    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

                       THE OBAMA ADMINISTRATION'S RENTAL

                       ASSISTANCE DEMONSTRATION PROPOSAL

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON

                             INSURANCE, HOUSING AND

                             COMMUNITY OPPORTUNITY

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                NOVEMBER 3, 2011

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 112-83

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                       SPENCER BACHUS, Alabama, Chairman

    JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts,
        Chairman                             Ranking Member
    PETER T. KING, New York              MAXINE WATERS, California
    EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
    FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
    RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
    DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
    WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
    JUDY BIGGERT, Illinois               BRAD SHERMAN, California
    GARY G. MILLER, California           GREGORY W. MEEKS, New York
    SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
    SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
    RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
    PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
    JOHN CAMPBELL, California            JOE BACA, California
    MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
    THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
    KEVIN McCARTHY, California           DAVID SCOTT, Georgia
    STEVAN PEARCE, New Mexico            AL GREEN, Texas
    BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
    MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
        Pennsylvania                     KEITH ELLISON, Minnesota
    LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
    BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
    BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
    SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
    NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
    JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
    ROBERT HURT, Virginia
    ROBERT J. DOLD, Illinois
    DAVID SCHWEIKERT, Arizona
    MICHAEL G. GRIMM, New York
    FRANCISCO ``QUICO'' CANSECO, Texas
    STEVE STIVERS, Ohio
    STEPHEN LEE FINCHER, Tennessee

                       Larry C. Lavender, Chief of Staff
          Subcommittee on Insurance, Housing and Community Opportunity

                        JUDY BIGGERT, Illinois, Chairman

    ROBERT HURT, Virginia, Vice          LUIS V. GUTIERREZ, Illinois,
        Chairman                             Ranking Member
    GARY G. MILLER, California           MAXINE WATERS, California
    SHELLEY MOORE CAPITO, West Virginia  NYDIA M. VELAZQUEZ, New York
    SCOTT GARRETT, New Jersey            EMANUEL CLEAVER, Missouri
    PATRICK T. McHENRY, North Carolina   WM. LACY CLAY, Missouri
    LYNN A. WESTMORELAND, Georgia        MELVIN L. WATT, North Carolina
    SEAN P. DUFFY, Wisconsin             BRAD SHERMAN, California
    ROBERT J. DOLD, Illinois             MICHAEL E. CAPUANO, Massachusetts
    STEVE STIVERS, Ohio

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        November 3, 2011.............................................     1
    Appendix:
        November 3, 2011.............................................    25

                                   WITNESSES
                           Thursday, November 3, 2011

    Elsesser, Charles, attorney, Community Justice Project of Florida
      Legal Services, on behalf of the National Low Income Housing
      Coalition......................................................     9
    Guerrero, Ismael, Executive Director, Housing Authority of the
      City and County of Denver, Colorado............................     6
    Henriquez, Hon. Sandra B., Assistant Secretary, Public and Indian
      Housing, U.S. Department of Housing and Urban Development......     4
    Hydinger, Steven C., Managing Director, BREC Development, LLC....     8

                                    APPENDIX

    Prepared statements:
        Elsesser, Charles............................................    26
        Guerrero, Ismael.............................................    33
        Henriquez, Hon. Sandra B.....................................    40
        Hydinger, Steven C...........................................    51

                  Additional Material Submitted for the Record

    Biggert, Hon. Judy:
        Letter from a coalition of housing industries................    55
        Letter from the Housing Assistance Council...................    57
        Letter from Secretary Shaun Donovan, U.S. Department of
          Housing and Urban Development..............................    58
        Letter from the National Association of Housing and
          Redevelopment Officials....................................    60

                       THE OBAMA ADMINISTRATION'S RENTAL

                       ASSISTANCE DEMONSTRATION PROPOSAL

                                  ----------

                           Thursday, November 3, 2011

                 U.S. House of Representatives,
                     Subcommittee on Insurance, Housing
                             and Community Opportunity,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:57 p.m., in
    room 2128, Rayburn House Office Building, Hon. Judy Biggert
    [chairwoman of the subcommittee] presiding.
        Members present: Representatives Biggert, Hurt; Gutierrez,
    Cleaver, and Clay.
        Also present: Representative Ellison.
        Chairwoman Biggert. The Subcommittee on Insurance, Housing
    and Community Opportunity will come to order.
        We will start with opening statements, and I will recognize
    myself for such time as I may consume.
        Good afternoon. I want to welcome everyone. I am sorry
    about those pesky votes again. That seems to happen around 2
    p.m. all the time. So I apologize, and I thank you for your
    patience.
        This is the third hearing in a series on reforms to the
    Section 8 Program. During today's hearing, the subcommittee
    will examine the Obama Administration's Rental Assistance
    Demonstration proposal, or what is called ``RAD.''
        I am supportive of this creative proposal because it would
    allow for mixed financing and leveraging of private capital
    with existing Federal funds. This is a concept that I actually
    have worked on for many years, and was realized through recent
    reforms to the Section 811 Program, which provides affordable
    housing for people with disabilities, and reforms to the
    Section 202 program, which provides affordable housing for
    seniors.
        Given very scarce Federal resources, it is important that
    we maximize the impact of every taxpayer dollar, especially
    funds that go toward affordable housing. And given the demand
    for affordable rental housing, projected rehabilitation costs
    to preserve aging housing stock, and capital needs for housing
    development, new initiatives for private sector participation
    must be considered. So I thank many of the Members whose staffs
    have already offered input into the Section 8 reform package.
        And, with that, I recognize the ranking member from
    Illinois, Mr. Gutierrez, who is busy talking.
        Mr. Gutierrez. Thank you, Madam Chairwoman.
        And thank you to all of our witnesses for joining us today
    to discuss HUD's proposal for a Rental Assistance
    Demonstration.
        Let me start by saying that I understand how hard it can be
    for our Nation's public housing agencies to meet the demand for
    safe, affordable housing that they can see in our communities
    right now. This Congress has watched unemployment and
    homelessness approach historic highs. And how has it responded?
    Unfortunately, by cutting the programs that serve our most
    vulnerable constituents. Appropriators are threatening to shut
    down housing counseling agencies, strip funding from housing
    programs for the elderly, and cut the Public Housing Capital
    Fund by hundreds of millions of dollars.
        So I understand the logic behind the RAD proposal. It is a
    potential solution to the capital infrastructure challenges
    that our public housing agencies are constantly facing. These
    agencies know they cannot depend on Congress to appropriate the
    funding they need, so they have worked with HUD and have come
    to us with an alternative that they hope will work. In short,
    HUD and public housing groups are willing to try a conversion,
    on a limited scale, of traditional public housing units to the
    project-based Section 8 Program, making it more likely that
    they will be able to leverage financing from private sources to
    meet their capital needs.
        But a conversion like this doesn't come without risks. That
    is why I want to highlight certain provisions in the RAD
    proposal that reinforce tenant protections, promote resident
    choice, ensure long-term affordability for converted units, and
    prioritize continued public ownership of housing units after
    conversion.
        I would ask that our witnesses address these provisions in
    detail today. I want to make sure that they truly will provide
    adequate protections and insurance so that our public housing
    dollars continue to reach the lowest-income families in a fair
    and equitable way. That is the only way a demonstration like
    this will work for everyone.
        Thank you again, Madam Chairwoman. I look forward to the
    testimony of the witnesses and I welcome this opportunity to
    learn more about the RAD proposal. I yield back the balance of
    my time.
        Chairwoman Biggert. Thank you.
        Mr. Gutierrez. I ask unanimous consent that our colleague
    Mr. Ellison from Minnesota can join us for 5 minutes.
        Chairwoman Biggert. Do you have an opening statement?
        Mr. Ellison. Yes, ma'am.
        Chairwoman Biggert. You are recognized for 5 minutes.
        Mr. Ellison. Thank you, ma'am.
        Chairwoman Biggert and Ranking Member Gutierrez, thank you
    for holding this hearing today. Revitalizing public housing is
    an important topic for this committee to address, especially
    when the poverty rate continues to rise and families struggle
    with unrelenting unemployment.
        In 2010, 46 million Americans lived in poverty. That is
    over 15 percent of our population. And the availability of
    affordable housing for many of these families is scarce. This
    is exactly the wrong time to turn away from affordable housing
    programs that support low-income families. Instead, it is time
    for creative solutions to revitalize the affordable housing we
    already have invested in.
        As I am sure today's witnesses are going to mention, the
    existing public housing buildings across the country have a
    combined capital need of about $26 billion. That is a lot of
    money. These capital needs come from years of underfunding of
    public housing programs. These capital needs mean that many
    buildings and individual apartments are in need of serious
    repair. Even worse, over the last decade, public housing
    authorities have already lost over 100,000 public housing units
    because buildings fell into disrepair. Considering this level
    of capital needs, creative solutions are necessary to protect
    public housing and ensure that these buildings remain
    affordable.
        Now, at the high-water mark when Congress stepped up to the
    plate and really did something for public housing during the
    ARRA funding, we gave about $4 billion. So public housing
    residents cannot realistically expect Congress to appropriate
    adequate money to fund public housing. It simply isn't
    realistic to believe that. So something else needs to be done.
        I would like to applaud Secretary Donovan, Assistant
    Secretary Henriquez, and the Administration on their commitment
    to this issue. The Rental Assistance Demonstration language is
    a thoughtful and innovative approach for revitalizing public
    housing and other affordable housing programs overseen by HUD.
        Let me say very quickly, if I have any more time left, last
    Congress I introduced the Rental Housing Revitalization Act.
    There were a lot of people who were fearful about what this
    might mean, but we worked with the community and we listened
    and we incorporated ideas. This bill shared the same goal of
    helping public housing to access capital and financing in order
    to make needed repairs and renovations, given the gap I already
    identified.
        I welcome the support of the Administration's work on
    advancing and refining these ideas. And I would like, again, to
    thank Chairwoman Biggert and Ranking Member Gutierrez for
    holding this hearing today. I look forward to working with
    members of this committee on strategies to preserve public
    housing. And I look forward to hearing from today's witnesses
    about their thoughts on the Rental Assistance Demonstration
    language.
        And if I have any more time left, I just want to quickly
    say that a few years ago, I was lucky to have then-Chairman
    Barney Frank come to Minneapolis, and he spoke very eloquently
    about public housing affordability. One gentleman came forward
    who needed the assistance of a Spanish language interpreter to
    tell his story. And what he told us is that he and his five
    children and his spouse were looking for a place to rent but
    they couldn't find anywhere. But somebody came to him and told
    him that he could buy a house for no money down and that it
    would be really great and really easy on him and his family. He
    bought that house, but what they didn't tell him was that in 2
    years, his mortgage was going to explode. He ended up not being
    able to make those payments and losing that house.
        What if we had had good, decent, productive public housing
    that was in good repair available for that family? It could
    have saved a financial tragedy. And so, I hope we can step
    forward and do the right thing.
        Chairwoman Biggert. I thank the gentleman.
        We will now proceed to introduction of the witnesses. We
    are very fortunate today to have with us the Honorable Sandra
    Henriquez, Assistant Secretary, Public and Indian Housing, U.S.
    Department of Housing and Urban Development; Mr. Ismael
    Guerrero, executive director, Housing Authority of the City and
    County of Denver, Colorado; Mr. Steve Hydinger, managing
    director, BREC Development, LLC; and Mr. Charles Elsesser,
    attorney for the Community Justice Project of Florida Legal
    Services.
        Without objection, all your written statements will be made
    a part of the record, and you will each be recognized for a 5-
    minute summary of your testimony.
        We will start with Ms. Henriquez.

