metrorail system safer.
        Urgency and rapidity should be the hallmark of the suggested
    changes we are offering below. WMATA must consider instituting the
    following without delay:
      --Multiple layers and redundancy of safety protections.
      --Codification of standards for track worker safety similar to
            Federal Railroad Administration track worker safety standards.
      --Clear and concise communication between workers and controllers.
      --Clear notification and designation of work areas and zones on the
            right of way.
      --Development of a safety communications plan that alerts all WMATA
            employees immediately to incidents.
      --Immediate notification of the union when a safety incident occurs.
      --Firm commitment to respect the rights of workers to have a union
            representative present during investigatory interviews after an
            incident.
      --Effective worker safety training.
      --Supervisory enforcement of safety standards.
      --A process for WMATA employees, to appeal the standards they believe
            to be incorrect or unsafe, such as a Safety Appeal Board.
      --Meaningful whistleblower protection to insure that employees are
            not fearful of reporting perceived safety problems.
      --Effective labor-management safety committees.
      --WMATA's commitment to the rapid development and implementation of
            procedures and standards that are calculated to improve safety
            immediately and in the long term.
        Thank you for your time and attention to my concerns. I would be
    pleased to address any questions you might have in regard to my
    testimony. Thank you on behalf of my members and the riding public.

        Senator Mikulski. Thank you. That was very powerful.
        Let us go down this way. Mr. Corbett.

    STATEMENT OF JACK CORBETT, DIRECTOR, METRORIDERS.ORG
        Mr. Corbett. Thank you, Senator.
        I appreciate the opportunity to testify, and I wanted to
    thank you on behalf of our members for your having lit a fire
    under WMATA leadership some months ago when it was very much
    needed. We are very appreciative of that.
        As you have said so well, the riders are very upset and
    have lost confidence in the system over the last year. The
    tragedy on the Metrorail system last June, the loss of Ms.
    Jeter's employees in other accidents, the scathing report from
    the Federal Transit Administration over the safety culture at
    WMATA, those things have all been very worrisome to riders. To
    ride the train and to see people choosing not to go into the
    first car of a six-car train because they know that was the one
    that had the tragedy is very worrisome to us.
        There is some good news. We are very pleased that two of
    the four Federal members of the Board of Directors have been
    appointed. Two, we are very pleased that WMATA has the
    leadership of Peter Benjamin this year, whose many years of
    service with WMATA makes him an admirable leader for WMATA's
    board during this very tough period.
        We are really pleased that this subcommittee is having this
    hearing because there are not many Federal or regional agencies
    that have any leverage over WMATA. As you know from having
    cosponsored legislation, the FTA cannot mandate any safety for
    WMATA. The local Tri-State Operating Committee is powerless and
    cannot require Metro to do anything. So we think this
    subcommittee, through your power over the conditions of the
    $150 million annual appropriations, can be very, very helpful.
        And we have got some very specific suggestions. As you have
    already indicated, put on maintenance of effort requirement so
    the jurisdictions that have financial problems of their own
    don't play games where they give $50 million in one side and
    they take money out of the other pocket. So that is very
    important.
        The other things the subcommittee could do to be very
    helpful: you could call the administrator of the General
    Services Administration [GSA] right now. They have been
    interviewing candidates for the other two Federal appointments
    since Thanksgiving, and we have urged that at least one of them
    be a safety official that would be added to the Board of
    Directors, and they still don't have two final appointments to
    the Metro Board, when the Board has got to make very important
    decisions about safety, funding, and capital.
        Before you finalize your appropriation this year, check to
    see how well WMATA is doing in agreeing to implement whatever
    recommendations the NTSB comes out with between now and then
    having to do with the causes of the tragic accident.
        Also, it was your work last year that got the FTA to issue
    that report. We think the subcommittee report ought to indicate
    that FTA should do another report at the 1-year point just to
    see what you have heard from Mr. Sarles and Mr. Benjamin is
    really having an effect, rather than just being paper products.

                               PREPARED STATEMENT

        We have other suggestions attached to our testimony. One I
    have to mention is even with WMATA's and the jurisdictions'
    best efforts, there is a $3 billion shortfall in the capital
    needs, as Ms. Jeter has pointed out, over the next 10 years. In
    the current capital budget, there is no money for any
    additional railcars or buses for 10 years. That means the
    riders who are standing today are going to have to stand for 10
    more years unless somebody, maybe the Congress, maybe the
    jurisdictions, contribute some funds to WMATA and other pressed
    transit systems in the country to fill that gap.
        Thank you very much, Senator.
        [The statement follows:]

                       Prepared Statement of Jack Corbett

        Chairman Murray and members of the subcommittee: Thank you for
    inviting MetroRiders.Org to testify today to discuss fiscal year 2011
    appropriations for the Washington Metropolitan Area Transit Authority
    (WMATA) and the safety and operational reliability concerns of
    Metrorail and Metrobus riders. MetroRiders.Org has represented the
    views of transit users in the Washington, DC metropolitan area
    beginning in 2004. We are a riders' voice outside WMATA.

                         SAFETY CONCERNS ARE PARAMOUNT

        WMATA's recent and continuing safety and financial challenges are
    well known. The June 2009 Metrorail tragedy that took 9 lives and
    injured 80 others and the subsequent deaths of track workers document
    that Metrorail safety problems impact riders and employees alike.
        Senator Mikulski's leadership in urging a Federal Transit
    Administration (FTA) safety audit of WMATA and the regional (powerless)
    Tri-State Oversight Committee generated a hard look at WMATA's own
    safety program and resulted in a scathing FTA report questioning the
    safety culture at WMATA. More recently, David Gunn, a former WMATA
    General Manager, was asked by the current WMATA Board to conduct a
    review of the entire Metro operation. That 2-week review resulted in a
    report highly critical of WMATA's management and organization and
    suggested that ``MetroRail has downhill momentum that will be difficult
    to stop.'' Both the FTA audit and the Gunn presentation to the WMATA
    Board should be included in the record of today's hearing.
        Finally, the National Transportation Safety Board (NTSB) held 3
    days of investigative hearings in February about the June 2009
    Metrorail tragedy; its findings on the probable cause or causes of that
    accident should be released soon. For all these reasons it's
    understandable that there has been a loss of rider and public
    confidence in Metro's safety, management and operation.

               WMATA BOARD HAS BEEN RESPONSIVE TO SAFETY CONCERNS

        The current WMATA Board has played catch-up but is now attuned to
    fixing the system's safety problems. We are grateful that current WMATA
    Board Chairman Peter Benjamin has had decades of experience as a WMATA
    staff official and is leading the Board--composed of public officials
    and political appointees--during this critical period. The recent
    appointments of an Interim General Manager and a new WMATA Chief Safety
    Officer are hopeful signs.
     financial problems underlie the 34-year old metrorail system's frailty
        Metrorail's safety problems are not unconnected to its age. Like
    many aging transit systems across the Nation, Metrorail needs to
    replace its oldest cars and rail infrastructure to meet FTA's ``state
    of good repair'' recommendations, as well as to increase rail and bus
    capacity to meet growing traffic demand. Unfortunately those capital
    requirements are occurring at a time when WMATA's contributing
    jurisdictions are hard pressed to provide the needed resources because
    of their declining revenues during the national economic downturn.

            FISCAL YEAR 2011 OPERATING BUDGET GAP IS ALMOST RESOLVED

        There's somewhat better news, at least procedurally, about WMATA's
    operating budget. Everyone has read that WMATA has an estimated $189
    million gap in its fiscal year 2011 Operating Budget (July 2010-June
    2011). While riders will have to pay substantially higher fares
    starting this summer to help eliminate the coming year's operating
    budget gap and even then may suffer some service cuts, the WMATA Board
    has handled this situation very well. It opened up its decisional
    process to input from riders and the general public well before tough
    decisions were needed.
        WMATA received some 5,000 communications from the public about ways
    to solve the budget problem; some groups, including MetroRiders.Org,
    offered highly detailed proposals that were designed, for example, to
    move riders out of congested peak periods where possible, and to
    generate adequate revenue to eliminate or substantially reduce the need
    for Metrorail and Metrobus service cuts. We are grateful to the WMATA
    Board and staff for carefully considering these options. That the
    process was open, transparent and deliberative will make the resulting
    and inevitable fare increases somewhat more palatable.

         METRORIDERS.ORG'S ``TOP 10 RECOMMENDATIONS TO IMPROVE WMATA''

        MetroRiders.Org has developed a substantial list of recommendations
    for restoring the public confidence in WMATA's governing body and
    management and in the safety of everyday Metrobus and Metrorail
    operations. That list is attached, and our recommendations would
    involve actions by this subcommittee, other Senate and congressional
    committees, Maryland, Virginia and the District of Columbia, the WMATA
    Board itself, and private organizations as well.

      SENATE THUD APPROPRIATIONS SUBCOMMITTEE HAS BROAD JURISDICTION OVER
                                     WMATA

        This subcommittee's jurisdiction over WMATA includes the authority
    to make appropriations for the U.S. Department of Transportation and
    its component agencies such as FTA and, specifically, from title VI of
    the Passenger Rail Investment and Improvement Act of 2008 (Public Law
    110-432, October 16, 2008) (PRIIA). That recent law authorizes the
    appropriation of up to $150 million annually for a decade to WMATA to
    finance in part the capital and preventive maintenance programs
    included in the Capital Improvement Program approved by WMATA's Board
    of Directors. Those Federal funds must be matched by contributions of
    ``dedicated'' State and local funding from Maryland, Virginia and the
    District of Columbia.
        That statute included a number of additional, specific conditions
    upon which congressional appropriations to WMATA would depend.\1\
    MetroRiders.Org urges this subcommittee to actively supervise WMATA's
    compliance with these conditions:
    ---------------------------------------------------------------------------
        \1\ Title VI authorized the Administrator of General Services to
    appoint four new directors to the WMATA Board, two voting and two non-
    voting directors with one voting director ``to be a regular passenger
    and customer of WMATA's bus or rail service.'' To date, GSA has only
    appointed two directors, one voting and one non-voting. Both appointees
    are highly regarded and have been important additions to the WMATA
    Board. Because the WMATA Board is considering many critical agenda
    items (6-year capital budget, fare increases for fiscal year 2011,
    etc.) we believe the GSA Administrator should announce her final two
    appointments as soon as possible, as well as to specify which of the
    two voting directors would be the designated ``regular passenger''
    board member.
        Further, the statute required WMATA to appoint an Inspector General
    for the agency, with full IG-level powers for internal investigations
    of budgetary and agency management issues. We have been disappointed
    that the new Office of Inspector General has concentrated on auditing
    agency contracts (as had the predecessor internal auditor) and has not
    focused on important agency management issues, as Congress clearly
    intended by its mandate. The media has performed what are traditional
    IG functions at WMATA, such as identifying ineffective staff
    organization of safety functions, lack of proper treatment of the Tri-
    State Operating Committee, etc.
    ---------------------------------------------------------------------------
      --The subcommittee should appropriate the full authorized $150
            million in Federal funds in fiscal year 2011 for WMATA capital
            projects but with conditions.
        MetroRiders.Org is appreciative of this subcommittee's
    appropriating $150 million to WMATA for fiscal year 2010 but is
    disappointed that, 6 months after that fiscal year 2010 appropriations
    was enacted, WMATA has not yet finalized its application for FTA
    project approval for Federal and local matching funds. That said, the
    subcommittee should make full appropriations to WMATA for fiscal year
    2011, as recommended in the President's budget, because the funding is
    much needed for high priority capital projects.
      --Fiscal year 2011 appropriations should be conditioned upon the
            State and local jurisdictions' maintaining their past
            ``continuity of effort'' with their own funds as the $300
            million annual Federal/local match contribution was to be all
            ``new money.''
        We and other groups (and the local media) were very disappointed
    that the State of Maryland recently tried to reduce its fiscal year
    2011 capital contribution to WMATA below its past contribution level.
    Had this effort been successful, Maryland's $50 million in matching
    funds for the PRIIA appropriations would have been provided but its
    past annual contribution to WMATA (from the same pot of State
    ``dedicated funds'') would have been reduced--resulting in a
    displacement of State funds with Federal capital funding. Worse,
    because Maryland, local jurisdictions in Virginia, and the District of
    Columbia contribute to WMATA based on a pro-rata formula, Maryland's
    reduced contribution would have also limited the contributions that the
    other two jurisdictions would make in fiscal year 2011.
        Only the glare of unfavorable publicity apparently caused Maryland
    recently to agree to increase its fiscal year 2011 capital contribution
    to WMATA to its fiscal year 2010 level plus the $50 million in new
    PRIIA-matching funds.
        Congress should condition fiscal year 2011 PRIIA appropriations to
    WMATA upon all three jurisdictions maintaining their past ``continuity
    of effort'' with their own funds. If severe fiscal problems in any
    jurisdiction preclude such continuous funding levels, that jurisdiction
    must promise to make up any shortfall within a specific number of
    fiscal years.
      --Before the House-Senate Conference on fiscal year 2011 THUD
            Appropriations, the subcommittee should review the adequacy of
            WMATA's response to the NTSB's findings and safety
            recommendations resulting from the June 2009 Metrorail crash.
        In fiscal year 2010, the Congress conditioned WMATA's use of PRIIA
    appropriations to assure that safety projects would be funded. In
    fiscal year 2011, the Congress should review the adequacy of WMATA's
    response to the NTSB recommendations, anticipated to be released
    shortly. Currently, WMATA has a $30 million plug in its proposed 6-year
    capital budget for this purpose.
      --The subcommittee report on fiscal year 2011 PRIIA appropriations
            for WMATA should request FTA to undertake a follow-up safety
            audit of WMATA 1 year after the first audit.
        Because FTA's recent audit of WMATA found many serious safety
    concerns, and because FTA doesn't currently have authority to regulate
    WMATA's rail safety operations (see attached ``Top Ten Recommendations
    to Improve WMATA'' list), the subcommittee should urge FTA to conduct a
    follow-up audit of WMATA a year later to see if internal WMATA safety
    management has improved in the interim.
      --The subcommittee should appropriate funding to implement enactment
            of the ``Public Transportation Safety Program Act of 2010.''
        As you know, FTA currently is statutorily precluded from setting
    and enforcing safety standards for rail transit systems such as WMATA's
    Metrorail system. We hope this legislation can be enacted soon,
    separately if necessary from congressional reauthorization of multi-
    year surface transportation funding. When enacted, FTA could set safety
    standards for Metrorail, or Maryland, Virginia, and the District of
    Columbia could empower the Tri-State Operating Committee to undertake
    safety regulation of Metrorail. MetroRiders.Org prefers direct Federal
    safety regulation of WMATA by FTA.
        The administration has requested $24.1 million in fiscal year 2011
    for a new Rail Transit Safety Oversight Program and for an additional
    $5.5 million to fund 30 FTE in FTA's new and expanded Office of Safety.
    We hope the authorizing committees of Congress act on this needed
    legislation soon and that this subcommittee can provide the necessary
    appropriations.
        Again, thank you for allowing MetroRiders.Org to testify. I'd be
    pleased to answer any questions.
        metroriders.org' s ``top ten recommendations to improve wmata''
    Safety
        Enact S. 1506/H.R. 3338 to authorize the Secretary of
    Transportation to establish national safety standards for transit
    agencies operating heavy rail on fixed guideways.
        Request FTA to update its safety audit on WMATA 1 year later.
        Assure adequacy of WMATA's response to expected findings and safety
    recommendations of the National Transportation Safety Board (NTSB)
    concerning the probable cause of Metrorail's June 2009 crash with
    fatalities and injuries.
    Capital Financing
        Approve full authorized $150 million appropriation for WMATA in
    fiscal year 2011 on matching basis with Maryland, Virginia, and the
    District of Columbia but with conditions.
        Condition fiscal year 2011 appropriations to WMATA upon State and
    local jurisdictions' maintaining their past ``continuity of effort''
    with their own funds as the $300 million annual Federal/local match was
    to be ``new money.''
        WMATA, its Contributing Jurisdictions and Congress should develop a
    plan to provide $3 billion in additional capital funding to WMATA over
    the next 10-year period (fiscal year 2011-fiscal year 2020) to provide
    needed rail and bus capacity during the decade beyond the inadequate $5
    billion 6-year capital plan now being negotiated by WMATA with its
    Contributing Jurisdictions.
    Management/Governance
        The Administrator of General Services should appoint the remaining
    two Federal directors to the WMATA Board of Directors to supplement the
    existing two appointees and to designate one of the two voting Federal
    directors as the ``regular passenger'' Board member.
        Support the project of the Metropolitan Washington Council of
    Governments and the Greater Washington Board of Trade for a fast-track,
    independent review of WMATA's current governance structure.
        Support amendments to the congressionally-approved ``WMATA
    Compact'' that would make transparent and available for public comment
    the various ``behind-closed-doors'' negotiations among the Contributing
    Jurisdictions as to their future capital contributions to WMATA and to
    require WMATA to follow the ``open government meeting laws'' of area
    jurisdictions.
    Other
        Congress should extend the current $230/month transit ``commute
    benefit'' beyond December 2010 for parity with the existing parking
    benefit.

        Senator Mikulski. Thank you. That was a very meaty
    presentation, Mr. Corbett. Thank you very much.
        Mr. DeBernardo.

    STATEMENT OF FRANCIS DeBERNARDO, CHAIRMAN, RIDERS'
                ADVISORY COUNCIL
        Mr. DeBernardo. Yes, thank you. Thank you, Senator
    Mikulski.
        Thank you for inviting me to testify. My name is Francis
    DeBernardo, and I am chair of the Metro Riders' Advisory
    Council.
        As a transit-dependent rider, I commute each day via
    Metrorail and Metrobus from my home in Greenbelt, Maryland, to
    my office in Mount Rainer, Maryland. On behalf of the council,
    I commend President Obama for including $150 million in his
    proposed fiscal year 2011 budget for capital and preventive
    maintenance projects.
        I also thank Congress for including funding in this year's
    budget. These grants, matched by jurisdictional partners, will
    address critical safety needs.
        As riders, we appreciate the Federal Government's
    recognition of the unique relationship between itself and Metro
    and urge you to ensure that these funds remain in the fiscal
    year 2011 budget. We ask, too, that you ensure that local
    jurisdictions will continue to fund Metro's capital needs by
    making any Federal aid dependent on maintenance of efforts from
    local jurisdictions.
        Along with this $300 million, Metro and its partners must
    finalize a new capital funding agreement. Metro has estimated
    that it has $11 billion in capital needs over the next 10
    years. However, as has been mentioned, if funding levels
    proposed remain constant over the next 10 years, funding will
    fall short by over $3 billion.
        Failing to keep the system in good repair seriously
    threatens safety. While certainly not as dramatic as the
    incidents that have occurred this past year, crowded platforms
    following service disruptions, crumbling platform tiles, and
    out-of-service elevators and escalators are significant
    recurring safety concerns. Ensuring stable and sufficient
    capital funding for Metro is necessary to improve safety.
        Commuters are not the only ones who benefit from good
    transit. The entire region benefits economically. Tourists
    visiting the Nation's capital benefit from having a convenient
    way to see the city. The Federal Government benefits from
    greater productivity. And drivers benefit from reduced
    congestion on roadways.
        Riders have expressed their vision for improvements at
    Metro. They want more reliable service, greater focus on
    customers, and clearer frequent communication from Metro,
    especially when things go wrong. Metro will soon begin a more
    robust reporting of its operational performance, and riders
    look forward to working with Metro to use those reports to
    improve service.
        Safety should top the list of Metro's core values.
    Effective oversight is critical to maintaining safety and
    confidence in transit. Mandates and projects that improve
    safety while maintaining service quality can greatly enhance
    transit. Mandates that impair service in the long run in the
    name of safety will only drive commuters to other more
    dangerous modes of travel.

                               PREPARED STATEMENT

        We are pleased that Congress is taking a strong interest in
    the safety and success of the Washington area's transit system.
    I thank you for this opportunity to provide testimony and would
    be happy to answer any questions you have.
        [The statement follows:]

                    Prepared Statement of Francis DeBernardo

        Chairman Murray, Ranking Member Bond and members of the
    subcommittee, thank you for inviting me to testify today. My name is
    Frank DeBernardo and I am chair of the Metro Riders' Advisory Council.
        The Riders' Advisory Council was established by Metro in September
    2005 and serves as the riders' voice within Metro. The Council provides
    feedback to the Board as well as customer input to Metro staff. Council
    members are appointed by the Board of Directors. The Council consists
    of 21 members, 2 from each of the District of Columbia, Maryland and
    Virginia, 2 appointed at-large and the Chair of the Accessibility
    Advisory Committee. Members use all of Metro's transit services--
    Metrobus, Metrorail and MetroAccess--and represent a diverse mix of
    ages, backgrounds and ways in which they use Metro.
        Metro experienced several tragedies in 2009, and suffered a
    substantial loss of public confidence. The June 2009 crash on the Red
    Line and subsequent declines in service reliability not only shocked
    and saddened the region, they also accelerated awareness of the larger
    problem, the growing disrepair of the Metrorail infrastructure.
        Despite the challenges faced by WMATA, it remains a vital asset to
    the Washington region. A recent Washington Post poll found that 80
    percent of riders rate the system positively. During April 2010,
    Metrorail recorded 3 of its top 5 highest ridership days (April 1, 2,
    and 7). This underscores the region's dependence on Metro and also
    highlights the need to redouble efforts to maintain and expand the
    system.
        On behalf of the Council, I would like to first commend President
    Obama for including $150 million in his proposed fiscal year 2011
    budget for capital and preventive maintenance projects at Metro. These
    grants, matched by dedicated funding from Metro's jurisdictional
    partners, will help fund projects to address Metro's most critical
    safety needs. As riders, we appreciate the Federal Government's
    recognition of the unique relationship between the Federal Government
    and Metro and urge you to ensure that these funds remain in the fiscal
    year 2011 budget as it is considered by Congress. We ask, too, that you
    help to ensure that local jurisdictions will continue to adequately
    fund Metro's capital needs by making any Federal aid dependent on
    maintenance of efforts by local jurisdictions.
        Along with the $300 million provided annually through the Passenger
    Rail Investment and Improvement Act of 2008, Metro and its partners
    must finalize a new capital funding agreement prior to the beginning of
    the new fiscal year on July 1, 2010. We are encouraged that
    jurisdictions have committed to fund a $5 billion 6-year capital plan.
    Recent decisions to restore funding for Metro's capital plan represent
    good news for riders. However, Metro estimated that it has $11 billion
    in capital needs over the next 10 years; the 6-year plan, as proposed,
    will mean that Metro will still fall short of this estimate of needs by
    over $3 billion over the next 10 years.
        Failing to keep the system in a state of good repair seriously
    threatens safety. While certainly not as dramatic as the incidents that
    have occurred over the past year, crowded platforms following service
    disruptions, crumbling platform tiles and out-of-service elevators and
    escalators are significant, recurring safety concerns.
        Ensuring stable and sufficient capital funding for Metro is
    necessary to improve safety.
        As WMATA prepares to enter into its next capital plan on July 1 of
    this year, governments must also provide the resources necessary to
    adequately maintain Metro's safety and service, from specific safety
    recommendations from the National Transportation Safety Board to the
    everyday yet critical maintenance challenges.
        In addition, WMATA must secure support for its operating budget.
    Closing the currently-projected $190 million operating budget gap for
    fiscal year 2011 will likely require both substantial fare increases
    and significant service cuts. Proposed service cuts, while greatly
    reduced from the original proposals, will still result in riders paying
    more for less service. During recent public hearings on WMATA's
    proposed operating budget, fare increases and service reductions,
    riders expressed a clear preference for increased fares over reductions
    in service. However, fares cannot be raised too greatly lest riders,
    especially the most vulnerable, be priced off of Metro. In addition,
    members of the public stated clearly that Metro must work to improve
    its service reliability.
        The Council is encouraged that Metro will, next month, launch its'
    ``Vital Signs'' report to provide the Board, the public and other
    stakeholders a detailed overview of Metro's monthly performance. As
    rider representatives, the Council looks forward to working with Metro
    to ensure that these reports provide meaningful information and that
    issues they identify are subsequently addressed. It is an old adage
    that ``What gets measured gets done.'' These reports represent an
    opportunity for an honest dialogue between Metro and its stakeholders
    about what needs improvement and how we can work together to make those
    improvements happen.
        Commuters are not the only ones who benefit from good transit. The
    entire region benefits economically. Tourists from around the country
    who visit the Nation's capital benefit from having a safe and
    convenient way to see the city. The Federal Government benefits from
    greater productivity. And drivers benefit from reduced congestion on
    roadways. For that reason, the Riders' Advisory Council and transit
    advocacy groups asked local jurisdictions to increase their
    contributions enough to forestall severe service cuts, and it appears
    that many of the most onerous cuts will be avoided.
        Over the long term, Federal, State and local governments must
    recognize the tremendous asset that Metro represents to the region and
    support it accordingly. A majority of residents in the aforementioned
    poll said that the region should find new ways to fund Metro, even if
    that meant raising some taxes.
        Metro's budget difficulties are certainly not unique among the
    Nation's transit systems. A recent study released by the American
    Public Transit Association noted that 84 percent of transit systems in
    the United States are planning to raise fares and/or decrease service,
    or have already done so. Metro does provide uniquely direct value to
    the Federal Government, and therefore we hope Congress and the States
    can work together to explore long-term funding sources.
        In the midst of all of these challenges, Metro must also find a
    new, permanent General Manager. The Council hopes that as the Board
    begins its search it will solicit input from all of Metro's
    stakeholders, including its riders and its employees.
        Riders have expressed their vision for improvements at Metro. They
    want more reliable service, greater focus on customers, and clearer,
    more direct and more frequent communication from Metro, especially when
    things go wrong. While the General Manager must ensure a safe system,
    the region also needs a GM able to improve service quality and
    communicate effectively with the public to restore confidence. The
    Board should seek a candidate able to address Metro's long-term as well
    as short-term challenges and listen to stakeholders' views about those
    challenges.
        Safety should top the list of Metro's core values. Effective
    oversight is also critical to maintaining safety and customer
    confidence in transit. Still, safety cannot exist in a vacuum.
    Statistics show that commuting by rail is approximately 34 times safer
    than driving, and many riders make a daily decision between the two.
        Mandates that improve safety while maintaining service quality can
    greatly enhance transit; mandates that impair service in the long run
    in the name of safety will only drive commuters to other, more
    dangerous modes of travel. Transit must be safe; it also must not be
    permanently hamstrung in ways that actually make travelers across all
    modes less safe.
        We are pleased that Congress is taking a strong interest in the
    safety and success of the Washington area's transit system. At the same
    time, safety for commuters in our Nation's capital does not start and
    end with Metrorail. A U.S. Department of Agriculture employee was
    killed by a driver after the recent snowstorm when the employee tried
    to walk to the Branch Avenue Metrorail station in Prince George's
    County, Maryland, where the sidewalks had not been cleared.
        Metro safety issues have received considerable press recently, but
    the degree of press attention has been so great specifically because
    Metrorail fatalities are so rare, while fatalities on roadways are
    common to the point that we have become inured to these tragedies. This
    Congress should not ignore these larger safety concerns, and could draw
    needed attention to them by also conducting oversight into the ways in
    which elements of the entire transportation network, including our
    roadway designs, snow removal policies, and traffic law enforcement
    succeed or fail at maximizing the safety of commuters on all modes.
        A safe, reliable, well-maintained and adequately funded Metro
    system will enhance the entire region, including the Federal
    Government. I thank you for the opportunity to provide testimony and
    would be happy to answer any questions you may have.

