[Senate Hearing 112-]
[From the U.S. Government Publishing Office]







 
TRANSPORTATION AND HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES 
                  APPROPRIATIONS FOR FISCAL YEAR 2012

                              ----------                              


                        THURSDAY, MARCH 3, 2011

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:01 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Patty Murray (chairman) presiding.
    Present: Senators Murray, Pryor, Collins, and Blunt.

              DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                        Office of the Secretary

STATEMENT OF HON. SHAUN DONOVAN, SECRETARY


               opening statement of senator patty murray


    Senator Murray. Good morning. This subcommittee will come 
to order.
    Good morning, Mr. Secretary, and we are delighted to have 
you here. We are holding our first hearing this year on the 
Department of Housing and Urban Development's (HUD) budget for 
the fiscal year 2012.
    Today is also the first hearing with our new ranking 
member, Senator Collins. She and I have worked together over 
the years on many issues from women's health to veterans and 
particularly on the critical issue of port security. So she is 
a great partner. I know she works very hard to get results and 
demonstrates dedication to both her State and to very good 
policy for this country. So it is a delight to have you join 
us.
    Senator Collins. Thank you.
    Senator Murray. I also want to recognize one of our new 
members, Senator Blunt, who is with us as well. We have got a 
number of new members on this subcommittee, and we look forward 
to working with all of them.
    And Secretary Donovan, I want to welcome you back to this 
subcommittee as well to talk about your Department's budget 
request and housing policy and the condition of the housing 
market.
    The subject of today is HUD's budget for fiscal year 2012. 
Yet, even as we sit here, about halfway through the fiscal 
year, the Federal Government still lacks a final budget for 
fiscal year 2011. We are continuing to debate the budget as 
millions of families and communities across our country are 
waiting anxiously to hear about the fate of the programs that 
they really depend on.
    There is a lot of discussion in the country today about the 
deficit and the fiscal health of our Nation, and that debate is 
very critical. We have got to tackle the deficit and we have 
got to make sure our children and our grandchildren are not 
forced to bear the burden of overwhelming debt. So we are going 
to have to make some very tough decisions. And as we work to 
cut that spending, we have got to make sure we do not do 
anything that will impact our economic recovery at the same 
time, and make sure that as a country we are continuing to make 
the investments that are necessary to strengthen our 
communities and remain competitive.
    And finally, I just want to say that we cannot continue to 
focus all of our attention on this one small part of the 
budget, the discretionary domestic spending. It is, I think, a 
very short-sighted approach and will not get us to where we 
need to be in correcting our Nation's fiscal imbalance.
    I am concerned about the House budget that was passed. For 
example, they eliminated the new HUD-Veterans Affairs 
Supportive Housing (VASH) vouchers, something that I am very 
passionate about that provides housing and case management to 
our homeless veterans, and it has literally taken veterans off 
our street that I have talked to. I know that this makes a huge 
impact in putting them into permanent housing. It really is a 
model program, bringing together two big agencies, HUD and the 
Department of Veterans Affairs (VA), to use their resources 
effectively together. And I am impressed that research has 
proven that permanent supportive housing like this really saves 
taxpayers money, because it reduces the prevalence of more 
expensive outcomes like emergency rooms or the judicial system.
    So we have to make our decisions wisely as we move forward 
on the fiscal year 2012 budget, and I look forward to working 
with this subcommittee to do that.
    The topic of housing is a fitting way to begin our 
discussion on the budget for fiscal year 2012 since it is 
critical to the financial security of families and our Nation's 
economy. We learned these lessons all too well during the 
housing boom and bust. The overconfidence of lenders and 
investors, and the perpetual appreciation of home prices 
coupled with inadequate regulatory oversight really fueled that 
boom, and that market's fall has devastated families and 
neighborhoods and, of course, our economy. Millions of 
Americans have lost their homes and many more who did not 
participate directly in the market run-up have seen their 
wealth eroded as their home values have declined.
    I recently held a roundtable discussion in Seattle and 
heard story after story after story from families who had been 
devastated by foreclosure. They had done the right thing. They 
found themselves in trouble, were trying to work within the 
system and the programs that we have put out there to modify 
their home loans, and again and again they were getting the 
run-around from everyone. That is not right, and the sloppiness 
and incapacity of some of our servicers are now today causing 
some even greater strain on families as they try to recover.
    We also recently learned that military families have been 
overcharged fees and even foreclosed upon despite the 
protections that we do have in place for them through the 
Servicemembers Civil Relief Act. I know that banks are now 
trying to step up to the plate and do this right, and I 
appreciate them doing that. But a lot has to change and we have 
got a lot of work ahead of us. So I want to take some time to 
talk with you about the steps that can be taken today to make 
sure that our families are getting through this process and 
treated fairly.
    As we work to solve these problems for our families, we 
also need to think about the future of the housing finance 
system and make sure we avoid another situation that would 
require taxpayer dollars to cover private-sector losses, as has 
been the case with the Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation 
(Freddie Mac). The Dodd-Frank Wall Street Reform and Consumer 
Protection Act addressed many of the failures of our system and 
the regulatory structure, but that was just the beginning. We 
have to address Fannie Mae and Freddie Mac so we no longer 
promote a system of private profits and public loss. But we 
have to do it carefully so we do not undermine the fragile 
housing recovery or make home ownership unaffordable to many 
Americans.
    I know the administration recently released its report to 
the Congress on options for reforming the Nation's housing 
finance structure. Each of those options offers tradeoffs that 
we are going to have to consider carefully--tradeoffs between 
the level of appropriate risk for the taxpayer, and the 
Government's presence in the marketplace, and the ability of 
Americans to obtain a mortgage. So I expect to hear more from 
you on that as well today.
    While we continue to address the Nation's housing market, 
we have to also remain focused on HUD's core programs. The 
President's budget for fiscal year 2012 includes program 
funding of $47.8 billion. That level of funding is offset by 
the Federal Housing Administration (FHA) and the Government 
National Mortgage Association (Ginnie Mae) receipts for a total 
request for new funding of $41.7 billion, 2.8 percent less than 
the fiscal year 2010 levels.
    The President's budget continues to prioritize maintaining 
housing for our Nation's most vulnerable with his request for 
the Section 8 voucher program, project-based Section 8, public 
housing, and the renewal of homeless projects, and that is a 
goal most of us share. Yet, this funding represents nearly 75 
percent of HUD's total budget, which is why dramatic cuts to 
HUD's total budget could devastate other programs that also 
provide critical services to vulnerable Americans or result in 
the loss of public housing units that cannot be maintained. 
Investments in programs like the Community Development Block 
Grant (CDBG) program, which attracts new businesses to our 
communities and provides critical access and creates jobs; the 
new Homelessness Prevention and Rapid Rehousing Program; the 
Sustainable Communities Initiative, which helps our communities 
make smarter decisions about their investments--all of these 
are really important to our future.
    So, today, I have a number of questions for you, Mr. 
Secretary. I am concerned about the troubled housing 
authorities. These public housing authorities (PHAs) represent 
only a small portion, as we know, of all the PHAs, but we 
cannot ignore them, and we have to demand accountability.
    So I will have a number of questions as we move forward, 
and I will submit my entire statement for the record. I know 
what we face ahead of us is very challenging.
    I am going to turn to my counterpart, Senator Collins, for 
her opening statement, and to our members who I know have some 
opening statements as well, and to your opening statement.


                          prepared statements


    I have been called to an emergency meeting, if you will, 
for working on our final budget proposal that we have got to 
get through the Congress so people know where we are moving 
ahead. So, a little after 10:25 a.m., I am going to turn this 
over, with great confidence, to my ranking member, Senator 
Collins, to run this in a bipartisan fashion here this morning 
for all of our members to be able to open their questions.
    Also, Senator Kirk regrets that he couldn't be present, but 
he has submitted a statement for the record.
    But right now, I will turn it over to you, Senator Collins, 
for your opening statement.
    [The statements follow:]
               Prepared Statement of Senator Patty Murray
    This morning we are holding our first hearing of the year on the 
Department of Housing and Urban Development's (HUD) budget for fiscal 
year 2012.
    Today is also the first hearing with our new ranking member, 
Senator Collins. Senator Collins and I have worked together on many 
issues, from women's health to veterans and particularly on the 
critical issue of port security. She is a great partner, who works to 
get results and demonstrates dedication both to her State and to good 
policy. As a member of our subcommittee, she is familiar with the 
issues in our bill, and I look forward to working with her to meet our 
Nation's transportation and housing needs.
    We also have several new members of the subcommittee, and I look 
forward to getting their input as we develop the budget for fiscal year 
2012.
    Finally, I want to welcome Secretary Donovan back before our 
subcommittee to discuss his Department's budget request, our Nation's 
housing policy and the condition of the housing market.
    fiscal year 2011 and the house's year-long continuing resolution
    The subject of this hearing is HUD's budget for the fiscal year 
2012. Yet even as we sit here today--nearly halfway through the fiscal 
year--the Federal Government still lacks a final budget for fiscal year 
2011. The Congress continues to debate that budget as millions of 
families and communities across the country wait anxiously to learn the 
fate of the programs they depend upon.
    As we all know, there is a great deal of discussion today about the 
deficit and the fiscal health of our Nation. And this debate is 
critical. We need to tackle the deficit and make sure our children and 
grandchildren aren't forced to bear the burden for of overwhelming 
debt. We are going to have to make some tough decisions. But as we work 
to cut spending, we need to make sure we don't do anything to undermine 
our economic recovery.
    We also need to make sure that as a country, we are continuing to 
make the investments necessary to strengthen our communities and remain 
competitive in the future.
    And finally, we can't focus all of our attention on one small part 
of the budget--domestic discretionary spending. That's a short-sighted 
approach that won't get us where we need to be in correcting our 
Nation's fiscal imbalance.
    Unfortunately, the spending plan recently passed by House 
Republicans takes our country in the wrong direction. It threatens our 
economic recovery, slashes investments in our communities, and puts 
vulnerable Americans at risk.
    For example, the House Republican budget eliminates funding for new 
HUD-Veterans Affairs Supportive Housing (VASH) vouchers that provide 
housing and case management services to homeless veterans--a program 
that has literally taken veterans off the street and put them into 
permanent housing. This is a model program--it brings HUD and the 
Department of Veterans Affairs (VA) together to use their resources 
more effectively to achieve results. And research has proven that 
permanent supportive housing like this saves taxpayer money by reducing 
the prevalence of more expensive outcomes such as emergency rooms or 
the judicial system. But funding to continue this effort and meet the 
critical goal of ending homelessness among our veterans in 5 years was 
left on the cutting room floor in an effort to meet an arbitrary 
bottom-line.
    That's wrong. And it's just one example from a House Republican 
plan that focuses on short-term, slash-and-burn cuts--while neglecting 
a long-term plan for responsible deficit reduction that supports our 
economic recovery.
    So as we look at the fiscal year 2012 budget, I will be taking a 
different approach. I will be analyzing how taxpayer dollars can be 
invested most effectively to:
  --Continue our economic recovery;
  --Strengthen our communities;
  --Protect our most vulnerable families;
  --Get workers back on the job; and
  --Manage our Federal resources efficiently.
     the housing market and government-sponsored enterprise reform
    The topic of housing is a fitting way to begin our discussion on 
the budget for fiscal year 2012, since it is critical to the financial 
security of families and to our Nation's economy.
    We learned this lesson all too well during the housing boom and 
bust. The overconfidence of lenders and investors in the perpetual 
appreciation of home prices, coupled with inadequate regulatory 
oversight, fueled the boom--while the market's fall devastated 
families, neighborhoods and our economy. Millions of Americans have 
lost their homes, and millions more who didn't participate directly in 
the market run-up have nonetheless seen their wealth eroded as home 
values declined.
    I recently held a roundtable discussion in Seattle and heard story 
after story from families facing foreclosure. These families were doing 
the right thing. They found themselves in trouble but were working 
within the system to get a modification and save their homes. But again 
and again, they were getting the runaround from their banks.
    This is not right. The sloppiness and capacity challenges of 
servicers are causing even greater strain on families across the 
country. We have also learned that military families have been 
overcharged fees and even foreclosed upon despite protections granted 
to them by the Servicemembers Civil Relief Act. So, quite frankly, I am 
fed up. It seems to me that the problems have been clearly identified, 
and yet my constituents continue to face the same challenges. This 
needs to change. I want to talk with you about what steps can be taken 
to ensure that families going through this process are treated fairly 
by servicers.
    And as we work to solve these problems for our families, we also 
need to think about the future of the housing finance system and make 
sure we avoid another situation that would require taxpayer dollars to 
cover private-sector losses as has been the case with Fannie Mae and 
Freddie Mac. The Dodd-Frank Wall Street Reform and Consumer Protection 
Act addressed many of the failures of our system and the regulatory 
structure, but that was just the beginning.
    We must address Fannie Mae and Freddie Mac so we no longer promote 
a system of private profits and public loss. But we must approach this 
reform carefully so that we don't undermine the fragile housing 
recovery, or make home ownership unaffordable to most Americans.
    The administration recently released its report to the Congress on 
options for reforming the Nation's housing finance structure. Each of 
these options offers tradeoffs that we must consider--tradeoffs between 
the level of appropriate risk for the taxpayer and the Government's 
presence in the marketplace and the ability of Americans to obtain a 
mortgage. I expect that today you can discuss these tradeoffs so that 
we all approach this reform with our eyes wide open.
    budget request for hud's core programs and promising initiatives
    While we continue to address the Nation's housing market, we must 
also remain focused on HUD's core programs.
    The President's budget for fiscal year 2012 includes program 
funding of $47.8 billion. This level of funding is offset by the 
Federal Housing Administration and Ginnie Mae receipts, for a total 
request for new funding of $41.7 billion--2.8 percent less than the 
fiscal year 2010 levels.
    The President's budget continues to prioritize maintaining housing 
for our Nation's most vulnerable with his requests for the Section 8 
voucher program, project-based Section 8, public housing, and the 
renewal of homeless projects, a goal I think most of us share. Yet this 
funding represents nearly 75 percent of HUD's total budget, which is 
why dramatic cuts to HUD's total budget could devastate other programs 
that also provide critical services to vulnerable Americans, or result 
in the loss of public housing units that can't be maintained.
    Preserving core housing assistance programs may also reduce our 
ability to invest in initiatives that can improve outcomes for 
communities, strengthen our economy, or save money over the long-term--
investments in programs such as:
  --CDBG, which can help attract new businesses to communities, improve 
        access to critical services and create jobs; or
  --The new homelessness prevention and rapid re-housing programs, 
        which produce better outcomes for homeless families and are 
        more cost-effective than shelter stays; or
  --The Sustainable Communities Initiative, which can help communities 
        make smarter decisions about how and where to build housing and 
        transportation and better use HUD funding in the future.
                       oversight of hud programs
    Whether these programs are new or have been around for decades, we 
must demand that they achieve results and provide a return on our 
investments. That is why oversight is such a critical part of this 
subcommittee's work. So, today, I will have questions about the 
Department's management of its Section 8 and public housing programs. I 
am concerned about recent reports of troubled housing authorities.
    While these public housing authorities (PHAs) represent only a 
small portion of all PHAs, the issues surrounding them cannot be 
ignored.
    HUD must demand accountability from all of its grantees. And it is 
incumbent upon them to monitor the use of program resources, identify 
problems, and implement solutions before the problems become too large.
    I will also have questions about the budget request for technology 
investments. Improving HUD data is critical to effective oversight. 
This year's budget request proposes changes to the funding structure 
for IT investments and requests no new funding for the development of 
new systems.
    I want to ensure that the administration's request will not 
compromise HUD's ability to develop these critical new systems and 
deliver important results on-time and on-budget.
                                closing
    This subcommittee's work this year will be challenging. We must 
consider how to fund the many transportation and housing needs of our 
Nation, which are critical to improving our communities and 
strengthening our economy. And the decisions about what investments we 
can make will be made in an increasingly constrained budget 
environment. I look forward to hearing from the Secretary today, and to 
working with my subcommittee colleagues to best address the Nation's 
housing and transportation needs.
    With that I turn it over to my new partner in these efforts, 
Senator Collins.
                                 ______
                                 
                Prepared Statement of Senator Mark Kirk
    Thank you Chairwoman Murray and Ranking Member Collins. It is a 
pleasure to join you on the subcommittee after previously serving on 
the House Appropriations Committee for several years.
    I also would like to welcome Secretary Donovan, and thank him and 
his staff for coming before the subcommittee to talk about the 
Department of Housing and Urban Development's (HUD) fiscal year 2012 
budget request.
    Illinois is one of the most geographically diverse States in the 
Nation. We have a heavily urbanized region in the Chicago area, growing 
suburban and ex-urban population centers outside of the city, smaller 
but significant population centers in every part of the State and large 
amounts of rural area. Each of these regions has very different needs, 
but all have low-income populations that utilize HUD-backed programs. 
According to Housing Action Illinois, nearly 400,000 individuals in 
Illinois live in HUD-assisted units. But we live in an extremely 
challenging fiscal environment.
    I applaud the Secretary for making some tough decisions in the 
fiscal year 2012 budget request such as eliminating the $18 million 
Brownfields Economic Development Initiative and the $27 million Self-
Help Homeowner Opportunity Program. Cuts also were made to HOME 
Investment Partnerships and construction components.
    Every week, numerous housing and community advocates come to my 
office to discuss the future of HUD funding. HUD programs are targeted 
toward our neediest Americans, and every cut hurts. But if we only 
targeted unpopular programs for spending reductions, we would do little 
to fight our out-of-control spending.
    During first 9 weeks of 2011, Federal debt increased at an average 
of $35.6 billion per week. At the end of 2010, total public debt 
outstanding stood at $13.9 trillion; and the end of February, it had 
increased to $14.2 trillion--a $300 billion increase. The Department of 
the Treasury has auctioned nearly $1.1 trillion since the beginning of 
the year. That is an average of $121.5 billion per week.
    We have passed a 2-week funding stopgap measure filled with 
relatively uncontroversial cuts and program terminations. But soon we 
will need to make even tougher decisions about how to get our fiscal 
house in order. The House-passed long-term continuing resolution made 
many in the housing assistance system very nervous.
    As a matter of principle, I am opposed to zeroing-out effective 
programs. Rather, a policy of shared sacrifice will help us right our 
economic ship of state. But we have to start a dialogue about what we 
as a Nation can afford, and I do not believe we can afford our current 
spending habits. I look forward to working with the chair and the 
ranking member to support efforts that will make our country stronger 
in the long term on the premise that we should spend within our means.

                   STATEMENT OF SENATOR SUSAN COLLINS

    Senator Collins. Thank you, Madam Chairman Murray. I very 
much appreciate the confidence that you have expressed. You 
have been a strong and dedicated leader of this important 
subcommittee. I am just delighted to be your new ranking 
member. I expressed to you earlier in the year the hope that I 
would get this position because I have so enjoyed our previous 
work together, and I look forward to accomplishing great things 
and to working with all of our subcommittee members.
    I look forward to partnering with you in advancing 
investments in transportation infrastructure, as well as 
working to meet the housing and economic development needs of 
our families and communities.
    I am particularly pleased that we share a commitment to 
combating homelessness, particularly among our veterans. The 
State of Maine has been a leader in new approaches to helping 
those who are homeless, and last year we opened a facility in 
Saco, Maine to accommodate veterans who find themselves in need 
of a home.
    When the men and women of our armed forces return home, we 
have an obligation to welcome them all the way home. On any 
given night, nearly 76,000 veterans find themselves homeless 
and more than 136,000 experience homelessness at some point 
during the year.
    Today, the number of homeless Vietnam veterans is greater 
than the number of Americans who died in that war. And veterans 
who served in Iraq and Afghanistan already are appearing in the 
homeless population. As a Nation, we must ensure that in the 
land of the free there is always a home for the brave. And that 
is why I strongly support Senator Murray's efforts to 
reinvigorate the HUD-VASH program.
    Maine has also been evaluating the Housing First model for 
aiding those who are homeless. Just this past summer, Secretary 
Donovan joined us as we celebrated the opening of Florence 
House, a comprehensive center for homeless women in Portland, 
Maine. I worked to secure $343,000 in Federal funds to help 
with the planning and the development of Florence House, which 
offers a safe environment for homeless women who otherwise 
would be spending their nights in shelters or, worse yet, on 
the streets.
    The Housing First model is proving its effectiveness. 
According to Preble Street, an organization in Maine that 
advocates for the homeless and disadvantaged, of the 25 women 
who have moved into the apartments at Florence House when it 
first opened, not a single one has returned to the streets or 
to shelters.
    A study of another complex in Maine further illustrates 
that Housing First models make economic sense, as the 
chairwoman points out. And I want to share with my colleagues 
this study from Maine. Healthcare costs plummeted by 70 
percent, the cost of the ambulance use declined by 71 percent, 
and emergency room visits decreased by 74 percent. Furthermore, 
jail time decreased by 88 percent and police contacts decreased 
by 81 percent. So this model appears to deliver astonishing 
results.
    Another important issue that I want to explore is the 
future of the FHA and its role in the mortgage crisis that 
contributed to this recession. I am interested in understanding 
how HUD plans to reinvigorate the private market and what 
protections HUD is implementing to protect taxpayers against 
the risk of loss from mortgage defaults. We need to better sort 
out the role of FHA versus Ginnie Mae, Freddie Mac, and Fannie 
Mae, and I realize the roles are different.
    At a time when the budget is under much stress due to an 
unsustainable national debt, it is simply unacceptable that 
fraud and corruption continue to plague far too many PHAs. 
Alarming reports raise serious concerns about the lack of 
effective oversight by HUD of PHAs. HUD has an obligation to 
ensure that taxpayer dollars are not lost to fraud and 
corruption and that families live in decent, safe, and sanitary 
housing. I am appalled to learn of numerous investigations 
uncovering outright embezzlement by senior management of PHAs 
and cases of negligent oversight, including a young child 
suffering a near-fatal asthma attack due to dangerous levels of 
mold in an apartment in one of these PHAs.
    Madam Chairman Murray, these are just some of the issues 
that I am particularly interested in and that confront our 
subcommittee. It is an honor to serve with you and I look 
forward to working with you as we consider HUD's fiscal year 
2012 budget request.

                           PREPARED STATEMENT

    And finally, Secretary Donovan, welcome. I look forward to 
working with you and learning more about your budget request. 
Thank you very much.
    [The statement follows:]
              Prepared Statement of Senator Susan Collins
    Thank you, Chairman Murray. You have been a strong and dedicated 
leader of this subcommittee. I am delighted to be your new ranking 
member and have enjoyed our previous work together.
    I look forward to partnering with you in advancing investments in 
transportation infrastructure as well as working to meet the housing 
and economic development needs of our families and communities. I am 
particularly pleased that we share a commitment to combating 
homelessness, particularly for veterans. Maine has been a leader in new 
approaches to helping those who are homeless and last year opened a 
facility in Saco to accommodate veterans who find themselves in need of 
a home.
    When the men and women of our armed forces return home, we have an 
obligation to welcome them all the way home. On any given night, nearly 
154,000 veterans find themselves homeless, and twice as many experience 
homelessness at some point during the year.
    Today, the number of homeless Vietnam veterans is greater than the 
number of Americans who died in that war. And veterans who served in 
Iraq and Afghanistan already are appearing in the homeless population. 
As a nation, we must ensure that in the land of the free, there is 
always a home for the brave. I support Senator Murray's efforts to 
invigorate the Department of Housing and Urban Development-Veterans 
Affairs Supportive Housing program.
    Maine has also been evaluating the Housing First model for aiding 
those who are homeless. This past summer, Secretary Donovan joined us 
as we celebrated the opening of Florence House, a comprehensive center 
for homeless women in Portland, Maine. I worked to secure $343,000 to 
help with the planning and development of Florence House, which offers 
a safe environment for homeless women and helps eliminate the need for 
women to spend nights in the shelter or on the streets.
    The Housing First model is proving its effectiveness. According to 
Preble Street, an organization in Maine that advocates for the homeless 
and disadvantaged, of the 25 women who moved into the apartments at 
Florence House when it opened, none have returned to shelters. A study 
of another complex in Maine further illustrates that Housing First 
models make economic sense. According to this study, healthcare costs 
plummeted by 70 percent. The cost of ambulance use declined by 71 
percent and emergency room visits decreased 74 percent. Furthermore, 
jail time decreased by 88 percent and police contacts decreased by 81 
percent.
    Another important issue is the future of the Federal Housing 
Administration and its role in the mortgage crisis that contributed to 
this recession. I am interested in understanding how HUD plans to 
reinvigorate the private market and what protections HUD is 
implementing to protect taxpayers against the risk of loss from 
mortgage defaults.
    At a time when the budget is under much stress due to an 
unsustainable national debt, it is simply unacceptable that fraud and 
corruption continue to plague far too many public housing authorities 
(PHAs). Alarming reports raise serious concerns about the lack of HUD's 
oversight of PHAs. HUD has an obligation to ensure that taxpayers 
dollars are not lost to fraud and that families live in decent, safe, 
and sanitary housing. I am appalled to learn of numerous investigations 
uncovering embezzlement by senior management of PHAs and cases of 
negligent oversight, including a young child suffering a near fatal 
asthma attack due to dangerous levels of mold.
    Chairman Murray, these are just some of the issues that confront 
our subcommittee. It is an honor to serve with you, and I look forward 
to working with you as we consider HUD's fiscal year 2012 budget 
request.
    Secretary Donovan, welcome. I look forward to working with you and 
am interested to hear more about HUD's fiscal year 2012 budget request.

    Senator Murray. Thank you very much, Senator Collins.
    Senator Pryor.

                           PREPARED STATEMENT

    Senator Pryor. Thank you, Madam Chair. I will just submit 
mine for the record. Thank you.
    [The statement follows:]
                Prepared Statement of Senator Mark Pryor
    First, I want to thank the Chair, Senator Murray, and Ranking 
Member Collins for their leadership and for conducting this important 
hearing to examine the President's fiscal year 2012 budget request for 
the Department of Housing and Urban Development (HUD).
    I think that it is important that we work together with HUD to 
provide the necessary tools and funding mechanisms to support HUD's 
mission to bolster the economy through a stronger housing market. It is 
also critical that we work with HUD to ensure adequate consumer 
protection. With that said, we all know that many tough decisions lie 
ahead as we strive to put our Nation's fiscal house in order, and I 
believe that no stone can remain unturned as we seek to do so. 
Effective oversight will be crucial in preventing and detecting cases 
of waste and abuse, and I am hopeful that the Secretary will join us in 
seeking to increase efficiency within HUD.
    As this subcommittee reviews the fiscal year 2012 budget request 
for HUD, I look forward to working with the chair and ranking member to 
ensure that tax payer dollars are spent responsibly.
    Again, I thank Senators Murray and Collins for conducting this 
hearing. I look forward to Secretary Donovan's testimony and look 
forward to discussing the fiscal year 2012 budget request.

    Senator Murray. Thank you very much.
    Senator Blunt.

                     STATEMENT OF SENATOR ROY BLUNT

    Senator Blunt. Thank you, Madam Chairman Murray and Ranking 
Member Collins. I am glad you are holding this hearing today. I 
am pleased to join the subcommittee. My previous efforts with 
housing have been several years as the vice chairman and then 
the chairman of the Missouri Housing Development Commission, 
and I look forward to reengaging in this area.
    I also want to welcome Secretary Donovan, and thank you for 
appearing before the subcommittee.
    Just yesterday, as you know, the Senate passed a 2-week 
temporary continuing resolution (CR) to fund the operations of 
Government through the next 2 weeks. We are then going to have 
to deal with that, apparently, 2 weeks from now.
    But talking to you now about the fiscal year 2012 funding 
bill is an important time. Taxpayers deserve a leaner, more 
efficient Government. Duplicative programs and costly programs 
are going to have to be carefully evaluated to see how we can 
end any duplication without failing to serve the specific areas 
that that duplication was put in place to ensure got served.
    The administration continues to recommend funding for a 
cross-agency initiative called Sustainable Communities. I look 
forward to talking about that and approach that with my belief 
that, really, the local community is going to make the best 
decisions about how to spend the money we spend.
    In addition to that, the rest of America, for two decades, 
has had to focus on how do you produce better results and spend 
less money, and everybody that has been competitive in the 
international environment they work in has had to think about 
that all the time. We have to think about that as well. I look 
forward to, Mr. Secretary, to your thought process as we try to 
figure out how we spend less and have better results and 
frankly produce more. Everybody else in America does that. I 
believe we can do that too.
    Some of what we are going to have to do is decide where we 
are spending money that we have to stop spending money, but 
some of it is just a renewed focus on how do we take all the 
tools available to us and produce a better result than we were 
when we were only measuring how much we cared by how much we 
spent. It is time we measured how much we cared by the results 
we got, and I am confident you believe that as well and look 
forward to your testimony today and working with you.

                           PREPARED STATEMENT

    And, Madam Chairman, working with you and Senator Collins 
is something I look forward to. So thank you.
    [The statement follows:]
                Prepared Statement of Senator Roy Blunt
    Thank you Madam Chairman Murray and Ranking Member Collins for 
holding today's hearing. Also, welcome Secretary Donovan and thank you 
for appearing before our subcommittee. As a new member of this 
subcommittee, I look forward to working with your agency to build a 
stronger, more effective housing plan in our country.
    Just yesterday the Senate passed a 2-week, temporary continuing 
resolution to fund the operations of Government through the remainder 
of fiscal year 2011. With the short-term budget still in flux, it is 
essential that our fiscal year 2012 funding bill be discussed and 
debated as soon as possible so that States, localities, and community 
organizations can plan for the future. Taxpayers want and deserve 
leaner, more efficient government. Duplicative programs and costly 
bureaucracy can no longer be the status quo.
    The administration continues to recommend funding for the cross 
agency initiative known as Sustainable Communities. At a time when we 
need to get serious about our bloated spending, I have serious concerns 
with siloing much needed dollars into a newly created initiative with 
goals set by Washington. I know that the city of St. Louis for 
instance, can leverage dollars for sustainability in a much better way 
than the Federal Government can. We need to target funds at the State 
and local level that will build on the community development and 
housing assistance that has already begun and spend the money we are 
spending with a new focus on results. Better results for less costs has 
been a daily experience in America's private sector for two decades. I 
look forward to your efforts for better results at less cost.

    Senator Murray. All right. Thank you very much.
    Mr. Secretary, we are delighted to welcome you to this 
subcommittee again and welcome you to give your opening 
remarks.