       STATEMENT OF THE HONORABLE SANDRA B. HENRIQUEZ, ASSISTANT
       SECRETARY, PUBLIC AND INDIAN HOUSING, U.S. DEPARTMENT OF
                     HOUSING AND URBAN DEVELOPMENT

        Ms. Henriquez. Thank you very much. Good afternoon,
    Chairwoman Biggert, Ranking Member Gutierrez, and members of
    the subcommittee. I want to thank you for holding this hearing
    today and for giving me this opportunity.
        We meet at an important moment. Today, the need for
    affordable housing is greater than ever, with 7 million
    households paying more than half of their income for housing,
    living in substandard housing, or both. Essential to meeting
    the needs of very low-income families, the elderly, and the
    disabled is public and assisted housing, which provides 2.5
    million quality, affordable homes in communities across this
    Nation.
        Over the last 75 years, the taxpayers invested
    significantly in these homes, but with a capital backlog
    estimated between $22 billion and $26 billion in the public
    housing portfolio loan, we have reached a breaking point. And
    where most forms of affordable housing could leverage funding
    from private investors and other nongovernment sources to make
    needed repairs, antiquated laws mean public housing and
    properties funded through HUD's so-called legacy programs
    generally cannot. As a result, we have already lost 150,000
    publicly owned homes to demolition and disposition over the
    past 15 years. And we see no sign that this trend will abate
    anytime soon, particularly in this fiscal environment.
        Further, some 48,000 units in our Rent Supplement, Rental
    Assistance Program. and our Section 8 Mod Rehab Programs are
    also at risk due to contract limitations that inhibit their
    ability to leverage capital.
        Madam Chairwoman, my own decades of corporate and public-
    sector experience managing housing tell me that we can do
    better, we must do better, and that we can build a system that
    harnesses the resources and the discipline of the private
    market without compromising the important mission of publicly
    supported housing--a system that does not leave America's
    poorest families isolated.
        The Rental Assistance Demonstration we have proposed
    represents an important step in building that better system. As
    this subcommittee knows, last year we proposed a multiyear
    initiative called, ``Transforming Rental Assistance,'' which
    sparked an important conversation about how the public and the
    private sectors can work together to invest in the success of
    these properties and the families who live in them. And the
    concepts and the feedback that emerged from that conversation
    culminated in the demonstration we are here to discuss today.
        I would like to take a moment to outline five key goals of
    the demonstration, not only to explain how it differs from our
    TRA proposal in the past and builds on what we know works, but
    also how it will provide more opportunity for families we
    serve.
        The first goal is long-term stability by helping owners
    preserve these homes and plan for the future by better managing
    investments the public has already made. For PHAs, this
    essentially means replacing operating and capital subsidies
    with 20-year, project-based Section 8 rental assistance
    contracts. For the Rent Sup and RAP programs, contracts would
    convert to Section 8 project-based rental assistance, PBRA,
    with 20-year terms, while Mod Rehab properties would be able to
    convert to long-term, 20-year Section 8 PBRA or project-based
    voucher contracts. These tools have widespread acceptance and
    familiarity among owners, those in the lending community, and
    those of us at HUD.
        Indeed, the second goal is to allow these programs to
    access the same safe, proven tools that successfully support
    1.4 million units of multifamily assisted housing and access
    the Low-Income Housing Tax Credit Program in particular. These
    tools have not only brought new capital to affordable housing,
    but also a discipline and rigor that extends to how these
    properties are managed.
        The third goal is long-term affordability, saving
    properties for generations to come by better managing the
    investment the public has already made. For this demonstration,
    that means long-term assistance contracts and use agreements
    that would protect affordability in the event of foreclosure or
    for bankruptcy, should that happen.
        And, indeed, the fourth goal is effective public ownership.
    The demonstration will ensure public housing properties remain
    under the ownership or control of a public housing authority or
    public or nonprofit entity or limited partnerships formed to
    access tax credits.
        In the unlikely event of foreclosure--and I would note
    that, even in this economy, multifamily owners have defaulted
    on their loans less than one-half of 1 percent of the time--the
    Secretary would be permitted to transfer the contract and the
    use agreement to capable public and non-profit entities, and
    only when neither of those options is viable, may the Secretary
    seek the help of a for-profit entity in preserving the
    property. Regardless, the owner would be required to manage the
    property, guarantee its affordability, and maintain tenant
    rights in accordance with the use agreement.
        The last goal of this demonstration is to provide more
    resident choice and real resident rights. Families should be
    able to choose where they live and take responsibility for
    their futures. Accordingly, we expect that at least 90 percent
    of the converted public housing and Mod Rehab units would
    provide residents with an option to move with voucher
    assistance. Residents will have an opportunity to comment on
    any conversion action, and they will not be subjected to
    rescreening, and they will be afforded strong procedural and
    organizing rights.
        Underlying all these goals is the need for the private
    sector partnership, which is why we have designed this
    demonstration to capitalize on the capacity and the expertise
    the private sector can provide, particularly in the field of
    real estate finance and development. As we have seen in HOPE
    VI, many housing authorities have already collaborated with the
    private sector in a variety of ways, from securing FHA
    insurance, tax-exempt bond financing, private loans and tax
    credit investments, to legal and accounting assistance. And
    these are the kinds of collaborations that will be essential to
    the success of this demonstration.
        As you know, the Senate Appropriations Subcommittee
    recently included language that authorizes a limited, cost-
    neutral demonstration targeted at public housing. While we
    support comprehensive authorization, we also believe it is
    reasonable to proceed, for now, with the option that has been
    included in the Senate Appropriations bill. And we are hopeful
    that this subcommittee will join with us in supporting this
    strategy while continuing to explore the broader authorization
    process.
        But, Chairwoman Biggert, we believe the time has come to
    allow America's public housing system to take advantage of 30
    years of innovations in the affordable housing finance arena,
    to connect millions of families to opportunity, to turn homes
    too often seen as neighborhood problems into community assets,
    and to make proven preservation tools available to all
    affordable housing programs. This demonstration represents an
    important step toward that goal.
        I want to thank you again for this opportunity to testify
    today, and I would be happy to answer any questions that you
    may have.
        [The prepared statement of Assistant Secretary Henriquez
    can be found on page 40 of the appendix.]
        Chairwoman Biggert. Thank you.
        Mr. Guerrero, you are recognized for 5 minutes.