        Attachment A.--List of Current Riders' Advisory Council Members
              riders' advisory council roster (as of may 17, 2010)

    2010 Officers:
        Chair: Frank DeBernardo
        District of Columbia Vice-Chair: David Alpert
        Maryland Vice-Chair: Victoria Wilder
        Virginia Vice-Chair: Dharm Guruswamy
                                  jurisdiction
    At-Large:
        Dharm Guruswamy
        Carl Seip
        Patrick Sheehan (Accessibility Advisory Committee Chair)
    District of Columbia:
        David Alpert
        Kelsi Bracmort
        Patricia Daniels
        Kenneth DeGraff
        Carol Carter Walker
        Diana Zinkl
    Maryland:
        Sharon Conn (Prince George's County)
        Frank DeBernardo (Prince George's County)
        Christopher Farrell (Montgomery County)
        Ronald Whiting (Montgomery County)
        Victoria Wilder (Montgomery County)
    Virginia:
        Penelope Everline (Arlington County)
        Robert Petrine (Fairfax County)
        Clayton Sinyai (Fairfax County)
        Lorraine Silva (Arlington County)
        Evelyn Tomaszewski (Fairfax County)
        Lillian White (City of Alexandria)
     Attachment B.--Letter to Board of Directors Concerning Metro's Fiscal
                           Year 2011 Operating Budget
                                      Riders' Advisory Council,
                                        Washington, DC, April 19, 2010.
        Chairman Benjamin and Members of the Board: This letter serves as
    the formal position of the WMATA Riders' Advisory Council on the fiscal
    year 2011 operating budget, currently estimated to contain a $189.2
    million shortfall.
        First, we recognize and appreciate the efforts of the Board of
    Directors to solicit meaningful public comment on a wide variety of
    proposals to address the current budget situation. Providing the public
    with alternatives has spurred public debate and allowed riders to
    select from a menu of options to create a sound fiscal year 2011
    budget. We strongly encourage the Board and the Authority to review the
    fiscal year 2011 budget and reduce administrative spending as much as
    possible to close the projected budget gap.
        Over the past several months, our members have held lengthy
    meetings devoted purely to the budget, attended public hearings,
    solicited feedback on their commutes, and debated the merits of the
    many different proposals put forward by WMATA staff, the Board and
    other groups.
        This Council is faced with two distasteful options--service
    reductions which could drastically impact the quality of life in our
    region and/or fare increases that might price some residents out of
    using our transit system.
        To limit the need for these drastic options, the R.A.C. continues
    to strongly support increased jurisdictional subsidies and dedicated
    local and Federal funding for the Metro system. While budgets are
    tight, we remain hopeful that local and Congressional leaders will
    fight to expand Metro funding at the jurisdictional and Federal level
    in recognition of the Authority's role as a unique regional and
    national asset.
        We also recognize that Metro will make changes to MetroAccess
    service, continue negotiations with its operating unions to decrease
    costs, cut administrative positions, and continue to explore
    alternative revenue sources in an effort to reduce the budget shortfall
    in fiscal year 2011.
        We are deferring to the Accessibility Advisory Committee's
    recommendations on the proposed changes to MetroAccess, which have
    already been submitted as part of the public hearing record.
        If the Board, after it exhausts all other options to close the
    fiscal year 2011 budget gap, finds that fare increases and service cuts
    on Metrorail and Metrobus are absolutely necessary, the WMATA Riders'
    Advisory Council prefers the following proportions and priorities for
    the Board's decisionmaking:
        If any fare increases should be necessary, we prefer the Board
    implement them in the following order from least to most undesirable:
      --Decreasing the transfer time among all modes from 3 to 2 hours;
            raising the fare differential for (rail) paper farecards; and
            instituting a peak-of-peak rail surcharge, which are preferable
            to
      --Increasing late-night weekend fares (after midnight); increasing
            the reserved parking fee; and increasing airport bus fares
            (with the consideration that steps be taken to protect airport
            workers), which are preferable to
      --Increasing bicycle locker rental fees; increasing general parking
            fees; and increasing express bus fares for non-airport buses,
            which are preferable to
      --Increasing the SmarTrip fare differential on bus, which is
            preferable to
      --Increasing base bus fare along with an increased transfer discount,
            which is preferable to
      --Increasing regular (rush hour) rail fare, which is preferable to
      --Increasing reduced (off-peak/weekend) rail fare, which is
            preferable to
      --Any special event fares on rail; peak fare surcharges on crowded
            bus routes; and increasing base bus fare without increasing the
            transfer discount, which are preferable to
      --Reducing the age at which children ride free, from under 5 years of
            age to under three years of age.
        If any service cuts to Metrorail should be necessary, we prefer the
    Board implement them in the following order from least to most
    undesirable:
      --Modifying headways and train lengths on four holidays: Columbus
            Day, Veterans' Day, Martin Luther King's Birthday and
            Presidents' Day; Restructuring peak service on the Red Line to
            have 3 min headways from Grosvenor to Silver Spring and 6 min
            from Silver Spring to Glenmont and Grosvenor to Shady Grove;
            and early morning weekday headway widening, which are
            preferable to
      --Closing station entrances or mezzanine levels (after a full and
            transparent review of safety and security issues these closures
            may cause), which are preferable to
      --Weekend headway widening, which is preferable to
      --Late night headway widening, which is preferable to
      --A later weekday opening time at 5:30 a.m., which is preferable to
      --A later weekend opening time at 8 a.m., which is preferable to
      --Earlier weekend closing times; and weekend station closures, which
            are preferable to
      --Elimination of peak 8-car trains; elimination of Yellow Line
            service to Fort Totten off-peak/weekends; and elimination of
            Yellow Line service after 9:30 p.m. and on weekends except for
            a rail shuttle between King Street--Huntington.
        If any service cuts to Metrobus should be necessary, we prefer the
    Board implement them in the following order from least to most
    undesirable:
      --Reducing and eliminating bus stops after a full and transparent
            review of cost, safety and security measures that these changes
            may cause; and reductions in holiday service, which are
            preferable to
      --Eliminating of line segments/local overlap, which is preferable to
      --Peak-period headway widening, which is preferable to
      --Weekend headway widening; and off-peak weekday headway widening.
        We strongly recommend that any proposals to eliminate entire bus
    lines, weekend routes or service, or late-night (after midnight) trips
    be examined on a case-by-case basis and give consideration to distance
    and accessibility of alternative route service during peak and off-peak
    times and route efficiency metrics.
        Additionally, we suggest the Board find a middle-ground on many of
    the aforementioned fare and service changes. Rather than focusing a
    disproportionate level of service cuts or fare increases on one sector
    of Metro riders, if any are necessary, we strongly prefer a moderate
    slate of cuts and increases that is spread more evenly across the
    entire ridership base.
        If the Board must make fare increases and service cuts, we prefer
    that service cuts represent a very small percentage compared to fare
    increases. As noted above, we hope that increased jurisdictional
    contributions and other savings measures can reduce as much as possible
    the need for fare increase or service cuts.
        As you well know, Metro is our communal responsibility. We all reap
    the benefits when we commute to work, attend cultural events, and visit
    friends throughout the region. It is this Council's sincerest desire to
    work with the Board to find more stable funding solutions so that a
    budget situation such as this one never happens again.
        If you have questions about our proposal or would like to discuss
    this matter further, please contact myself or Carl Seip, Chairman of
    the Committee on the Budget, through John Pasek in the Office of the
    Board Secretary.
                Sincerely,
                                             Francis Deberardo,
                                                                 Chair.

        Senator Mikulski. Well, thank you.

                                 WORKER SAFETY

        Before I get to kind of the rider questions, I would like
    to go to Ms. Jeter, if I may? I have been disturbed about so
    many things. First of all, the accidents themselves, the
    scathing FTA report, the Gunn report, the things that you have
    all referenced. But the very poignant tale of Mrs. Jeffrey
    Garrard, who called to share her safety concerns, and when she
    said that their solution was have a video and hand out hard
    hats. That there was no backup camera on the maintenance truck,
    the backup sound and lights were disconnected, and Metro didn't
    have floodlights.
        You know, a safe Metro has to ensure the safety of the
    workers to ensure the safety of the riders. Do you feel that
    safety has improved for your workers? Do these patterns
    continue to persist? Or do you feel that steps are being made,
    and what steps do you see being made?
        Ms. Jeter. I can only say that I hear, just like you do,
    that steps are being taken. I am sure that Mr. Sarles has
    tackled those things that are right in front of his face.
    Unfortunately, I think that it is so entrenched that it is
    going to take--I have been disappointed for the last year
    almost. It has been almost a year now that nothing concrete
    other than testing, and I forget what it is called, but it is
    the test that they use to see whether or not they are going to
    have a circuit to fail, is the only safety measure that has
    taken place.
        We have known ever since this accident has occurred, and I
    have talked to not only Garrard's wife, but I also talked to
    Jeanice McMillan's mother, and I have to tell her that your
    daughter was an angel because although she died, she brought
    out a lot of issues that were here, entrenched at WMATA, and we
    have been able to look at them full faced. And hopefully, we
    will find a solution for them.
        But I am disappointed because I keep hearing talk, but I
    don't really hear the ``do.''
        Senator Mikulski. Well, what about the safety and the
    safety training and the safety officer?
        Ms. Jeter. I am looking forward to seeing that. I would
    like to see it right now. And I know for the last couple of
    weeks, I have been getting reports of safety committee meetings
    that have been taking place.
        And because the union, too, has said, okay, we have to step
    up our safety efforts, and we have to be the ones that are
    going after incidents or things that are being told to us by
    the members, there has been a butting of heads, so to speak,
    because it seems like in those safety meetings, there is a plan
    of action that the management comes in with, and the workers
    want to talk about things that are actually happening out on
    the line, and they seem to be butting heads. So I have to look
    into that and find out what is going on because, to me, that is
    not going to resolve.
        Senator Mikulski. Well, it seems to be that there needs to
    be a mechanism of communication between labor and management.
    In your testimony, you talked about relying on the Joint Labor-
    Management Safety Committee to address issues. Does that exist,
    and does it function?
        Ms. Jeter. It exists. We haven't met as that particular
    committee for a while. Actually, I got a letter from Mr. Sarles
    this morning, and one of the things that has happened, even
    though we weren't meeting, when Chief Taborn was acting as the
    safety officer, he included that committee in with the WMATA
    Executive Leadership Team [ELT] committee.
        And after I attended a couple of the meetings, I am still
    trying to grapple how they function. But I am not so sure
    whether or not we should do that. But I am willing to see if it
    will work.
        Senator Mikulski. Again, I am not the manager of WMATA, but
    I believe it is in the best interest of the functionality of
    the system that labor and management have a regular systematic
    way of communicating. That it be a regular system. That the top
    union officials have a chance to talk to the top Metro
    management to bring issues of concern. That it is regular and
    that they are systematic and that it have a formalized agenda.
        This is not about contract negotiations. This is about
    problem solving.
        Ms. Jeter. Right.
        Senator Mikulski. Does such a mechanism exist now? You are
    the head of the union.
        Ms. Jeter. I know. I will say, yes, it does because--I will
    say, yes, it exists, but it is not functioning properly. I will
    have to say it that way.
        Senator Mikulski. Well, why doesn't it function properly?
    Does it meet on a regular basis?
        Ms. Jeter. The ELT committee does meet. I don't--I have a
    problem with actually including the two. I think we are going
    in two different directions. The union's position where safety
    is concerned is sometimes not at the same place that this ELT
    committee is.
        Senator Mikulski. I understand that, but I am going to get
    lost in this committee. I mean a subcommittee and this
    subcommittee's name and so on. I am an outcome gal. So my
    outcome is this. What does it take to have labor and management
    meet on a regular basis, to have regular communication of
    things of mutual concern?
        Ms. Jeter. Mr. Sarles and I have spoken of that. We have
    both said that we are going to meet regularly with one another,
    and because of his answer to my letter this morning, concerning
    the Joint Labor-Management Committee, I will talk to him about
    that because----
        Senator Mikulski. So, as of now, almost 11 months since the
    accident, there is no joint regular systematic, joint mechanism
    of communication?
        Ms. Jeter. The Joint Labor-Management Committee that was
    there, we stopped meeting when Alexa Samuels was the head. We
    stopped meeting. And we have had maybe one meeting. I think we
    had one meeting in February.
        Senator Mikulski. Okay, let us stop. Mr. Sarles, what do
    you think? Do you think we can get something going here?
        Mr. Sarles. Absolutely. In fact, inside of that first 2
    weeks, I met with Jackie, and we personally are going to meet
    about once a month to go over safety concerns, besides what is
    going on in the organization.
        Senator Mikulski. There has to be exactly this. You might
    have one view of what the safety issue is. They might be
    experiencing operational difficulty, and they are the ones on
    the line. They might know things you don't know or technology
    doesn't reveal or hasn't come up the chain of command. Or in
    the same way, if you are looking to approve it, get greater
    cooperation, suggestions on a variety of things, you need to
    have the assistance of the union. It is in their interest that
    everything be safe.
        Ms. Jeter. That is correct.
        Senator Mikulski. Because they are the first to experience
    any breakdowns for not only such a horrific thing as death, but
    also injury, even if it is temporary injury, you know? So I am
    going to hope that what comes out of this hearing and some of
    the correspondence recently is that there is a regular way of
    communicating.
        Ms. Jeter. We will make that happen.
        Senator Mikulski. Okay?
        Ms. Jeter. Yes.

                                  RIDER SAFETY

        Senator Mikulski. I will come back to some of the other
    issues. I would like to get to the riders for a minute now.
        So, tell me, using an old Ronald Reagan phrase, my good
    friend Ronald Reagan, when he said, ``Are you better off now
    than you were 4 years ago?'' Do you remember that famous
    question?
        Do you think that Metro is more of a safe place now than it
    was on June 22, 2009? Do you think that there have been
    improvements that you experience? And I raise that to both of
    you.
        Mr. Corbett. In my judgment, yes. We don't have the day-to-
    day experience that Ms. Jeter has with her members, but if one
    listens to the WMATA board meetings, you hear more of a concern
    about safety now than you did a year ago. It was embarrassing
    to me to hear that a WMATA board member said I've been a board
    member for 12 years, and I have never heard of this Tri-State
    Operating Committee. That was about a year ago.
        It is much different now. The board members are much more
    attuned to safety, and we think at least in terms of that
    verbal level, which is all we can respond to, it is much better
    than it was then.
        Senator Mikulski. Would you want to add or elaborate on
    that?
        Mr. Corbett. I am sorry?
        Senator Mikulski. So you feel that there is progress and
    momentum, but more needs to be done as you recommend in your
    excellent testimony?
        Mr. Corbett. There is--thank you. We really are awaiting
    the results of the National Transportation Safety Board to see
    what WMATA does to those. Those could be very costly
    recommendations, and how they respond to those is going to be a
    very good signal as to whether the jurisdictions can come up
    with the money to address the NTSB concerns.
        Senator Mikulski. Well, it will be my intention that when
    the NTSB makes their recommendations that we have a public
    discussion of that. In other words, what are they recommending?
    What was the rationale behind those recommendations? Then, to
    get a sense of what it would take to implement it other than
    budgetary and managerially.
        Mr. DeBernardo?
        Mr. DeBernardo. I would concur with Mr. Corbett. I think
    that there is definitely a renewed sense of urgency about the
    safety issue, and I am very optimistic that Mr. Sarles's new
    program of reporting vital signs of Metro will be very helpful
    for riders.
        Senator Mikulski. Now to your Vital Signs, which we think
    is terrific, so the Vital Signs is the way that the riders can
    communicate, in addition to your official board capacity. Am I
    correct?
        Mr. DeBernardo. We are advisory to the board, yes.
        Senator Mikulski. So that is, and do you have regular
    systematic meetings where you can bring rider concerns to the
    board?
        Mr. DeBernardo. Yes, we do monthly meetings.
        Senator Mikulski. So you have a regular monthly meeting?
        Mr. DeBernardo. Right. And we are hoping that with the
    Vital Signs report, when that comes out, it will give us a
    basis for discussion with the board and with the management at
    Metro.
        Senator Mikulski. Now you said in your testimony extolling
    the virtues of Vital Signs, you talked about measurement, which
    is what I talked about in my opening remarks and some of the
    questions to the WMATA leadership. You said nothing gets acted
    on unless it is measured or that which is measured----
        Mr. DeBernardo. That which is measured gets done.
        Senator Mikulski. Yes. So what did you mean by that? And
    what would you recommend, for our information, but also to the
    leadership, that really needs to be measured?
        Mr. DeBernardo. Well, in terms of reliability, things like
    on-time service and frequency of buses and breakdowns of buses
    and trains. At present, with our Riders' Advisory Council, we
    are based a lot on anecdotal evidence, and I think that these
    Vital Signs, by measuring, by having a measurement, will give
    us better ways of discussing improvements.
        Senator Mikulski. So rather than somebody saying, oh, I
    feel hot or I feel dizzy.
        Mr. DeBernardo. Right.
        Senator Mikulski. I have pains in my arm, you take the
    blood pressure and so on, and you actually get vital signs
    about, are you okay? Are you heading for a problem?
        Mr. DeBernardo. Right. And is it a real problem? How
    extensive is the problem? Is it a problem that by looking at
    the Vital Signs, we can often look at the causes of the problem
    as well.
        Senator Mikulski. Well, we get this anecdotal information
    too. I will speak for myself, and I know that Senator Cardin
    gets it too. We have talked about it. We hear about out-of-
    service escalators and elevators. That is a top favorite, as
    well as closed entrances and exits and train delays. Also, no
    communication about what is going on when trains break down.
        Lots of loud announcements that you really can't hear. In
    other words, it is so loud that you can't hear it. You can't
    decipher it. I am not talking about aging people or someone,
    just regular folks. Then they also say, ``I don't know. I don't
    have a number to call. So I called you.'' Sometimes they call
    me a lot of things.
        Not only me, but we could talk about Congresswoman Norton,
    my colleagues Webb and Warner, and the House Members. Riders
    call us because we are visible, and we have publicly disclosed
    numbers.
        So do you feel that riders have a number to call if they
    have a problem or an e-mail address that they can send
    concerns?
        Mr. DeBernardo. Yes. I think there are many avenues at
    Metro for--I don't think all the time that the riders
    themselves are aware of the many avenues, but I can tell you
    that since I joined the Riders' Advisory Council about a year
    and a half ago, I was made aware of many more opportunities for
    addressing problems than I knew existed.
        Senator Mikulski. What about you, Mr. Corbett?
        Mr. Corbett. Can I be a negative voice on that?
        Senator Mikulski. Sure.
        Mr. Corbett. When people don't call you, they call us. And
    quite often, we get very irritable people who have tried to
    send in a complaint to the WMATA complaint system, and it is
    very bureaucratic. They give you a number, and I am not sure
    that the service really improves. I think they need more
    manpower on that issue.
        Second, we divide between really important and nice to
    have. Whether there is too much noise in the system--that is
    nice to have. But if the escalator is broken and a heavyset
    person has got to walk up 123 steps, that is a safety item. So
    we try to divide those between nice to have and really
    important.
        And I think, frankly, in this coming year under Mr.
    Sarles's leadership and that of Mr. Benjamin, if they can work
    on the got to have safety items, we would be happy with that,
    and we will give them extra time on the nice to have items.
        Senator Mikulski. Well, it is the way I work, even when we
    do appropriations. I have a must do, should do, and would like
    to do list. The must dos have to get done. Then we go to the
    should dos.
        So what you are saying is have the must dos and should dos
    and that would go a long way?
        Mr. Corbett. Yes.
        Senator Mikulski. Is that correct?
        Mr. Corbett. That is correct.

                            WMATA BOARD APPOINTMENTS

        Senator Mikulski. But one of your points, though, is the
    GSA has got to get cracking on these two other Federal board
    appointments?
        Mr. Corbett. Yes, speaking very frankly--and you invited us
    to speak frankly--the members of the board from the
    jurisdictions, they are somewhat protective of their
    jurisdictions. If they don't have money, they don't recommend
    things that they know are needed. Having the two Federal
    appointees already is opening up that process a little bit, but
    we think that the other two appointees should be appointed
    soon. One of them should be a designated rider representative.
        And we think they can help to open up the board so that
    some pressure can be put on the jurisdictions to come up with
    additional money for additional capacity.
        Senator Mikulski. Well, let me say what I am going to do in
    this testimony here, because Ms. Jeter also had recommendations
    for the board, we are going to take your recommendations and
    send them on to GSA. Because you have made recommendations, and
    you also have your underpinnings as to why you feel that the
    characteristics you are recommending would improve safety and
    operational reliability.
        We are going to say this is who we heard from. The people
    who use the system, the people who work on the system, and the
    people who are going to count on a board that--particularly
    when its Federal partners--brings some assets to the table
    themselves. So we would like to bring your recommendations to
    GSA and to tell GSA kind of get moving on it. Isn't that what
    you are saying? Get moving on it?
        Mr. Corbett. Yes. Yes.