                SUMMARY STATEMENT OF HON. SHAUN DONOVAN

    Secretary Donovan. Thank you, Chairwoman Murray. It is 
great to be back. And Ranking Member Collins, welcome. I very 
much look forward to working with you as well. To all the 
members of the subcommittee, thank you for the opportunity to 
testify today about HUD's fiscal year 2012 budget proposal.
    This afternoon I would like to discuss the investments it 
calls for to help America win the future by out-educating, out-
innovating, and out-building our competitors. I will also 
highlight the steps our proposal takes to improve how we 
operate HUD's programs and the tough choices it makes to ensure 
we take responsibility for our deficits.
    Madam Chairwoman, in developing this proposal, we followed 
three principles.
    The first is to continue our support for the housing market 
while bringing private capital back. Two years ago, with the 
housing market collapsing and private capital in retreat, the 
administration had no choice but to take action. The critical 
support FHA provided has helped more than 2 million families 
buy a home since that time and nearly 1.5 million homeowners 
refinance into stable, affordable products with monthly savings 
exceeding $100.
    And while FHA and Ginnie Mae will continue supporting the 
housing recovery in the year ahead, we also must help private 
capital return to the market. This is a process that HUD began 
many months ago, and I want to thank the Congress for passing 
legislation in the last session to reform FHA's mortgage 
insurance premium. With this authority, FHA announced a premium 
increase of 25 basis points last month. Because of these 
reforms and others, FHA is projected to generate approximately 
$9.8 billion in receipts for the taxpayer in fiscal year 2011. 
Indeed, the reforms that are generating these receipts today 
have set the stage for more private capital to return in the 
years to come, while ensuring that FHA continues to play an 
important role in helping the housing market recover, and 
remains a vital source for financing for underserved borrowers 
and communities.
    Just as important, while HUD's fiscal year 2012 request is 
$47.8 billion in gross budget authority, because of FHA and 
Ginnie Mae receipts, the cost to the taxpayer for this budget 
is only $41.7 billion, fully 2.8 percent less than our fiscal 
year 2010 budget and more than meeting the President's 
commitment to a 5-year domestic discretionary spending freeze.
    The second principle we used to develop our budget was to 
protect current residents and improve the programs that serve 
them. While the median income of American families today is 
more than $60,000, for families who live in HUD-assisted 
housing, it is $10,200 per year, and more than one-half are 
elderly or disabled.
    At the same time, having seen from 2007 to 2009 the largest 
increase in the history of HUD's worst case housing needs 
survey, it is clear that the recession hit these families hard. 
That is why 80 percent of our proposed budget keeps these 
residents in their homes and provides basic upkeep to public 
housing while also continuing to serve our most vulnerable 
populations through our homeless programs.
    Because the cost of serving the same families grows each 
year, protecting existing families in our programs required us 
to make tough choices with the remaining 20 percent of the 
budget, including the decision to reduce funding for the CDBG, 
HOME Investment Partnerships, and new construction for HUD-
supported housing programs for the elderly and the disabled, 
all between 5 and 10 percent. These are difficult cuts. I saw 
for myself, as a local housing official, the difference these 
funds can make, supporting senior housing, boys and girls 
clubs, YMCAs, and other providers of critical community 
services. But American families are tightening their belts, and 
we need to do the same.
    At the same time, this budget makes a strong commitment to 
doing more of what works and to stop doing what does not. By 
including the Section 8 Voucher Reform Act in the budget, we 
will simplify and streamline the voucher program and save $1 
billion for the taxpayer over the next 5 years while supporting 
the ability of PHAs in small towns and rural areas to better 
serve the working poor. Indeed, thanks to the Congress' work on 
the Homeless Emergency Assistance and Rapid Transition to 
Housing (HEARTH) Act, the budget funds a new rural housing 
stability program that reflects the unique and growing needs in 
those communities.

                       PUBLIC HOUSING AUTHORITIES

    This budget also holds our partners accountable for the 
funding they have received from HUD. To fully fund the Public 
Housing Operating Fund, we require PHAs with excess reserves to 
contribute $1 billion. These resources were set aside so that 
our PHAs could continue operating during a rainy day, and I 
think we would all agree that that rainy day is here.

                       TRANSFORMATION INITIATIVE

    These efforts point to a broader commitment expressed 
through our Transformation Initiative (TI) to improve HUD's 
programs. TI funds are replacing data systems in our largest 
program--Housing Choice Vouchers--that date from the early 
1990s so we can hold PHAs accountable for managing their 
budgets, just like families and businesses are doing across the 
country. The flexibility you provided with TI allows us, for 
the first time, to offer technical assistance across all of our 
community planning and development programs and to launch a new 
initiative to improve the financial management and 
accountability of troubled housing authorities. And by 
supporting research, evaluation, and program demonstrations, TI 
improves HUD's own accountability by identifying what we do 
well and what we need to do better.

                                HUD-VASH

    These needed reforms allow us to propose increased 
investments in programs we know work, like the HUD-VASH program 
for homeless veterans. This effort is built on a solid body of 
evidence that permanent supportive housing both ends 
homelessness and saves money for the taxpayer by putting an end 
to the revolving door of emergency rooms, shelters, and jails. 
I could not put it more eloquently than the two of you did at 
the opening of this hearing.

                              HOMELESSNESS

    As such, this budget would increase funding for homeless 
programs by more than 29 percent over 2010 to keep the 
President's commitment to Opening Doors, the first Federal 
strategic plan to end homelessness, which the administration 
unveiled last June to end chronic veterans homelessness by 2015 
and homelessness among families and children by 2020. All told, 
this combination of tough choices and needed reforms allows us 
to serve more than 4.5 million families in our core rental 
assistance programs, 86,000 more than in 2010.

                    RURAL HOUSING STABILITY PROGRAM

    Our third and final principle for developing this budget is 
to continue critical initiatives that have been part of our 
budget over the last 2 years but, in this fiscal climate, to 
propose no new initiatives. The President has made clear that 
winning the future depends on America winning the race to 
educate our children, but that is not possible if we are 
leaving a whole generation of children behind in our poorest 
neighborhoods. That is why I would like to thank this 
subcommittee for working with us last year to fund the Choice 
Neighborhoods Initiative, and it is why we have again proposed 
$250 million for 2012. This funding will allow communities to 
use the mixed use and mixed finance tools pioneered by former 
HUD Secretaries Jack Kemp and Henry Cisneros with the HOPE VI 
program to transform all federally assisted housing in a 
neighborhood.

                  PUBLIC HOUSING PRESERVATION PROGRAM

    Similarly, ensuring that America out-builds our competitors 
requires us to protect and preserve public housing for the 
future. Right now we are losing 10,000 units from our public 
housing stock every year. At the same time, there are billions 
of dollars of private capital sitting on the sidelines that 
could put tens of thousands of construction workers to work 
rebuilding this housing. That is why we have proposed a $200 
million demonstration in our budget to preserve up to 255,000 
public housing units using long-term project-based rental 
assistance contracts. As we have seen in the Section 8 program 
and the low-income housing tax credit, opening up these 
properties to private capital not only brings new funding to 
affordable housing, but also a new sense of discipline that 
extends from the way these properties are financed to the way 
they are managed.

                   SUSTAINABLE COMMUNITIES INITIATIVE

    Last, Madam Chairwoman, American businesses, large and 
small, cannot out-innovate their competitors when their workers 
spend 52 cents of every $1 they earn on housing and 
transportation combined, and moving products on our roads costs 
five times as much wasted fuel and time as it did 25 years ago. 
That is why we request another $150 million for our Sustainable 
Communities Initiative, which implemented as part of our 2010 
budget, helps regions and communities develop comprehensive 
housing and transportation plans that create jobs and economic 
growth. In a community like Austin, Texas, which is linking its 
long-term regional transportation plan to 37 mixed-income 
communities near transit and job centers, you can see how the 
grants it provides are not about one-size-fits-all rules that 
tell communities what to do, but saving the taxpayer money by 
coordinating investments more effectively and efficiently.
    The demand for these kinds of innovations explains the 
extraordinary demand for our grant program, and it was not just 
coming from our largest metro areas. Indeed, one-half of our 
regional grants were awarded to rural regions and small towns.
    And so, Madam Chairwoman, HUD's fiscal year 2012 budget 
proposal is not just about spending less, it is also about 
investing smarter and more effectively. It is about out-
educating, out-building, and out-innovating our competitors. It 
is about making hard choices to reduce the deficit, and putting 
in place much needed reforms to hold ourselves to a high 
standard of performance. But most of all, it is about the 
results that we deliver for the people and places who depend on 
us most.

                           PREPARED STATEMENT

    For HUD, winning the future starts at home, and with this 
budget of targeted investments and tough choices that I 
respectfully submit, we aim to prove it.
    Thank you.
    [The statement follows:]
                Prepared Statement of Hon. Shaun Donovan
    Chairwoman Murray, Ranking Member Collins and members of the 
subcommittee, thank you for the opportunity to testify today regarding 
the fiscal year 2012 budget for the Department of Housing and Urban 
Development (HUD), Creating Strong, Sustainable, Inclusive Communities 
and Quality Affordable Homes.
    I appear before you to discuss this budget in an economic 
environment that is significantly improved from when the President took 
office. An economy that was shrinking is growing again--and instead of 
rapid job loss, more than 1 million private-sector jobs were created in 
the last year. But we know there's still more work to be done to ensure 
that America and its workers can compete and win in the 21st century. 
And we have to take responsibility for our deficit, by investing in 
what makes America stronger and cutting what doesn't, and in some cases 
making reductions in programs that have been successful.
    HUD's fiscal year 2012 budget tackles these challenges head on: by 
helping responsible families at risk of losing their homes and by 
providing quality affordable rental housing; by transforming 
neighborhoods of poverty to ensure we are not leaving a whole 
generation of our children behind in our poorest communities; by 
rebuilding the national resource that is our federally assisted public 
housing stock and ensuring that its tenants are part of the mobile, 
skilled workforce our new global economy requires, and by leveraging 
private-sector investments in communities to create jobs and generate 
the economic growth we need to out-innovate, out-educate, and out-build 
the rest of the world.
    This budget also reflects the need to ensure that we are taking 
responsibility for our country's deficits. As a down payment toward 
reducing the deficit, the President has proposed a freeze on 
nonsecurity discretionary spending for the next 5 years, cutting the 
deficit by $400 billion over 10 years and bringing this spending to the 
lowest share of the economy since President Eisenhower. Every 
Department shares a responsibility to make tough cuts so there's room 
for investments to speed economic growth. HUD's fiscal year 2012 budget 
more than meets the President's goal--the Department's $47.8 billion in 
gross budget authority is offset by $6 billion in projected Federal 
Housing Administration (FHA) and Ginnie Mae receipts credited to HUD's 
appropriations accounts, leaving net budget authority of $41.7 billion, 
or 2.8 percent less than the fiscal year 2010 actual level of $42.9 
billion. To maintain this commitment to fiscal discipline, we have 
protected existing residents and made the difficult choice to reduce 
funding for new units and projects, including cuts to the Community 
Development Block Grant (CDBG), HOME Investment Partnerships (HOME), 
and new construction components of the Section 202 Supportive Housing 
Programs for the Elderly (Section 202) and Section 811 Supportive 
Housing Program for Persons with Disabilities (Section 811).
    And because winning the future also means reforming Government so 
it's leaner, more transparent, and ready for the 21st century, we are 
also reforming the administrative infrastructure that oversees those 
programs. The budget includes key provisions from the Section 8 Voucher 
Reform Act (SEVRA) legislative proposal that will simplify and 
rationalize the rent setting provisions of our three largest rental 
assistance program. The budget requests for Housing Choice Vouchers 
(HCVs), project-based rental assistance, and public housing reflects a 
savings of about $150 million in the first full year and would yield 
more than $1 billion in savings over the next half decade. 
Additionally, the Transformation Initiative (TI)--important funding and 
programmatic flexibility the Congress provided in 2010--will enable the 
Department to offer cutting-edge technical assistance that improves the 
management and accountability of local partners, and conduct the kinds 
of research and demonstrations that ensure that we are funding what 
works and identifying what doesn't and what we need to do better.
                        responding to the crisis
    Much has happened in the 2 years since HUD submitted its fiscal 
year 2010 budget. Only weeks before, the Bush administration and the 
Congress had taken dramatic steps to prevent the financial meltdown, 
the Nation was losing 753,000 jobs a month, our economy had shed jobs 
for 22 straight months and house prices had declined for 30 straight 
months.
    In the face of an economic crisis that experts across the political 
spectrum predicted could turn into the next Great Depression, the Obama 
administration had no choice but to step in aggressively. The Federal 
Reserve and the Department of the Treasury helped keep mortgage 
interest rates at record lows. Because low-interest rates only matter 
if there are mortgages available at those rates, the administration 
also provided critical support for Fannie Mae and Freddie Mac, while 
HUD's FHA stepped in to play its critical countercyclical role in 
helping to stabilize the housing market. The administration proposed, 
and the Congress enacted, a home buyer tax credit to spur demand in the 
devastated housing sector. And we took steps to help families keep 
their homes--through mortgage modifications and FHA's loss mitigation 
efforts.
    The results of these extraordinary but necessary actions are clear. 
More than 4.1 million borrowers have received restructured mortgages 
since April 2009, including more than 1.4 million Home Affordable 
Modification Program trial modification starts, more than 650,000 FHA 
loss mitigation and early delinquency interventions, and nearly 2 
million proprietary modifications under HOPE Now--more than twice the 
number of foreclosures completed in that time. The private sector has 
now created jobs for 13 straight months.
    HUD's careful and effective stewardship of $13.61 billion in 
American Recovery and Reinvestment Act (ARRA) funding has been 
essential to economic recovery. To date, HUD has obligated 99.6 percent 
of its ARRA grant and loan funds and expended more than 63.5 percent of 
this funding--more than 5 months ahead of the aggressive timelines the 
administration set down and to which the Vice President has held every 
Department accountable. These funds have led to the development and 
renovation of more than 400,000 homes (Public Housing Capital Fund, 
Native American Housing Block Grant, Tax Credit Assistance Program, 
CDBG, Lead Hazard Reduction and Healthy Homes grants). Through 
homelessness prevention assistance (Homelessness Prevention and Rapid 
Re-Housing Program (HPRP)), local partners have prevented or ended 
homelessness for more than 850,000 people. Last, through the Lead 
Hazard Reduction and the Healthy Homes programs, more than 3,800 
children have been protected from lead paint-based hazards and other 
home health and safety risks. As a result of these activities, in the 
third quarter of calendar year 2010 alone, HUD ARRA recipients reported 
more than 31,000 jobs saved or created.
                           winning the future
    Now, having prevented our economy from falling into a second Great 
Depression, the administration is focused on ensuring that America wins 
the future that makes strategic investments in our communities but also 
takes responsibility for our deficit. For HUD, that meant using three 
core principles to develop our budget:
  --Continuing to provide critical support for the housing market while 
        bringing private capital back into the market;
  --Protecting current residents--and improving the programs that serve 
        them; and
  --Proposing no new initiatives--while continuing to invest in 
        initiatives that have been part of our budget the last 2 years 
        and are critical to winning the future.
    As such, the Department's budget for fiscal year 2012 follows the 
roadmap the President has laid out for keeping America at the forefront 
of the rapidly changing global economy. Specifically, this budget helps 
America:
Out-Educate
    America cannot out-educate the rest of the world if a lack of 
quality, affordable housing prevents Americans from accessing good 
schools in safe neighborhoods, or if homelessness threatens the 
schooling of a young child. That is why the budget continues to support 
the Choice Neighborhoods Initiative (which links HUD's investments in 
housing to education funding provided through the Department of 
Education's Promise Neighborhoods Initiative), and proposes to target 
housing vouchers--coupled with educational and other supportive 
services--to homeless and at-risk families with school-age children.
Out-Innovate
    A clean-energy economy is vital for America to compete in the new 
century. Through ARRA's dramatic investments to green America's housing 
stock, HUD will improve the efficiency of 245,000 HUD-assisted 
affordable homes, provide comprehensive energy retrofits that will 
reduce energy costs by as much as 40 percent in an additional 35,000 
public-housing units, and complete green retrofits of 19,000 units of 
privately owned, federally assisted multifamily housing. The funding in 
this budget will continue to improve energy efficiency and save money 
for the taxpayer by allowing us to track and monitor energy use in our 
portfolio while we work more closely with the private sector to scale-
up energy retrofits that pay for themselves through loan products like 
the FHA PowerSaver and expanded FHA risk-sharing. In addition, we will 
continue to partner with the Department of Energy to leverage 
weatherization assistance funds for many of these properties.
Out-Build
    The President's focus on repairing our existing infrastructure and 
building new ways to move people, goods and information will not only 
put people to work now, but also spur investments that build a stronger 
economy. Building on the successful Partnership for Sustainable 
Communities with the Department of Transportation (DOT) and the 
Environmental Protection Agency (EPA), HUD's budget includes $150 
million to create incentives for communities to develop comprehensive 
housing and transportation plans that aim to help regions and 
communities approach their infrastructure investments in a smarter and 
more strategic way and reduce the combined cost of housing and 
transportation for families. Just as we cannot compete in the new 
economy if we fail to rebuild our highways and transit systems, nor can 
we ignore the importance of affordable housing in communities. For this 
reason, the budget proposes a $200 million rental assistance 
demonstration to rehabilitate--cost-effectively--some of our most 
valuable affordable housing assets: America's federally subsidized 
affordable housing stock. We estimate that this proposal will leverage 
$7 billion in private debt and equity capital and, in the process, 
support significant job creation in communities across the country.
Reform Government So That It's Leaner, Smarter, More Transparent, and 
        Ready for the 21st Century
    President Obama said in his State of the Union Address that 
removing overlapping and contradictory rules and regulations is 
essential to generating economic growth. That's why we continue to make 
it our focus to improve and simplify the way HUD works with other 
agencies. The level of interagency cooperation with both our Federal 
and non-Federal partners is unprecedented--from the Sustainable 
Communities Partnership (discussed above) to initiatives targeting 
housing and services to the homeless (with the Department of Health and 
Human Services, and the Department of Education) to a multi-agency 
economic development initiative led by the Economic Development 
Administration in the Department of Commerce (DOC). This Department 
with support from HUD is committed to removing barriers to local 
innovation at the Federal level. Through our TI, HUD can continue to 
deliver the kind of cutting-edge technical assistance and research that 
our local stakeholders are seeking to innovate and grow their economies 
and is critical to improving the management and accountability of HUD's 
local partners. Indeed, this improved partnership with local 
stakeholders also means holding them accountable for their use of 
Federal resources. As noted, TI is already supporting research and 
demonstrations that will allow the Department to closely monitor local 
strategies for expending taxpayers' money. And through the newly 
instituted HUDStat internal reporting system (discussed further below), 
the Department is holding itself accountable for the funds it invests.
                      meeting our responsibilities
    The need for HUD's investments is clear. The devastating effect 
that the economic downturn has had on the housing circumstances of poor 
Americans was underscored in early February, when HUD released its 
Worst Case Housing Needs study results. HUD defines worst case needs 
as: renters with very low incomes who do not receive Government housing 
assistance and who either pay more than one-half their income for rent, 
live in severely inadequate conditions, or both. The report showed an 
increase of 20 percent in worst case needs renters between 2007 and 
2009. This is the largest increase in worst case housing needs in the 
quarter-century history of the survey, and caps an increase of 42 
percent since 2001. These numbers show the scale of the challenge 
inherited by the Obama administration, with a historic increase in need 
during the 2 years before we took office. Indeed, the critical housing 
assistance offered by HUD through ARRA is a key part of HUD's response 
to this challenge.
    In short, this budget will achieve substantial results not only for 
vulnerable, low-income Americans but also for hard-hit local and State 
economies across the country. Its carefully targeted investments will 
enable HUD programs to:
  --house almost 2.5 million families in public and assisted housing 
        (more than 60 percent elderly and/or disabled);
  --provide tenant-based vouchers to more than 2.2 million households 
        (more than 45 percent elderly and/or disabled), an increase of 
        more than 86,000 from 2010; and
  --nearly double the annual rate at which HUD assistance creates new 
        permanent supportive housing for the homeless
    As in fiscal year 2011, HUD's fiscal year 2012 budget is structured 
around the five overarching goals the Department adopted in its 
Strategic Plan 2010-2015. These goals reflect the Department's--and 
my--commitment to ``moving the needle'' on some of the most fundamental 
challenges facing America as we try to win the future. Indeed, every 
month, I hold HUDStat meetings on one or more of these goals, to assess 
progress and troubleshoot problems in order to:
  --ensure that HUD is as streamlined and effective as possible in the 
        way that we administer our own programs and partner with other 
        Federal agencies; and
  --hold our grantees accountable for their expenditure of taxpayers' 
        hard-earned dollars.
Goal 1.--Strengthen the Nation's Housing Market To Bolster the Economy 
        and Protect Consumers
    We project that FHA will continue to support the housing market, 
insuring $218 billion in mortgage borrowing in 2012. These guarantees 
will support new home purchases and re-financed mortgages that 
significantly reduce borrower payments. Over the last 2 years, FHA has 
helped more than 2 million families buy a home--80 percent of whom were 
first-time buyers. FHA also has helped nearly 1.5 million existing 
homeowners refinance into stable, affordable products, with monthly 
savings exceeding $100 in most cases. FHA financing was used by 38 
percent of all home buyers, insuring, along with the Department of 
Veterans Affairs (VA) and Federal farm programs, 81 percent of all 
loans to African Americans and 73 percent to Hispanics in 2009. But FHA 
is also a vital resource for homeowners facing foreclosure. FHA's loss 
mitigation program minimizes the risk that financially struggling 
borrowers go into foreclosure. Since the start of the mortgage crisis, 
it has helped more than 500,000 homeowners.
            Paving the Way for Private Capital To Return
    It is critical, however, that we pave the way toward a robust 
private mortgage market. This was a central goal of the 
administration's recently released report on Reforming America's 
Housing Finance Market, which proposed to wind down Fannie Mae and 
Freddie Mac, fix fundamental flaws in the mortgage markets, better 
target the Government's support for affordable housing, and provide 
choices for longer-term reforms.
    Taking steps to bring private capital back is a process that HUD 
began many months ago--and I want to thank you for passing legislation 
in the last Congress to provide more flexibility to FHA's mortgage 
insurance premium structure. With this authority, FHA announced a 
premium increase of 25 basis points last month.
    Indeed, FHA has already taken significant steps to facilitate the 
return of private capital, making the most sweeping combination of 
reforms to credit policy, risk management, lender enforcement, and 
consumer protection in FHA history. These reforms have strengthened its 
financial condition and minimized risk to taxpayers, while allowing FHA 
to continue fulfilling our mission of providing responsible access to 
home ownership for first-time home buyers and in underserved markets.
    FHA implemented a two-step credit score policy for FHA purchase 
borrowers. Purchase borrowers with credit scores less than 580 are now 
required to contribute a minimum down payment of 10 percent. Only those 
with stronger credit scores are eligible for FHA-insured mortgages with 
the minimum 3.5-percent down payment.
    The goal of these reforms is to balance the need to provide access 
to our mortgage markets with the need to protect taxpayers from 
financial risk. That's also why in October 2009, we hired the first 
chief risk officer in the organization's 75-year history--and last 
July, FHA received congressional approval to formally establish this 
position and create a permanent risk management office within FHA, for 
which the risk officer is now Deputy Assistant Secretary. With this new 
office and additional staffing, FHA is expanding its capacity to assess 
financial and operational risk, perform more sophisticated data 
analysis, and respond to market developments.
    Further, FHA has strengthened credit and risk controls--toughening 
requirements on FHA's Streamlined Refinance program, making several 
improvements to the appraisal process and to condominium policies, and 
implementing the two-step credit score policy discussed above. We are 
very grateful for the support that the Congress has provided with our 
efforts to reduce fraud and risk. Through the $20 million Combating 
Mortgage Fraud funds that the Congress granted HUD in fiscal year 2010, 
we have already begun to implement several risk management and systems 
modernization reforms to incorporate modern risk and fraud tools and 
counterparty data consolidation.
    Additionally, FHA introduced policy changes and improved lender 
oversight and enforcement to increase the quality of FHA-insured loans. 
In April 2010, we published a rule eliminating FHA approval for loan 
correspondents and increasing net worth requirements for lenders, 
thereby strengthening FHA's counterparty risk management capabilities.
    As a result of these actions, FHA finds itself in a stronger 
position today. In particular:
  --The quality of loans made in fiscal years 2009 and 2010--the years 
        FHA has done the most significant volume--is much improved. 
        Fiscal year 2010 is the highest-quality FHA book-of-business on 
        record.
  --Credit score distribution continues to be significantly improved. 
        The average credit score on current insurance endorsements has 
        risen to nearly 700. And for the second straight quarter, 
        average credit scores are equal across refinance and purchase 
        books of business.
  --Loan performance, as measured by early period delinquency and 
        seasonally adjusted serious delinquency rates, continues to 
        show significant improvement.\1\
---------------------------------------------------------------------------
    \1\ HUD's Annual Report to Congress Regarding the Financial Status 
of the FHA Mutual Mortgage Insurance Fund fiscal year 2010 can be found 
at http://www.hud.gov/offices/hsg/rmra/oe/rpts/actr/
2010actr_subltr.pdf.
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    The Department is equally focused on assisting consumers throughout 
the home ownership process, from increasing their knowledge of the 
mortgage products they are considering to protecting them from fraud in 
any phase of that process. Accordingly, the budget also includes $168 
million for housing and homeowner counseling through HUD and the 
Neighborhood Reinvestment Corporation (NeighborWorks). More than 4 
million households have benefited from housing counseling since April 
2009.
Goal 2.--Meet the Need for Quality, Affordable Rental Homes
    With more than one-third of all American families renting their 
homes, it remains more important than ever to provide a sufficient 
supply of affordable rental homes for low-income families.
            Why HUD Investments Are Vital
    While the median income of American families today is more than 
$60,000, families who live in HUD-assisted housing have a median income 
of $10,200 per year--and more than one-half are elderly or disabled. 
The extraordinary vulnerability of residents in HUD-assisted programs 
is why we have chosen to protect the funding that houses these 
families. Indeed, fully 80 percent of our proposed budget keeps current 
residents in their homes and provides basic upkeep to public housing 
while also continuing to serve our most vulnerable populations through 
our homeless programs.
    HUD's fiscal year 2012 budget requests $19.2 billion for the HCV 
program to help more than 2 million extremely low- to low-income 
families with rental assistance live in decent, safe housing in 
neighborhoods of their choice. The budget funds all existing mainstream 
vouchers and provides new vouchers targeted to homeless veterans, 
families, and the chronically homeless. The administration remains 
committed to working with the Congress to improve the management and 
budgeting for the HCV program, including reducing inefficiencies, and 
re-allocating Public Housing Authority voucher reserves based on need 
and performance.




                                Figure 1

    The budget also provides $9.4 billion for Project-Based Rental 
Assistance to preserve approximately 1.3 million affordable units 
through increased funding for contracts with private owners of 
multifamily properties. This critical investment will help extremely 
low- to low-income households to obtain or retain decent, safe and 
sanitary housing. Similarly, in combination with full funding of the 
Public Housing Operating Fund,\2\ the $2.4 billion requested for the 
Capital Fund will help to preserve the more than 1 million units within 
that program's portfolio.
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    \2\ One billion dollars of the amount needed to fully fund the 
Operating Fund at $4.962 billion represents excess reserves held by 
PHAs, which have grown substantially over the past several years. The 
Department will ensure that PHAs have sufficient remaining reserves to 
stay on sound financial footing.
---------------------------------------------------------------------------

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tough choices--putting excess public housing operating fund reserves to 
                                  work
    This budget also holds our partners accountable for the funding 
they have received from HUD. Indeed, while the growing need 
demonstrated by the Worst Case Housing Needs survey clearly justifies 
fully funding the Public Housing Operating Fund at $4.96 billion, we 
are requiring that PHAs contribute $1 billion from their excess 
reserves. Many PHAs have set aside these reserves so that our PHAs 
could continue to effectively manage and operate public housing 
properties during a rainy day--and it is clear that rainy day is here.

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            Out-Building Our Competitors--Rebuilding Our Nation's 
                    Affordable Housing Stock
    The preservation of critically needed hard units of rental housing 
in this country is among our top priorities, particularly as the number 
of renter households with severe affordability issues has increased 
significantly in recent years. Our preservation agenda includes 
regulatory and administrative changes to make it easier for owners to 
preserve HUD-assisted housing as well as creating tools that will put 
the Department's stock of affordable housing on sound financial and 
regulatory footing for the long-term. To this end, the budget includes 
$200 million for a demonstration and rigorous evaluation of the 
conversion of up to 255,000 public housing units to some form of long-
term project-based rental assistance contracts that will enable PHAs to 
leverage private debt and equity capital to make repairs. Through 
similar conversions, the demonstration will preserve 7,600 privately 
owned, HUD-assisted units in so-called ``orphan'' programs at risk of 
leaving the affordable housing stock. This funding request will allow 
us, working with key stakeholders, to develop new preservation tools to 
help ensure that we protect our affordable rental housing stock.
    The President's budget also includes two revenue proposals to 
reform the Low Income Housing Tax Credit (LIHTC) that will complement 
the Department's overall preservation agenda:
  --Replace the current cap on household income at 60 percent of area 
        median income (AMI) with the option that properties serve 
        households whose average income is no greater than 60 percent 
        of AMI and with no individual household more than 80 percent of 
        AMI. These changes to the low-income occupancy threshold 
        requirements will accomplish three things:
    --allow greater income-mixing at the project level, creating 
            opportunities for workforce housing;
    --help align LIHTC with HUD's and the U.S. Department of 
            Agriculture's (USDA) affordable housing programs (which 
            define low-income at 80 percent of AMI); and
    --lead to the creation of more units targeted to the lowest income 
            households.\3\
---------------------------------------------------------------------------
    \3\ It is important to note that this income averaging proposal 
would increase our ability to preserve HUD-assisted properties. The 
69,224 households living in public housing and 23,271 households in 
multifamily housing have incomes more than 60 percent of AMI. This 
proposal allows these units to be counted in basis, increasing the 
equity flowing to these projects for preservation.
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  --Make the 4-percent credit a more viable source of funding for the 
        preservation of the Federal affordable housing stock by 
        allowing allocating agencies to give a limited number of 
        qualifying properties a 30-percent-basis boost in the context 
        of preserving, recapitalizing, and rehabilitating existing 
        affordable housing, including housing targeted by our rental 
        assistance demonstration as well as other programs. This means 
        that a greater amount of equity could be raised per credit even 
        at the higher yields required by investors for 4-percent 
        investments, which in turn will generate more interest in LIHTC 
        preservation deals within the investor and developer community.
    Finally, the budget once again calls for funding of the National 
Housing Trust Fund (NHTF) at $1 billion. The recent Worst Case Housing 
Needs report underscores the reality that, since well before the recent 
recession, extremely low-income renters (those whose household incomes 
are less than 30 percent of median) face the most severe housing 
shortage and cost burden of any Americans. In addition, the report 
shows that for renters less than 30 percent of AMI, the shortage of 
affordable and available units increased from 5.2 million to 6.4 
million from 2007 to 2009, with just 36 affordable and available units 
per 100 extremely low-income renters in 2009, down from 44 units just 2 
years prior. Enacted in 2008, the NHTF was designed to provide capital 
resources to build and rehabilitate housing to fill this precise--and 
growing--gap in the Nation's rental housing market. The administration 
wants to work with the Congress to provide this crucial funding.
Goal 3.--Utilize Housing as a Platform for Improving Quality of Life
    HUD, as well as State and local policymakers and our private-sector 
partners recognize that stable, affordable housing provides an ideal, 
cost-effective place to deliver healthcare and other social services 
focused on improving life outcomes for individuals and families.
            Out-Innovating--Solving Homelessness, Saving the Taxpayer 
                    Money
    Nowhere is this clearer than in the successful efforts in 
communities around the country to address homelessness. These efforts 
have yielded a substantial body of research, which demonstrates that 
providing permanent supportive housing to chronically ill, chronically 
homeless individuals and families not only ends their homelessness, but 
also yields substantial cost saving in public health, criminal justice, 
and other systems.
    This year, we have made a specific effort to target homeless 
veterans. As our young men and women return from Afghanistan and Iraq, 
they deserve to be treated with dignity and honor. Yet our Nation's 
veterans are 50 percent more likely than the average American to become 
homeless. More than 11,000 servicemembers returning from those wars 
have already been forced to live on the streets or in homeless 
shelters. And more Vietnam-era veterans remain homeless today than 
troops who died during the war itself. Nowhere is our obligation to our 
citizens, and to those who have defended our Nation, more important, 
more visible, or more urgently necessary than in our commitment to end 
homelessness.

