    [Senate Hearing 112-454]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 112-454

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

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

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                          ONE HUNDRED TWELTH CONGRESS

                                 FIRST SESSION

                                       ON

                                    S. 1596

    AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF TRANSPORTATION AND
    HOUSING AND URBAN DEVELOPMENT, AND RELATED AGENCIES FOR THE FISCAL YEAR
               ENDING SEPTEMBER 30, 2012, AND FOR OTHER PURPOSES

                                   __________

                  Department of Housing and Urban Development
                          Department of Transportation
                National Railroad Passenger Corporation (Amtrak)
                           Nondepartmental witnesses

                                   __________

             Printed for the use of the Committee on Appropriations

       Available via the World Wide Web: http://www.gpo.gov/fdsys/browse/
            committee.action?chamber=senate&committee=appropriations

                                   __________

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                          COMMITTEE ON APPROPRIATIONS

                       DANIEL K. INOUYE, Hawaii, Chairman
    PATRICK J. LEAHY, Vermont            THAD COCHRAN, Mississippi
    TOM HARKIN, Iowa                     MITCH McCONNELL, Kentucky
    BARBARA A. MIKULSKI, Maryland        RICHARD C. SHELBY, Alabama
    HERB KOHL, Wisconsin                 KAY BAILEY HUTCHISON, Texas
    PATTY MURRAY, Washington             LAMAR ALEXANDER, Tennessee
    DIANNE FEINSTEIN, California         SUSAN COLLINS, Maine
    RICHARD J. DURBIN, Illinois          LISA MURKOWSKI, Alaska
    TIM JOHNSON, South Dakota            LINDSEY GRAHAM, South Carolina
    MARY L. LANDRIEU, Louisiana          MARK KIRK, Illinois
    JACK REED, Rhode Island              DANIEL COATS, Indiana
    FRANK R. LAUTENBERG, New Jersey      ROY BLUNT, Missouri
    BEN NELSON, Nebraska                 JERRY MORAN, Kansas
    MARK PRYOR, Arkansas                 JOHN HOEVEN, North Dakota
    JON TESTER, Montana                  RON JOHNSON, Wisconsin
    SHERROD BROWN, Ohio

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

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

                       PATTY MURRAY, Washington, Chairman
    BARBARA A. MIKULSKI, Maryland        SUSAN COLLINS, Maine
    HERB KOHL, Wisconsin                 RICHARD C. SHELBY, Alabama
    RICHARD J. DURBIN, Illinois          KAY BAILEY HUTCHISON, Texas
    PATRICK J. LEAHY, Vermont            LAMAR ALEXANDER, Tennessee
    TOM HARKIN, Iowa                     MARK KIRK, Illinois
    DIANNE FEINSTEIN, California         DANIEL COATS, Indiana
    TIM JOHNSON, South Dakota            JERRY MORAN, Kansas
    FRANK R. LAUTENBERG, New Jersey      ROY BLUNT, Missouri
    MARK PRYOR, Arkansas                 RON JOHNSON, Wisconsin
    DANIEL K. INOUYE, Hawaii (ex         THAD COCHRAN, Mississippi (ex
        officio)                             officio)

                               Professional Staff

                                  Alex Keenan
                              Meaghan L. McCarthy
                                 Rachel Milberg
                                  Dabney Hegg
                          Heideh Shahmoradi (Minority)
                        Brooke Hayes Stringer (Minority)
                            Carl Barrick (Minority)

                             Administrative Support
                                 Molly O'Rourke

                                C O N T E N T S

                                  ----------

                            Thursday, March 3, 2011

                                                                       Page

    Department of Housing and Urban Development: Office of the
      Secretary......................................................     1

                            Thursday, March 10, 2011

    Department of Transportation: Office of the Secretary............    79

                            Thursday, April 7, 2011

    Department of Housing and Urban Development: Federal Housing
      Administration.................................................   125

                             Thursday, May 12, 2011

    Department of Transportation: Federal Aviation Administration....   157

                             Tuesday, May 17, 2011

    Department of Transportation: Federal Railroad Administration....   209
    National Railroad Passenger Corporation (Amtrak).................   224
    Nondepartmental witnesses........................................   245

    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.
    ---------------------------------------------------------------------------
        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.
    ---------------------------------------------------------------------------
        \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.
    ---------------------------------------------------------------------------

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

    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.

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

                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.
    ---------------------------------------------------------------------------
      --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.

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

        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.

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

        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.
                                     ______

                   Questions Submitted by Senator Mark Pryor

                      DISASTER RECOVERY ACTIVITIES AT HUD

        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 Community Development Block Grant (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.]

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

                                  ----------

                            THURSDAY, MARCH 10, 2011

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:33 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray, Pryor, Collins, Coats, and Blunt.

                          DEPARTMENT OF TRANSPORTATION

                            Office of the Secretary

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

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Good morning. The subcommittee will come to
    order.
        Welcome, Secretary Ray LaHood. Thank you for coming back to
    our subcommittee to talk about the Department of
    Transportation's (DOT) budget request and our Nation's
    transportation policy. I appreciate your being here today.
        The subject of this hearing is the DOT budget for fiscal
    year 2012. Yet, even as we sit here today, halfway through the
    fiscal year, the Federal Government still lacks a final budget
    for fiscal year 2011. The Congress is continuing to debate that
    budget as millions of families and communities across the
    country wait anxiously to learn the fate of programs they
    depend upon. And this debate is critical. We do need to tackle
    the deficit and make sure our children and grandchildren aren't
    forced to bear the burden of overwhelming debt.
        Yesterday, the Senate voted on two bills, one from the
    House Republicans, the other a Senate Democratic alternative,
    to fund Federal agencies through the end of this fiscal year
    2011. The House proposal was a budget that would have
    eliminated the high-speed rail and Transportation Investment
    Generating Economic Recovery (TIGER) grant programs and made
    deep cuts to transit, Amtrak, and aviation spending.
        Transportation is central to so much of the way our lives
    are organized, and there is overwhelming evidence that greater
    investment is needed today in communities across our country,
    whether it's replacing our crumbling bridges and tunnels, or
    building new roads and transit lines to support economic growth
    and competitiveness and ease congestion. The DOT budget has a
    real impact on real people.
        I was deeply concerned that the House Republican budget
    would eliminate funding for the highly competitive TIGER
    Discretionary Grant program. It's a program that has become a
    showcase for innovation in both rural and urban communities.
    The House proposal goes so far as to eliminate TIGER grants
    that were already awarded to 75 communities last year--the 75
    most promising projects out of a field of more than 1,000
    applicants.
        One of those 75 projects is a project in my home State that
    really typifies what those grants mean to all of our States. In
    south Seattle, there is a community that is hanging on by a
    thread. The main access road to commerce goes through a bridge
    that, like infrastructure in a lot of our States, was crumbling
    and had to be closed. Mr. Secretary, you were there and saw
    that. I have spoken to the small business owners and residents
    of this community who told me that bridge is really their
    lifeline.
        Last year, the South Park Bridge won a TIGER grant to help
    rebuild that bridge. And that bridge today is now creating jobs
    and aiding the recovery of an entire community, and will be a
    foundation for that community to thrive on for generations to
    come. But the funding for that project, and many others like
    it, was left on the cutting-room floor by House Republicans in
    an effort to meet an arbitrary bottom line. And that is just
    one example from an extreme plan that focuses on short-term and
    shortsighted cuts while neglecting a long-term plan for
    responsible deficit reduction to support our economic recovery.
        The Senate Democratic bill protected those investments,
    choosing to end programs that have served their purpose or are
    no longer needed. We do need to make responsible and practical
    budget cuts that will allow us to continue out-innovating, out-
    educating, and out-building our competitors.
        As we all know, neither bill was able to garner enough
    votes to win passage. A compromise is needed, one where both
    sides come to the table to work together on a long-term
    solution that invests in our country's future. And as we work
    to cut spending, we need to make sure that we are not doing
    anything to threaten our economic recovery or cause even more
    workers to lose their jobs.
        So, today, as we look at the fiscal year 2012 budget, I
    will be taking the responsible approach and analyzing how
    taxpayer dollars can be invested more effectively to continue
    our economic recovery, improve our economic competitiveness,
    strengthen our communities, ensure safety, foster innovation,
    and manage our Federal resources efficiently. The investments
    we make in transportation and in our national infrastructure
    are such an important part of supporting our economy,
    rebuilding our communities, and improving safety.
        And the need to invest in our transportation infrastructure
    is huge. Many of us have seen the report card for America's
    infrastructure that was put together by the American Society of
    Civil Engineers. Their overall grade for our Nation's
    infrastructure is a D. And their grade for roads is even more
    depressing: a D-. Our Nation's rail network earned a paltry C-.
    And transit earned nothing more than a D.
        The President's budget request tries to address this
    problem, asking for a 69-percent increase in funding for DOT.
    The request includes an immediate investment of $50 billion to
    boost the economy, as well as the 6-year reauthorization
    proposal for surface transportation. Clearly, this proposal
    offers a grand vision for our transportation programs.
        I applaud the administration's effort to promote investment
    in our Nation's infrastructure, but I also think we need more
    than grand ideas. We need to discuss real strategies that will
    make them happen. And unfortunately, this budget proposal
    doesn't offer us real solutions for the challenges we face
    today. When we talk about paying for transportation, the
    biggest challenge we face is the solvency of the Highway Trust
    Fund (HTF). Even under current funding levels, without paying
    for the additional $50 billion in stimulus funding requested by
    the administration, HTF will be bankrupt by the end of fiscal
    year 2012 or the beginning of 2013. The administration has
    offered to work with the Congress to address this problem, but
    when it comes to discussing specific solutions, the President
    has opposed an increase to the gas tax, opposed the development
    of a new revenue system based on miles traveled, and still not
    offered any proposals for making sure HTF has enough revenues
    to pay for its budget request.
        I'm also concerned about what happens to transportation
    programs in fiscal year 2012. A long-term solution for HTF will
    not be able to solve our immediate crisis. The Congress has
    already transferred more than $34 billion from the General Fund
    to HTF. I will be interested to hear from the Secretary if he
    thinks another transfer is necessary to get through this year
    or if he can offer another way to avert a crisis. At a time
    when the House is focusing on slash-and-burn politics, we need
    to see some realistic alternatives being discussed. And I'm
    disappointed the budget request doesn't offer that.
        I'm also troubled by the administration's proposal to
    reclassify transportation programs as purely mandatory funding.
    This proposal helps the administration meet its goal of
    freezing growth in discretionary budget, but it also means the
    administration has failed to request about $7 billion for the
    rail and public transit programs that have been traditionally
    funded with discretionary resources. That is a large hole for
    the Congress to fill from the outset.
        More importantly, the proposal leaves the Department
    without annual oversight and input from the Appropriations
    Committee. This subcommittee has played an important role in
    supporting our Nation's infrastructure, providing additional
    resources for transit, roads, and bridges from HTF as well as
    the General Fund of the Department of the Treasury. In fact,
    the TIGER program was created by this subcommittee.
        This subcommittee has been particularly engaged in
    supporting rail transportation, providing additional funding
    for the high-speed rail grants, and making sure the Department
    has the resources it needs to administer the program.
        As concerned as I am about the future of the surface
    transportation programs, I believe the threats facing the
    President's high-speed rail initiative are potentially even
    greater. I believe in high-speed rail. I think it has the
    ability to spur innovation and economic growth, tying
    communities together in ways that roads and airports don't
    today.
        Unlike most of Europe, we are still a young and growing
    Nation. Our population is projected to reach 420 million by
    mid-century, almost 140 million more than in 2000. If you think
    your travel on roads and airports is crowded today, just wait.
    And building more and wider roads won't be enough. High-speed
    rail, like the Federal Aviation Administration's (FAA) Next
    Generation Air Transportation System (NextGen), is one of the
    solutions we will need if we are to avoid paralyzing gridlock.
        I recognize the Department has had to stand up this
    ambitious new program in record time, hammering out agreements
    with States and freight railroads, with so many questions to be
    answered and problems resolved. I believe the Federal Railroad
    Administration is to be commended for its efforts. And yet, I'm
    concerned these efforts will be for naught, and the funding at
    risk, unless the Department produces a detailed and
    comprehensive plan that answers basic questions about the
    program like, Where does it make the most sense to build high-
    speed rail? What will it cost to build? And what will it cost
    to operate? I will continue to fight for high-speed rail, but
    it is now time for the program to produce a compelling and
    rigorous plan to justify that support and future funding.
        Separate from high-speed rail, there are many other issue
    areas where the Department has been pushing for innovation. The
    Department continues to forge ahead on NextGen, a long-term
    effort to modernize our air traffic control system. Last year,
    it took recommendations from an industry task force, refocusing
    some of its programs, like Performance-Based Navigation. This
    past year, the Department has also worked hard to overcome
    challenges with En Route Automation Modernization.
        In the area of highway safety, the Department has led a
    very public campaign to address distracted driving. This past
    week, Secretary LaHood announced a partnership with Consumer
    Reports aimed at getting young people to put down their phones
    while they're behind the wheel. That is an effort that will
    save lives.
        At this hearing, as we continue our work on the budget for
    fiscal year 2012, I look forward to hearing more about the
    Department's work in these and other areas, and appreciate your
    being here again today, Mr. Secretary.

                              PREPARED STATEMENTS

        Also, Senator Kirk regrets that he couldn't be present, but
    he has submitted a statement for the record.
        [The statements follow:]

                   Prepared Statement of Senator Patty Murray

        I want to welcome Secretary Ray LaHood back before our subcommittee
    to discuss his Department's budget request and our Nation's
    transportation policy. Thank you for being here today.
        fiscal year 2011 and the house's year-long continuing resolution
        The subject of this hearing is the Department of Transportation
    (DOT) budget for 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 programs they depend upon.
        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 of
    overwhelming debt.
        Earlier this week, the Senate voted on two bills--one from House
    Republicans, and the other a Senate Democratic alternative--to fund
    Federal agencies through the end of fiscal year 2011.
        The House proposal was a highly politicized, slash-and-burn budget
    that would have eliminated the high-speed rail and Transportation
    Investment Generating Economic Recovery (TIGER) grants programs, and
    made deep cuts to transit, Amtrak, and aviation spending. In short, it
    was a bill that would have cost hundreds of thousands of jobs and
    eliminated investments the nation will need to compete in the future.
        Transportation is central to so much of the way our lives are
    organized. And there is overwhelming evidence that greater investment
    is needed in communities across the country--whether it be replacing
    crumbling bridges and tunnels, or building new roads and transit lines
    to support economic growth and competitiveness, and ease congestion.
        The DOT budget has a real impact on real people.
        For example, the House Republican budget would eliminate funding
    for the highly competitive TIGER grant program, a program that has
    become a showcase for innovation in both rural and urban communities.
    The House proposal goes so far as to eliminate TIGER grants that were
    awarded to 75 communities last year--the 75 most promising projects out
    of a field of more than 1,000 applicants.
        One of the 75 projects is a project in my home State that typifies
    what these grants mean to all of our States. In south Seattle there is
    a community that is hanging on by a thread. The main access road to
    commerce goes through a bridge that--like infrastructure in all of our
    States--was crumbling and had to be closed.
        I have spoken to the small business owners and residents of this
    community who tell me the bridge is their lifeline. Last year, the
    South Park Bridge won a TIGER grant to help rebuild the bridge. That
    bridge today is creating jobs and aiding the recovery of an entire
    community, and will be a foundation for that community to thrive on for
    generations to come.
        But the funding for this project and many other like it was left on
    the cutting-room floor by House Republicans in an effort to meet an
    arbitrary bottom-line.
        That's wrong. And it's just one example from an extreme plan that
    focuses on short-term and shortsighted cuts, while neglecting a long-
    term plan for responsible deficit reduction that supports our economic
    recovery.
        By comparison, the Senate Democratic bill protects these
    investments, choosing instead to end programs that have served their
    purpose or are no longer needed. Our alternative makes responsible and
    practical budget cuts that will allow us to continue out-innovating,
    out-educating, and out-building our competitors.
        As you know, neither bill was able to garner enough votes to win
    passage. A compromise is still needed, one where both sides come to the
    table to work together on a long-term solution that invests in our
    country's future. And as we work to cut spending, we need to make sure
    that we aren't doing anything to threaten our economic recovery or
    cause even more workers to lose their jobs.
        So as we look at the fiscal year 2012 budget, I will be taking the
    responsible approach. I will be analyzing how taxpayer dollars can be
    invested most effectively to:
      --Continue our economic recovery;
      --Improve our economic competitiveness;
      --Strengthen our communities;
      --Ensure safety;
      --Foster innovation; and
      --Manage our Federal resources efficiently.

                THE DEPARTMENT'S BUDGET PROPOSAL AND SAFETEA-LU

        The investments we make in transportation and in our national
    infrastructure are such an important part of supporting our economy,
    rebuilding our communities, and improving safety.
        And the need to invest in our transportation infrastructure is
    huge. Many of us have already seen the Report Card for America's
    Infrastructure put together by the American Society of Civil Engineers.
    Their overall grade for our Nation's infrastructure is a D, and their
    grade for roads is even more depressing--a D-. Our Nation's rail
    network earned a paltry C-, and transit earned nothing more than a D.
        The President's budget request tries to address this problem,
    asking for a 69-percent increase in funding for DOT. The request
    includes an immediate investment of $50 billion to boost the economy,
    as well as a 6-year reauthorization proposal for surface
    transportation. Clearly, this proposal offers a grand vision for our
    transportation programs.
        I applaud the administration's effort to promote investment in our
    Nation's infrastructure, but I also think we need more than grand
    ideas. We need to discuss real strategies that will make them happen.
    And unfortunately, this budget proposal does not offer us real
    solutions for the challenges we face today.
        When we talk about paying for transportation, the biggest challenge
    we face is the solvency of the Highway Trust Fund (HTF). Even under
    current funding levels--without paying for the additional $50 billion
    in stimulus funding requested by the administration--HTF will be
    bankrupt by the end of fiscal year 2012 or the beginning of 2013.
        The administration has offered to work with the Congress to address
    this problem, but when it comes to discussing specific solutions, the
    President has:
      --Opposed an increase to the gas tax;
      --Opposed the development of a new revenue system based on miles
            traveled; and
      --Still not offered any proposals for making sure that the trust fund
            has enough revenues to pay for its budget request.
        I am also concerned about what happens to transportation programs
    in fiscal year 2012. A long-term solution for HTF will not be able to
    solve our immediate crisis. The Congress has already transferred more
    than $34 billion from the General Fund to HTF. I will be interested to
    hear from the Secretary if he thinks another transfer is necessary to
    get through the year, or if he can offer another way to avert a crisis.
        At a time when the House is focusing on slash-and-burn politics, we
    need to see some realistic alternatives being discussed. I am
    disappointed that the budget request does not offer that.
        I'm also troubled by the administration's proposal to reclassify
    transportation programs as purely mandatory funding. This proposal
    helps the administration meet its goal of freezing growth in the
    discretionary budget, but it also means that the administration has
    failed to request about $7 billion for the rail and public transit
    programs that have traditionally been funded with discretionary
    resources. This is a large hole for the Congress to fill from the
    outset.
        More importantly, the proposal leaves the Department without annual
    oversight and input from the Appropriations Committee. This
    subcommittee has played an important role in supporting our Nation's
    infrastructure, providing additional resources for transit, roads, and
    bridges from the trust fund as well as the General Fund of the
    Department of the Treasury. In fact, the TIGER program was created by
    this subcommittee.
        This subcommittee has been particularly engaged in supporting rail
    transportation, providing additional funding for the high-speed rail
    grants, and ensuring that the Department had the resources it needs to
    administer the program.

                                HIGH-SPEED RAIL

        As concerned as I am about the future of the surface transportation
    programs, I believe the threats facing the President's high-speed rail
    initiative are potentially even greater.
        I believe in high-speed rail. I think it has the ability to spur
    innovation and economic growth, tying communities together in ways that
    roads and airports don't today. Unlike most of Europe, we are still a
    young and growing Nation. Our population is projected to reach 420
    million by mid-century, almost 140 million more than in 2000. If you
    think travel on our roads and at our airports is crowded today, just
    wait. And building more and wider roads won't be enough.
        High-speed rail, like the FAA's Next Generation Air Transportation
    System (NextGen), is one of the solutions we will need if we are to
    avoid paralyzing gridlock.
        I recognize the Department has had to stand up this ambitious new
    program in record time, hammering out agreements with States and
    freight railroads, with so many questions to be answered and problems
    resolved. I believe the Federal Railroad Administration is to be
    commended for its efforts.
        And yet, I am concerned these efforts will be for naught, and the
    funding at risk, until the Department produces a detailed and
    comprehensive plan that answers basic questions about the program,
    like:
      --Where does it make the most sense to build high-speed rail?
      --What will it cost to build?
      --And what will it cost to operate?
        I will continue to fight for high-speed rail, but it is now time
    for the program to produce a compelling and rigorous plan to justify
    that support--and future funding.

                                  OTHER ISSUES

        Separate from high-speed rail, there are many other issues areas
    where the Department has been pushing for innovation.
        The Department continues to forge ahead on NextGen, a long-term
    effort to modernize our air traffic control system. Last year, it took
    recommendations from an industry task force, refocusing some of its
    programs like Performance-Based Navigation. This past year, the
    Department has also worked hard to overcome challenges with the En
    Route Automation Modernization program.
        In the area of highway safety, the Department has led a very public
    campaign to address distracted driving. This past week, Secretary
    LaHood announced a partnership with Consumer Reports aimed at getting
    young people to put down their phones while they are behind the wheel,
    an effort that will save lives.
        At this hearing, and as we continue our work on the budget for
    fiscal year 2012, I look forward to hearing more about the Department's
    work in these areas.
                                     ______

                    Prepared Statement of Senator Mark Kirk

        Thank you Chairwoman Murray and Ranking Member Collins. I also
    would like to welcome Secretary LaHood, my former colleague for many
    years.
        Madam Chairwoman, as you know the focus of the Congress and the
    American people is on our unsustainable spending. During the 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.
        Recently the Senate was presented with two long-term continuing
    resolutions funding the Government, and rejected both. It's my hope
    that we can come together to examine ways we can rein in spending and
    restore confidence in the dollar.
        This will not come easily, and will require shared sacrifice at
    every level of the Federal Government.
        Now I fully recognize the economic impact of investing in
    infrastructure and one of the key reasons why I voted against the
    stimulus was that it focused too many resources on social spending in
    comparison to investments made in infrastructure. But I worry that the
    fiscal year 2012 request, while bold, is light on details regarding how
    we will fund a 6-year, $556 billion surface transportation
    reauthorization. Mr. Secretary, I know you have told the Commerce
    Committee that DOT is currently working with the Office of Management
    and Budget on that very issue, and I look forward to seeing the result.
        I'll have a few other issues to highlight during questions, but
    good to see you on this side of the Capitol, Mr. Secretary--I look
    forward to working with you in the Senate. Thank you, Madam Chairwoman.

        Senator Murray. With that, I will recognize my partner and
    ranking member, Senator Collins, for any opening remarks she
    would like to make.

