[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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