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    impact analysis--how hud and va are partnering to end veterans 
                              homelessness
    The Homelessness Prevention and Rapid Re-housing Program, created 
by the Recovery Act, has helped local partners prevent or end 
homelessness for more than 850,000 people--including about 18,000 
veterans. And its effects have had an equally innovative impact on how 
the Federal Government responds to homelessness--particularly veterans' 
homelessness.
    HUD and VA are collaborating on HUD-VASH, which combines HUD's HCV 
rental assistance with VA's case management and clinical services. This 
partnership is critical to ending veterans' homelessness. When 
President Obama was sworn into office, the program helped less than 
1,200 veterans lease properties. One of the reasons veterans couldn't 
use HUD-VASH vouchers was that they couldn't provide something as 
simple as a security deposit.
    HPRP helped many veterans overcome these kinds of obstacles to find 
a home. By the end of 2010, HUD-VASH had accelerated its pace of 
housing veterans by nearly 20 times--helping more than 21,000 veterans.

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    As the outgoing Chair of the U.S. Interagency Council on 
Homelessness, I am pleased that this budget provides more than $2.5 
billion to make progress toward the ambitious goals of Opening Doors: 
the Federal Strategic Plan To Prevent and End Homelessness, which was 
released by the administration in June 2010. Opening Doors establishes 
a 5-year timeline for ending chronic and veteran homelessness and 
commits to ending family and youth homelessness over a decade. This 
budget will enable our stakeholders to make substantial progress on 
these ambitious timelines. It includes:
  --More than $2.3 billion for Homeless Assistance Grants to maintain 
        existing units and expand prevention, rapid-re-housing, and 
        permanent supportive housing;
  --$145 million in new housing vouchers and related administrative 
        fees for more than 19,000 homeless veterans and other homeless 
        individuals and families who receive education, healthcare and 
        other services through the Departments of Education, Health and 
        Human Services, and Veterans Affairs.
  --$50 million to test new incentives--including service coordinators 
        and special payments--to encourage housing authorities and 
        private landlords to serve more homeless persons.
    These funding increases will enable HUD to assist approximately 
78,000 additional homeless individuals and families.
    The budget also provides a total of $953 million for the Section 
202 and Section 811 programs. This not only preserves assistance in all 
existing units, but also includes $499 million for new construction to 
respond to the overwhelming demand among low-income elderly, including 
frail elderly, and disabled individuals for affordable housing that 
allows them to continue living independently in the community. The 
administration remains committed to further updating and reforming 
these crucial programs, building on a foundation that was provided by 
two bipartisan bills passed in the 111th Congress. Those bills offered 
key steps forward--for Section 811, authorizing HUD to provide 
operating-assistance-only funding through States which demonstrated an 
integrated healthcare and housing approach to serving disabled 
households and for Section 202, authorizing key preservation tools 
including new Section 8 contracts to maintain long-term affordability 
on aging properties. In 2012, the administration will have in place the 
framework to ensure that these programs better leverage other housing 
and healthcare resources, afford streamlined processing to improve 
timeframes, and are targeted to elderly and disabled individuals who 
can best benefit from affordable housing.

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

  tough choices--reduced funding for section 202 and section 811 new 
                              construction
    While the budget provides nearly $500 million for new construction 
in the Section 202 and Section 811 programs, this does represent a 15-
percent cut from HUD's fiscal year 2010 enacted. Given the progress of 
program reforms paired with the overwhelming need for affordable 
housing among these vulnerable populations, these are difficult cuts. 
But with the proposed reforms, HUD will seek ways to maximize use of 
new construction funds.

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

Goal 4.--Build Inclusive Sustainable Communities Free From 
        Discrimination
    Each year HUD dedicates approximately one-quarter of its funds to 
the capital costs of housing and economic development projects 
throughout the country, which become even more critical for communities 
hardest hit by our country's economic downturn. As with HUD's rental 
assistance programs, HUD's capital grants--including the Public Housing 
Capital Fund, HOPE VI capital grants, 202 capital advances, 811 capital 
advances, CDBG, HOME, Housing Opportunities for Persons With AIDS 
(HOPWA), and Emergency Solutions Grants--tend to assist areas of great 
need. For example, 61 percent of HUD capital dollars are invested in 
cities and counties with an unemployment rate greater than the national 
average. Indeed, the average HUD capital dollar is dedicated to a city 
or county with an unemployment rate of 10.5 percent, nearly 1 full 
percentage point more than the national unemployment rate.
    Through these grants, HUD and its partners are able to provide 
better opportunities for people living in neighborhoods of concentrated 
poverty and segregation, and offer choices that help families live 
closer to jobs and schools. These priorities reflect a core belief: 
when you choose a home--you also choose transportation to work, schools 
for your children, and public safety. You choose a community--and the 
amenities available in that community. Programs such as CDBG, the Rural 
Innovation Fund, and Choice Neighborhoods are targeted to areas of 
need, to provide locally driven solutions to overarching economic 
development challenges.
            Strategic Investments in America's Economic Future--the 
                    Community Development Block Grant
    The budget proposes a 7.5-percent reduction in CDBG funding, 
relative to the fiscal year 2010 appropriated level for CDBG formula 
program. This reduction acknowledges two realities. The first is the 
need to take responsibility for our deficit, even if it means reducing 
support for important, effective programs such as CDBG. Second, it 
demonstrates the administration's continued commitment to assisting 
local governments and States in improving living conditions in low- and 
moderate-income neighborhoods across the country.
    As the Federal Government's primary community development program, 
CDBG serves as the backbone of State and local community and economic 
development efforts. In fiscal year 2010, CDBG was estimated to reach 
more than 7,250 local governments through various components of the 
CDBG programs--the Entitlement Communities Program, the Urban County 
Program, the State Program, and the Insular Area Program. In fiscal 
year 2010, CDBG investments directly created 19,293 jobs, not including 
any indirect effect on additional jobs. More than 109,000 households 
received some form of housing rehabilitation assistance. More than 10 
million people benefited from CDBG-funded public service activities and 
more than 4 million benefited from CDBG-financed public improvements.
    State and local governments are facing unprecedented budget 
shortfalls and fiscal constraints. These constraints make CDBG funding 
more essential than ever for local communities; CDBG funding is 
increasingly one of the few resources available at the local level to 
support housing rehabilitation, public improvements, and economic 
development assistance--despite growing needs, local governments have 
often had no choice but to eliminate some of these activities from 
their own budgets.

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

  tough choices--reducing funding for cdbg, home, and the university 
                         community partnership
    This budget reduces funding for CDBG by 7.5 percent or $300 
million, and HOME by 9.5 percent or $175 million, relative to current 
funding levels, while eliminating funding for the University Community 
Partnership. While the budget does provide $5.5 billion in CDBG and 
HOME funds-substantial, flexible resources that allow State and local 
grantees to improve infrastructure, build and rehab affordable housing, 
provide rental assistance, and create and retain jobs--these are 
difficult cuts, particularly given the financial challenges States and 
localities are facing. But American families are tightening their 
belts--and we need to do the same.

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

            Out-Building the Rest of the World--Sustainable Communities
    Attracting new businesses to our shores depends on urban, suburban, 
and rural areas that feature more housing and transportation choices, 
homes that are near jobs, transportation networks that move goods and 
people efficiently, all while lowering the cost and health burdens on 
families, businesses, and the taxpayer. Unfortunately, today, 
congestion on our roads is costing us five times as much wasted fuel 
and time as it did 25 years ago, and Americans spend 52 cents of every 
$1 they earn on housing and transportation combined.
    Communities from Dallas to Salt Lake City have demonstrated that by 
better linking housing, transportation and economic development, 
parents can spend less time driving and more time with their children; 
more families can live in safe, stable communities near good schools 
and jobs; more kids can be healthy and fit; and more businesses have 
access to the capital and talent they need to grow and prosper. Indeed, 
communities that have planned for growth by linking these together have 
a built-in competitive edge when it comes to attracting the jobs and 
private investment they need to win the future.
    Regions across the country understand this, which is why this 
budget continues one of the most groundbreaking cross-agency 
collaborations in recent history: the Partnership for Sustainable 
Communities, which includes HUD, DOT, and EPA.
    When the Obama administration announced the availability of 
regional and local planning grants for sustainable communities, demand 
was extremely high, as we received applications from all 50 States and 
two territories--from central cities to rural areas, small towns, and 
tribal governments. Over one-half of HUD's Sustainable Communities 
Regional Planning Grants were awarded to regions with populations less 
than 500,000 and rural places with fewer than 200,000 people. And of 
the 62 planning grants awarded jointly by HUD and DOT almost 30 percent 
went to rural communities.
    At a time when every $1 the Federal Government invests in 
jumpstarting the economy is critical, the Partnership helps ensure that 
all agencies are coordinating efforts and targeting resources more 
strategically. Reflecting this new collaboration, the initial round of 
grants was judged by a multidisciplinary review team, drawn from eight 
Federal agencies and from partners in philanthropy. We have heard 
clearly from local businesses and elected officials that the joint 
grants supported by the partnership are helping them achieve their own 
local visions: working across their own jurisdictional lines to 
coordinate land use, housing, and transportation investments on 
regional and community levels; creating more sustainable development 
patterns that reduce the crushing financial housing and transportation 
cost burden too many working families face today; and putting in place 
an infrastructure that will make them competitive in the global, 21st 
century economy.
    HUD's fiscal year 2012 budget requests another $150 million to 
create incentives for more communities to develop comprehensive housing 
and transportation plans that result in jobs, economic growth, easier 
commutes, and more efficient transport of goods. Up to $5 million will 
be used to develop more sophisticated data tools to help owners and 
operators identify and implement energy-efficiency measures that can 
lower the cost of heating, cooling and lighting in their HUD-assisted 
properties.

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

   impact analysis--how sustainable communities funding creates jobs
    In the fall of 2010, HUD and DOT awarded nearly $170 million in 
planning grants to regions and communities across the country. HUD 
awarded a $3.7 million regional grant to a consortium of public and 
private partners in Austin, Texas, which is developing a long-range 
regional transportation plan connecting a network of 37 mixed-use, 
mixed-income communities closely linked to transit and job centers. 
Specifically, with this planning grant, the city intends to build a 
trucking/air/rail transportation hub near the Austin International 
Airport that will employ 2,000 people from the region. In addition, 
Austin's use of these funds will help 3,000 small, family-run 
businesses expand or open a second location contingent on each of these 
businesses hiring one new worker who has been unemployed for 1 year or 
more. This will create an additional 3,000 jobs in an area of the 
country where small businesses are the major driver of growth. Last, 
with the expertise of private, higher education, and public partners, 
the consortium is using the grant to redevelop up to 10 strategically 
located properties for workforce housing and small businesses, directly 
and indirectly creating as many as 2,000 additional jobs.
    Austin's Department of Economic Growth and Redevelopment Services 
estimates that HUD's grant will help create at least 7,000 permanent 
jobs and thousands more in the construction sector, generating an 
additional $1.1 billion of economic growth over the next 5 years and 
saving the taxpayer $1.25 billion through better connected housing and 
businesses, more people employed and fewer people dependent on 
Government services.

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

            Out-Educating the Rest of the World--Choice Neighborhoods
    The President has made clear that winning the future depends on 
America winning the race to educate our children. But that's not 
possible if we are leaving a whole generation of children behind in our 
poorest neighborhoods. That is why the budget also brings Federal 
partnerships to connect historically isolated people and neighborhoods 
to local, regional, and national economies by providing a third year of 
funding ($250 million) for another signature element of the 
administration's place-based approach--the Choice Neighborhoods 
Initiative.
    Choice Neighborhoods builds upon the HOPE VI program launched by 
previous HUD Secretaries Jack Kemp and Henry Cisneros and congressional 
champions like former Senator Kit Bond and current Senator Barbara 
Mikulski. HOPE VI restored the most severely distressed public housing 
across America and did so while leveraging double the Government 
investment in additional private development capital. Choice 
Neighborhoods will continue transformative mixed-finance investments in 
high-poverty neighborhoods where distressed HUD-assisted public and 
privately owned housing is located. It will bring private capital and 
mixed-use, mixed-income tools to transform affordable housing in five 
to seven neighborhoods with grants that primarily fund the 
preservation, rehabilitation, and transformation of HUD-assisted public 
and privately owned multifamily housing. Like HOPE VI, it will also 
engage the private sector and the ``third sector'' of nonprofits, 
philanthropies, and community development corporations who have become 
some of our most sophisticated affordable housing developers and 
important civic institutions.
    Choice Neighborhoods is a central element of the administration's 
inter-agency strategy to provide local communities with the tools they 
need to revitalize neighborhoods of concentrated poverty into 
neighborhoods of opportunity. This strategy requires HUD, the 
Departments of Justice, Education, Health and Human Services, and other 
agencies to work together, co-investing, and pooling their expertise as 
part of a focused Neighborhood Revitalization Initiative where local 
actors can seamlessly integrate diverse Federal funding streams to 
tackle complex problems. In particular, through partnerships with 
Education's Promise Neighborhoods Initiative, Choice Neighborhoods will 
help ensure that the President's commitment to out-educating the rest 
of the world applies to every child in America, regardless of their 
neighborhood or the kind of housing they grow up in.
    The Department's administration of the first rounds of funding for 
Choice Neighborhoods and the Sustainable Communities Regional and 
Community Challenges grants exemplify how our practices generate 
effective partnerships with local housing and community development 
efforts. In the past, many Federal grant programs followed a rigid, 
top-down, one-size-fits-all approach that dictated what local 
policymakers could and could not do rather than listening to them and 
providing the tools they needed to meet local needs. Having served in 
local government myself, I am committed to a collaborative approach 
responsive to local needs--and believe the results thus far demonstrate 
that we are making good on that commitment.
            Ensuring Rural Communities Can Compete in a 21st Century 
                    Global Economy
    The administration has placed a significant emphasis on ensuring 
that America's rural communities are competitive in the 21st century 
economy. Rural communities generally have less access to public 
transportation, along with higher poverty rates and inadequate housing. 
This administration recognizes that residents of these communities also 
face unique challenges when it comes to accessing healthcare, grocery 
stores, and adult education opportunities, among others.
    HUD currently invests billions of dollars in rural communities 
through its core rental assistance programs and block grants. The State 
CDBG program uses 30 percent of annual CDBG funding for nonentitlement 
areas across the country. Because small towns and rural areas often 
lack the basic modern infrastructure that citizens in larger 
communities can take for granted, States annually spend more than 55 
percent of their CDBG funds on basic public improvements such as water 
and sewer lines, paved streets, and fire stations. And because rural 
communities need good jobs to sustain themselves, $1 out of every $8 in 
State CDBG funds is spent on economic development. In fiscal year 2010, 
State CDBG funds created or retained more than 12,000 jobs for lower-
income rural Americans.
    In addition to the special category of funding we created for small 
towns and rural places in the Sustainability Regional Grant Program, 
this budget requests $790 million to fund programs that are 
specifically targeted to housing and economic development activities in 
rural communities including:
  --$25 million for the Rural Innovation Fund to support innovative 
        approaches dedicated to addressing the problems of concentrated 
        rural housing distress and community poverty through 
        comprehensive community development, housing, and economic 
        development activities. The fund builds on the Rural Housing 
        and Economic Development program which has built and rehabbed 
        more than 17,000 homes, created credit unions and business 
        incubators that have helped more than 2,000 businesses get off 
        the ground, and supported housing counseling and home ownership 
        programs--over the last decade creating 13,000 jobs, providing 
        job training to nearly 38,000 people and leveraging more than 
        three times the $250 million HUD has invested in this program 
        in other public and private funds providing an excellent return 
        for the taxpayer. With the Rural Innovation Fund, we will 
        support these kinds of efforts on the larger scale these 
        challenges require.
  --$25 million for the Rural Housing Stability Program to assist 
        homeless persons in rural communities. Since 2010, HUD has 
        provided targeted Homeless Assistance Grants to persons living 
        in small communities through a set-aside. As part of the 
        Homeless Emergency Assistance and Rapid Transition to Housing 
        (HEARTH) Act, the Rural Housing Stability program was 
        specifically authorized in order to provide housing, training, 
        and services for homeless individuals and families, as well as 
        those families at risk of becoming homeless.
  --$782 million to fund programs that will support housing and 
        development initiatives in American Indian, Alaska Native, and 
        Native Hawaiian communities. As the single largest sources of 
        funding for housing Indian tribal lands today, HUD initiatives 
        in Indian country continue to have some of the Department's 
        most successful track records. Programs like Indian Housing 
        Block Grants, Indian Home Loan Guarantees, and Indian CDBGs 
        support development in remote areas where safe, decent, 
        affordable housing is desperately needed. HUD also directly 
        supports housing and economic development initiatives in remote 
        areas of Hawaii, through the Native Hawaiian Housing Block 
        Grant Program and Native Hawaiian Loan Guarantee Program.
            Winning the Future--a Successor to Empowerment Zones
    The budget also includes a multi-agency initiative, Growth Zones, 
to assist communities in using their funds more effectively to support 
job creation--an improved successor to the Empowerment Zones that 
expire this year. Coupling targeted tax benefits and grant funding, the 
budget supports the launch of an interagency effort led by DOC's 
Economic Development Administration (EDA), and supported by HUD and the 
Department of Agriculture. In addition, the budget also supports 
another interagency effort with EDA that helps communities to better 
employ the Federal investments they already receive (such as CDBG and 
HOME), promote high-impact strategies, and build the local capacity 
needed to execute those strategies in economically distressed areas. 
This effort will enable these communities to create more effective 
partnerships with businesses and nonprofits that will attract critical 
private investments to promote job creation. With leveraged support 
from HUD, other Federal agencies, and the philanthropic community, the 
Federal Government offers targeted EDA funds, technical assistance, and 
a National Resource Bank--a ``one-stop shop'' of experts that 
communities can draw upon for a full range of services, including 
fiscal reforms, re-purposing land use, and business cluster and job 
market analysis.
            Inclusive Communities for All
    Finally, a sustainable community is one in which all people--
regardless of race, ethnicity, religion, sex, disability, or familial 
status--have equal access to housing and economic opportunities. 
Throughout its portfolio of programs, HUD is committed to maintaining 
that inclusivity and providing accountability in housing and lending 
practices nationwide. Through inclusive development, education, 
enforcement of fair housing laws, and participation of historically 
underrepresented populations in HUD policies and planning, HUD will 
affirmatively further fair housing and the ideals of an open society. 
To that end, the Department is requesting $72 million--$11 million more 
than the fiscal year 2011 request--to support the division of Fair 
Housing and Equal Opportunity's administration of the Fair Housing 
Initiative Program (FHIP) and Fair Housing Assistance Program (FHAP).
Goal 5.--Transform the Way HUD Does Business
    Winning the future means reforming Government so it's leaner, 
transparent, and ready for the 21st century. While HUD programs make a 
big difference in the lives of ordinary Americans, this administration 
is also committed to making Government more efficient, more effective 
and more accountable. Particularly in today's tight fiscal environment, 
the need for responsible budgeting has never been greater--and making 
smart, responsible choices depends on quality information. That is why 
this budget demonstrates a strong commitment to conducting the research 
and collecting the data we need to understand what works, what doesn't, 
and what we need to do better--so that HUD can better serve the 
American people, better protect the American taxpayer and better 
partner with communities to meet the challenges of the decades ahead.
    The budget provides up to $120 million for the TI fund. In fiscal 
years 2010 and 2011, thanks to the TI fund, HUD began to fundamentally 
alter how we approached our investments in delivering technical and 
capacity-building assistance, conducting research demonstrations, and 
maintaining and upgrading our IT systems so that we can hold ourselves 
and our local partners accountable for the outcomes needed to achieve 
the Department's strategic goals.
            More of What Works and Less of What Doesn't--Research and 
                    Demonstrations
    A key element of HUD's transformation strategy is to provide a 
predictable stream of funding for high-quality research and evaluation 
that can inform sound policymaking. Allocating a small increment of 
program funds to this account will enable HUD to subject programs 
continuously to rigorous evaluation. Absent investment in key 
evaluations, demonstrations and analysis, HUD's capacity to support 
program refinement, measure progress toward goals and engage in robust 
policy development is extremely limited. This new era of evidence-based 
policymaking demands that HUD build back its internal research capacity 
and work in partnership with the research community to evaluate 
existing programs and design new policy approaches to solving America's 
housing and community development challenges.
    The Research, Evaluation, and Performance Metrics Initiative will 
supplement research and technology (R&T) appropriations in order to 
provide the Nation's basic infrastructure of housing data. The more 
careful and scientific approach enabled by these additional research 
investments will highlight for policymakers what works and what needs 
reform. Systematic research enables HUD to monitor results and 
undertake timely modifications of programs and policies that fail to 
produce results. A component of this research and evaluation will 
develop the right set of metrics to track program performance between 
evaluations to inform management decisionmaking. In fiscal year 2010, 
the Department was able to supplement a $48 million R&T appropriation 
with $26 million in Transformation Initiative Research, Evaluation, and 
Program Metrics funds. This funding permits the Department to determine 
how certain program functions ought to cost or ought to operate.
    For example, the current allocation method for HCV administrative 
fees is not based on rigorous and objective studies, and may over-
compensate some public housing agencies (PHAs) while underfunding 
others. The Department has used TI funds to develop a careful 
examination of the costs of administering the HCV program at high-
performing and efficient PHAs in a wide variety of communities.
    For fiscal year 2012, the Department anticipates approximately $25 
million to be allocated for research projects. HUD's proposed 
transformational approach to research would also inform the decisions 
of a broad network of public and private-sector actors. A key feature 
of the new approach is to partner with other Federal agencies, such as 
DOT, the Department of Energy, and EPA, on research topics of mutual 
interest. HUD will again confer with the Office of Management and 
Budget and the appropriate congressional appropriations and authorizing 
committees before finalizing the research agenda for funding under TI. 
Combined with efforts already in progress, HUD expects that this 
research will both improve program effectiveness and generate savings 
over time.
    An additional strategic thrust of TI was to enable HUD to design 
and execute a series of major research demonstrations. These trials of 
new program ideas provide a controlled mechanism to improve programs 
and help State and local governments develop more effective strategies 
for housing and community and economic development. Demonstrations are 
necessary to test innovative program approaches to improve the delivery 
and reduce the cost of public services. In short, well-run 
demonstration programs--such as the Jobs Plus, Moving to Opportunity, 
and Effects of Housing Vouchers on Families demonstrations of the early 
1990s--enable the Federal Government and our local partners to fund 
what works, and defund what does not. However, demonstrations generally 
require funding over several years and often allow waiver of program 
rules when conducted to pilot ideas for existing program changes. 
Flexible funding may be needed to cover design resources, additional 
program costs, such as incentives for participating households, and 
evaluation of the impacts over several years.
    Using funding flexibility granted in fiscal year 2010, HUD launched 
important demonstrations to test policy interventions in the Family 
Self Sufficiency (FSS) program, rent reforms in our major rental 
assistance programs, and the first round of Choice Neighborhoods 
grants, among others. For instance, the FSS program encourages public 
housing tenants to increase earnings by allowing them to set aside the 
rent increases they would otherwise pay to further specific goals, such 
as education and home ownership. TI funds will be used to test whether 
this is a cost-effective approach to increasing self-sufficiency that 
can be taken to scale. HUD anticipates allocating $15 million in fiscal 
year 2012 TI funding to program demonstrations, and, as in fiscal years 
2010 and 2011, HUD will confer with both the House and Senate 
Appropriations Committees before finalizing planned demonstrations 
under TI. These demonstrations will, in conjunction with HUDStat, be 
critical for informing funding decisions, as well as the re-engineering 
and streamlining of business processes and procedures in HUD's 
programs.
            21st Century Technology To Protect the Taxpayer's 
                    Investment
    Funding for information technology (IT) modernization and 
development is not requested under the TI fund for fiscal year 2012. 
Having assessed the fiscal year 2010 planning and implementation 
efforts, HUD has determined that funding these activities under the 
Working Capital Fund in fiscal year 2012 will allow the Department to 
better align the account structure and decisionmaking process with 
budget planning and investment life-cycle management policies. Within 
the TI fund, HUD will utilize significant balances from fiscal year 
2010, as well as funds available in fiscal year 2011, to continue the 
execution of priority IT development, modernization, and enhancement 
efforts, including FHA Transformation and the Next Generation Voucher 
Management System (NGVMS).
    The FHA Transformation project involves the development of a modern 
financial services IT environment to better manage and mitigate 
counterparty risk across all of FHA's Insurance Programs. The system 
will minimize the exposure of our Insurance Funds and support the 
restoration of the capital reserve ratio to congressionally mandated 
levels by enabling risk detection, fraud prevention, and the capture of 
critical data points at the front-end of the loan lifecycle. More 
simply put--FHA Transformation will enable HUD to identify trends, and 
seamlessly take action, before problems occur. This approach will 
protect consumers and the economy by ensuring that safe underwriting 
standards are adhered to, as FHA approaches $1 trillion of Insurance-
in-Force. Importantly, FHA Transformation will also allow HUD to start 
the careful process of migrating relevant portions of our legacy 
applications, most of which were built in a 1970s-era programming 
language, to a more cost-effective platform.
    NGVMS performs a department-wide reengineering of the current 
voucher management business models and processes. NGVMS will replace 
20-year-old legacy systems and Excel-based budget spreadsheets with a 
solution that establishes uniform processes and a standard set of rules 
and regulations that support all of HUD's rental assistance programs. 
The system will support enhanced budget planning and forecasting 
capabilities, improve grantee reporting and data integrity, and ensure 
that programs comply with the requirements of the selected provisions 
from the proposed SEVRA.
    In addition to improving systems that support HUD's programs, the 
agency is also investing in technology to improve HUD's administrative 
processes. For example, the HUD Integrated Acquisition Management 
System (HIAMS) will automate all phases of the acquisition lifecycle to 
create greater accountability and transparency, as well as enable 
timely processing of procurement actions. The agency's current process 
is manually intensive and highly susceptible to errors. HIAMS will 
reduce processing inefficiencies, increase visibility into the 
acquisition process, and enable HUD to obtain services faster. The 
system utilizes the most widely adopted Federal acquisition management 
software, a solution that is currently used by more than 80 
organizations across the civilian, intelligence, and defense sectors.
            Reforming Government and Improving Accountability With 
                    Cutting-Edge Technical Assistance
    The community development field is evolving to a more 
comprehensive, sustainable approach to neighborhoods and cities. As 
noted, HUD has embraced this change with new initiatives like 
Sustainable Housing and Communities, Choice Neighborhoods, and the 
Neighborhood Stabilization Program. In order to realize this expanded 
vision, the Nation needs local practitioners--both local government and 
nonprofit partners--who understand a more comprehensive approach, who 
can use current technology to assess needs and to measure success, and 
who have modern skills to deliver results and save money for the 
taxpayer.
    TI recognizes that enhanced and focused information, and more 
targeted support for grantees, will result in better program 
administration and more integrated planning and action that cross 
programs and jurisdictions. Effective responses to urban and housing 
challenges increasingly require coordination and awareness of diverse 
areas of knowledge:
  --housing finance as well as land-use planning;
  --economics as well as energy efficient design;
  --community development as well as transportation planning; and
  --accessible design as well as job creation strategies.
    TI is helping HUD to develop a new level of technical assistance 
and capacity building to Federal funding recipients. Traditionally, HUD 
has delivered compliance-oriented technical assistance, funded through 
individual program accounts that ensure grantees are fully aware of the 
rules governing HUD's disparate programs. HUD's fiscal years 2010 and 
2011 budgets proposed rolling these accounts into one broad technical 
assistance effort to be funded from global transfers to the TI fund. 
Central funding through TI has allowed the Department to develop 
comprehensive technical assistance efforts that focus on skills needed 
to improve program outcomes, rather than merely reinforcing program 
compliance.
    In the fiscal year 2012 budget, HUD once again requests discretion 
to target technical assistance funding to those programs that need it 
most based on the capacity of current grantees, new program 
requirements (e.g., the continued implementation of the HEARTH Act, or 
implementation of new programs such as Choice Neighborhoods or 
Sustainable Housing and Communities), broader economic and social 
imperatives (e.g., a spike in homelessness, or the impact of high 
energy and housing costs on housing affordability), or unanticipated 
crises (e.g., natural disasters). In order to ensure that these 
critical but limited resources are targeted appropriately, HUD will 
continue to evaluate the technical assistance needs of its grantee 
communities in fiscal year 2011 with TI funds and build on those 
findings with funds from fiscal year 2012.
    In particular, HUD will pilot a new approach--involving 12 other 
agencies including the White House--aimed at improving the capacity of 
local governments in chronically distressed cities and developing 
partnerships to support job creation and economic development. Many of 
the cities that have historically driven America's economic growth are 
now amongst its most economically distressed. These cities have 
struggled to return to a place of economic productivity and opportunity 
after decades of industrial decline--a challenge exacerbated by the 
recent economic downturn. This initiative is designed, not to provide 
additional funding, but instead to ensure that communities are using 
the resources already available to them more effectively and 
efficiently so they can compete in the global economy.
    As part of this effort, TI will support the creation of a National 
Resource Bank (NRB). The bank is so named because it will be a 
repository of technical assistance for local governments across the 
Nation, but will not provide direct financial resources. NRB will align 
and aggregate public and private funds to provide cities tailored 
technical support through a ``one-stop shop'' of national experts with 
wide-ranging skills that are critical for economic development. These 
include fiscal reforms, repurposing land use, and business cluster and 
job market analysis, to name a few. NRB will help lay the foundation 
for economic recovery and transformation in these cities through truly 
place-based support that leverages existing strategic partnerships 
between local governments, Federal regional office staff, and the 
philanthropic community and helps to foster further linkages for the 
long-term benefit of these cities. The local demand for the capacity-
building assistance that NRB will provide is broad and sustained. 
Cities have had few options for building organizational capacity since 
the 1970s, and recent budget cuts have created even greater strains on 
capacity at the same time that local challenges are growing more 
complex. NRB will play an essential role in helping to coordinate and 
direct Federal technical assistance functions at a time of severe local 
government need.
                               conclusion
    Madam Chairwoman, this budget reflects the Obama administration's 
recognition of the critical role the housing sector must play for the 
Nation to out-build, out-educate and out-innovate our competitors. 
Equally important, it expresses the confidence of the President in the 
capacity of HUD to meet a high standard of performance.
    Given the economic moment we are in, HUD's fiscal year 2012 budget 
proposal isn't about spending more in America's communities--it's about 
investing smarter and more effectively.
    It's about making hard choices to reduce the deficit--and putting 
in place much-needed reforms to hold ourselves to a high standard of 
performance. But most of all, it's about the results we deliver for the 
vulnerable people and places who depend on us most.
    I believe winning the future starts at home--and with this budget 
of targeted investments and tough choices that I respectfully submit, 
we aim to prove it. Thank you.