       STATEMENT OF ISMAEL GUERRERO, EXECUTIVE DIRECTOR, HOUSING
          AUTHORITY OF THE CITY AND COUNTY OF DENVER, COLORADO

        Mr. Guerrero. Good afternoon, Chairwoman Biggert, Ranking
    Member Gutierrez, and members of the subcommittee.
        My name is Ismael Guerrero, and I am the executive director
    of the Denver Housing Authority. Prior to joining DHA, I was
    with U.S. Bank Community Development Corporation and before
    that, with Mercy Housing Corporation. So as a practitioner with
    over 15 years of experience in financing and community
    development, I want to thank you for this opportunity to
    provide some testimony on the Rental Assistance Demonstration
    proposal.
        I am also a board member of the Council of Large Public
    Housing Authorities (CLPHA). CLPHA's members include 70 of the
    largest public housing authorities located in most major
    metropolitan areas in the United States. CLPHA has been working
    with numerous stakeholders on this rental assistance proposal
    and is also appreciative of the hearing that is happening
    today.
        DHA is the largest housing authority in the Rocky Mountain
    region, with over 10,000 rent-subsidized housing units and
    Section 8 housing choice vouchers. In the last 4 years, DHA was
    ranked as one of the top multifamily developers in the Denver
    region. We continue to maintain a ``high performer'' status
    with HUD and simultaneously, an A-plus rating on our tax-exempt
    revenue bonds with Standard & Poor's.
        We support the Rental Assistance Demonstration proposal
    because as a developer, an owner, and a manager of a diverse
    affordable housing portfolio, we understand the challenges and
    opportunities that face all housing authorities in managing
    their assets.
        We believe the voluntary conversion option, which allows
    housing authorities the choice to convert from public housing
    to Section 8 project-based rental contracts, is urgently needed
    as an additional financing tool to address the growing backlog
    of capital improvement needs in our aging housing portfolio.
    The Denver Housing Authority today has capital needs of over
    $90 million, and with the persistent cuts that are happening,
    this will only continue to grow.
        Because of the need to maintain our housing at standards
    that our residents deserve and our communities expect, DHA has
    become more creative and more resourceful in using all
    available Federal resources and programs. We have been awarded
    three HOPE VI Federal grants, we have utilized the Capital Fund
    Financing Program, and we have received multiple competitive
    capital grants through the American Recovery and Reinvestment
    Act, just to name a few. Through these one-time Federal grants
    totaling over $94 million, we have preserved over 1,100 public
    housing units, and, more importantly, we raised over $300
    million in private debt and equity.
        However, these efforts have improved less than a third of
    our total portfolio. The reality is that we need a more
    comprehensive and structural solution to the problem of
    maintaining, preserving, and transforming our aging and
    obsolete public housing portfolio. We need market-based
    solutions to maximize the leverage of Federal resources with
    private sector debt and equity.
        We believe that the option to convert public housing
    operating and capital fund subsidies to Section 8 project-based
    contracts or vouchers is an important tool that should be made
    available to housing authorities of all sizes and in all
    regions.
        Converting the ACC operating and capital funding structure
    to project-based rental assistance also brings us more in line
    with real estate industry practices and asset management. It
    should establish fair market rent standards that are
    predictable and rental contracts that are more stable than at
    the current public housing ACC operating subsidy. Our banking
    and equity partners understand fair market contract rents, but
    they have a harder time with operating subsidies based on
    complicated property expense-level calculations, which have a
    history of being arbitrarily prorated as much as 15 percent
    below actual expenses.
        Our support of this demonstration program is based on real-
    time experience. We recently rehabbed a 190-unit public housing
    property. It required a $10 million Federal grant, and we were
    able to leverage $10.7 million in tax credit equity. Contrast
    that with a second example, a 224-unit DHA-owned property with
    a Section 8 HAP contract in place which we will rehab with zero
    Federal capital funds and a financing plan that includes $8.5
    first mortgage and $11.4 million in tax credit equity. Both
    properties serve extremely low-income households with incomes
    that average approximately $10,000 a year.
        We believe that a properly designed and funded
    demonstration program will allow more units to be recapitalized
    with less restrictive Federal funds and greater leverage of
    private debt and equity. In addition, a demonstration program
    will allow specific concerns to be studied and resolved, such
    as at the end of the day that the demonstration program should
    result in a true conversion from public housing to Section 8.
    We will have failed if, in the end, the result is a new hybrid
    program that multiplies, rather than eliminates, program rules
    and regulations.
        Secondly, fair market rents are and continue to be the
    industry benchmark where an efficient owner-manager is able to
    operate. Trading artificial rental subsidy calculations or
    prorations will undermine the stated goals of the program.
        And, finally, at DHA, we have a strong commitment to
    resident empowerment and resident engagement. This
    demonstration program should allow maximum flexibility for
    local housing authorities to work with their local resident
    leaders and stakeholders to create the policies and procedures
    around mobility options. At DHA, we believe that tenant rights
    should be coupled with tenant responsibilities, including the
    expectation of being a good neighbor and working toward self-
    sufficiency goals.
        So, in closing, I want to reaffirm our support for the
    Rental Assistance Demonstration and to thank the committee for
    holding this hearing today. Thank you.
        [The prepared statement of Mr. Guerrero can be found on
    page 33 of the appendix.]
        Chairwoman Biggert. Thank you so much.
        Mr. Hydinger, you are recognized for 5 minutes.