                       STATEMENT OF SENATOR SUSAN COLLINS

        Senator Collins. Thank you, Chairman Murray.
        First of all, welcome, Secretary LaHood. I appreciate your
    leadership at DOT, and as the new ranking member of this
    subcommittee, I look forward to working with you, the chairman,
    and all of our colleagues to promote fiscally responsible
    investments in our Nation's aging transportation
    infrastructure.
        As Senator Murray has pointed out, the transportation
    system is truly the lifeline for our country and our economy.
    Improving the efficiency and reliability of our Nation's
    transportation system is vital to the movement of people,
    freight, and goods. Yet, every single State has a backlog of
    vital transportation projects.
        The administration is proposing a $129 billion budget for
    DOT, a 66-percent increase more than the fiscal year 2010
    enacted level. Included in this budget request is a 6-year,
    $556 billion surface transportation reauthorization, but
    without a revenue mechanism to pay for it. HTF can only support
    approximately a $240 billion program over the next 6 years. An
    additional $167 billion in new revenues would have to be
    established to support a bill of that magnitude, but the
    administration has yet to specify the source of these revenues,
    as the chairman has pointed out.
        I also want to associate myself with the comments of
    Senator Murray about the TIGER program. Capital investments in
    transportation projects through the TIGER program have been an
    important tool in helping to save and create jobs at a time
    when so many families are struggling. And the TIGER program has
    resulted in needed, lasting assets for communities. I, too, am
    disappointed that the House of Representatives passed a budget
    bill that included language to rescind funding for this
    important program. It is fundamentally unfair for the Federal
    Government to award grants to States, only then to take them
    away. I'm going to continue working with the chairman, and
    others who feel that way, to ensure that the final version of
    the continuing resolution, or appropriations bill, does not
    include that language.
        I worked closely with the Secretary and appreciate his
    leadership to ensure that the necessary paperwork was concluded
    at both the State and Federal level for the Aroostook County
    Rail Preservation Project. But, I remain concerned about the
    fate of the funding for the Memorial Bridge replacement
    project. That is a major bridge that connects New Hampshire and
    Maine. It has been strongly supported by the delegations of
    both States. And replacing the Memorial Bridge is an important
    infrastructure project that is essential to the flow of goods,
    services, and people between Maine and New Hampshire, and for
    keeping and attracting new jobs to both States. Its funding is
    now in jeopardy because of the House language.
        Many smaller-scale transportation projects also help to
    build infrastructure and create jobs in our local communities.
    For example, in Maine's capital city of Augusta, a new regional
    hospital is being constructed, just yards from Interstate 95
    (I-95). There is, however, no convenient way to exit the
    interstate and arrive at the new hospital. The hospital, the
    State, and the local community of Augusta have all pledged
    funding for the project. This is a perfect example of a
    partnership project where everyone from the private sector, the
    capital city of Augusta, and the State are kicking in funds to
    make the improved transportation a reality. But they can't do
    it alone. They need the Federal Government to complete the
    piece of the puzzle. We need to ensure that funding is
    available for smaller communities and rural communities where
    there is local support and committed funding for meeting these
    needs, as there is in this example.
        Not only do we need to continue our commitment to making
    investments in infrastructure, but also we must continue to
    improve highway safety. The chairman mentioned and commended
    the Secretary for his initiatives on distracted drivers. I know
    the Department has also done a great deal to look at the Toyota
    case and other issues involving questions that have arisen
    about vehicle safety.
        The States of Maine and Vermont recently participated in a
    year-long pilot project that I authored that allowed trucks
    weighing up to 100,000 pounds to travel on those States'
    Federal interstates. Senator Leahy joined me in this effort to
    help provide a level playing field for our States, and allow
    heavy trucks to use our most modern, safe, and efficient
    highways. In 2010, as a result of our pilot project, people
    throughout our two States saw their roads less congested, our
    downtowns and secondary roads safer, our air cleaner, and our
    businesses more competitive, since the surrounding States
    already have these exemptions, as do the two provinces in
    Canada that border Maine. And that is why I'm committed to
    fighting to make this pilot project, which unfortunately
    expired in December, permanent.
        I would note that all the public safety groups in Maine,
    including the Maine Association of Police, the Maine State
    Police, the Maine State Troopers Association, the Maine
    Department of Public Safety, and the Maine Chiefs of Police
    strongly support a permanent extension of the pilot project.
        A recent study by the Maine State Police Commercial Vehicle
    Enforcement Division found fewer accidents involving trucks
    during the time that the pilot project was in effect. Countless
    Maine business owners have told me how this change would
    improve their competitiveness. For example, under the pilot
    project, Lincoln Paper and Tissue, a manufacturer in Lincoln,
    Maine, was able to save 1.1 million billable truck miles, a 28-
    percent decrease from the prior year. These savings are the
    equivalent of the company being 220 miles closer to its primary
    market. That benefits not only the small business, but also our
    Nation, as we seek to reduce overall fuel consumption and
    reduce carbon emissions.
        [The information follows:]

        The people of my State are very unhappy that the heaviest
    trucks are once again being forced onto secondary roads and
    into downtowns, when they belong on the interstates.

                               PREPARED STATEMENT

        I look forward to working with you, Madam Chairman, as well
    as Secretary LaHood, as we consider this issue and the
    Department's overall fiscal year 2012 budget request.
        Thank you.
        [The statement follows:]

                  Prepared Statement of Senator Susan Collins

        Thank you, Chairman Murray. Welcome, Secretary LaHood. I appreciate
    your leadership at the Department of Transportation (DOT) and look
    forward to working together to promote fiscally responsible investments
    in our Nation's aging transportation infrastructure.
        The transportation system is the lifeline for our country and our
    economy. Improving the efficiency and reliability of the Nation's
    transportation system is vital to the movement of our freight and
    goods, yet every State has a backlog of vital transportation needs.
        The administration is proposing a $129 billion budget for DOT, a
    66-percent increase more than the fiscal year 2010 enacted level.
    Included in this budget request is a 6-year, $556 billion surface
    transportation reauthorization, but without a revenue mechanism to pay
    for it. The Highway Trust Fund can only support a $240 billion program
    over the next 6 years. An additional $167 billion in new revenues would
    have to be established to support a bill of this magnitude, but the
    administration has yet to specify the source of these revenues.
        Capital investments in transportation projects through the
    Transportation Investment Generating Economic Recovery (TIGER) program
    have been an important tool in helping to save and create jobs that so
    many families need right now. I am disappointed that the House of
    Representatives passed a bill that included language to rescind funding
    for this important program. As a result of this language, the State of
    Maine was at risk of losing funding for two critical projects that were
    awarded last October--the Aroostook Rail Preservation project and the
    Memorial Bridge Replacement project. It is fundamentally unfair for the
    Federal Government to award grants to States only to have them taken
    away.
        I worked closely with Secretary LaHood and appreciate his
    leadership to ensure the necessary paperwork was concluded at both the
    State and Federal level for the Aroostook Rail Preservation project. I
    remain concerned about the fate of the funding for the Memorial Bridge
    replacement project. Replacing the Memorial Bridge is an important
    infrastructure project that is essential to the flow of goods,
    services, and people between Maine and New Hampshire and for keeping
    and attracting new jobs to our States.
        Many smaller-scale transportation projects also help build
    infrastructure and create jobs in our local communities. For example,
    in Maine's capital city of Augusta, a new regional hospital is being
    constructed just yards from Interstate 95 (I-95). There is, however, no
    convenient way to exit the interstate and arrive at the new hospital.
    The hospital, the State, and the local community have all pledged
    funding for this project. We should ensure funding is available for
    smaller and rural communities where there is local support and
    committed funding for these needs.
        Not only do we need to continue our commitment to making
    investments in our infrastructure, but also we must continue to improve
    highway safety. The States of Maine and Vermont recently participated
    in a year-long pilot project that allowed trucks weighing up to 100,000
    pounds to travel on their Federal interstates. Senator Leahy joined me
    in this effort to help provide a level playing field for our States and
    allow heavy trucks to use our most modern, safe, and efficient
    highways.
        In 2010, as a result of this pilot project, people throughout our
    State saw their roads less congested, our downtowns and secondary roads
    safer, our air cleaner, and our businesses more competitive. That is
    why I am committed to fighting to make this pilot program, which
    expired in December, permanent.
        Let me give a specific example of these results. On a trip from
    Hampden to Houlton, Maine, the benefits are very clear. A truck
    traveling on I-95 rather than on State Route 2, which runs nearly
    parallel to I-95, avoids more than 270 intersections, nine school
    crossings, 30 traffic lights, and 86 crosswalks. In addition, a driver
    also saves more than $30 on fuel. Given the rising cost of diesel, it
    is even higher than that now. Additionally, 50 minutes is saved by
    traveling on I-95 rather than on the secondary road of Route 2.
        Public safety groups in Maine, including the Maine Association of
    Police, the Maine State Police, the Maine State Troopers Association,
    the Maine Department of Public Safety, and the Maine Chiefs of Police
    all support a permanent extension of the pilot project. Bangor's Chief
    of Police, Ron Gastia, recently noted that, ``I, along with chiefs
    across Maine, recognize that trucks of this size do not belong on
    Maine's city streets and secondary roads.''
        A recent study by the Maine State Police Commercial Vehicle
    Enforcement Division reported that in 2009, before the pilot came into
    effect, 139 accidents involving six-axle trucks occurred in Maine. In
    2010, the year the pilot was in effect, the number of accidents fell to
    125. That's 14 fewer accidents as a result of allowing these trucks to
    operate on all of Maine's interstates.
        Countless Maine small business owners have told me how this change
    would improve their competitiveness. For example, under the pilot
    project, Lincoln Paper and Tissue, a paper and tissue manufacturer in
    Lincoln, Maine, was able to save 1.1 million billable truck miles, a
    28-percent decrease from the prior year. These savings are the
    equivalent of the company being 220 miles closer to its primary market.
    That benefits not only this small business but also our Nation as we
    seek to reduce our overall fuel consumption and reduce carbon
    emissions.
        We need to make the pilot project permanent. The people of my State
    are unhappy that the heaviest trucks are once again forced onto
    secondary roads and into downtowns when they belong on the interstates.
        I am looking forward to working with you Chairman Murray as well as
    Secretary LaHood as we consider DOT's fiscal year 2012 budget request.

        Senator Murray. Thank you, Senator Collins.
        We'll now turn to our members for any opening statements
    they have, and then to you, Mr. Secretary.
        Senator Pryor.
        Senator Pryor. I don't have anything.
        Senator Murray. Okay.
        Senator Coats.
        Senator Coats. No, I'm fine.
        Senator Murray. Senator Blunt.

                         STATEMENT OF SENATOR ROY BLUNT

        Senator Blunt. Madam Chairman, I'd just like to say, I'm
    pleased to see my good friend Secretary LaHood here, and know
    he's got a big job. And after those two opening statements, it
    sounds even bigger to me.
        So, we look forward to working with you. Transportation is
    clearly one of the critical keys to our ability to compete and
    create jobs and opportunity. And Mr. Secretary, I'm glad you're
    here today, and look forward to working with you through this
    budget process that we're beginning today for next year. Too
    bad that we're still focused on last year's budget process, but
    maybe we'll get into a pattern here that actually makes sense
    to the American people and to the people doing the kinds of
    jobs you're doing.
        Senator Murray. Thank you very much.
        Mr. Secretary, we will turn to you for your opening
    statement.

                      SUMMARY STATEMENT OF HON. RAY LAHOOD

        Secretary LaHood. Thank you, Chairman Murray, and Ranking
    Member Collins, and to the other Senators who are here, for the
    opportunity to discuss President Obama's fiscal year 2012
    budget request for DOT.
        Just a few weeks ago, President Obama delivered a powerful
    message in his State of the Union Address. He said that, for
    Americans to win the future, our citizens and companies need
    the safest, fastest, most reliable ways to move goods and
    information. He reminded us that if we build it, they will
    come. If we want businesses to open shop and hire our families,
    friends, and neighbors, we have to invest in our roadways,
    railways, and runways. We have to invest in 21st-century buses,
    streetcars, and transit systems, and we have to invest in next-
    generation technology for our skies, and in sidewalks and bike
    paths that make our streets more livable. All of this is
    included in the President's $129 billion fiscal year 2012
    budget for DOT, designed as the first installment of a bold 6-
    year, $556 billion reauthorization proposal.
        To make room for these essential investments, President
    Obama's fiscal year 2012 budget proposes the lowest relative
    level of domestic spending since President Eisenhower was in
    office six decades ago. That was 10 administrations ago, if
    you're counting.
        The simple fact is that we have to cut and consolidate
    things that aren't growing the economy, creating jobs, or
    making it easier to do business, in order to pay for the things
    that are. So, at DOT, President Obama's budget slashes red
    tape. It consolidates more than 50 programs, and it includes
    reforms that will accelerate project delivery and empower local
    communities.
        Of course, our major objective is to make investments in
    tomorrow that expand economic opportunity today, to dream big
    and to build big. That's why this budget keeps us on track
    toward a national high-speed rail system with an $8 billion
    investment in 2012 and a $53 billion investment over the next 6
    years. It increases resources for highway and bridge
    improvements by 48 percent. It increases funding for
    affordable, efficient, and sustainable bus, streetcar, and
    transit systems by 126 percent. It includes $50 billion up
    front to keep our recovery moving in the short term, and a $30
    billion National Infrastructure Bank that will finance major
    projects of national regional significance over the long run.
        At the same time, safety is, and always will be, our top
    priority. President Obama's budget renews our commitment to
    prevent traffic crashes with resources for our ongoing campaign
    against distracted driving, drunk driving, and to promote
    seatbelt use. The President's proposal requests new authority
    for the Federal Transit Administration to ensure the safety of
    rail transit riders across America, and it gives the Federal
    Motor Carrier Safety Administration stronger capacity to keep
    commercial traffic safe.
        Finally, we're dedicated to doing all of this without
    passing on another dime of debt to our children or
    grandchildren. For the first time, transportation spending will
    be subject to pay-go provisions that ensure the dollars we give
    out do not exceed the dollars coming in.
        So, these are just a few components of the President's
    plan. They reflect a much larger point: America's
    transportation system is at a crossroads. Our choice isn't
    between policies on the left or policies on the right. Our
    choice is whether our economic recovery rolls forward or falls
    backward. It's up to us whether we lay a new foundation for
    economic growth, competitiveness, and opportunity, or whether
    we settle for a status quo that leaves America's next
    generation of entrepreneurs, our children and grandchildren,
    with clogged arteries of commerce.

                               PREPARED STATEMENT

        It's up to us whether we do big things or whether we do
    nothing. If we choose wisely, our legacy can be an economy on
    the move and a future that America is prepared to win.
        I'll be happy to answer questions.
        Thank you.
        [The statement follows:]

                     Prepared Statement of Hon. Ray LaHood

        Chairman Murray, Ranking Member Collins, and members of the
    subcommittee, thank you for the opportunity to appear before you today
    to discuss the administration's fiscal year 2012 budget request for the
    Department of Transportation (DOT). The President is requesting $129
    billion for Transportation in fiscal year 2012. This includes the
    first-year of a bold new 6-year $556 billion reauthorization proposal
    that will transform the way we manage surface transportation for the
    future.
        America is at a transportation crossroads. To compete for the jobs
    and industries of the future, we must out-innovate and out-build the
    rest of the world. That is why President Obama called on the Nation to
    repair our existing roadways, bridges, railways, and runways and to
    build new transportation systems--including a national high-speed
    intercity rail network--which will safely and efficiently move people
    and goods. The administration's Surface Transportation Reauthorization
    proposal is designed to accomplish precisely this, and is the
    centerpiece of the President's fiscal year 2012 budget.
        It proposes four broad goals:
      --building for the future;
      --spurring innovation;
      --ensuring safety; and
      --reforming Government and exercising responsibility.
        The fiscal year 2012 proposal includes a $50 billion ``up-front''
    economic boost that is designed to jump-start job creation while laying
    the foundation for future prosperity. This initial funding would
    finance improvements to the Nation's highway, rail, transit, and
    aviation systems.

                            BUILDING FOR THE FUTURE

        America's aging roads, bridges, and transit systems must be
    addressed. For too long we have put off the improvements needed to keep
    pace with today's transportation needs. By 2050, the United States will
    be home to 100 million additional people--the equivalent of another
    California, Texas, New York, and Florida. More than 80 percent of them
    will live in urban areas. Concerns about the need for livable
    communities will increase as communities tackle the need for
    transportation choices and access to transportation services. If we
    settle for the status quo, our next generation of entrepreneurs will
    find America's arteries of commerce impassably clogged and our families
    and neighbors will fight paralyzing congestion. So the administration's
    proposal addresses this challenge in three ways:
      --Creating a National High-Speed Rail Network.--First, the proposal
            provides $53 billion over 6 years to continue construction of a
            national high-speed rail network. It will place high-speed rail
            on equal footing with other surface transportation programs;
            include funding for both Amtrak and new ``core express,''
            ``regional,'' and ``emerging'' corridors; and keep the country
            on track toward achieving a goal of providing 80 percent of
            Americans with access to an intercity passenger rail network,
            featuring high-speed rail within 25 years.
      --Rebuilding America's Roads and Bridges.--Second, the
            administration's proposal will provide a 48-percent funding
            increase--to $336 billion over 6 years for road and bridge
            improvements and construction. A key element expands the
            current National Highway System to include an additional
            220,000 miles of critical arterials. It will also simplify the
            highway program structure, accelerate project delivery to
            realize the benefits of highway and bridge investments for the
            public sooner, and underscore the importance of maintaining
            existing highway infrastructure in good condition. These
            investments and reforms will modernize our highway system while
            creating much-needed jobs.
      --Investing in Accessible, Affordable Transit Options.--Third, the
            proposal will provide a 128-percent increase in funding--to
            $119 billion over 6 years--for affordable, efficient, and
            sustainable transit options. It will prioritize projects that
            rebuild and rehabilitate existing transit systems, including an
            important new transit safety program, and allow transit
            authorities (in urbanized areas of 200,000 or more in
            population) to temporarily use formula funds to cover operating
            costs.

                              SPURRING INNOVATION

        The administration's Surface Transportation Authorization proposal
    acknowledges the important role that innovation and modern business
    tools play in putting our transportation dollars to work wisely. We can
    no longer afford to continue operating our systems the same way we did
    50 years ago, with outdated processes and financial tools that were
    made for yesterday's economy. Our proposal and the President's fiscal
    year 2012 request responds to this challenge in several ways.
        It establishes a National Infrastructure Bank (NIB) to finance
    projects of national or regional significance. By working with credit
    markets and private-sector investors, the NIB will leverage limited
    resources to achieve maximum return on Federal transportation dollars.
    The NIB will initially receive $30 billion over 6 years, will reside
    within DOT, and will be managed by an executive director with a board
    of officials drawn from other Federal agencies.
        Recognizing that competition often drives innovation, the
    administration's proposal and the President's fiscal year 2012 budget
    also includes a $32 billion competitive grant program called the
    Transportation Leadership Awards. This program's goal is to reward
    States and local governments that demonstrate transformational policy
    solutions. Examples include the use of innovative multimodal planning
    and funding methods, pricing and revenue options, land-use guidelines,
    environmental stewardship measures, economic development strategies,
    innovation of project delivery, and deployment of technology--just to
    name a few possibilities.
        These new and innovative tools will help us to better meet the
    transportation needs of America's small towns and rural communities.
    Increased highway funding will expand access to jobs, education, and
    healthcare. Innovative policy solutions will ensure that people can
    more easily connect with regional and local transit options--and from
    one mode of transportation to another.
        At the same time, our proposal will bolster State and metropolitan
    planning; award funds to high-performing communities; and empower the
    most capable communities and planning organizations to determine which
    projects deserve funding.
        Innovation must span beyond surface transportation. This is why the
    President's budget request also includes $3.4 billion for aviation in
    the $50 billion ``up-front'' investment. The budget requests $3.1
    billion for airport improvements for runway construction and other
    airport projects such as Runway Safety Area improvement projects as
    well as noise mitigation projects. Modernizing our air traffic control
    systems is critical if we are to meet the needs of the future. The
    President's fiscal year 2012 budget addresses this by providing $1.24
    billion for the Federal Aviation Administration's (FAA) efforts to
    transition to the Next Generation (NextGen) of Air Traffic Control.
    This funding will help the FAA move from a ground-based radar
    surveillance system to a more accurate satellite-based surveillance
    system--the backbone of a broader effort to reduce delays for
    passengers and increase fuel efficiency for carriers.

                                ENSURING SAFETY

        Keeping travelers on our transportation systems safe is my top
    priority. That is why preventing roadway crashes continues to be a
    major focus at DOT. The administration's Surface Transportation
    Reauthorization proposal will provide $330 million for the ongoing
    campaign against America's distracted driving epidemic. It will also
    commit $7 billion to promote seatbelt use, get drunk drivers off the
    road, and ensure that traffic fatality numbers continue falling from
    current historic lows. In addition, it almost doubles the investment in
    highway safety, providing $17.5 billion to Federal Highway
    Administration (FHWA) safety programs. The Department is also taking a
    fresh approach to interstate bus and truck safety. Compliance, Safety,
    Accountability (CSA) is a new initiative that will improve safety and
    use resources more efficiently. The administration's Surface
    Transportation Reauthorization proposal will dedicate $4.9 billion to
    the Federal Motor Carrier Safety Administration (FMCSA), and give DOT
    new authority to set tougher safety performance goals for States.
        Transit safety is another important priority. Our proposal will,
    for the first time, entrust the Federal Transit Administration with the
    authority to oversee rail transit safety across America. In light of
    recent transit-related accidents, I believe this is critical to
    ensuring the oversight and accountability our transit riders deserve.
        Our safety focus must also include the transportation of hazardous
    materials and our network of pipelines. The administration's Surface
    Transportation Reauthorization proposal will fund the safety programs
    of the Pipelines and Hazardous Materials Safety Administration (PHMSA)
    and will enhance its authorities to close regulatory loopholes and
    improve its safety oversight. The President's fiscal year 2012 budget
    requests $221 million for PHMSA to help ensure that families,
    communities, and the environment are unharmed by the transport of
    chemicals and fuels on which our economy relies.

               REFORMING GOVERNMENT AND EXERCISING RESPONSIBILITY

        As we move forward together to plan for America's transportation
    needs, we must also keep in mind the responsibility we all share for
    using taxpayer dollars wisely. The administration's Surface
    Transportation Reauthorization proposal will cut waste, inefficiency,
    and bureaucracy so that projects can move forward quickly, while still
    protecting public safety and the environment.
        Our proposal consolidates and streamlines our current Highway and
    Transit Programs in a major way. The current system of more than 55
    separate highway programs will be folded into five new categories.
    Similarly, six transit programs are merged into one ``state of good
    repair'' program and one ``specialized transportation'' program. As a
    result of these changes, we expect to shorten project delivery and
    accelerate the deployment of new technologies.
        The Administration's Surface Transportation Reauthorization
    proposal also includes important reforms that change the way we manage
    our transportation spending. Consistent with the recommendations of the
    Fiscal Commission, for the first time, the budget proposes to subject
    surface transportation spending to ``paygo'' provisions to make certain
    that spending does not exceed dedicated revenue. This approach is
    designed to ensure that our surface transportation program is paid for
    fully without increasing the deficit. The proposal will also expand the
    current Highway Trust Fund into a new Transportation Trust Fund with
    four accounts--one for highways, one for transit, one for high-speed
    passenger rail, and one for the NIB.

                                OTHER HIGHLIGHTS

        The President's fiscal year 2012 request includes some other key
    transportation priorities as well. These include the $18.7 billion in
    total funds requested for FAA. FAA would receive $9.8 billion to fund
    the operation, maintenance, communications, and logistical support of
    the air traffic control and air navigation systems. An additional $3.1
    billion would support FAA's Facilities and Equipment program to fund
    FAA's capital projects. A total of $5.1 billion in fiscal year 2012
    would fund the Airport Improvement Program when funding from the $50
    billion ``up-front'' investment is included.
        The President's request also includes $93 million for the U.S.
    Merchant Marine Academy (USMMA). Of these funds, $29 million will be
    used to support the next phase of the USMMA's Capital Asset Management
    program and for renovations to selected barracks and the mess hall.
    These improvements will help ensure that our cadets have the facilities
    they need to support their education.

                                   CONCLUSION

        Thank you for the opportunity to appear before you to present the
    President's fiscal year 2012 budget proposal for DOT and our Surface
    Transportation Reauthorization proposal that will help transform
    transportation programs over the next 6 years in ways that will benefit
    all Americans for years to come. I look forward to working with the
    Congress to ensure the success of this request.
        I will be happy to respond to your questions.