    Senator Murray. Thank you very much, Mr. Secretary, and 
thank you for your openness and continual communication with us 
on a lot of questions.
    I do have some questions I will submit for the record that 
I want to make sure I have a chance to talk with you about. I 
do have to get over to a very critical meeting.
    Secretary Donovan. Very critical.
    Senator Murray. And in the spirit of bipartisanship that 
this subcommittee has always operated on, I am going to turn 
the gavel over to my able ranking member, Senator Collins, for 
her questions and I will submit mine for the record. Thank you 
very much, Senator Collins.

                              HOMELESSNESS

    Senator Collins [presiding]. Thank you, Madam Chairman.
    Secretary Donovan, as I mentioned, one of my primary 
concerns is the number of homeless Americans. The Government 
Accountability Office (GAO), however, recently issued a report 
that indicated that there was considerable duplication among 
Federal housing programs aimed at the homeless. For example, 
GAO reported that at least seven Federal agencies, 
administering more than 20 programs spending nearly $3 billion, 
provide some type of shelter or housing assistance. GAO has 
raised concerns that this leads to fragmentation, duplication 
of service, unnecessary costs, and points out that this 
fragmentation can create difficulties for people who are trying 
to access those services, as well as administrative burdens for 
providers.
    What is your response to GAO's concern that we are not 
delivering programs to people who are homeless in as efficient 
a way as possible?
    Secretary Donovan. First of all, I would say not only do I 
agree that there is significant work we can do on consolidating 
and streamlining programs, but also on better coordinating 
those. The President talked very directly about this in his 
State of the Union Address.
    Homelessness is a very good example where part of what we 
need to do is simplify and streamline overlapping programs, but 
we also need to step up our coordination and improve the work 
between agencies. One of the most important advances we have 
made was the HEARTH Act which consolidated and improved HUD's 
programs so that we have a much simpler but more effective set 
of programs at HUD, and we are in the process of implementing 
the HEARTH Act through new rules. And you will see, fully 
reflected in our budget for 2012, full funding for that.
    We have a number of other ways that we are consolidating 
overlapping programs that I would be happy to talk about 
outside of homelessness, but I do want to mention for a moment 
the coordination piece of this, which I learned very well 
working across party lines in my prior work at the local level 
to create a plan to end homelessness.
    VASH is a very good example. When we came into office, 
there were only about 1,200 veterans who were actually 
benefiting from VASH despite 20,000 vouchers having been 
appropriated by this subcommittee. And so we rolled up our 
sleeves. We sat down, figured out what the blockages were 
between us and VA, figured out what our roles should be, how we 
could coordinate better. And I am proud to say that today we 
have almost 20 times as many veterans who are benefiting from 
VASH as there were 2 years ago, more than 21,000 today. That is 
exactly the kind of coordination that we need, and it is an 
example of how the U.S. Interagency Council on Homelessness is 
leading the coordination across 19 different Federal agencies 
to implement our homeless programs.
    Senator Collins. I think that everyone is for effective 
coordination, and the partnership with the VA on that program 
is absolutely critical to reaching the veterans who need help, 
and I have seen the success in my own State.
    But GAO is talking about something far more than that. GAO 
is raising questions about whether we are delivering services 
as effectively as possible or whether, in fact, there is a 
system of such duplication that it is not serving those who 
need help, nor the providers, nor the taxpayers well.
    So I would ask you to take a look at GAO's specific 
criticisms and get back to our subcommittee about whether there 
is some overlap and fragmentation that is not serving anyone 
well.

 THE HOMELESS EMERGENCY ASSISTANCE AND RAPID TRANSITION TO HOUSING ACT

    On the HEARTH Act, I was the cosponsor of that bill, and it 
was so important because it does create a more comprehensive 
approach. It updates the McKinney-Vento Homelessness Assistance 
Act. HUD, under this bill, is charged with developing a new 
formula to distribute the funds in a fair way across the 
Nation. What is the status of that effort? And what factors is 
HUD weighing in deciding how to distribute those funds?
    Secretary Donovan. We are, as I mentioned earlier, working 
actively on the implementation. One of the impacts this year of 
having a CR continuing for fiscal year 2011 is, unfortunately, 
that we cannot go ahead and implement yet, but we do plan to 
have the rules out in the next few months for all the various 
pieces, and there are a number of different pieces that we are 
implementing.
    And specifically on the formula, we began discussions with 
stakeholders and others last summer around potential changes to 
the formula. We expect them to be included as the regulation is 
released, and we are particularly looking at how to better 
incorporate need into that formula because the original formula 
was based primarily on the CDBG formula which is not the best 
proxy, if you will, for the way that homelessness affects 
different communities. And so it is particularly around need 
and the way that it varies across different types of 
communities that we are looking at, as we look at the formula.

                       PUBLIC HOUSING AUTHORITIES

    Senator Collins. You mentioned in your statement that we 
were losing--I think you said--10,000 units of public housing. 
As you know, a lot of these housing issues are relatively new 
to me, and as I have been learning about the various programs, 
I have wondered why we still have public housing and whether or 
not we should be moving to a system where we give vouchers so 
that low-income individuals have more choices about where they 
live. And it would take more of a private-sector approach as 
well. It would still have the kinds of benefits for the 
construction industry that you have talked about because the 
demand for housing would still be there, but it seems to me you 
would avoid some of the problems that we have seen with private 
housing units.
    And that question, which came to my mind, was heightened 
when I read about the truly egregious and outrageous cases of 
fraud and corruption in some PHAs. I know some do a wonderful 
job, but some of these cases recently, such as in Philadelphia 
or where money was wasted on belly dancers, dead residents--it 
is really very, very troubling.
    Has HUD looked at taking a whole different approach to 
helping low-income people perhaps by expanding the Section 8 
voucher program and not trying to replace these public housing 
units?
    Secretary Donovan. A terrific question, Senator.
    Let me go to the issue of, currently, some of the things we 
need to do, because I could not agree with you more that we 
need to look at the system overall, but we also have to make 
sure in the short run that we are better enforcing against the 
most troubled housing authorities.
    I do want to say more than 95 percent of housing 
authorities are not troubled. We have a significant system that 
we use to track and monitor them, but I think it is fair to say 
that we can step up what we are doing. In Philadelphia 
specifically, we cut off excessive payments they were making to 
outside law firms. We have called on the board to step down 
and, in fact, are coordinating very closely with our inspector 
general on audits that they are doing there. I was pleased to 
see yesterday that one of the board members stepped down, and I 
am hopeful that the remaining board will step down so that we 
can really move the housing authority forward there.
    But one critical thing I would point out in the budget--our 
TI, in addition to the dedicated team that we are setting up, 
thanks to that funding, to go in and catch troubles before they 
develop too significantly by early warning signs through 
financial information is critically important.
    The other thing that TI is doing is allowing us to create 
new systems for the voucher program and the public housing 
program which will allow us to dramatically step up our 
monitoring and enforcement there and, again, to catch problems 
before they happen.
    On your point about the system overall, this is exactly why 
we have proposed a demonstration in the budget. We, for more 
than one-quarter of a century, have been using private capital 
to develop any new unit of affordable housing, including 
Florence House that we saw together in Maine. We have a low-
income housing tax credit system that has worked quite well, 
and it introduces not just discipline from the private sector 
that allows not just HUD's eyes but other sets of eyes to make 
sure the property is working. It also allows a mix of incomes 
that we know is much more beneficial to the families that are 
there. And so that is a critical part of what we are trying to 
do with this budget. I look forward to having further 
conversations about it.
    One of the components of that is to try to expand choice in 
public housing. Right now, for a family that lives in public 
housing that may have a job in another town, that may be a 
decision to give up $4,000 or $5,000 a year in housing 
assistance because they would have to get back on a waiting 
list somewhere else. So part of our proposal would allow more 
flexibility for those families to take a voucher with them and 
open up a unit in public housing behind them.
    So I could not agree more with the direction that you are 
going. We do need to think about the system structurally for 
changes. And in fact, Congressman Ellison on the House side 
introduced a bill called the Rental Housing Revitalization Act 
that would open up public and private financing, allow public 
housing to be more integrated, and provide more choice last 
year, and we look forward to working with you, hopefully, in 
the Senate on that as well.
    Senator Collins. Thank you.
    Senator Pryor.
    Senator Pryor. Thank you, Madam Chairman, but I think 
Senator Blunt was here before I was. Go ahead, please.
    Senator Collins. Senator Blunt. Everybody is so polite 
here.

                             BUDGET NUMBERS

    Senator Blunt. I only have a couple of questions, Mr. 
Secretary.
    One, on your overall budget, how does that number compare 
to the fiscal year 2010 number and the fiscal year 2008 number?
    Secretary Donovan. I do not have the fiscal year 2008 
number in front of me. I will ask my team to look at that, and 
I should have it in a moment.
    Compared to fiscal year 2010, on a net basis, it is about 
$1.2 billion less than 2010 actuals, or a 2.8-percent reduction 
on a net basis. It is quite important----
    Senator Blunt. What does that mean ``on a net basis''?
    Secretary Donovan. Our budget has both spending and also 
has substantial receipts from FHA. So, for example, our 
proposal to increase the premium for FHA 25 basis points is 
expected to increase our receipts next year by about $2 
billion. This year our expectation is that FHA will earn on its 
new loans that it is making about $10 billion. So that is an 
important component of our budget. The more effectively and 
efficiently we can manage FHA, the more return there is to the 
taxpayer from that side of our budget.
    Senator Blunt. So that increase in FHA is part of the net 
reduction?
    Secretary Donovan. That is correct.
    Senator Blunt. And what about fiscal year 2008? Does your 
staff have that yet?
    Secretary Donovan. On a net basis, fiscal year 2008 was 
$37.7 billion, and that compares to the $41.7 billion that we 
are requesting this year. So it is an increase from fiscal year 
2008.
    Senator Blunt. An increase from fiscal year 2008.
    Secretary Donovan. Yes.

                             RURAL HOUSING

    Senator Blunt. On all this discussion about duplicative 
programs and streamlining, there is some discussion that 
Section 538 rural housing might be better served as part of a 
bigger program. We have a lot of rural housing in Missouri, in 
most of the States, through a not very big program but a much 
targeted program. What is your view of the best place to 
administer housing programs that have a targeted audience, a 
targeted group they are trying to help?
    Secretary Donovan. It is an excellent question, and in 
fact, we have already begun, as part of the initiative that the 
President announced in the State of the Union Address, between 
HUD, the Department of Agriculture (USDA), and VA, to look at 
where we might be able to streamline and simplify the overlaps 
between our lending programs. For example, currently Ginnie Mae 
is the securitizer for not just FHA but also VA and USDA, and 
that works quite effectively. So I think there are further 
things that we could do to share knowledge systems, reduce 
duplication between all of our credit programs.
    I think ultimately I would expect--we are, obviously, just 
beginning that look--that not everything should be consolidated 
because USDA, for example, has a presence in many rural areas 
that we do not have. But it might be that there are certain 
functions, as Ginnie Mae serves today for USDA, that we might 
be able to consolidate or streamline across the agencies, and 
that is exactly what we are looking at through this task force 
that we have put together as a result of the President's new 
initiative.
    Senator Blunt. Everybody in Washington now seems to be 
strongly on the side of minimizing duplication and not having 
all kinds of money spent for programs that do the same thing. 
But I just would hope that you will make the case that if the 
elimination of duplication means that you have to have a 
different kind of staff serving an area that you do not have a 
presence in now, that is something that very much needs to be 
understood. If all we do by eliminating rural housing under 
USDA is require you to have significant monitoring 
responsibilities that you currently do not have any way to deal 
with, be sure that we understand that as part of why this 
duplication exists and why it makes more sense. It is helpful 
for me to hear you put it that way as well.
    Secretary Donovan. Despite the word ``urban'' in the 
agency's name, we actually do have a substantial presence in 
rural areas as well. And in fact, in our budget, we not only 
have a substantial, more than $800 million set of programs that 
are directed exclusively to rural areas, things like a Rural 
Innovation Fund which helps creative nonprofits and others do 
things like self-help housing or other things that are 
particularly appropriate for rural areas or in Native American 
communities, we also for the first time are proposing, thanks 
to the HEARTH Act that Senator Collins was a cosponsor of, will 
have a dedicated $25 million program attacking homelessness in 
rural areas because homelessness, as we learned, is different 
in rural areas. We are also proposing more than $700 million 
targeted to Native American communities.
    But in addition to that, one thing I would point out--and 
this is often missed--the CDBG program is a program that does 
not just serve cities or large counties. Thirty percent of the 
money goes to States and 75 percent of that State money, about 
$800 million, is used in rural areas. And so the CDBG program 
is a critical tool, about $800 million directly to serve 
housing and other kinds of infrastructure needs in rural areas, 
and it has a different distribution channel exactly for what 
you are saying. It reaches those areas more effectively.
    Senator Blunt. Thank you, Secretary.
    Thank you, Madam Chairman.
    Senator Collins. Thank you.
    Senator Pryor.

                        DISASTER RECOVERY REPORT

    Senator Pryor. Thank you very much.
    Mr. Secretary, let me start with an issue that is important 
to Senator Blunt and myself, and that is the New Madrid Seismic 
Zone, which is the New Madrid fault that begins in the boot 
heel of Missouri and goes on down into Arkansas and is 
predicted to be--heaven forbid--a very serious threat in terms 
of catastrophic damage if it ever happens. In fact, this week 
we had three earthquakes in Arkansas. One was a 4.7 on the 
Richter scale. It was felt in four States. And then we had two 
sort of follow-up earthquakes, 3.8 and 3.6, in that same few-
hour span.
    The reason I am asking you about this is because last year 
the President announced that you and Secretary Napolitano would 
lead a long-term disaster recovery working group which would 
report to him on your efforts for long-term disaster recovery 
apparatus in our country. The report was promised in April 
2010. That did not happen. We inquired, and the deadline was 
moved back to August 2010. It still has not been delivered. Do 
you have any idea when that is going to be ready to be 
delivered to the President and sent to the Congress?
    Secretary Donovan. Let me be honest about this, Senator. We 
had done extensive work on the report. We were close to 
releasing it. And then the oil spill in the gulf happened, and 
it made us step back and take a look at the approach that we 
had taken because, frankly, this was a different kind of 
disaster than we had primarily focused on, and we had some 
real-world learning experience that happened over last summer 
to look at in that. And so we have gone back, done a range of 
revisions, and we are literally in the process now of working 
with all the agencies that were involved in trying to make 
final revisions to that report.
    So I would be hopeful that this spring, certainly, that we 
would have it out. I cannot tell you if it is 1 week or 2 weeks 
or 2 months, but we are very close through this interagency 
process of trying to resolve the final comments on it.
    And I would say that as an agency that is very much 
involved like CDBG has been in responding to the long-term 
implications of disaster, it has been a very important process 
for us, and we have begun standing up already increased 
capabilities at HUD, thanks to the support of the subcommittee.
    Senator Pryor. Also, this year, the 2011 national level 
exercise, which is an exercise to make sure we are prepared for 
various disasters, will focus on the New Madrid Seismic Zone. I 
do not know if your Department is participating in that.
    Secretary Donovan. Yes, we are.

                    DUPLICATION IN FEDERAL PROGRAMS

    Senator Pryor. I was going to say if you are not, I 
certainly hope you get involved in that.
    Let me also follow-up on one of Senator Collin's questions 
because her Committee asked for this GAO report, and the GAO 
report actually singled out several HUD programs. I know in one 
section of the report, it says there are 12 HUD programs among 
some 80 economic development programs at four other agencies. 
These are, as they say, fragmented programs that overlap, in 
terms of economic development activities. In other words, they 
do overlap and they are duplicative.
    We spend about $6.5 billion on all of those programs.
    I do not know if you are familiar with the GAO finding, but 
if you are, is this an area in your view that needs to be 
addressed?
    Secretary Donovan. The GAO report was just issued this 
week, so we are still in process of reviewing it. I do not have 
a detailed response for you at this point.
    What I will say is there is no question--as the President 
talked about, in the State of the Union Address, one agency 
focused on fresh water salmon, a different one focused on salt 
water salmon--that in the economic development world, that 
there are overlapping programs. So, for example, we have 
proposed in this budget a number of consolidations where we 
think that makes sense. One in terms of new construction would 
be the Self-help Home Ownership Program (SHOP), which we have 
proposed to be incorporated into the HOME program as an 
eligible use rather than having a separate stand-alone program. 
Those are the kinds of steps that I think we can take.
    In addition to that, I do think it is important not only to 
focus on the consolidations--we will never get down to one 
program at one agency because, as the discussion we had about 
rural housing, there are important differences in the programs 
that they serve. So in addition to the consolidation and 
simplification, the coordination that we have set up with the 
Economic Development Administration at Commerce, with the 
Department of the Treasury, is very, very important as well. 
And in fact, we have some coordinated proposals in the budget 
this year to try to simplify and improve the low-income housing 
tax credit and other programs that cut across agencies as well.
    Senator Pryor. Also, on a similar vein--Madam Chairman, if 
you will just give me 1 more minute here.
    Senator Collins. Absolutely.

                   SECTION 108 LOAN GUARANTEE PROGRAM

    Senator Pryor. Along a similar vein, the Section 108 Loan 
Guarantee Program. The budget this year is a request for $500 
million, which is a 100-percent increase, but that same GAO 
report contends that HUD does not do a sufficient job in 
tracking the long-term performance outcomes measured in this 
program because the agency lacks a reporting mechanism to 
capture how the program funds are used.
    In addition to that, back in 2007, the Office of Management 
and Budget (OMB) had a report that questioned Section 108's 
effectiveness and impact on neighborhoods.
    I do not disagree with the goals of the programs. I am on 
board with the goals, but I want to tell you, like Senator 
Blunt said a few minutes ago, I do not think I can support more 
funding unless we know that those tax dollars are going to be 
spent effectively and be spent wisely.
    So did you have any comment on that?
    Secretary Donovan. First, specifically on Section 108, 
Section 108 is effectively an option under the CDBG program 
which allows a grantee to use their own CDBG funding to 
leverage private capital. So in that sense, it can be a very 
powerful, effective tool to get more bang for the buck. It 
typically leverages many multiples of the CDBG funding itself 
and has been used effectively.
    The specific issue that GAO pointed to, which is exactly 
right, is that because of the nature of this--that it leverages 
private capital--we have not had a tracking system in the same 
way that we track regular CDBG funds when they are used for 
other purposes. And one of things that the investments that we 
have had from this subcommittee to improve our technology is 
allowing us to do is to incorporate better tracking of 108 into 
what we call the Integrated Disbursement and Information 
System, which is the system we use to report and track CDBG 
funding. So that recommendation is something that in fact was 
already in process and that we completely agree with.
    Let me just make one other point. As I hope you will learn 
on this subcommittee, I am a numbers guy, and one of the most 
important things for me--and this goes directly to Senator 
Collins' discussion about homelessness--we have very good data 
now to prove that these programs work and they save money. One 
of the key things that I have begun to establish at HUD, partly 
using the TI funding that the subcommittee provided and the 
flexibility it provided to use that more effectively, is a 
HUDStat process. Every month, I sit down with every senior 
person in the Department, many program directors, and we track 
progress on the four key strategic goals that we set out in our 
strategic plan and use that as an accountability mechanism 
which never existed before at HUD.
    That, combined with the research, the demonstrations, other 
things that we are doing which are longer-term studies to see 
whether the programs work, I think are critically important. It 
is one of the places where I really want to make sure we are 
working closely with the subcommittee to ensure that you are 
comfortable that you can see the monies being used effectively 
and what those specific results are, not just that we are 
avoiding, waste, fraud, and abuse, which is critical, but also 
that we are getting bang for our buck in terms of the outcomes 
of these programs.
    Senator Pryor. Thank you, Madam Chair.

                          HOUSING FIRST MODEL

    Senator Collins. You are welcome.
    Mr. Secretary, as you were talking about the effectiveness 
of programs and the savings that they produce and the outcomes 
that result, I could not help but think that with the Housing 
First model, which I have become convinced works very well and 
the data proved that----
    Secretary Donovan. Amen.
    Senator Collins [continuing]. The problem is it saves money 
not for HUD but for the Medicaid program, for the corrections 
system, for State and local governments. So somehow we need to 
be able to measure the overall impact, even if it means we are 
spending more money out of the HUD budget, overall it produces 
tremendous savings and better outcomes but that is not going to 
be reflected in the HUD budget. So I think this is a challenge 
for all of us as we assess the effectiveness of the programs.
    I was originally a skeptic of the Housing First model 
because I felt that unless you made getting assistance for 
substance abuse problems, for example, a condition of getting 
into these apartments, it would not work. In fact, just the 
opposite has been proven. And I, like you, am convinced by 
data, and the data totally convinced me that this is the case. 
But when I read you those statistics, I could not help but 
think you are not the beneficiary of those savings.
    Secretary Donovan. It is absolutely right. In fact, this is 
true at the local level, obviously, as well, and we used to 
call it in New York the ``wrong pocket problem,'' that you may 
take money out of one pocket and save it in the other, but 
unless you have budget mechanisms to allow those dollars to be 
shifted across accounts, you do not do the smart thing, which 
is invest more in places that are going to save you money.
    I would say, however, we have had these discussions in 
detail, including with the OMB Director. It is very difficult--
and it might even be worth having this conversation with CBO 
from the subcommittee's point of view. It is very difficult to 
write that recognition into the budget scoring rules, but you 
will see there is an important reason why we have almost a 30-
percent increase in our homeless programs, despite significant 
cuts that we are taking in other places, is because even if it 
cannot officially score it, OMB very clearly recognizes the 
kind of benefits that you are talking about. And so it is 
clearly something we have taken into account as we were putting 
together the budget this year.

                           FHA'S FUTURE ROLE

    Senator Collins. Let me switch subjects now to talk to you 
about FHA. There is a basic philosophical issue that I believe 
that the Congress and the administration need to confront 
regarding the future role of FHA, and that is, should it 
support low- and moderate-income borrowers or should it support 
all borrowers? And that is an important threshold question 
because the answer to that influences what the limit is on the 
cost of houses. And I know that is an issue that the 
administration is looking at. So tell me what the 
administration's vision is for FHA.
    Secretary Donovan. I think that vision is actually 
consistent with what you have seen happen through this crisis 
at FHA. And what I mean by that is, our primary mission, when 
the housing market is functioning in ``normal times,'' let us 
call them, is to serve low- and moderate-income borrowers and 
to serve underserved populations who may not have access 
otherwise, but always within a loan limit that restricts who we 
can reach. In fact, historically, our market share has been in 
the range of 10-15 percent, so you could see quite targeted to 
a very small subset of the overall market.
    However, we do have another mission as we were established, 
which is to make sure that there is liquidity in times of 
crisis, and that is, I think, very consistent with why the 
Congress raised the loan limits for FHA as we went into the 
crisis. Our market share has expanded significantly. It is up 
more than 20 percent, still very targeted, I would add, on low- 
and moderate-income folks, because 80 percent of those who used 
our loans for purchases were first-time home buyers and only a 
tiny share of the loans that we are doing are near the top of 
the higher loan limits.
    But we believe, as I said in my testimony, that we need to 
take steps to bring us back to that historically more limited 
role. One important step is the premium increase that I 
described. We also called in our housing finance reform 
proposal for the Congress to allow the higher loan limits to 
expire on October 1, which is what they would do unless the 
Congress takes other action, and that would begin to bring our 
loan limits back down to more historic levels. It would go from 
$729,000 in the highest-cost areas--that is not everywhere, but 
just the highest-cost areas--down to $625,000 in the highest-
cost areas. We believe that is a good first step, but we also 
say in the reform proposal that we need to go farther than 
that.
    We want to be cautious about the timing because the housing 
market is still fragile. We think October, assuming we do not 
have any major shocks in the system, makes sense as a first 
step, but the further steps, we should time, and how far we go 
in lowering the loan limit, we should time based on how the 
market is recovering and what speed private capital is coming 
back into the market.
    I hope that answers the question.

                   FREDDIE MAC AND FANNIE MAE REFORM

    Senator Collins. It does.
    I know that you have also been very involved in the 
administration's white paper on the options for Freddie Mac and 
Fannie Mae. What will be the impact on FHA and Ginnie Mae if 
the Congress reforms Freddie and Fannie in a way as to reduce 
their role in the mortgage market?
    Secretary Donovan. That really depends on the range of 
options, and we did lay out three options. And I think this is 
a critical point. We did call for, in any option, to continue 
FHA. So it is a clear statement that FHA has an important role 
to play. A targeted Government guarantee is important to the 
functioning of the market and to reaching low- and moderate-
income borrowers, whatever we do with Fannie Mae and Freddie 
Mac. And so that was one important principle.
    Within the options, though, were we to take option one, 
which would be no Government guarantees beyond FHA, VA, and 
USDA, it is clear that FHA would be required to play a much 
more significant role particularly in times of crisis, that we 
would have to step up and our volume would increase much more 
dramatically than it has through this crisis that we have just 
experienced. And I will tell you--and this is part of, as Madam 
Chairwoman Murray said, the pros and cons of the various 
options that we need to understand--I think there is real risk. 
FHA is already straining to keep up with the volume increase 
that we have experienced. To rely on FHA to take up far more 
than 50 percent of the market, for example, in the next crisis, 
I think has real implications.
    I would also say, recognize that FHA's guarantee is a 100-
percent guarantee. We do not have significant private capital 
sitting ahead of us. There are private implications for 
defaults. We try to align those incentives. But one of the 
things that we argue around option 3 is that you could design a 
guarantee outside of FHA that has more private capital sitting 
ahead of us that would allow you to be more sure the incentives 
are better aligned when you are really looking at a large share 
of the market, rather than just the targeted share that we 
currently have.
    So the impact on FHA would really vary depending on the 
outcome, and I think that is a very important consideration as 
we think about which option to choose.

                               GINNIE MAE

    Senator Collins. It is my understanding that for the first 
time in its history, the outstanding guarantees on Ginnie Mae 
securities now exceed $1 trillion. What are the prospects that 
Ginnie Mae would need a Government bailout similar to the very 
unpopular Government bailouts and very expensive Government 
bailouts of Fannie Mae and Freddie Mac?
    Secretary Donovan. It is a terrific question. Let me just 
try to clarify, first of all, exactly what Ginnie Mae is on the 
hook for, so to speak.
    Senator Collins. Yes.
    Secretary Donovan. Any loan that Ginnie Mae so-called 
guarantees already has some other form of Government insurance 
on the loan, and so in no case is Ginnie Mae guaranteeing 
whether a borrower can pay, whether a home might go under water 
or there is a foreclosure on the individual home. That risk is 
covered by FHA or USDA or VA.
    What Ginnie Mae is guaranteeing against is that the 
financial counter-parties--in other words, whatever financial 
institution is actually required to pay the investors in the 
case of default--that that institution runs out of capital and 
would not be able to make good. So it guarantees timely payment 
to the holder of the security from whatever financial 
institution is collecting the payments from whether it is the 
borrower or from FHA in the case of a default. And so the risk 
is a very narrow risk relative to the risk that FHA takes on.
    Having said that, we have seen through this crisis the 
failure of a number of those institutions with significant 
losses to Ginnie Mae, all very much absorbable within the 
reserves that Ginnie Mae has, and Ginnie Mae has continued to 
be profitable for the last few years.
    What I would say--and this is related to the budget 
proposal for 2012--because of the nature of FHA and Ginnie Mae, 
our need to respond to the market--there are times where the 
lack of flexibility we have in the appropriations process and 
the way the budget is set often 1 year or 1\1/2\ year in 
advance, it is very difficult to respond to the fluctuations in 
the market. And particularly through this crisis, we have been 
challenged to have Ginnie Mae step up its monitoring and 
oversight. Particularly, we can hire contractors through the 
flexibility that Ginnie Mae has. We have not been able to hire 
staff except for the good work that this subcommittee has done 
to increase our staffing there. But that takes time, obviously, 
through the appropriations process.
    One of the things we are proposing in the fiscal year 2012 
budget is to allow Ginnie Mae to use its revenues more flexibly 
not only to pay for contractors but to hire staff as well. It 
is something that we think is a good model and we might even 
think about applying it to FHA in ways that would allow us to 
respond more flexibly to invest more in technology and other 
things.
    So it is a long answer, but I wanted to make sure that that 
was clear as well in the fiscal year 2012 budget.

                              FHA RESERVES

    Senator Collins. I am told, however, that Ginnie Mae's 
reserves are less than the 2 percent that traditionally has 
been held. Is that not a problem?
    Secretary Donovan. Actually FHA's reserves are less than 
the 2 percent that the Congress mandates. That is an issue that 
we are concerned about and in fact is the primary reason why we 
proposed the 25-basis-point increase----
    Senator Collins. In the insurance.
    Secretary Donovan [continuing]. In our insurance fees.
    I will say we have--because of a range of reforms that we 
have made--we have hired the first-ever chief risk officer in 
the history of FHA. Using funding that the subcommittee has 
provided through TI, we are investing in automated fraud tools, 
creating new systems for FHA that allow us to track performance 
better. All of those have allowed us to perform significantly 
better than our independent actuarial reviews have predicted 
each year. And so our reserves are now more than $1 billion 
above what was expected even just this year from our actuarial 
review that was done just a few months ago. So we are 
performing better than expected. I do not want to say we are 
out of the woods by any means. We continue to watch it closely, 
but we have seen the reserves stabilize. We still have more 
than $32 billion in our combined reserves, and we feel that 
given what the actuarial has said and the premium increase, 
that we should be able to get back to the 2-percent level 
within the next few years--by 2014 or sooner.