                            WHISTLEBLOWER PROTECTION

        Senator Mikulski. Let us go to Ms. Jeter. The one thing
    that came out in both the Gunn report and also in your
    testimony is the whistleblower situation.
        Ms. Jeter. Yes.
        Senator Mikulski. Also the ``kill the messenger'' problem,
    where it is difficult at times to speak freely because you are
    concerned about some form of retaliation.
        Ms. Jeter. Right.
        Senator Mikulski. Do you feel that the climate toward
    whistleblowers has improved?
        Ms. Jeter. It hasn't improved because the employees who
    would utilize that type of system don't know that it even
    exists. I don't believe that there is a climate at WMATA to
    embrace that type of activity among the employees.
        I can tell you, even the incident that has been given so
    much public attention--the incident at Wheaton--when I spoke to
    the operator of the train, his first, initial response to me
    was ``I didn't want to put it on the air. So I used the ETS box
    because I didn't want them to feel like I was trying to make a
    big deal.'' And that, to me, is the climate that is surrounding
    the members of the local that I represent.
        Some people might shrug it off and say it is normal
    paranoia that a lot of American citizens have these days. But
    for the most part, you probably will not find that many
    individuals reporting certain incidents because they don't
    believe--either they don't believe that WMATA is going to take
    care of them, or that in some type of way, they are going to be
    retaliated against for giving the information.
        And I give you another example, the IG had a setting where
    she went in to talk to employees, and one of the people that
    was there was one of the shop stewards that I have, and the
    shop steward informed me that during that meeting, people did
    not want to speak up freely, even though the IG said, ``Nothing
    is going to happen to you. I want you to speak up freely to
    me.'' She said most of them did not.
        A lot of conversation happened after the meeting, but not
    during the meeting.
        Senator Mikulski. Well, we will take a look at how to
    strengthen the whistleblower legal provisions. But I would
    strongly recommend in the interim, people who have those
    concerns bring it to those that they elected to represent them
    in the workplace. Since we are now going to have a labor-
    management organized and systematic way of communicating. You
    can then, if necessary, preserve their anonymity, or whatever.
        I am a big believer in people being able to come forward,
    and lots of times, the ability to come forward could save a
    life or help someone from being hurt or maimed. We need to be
    able to have that communication.
        The fact we have got so many things going for us, I mean,
    we have a system that really people like and use. I mean, that
    is one of the things, when I read the papers and follow the
    news on the public hearings, people really like WMATA, and they
    really want to use it, and they are willing to pay for it out
    of their own pocket.
        There are days that they function in heroic fashion that I
    believe it was Mr. Benjamin that spoke about and I have spoken
    about 9/11. That the subway system helped Washington evacuate
    in a safe, orderly and non-panicked way. The performance during
    the Obama administration and then even during the rocking-
    rolling times of the recent snow situation, which bordered on
    almost a natural disaster. I mean, it was a slow version of a
    hurricane.
        So we have got a lot going for the system, and I think we
    can feel proud of the people who work there. Efforts have been
    made. I think there are certain things that have been falling.
    So we want to build on the asset. The most important asset that
    WMATA has that we can directly impact upon is the workers and
    getting them the ability to communicate and come forward and be
    able to do that.

                         FEDERAL FUNDING AND OVERSIGHT

        The other is, I will really say, that WMATA does need
    reliable revenue streams. You could have the will, but if you
    don't have the wallet, it is very difficult to fix these
    things.
        I think we have identified a couple of things today. One,
    we continue to support the Federal share. In supporting the
    Federal share, we really do want to insist on maintenance of
    effort from the States and locals. I think we also have
    identified an area where the Federal Government has created a
    mandate, and it is an appropriate mandate. It is a very
    important tool to ensure people's physical and economic
    independence. If you can't get to work, even if you have had
    the best rehab, or keep your doctor's appointment, but there
    needs to be a way then to consider how at the national level to
    be able to do that.
        I also believe that we need to pass not only the
    President's budget, but I think we need to pass what the
    President is recommending in rail reform, giving FTA more
    authority. I have got my own bill, along with Senator Cardin
    and others, to do that.
        So I think we have got our own reform efforts. I will say
    what I said. We all have to feel we are in this together. So
    this isn't about finger pointing and so on, rather that we all
    have to take ownership for the safety offices.

                            WITNESS RECOMMENDATIONS

        So before I wrap up, I am going to ask each and every one
    of you, is there anything else you want to say: a
    recommendation; an observation; or an insight that you would
    like to share for the official record. This is an official
    congressional hearing. There is going to be an official
    congressional record of this. We can go down the row.
        Ms. Jeter. Well, I know that I put everything, even the
    things that I did not read, in my testimony, and I can say on
    behalf of the members of Local 689, we support those acts or
    those bills that you are trying to pass. And so, we will do
    whatever we can to make sure that that happens.
        Senator Mikulski. Thank you.
        Mr. Corbett. Senator, we very much appreciate this hearing
    and you listening to riders' views. The one other item I would
    like to suggest for the Congress is to consider extending what
    is called the ``transit commute.'' In the economic stimulus
    bill, the employer discount that is for $230 a month is going
    to automatically reduce to $115 at the end of this calendar
    year unless some vehicle of the Senate Finance Committee
    doesn't fix that item up.
        And to keep people out of their cars and benefiting from
    the parking subsidy, we think having the transit have equal
    weight would be very helpful, and this Congress could do that
    this year.
        Senator Mikulski. Thank you.
        Mr. Corbett. Thank you.
        Senator Mikulski. Very good idea.
        Mr. DeBernardo. And finally, I would just like to say that
    we know of your concern, and we appreciate it. And we are glad
    that we are working together to improve Metro.
        Senator Mikulski. Well, as citizen activists and civic
    engagement, I know that, for example, Ms. Jeter is the official
    union representative and does a very good job at it, but she
    does a lot like you, both of you on your own time and on your
    own dime. But you know, I think this is what is different from
    our country. I mean, we have got to be able to get together,
    put it out on the table, speak uncensored and unfettered, and
    let us solve some of these problems.
        We really thank you for your insights. This concludes our
    hearing, and I wish to state for my colleagues and for the
    record, we will leave the record open for additional questions.
        I know Senator Murray has an extensive set of questions.
    Senator Bond, who is the ranking member, also tied up on the
    financial security, could have extensive questions as well,
    those will be really for the WMATA leadership. With that, the
    hearing is recessed.

                             CONCLUSION OF HEARINGS

        This subcommittee will hold its next hearing on May 20. It
    will turn its attention to its housing portfolio, when Senator
    Murray will hold a hearing on the progress being made to end
    the homelessness among veterans because this does have the
    homeless portfolio. To think that you have housing when you
    fight over there, but you don't have it when you come back here
    is a national disgrace. So she will be holding a hearing on
    that.
        We thank you for your participation and the subcommittee is
    recessed.
        [Whereupon, at 5:49 p.m., Wednesday, May 19, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

    TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES
                      APPROPRIATIONS FOR FISCAL YEAR 2011

                                  ----------

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.

                           NONDEPARTMENTAL WITNESSES

        [Clerk's note.--At the direction of the subcommittee
    chairman, the following statements received by the subcommittee
    are made part of the hearing record on the Fiscal Year 2011
    Transportation and Housing and Urban Development, and Related
    Agencies Appropriations Act.]
         Prepared Statement of the Coalition of Northeastern Governors
        The Coalition of Northeastern Governors (CONEG) is pleased to share
    with the Subcommittee on Transportation, Housing and Urban Development,
    and Related Agencies this testimony on fiscal year 2011 appropriations
    for transportation and community development programs. The CONEG
    Governors deeply appreciate the subcommittee's longstanding support of
    funding for the Nation's highway, transit, and rail systems and
    critical community development programs, including the incorporation of
    transportation and community development funding in last year's
    comprehensive American Recovery and Reinvestment Act (ARRA). The
    welcomed infusion of those flexible funds allowed States and local
    governments to advance many needed projects. The overwhelming response,
    particularly to the intercity passenger rail and multi-modal grant
    funds, also demonstrated the diverse and enormous needs for investment
    in an integrated national transportation system that supports a
    competitive economy, livable communities, and sound use of energy and
    environmental resources. Those needs continue to confront all of us--
    Federal, State and local governments and the private sector.
        We recognize that the subcommittee continues to face a very
    difficult set of fiscal challenges and interlocking issues in crafting
    the fiscal year 2011 appropriations measure. The slowly recovering
    economy exacerbates the shortfall in the Highway Trust Fund even as it
    generates greater demand for public transportation and intercity
    passenger rail services. The ongoing national debate on the surface
    transportation authorization and funding framework to guide highway and
    transit programs remains unresolved. Interest is growing in new
    approaches to funding, restructuring and financing highway and transit
    programs, and creating livable communities, yet many of these
    approaches are not authorized. In spite of these challenges, we urge
    the subcommittee to continue the strong Federal partnership so vital
    for a national, integrated, multi-modal transportation system. This
    network underpins the competitiveness of the Nation's economy, broadens
    employment opportunities, and contributes to the efficient, safe,
    environmentally sound, and energy smart movement of people and goods.

                                 TRANSPORTATION

    Surface Transportation
        The CONEG Governors urge the subcommittee to fund the combined
    highway, public transit, and safety programs at levels greater than the
    fiscal year 2010 appropriations. This higher level of Federal
    investment is necessary to sustain the progress made under the most
    recent authorization to improve the condition and safety of the
    Nation's highways, bridges, and transit systems. Attention is also
    needed to address the recurring shortfall in the Highway Account of the
    Highway Trust Fund.
        Continued and substantial Federal investment in these
    infrastructure improvements--in urban, suburban, exurban, and rural
    areas--is necessary to safely and efficiently move people and products
    and to support the substantial growth in freight movement projected in
    the coming decades. The Federal Government has invested significant
    resources in the Nation's transportation system, and has a continuing
    responsibility to maintain and expand its transportation infrastructure
    to keep America competitive in a global economy.
        Specifically, the CONEG Governors urge the Subcommittee to:
      --Increase the Federal aid highway obligation over the fiscal year
            2010 appropriated level;
      --Increase public transit funding over the fiscal year 2010
            appropriated levels, including full funding for the current
            Formula and Bus Grants, the Capital Investment Grants, and the
            Small Starts programs; and
      --Ensure that these funds are provided to the States in a timely
            manner.
    Rail
        The Governors deeply appreciate the subcommittee's strong support
    for intercity passenger rail, through the commitment of ARRA funds and
    the fiscal year 2010 appropriations levels. The overwhelming response
    to the initial AARA funds demonstrated the pent-up interest in
    investments to expand and improve intercity passenger rail service
    across the Nation. Now, new policy, program and funding frameworks for
    a vastly improved and expanded national intercity passenger rail system
    are taking shape under the guidance of the Passenger Rail Investment
    and Improvement Act (PRIIA), the High Speed Intercity Passenger Rail
    Vision and Strategic Guidance, the Preliminary National Rail Plan, and
    Amtrak's Comprehensive Business Plan.
        The administration, States, Amtrak and freight railroads worked
    intensely over the past year to respond to the new intercity passenger
    rail program and funding requirements. Those efforts are now showing
    results as the Federal Railroad Administration (FRA) prepares to
    release the first awards under ARRA; the States begin submitting
    applications for the fiscal year 2010 corridor planning and capital
    funds; and the administration prepares the National Rail Plan.
        The ability of States, FRA and Amtrak to realize opportunities for
    service expansion and ridership growth in corridors across the country
    will depend upon a substantial and on-going Federal capital investment
    in infrastructure, equipment, and safety. These investments in ``state
    of good repair,'' capacity, and safety improvements are essential for
    the accessible, reliable, frequent and on-time service that attracts
    and retains ridership. In addition, the Federal Railroad Administration
    will need adequate funding and staffing resources to carry out its
    expanded responsibilities for intercity passenger rail grant programs
    and related studies in a timely manner.
        Amtrak.--The CONEG Governors request that the subcommittee provide
    at least the authorized level of $1.927 billion in fiscal year 2011
    Federal funding for Amtrak, with specific funding levels provided for
    operations, capital, debt service, and the Amtrak Office of Inspector
    General. Additional capital resources are needed if Amtrak is to
    initiate its fleet program in a timely manner. A balanced program of
    adequate, sustained capital investment in infrastructure (including
    stations) and fleet modernization and expansion is vital for an
    efficient intercity passenger rail system that provides reliable, safe,
    quality services that attract and retain riders.
        A funding level of $1.025 billion in fiscal year 2011 for capital
    improvements is critically needed for the ``state of good repair''
    improvements to aging infrastructure and safety improvements on Amtrak-
    owned infrastructure and equipment. Even at its requested level, Amtrak
    expects that the backlog of deferred investments (currently estimated
    at approximately $5.5 billion) will continue to increase. For example,
    Amtrak estimates that $700 million is needed annually just on the
    Northeast corridor (NEC) main line and branch lines for normalized
    replacement of assets and progress on reducing the backlog of deferred
    investment. This level of capital investment is vital to Amtrak's
    ability to deliver efficient, reliable, quality service nationwide. We
    particularly encourage the subcommittee to ensure that Amtrak can
    continue bridge repair projects underway on the Northeast corridor, as
    well as the system-wide security upgrades and the life-safety work in
    the New York, Baltimore, and Washington, DC tunnels.
        Amtrak has also identified $446 million as the level of investment
    needed in fiscal year 2011 to begin executing its multiyear fleet plan.
    Timely action on a systematic plan to replace aging equipment used
    throughout the intercity passenger rail system can help modernize the
    current Amtrak fleet; offer the prospect of more efficient procurement
    by Amtrak and by States supporting corridor services; and help
    stimulate the growth of the domestic rail manufacturing sector.
        Intercity Passenger Rail Corridors.--The CONEG Governors also thank
    the subcommittee for its support of the Intercity Passenger Rail
    Corridor Capital Assistance Program, particularly the provision of
    funds for the planning activities leading to the development of
    passenger rail corridors, including multistate corridors. We urge the
    subcommittee to continue funding this critical program at least at the
    $2.5 billion level in fiscal year 2011. This program is an important
    foundation for a vibrant Federal-State partnership that will bring
    expanded, enhanced intercity passenger rail service to corridors across
    the Nation. Infrastructure and service plans for these intercity
    passenger rail corridors take many forms and are at different stages
    across the country, reflecting the diverse range of city pairs, market
    opportunities, and travel time needs. Therefore, we urge that these
    grant funds be available to States to advance plans for reliable,
    frequent and travel-time competitive service and corridors, regardless
    of maximum speed requirements. In light of the stringent FRA
    requirements regarding funding criteria for intercity passenger rail
    grants, we also request that the subcommittee waive the current
    statutory requirement that projects be part of an approved State rail
    plan, since this requirement might curtail thoughtful and well advanced
    efforts already underway by the States.
        Northeast Corridor Infrastructure and Operations Advisory
    Commission.--The Governors thank the subcommittee for providing funding
    for the Northeast Corridor Infrastructure and Operations Advisory
    Commission (Commission) in fiscal year 2010. The NEC Governors have
    named their representatives to the Commission, and are eager to see it
    organized and begin its important work. The Commission is uniquely
    designed to encourage mutual cooperation and planning among all three
    parties for intercity, commuter and freight use of the Corridor--and to
    also maximize the economic growth and the energy and environmental
    benefits of the larger regional NEC Network.
        The Commission has extensive responsibilities to set corridor-wide
    policy goals and recommendations that encompass passenger rail
    mobility, intermodal connections to highways and airports, energy
    consumption, air quality improvements, and local and regional economic
    development of the entire northeast region. The Commission is expected
    to play a central role in providing guidance to the Vision and service
    development plans that are a pre-requisite for the NEC to seek
    corridor-level funds under the newly emerging Federal framework for
    intercity passenger rail. To conduct the required assessments in a
    timely manner, the Commission will need resources, data and expert
    analysis that exceed that which is currently available through the
    staff of the States, Amtrak and FRA. Continued funding in fiscal year
    2011 will ensure the Commission's ability to secure all essential
    resources for conducting these assessments.
        Other Programs.--A number of other national rail programs are
    important components of the evolving Federal-State-private sector
    partnerships to enhance passenger and freight rail across the country.
    In this time of uncertainty in financial markets, the Railroad
    Rehabilitation and Improvement Financing Program (RRIF) can be an
    important tool for railroads (particularly regional and small
    railroads) and public agencies to access the financing needed for
    critical infrastructure and intermodal projects. We encourage the
    subcommittee to provide funding in fiscal year 2011 for the Rail Line
    Relocation and Improvement Program, the Next Generation Corridor Train
    Equipment Pool, and critical rail safety programs including deployment
    of positive train control and the related Nationwide Differential
    Global Positioning System which benefit both passenger rail and freight
    rail systems. In addition, funding for the Advanced Technology
    Locomotive Grant Pilot Program, created in section 1111 of the Energy
    Independence and Security Act of 2007, would be an important first step
    to assist the railroads and State and local governments in a transition
    to energy-efficient and environmentally friendly locomotives for
    freight and passenger railroad systems.
        The CONEG Governors also request funding for the Surface
    Transportation Board (STB) at least at the fiscal year 2010 level of
    $29 million, including specific funding for its responsibilities under
    PRIIA. Adequate funding is needed for the STB to carryout its expanded
    responsibilities for intercity passenger rail corridor service, and to
    provide critical oversight as the Nation's rail system assumes
    increasing importance for the timely, efficient, and environmentally
    sound movement of people and goods across the Nation.

                             COMMUNITY DEVELOPMENT

        The CONEG Governors urge the subcommittee to provide funding for
    the Community Development Block Grant (CDBG) program at least at the
    fiscal year 2010 level of $3.99 billion. The CDBG program enables
    States to provide funding for infrastructure improvement, housing
    programs, and projects that attract businesses to urban, suburban,
    exurban, and rural areas, creating new jobs and spurring economic
    development, growth and recovery in the Nation's low income and rural
    communities.

                                   CONCLUSION

        In conclusion, the CONEG Governors urge the subcommittee to:
      --Increase the Federal aid highway obligation over the fiscal year
            2010 appropriated level;
      --Increase public transit funding over the fiscal year 2010
            appropriated levels, including full funding for the current
            Formula and Bus Grants, the Capital Investment Grants, and the
            Small Starts programs;
      --Fund Amtrak at least at the fiscal year 2011 authorized level of
            $1.927 billion, including $1.025 billion in capital for
            infrastructure and safety-related investments; $592 million for
            operations; $288 million for debt service, and $22 million for
            the Amtrak Office of Inspector General; and also provide
            funding to initiate a sustained fleet modernization program;
      --Provide additional funding specifically for the Northeast Corridor
            Infrastructure and Operations Advisory Commission;
      --Fund the Intercity Passenger Rail Service Corridor Assistance
            Program for corridor planning and capital investment at least
            at the current level of $2.5 billion;
      --Provide funding for national rail programs that are important
            components of the evolving Federal-State-private sector
            partnerships to enhance passenger and freight rail across the
            country, such as the Rail Line Relocation and Improvement
            Program, the Next Generation Corridor Train Equipment Pool, and
            positive train control deployment and development of the
            related Nationwide Differential Global Positioning System;
      --Provide funding for the Surface Transportation Board at least at
            the fiscal year 2010 appropriated level; and
      --Provide at least $3.99 billion for the Community Development Block
            Grant Program.
        The CONEG Governors thank the entire subcommittee for the
    opportunity to share these priorities and appreciate your consideration
    of these requests.
                                     ______

     Prepared Statement of the New York State Department of Transportation

        The New York State Department of Transportation (NYSDOT)
    appreciates the opportunity to present testimony on the fiscal year
    2011 transportation appropriations.
        Most people don't realize how vast New York's transportation system
    really is. Indeed, our State and local highway system supports more
    than 130 billion vehicle miles of travel annually. The total system in
    New York encompasses more than 114,000 miles of highway and more than
    17,400 bridges. New York also is home to a 3,565-mile intercity rail
    network over which more than 1.5 million passengers travel and more
    than 74 million tons of equipment, raw materials, manufactured goods
    and produce are shipped each year. New York also has 485 public and
    private aviation facilities through which more than 80 million people
    travel each year, and we have oversight of many of New York State's
    ports. Finally, we support more than 130 public transit operators,
    serving more than 8 million passengers each day.
        We must recognize that New York State and 47 other States in the
    Nation continue to face significant economic challenges. New York is
    currently facing a deficit of more than $9 billion in State fiscal year
    2010-2011 and a long-term structural deficit of $60.8 billion over the
    next 5 years.
        Since taking office in 2008, Governor Paterson has continually
    warned that New York State is in the midst of an unprecedented economic
    crisis. The losses in the financial, insurance and real estate sectors,
    which have been hit the hardest, have had a devastating impact on our
    State revenues. Prior to the current recession, financial services
    alone provided more than 20 percent of our State revenues. The
    Governor's actions have helped New York make substantial progress
    toward putting the State's fiscal house in order. That does not change
    the fact that the process of addressing a financial challenge of this
    magnitude has been, and remains, a long and difficult one.
        Just 1 year ago, Congress passed the American Reinvestment and
    Recovery Act (ARRA). The Recovery Act provided a one-time boost in
    funding to allow New York to create jobs to spur the economy and make
    progress on addressing transportation deficiencies. Here are some early
    results:
      --Eighty-two ARRA projects, valued at $80 million have been
            completed.
      --Another 328 ARRA projects, valued at almost $803 million, are under
            construction by the private sector throughout New York State.
      --Project selections were made collaboratively within the
            Metropolitan Planning Organizations (MPOs) for 80 percent of
            the projects.
      --Fifty-seven percent of the highway and bridge funds have gone to
            locally sponsored projects. In fact, every county in New York
            State has received Economic Recovery funding for transportation
            projects.
      --Fifty-five percent of the projects administered under the program
            are in economically distressed areas.
      --As of March 15, 2010, $146 million, or approximately 15 percent of
            New York's Highway Recovery Act funding has been made available
            to Disadvantaged and Minority- and Women-Owned Small
            Businesses.
        The Federal Economic Recovery funding was certainly needed and we
    are very grateful to Congress for the opportunity it provided to invest
    in our transportation system. This infusion of Federal aid provided a
    one-time boost to our highway and transit funding.
        But if we are to maintain the benefits from this one-shot of
    investment and job creation provided by the Recovery Act, we need
    continued and increasing Federal and State investment in our
    transportation infrastructure to meet our growing system, mobility,
    infrastructure, safety, congestion and service needs.
        In developing the fiscal year 2011 transportation appropriations
    legislation, we ask that you consider and endorse the following:

         PROVIDE MODEST INCREASES TO TRANSPORTATION PROGRAMS AWAITING
                                REAUTHORIZATION

        New York urges Congress to provide modest funding increases for
    those transportation programs that are awaiting reauthorization:
    highways, transit, highway safety and aviation.
        At a minimum, Congress should provide the level of funding proposed
    in the President's budget:
      --$41.3 billion for highways, which would provide an increase over
            fiscal year 2010 levels ($41.1 billion).
      --$10.8 billion for Transit, a slight increase over fiscal year 2010
            levels.
      --$3.5 billion for the Airport Improvement Program, sustaining the
            level of funding the program has received since authorizing
            legislation expired.
        New York is especially pleased that the President proposes a 32
    percent increase in the Next Generation Air Traffic Control System,
    providing $1.14 billion to upgrade the Nation's air traffic control
    system. Implementing state-of-the-art technology is crucial to the
    redesign of the severely congested New York City airspace.

                            FULLY FUND RAIL PROGRAMS

        New York urges Congress to provide rail no less than the amount
    authorized in Passenger Rail Investment and Improvement Act of 2008
    (PRIIA).
        The President's budget proposal calls for a $1 billion allocation
    for the High-Speed and Intercity Passenger Rail program. Although this
    amount is higher than the $350 million authorized in PRIIA, it is a
    reduction from last year's $2.5 billion. Amtrak funding would include
    $1.052 billion for capital grants, up from $1.002 this year, and $563
    million for operating grants, a continuation of the current level.
        The passage of PRIIA and ARRA provided the first significant level
    of Federal support for intercity passenger rail investment in 100
    years. The nationwide response has been overwhelming. Applications
    valued at $57 billion were submitted for $8 billion in ARRA funds last
    year. The $2.5 billion provided in fiscal year 2010 will help States
    continue to improve intercity passenger rail service. New York urges
    Congress to support the President's budget request for rail in fiscal
    year 2011.

                  MAINTAIN EXISTING TRANSIT PROGRAM STRUCTURE

        New York urges Congress to maintain the existing Fixed Guideway
    Modernization program and Bus and Bus Discretionary program as separate
    transit programs until a full and productive discussion of the state-
    of-good-repair of our transit system occurs in connection with surface
    transportation reauthorization.
        New York supports the Federal Transit Administration's (FTA)
    reinvigorated emphasis on ensuring that the Nation's transportation
    infrastructure reaches a state-of-good-repair. However, to achieve this
    goal, the administration, in its fiscal year 2011 budget, proposes to
    merge the separate formula-based section 5309 Fixed Guideway
    Modernization Program and the section 5309 discretionary-based Bus and
    Bus Facilities into a single new ``Bus and Rail State of Good Repair
    Program.'' While New York welcomes a full and productive conversation
    on a needs-based approach to addressing state-of-good-repair, the
    administration's proposal is too short on detail and FTA has not worked
    with transit stakeholders on a new process for apportioning program
    funds. As such, New York respectfully requests that Congress not
    address structural proposals through the appropriations process. We
    cannot afford any delay in our State's efforts to maintain and
    modernize our existing facilities while the details of such a new
    program are developed.
        NYSDOT thanks you for this opportunity to present testimony. We
    appreciate your dedication to and support of the Nation's
    transportation systems.
                                     ______

        Prepared Statement of the Illinois Department of Transportation

        Madam Chairman and members of the subcommittee, we appreciate the
    opportunity to submit testimony concerning the Federal fiscal year 2011
    U.S. Department of Transportation (U.S. DOT) appropriations on behalf
    of the Illinois Department of Transportation (IDOT) to the Senate
    Appropriations Subcommittee on Transportation and Housing and Urban
    Development, and Related Agencies. We thank Senator Murray and the
    members of the subcommittee for their past support of a strong Federal
    transportation program and for taking into consideration Illinois'
    unique needs.
        IDOT is responsible for the planning, construction, maintenance and
    coordination of highways, public transit, aviation, intercity passenger
    rail and freight rail systems in the State of Illinois. IDOT also
    administers traffic safety programs. Our recommendations for overall
    funding priorities and our requests for transportation funding for
    projects of special interest to Illinois are discussed below.