                                     H.R. 1

        Senator Murray. Thank you very much, Mr. Secretary.
        I will begin by asking you--well, actually, just let me
    say, I'm really troubled by the harsh cuts that the House is
    proposing to make in the transportation programs that are so
    important. I talked a little bit in my opening statement about
    high-speed rail and TIGER. There are deep cuts to transit and
    FAA, and I think these are really shortsighted. This is less a
    debate about taming the deficit, which we all agree we need to
    be doing, but it really is a question of priorities and a
    statement about what we are going to look like in the future.
    And I wanted to ask you this morning, while you're here, do you
    have an estimate for the number of jobs that would be lost as a
    result of the cuts the House is proposing now to make in
    transportation?
        Secretary LaHood. I don't know the estimate of jobs as a
    result of H.R. 1, but I will tell you that as a result of what
    you all did, in providing DOT $48 billion in the stimulus
    program, we were able to create 15,000 projects over 2 years,
    and 65,000 jobs were created. So, if that's any indication--$48
    billion, 15,000 projects, 65,000 jobs over 2 years, as a result
    of the stimulus--a lot of jobs, a lot of projects that would
    not have been created if the Congress had not passed on $48
    billion, which we now have out the door and have put a lot of
    Americans to work.
        Senator Murray. And I would just have to add that those are
    private contractors that get those jobs.
        Secretary LaHood. That's correct.
        Senator Murray. They're not government jobs. We give this
    money to private contractors----
        Secretary LaHood. That's correct. The money goes, in the
    case of TIGER and the case of many of these other programs,
    directly to the people that provide civilian jobs. A lot of
    small businesses benefited; more importantly, a lot of
    Americans benefited. Our friends and neighbors around the
    country benefited in good-paying jobs, and America's
    infrastructure was rebuilt.
        Senator Murray. Yes.
        Both Senator Collins and I mentioned concerns about the
    TIGER grants that would be rescinded by the House budget
    proposal. What are you hearing from other communities that were
    awarded TIGER grants last year?
        Secretary LaHood. I'm hearing from a lot of Members of
    Congress, both Republicans and Democrats, who are very
    concerned that we made a commitment. I appreciate what both you
    and the ranking member have said about TIGER. These are
    commitments that have been made. Senators and Congressmen are
    asking me: ``Can you obligate the money so it can't be
    rescinded?'' The answer is, even if the money is obligated, the
    Congress can do whatever it wants. We made a commitment, to
    people all over the country, for good projects--for freight
    projects, for light rail, for highways, for bridges. These
    projects were not earmarked. They weren't sweetheart deals or
    boondoggles. These are projects that people out in the country
    said needed to be done to put people to work. The TIGER program
    is a jobs program. There are going to be a lot of people who
    aren't going to go to work as a result if these monies are
    rescinded. What I'm saying to every Senator, both Republican
    and Democrat, and House Member is, I know you want your money
    obligated. I just talked to a Senator on the way over here in
    my vehicle, who was talking to me about his TIGER project. He
    didn't realize that, even if it's obligated, there's still a
    chance that you all could rescind it. That's not fair to the
    people who thought they were going to get this money. It's not
    fair to the people who thought they were going to have a job on
    the other side of these projects.
        This TIGER program is a jobs program. So, for all the talk
    of all Members of Congress who want to put people to work, this
    is the way to do it: Keep our commitments.
        Senator Murray. In a competitive program, I would add.
        Secretary LaHood. Absolutely. No earmarks. No sweetheart
    deals. No boondoggles, they are all done the correct way.
    You're not going to see any stories written about DOT giving
    money out to somebody in any other way except in a competitive
    fashion--that was competed in a way that reflects that these
    are good projects. This program will create jobs.

                        STATUS OF THE HIGHWAY TRUST FUND

        Senator Murray. Thank you very much for that.
        Let me ask you about HTF. Keeping enough balances in HTF
    has been an ongoing problem now for 3 years. And now we expect
    HTF to again slip into bankruptcy by the end of fiscal year
    2012. You've offered to work with us on a long-term solution,
    and that work will be a vital part of developing a
    reauthorization plan. I know that. But in the meantime, this
    subcommittee needs to develop a budget for your Department for
    2012. And a new revenue plan will not fix HTF quickly enough to
    get us out of this immediate crisis.
        Do you believe that another transfer from the General Fund
    of the Department of the Treasury will be necessary to sustain
    HTF through 2012?
        Secretary LaHood. Our smart budget people, one of whom is
    sitting next to me, Chris Bertram, who comes from this part of
    the world--Chris worked in the Senate, and he's very smart on
    this--our people believe that HTF has sufficient funds to stay
    solvent through fiscal year 2012.
        Senator Murray. You do.
        Secretary LaHood. Yes.
        Senator Murray. Okay. If that changes, we'd like to be
    told----
        Secretary LaHood. Absolutely.
        Senator Murray [continuing]. As soon as possible. And we
    will----
        Secretary LaHood. You'll be the first to know.
        Senator Murray [continuing]. Need your recommendation on
    how we're going to deal with that.
        Secretary LaHood. Absolutely.
        Senator Murray. All right.
        Senator Collins.

                             HOURS OF SERVICE RULE

        Senator Collins. Thank you, Madam Chairman.
        I'm surprised to hear the Secretary's last comment, but
    pleased to hear it. We're still going to have a challenge of
    the reauthorization, which was put in the budget, goes through,
    because we're going to have to work to figure out how to fund
    that, as well.
        Mr. Secretary, one of the issues that I'm hearing the most
    about is the Department's proposed change to the hours-of-
    service rules for commercial truck drivers. And I've heard a
    lot from truckers in my State who are opposed to the changes,
    as well as from trucking businesses. But, yesterday I also met
    with a State trooper who is head of the Commercial Vehicle
    Division for the State of Maine, and he expressed opposition,
    as well, and called the changes ``unenforceable.''
        What is the status of those rules? And second, is the
    administration working with stakeholders, with the trucking
    association, and with law enforcement to try to take into
    account some of the comments in opposition?
        Secretary LaHood. We have a rule pending, Senator. I know
    that what I'm going to say, you already know. This problem has
    been kicked down the road for 10 years. So, I made a decision;
    we're not going to kick it down the road anymore. We developed
    a rule, in cooperation with our friends in the trucking
    industry--and we have friends in the trucking industry--and
    we've developed a rule. It's out there. People can comment on
    it. I know that the truckers are not happy with this.
        We believe that what we've developed is a very good safety
    metric for making sure that drivers will drive safely, and do
    it a certain number of hours. We believe what we've developed
    is the safety metric that makes the most sense. We know people
    don't agree with us, and that's why, when we do these rules, we
    have lots of opportunities for people to comment.
        We need to do something. A court has ruled that we need to
    do something on this issue. We're not going to just sit back
    and kick it down the road like others have done. We're not
    going to do that. So, we've put it out there. Senators or House
    Members may disagree with us, and the trucking companies, I
    know, are going to be talking to you about it. My suggestion
    is, look at our rule, see what you think about it, make a
    comment about it, put it in the Federal Register, and then
    we'll see where it takes us.
        Senator Collins. It's good to know that all the comments,
    I'm sure, will be fully evaluated.
        Secretary LaHood. Absolutely. They will be. In the end,
    we'll take that into consideration when we put the final rule
    together.

                       MOTOR CARRIER WEIGHT RESTRICTIONS

        Senator Collins. Let me turn to a second safety issue,
    which I alluded to--more than alluded to--in my opening
    statement. And I do this----
        Secretary LaHood. We have multiple----
        Senator Collins. I'm glad you've got----
        Secretary LaHood [continuing]. Copies of this map.
        Senator Collins. My favorite chart. And this is not only to
    talk to the Secretary, who's probably tired of hearing from me
    on this issue, but also to talk to my colleagues. So, I hope
    the staff has passed out a copy to each of my colleagues.
        [The information follows:]

        This is a specific example of the results of the pilot
    project that I referred to in my opening statement. And if you
    take a trip from Hampden to Houlton, Maine, the benefits are
    very clear, and they're illustrated on this chart.
        A truck traveling on I-95 rather than Route 2, which runs
    nearly parallel to I-95, avoids more than 270 intersections--
    zero on I-95, obviously--270 intersections. It avoids nine
    school crossings, 30 traffic lights, and 86 crosswalks. And
    that's why our State safety officers, from the troopers to the
    police chiefs, are so much in favor of making this pilot
    project permanent. And it's why you've seen the accident rate
    decline.
        In addition--and this is so important at a time when diesel
    prices are climbing through the roof--a driver saves more than
    $30 on fuel. That's an old figure. I'm sure it's way more than
    that now. Additionally, 50 minutes of driving time is saved by
    traveling on I-95 rather than on the secondary route.
        I want to express my appreciation to the administration for
    endorsing making this pilot project permanent. I know it was
    included in the budget that was sent up by the administration.
    And I just hope that we can continue to work together to make
    this a reality. If we can't get a permanent program, then
    perhaps we could work on a 5-year extension, which would allow
    even more data to be collected.
        Secretary LaHood. Absolutely. I know this is a very serious
    problem. We've had lots of discussions about this with you and
    other people in your State. We will continue and are committed
    to work with you on this.
        Senator Collins. Thank you, Mr. Secretary.
        Thank you.
        Senator Murray. Thank you.
        Senator Pryor.
        Senator Pryor. Thank you, Madam Chair.

                              TOYOTA INVESTIGATION

        Mr. Secretary, it's good to see you again.
        Secretary LaHood. Thank you.
        Senator Pryor. Thank you again for your willingness to
    always be available and responsive on all of our needs and all
    of our questions. So, thank you very much for that.
        Let me start with the National Highway Traffic Safety
    Administration (NHTSA), and let me compliment one of the folks
    on your team: David Strickland. I think he's doing a good job
    there. He----
        Secretary LaHood. Thank you.
        Senator Pryor [continuing]. Has his hands full with a lot
    of different things, and I know you've loaded him up with lots
    of work and lots of initiatives.
        Secretary LaHood. You trained him well.
        Senator Pryor. I'm glad to see that he's doing well there.
        Let me ask, as a follow-up to the Toyota investigation that
    has been going on over the last year or more, has that resulted
    in any changes in the agency? And the reason I ask that is
    because I know that one of the recommendations was that maybe
    NHTSA and DOT didn't have enough engineers with real technical
    expertise to evaluate some of the new software that's in
    vehicles. They're not all mechanical anymore. It's largely done
    by software now. Have there been lessons learned? And does your
    budget reflect those lessons?
        Secretary LaHood. As a result of the hearings last year,
    Senator, we believe that, with respect to Toyota, the sticky
    pedal and the floormat entrapment were the cause of that
    terrible accident in California, and other accidents. It led us
    to require that Toyota fix both of those issues. Every Member
    of Congress, at the time, thought it was an electronics issue.
    Our people didn't think that, but we engaged the National
    Aeronautics and Space Administration (NASA) in this, and they
    took a year to complete a study. They found the same thing we
    found. It's not electronics.
        We, in our budget, are proposing additional electrical
    engineers. That's one of the things that the Congress pointed
    out to us, and I think it was a deficiency. If you look in our
    budget, we've requested additional expertise, particularly as
    it relates to electrical engineers.
        Senator Pryor. Right. Then the second part of my question
    is: I noticed, in your budget, you've added about $19.8 million
    more than the fiscal year 2010 levels for staffing at NHTSA.
    And is that correct?
        Secretary LaHood. Yes, it is.
        Senator Pryor. Is that engineers and----
        Secretary LaHood. Yes, sir. It's electrical engineers and
    other engineers, and people with expertise that can really help
    us do our job.
        Senator Pryor. I don't have the numbers in front of me, but
    do you have a number on the----
        Secretary LaHood. The budget adds 119 new staff----
        Senator Pryor. That's what I was going to ask.
        Secretary LaHood [continuing]. In the vehicle safety area.
        Senator Pryor. Okay.
        Secretary LaHood. It's 119.
        Senator Pryor. Okay, all right. I'd like to look at that in
    more detail.
        Secretary LaHood. Sure.
        Senator Pryor. And I'll work with----
        Secretary LaHood. Yes. I appreciate your interest in our
    safety organization. The one thing that the NASA study proved
    is that we do have very good people, that we do pay attention
    to safety, and we did get it right when it came to Toyota.

                                 SAFETY GRANTS

        Senator Pryor. Right. I know you spent a lot of time with
    it, and showed a lot of determination to get it right.
        Let me ask about your safety grant programs. I understand
    that you're discontinuing the $120-million-per-year section 406
    Seatbelt Performance Safety Grant Program. And I guess I'm
    wondering why you're----
        Secretary LaHood. Yes, let me ask Chris Bertram----
        Senator Pryor. Yes.
        Secretary LaHood [continuing]. Just to address that, if you
    don't mind.
        Mr. Bertram. Sir, that was a program created in the last
    highway reauthorization, and the point of the program was to
    create incentives for States to change their laws. It was
    always intended to be a temporary program, and a number of
    States have changed their laws. It wasn't intended to be there
    permanently, so we've taken that money and incorporated it into
    other grant programs.
        Senator Pryor. Okay. Other safety type programs?
        Mr. Bertram. Yes, right.

                             CROSS-BORDER TRUCKING

        Senator Pryor. Okay. I don't want to shortchange safety. I
    know that we need to trim our budgets, and everybody agrees
    that we're spending too much, but highway safety and
    transportation safety is very critical.
        Let me ask another question--and last time we saw each
    other, I asked this question about the cross-border trucking
    issue. And you made a very emphatic statement that they would
    include electronic on-board----
        Secretary LaHood. Yes, sir.
        Senator Pryor [continuing]. Recorders (EOBRs).
        Secretary LaHood. Yes, sir. Those will be included on every
    truck. We need to have a metric to make sure we know how many
    hours are driven, and that they're complying with the hours
    that are in the agreement that we signed with Mexico.
        Senator Pryor. Do you know if we're paying for those, or--
    --
        Secretary LaHood. We're paying for those.
        Senator Pryor. Why are we paying for those and not the
    Mexican trucking companies?
        Secretary LaHood. In the negotiations, it became clear
    that, if we were going to require these EOBRs, which--we
    absolutely had to require them--I came up here and met with
    more than 25 Senators when the program was suspended, and one
    of the things that was made very clear to me was that we have
    to know that safety metrics are in place, ones that will
    measure the kind of safety that we want. We felt that EOBRs
    were one of the top things that we had to do. It'll be in our
    budget. In the negotiations, we made it clear, trucks coming
    from Mexico have to use EOBRs. Mexico acceded to that request.
    That's the reason we're paying for them.
        Senator Pryor. I would like to reiterate something that you
    and I said in our last setting--and this is really more for the
    subcommittee's benefit--as we do this pilot project, I'm very
    concerned about border corruption down along the United States-
    Mexican border. And we've seen this. Senator Collins, on her
    Committee, she's seen this through the Customs and Border
    Patrol. And I hope that you will build in the safeguards and
    protection to, as much as humanly possible, prevent the
    corruption of your folks down along the border, because they're
    having problems in other areas.
        Secretary LaHood. We will certainly do that. I have been to
    the border; I've talked to our people down there. The one thing
    that I was so stunned by is the lack of good facilities that
    they have to work in, the lack of facilities that they have
    when they have to inspect trucks in the 120-degree weather that
    exists down there in the summertime. We've made a commitment to
    them to try and improve the facilities, and we need a
    commitment from them that they will do everything by the book,
    according to the law. We're going to pay attention to that.
        Senator Pryor. Thank you.
        Senator Murray. Senator Coats.

                        FISCAL YEAR 2012 BUDGET REQUEST

        Senator Coats. Thank you, Madam Chairman.
        Mr. Secretary, welcome. And----
        Secretary LaHood. Thank you.
        Senator Coats [continuing]. It's good to see a good former
    colleague and----
        Secretary LaHood. Yes, sir.
        Senator Coats [continuing]. Midwestern bred-and-born-and-
    raised Secretary here to--and I appreciate your straight talk--
    --
        Secretary LaHood. Thank you.
        Senator Coats [continuing]. Calling it for what it is.
        We served together in the House. You know how the Congress
    operates. You're well aware of our current fiscal situation.
    The reality is that, probably, we're not going to get to the
    numbers the administration has proposed. And so, I guess the
    question is, does the Department--have you looked at the
    possibility of a plan B, in terms of how you would prioritize
    the things that are put together in the President's budget?
        And I would suggest a couple of points here in that regard.
    We all know that we're focusing exclusively on about 15 percent
    of the total budget. As result of that, the discretionary
    spending is getting an inordinate amount of focus and
    attention, and will be subject to a disproportionate share,
    when you look at the whole budget, of the cuts that are taking
    place.
        Now, a number of people, including me and others, have been
    increasingly calling for getting the whole pie on the table so
    that we look at mandatory spending, which, as you know, is two-
    thirds of the budget. I'm not asking you to answer this
    particular question. But, if you have the opportunity to
    discuss this at Cabinet level or with the President, we can't
    accomplish this without the President's leadership. There are
    an increasing number of Democrats and Republicans that are
    basically saying, publicly, ``Look, we can't solve our deficit
    problem if we don't look at the whole picture.'' And
    discretionary spending is just simply going to dry up and go
    away.
        You've listed some high priorities here that we all have--
    crumbling roads and bridges. We know this infrastructure,
    particularly in the East and the Midwest, is old and needs a
    lot of repair. So, I'm hoping, for one, that we're able to look
    at the larger portion of our spending and take some of the
    pressure off some of the necessary discretionary spending.
        So in that regard, as I'm looking at the building for the
    future, you list three specific areas: high-speed rail,
    America's roads and bridges, and affordable transit operations
    and options. Could you characterize how you might prioritize
    those three, should you get a mark that's significantly below
    what the budget calls for?
        Secretary LaHood. You know, Senator, that DOT has a long,
    long history of working with States on building roads and
    bridges. That's what we know how to do. That's why we have a
    state-of-the-art interstate system, thanks to the good people
    out in the country who know how to build roads, and to our
    partners in the States who have really been good partners with
    us in providing the match money and making sure that the
    contractors are doing what they're supposed to do. Roads and
    bridges are very important.
        Transit is very important. Look at Washington, DC. If we
    didn't have the great Washington Metropolitan Area Transit
    Authority system that we have here, the Metro system, nobody
    would ever be able to get anywhere. This place would be like a
    parking lot, and most people think it's a parking lot now.
        So, transit is very important. And highways and bridges are
    very important.
        But, I want to say this: If we want to do what our
    predecessors did for us, in thinking about the interstate
    system, then we need to think about improving our
    infrastructure. I have nine grandchildren, and I have four
    grown children. Four of my grandchildren actually live in
    Indianapolis, Senator. We need to think about the next
    generation of transportation, and that's high-speed rail. If we
    want to get more cars off the road, if we want to be able to do
    what they've done in Europe and Asia by providing people with
    good rail transportation, then we need to think about high-
    speed rail. High-speed rail is a priority for this
    administration. It's the President's signature transportation
    program, because it's about the next generation of
    transportation, the way that our predecessors thought about the
    next generation, and it is why we have an interstate system.
        We're going to be able to deal with the deficits and the
    debt, and also have a good, strong transportation program of
    roads, highways, bridges, transit, and high-speed rail.
        Senator Coats. Yes, I'm----
        Secretary LaHood. Those are our priorities.
        Senator Coats. I would suggest that your statement, ``We're
    going to be able to deal with the deficits and the debt'' and
    the need for infrastructure and high-speed rail, and all this--
    it seems to me there's a priority there. We're not going to be
    able to do No. 2 unless we can do No. 1; No. 1 is facing us
    right now. And the budget realities are that we just simply
    can't do both at the same time. And I think every Department
    is----essentially--every agency that has been before us so far,
    and probably all those still to come--are going to say this is
    the top priority.
        I, just yesterday, dealt with Homeland Security. It's
    pretty hard--they're all making their case. And we're doing it
    at a time when the limitations on our going further into
    deficit and further into debt have put us up against the wall.
    That's why I suggested looking at the whole pie, including the
    mandatory spending, as a way of dealing with No. 1, but also
    understanding that, at the end of the day, given the realities
    of the election in November, the makeup of the House of
    Representatives, the change in public attitude toward what we
    must do with our debt, it's going to cause all of us, whatever
    Department we're talking about, to have to make some tough
    decisions and to prioritize some of those. And that really was
    the essence of my question.
        Secretary LaHood. Sure.

                                HIGH-SPEED RAIL

        Senator Coats. The other thing I want to just state here, I
    guess, for the record--I'm not asking for a response on this--
    when the President said, ``If they build it, they will come''--
    well, you know, we allocate a portion of this money to--the
    problem with building it, and even when it goes to high-speed
    rail, the political system kind of rears its ugly head, and
    every State and every locality and every Member representing
    those States and localities says, ``I've got to get my fair
    share.'' High-speed rail makes sense in some very dense
    corridor areas. It doesn't make sense in the middle of America.
    High-speed rail between Indianapolis and Fort Wayne would be a
    waste of money, because you can get in the car and drive there
    in 2 hours. The road is not crowded. High-speed rail on Senator
    Collins' I-95 between--two towns I'm not aware of, but she's
    not aware of a lot of towns in Indiana--Hampden, and what is
    the other one?----
        Senator Collins. Houlton.
        Senator Coats [continuing]. Houlton--doesn't make any
    sense. But as you know, politicians like to divide up the pie.
    They don't want New Jersey and New York to get all of it,
    because they're dense, and Indiana and Illinois not get its
    fair share. And some of those may make financial sense, and
    some not make financial sense.
        The same with bike trails. I drive every day from Virginia
    into the Capitol here, and there are bike trails along the way.
    If I see one biker on those trails on my 30- to 45-minute trip
    in here, or on the way home, I'm lucky. I see a few messengers
    on the trails here, but DC closes down one of the lanes, which
    clogs up Pennsylvania Avenue. Once in a while, you'll see a
    messenger on one of those trails. But, no one would take their
    life in their hands, No. 1; and No. 2, some of these things
    just don't make sense. And particularly at a time of decreasing
    funds available, let's make sure we prioritize the reality of
    how people conduct their transportation.
        So, that's my little spiel. You don't need to respond to
    that. But I appreciate the opportunity to at least try to be as
    straightforward with what I think as you have been. And I
    appreciate your service----
        Secretary LaHood. Thank you.
        Senator Coats [continuing]. To the country.
        Senator Murray. Thank you.
        Senator Blunt.

                               PREPARED STATEMENT

        Senator Blunt. Thank you, Madam Chairman. I do have a
    statement for the record. I probably should have said that
    earlier. And I'll submit that for the record.
        [The statement follows:]

                    Prepared Statement of Senator Roy Blunt

        Thank you Chairman Murray and Ranking Member Collins for holding
    this hearing today. This hearing is a great opportunity to not only
    examine the Department of Transportation (DOT) investment needs
    throughout our system but also to develop a proper transportation
    investment structure that fosters economic development and produces the
    greatest return on all taxpayer dollars.
        Additionally, I would like to thank Secretary LaHood. Your hard
    work on the budget is greatly appreciated. I look forward to working
    with you now and in the future to address our country's infrastructure
    needs.
        In Missouri and across the country, there is a growing concern with
    the capacity of the transportation system. We are beginning to bust at
    the seams, our vehicle miles traveled remain high, congestion rates at
    our airport and on our rails are up. Congestion is a real problem and
    it is taking an economic toll at a time when we simply cannot afford
    more burdens on our system.
        Moving forward, we will look to invest in good roads, but we cannot
    rely on roads alone. We must begin to look toward rail and river
    transport as an efficient way to move goods and ease choke points. We
    must start to think in a comprehensive manner that stresses the
    flexibility rather than rigidity of several separate ones.
        One of my major concerns is the President's investment of $53
    billion over the next 6 years in high-speed rail. This call comes at a
    time when our current infrastructure is crumbling around us. It is easy
    to get caught up in the idea of high-speed rail, but the facts make
    high-speed rail difficult to swallow.
        High-speed rail cost estimates are skyrocketing, the estimated cost
    of the California line jumped nearly 25 percent in 1 year. State and
    local governments are worried about the cost burdens of operating
    expenses and the inevitable budget overruns. Making such a large
    investment at a time when we face a very difficult fiscal situation
    especially when the benefits are still in question and DOT still hasn't
    produced a national rail plan just doesn't make much sense.
        The President's DOT budget also takes a Washington knows best
    mentality. With the increase funding for programs like the National
    Infrastructure Bank (NIB), the livability program, and grant programs
    similar to Transportation Investment Generating Economic Recovery
    (TIGER), the message being sent to our States, counties, and cities is
    that Washington will set the priorities.
        Handing more money and empowering unelected unaccountable
    bureaucrats isn't going to solve our transportation problems. In fact,
    many are still scratching our heads on the process and criteria the DOT
    used in awarding previous TIGER and High-Speed Rail grants.
        Perhaps the most concerning part of this budget is the new
    Transportation Trust Fund. Another idea that sounds great but the math
    just doesn't add up. You are basically taking the current insolvent
    unsustainable Highway Trust Fund and adding the cost of the NIB and the
    expensive, subsidy-laden rail program . . . two programs that will not
    generate any revenue for the trust fund.
      --According to the latest figures from the Congressional Budget
            Office (CBO), trust fund receipts will amount to $36.8 billion
            in fiscal year 2012, or about 7 percent less than was spent in
            fiscal year 2010 ($39.4 billion),
      --During the next 6 years CBO projects tax receipts of $230 billion
            which now the administration's vision will be responsible for
            funding rail, transit, highways, and a NIB. Yet the
            administration is calling for a $550 billion reauthorization
            bill. Needless to say something is missing.
        There has been a lot talk about how this DOT budget is a bold
    vision. But bold visions are the easy part. Our country's
    infrastructure is in need of a bold detailed plan. We have difficult
    decisions before us, but understanding both the challenges ahead and
    establishing a clear path forward can make those decisions more
    informed and more effective.
        Again, I thank the chair, ranking member, and the Secretary for
    their hard work. I look forward to hearing your perspectives and
    working together to move us forward in solving our economic and
    infrastructure needs.