                          SECTION 8 CONTRACTS

    Senator Collins. I want to switch now to another issue that 
is a potential fiscal time bomb in HUD's budget. As the older, 
long-term Section 8 contracts with private property owners 
expire, HUD requires new appropriations to renew those 
contracts, which increase the cost of the programs each year. 
And I am told that that now accounts for approximately 20 
percent of HUD's budget.
    Your budget documents indicate that most of these old 
contracts have been renewed, but about 17 percent are still 
being funded from old appropriations accounts and they are 
obviously eventually going to need new funding.
    So I have a series of questions for you.
    First of all, when will most of these remaining contracts 
expire?
    Secretary Donovan. I have some details here.
    Let me make one point just to begin with. Even if those 
contracts, the long-term contracts, are not requiring new 
appropriations, they do have outlays associated with them. So 
there is a very different picture if you look at the actual 
money we are spending out of the Department of the Treasury as 
outlays versus the increased appropriations. This is not to say 
this is not an issue and that we need to be focused on it. We 
do. But it is important to remember that we are already 
spending money every year on these contracts, and when we 
appropriate new money for them, all we are doing is a new 
appropriation, but the outlays remain roughly the same with 
inflation each year.
    Having said that, in 2012 alone the first-time renewals of 
these long-term contracts would account for about $230 million 
of new needs in terms of appropriations; from 2013 through 
2016, another 600 contracts would expire, and that would be an 
additional $450 million in annual renewal needs by 2016. And if 
you look at the longer term out to 2021, the total needs by 
that time for renewals of those contracts that expire is about 
$1.5 billion in total for those contracts.
    Senator Collins. So is HUD looking for offsets for those 
costs? $1.5 billion is a fair chunk of change.
    Secretary Donovan. It is.
    Senator Collins. I understand your point that there are 
outlays going on year after year, but----
    Secretary Donovan. The most important effort on that front, 
which began actually a decade ago when I was first at HUD, was 
the Mark-to-Market program, which was an extensive effort to 
reduce where we were paying above-market rents. And I think it 
would be important to get you some detailed information about 
the reductions in rents that have been achieved through that 
program and the long-term preservation as well.
    And there are a number of other things that we can do. I 
will give you one example. We have contract administrators that 
overlook these properties, and we are in the process, as we 
speak, of rebidding those contracts competitively, which we 
think will achieve a savings of about $37 million just on the 
contracting portion in the fiscal year 2012 budget. That is an 
example of the kinds of efficiencies that we can achieve 
through better management of the programs to help bring down a 
portion of those costs. Obviously, it does not get to the 
larger need, but it is an important example of the steps we can 
take.
    The other thing I would say, though, is--and former Senator 
Bond was a strong proponent of preservation of these properties 
where it made sense--the alternate cost that you need to look 
at oftentimes is new construction of properties because if we 
lose these units, they convert to market, we stop funding them. 
What that often means is a voucher can be more expensive in 
many cases as an alternative for these families. So I think it 
is important to look at not just the status quo and to try to 
bring down those costs, but also what is the alternative if we 
lose those units, they opt out of the programs, and what the 
costs of that are as well. And so we have a number of things 
that we are trying to do to preserve those properties, 
including a proposal with the Department of the Treasury this 
year to improve the low-income housing tax credit and the way 
that it preserves these Federal properties.
    Senator Collins. Mr. Secretary, I am informed that the 
chairwoman is unlikely to be able to return. I am going to take 
that as a good sign that they are making some progress on the 
budget since long meetings usually indicate that there are some 
true negotiations going on.

                       PUBLIC HOUSING AUTHORITIES

    Before I let you go, however, I do want to return to an 
issue that was raised at the beginning, and that was these 
truly alarming and unacceptable accounts of fraud and 
corruption and mismanagement of PHAs. I know that in the 
Philadelphia case, you clearly are on top of that. You are 
directing that the board resign. The director has been 
replaced.
    But if this kind of fraud and corruption can occur, it 
suggests to me that there are some systemic weaknesses in HUD's 
oversight of the PHAs. What are you doing to make sure that you 
not only do effective corrective action when such fraud occurs, 
but that you have internal controls or other oversight 
mechanisms that prevent it from occurring in the first place?
    Secretary Donovan. A very important question. I really 
appreciated the perspective you had on looking at the program 
and the structure of how we fund public housing systemically 
because I do think in the long term that is a very important 
way to move the program to ensure that there is greater 
discipline and there is a different way of approaching it. And 
it has worked very effectively in all the housing we have 
produced the last 25 years.
    More specifically to your question, one of the key things 
that we are doing is establishing a dedicated team with 
improved financial information through the next-generation 
voucher management system that we are putting together with TI 
funding that the subcommittee gave us last year. That dedicated 
team would go in much earlier where we see early financial 
warning signs. It is a cross-agency team. So it includes public 
housing folks, folks from our enforcement center, and if 
necessary, as we have done in Pennsylvania in Philadelphia, to 
bring in forensic accountants or other outside help to support 
the team to make sure that we catch it early.
    The goal there is--today we have about 175 troubled housing 
authorities. Again, that is less than 5 percent out of the 
thousands around the country. But the goal is to reduce that by 
more than two-thirds to about 50 troubled authorities. I think 
it will be difficult for us to get to zero, but our goal is to 
reduce it by two-thirds through the application of this team 
and the new systems that we are putting in place.
    Senator Collins. So you are putting into place not only a 
team that can go in and look at these troubled authorities, but 
some sort of financial reporting that will raise red flags so 
that you can be on top of this sooner.
    Secretary Donovan. Yes. In fact, we do have a real estate 
assessment center which has automated tools to review 
financials that has automated flags, if you will, that come 
out. The problem, to be frank, is we have a number of systems 
that do not talk to each other at this point. It is not just 
that the information is not collected as effectively and 
clearly as possible. It is also that the follow-up to that 
information is not strong enough. And that is why, in addition 
to the better systems, we also need this team that would take 
that information and act on it much more quickly and earlier 
because, as we have seen in Philadelphia, if we get to the 
problem earlier, we end up not having these kinds of results.

                   PUBLIC HOUSING AUTHORITY OVERSIGHT

    Senator Collins. I know that HUD is without an inspector 
general at this point. There is an acting inspector general. I 
would also encourage you to work very closely with the new 
inspector general when he or she is appointed. The former 
inspector general, obviously, uncovered a lot of problems. In 
too many Departments I have observed an adversarial 
relationship between the inspector general and the Secretary or 
Administrator, and it really should not be. It should be an 
opportunity for the IG to identify program weaknesses, 
mismanagement, vulnerabilities, and should be welcomed by the 
Secretary. And I hope that will be your approach as well.
    Secretary Donovan. I could not agree more. I have seen 
personally, when those relationships do not work, the negative 
impacts that it can have.
    I would encourage you to reach out to Ken Donohue, who 
recently left as our inspector general. It may sound strange to 
say about an inspector general, but we miss him. He was 
actually a very good partner with us, told it like it was. When 
there were issues, he clearly brought them to our attention.
    But I would say, for example, the American Recovery and 
Reinvestment Act (ARRA) was an example where we worked very 
effectively together. The troubled housing authorities are a 
good example. We set up, in consultation with the inspector 
general, a system where we preapproved every single $1 that the 
troubled housing authorities were going to get to make sure 
they were used effectively. We made the decision that we did 
not want to harm the residents by not giving them the benefit 
of ARRA funds, but we were going to make sure that they were 
used effectively. In fact, every one of those troubled housing 
authorities was able to obligate the money on time. And as Earl 
Devaney has said broadly about ARRA, we have seen less than 
one-half percent of all of the funding in ARRA challenged in 
any way, and a far smaller fraction of that where charges have 
actually been brought.
    So I think we have improvements to make, but I would 
encourage you to reach out to Ken to get an honest assessment 
of what we have done together.
    Senator Collins. Thank you.
    Secretary Donovan. And we certainly expect to bring that 
same kind of relationship to working with the new inspector 
general.
    Senator Collins. Of course, when you apply even one-half 
percent against $800 billion, it is still troubling. But I 
agree with you that ARRA, because we had controls in place from 
the beginning, was far less vulnerable to waste, fraud, and 
abuse than many Federal programs. But I think the key was that 
there was such a focus and there was so much more transparency 
than is typical of many Federal programs. So I think we can 
learn from that.
    Mr. Secretary, I want to thank you for your time this 
morning and for your very straightforward responses and clear 
presentation of the administration's budget. I look forward to 
working closely with you.
    I appreciate the chairwoman allowing me to take over for 
her today. I will tell her staff that I enjoyed it very much 
and that I look forward to working with Madam Chairman Murray 
in what I know is going to be a great partnership with you as 
well.

                     ADDITIONAL COMMITTEE QUESTIONS

    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
              Questions Submitted by Senator Patty Murray
                   public housing authority reserves
    Question. The Department of Housing and Urban Development's (HUD) 
budget request for fiscal year 2012, proposes to fund the Public 
Housing Operating Fund by tapping into ``excess reserves'' held by 
public housing authorities (PHAs). The Department believes that it can 
fully fund the needs of housing authorities at $3.8 billion by 
requiring PHAs to use reserves of around $1 billion to meet their needs 
through this offset policy. Yet, HUD regulations have encouraged PHAs 
to build up reserves.
    Why does HUD encourage PHAs to hold reserves?
    Answer. HUD believes that given PHAs' responsibilities as property 
owners and managers, agencies should retain some level of operating 
reserves. As property managers, PHAs must retain some level of 
contingency funding which is necessary to minimize the many risks 
associated with short-term expense fluctuations, including, for 
example, spikes in energy and utility costs that may not be covered by 
appropriations for up to 18 months; expenses associated with staff 
turnover, temporary staffing needs, or surge capacity; as well as 
emergencies related to the habitability of their properties. HUD's 
recommended level of minimum reserve is differentiated by PHA size such 
that agencies that have 250 units or more should maintain a minimum 
balance of 4 months of operating expenses. HUD recommends that small 
agencies with less than 250 units maintain a minimum reserve of 6 
months of operating expenses.
    These recommended levels are consistent with the current interim 
Public Housing Assessment System (PHAS) rule that awards points for a 
PHA's level of liquidity and ability to cover current liabilities. The 
current PHAS provides maximum points to all PHAs when their reserve 
balance is equal to 4 months of operating expenses based on their 
current liabilities.
    Question. What are the eligible uses of the operating fund 
reserves, and specifically can these resources be used for capital 
expenditures?
    Answer. In 1998, the Quality Housing and Work Responsibility Act 
(QWHRA) established the Operating Fund program, in section 9(e) of the 
Housing Act of 1937, to provide for the operation and management of 
public housing. Eligible uses of operating funds would include those 
activities specifically listed in section 9(e) of the Housing Act of 
1937. Additionally operating funds may be used for routine and 
preventative maintenance, addressing unforeseen emergencies, and to pay 
debt service on approved operating fund finance projects.
    Development and modernization activities within the public housing 
program are often broadly and collectively referred to as capital 
activities for which capital funds may be used. Notwithstanding section 
9(g)(2) of the Housing Act of 1937, a PHA may not use its Operating 
Funds for capital activities, or more specifically development and 
modernization, except as permitted by statute (i.e., Operating Fund 
Finance Program requiring HUD approval). The Operating Fund Finance 
program is attracting greater interest, but has had limited usage to 
date involving relatively small amounts of funding. While the 
Department is deeply committed to providing PHAs maximum flexibility 
under the Housing Act of 1937, and committed to the preservation of 
public housing, HUD does not have the authority to expand the uses of 
operating funds beyond those set forth in the statute. In conformance 
with the statute, the Operating Fund regulations at 24 CFR 990 
reiterate that the fund was established for the purposes of the 
operation and management of public housing, and not development or 
modernization.
    Question. If this policy is adopted it will be critical that HUD 
can accurately calculating PHA reserves. Policies must be implemented 
using accurate, timely data, which has been a challenge for HUD.
    If you were to implement this policy, what specific data would you 
use to calculate ``excess reserves,'' and would it be timely? For 
example, if PHAs have used their reserves during the continuing 
resolution (CR) period, would this information be reflected in the data 
you would use to make your calculations?
    Answer. Public Housing Operating reserves are calculated using the 
PHA's financial statement submissions into the Financial Assessment 
Subsystem. Data is from the four quarters ending March 31, 2010, June 
30, 2010, September 30, 2010, and the Department will have December 31, 
2010, financials available within the next 30 days. If the PHA has 
failed to submit timely financial data, the previous year's information 
may be used. PHAs have 90 days from their fiscal year end to submit 
unaudited statements and 9 months to submit audited financial 
statements. The Department is currently reviewing alternatives for 
allowing PHAs to confirm or validate the amount of operating reserves 
HUD has calculated for their agency.
    The operating subsidy is paid on a calendar year basis. Should the 
Department operate under a CR, PHAs will have full eligibility funding, 
as provided by the 2011 Appropriations Act, to cover operating expenses 
from October 2011 through the end of December 2011. Should an 
appropriations act not be passed by January, the Department generally 
provides additional funding to PHAs, as made available to the 
Department under the CR. The amount of operating subsidy provided to 
PHAs under a CR is based on an estimated eligibility level. In 2011, 
PHAs were provided 93 percent of their estimated eligibility during the 
period covered by a CR. Given the additional operating funds provided 
to PHAs during periods covered by a CR, the amount of reserves used 
during this period could be minimal--conditioned upon the terms placed 
in the CR by the Congress.
    Question. The budget states that under this proposal, PHAs would be 
allowed to have somewhere between 4-6 months of reserves.
    What is the basis for 4-6 months, and how will you determine what 
an adequate level of reserves is?
    Answer. The reserve calculation is an assessment of PHA liquidity, 
or their ability to cover current liabilities with current assets. The 
calculation is comparable to the ``excess cash'' definition used within 
HUD's Multifamily program. When determining what the appropriate 
reserve level should be for agencies, the Department looked across 
other project-based programs within HUD and other Federal agencies as 
well as non-Federal property managers. Within the nonprofit market, 
recommendations for reserves ranged from a high of 2 years' budget, to 
a low of 1 month's payroll. Financing programs, such as HUD's Mark-to-
Market and the Federal Housing Administration (FHA) loan programs used 
a very different methodology to establish financial risk and the value 
of a long-term debt as the denominator to establish a recommended 
reserve level. The Rural Development Multifamily Housing Program 
requires participants to maintain reserve balances of 10 percent of the 
total development cost, which was also not directly comparable to 
pegging reserves to expenses. HUD's recommended level of minimum 
reserve is differentiated by PHA size such that agencies that have 250 
units or more should maintain a minimum balance of 4 months of 
operating expenses. HUD recommends that small agencies with less than 
250 units maintain a minimum reserve of 6 months of operating expenses.
    After reviewing the many different housing standards HUD derived 
its reserve objectives based on the operational requirements of PHAs 
and the specific exigencies that occur (see previous response).
                       it funding and management
    Question. HUD is charged with the oversight of thousands of PHAs, 
as well as thousands of other grantees including cities, counties, and 
FHA-approved lenders. One of the essential elements to effective 
oversight is comprehensive and accurate data. HUD has placed a priority 
on addressing IT challenges, particularly through the modernization 
efforts that are part of the Transformation Initiative (TI).
    When the funding for these information technology (IT) investments 
was provided in fiscal year 2010, the Congress also required the 
Government Accountability Office (GAO) to examine HUD's ability to 
implement the processes and develop the capacity necessary to ensure 
that these critical investments result in improved capabilities and are 
delivered on-time and on-budget. GAO's work is on-going, but it has 
found that HUD is making progress in bringing the discipline and 
processes necessary to meet its goals. In this year's budget, the 
Department is proposing to move modernization efforts from the 
Transformation Initiative into the Working Capital Fund (WCF). I am 
concerned about this change, especially since GAO raised concerns that 
the Chief Information Officer's (CIO) lack of central budget authority 
over all departmental IT spending has been an obstacle to the 
modernization efforts under way.
    What is the rationale for moving the modernization efforts to the 
WCF?
    Answer. Effective August 1, HUD moved the allotment holder 
authority for WCF and TI allocations to the CIO. This change will:
  --provide greater control over the use of HUD's limited IT resources; 
        and
  --support the implementation of the same rigor that HUD is applying 
        to the TI/IT projects to investments that are funded under the 
        WCF. HUD is creating a single IT Investment Portfolio that 
        provides a consolidated view of all of our IT investments 
        regardless of funding source, such as, the WCF, TI funding, or 
        carryover funds. The consolidated portfolio will provide a 
        clear separation and view of how much of each funding source is 
        used for each investment, across multiple fiscal years. This 
        does not mean that HUD is transferring the TI projects that 
        support HUD's modernization into the WCF.
    The additional TI funding provided in fiscal years 2010 and 2011 
was needed to jump start the transformation of FHA, voucher management, 
and other critical HUD functions and has helped HUD build an IT 
management framework that reduces the risks associated with business 
and IT transformation efforts. Our approach was recognized in the GAO 
report and has built a new investment transparency partnership with the 
Office of Management and Budget (OMB) that brings project issues to the 
forefront early before investments fail.
    With the advent of the key seven development projects in fiscal 
year 2010 it is important to co-relate for fiscal year 2012 the entire 
HUD IT program both development and operations and maintenance in order 
to:
  --capture the changes as we decrease the number of our operating 
        systems; and
  --to calibrate and harmonize the Operations and Maintenance 
        requirements as phases of the new projects come on line.
    The fiscal year 2012 proposal will allow us to continue to 
integrate important component efforts, but in future requests the 
Department may again recommend using some portion of TI for IT. The 
possible use of TI resources in the future will follow the original 
premise of the TI fund which is to provide necessary and adequate 
investments in key areas, including IT, that are key to reinventing the 
Department and ensuring that priority results are delivered. In 
addition, developmental funding needs may need to be addressed as 
complex cost allocations mature over time: as further enhancements to 
existing IT investments are supported by program performance 
improvements or as the changing landscape of IT investment presents 
desirable new opportunities that the Congress and the Department 
support.
    Question. What steps are being taken to address the concerns raised 
by GAO and ensure HUD's ability to manage and deliver IT investment 
won't be undermined by this change?
    And what specific steps is HUD taking to ensure that the CIO will 
have adequate control over all IT spending?
    Answer. As of August 1, 2011, the CIO is the HUD IT allotment 
holder. This move provides the CIO with greater control over IT funding 
across the Department.
    The management controls developed and used for the transformation 
initiatives are now required for all IT activities at HUD. We are also 
consolidating our IT investment activities to provide full transparency 
into where all of HUD's resources are allocated to ensure that we are 
supporting the most critical operations of the agency and closing 
service delivery performance gaps. This change helps HUD achieve that 
goal by ensuring that CIO has insight into all of the planning and 
allocation of IT funds across the agency.
    This holistic view will better enable HUD to look at all projects, 
systems, and services grouped as an investment to see where there are 
gaps, duplications, and other inefficiencies in the portfolio. 
Additionally, HUD will perform regular reviews of IT investments 
through the IT governance structure to make decisions to add, continue, 
modify, or terminate investments.
    In the new IT governance structure, there are two subcommittees 
that report to the CIO, one looks at IT investments and performance 
from the overall investment and budget perspective, another 
subcommittee looks at each project, systems, and service; and reviews 
the work as it is completed in each of seven phases of the projects 
life cycle. Funding is incrementally applied to a project if the 
project successfully completes the designated control review before 
being approved to move to the next phase of the project.
    The consolidation of activities into one portfolio does not change 
the source of funding approved for each IT activity.
             transforming rental assistance program funding
     Question. The President's budget for fiscal year 2012 request $200 
million for Transforming Rental Assistance (TRA) Initiative. The 
President requested funding for this program in fiscal year 2011. At 
that time, I raised concerns about the lack of details and the 
uncertainty around the long-term costs associated with this proposal.
     Please explain the differences between the fiscal year 2011 
proposal and the fiscal year 2012 request for TRA.
    Answer. The primary goal of the TRA Initiative remains the same--to 
preserve affordable housing assistance by facilitating access to 
private capital to address the large backlog of capital needs. The main 
difference between the two proposals is that the 2012 request calls for 
a Rental Assistance Demonstration (RAD), allowing for the conversion of 
only public housing and renewal of certain multifamily ``legacy'' 
programs--the Rent Supplement, Rental Assistance Payment, and Section 8 
Moderate Rehabilitation programs--to long-term Section 8 rental 
assistance contracts. The demonstration would allow for a limited 
number of properties funded under these programs to convert to Section 
8 contracts, versus the entire program inventories. The number and cost 
of conversions will be constrained by the amount appropriated in fiscal 
year 2012. The demonstration would be voluntary, includes an evaluation 
component, and does not affect HUD's other multifamily housing 
programs.
    While some PHAs, private owners, and resident groups expressed 
concerns with the breadth of changes that would result from last year's 
approach, most were nonetheless supportive of the core components of 
the proposal. The productive feedback the Department has received from 
a wide variety of stakeholders has shaped this year's demonstration. 
This year's proposal seeks to address the fair criticisms we heard, and 
test out many of the viable recommendations offered by a wide range of 
stakeholders. Through the feedback process the Department embarked on, 
we heard general agreement among those in the affordable housing 
industry that a long-term, rental assistance contract--with reasonable 
rights for current residents and measures in place to assure continued 
public control and long-term affordability--offered a more sustainable 
option over the long-term than the limited funding currently available 
to public housing and the legacy programs. Although this proposal has 
faced numerous challenges, we know that the need is too great--and this 
opportunity too important--to risk shying away from continuing to seek 
a solution for properties most at risk of being lost from the 
affordable housing inventory.
    Question. What are the long-term costs associated with TRA proposal 
included in the fiscal year 2012 budget, as well as those associated 
with a full implementation of TRA?
    Answer. The fiscal year 2012 budget request includes $200 million 
for the incremental cost of converting or renewing an estimated 140,000 
to 180,000 units of public housing and certain HUD multifamily legacy 
programs to long-term Section 8 rental assistance contracts under the 
RAD. The long-term incremental costs of conversion or renewal for the 
cohort of properties participating in the demonstration through the 
fiscal year 2012 appropriation will be $200 million. As this proposal 
is a voluntary demonstration, a long-term cost would be dependent on 
the demand for these types of conversions by public housing agencies 
(PHAs) and other owners/operators, and their ability to secure other 
sources of equity capital, including low-income housing tax credits, 
which are not currently accessible to PHAs except in a limited number 
of mixed-finance transactions.
    Question. What are the specific ideas and policies that HUD will be 
looking to assess during this demonstration? And how will HUD ensure 
that any lessons learned will be applicable on a broad basis?
    Answer. Of particular concern, the Department is attempting to 
evaluate: the amount of private financing leveraged, the cost of 
preserving the converted properties in the affordable housing stock, 
the financial and programmatic impact of providing residential mobility 
to those in converted properties with continuing tenant-based rental 
assistance, the impact of conversion on residents' continuing receipt 
of rental assistance, and eligible families' access to diverse 
communities of their choice. The proposed size and structure of the 
demonstration will ensure that a sufficient variety of projects and 
PHAs will participate so that lessons can be gleaned for the broader 
stock of affordable housing.
        national resource bank and the transformation initiative
    Question. The budget request for fiscal year 2012 includes a 
request for funding for a National Resource Bank (NRB) under the TI. 
This proposal is based on interagency approach to improving the 
capacity of HUD grantees who also receive funding from other 
Departments and agencies to better implement and manage Federal 
resources. There is also a focus on improving the long-term planning 
and outcomes of investments.
    Explain why funding is only included in the HUD budget, and the 
role that other agencies will plan in this initiative.
    Answer. The NRB is part of a partnership between HUD, the 
Department of Transportation, the Environmental Protection Agency, the 
Departments of Commerce, Education, Agriculture, the Treasury, Energy, 
Health and Human Services, Justice, and Labor, the Small Business 
Administration, and the Army Corps of Engineers; and it is managed by 
the White House Domestic Policy Council. This initiative, known as 
Strong Cities, Strong Communities (SC2), is focusing on the ways the 
Federal Government can better assist America's most distressed cities, 
towns, and regions to reach their full economic potential and improve 
the quality of life for their residents.
    To be a better partner to localities that have faced significant 
long-term challenges, the Federal Government has to work as one 
government, not a fragmented set of Departments. We can do this by 
helping cities leverage existing Federal resources, removing roadblocks 
that accompany the use of Federal funds, and providing access to 
experts in the areas of focus for the community. Some options include 
better coordination by staff across Federal agencies, which the 
partnership has begun, but a clearly missing piece is improving the 
basic operating efficiency and staff capacity in local governments. 
This does not clearly fall into an existing program, and the NRB will 
fill this gap.
    HUD's mandate makes the Department a natural fit for leading this 
effort. HUD has unique authority from the 1965 Department of Housing 
and Urban Development Act to ``exercise leadership at the direction of 
the President in coordinating Federal activities affecting housing and 
urban development; provide technical assistance and information, 
including a clearinghouse service to aid State, county, town, village, 
or other local governments in developing solutions to community and 
metropolitan development problems.'' \1\ While this authority has not 
always been exercised, on-going structural problems and recent economic 
conditions require a response that goes beyond business as usual, and 
HUD's existing connections to local governments through its Office of 
Community Planning and Development (CPD) programs is a starting point 
other agencies do not have.
---------------------------------------------------------------------------
    \1\ 42 U.S.C. 44 section 3532(b).
---------------------------------------------------------------------------
    Although HUD will lead the clearinghouse, partners at other 
agencies engaged in SC2 will serve as national advisors to the NRB. 
Partners at other agencies have been involved in drafting an Advance 
Notice and Request for Comment HUD has developed, will be involved in 
developing the criteria for and drafting the final Notice of Funding 
Availability (NOFA), reviewing NRB applications, and advising the 
development of the process for city selection. The NRB is not intended 
to replace the topic-specific expertise and technical assistance HUD 
and other agencies currently provide, but will connect communities 
seeking expertise on specific topics to existing technical assistance 
programs, ensuring an interdisciplinary and comprehensive perspective. 
We have had discussions with other Departments from this partnership 
about aligning some of the existing technical assistance they provide 
with the cities that apply for assistance from the NRB. HUD will 
provide the gateway clearinghouse to make these and other Federal 
programs work better for these communities, something HUD is uniquely 
positioned to facilitate and that otherwise will not exist.
    While HUD is electing to reorient a portion of its technical 
assistance for this need, it cannot, and is not intending to, provide 
the full technical assistance resources necessary given the scope of 
local demand. Using an outside intermediary to run the daily operations 
of the NRB will make the Federal investment go further in three ways. 
First, it will use a limited Federal investment to leverage 
considerable private and philanthropic resources that would not be 
available to a Government program office. Philanthropic organizations 
have expressed considerable interest in this type of initiative, and 
similar efforts have leveraged their base investment up to six times 
through philanthropic funds, private funds and pro bono services. 
Second, HUD will be able to retain accountability and oversight of the 
program by executing a cooperative agreement with the intermediary, but 
will avoid the long-term commitment of additional Federal staff and a 
new office. Last, the outside intermediary structure taps the expertise 
and networks of outside philanthropy and nonprofits specializing in 
these issues to engage and improve Federal programs rather than spend 
time working around them.
    Question. What are the specific benefits that are expected in the 
outcomes of HUD funded programs from this resource?
    Answer. The NRB will help local governments harmonize Federal 
funding through cooperation with Federal agency partners. Since the NRB 
will focus on basic operating efficiency and staff capacity, high-
priority outcomes for local governments involve the achievement of 
basic performance metrics, including reducing budget deficits and 
improving bond ratings. Interim outputs might include increased 
revenues, decreased costs, and efficient human capital changes or 
restructuring. Local governments and researchers stress the varying 
nature of the issues local governments face, so, other more specific 
measures will be established with the help of the technical assistance 
providers within each technical assistance plan. These could include 
good governance, expanded or new collaborations, timeliness of 
processes, or improving the use of Federal funds.
    In a HUD-specific context, we see the NRB as an investment that 
will result in better program management for communities that are 
suffering severe economic distress and having challenges with multiple 
program delivery and management systems. The NRB will target these 
places which currently lack the staff resources to adequately manage 
their Federal funds and comply with statutory and regulatory 
requirements.
    The effectiveness of the individual interventions will be 
evaluated, and a system will be developed for evaluating the NRB as a 
whole. The effectiveness of the intermediary's management of the NRB 
will be reviewed periodically through regular reporting, procedures for 
which will be established within the cooperative agreement.
                onecpd and the transformation initiative
    Question. HUD has also developed a new approach to providing 
technical assistance to its grantees with the goal of addressing skill 
sets that will improve outcomes across a variety of HUD programs, 
called OneCPD. This is a departure from HUD's traditional approach to 
technical assistance, was more focused on program compliance. What are 
the outcomes expected from OneCPD?
    Answer. The outcomes will vary, depending on what type of technical 
assistance (TA) a community needs. However, the Department is committed 
to actively working with the grantee and the TA provider to reach these 
goals. By establishing written agreements for each engagement, 
performance will be assessed for the specific community receiving TA, 
taking into account market conditions and expectations. The 
effectiveness of all TA will be judged according to the capacity needs 
of the recipient, and not an overly general national standard.
    In addition, the Department expects that OneCPD will be more 
efficient and effective than prior efforts at delivering technical 
assistance by:
  --Replacing five separate TA programs managed by four separate 
        program offices with a single program managed by a single 
        office;
  --Eliminating overlapping TA engagements by establishing a single 
        approving body;
  --Involving fewer HUD staff in the management and oversight of TA;
  --Requiring TA to be delivered under a written agreement signed by 
        all participants (grantee, HUD, TA provider) that specifies the 
        responsibilities of the parties, and the specific outcomes to 
        be achieved to guarantee active involvement and ensure 
        accountability;
  --Ensuring that the necessary and appropriate TA is provided 
        according to a required needs assessment that will precede TA 
        engagements; and
  --Ensuring a ``place-based'' problem-solving approach, by identifying 
        a single point of contact for each grantee in the local HUD 
        field office to coordinate across all CPD programs.
    Furthermore, the OneCPD competition itself was structured as a 
``Request for Qualifications'' which simplified--and shortened--the 
review process, and ensured that the size of the awards was 
commensurate with the ability of the grantee to carry out the program 
effectively.
    HUD is accountable for ensuring that the funding we administer is 
spent responsibly. Grantees that lack strong management systems, have 
programs that are underperforming, or that are addressing monitoring 
findings will be prioritized for TA. CPD is aggregating quantitative 
and qualitative indicators to assess grantee capacity gaps. The 
activities funded under OneCPD include:
  --Formal needs assessments, which precede every engagement to ensure 
        that the appropriate TA will be provided to the right people;
  --Direct TA and training to assist grantees in addressing gaps in 
        capacity to improve program performance and compliance;
  --The development of tools and products that assist grantees in 
        automating their systems, improving financial management, and 
        attend online courses; and
  --Self-directed and group learning, that brings together grantees, 
        both in in-person and virtual environments, to discuss similar 
        challenges, and to learn and develop new skill sets at their 
        own pace or as their workload permits.
                           further background
    OneCPD enables CPD to develop a new level of technical assistance 
and capacity building to meet the challenges facing Federal funding 
recipients. Block grants are designed for local decisionmaking. 
However, the assumption has been that grantees have the capacity and 
skillsets to make market-based decisions when, in reality, many 
grantees do not, due to a lack of investment and budget cuts. The 
Federal role is two-fold:
  --build capacity of local and State governments to support local 
        decisionmaking; and
  --conduct monitoring and oversight to ensure compliance with 
        applicable regulations and to ensure appropriate use of Federal 
        funding. OneCPD balances these two roles where traditionally 
        HUD has delivered only compliance-oriented technical 
        assistance, funded through individual program accounts and 
        separately geared toward the rules governing HUD's disparate 
        programs. OneCPD rolls these accounts into one broad technical 
        assistance effort to be funded from global transfers to the 
        Transformation Initiative Fund. Central funding through TI has 
        allowed the Department to develop comprehensive technical 
        assistance efforts that focus on skills needed to improve 
        program outcomes not just reinforcing program compliance rules. 
        This innovative thinking has led to the OneCPD technical 
        assistance and capacity building model.
    OneCPD ``flattens'' the bureaucratic structure needed to manage 
technical assistance by adopting a ``place-based'' approach that 
assesses community needs as a whole, and works across programs to 
deliver technical assistance that addresses those needs. It allows 
synergies impossible in a siloed approach. For example, in fiscal year 
2010's Section 4 Program NOFA, CPD, for the first time, asked 
applicants to set aside 10-15 percent of their grant amounts to align 
with place-based strategies that result in joint projects and technical 
assistance efforts. Through OneCPD, TA can be combined to assist both 
HOME and Community Development Block Grant (CDBG) users during the same 
visit. This reduces costs for HUD and for local grantees.
    OneCPD TA will address the needs of all of CPD's grantees--
including more than 1,200 CDBG recipients, nearly 650 HOME recipients, 
more than 200 Housing Opportunities for Persons With AIDS (HOPWA) 
recipients, and thousands of homeless grant recipients and 
subrecipients. Investments in TA will be allocated based on needs 
assessments by HUD, to ensure that we are working with grantees on 
underlying issues not symptoms, and that the right people are involved. 
OneCPD will help grantees assess their local markets; design housing, 
community, and economic development programs best suited to meet local 
market demands; leverage private and public resources; and improve 
their understanding of and compliance with statutory and regulatory 
requirements.
        national resource bank and the transformation initiative
    Question. What are the specific similarities and differences 
between OneCPD and the NRB?
    Answer. OneCPD is a broad initiative that touches nearly all 
geographies across the Nation, including all States and territories 
that receive CPD funds and their small city and nonprofit 
subrecipients. The NRB is a complementary program to respond to the 
basic capacity needs in the most distressed communities, with a focus 
on coordinating resources across Federal agencies. These communities 
have long-standing overarching operational issues that need to be 
addressed. The programs will work closely together, responding to the 
needs of grantees to develop cross-agency strategies through the NRB or 
to improve housing and community development capacity with OneCPD.
                              similarities
    The programs are similar in that they work with the city and county 
government grantees, the direct or indirect recipients of CPD funds. 
PIH has complementary programs to work with housing authorities, such 
as the Troubled PHAs Initiative.
    All of these programs will build the capacity of HUD's grantees to 
do more with the funds we provide, and are part of HUD's transformation 
from nationally uniform, topic-specific assistance to a place-based 
approach specific to local needs and local market conditions.
    All of these programs will take the lessons learned in one 
community to others.
                              differences
    OneCPD meets grantees at their current level of capacity by 
providing a range of capacity building products based on past 
performance and the results of needs assessments. Products include 
intensive onsite TA around management consulting, designing programs to 
markets, comprehensive planning, and leveraging resources; skills-based 
training on finance and asset management; and Web toolkits for sharing 
model documents that support development projects and internal 
operations. OneCPD will not only build the capacity of lower performing 
grantees to create market-based affordable housing, community 
development, and economic development strategies, but will also enable 
middle performing grantees to increase the impact of their programs and 
to capture and share the innovations of high-performing grantees.
    OneCPD operates in concert with the current HUD/CPD headquarters 
and field infrastructure for monitoring and oversight of grantees. 
OneCPD activities are formalized under memoranda of agreement to 
establish the roles and expected outcomes of each party, including HUD, 
the TA provider, and the political and administrative leadership at the 
grantee level. Once a TA engagement has formally ended, the HUD/CPD 
infrastructure is in place to follow up with grantees, support 
implementation of changes, and hold grantees accountable for agreed 
upon outcomes.
    The NRB is focused on just the most economically distressed 
communities. Places that might be losing population or have experienced 
major economic shifts have told us they need more basic assistance 
before they are able to address affordable housing and community 
development issues.
  --The NRB is not topic-specific expertise, but general TA for cities 
        leveraging HUD as well as other Federal resources.
    Examples of assistance to grantees:
    OneCPD/Joint Core Skills Curricula:
  --Assessing conditions in the affordable segment of the local housing 
        market;
  --Designing and appropriately implementing housing, and community and 
        economic development programs based on assessments;
  --Understanding of and compliance with statutory and regulatory 
        requirements;
  --Development finance; and
  --Construction and rehabilitation management.
    National Resource Bank:
  --Budgeting: revenue and service analysis;
  --Performance management;
  --System and process improvements across various local departments or 
        agencies;
  --Human capital policies and procedures and staff capacity 
        assessment;
  --Coordinating long-term goals and plans across multiple topics and 
        agencies; and
  --Strategically leveraging investments and multiple Federal funding 
        streams.
                     section 811 funding and reform
    Question. Secretary Donovan, HR 1 as passed by the House allocates 
$90.36 million for the HUD Section 811 program. We understand that this 
amount would not allow for production of any new project-based units in 
the current fiscal year. While this is an enormous concern, there 
appears to be a larger threat to renewal of operating and rent 
subsidies for current 811 units--both project-based contracts and 
``mainstream'' tenant-based vouchers.
    Your budget projects the cost of 811 PRAC renewals for fiscal year 
2012 at $85 million. This is a $36-million-increase over the fiscal 
year 2011 estimate--a 70-percent increase. What accounts for such a 
large 1-year increase in renewal costs?
    Answer. The fiscal year 2011 PRAC 811 Renewal/Amendment amount 
presented in the fiscal year 2012 budget did not reflect HUD's estimate 
of actual 2011 needs, but rather HUD's assumptions at the time the 
budget was transmitted. HUD's 811 PRAC Renewal/Amendment estimate for 
fiscal year 2011 was, and still remains, at approximately $66 million; 
however, the budget assumed that a full-year CR would be enacted, with 
no change to the fiscal year 2010 appropriations provided for the 811 
account, yielding only $48.9 million.
    The increase from HUD's fiscal year 2011 estimate of $66 million to 
$85 million in fiscal year 2012 is roughly 28 percent. The majority of 
this increase results from an estimated 184 contracts that will be 
funded with PRAC Renewal/Amendment program funds for the first time in 
fiscal year 2012 (i.e., contracts previously funded by the original 
initial PRAC).
    Question. Late last year the Congress passed the Frank Melville 
Supportive Housing Investment Act--legislation reforming and 
modernizing the Section 811 program. The new law (Public Law 111-374) 
creates new authority for HUD to direct funds toward a new 
``multifamily'' option, as well as a new ``PRAC-only'' competition for 
States.
     Can you please update the subcommittee on progress in implementing 
the new law?
    Answer. HUD is implementing Public Law 111-374 through a number of 
administrative vehicles. The new ``multifamily'' option will be 
implemented through an upcoming NOFA. As part of that effort, HUD is 
soliciting feedback from stakeholders on the language that was included 
in the 2010 NOFA which incorporated several elements of Public Law 111-
374. In addition, HUD is currently developing regulation to support the 
``PRAC-only'' option. A Notice of Proposed Rulemaking is expected to be 
issued in the late summer or early fall. HUD has been and will continue 
to work closely with stakeholders, State housing agencies, and State 
Medicaid, health, and human service agencies to ensure that this new 
authority will be implemented in an effective and coordinated manner. 
Subject to appropriations, HUD looks forward to providing ``PRAC-only'' 
funding to States starting in fiscal year 2012.
                    native american needs assessment
    Question. I understand you are currently undertaking a study of the 
housing needs of Native Americans. What is your outreach and assessment 
strategy?
    Answer. There are two phases to the outreach and assessment 
strategy for the Assessment of Native American, Alaska Native, and 
Native Hawaiian Housing Needs.
    The first phase was undertaken before the study even began, in late 
2010 and early 2011, when HUD's Office of Native American Programs 
conducted a series of seven preliminary outreach meetings with program 
recipients, tribal leaders, and other stakeholders. In preparation for 
the study, these 2-day outreach meetings informed participants about 
the scope and results of prior needs studies, and the benefits of a 
new, accurate assessment of need. The meetings provided a forum to 
examine and discuss the formulation, implementation, and possible 
benefits of a comprehensive study on housing needs. HUD requested 
stakeholders' advice and assistance in planning and implementing the 
study. All comments, suggestions, and questions from participants were 
collected and documented for consideration. These meetings introduced 
and promoted the benefits of the study to the Indian and Alaska Native 
housing communities, and paved the way for willing participation and 
successful data collection.
    The preliminary outreach meetings were held on:
  --December 1-2, 2010, in Denver, Colorado;
  --December 14-15, 2010, in Reno, Nevada;
  --January 12-13, 2011, in Honolulu, Hawaii;
  --January 26-27, 2011, in Oklahoma City, Oklahoma;
  --February 23-24, 2011, in Hollywood, Florida;
  --March 2-3, 2011, in Seattle, Washington; and
  --March 23-24, 2011, in Anchorage, Alaska.
    HUD has convened an expert panel consisting of a group of nine 
scholars and American Indian/Alaska Native representatives who will 
meet four times over the course of the study. The first, day-long 
meeting was held in April 2011 in Washington, DC to solicit input 
regarding the project's research design. Three subsequent meetings will 
allow for guidance and feedback regarding sampling and data collection 
instruments, a presentation of interim report findings, and a 
presentation of the final research findings and analysis to solicit the 
panel's substantive comments and suggestions, which will guide the 
researchers in the preparation of the final report.
    To further inform tribal leaders about the study, HUD Assistant 
Secretary for Policy Development and Research, Raphael Bostic, spoke 
about the study at the National Congress of American Indians' mid-year 
conference in Milwaukee, Wisconsin, in June 2011. The Assistant 
Secretary also gave an update on the study to the National American 
Indian Housing Council at its meeting in Phoenix, Arizona, in May 2011. 
Another meeting for tribal leaders is scheduled for late July 2011.
    Once the 40-site sample of tribes has been selected, the contractor 
(the Urban Institute) will begin the second phase of outreach and 
assessment. The first steps are as follows:
  --Research the tribal history and tribal leadership for each 
        reservation, tribal area, or native village selected and gain 
        advice on working with the tribes from knowledgeable advisors 
        and HUD staff.
  --Through email or phone, identify a tribal contact to receive the 
        project information and accompanying materials.
  --Provide informational material to a tribally designated contact for 
        dissemination. This will include a brochure, a fact sheet about 
        the project, reports or briefs of projects conducted by the 
        National Opinion Research Center of the University of Chicago 
        (NORC), a sub-contractor to the Urban Institute, and 
        endorsement letters.
  --Conduct a follow-up call at a pre-arranged time with the tribal 
        contact to address any questions and inquire about tribal 
        research protocols and requirements. Then take next steps as 
        advised by the contact.
  --Conduct a presentation for tribal leaders, either by phone or in 
        person, which addresses:
    --The study and its importance/benefit to the tribe;
    --An overview of questions to be asked in the household survey;
    --A description of NORC's role in the project as an impartial data 
            collector;
    --NORC's Pledge of Confidentiality and Ethics Standards; and
    --Review of survey tasks, including preparing a list of addresses 
            on tribal lands (if required), hiring and training field 
            interviewers, conducting interviews and housing 
            observations, and providing respondent incentives.
  --Meet with the tribal contact or other designated person to discuss 
        next steps.
    The study will require the collection of a substantial amount of 
information from three main types of sources:
  --background interviews and literature reviews;
  --data from secondary sources; and
  --primary data collection.
    The researchers will review relevant research literature published 
since 1996 and interview people knowledgeable about conditions and 
trends in Indian country and about the evolution of the policy 
environment, particularly with respect to housing and housing services. 
U.S. Census Bureau data, HUD administrative data files, and national 
data files for small areas maintained by the Urban Institute will be 
analyzed.
    A major in-person household survey in 40 selected tribal areas will 
be conducted with a goal of interviewing 1,280 households.
    A telephone survey of all tribal housing offices will be conducted.
    More in-depth, in-person interviews with local housing officials, 
tribal leaders, and community leaders will be conducted in 24 of the 40 
tribal areas selected for the household survey.
    A telephone survey of lenders that originate home loans in Indian 
country will be conducted (sample of 35, weighted toward those who have 
been the most active lenders in tribal areas).
    Site visits will be made to 5 urban areas with concentrations of 
Native American populations and telephone interviews will be conducted 
with staff at Urban Indian Community Centers and other informed 
individuals in 25 other urban areas.
    Telephone interviews will be conducted concerning the assessment of 
Native Hawaiian housing needs with directors of homestead associations 
(approximately 50), selected Department of Hawaiian Home Lands staff, 
and representatives of key stakeholder organizations.
    The final report will be made available through HUD's Web site and 
copies will be sent directly to all tribal partners, OMB, and Members 
of Congress. The Department's protocol is to share copies with the 
House and Senate Appropriations Committees, including the Committee and 
subcommittee chairs, and the ranking minority members of those 
committees. HUD will also send copies to the Senate Committee on Indian 
Affairs, and the House Subcommittee on Indian and Alaska Native 
Affairs.
    This project began in December 2010, and is scheduled to be 
completed 2 years and 9 months later, in September 2013. Household 
surveys and other primary data collection is scheduled to begin in 
October 2011. An interim report will be delivered in December 2011, and 
the final report in September 2013.
                         healthy homes program
    Question. The Healthy Homes Strategic Plan was released in July 
2009 and I understand the subsequent action plan is still under 
development. While you identified many housing issues that can affect 
an individual's health, you did not identify any clear goals, targeted 
populations or performance measures to focus limited resources 
effectively.
    When do you anticipate being able to provide the subcommittee with 
this information and the Healthy Homes Action Plan?
    Answer. The Healthy Homes Federal Strategic Action Plan has just 
finished clearance from OMB and inter-agency review on July 5, 2011. We 
are currently reviewing and incorporating the changes and comments. The 
final document should be available around or before September 15, 2011.
                                 ______
                                 