                      SAFETEA-LU REAUTHORIZATION/EXTENSION

        IDOT recognizes that Congress must vault over numerous hurdles
    before it can unite around a long-term surface transportation
    reauthorization bill that will enhance the quality of the Nation's
    infrastructure. While the HIRE Act provided an extension of the
    SAFETEA-LU programs through December 31, 2010, allowing Congress the
    time it needs to thoroughly craft a bill that will address the pressing
    issues of funding, capacity, mobility, safety, preservation,
    modernization, environment and other critical issues, we urge Congress
    to complete its work on a surface transportation reauthorization bill
    before the end of the HIRE Act extension. Much work has been
    accomplished by Congress but substantial work remains. We urge Congress
    to maintain the momentum it has achieved in developing a multiyear bill
    thus far and to continue with alacrity so that a bill can be enacted
    before another extension of SAFETEA-LU is required.
        We recognize that the Congress has to view issues from many
    different angles, many of them competing, and that the end result may
    differ from a particular State's perspective from time to time. All
    that being said, provided any extension is needed for any duration of
    time, IDOT supports ``clean'' extensions of SAFETEA-LU, i.e. without
    any re-structuring or re-programmatic distribution of existing formula
    or allocated programs. Extensions that modify only selected categories
    of SAFETEA-LU, ex post facto, not only unnecessarily set the stage for
    a zero-sum game scenario wherein States are thrust into disagreement,
    but it also disturbs the finely tuned State equity equilibrium that was
    reached upon SAFETEA-LU enactment.

                FULL RESTORATION OF END-OF-SAFETEA-LU RESCISSION

        The recently enacted HIRE Act restored $8.7 billion in contract
    authority to the States that was rescinded at the conclusion of Federal
    fiscal year 2009 due to a mandated provision in SAFETEA-LU. While IDOT
    commends Congress for this prudent legislative remedy we also urge the
    subcommittee to pursue additional suitable monetary off-sets that will
    make it possible to completely nullify the impact of the rescission by
    restoring, to the States, the $334 million in useable ceiling that was
    lost to them in Equity Bonus (EB) funding. The special obligation
    limitation associated with the EB special contract authority was not
    rescinded but instead made unusable by the rescission of contract
    authority. Even after the restoration of the rescinded contract
    authority, this special limitation will not become usable since current
    law requires that all contract authority made available as a result of
    the rescission restoration is subject to the overall obligation
    limitation provided by an appropriations act. Perhaps, additional
    obligation limitation could be made available, as it was in Federal
    fiscal year 2008, when $1 billion in ceiling was provided (to be used
    with a State's existing apportionment) for projects under the Bridge
    Program.
        As you are aware, within the rescission EB funding was withdrawn
    from 34 States (including Illinois). EB funds are more valuable to the
    States than contract authority (apportionments) because EB funds are
    either exempt from the obligation limitation or they come with attached
    obligation authority. Unfortunately, EB funds were rescinded at a time
    when the States were also being asked by Congress and the President to
    quickly spend funds provided to them from the American Recovery and
    Reinvestment Act of 2009 (ARRA) to invigorate the economy and preserve
    jobs. The need for transportation infrastructure projects to aid in the
    recovery of the national economy is no less critical now than it was
    February 17, 2009 when ARRA was enacted for that purpose. Full
    restoration of EB funds to the States will allow the States the
    opportunity to reinstate those funds with the programmed projects from
    which they were cut so that the economy can continue to rebound through
    transportation infrastructure improvements.

                                    HIGHWAY

    Highway Obligation Limitation
        IDOT urges the subcommittee to set the obligation limitation for
    highway and highway safety programs at the highest level that can be
    sustained by the Highway Trust Fund/Highway Account (HTF/HA). If
    another SAFETEA-LU extension is needed for Federal fiscal year 2011,
    IDOT supports a reasonable, yet healthy, incremental increase above the
    obligation limitation level of $41.8 billion enacted in Federal fiscal
    year 2010.
        IDOT supports preserving the SAFETEA-LU budgetary firewalls and
    guaranteed funding provisions of SAFETEA-LU, as do other transportation
    advocates such as the American Association of State Highway and
    Transportation Officials (AASHTO) and the American Road and
    Transportation Builders Association (ARTBA).
        IDOT is aware of the implications of supporting increased
    transportation funding when the long-term viability of the trust fund
    is in question. However, it is the responsibility of IDOT to secure the
    Federal funding that is needed to address the immediate highway and
    bridge project backlogs in Illinois and to preserve Illinois'
    transportation system for succeeding generations. Sufficient Federal
    dollars are needed to fund safer transportation systems, to address
    environmental concerns, to offset the erosion of the construction
    dollar, to address crippling levels of congestion/delay and to meet the
    transportation demands of the future. To quote the most recent findings
    of the 2008 Status of the Nation's Highways, Bridges, and Transit--
    Conditions and Performance Report to Congress, ``Although investment in
    system rehabilitation has increased in constant dollar terms since
    1997, despite recent sharp increases in construction costs, the
    analysis . . . suggest that current highway investment levels are not
    sufficient to sustain the physical conditions of all parts of the
    highway system.''

    Federal Fiscal Year 2011 Funding Requests for Meritorious Projects
        If the subcommittee finds the flexibility to fund meritorious
    projects in existing discretionary SAFETEA-LU categories or outside
    authorized categories, (Surface Transportation Priorities) IDOT
    requests funding for the following projects (noted throughout the
    testimony) for highway, Intelligent Transportation Systems (ITS),
    transit and rail funding:
      --Expansion of US 67.--IDOT requests $70 million for the pre-
            construction and construction activities for the expansion of
            US 67 to a 4-lane divided expressway between Macomb and Alton,
            Illinois.
      --Expansion of US 51.--IDOT requests $30 million for pre-construction
            and construction activities for the expansion of US 51 to a 4-
            lane divided expressway between Decatur and Centralia,
            Illinois.
      --Central to Central Avenue Connection.--IDOT requests $10 million
            for a Central Avenue Bypass connecting Central through Bedford
            Park in Southwest Chicago.
        Other IDOT highway priorities include:
        --$50.0 million for additional lanes on I-80 from US 30 to US 45 in
    Will County;
        --$58.5 million for I-57 at IL 50 Interchange and ICG Railroad in
    Bradley;
        --$46.8 million for additional lanes on US 30 (IL 31 to US 34) in
    Kane/Kendall County;
        --$33.0 million for highway/railroad grade separation at IL 38 &
    Kautz Road; and
        --$16.3 million for reconstruction of US 45 (LaGrange Rd) from
    131st Street to 179th Street.
        Other IDOT Intelligent Transportation System Priorities:
        --$1.5 million for a prototype Automated License Plate Reader for
    commercial vehicle enforcement; and
        --$9.0 million for IntelliDrive in Illinois (fiber and wireless
    technology)--Readying the Rt. 66 Corridor.

                                    TRANSIT

    Transit Authorization
        IDOT urges the subcommittee to fund transit programs at the highest
    level that can be sustained by the Highway Trust Fund/Transit Account
    or, at a minimum, a reasonable, yet healthy, incremental increase above
    the $10.7 billion obligation limitation level enacted in Federal fiscal
    year 2010.
      --Bus and Bus Facilities.--IDOT and the Illinois Public
            Transportation Association jointly request a Federal earmark of
            $48.9 million ($8.7 million for downstate bus, $25.1 million
            for downstate facilities and $15 million for Chicago Transit
            Authority (CTA)/Suburban Bus Division of RTA (Pace) buses in
            northeastern Illinois) in Federal fiscal year 2011 section 5309
            bus capital funds.
        The request will provide $8.7 million for downstate Illinois
    transit systems to purchase up to 46 buses and paratransit vehicles to
    replace over-age vehicles and to comply with Federal mandates under the
    Americans with Disabilities Act (ADA). All of the vehicles scheduled
    for replacement are at or well beyond their design life. The request
    will also provide $25.1 million to undertake engineering, land
    acquisition or construction for three maintenance facilities and five
    transfer facilities that will enhance efficient operation of transit
    services.
        Illinois transit systems need discretionary bus capital funds. The
    funding provided under SAFETEA-LU has been inadequate to meet Illinois'
    bus capital needs. IDOT believes that supplemental discretionary
    funding is needed, and justified, to support Illinois' extensive
    transit system. Under SAFETEA-LU, Illinois has received less than 2
    percent of the combined High Priority Project (HPP) category and
    discretionary appropriations made available for bus and bus facilities.

    Formula Grants
        IDOT urges the subcommittee to set appropriations for transit
    formula grant programs at levels that will allow full use of the
    anticipated Mass Transit Account revenues. IDOT also supports the
    continued use of general funds to supplement transit needs. In
    Illinois, Northeastern Illinois Urbanized Area formula funds (section
    5307) are distributed to the Regional Transportation Authority and its
    three service boards which provide approximately 600 million passenger
    trips per year. Downstate urbanized formula funds are distributed to 14
    urbanized areas which provide nearly 33 million passenger trips per
    year.
        The Rural and Small Urban formula funds (section 5311) play a vital
    role in meeting mobility needs in Illinois' small cities and rural
    areas. IDOT urges the subcommittee to continue to fund section 5311 at
    a healthy increment above the Federal fiscal year 2010 funding level.
    From the section 5311 funding increases already authorized in SAFETEA-
    LU, Illinois was able to expand public transportation service into
    counties not currently served. Due to the decrease in Federal and local
    funding resources for public transportation, existing statewide public
    transportation service levels could be jeopardized unless there is an
    overall increase in funding above that enacted in SAFETEA-LU.

    State of Good Repair--CTA/Metra Commuter Rail (Metra)/Pace
        IDOT supports the increased focus on the state of good repair needs
    of the Nation's transit systems. State of good repair is a high
    priority for all systems in the State of Illinois. In northeast
    Illinois there is a $2 billion annual need to keep their assets in a
    state of good repair and there is a $91 million annual need for
    downstate systems. A recent Federal Transit Administration study of the
    seven largest transit agencies in the country estimated that more than
    one-third of the study agency assets were in either marginal or poor
    condition. Additional resources should be directed toward preserving
    our existing assets. This will minimize future impacts on maintenance
    costs and improve safety and reliability to the entire system.

    Operating Assistance
        IDOT supports the continued flexible use of Federal transit capital
    funding for day-to-day operations. However, during these extraordinary
    economic times when local funding resources for public transportation
    have suffered, an increase or emergency Federal funding for public
    transportation is needed to supplement existing Federal transit
    funding. These emergency funds should be separate and distinct from
    continuing needs. This funding would ensure that vital services are
    continued at current service levels.

    New Systems and Extensions--CTA/Metra
        IDOT supports continued planning and engineering funding for
    existing CTA/Metra projects. Public transportation in northeastern
    Illinois has benefited over the years from bipartisan, and regional
    consensus; and, therefore, there is no particular priority for the
    ongoing projects. However, since Metra's Union Pacific Northwest Line
    and its Union Pacific West Line have completed their alternatives
    analysis studies and are ready for preliminary engineering, IDOT is
    supportive of Metra's request of $20 million for upgrades for each
    line.

                                      RAIL

    Amtrak Appropriation
        IDOT supports Amtrak's request of $2.196 billion in funding from
    general funds for Federal fiscal year 2011 to cover capital costs
    ($1.018 billion), operating costs ($592 million), debt service costs
    ($305 million) and ADA costs ($281 million). Amtrak needs the full
    amount of their request to maintain existing nationwide operations. In
    addition, IDOT supports Amtrak's Federal fiscal year 2011 capital
    funding request for fleet planning which will require an investment of
    about $446 million. Amtrak needs to replace aging, obsolescent and
    increasingly costly rolling stock and has developed a procurement model
    to replace the whole of their existing fleet by 2040 at a cost of $23
    billion.
        In Illinois, Amtrak operates 58 trains serving approximately 4.4
    million passengers annually within the Nation's passenger rail system
    that served 27 million passengers in Federal fiscal year 2009. It is
    noteworthy that Chicago's Union Station, a primary hub for Amtrak
    intercity service and the fourth busiest station in the Amtrak system,
    had boardings/alightings totaling over 3 million persons. Illinois
    subsidizes 28 State-sponsored trains which provide service in four
    corridors: Chicago-Milwaukee; Chicago-Springfield-St. Louis; Chicago-
    Galesburg-Quincy; and, Chicago-Champaign-Carbondale. Amtrak service in
    key travel corridors is an important component of Illinois' multimodal
    transportation network and continued Federal capital and operating
    support is needed.
      --CREATE Railroad Grand Crossing Connection.--IDOT requests $25
            million in Federal fiscal year 2011 for design and construction
            of a railroad connection between the Canadian National and
            Norfolk Southern Railroads at 75th Street in Chicago--also
            known as Grand Crossing.

    High-Speed Rail
        IDOT supports the administration's $1 billion request for the High-
    Speed and Intercity Passenger Rail program for Federal fiscal year
    2011. The $8 billion in ARRA high-speed and intercity passenger grant
    awards provided a great first step in the building of a national
    system; however, a continued Federal commitment and supplemental
    funding is crucial to accelerate the development of a true national
    intercity passenger high-speed intercity rail system. IDOT also urges
    the subcommittee to devote special attention to the development of the
    next generation of intercity passenger rail equipment. Providing
    funding for next generation intercity rail equipment creates and
    preserves solid employment for skilled American workers--employment
    that can be truly seen as ``green jobs.'' IDOT also urges the
    subcommittee to fully fund the Passenger Rail Investment and
    Improvement Act of 2008 (PRIIA) at its authorized levels. Likewise,
    IDOT supports the President's Vision For High-Speed Rail in America
    strategic plan released last April which promises to build a world-
    class network of high-speed passenger rail corridors. We believe that
    the funding provided under ARRA, PRIIA and in conjunction with the
    President's strategic plan will serve the Nation in making reasonable
    investments in establishing a solid foundation for high-speed rail from
    which the system can thrive and expand.

                                    AVIATION

    Airport Improvement Program Obligation Limitation
        IDOT supports a Federal fiscal year 2011 Airport Improvement
    Program (AIP) obligation limitation of $4.1 billion, the same funding
    level in the House-passed and Senate-passed reauthorization bill. These
    amounts are supported by the American Association of Airport Executives
    and the National Association of State Aviation Officials.
        IDOT continues to support a multiyear reauthorization bill with AIP
    funding levels that will allow full use of the anticipated Airport and
    Airway Trust Fund (AATF) revenues. In addition, IDOT supports the
    continuation of the budgetary guarantees of AIR-21 and VISION-100
    protecting the use of the AATF revenues. Both the House and Senate have
    passed long-term authorization bills. However, it is essential that
    Congress enact legislation to reauthorize the AIP program.
    Reauthorizing the AIP program secures Federal funds for Federal fiscal
    year 2010 and beyond so that the States can support the future
    development of their State aviation infrastructure programs.
        IDOT urges Congress to reauthorize the programs of the Federal
    Aviation Administration before, or soon thereafter the recent extension
    expires on April 30, 2010. Adequate AIP funding remains especially
    important for small, non-hub, non-primary, general aviation and
    reliever airports. While most large/medium hub airports have been able
    to raise substantial amounts of funding with Passenger Facility
    Charges, the smaller airports are very dependent on the Federal AIP.
    Airports must continue to make infrastructure improvements to safely
    and efficiently serve existing air traffic and the rapidly growing
    passenger demand. Lower AIP obligation levels translate into less
    Federal funds for airport projects, thereby exacerbating the existing
    capital project funding shortfall.
        Essential Air Service Program (EAS).--IDOT supports an EAS program
    funded at a level that will enable the continuation of service at all
    current Illinois EAS points. Several Illinois airports, Decatur,
    Marion/Herrin and Quincy, currently receive annual EAS subsidies.
        Small Community Air Service Program.--IDOT supports funding for the
    Small Community Air Service Development Program in Federal fiscal year
    2011, at a level no less than $35 million. Illinois airports have
    received funding from this program in the past.

    Other Non-modal IDOT Priorities
      --Height Modernization.--IDOT requests $1.2 million to continue a
            newly established Height Modernization program in Illinois.
            This project solicitation will be requested through the
            Appropriations Subcommittee on Science, State, Justice,
            Commerce and Related Agencies.
        This concludes my testimony. I understand the difficulty you face
    trying to provide needed increases in transportation funding. However,
    an adequate and well-maintained transportation system is critical to
    the Nation's economic prosperity and future growth. Your ongoing
    recognition of that fact and your support for the Nation's
    transportation needs are much appreciated. Again, thank you for the
    opportunity to discuss Illinois' Federal transportation funding
    concerns.
                                     ______

     Prepared Statement of the American Indian Higher Education Consortium

        This statement focuses on the Department of Housing and Urban
    Development (HUD) and the Department of Transportation, Federal Highway
    Administration--Office of Civil Rights (FHWA-OCR).
        On behalf of this Nation's 36 Tribal Colleges and Universities
    (TCUs), which compose the American Indian Higher Education Consortium
    (AIHEC), thank you for the opportunity to express our views and
    recommendations regarding the Department of Housing and Urban
    Development's University Partnership Program for Tribal Colleges and
    Universities for fiscal year 2011.

                              SUMMARY OF REQUESTS

        Department of Housing and Urban Development (HUD).--Since fiscal
    year 2001, a TCU initiative has been funded and administered under the
    HUD-University Partnership Program. This competitive grants program
    enables Tribal Colleges and Universities to build, expand, renovate,
    and equip their facilities that are available to, and used by, their
    respective reservation communities. We strongly urge the subcommittee
    to reject the recommendation included in the President's fiscal year
    2011 budget request to eliminate four separate HUD university and
    community assistance programs, each addressing very different community
    needs, and establish a homogenized University Community Fund. If all
    funds are competed from a single source, there is no assurance that
    TCUs will be served equitably, and the likelihood is that they will not
    be. We further request that the subcommittee support funding for the
    TCU Program, at a minimum of $5.435 million; the same level of funding
    appropriated for this separate program in fiscal year 2010.
    Additionally, we request that language be included to permit that a
    small portion of the funds appropriated may be used to provide much
    needed technical assistance to institutions eligible to participate in
    this competitive grants program.
        Department of Transportation, Federal Highway Administration--
    Office of Civil Rights (FHWA-OCR).--Fort Peck Community College and
    Salish Kootenai College, both located in Montana, and members of the
    American Indian Higher Education Consortium, conduct Highway
    Construction Training Programs funded by On the Job Training/Support
    Services provided by FHWA-OCR. We urge the subcommittee to direct the
    FHWA-OCR to continue its current rate of investment in the vital
    programs offered by these TCUs that is designed to increase the number
    of American Indians, including women, that are part of the highway
    construction workforce in Indian Country.

                                   BACKGROUND

        Tribal Colleges and Universities are accredited by independent,
    regional accreditation agencies and like all institutions of higher
    education, must undergo stringent performance reviews on a periodic
    basis to retain their accreditation status. In addition to college
    level programming, TCUs provide essential high school completion (GED),
    basic remediation, job training, college preparatory courses, and adult
    education programs. TCUs fulfill additional roles within their
    respective reservation communities functioning as community centers,
    libraries, tribal archives, career and business centers, economic
    development centers, public meeting places, and child and elder care
    centers. Each TCU is committed to improving the lives of its students
    through higher education and to moving American Indians toward self-
    sufficiency.
        Tribal Colleges and Universities provide access to higher education
    for American Indians and others living in some of the Nation's most
    rural and economically depressed areas. According to 2000 decennial
    census data, the annual per capita income of the U.S. population was
    $21,587. In contrast, the annual per capita income of Native Americans
    was $12,893 or about 40 percent less. In addition to serving their
    student populations, TCUs offer a variety of much needed community
    outreach programs.
        These institutions, chartered by their respective tribal
    governments, were established in response to the recognition by tribal
    leaders that local, culturally based institutions are best suited to
    help American Indians succeed in higher education. TCUs effectively
    blend traditional teachings with conventional postsecondary curricula.
    They have developed innovative ways to address the needs of tribal
    populations and are overcoming long-standing barriers to success in
    higher education for American Indians. Since the first TCU was
    established on the Navajo Nation in 1968, these vital institutions have
    come to represent the most significant development in the history of
    American Indian higher education, providing access to, and promoting
    achievement among, students who may otherwise never have known
    postsecondary education success.
        Despite their remarkable accomplishments, TCUs remain the most
    poorly funded institutions of higher education in the country. Chronic
    lack of adequate funds remains the most significant barrier to their
    expanded success. Funding for the day-to-day operating budgets of 26
    reservation-based TCUs is provided under title I of the Tribally
    Controlled College or University Assistance Act (Public Law 95-471).
    Currently, the institutional operating budgets of these colleges are
    funded at $5,764 per Indian student--only enrolled members of a Federal
    recognized tribe or the biological child of a tribal member may be
    counted as Indian students for the purpose of determining an
    institution's operations funding level. Because TCUs are located on
    Federal trust land, States have no obligation to fund them--not even
    for the non-Indian State-resident students who account for
    approximately 20 percent of TCU enrollments. Yet, if these same
    students attended any other public institution in the State, the State
    would provide basic operating funds to the institution. While
    mainstream public institutions have had a foundation of stable State
    tax-based support, TCUs must rely on annual Federal appropriations for
    their day-to-day institutional operating budgets. In the almost 30
    years since the Tribal College Act was initially funded, these
    reservation-based colleges have never received the authorized funding
    level for their institutional operations. In fact, they have lost
    ground. If you factor in inflation, the buying power of the current
    appropriation is $965 less per Indian student than it was when it was
    initially funded almost 30 years ago, when the appropriation was $2,831
    per Indian student. This is not simply a matter of appropriations
    falling short of an authorization. It effectively impedes the TCUs from
    having the resources necessary to provide educational services afforded
    students at State-funded institutions of higher education.
        Inadequate funding has left many TCUs with no choice but to
    continue to operate under severely distressed conditions. The need
    remains urgent for construction, renovation, improvement, and
    maintenance of key TCU facilities, such as basic and advanced science
    laboratories, computer labs, and increasingly important student
    housing, day care centers, and community service facilities. Although
    the situation has improved dramatically at many TCUs in the past
    several years, some TCUs still operate--at least partially--in donated
    and temporary buildings. Few have dormitories, even fewer have student
    health centers and only one TCU has a science research laboratory.
        As a result of more than 200 years of Federal Indian policy--
    including policies of termination, assimilation and relocation--many
    reservation residents live in conditions of poverty comparable to that
    found in Third World nations. Through the efforts of TCUs, American
    Indian communities are availing themselves of resources needed to
    foster responsible, productive, and self-reliant citizens.

                                 JUSTIFICATIONS

    Department of Housing and Urban Development
        The HUD-TCU program, funded and administered under the Department's
    University Partnership Program, is a competitive grants program that
    enables TCUs to expand their roles and efficacy in addressing
    development and revitalization needs in their respective communities.
    No academic or student support projects are funded through this
    program; rather, funding is available only for community based outreach
    and service programs at TCUs. Through this program, some Tribal
    Colleges have been able to build or enhance child care centers and
    social service offices; help revitalize tribal housing; establish and
    expand small business development; and enhance vitally-needed library
    services. Unfortunately, not all of the TCUs have yet to benefit from
    this program. The program staff at the Department has no budget to
    provide technical assistance with regard to this program. If a small
    portion of the appropriated funds were to be available for program
    staff to conduct workshops and site visits, more of the TCUs and their
    respective communities could benefit from this vital opportunity. We
    strongly urge the subcommittee to support a TCU specific program funded
    at a minimum of $5.435 million, and to include language that will allow
    a portion of these funds to be used to provide technical assistance to
    TCUs, to help ensure that much needed community services and programs
    are expanded and continued in the communities served by the Nation's
    Tribal Colleges and Universities.

    Department of Transportation, FWHA--Office of Civil Rights
        Since 1999, two of the Montana-based tribal colleges: Fort Peck
    Community College and Salish Kootenai College have conducted highway
    construction training programs with funds from FHWA-OCR's On the Job
    Training/Support Services. In 2006, FHWA-OCR recognized the strength of
    its investment and success of these programs by presenting Salish
    Kootenai College with the ``Minority Institutions Higher Education
    Achievement Award''. We urge the subcommittee to include report
    language directing the FHWA-OCR to continue its current rate of
    investment in the vital programs offered by these TCUs designed to
    increase the number of American Indians, including women, that are part
    of the highway construction workforce in Indian Country.