                            HIGH-SPEED RAIL FUNDING

        Senator Blunt. Mr. Secretary, on the new Transportation
    Trust Fund--I'm going to ask a couple questions about that--I
    think one of the things that the Federal Government has done
    over the last 60 years that has been the least complained about
    and most supported has been HTF, because people really did
    believe people using the system were paying for the system. And
    the idea of expanding that fund creates some concern to me. I
    mean, currently, rail is funded by the general transportation
    appropriations. Will adding the rail program to the new trust
    fund erode the protection that the drivers on highways and
    people that buy gasoline now think they have in that system?
    And what's your view of that?
        Secretary LaHood. We're just getting started on high-speed
    rail. The initial downpayment, more than $10 billion, which
    we've put out around the country--$8 billion, was included in
    the stimulus bill, and another $2.5 billion was provided by
    people around here, on the Appropriations Committee, because
    they see the value of high-speed rail. We need to develop a----
        Senator Blunt. Where did you say the first $8 billion came
    from?
        Secretary LaHood. In the stimulus bill. We got $48 billion.
        Senator Blunt. Oh, right, right.
        Secretary LaHood. Eight billion dollars of that was high-
    speed rail, and the other money came through the appropriation
    process for high-speed rail. We've put that money out, and
    we've had very few people turn that money down. There's a lot--
    --
        Senator Blunt. What will you do with the money that has
    been turned down, like the Florida money and the----
        Secretary LaHood. We're going to reallocate it.
        Senator Blunt. To other States.
        Secretary LaHood. Absolutely. Senator, there is a line
    outside of my door, of Governors, Senators, Congressmen, that
    have either written me letters or called me. There's no
    shortage of interest for the $2.3 billion that we're going to
    reallocate from Florida. There's a lot of enthusiasm for high-
    speed rail in America. We've allocated somewhere in the
    neighborhood of 33 different projects in the country, our $10.5
    billion. And I met with six Senators yesterday from the
    Northeast that all want the reallocated Florida money.
        Senator Blunt. Under your plan, will the money for high-
    speed rail come from the newly named HTF?
        Secretary LaHood. Yes.
        Senator Blunt. It will. Okay.
        The CBO estimate, I think, of income, over the next 6
    years, for your purposes, is $230 billion. The reauthorization
    bill asks for $556 billion.
        Secretary LaHood. Right.
        Senator Blunt. Tell me how that works, how do you take $230
    billion of income and do $556 billion of authorized----
        Secretary LaHood. We need to work with the Congress on
    that, Senator. If transportation is a priority, if people see
    transportation as a jobs bill, if they look at our budget as a
    jobs budget, then we're going to have to sit with the Congress
    and figure out how to pay for it. We believe that you can do a
    lot of things, and there are a lot of creative ways to
    accomplish our request. But we want to work with the Congress
    on this.
        Senator Blunt. On coming up with more funding?
        Secretary LaHood. On coming up with $550 billion, if you
    all like our budget.
        Senator Blunt. That's very straightforward. And we'll look
    at it and see if there's a way to bridge that tiny gap between
    $230 billion and $556 billion.
        And I yield back my time, Madam Chairman.

                            REAUTHORIZATION PROPOSAL

        Senator Murray. Thank you, Senator Blunt. Let me follow up
    on that.
        I mean, I think we all know we need to invest in our
    infrastructure, but we've got to find a way to pay for them. I
    understand you do not want to increase gas taxes in order to
    pay for your reauthorization proposal, but I think it really is
    important to understand the size of the problem, and I
    wondered, if you had done an estimate of how much we would have
    to increase gas taxes, for example, even though I know you
    oppose it, in order to pay for the 6-year reauthorization. Do
    we know what that number is?
        Secretary LaHood. We are not in favor of raising the gas
    tax.
        Senator Murray. I understand that. I'm just asking: If that
    was how we had to do it, what would it mean? I'm just trying to
    understand the problem.
        Secretary LaHood. How much an increase would be?
        Senator Murray. Yes.
        Secretary LaHood. I haven't calculated that, Madam Chair.
        Senator Murray. Okay. Another alternative that we've been
    hearing about is a tax on vehicle miles traveled (VMT). The
    State of Oregon has done a pilot on that. I know that you
    oppose that, as well. So tell us, what are the other revenue
    options that you do see to fill that small gap?
        Secretary LaHood. Madam Chair, we want to work with the
    Congress on finding the path forward.
         If I can just say this generally--this is about my own
    experience. I was elected in 1994. I served on the
    Transportation Committee for 6 years. When I came to the
    Congress, there was a deficit, and throughout the period that I
    served, we overcame the deficit and were still able to do a lot
    of creative things. When I was on the Transportation Committee,
    we passed two bills with more than 380 votes in the House and
    more than 80 votes in the Senate. Transportation has always
    been bipartisan.
        This goes to my point that I was trying to make earlier. We
    all can work on reducing the deficit, which is what the
    President wants to do and you all want to do, but we can also
    have transportation priorities. We did it during the 14 years
    that I served in the Congress on the Transportation and
    Appropriation Committee. It can be done. These things are not
    impossible to do. And I think----
        Senator Murray. I would agree with you, but I think----
        Secretary LaHood [continuing]. History has shown that we've
    done it. Other Congresses have done it.
        Senator Murray. I agree with you. But I think we all need
    to be honest, that there has to be a way to pay for the----
        Secretary LaHood. I agree with that.
        Senator Murray [continuing]. Project. We can't keep saying
    that we can cut deficits and these projects will happen. We
    have to say how we're going to--we either have the budget we
    have and we have fewer projects and less infrastructure, or we
    say, ``This is what we believe the Nation needs,'' and how
    we're going to pay for it. And I love how everybody says,
    ``There's another idea.'' I want to see what those other ideas
    are. At some point, we've got to come to grips with that. And--
    --
        Secretary LaHood. We're ready to sit down and work with
    you.
        Senator Murray. As long as it's not gas tax or vehicle
    miles traveled.
        Secretary LaHood. That's correct.
        Senator Murray. So, I was just asking, what are the other
    options, if those are off the table?
        Secretary LaHood. We'll be happy to visit with you about
    that.

                            ``UP-FRONT'' $50 BILLION

        Senator Murray. Okay. Let's talk about your budget request.
    It did include some dramatic increases for DOT. And part of
    that increase was a $50 billion one-time investment to boost
    the Nation's economy. There, as you know, is a lot of
    resistance to any idea of further so-called stimulus spending.
    Setting aside the additional $50 billion, the President's
    budget does include some modest increases for highways and
    transits. But, there are real cuts to rail and aviation
    programs, in comparison to the levels that were enacted in
    2010. For example, airport grants being cut by $1 billion.
        If the Congress cannot agree to the $50 billion in stimulus
    spending, then how should we view these cuts to rail and
    aviation programs?
        Secretary LaHood. Madam Chair, we think the $50 billion
    upfront is a good investment. We don't really consider it an
    additional stimulus. I can give you the project list for the
    record. I mean, there's a long list of projects and areas that
    we would like to address to help really jumpstart our
    opportunity and continue progress that we have made with the
    stimulus. We think that this is a good way to continue the
    progress that we've made and keep things moving.
        [The information follows:]

        The fiscal year 2012 President's budget includes an ``up-front''
    $50 billion economic boost in transportation to rebuild and modernize
    America's roads, rails, transit, and runways for the long term.
    Investments in transportation lead to a well-functioning, mobile
    economy. Unfortunately, our investment in transportation has been
    lagging with what we need to keep our economy moving, and compete with
    other countries. Congested roads and airports result in $90 billion in
    productivity and losses and wasted fuel. Perhaps the greatest cost of
    our crumbling infrastructure is the American lives lost every year on
    our highways.
        As described in President Obama's Labor Day speech last year, this
    $50 billion ``up-front'' economic boost will help to re-build America.
    These resources will be targeted toward projects that will quickly
    create American jobs here at home, while improving our transportation
    infrastructure for the next generation. The President envisions this
    up-front investment as the leading edge of the longer-term
    reauthorization plan. Typically surface transportation reauthorizations
    gradually increase funding over the life of the bill. This frontloaded
    plan is designed to give States and localities the confidence they need
    to be decisive about their investment plans and concentrate the impact
    of increased investment in the early years of the reauthorization.
        The ``up-front'' $50 billion economic boost will be for airport,
    highway, transit, and rail programs and distributed as shown below:
      --$25 Billion for Critical Highway Infrastructure.--This funding will
            help fund critical highway and bridge improvements.
      --$450 Million for Transportation Infrastructure Finance and
            Innovation (TIFIA).--This funding will help meet the growing
            demand for highway credit assistance to States.
      --$7.5 Billion for Transit State of Good Repair.--This funding will
            help pay for capital asset renewal and replacement at local bus
            and rail transit systems nationwide with a focus on the oldest
            and largest systems with the greatest need.
      --$3 Billion for Urban and Rural Formula.--This funding will support
            more than 1,300 local transit agencies nationwide with capital
            assistance, including routine maintenance, and limited
            operating assistance for certain small urban and rural systems.
      --$1 Billion for New Starts.--This funding is for investment in new
            transit options to reduce congestion, decrease travel times,
            improve mobility, reduce energy consumption, and create more
            livable communities.
      --$3 Billion for Rail Network Development.--This funding will help
            develop our high-speed rail network, with the ultimate goal to
            connect 80 percent of Americans to an efficient and viable
            passenger rail system over 25 years.
      --$2.5 Billion for Rail System Preservation and Renewal.--This
            funding will allow Amtrak to make critical investments in its
            aging rail car fleet and bring all Amtrak stations into
            compliance with the Americans with Disabilities Act.
      --$3.1 Billion for Grants-in-Aid for Airports.--This funding would be
            available for runway construction and other airport
            improvements such as Runway Safety Area improvement projects
            and noise mitigation projects.
      --$250 Million for the Federal Aviation Administration's (FAA)
            Facilities and Equipment.--$200 million of this funding will be
            available for NextGen for applied research, advance
            development, and implementation of engineering solutions for
            NextGen technologies, applications and procedures; and $50
            million will be available to make near-term improvements in
            FAA's infrastructure, including upgrading power systems and air
            traffic control centers and towers.
      --$2.2 Billion for Cross-Border Transportation.--This funding will
            significantly improve the condition of land port of entry
            facilities that link directly to the transportation
            infrastructure at border crossing locations.
      --$2 Billion for a National Infrastructure Investments.--This grant
            program, similar to the TIGER program, will provide grants to
            State and local governments and transit agencies for capital
            investments in the Nation's surface transportation
            infrastructure, including roads and highways, public
            transportation facilities, freight and passenger rail, and port
            infrastructure.

                                HIGH-SPEED RAIL

        Senator Murray. Okay. I said, in my opening statement, I
    support the development of high-speed rail, and the benefits
    for both the movement of passengers and freight. I think it's
    very important. However, I also expect that an initiative that
    has received this much funding and support has to demonstrate
    results. That is exactly why this subcommittee did include
    language last year in our appropriations bill requiring a
    national rail plan. The Department was required to submit that
    to us by September 15. We still haven't gotten it. And I think
    it's hurting some of the program's credibility, and
    strengthening the position of those who want to eliminate it.
    And I wanted to ask if you can tell me the status of that
    national rail plan.
        Secretary LaHood. We are finalizing a plan that will
    connect 80 percent of the country over the next 25 years, at a
    cost of about $500 billion. We will finalize that and make sure
    that you all see it.
        Senator Murray. Any estimate of time on those yet?
        Senator Collins. I think very soon.
        Senator Murray. Okay. That's right along there with paying
    for the authorization, all right.
        Senator Murray. Thank you, Mr. Secretary.
        Senator Collins.

                              BUILD AMERICA BONDS

        Senator Collins. Thank you, Madam Chairman.
        I want to pick up on Senator Murray's questions about how
    we would fund the reauthorization. An idea that has been around
    for a few years, that was initially proposed by Senator Jim
    Talent and now is going to be introduced by Senator Ron Wyden,
    is to develop a new kind of bond that would be used to finance
    transportation projects.
        Now, as with the gas tax, there are downsides to the bond
    proposal, because it increases our indebtedness at a time when
    the debt is already too high. I believe, however, that Senator
    Wyden is really looking at some sort of revenue bond, where
    there would be funding that could help offset the cost. I don't
    know whether he's talking about tolls or whether there are
    other--he, at one point, talked about everyone's favorite
    offset, which is customs user fees.
        Have you taken a look at the bond proposal? And, if so,
    what do you think of it? I, for one, have not decided----
        Secretary LaHood. Are you referring to the Build America
    Bond, Senator?
        Senator Collins. Yes. The Build----
        Secretary LaHood. Yes. We think that's a very good program.
    I don't know if it was a pilot or not, but the program has
    ended. A total of $116 billion in Build America Bonds were
    issued. The President's budget has requested that the Build
    America Bonds be made permanent. We think it's a good way to
    fund significant projects. It's been a good program.
        Senator Collins. Thank you. I should be more precise and
    say it's a variation of what the administration put in its
    budget.
        But, I will get to your staff the language of the proposal
    of Senator Wyden. And I, for one, would be very interested in
    your analysis of it.
        Secretary LaHood. This program is bipartisan. Senator Thune
    was a cosponsor of this bill and this program, and he supports
    it.

                                    NEXTGEN

        Senator Collins. Thank you.
        I want to turn to another issue, and that is the problems
    that the Government Accountability Office (GAO) has found with
    NextGen for managing air traffic. GAO has been critical of the
    FAA's management of the program, and has pointed to budget and
    schedule delays that are affecting the implementation of
    NextGen systems. What is the status of this program? And, more
    specifically, what is FAA doing to respond to the criticisms
    that GAO has levied?
        Secretary LaHood. NextGen is really about safety. It's
    about saving jet fuel. It's about guiding planes, safer and
    more directly, in and out of airports. It would require putting
    the technology in every terminal radar approach control in the
    country, and in every airplane in the country, also. We're
    making progress. Part of it has been implemented in the Gulf of
    Mexico and a couple of other places. We're going to continue
    our investments in this. The President is requesting $1.2
    billion for NextGen, which is an increase of $369 million.
    We're committed to this.
        With respect to the GAO report, what I would prefer to do
    is maybe answer that for the record, or come up and brief you
    all on that. I haven't looked at that lately.
        We are committed to next-generation technology. We have to
    do this, for air safety, for saving jet fuel, and just because
    of the Northeast Corridor congestion and congestion at other
    airports. This will solve a lot of problems.
        [The information follows:]

        The Federal Aviation Administration (FAA) takes the Government
    Accountability Office's (GAO) concerns seriously and we continue to
    monitor the progress of the Next Generation Air Transportation System
    (NextGen). In response to the GAO report FAA has developed a draft set
    of NextGen outcome-based metrics through a cross-agency team, initiated
    joint FAA industry working group to confer and provide recommendations
    on NextGen performance outcomes, and established a NextGen
    Implementation Performance and Reporting Office to provide transparency
    on NextGen performance improvements via a dashboard. Official metric
    recommendations are expected from industry at the September 29, 2011
    NextGen Advisory Council meeting. FAA will be briefing your staff
    shortly on these activities in response to the GAO report.

        Senator Collins. Thank you.
        Senator Murray. Senator Blunt.

                                HIGH-SPEED RAIL

        Senator Blunt. Mr. Secretary, on the rail expansion, does
    your Department have any ideas on how we might encourage the
    private-sector----
        Secretary LaHood. Yes, sir.
        Senator Blunt [continuing]. Extension of the rails? And
    what would some of those be?
        Secretary LaHood. There are about 8 or 10 foreign companies
    in America, right now, partnering with the States to build the
    train sets, to employ Americans, to take shuttered plants
    around the country and turn them into train manufacturing
    facilities. They're going to invest their money in American
    workers and build the train sets.
        They have the expertise. The truth is we don't have very
    many experts in building train sets and infrastructure for
    high-speed rail, but companies from France, Germany, Japan, and
    China are in America right now, partnering and looking for
    opportunities to open shop, hire American workers, and to begin
    to build the train sets.
        Senator Blunt. What about infrastructure for traditional
    rail?
        Secretary LaHood. If you look at the TIGER program, which
    was $1.5 billion that was provided in the stimulus, one-half of
    that money went to the class I freight rail systems so we could
    pay them to fix up their tracks, so then passenger rail could
    use those tracks to go higher speeds. We've had great partners
    with the class I freight rails.
        Amtrak is a huge player in this, also. Amtrak will provide
    the service on many of these corridors. We're making
    investments with Amtrak in fixing up their tracks. The line
    from Chicago to St. Louis is a classic example. The money that
    went to Illinois and Missouri is being used to fix up the
    tracks to get these trains to higher speeds. That's the service
    being provided by Amtrak.
        Senator Blunt. Any discussion of tax credits or other
    things that would encourage the railroad companies to build
    additional track, additional infrastructure?
        Secretary LaHood. We haven't really talked in terms of tax
    credits, but more in terms of partnering with these companies
    that are here and trying to leverage the private dollars that
    they want to invest.
        Senator Blunt. Okay. Thank you, Madam Chairman.
        Senator Murray. Thank you.
        I just have two more questions.
        Secretary LaHood. Okay.

                                 TITLE XI LOANS

        Senator Murray. I wanted to ask you about the title XI loan
    guarantees for ship construction. That processing has now taken
    about 270 days. And as of last week, all the applications
    pending exceed that deadline by anywhere from 100 to 450 days.
    While some of these delays may be the fault of the applicants
    themselves, some are the Department, as well. The average time
    it takes to execute a contract to hire an independent external
    review of an application, that the applicant pays for, is 165
    days. This shouldn't take more than 60 days. It really is
    unacceptable. Can I get you to look at this problem----
        Secretary LaHood. Absolutely.
        Senator Murray [continuing]. And get back to me about how
    we can----
        Secretary LaHood. Absolutely. I'll look at it.
        Senator Murray. Okay.
        Secretary LaHood. And I'll report back.
        [The information follows:]

        The Maritime Administration (MARAD) is changing the process it
    currently uses to award external review contracts. This change should
    be fully implemented by the end of this year. The current process
    requires MARAD to procure independent financial advisors through a
    Federal Highway Administration solicitation. The new process will
    internalize the procurement within MARAD and reduce the number of steps
    required to award an external review contract eliminating many of the
    delays recently experienced.

                                  FUEL PRICES

        Senator Murray. I appreciate that.
        I also wanted to just ask you about fuel prices. I know you
    follow this so you can make forecasts about air travel and HTF
    and all those things. I am concerned about the impact--today
    we're hearing a lot about it--I wanted to ask you where you see
    prices going, both near- and long-term, and what is the
    Department's role, here?
        Secretary LaHood. We play a role, as a member of the
    President's Cabinet. We've already played a significant role
    over the last 2 years by working with the Environmental
    Protection Agency (EPA) to develop higher corporate average
    fuel economy (CAFE) standards, higher gasoline standards. By
    2016, the standard will be 35 miles per gallon. Our people are
    working very hard with the EPA, beyond 2017, for another
    standard. We're working with a lot of different folks on that.
    That's where we can play a significant role on CAFE standards.
        We're also working, as a part of the administration, with
    car companies on the electrification of cars, which I think is
    something that's obviously very significant. We're a part of a
    team at the White House that, like you and many others, is very
    concerned about high gasoline prices and the impact it'll have
    on the economy. The impact that it has on average, ordinary
    citizens--many of whom are out of work and can ill-afford a
    gallon of gasoline, let alone at $4 or $4.50 a gallon.
        I can tell you, the administration is focusing like a laser
    beam. I was at the White House yesterday with some of my
    Cabinet colleagues, talking about this, trying to figure out
    what the best way forward is. The administration will be
    stepping up on this and providing the leadership.
        Senator Murray. Good. I really appreciate that. It is
    deeply concerning to all of us--families, businesses. And as we
    head into the spring and summer months, it's going to----
        Secretary LaHood. Absolutely.
        Senator Murray [continuing]. Have an impact on our economy,
    as we're just starting to get out of this.
        Secretary LaHood. Absolutely. Yes. I know full well that in
    Illinois, particularly Chicago, when the temperatures start to
    rise, then there has to be a different blend. In the past, that
    has only increased the cost of----
        Senator Murray. Yes.
        Secretary LaHood [continuing]. A gallon of gasoline.
        So, all of these things are being weighed very heavily and
    discussed around the clock at the White House.
        Senator Murray. Okay. I very much appreciate that.

                         ADDITIONAL COMMITTEE QUESTIONS

        With that, I remind all of my colleagues that we will be
    leaving the hearing record open for an additional week for any
    additional questions.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                  Questions Submitted by Senator Patty Murray

                 COMMERCIAL VEHICLE INFORMATION SYSTEM NETWORK

        Question. This past summer the subcommittee was notified of
    potential Anti-Deficiency Act violations in the Federal Motor Carrier
    Safety Administration's (FMCSA) management of the Commercial Vehicle
    Information Systems Network (CVISN) program. This subcommittee asked
    the Government Accountability Office (GAO) to conduct an audit, and
    they found compliance issues dating as far back as 1998. While these
    problems developed long before your tenure, the subcommittee has been
    waiting for the Department of Transportation's (DOT) audit findings
    since last October. Mr. Secretary, when will you be able to provide
    your findings and conclusions to the subcommittee? What corrective
    actions has the Department taken and what issues still need to be
    addressed?
        Answer. The Department has determined that FMCSA violated the Anti-
    Deficiency Act when it obligated funds in excess of the statutory
    limitations as defined by section 4126 of the Safe, Accountable,
    Flexible, Efficient Transportation Equity Act: A Legacy for Users. The
    Department has concurred on the May 5, 2011, GAO audit, which describes
    FMCSA's Anti-Deficiency Act violations. The Department is working
    closely with FMCSA to complete its report to the Congress and GAO on
    these violations. We expect the report to be completed shortly.
        FMCSA has undertaken the following corrective actions. First, FMCSA
    immediately realigned the responsibility for administrative CVISN grant
    functions from the agency's Office of Analysis, Research and
    Technology, which oversees agency research and data analysis, to the
    State Programs Division, Office of Safety Programs, under the Associate
    Administrator for Enforcement and Program Delivery, whose primary
    functions involve State and local grants management. As a result, as of
    June 2010, administrative responsibility for all of the agency's 11
    grants programs resides within the Office of Safety Programs. This
    realignment has improved coordination across all agency grant programs
    and significantly improved consistency and compliance with the agency's
    grant management policies and procedures. The technical programmatic
    oversight of the CVISN grant program will remain with the Technology
    Division in the Office of Analysis, Research and Technology, where the
    technical program expertise still resides.
        Second, FMCSA is implementing Grant Solutions, a Governmentwide
    grants management system and support service. Grant Solutions
    incorporates all grant life cycle processes both for awarding-agencies
    and recipients, and provides postaward reporting mechanisms. Grant
    Solutions is used widely across the Government, including within the
    various DOT modes. The use of Grant Solutions allowed FMCSA to formally
    develop grant process workflows, standardize grant agreements and
    amendments, and allow for more efficient financial tracking.
        Third, FMCSA has revised its grants manual which sets forth policy
    on all grant administration activities and provides FMCSA with a
    general and uniform set of minimum procedures for soliciting,
    reviewing, awarding, managing, and closing out grants. This manual
    provides direction to ensure the consistent implementation of
    legislation, regulations, Office of Management and Budget regulations
    and circulars, Executive orders, and departmental and FMCSA policies
    and procedures related to financial assistance. FMCSA is also
    continuing to develop individual training plans for each position that
    has a role and responsibility in the grant management life cycle.