       STATEMENT OF STEVEN C. HYDINGER, MANAGING DIRECTOR, BREC
                            DEVELOPMENT, LLC

        Mr. Hydinger. Thank you very much, Chairwoman Biggert and
    members of the subcommittee. First of all, I want to thank you
    for allowing me to have the opportunity to speak to you about
    the Rental Assistance Demonstration program, known as ``RAD.''
        My name is Steven Hydinger. I work with BREC Development
    from Birmingham, Alabama. We are a private developer, and we
    are proud to be a private developer. We have worked with many
    nonprofits in the past over many States, mostly along the east
    coast. And we are happy to work with HUD in many different
    venues, many different States.
        I am very excited to talk about the RAD program, because
    when I look at this, it has all the elements of a great
    transaction, number one. Unfortunately, there is a tremendous
    amount of demand. In a perfect world, there would not be demand
    for low-income housing, but this is an economic reality. And
    when one looks out over the future, with the aging population,
    we are truly going have a crisis, as I mentioned in my
    testimony.
        Number two, product. It is exciting because I have been in
    many conversations with public housing authorities where their
    hands have been tied and they have not been able to come up
    with the best solution because of what I would call regulatory
    handcuffs. The RAD program certainly addresses these--namely,
    project-based Section 8, which would be paramount to the
    success of this program.
        Number three, funding. It is exciting that there is no need
    to go ask for increased funding; the funding is in place in
    programs. This RAD program seems to be well thought out, and,
    from a private developer's standpoint, it seems to be something
    that is actionable. There are certainly programs that come out
    that we all look at that, when one views the program, there is
    skepticism from the get-go. I believe the way the RAD program
    is drafted and the direction in which it appears to be headed,
    it could be a great success to the many, many thousands of
    units that need the assistance.
        One word of caution I would say is, much has been mentioned
    about the loss of product. Not all of that loss of product can
    be viewed as bad. Much of the product is completely outdated,
    functionally obsolescent, and needs to go by the wayside and
    needs to be redeveloped. My hope in this is that more and more
    private developers will be able to work with housing
    authorities and be able to come up with absolutely the best,
    most dynamic solution to this need that afflicts every State in
    the country.
        I, again, appreciate your time. Thank you.
        [The prepared statement of Mr. Hydinger can be found on
    page 51 of the appendix.]
        Chairwoman Biggert. Thank you.
        Mr. Elsesser, you are recognized for 5 minutes.

      STATEMENT OF CHARLES ELSESSER, ATTORNEY, COMMUNITY JUSTICE
     PROJECT OF FLORIDA LEGAL SERVICES, ON BEHALF OF THE NATIONAL
                      LOW INCOME HOUSING COALITION