                      PRESIDENT'S FISCAL YEAR 2011 BUDGET

        The President's fiscal year 2011 budget request proposes
    eliminating four existing separate university and community assistance
    programs that serve unique constituencies and melding the funds into a
    single $25 million University Community Fund, as part of the larger
    Community Development Block Grant (CDBG). We request that the
    subcommittee continue to recognize and appropriate separate funding for
    the Tribal Colleges and Universities Program, and the other affected
    programs, namely: Historically Black Colleges and Universities;
    Hispanic Serving Institutions Assisting Communities; and Alaska Native
    and Native Hawaiian Serving Institutions Assisting Communities, to be
    allocated competitively within the separate programs.

                                   CONCLUSION

        We respectfully request that in fiscal year 2011, Congress maintain
    the current level of funding for a separate Tribal Colleges and
    Universities HUD program and provide for technical assistance, to help
    these vital institutions improve and expand their facilities to better
    serve their students and communities. Additionally, we ask Congress to
    direct the Department of Transportation to maintain the current level
    of funding for our two TCUs that conduct highway construction training
    programs to increase quality jobs for American Indians living in Indian
    Country. Thank you for your continued support of Tribal Colleges and
    Universities and for your consideration of our fiscal year 2011 HUD
    appropriations requests.
                                     ______

              Prepared Statement of the City of Maricopa, Arizona

        Chairwoman Murray, Ranking Member Bond, and distinguished members
    of the subcommittee, thank you for allowing me to testify on behalf of
    the city of Maricopa in support of $1.8 million for environmental
    studies through the Federal Highway Administration's (FHWA) Public
    Lands Highway--Discretionary (PLHD) program for a grade separation
    along State Route 347 in Maricopa, Arizona.
        History.--Maricopa is a small but thriving community 35 miles south
    of Phoenix that is between the Gila River Indian Community and the Ak-
    Chin Indian Community. Incorporated in 2003 with a population of
    approximately 1,000 people, Maricopa is now a burgeoning community of
    more than 40,000 and growing at the rate of approximately 100 people
    per month. SR-347 is Maricopa's ``Main Street'' and is the area's
    primary north-south corridor and most direct route to the Phoenix area.
    Originally paved in the 1950's as a two-lane highway, the roadway was
    upgraded to a five-lane facility in the early 1990s, when the
    population of Maricopa and surrounding communities was less than 1,000
    people. The Union Pacific Rail Road's (UPRR) Sunset Line crosses SR-347
    in the center of the Maricopa community. The Sunset Line was a single
    track but has just recently been double tracked with plans for a third
    track. The Sunset Line is one of UPRR's key transcontinental freight
    corridors, and currently over 50 trains per day pass through the UPRR/
    SR-347 intersection at speeds in excess of 50 mph.
        Traffic Levels.--Traffic counts taken in February 2009 show a daily
    traffic count of 33,547 vehicles, including 168 school buses carrying
    an estimated 2,856 children across this rail line during morning and
    afternoon peak hour periods. Also, on average 30 pedestrians cross the
    tracks at peak times, many of them students walking to and from
    Maricopa High School. Additionally, a majority of patrons of Harrah's
    Ak-Chin Casino, located just a few miles south of Maricopa, cross the
    UPRR line on SR-347 in both personal vehicles and on charter buses.
        Accident History.--Crash statistics documented in our 2007
    feasibility study show that SR-347 at the UPRR Line had 21 accidents
    including one fatality in the previous 3 years. Federal Railroad
    Administration's (FRA) most recent 10-year accident statistics for all
    of Pinal County show an average of 3 fatalities a year out of 30
    incidents per year county-wide. In Maricopa, FRA statistics show five
    fatalities in the past 20 years at crossing 741343C (SR-347 and UPRR)
    including a toddler trapped in a truck stalled on the crossing in June
    2000. Life long residents remember this tragedy and never want to see
    it repeated.
        Congestion.--Each passing train stops traffic on SR-347 for several
    minutes resulting in delays and congestion. In addition, six Amtrak
    trains per week make scheduled stops at the Maricopa Station, typically
    taking 5 to 10 minutes to load and unload passengers and baggage. The
    Amtrak loading platform is located approximately 120 feet east of the
    SR-347 crossing; since the Amtrak trains normally extend through the
    intersection, these also cause long back-ups and congestion.
        Emergency Access.--To many people in Maricopa, the SR-347 crossing
    at the UPRR is literally the only way across the railroad tracks. Due
    to the location of fire stations and the restriction of only having one
    police station in the city, this means emergency vehicles also commonly
    have to wait for the passing of a train before they are able to
    continue responding to a code response. Maricopa is concerned about the
    SR-347/UPRR crossing as a hindrance to providing proper public safety
    responses.
        Hazardous Materials.--With the volume and type of freight carried
    along the UPRR Sunset Line through the middle of downtown Maricopa,
    there is an ever-present threat of a hazardous materials incident.
    Spills of this nature can take upwards of 12 to 24 hours to resolve.
    The shutdown of this vital crossing, leaving residents unsure of
    alternate routes and hindering emergency service response as well as
    citizens commuting to and from work, would cause serious repercussions
    for the community. Traffic congestion could also delay proper response
    of hazardous materials teams.
        Current Status.--A grade separation Feasibility Report/
    Environmental Overview (FR/EO) was completed in March 2007. The purpose
    of the investigation was to develop and evaluate various alternatives
    for achieving the grade separation. The FR/EO presents five options for
    achieving the project goals, and evaluates each based on a range of
    criteria including cost, effectiveness, and community impacts.
        Since March 2007, no progress has been made on this project. Steps
    left to be taken include the completion of a Design Concept Report and
    an Environmental Impact Statement and engineering design. Once project
    development is completed, bidding and construction can proceed. The
    city of Maricopa strongly supports a congressional appropriation of
    $1.8 million for environmental studies with regard to the SR-347 grade
    separation project in the fiscal year 2011 Transportation and Housing
    and Urban Development and Related Agencies Appropriations bill.
        To date, the city of Maricopa has invested $500,000 in the project
    and is expected to add more to this total. Additionally, the Arizona
    Department of Transportation has committed $400,000 to this project
    thus far. To keep this project on schedule, Federal funding is
    necessary and we strongly support the subcommittee allocating $1.8
    million to complete the environmental studies for this project.
        Justification for Dedication of Federal Funds.--SR-347 is the
    primary access to one of the fastest growing areas in the country,
    carries pass-through traffic to San Diego and Mexico and serves as a
    key economic corridor for the Arizona region. The UPRR Sunset Route is
    one of the busiest transcontinental rail lines in the United States,
    transferring freight between the Port of Los Angeles, California and El
    Paso, Texas. We have two significant interstate transportation routes
    intersecting within a local municipality, burdening the city and
    placing residents at a heightened risk. Federal action to remedy this
    is warranted given the gravity of the situation, the scale of the
    solution required and the scarcity of alternative options.
        The speed of regional growth has outpaced the ability of local and
    State authorities to provide for the health, safety and welfare of
    travelers crossing the UPRR line on SR-347. Once safety concerns are
    identified, it is imperative to seek a solution to this problem at all
    levels. The transcontinental nature of the UPRR rail line is a national
    issue. The housing boom that created Maricopa and brought residents
    from all across the country is a national phenomenon. The reality that
    a significant and possibly fatal safety issue exists today should drive
    away any notion that this is anything less than a national issue. A
    safety issue as this, with emergency needs, should be addressed before
    conditions worsen and additional accidents or fatalities take place. We
    should solve this problem before another tragedy takes place and this
    is why we are urgently asking Congress to address this problem now
    before another fatal accident takes place.
        Conclusion.--The UPRR crossing at SR-347 is one of the most
    dangerous rail crossings in Arizona. Because it bisects the fastest
    growing area of Arizona, traffic is congested, public safety is
    compromised, and children are at risk because of its proximity to a
    high school. The only way to resolve this dangerous situation is an
    over or under pass at the current grade crossing. Therefore, again, the
    city of Maricopa strongly supports $1.8 million in funding through the
    PHLD program under the Federal Highway Administration in the fiscal
    year 2011 Transportation and Housing and Urban Development and Related
    Agencies Appropriations bill for the completion of the environmental
    studies for State Route 347 grade separation project thus keeping it on
    an optimal schedule for completion.
        Finally, it is important to note that our Senators--Kyl and
    McCain--do NOT request earmarks and, therefore, we will not receive any
    funding in the Senate. However, we are confident that with our support
    in the House from Congressmen Grijalva and Pastor that this project
    will be a conferenceable line-item and we hope you will support this
    important request. Not one more life should be sacrificed at this
    dangerous crossing.
        Thank you for your time and attention to this important matter.
                                     ______

             Prepared Statement of the Cook Inlet Housing Authority

        My name is Carol Gore, and I currently serve as the president and
    CEO of Cook Inlet Housing Authority. On behalf of Cook Inlet Housing
    Authority, I appreciate this opportunity to submit testimony to the
    Senate Appropriations Subcommittee for Transportation, Housing and
    Urban Development regarding the Department of Housing and Urban
    Development's proposed fiscal year 2011 funding allocation for the
    Indian Housing Block Grant program.
        Cook Inlet Housing Authority is headquartered in Anchorage, Alaska.
    It is the Tribally Designated Housing Entity for Cook Inlet Region,
    Inc. and has a service area of 38,000 square miles, covering much of
    south-central Alaska. According to Census 2000 figures, Cook Inlet
    Housing Authority's service area contains a Native American population
    of approximately 36,000 individuals, roughly 30 percent of Alaska's
    Native American population. We estimate that more than one-half of the
    Native American families living within Cook Inlet Housing Authority's
    service area are living at or below HUD-defined low-income levels.
        The Indian Housing Block Grant program, created by the Native
    American Housing Assistance and Self-Determination Act, or ``NAHASDA,''
    is Cook Inlet Housing Authority's primary source of funding for
    affordable housing and housing-related activities for low-income Native
    American families. The program enables Cook Inlet Housing Authority to
    develop and operate elder and family rental housing, provide affordable
    home loans and down payment assistance, deliver housing readiness case
    management, issue tenant-based and project-based rental assistance
    vouchers, and provide weatherization upgrades. Cook Inlet Housing
    Authority also works with a number of local providers to combat
    homelessness and provide supportive housing for individuals with
    special needs. This leveraging of local capacity provides a non-
    duplicative mechanism to use existing expertise and programs to enhance
    homelessness and supportive housing opportunities for low-income Native
    American families living within our region.
        The Indian Housing Block Grant is critical for another, more
    technical and fundamental reason. Congress intended for NAHASDA
    recipients to use their Indian Housing Block Grants to leverage
    additional funding for affordable housing in Indian country. By using
    its Indian Housing Block Grant to secure investment from other sources,
    Cook Inlet Housing Authority has been able to bring significant
    additional resources to serve the affordable housing needs of all
    tribal members living within our region without segregation by income
    or location. We describe this leveraging model as providing our region
    with the benefits of living within a Village where all people and
    resources are valued. By leveraging our NAHASDA funds, we are
    benefiting our people and community in a way that celebrates and
    welcomes our Native American population providing them quality homes in
    a variety of neighborhoods. Simultaneously, our leveraging model has
    enabled us to serve more AIAN clients than we could otherwise serve if
    we developed housing strictly with NAHASDA funds on a house-by-house
    basis. NAHASDA encourages leveraging. We thank Congress for the wisdom
    and guidance to provide this opportunity to bring private capital and
    funding to our Indian housing. Leveraging is part of the reason why
    NAHASDA has been a resounding success throughout the United States.
        However, despite the successes and innovations NAHASDA has spawned,
    housing conditions in Indian country are far inferior to those of the
    general U.S. population. According to the 2000 U.S. Census, nearly 12
    percent of Native American households lack plumbing, compared to 1.2
    percent of the general U.S. population. Indian households are nearly
    three times more likely to be severely overcrowded. We are making good
    progress, but our success has only just now begun to reach the private
    banking industry and other grant funding sources. Absent NAHASDA funds
    for leveraging, we have little chance of continuing our progress. With
    NAHASDA, we are perceived to have ``skin in the game'' by other
    funders. We are investing in our people and our communities--often
    bringing $1 to $9 from other sources for every NAHASDA dollar.
        It is for precisely these reasons--the success of NAHASDA and the
    disparity in housing conditions between Native American communities and
    the general U.S. population--that Cook Inlet Housing Authority is so
    confused by the administration's 2011 budget request for the Indian
    Housing Block Grant. The President's 2011 budget seeks $580 million for
    the Indian Housing Block Grant, an amount 17 percent less than the
    level enacted for 2010 and the lowest single-year funding amount for
    the IHBG since the Native American Housing Assistance and Self-
    Determination Act became law in 1996.
        Why a successful program that effectively addresses the housing
    needs of an extremely underserved population should bear a
    disproportionate burden when it comes time to trim the Federal budget
    is simply baffling. Cook Inlet Housing Authority has heard
    unsubstantiated assertions that there is a lack of capacity in Indian
    country that prevents the timely expenditure of Indian Housing Block
    Grant funds. To the contrary, it is our understanding that NAHASDA
    recipients have clearly demonstrated their capacity to obligate and
    expend American Recovery and Reinvestment Act funding in accordance
    with Federal requirements.
        It is true that some NAHASDA recipients may hold on to their annual
    Indian Housing Block Grant funding for limited periods, but they do so
    for legitimate reasons. Because of the nature of the housing industry
    in cold weather climates, construction seasons may be limited. In
    Alaska, we can miss an entire construction season because the water
    transportation system is either too low or doesn't thaw in time for
    delivery. Moreover, small tribes receiving minimum NAHASDA allocation
    sometimes preserve their Indian Housing Block Grant funding over
    multiple years until they have pooled enough resources to engage in
    meaningful and strategic housing activities. This practice is expressly
    permitted by NAHASDA.
        It is also confusing that the administration's budget request
    proposes such a substantial cut to the Indian Housing Block Grant only
    months after Congress implicitly recognized the efficacy of NAHASDA by
    providing millions of dollars for the Indian Housing Block Grant
    through the American Recovery and Reinvestment Act. Had the Recovery
    Act funding been described to tribes and tribally designated housing
    entities as an advance rather than a supplement intended to address
    critical housing shortages in Indian country while stimulating the
    American economy, Cook Inlet Housing Authority would have vigorously
    opposed Recovery Act NAHASDA funding. Such an ``advance'' followed by a
    funding cut would require tribes and housing organizations to hire a
    significant number of new employees in order to spend Recovery Act
    funding, only to lay off those very workers and additional staff once
    Recovery Act funding is spent. This was clearly not the intent of
    Congress.
        Because NAHASDA is an effective program enabling tribes and their
    designated housing entities to address the severe shortage of safe,
    affordable housing in Indian country, Cook Inlet Housing Authority
    respectfully requests that Congress fund the Indian Housing Block Grant
    at $875 million for 2011. This funding level will restore Indian
    Housing Block Grant funding to the fiscal year 2010 funding level and
    provide an additional $175 million to address inflationary forces and
    cost increases that were not taken into consideration between 1996,
    when NAHASDA was passed, and 2010.
        On behalf of Cook Inlet Housing Authority, thank you for the
    opportunity to provide testimony opposing the administration's proposed
    cuts to the Indian Housing Block Grant and supporting an increase in
    the amount of $175 million for that program.
                                     ______

        Prepared Statement of the Ely Shoshone Tribe Housing Department

        It has been brought to my attention that the fiscal year 2011
    budget proposed by President Obama includes unprecedented cuts to
    funding under the Native American Housing and Self-Determination Act
    (NAHASDA). As you may be aware, housing conditions and the availability
    of housing in Indian Country fall far below those of the general U.S.
    population. For example, according to the 2000 U.S. census, nearly 12
    percent of Native American households lack plumbing compared to 1.2
    percent of the general U.S. population. Further, Indian households are
    nearly three times more likely to be severely overcrowded.
        Since the inception in 1996 and funding and implementation in 1998,
    NAHASDA has been the cornerstone of tribal housing programs. The
    President's budget proposes cutting funding for the Indian Housing
    Block Grant (IHBG) to $580 million, which is nearly 18 percent lower
    that the fiscal year 2010 funding level and would be the lowest single-
    year funding ever allocated to IHBG since NAHASDA was enacted. The
    proposed budget does not include sufficient resources for the Indian
    Community Development Block Grant (ICDBG) and completely eliminate the
    much-needed Training and Technical Assistance (T/TA) that tribes need
    to plan, implement and manage their housing programs. I urge you to
    support increased funding for the IHBG at $875 million, the ICDBG at
    $100 million, and to reinstate the allocation for T/TA at $4.8 million.
        Thank you in advance and consideration.
                                     ______

      Prepared Statement of the Fond du Lac Band of Lake Superior Chippewa

        Mr. Chairman, members of the subcommittee, I am Karen R. Diver,
    chairwoman of the Fond du Lac Band of Lake Superior Chippewa. On behalf
    of the band, I would like to thank you for this opportunity to submit
    testimony on fiscal year 2011 appropriations relating to the United
    States Department of Housing and Urban Development. We submit this
    testimony to urge Congress to increase the Federal funding levels for
    Indian housing programs that are provided through the Department of
    Housing and Urban Development.
        Specifically, we ask that Congress appropriate $875 million for the
    Native American Housing Block Grant Program (NAHASDA), and increase all
    other HUD programs serving Native Americans. Although the NAHASDA
    program is the principal source of Federal financial assistance for
    housing on Indian reservations, the President's proposed fiscal year
    2011 budget would reduce funding for this program to only $580 million.
    This is substantially below the fiscal year 2010 enacted level of $700
    million, and, in fact, is well below funding that had been provided for
    this program in each of fiscal years 2005 through 2009--which had
    averaged $630 million annually but which had not been adjusted to
    address increases in housing costs caused by inflation. While the band
    very much appreciates the additional funds provided for this program
    through the American Recovery and Reinvestment Act of 2009, the ARRA
    funds should supplement and not reduce program funding levels. Indeed,
    because of the severe and persistent deficiencies in housing in Indian
    Country, program funds should be increased above the fiscal year 2010
    enacted level.
        Native Americans suffer the most substandard housing--at a rate of
    six times that of the population at large. The Fond du Lac Band, like
    tribes nationwide, has longstanding and severe housing needs. Our
    reservation, located in northeastern Minnesota, is part of our
    aboriginal homeland. The reservation was established for us by treaty
    with the United States on September 30, 1854 as our permanent home. We
    have 3,900 enrolled tribal members, and provide a wide range of
    services not only to our members, but to approximately 6,500 Indian
    people who live and work on and near our reservation.
        The Fond du Lac Reservation did not receive public housing until
    1965, 30 years after public housing was established for all other
    Americans. The implementation of the housing program for Fond du Lac
    followed many years of failed Federal policy, which served to break up
    families by placing children in boarding schools and foster homes, and
    which relocated many of the residents of the Fond du Lac Reservation
    from the reservation to urban areas. In recent years, especially with
    the decline in the Nation's economy, many band members have come back
    to the reservation in the interest of obtaining jobs that the band has
    been able to provide as a result of the band's recent strides in
    economic development.
        Although our reservation encompasses 100,000 acres of land, the
    Federal allotment policy, which was applied to the Fond du Lac
    Reservation in 1889, left us with the poorest lands; our most valuable
    lands went to timber companies and homesteaders. In addition, our
    reservation is located in a geographic area that contains mostly
    marginal lands that require costly drainage projects for the land to be
    useable. Our lands are considered a difficult environment for
    affordable housing because they require high development costs
    associated with substandard soils and expensive sewage systems and a
    lack of decent infrastructure. In an effort to meet our members'
    housing needs, the band has found it necessary to invest significant
    funds to remediate the band's current lands, purchase other lands, and
    construct the infrastructure (septic systems, water and sewer lines,
    roads, and utility services) that is essential to serve those lands.
        The band cannot do this alone. The band has long depended on the
    funds made available to Indian tribes through HUD to assist us in
    meeting the housing needs of our members. But the deficits in housing
    for Indian people are so entrenched and so severe that they will not be
    remedied without continued Federal financial assistance.
        We currently have 73 units of home ownership housing and 231 units
    of low rent housing. Many of our housing units are over 15 years old,
    with the oldest units built more than 30 years ago, in 1970. Because of
    the age of our housing stock, the units are constantly in need of
    maintenance and repairs. Approximately 30 percent of our housing units
    require major renovation, such as the replacement of roofs and siding,
    as well as upgrades in plumbing and other utility systems, and the
    replacement of windows and doors. Other units require routine repairs
    and maintenance, the average cost of which is $5,000 per year.
        The Fond du Lac Housing Division currently has a waiting list of
    approximately 300 applicants seeking low income and home ownership
    housing. We have many other tribal members who are also in need of
    housing, but who have moderate incomes and therefore are not even shown
    on our waiting list. To meet the needs of our members we need to build
    at least 300 new housing units. Our greatest need is for low income
    rental units and funds to cover the cost of repairs and maintenance. We
    also have ongoing needs to build new and upgrade existing septic
    systems to serve that housing, the cost of which is estimated to be
    approximately $1-$2 million.
        The disparity between housing conditions among our members and that
    of the general population is shown by the 2000 Census. In Minnesota,
    0.5 percent of the population lives in homes lacking complete plumbing.
    In contrast, among Fond du Lac members that figure is 10 times higher--
    5.1 percent. In Minnesota, 0.48 percent of the population lives in
    homes that lack complete kitchens. In contrast, among Fond du Lac
    members, 4.2 percent live in homes without complete kitchens. In
    addition the poverty rate in Minnesota is 7.9 percent, while the
    poverty rate among Fond du Lac members is 14 percent.
        Because of the severity of our housing shortage, approximately 20
    percent of our people currently live in overcrowded homes. It is not
    uncommon on our reservation and among our people to find 10 or more
    individuals living together in a 2-bedroom home. Overcrowding, in turn,
    taxes the house itself by accelerating the wear and tear on those
    homes.
        Overcrowding and dilapidated housing creates other risks. As
    discussed by the U.S. Commission on Civil Rights, in its report, A
    Quiet Crisis: Federal Funding and Unmet Needs In Indian Country, at 62-
    63 (July 2003), the high rate of overcrowded housing among Native
    Americans increases the risk of fire and accidents, and creates
    unsanitary conditions, with increased spreading of communicable but
    normally preventable illnesses. Overcrowded housing is especially
    harmful to children, who, as the Commission found, are likely to
    ``suffer sleep deprivation and inability to concentrate in school.'' In
    addition, overcrowded housing ``often results in stress, which can
    magnify family dysfunction and eventually lead to alcohol and child
    abuse.'' A Quiet Crisis at 63. We see these problems at Fond du Lac.
        Our members who are compelled to live in overcrowded homes are also
    often only a step away from being homeless. As set out in a recent
    study of homeless and near-homeless persons on northern Minnesota
    Indian Reservations, including the Fond du Lac Reservation,
    ``[d]oubling up with family or friends is often the last housing
    arrangement a person has before becoming literally homeless, and it is
    common for people to go back and forth between doubling up and
    homelessness.'' Wilder Research, Homeless and Near-Homeless People on
    Northern Minnesota Indian Reservations (Nov 2007), http://
    www.wilder.org/download.0.html?report=2018. The Report further found a
    substantial number of Indians on the six reservations studied to be in
    this near-homeless status.
        Homelessness is an equally severe problem among Fond du Lac
    members. In 1994, the Minnesota Housing Finance Agency reported that
    while the homeless rate for all Minnesota residents was 0.92 percent,
    the homeless rate among Fond du Lac members was 6.54 percent. See
    Minnesota Housing Finance Agency, Comprehensive Housing Affordability
    Strategy 1996-2000 at 28, 43, 49 (December 29, 1995). The problem of
    homelessness continues to exist. A 2006 study shows that a
    disproportionately high number of Native Americans in Minnesota are
    homeless. See Wilder Research, Overview of Homelessness in Minnesota
    2006: Key Facts from the Statewide Survey (April 2007), http://
    www.mnhousing.gov/initiatives/housing-assistance/Resources/index.aspx.
    The study reports that although Native American adults are only 1
    percent of the population of the State, they are 11 percent of the
    adults identified as homeless. And while Native American youth (age 11
    to 17) are only 2 percent of the youth population in the State, they
    are 22 percent of the homeless youth that are unaccompanied by an
    adult. Id. at p 9.
        We see the problem of homelessness among our members every day. The
    band regularly receives requests from band members who are homeless and
    in need of housing. The band currently has no facilities to provide
    temporary shelters to house our members when emergencies arise and
    there are no homeless shelters in close proximity to the Fond du Lac
    Reservation. Instead, in an effort to combat this problem, the band has
    found it necessary provide temporary shelter to homeless band members
    in the band's Black Bear Hotel and other local hotels and motels.
        In addition, several years ago, the band established an emergency
    rental assistance program. Under this program, the band provides
    emergency shelter to band members in need of housing by paying the
    security deposit and first month's rent on a rental unit anywhere
    within a 60 mile radius of our reservation. The band has provided
    rental assistance to many band members since the program was created.
    But although this program does address the immediate housing crisis
    faced by a family that becomes homeless, it is not a long term solution
    for many of our members who do not have sufficient financial resources
    to continue to pay the higher rents that are generally charged for
    housing outside the reservation. Those members risk becoming homeless
    again a few months after emergency rental assistance is provided. The
    band needs more units of affordable low-income rental housing to meet
    the needs of these individuals. However, because of budget limitations,
    we do not have enough funds to cover the cost of building and
    maintaining a sufficient number of low income rental housing units.
        The Fond du Lac Band also needs to address the housing needs of our
    elderly population by providing assisted living accommodations for them
    if they so choose. Our elders are our teachers and mentors and we need
    to honor and respect them by giving them comfort and security, and
    allow them to live in a secure, healthy and worry-free environment.
    While the band has two housing complexes for our elders, there are not
    a sufficient number of units within those complexes to meet the need.
    Further, the units in those complexes do not have the medical and
    related facilities if the elders require greater assisted care. In such
    circumstances, our elders must find a nursing home outside the
    reservation.
        The band relies on its annual grant from the Department under the
    NAHASDA program to meet some of these housing needs. The band has also
    relied on Indian Community Development Block Grants, which the band has
    been able to use for infrastructure. However, the funding for these
    programs has not materially increased over the years. At the same time,
    the costs of the supplies, materials and labor necessary to remodel and
    modernize our aging housing stock have increased every year with
    inflation. Each year we are forced to do more with less. Current
    funding levels simply do not meet the housing needs. The lack of any
    real increases in the NAHASDA program before fiscal year 2010 and in
    the other HUD programs that are intended to serve Indians will only
    make this housing crisis worse. The Federal Government's trust
    responsibility demands that this Indian housing crisis be addressed.
        Housing represents the single largest expenditure for most Indian
    families. The development of housing has a major impact on the national
    economy and the economic growth and health of regions and communities.
    Housing is inextricably linked to access to jobs and healthy
    communities and the social behavior of the families who occupy it. The
    failure to achieve adequate housing leads to significant societal
    costs.
        Decent, affordable, and accessible housing fosters self-
    sufficiency, brings stability to families and new vitality to
    distressed communities, and supports overall economic growth. Very
    particularly, it improves life outcomes for children. In the process,
    it reduces a host of costly social and economic problems that place
    enormous strains on the education, public health, social service, law
    enforcement, criminal justice, and welfare systems. For these reasons
    the Fond du Lac Band strongly urges Congress to increase funding for
    our housing needs so we can meaningfully address the needs of the core
    of our communities.
                Miigwech. Thank you.
                                     ______

            Prepared Statement of the Railway Supply Institute, Inc.