                     TRANSPORTATION OF HAZARDOUS MATERIALS

        Question. In 2010, the inspector general conducted an investigation
    into the Pipeline and Hazardous Materials Safety Agency (PHMSA) Special
    Permits and Approvals program. The inspector general found such
    troubling management issues that he was compelled to issue not one, but
    two special management advisories. The agency is now granting special
    permits to an actual company rather than a trade association, as well
    as conducting the required safety fitness evaluations. These actions,
    in addition to growth in the industry, have caused a quadrupling of
    applications from 13,000 in an entire year to 13,000 in just one-
    quarter. How have you addressed the inspector general recommendations?
        Answer. On February 4, 2011, PHMSA closed all open inspector
    general recommendations issued to the Office of Hazardous Materials
    Safety Approvals and Permits Division. PHMSA accomplished this by
    developing and executing action plans that included deliverables such
    as:
      --clarifying that special permits and approvals are only granted to
            companies who are members of associations;
      --improving our data management and stewardship;
      --building analytical capability to better assess risks of hazmat in
            transportation;
      --investing in training;
      --acquiring tools needed to enhance productivity;
      --reengineering business processes; and
      --modernizing our information system.
        Implementing these process improvements has allowed PHMSA to
    process more than 5,600 explosive approval applications in fiscal year
    2010-2011, which has virtually eliminated the backlog and reduced the
    total applications in queue from 2,000 in January 2010 to 300 as of
    September 2011.
        Likewise, PHMSA has processed more than 26,000 fireworks approval
    applications in fiscal year 2010 to fiscal year 2011, and reduced the
    backlog from 1,117 in April 2010 to 65 in September 2011. PHMSA
    continues to strive to reduce the backlog of special permits, which is
    due largely to the implementation of a necessary Safety Equivalency
    Evaluation Recovery program, which entailed reviewing existing safety
    justifications for more than 1,350 active special permits. PHMSA
    completed the Safety Equivalency Recovery Plan in September 2011 and
    even though the number of special permit applications received almost
    doubled from 2009 to 2010 and has remained at a high level, the number
    of special permits in queue has been reduced from 2,449 on January 2011
    to 769 on September 2011. Other actions include modernizing our
    information system to streamline application processing and
    incorporating widely used special permits with a proven safety record
    into the Hazardous Materials Regulations.
        Question. How does your budget proposal support the agency's
    ability to effectively manage the safe transportation of hazardous
    materials in this country?
        Answer. PHMSA administers a comprehensive, nationwide program
    designed to protect the public from the risks to life, health,
    property, and the environment inherent in the commercial transportation
    of hazmat by air, rail, vessel, and highway. Hazardous Materials Safety
    achieves its goals through:
      --evaluating hazmat transportation safety risks;
      --developing and enforcing standards for transporting hazmat;
      --providing compliance assistance to hazmat shippers and carriers;
      --offering assistance to State and local emergency responders and law
            enforcement officials on hazmat transportation issues;
      --investigating hazmat incidents and failures;
      --conducting research; and
      --providing grants to improve emergency response to incidents.
        PHMSA's fiscal year 2012 budget addresses specific program
    enhancements. PHMSA plans to:
      --Improve hazardous material data collection, analysis, and
            reporting; technical assessments; and research and development
            to strengthen decisionmaking capabilities when setting domestic
            and international hazmat transportation safety standards;
      --Enforce the hazmat transportation safety standards and improve
            enforcement through a training program;
      --Provide safety and compliance assistance to the hazmat safety
            community; and
      --Enhance the special permit and approvals program and permit the
            Secretary to collect fees for processing and enforcement of
            special permits and approvals.
                                unsecured loads
        Question. Washington has been a leader in passing legislation that
    would require secured cargo loads on personal vehicles. What is DOT
    doing, if anything, with regards to raising awareness of the hazards of
    unsecured loads on our highways? Does the Department record and track
    data related to secured loads?
        Answer. While the National Highway Traffic Safety Administration
    collects limited data on the issue of fatalities attributed to falling/
    shifting cargo, we have not developed an awareness program for that
    specific issue.
                                     ______

                Questions Submitted by Senator Dianne Feinstein

                  OBLIGATION OF FUNDS FOR CALIFORNIA PROJECTS

        Question. As of today, there is close to $1 billion in funding for
    California projects that has yet to be obligated. This includes three
    Transportation Investment Generating Economic Recovery (TIGER) II
    projects, three Transit Investments for Greenhouse Gas and Energy
    Reduction (TIGGER) II projects, and 26 high-speed and intercity rail
    projects. Some of these were awarded as early as January 2010 and have
    yet to begin construction.
        What is the reason for the delay in obligating the funds for these
    projects?
        Answer.
    TIGGER II
        All three of the TIGGER II projects have been obligated and the
    funds have been awarded.
                Foothill Transit--Fast-Charge Electric Transit Bus Project,
                        Line 291
        The project is for the purchase and deployment of fast charge
    electric buses for revenue service. The $10.1 million grant was awarded
    in August 2011.
                Alameda-Contra Costa Transit District--Sustainable Energy
                        Supply
        The project is for the development and deployment of fuel cell bus
    technology for revenue service. The $6 million grant was awarded in
    June 2011.
                Mendocino Transit Authority--Solar Canopies
        The project is for the design and construction of a solar cell
    canopy to reduce energy consumption and emissions through the use of
    solar energy. The $470,000 grant was awarded in September 2011.
    TIGER II
                Los Angeles County--Crenshaw/LAX Light Rail Project
        The Crenshaw/LAX project is an 8.5-mile light-rail transit line
    with a budget of $1.715 billion (year of expenditure), and TIGER II
    assistance of $20 million to support the subsidy cost of a $545.9
    million TIGER Transportation Infrastructure Finance and Innovation Act
    (TIFIA) loan. As such, the environmental effort for such a project is
    significant and time consuming. The project sponsor, the Los Angeles
    County Metropolitan Transportation Authority (LACMTA) recently
    submitted the administrative Final Environmental Impact Statement for
    Federal Transit Administration review, with a Record of Decision
    expected in the September/October 2011 timeframe.
        Preliminary engineering work is underway and the final design
    effort will begin later this year. Construction will begin in December
    2012, pursuant to the award of design-build contract to be advertised
    in January 2012. The memorandum of understanding for the TIGER II
    funding is expected to be executed in December 2011.
        LACMTA has delayed submission of a TIFIA loan application until the
    environmental milestones are complete. The TIFIA Office expects to
    receive an application from the project sponsor in October 2011. Once
    an application is received, it typically takes 6-9 months to evaluate
    the project's financial feasibility and negotiate a credit agreement.
    The TIFIA loan will not be obligated until the credit agreement is
    ready to execute. At that time, the subsidy cost of the credit facility
    (the TIGER II funds) will be finalized and obligated.
                San Mateo County--Grand Boulevard Initiative: Removing
                        Barriers to Sustainable Communities
        The San Mateo Planning Project Grant (CA-79-1000) from the TIGER II
    program was awarded March 10, 2011, and executed March 14, 2011.
                East Bay Regional Park District
        The East Bay Regional Park District received $10.2 million under
    the TIGER II program from FHWA for the East Bay Green Transportation
    Initiative. The TIGER II funds are assisting a series of six separate
    project elements. Under phase 1 of the TIGER II Grant Agreement TIGER
    funding is being used to complete the environmental review and
    engineering for two projects. In phase 2, it is anticipated that
    construction will be completed on five of the project elements.
    Currently, FHWA has obligated the entire phase 1 base amount of
    $1,100,000 for costs associated with environmental review and
    preliminary engineering for the Iron Horse Trail and San Francisco Bay
    Trail. Work is progressing on both of these project elements. FHWA
    anticipates making additional obligations during fall 2011 for the
    Alamo Canal Trail ($1.3 million) and possibly the Hercules Intermodal
    Station ($1.8 million). FHWA anticipates obligating the balance of
    TIGER II funds in 2012 as the remaining project elements complete the
    environmental and engineering processes. FHWA is continuing to work
    closely with the East Bay Regional Park District and Caltrans to ensure
    the project remains on track and all parties give the project a high
    level of attention and focus on rapidly advancing the various elements.
                San Bernadino Airport Access Project
        The city of Highland received $10 million under the TIGER II
    program from FHWA for the San Bernardino Airport Access project. The
    purpose of the project is to expand roadway capacity to provide safe,
    direct, and efficient highway access on State route 210 and Del Rosa
    Drive to the new San Bernardino International Airport. None of the
    funds have been obligated yet, because the grantee is working on
    complying with planning and design requirements, as well as completing
    required the National Environmental Policy Act of 1969 (NEPA) analyses.
    FHWA anticipates that the grantee will be ready to obligate a portion
    of the funds for final design work in fall 2011 and the remainder of
    the funds for construction by September 2012. FHWA continues to work
    closely with the city and Caltrans to ensure that the project remains
    on schedule.
    High-Speed and Intercity Rail Projects
        As of September 2011, the Federal Railroad Administration (FRA) has
    obligated more than $3.2 billion of the $4.2 billion in high-speed
    intercity passenger rail (HSIPR) funding allocated to California for
    projects throughout the State, including California's High-Speed Rail
    project.
        Most recently, three projects were obligated:
      --$16 million in fiscal year 2010 HSIPR funding to the California
            High-Speed Rail Authority (CHSRA) that will support safety and
            scheduling improvements on the heavily traveled San Francisco
            to San Jose corridor;
      --$1.7 million in American Recovery and Reinvestment Act of 2009
            (ARRA) funding for Caltrans to construct maintenance of way
            spurs extending the hours of intercity passenger rail service
            on Southern California Regional Rail Authority's Orange
            Subdivision; and
      --$1.5 million in fiscal year 2010 funding for Caltrans to prepare
            its State Rail Plan.
        We have prioritized obligations with the assistance of our grantees
    in conjunction with their local agencies and are actively working to
    obligate the remaining grant funds to California.
        Question. Is there anything that Senators can do to hasten the
    obligation of these projects in their States?
        Answer. As of September 2011, the FRA has obligated more than $3.27
    billion for 18 projects of the $4.2 billion in High-Speed Intercity
    Passenger Rail (HSIPR) funding allocated to California, including
    California's High-Speed Rail project. FRA will keep the Senator and
    California delegation appraised of progress and address issues needing
    attention when appropriate.
      --Good progress is being made with several recent obligations
            totaling $179 million, including:
        --$86.4 million in ARRA funding to CHSRA to support the Central
                Valley project, extending the current 110-mile segment an
                additional 20 miles to Merced and Bakersfield;
        --$68 million in ARRA funding to Caltrans for new trains servicing
                intercity routes, which is part of a multi-State
                procurement between California, Michigan, Iowa, Illinois,
                Missouri, and Washington State to pool resources and
                maximize the purchase of next-generation American-made
                trains; and
        --$24.9 million in fiscal year 2009 HSIPR funding to Caltrans to
                install positive train control (PTC) between San Onofre and
                San Diego.
      --Of the 14 remaining projects, most are nearing final obligation.
            There are:
        --8 preliminary engineering (PE)/NEPA projects for $28.7 million;
        --3 planning projects for $2 million;
        --1 final design/construction project for $4.6 million; and
        --2 large corridor programs for $928.6 million.
    The attached chart describes these projects in more detail.

    ------------------------------------------------------------------------
      California high-speed rail projects             Project status
    ------------------------------------------------------------------------
    PE/NEPA projects:
        Pacific Surfliner: PE/NEPA for       FRA is working with Caltrans to
         Double Track.                        revise language in the
        Raymer-Bernson: PE/NEPA for Double    statements of work. Once these
         Track, Grade Crossings, New          revisions are agreed to and
         Bridges, New Platform.               approved, FRA anticipates
        Pacific Surfliner: PE/NEPA for        immediately obligating
         Double Track, Curve Realignments.    remaining funding.
        Van Nuys Boulevard: PE/NEPA for
         Bridge Widening, New Platform,
         System Improvements.
        Del Mar: PE/NEPA for Second Track,
         Bridge, Signal Improvements.
        Seacliff: PE/NEPA for Track
         Realignment, Siding Extension.
    Planning projects:
        Los Angeles-San Luis Obispo
         Corridor Plan.
        Bakersfield-Oakland-Sacramento (San
         Joaquin) Corridor Plan.
        Los Angeles-San Francisco Corridor
         Plan.
    PE/NEPA projects:
        San Diego: PE/NEPA for Double Track  Caltrans and San Diego
        Oceanside: PE/NEPA for Bridge         Association of Governments are
         Replacement with Double Track.       resolving issues and making
                                              revisions to their scopes of
                                              work. If these scope issues
                                              delay obligations, FRA will
                                              reach out to Senator Feinstein
                                              and the California
                                              congressional delegation.
    Construction project: Capitol Corridor-- Caltrans and Union Pacific are
     Yolo West Cross-  over.                  continuing to work toward
                                              reaching an agreement in the
                                              near term. Should these
                                              negotiations not prove
                                              productive, FRA will reach out
                                              to Senator Feinstein and the
                                              California congressional
                                              delegation.
    Central Valley projects:
        Initial Central Valley Construction  As required by law, FRA is
         Project-Extension to Merced          working collaboratively with
         Station and Bakersfield Station.     California to develop a
        Central Valley HSR: Fresno-           business and public investment
         Bakersfield or Merced-Fresno.        case. CHSRA is providing
                                              revised figures for its
                                              updated business plan to the
                                              California legislature in
                                              October, once FRA has received
                                              and incorporated the revised
                                              numbers, the business and
                                              public investment case can be
                                              finalized and reported to the
                                              Congress for the necessary 30
                                              days before moving to
                                              obligation.
    ------------------------------------------------------------------------

                           CALIFORNIA HIGH-SPEED RAIL

        Question. I am very grateful for the Department of Transportation's
    (DOT) continued support and investment in California's high-speed rail
    project. As you know, this is a very ambitious project for our State,
    one which has an immense amount of support--but also has several issues
    to resolve in order to reach success.
        Would you be willing to designate a high-level official in your
    personal office to oversee high-speed rail projects?
        Answer. The FRA Administrator and Deputy Administrator have been
    intimately involved in the establishment and implementation as well as
    engaged in the selection, obligation and oversight of FRA's high-speed
    rail (HSR) projects. The DOT Deputy Secretary and his leadership staff
    are also briefed and involved on a regular basis with the high-speed
    rail program. DOT is committed to the awarded projects and will work
    with California to ensure success.

                     POSITIVE TRAIN CONTROL IMPLEMENTATION

        Question. In November 2010, DOT announced that seven projects were
    awarded funds from the Rail Safety Technology Grant Program. A majority
    of the funds went to PTC technology development rather than to transit
    agencies to implement these systems.
        Why didn't the Department request any funds for fiscal year 2012?
        Answer. The President's budget for fiscal year 2012 requested $50
    million for railroad safety technology grants within the Network
    Development appropriation and specifically under the program, Capacity
    Building and Transition Assistance. FRA believes this level of funding
    will help identify common issues and solutions that will facilitate the
    national deployment of PTC. The funding will also help resolve critical
    hardware and software issues associated with PTC development,
    implementation, and deployment across multiple railroads, including
    commuter rail providers. These common issues include interoperability
    in a high-speed rail environment, limited shared communications in a
    single high-density infrastructure, security and identity management
    standards, and a rapid and reliable track database verification system.
        Question. Do you believe rail operators are on track to meet the
    deadline of December 31, 2015, without Federal assistance?
        Answer. All railroads subject to the statutory mandate have
    presented plans to FRA for complying with the December 31, 2015,
    deadline. However, these plans provide little or no margin for delays
    due to technical issues that might emerge during deployment. For
    example, FRA has identified emergent issues associated with
    communications and spectrum availability where Federal assistance is
    appropriate. FRA has used Railroad Safety Technology Grant Program
    funding and is working with the Federal Communications Commission to
    aid in resolution of these issues.
        Question. If we are going to subsidize the developers of the
    technology, shouldn't we also support the transit agencies that are
    mandated by the Congress to purchase the technology?
        Answer. The statutory mandate creates a challenge for already
    financially strapped transit agencies. Recognizing this challenge and
    the limited Federal funding available, FRA is devoting its resources to
    resolving development, implementation, and deployment issues that
    confront multiple railroads, including commuter rail providers. This
    focus will provide benefits beyond any single railroad or transit
    agency.

                                 GOODS MOVEMENT

        Question. More than 40 percent of all containerized goods in the
    United States travel through southern California. Due in part to Goods
    Movement, the Los Angeles basin has suffered from poor air quality and
    massive congestion. Imports and Exports traffic is expected to increase
    in places like California, Washington, Texas, Louisiana, New York, and
    Florida for the foreseeable future.
        Is there a strategy in place to handle increased container traffic
    in the coming years?
        Answer. In the fiscal year 2012 budget, DOT has proposed robust
    investments in transportation infrastructure that would include a major
    focus on freight transportation. This proposal includes a National
    Infrastructure Bank (NIB) that could focus freight-related
    infrastructure investment funding on areas of national significance
    (for example, on investments to facilitate increases in container
    traffic through U.S. ports). By making strategic investments in ports
    and goods movement surface transportation infrastructure, the
    Department believes that we can improve the competitiveness of the U.S.
    economy while minimizing the congestion and adverse environmental
    impacts of any projected increases in container traffic.
        The Department currently has a study underway that will quantify
    the anticipated changes in international and domestic freight flows
    expected to result from the expansion of the Panama Canal (which will
    be completed in 2014). The findings of this study will provide guidance
    in making future investments in freight transportation.
        In the past 2 years, significant portions of the discretionary
    TIGER grant program have been directed to investments in freight
    facilities, including improvements to ports, highways, and railroads
    that handle import and export traffic.
        Question. Do you believe a National Goods Movement Policy is
    necessary given the current congestion and health issues that affect
    many parts of the country?
        Answer. The President's budget proposal for DOT included creation
    of an Office of Freight Policy within the Office of the Secretary, to
    coordinate freight policy across the Department's modal
    administrations. We believe that a coordinated, intermodal freight
    policy will be essential in the future to guide investments in freight
    infrastructure and assure efficient operation of the Nation's
    intermodal freight system.
        As a step toward the goal of a national freight policy, the
    Department is in discussions with the U.S. Army Corps of Engineers to
    develop a process for aligning their dredging program and other
    waterway projects with DOT activities, with the aim of developing a
    coordinated policy for Federal investment in marine transportation.

                          NATIONAL INFRASTRUCTURE BANK

        Question. The mandate of a NIB appears to overlap with the efforts
    of other existing programs, such as State infrastructure banks and
    TIFIA and Railroad Rehabilitation and Improvement Financing (RRIF) loan
    programs. What is the justification for creating a new entity? Why not
    expand existing programs or alter the mandates for programs already in
    existence? Do you see these programs co-existing?
        Answer. The primary objective of the NIB will be to invest in
    infrastructure projects that significantly enhance the economic
    competitiveness of the United States or a region thereof by increasing
    or otherwise improving economic output, productivity, or competitive
    commercial advantage. The NIB will leverage Federal dollars and focus
    on investments of national and regional significance that often fall
    through the cracks in the traditional transportation programs.
        Creating the NIB as a new entity within the Department will
    encourage multi-modal approaches to the transportation infrastructure
    problems currently facing the Nation. A multi-agency Investment Council
    will help guide the investment decisions of the NIB and target critical
    projects that existing funding sources organized by mode can often fail
    to finance. Increasing the economic competitiveness of the Nation is
    such a compelling objective for transportation and this proposed bank
    with its unique ability to invest in the full range of transportation
    infrastructure options--highway, transit, rail, aviation, and port
    facilities--can support solutions that no other program at the
    Department can offer.
        Credit assistance under the TIFIA program would cease within 2
    years of the enactment of legislation to create the NIB. All credit
    instruments of the TIFIA program would be transferred to the NIB within
    3 years. The RRIF program would continue to be administered by FRA.
    RRIF loans would not be transferred to the NIB.
                                     ______

                   Questions Submitted by Senator Mark Pryor

                     MAINTENANCE OF HIGHWAY INFRASTRUCTURE

        Question. In Arkansas, we have I-49 and I-69 and other high-
    priority corridors that are in need of major upgrades, but the existing
    formula funds are inadequate to make the needed investment while
    continuing to maintain existing infrastructure.
        Is the administration doing enough to invest in future highway and
    interstate corridors?
        Answer. Yes. In his State of the Union address, President Obama
    said that, ``To win the future, we have to out-innovate, out-educate
    and out-build the rest of the world, tapping the creativity and
    imagination of our people.'' Consistent with this policy, the
    President's budget called for a 6-year investment of $336 billion in
    highways, 48 percent higher than the previously authorized level. In
    addition, the President's budget proposed funding of $30 billion over 6
    years for the establishment of a National Infrastructure Bank (NIB) to
    finance projects of national or regional significance. For fiscal year
    2012, the President's budget also proposed funding of $2 billion for
    the continuation of the National Infrastructure Investments program,
    commonly referred to as Transportation Investment Generating Economic
    Recovery (TIGER) grants. The increased funding levels for the Highways
    program, TIGER grants and the creation of the NIB will provide multiple
    opportunities for investment in the arterial highways that connect
    Americans and support commerce.
        Question. How do you propose we build out these future corridors of
    interstates and highways?
        Answer. As described above, the administration supports increased
    investment in critical infrastructure through a 48-percent increase in
    highway authorizations over 6 years, the creation of a NIB, and the
    continuation of the TIGER grant program. We also believe that better
    planning, including freight and corridor planning, will serve to
    identify the best ways to address specific transportation needs. The
    administration has also proposed consolidating more than 55 programs
    into five streamlined program areas with investment decisions driven by
    performance rather than narrow categorical niches. We believe that the
    administration's proposal provides options for addressing interstate
    corridor needs.
        Is this administration focused enough on roads and bridges?
        Answer. Yes, the administration recognizes the value of our
    transportation infrastructure and the need to invest in it. The 48-
    percent increase we propose for highway authorizations, the creation of
    a NIB, the continuation of the TIGER grant program, and our emphasis on
    planning and performance are good indications of our focus on roads and
    bridges. We're also focused on delivering highway projects efficiently.
    Under its Every Day Counts Initiative, the Federal Highway
    Administration is challenging States to make use of the new
    technologies that make our roads and bridges stronger and safer and
    allow those projects to be delivered faster.

