[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\
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    \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.
---------------------------------------------------------------------------
    \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.
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    \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.
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   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.
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  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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