            Questions Submitted by Senator Dianne Feinstein
          community development block grant and home programs
    Question. As a former mayor, I know firsthand how impactful 
Community Development Block Grants and other Federal funding can be for 
cities that struggle to provide affordable housing and services to the 
most vulnerable citizens. In California, the Governor is proposing to 
cut Redevelopment Agencies, which eliminates one of the major sources 
of funding in the State for housing and other services. Furthermore, 
the administration's budget proposes to reduce funding for the 
Community Development Block Grant (CDBG) and HOME programs, which 
States rely on in providing these critical services. I am concerned 
about the devastating impacts that the loss of these funds could have 
on my constituents.
    The Department's CDBG program was funded at $4.45 billion in fiscal 
year 2010, but the administration has requested $3.804 billion for 
fiscal year 2012. This is a 15-percent cut to a program that provides 
much-needed funding for local agencies and nonprofit organizations to 
provide facilities improvements, human services, and affordable 
housing. In addition, the HOME program is proposed to be cut by 9 
percent. This Federal funding has great potential to leverage private 
dollars, which brings development and revitalization during this 
economic downturn.
    How will the Department help support States, such as California, 
that are facing major cuts to community development and housing?
    Answer. The fiscal year 2011 appropriation for the CDBG formula 
allocation was reduced to $3.304 billion from the fiscal year 2010 
allocation of $3.942 billion. This represented a 16 percent reduction 
in the CDBG formula program. The administration continues to advocate 
for the originally proposed fiscal year 2012 funding CDBG formula level 
of $3.69 billion which would restore some of the funding reduction in 
fiscal year 2011. The Department is well aware of the ability of CDBG 
to leverage other funding and many CDBG grantees use the flexibility of 
the program to ensure the maximum return on their CDBG investments. 
Further, HUD understands that many States and local governments are 
facing unprecedented fiscal pressures and that the importance of CDBG 
to local budgets has grown as local revenues have declined. In order to 
assist grantees in making the most of this funding, HUD is implementing 
an aggressive technical assistance effort known as OneCPD to aid 
grantees to better leverage and target their resources to address their 
needs.
    affordable housing for low-income seniors and individuals with 
                              disabilities
    Question. The administration has proposed cuts to Section 202, 
which serves low-income seniors. In fiscal year 2010, it was funded at 
$825 million. However, the administration has requested $757 million, 
an 8-percent cut to the program. The administration has requested $196 
million for housing for persons with disabilities, a 35-percent cut 
from the fiscal year 2010 level of $300 million.
    How will the Department continue to offer affordable rental housing 
to low-income seniors and persons with disabilities despite these 
budget cuts?
     Answer. In fiscal year 2012, the administration has had to make a 
series of tough choices in order to freeze overall spending levels. 
However, because of the tremendous demand for affordable housing among 
vulnerable elderly and persons with disabilities who are otherwise at-
risk of institutionalization or homelessness, funding for the Section 
202 and Section 811 programs were largely held constant in the 
President's fiscal year 2012 budget request. Funding for the Section 
202 program was reduced by only 8 percent relative to fiscal year 2010 
levels. Funding for the Section 811 actually increased by 3 percent 
(once Section 811 Mainstream Vouchers are accounted for with proposed 
transfer to the Tenant-Based Rental Assistance account).
    However, to address the significant unmet need for affordable 
housing for very low-income elderly and persons with disabilities, HUD 
is currently implementing a number of administrative changes to the 
Section 202 Supportive Housing for the Elderly program and the Section 
811 Supportive Housing for Persons with Disabilities program in order 
to make them more targeted and better leveraged. During fiscal year 
2011, HUD initiated a series of these changes to NOFAs and guidance.
    While HUD still has more work to do, the administration is 
confident that making these changes will enhance the programs and 
deliver much more value to local communities. Our nonprofit and local 
partners are eager to ensure the continued availability of these funds, 
given the incredible demand by frail elderly and persons with 
disabilities for affordable housing.
    Among the changes currently being implemented are a number that 
will better facilitate pairing Section 202 and Section 811 with the 
low-income housing tax credit program (LIHTC). When Section 202 or 
Section 811 funds are used in conjunction with LIHTC, fewer HUD funds 
are required up-front on the capital side on a per unit basis, 
effectively increasing the number of lower income, frail elderly, or 
disabled households that the Federal Government supports as a share of 
the total inventory of new federally assisted low-income housing.
                                 ______
                                 
           Questions Submitted by Senator Frank R. Lautenberg
replacing the activities of the public housing drug elimination program
    Question. Prior to 2002, public housing authorities (PHAs) were 
able to fund safety, security, and drug- and gang-prevention activities 
through the Public Housing Drug Elimination Program, which I created. 
That program was eliminated by the Bush administration.
    In the absence of dedicated funding, how is your agency working 
with public housing to make their facilities safe and drug-free?
    Answer. Safety and security of the public housing residents is part 
of the overall mission of HUD. Both the capital and operating funds 
provide certain flexibilities that enable PHAs to address safety and 
security concerns. Presently, improvements that promote the safety and 
security of public housing developments are an eligible use of capital 
funds. Also, the public housing operating funds enable PHAs to use 
operating funds to support anticrime and antidrug activities. These may 
include providing security or designating ``special use'' units for 
police or other anti-drug activities.
    Additionally, the Department recognizes certain PHAs face greater 
needs toward addressing threats to the safety and security of their 
residents. To address this, the Department made $5 million of fiscal 
year 2009 and $2 million of fiscal year 2010 funds available from the 
Emergency Disaster set-aside under the Capital Fund for the purpose of 
improving safety and security at PHA properties. These funds were 
awarded through a competitive award process. The Department is looking 
at continuing this in fiscal year 2011 and beyond; however, additional 
funding under the set-aside depends on the demand for funds from other 
types of emergencies and non-Presidentially declared disasters.
        emergency capital funding for public housing authorities
    Question. In fiscal year 2009 and fiscal year 2010, the Congress 
allocated $20 million to address the emergency capital needs of public 
housing authorities, including ``safety and security measures necessary 
to address crime and drug-related activity.'' After a long delay, HUD 
finally provided public housing authorities with a formal notification 
of this funding last June.
    To date, how many public housing authorities have applied for 
emergency capital funding to address safety and security needs?
    Answer. One hundred and seventy-six PHAs have applied for funding 
to meet safety and security needs.
    Question. Of the $20 million allocated for emergency capital needs 
in fiscal year 2010, HUD reserved just $2 million for safety and 
security and needs. However, HUD indicated that this amount may be 
increased toward the end of the fiscal year, depending on the number of 
applications received for other types of eligible emergencies and 
natural disasters.
    Has all the emergency capital needs funding for fiscal year 2010 
been exhausted? If not, has the Department made additional awards to 
address safety and security needs?
     Answer. The demand in fiscal year 2010 for emergency capital needs 
funding exceeds the $20 million available notwithstanding any funding 
made available for safety and security grants and leaves no room for 
additional awards to address safety and security needs. Regardless of 
any amount being designated to safety and security needs, capital needs 
resulting from bona fide emergency conditions are eligible to be funded 
from the emergency reserve. Furthermore, capital improvements to 
address these situations are eligible activities under section 9(d)(1) 
of the United States Housing Act and can be funded through a PHA's 
annual Capital Fund Formula grant.
                                 ______
                                 
              Question Submitted by Senator Mark L. Pryor
  disaster recovery activities at the department of housing and urban 
                              development
    Question. Last year, the President announced that you and Secretary 
Napolitano would lead a Long-Term Disaster Recovery Working Group, 
which would report to him on the administration's efforts to improve 
the Nation's long-term disaster recovery apparatus. The report was 
promised on April 2010, when that deadline passed, the administration 
promised to deliver the report in August 2010. The report has yet to be 
delivered.
    When will this report be delivered to the President and when will 
you and Secretary Napolitano be available to speak with the Congress 
about it?
    Answer. The Long-Term Disaster Recovery Working Group's Report to 
the President is still in draft. The report was delayed following the 
BP oil spill in anticipation of Secretary Mabus' Report from the Oils 
Spill Commission. Upon completion of that report, both the Department 
of Homeland Security and Department of Housing and Urban Development 
(HUD) reconvened the Working Group.
    The administration is in the final stages of agency clearance on 
the National Disaster Recovery Framework. Once this document has been 
cleared, the administration will move to clear the Long-Term Disaster 
Recovery Working Group's Report and deliver it to the President.
    The expectation is that the report will be delivered soon and 
subsequently discussed with the Congress.
    Question. In the fiscal year 2011 budget, HUD discussed expanding 
its role in disaster recovery activities given the fact that more than 
$20 billion in disaster CDBG have been allocated in the past decade. 
However, the fiscal year 2012 budget contains no mention of HUD plans 
to expand its capacity for involvement in long-term disaster 
recoveries. Where is HUD in its planning for playing a more significant 
role in disaster recoveries?
    Answer. The effectiveness of CDBG's flexibility is demonstrated by 
the use of CDBG as the funding conduit to assist in addressing a range 
of national priorities. CDBG is one the Federal Government's primary 
vehicles for long-term disaster recovery assistance to States and local 
governments. For example, the Congress appropriated $19.7 billion in 
supplemental disaster assistance to aid the comprehensive recovery of 
Alabama, Florida, Louisiana, Mississippi, and Texas following the 
devastation of Hurricanes Katrina, Rita, and Wilma in 2005. 
Furthermore, during fiscal year 2008, the Congress appropriated $300 
million in supplemental CDBG disaster recovery funding to address a 
range of Presidentially declared major disasters occurring in the late 
spring and early summer of 2008 and an additional $6.5 billion in 
supplemental CDBG disaster recovery funding as part of the fiscal year 
2009 continuing resolution to promote recovery from Presidentially 
declared major disasters that occurred during calendar year 2008, most 
notably the widespread flooding in the Midwest and Hurricanes Gustav 
and Ike.
    Congressional support for CDBG is also evident in the increasing 
use of CDBG as a vehicle to provide long-term disaster recovery funding 
to areas of the county that have suffered from man-made and natural 
disaster. Since September 11, 2001, almost $30 billion in CDBG disaster 
recovery funding has been appropriated to assist in recovery from a 
range of events, including the September 11 attacks, the 2004 
hurricanes, Hurricanes Katrina, Rita, and Wilma in 2005, and Hurricanes 
Ike and Gustav as well as Midwest floods in 2008. The Congress clearly 
values the flexibility of CDBG over other Federal programs in allowing 
States and local government to develop recovery programs responsive to 
local needs.
    HUD did not request any fiscal year 2011 funding for CDBG disaster 
recovery efforts. However, HUD has been part of the efforts to re-
evaluate broader Federal disaster recovery policy that was undertaken 
in fiscal year 2009 or fiscal year 2010. HUD has advocated for a 
permanent disaster recovery provision in the CDBG authorizing statute 
to avoid problems and delays associated with ad hoc appropriations 
language.
    HUD also proposed a statutory codification of CDBG disaster 
assistance requirements and development of implementing regulations to 
allow the Secretary to expedite future recovery initiatives.
    CDBG is the congressional vehicle of choice to assist States and 
local governments in long-term recovery efforts due to its flexibility 
and established requirements. HUD is generally able to quickly deliver 
the funds to the States, enabling them to design and implement their 
recovery programs.
    A weakness in this approach is the uncertainty associated with the 
availability of funding as well as the amount of funding. The ad hoc 
nature of CDBG disaster recovery appropriations does not allow grantees 
to aggressively plan recovery efforts in the immediate wake of a 
disaster and can take the Congress several months to move on providing 
supplemental funds with additional time required for HUD to develop 
guidance based on the specific language of the appropriation.
    CDBG disaster recovery assistance is funded through supplemental 
appropriations.
                    congressional views and actions
    While the Congress has appropriated substantial sums for CDBG 
disaster recovery purposes, the Congress closely monitors HUD actions 
with regard to the use of these funds. The Congress generally requires 
that HUD provide advance notice with regard to allocations of CDBG 
disaster recovery funding as well as any alternative requirements 
established for the use of the funds. Further, the Congress has been 
aggressive in conducting oversight hearings on the use of CDBG disaster 
recovery funds and such efforts can be expected to continue into the 
future.
                major program evaluations/audits/issues
    The Office of Community Planning and Development has engaged the 
Office of Policy Development and Research to undertake a longitudinal 
study evaluating the efficacy of homeowner compensation programs in 
Louisiana and Mississippi. This study will provide semi-annual reports 
on the results of the homeowner compensation programs for the next 3 
years.
    The HUD Office of Inspector General (OIG) has also undertaken a 
broad effort to review the use of CDBG disaster recovery funds in lower 
Manhattan and the gulf coast. To date, the OIG has identified a very 
limited number of significant problems with both grants initiatives.
             gao report on duplicative government programs
    Question. In a report released this month by the Government 
Accountability Office (GAO) entitled, ``Opportunities to Reduce 
Potential Duplication in Government Programs, Save Tax Dollars, and 
Enhance Revenue'', which was requested by the Senate Homeland Security 
and Governmental Affairs Committee, the GAO listed 12 HUD programs 
among some 80 economic development programs at four other agencies that 
are ``fragmented programs . . . [that] overlap with that of at least 
one other program in terms of economic development activities they are 
authorized to fund.'' The report goes on to say that the funding for 
these 80 programs in fiscal year 2010 amounted to $6.5 billion. Was HUD 
contacted by GAO during this study and is the Department aware that GAO 
has concluded that 12 of its programs are duplicative to programs at 
other Departments?
    Answer. HUD has been contacted by GAO, and is aware of the report's 
conclusions. In its earlier studies GAO notes that Federal programs 
across four agencies may have similar purposes but different grantees, 
or different purposes for similar grantees. In many cases Federal 
programs may seek to benefit similar populations, but be designed to 
address different barriers to economic growth, or fill different gaps 
between what private markets will serve and the mission of the program 
and the agency. GAO concluded that many of the programs studied funded 
only one or two activities, and that these narrowly targeted programs 
were most likely to overlap.
    While HUD's focus on the needs of low- and moderate-income people 
is distinct from that of other agencies, the eligible uses of economic 
development program funding are generally quite flexible. This allows 
for faster and more accurate responsiveness to unique local market 
conditions and particular opportunities. Grantees can identify gaps in 
the activities funded through the private and public sources available 
in a particular situation and within statutory and regulatory limits 
can support project needs that are not covered by other sources of 
funds available to the grantee or the project. This flexibility is 
critical to doing business effectively with the private sector, and to 
securing sufficient additional investment to sustain activities with 
lower subsidy levels over time. HUD's core economic development 
program, the CDBG, is the Federal Government's largest direct economic 
development assistance program. To the degree that overall efforts are 
further focused, they should be directed toward HUD's overall 
programmatic efforts.
    Also, GAO uses the Catalogue of Federal Domestic Assistance numbers 
to identify programs for inclusion in this effort and this approach 
makes CDBG appear as four different programs when it is a singular 
program providing funds under virtually identical rules to four groups 
of governmental entities. CDBG is a formula driven program ensuring 
that grantees have a constant flow of funds over time as opposed to the 
competitive nature of the other HUD programs cited and virtually all 
other programs included in GAO's review. CDBG grantees make the 
decisions regarding the use of CDBG funds and may or may not choose to 
use the funds for economic development purposes. The Section 108 Loan 
Guarantee Program is part of the CDBG program and provides a unique 
100-percent full faith and credit guarantee backed by CDBG grant funds, 
a program design not duplicated by any other Federal program.
    Question. What sort of interagency cooperation takes place between 
HUD and its partner agencies with similar economic development goals to 
ensure that programs are not being duplicated and that similar 
populations aren't being served by multiple programs at different 
agencies?
    Answer. HUD, through the Office of Economic Development, has 
initiated collaborative discussions with several agencies that support 
economic development activities through support for government, 
business, financial institutions, and nonprofits. The aim of these 
conversations is to provide information to HUD grantees (both that 
receive block grants and those that receive competitive awards) to 
assist them in making strategic investments of block grant funds for 
economic impact, and effective proposals for competitive grants. 
Information gained will be disseminated through a variety of outlets 
including new online information for grantees and staff, better 
availability of information for staff working with grantees on economic 
development issues, and others.
    In addition, in many cases Federal programs may seek to benefit 
similar populations, but be designed to address different barriers to 
economic growth, or fill different gaps between what private markets 
will serve and the needs of low- and moderate-income people. For 
example, HUD economic development programs may be used to help build 
facilities, purchase equipment, or create infrastructure necessary for 
business location and retention, with the aim of creating or retaining 
jobs for low-income people. This is a very different entry point to the 
jobs goal than supporting workforce development services for low-income 
people, or from services to business owners to support managerial 
strength.
    Competitive economic development programs, such as the Rural 
Innovation Fund, complement the array of block grant funding for urban 
and rural areas, under which programs are often sized by block grant 
formula to provide a consistent level of funding for a particular 
geography or population. Funding for targeted new investments, which 
can attract other capital and expand the opportunities for low-income 
people, is often not available in systems that are focused on 
maintenance of existing service levels. In addition, even the 
consistent funding sources can be intermittently available in rural 
communities--for example CDBG funds for smaller cities are distributed 
competitively by State governments, and generally are not sufficient to 
meet all of the needs documented in rural areas at one time. 
Competitive programs provide targeted capital to establish new projects 
or initiatives.
    In addition to criteria related to program outcomes, the criteria 
used to select proposals for competitive programs prioritize the 
realistic ability to leverage other public and private resources 
(including firm commitments of other funds at the time of application 
and realistic plan for attracting additional sources), capacity to 
complete the project, and sustainability of the endeavor. This reduces 
duplication through incentives to target available sources 
strategically and make the most efficient use of HUD funds. 
Competitions also prioritize applications that that have the ability to 
sustain funded activities over time, after the period of HUD funding is 
completed. The grants create the potential for real economic growth and 
decreased dependence on Federal resources in the long term.
    Question. What sort of process have you put in place at HUD to 
ensure that programs within your own building are neither duplicative 
nor wasteful?
    Answer. The programs administered by the Office of Economic 
Development are competitive, which allows the Office to underwrite 
proposals made by applicants for funding. These proposals include 
specific budget information showing all sources and uses of funds 
anticipated for the project, and financial projections that allow the 
Office to understand the prospective financial viability of the project 
over time. Substantial points are given under the competitions for 
leverage of other funds, with strongest (and sometimes exclusive) 
preference for funding that is firmly committed at the time of 
application. This mechanism ensures that competitive applications are 
using HUD funds in the most efficient way to fill the gaps in their 
unique investment situation.
    As stated above, for economic development activities provided under 
the CDBG program, grantee communities are responsible under the 
regulations for sizing assistance in accordance with regulatory 
financial management regulations and underwriting guidelines. They may 
not use CDBG to substitute for another source of Federal funding and 
are required to consider other sources of funding as part of 
underwriting for direct assistance to for-profit businesses. This means 
that CDBG by its nature normally serves to address unidentified 
economic development needs missed by other resources.
    In addition, each Section 108 Loan Guarantee proposal is reviewed 
at the HUD field office level and in a headquarters review panel. In 
addition to regulatory compliance review, the layering of funding is 
examined carefully to ensure it is prudent, not duplicative, and likely 
to result in a workable activity if approved. Each Section 108 borrower 
must certify that it has made efforts to find financing without the 
Federal guarantee and cannot complete such financing consistent with 
the timely execution of the program plans without such guarantee.
    For the minimal Public and Indian Housing activities that could be 
described as economic development, the vast majority of the funds are 
restricted legislatively to grantees under the Office of Native 
American Programs. Therefore, there probably is little overlap with 
other programs.
                           mortgage programs
    Question. Why is FHA raising the annual mortgage insurance 
premiums, also known as the FHA monthly mortgage insurance?
    Answer. In April 2011, FHA further increased the annual premium for 
guarantees of single family mortgages of the Mutual Mortgage Insurance 
Fund. Under current law FHA is required to achieve a 2-percent capital 
ratio for this fund. At the end of fiscal year 2009, the capital ratio 
dropped to 0.53 percent due to the general distress in the Nation's 
housing market, and sharply lower projections for home prices. Despite 
a comprehensive array of program improvements and reforms over the 
following year, and significant improvement in the credit quality of 
FHA borrowers, the housing market downturn deepened and further steps 
are necessary to restore the MMI Fund's mandated capital ratio.
    Question. The FHA has said the Short Refinance program could help 
500,000 to 1.5 million homeowners. The program is 100 percent 
voluntary--lenders or lien holders are not compelled to participate. 
One news story reported that since its September launch, only 38 
homeowners have refinanced mortgages through the program.
    Why is the FHA Short Refinance program not working?
    Answer. As of June, 2011, we have more than 20 lenders, including 
some of the largest mortgage originators in the industry, who've 
completed FHA Short Refinance transactions. These 20-plus lenders have 
now done more than 230 of the mortgages and production is ramping up 
each week. In addition to those who've completed applications, we have 
another 20 lenders who have submitted applications and are on their way 
to completing transactions. In total, we've received more than 630 
applications for the program.
    The FHA Short Refinance program has been in effect for 
approximately 9 months. As with any new mortgage program, the lenders 
and servicers need ample time to build the necessary infrastructure to 
facilitate the program. This infrastructure includes technology, 
systems, product training, and borrower outreach. These initiatives 
take significant time and money to complete. In addition to the 
operational hurdles to the program, there are also various financial 
and economic factors that come into play. For example, many of the 
underwater borrowers this program seeks to help are also delinquent on 
their mortgage. The program requires that any delinquent borrower be 
cured through a modification prior to participating in FHA's Short 
Refinance. Modifications can be cumbersome and therefore many people 
may unfortunately not qualify for the program. For borrowers who are 
not delinquent, servicers and investors have taken a cautious approach 
given their economic opinion on whether or not it's beneficial to 
forgive principal. Given the voluntary nature of the program, the 
investors will only forgive principal if they feel it's economically in 
their best interest.
    Question. What needs to be done to make the program effective?
    Answer. As of June 2011, we have more than 20 lenders, including 
some of the largest mortgage originators in the industry, who've 
completed FHA Short Refinance transactions. These 20-plus lenders have 
now done more than 230 of the mortgages and production is ramping up 
each week. In addition to those who've completed applications, we have 
another 20 lenders who have submitted applications and are on their way 
to completing transactions. In total, we've received more than 630 
applications for the program. As with any new mortgage program, 
significant time is needed for the lenders and servicers to put the 
program into operation. FHA is committed to the success of the program 
and will review and update guidelines to the program as needed. In the 
interim, we feel extending the program will have an impact on 
participation and will encourage those lenders who've been sitting on 
the fence to jump into the program.
                                 ______
                                 