        Thank you for the opportunity to submit this statement.
        The Railway Supply Institute (RSI) appreciates the opportunity to
    provide this subcommittee with our views on important transportation
    funding policy.
        Established in 1908, RSI is the international association of
    suppliers to the Nation's freight, passenger rail systems, and rail
    transit authorities. The domestic railway supply industry is a $20
    billion a year business with some 500 companies employing 150,000
    people. Approximately 25 percent of sales involve Amtrak, commuter
    railroads and transit authorities. A strong national freight and
    passenger rail system will not only continue to sustain good paying
    domestic jobs but will lead to future job creation as well.
        RSI supports both our Nation's freight and passenger rail
    operations. We need a strong, national railroad passenger system that
    contributes to reducing dependence on foreign oil; reducing carbon
    emissions into the atmosphere; reducing congestion on our highways;
    improving transportation safety; reducing airport congestion; and that
    will enhance our ability to move vast numbers of people in emergency
    evacuation situations (i.e. 9/11, Katrina, etc).
        As representatives of those who supply our Nation's railroad
    industry, we submit that a more balanced national transportation policy
    that places more emphasis on rail will significantly contribute to
    meeting our Nation's stated policy objectives that are designed to make
    this Nation stronger.
        Our key requests for intercity passenger trains for fiscal year
    2011 are:
      --Amtrak's budget request: $592 million for operations; $1,299
            million for capital (including $281 million for Americans with
            Disabilities Act compliance work); $305 million for debt
            service; $7 million for FRA oversight.
      --Amtrak's fleet strategy requirement: $446 million.
      --Capital grants for States: $4 billion, with an appropriate portion
            designated for rolling stock acquisition.
        In addition, we urge the subcommittee to consider fully funding the
    FRA Railroad Safety Technology Grant Program in the amount of $50
    million. The grant program is intended to accelerate the installation
    of Positive Train Control (PTC) on key portions of the Nation's rail
    system. As you know, the Rail Safety Improvement Act of 2008 (RSIA)
    mandates the deployment of interoperable PTC systems by December 31,
    2015 on mainline tracks that carry passenger trains or Poison
    Inhalation Hazard/Toxic Inhalation Hazard materials. The new grant
    program was authorized under RSIA and has an 80/20 cost-sharing
    requirement. Funding assistance would help the railroads continue to
    expand needed capacity to meet both freight and passenger demands while
    still complying with the PTC mandate.
        Finally, RSI requests that the subcommittee provide full funding
    for the Federal Railroad Administration's rail research and development
    program, ideally to the administration's requested level of $40
    million. FRA's R&D program provides vital safety support including
    research on track issues, equipment crashworthiness, hazardous
    materials transport, human factor issues such as fatigue and many other
    areas supporting the Nation's rail safety program and saving lives.
        Your continued support for a healthy and vital rail network is good
    public policy and good for the Nation.
        Thank you for considering our views.
                                     ______

                  Prepared Statement of the Hoopa Valley Tribe

        This written testimony is submitted in support of appropriations
    for the Hoopa Valley Tribe's Senior Nutrition (Elder) Center in the
    amount of $1,150,000. The agency involved is Housing and Urban
    Development and the programs involved include Economic Development
    Initiatives.
        The Hoopa Valley Tribe is a federally recognized Indian tribe
    governed by a chairman and a seven member tribal council. Our
    responsibilities include governing our tribal members and land;
    administering, managing and protecting our tribal property;
    safeguarding and promoting the peace and general welfare of the Hoopa
    Valley Indians; and negotiating with Federal, State and local
    governments.
        Located in the rural and remote areas of Northern California, the
    Hoopa Valley Indian Reservation is 55 miles from the larger populated
    areas of Eureka and Arcata. The Hoopa Valley Tribe is the largest land
    based tribe in California. Our reservation is referred to as the ``12
    mile square;'' it encompasses approximately 144 square miles (98,355
    acres) including the Valley floor.
        According to the U.S. Census Bureau (Census 2000), there are
    approximately 2,633 people living on the Hoopa Valley Reservation.
    About 84.7 percent of the residents are American Indian. Poverty,
    inadequate education, high rates of unemployment and limited access to
    health services are creating significant and alarming health
    disparities among our people. Around 32 percent of Hoopa residents are
    currently living in poverty, which is 2.3 times the statewide figure of
    14.2 percent and 2.6 times the nationwide figure of 12.4 percent. These
    statistics include our elders who are disproportionately affected by
    chronic conditions and are principally low income individuals living on
    fixed incomes.
        The K'ima:w Medical Center is an entity of the Hoopa Valley Tribe.
    It is an ambulatory clinic which offers a comprehensive set of services
    that include medical, dental, community health, nutrition, social
    services, senior nutrition, full laboratory and radiology services as
    well as specialty clinics for vision, podiatry and telemedicine. The
    service area of K'ima:w Medical Center includes the reservation as well
    as the surrounding areas of Willow Creek, Salyer and Johnson.
        The tribe and its K'ima:w Medical Center are seeking appropriations
    to construct a new Senior Nutrition (Elder) Center. Our current center
    is located in a very old building. We have safety concerns as well as
    simply not enough space for the services and activities we wish to
    offer our seniors, and which our seniors need. The Center we envision
    would become a focal point for the community and a place where seniors
    in the community could go for nutritious meals, community programs,
    medical screenings, physical therapy, and general health education. The
    Center would enable us to promote a more fit and healthy senior
    population through these screenings, exercise, activity and nutrition.
    Importantly, the Center would serve tribal members and non-tribal
    members in the community.
        Caring for our elders is of utmost importance to the Hoopa Valley
    Tribe. The Senior Nutrition (Elder) Center would greatly aid in
    improving the lives of senior citizens on the reservation. Because of
    the vast area and remote nature of our reservation, seniors can easily
    experience isolation from time to time. This Center would help
    alleviate this problem. It would provide a gathering place for elders
    to create and maintain social relationships and preserve their
    connection to the community. It would also provide opportunities for
    tribal members to learn from the tribe's elders as they administer care
    or simply visit with them at the Center.
        The Center's services would not only enhance the quality of life
    for our elders but would also help prevent and detect unnoticed
    healthcare problems. Poor nutrition and delayed detection of illnesses
    can lead to serious consequences. It is expected that the Center would
    help prevent healthcare problems and the substantial medical costs
    associated with same. Our elders face high rates of diabetes,
    dyslipidemia and high blood pressure. The Center would help seniors
    take control of their health before more serious problems arise.
        The tribe's current senior nutrition program serves meals to tribal
    and non-tribal elders in the community. Last year, we served 6,582
    meals on-site and 7,953 meals via home delivery. This was an increase
    of 332 meals over 2008. We expect these needs to continue to rise and
    an upgraded Center is vital to meeting expected increased demands. Our
    services in this regard are critical as the meal we serve is likely the
    only opportunity for a nutritious meal for a senior, and may very well
    be the only opportunity for a meal, period.
        Finally, a new Senior Nutrition Center would provide jobs in our
    remote area which is in need of economic development. The project is
    expected to create at least 15 construction positions. Further,
    permanent staff would be hired once the new Senior Nutrition Center is
    operational. Having more people employed on the reservation will
    stimulate the local economy, something which is seriously needed given
    our poverty rate and remote area.
        The Total Project Cost and Total Appropriations Request are:
      --Senior Nutrition (Elder) Center--Total $1,550,000
        --Construction of the building: $1,150,000
        --Kitchen equipment, furniture, additional building expenses--
                $400,000
        Of the Senior Nutrition Center's total costs, $1,550,000, the tribe
    plans to contribute $400,000 (26 percent) through the use of tribal
    funds and more community fund raising.
        Funding in the amount of $1,150,000 is requested for the
    construction of a new Senior Nutrition Center on the Hoopa Valley
    Reservation.
                                     ______

     Prepared Statement of the National Association of Railroad Passengers

        Thank you for the opportunity to submit this statement. Thank you
    also for the positive role that you and your subcommittee have played
    over the years in providing funding for intercity passenger trains.
        Our key requests for intercity passenger trains for fiscal year
    2011 are:
      --Amtrak's budget request: $592 million for operations; $1,745
            million for capital (including $281 million for Americans with
            Disabilities Act and $446 million for the fleet strategy); $305
            million for debt service; $7 million for FRA oversight.
      --Capital grants for States: $4 billion, with an appropriate portion
            designated for rolling stock acquisition.
      --Any funding needed to restore service to Las Vegas. Amtrak, as part
            of its statutorily mandated California Zephyr performance
            improvement plan is considering restoring Salt Lake City-Los
            Angeles service. This would put Las Vegas back on the Amtrak
            map and restore direct Denver-Los Angeles service. Around 1996,
            when Amtrak was considering route reductions, the head of what
            was then Amtrak's Chicago-based ``strategic business unit''
            told our chairman, ``If I had known Congress was going to put
            back routes, based on the economics, I would have recommended
            the Desert Wind (Salt Lake City-Los Angeles) first.''
      --Funding needed to restore service between New Orleans and Florida,
            consistent with the PRIIA requirement that Amtrak by July 16,
            2009, submit a plan to restart service.
      --Funding needed to restore service between Salt Lake City and the
            Pacific Northwest and between Chicago and the Pacific Northwest
            via southern North Dakota and southern Montana, as Amtrak
            studied in response to the mandates in PRIIA.
        Equipping Trains for Growth.--A major factor hurting customer
    satisfaction and inflating operating costs is the 37-year average age
    of its locomotives and cars, including 92 long-distance ``Heritage''
    cars that are between 53 and 61 years old.
        Amtrak's fleet strategy assumes ridership growth of only 2 percent.
    That is too conservative, given the need to increase capacity on
    existing routes and to add routes. We appreciate Amtrak's emphasis on
    their plan's ``scalability,'' that is, the fact that car acquisitions
    can be increased if the market calls for it and funding is provided.
    Indeed, some trains are already outpacing similarly conservative
    ridership projections.
        Nonetheless, this illustrates the financial challenge: failure to
    meet the funding targets Amtrak identified puts us close to a no-growth
    scenario regarding both additional capacity on existing routes and
    expanding the network to parts of the country that are not adequately
    served, a category that includes some of the fastest-growing regions in
    the United States.
        In addition to funding fleet needs directly, consideration should
    be given to the use of tax credits and/or asset depreciation benefits
    to encourage private leasing companies to buy equipment and lease it to
    States and perhaps Amtrak. Part of the goal is to reduce the high up-
    front costs that taxpayer-supported agencies face when procuring new
    equipment.
        Also of critical importance is the $281 million Amtrak request to
    fulfill its obligation to bring stations into compliance with the
    Americans with Disabilities Act--money that is left out of the
    administration's budget. The Association supports Amtrak's current ADA
    policy as set forth in ``Amtrak Guidelines on Platform Design'' (April
    2008). Previously, we joined with Amtrak, the Class I railroads and
    commuter railroad agencies in strongly opposing a rule that had been
    under consideration by U.S. DOT that would have required full length
    platforms for level boarding. In fiscal 2010, Amtrak was instructed to
    spend the $144 million for ADA which in effect reduced other vital
    capital expenditures.
        The Importance of Trains.--More and better passenger trains and
    intermodal connections are crucial to maintaining mobility for our
    citizens, enhancing the quality of life in our communities, bolstering
    our Nation's economic competitiveness and energy efficiency, providing
    good jobs for Americans and reducing our transportation system's
    negative environmental impact.
        Mobility and quality of life issues become more relevant as the
    proportion of older citizens dramatically increases, and as young
    people become more receptive to non-auto transport.
        The national interest is well served by enabling as many people--
    especially older people--as possible to lead a satisfying life with
    little or no driving. This can improve both safety and mental health,
    as people in auto-dependent environments who cannot drive suffer from
    the resulting sense of isolation.
        Fewer Teenaged Drivers.--At the same time, the Millennial
    Generation--people in their teens and twenties--is greatly attracted to
    a less car-dependent lifestyle. They increasingly do not view acquiring
    a driver's license as a ``rite of passage to maturity'' for 16-year-
    olds. Indeed, my two sons of driving age, now 21 and 19, both got their
    drivers' licenses a year or two after turning 16, becoming serious
    about getting their licenses only after realizing that mass transit
    served their transportation needs poorly. Media reports confirm that my
    sons are not unique, including WRAL.com in Raleigh (January 25),
    Tampa's News Channel 8 (February 11), and New York Times (February 25,
    2008).
        Ridership and Polls.--Americans' desire for improved train service
    is demonstrated through increasing ridership on Amtrak and rail transit
    systems nationwide. Amtrak gained riders for 6 straight years--from
    2002 to 2008. The 2008 run-up in gasoline prices was a big factor in
    ridership growth of 11 percent from 2007 to 2008. While Amtrak and
    transit ridership fell in 2009, due in part to the recession and lower
    gasoline prices, Amtrak ridership still was 5 percent above the 2007
    level. Amtrak ridership through the first half of fiscal year 2010
    (October-March) was 4.3 percent above the year-earlier level (long-
    distance trains were up 5.2 percent).
        For years, polls have consistently shown strong support for
    increased investment in passenger trains. A recent one, by Kelton
    Research--taken February 1-7, 2010 for HNTB Corporation--showed 88
    percent ``open to high-speed rail for long-distance travel within the
    U.S.,'' according to a February 18 report in Metro Magazine, which also
    cited 83 percent support for increasing the share of Federal funding
    that goes to public transit and high-speed rail infrastructure. HNTB's
    Peter Gertler said, ``The pain we felt when gasoline was hovering near
    $4 a gallon has receded, yet we can't stand by for the next crisis to
    hit to address the underlying issues of congestion and our dependence
    on limited fossil fuels.''
        Amtrak's Funding Request.--We are concerned that reducing Amtrak's
    other capital items to make way for the ``full ADA funding,'' which in
    effect happened this year, damages the overall system, with detrimental
    impact on all passengers including those with disabilities. Shorting
    the capital request creates a problem for the effort to let passenger
    trains assume their rightful place as a primary mode of transportation
    providing a desirable travel choice for all Americans--as envisioned by
    President Obama.
        Grants to States.--We strongly support the general approach that
    U.S. DOT took in awarding the $8 billion in capital grants announced
    January 28. I commented on NBC Nightly News on January 30 that I was
    impressed both with ``the amount of funds involved and the intelligence
    with which it was distributed.''
        Operating Grant.--This is critical, in part because the big
    increase in the capital budget (including Recovery Act funds) drives up
    operating costs, as not all personnel costs associated with capital
    projects can be capitalized. Moreover, the mandates of PRIIA also
    create upward pressure on operating costs. The organization is handling
    more than twice the amount of work of 5 years ago. This underscores the
    urgency of maintaining Amtrak's operating grant at the full requested
    amount of $592 million.
        The Transportation for America Coalition's ``United States of
    Transit Cutbacks'' map vividly portrays the irony of transit agencies
    from Philadelphia to Phoenix receiving new Federal capital funds while
    withering operating support is forcing consideration of unacceptable
    service cuts--including the elimination of all service on certain days
    of the week, bus route terminations, station closures, and dramatic
    frequency reductions. As Secretary LaHood put it, it doesn't make sense
    to buy so many new trains and buses when we can't afford to pay
    operators to run them. On the intercity side, consideration should be
    given, at least in emergency situations, to allowing operation of
    State-supported intercity trains on a 50/50 matching basis, without
    making Amtrak swallow the difference.
        Oak Ridge National Laboratory Statistics.--The following table,
    showing 2007 data, comes from the annual Transportation Energy Data
    Book (Edition 28, released in 2009), published by Oak Ridge National
    Laboratory under contract to the U.S. Department of Energy:

    ------------------------------------------------------------------------
                                                               BTUs per
                            Mode                          passenger-mile \1\
    ------------------------------------------------------------------------
    Amtrak..............................................               2,516
    Commuter trains.....................................               2,638
    Certificated air carriers...........................               3,103
    Cars................................................               3,514
    Light trucks (2-axle, 4-tire).......................               3,946
    ------------------------------------------------------------------------
    \1\ BTU = British Thermal Unit; passenger-mile = one passenger traveling
      one mile.

        Overnight Trains.--We support Amtrak's initiative, discussed in the
    release, to combine the Texas Eagle and Sunset Limited into a daily,
    full-service Chicago-Los Angeles train via St. Louis, Dallas/Fort
    Worth, San Antonio, El Paso and Tucson. A connecting daily train
    between San Antonio and New Orleans via Houston is also planned, and we
    understand that some through New Orleans-Los Angeles cars will be
    restored if demand is strong. Currently, New Orleans-San Antonio-Los
    Angeles service runs tri-weekly.
        Hudson River Tunnels; North Station-South Station Rail Link.--We
    continue to be concerned about the construction of Hudson River rail
    tunnels that will not connect to Penn Station but only to a dead-end,
    deep cavern station under 34th Street. We continue to discuss this with
    New Jersey Transit. We support the $6 million that Massachusetts
    requested to complete environmental work on a potential rail link that
    would unify Boston's commuter rail networks and connect Amtrak's
    Northeast corridor to northern New England.
        Northeast Corridor Fares.--At an April 10 NARP membership meeting
    in Philadelphia, Dr. Vukan Vuchic of the University of Pennsylvania
    said trains ``should play a maximum role in society, and not just serve
    businessmen. Students, tourists, young and old, should be able to
    ride.'' Amtrak's current fares don't support that. This may be partly
    due to faulty judgments by Amtrak, but relentless pressure to reduce
    the operating grant is probably the bigger cause.
        Thank you for considering our views.
                                     ______

       Prepared Statement of the National American Indian Housing Council

                                  INTRODUCTION

        Good afternoon Chairwoman Murray, Ranking Member Bond, and
    distinguished members of the Senate Subcommittee on Transportation and
    Housing and Urban Development, and Related Agencies. My name is Marty
    Shuravloff. I am the chairman of the National American Indian Housing
    Council (NAIHC), the only national tribal non-profit organization
    dedicated to advancing housing, physical infrastructure, and economic
    development in tribal communities in the United States. I am also an
    enrolled member of the Leisnoi Village, Kodiak Island, Alaska. I want
    to thank the subcommittee for the opportunity to submit testimony for
    its consideration as it prepares its fiscal year 2011 appropriations
    bill.

       BACKGROUND ON THE NATIONAL AMERICAN INDIAN HOUSING COUNCIL (NAIHC)

        The NAIHC was founded in 1974 and has, for 36 years, served its
    members by providing valuable training and technical assistance (T/TA)
    to all tribes and tribal housing entities; providing information to
    Congress regarding the issues and challenges that tribes face in terms
    of housing, infrastructure, and community and economic development; and
    working with key Federal agencies in an attempt to address such issues
    and meet such challenges. The membership of NAIHC is expansive,
    comprised of 271 members representing 463 \1\ tribes and tribal housing
    organizations. The primary goal of NAIHC is to support Native housing
    entities in their efforts to provide safe, quality, affordable,
    culturally relevant housing to Native people.
    ---------------------------------------------------------------------------
        \1\ There are approximately 562 federal-recognized Indian tribes
    and Alaska Native villages in the United States, all of whom are
    eligible for membership in NAIHC. Other NAIHC members include State-
    recognized tribes that were deemed eligible for housing assistance
    under the 1937 Act and grandfathered in to the Native American Housing
    Assistance and Self-Determination Act.
    ---------------------------------------------------------------------------
       BRIEF SUMMARY OF THE PROBLEMS REGARDING HOUSING IN INDIAN COUNTRY

        While the country has been experiencing an economic downturn in
    general, this trend is greatly magnified in Indian communities. The
    national unemployment rate has risen and has hopefully passed its peak
    at an alarming rate of nearly 10 percent; \2\ however, that rate does
    not compare to the unemployment rates in Indian Country, which average
    49 percent.\3\ The highest unemployment rates are on the Plains
    reservations, where the average rate is 77 percent.\4\ Because of the
    remote locations of many reservations, there is a lack of basic
    infrastructure and economic development opportunities are difficult to
    identify and pursue. As a result, the poverty rate in Indian Country is
    exceedingly high at 25.3 percent, nearly three times the national
    average.\5\ These employment and economic development challenges
    exacerbate the housing situation in Indian country. Our first Americans
    face some of the worst housing and living conditions in the country and
    the availability of affordable, adequate, safe housing in Indian
    Country falls far below that of the general U.S. population.
    ---------------------------------------------------------------------------
        \2\ See http://www.bls.gov/news.release/empsit.nr0.htm.
        \3\ Bureau of Indian Affairs Labor Force Report (2005).
        \4\ Many of these reservations are in the State of South Dakota,
    which has one of the lowest unemployment rates in the Nation. However,
    on some South Dakota reservations, the unemployment rate exceeds 80
    percent.
        \5\ U.S. Census Bureau, American Indian and Alaska Native Heritage
    Month: November 2008. See http://www.census.gov.
    ---------------------------------------------------------------------------
      --According to the 2000 U.S. Census, nearly 12 percent of Native
            American households lack plumbing compared to 1.2 percent of
            the general U.S. population.
      --According to 2002 statistics, 90,000 Indian families were homeless
            or under-housed.
      --On tribal lands, 28 percent of Indian households were found to be
            over-crowded or to lack adequate plumbing and kitchen
            facilities. The national average is 5.4 percent.
      --When structures that lack heating and electrical equipment are
            included, roughly 40 percent of reservation housing is
            considered inadequate, compared to 5.9 percent of national
            households.
      --Seventy percent of the existing housing stock in Indian Country is
            in need of upgrades and repairs, many of them extensive.
      --Less than one-half of all reservation homes are connected to a
            sewer system.
        There is already a consensus among many members of Congress, HUD,
    tribal leaders, and tribal organizations that there is a severe housing
    shortage in tribal communities; that many homes are, as a result,
    overcrowded; that many of the existing homes are in need of repairs,
    some of them substantial; that many homes lack basic amenities that
    many of us take for granted, such as full kitchens and plumbing; and
    that at least 200,000 new housing units are needed in Indian Country.
        These issues are further complicated by Indian land title status.
    Most Indian lands are held in trust or restricted-fee status;
    therefore, private financial institutions will not recognize tribal
    homes as collateral to make improvements or for individuals to finance
    new homes. Private investment in the real estate market in Indian
    Country is virtually non-existent. Tribes are wholly dependent on the
    Federal Government for financial assistance to meet their growing
    housing needs, and the provision of such assistance is consistent with
    the Federal Government's centuries-old trust responsibility to American
    Indian tribes and Alaska Native villages.
       the native american housing assistance and self-determination act
        In 1996, Congress passed the Native American Housing Assistance and
    Self-Determination Act (``NAHASDA'') to provide Federal statutory
    authority to address the above-mentioned housing disparities in Indian
    Country. NAHASDA is the cornerstone for providing housing assistance to
    low-income Native American families on Indian reservations, in Alaska
    Native villages, and on Native Hawaiian Home Lands. The Indian Housing
    Block Grant (``IHBG'') is the funding component of NAHASDA. Since the
    passage of NAHASDA in 1996 and its funding and implementation in 1998,
    NAHASDA has been the single largest source of funding for Native
    housing. Administered by the Department of Housing and Urban
    Development (``HUD''), NAHASDA specifies which activities are eligible
    for funding.\6\ Not only do IHBG funds support new housing development,
    acquisition, rehabilitation, and other housing services that are
    critical for tribal communities; they cover essential planning and
    operating expenses for tribal housing programs. Between 2006 and 2009,
    a significant portion of IHBG funds, approximately 24 percent, were
    used for planning, administration, housing management, and services.
    ---------------------------------------------------------------------------
        \6\ Eligible activities include but are not limited to downpayment
    assistance, property acquisition, new construction, safety programs,
    planning and administration, and housing rehabilitation. As HUD's
    funding justification acknowledges (see http://hud.gov/offices/cfo/
    reports/2011/cjs/nahb-grants2011.pdf, Page N-8), a large portion of
    tribal funds are spent on planning, administration, and operating
    expenses.
    ---------------------------------------------------------------------------
      AMERICAN RECOVERY AND REINVESTMENT ACT (ARRA) AND FISCAL YEAR 2010
                              INDIAN HOUSING FUNDS

        NAIHC would like to thank Congress, particularly this subcommittee,
    for its increased investment in Indian housing in fiscal year 2010.
    AARA provided over $500 million for the IHBG program. This additional
    investment in Indian Country supports hundreds of jobs, has allowed
    some tribes to start on new construction projects, and has assisted
    other tribes in completing essential infrastructure for housing
    projects that they could not have otherwise afforded with their IHBG
    allocations. Tribes have complied with the mandate to obligate the
    funds in an expedient manner, thus helping stimulate tribal and the
    national economies. In addition to ARRA funding, Congress appropriated
    $700 million for the IHBG in fiscal year 2010, the first significant
    increase for the program since its inception. This positive step
    reversed a decade of stagnate funding levels that neither kept pace
    with inflation nor addressed the acute housing needs in Native
    communities.