                      CROSS-BORDER TRUCKING PILOT PROGRAM

        Question. I understand that the administration is refocusing
    efforts to restart the cross-border trucking pilot program between the
    United States and Mexico. I remain concerned about this program, and I
    hope you will work closely with this subcommittee and other relevant
    Committees if you are indeed moving forward with such a proposal.
    Following the recent news of a Federal Motor Carrier Safety
    Administration (FMCSA) inspector in Canada taking tens of thousands of
    dollars in bribes, I'm especially concerned about the potential for
    corruption of FMCSA agents tasked with doing inspections in Mexico.
        How can you assure us that such corruption would not take place?
        Answer. FMCSA can assure the subcommittee that we will remain
    vigilant and ask our employees to remain vigilant to identify potential
    corruption and create a culture in which this behavior is not tolerated
    in any form or manner. Efforts by FMCSA to fight corruption include our
    ``See something--say something'' campaign. All employees were advised
    in writing of the obligation to report any suspected criminal behavior
    to the Department's Office of the Inspector General (OIG) and provided
    the OIG hotline number for their use if necessary. FMCSA recently held
    meetings with all staff and stressed integrity and individual
    accountability. This staff training was in addition to annual ethics
    training provided by the agency's Office of the Chief Counsel. In
    addition, all investigators are being re-credentialed. This involves
    updating background checks for each investigator who has not had one in
    5 years. Finally, to address these considerations and further improve
    FMCSA's efforts in this area, FMCSA will be meeting with the Customs
    and Border Patrol to complete benchmarking and lessons learned in this
    area.
        Question. What is the status of this pilot program?
        Answer. On July 6, 2011, Secretary LaHood joined Mexico's Secretary
    of Communications and Transportation in signing documents that specify
    the details of a new cross-border, long-haul trucking pilot program.
    FMCSA received more than 2,000 comments from its notice describing the
    proposed pilot program. The Department of Transportation has completed
    the public notice and comment period and the final proposal was posted
    in the Federal Register on July 8, 2011.
        Question. Why, under this program, is the United States proposing
    to pay for the electronic on-board recorders to be used by Mexican
    carriers?
        Answer. Following the termination of the previous pilot program,
    Secretary LaHood met with more than 30 Members of Congress and other
    stakeholders to hear their concerns about the safety of that program.
    During these visits he consistently heard concerns that the United
    States needed to be able to determine how many hours a Mexican driver
    had already been working when he or she arrived at the United States
    border. He also heard concerns about Mexican drivers taking United
    States jobs by illegally engaging in cabatoge (movement of goods from
    place to place within the United States).
        Electronic monitoring devices will allow FMCSA and State inspectors
    visibility into the hours a Mexican driver is working, not only in the
    United States, but also while he or she is operating a commercial motor
    vehicle in Mexico. The devices will allow FMCSA to monitor the
    operations of the Mexican companies to ensure they do not engage in
    cabotage. Finally, they will provide critical data about the miles
    traveled by the pilot program trucks while they are operating in the
    United States. This will allow FMCSA to evaluate the safety of the
    program as required under the North American Free Trade Agreement. For
    all of these reasons, electronic monitoring devices are vital tools in
    ensuring the safety of Mexican trucks in this program and success of
    the overall program.
        FMCSA is proposing to pay for the electronic monitoring devices
    because:
      --These devices are not currently required for trucks in the United
            States. The Mexican Government would not accept an agreement
            that put Mexican carriers at a disadvantage to United States
            carriers by requiring a piece of expensive equipment not
            required for United States carriers; and
      --By owning the devices, FMCSA will own the data produced and be able
            to conduct on-going monitoring of the vehicles in the program.
            This on-going monitoring would not be possible if the devices
            were owned by the Mexican carriers. FMCSA would only be able to
            view the data when conducting reviews of the carriers'
            compliance.
        It should be noted that since the equipment will be owned by the
    United States, we will have the devices removed from the trucks at the
    end of the pilot program. In addition, if the proposed rule requiring
    electronic on-board recorders (EOBRs) for all United States trucks
    becomes effective or if a Mexican carrier is required to install EOBRs
    under a remedial directive under current FMCSA regulations, the Mexican
    carrier will be required to obtain its own EOBRs to comply with those
    regulations. At no point will equipment purchased by FMCSA be used to
    comply with a regulation requiring EOBRs.
                                     ______

                    Questions Submitted by Senator Mark Kirk

                       REGIONAL TRANSPORTATION AUTHORITY

        Question. As you are aware, the Regional Transportation Authority
    (RTA) is the third-largest public transportation system in North
    America, and provides the financial and budget oversight of the Chicago
    area's three service boards--Metra, Pace, and the Chicago Transit
    Authority. Earlier this year, there was a proposal in the State capital
    to change how the RTA chair is selected. Under current State law, the
    RTA board selects its chair. This ensures that the chair best
    represents the communities RTA serves. The proposal that was introduced
    would change how the RTA chair is selected, taking that power away from
    the board and giving it to the Governor--nothing short of the
    politicization of the RTA.
        Would you agree with me that the RTA and all transit authorities
    are best served by keeping politics out of their management?
        If you haven't had a chance to meet him yet, I'd strongly recommend
    you chat with the current RTA Chair John Gates.
        Answer. The Federal Transit Administration (FTA) works with a large
    variety of public transportation systems across the United States, many
    of which have leaders that are chosen through a political process.
    While FTA is involved in the planning, financing, and oversight of the
    public transportation systems receiving Federal funds, it does not get
    involved with the governance of those systems. As such, FTA does not
    have a position on the State of Illinois' proposed changes to the
    selection process for the RTA chair.

                                METRA NEW STARTS

        Question. What is the current status of Metra's UP-Northwest and
    UP-West new start projects? My understanding is that FTA may have
    expressed concerns about the proposed financial plan associated with
    both new start projects. Please provide details on FTA's concerns with
    those projects, if any.
        Answer. In April 2010, Metra submitted a financial plan to FTA for
    its two proposed Union Pacific commuter rail upgrade projects. Because
    funding for the New Starts program is very competitive and funding is
    limited, FTA informed Metra that it needed to reduce the requested New
    Starts shares (the percent of the project covered by New Starts
    funding) for the projects to make them more competitive for funding.
    FTA also informed Metra of several financial plan deficiencies that
    needed to be addressed before FTA could approve the projects into the
    New Starts program. These included providing sufficient information to
    FTA on revenues and expenses related to ongoing rehabilitation and
    replacement of the existing system, projecting growth rates for tax
    revenue sources more similar to historical growth rates, and addressing
    State funding uncertainties. Metra reported to FTA in summer 2010 and
    again in summer 2011 that the two projects are on hold until December
    2011 at the earliest.

                                    METRICS

        Question. In the President's fiscal year 2012 request, $5 billion
    is requested for a NIB that will provide grants and loans to leverage
    transportation dollars for individual projects. We are currently
    operating in an environment without earmarks, making the need for
    transparency in executive investment even more crucial.
        What metrics and analysis will the Department of Transportation
    (DOT) use to determine project eligibility for NIB financing?
        Answer. The NIB will assign to each eligible application a single
    numerical factor on the basis of an evaluation of the information and
    data collected either from the applicant or otherwise in the course of
    due diligence on the application. This factor would be the
    application's qualification score and would represent the NIB's primary
    estimate of the present value of net benefits most likely to result
    from the funding of the project or projects as proposed in the
    application. In order to indicate the potential for uncertainty in
    estimating the qualification score, the NIB would also estimate a range
    for the present value of the application's net benefits. The
    calculation of the qualification score and associated range would be
    determined through a consistently applied analytic and systematic
    framework. The methodology of that framework, including the specific
    mechanics of data inputs and calculations, would be published in an
    investment prospectus. The qualification score and range would be
    shared with the applicant and published on the NIB's Web site.
        The methodology used to calculate the qualification score and range
    will apply equal weighting to equal monetary values of all categories
    of benefits and costs used to calculate the present value of net
    benefits; use standardized measures of the expected uncertainty in
    total net benefits for the project to define the range, and include
    standardized measures of the expected uncertainty in specific benefits
    and costs associated with the project; and include a descriptive
    statement delineating the significant factors and analysis that went
    into determination of the score and the range.
        Question. Will regional considerations be given for projects,
    meaning will DOT address projects located only in urbanized areas?
        Answer. The President's fiscal year 2012 budget states that the
    National Infrastructure Bank (NIB) would invest in projects of
    ``national and regional significance.'' Projects located entirely in a
    rural area must exceed $10 million to be eligible for funding, compared
    to a figure of $50 million for projects in urbanized areas.
        We believe that rural projects would compete well for grant and
    loan funding under a NIB, as they did under the Transportation
    Investment Generating Economic Recovery (TIGER) Discretionary Grant
    program, which required cost-benefit analysis for rural and urban
    projects.
        Question. With regard to the Transportation Leadership Awards,
    which would be the equivalent of the Department of Education's Race to
    the Top Initiative, what metrics or analysis will you use to base the
    awarding of grants? What are the performance outcome criteria that you
    will use?
        Answer. The Transportation Leadership Award (TLA) program is a
    multimodal, multiyear competitive grant program designed to spur major
    reform in the way States and metropolitan regions make transportation
    policy and investments, and encourage new and innovative solutions to
    transportation challenges. Under the TLA program, funding will be
    awarded to applicants that have adopted or implemented best practices
    in transportation planning, finance, delivery, and operation. Examples
    of best practices include:
      --Commitment to a variety of sustainable and innovative non-Federal
            sources of transportation funding that provides flexibility to
            make investments across all modes;
      --Analytical tools in the investment decisionmaking process;
      --Practices that increase the efficient use of system capacity and
            reduce the need to invest in new highway capacity;
      --Technologies and training to improve the condition and performance
            of transportation networks;
      --Adoption of laws, rules, and regulations, and a commitment of
            resources toward practices that reduce transportation-related
            fatalities and injuries, improve air quality, reduce greenhouse
            gas emissions, enhance community quality of life, and expand
            transportation choices;
      --Integration of transportation planning and investment decisions
            with other land-use and economic development decisions;
      --Collection and use of data in longitudinal analyses of investment
            performance and return on investment; and
      --Performance-based distribution process for the allocation of a
            significant portion of non-Federal funds and Federal
            transportation formula funds under the control of the
            applicant.
        The TLA program includes two types of grants. The first, and
    largest, type is designed to fund a program of projects that is
    intended to address cross-cutting performance needs. The program of
    projects must:
      --Include the priorities of metropolitan planning organizations
            within the applicant's jurisdiction as identified in their
            transportation improvement programs;
      --Demonstrate superior return on investment and competitive value for
            taxpayer money by means of a benefit-cost analysis of
            alternatives;
      --Be developed through a multimodal, performance-based, and
            comprehensive transportation planning process that includes
            linkages to housing, economic development, environment, land
            use, and other infrastructure investment planning and
            investment, and with strong, interactive public input and
            awareness; and
      --Further transportation policy best practices and reform
            initiatives.
        The second type, known as a managing performance grant, is designed
    to fund initiatives that help communities build up the technical and
    organizational capacity to needed develop and undertake the
    transformative changes in transportation planning, management,
    investment, and project delivery that will enable them to qualify for
    TLAs. Typical initiatives that could be funded under this grant
    include:
      --Data collection, storage, and analysis systems;
      --Advanced transportation modeling, simulation, and analysis; and
      --Staff training to utilize new, more advanced systems and
            departmental reorganization to support implementation of best
            practices.
        Applications submitted for funding consideration under the TLA
    program will be evaluated based on the extent to which it:
      --Promotes national transportation priorities, including:
        --Reducing transportation fatalities and injuries;
        --Strengthening economic competitiveness, including improvement to
                goods movement and encouragement of reuse of underutilized
                developed land;
        --Improving the state of repair of the transportation system;
        --Improving asset performance by reducing congestion through demand
                management strategies, particularly strategies that curb
                demand for single occupancy vehicle travel; and
        --Supporting environmental sustainability by reducing air emissions
                and water pollution, improving or protecting aquatic
                resources, and protecting sensitive lands.
      --Provides for a multimodal approach to solving transportation
            challenges.
      --Demonstrates the progress made through earlier grant awards, for
            applicant that are awarded funding in previous rounds of TLA
            grant-making.

                                HIGH-SPEED RAIL

        Question. We've seemed to work out a model for private-public
    partnerships on the highway side--the Chicago Skyway and the Indiana
    Toll Road being good examples. What is DOT and the Federal Railroad
    Administration doing to incentivize private capital to get involved on
    the rail side?
        Answer. While significant Federal investment is necessary in the
    early years to demonstrate a national commitment to passenger rail,
    build institutional capacity, and initiate multi-year and multi-State
    projects, the National High Performance Rail System (NHPRS) will
    succeed only if States, regional entities, and the private sector all
    have vital roles in planning, developing, financing, and operating
    these services. Private partners have been and will continue to be
    instrumental in developing the system, from partnerships with freight
    railroads, to designing and constructing high-speed rail
    infrastructure, to operating the services.
        The fiscal year 2012 budget request encourages innovation in
    project delivery, such as the use of public-private partnerships, to
    assist with project financing, delivery, and risk-management of high-
    speed rail projects. The proposal also promotes more direct and
    substantial private sector participation in developing and operating
    high-speed rail by making private entities eligible for targeted
    financial assistance, provided that their project proposals are
    consistent with State and regional passenger rail plans. In addition,
    it provides dedicated resources to support private-sector capacity
    building in the field of rail transportation, as the rail industry
    grows to accommodate future expansion.
        The fiscal year 2012 proposal expands partnerships with rail
    manufacturers and suppliers by investing in new equipment and
    overhauling existing equipment. The establishment of a strong Federal
    partner with a stable and predictable source of financing will allow
    manufacturers and industry to invest in expansion, new facilities, and
    new employees. With explicit Buy America provisions included, the
    fiscal year 2012 proposal provides U.S. manufacturers and equipment
    builders opportunities in high-speed and intercity passenger rail.

                              SUBCOMMITTEE RECESS

        Senator Murray. And for now, this hearing is recessed until
    Thursday, March 31, at 9:30 a.m., at which time we'll hear
    testimony from Commissioner David Stevens on the fiscal year
    2012 budget request for the Federal Housing Administration.
        [Whereupon, at 10:45 a.m., Thursday, March 10, the
    subcommittee was recessed, to reconvene at 9:30 a.m., Thursday,
    March 31.]

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

                                  ----------

                            THURSDAY, APRIL 7, 2011

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

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                         Federal Housing Administration

    STATEMENT OF HON. SHAUN DONOVAN, SECRETARY, DEPARTMENT
                OF HOUSING AND URBAN DEVELOPMENT

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. Good morning. The subcommittee will come to
    order.
        And I want to thank everybody in advance for--we're going
    to really confine everything this morning. I have a leadership
    meeting this morning, as everyone knows. The elephant in the
    room of the Congress today is how we are going to come to
    agreement and avoid a shutdown. It's absolutely critical for
    families, for our country, for all of us to come to that
    agreement. So I will have to leave here shortly before 10:15
    a.m. So, I'm going to consolidate my opening statement. I know
    the Secretary's agreed to this as well, as well as Senator
    Collins. And we will get to the critical questions of the day
    and submit many for the record.
        So, Mr. Secretary, thank you for your understanding.
        Senator Collins, thank you for working with us as well. And
    I will make a short opening statement.
        This morning we are holding a hearing to get an overview on
    the Federal Housing Administration (FHA) and talk about the
    future of housing finance. And I again want to welcome
    Secretary Donovan back before this subcommittee to talk about
    these important issues.
        In the aftermath of the housing crisis, FHA has played a
    central role in making sure the Nation has a functioning
    mortgage market when the private market failed. It has served
    the role it was intended to play.
        Today's FHA insures around 20 percent of all mortgages
    being originated, and almost 40 percent of all new home
    purchases. The pivotal role that FHA is currently playing in
    the fragile housing market is important to keep in mind as the
    threat of Government shutdown looms.
        The Federal budget provides FHA with the commitment
    authority that allows the agency to insure loans. If a budget
    is not passed, FHA will be unable to endorse any new loans, so
    anyone who is planning to close on a home using FHA insurance
    will be out of luck. At a time when the housing market remains
    so fragile, this seems particularly irresponsible.
        The debate about the Government's budget is an important
    one, but we have to get on with the business of making
    decisions necessary to fund the Federal Government in a
    responsible manner, and I believe the time has come for a
    resolution. The consequences are too great for too many
    Americans and the Nation's economy to refuse to come to an
    agreement because of political agendas or pressure.
        But as we await a resolution to the fiscal year 2011
    budget, we have to continue to do our job in exercising
    oversight over the programs this subcommittee funds.
        For several years, this subcommittee has focused on the
    solvency of FHA's Insurance Fund. FHA has never received an
    appropriation to support its Insurance Fund, and I'm committed
    to making sure that it never does. This subcommittee has worked
    to provide FHA with the resources necessary to hire skilled
    staff and develop the technology necessary to oversee FHA's
    growing portfolio.
        And I want to applaud the efforts of the Administration
    under the leadership of Secretary Donovan, as well as former
    Commissioner Stevens, to bring a renewed focus on managing risk
    at FHA.
        Despite all of the reforms, the overall health of the
    housing market is critical to the continued stability and
    improvement of FHA's finances. We find ourselves at a critical
    moment: We continue to deal with the ramifications of the
    housing crisis, while trying to establish a better housing
    finance system for the future. This challenge is similar to
    that which FHA has focused on over the last few years. It's
    working to improve its financial position so it can deal with
    the fallout of past loans. At the same time, the Department is
    working to improve its future business and financial position
    by implementing reforms and creating a culture focused on sound
    risk management.
        Through all of this, FHA has worked to balance the need to
    mitigate risk with serving its mission of providing access to
    affordable and sustainable home ownership to under-served
    Americans.
        As we look to the future, we have to find the appropriate
    balance between strengthening and protecting the housing
    finance system from undue risk, while maintaining access for
    credit-worthy Americans to achieve sustainable home ownership.

                               PREPARED STATEMENT

        So, I look forward, Secretary Donovan, to your statement
    this morning and to questions.
        And I want to thank Senator Collins for her work on this,
    and turn it over to her for her opening statement.
        [The statement follows:]

                   Prepared Statement of Senator Patty Murray

        This morning we are holding a hearing to get an overview on the
    Federal Housing Administration (FHA) and discuss the future of housing
    finance. I want to welcome Secretary Donovan back before the
    subcommittee to discuss these important issues.
        FHA--an institution born out of the Great Depression--has assisted
    millions of Americans in attaining home ownership.
        And in the aftermath of the housing crisis, FHA has played a
    central role in ensuring that the Nation had a functioning mortgage
    market when the private market failed. It has served the role it was
    intended to play.

            FHA'S ROLE IN THE MARKET AND CONSEQUENCES OF A SHUTDOWN

        Today, FHA insures around 20 percent of all mortgages being
    originated and almost 40 percent of all new home purchases.
        The pivotal role that FHA is currently playing in the fragile
    housing market is important to keep in mind as the threat of a
    Government shutdown looms.
        The Federal budget provides FHA with the commitment authority that
    allows the agency to insure loans. If a budget isn't passed, FHA will
    be unable to endorse any new loans. So anyone who was planning to close
    on a home using FHA insurance will be out of luck.
        At a time when the housing market remains so fragile, this seems
    particularly irresponsible.
        The debate about the Government's budget is an important one. But
    we must get on with the business of making the decisions necessary to
    fund the Federal Government in a responsible manner. The time has come
    for a resolution.
        The consequences are too great for too many Americans--and the
    Nation's economy--to refuse to come to an agreement because of
    political agendas or pressure.
        But as we await a resolution to the fiscal year 2011 budget, we
    must continue to do our job in exercising oversight over the programs
    we fund.

                                OVERSIGHT OF FHA

        For several years, this subcommittee has focused on the solvency of
    FHA's Insurance Fund.
        FHA has never received an appropriation to support its Insurance
    Fund; and I am committed to ensuring that it never does.
        Yet in the wake of the housing crisis, FHA has sustained
    substantial losses. As a result, its capital reserve fund has fallen
    below the level of 2 percent mandated by the Congress.
        While this does not mean that FHA will require taxpayer dollars, it
    highlights the need for vigilant oversight of the agency's portfolio,
    which has increased dramatically in the last few years.
        In recognition of this task, this subcommittee has worked to
    provide FHA with the resources necessary to hire skilled staff and
    develop the technology necessary to oversee FHA's growing portfolio.
        I want to applaud the efforts of the Administration, under the
    leadership of Secretary Donovan, as well as Former Commissioner
    Stevens, to bring a renewed focus on managing risk at FHA.
        The Administration has moved quickly to institute significant and
    necessary reforms to the program.
        Among other reforms, FHA has:
      --Increased premiums to shore up its finances;
      --Set minimum FICO scores;
      --Increased down payment requirements for riskier borrowers; and
      --Stepped up enforcement so that lenders who aren't following the
            rules can no longer participate in the program.
        In October of 2009, FHA also hired Bob Ryan as the agency's first
    Chief Risk Officer. The Administration recently announced that Mr. Ryan
    will serve as acting FHA Commissioner, and I am pleased that this role
    is being filled by someone who will continue to focus the agency on
    managing and mitigating risk.

                                 HOUSING MARKET

        Despite all of these reforms, the overall health of the housing
    market is critical to the continued stability and improvement of FHA's
    finances.
        Improving jobs numbers and fewer new delinquencies are positive
    signs in the market.
        But the reality is that:
      --Millions of Americans are still in foreclosure and 30 percent of
            all homeowners have not made a payment over the past 2 years;
      --Roughly 7 million borrowers are seriously delinquent and at risk of
            foreclosure;
      --New and existing home sales continue to fall;
      --And home prices are declining in most markets--leaving nearly 27
            percent of all mortgages in a negative or near-negative equity
            position
        We have a long way to go before the market fully recovers. And it
    is critical that we continue to look for ways to address the needs of
    millions of Americans facing the prospect of foreclosure or who are
    underwater on their mortgage.
        We must work to increase opportunities for:
      --meaningful modifications;
      --achieving a fair and efficient foreclosure process; or
      --reasonable options for borrowers trying exit home ownership.
        I hope that there will be a global deal that will provide a way to
    work through the current inventory of delinquent or foreclosed homes
    that will also provide real relief to borrowers that have been wronged
    in the process.

         THE HOUSING MARKET AND GOVERNMENT-SPONSORED ENTERPRISE REFORM

        The market also needs certainty about the new reforms and the
    future of the Nation's housing finance system.
        As we think about the future, we should draw on the important
    lessons from the recent boom and bust.
        This boom was fueled by overconfidence of lenders and investors in
    the perpetual appreciation of home prices, coupled with inadequate
    regulatory oversight.
        As a result, 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.
        The Dodd-Frank Wall Street Reform and Consumer Protection Act began
    to address many of the failures of our system and its outdated
    regulatory structure.
        But it is clear that we must also address Fannie Mae and Freddie
    Mac so we no longer promote a system of private profit and public loss.
        However, reform must be approached thoughtfully, so that we don't
    undermine the fragile housing recovery.
        And in our effort to guard against another crash, we must be
    careful not to overcorrect and put home ownership out of reach for
    millions of Americans.
        As a first step, FHA released its report to the Congress on options
    for reforming the Nation's housing finance structure.
        This report presents three options that range from one with the
    Government's role limited to FHA, to one where the Government has a
    more significant presence in the market, though substantially reduced
    from the role it is playing today.
        Each of these options presents tradeoffs that we must consider--
    tradeoffs between the level of appropriate risk for the taxpayer and
    the ability of individuals and families to obtain a mortgage.

               RISK RETENTION AND QUALIFIED RESIDENTIAL MORTGAGE

        A similar debate is also occurring around the rule on risk
    retention recently proposed by FHA. This rule also includes the
    definition of a qualified residential mortgage (QRM), which will be
    exempt from risk retention requirements.
        This rule ensures that lenders have an incentive to properly
    underwrite loans by requiring them to retain partial exposure to their
    performance.
        Under the proposed QRM definition, loans with a downpayment of 20
    percent or more would be exempt from this retention requirement.
        Ensuring that borrowers have more equity at stake in their home is
    an important goal.
        At the same time, many hardworking, creditworthy Americans will
    have a difficult time coming up with a 20-percent downpayment--
    particularly in high-cost areas, like Puget Sound.
        So, I want to have a discussion today about the potential impact of
    this rule on the availability and affordability of mortgages in the
    future. Especially as we contemplate the role that FHA or other
    Government-supported institutions will play in the future.

                                    CLOSING

        We find ourselves at a critical moment--we continue to deal with
    the ramifications of the housing crisis while trying to establish a
    better housing finance system for the future.
        This challenge is similar to that which FHA has faced over the last
    few years. It is working to improve its financial position so it can
    deal with the fallout of past loans.
        At the same time, the Department is working to improve its future
    business and financial position by implementing reforms and creating a
    culture focused on sound risk management.
        Through all of this, FHA has worked to balance the need to mitigate
    risk with serving its mission of providing access to affordable and
    sustainable home ownership to underserved Americans.
        As we look toward the future, we must find the appropriate balance
    between strengthening and protecting the housing finance system from
    undue risk, while maintaining access for creditworthy Americans to
    achieve sustainable home ownership.
        I look forward to hearing from Secretary Donovan on these issues.
    And with that I turn it over to my partner in these efforts, Senator
    Collins for her opening statement.