        Mr. Elsesser. Thank you, Madam Chairwoman.
        My name is Charles Elsesser. I am an attorney with the
    Community Justice Project of Florida Legal Services, and a
    member of the Board of Directors of the National Low Income
    Housing Coalition, which I am representing here today.
        We want to thank the subcommittee chairwoman, Ms. Biggert,
    and the ranking member, Mr. Gutierrez, for providing us with
    this opportunity to provide input.
        The National Low Income Housing Coalition is dedicated
    solely to achieving socially just public policy that assures
    that people with the lowest incomes have affordable and decent
    homes.
        Despite the specter of vacant foreclosed homes in many
    communities, there is a continuing and increasing need for
    affordable housing, particularly for those families with the
    lowest incomes. In most communities, there is little if any
    decent, safe, unsubsidized housing affordable to extremely low-
    income households. Public housing specifically serves this
    extremely low-income population. Currently, there are
    approximately 2.3 million people living in public housing in
    the United States, with an average household income of
    approximately $13,350.
        Unfortunately, this housing is aging, and for years, the
    public housing authorities have received less than necessary in
    capital replacement funding. Both the House and the Senate
    Fiscal Year 2012 HUD appropriations bills include further deep
    cuts to public housing capital funding. These continuing cuts,
    without any new funding, leave public housing authorities
    without any recourse other than to apply for more demolitions
    and dispositions.
        Tenant-based vouchers cannot replace public housing. We
    have learned from the massive demolitions and relocations that
    occurred through the HOPE VI programs and through the
    subsequent additional demolitions, resulting in a loss of over
    150,000 units of public housing, that there is a significant
    percentage of the poorest households that are better served by
    public housing than by tenant-based vouchers for a number of
    reasons:
        Public housing is more affordable. A tenant family pays a
    maximum of 30 percent of their income in rent, and there is no
    large security deposit. It is more supportive. There are
    neighbors and housing managers who are knowledgeable about the
    programs and can provide support and assistance. For the
    elderly in particular, it provides a location to provide
    services and allows people to age in place. Thus, public
    housing provides homes for a much higher percentage of elderly
    than the voucher program. For people with disabilities, it
    provides accessible housing without the often exhausting search
    required to utilize a Section 8 tenant-based voucher. And it is
    more secure for all families. Once you have a public housing
    unit, you can remain without fear of relocation. Tenant-based
    voucher recipients can be forced to repeatedly search for new
    housing at the end of each year, each time having to locate a
    new unit and obtain a new security deposit.
        So public housing is vitally important, but how do we
    preserve it? The status quo is not the answer. The status quo
    means a continuing underfunding of capital repairs, a
    continuing deterioration of public housing, and a continuing
    loss of units through demolitions. And this is demolition of
    housing that can often be preserved but there is simply no
    funding source for that preservation. HOPE VI and Choice
    Neighborhoods initiatives, even if funded, preserve only a few
    neighborhoods in the entire country.
        We need additional financial tools if we are to reverse
    this trend. We believe that the Department's Rental Assistance
    Demonstration proposal could provide that significant
    additional tool. The Coalition supports the RAD proposal
    because it meets the essential criteria which the Coalition and
    its members have developed to both provide additional resources
    and to protect the public housing communities and the
    residents.
        The RAD requires resident participation throughout, both in
    development of the RAD program and in the local decision to
    utilize the RAD funding for a PHA or a project. It requires
    that the resident protections inherent in the public housing
    model be continued in the new funding mechanism, including a
    right to an informal hearing if denied admission, to grievance
    procedures for residents, and to adequate notice and good cause
    for eviction. It requires a continuation of public ownership or
    control.
        Even in a foreclosure, the Secretary must continue public
    ownership unless it is simply not possible, and only then can
    the Secretary consider nonprofit or other ownership. It
    requires long-term use restrictions by mandating that the
    Secretary offer and the PHA accept renewals of the project-
    based contracts with all of the Federal requirements intact.
    And it provides an opportunity for residents to choose a
    Section 8 voucher and relocate outside of the project while not
    jeopardizing the viability of the project-based financing
    itself.
        And finally, it is a demonstration from which Congress and
    HUD can assess and learn from participating PHAs. This
    information will lead to even broader and better preservation
    efforts. And, also, the Coalition supports the RAD's attempts
    to provide options for Rental Supplement properties, Rental
    Assistance Program properties, and Section 8 Mod Rehab, all of
    which are significantly threatened without additional
    resources.
        The Coalition would strongly urge passage of the RAD
    proposal and provide this resource for both residents and local
    PHAs in their efforts to preserve valuable public housing
    resources. Thank you.
        [The prepared statement of Mr. Elsesser can be found on
    page 26 of the appendix.]
        Chairwoman Biggert. Thank you so much.
        We will now recognize Members for questions for 5 minutes
    each, and I will yield myself 5 minutes.
        Ms. Henriquez, what aspects of RAD are absolutely essential
    for private lenders to view it as an investment-worthy project?
        Ms. Henriquez. Not being a private lender, but my sense is
    that they will see--we are not asking them to take on a risk or
    do--they will do their own underwriting, as they normally do;
    they will approach these properties from a good business sense.
    They want the same sort of stability and the ability for this
    property to be viable in the longer term, so we don't see that
    there is a risk. We think that this is a market that will be--I
    wouldn't necessarily say new to them, but it will be an
    expanded market, since, as you have heard through the various
    testimonies, these are safe, proven methods.
        But, more importantly, I think it will be helpful for a
    lender because, finally, we are moving the public housing
    portfolio to a tried and true real estate platform, as opposed
    to something that is just a little bit different, which means
    you have to be a bit of a contortionist to be able to
    understand and to do a product.
        So this will be more straightforward. It will be in the
    norm, in the mainstream. And it is not any riskier than
    anything else that is underwritten.
        Chairwoman Biggert. So, probably, one of the things that
    would be most essential for you is that it really is the intent
    of RAD to connect private capital with the development and
    rehabilitation of PHAs.
        Ms. Henriquez. It is absolutely essential. We need to
    figure out how to preserve for the longer term the investment
    the taxpayer has already made. We need to do it with other
    private capital, because, clearly, the need and the level of
    renovation that is required for the long-term preservation
    cannot simply be met with today's dollars and annual
    allocations and appropriations.
        Chairwoman Biggert. Thank you.
        Mr. Guerrero, you talked about already having private
    sources for doing the Section 8. In your experience, is
    maintaining and administering public housing more or less
    expensive than Section 8 voucher programs that you also
    administer?
        Mr. Guerrero. Thank you for the question, Madam Chairwoman.
        I think that, over time, there is an equalization that
    happens in terms of the cost of the two. There is certainly--
    the challenge with the public housing portfolio is that the
    capital funding tends to come in large, one-time grants. The
    annual appropriation is often minimally sufficient to maintain
    the properties but not to recapitalize them. Whereas, with a
    Section 8 contract, the contract rents, when set at fair market
    rents, have been sufficient to cover the operations, the
    upkeep, and the debt service that we need, when needed, to
    recapitalize a property.
        So it is certainly more predictable funding with the
    Section 8 contracts than with the public housing.
        Chairwoman Biggert. Is there a difference in size? In the
    past, in Chicago, we have had the Cabrini-Green and the Robert
    Taylor Homes, which were huge. And that has all changed now, to
    a lot smaller public housing. Is there a difference in using
    voucher 8 or the public housing, is there a difference in just
    what they look like?
        Mr. Guerrero. No. I think, certainly from the Denver
    Housing Authority's experience, our portfolio is very diverse.
    We have everything from single-family homes that are public
    housing units, fourplexes, duplexes, to 100-unit mid-rises,
    and, sort of, everything in between.
        And so, I think that is why this demonstration program is
    important, because it creates another option. It is not going
    to be the solution for every housing authority; it is not going
    to be the solution for every property.
        Chairwoman Biggert. Great. Thank you.
        Mr. Hydinger, as a private developer, and others as well as
    your organization, do you have a real desire to engage in the
    activities detailed under the RAD proposal?
        Mr. Hydinger. Thank you for the question.
        Yes, I think when the plan is finalized, I would imagine it
    would mirror many of the attributes of the Low-Income Housing
    Tax Credit program. As long as project-based Section 8 is in
    the plan in the final analysis, I think that is paramount to
    its success, and without that, you will not be able to get
    these projects underwritten in the private sector. And not only
    that, it will have to be a long-term project-based Section 8
    contract. These are two things that run together. A 3-year
    commitment will not do it. It is going to need to be more in
    line with a 20-year committee.
        Chairwoman Biggert. 20 years?
        Mr. Hydinger. And then just the regular real estate is
    going to have to be underwritten in a classic real estate
    sense.
        So, yes, I am. I think, as was just mentioned with Mr.
    Guerrero, that there are certain properties this will work very
    well with, and I think those are the properties in some of the
    smaller PHAs that a lot of private developers would be able to
    assist greatly.
        Chairwoman Biggert. Thank you.
        And my time has expired. Mr. Gutierrez, you are recognized
    for 5 minutes.
        Mr. Gutierrez. Thank you very much.
        I want to ask you a couple of questions just in