    THE PRESIDENT'S FISCAL YEAR 2011 BUDGET REQUEST FOR THE INDIAN HOUSING
                                  BLOCK GRANT

        On February 1, 2010, President Obama submitted to Congress a $3.8
    trillion budget request. It proposes $580 million for the IHBG, which
    is a decrease of $120 million (-17 percent) from the fiscal year 2010
    funding level.\7\ At the same time, HUD's overall budget was reduced by
    only 5 percent. Should Congress accept the President's budget request,
    it would be the lowest, single-year funding level for the NAHASDA since
    it was enacted in 1996. To put this in proper perspective, funding
    appropriated by Congress in fiscal year 1998, 12 years ago, was $20
    million more than the President's budget request for fiscal year 2011.
    ---------------------------------------------------------------------------
        \7\ Part of the rationale for reducing IHBG funding was what may
    appear to be a delay in use of available tribal housing funds. However,
    such apparent delay is an aberration. Since NAHASDA was initially
    funded in fiscal year 1998 through fiscal year 2009, tribal expenditure
    rates are 88 percent. Based on a HUD ARRA spending report dated March
    20, 2010, tribes are spending HUD and ARRA funds at a rate that at
    least equals and, in some cases, exceeds the national average.
    ---------------------------------------------------------------------------
        While the NAIHC and its members are aware of and appreciate the
    large investments made in Indian housing, we are disappointed that the
    current request fails to continue the positive budget trajectory of
    recent years. Therefore, the NAIHC strongly urges Congress to not only
    appropriate funds above the President's budget request, but to fund the
    IHBG at $875 million due to the increasing costs for housing
    development, energy efficiency initiatives, and other inflationary
    factors. Since the President's budget request was released, many of our
    members have expressed their deep concerns. They believe, and we agree,
    that this budget impacts not only housing, but also the very hope for
    self-sustaining economies in Indian Country.
        Reduced funding would result in the loss of jobs for our people,
    reversing the positive impact of ARRA; the deterioration of existing
    housing units; and the curtailment of many housing projects that are
    currently under development. Without sufficient funding and proper
    training and technical assistance, progress regarding tribal housing
    will not only cease; years of hard work will be reversed, as tribes
    will lack the funds to maintain and operate existing housing units,
    much less provide new ones. Many tribes are at risk of losing between a
    quarter and a third or more of their housing budgets if the President's
    budget request were to take effect, the impact of which would be
    devastating.

                   OTHER INDIAN HOUSING AND RELATED PROGRAMS

    The Title VI and Section 184 Indian Housing Loan Guarantee Programs
        The President's budget request includes $2 million for the title VI
    Loan Guarantee program and $8.25 million for the section 184 program.
    The title VI program is important because it provides a 95 percent
    guarantee on loans made by private lenders, which is an incentive for
    lenders to get involved in the development of much-needed housing in
    tribal areas. Section 184 is specifically geared toward facilitating
    home loans in Indian Country. We request that these programs be funded
    at $2 million and $9 million, respectively.

    Indian Community Development Block Grant (ICDBG)
        While appreciated, proposed funds of $65 million for the ICDBG are
    insufficient to meet the current needs for essential infrastructure,
    including sewer and running water, in Indian Country. We request that
    this program be funded at $100 million.

    Native Hawaiian Housing
        Low-income Native Hawaiian families continue to face tremendous
    challenges, similar to those that tribal members face in the rest of
    the United States. The President's budget request of $10 million for
    the Native Hawaiian Housing Block Grant is appreciated, but the budget
    includes no funding for the section 184A program in Hawaii. While it
    has taken some time to get this program started--because lenders are
    not familiar with the section 184A program--providing no funding would
    be a step backward for Native Hawaiian families working toward home
    ownership. We urge Congress to consider this before agreeing to the
    administration's proposal to eliminate funding for the program.

           TRAINING AND TECHNICAL ASSISTANCE (T/TA) AND THE PROPOSED
                           TRANSFORMATION INITIATIVE

        The President's budget request would eliminate entirely the much-
    needed, exceptional T/TA that has been provided by NAIHC since NAHASDA
    was implemented. The provision of T/TA is critical for tribes to build
    their capacity to effectively plan, implement, and manage tribal
    housing programs. Eliminating funding for T/TA would be disastrous for
    tribal housing authorities and would be a huge step in the wrong
    direction. Tribes need more assistance in building capacity, not less.
    Since NAIHC's funding for T/TA was restored in 2007, requests for T/TA
    have steadily grown. The funding that NAIHC is currently receiving is
    insufficient to meet the continuous, growing demand for T/TA.
    Therefore, we are forced to make difficult decisions regarding when,
    where, and how to provide the most effective T/TA possible to our
    membership.
        The President's budget request proposes an agency-wide
    Transformation Initiative Fund (``TIF'') with up to 1 percent of HUD's
    total budget, which would draw funds away from essential housing
    programs, including $5.8 million from the IHBG account, ``to continue
    the on-going comprehensive study of housing needs in Indian Country and
    native communities in Alaska and Hawaii.'' While the NAIHC membership
    believes the TI may have merit, we do not believe that transferring
    nearly $6 million from the IHBG account to conduct a study on housing
    needs is a wise or even defensible use of Federal taxpayer funds. More
    importantly, the $6 million affects funding that has historically been
    appropriated to NAIHC for T/TA. Through resolutions, the NAIHC
    membership has repeatedly taken the position that a portion of the IHBG
    allocation should be provided to NAIHC for T/TA, which is a reflection
    of their confidence in NAIHC and the continuing demand for the
    essential capacity-building services that we provide. We request that
    funding in the amount of $4.8 million for T/TA be included in the
    fiscal year 2011 budget.

                                   CONCLUSION

        NAHASDA was enacted to provide Indian tribes and Native American
    communities with new and creative tools necessary to develop culturally
    relevant, safe, decent, affordable housing. NAIHC has very specific
    concerns regarding the President's budget request for Indian housing
    funding levels and we urge Congress, with the leadership of this
    subcommittee, to not permit excessive funding reductions in the NAHASDA
    program. To do so would be an enormous step backwards and devastate the
    progress that has been made in the past 12 years to improve housing
    conditions in Indian Country. Based on the facts outlined above and the
    potentially devastating impact a dramatic cut to Indian housing funds
    will most certainly have on Indian Country, NAIHC requests funding in
    the amounts outlined above in order to meet the immense needs in Indian
    country.
        Thank you, Chairwoman Murray, Ranking Member Bond, and the members
    of this subcommittee for allowing us to express our budgetary
    priorities and concerns regarding Native American housing needs. Your
    continued support of Native American communities is truly appreciated,
    and the NAIHC is eager to work with you and your professional staff on
    any and all issues pertaining to Indian housing programs and living
    conditions for America's indigenous people.
                                     ______

                 Prepared Statement of Na Tanya Davina Stewart

        Subcommittee Members: I am submitting this testimony concerning the
    Federal and local transportation agencies charged with the creation and
    implementation of transportation projects in Lake County, Indiana and
    their non-compliance with Executive order 12898, 1994 and the
    provisions of Environmental Justice --``the fair treatment and
    meaningful involvement of all people regardless of race, color,
    national origin, or income with respect to the development,
    implementation, and enforcement of environmental laws, regulations, and
    policies.''
        On April 16 and 17, 2010, the Northwestern Indiana Regional
    Planning Commission (NIRPC), the Federal Highway Administration (FHWA)
    and the Federal Transit Administration (FTA) held corrective action
    workshops as a result of NIRPC's certification review to address the
    ongoing challenges NIRPC has with their technical analysis and lack of
    adherence to environmental justice mandates.
        During the course of the workshops several issues emerged that are
    of grave concern to those of us who were in attendance. We stated our
    concerns to NIRPC and feel compelled to address this subcommittee since
    NIRPC receives Federal funding from you.
      --On the Issue of Fair Treatment.--The Federal funding ratio of 80:20
            for projects places an excessive burden upon cities that are
            experiencing extreme revenue shortfalls. Gary, Indiana and the
            entire Northwest Indiana Region once reigned as an industrial
            giant and the steel industry was the backbone of the economy.
            In this post-industrial age, cities like Gary have been slow to
            transition to the information and technology economies. This is
            a regional as well as a national problem. Our economic base
            continues to erode along with our property values that
            incidentally, are the source of our scant city revenues. Is it
            possible for the Federal Government to make special allowances
            when it comes to funding basic road maintenance projects by
            lowering or eliminating the cost distressed cities have to pay
            especially when budget cuts dictate that a city may be unable
            to prioritize such basic yet essential projects? Safe and paved
            streets are a quality of life issue.
      --On the Issue of Meaningful Involvement.--NIRPC receives most of its
            funding from Lake County residents. The diverse ethnic and
            intergenerational demographic make-up of the county is not
            reflective in NIRPC's workforce and governing board. NIRPC's
            board is appointed by dictates of State law and consists of
            elected officials. We are aware that NIRPC's board appointments
            are not an issue for the Federal Government to resolve. In
            keeping with the call for meaningful involvement as put forth
            by the definition of environmental justice and in our right to
            fully engage in our democracy; it is imperative that we also
            hold positions of power on the board and/or have a say in whom
            we desire to represent our interests on the board in order to
            be more involved in the decisionmaking on projects that will
            affect our lives. Our calls to have grassroots organizations,
            youth, the elderly, and differently able people represented in
            these positions of power have fallen upon deaf ears and we feel
            are a direct violation of our rights. It is our tax dollars
            that fund NIRPC yet we do not play a significant role in the
            development, implementation, and enforcement of the policies
            and transportation projects that directly impact our lives. If
            the Federal Government continues to fund agencies like NIRPC
            then it is your responsibility to weigh in on ensuring said
            agencies truly involve the community residents in every stage
            of the development of projects.
          During the meeting, a board member of NIRPC just happened to
            mention that NIRPC had recently created a 501c3 on Economic
            Development within their organization. NIRPC had already
            appointed the 501c3 board that is comprised of elected
            officials and members from the business community. If a city
            within NIRPC's jurisdiction wants to move forward on an
            economic development plan and is in need of additional revenue
            from the Federal Government, that city would have to go through
            NIRPC to secure Federal dollars. Based upon NIRPC's history of
            non-inclusion of marginalized people and their technical
            analysis and environmental justice shortcomings as cited by the
            certification review process, we are gravely concerned about
            the acquisition of NIRPC's new power.
        We implore the Federal Government to re-evaluate their funding
    allocation policies. When Federal funds for transportation are directed
    to State governments and Metropolitan Planning Organizations (MPO) how
    are those monies dispersed? Do cities with the greatest need receive
    the bulk of the money or cities more adapt with the grant writing
    process? Is the national objective to secure and maintain center cities
    and make them more energy efficient and accessible or is it to continue
    to fund urban sprawl and construct new highways that will decimate
    farmland and open spaces we all rely upon for food and oxygen?
        Sending monies to the State government and MPO's may be an
    efficient mechanism to maintain Federal and State highways and regional
    projects like light and speed rail but may not be an efficient
    distribution of funds for local projects like street and bridge
    maintenance. When cities have to compete for monies from a funding pool
    that encompasses projects that include regional and State projects,
    cities may lose out on funding opportunities and continue to decline,
    especially during economic down turns.
        We ask that you take our funding concerns and efforts to hold MPO's
    like NIRPC to the high standards of inclusion set forth by Executive
    order 12898, 1994 into consideration as you weigh in on the fiscal year
    2011 appropriations and general national transportation policies.
                                     ______

           Prepared Statement of the National AIDS Housing Coalition

        The National AIDS Housing Coalition (NAHC) requests $410 million
    for the Housing Opportunities for Persons With AIDS Program (HOPWA) for
    fiscal year 2011. NAHC is a national non-profit membership housing
    organization founded in 1994 that works to end the HIV/AIDS epidemic by
    ensuring that persons living with HIV/AIDS have quality, affordable and
    appropriate housing. NAHC's members are people living with HIV/AIDS,
    service providers, developers, researchers, public health and housing
    departments and advocates.
        Research presented through NAHC's Research Summit Series
    overwhelmingly confirms housing as a strategic point of intervention to
    address HIV/AIDS and the impacts of homelessness and the concomitant
    effects of race and gender, poverty, mental illness, chronic drug use,
    incarceration and exposure to trauma and violence. Housing has been
    shown as cost effective by stabilizing people with HIV/AIDS and
    reducing reliance on other public systems.
        The HOPWA program is relied upon by HIV/AIDS service organizations
    nationwide to assure that stable, affordable housing and the critical
    supportive services that help people remain housed is available to
    those coping with the debilitating and impoverishing effects of HIV/
    AIDS. HOPWA's hallmark is its flexibility to provide a continuum of
    housing and housing-related case management and supportive services for
    low income individuals and their families living with HIV/AIDS. HOPWA
    dollars are used for short and longer term rents, facility-based
    assistance as well as limited rent, mortgage or utility payments that
    play a critical role in homelessness prevention. HOPWA can also be used
    for new development and rehabilitation. Finally, in the face of
    shrinking resources, HOPWA's importance to community strategic planning
    efforts cannot be underestimated--facilitating better coordination of
    local and private resources and filling gaps in local systems of care
    to meet housing need among people with HIV/AIDS and their families.

                  AIDS HOUSING IS CENTRAL FOR HIV/AIDS HEALTH

        Lack of housing is associated with remaining outside of medical
    care and improved housing status has been shown to significantly affect
    access to healthcare, including anti-retroviral treatment (ART) and
    adherence. In summary:
        Housing Impacts Continuity of Care.--Over time, housing status is
    among the strongest predictors of entry into HIV care, primary care
    visits, continuous care, and care that meets clinical practice
    standards.
        Housing Improves Health Outcomes.--Improved housing status has a
    significant, positive association with better HIV-related health,
    including CD4 counts, viral load, and co-infection with HCV or TB.
        AIDS Housing is a Powerful Weapon Against Homelessness.--Research
    confirms that homelessness is a major risk factor for HIV, and HIV is a
    major risk factor for homelessness: for example, at any given time, up
    to 16 percent of people living with HIV/AIDS are homeless, while as
    many as 70 percent report a lifetime experience of homelessness or
    housing instability.
        AIDS Housing is Prevention.--Over time, persons who improve their
    housing status reduce their risk behaviors by one-half. Access to
    housing improves access and adherence to ART, which lowers viral load
    and reduces the risk of transmission.
        AIDS Housing is Cost-effective.--AIDS housing investments reduce
    other public costs by improving the health of people living with HIV/
    AIDS and preventing new infections, making housing dollars a wise use
    of limited public resources.

                    HOUSING NEED AMONG PEOPLE WITH HIV/AIDS

        Over 56,000 people became infected with HIV in the past year in the
    United States. Experts estimate that over one-half of people living
    with HIV/AIDS will need some form of housing assistance during the
    course of their illness, while national research has shown that housing
    is the greatest unmet service need for people living with HIV disease.
    Data indicates that approximately 72 percent of PLWHA have incomes
    below $30,000; the number in need is likely to increase proportionally
    with the weakened economy and sustained high unemployment levels.
        In 2010, HOPWA will continue providing housing support for over
    58,000 households in 133 formula eligible jurisdictions, providing
    assistance in all 50 States, the District of Columbia, Puerto Rico and
    the Virgin Islands. Three new jurisdictions became eligible for formula
    funding--Little Rock, Arkansas; Albuquerque, New Mexico; and Allentown,
    Pennsylvania. In addition, 93 competitive grants are currently
    operating. The program is tied to positive client outcomes in the
    58,367 households served in the current fiscal year, making it possible
    for assisted individuals to better attend to their health needs,
    function in their families and society. AIDS housing is a cost-
    effective way to end homelessness and achieve positive individual and
    community health outcomes. HUD reports that 94 percent of all HOPWA
    rental assistance households in a recent program year were able to
    achieve maximum stability, reducing risks of homelessness and
    participating in healthcare.
        NAHC recommends a funding level of $410 million, which would permit
    assistance to an additional 14,000 people with HIV/AIDS in need of
    housing assistance and reduce unmet need by over 10 percent.

                EXAMPLES OF AIDS HOUSING NEED ACROSS THE COUNTRY

        AIDS housing need has exploded in virtually every region of the
    country. As the affordable housing crisis envelopes higher income
    people, persistently vulnerable populations are squeezed out of
    assistance. Though waiting lists are no longer maintained in many
    jurisdictions, affordable housing need continues to grow.
        In Alabama, just 414 people with HIV/AIDS and their families
    receive HOPWA assistance, while 2,173 HOPWA-eligible households have
    unmet housing needs. The tenant-based rental assistance program has
    been closed to new applicants since June 2008. Of the families on the
    waiting list, 77 percent are living at or below the poverty level.
        Across Massachusetts, 1,699 families are on waiting lists for AIDS
    housing assistance--355 in greater Boston alone.
        In San Francisco, the city's centralized housing waiting list has
    over 1,000 people and has been closed to new applicants since November
    2001.
        There are 4,637 people living with HIV/AIDS on the waiting list for
    housing assistance in Dallas--almost one-third of all HIV-positive
    people in the city. In needs assessments, housing assistance was
    consistently ranked second in overall unmet need, surpassed only by
    dental care.
        The overall number of unmet AIDS housing need in Central Ohio from
    2004-2009 is 770 households, based on the current Consolidated Plan for
    the city of Columbus.

                OTHER LOW INCOME HOUSING PROGRAMS REMAIN CRUCIAL

        Of course, HOPWA will never fully meet the housing need for all
    those living with HIV/AIDS and their families. AIDS housing providers
    urge full and adequate funding for the range of low-income housing
    programs relied upon in the continuum of housing and services for
    people with HIV/AIDS, including Homeless Assistance Grants, Tenant-
    Based Rental Assistance, Public Housing, and section 811 Housing for
    People with Disabilities, among others.
        In conclusion, NAHC urges the subcommittee to fund the Housing
    Opportunities for Persons With AIDS program at the highest level
    possible for fiscal year 2011 to accommodate new formula jurisdictions
    expected to become eligible and to assist existing programs in moving
    closer to meeting the actual housing needs in their jurisdictions.
        NAHC respectfully asks the subcommittee to approve funding of $410
    million for the Housing Opportunities With AIDS program for fiscal year
    2011.
                                     ______

       Prepared Statement of the University Corporation for Atmospheric
                                Research (UCAR)

        On behalf of the University Corporation for Atmospheric Research
    (UCAR) and the larger university community involved in weather and
    climate research, I submit this written testimony for the record of the
    Senate Committee on Appropriations, Subcommittee on Transportation and
    Housing and Urban Development, and Related Agencies.
        UCAR is a consortium of 75 universities that manages and operates
    the National Center for Atmospheric Research and additional programs
    that support and extend the country's scientific research and
    educational capabilities. UCAR is supported by the National Science
    Foundation and other Federal agencies, including the U.S. Department of
    Transportation (USDOT)'s Federal Highway Administration (FHWA) and
    Federal Aviation Administration (FAA).
        I want to thank the subcommittee for its leadership in supporting
    research and development programs at the FAA and FHWA. I urge you to
    support the President's commitment to ensuring safer, more efficient
    air and road travel. One essential piece of this commitment to
    modernizing air and surface travel is providing drivers, pilots, and
    other vehicle operators with access to real-time weather information. I
    urge you to support these relatively small but critically important R&D
    programs within the FAA and FHWA budgets.

                     FEDERAL HIGHWAY ADMINISTRATION (FHWA)

        The highest priority for the USDOT and the FHWA is transportation
    safety. Last month, the National Highway Traffic Safety Administration
    released a report projecting that traffic fatalities have declined for
    the 15th consecutive quarter, the lowest annual level since 1954.
    Still, 24 percent of weather-related vehicle crashes occur on snowy,
    slushy or icy pavement, causing 1,300 deaths and more than 116,800
    injuries annually. There are also economic costs: snow and ice
    significantly increase road maintenance costs, and State and local
    agencies spend more than $2.3 billion on snow and ice control
    operations annually.
        Since the late 1990s, researchers and engineers from several
    national labs and universities have played a pivotal role bringing the
    surface transportation and weather communities together to increase
    traffic safety, efficiency, and mobility. Applications of successful
    research and development supported by the Road Weather Research and
    Development Program (SAFETEA-LU sec. 5308) have significantly reduced
    the cost of State DOT winter snow and ice control activities and are
    likely to have significantly reduced weather-related accidents. This
    program, authorized at $5 million per year, has proven quite
    successful. For example, the Winter Maintenance Decision Support
    System, which supports pavement snow and ice control operations, was
    successfully developed, tested, and implemented by the private sector
    in more than 13 States. The Road Weather Research Program is also
    developing advanced weather and road condition safety applications as
    part of the USDOT's IntelliDrive Initiative.
        In the absence of a new surface transportation reauthorization
    bill, the President's fiscal year 2011 request keeps funding for the
    Road Weather Research Program frozen at $4 million. It is imperative
    that this be increased to the authorized level of $5 million per year.
    A fully-funded Program would support the development of technologies
    that integrate weather and road condition information into traffic
    management centers, improve understanding of driver behavior in poor
    weather, develop in-vehicle information systems and wireless
    technologies that provide warnings to drivers when poor weather and
    road conditions exist, improve the understanding of the impact of
    weather on pavement condition, and develop new active control
    strategies optimized for poor weather and road conditions. I urge the
    subcommittee to fund the Road Weather Research and Development Program
    at its full authorized level of $5.0 million in fiscal year 2011.

                   THE FEDERAL AVIATION ADMINISTRATION (FAA)

        Projections indicate that the demand for aviation will increase by
    a factor of two or three over the next two decades. Expansion of
    aviation is likely to continue and, as in the past, could outpace
    economic growth. To meet future aviation capacity needs, the United
    States is developing and implementing a dynamic, flexible and scalable
    Next Generation Air Transportation System (NextGen) that is safe,
    secure, efficient and environmentally sound.
        I urge you to support the President's overall fiscal year 2011
    request of $16.5 billion for the FAA, an increase of $476 million above
    fiscal year 2010 enacted levels. This increase reflects the
    administration's recognition of future passenger growth and its
    commitment to safety and performance.