                       STATEMENT OF SENATOR SUSAN COLLINS

        Senator Collins. Thank you very much, Madam Chairman. Like
    you, I will submit my opening statement for the record and just
    make a few very brief comments.
        First of all, I wholeheartedly agree with your comments on
    the need for the Congress to resolve the budget crisis. It is
    the height of irresponsibility if Government is allowed to shut
    down, and would represent a colossal failure that would reflect
    poorly on everyone involved.
        And you're right about the impact on the housing market.
    The Secretary and I were talking prior to the hearing about the
    critical role that FHA is playing, and the fact that those
    pending mortgages would come to a screeching halt, and
    potential homeowners would not be able to close on their
    properties.
        The Department of Housing and Urban Development (HUD) faces
    many challenging responsibilities that include balancing the
    goal of strengthening responsible home ownership, while
    minimizing the financial risk to FHA and the taxpayer, and
    promoting long-term stability and motivating the private sector
    to reinvest in the housing market.
        Today in my questions I'm going to talk about my concern
    about HUD's oversight of FHA's Single Family Housing program. I
    do appreciate and recognize the progress that's been made in
    minimizing risk to this program, including the creation of a
    Chief Risk Officer position in 2009. But there, it is clear
    from a recent USA Today report that FHA has been slow to flag
    problem lenders and stop them, despite the withdrawal of
    approval from more than 1,500 approved lenders in the last
    fiscal year.
        The housing market is still very weak, and FHA is going to
    continue to play a critical role.

                               PREPARED STATEMENT

        Another issue that I want to explore today if we have time
    is what the impact on FHA will be if we dramatically change the
    role of the Federal Home Loan Mortgage Corporation (Freddie
    Mac) and the Federal National Mortgage Association (Fannie
    Mae). So, those are some of the issues I want to touch on.
    Again, I'll put my full statement in the record, with your
    consent. Thank you, Madam Chairman.
        [The statement follows:]

                  Prepared Statement of Senator Susan Collins

        Chairman Murray, thank you for holding this important hearing to
    review the Federal Housing Administration (FHA) and to discuss the
    future of the housing finance market. It is a pleasure to see Secretary
    Donovan before our subcommittee again, and I join you in welcoming him
    to this hearing.
        The Department of Housing and Urban Development (HUD) faces many
    challenging responsibilities that include balancing the goal of
    strengthening responsible home ownership while minimizing the financial
    risk to FHA and the taxpayer and promoting long-term stability and
    motivating the private sector to reinvest in the housing market.
        FHA is largely financed by proceeds from the mortgage insurance
    premiums paid by homeowners. As we all know, home purchases provide an
    important economic stimulus, with benefits to local communities in the
    form of jobs and local development.
        Part of our discussion today will include the status of the Federal
    National Mortgage Association (Fannie Mae) and the Federal Home Loan
    Mortgage Corporation (Freddie Mac), which were originally established
    by the Congress to promote liquidity, affordability, and stability in
    the housing finance market. The future of FHA heavily relies upon the
    debate on how to reform Fannie Mae and Freddie Mac. This will be a
    critical discussion that will shape not only FHA, but also the future
    of the Nation's housing market.
        Recent news articles have highlighted the lack of recovery in most
    housing markets. Last week, according to Standard & Poor's (S&P) Case-
    Shiller home price index, U.S. home prices in major cities across the
    Nation dropped 3.1 percent since January 2010. According to the
    chairman of the S&P Index Committee, ``The housing market recession is
    not yet over, and none of the statistics are indicating any form of
    sustained recovery.''
        These data are particularly concerning since FHA currently insures
    nearly $1 trillion in mortgages for the single-family home program. The
    agency's role has dramatically expanded since the beginning of the
    housing crisis. At the peak of the crisis, FHA accounted for less than
    4 percent of the single-family housing market; now it holds more than
    20 percent.
        Another important issue relates to HUD's oversight of the FHA
    Single Family Housing program. I recognize and appreciate that HUD has
    made progress in minimizing risk to this program, including the
    creation of a Chief Risk Officer position in 2009. A number of reforms
    have also been implemented to the mortgage insurance premium structure
    and eligibility requirements to help ensure the long-term economic
    viability of this program. For example, FHA withdrew approval from more
    than 1,500 FHA-approved lenders and imposed more than $4 million in
    civil penalties on noncompliant lenders in fiscal year 2010.
        While progress has been made, more needs to be done. Just last
    month, HUD's Office of Inspector General reported underwriting issues
    concerning FHA-insured loans. After reviewing 284 loans from 15
    lenders, the inspector general found nearly 50 percent of the loans
    were not underwritten in accordance to FHA requirements. As a result,
    HUD missed critical opportunities to recover losses of more than $11
    million.
        It is also troubling that FHA cannot meet its statutory requirement
    of maintaining a 2-percent capital reserve ratio. According to HUD's
    own data, the earliest FHA can reach this requirement is 2014. This is
    a major concern since the reserve ratio was intended to cover
    unexpected losses.
        I am eager to hear the administration's overall plan for
    revitalizing the financing of the housing market and for the future of
    FHA, Fannie Mae, and Freddie Mac. We must ensure that we limit
    taxpayers' exposure to additional financial losses in the housing
    market.
        Chairman Murray, I look forward to working with you and Secretary
    Donovan on ways to enhance and protect homeowners and to stabilize the
    housing market by reinvigorating the investments and participation of
    the private sector. These are not easy issues to resolve, but they are
    critically important to our Nation's long-term economic health.

        Senator Murray. Thank you very much. Both of our opening
    statements will be printed in the record.
        And with that, we'll turn it over to Secretary Donovan for
    opening remarks.

                    SUMMARY STATEMENT OF HON. SHAUN DONOVAN

        Secretary Donovan. Thanks, Madam Chair. Thank you, Ranking
    Member Collins.
        And I want to just echo your concerns about the potential
    impact of a shutdown and the critical importance of resolving
    this. The President yesterday in remarks talked about the
    importance of FHA to the broader housing market, to individual
    Americans on the verge of closing a purchase of a home, or
    selling a home, and the critical role we play in the housing
    market today, and the potential significant risks that it would
    pose if we can't resolve this budget issue.
        And he talked about the fact that we have come a great
    distance. We have agreed to the original cuts that were asked
    for, proposed by Speaker Boehner, and that, really, what we are
    down to is politics in this debate. And we must resolve this in
    order to ensure that we can continue to do the people's
    business.
        In the interest of time, I will also submit my statement. I
    do just want to make a few comments beyond the concern about
    the potential shutdown--in particular, to thank you both, and
    your colleagues in the Congress for your leadership. Thanks to
    the partnership that we have had with this subcommittee and
    with the Congress, we have been able to put in place the most
    sweeping combination of reforms to credit policy, risk
    management, lender enforcement and consumer protection in the
    agency's history. And thanks to those, FHA is in a stronger
    financial position today.
        In the last year, we've taken 10 times more lender
    enforcement actions than FHA had taken in the previous 10 years
    combined. The agency has implemented a two-step credit score
    policy that requires borrowers with credit scores below 580 to
    contribute a minimum down payment of 10 percent. And with your
    help, FHA has increased premiums to bring back private capital,
    begin putting into place the cutting-edge modern financial
    services--IT environment--that FHA needs for the 21st century,
    and taken steps to increase staffing, which the fiscal year
    2012 budget would further.
        And I would note that it's our hope that the kind of
    flexibility that we've proposed for the Government National
    Mortgage Association (Ginnie Mae) in this budget--to use fees
    paid by Ginnie Mae's customers to address critical staffing in
    emerging issues, without requiring any additional congressional
    appropriations--could be a possible template for addressing
    critical FHA issues in the years to come.
        While we still need the Congress to pass FHA reform
    legislation that allows us to be prepared for any future
    crisis, the reforms we've already implemented have resulted in
    the fiscal year 2010 book of business being the highest quality
    on record. The average credit score of FHA borrowers has risen
    to 700. Total reserves have increased. And while foreclosure
    processing delays are certainly a factor, claim payments are
    much lower than projected by the independent actuary. As a
    result, in fiscal year 2012 we expect FHA and Ginnie Mae to
    generate more than $6 billion in receipts that will offset the
    Department's gross budget authority request of $47.8 billion
    and help to rebuild FHA's capital reserves--this in addition to
    the $9.8 billion in receipts FHA is projected to generate in
    fiscal year 2011.
        Indeed, Madam Chair, even with the decreased loan volume
    we've seen in recent months, we expect FHA to make
    substantially more money for the taxpayer this year than our
    actuary predicted and an even larger amount more than the
    Congressional Budget Office (CBO) predicted when they did their
    projections last year. And I'm very pleased to note, thanks to
    our work with CBO, that our offsetting budget receipts in
    fiscal year 2012, our estimates of those, are dramatically
    closer than they have been in years past.

                               PREPARED STATEMENT

        With that, let me stop, and make sure that we can get to
    your questions. Again, I thank you for the partnership that
    we've had in working together to make sure that FHA has the
    resources and the tools that it needs to fulfill its mission.
    Thank you.
        [The statement follows:]

                    Prepared Statement of Hon. Shaun Donovan

                                  INTRODUCTION

        Chairman Murray, Ranking Member Collins, and members of the
    subcommittee, thank you for the opportunity to testify today regarding
    the Federal Housing Administration (FHA), in the context of the
    Department of Housing and Urban Development's (HUD) proposed fiscal
    year 2012 budget, and also with respect to FHA's key role in the Obama
    administration's efforts to both address the foreclosure crisis and to
    reform America's housing finance market.
        I was pleased to have the opportunity to testify before this
    subcommittee on March 6, 2011 to discuss in detail the Department's
    2012 budget, Creating Strong, Sustainable, Inclusive Communities and
    Quality Affordable Homes. As you know, the budget proposal works to
    ``win the future'', and I look forward to discussing with you in my
    testimony how FHA will play a central role in that effort.
        I would be remiss if I didn't say a few words about David Stevens,
    the recently departed FHA Commissioner. Dave brought to the job a
    unique blend of private sector expertise and commitment to providing
    underserved communities access to our programs. The strong team that
    Dave and I were able to put in place was instrumental to ensuring that,
    in the midst of the worst economic crisis in decades, FHA was able to
    fill the gap left by the retreat of private capital, while also
    significantly strengthening FHA's financial position and toughening
    enforcement. I am delighted that Robert Ryan, our Deputy Assistant
    Secretary for Risk Management and Regulatory Affairs, will be serving
    as Acting Assistant Secretary for Housing and FHA Commissioner. While I
    anticipate the naming of a permanent Commissioner in the near future, I
    would like to assure the subcommittee that under Bob Ryan's leadership,
    there will be continuity in FHA's operations, based on the strong
    foundation laid down by Dave Stevens, including the bipartisan approach
    he consistently followed.

                   OVERVIEW OF HUD'S FISCAL YEAR 2012 BUDGET

        As I discussed when I last appeared before the subcommittee, we are
    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 1.8 million private sector
    jobs were created in the last 13 months, including 230,000 private
    sector jobs in March. 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 does not, 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.
        As a downpayment 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. HUD's fiscal year 2012 budget more than meets the
    President's goal--the Department's net budget authority of $41.7
    billion is 2.8 percent below 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, HOME Investment Partnerships, and new
    construction components of the Supportive Housing Programs for the
    Elderly (section 202) and Disabled (section 811).
        As discussed in more detail below, this budget balances the need
    for FHA and the Government National Mortgage Association (Ginnie Mae)
    to continue supporting the housing recovery in the year ahead and
    ensuring that underserved borrowers have access to home ownership, with
    affirmative steps to encourage the return of private capital to the
    housing market. I want to thank the members of the subcommittee for
    working with your colleagues to enact legislation (H.R. 5981) in the
    last Congress to reform FHA's mortgage insurance premium structure.
    With this authority, FHA announced a premium increase of 25 basis
    points last month. Because of these reforms and others, the current
    President's budget reflects estimated FHA offsetting budgetary receipts
    of $9.8 billion in fiscal year 2011, which will reduce the Federal
    deficit. This is far more than the $5.8 billion originally estimated by
    the administration for the current fiscal year. These changes are
    largely due to the premium increase and the policy changes we have made
    since the President's budget was published last February. While the
    ultimate receipts for fiscal year 2011 are subject to fluctuations in
    loan volume, FHA is on track to outpace both of these figures in the
    current fiscal year. Furthermore, in fiscal year 2012, the President's
    budget projects FHA and Ginnie Mae to generate, collectively, more than
    $6 billion in receipts that will help to rebuild FHA's capital reserves
    and offset the Department's gross budget authority request of $47.8
    billion.
        I am pleased to note that, as the members of the subcommittee are
    no doubt aware, the Congressional Budget Office (CBO) estimate of these
    offsetting budgetary receipts in fiscal year 2012 are quite close to
    those reflected in the President's budget--the magnitude of difference
    between CBO's estimate and the President's budget for fiscal year 2012
    is significantly smaller than in previous years at approximately $300
    million. I am hopeful this new estimate will make the development of
    the fiscal year 2012 HUD appropriations bill--a challenging task in any
    year, and particularly so in the current fiscal climate--somewhat more
    manageable. I look forward to working with the members of the
    subcommittee in that effort.
        Last, because winning the future also means reforming Government so
    it is leaner, more transparent, and ready for the 21st century, we are
    also continuing to reform the administrative infrastructure that
    oversees our programs. For example, the Transformation Initiative
    (TI)--important funding and programmatic flexibility the Congress
    provided beginning in 2010--is enabling HUD to establish the FHA
    Transformation project, which will give FHA cutting-edge, modern
    financial services information technology (IT) systems.

                   RESPONDING TO THE EVOLVING HOUSING CRISIS

        Before describing in detail FHA's 2012 budget and the future of the
    housing market in which FHA will continue to play a central role, I
    believe it is important to take a brief look at the response of HUD and
    the administration as a whole to the housing crisis, both in its early
    stages and today.
        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 with a plan to aggressively
    confront the economic crisis as soon as we took office, including
    taking steps to stabilize the housing market. The Federal Reserve and
    the Department of the Treasury helped keep mortgage interest rates at
    record lows with combined mortgage-backed securities purchases of
    almost $1.5 trillion. Because low-interest rates only matter if there
    are mortgages available at those rates, the administration also
    provided critical support for the Federal National Mortgage Association
    (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie
    Mac), while FHA and Ginnie Mae stepped in to play critical
    countercyclical roles in helping to stem the crisis and enabling a
    robust refinancing market to emerge.
        As reported in the Obama administration's March Housing Scorecard,
    since April 2009, nearly 13 million homeowners have been able to
    refinance their mortgages to benefit from lower-interest rates, saving
    them an average of $140 per month or $17.6 billion annually. In
    addition, the administration proposed, and the Congress enacted, a
    homebuyer tax credit to spur demand in the devastated housing sector.
    We also took significant steps to help families keep their homes--
    through mortgage modifications and FHA's loss mitigation efforts.
        The results of these extraordinary actions are clear. Since April
    2009, more than 4.4 million borrowers have received restructured
    mortgages, including more than 1.5 million Home Affordable Modification
    Program (HAMP) trial modification starts, more than 775,000 FHA loss
    mitigation and early delinquency interventions, and more than 2.1
    million proprietary modifications under HOPE Now--more than twice the
    number of foreclosures completed in that time. Today, monthly
    foreclosure starts are down more than 30,000 per month from this same
    time 1 year ago. I would note that while the sharp decline may be
    partially attributed to servicer process reviews in light of
    foreclosure processing deficiencies, the number of homeowners entering
    delinquency in the first place was down significantly even before these
    reviews began. That said, this number may trend upwards as servicers
    revise and resubmit foreclosure paperwork in coming months,
        Additionally, FHA and HUD recently launched two programs to address
    the two most pressing problems facing the housing market, negative
    equity and unemployment.
      --In September 2010, FHA launched the FHA Short Refinance Option to
            assist non-FHA borrowers to refinance their underwater
            mortgages into sustainable fixed rate, FHA-insured mortgages.
            This option provides an additional opportunity for lenders to
            voluntarily offer principal writedowns and restructure loans
            for some families who owe more than their home is worth. To
            date, more than 400 applications have been submitted by a wide
            diversity of lenders and four large servicers have announced
            that they are finalizing development of the infrastructure that
            is required to participate in this program and voluntarily
            offer principal writedowns to select underwater borrowers,
            which will benefit homeowners by reducing their monthly
            payments and addressing negative equity, while also
            significantly reducing the investors' risk of default.
      --As part of the Dodd-Frank Wall Street Reform and Consumer
            Protection Act (Dodd-Frank Act), the Congress provided HUD
            authority and funds to assist unemployed and underemployed
            homeowners struggling to make their mortgage payments via the
            Emergency Homeowner Loan Program (EHLP). Last week, HUD
            announced that five States--Connecticut, Delaware, Idaho,
            Maryland, and Pennsylvania--have been approved to provide a
            combined total of almost $200 million of assistance from these
            funds. These States are expected to be ready to accept
            applications as soon as next week to help eligible residents in
            these States. HUD continues to responsibly develop additional
            components of the program to serve the remaining 27 States that
            have been awarded EHLP funds, and we will announce additional
            details and program specifics for these States in the coming
            weeks.

                         FHA'S FISCAL YEAR 2012 BUDGET

        The number of borrowers who depend on FHA for access to mortgage
    financing has increased greatly during this economic recovery as access
    to private capital has contracted in the recent difficult economic
    period. In fiscal year 2012, HUD is requesting $400 billion in loan
    guarantee authority for the Mutual Mortgage Insurance Fund, which will
    provide an estimated 1.2 million single-family mortgages. In addition,
    HUD is requesting $25 billion in loan guarantee authority for the
    General and Special Risk Insurance Fund, which will enable FHA to
    insure an estimated 190,000 units in multifamily housing properties and
    an estimated 98,000 beds in healthcare facilities.
        As housing markets continue to be stressed, FHA is taking on
    business that is resulting in a portfolio of historically high borrower
    credit quality. These new loan guarantees and mortgage insurance
    premiums that they generate are providing net income that can be used
    both to offset claim expenses on the earlier books and to start
    rebuilding FHA's capital position.

    FHA Multifamily Mortgage Insurance
        With more than one-third of all American families renting their
    homes, during this time of economic hardship for so many it is more
    important than ever to provide a sufficient supply of affordable rental
    homes for low-income families. Multifamily mortgage insurance programs
    make critical contributions toward the Department's mission of creating
    strong, sustainable, inclusive communities and quality affordable homes
    for all by expanding the supply of rental housing in areas where they
    are most needed, and by preserving the affordability and quality of
    both federally assisted and private unassisted rental housing. The role
    of FHA's multifamily mortgage insurance programs is especially
    significant in the current economic climate. Driven by low-interest
    rates, more constrained lending in the conventional mortgage market,
    and improvements in HUD business operations, demand for FHA multifamily
    programs has increased dramatically. At this time of unprecedented
    stress in the financial markets, FHA multifamily programs provide
    necessary liquidity so that apartment construction and rehabilitation
    can continue. FHA financing is often paired with low-income housing tax
    credits, rental subsidies for low- and moderate-income families, tax-
    exempt bond financing, and/or other State and local resources to expand
    the offering of affordable units in areas where they are needed most.
    Multifamily mortgage insurance programs also contribute significantly
    to local revitalization efforts and economies by providing liquidity to
    uniquely sustainable projects located in centers of job growth, near
    transportation and other community opportunities.
        In 2008, FHA supported the development of about 49,000 rental
    homes. Now, however, conditions are very different, reflecting the
    sharp decline in fully private financing and most notably commercial
    mortgage-backed securities. In 2010 alone, FHA supported the
    development or refinancing of more than 150,000 rental units with a
    total dollar volume of nearly $11 billion--almost four times the level
    of 2 years earlier, and now almost 25 percent of the multifamily
    market. This activity is projected to increase further to $13.1 billion
    in 2011 and to be at a level of $12.8 billion in 2012. HUD estimates
    that these construction volumes will support up to 85,000 direct jobs
    annually.
        I'd like to thank the Congress for passing legislation last
    summer--H.R. 5872, the General and Special Risk Insurance Funds
    Availability Act of 2010--to increase FHA's commitment authority for
    our multifamily and healthcare facilities insurance programs. This was
    a key step to help facilitate the continued production and refinancing
    of multifamily properties and healthcare facilities. To ensure that
    these programs continue to operate responsibly despite the
    unprecedented demand, FHA simultaneously implemented the most
    significant reforms to its multifamily programs to strengthen
    underwriting guidelines and minimize financial risk to taxpayers while
    providing this critical support.

    FHA-Insured Healthcare Facilities
        In fiscal year 2011, FHA is continuing to provide critical support
    to enable the construction and refinancing of acute-care hospitals,
    skilled nursing, assisted living, and board and care facilities.
    Additionally, these projects contribute to stimulating the local
    community economy where the project is based as well, expanding
    employment, and reducing healthcare capital costs. In fiscal year 2010,
    17 hospital facilities received commitments to advance their mission in
    communities throughout the country. For fiscal year 2010, the total
    construction expenditures for all hospital commitments amounted to $1.4
    billion, which HUD estimates will result in 15,465 new direct jobs that
    will be created during construction, with $3.9 billion of overall
    economic benefit. Following construction, fiscal year 2010 projects
    will generate estimated annual new economic activity of $1.4 billion
    and 8,464 new jobs.
        Demand for section 232 Residential Care Facilities (Skilled
    Nursing, Assisted Living, and Board and Care Facilities) has also
    increased. FHA considered 347 applications and issued commitments for
    318 facilities in fiscal year 2010. As of March 18, 2011, an additional
    241 insurance commitments have already been issued in fiscal year 2011
    for 232 program applicants serving the senior housing market. Through
    LEAN processing methods and high productivity from FHA staff members,
    this industry-generated volume is being addressed as responsibly as
    possible given staffing and capacity constraints.

    Home Equity Conversion Mortgages
        In October, FHA launched the Home Equity Conversion Mortgages
    (HECM) Saver product. Designed as a second reverse mortgage option for
    senior home owners to tap into their equity, the HECM Saver product has
    lower upfront loan closing costs and is optimal for homeowners who want
    to borrow a smaller amount than that which would be available with a
    HECM Standard loan.
        HECM Saver has a nominal upfront premium of only 0.01 percent of
    the property's value. Under the HECM Standard option, the upfront
    premium remains at 2 percent. The mortgage insurance premium for both
    HECM Saver and HECM Standard is charged monthly at an annual rate of
    1.25 percent of the outstanding loan balance. The 2012 President's
    budget request estimates that these two programs will generate $304
    million in receipts.
        Borrowers using the Saver option have access to home equity in
    amounts that are between 10-18 percent less than would be available
    with the HECM Standard option. The reduction equity take-out for Saver
    substantially lowers risk to the FHA Insurance Fund, and thus permits
    the virtual elimination of the upfront premium charge.
        HECM Standard remains as an option for senior home owners who need
    to tap the highest-possible home equity to cover living expenses and/or
    healthcare costs, while continuing to live in their homes without
    having to make the mortgage payments required with a traditional
    mortgage or home equity loan.

    Transformation Initiative
        Winning the future means reforming Government so it's leaner,
    transparent, and ready for the 21st century. While HUD programs already
    make a significant difference in the lives of ordinary Americans, this
    administration is also committed to making Government more efficient,
    more effective, and more accountable. The fiscal year 2012 budget
    provides up to $120 million for the TI Fund to support cutting edge
    research and demonstrations and technical assistance to our partners.
    In fiscal year 2010, 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.

                Twenty-First-Century Technology To Protect the Taxpayer's
                        Investment
        In fiscal years 2010 and 2011, IT investments constituted the
    largest share of proposed TI project funding, $122.5 million was
    allocated for IT in fiscal year 2010 and $119 million was requested in
    fiscal year 2011. The Department's careful investment planning has
    prepared us to act responsibly to modernize our use of IT to meet
    today's mission challenges. Our intent is to fully leverage these
    resources to meet our transformation needs. Additional funding was not
    requested in fiscal year 2012 on the presumption that sufficient
    funding would be available to support these projects for fiscal year
    2012, between prior-year TI funding and the Working Capital Fund.
        One of the top-priority IT projects is the FHA Transformation
    project, which 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 new tools 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 life cycle. 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 lenders adhere to safe underwriting
    standards. 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.
        In addition to prior-year TI fund transfers, in fiscal year 2012
    HUD will utilize $315 million in Working Capital funding to support
    HUD's transformation efforts, providing resources for the development
    of, modification to, and infrastructure for department-wide information
    technology systems.