    relationship because--I thank the gentlelady for raising
    Cabrini-Green and Robert Taylor Homes, because one of the
    arguments was that there were too many people concentrated in
    too small an area. When Cabrini-Green became a very exclusive
    part of the City of Chicago, they had replacement housing. Now,
    when I travel through what was once Cabrini-Green, I don't see
    the same number of tenants or the same number of housing units
    that it replaced. That is to say, there were hundreds, if not
    thousands, of units that have not been replaced. People have
    been given Section 8 vouchers, or other kinds. And so, if we
    end the Section 8 voucher system--which there always seems to
    be problems in terms of funding and expanding and where people
    are going to get housing.
        As I look at that--and you can go by, what is it, the house
    that Michael Jordan built on the west side of the City of
    Chicago. Nobody really thought of that as land that people
    would want and a community where people would want to create a
    community, right? But people were creating a community there
    and living there, so they tore it down. I just don't see the
    replacement housing for the people who once lived there.
        Given that, Ms. Henriquez, what do you think? Is this
    program going to lead us to less responsibility on the part of
    government to provide housing and just a transition from public
    housing to no housing?
        Ms. Henriquez. First, I would say it is not a transition
    from public housing to no housing. The whole point is to
    preserve the existing housing, and we think eventually we will
    be given the ability to create more housing. The demand has not
    lessened, and I don't think our responsibility has lessened
    either.
        It is important to know that one of the things this--one of
    the lessons we hope to learn in this demonstration is what
    works. What works in Chicago does not work in Boston where I am
    from, and does not work in Denver where Ismael is from. And so,
    it is local strategies, it is to figure out what works in the
    community, and to reconnect that public housing into the
    landscape and the portfolio and the life of that neighborhood
    to make it a community asset. It is to stabilize for the longer
    term how that property performs, because if we don't have that
    property performing, it can't serve its mission to house low-
    income people. And these are tools--
        Mr. Gutierrez. Then I guess I will look forward to seeing
    how the demonstration project--I believe you, and I don't
    question your authenticity and that you are coming to tell us
    exactly that those are your goals. You can almost take the
    words that you have just spoken and add them to programs where
    the housing has disappeared. As they said, the goal was to
    improve it.
        In Chicago, even the consent decree, the Gautreaux consent
    decree, took poor black families and moved them into poor
    Latino neighborhoods, concentrating poverty once again, and
    taking a 25-by-125, 25-foot-wide-by-100, and putting 6 units
    into it, with the goal of, ``We are going to build scattered-
    site housing.'' So I can take you to scattered-site housing
    that replaced it, and I assure you that in many instances,
    unfortunately, the quality of life of the people that the goal
    was for just didn't happen.
        I hope that we can work really hard to figure out--because
    I know that is your goal and that is your mission and that is
    your passion, to get there. I am just sharing with you, as a
    person who shares your goals and passion.
        Ms. Henriquez. If I might, again, it is important, that is
    why we have proposed this as a demonstration: to see what does
    work; how it works; if there are lessons that send us back to
    the drawing table, to see exactly what we are doing before we
    suggest taking it to scale.
        Mr. Gutierrez. So, Mr. Guerrero, what do you think the
    long-term impact, positive impact of this, what we are doing as
    a test program today, could possibly benefit in Denver?
        Mr. Guerrero. Certainly, as Ms. Henriquez said, local
    markets are different. I am from Chicago originally, so I am
    certainly familiar with what has happened there, and I can tell
    you that in Denver, it is certainly a different situation and a
    different solution.
        Our interest and our support for the program is that we see
    this primarily as a preservation initiative, where this would
    allow us to convert one unit from one type of subsidy to
    another type of subsidy, with the goal of preserving that unit
    in perpetuity, as long as we are in the ownership structure, as
    an affordable housing unit.
        And we have been successful in Denver in our HOPE VI
    development to do one-for-one on-site replacement through the
    HOPE VI effort. Again, we have a local--a different situation
    there, where we started with lower-density housing and were
    able to increase the density of what was there before, but
    always with the goal of preservation. So we certainly see that
    as a benefit here.
        We do think there will be needs, and we have seen examples
    and have examples in Denver where we might want to reposition
    some units. As Mr. Hydinger said, not all units as they exist
    today are necessarily the most efficient place to have the
    affordable housing. So we certainly would look, in some parts
    of our portfolio, still to replace the units but not
    necessarily on-site; try to find more efficient ways to create
    the housing, both more sustainable, better designs, better able
    to serve the needs of the residents.
        Mr. Gutierrez. Thank you so much.
        Thank you, witnesses.
        Chairwoman Biggert. Thank you.
        Okay. The vice chair of the subcommittee, Mr. Hurt from
    Virginia, is recognized for 5 minutes.
        Mr. Hurt. Thank you, Madam Chairwoman, and thank you for
    holding this hearing.
        Obviously, we are facing--and I want to thank each of you
    for being here today and providing information to this
    committee about this proposal.
        Obviously, here in Washington, we face unprecedented
    challenges in balancing our budget. Obviously, the greatest
    concern I think that we have is, how do we do more with less?
    We are borrowing 40 cents on every dollar that we spend. So,
    obviously, things like this, what I would call market-oriented
    proposals like this, I think are the order of the day. And so I
    appreciate what you all have provided to us in explaining it.
        I guess what I would like to know--Ms. Henriquez, maybe I
    could start with you? It seems to me that anytime you have a
    demonstration, anytime you have something that is sort of a
    test, you want to be able to measure its success. And I was
    wondering if you could talk a little bit about how you see us
    benchmarking this. How do you measure the success of the
    program?
        Obviously, I understand that we have capital needs that are
    significant. You have monetary needs that are significant. And
    I guess if we could just write a check for whatever we wanted
    to, we could solve all these problems, but that is not what we
    can do.
        So I was wondering if you could talk about exactly what it
    is that will be a measure of success for this program, in as
    much as it is a demonstration.
        Ms. Henriquez. First and foremost, I think one perspective
    is that the success is that the housing is stabilized and
    preserved so that it serves the people that we care the most
    about and so that residents are not harmed, residents are not
    having to leave their homes and their communities because of
    difficult conditions in their housing. So that is what
    undergirds all of this.
        I would say another test of success is the willingness of
    the private sector to invest. And we have seen in the past 30
    years that they have been quite willing to invest in these
    kinds of properties.
        And I think the other test is, once that investment is made
    and housing authorities really have stepped up and improved the
    physical plant, the capital plant, how that property performs.
    Because, as I said earlier, the underlining remains the same.
    The property has to perform in that financial market arena the
    way any other property would have to perform, and yet continue
    on, also, to serve the people it is meant to serve.
        I think those are tests. I think we see what the appetite
    is in the free market as we put more and more of these deals
    together. And as housing authorities decide what works for
    themselves, we are asking them then also to be very judicious
    and to evaluate and monitor what they have done, how they work
    with their residents, to make sure this demonstration rolls out
    well and smoothly and what are the benchmarks.
        So we are asking the financial community to look to make
    sure it performs and they are okay. We are asking residents to
    look at how they feel this process is going. And everyone who
    touches that process will have to help inform how well this
    demonstration has performed.
        Mr. Hurt. I appreciate that. And I also appreciate,
    obviously, your commitment, the commitment, it seems, of each
    of you who are in this business, to providing good housing for
    people who need assistance.
        But I guess what I didn't hear there and wonder if you
    could elaborate on is, do you think that we end up saving money
    doing this? If you are looking out for the taxpayer, if you are
    trying to look at it from that standpoint, it seems to me that
    would be a--
        Ms. Henriquez. Undoubtedly.
        Mr. Hurt. --worthy goal, right?
        Ms. Henriquez. It is. As I said earlier in my testimony, we
    really want to preserve the taxpayers' 75-year investment
    moving forward. It needs to be preserved, but it is a pace and
    a need, a level of funding that can't be matched and is not
    being matched year after year. And so, yes--
        Mr. Hurt. Here in Washington?
        Ms. Henriquez. Here in Washington.
        Mr. Hurt. Right.
        Ms. Henriquez. So, therefore, having investment income,
    private equity coming into these properties really does save,
    overall, the Federal Government. It helps partner public and
    private money together. With the bulk of that, you have heard--
    in the HOPE VI program, for example, we are leveraging not just
    dollar for dollar, generally $2 of private equity for every
    dollar of Federal money. In some instances, in some
    communities, that leverage may be three, four, sometimes as
    much as eight to one. And as those economics bear out, the
    savings are generally there. They are front and foremost.
        Mr. Hurt. Thank you very much. That answered my question.
        That is my time. Thank you.
        Chairwoman Biggert. The gentleman from Missouri, Mr. Clay,
    is recognized for 5 minutes.
        Mr. Clay. Thank you, Madam Chairwoman, and I thank the
    witnesses for being here today.
        Let me ask you just a few things about this proposal, and
    anyone on the panel can take a stab at it.
        How will the PHAs and HUD address this displacement of
    tenants when rehabbing of units occurs? Has anyone thought
    about a plan for that?
        Let's start here. Mr. Elsesser?
        Mr. Elsesser. Thank you for the question, Mr. Clay.
        I think that the temporary displacement during