         INTEGRATING WEATHER INTO THE FUTURE AIR TRANSPORTATION SYSTEM

        The primary goal of NextGen is to address and meet the rapidly
    changing needs of the National Airspace System (NAS). Providing
    accurate, timely weather information required by aviation
    decisionmakers is fundamental to NextGen's success in achieving
    capacity, efficiency, and safety goals. Improved weather forecasts,
    plus a shared source of decision support information for NAS
    decisionmakers, are crucial elements of achieving the goal of reducing
    the weather impact. The first step, though, is establishing a clear
    understanding of the impacts that have the most effect on NAS
    efficiency and capacity. The most visible impact to us all is
    ``delays,'' both airborne and ground, affecting both airplanes and
    people. Delay translates to operational cost for the airlines, and lost
    productivity for the users of the system--people and cargo.

                     RESEARCH, ENGINEERING, AND DEVELOPMENT

        The fiscal year 2011 request of $190 million for the Research,
    Engineering, and Development (RE&D) line office at the FAA continues
    important work in current research areas, including aviation weather
    research. This 7.6 percent increase over fiscal year 2010 supports
    enhanced NextGen research and development efforts in the areas of air-
    ground integration, weather information for pilots, and environmental
    research for aircraft technologies and alternative fuels to improve
    aviation's environmental and energy performance. The following programs
    can be found within the RE&D line office of the President's fiscal year
    2011 FAA budget request.

                                WEATHER PROGRAM

        Aviation weather research and applications are critical to the
    FAA's safety, operations and efficiency record. A number of research
    projects are underway, through the Weather Program and in collaboration
    with industry representatives, which focus on in-flight icing,
    turbulence, winter weather and deicing protocols, thunderstorms,
    ceiling, and visibility.
        One example system that translates a large amount of weather data
    into a significant safety and delay impact is the Weather Decision
    Support for Deicing Decision Making System (WSDDM). The accumulation of
    ice on aircraft prior to take off has long been recognized as one of
    the most significant safety hazards affecting the aviation industry
    today. Using WSDDM, airport snowfall rate in terms of liquid water
    content is translated into deicing fluid application procedures and
    aircraft holdover times.
        While the goal of the Weather Program is to increase safety,
    capacity, and support NextGen, I am very concerned that the request of
    $16.5 million simply will not support the R&D needs of the program
    which is down almost 2 percent from last year's level and operating
    with one-half the funding level of 10 years ago. To address the
    challenges and meet the research needs of NextGen, the Weather Program
    must receive, at a minimum, $18 million for fiscal year 2011.

                       WEATHER TECHNOLOGY IN THE COCKPIT

        The crash of an Air France jet last year over the Atlantic Ocean,
    killing all 216 passengers and 12 crew members, is an example of the
    limits of pilots' ability to cope with severe weather. Pilots currently
    have little weather information as they fly over remote stretches of
    the ocean, which is where some of the worst turbulence occurs.
    Providing pilots with at least an approximate picture of developing
    storms could help guide them safely around areas of potentially severe
    weather.
        The Weather Technology in the Cockpit Program leverages research
    activities with other agencies, academia and the private sector by
    enabling the adoption of cockpit technologies that provide pilots with
    hazardous weather information and improve situational awareness. It
    seeks to ensure the adoption of cockpit, ground, and communication
    technologies, practices, and procedures that will provide pilots with
    shared and consistent weather information to enhance common situational
    awareness, plus engage the aircraft as a ``node'' that autonomously
    exchanges weather information with surrounding aircraft and ground
    systems. One system being developed combines satellite data and
    computer weather models with cutting-edge artificial intelligence
    techniques to identify and predict rapidly evolving storms and other
    potential areas of turbulence, and alert pilots and air traffic
    controllers to storms and turbulence over the continental United
    States.
        I am very disappointed that the fiscal year 2011 request for this
    small but life-saving program was reduced almost 3 percent from fiscal
    year 2010 to $9.3 million. I urge you to fund the Weather Technology in
    the Cockpit program at $10 million, at a minimum.

                            FACILITIES AND EQUIPMENT

        In the FAA's Facilities and Equipment line office, I would like to
    call your attention to two very important programs, NextGen Network
    Enabled Weather (NNEW) and Reduce Weather Impact, and ask you to
    support the fiscal year 2011 request for both.

                     NEXTGEN NETWORK ENABLED WEATHER (NNEW)

        Exploring, identifying, and employing methods and techniques that
    will help facilitate the flow of operation-specific weather-related
    data and information to end users is critical. The NextGen Network
    Enabled Weather project is dedicated to using and developing
    technologies and standards for NextGen that will support effective
    dissemination of weather data. The concept of a 4-D Weather Data Cube
    is a foundational element of NextGen. It is envisioned that this
    virtual data cube will comprise weather data and information from
    disparate data contributors and locations. From this Cube, end users
    (e.g., air traffic managers, pilots, etc.) will be able to obtain a
    common weather picture of the NAS. The fiscal year 2011 request for
    NNEW is $28.25 million, an $8 million increase over fiscal year 2010.
    To develop the NextGen weather dissemination system smoothly and
    efficiently, I urge you to support this request.

                         NEXTGEN REDUCE WEATHER IMPACT

        The goal of the NextGen Reduce Weather Impact Program is to provide
    increased capacity in U.S. airspace to reduce congestion and meet
    projected demand in an environmentally sound manner. The Program
    addresses implementation of improved forecasts and provides weather
    forecast information tailored for integration into traffic management
    decision support systems. Some of this work starts with identification
    of the air traffic management impact of interest, and then translating
    weather into metrics associated with that impact.
        The current weather observing network is inadequate to the needs of
    NextGen. Improvements will be central to the Reduce Weather Impact
    Program. Working with appropriate scientific, modeling and user
    communities, current sensor information and dissemination shortfalls
    will be identified and evaluated. Investigating technologies for
    optimizing and improving automated aircraft weather reporting will also
    be conducted. To continue this work, I urge you to support the
    President's fiscal year 2011 request of $43.2 million for the NextGen
    Reduce Weather Impact Program, an increase of $7.6 million above fiscal
    year 2010.
        On behalf of UCAR, as well as all U.S. citizens who use the surface
    and air transportation systems, I want to thank you for the important
    work you do in supporting the country's scientific research, training,
    and technology transfer. We appreciate your attention to the
    recommendations of our community concerning the fiscal year 2011 FHWA
    and FAA budgets and your concern for the safety of the Nation's
    transportation systems.
                                     ______

       Prepared Statement of the National Recreation and Park Association

        Thank you Chairwoman Murray, Ranking Member Bond, and other members
    of the subcommittee for this opportunity to submit written testimony on
    the fiscal year 2011 appropriations bill.
        NRPA is a 501(c)3 national non-profit organization with more than
    21,000 members. We represent both citizens and park and recreation
    professionals. Our mission is to advance parks, recreation and
    environmental conservation for the benefit of all people. Because we
    represent the public park and recreation agencies in the United States,
    we touch the lives of over 300 million people in virtually every
    community.
        As your subcommittee works to craft the fiscal year 2011
    appropriations bill, we request that you include $4.2 billion for the
    Community Development Block Grant (CDBG) Program.
        The CDBG program equips communities with the resources they need to
    address serious community development challenges. The program has been
    an invaluable tool to help cities replace decaying infrastructure and
    provide safe places to live, work, learn and become physically active.
    Unfortunately, despite proven success, the CDBG formula grant program
    has seen a decrease in funding over the past few years going from $4.9
    billion in fiscal year 2004 to $3.9 billion in fiscal year 2010. This
    is a decrease of more than 20 percent in only 6 short years.
        According to the Department of Housing and Urban Development,
    approximately $100 million of CDBG funds are utilized annually for
    parks and recreation projects. This is not surprising since studies
    have shown that parks and recreational resources are often key
    components to the revitalization of communities and blighted areas as
    they increase property values, reduce storm water runoff, mitigate
    urban heat islands and improve health and wellness. The flexibility
    afforded through the CDBG program allows communities to implement funds
    in ways that best meet their specific needs such as including park and
    recreation projects as part of a comprehensive redevelopment
    initiative.
        The 2005-2010 5 year community development plan for Olympia,
    Washington cited an unmet need of $2.7 million for parks and recreation
    projects relative to community development. Throughout the State
    hundreds of projects are seeking funding for the acquisition of, and
    improvements to, parks and recreation facilities in order to improve
    the livability of moderate to low income neighborhoods and promote
    healthier, sustainable communities. Such projects are well positioned
    to be funded through the CDBG program.
        Missouri has utilized CDBG funds to address a host of community
    development needs throughout the State. In 2009 St. Louis leveraged
    over $5 million in CDBG money to improve accessibility of playgrounds
    for children with disabilities, for environmental remediation to reduce
    stormwater runoff, for sidewalk, and streetlight enhancements to make
    parks safer for families, and parks and recreation infrastructure
    improvements to support recovery efforts for neighborhoods suffering
    from high foreclosure and diminishing property values.
        The city of Tuscaloosa, Alabama leverages an average of nearly $1.5
    million in CDBG money on an annual basis to fund projects that address
    community development needs. Among these were projects bringing park
    and recreation facilities into ADA compliance to make them more
    accessible for persons with disabilities, improving playground
    equipment to make them safer for children, building walking trails to
    help the city become healthier and more livable, as well as enhancing
    park and recreation infrastructure to provide economic stimulus in
    economically depressed areas.
        The importance of CDBG, however, goes beyond providing safe
    infrastructure. Funding provided through the CDBG program often serves
    as the catalyst for private investment. In fact, the National League of
    Cities concluded that over the more than 30-year life of the program,
    CDBG has leveraged nearly $324 billion in new private investment in our
    Nation's communities. This equates to a three to one return on
    investment.
        CDBG funds also help to reduce crime and build a skilled workforce.
    Various parks and recreation departments throughout the country use
    CDBG funding in coordination with other community organizations, to
    provide educational services, employment training and youth development
    initiatives to low-income youth and their families. For example, in
    Phoenix, Arizona, the city parks and recreation department partners
    with a local non-profit called Kids Cafe to provide a safe and secure
    after school environment for children. This program provides low-income
    children with healthy, nutritious meals, as well as tutors and mentors,
    and engages them in recreational sports.
        For more than 30 years the CDBG program has played a critical role
    in revitalizing neighborhoods and improving the quality of life in
    communities throughout this country. CDBG funding provides valuable
    resources that allow communities to tailor projects to address their
    unique community needs. From ensuring the energy efficiency of public
    buildings to reducing crime and providing safe recreational
    infrastructure, CDBG funding is building healthy, livable and
    economically viable communities. The National Recreation and Park
    Association strongly supports increased funding for the CDBG program
    and calls on Congress to fund the program at $4.2 billion in fiscal
    year 2011.
        Thank you for this opportunity to present testimony.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page

    Alves, Theodore, Inspector General, National Rairoad Passenger
      Corporation (Amtrak)...........................................   152
        Prepared Statement of........................................   153
    American Indian Higher Education Consortium, Prepared Statement
      of the.........................................................   354

    Benjamin, Hon. Peter, Chairman, Board of Directors, Washington
      Metropolitan Area Transit Authority............................   285
        Prepared Statement of........................................   291
        Statement of.................................................   290
    Bertram, Chris, Chief Financial Officer, Assistant Secretary for
      Budget and Programs, Department of Transportation..............     1
    Boardman, Hon. Joseph H., President and Chief Executive Officer,
      National Railroad Passenger Corporation (Amtrak)...............   145
        Prepared Statement of........................................   147
    Bond, Senator Christopher S., U.S. Senator From Missouri:
        Opening Statements of..........................4, 64, 123, 182, 229
        Questions Submitted by.......................................   218

    Calvaresi-Barr, Ann, Deputy Inspector General, Department of
      Transportation.................................................   161
        Prepared Statement of........................................   162
    Cardin, Senator Benjamin L., U.S. Senator From Maryland:
        Prepared Statement of........................................   293
        Statement of.................................................   293
    City of Maricopa, Arizona, Prepared Statement of the.............   357
    Coalition of Northeastern Governors, Prepared Statement of the...   345
    Cochran, Senator Thad, U.S. Senator From Mississippi, Questions
      Submitted by...................................................   118
    Collins, Senator Susan, U.S. Senator From Maine:
        Prepared Statement of........................................     7
        Question Submitted by........................................   117
        Statement of.................................................     7
    Cook Inlet Housing Authority, Prepared Statement of the..........   358
    Corbett, Jack, Director, MetroRiders.Org.........................   326
        Prepared Statement of........................................   328

    DeBernardo, Francis, Chairman, Riders' Advisory Council..........   331
        Prepared Statement of........................................   332
    Donohue, Kenneth M., Inspector General, Federal Housing
      Administration, Department of Housing and Urban Development....   225
        Prepared Statement of........................................   251
    Donovan, Hon. Shaun, Secretary, Office of the Secretary,
      Department of Housing and Urban Development...................61, 191
        Prepared Statements of......................................73, 194
        Questions Submitted to.......................................   218
        Statement of.................................................    69

    Ely Shoshone Tribe Housing Department, Prepared Statement of the.   360

    Feinstein, Senator Dianne, U.S. Senator From California,
      Questions Submitted by.........................................   113
    Fond du Lac Band of Lake Superior Chippewa, Prepared Statement of
      the............................................................   360

    Hoopa Valley Tribe, Prepared Statement of the....................   364

    Illinois Department of Transportation, Prepared Statement of the.   350

    Jeter, Jackie, President, Amalgamated Transit Union, Local 689...   323
        Prepared Statement of........................................   324

    Lahood, Hon. Ray, Secretary, Office of the Secretary, Department
      of Transportation..............................................1, 179
        Prepared Statements of.......................................9, 186
        Statements of................................................8, 184
    Lautenberg, Senator Frank R., U.S. Senator From New Jersey,
      Questions Submitted by.........................................   116
    Leahy, Senator Patrick J., U.S. Senator From Vermont, Questions
      Submitted by...................................................   113

    Mikulski, Senator Barbara A., U.S. Senator From Maryland,
      Statement of...................................................   287
    Murray, Senator Patty, U.S. Senator From Washington:
        Opening Statements of.....................1, 61, 121, 179, 225, 285
        Questions Submitted by.................................36, 110, 282

    National AIDS Housing Coalition, Prepared Statement of the.......   372
    National American Indian Housing Council, Prepared Statement of
      the............................................................   367
    National Association of Railroad Passengers, Prepared Statement
      of the.........................................................   365
    National Recreation and Park Association, Prepared Statement of
      the............................................................   376
    New York State Department of Transportation, Prepared Statement
      of the.........................................................   348

    Railway Supply Institute, Inc., Prepared Statement of the........   363

    Sarles, Richard, Interim General Manager, Washington Metropolitan
      Area Transit Authority.........................................   297
        Prepared Statement of........................................   298
    Stevens, Hon. David H., Commissioner, Federal Housing
      Administration, Department of Housing and Urban Development....   225
        Prepared Statement of........................................   236
        Statement of.................................................   233
    Stewart, Na Tanya Davina, Prepared Statement of..................   371
    Szabo, Hon. Joseph C., Administrator, Federal Railroad
      Administration, Department of Transportation...................   121
        Prepared Statement of........................................   130
        Statement of.................................................   128

    University Corporation for Atmospheric Research (UCAR), Prepared
      Statement of the...............................................   373

                                 SUBJECT INDEX

                                  ----------

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                         Federal Housing Administration

                                                                       Page

    Additional Committee Questions...................................   282
    CBO Scoring......................................................   244
    Continuing Concerns..............................................   263
    Default Rate.....................................................   280
    Description of HUD's Loss Mitigation Program Tools...............   250
    Facilitating our Recovery, But Protecting the Taxpayer...........   248
    FHA..............................................................   233
        Facilitating Recovery........................................   237
        Financial Condition..........................................   259
        Losses.......................................................   268
        Policy Changes to Address Risk and Strengthen Finances.......   253
        Priorities for Investments...................................   283
        Risks........................................................   282
        Staffing Shortfalls..........................................   232
    Financial Reform.................................................   271
    GSE Losses.......................................................   278
    GSEs Reform......................................................   266
    Helping Prevent an Economic Catastrophe..........................   236
    Historical Perspective...........................................   251
    Home:
        Affordable Modification Program (HAMP).....................279, 284
        Equity Conversion Mortgage (HECM)............................   245
    HUD Inspector General Efforts on Fraud and Abuse.................   276
    HUD's Central Role in Preventing Foreclosures and Stabilizing
      Neighborhoods..................................................   245
    Increased Risks to FHA...........................................   260
    January Policy Announcements and Legislative Requests............   239
    Making Home Affordable Program...................................   272
    MMI Fund.........................................................   264
    New Short Sale Program...........................................   283
    Operation Watchdog...............................................   258
    Rebuilding FHA's Capital Reserves................................   238
    Recovery of Losses...............................................   265
    Reforms to Date..................................................   239
    Strategic Defaults...............................................   280
    The Current Landscape............................................   252

                            Office of the Secretary

    A Changing Environment...........................................    73
    Additional Committee Questions.................................110, 218
    Affordable Housing for Seniors...................................   110
    Backlog in Public Housing Capital Improvements...................    94
    Barriers to New Starts Program...................................   214
    Building the Framework--HUD's Sustainability Partnerships With
      Other Agencies.................................................   196
    Challenge Grants.................................................   209
    Choice Neighborhoods............................................72, 223
        Program......................................................   107
        vs. HOPE VI..................................................    67
    Community Development Fund Catalytic Investment Competition Grant
      Distribution...................................................   114
    Drug Elimination Program.........................................   116
    Emergency Capital Needs..........................................   117
    Energy Innovation Fund...........................................   192
    Ensuring HUD's Long Term Leadership on Sustainable Homes and
      Communities....................................................   197
    Federal Housing Administration...........................62, 67, 70, 89
        Mortgage Reform..............................................   109
    Goal:
        1.--Strengthen the Nation's Housing Market to Bolster the
          Economy and Protect Consumers..............................    76
        2.--Meet the Need for Quality Affordable Rental Homes........    78
        3.--Utilize Housing as a Platform for Improving Quality of
          Life.......................................................    82
        4.--Build Inclusive and Sustainable Communities Free from
          Discrimination.............................................    84
        5.--Transform the Way HUD Does Business......................    87
    Homelessness.....................................................    72
    Housing First....................................................   117
    HUD:
        EPA and DOT Contributions to Sustainable Housing and
          Community Initiative Program...............................   219
        VASH Program.................................................    96
    HUD's:
        2010 Transformation..........................................    73
        Role.........................................................   213
    Increase in Annual Premium.......................................    90
    Investing in People and Places...................................    75
    Laying the Foundation--Recovery Act Investments in Sustainable
      Homes and Communities..........................................   195
    Leveraging.......................................................   221
    Livability.......................................................   211
    Low-income Housing Tax Credits...................................   111
    Making Home Affordable Program..................................92, 100
    Manufactured Housing.............................................   118
    Measurement Criteria.............................................   211
    Mortgage Modification............................................    63
    Neighborhood Stabilization Program Funding Distribution..........   113
    Office of Sustainable Housing and Communities....................   191
    Oversight........................................................   222
    Prioritizing Funding.............................................   220
    Project Costs....................................................   222
    Proposed Cuts....................................................64, 65
    Public Housing Capital Fund.....................................95, 116
    Regional Planning Grants.........................................   201
    Relationship Between HUD, EPA and DOT in the Sustainable Housing
      and Communities Initiatives Program............................   219
    Requirements for Receiving a Grant...............................   220
    Roadmap to Transformation........................................    75
    Rural:
        America......................................................    98
        Homelessness.................................................   101
        Housing Fund.................................................    66
    Section:
        8 and New Initiatives........................................    63
        811..........................................................   113
        202........................................................111, 113
            And 811 Programs.........................................   104
            And Low-Income Housing Tax Credits.......................   111
            Housing for Low-Income Seniors...........................   115
            Supportive Housing for the Elderly.......................   117
            Supportive Housing for the Elderly Act...................   111
    Self-Help:
        Home Ownership Program (SHOP) Funding........................   115
        Housing Program..............................................   112
    Shared Equity Programs...........................................    99
    Small and Rural Communities......................................   207
    Staff Turnover...................................................   222
    Staffing.........................................................   221
        For Initiative...............................................   104
    State of the Housing Market......................................    91
    Supportive Housing for the Elderly Act...........................   110
    Sustainability vs. Livability..................................220, 221
    Sustainable Communities..........................................72, 99
        Initiative...................................................   102
    The Need for Federal Leadership to Advance Sustainable Homes and
      Communities....................................................   194
    Transforming Rental Assistance..........................66, 71, 95, 106
    Transparency.....................................................   218
        For Taxpayers................................................    68
        In HUD Programs..............................................   101

                          DEPARTMENT OF TRANSPORTATION

                        Federal Railroad Administration

    Alternative Funding Sources/Grants...............................   135
    Americans with Disabilities Act..................................   142
    Amtrak Fleet.....................................................   132
    Equipment Refresh................................................   137
    5-Year Capital Plan..............................................   136
    FRA Management and Administration................................   131
    High-Speed Rail................................................131, 141
    National Passenger Rail Corporation (Amtrak).....................   132
    Positive Train Control...........................................   134
    Rail:
        Research and Development.....................................   131
        Safety.......................................................   140
    Railroad Safety..................................................   130

                          Office of Inspector General

    Amtrak has Made Improvements in Financial Management.............   165
    ARRA Projects....................................................   170
    Capital Plan and Fleet Plan Funding..............................   167
    Devils Lake......................................................   175
    Fleet Maintenance................................................   173
    FRA Faces Significant Challenges in Meeting its Mandate..........   164
    Funding Corridors................................................   173
    Legislation Dramatically Expanded FRA's Role.....................   163
    Role of FRA......................................................   171
    Upgrading the Amtrak Fleet.......................................   168

                            Office of the Secretary

    Additional Committee Questions...................................    36
    Capacity-building Funding........................................   212
    Children in Air Traffic Control Tower............................    15
    Cost Effectiveness...............................................   214
    Cross Border Trucking............................................   217
    Current DOT and Partnership Efforts..............................   187
    Cyber Security...................................................    35
    Data Collection for Small Communities............................   208
    Ferry Funding....................................................    28
    Fiscal Year 2011 Budget Request..................................   189
    Freight Rail.....................................................    19
    Funding for Infrastructure.......................................   209
    High Speed Rail..........................................10, 17, 25, 31
    Highway
        Safety.......................................................    10
        Trust Fund...................................................   204
    Infrastructure Fund..............................................    24
    Interagency Partnership for Sustainable Communities..............   186
    Investing in Transportation Infrastructure.......................    11
    Livability.......................................................11, 29
    Livable Communities:
        Promote Quality of Life......................................   187
        Investments Support Both Rural and Urban Communities.........   188
    Looking Forward..................................................   189
    Metropolitan Planning Organizations..............................   206
    Mexican Trucks..................................................28, 217
    National:
        Highway Traffic Safety Administration Budget Request.........    13
        Infrastructure Innovation and Finance Fund...................    15
    NextGen..........................................................    10
    Non-motorized Transportation.....................................   202
    Pennsylvania Expressway..........................................    22
    Positive Train Control...........................................    27
    Rail Transit Safety..............................................10, 27
    Recovery Act.....................................................    11
    SAFETEA-LU.......................................................    21
    Small Towns and MPOs.............................................   210
    TIGER Program....................................................    26
    Toyota Recalls...................................................    12
    Transit-oriented Development.....................................   206
    Transportation Investments.......................................   210

                NATIONAL RAILROAD PASSENGER CORPORATION (AMTRAK)

    Accessible Stations Development Plan.............................   151
    Amtrak's Aging Fleet.............................................   146
    Challenge:
        1.--Competing Successfully for New State Supported Services
          and Then Delivering High Quality Cost-Effective Service....   154
        2.--Improving Human Capital Management Practices, Including
          Strategic Workforce Planning, and Training and Development.   156
        3.--Managing the Risks Associated With Amtrak's Goal of
          Modernizing its Information Technology Systems and
          Infrastructure.............................................   157
        4.--Managing Risks Associated With Projects Funded Through
          the Recovery Act...........................................   158
    Fiscal Year 2011 Request.........................................   148
    Fleet Plan.......................................................   148

                 WASHINGTON METROPOLITAN AREA TRANSIT AUTHORITY

    Budget Shortfall.................................................   318
    Corrective Action Plans..........................................   319
    Financial Stability..............................................   302
    Measuring Progress and Performance in Metro Safety...............   311
    Metro:
        Access.......................................................   320
        Modernization................................................   315
        Serves the Federal Government................................   291
    Metro's Capital Needs............................................   292
    Safety...........................................................   299
    Service Reliability..............................................   301
    Top Safety and Hazard Concerns...................................   313

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