          Questions Submitted by Senator Kay Bailey Hutchison
                       disaster recovery funding
    Question. Thank you for appearing before the subcommittee. I 
appreciate in advance your response to these questions.
    As you are no doubt aware, in 2008, Hurricane Ike struck land over 
Galveston County, Texas on September 13, 2008, leaving billions of 
dollars of destructions behind in its wake. In eastern Galveston 
County, on the Bolivar Peninsula, more than 97 percent of structures 
were damaged and nearly 70 percent were completely destroyed.
    The Bolivar Peninsula is a unique land mass. It acts as a 27-mile 
long barrier island with a width of a quarter-mile at its narrowest 
point and no more than 3.5 miles at its widest. Texas State Highway 87 
runs the length of the peninsula roughly parallel to the coastline, 
connecting to the west to city of Galveston via a Texas Department of 
Transportation ferry while to the east, the peninsula connects to the 
Beaumont/Port Arthur area via State Highway 124.
    In Hurricane Ike's aftermath, more than $3 billion in Community 
Development Block Grants (CDBGs), approved by the Congress for disaster 
recovery, was directed toward Texas counties impacted by the storm. 
Galveston County is currently working on two significant CDBG projects 
for Bolivar Peninsula:
  --The first project proposes to construct a sanitary sewer project 
        composed of between one and five, small-scale, individual sewer 
        package plants to serve the geographically distinct historic 
        communities of the Bolivar Peninsula.
  --The second project would elevate Highway 87 in its current 
        footprint. Highway 87 is the only evacuation route on the 
        peninsula, thereby providing residents more time to evacuate 
        prior to the highway becoming flooded. During Hurricane Ike, 
        the highway became impassible due to tidal surge 24 hours prior 
        to Ike making landfall, thereby stranding hundreds of residents 
        and necessitating their rescue by Coast Guard helicopters.
    Unfortunately, 2.5 years after Hurricane Ike, officials in 
Galveston County tell me they are struggling with unique challenges to 
use CDBG funds to implement rebuilding projects on Bolivar Peninsula.
    One challenge Galveston County faces is that Bolivar Peninsula 
contains several areas designated as Coastal Barrier Resources System 
(CBRS), managed by the U.S. Fish and Wildlife Service (USFWS). The 
proposed packaged plants would serve communities separated by the 
peninsula's CBRS, while the elevation of Highway 87 would run the 
length of the peninsula. It is my understanding that the USFWS advises 
Federal agencies such as the Department of Housing and Urban 
Development (HUD) regarding what kind of Federal expenditures are 
allowed in the CBRS. However, Galveston County officials tell me that 
there has been reluctance by HUD to consult with the USFWS as to how 
the Coastal Barrier Resources Act may impact Galveston County's 
proposed projects, if at all. Will HUD immediately begin a formal 
consultation with the USFWS to determine the viability of Galveston 
County's two disaster recovery projects?
     Answer. The State of Texas is the recipient of the CDBG disaster 
recovery funding and, in conjunction with its local government sub-
recipients such as Galveston County, is responsible for coordinating 
with other Federal agencies that have an interest or responsibility for 
enforcing various Federal requirements such as the Coastal Barriers 
Resources Act. While HUD is willing to participate in any such 
discussions in order to facilitate implementation of important projects 
such as these sewage treatment plants, the primary responsibility lies 
with State and local officials to obtain proper permitting and other 
necessary approvals in order for the projects to proceed. It is HUD 
understanding that Galveston County has yet to submit the required 
project information to allow the State to initiate the environmental 
review process for these projects.
    Question. According to HUD, the Congress may appropriate additional 
funding for the CDBG program in response to disasters to rebuild the 
affected areas and provide crucial seed money to start the recovery 
project. However, HUD also stipulates that grantees generally must use 
at least one-half of Disaster Recovery funds for activities that 
principally benefit low- and moderate-income persons. This stipulation 
presents another challenge for Galveston County, as Hurricane Ike's 
path did not discriminate when it devastated Bolivar Peninsula. The 
peninsula has historically been a very diverse community consisting of 
both multi-generational, lower-income family dwellings and newer second 
homes. According to the Bolivar Chamber of Commerce, prior to Hurricane 
Ike's landfall, the median home cost on the peninsula was less than 
$100,000. Given the unique geography of Bolivar Peninsula, is it 
reasonable to limit Galveston County's ability to help rebuild Bolivar 
Peninsula using CDBG criteria that are nearly impossible to meet in 
this area? Is HUD willing to grant Galveston County a waiver so that it 
can pursue these important projects?
     Answer. The State of Texas is the recipient of the CDBG disaster 
recovery funding and may request from HUD waivers or alternative 
requirements deemed necessary to facilitate the use of the funds. The 
appropriation language of Public Law 110-329 further states that HUD 
may grant a waiver to the 50 percent low- and moderate-income benefit 
standard only if there is a specific finding of ``compelling need'' to 
reduce or eliminate the percentage requirement. Galveston County 
officials would have to convince State officials to seek a waiver to 
reduce the low- and moderate-income benefit threshold. To date, the 
State of Texas has not sought such as waiver from HUD. If the State 
submits a waiver request on the low and moderate income benefit issue, 
HUD would give it due consideration.
    Question. The final challenge faced by local jurisdictions in Texas 
is that successful CDBG disaster recovery projects must be completed by 
December 31, 2015. Though this seems like it is well into the future, 
the challenges faced by local jurisdictions, such as those above for 
Galveston County, have already significantly delayed the use of CDBG 
funds approved in 2008. If HUD does not expeditiously approve major 
CDBG projects, many local jurisdictions may not be able to construct 
them prior to the program's expiration date. What is HUD doing both in 
Washington and on a local level to ensure that specific, large-scale 
projects are given timely consideration and ultimate approval, so that 
local governments may either implement these projects or consider other 
alternatives? Texas's allocation of CDBG funds has been critical to 
allow reconstruction efforts to continue and our communities to get 
back to normalcy. Galveston County is eager not only to help 
reconstruct Bolivar Peninsula, but to improve the peninsula's 
infrastructure in order to mitigate the effect of future storms. Thank 
you for your consideration of these questions, and I look forward to 
your response.
     Answer. HUD does not approve individual projects for CDBG disaster 
recovery funds allocated to the State of Texas. The State is the 
grantee and has responsibility for establishing a process selecting, 
implementing, and overseeing these projects and activities. HUD closely 
monitors the State's performance in the execution of its 
responsibilities and is currently undertaking quarterly monitoring 
reviews of the State due to concerns over the State's capacity to 
properly administer these funds. The December 2015 date has been 
established by the State of Texas, not HUD.
                                 ______
                                 
                Questions Submitted by Senator Mark Kirk
                     census data and formula funds
    Question. As both an authorizer and appropriator, my office has 
received numerous visits by housing assistance organizations since I 
came to the Senate late last year. Every group has concerns about 
funding levels for fiscal year 2011 and fiscal year 2012, but a growing 
concern for me is how the new census numbers will affect the formula 
funds we receive through programs like the Community Development Block 
Grant (CDBG). In my State, while our total population grew by 3.3 
percent, we'll most likely lose a congressional seat because we have 
not kept pace with faster growing western and southern States. 
Additionally, our major population center, Chicago, saw its population 
decrease by nearly 7 percent since 2000, dropping from 2.9 million to 
2.7 million. Cook County, our largest county, saw its population 
decrease by 3.4 percent. Has the Department of Housing and Urban 
Development (HUD) run an analysis on what Illinois and its communities 
can expect in formula funds as a result of this new data?
    Answer. HUD has not used new census data as of yet per governance. 
The new census data will be rolled in the fiscal year 2012 allocation 
formula process. The fiscal year 2011 allocations, announced 2 months 
ago, continued to use census 2000 data for most variables and 2009 
population estimates for the population and growth lag variables. 
Although we have more current census data, the statute directs HUD to 
use the most recent census data published as of 90 days before the 
beginning of the fiscal year.
    For fiscal year 2012, HUD will be incorporating American 
Communities Survey data from 2005-2009 data for poverty, pre-1940 
housing, and overcrowding and census 2010 population data for growth 
lag and population. Prior to the fiscal year 2012 allocation, HUD will 
write a short memo describing the impact of rolling these new data into 
the CDBG formula.
    Question. Would it be possible to get that data for the rest of the 
subcommittee members as well? I'm sure they would be interested.
    Answer. New census data will come into play in fiscal year 2012. 
The new census data will be rolled in the fiscal year 2012 allocation 
formula process. The fiscal year 2011 allocations, announced 2 months 
ago, continued to use census 2000 data for most variables and 2009 
population estimates for the population and growth lag variables. 
Although we have more current census data, the statute directs HUD to 
use the most recent census data published as of 90 days before the 
beginning of the fiscal year.
    For fiscal year 2012, HUD will be incorporating American 
Communities Survey data from 2005-2009 data for poverty, pre-1940 
housing, and overcrowding and census 2010 population data for growth 
lag and population. Prior to the fiscal year 2012 allocation, HUD will 
write a short memo describing the impact of rolling these new data into 
the CDBG formula.
                             moving-to-work
    Question. In Rockford, Illinois, a city of 157,280, the housing 
authority serves thousands of city residents through its 1,918 public 
housing units and 1,390 Housing Choice Vouchers. Mayor Larry Morrissey 
is very interested in becoming a Moving-to-Work (MTW) demonstration 
project community, but as you know participation is capped at 33 public 
housing authorities (PHAs). While I am certainly concerned about the 
lack of comprehensive data coming from the program, I am glad to see 
positive lessons learned, and many communities, including Rockford, 
believe that the flexibility provided by MTW will help them serve their 
constituents more effectively.
    What kind of metrics or data analysis does HUD use to determine if 
MTW participants are successful?
    Answer. The premise of the MTW demonstration, as set forth in the 
MTW statute, is the ability to allow agencies to define and test 
locally driven policies for administering housing assistance. Agencies 
define activities in their annual MTW plans using available MTW 
statutory and regulatory flexibilities to address specific local needs, 
yet all MTW activities must relate back to at least one of the MTW 
statutory purposes. Agencies are required, as part of a proposed 
activity, to discuss anticipated positive and negative impacts of the 
activity, and to define metrics (baseline measurements and performance 
targets/benchmarks) to gauge the outcomes of the activities after 
implementation. Agencies report on outcomes of these activities each 
year in the MTW annual report, and discuss the activities with MTW 
staff and field office staff at annual MTW site visits.
    With the exception of the MTW statutory requirement to serve 
substantially the same number of families, MTW does not measure program 
initiatives against set criteria, since MTW agencies are encouraged to 
design solutions tailored to address local housing issues. If an 
individual agency's metrics indicate a particular approach is not 
having the desired result, it can adjust the approach accordingly. 
Lessons learned can be both positive and negative, as both positive and 
negative outcomes help to inform the national policy dialogue. For a 
MTW agency, the definition of ``success'' is that agencies experiment 
and try different approaches, so that HUD, the Congress, and the 
industry can learn from these approaches.
    In addition to the information provided in annual MTW plans and 
reports, MTW agencies are required to report into and utilize all HUD 
systems. MTW agencies must report households served into the Public and 
Indian Housing (PIH) Information Center's form 50058-MTW, document 
Housing Choice Voucher program expenditures and vouchers under lease in 
the Voucher Management System (VMS), and (as of June 30, 2010) submit 
annual unaudited and audited financial information into the financial 
data schedule. All MTW housing units must meet housing quality 
standards as required by the MTW statute, and public housing units are 
still subject to the Real Estate Assessment Center's physical 
inspections. Finally, MTW agencies are still subject to monitoring 
reviews by local field offices and are required to submit annual 
audits.
    Question. What is the timetable for the fiscal year 2011 third-
party evaluation of the MTW Program as mentioned in last year's report 
to the Congress?
    Answer. During the past 1 \1/2\ year, HUD has completed a statement 
of work and has been attempting to identify a funding source for this 
effort. We had initially identified fiscal year 2009 Capital Fund 
Technical Assistance funds that could be used for the evaluation and 
that were not already committed for other purposes. However, we 
received a recent notification that there are two other procurements 
now trying to access these funds. If senior PIH management decides that 
the Capital Fund Technical Assistance funds should be used for an 
alternate purpose, then we would not have a sense of the timing of this 
effort, as we would not be able to solicit a contractor without funds 
in place. Instead, we would have to wait for a Transformation 
Initiative (TI) competition in order to try to obtain TI funds for the 
evaluation.
    Question. In that same report, HUD floated the idea of doubling the 
current number of enrollees to better gauge the success of the program. 
As an authorizer and appropriator, can I get a commitment from you to 
work together on how we might expand eligibility for communities like 
Rockford in an equitable, fair and effective way?
    Answer. HUD looks forward to working with congressional 
appropriators to share lessons learned and to refine the selection 
criteria set forth in future appropriation acts. HUD shares your 
commitment to expanding MTWs in a way that is equitable, fair and 
effective and looks forward to working with you and other appropriators 
to accomplish this.
    As stated in the report, both HUD and the Congress will need to 
carefully consider eligibility criteria for agencies to be included in 
the demonstration. Admitting new PHAs to MTW with the use of strategic 
selection criteria and program implementation can help demonstrate the 
impacts of MTW on a broader scale, with the ultimate objective of 
applying the most successful approaches nationwide. However, program 
expansion should only proceed if the newly admitted PHAs structure 
their programs for high-quality evaluations that permit lessons learned 
to be generalized beyond the single PHA experience. Altering the scope 
of the demonstration for new participants by mandating controlled 
studies and other more rigorous evaluation methodologies would lend 
insight into a variety of areas of interest.
    In the fiscal years 2009, 2010, and 2011 appropriations language, 
the Congress has required eligible applicants to be high-performing 
agencies under HUD's Public Housing Assessment System (PHAS). This 
requirement, coupled with additional eligibility and scoring criteria 
centered on performance (as set forth by HUD in the PIH notices 
soliciting applicants), has assisted HUD in selecting new agencies that 
are both creative and competent. Further, in the fiscal year 2010 
solicitation notice, HUD utilized the selection of new MTW agencies as 
a method to guarantee the testing of policies that are of interest to 
HUD, the Congress, and the industry. HUD intends to continue this 
requirement in future solicitation notices to ensure policies of 
interest are tested in the ``MTW laboratory.''
                      waste/fraud/abuse oversight
    Question. I'm sure you are well aware of the ABC News investigation 
into the waste, fraud, and abuse at the Philadelphia Public Housing 
Authority. The results of mismanagement were frankly shocking, and HUD 
was correct to suspend funds to the authority. But what bothers me is 
that this appears to be a trend. The Government Accountability Office 
(GAO) recently issued a report about duplicative and overlapping 
programs in the Federal Government. The GAO report in particular called 
out Section 108 Loan Guarantees that allow States and communities to 
leverage CDBG allocations to finance redevelopment projects. For fiscal 
year 2012, HUD requested loan guarantee authority of $500 million--
nearly doubling the 2010 authority. But according to the GAO, HUD does 
not track the performance of this account because there is no reporting 
mechanism to determine how funds are used. Can we get a list of all 
Section 108 guaranteed projects?
    Answer. Please see the attached listing of outstanding Section 108 
Loans as of May 31, 2011.