    rehabilitation is a really important question. I think HUD does
    have in place rules and requirements for the counseling and the
    displacement of tenants. I think that is a vital part of it.
        And I think it is not a question of the necessity of
    putting that in this proposal so much as enforcing the rules
    that already exist. You want to make sure that the tenants have
    a place to go, that they receive counseling before they move,
    and that if they want to remain offsite, they can remain
    offsite, and that they do have a right to return.
        One of the important features of this proposal that has
    been missing sometimes in the past is, if the tenants do want
    to return, they have a right to return without having to go
    through an entire rescreening process.
        Mr. Clay. And that will remain in place under this
    proposal?
        Mr. Elsesser. That would allow them to come back to the
    units and not to apply as if they were, sort of, just coming in
    off the street.
        Mr. Clay. Okay.
        Mr. Guerrero, anything to add?
        Mr. Guerrero. If I may provide a perspective from the
    Housing Authority, we have certainly learned in Denver that for
    the sake of the families, it is much better to do phased
    development versus wholesale redevelopment, where you displace
    the entire community for a longer period of time.
        And we have been successful on two different occasions in
    doing the redevelopment in phases, where we are moving a
    portion of the community out for a shorter period of time and
    then rotating through the rehab process, so that over time
    families are moving from one unit to another, staying in their
    communities, staying close to their support networks and to
    their other family members, rather than being relocated for an
    extended period of time, where they get disconnected from the
    community. And we have had success both in public housing and
    in the Section 8 rehab with that.
        Mr. Clay. Okay.
        Ms. Henriquez--Secretary?
        Ms. Henriquez. It is absolutely essential that tenant
    rights carry over, that tenants have the ability to participate
    meaningfully in the conversion discussions at a housing
    authority before they even apply for a conversion, and that
    they are consulted in a meaningful way throughout the entire
    process, and that includes relocation, relocation rights, their
    ability to return.
        My expectation is that housing authorities, in so doing,
    will actually work with residents, both with a broad relocation
    policy and then tailor individual relocation plans, baskets of
    services, around each family as they transition offsite, make
    their decisions about their right to return.
        This is not about gentrification; it is about bringing
    people back to their community in a stable way.
        Mr. Clay. Okay.
        I am going to ask you and Mr. Hydinger a separate question
    about tenant environment. Will those who live in and around
    these public housing facilities be able to participate in a
    meaningful way, especially those who are chronically unemployed
    and those who qualify under Section 3, be eligible to work on
    these projects? Is there some kind of plan that you have
    considered to actually create employment opportunities for the
    people?
        Ms. Henriquez. Section 3 is a requirement for all public
    housing authorities. So as they move forward in the development
    of their construction plans, hiring their contractors and so on
    to do the work, it is fully our expectation--and we will be
    monitoring--that residents both of the public housing
    development that is being preserved as well people who are
    similarly situated in the community have an opportunity to
    participate in employment moving forward as those properties
    get redeveloped.
        Mr. Clay. Mr. Hydinger, being a developer, do you involve
    Section-3-eligible employees in your developments now?
        Mr. Hydinger. What we do is we encourage the general
    contractors to hire from the property as much as possible. And
    when that is possible, there is a certain pride of ownership
    that comes with that. And we have been successful, seeing that
    occur from time to time.
        It is--I will not embellish it. It does not happen as often
    as we would like--
        Mr. Clay. Sure.
        Mr. Hydinger. --but it does happen. And I think it is a
    success every time it does occur.
        Mr. Clay. It should occur more often, shouldn't it?
        Mr. Hydinger. If the person who is applying is able and
    willing to work, absolutely.
        Mr. Clay. My time is up. Thank you.
        Chairwoman Biggert. The gentleman's time has expired.
        The gentleman from Missouri is recognized.
        Mr. Cleaver. Which one?
        Chairwoman Biggert. Mr. Cleaver?
        Mr. Cleaver. Thank you, Madam Chairwoman.
        Chairwoman Biggert. I am not calling on Mr. Clay again
    until we have--
        Mr. Cleaver. Thank you, Madam Chairwoman.
        The Rental Assistance Program that my colleague, our
    colleague introduced a few months ago--and I had a chance to
    talk with him for just a few moments before coming in--Mr.
    Ellison, is something that I support wholeheartedly. I am one
    of the cosponsors.
        But I have some questions for you, Ms. Henriquez. If public
    housing authorities are actually able to hold debt, does that
    not create the opportunity for foreclosure?
        Ms. Henriquez. Whenever any entity holds debt, there is an
    opportunity for foreclosure. We have 30 years, thus far, of
    practice with proven, safe tools on financing that we really on
    that will carry forward in this demonstration. And over that
    30-year history, we have learned, for example, that on the
    multifamily side, the default rate, if you will, is less than
    half of 1 percent. Even in the current fiscal environment, it
    is very, very, very small.
        In addition, the way in which this demonstration is
    constructed, that even if there should be, by some slim chance
    there should be a foreclosure or a default, all of the use-
    agreement restrictions carry forward. Tenant protection rights
    are still in place. Long-term affordability is still in place.
    And so the purpose of the housing remains, the affordability
    remains, and we have the ability then to have that property,
    with the use agreements in place, picked up by another not-for-
    profit or public sector entity, another housing authority. The
    Secretary has the ability to make that change in ownership,
    always underlined by the long-term affordability and the tenant
    protections going forward.
        Mr. Cleaver. I can say of this project what I used to say,
    and I will change it, modify it. I would say, McDonald's is the
    only entity I have known not to go bankrupt or go into default.
    So we can now add public housing authorities.
        Ms. Henriquez. I don't see them going into default.
        Mr. Cleaver. Okay. I am okay with it.
        The other concern is maybe more significant--a more
    significant concern is, if you have seen the HUD appropriations
    markup, the marked-up House and Senate--you are not getting
    what you asked for. So my concern is, if you ask for $200
    million and you get--I don't know what--you are not getting
    what you asked for. So what does that do to the program?
        Ms. Henriquez. We think the program is important. It
    provides a direction, a blueprint for us to model, to move
    forward. So if we are not getting what we asked for, we need to
    then scale the program.
        Mr. Cleaver. I know--
        Ms. Henriquez. In addition--I am sorry. In addition, what
    we have said is we have seen the Senate mark on this, asking us
    to look at a no-cost demonstration. We would support this
    committee looking at that option as well. And we are prepared
    still to go forward with a demonstration at a no-cost proposal
    because we think that the direction is absolutely a sound one.
    It is what is needed for this portfolio. In the longer term,
    there are lessons for us to learn and then to take it to scale
    over time.
        Mr. Cleaver. I want to talk to you further about that,
    because I don't want the failure for the Senate and the House
    to give sufficient money for the demonstration and then end up
    in this subcommittee hearing again with people complaining that
    the demonstration was far too imperfect.
        We can talk, because I need to ask one more question, Madam
    Chairwoman, and I will do it very quickly. I am concerned with
    making sure that the demonstration project doesn't result in a
    loss of units, that we still have the one-for-one.
        Ms. Henriquez. What we will have is in most circumstances,
    we will probably have one for one. I think I would say to you,
    though, that in limited circumstances, given market conditions,
    that indeed there may be some other ways to come at that
    replacement housing in a community. But for the most part, we
    are looking not to lose units in this preservation strategy.
        Mr. Cleaver. Thank you, Madam Chairwoman.
        Chairwoman Biggert. Thank you. The gentleman from Minnesota
    is recognized for 5 minutes.
        Mr. Ellison. Thank you, Madam Chairwoman. I am going to ask
    you a question, a general question about housing, low-income
    affordable housing. For people who make, like, 30 percent of
    the median income in a given area, would you say the housing
    options for them are plentiful or scarce? How would you
    characterize that?
        Ms. Henriquez. Are you asking me?
        Mr. Ellison. Anybody. I am actually asking anybody.
        Ms. Henriquez. I think that it is difficult, that the
    demand far exceeds the supply, and that there are fewer and
    fewer options available unless families--when you start
    thinking about transportation costs and housing costs--are
    paying in excess of 50 percent of disposable income on those
    two commodities alone.
        Mr. Ellison. Has the foreclosure crisis, the way it affects
    not only homeowners but also tenants--because, of course,
    landlords get foreclosed on too--has this exacerbated the
    pressure on low-income affordable housing or has it eased it?
        Ms. Henriquez. It has exacerbated it in a number of ways.
    One, we are finding that the normal turnover time, the people
    come in, stay, and then move out through their own choice--the
    people are staying longer. We are finding that people are
    poorer as they come into the program, and we find that both on
    the voucher program and on the public housing program that
    people are, I think, eager for more and more economic self-
    sufficiency and want to get themselves prepared, but it is
    tough fiscal times for the very poor.
        Mr. Ellison. Based on the history of Congress appropriating
    money for maintenance of assets of public housing, do you think
    that we have a realistic chance of ever getting the $26 billion
    in maintenance needs that exist right now as an appropriation?
        Ms. Henriquez. I want to put my former hat on when I answer
    this question. For 13 years, I ran the Boston Housing
    Authority. As a former executive director, I would say if there
    is the political will to do that in this country, we can do
    anything that we put our minds to.
        Mr. Ellison. Based on history, do you see it coming up?
        Ms. Henriquez. Given the history and the trend, I don't see
    that happening. And that is why it is vitally important that we