            OUTSTANDING SECTION 108 LOANS AS OF MAY 31, 2011
------------------------------------------------------------------------
           Name of recipient                  State         Loan amount
------------------------------------------------------------------------
ABILENE................................              TX         $450,000
ABILENE................................              TX        2,599,000
AGUADILLA..............................              PR        7,795,000
AKRON..................................              OH        1,555,000
ALACHUA................................              FL        1,600,000
ALAMEDA................................                CA      6,691,000
ALBANY.................................              GA        3,575,000
ALBANY.................................              GA          250,000
ALBANY COUNTY..........................              NY          260,000
ALBANY COUNTY..........................              NY           40,000
ALBUQUERQUE............................              NM          220,000
ALHAMBRA...............................                CA      1,225,000
ALHAMBRA...............................                CA        925,000
ALLEGHENY COUNTY.......................              PA        6,000,000
ALLENTOWN..............................              PA        3,400,000
AMSTERDAM..............................              NY          263,000
ANAHEIM................................                CA      8,711,000
ANAHEIM................................                CA     14,655,000
ANASCO.................................              PR        2,453,000
ANCHORAGE..............................              AK        1,790,000
ANDERSON...............................               SC         390,000
ANDERSON...............................               SC         700,000
ANNE ARUNDEL COUNTY....................              MD          410,000
ARCADIA................................              NY          159,000
ASHEVILLE..............................               NC         650,000
ATLANTA................................              GA        1,415,000
ATLANTA................................              GA          175,000
ATLANTA................................              GA          455,000
ATLANTA................................              GA        1,980,000
ATLANTIC COUNTY........................              NJ        3,000,000
AUBURN.................................              NY          979,000
AUGUSTA................................              GA        2,500,000
AURORA.................................              IL        1,430,000
AURORA.................................              IL          115,000
AUSTIN.................................              TX        4,495,000
AUSTIN.................................              TX        1,740,000
AUSTIN.................................              TX        3,415,000
AUSTIN.................................              TX        5,315,000
BABYLON................................              NY           70,000
BABYLON................................              NY          725,000
BAKERSFIELD............................                CA      2,995,000
BAKERSFIELD............................                CA        602,000
BAKERSFIELD............................                CA        773,000
BAKERSFIELD............................                CA      1,482,000
BAKERSFIELD............................                CA      3,614,000
BAKERSFIELD............................                CA      1,570,000
BALDWIN PARK...........................                CA      4,108,000
BALTIMORE..............................              MD        6,275,000
BALTIMORE..............................              MD       17,459,000
BALTIMORE..............................              MD       11,937,000
BALTIMORE..............................              MD        6,480,000
BARBERTON..............................              OH          750,000
BARCELONETA............................              PR        4,150,000
BAY CITY...............................              MI        2,000,000
BAYAMON................................              PR       26,350,000
BEAUMONT...............................              TX        7,530,000
BEAVER COUNTY..........................              PA        2,068,000
BEAVERTON..............................              OR          587,000
BELLFLOWER.............................                CA      5,555,000
BENTON HARBOR..........................              MI          670,000
BERKELEY...............................                CA        318,000
BERKELEY...............................                CA        604,000
BERKELEY...............................                CA        516,000
BERKELEY...............................                CA      6,000,000
BERKELEY...............................                CA      4,000,000
BERKS COUNTY...........................              PA        8,169,000
BERKS COUNTY...........................              PA        3,359,000
BESSEMER...............................              AL        1,600,000
BETHLEHEM..............................              PA        4,123,000
BINGHAMTON.............................              NY        4,025,000
BINGHAMTON.............................              NY          410,000
BINGHAMTON.............................              NY          363,000
BIRMINGHAM.............................              AL          295,000
BIRMINGHAM.............................              AL          670,000
BOISE..................................              ID          980,000
BOSTON.................................              MA       15,000,000
BOSTON.................................              MA        3,535,000
BOSTON.................................              MA       11,360,000
BOSTON.................................              MA        5,280,000
BOSTON.................................              MA          600,000
BOSTON.................................              MA        9,455,000
BOSTON.................................              MA        1,510,000
BRIDGEPORT.............................                CT      2,430,000
BRIDGEPORT.............................                CT      1,347,000
BRIDGEPORT.............................                CT        943,000
BRIDGEPORT.............................                CT        545,000
BRYAN..................................              TX        2,140,000
BUCKS COUNTY...........................              PA        2,500,000
BUFFALO................................              NY        1,325,000
BUFFALO................................              NY          180,000
BUFFALO................................              NY          200,000
BUFFALO................................              NY        5,285,000
BUFFALO................................              NY        2,100,000
BUFFALO................................              NY          575,000
BURLINGTON.............................              VT          495,000
BURLINGTON.............................              VT          800,000
BURLINGTON.............................              VT          650,000
CAGUAS.................................              PR          270,000
CAGUAS.................................              PR        4,600,000
CAMBRIDGE..............................              MA          265,000
CAMDEN.................................              NJ           85,000
CAMUY..................................              PR        4,054,000
CANANDAIGUA............................              NY        1,450,000
CANOVANAS..............................              PR        2,925,000
CAROLINA...............................              PR        7,150,000
CAROLINA...............................              PR        4,000,000
CARSON.................................                CA      5,500,000
CASPER.................................              WY          619,000
CAYEY..................................              PR          460,000
CAYEY..................................              PR        1,310,000
CAYUGA COUNTY..........................              NY          265,000
CAYUGA COUNTY..........................              NY          108,000
CHARLESTON.............................               SC         745,000
CHARLOTTE..............................               NC       9,380,000
CHARLOTTE..............................               NC         385,000
CHARLOTTE..............................               NC       1,810,000
CHARLOTTE..............................               NC       1,552,000
CHATTANOOGA............................              TN        3,966,000
CHESAPEAKE.............................              VA          390,000
CHESTER................................              PA        2,300,000
CHESTER COUNTY.........................              PA          426,000
CHICAGO................................              IL       15,000,000
CHICAGO................................              IL        8,895,000
CHICAGO................................              IL        5,870,000
CHINO..................................                CA        933,000
CHULA VISTA............................                CA      8,911,000
CIDRA..................................              PR        4,300,000
CIDRA..................................              PR        1,695,000
CINCINNATI.............................              OH        3,450,000
CINCINNATI.............................              OH          605,000
CINCINNATI.............................              OH          135,000
CLEVELAND..............................              OH          570,000
CLEVELAND..............................              OH       30,000,000
CLEVELAND..............................              OH        1,010,000
CLEVELAND..............................              OH       51,833,000
CLEVELAND..............................              OH        1,245,000
CLEVELAND..............................              OH        2,275,000
CLEVELAND HEIGHTS......................              OH          276,000
CLYDE..................................              NY          105,000
COLUMBUS...............................              OH          100,000
COLUMBUS...............................              GA        4,500,000
COMPTON................................                CA      4,100,000
CONCORD................................               NC       1,974,000
CONROE.................................              TX        1,343,000
COUNCIL BLUFFS.........................              IA          705,000
COVINGTON..............................              KY          330,000
CRANSTON...............................              RI           50,000
CUMBERLAND.............................              MD        1,270,000
CUYAHOGA COUNTY........................              OH        4,000,000
CUYAHOGA COUNTY........................              OH            1,000
CUYAHOGA COUNTY........................              OH        2,307,000
DADE COUNTY............................              FL       17,505,000
DADE COUNTY............................              FL       21,683,000
DADE COUNTY............................              FL        1,465,000
DALY CITY..............................                CA      3,552,000
DANBURY................................                CT      1,022,000
DANE COUNTY............................              WI          350,000
DAUPHIN COUNTY.........................              PA        2,680,000
DECATUR................................              IL          390,000
DECATUR................................              IL        2,190,000
DEKALB COUNTY..........................              GA        1,000,000
DENVER.................................                CO      2,820,000
DENVER.................................                CO      3,292,000
DENVER.................................                CO        452,000
DENVER.................................                CO      2,301,000
DENVER.................................                CO      2,912,000
DES MOINES.............................              IA        8,500,000
DES MOINES.............................              IA        1,425,000
DETROIT................................              MI        7,789,000
DETROIT................................              MI       17,000,000
DETROIT................................              MI       13,247,000
DETROIT................................              MI       18,000,000
DETROIT................................              MI       18,700,000
DETROIT................................              MI        1,200,000
DETROIT................................              MI          180,000
DETROIT................................              MI        2,195,000
DETROIT................................              MI        8,815,000
DETROIT................................              MI        1,800,000
DORADO.................................              PR        5,194,000
DOWNEY.................................                CA      1,000,000
DULUTH.................................              MN        2,966,000
DUTCHESS COUNTY........................              NY          236,000
EAST LANSING...........................              MI        1,200,000
EAST LIVERPOOL.........................              OH           60,000
EAST PROVIDENCE........................              RI        2,650,000
EASTON.................................              PA        1,000,000
EDINBURG...............................              TX        1,385,000
EL CAJON...............................                CA      1,356,000
EL CAJON...............................                CA        508,000
EL MONTE...............................                CA      3,435,000
EL MONTE...............................                CA      1,790,000
EL MONTE...............................                CA      1,200,000
EL MONTE...............................                CA      1,684,000
ELIZABETH..............................              NJ          365,000
ELMIRA.................................              NY        2,725,000
ENID...................................              OK        1,212,000
ESOPUS.................................              NY          294,000
EUGENE.................................              OR        6,118,000
EVERETT................................              MA        1,000,000
FAIRFAX COUNTY.........................              VA        6,516,000
FAIRFAX COUNTY.........................              VA        6,535,000
FAIRFAX COUNTY.........................              VA          275,000
FAIRFAX COUNTY.........................              VA          345,000
FAIRFAX COUNTY.........................              VA          580,000
FAIRFAX COUNTY.........................              VA          125,000
FAIRFAX COUNTY.........................              VA            5,000
FAIRFAX COUNTY.........................              VA          252,000
FAIRFAX COUNTY.........................              VA        1,265,000
FALL RIVER.............................              MA        2,000,000
FAYETTEVILLE...........................               NC         675,000
FITCHBURG..............................              MA        3,391,000
FLINT..................................              MI          904,000
FLINT..................................              MI        5,307,000
FLINT..................................              MI        3,840,000
FLINT..................................              MI        1,778,000
FLORENCE...............................               SC         870,000
FORT MYERS.............................              FL          125,000
FORT PIERCE............................              FL        3,395,000
FORT WAYNE.............................              IN        6,250,000
FORT WAYNE.............................              IN          535,000
FORT WORTH.............................              TX        1,855,000
FORT WORTH.............................              TX        5,610,000
FRESNO.................................                CA      1,550,000
FRESNO.................................                CA        900,000
FRESNO.................................                CA      1,117,000
FRESNO COUNTY..........................                CA      1,125,000
FRESNO COUNTY..........................                CA        435,000
FULLERTON..............................                CA      4,500,000
FULTON.................................              NY          127,000
FULTON.................................              NY          753,000
GADSDEN................................              AL          500,000
GADSDEN................................              AL        1,200,000
GARDEN GROVE...........................                CA      6,110,000
GASTONIA...............................               NC         973,000
GASTONIA...............................               NC         190,000
GASTONIA...............................               NC       1,230,000
GENEVA.................................              NY          670,000
GENEVA.................................              NY        2,745,000
GLENDALE...............................                CA        470,000
GLENVILLE..............................              NY          341,000
GRAYS HARBOR COUNTY....................              WA        3,615,000
GREENSBORO.............................               NC       4,702,000
GREENSBORO.............................               NC       2,736,000
GRESHAM................................              OR        1,373,000
GUAYNABO...............................              PR        1,831,000
GUAYNABO...............................              PR        1,811,000
GUAYNABO...............................              PR        2,330,000
HAMMOND................................              IN        2,799,000
HARFORD COUNTY.........................              MD        1,385,000
HARRISBURG.............................              PA        3,375,000
HARRISBURG.............................              PA        2,450,000
HARTFORD...............................                CT      5,895,000
HARTFORD...............................                CT      4,836,000
HARTFORD...............................                CT      7,000,000
HARTFORD...............................                CT      1,105,000
HAWTHORNE..............................                CA        250,000
HAWTHORNE..............................                CA      1,940,000
HAWTHORNE..............................                CA      3,010,000
HAZLETON...............................              PA          340,000
HERKIMER...............................              NY          365,000
HESPERIA...............................                CA        600,000
HIALEAH................................              FL        2,680,000
HIDALGO COUNTY.........................              TX        1,980,000
HOLLYWOOD..............................              FL        3,720,000
HOUSTON................................              TX        9,215,000
HUDSON.................................              NY          705,000
HUNTINGTON.............................              WV        2,735,000
HUNTINGTON.............................              WV        1,135,000
HUNTINGTON.............................              WV          460,000
HUNTINGTON BEACH.......................                CA      1,560,000
HUNTINGTON BEACH.......................                CA      3,665,000
HUNTINGTON PARK........................                CA      6,368,000
HUNTINGTON PARK........................                CA      1,150,000
ILION..................................              NY           70,000
INDIANAPOLIS...........................              IN        3,000,000
IRVING.................................              TX        2,820,000
ISABELA................................              PR        4,312,000
ISLIP..................................              NY        1,050,000
ITHACA.................................              NY          520,000
JACKSON................................              TN        3,165,000
JACKSON................................              MS        7,000,000
JACKSON................................              MI          635,000
JACKSONVILLE...........................              FL        1,860,000
JACKSONVILLE...........................              FL          160,000
JACKSONVILLE...........................              FL          685,000
JACKSONVILLE...........................              FL        1,420,000
JACKSONVILLE...........................              FL          280,000
JACKSONVILLE...........................              FL          440,000
JAYUYA.................................              PR        2,010,000
JAYUYA.................................              PR          560,000
JERSEY CITY............................              NJ        8,000,000
JERSEY CITY............................              NJ        2,400,000
JERSEY CITY............................              NJ        5,700,000
JERSEY CITY............................              NJ        5,929,000
JUANA DIAZ.............................              PR        5,300,000
JUNCOS.................................              PR          657,000
JUNCOS.................................              PR          414,000
KANKAKEE...............................              IL          500,000
KANNAPOLIS.............................               NC       1,349,000
KANSAS CITY............................              MO          750,000
KANSAS CITY............................              KS        3,314,000
KANSAS CITY............................              MO        4,260,000
KANSAS CITY............................              MO        6,000,000
KEY WEST...............................              FL       13,007,000
KING COUNTY............................              WA        4,905,000
KING COUNTY............................              WA        5,102,000
KING COUNTY............................              WA          972,000
KINGSPORT..............................              TN          856,000
KINGSTON...............................              NY        1,100,000
KINGSTON...............................              NY        1,500,000
LAFAYETTE..............................              IN        2,790,000
LAKEWOOD...............................              OH          277,000
LAKEWOOD...............................                CO      3,118,000
LANCASTER..............................                CA      1,066,000
LANCASTER..............................                CA      1,167,000
LANCASTER..............................              OH          580,000
LANCASTER..............................                CA      1,690,000
LANCASTER..............................                CA        200,000
LARAMIE................................              WY          400,000
LAREDO.................................              TX          765,000
LAS CRUCES.............................              NM        2,000,000
LAWRENCE...............................              MA        2,900,000
LAWRENCE...............................              MA          500,000
LAWTON.................................              OK        1,807,000
LEFLORE COUNTY.........................              MS        4,500,000
LENOIR.................................               NC         512,000
LEWIS COUNTY...........................              NY          458,000
LITTLE FALLS...........................              NY          256,000
LITTLE ROCK............................              AR          230,000
LITTLE ROCK............................              AR          185,000
LIVERMORE..............................                CA        137,000
LIVERMORE..............................                CA      1,320,000
LOCKPORT...............................              NY          260,000
LORAIN.................................              OH        1,730,000
LORAIN.................................              OH           20,000
LORAIN.................................              OH          220,000
LORAIN.................................              OH        2,125,000
LOS ANGELES............................                CA     13,542,000
LOS ANGELES............................                CA      7,400,000
LOS ANGELES............................                CA      6,806,000
LOS ANGELES............................                CA     10,000,000
LOS ANGELES............................                CA      6,174,000
LOS ANGELES............................                CA      8,999,000
LOS ANGELES............................                CA     13,965,000
LOS ANGELES............................                CA     22,725,000
LOS ANGELES............................                CA      2,000,000
LOS ANGELES............................                CA     18,200,000
LOS ANGELES............................                CA      2,455,000
LOS ANGELES............................                CA      4,781,000
LOS ANGELES............................                CA     21,566,000
LOS ANGELES............................                CA     10,193,000
LOS ANGELES............................                CA      8,975,000
LOS ANGELES COUNTY.....................                CA      8,986,000
LOS ANGELES COUNTY.....................                CA     14,077,000
LOS ANGELES COUNTY.....................                CA      7,320,000
LOS ANGELES COUNTY.....................                CA     14,350,000
LOWELL.................................              MA        2,340,000
LOWELL.................................              MA          140,000
LUBBOCK................................              TX          250,000
LYNCHBURG..............................              VA        2,300,000
LYNN...................................              MA          385,000
LYNN...................................              MA        1,220,000
LYNN...................................              MA          428,000
LYNN...................................              MA          585,000
LYNWOOD................................                CA      5,105,000
LYONS..................................              NY          166,000
LYONS..................................              NY           75,000
MADISON COUNTY.........................              IL        2,076,000
MAHONING COUNTY........................              OH          120,000
MALDEN.................................              MA        1,000,000
MALDEN.................................              MA        3,000,000
MALDEN.................................              MA          900,000
MALDEN.................................              MA          580,000
MANATI.................................              PR        3,750,000
MANCHESTER.............................              NH        2,337,000
MANCHESTER.............................              NH        3,563,000
MANSFIELD..............................              OH          300,000
MARSHALL...............................              TX          266,000
MASSILLON..............................              OH        1,725,000
MAUNABO................................              PR        2,666,000
MEDFORD................................              MA        1,000,000
MEDINA.................................              NY           81,000
MEMPHIS................................              TN        8,500,000
MEMPHIS................................              TN        1,740,000
MEMPHIS................................              TN        1,380,000
MEMPHIS................................              TN        6,271,000
MEMPHIS................................              TN        3,650,000
MERCED.................................                CA      2,600,000
MERCED.................................                CA        580,000
MIAMI..................................              FL        3,806,000
MIAMI..................................              FL        2,300,000
MIAMI BEACH............................              FL        1,050,000
MIDDLETOWN.............................                CT        109,000
MIDDLETOWN.............................              NY          225,000
MIDDLETOWN.............................              NY          100,000
MIDDLETOWN.............................              NY           90,000
MIDDLETOWN.............................              NY          503,000
MIDDLETOWN.............................              NY          260,000
MIDDLETOWN.............................              NY          190,000
MIDDLETOWN.............................              NY          750,000
MIDDLETOWN.............................              NY           25,000
MIDDLETOWN.............................              NY           35,000
MIDLAND................................              TX          450,000
MINNEAPOLIS............................              MN        6,055,000
MOBILE.................................              AL          980,000
MOBILE.................................              AL        2,255,000
MOBILE.................................              AL          380,000
MOBILE.................................              AL          850,000
MOBILE.................................              AL          780,000
MODESTO................................                CA      3,574,000
MOLINE.................................              IL          515,000
MONESSEN...............................              PA       43,797,000
MONESSEN...............................              PA          286,000
MONROE COUNTY..........................              NY          760,000
MONROE COUNTY..........................              NY           60,000
MONTEBELLO.............................                CA      5,279,000
MONTEREY PARK..........................                CA      4,768,000
MONTGOMERY COUNTY......................              MD          569,000
MONTGOMERY COUNTY......................              PA        2,454,000
MONTGOMERY COUNTY......................              PA            1,000
MONTGOMERY COUNTY......................              PA          175,000
MONTGOMERY COUNTY......................              PA        2,390,000
MOSS POINT.............................              MS          540,000
NASHVILLE..............................              TN        3,315,000
NASSAU COUNTY..........................              NY        7,182,000
NASSAU COUNTY..........................              NY        6,472,000
NASSAU COUNTY..........................              NY        4,745,000
NATIONAL CITY..........................                CA      5,505,000
NEW BEDFORD............................              MA        1,265,000
NEW CASTLE.............................              PA        1,400,000
NEW HAVEN..............................                CT        770,000
NEW HAVEN..............................                CT      2,140,000
NEW ORLEANS............................              LA        3,530,000
NEW ORLEANS............................              LA        5,334,000
NEW ORLEANS............................              LA        8,145,000
NEW ORLEANS............................              LA        5,585,000
NEW ORLEANS............................              LA        3,250,000
NEW YORK...............................              NY            1,000
NEW YORK...............................              NY        8,639,000
NEWARK.................................              NY           31,000
NEWARK.................................              NY          365,000
NEWARK.................................              NY          161,000
NEWBURGH...............................              NY          450,000
NEWBURGH...............................              NY          855,000
NEWPORT BEACH..........................                CA      1,788,000
NORFOLK................................              VA       12,885,000
NORRISTOWN.............................              PA            1,000
NORTH ADAMS............................              MA        2,514,000
NORTH TONAWANDA........................              NY          142,000
OAKLAND................................                CA      2,460,000
OAKLAND................................                CA      9,835,000
OCEAN SHORES...........................              WA          915,000
OCEANSIDE..............................                CA      3,295,000
OGDEN..................................              UT        1,700,000
OGDEN..................................              UT          460,000
OKLAHOMA CITY..........................              OK        3,750,000
OKLAHOMA CITY..........................              OK        1,925,000
OMAHA..................................              NE          441,000
OREM...................................              UT        1,090,000
OSWEGO.................................              NY          235,000
OSWEGO COUNTY..........................              NY          249,000
PALM BEACH COUNTY......................              FL        1,138,000
PALM BEACH COUNTY......................              FL        1,151,000
PALM BEACH COUNTY......................              FL        7,875,000
PALM BEACH COUNTY......................              FL          152,000
PALMDALE...............................                CA      4,383,000
PALMYRA................................              NY          260,000
PARKERSBURG............................              WV        2,007,000
PASADENA...............................                CA      1,000,000
PASCO COUNTY...........................              FL       11,387,000
PENNS GROVE............................              NJ          523,000
PENNSYLVANIA...........................              PA       15,000,000
PHARR..................................              TX          270,000
PHILADELPHIA...........................              PA        2,600,000
PHILADELPHIA...........................              PA        8,400,000
PHILADELPHIA...........................              PA       20,000,000
PHILADELPHIA...........................              PA        1,089,000
PHILADELPHIA...........................              PA        6,825,000
PHILADELPHIA...........................              PA        8,670,000
PHILADELPHIA...........................              PA        2,000,000
PHILADELPHIA...........................              PA        2,585,000
PHILADELPHIA...........................              PA       12,745,000
PHILADELPHIA...........................              PA       23,500,000
PHILADELPHIA...........................              PA       29,870,000
PHILADELPHIA...........................              PA       12,345,000
PITTSBURGH.............................              PA        2,949,000
PITTSBURGH.............................              PA        3,920,000
PITTSBURGH.............................              PA        3,000,000
PITTSBURGH.............................              PA        2,000,000
PITTSBURGH.............................              PA        3,600,000
PITTSBURGH.............................              PA       10,000,000
PITTSFIELD.............................              MA          992,000
PITTSFIELD.............................              MA          571,000
PLATTSBURGH............................              NY          110,000
POMONA.................................                CA        750,000
PONCE..................................              PR       18,801,000
PONCE..................................              PR        2,765,000
PORT TOWNSEND..........................              WA          690,000
PORTERVILLE............................                CA      3,092,000
PORTLAND...............................              ME        1,418,000
PORTLAND...............................              OR        5,161,000
PORTLAND...............................              OR        3,465,000
PRINCE GEORGE'S COUNTY.................              MD        5,395,000
PROVIDENCE.............................              RI          585,000
PROVO..................................              UT        1,050,000
QUINCY.................................              MA        4,025,000
RADFORD................................              VA          425,000
RAYMOND................................              WA          790,000
READING................................              PA        2,708,000
READING................................              PA        1,050,000
READING................................              PA        3,000,000
READING................................              PA        4,300,000
READING................................              PA          550,000
READING................................              PA          865,000
REDFORD................................              MI        3,205,000
RENO...................................              NV          336,000
RIALTO.................................                CA      2,276,000
RICHMOND...............................              VA        2,245,000
RICHMOND...............................                CA      3,500,000
RICHMOND...............................                CA      2,710,000
RIVERSIDE..............................                CA      1,740,000
RIVERSIDE..............................                CA      2,695,000
ROANOKE................................              VA        1,355,000
ROCHESTER..............................              NY        2,200,000
ROCHESTER..............................              NY        3,200,000
ROCHESTER..............................              NY          875,000
ROCHESTER..............................              NY          343,000
ROCHESTER..............................              NY          150,000
ROCK HILL..............................               SC       2,016,000
ROCKFORD...............................              IL          750,000
ROCKFORD...............................              IL          705,000
ROCKLAND COUNTY........................              NY          416,000
ROCKLAND COUNTY........................              NY          553,000
ROCKLAND COUNTY........................              NY        1,650,000
ROCKLAND COUNTY........................              NY          581,000
ROCKLAND COUNTY........................              NY          672,000
ROCKLAND COUNTY........................              NY        1,279,000
ROCKLAND COUNTY........................              NY        1,088,000
ROCKLAND COUNTY........................              NY          668,000
ROCKY MOUNT............................               NC       2,655,000
SACRAMENTO.............................                CA      4,860,000
SACRAMENTO.............................                CA      3,370,000
SACRAMENTO COUNTY......................                CA         76,000
SAINT PAUL.............................              MN        3,300,000
SALEM..................................              OR        4,926,000
SALEM..................................              MA          140,000
SALISBURY..............................               NC         372,000
SAN ANGELO.............................              TX        2,035,000
SAN ANTONIO............................              TX       49,975,000
SAN ANTONIO............................              TX       12,155,000
SAN BERNARDINO.........................                CA      7,500,000
SAN BERNARDINO.........................                CA      3,860,000
SAN BERNARDINO COUNTY..................                CA        350,000
SAN DIEGO..............................                CA      1,620,000
SAN DIEGO..............................                CA      1,180,000
SAN DIEGO..............................                CA      2,336,000
SAN DIEGO..............................                CA      1,701,000
SAN DIEGO..............................                CA      2,421,000
SAN DIEGO..............................                CA      4,840,000
SAN DIEGO..............................                CA        127,000
SAN DIEGO..............................                CA        573,000
SAN DIEGO..............................                CA        133,000
SAN DIEGO..............................                CA         89,000
SAN DIEGO..............................                CA        337,000
SAN DIEGO..............................                CA      3,010,000
SAN DIEGO..............................                CA      3,505,000
SAN DIEGO..............................                CA      2,040,000
SAN DIEGO..............................                CA        741,000
SAN DIEGO..............................                CA      1,606,000
SAN DIEGO..............................                CA        450,000
SAN DIEGO..............................                CA      2,142,000
SAN FRANCISCO..........................                CA      6,534,000
SAN JOSE...............................                CA     12,430,000
SAN JOSE...............................                CA     16,625,000
SAN JOSE...............................                CA     21,877,000
SAN JOSE...............................                CA      2,365,000
SAN JUAN...............................              PR       57,535,000
SAN LEANDRO............................                CA      2,500,000
SAN LEANDRO............................                CA        559,000
SAN LORENZO............................              PR        5,647,000
SAN MATEO COUNTY.......................                CA      7,145,000
SANDY CITY.............................              UT        1,010,000
SANTA CLARITA..........................                CA        166,000
SANTA CLARITA..........................                CA        534,000
SANTA CLARITA..........................                CA        570,000
SANTA FE...............................              NM          243,000
SAVANNAH...............................              GA        1,120,000
SCRANTON...............................              PA        2,375,000
SCRANTON...............................              PA        3,000,000
SCRANTON...............................              PA          880,000
SCRANTON...............................              PA        1,980,000
SCRIBA.................................              NY        1,240,000
SEASIDE................................                CA      1,470,000
SEATTLE................................              WA          805,000
SEATTLE................................              WA       13,248,000
SEATTLE................................              WA        9,877,000
SEATTLE................................              WA          910,000
SEBRING................................              FL        4,365,000
SELMA..................................              AL          600,000
SENECA COUNTY..........................              NY           63,000
SHREVEPORT.............................              LA        1,714,000
SHREVEPORT.............................              LA          520,000
SHREVEPORT.............................              LA        1,184,000
SHREVEPORT.............................              LA        1,787,000
SOMERVILLE.............................              MA          300,000
SOUTH BEND.............................              IN          535,000
SOUTH BEND.............................              IN        3,300,000
SOUTH BEND.............................              IN          200,000
SOUTH GATE.............................                CA      2,210,000
SOUTH GATE.............................                CA      1,835,000
SOUTH SAN FRANCISCO....................                CA      1,166,000
SPARTANBURG............................               SC       3,470,000
SPRINGFIELD............................              MA        3,384,000
SPRINGFIELD............................              MA        3,492,000
SPRINGFIELD............................              MO        7,463,000
SPRINGFIELD............................              OR          441,000
SPRINGFIELD............................              MA          105,000
SPRINGFIELD............................              MA        1,640,000
ST. LOUIS..............................              MO       34,250,000
ST. LOUIS..............................              MO       12,500,000
STOCKTON...............................                CA     11,480,000
STOCKTON...............................                CA      6,760,000
STOCKTON...............................                CA      1,980,000
SUFFOLK................................              VA        3,073,000
SULLIVAN...............................              NY          425,000
SUMTER.................................               SC         772,000
SUMTER.................................               SC         816,000
SYLVAN BEACH...........................              NY          198,000
SYRACUSE...............................              NY          635,000
SYRACUSE...............................              NY        4,184,000
SYRACUSE...............................              NY          888,000
SYRACUSE...............................              NY        1,065,000
SYRACUSE...............................              NY          138,000
TACOMA.................................              WA        3,600,000
TACOMA.................................              WA        1,375,000
TACOMA.................................              WA        1,149,000
TAMPA..................................              FL        7,720,000
TAUNTON................................              MA          480,000
TAYLOR.................................              MI          300,000
TEMPE..................................              AZ        5,883,000
TOA ALTA...............................              PR        7,886,000
TOA BAJA...............................              PR       12,157,000
TOLEDO.................................              OH          125,000
TOLEDO.................................              OH       13,630,000
TROY...................................              NY        2,666,000
TRUJILLO ALTO..........................              PR        2,740,000
TRUMBULL COUNTY........................              OH          955,000
TULARE.................................                CA        291,000
TUSCALOOSA.............................              AL        1,500,000
ULSTER COUNTY..........................              NY          647,000
UNION CITY.............................                CA      1,710,000
UTICA..................................              NY          947,000
UTICA..................................              NY        2,250,000
VACAVILLE..............................                CA        706,000
VACAVILLE..............................                CA        420,000
VANCOUVER..............................              WA        3,840,000
VEGA BAJA..............................              PR        2,325,000
VEGA BAJA..............................              PR        1,905,000
VEGA BAJA..............................              PR        1,245,000
VINELAND...............................              NJ        2,720,000
VISALIA................................                CA      1,721,000
VISALIA................................                CA      1,618,000
VISTA..................................                CA      3,175,000
WARREN.................................              OH        1,485,000
WARREN.................................              OH          520,000
WATERFORD..............................              NY            6,000
WATSONVILLE............................                CA      1,821,000
WAYNE COUNTY...........................              MI          228,000
WAYNE COUNTY...........................              MI          168,000
WAYNE COUNTY...........................              NY          173,000
WEST JORDAN............................              UT        1,215,000
WEST VALLEY............................              UT        2,266,000
WESTFIELD..............................              MA          840,000
WESTMORELAND COUNTY....................              PA          720,000
WHEELING...............................              WV        1,500,000
WICHITA................................              KS          990,000
WILKES-BARRE...........................              PA        3,000,000
WINSTON-SALEM..........................               NC       2,591,000
WINSTON-SALEM..........................               NC       1,200,000
WOODLAND...............................                CA        400,000
WOONSOCKET.............................              RI        2,050,000
WORCESTER..............................              MA        2,287,000
WORCESTER..............................              MA        2,218,000
YAKIMA.................................              WA        1,843,000
YAKIMA.................................              WA        2,921,000
YAUCO..................................              PR        4,000,000
YONKERS................................              NY          608,000
YONKERS................................              NY        2,316,000
YONKERS................................              NY        2,450,000
YONKERS................................              NY        2,625,000
YONKERS................................              NY          950,000
YONKERS................................              NY        5,608,000
YORK...................................              PA        2,530,000
YORK...................................              PA        1,100,000
YOUNGSTOWN.............................              OH          730,000
YOUNGSTOWN.............................              OH          955,000
YOUNGSTOWN.............................              OH          530,000
YOUNGSTOWN.............................              OH          500,000
------------------------------------------------------------------------

    Question. Why is there no oversight for this program?
    Answer. There is extensive oversight of the Section 108 program as 
it is part of the long standing CDBG program. Section 108 projects are 
considered in the annual CDBG risk analysis process and Section 108 
projects are reviewed as part of regular CDBG monitoring reviews. CDBG 
grantees that use Section 108 funds report annually on the use of those 
funds in their Consolidated Annual Performance Report that describes 
uses and performance of CDBG and other funding sources. Activities 
financed with Section 108 funds are subject to all program, financial, 
and cross-cutting requirements applicable to CDBG funds. Further, each 
Section 108 Loan is reviewed by the respective field office and 
underwritten by headquarters with approvals issued centrally from 
headquarters.
    Question. According to the GAO, this issue came up in 2007. Why has 
no action been taken during the last 5 years?
    Answer. The question misstates the GAO's analysis of Section 108. 
GAO is not stating that the program lacks oversight, but rather that 
HUD should improve data collection and reporting on the program by 
integrating it into the Integrated Disbursement and Information System 
(IDIS). IDIS is the finance and data system for other HUD-CPD programs. 
The fiscal year 2010 TI funding will allow us to integrate the Section 
108 program into IDIS. We expect that these system improvements will be 
completed in fiscal year 2012.
    Question. The GAO report I previously mentioned also targeted 
fragmented overlap in economic develop, homeless assistance and water 
projects among Federal agencies, including HUD. For example, the 
Department of Commerce, HUD, the Small Business Administration, and the 
U.S. Department of Agriculture (USDA) combined oversee 52 programs that 
assist in ``entrepreneurial efforts.'' GAO says the agencies have made 
minimal effort into developing compatible policies and procedures. Once 
again, monitoring and oversight came up.
    With resources already tight, how can we improve the efficiency of 
HUD in situations like this?
    Answer. HUD is familiar with the GAO report and is considering ways 
to address many of the concerns it highlights. First, we have entered 
into a partnership with almost a dozen Federal agencies, described in 
HUD's TI justification, to institutionalize monitoring and evaluating 
interagency collaborative efforts. This partnership responds to a 
section of the report that notes:

``Moreover, GAO is finding that most of the collaborative efforts 
performed by program staff on the front line that GAO has been able to 
assess to date have occurred only on a case-by-case basis. As a result, 
it appears that the agencies do not consistently monitor or evaluate 
these collaborative efforts in a way that allows them to identify areas 
for improvement.''

    In addition, HUD and its partners are also planning a pilot that 
places teams comprised of interagency representatives from across the 
Federal Government to work in a few locations and coordinate the 
various Federal programs these communities use. These teams will serve 
as both on-the-ground technical assistance and implementation partners 
and as liaisons between the Federal Government and the pilot site. By 
working across agencies and reporting back successes and limitations, 
this effort will help cities and regions maximize the benefits from the 
Federal funds they already receive and provide valuable information to 
make programs less duplicative or incompatible. The National Resource 
Bank is another resource that will assist in this regard.
    Finally, we note that some of the overlap reflects an interest in 
leaving more discretion to local governments rather than imposing 
restrictions from Washington. However, HUD recognizes that this has at 
times been done inelegantly, and understands that incompatible rules in 
these programs hinder this ultimate goal. This is something that HUD is 
working to resolve. Please see program examples below.
Section 108
    The Section 108 program is part of the CDBG program and operates 
within the CDBG statutory and regulatory requirements. Monitoring and 
oversight of Section 108-funded activities is part and parcel of 
regular monitoring efforts under the CDBG program and, in this sense, 
there is exceptionally close alignment with the CDBG program. The most 
significant factor inhibiting the development of closer policies and 
procedures across programs at various agencies is the fact that 
differences in the underlying statutory authorities creates a profound 
obstacle to reconciling these programs. A classic example is the fact 
that an environmental review carried out by one Federal agency can 
seldom be accepted by other agencies absent clear statutory authority 
to act in this manner. Another example is that many program 
authorization statutes have varying planning requirements that prohibit 
one plan from being used for multiple purposes. To the extent that the 
subcommittee is interested in identifying and these barriers, the 
Department is available to engage in that discussion.
Homeless Programs
    HUD works closely with other Federal agencies on the issue of 
homelessness, and is a key member of the U.S. Interagency Council on 
Homelessness (USICH). Through these efforts HUD is working to align its 
targeted and mainstream resources with the resources available through 
other programs, especially those at the Departments of Health and Human 
Services, Veterans Affairs, and Labor. This is evidenced in the goals 
and strategies articulated in the USICH ``Opening Doors: Federal 
Strategic Plan To Prevent and End Homelessness.''
    Question. GAO also found an example where HUD provided a utility in 
Texas with a grant for $860,000 to extend water distribution and waste 
collection for the community. But 5 years after the funds were issued, 
the lines were unused because the utility did not receive enough USDA 
money to complete a well. What metrics and data analysis are used when 
HUD funds projects that are contingent on another agency's funding?
    Answer. The Fort Hancock, Texas, water and sewer lines have been 
laid, however the homes were not connected due to insufficient water 
pressure and inadequate treatment facilities (improvements being 
constructed by USDA-RD). The water well and reverse osmosis system and 
related improvements (now funded by both USDA-RD and Texas Water 
Development Board) will be complete by July 2011 and connections should 
be made beginning in August. If this schedule holds, these grants could 
be closed by the end of 2011.
    In CDBG generally, HUD does not decide what projects to fund as 
funding decisions are left to local or State grantees. CDBG is unique 
among Federal programs in that CDBG funds may count as local match 
against other Federal programs. As a result of this provision, CDBG 
grantees have an incentive to leverage other funding sources. CDBG does 
not have any specific rules on the drawdown of CDBG funds in project 
with multiple funding sources as timing of the investment will depend 
upon the costs that are being covered with CDBG funds (e.g., 
acquisition of property may be prerequisite to construction 
activities).
    It is not HUD's role to undertake an analysis that leveraged funds 
will be available for a State CDBG project. The vetting and approval 
process has been a State responsibility since the advent of the State 
CDBG program in 1981. HUD does not get involved in State selection 
processes beyond determining that methods of distribution (i.e., how 
they will allocate CDBG funds) comply with statutory and regulatory 
standards.

                          SUBCOMMITTEE RECESS

    Senator Collins. So with that, the hearing record will 
remain open for 15 days for the submission of additional 
questions for the record or any other statements and testimony, 
and this hearing is now recessed.
    [Whereupon, at 11:26 a.m., Thursday, March 3, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
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