    look to this rental assistance demonstration. We are being
    realistic about the current financial times we are in. We are
    being realistic about the need for us, both at HUD as an asset
    manager and for housing authorities, to be good landlords. And
    in part, a large part of that being a good landlord is
    providing the kind of safe, affordable, decent housing that
    meets code and expectations in local communities--
        Mr. Ellison. Thank you.
        I would like to open this question up to everybody. When I
    introduced the bill that is similar to this one--this is a
    demonstration bill; I had a bill that was more broad-based. I
    am a hardcore believer in public housing. I think it is a very
    important program. But some of my friends say, are you trying
    to help folks privatize public housing? And I said, absolutely
    not. This is a way to get some lights on and some fixtures, and
    this place to be a better place. But how do you respond to that
    criticism that this could end up being a provision of public
    housing? How do you react to that particular criticism? And I
    would invite anyone to respond.
        Mr. Elsesser. Mr. Ellison, if I might. I have worked with
    many people around your bill on a continuing discussion--the
    coalition--the continuing discussion since that time about that
    very subject. And I can agree with you that there is a lot of
    concern among residents who saw a major loss of housing through
    HOPE VI and other events like that. And we are very fearful of
    anything.
        And I think the Secretary and the Assistant Secretary, to
    their credit, reached out, and through your bill in addition,
    reached out and worked very hard with people. And I think this
    bill is a result of that working to both try to incorporate
    protections to the greatest extent possible, from the public
    housing side to allay those fears. And at the same time, a
    realization amongst the residents that the status quo is not
    working; that the status quo does not mean we are not losing
    housing; we are losing housing. So we have to do something. And
    I think both of those things have come together, and I think
    that is why there is such support for this proposal.
        Mr. Ellison. I think we have it--if we are not done--
        Mr. Guerrero. I would like to add something.
        Chairwoman Biggert. One more.
        Mr. Ellison. Thank you.
        Mr. Guerrero. I think--two points, I guess I would make to
    your question. One is that when you only think about serving
    families through subsidized housing, we should look at it not
    exclusively through whether it is public housing or Section 8
    or so forth, but are we serving the most families at the lowest
    incomes for the longest period of time in whatever form that
    may take. I don't see a shift from public housing to project-
    based Section 8 subsidies as a loss of units in any way,
    because recently our experience is that we are serving the same
    number of families with the same incomes for the same periods
    of time, if not more.
        The other thought I would put out there for consideration
    is that it is not necessarily a cost-savings strategy, but
    maybe a better return-on-investment strategy, where today $1 of
    capital fund gets you, just for example, $1 of improvement. But
    our experience I think is a dollar of Section 8 half rent might
    get us $2 of capital improvements because we are able to
    leverage that more effectively in the private sector through
    loans and through equity.
        Mr. Ellison. Thank you, sir. Thank you, Madam Chairwoman.
        Chairwoman Biggert. Thank you. And I would have just a
    couple of questions with hopefully short answers.
        But first of all, Mr. Guerrero, you talk about the local
    decision making. And it seems like you have been doing Moving
    to Work. Are you part of that?
        Mr. Guerrero. We are not a Moving to Work--we would like to
    be a Moving to Work agency.
        Chairwoman Biggert. Do you think Moving to Work would
    provide the flexibility and local decision-making and
    innovative financial methods you have described in the public
    housing authorities in order to develop the local solutions? Do
    you think this is really part of what we are talking about?
        Mr. Guerrero. Absolutely. I think the flexibility, the
    ability to craft solutions locally with not only our residents
    but our local elected officials, local community stakeholders,
    is invaluable in that the option should be there for more
    housing authorities than currently have the designation. I
    think there are a lot of lessons learned already and best
    practices for Moving to Work that can be mainstreamed and
    regulatory relief that can be implemented now to give us more
    flexibility than we have, yes.
        Chairwoman Biggert. Okay. And then, Ms. Henriquez, how were
    participants in the multifamily and affordable housing
    developer community consulted during the development of RAD?
        Ms. Henriquez. Much like we did in the public housing side.
    My colleagues on the multifamily side, we had stakeholder
    convenings, we have had some with housing authorities, we had
    some with multifamily owners. There was a lot of outreach
    through State housing finance agencies. There was a working
    committee that was put together so that the issues that they
    would raise that might be particular to a multifamily owner
    were addressed and talked about, and how did those line up with
    where public housing authorities might be. So we really put
    people together in lots of different ways to have this
    conversation.
        Chairwoman Biggert. How did you find out about this, Mr.
    Hydinger?
        Mr. Hydinger. I was called and asked some questions, and,
    through a series of conversations, asked for my input. Would
    private capital, private investors, developers, etc., be
    welcomed to the program? And, frankly, I said no, not the way
    it was written right now. I hope that it will be. And I would
    like to just say that private is not bad. It really isn't. Lots
    of people own affordable housing that are private developers
    and private owners, and they do quite well and they are
    governed by HUD. So Halloween is over, the bogeyman about the
    private sector is not all bad. I just want to be sure that we
    keep that in mind. But I do appreciate the input.
        Chairwoman Biggert. Thank you.
        And then, Ms. Henriquez, how does HUD intend to analyze the
    outcomes of the demonstration? What are the next steps that HUD
    is contemplating once you are able to observe the outcomes of
    RAD? And how long will it take for the demonstration to provide
    adequate data for an analysis?
        Ms. Henriquez. I think we are probably talking as a
    demonstration for several years because we really do want both
    housing authorities and their residents to be thoughtful about
    what they are proposing, which properties they are thinking
    about bringing in and how they are going to do that, number
    one. They also have to put together physical plans about how
    they are going to use the capital dollars, how they are going
    to get into the marketplace, whether they are going to use
    commercial financing, whether they are going to use tax
    credits. All of that is a local decision that housing
    authorities, their communities, and their residents need to
    talk about.
        Once that happens and there is an application and people
    voluntarily decide what this program means and what it is going
    to look like for them at the local level, by the time we think
    that they get the plans in place, they get the funding in place
    and their financing straightened out and actually begin the
    work--relocation of residents, actually doing the physical
    work, moving people back in--that is a multiyear process. We
    want to look at along the way what is going on, what those
    impacts are both on residents and on the housing authority and
    on the financial community.
        So I think we are looking at several years before we really
    get a body of work to assess and then make some judgments about
    growing the program and the lessons learned, and coming back to
    have conversations with all of you as well about those lessons
    learned before we take the next step.
        Chairwoman Biggert. Thank you. Do any of you recommend any
    improvements or modifications or further considerations
    considering RAD at this time? I guess not. So it sounds like
    you are all willing and able to do that.
        Ms. Henriquez, were you in charge of bringing all of these
    shareholders, stakeholders I should say, together to come up
    with RAD?
        Ms. Henriquez. In charge of. So, working with--
        Chairwoman Biggert. I am just wondering where this idea all
    came from.
        Ms. Henriquez. We have had several iterations of a bill in
    the past 18 months or so. We heard lots of conversations, and
    so a lot of times as we talked about this--there is a group at
    HUD, it is collaborative. It is in the multifamily side as well
    as the public housing side, and we jointly sort of ran this
    program and these ideas. And so Carol Galante and I were co-
    conveners. We have staff who worked with each other as well.
    And we have just been running this to ground. We have people
    actually doing lots of--and some of them are here behind me--
    actually running numbers, looking at permutations, trying to
    figure out strategies, looking at the environment, just
    everything. And then listening to residents and housing
    authorities, from lenders about this works, this might not, and
    really running to ground. And then we really had a group of
    people come and say, we think it could work this way; what do
    you think, HUD? We have talked about that. And so, what you see
    is where we are with this demonstration now.
        Chairwoman Biggert. Thank you. And thank you for initiating
    such a deliberative process. That is what we are working to do
    with--to develop Section 8 as well. I really appreciate all of
    your work. Are there any other questions? Mr. Hurt?
        Thank you. And I would ask unanimous consent to insert the
    following material into the record: an October 11, 2011, letter
    from the U.S. Department of Housing and Urban Development; an
    October 31, 2011, letter from the Housing Assistance Council; a
    September 14, 2011, letter from the Coalition of Housing
    Industries; and a November 2, 2011, letter from the National
    Association of Housing and Redevelopment Officials.
        And without objection, all Members' opening statements will
    be made a part of the record. The Chair notes that some Members
    may have additional questions for this panel which they may
    wish to submit in writing. Without objection, the hearing
    record will remain open for 30 days for Members to submit
    written questions to these witnesses and to place their
    responses in the record.
        And I would like to thank you all. I think this has been a
    great hearing and it has given us a lot of information. And I
    hope that we really can move ahead with this. This is such an
    important issue. And thank you all for being here. With that,
    this hearing is adjourned.
        [Whereupon, at 4:12 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                November 3, 2011

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