    Housing Counseling Assistance
        Each year, HUD awards grants to hundreds of local counseling
    agencies and State Housing Finance Agencies that offer a variety of
    services, which are especially critical in today's economic climate.
    HUD-approved counselors help clients learn how to avoid foreclosure,
    how to purchase or rent a home, how to improve credit scores, and how
    to qualify for a reverse mortgage. In 2009, HUD assisted more than 2.5
    million families through its housing counseling program, including 1.58
    million potential and current homeowners with issues pertaining to
    mortgages and financing of their homes. In 2010, HUD awarded $79
    million for housing counseling grants, a 27-percent increase over its
    2009 funding.
        In fiscal year 2012, HUD is requesting $88 million in Housing
    Counseling Assistance. The primary benefits of the program are to
    expand home ownership opportunities, improve access to affordable
    housing and preserve home ownership. With this level of funding, HUD
    anticipates serving as many as 318,187 low- to moderate-income
    families, as well as training approximately 4,400 counselors.

    Salaries and Expenses--Flexibility To Respond in a Crisis
        As the subcommittee knows, HUD's salaries and expenses budget is
    divided into multiple sub-accounts, with limited transfer and
    reprogramming flexibility. While the Department has once again
    submitted this portion of the budget proposal in that structure, recent
    FHA and Ginnie Mae staffing needs have illustrated the challenges of
    proposing a personnel plan a full year and a half prior to the onset of
    the fiscal year. Events, including developments related to the housing
    crisis, can intervene and the Department needs the flexibility to
    respond. Accordingly, I hope that we can work with the subcommittee to
    strike an appropriate balance between the need for transparency and
    oversight of HUD's salary and expenses expenditures, and this need to
    be able to respond nimbly to changing circumstances.
        In the fiscal year 2012 budget, we have proposed to restructure the
    Executive Direction account by removing subfunction allocations to
    provide the Department with the flexibility needed to respond promptly
    to emerging issues or unanticipated needs as they arise throughout the
    year. Moreover, we would like to explore with your subcommittee, the
    possibility of providing additional administrative flexibilities in
    accounts funding salaries and expenses across the Department. Over the
    past 2 years, it has become clear to us that the administrative burden
    and lack of flexibility afforded by the current structure outweighs the
    potential management benefits.
                Ginnie Mae Budget Request for Salaries and Expenses as a
                        Model
        Our budget request with respect to Ginnie Mae's staffing needs,
    provides an example of the kind of flexibility that can be achieved to
    enable greater capacity, service, and protection to taxpayers, without
    requiring additional appropriations. In light of Ginnie Mae's vastly
    increased market share (from 4 percent to more than 30 percent in the
    past few years) and a guaranty portfolio that now tops $1 trillion, the
    fiscal year 2012 request proposes to fund its personnel expenses
    through commitment and multiclass fees rather than through a separate
    appropriation for personnel compensation and benefits. This will allow
    Ginnie Mae to increase its staff level to strengthen risk management
    and oversight, and to move in-house some functions that are performed
    by contractors.
        Our budget proposal affords Ginnie Mae more flexibility in funding
    its critical personnel and administrative needs. Importantly, the
    Congress will retain its role in determining annual Ginnie Mae funding.
    However, with receipts accumulating in Ginnie Mae's program account, a
    ready source of funding will be available to help the agency fund both
    current needs along with contingencies that may arise in the future. In
    addition, the budget allows Ginnie Mae to increase the amount for
    salaries and expenses if its volume of guaranty commitments rises above
    a specified level. The budget proposes to allocate $100 for salaries
    and expenses for each $1 million of guaranty commitments exceeding $300
    billion. As Ginnie Mae's role in the housing finance market continues
    to grow, it is critical that the agency have this additional
    flexibility to be able to respond to market needs. This proposal
    positions Ginnie Mae to continue to effectively and responsibly bring
    global capital into the American housing finance system.
        With respect to FHA, we have requested a significant increase in
    staffing in the fiscal year 2012 budget--92 additional FTEs compared to
    fiscal year 2010 enacted levels.

                      REVIEW OF FHA'S FINANCIAL CONDITION

    Results From FHA Reforms to Date
        As you know from the Secretary's Annual Report to Congress on the
    Financial Status of the FHA Mutual Mortgage Insurance (MMI) Fund at the
    end of fiscal year 2009, the secondary reserves held in FHA's Capital
    Reserve account to support single-family loan guarantees had fallen
    below the required 2-percent level--to 0.53 percent of the total
    insurance in-force. At the same time, total reserves held in the
    Capital and the Financing accounts at that time were at an historical
    high of more than $31 billion. Total reserves grew again to more than
    $33 billion in fiscal year 2010. These funds are available to cover
    potential future losses on outstanding loan guarantees. The independent
    actuarial study for fiscal year 2010 indicated that these would be
    sufficient for even a stressed scenario of loan performance over the
    next 5 years. Even prior to the release of the fiscal year 2009
    actuarial review that indicated capital reserves had fallen below the
    statutory threshold, we took several steps to strengthen the fund.
    Today, I am pleased to inform you that tangible, measurable progress
    has been achieved and we continue to see improvements in the financial
    condition of the fund, while holding lenders more accountable, and
    reducing risk to taxpayers.
        Making that progress required FHA to put in place the most sweeping
    combination of reforms to credit policy, risk management, lender
    enforcement, and consumer protection in the agency's 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
    homebuyers and in underserved markets.
        Specifically, FHA implemented a two-step credit score policy for
    FHA borrowers. Those with credit scores below 580 are now required to
    contribute a minimum downpayment of 10 percent, or have equity of 10
    percent at the time of refinance. Only those with stronger credit
    scores are eligible for FHA-insured mortgages with the minimum 3.5
    percent downpayment.
        To balance the need to provide access to our mortgage markets with
    the need to protect taxpayers from financial risk, we established FHA's
    first Office of Risk Management. 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 to 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 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.
        As a result of these actions, FHA finds itself in a stronger
    position today. In particular:
      --The quality of loans endorsed in 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, and
            fiscal year 2011 may prove to be even better.
      --The credit-score distribution for new insurance continues to
            improve. The average credit score on current insurance
            endorsements has risen to 700. And in the second-half of
            calendar year 2010, average credit scores were equally strong
            across refinance and purchase books-of-business.
      --Loan performance, as measured by early period delinquency and by
            seasonally adjusted serious delinquency rates, continues to
            show significant improvement from the high rates experienced in
            2007 and 2008.\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.
    ---------------------------------------------------------------------------
      --FHA's seasonally adjusted 90+ day delinquency rate in December 2010
            was 5.8 percent, compared to 7.45 percent in December 2009.

    Summary of Fiscal Year 2010 Actuarial Review
        Total capital resources (combined Capital Reserve account and
    Financing account) in fiscal year 2010 increased by $1.5 billion to
    $33.3 billion. At the same time, the overall capital ratio held steady
    at 0.5 percent reflecting that more conservative economic forecasts and
    model changes offset the benefits of improved borrower credit profiles
    and increased premium income. On a stand-alone basis, had capital
    resources not been shifted from the forward loan accounts to HECM
    accounts to cover HECM budget re-estimates, the capital ratio of
    single-family forward loans (96 percent of the portfolio) would have
    increased from 0.42 percent in fiscal year 2009 to 0.79 percent in
    fiscal year 2010, demonstrating significant improvement in loan quality
    and underlying reserves. Without any additional policy actions, and
    incorporating conservative economic forecasts, the capital ratio for
    the entire MMI Fund is projected by the independent actuaries to exceed
    the 2-percent statutory requirement early in 2015. Furthermore, we have
    implemented a wide range of additional policy actions that are expected
    to strengthen the fund even more quickly than forecasted.
        While we are not yet completely out of the woods based on the
    evidence we're seeing, FHA is weathering the economic storm. And we're
    doing so, Madam Chairwoman, while simultaneously reducing financial
    risk to taxpayers and helping to create a firm foundation for the
    recovery of the housing finance system.

    The Need for FHA Reform Legislation
        As discussed, within the existing authorities granted to us by the
    Congress, we have already begun the necessary process of making changes
    to FHA to ensure that it will be able continue its mission. Moving
    forward, we look to the Congress to pass FHA reform legislation that
    enhances our lender enforcement capabilities and risk management
    efforts that are critical to our ability to monitor lender performance
    and ensure compliance, among other things. Indeed, last year the House
    of Representatives passed an FHA reform bill, H.R. 5072, containing an
    array of changes along these lines, and, while similar legislation was
    introduced in the Senate, action on the bill was not completed. I urge
    the Congress to make passage of legislation along these lines a top
    priority in the 112th Congress. In addition to provisions strengthening
    FHA's lender enforcement ability, the 111th Congress bill also included
    technical clarifications that will allow third-party loan originators
    to close FHA-insured loans in their name. This third-party originator
    provision is particularly important to ensuring that several hundred
    community banks are able to continue originating FHA loans.
    Additionally, HUD is seeking congressional authority to extend FHA's
    ability to hold all lenders to the same standard and permit FHA to
    recoup losses through required indemnification for loans that were
    improperly originated and for which the error may have impacted the
    original loan decision, or in which fraud or misrepresentation were
    involved. We also hope to work with the Congress to give FHA additional
    flexibility to respond to stress in the housing market and to manage
    its risk more effectively. This will mean giving FHA flexibility to
    adjust fees and programmatic parameters more nimbly than it can today.
    FHA should also have the technology and talent needed to run a world-
    class financial institution.

                         THE FUTURE OF HOUSING FINANCE

    Toward a New System of Housing Finance
        Despite all of the efforts to date, there is much more to do. We
    must continue to take steps to facilitate the return of private capital
    to the housing finance system in a responsible way. Last summer, the
    Congress passed, and the President signed, sweeping financial reform
    legislation. Crucially, the Dodd-Frank Act provides vital protections
    for consumers and investors that will help end abusive practices in the
    mortgage market and improve the stability of the overall housing
    finance market.
        In keeping with our obligations under the Dodd-Frank Act, the Obama
    administration recently delivered a report to the Congress, Reforming
    America's Housing Finance Market, which provides a path forward for
    reforming our Nation's housing finance system. The report outlines
    steps that will be taken to wind down Fannie Mae and Freddie Mac and
    help bring private capital back to the market in a first loss position.
    Moreover, it describes how to fix fundamental flaws in the mortgage
    markets and better target the Government's support for a full range of
    housing that is affordable for its occupants, and lays out choices for
    longer-term reforms.
        Bringing private capital back into the housing finance system does
    not mean eliminating all Government involvement in housing finance. We
    believe that a Government role, targeted correctly, and with the right
    protections for taxpayers, should remain an important component of any
    future system. That is why all three of the reform options we lay out
    in the white paper include a strong, resilient FHA and solid consumer
    and investor protections.
        To that end, reforming and strengthening FHA is the first of four
    primary areas of reform to achieve a system with transparent and
    targeted support for mortgage access and housing affordability. The
    other crucial components of reform are a commitment to affordable
    rental housing, a flexible and transparent funding source for access
    and affordability initiatives, and strong measures to ensure that
    capital is available to creditworthy borrowers in all communities,
    including rural areas, economically distressed regions, and low-income
    communities.

    The Importance of a Robust and Responsible Private Mortgage Market
        Today, FHA is the largest insurer of mortgages in the world, with a
    portfolio that today exceeds $1 trillion, and a history that includes
    insuring more than 39 million home mortgages and 52,000 multifamily
    project mortgages since 1934.
        But a critical component to further recovery of the broader
    economy, and to reducing the financial risk to taxpayers, is to
    facilitate the return of private capital to the housing finance system
    in a responsible way. 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, make the Government's support for
    affordable housing explicit and better targeted, and provide choices
    for longer-term reforms. The return of private capital is particularly
    important given that today, Fannie Mae, Freddie Mac, FHA, and Ginnie
    Mae collectively insure or guarantee more than 9 out of every 10 new
    mortgages.
        During the height of the housing boom in 2006, FHA-insured
    mortgages constituted less than 4 percent of the number of new home
    purchases. This was a significant decrease from FHA's historically
    traditional share of approximately 10-15 percent, and an indication
    that the private sector was aggressively extending credit. All too
    painfully, we learned that this extension was often irresponsible. As
    poorly underwritten subprime loans and other products that were
    securitized into private label securities (PLS) began to default at an
    alarming rate, their defaults led to losses throughout the private
    market and private capital vanished from the housing sector at an
    unprecedented pace--in 2006, more than $1 trillion of such mortgages
    were securitized into PLS; in 2010, that figure was less than $60
    billion.\2\
    ---------------------------------------------------------------------------
        \2\ Source: Inside Mortgage Finance, HMDA, and Mortgage Bankers
    Association.
    ---------------------------------------------------------------------------
        FHA's temporarily elevated market share of more than 20 percent of
    the overall loan volume (home purchases and refinances) is the result
    of our efforts to fulfill our mission to be a countercyclical
    facilitator of responsible capital liquidity in the housing sector at
    times when the private sector exits the market abruptly. As the
    subcommittee knows, FHA does not lend directly to homeowners, but
    instead insures lenders against losses that may result in the event of
    a borrower default, under the condition that lenders are required to
    abide by extensive documentation and underwriting guidelines to
    originate sustainable mortgages, as well as providing numerous loss
    mitigation opportunities to help borrowers avoid default or
    foreclosure.
        The most recent data shows that 60 percent of African-American and
    Latino homebuyers purchase homes with FHA backing.\3\ FHA thus plays a
    vital role in opening up access to home ownership for the underserved
    in our country.
    ---------------------------------------------------------------------------
        \3\ HUD analysis of 2009 Home Mortgage Disclosure Act data.
    ---------------------------------------------------------------------------
    A Reformed and Strengthened FHA
        Strengthening and reforming FHA in a way that is healthy for its
    long-term finances and ensures that FHA is able to continue its mission
    of providing access to mortgages for low- and moderate-income families
    is a central component of broader systematic reforms. While FHA has
    already changed policy to require that borrowers with lower FICO scores
    make larger downpayments, FHA will consider other options, such as
    lowering the maximum loan-to-value ratio for qualifying mortgages more
    broadly. In considering how to apply such options, FHA will continue to
    balance the need to manage prudently the risk to FHA and the borrower
    with its efforts to ensure access to affordable loans for lower- and
    middle-income Americans, including providing access to home ownership
    for first-time homebuyers and underserved markets.
        FHA will take any steps for reform carefully to ensure that they do
    not undermine the broader recovery of the housing market. Similarly, as
    we consider changes in such areas as downpayments and loan-to-value
    ratios, we will make sure to retain the flexibility to respond to
    changing market conditions, so that we are able to manage risk, and
    maintain access, as effectively as possible.
        Some have expressed concerns that the increases to the monthly
    premium set to go into effect next month--on the order of $30 per month
    for the typical home-purchase borrower--and any increase in downpayment
    requirements have the potential to excessively restrict access to
    credit or perpetuate a dual credit market. We believe that the benefit
    to the financial health of FHA of the relatively modest premium
    increase is appropriately balanced with the need to maintain access, as
    the change remains affordable for almost all homebuyers who would
    qualify for a new loan. Similarly, we will strongly consider the impact
    on access with any proposal to increase downpayment requirements.

    Proposed Rule for Qualified Residential Mortgage
        Last month, HUD joined with the Office of the Comptroller of the
    Currency, the Federal Deposit Insurance Corporation, the Federal
    Housing Finance Agency, the Federal Reserve, and the Securities and
    Exchange Commission to announce the consideration and release of their
    Notice of Proposed Rulemaking for section 941 of the Dodd-Frank Act,
    which sets proposed rules to implement the credit risk retention
    requirements for asset-backed securities and sets a 60-day comment
    period where all stakeholders are able to comment and provide feedback.
    Following this comment period, the rule writers will consider all
    comments received before releasing final rules.
        The goal of the proposed rule is to provide clarity and rules of
    the road to the securitization markets. The proposed rule is one part
    of the administration's goal of bringing private capital back into the
    housing finance system.
        Getting this right is critical. With the financial crisis, we saw
    how bundling and packaging mortgages to sell on Wall Street with no
    accountability helped lead to the erosion of lending and underwriting
    standards that fed the housing boom and deepened the housing bust. The
    Dodd-Frank Act requires that securitizers or originators have ``skin in
    the game'' by retaining at least 5 percent of the credit risk and the
    rule proposed today sets out options to accomplish that mandate.
        Importantly, the rule seeks to define qualified residential
    mortgages--the loans that would not be subject to the risk retention
    requirements. Much debate will center on the size of downpayments.
    While there is no question that larger downpayments correlate with
    better loan performance, downpayments only tell part of the story.
    That's why we have laid out two alternatives, one requiring a 10-
    percent downpayment and another requiring 20 percent.
        We look forward to comments from stakeholders on the relative
    merits of these choices, so that we strike the right balance between
    managing risk and maintaining access to safe, responsible home
    ownership.

                                   CONCLUSION

        Madam Chairwoman, between our budget request and the Obama
    administration's proposals to reform the housing finance system, it is
    clear that FHA will continue to play a central role in the continued
    recovery of the housing market--particularly its ongoing commitment to
    provide access and affordability to low- and middle-income Americans.
    And as the reforms we have already made demonstrate, FHA has the
    capacity to perform this role in a way that minimizes risk to the
    taxpayer.
        I look forward to working with this subcommittee--and this
    Congress--to ensure that FHA has the tools it needs to fulfill that
    mission. Madam Chairwoman, thank you again for this opportunity to
    testify. I would be glad to respond to any questions.

                              GOVERNMENT SHUTDOWN

        Senator Murray. Thank you very much, Mr. Secretary. And we
    will put your entire statement into the record for all of our
    members.
        We've all been talking about it--obviously, this hearing is
    about writing the fiscal year 2012 appropriations bill--but we
    are all very concerned about finishing the fiscal year 2011
    budget, and the concern about the prospects of a Government
    shutdown. There are a lot of consequences, obviously. You
    mentioned a few.
        But I wanted to ask you specifically today--particularly
    for Americans hoping to buy a home with FHA insurance, what are
    the consequences if Government shuts down?
        Secretary Donovan. Quite simply, if there is a shutdown,
    FHA cannot endorse any further loans. Individual lenders would
    have the ability to continue to fund loans on their own. They
    would have to draw funding from their own balance sheets to do
    that, under the hope that they could then come back and insure
    those once the shutdown was ended.
        But unlike in the prior shutdown, when FHA represented a
    very small fraction of the market, given that we are endorsing
    close to $30 billion in loans a month, I am very concerned that
    a significant number of lenders would not choose to continue to
    close on those loans, and particularly, if there were any
    extended period that the shutdown continued, that both the
    costs of funding those loans and the potential risks of
    defaults or other issues with those loans would increase the
    pressure on lenders to stop funding loans during that period.
        Senator Murray. This is going to affect a lot of people. If
    you're hoping to sell your home because you're buying another
    one--it could impact you, too, obviously, if you are purchasing
    a home. Do we have any idea how many homebuyers would be
    affected by this?
        Secretary Donovan. The President spoke eloquently yesterday
    about the impacts on someone on the verge of buying their first
    home--80 percent of our loans went to first-time homebuyers
    last year--and also, about the impact on anyone in the process
    of selling their home--if you're planning to move, to take a
    new job in a different location. Multiply that by the millions
    of homeowners that depended on FHA financing last year. We
    represented 40 percent of all home purchases in this country
    last year. And so, the impact isn't just on individual
    families. It's on entire communities, and the international
    housing market.
        So, we do have real concerns, at a time when our market
    continues to be fragile, when our economy has shown real
    progress with 1.8 million private sector jobs created over the
    last 13 months. This is the worst time that we could introduce
    that uncertainty into this fragile housing market.
        Senator Murray. For any of us who have been there--known we
    have to move out by a certain date, and we're waiting for a
    closing to occur--this is a very, very stressful moment for
    many families. So, I'm very concerned about that.
        We also know that Federal funds support HUD and FHA's
    efforts to oversee its growing portfolio. That would, of
    course, be put on hold as well, correct?
        Secretary Donovan. That's correct.
        And I would also add, Madam Chair, that while the focus
    today is on FHA, we have millions of families who depend on our
    assistance--whether it's through vouchers, or public housing,
    or a range of our other programs--more than one-half of the
    residents of HUD-assisted housing are elderly or disabled. And
    our ability to provide funds for the operations of those
    units--the capital to do repairs on those units, and the jobs
    that that creates in construction, which is an industry that's
    been particularly hard-hit by the downturn--all of those are
    put at risk, because we simply can't provide any further funds.
    And so, while it may be a number of weeks that housing
    authorities could continue to operate, the lack of payments,
    particularly if there's an extended shutdown, would be very
    problematic for those families as well, and put millions of
    families at risk.
        Senator Murray. Okay. Thank you very much for outlining it.
    I think we need to understand what the consequences of this
    are, and that's been very helpful.
        I'm going to turn it over to Senator Collins, and then I
    have a few additional questions as well.
        Senator Collins. Thank you, Madam Chairman.
        First, let me associate myself with the Chairman's
    comments. I was thinking, having recently moved, that this
    affects not only the buyer of the house, the seller, the moving
    company--the ripple effects go on and on. And that's why we
    simply must resolve this issue.
        Mr. Secretary, I mentioned in my opening statement that I
    would like you to comment on what the role of FHA would be if
    Fannie Mae and Freddie Mac's roles were diminished, or the
    entities were privatized. Would that have an impact on the role
    played by FHA?
        Secretary Donovan. Absolutely. And I think our housing
    finance reform proposal that we laid out 2 months ago with the
    Department of the Treasury made clear that, in all cases, we
    foresee a smaller role for FHA, and a smaller role for Fannie
    Mae and Freddie Mac going forward; that, simply, we must take
    steps, as we've begun to do, to shrink the footprint of
    Government in the housing finance market. And in particular,
    the proposed increase in premiums that we have in the budget
    for 2012 is an important step, along with our endorsement of
    allowing the loan limits to step down on October 1, as they
    would currently do without further action by the Congress.
        So, having said that, in the context of believing that we
    need to work to reduce the footprint of both the Government-
    sponsored enterprises (GSEs) and FHA, we lay out a set of
    options in the white paper, and in particular, if option 1--
    which would have no additional ability for the Federal
    Government to provide mortgage insurance outside of FHA--were
    the path, then I think we would see a significantly increased
    role of FHA relative to other options. And in particular, in
    moments of crisis, it would be enormously important that FHA
    have the flexibility and the ability to step up even more
    significantly than it has done through this crisis. We've
    reached, as I said earlier, 40 percent of the purchase market.
    But in the kind of crisis that we've experienced, without a
    Fannie Mae or Freddie Mac, it would be absolutely critical that
    FHA could potentially go even further to ensure that the
    housing market is not further damaged by the kind of crisis
    that we've seen.

                                  LOAN LIMITS

        Senator Collins. At your previous appearance before this
    subcommittee, you recommended a reduction in the loan limit
    from $729,750 to $625,000. There are several bankers with whom
    I've talked who believe that is still far too high if the goal
    of Government is to try to make housing more accessible to
    lower- and middle-income families. What is your response to
    that criticism?
        Secretary Donovan. The administration believes that we
    ought to work together with the Congress to design lower limits
    for FHA beyond the initial step on October 1.
        Having said that, it is absolutely critical that we do that
    in the context of what the housing finance system would look
    like more broadly. In other words, if we have a well-designed,
    targeted, explicit guarantee that would be available outside of
    FHA, I think it would be wise to look at a reduction of those
    loan limits that would go further than if we did not have an
    alternative mechanism for guaranteeing loans, either in a
    crisis or during more normal times in the market. Because,
    frankly, FHA would be called on, as I just said, to do more
    without some alternative form of explicit, targeted guarantee.
        And so, I think we can't, in the absence of coming to some
    agreement with the Congress about the broader solutions for the
    housing finance market, be too specific about what an FHA loan
    limit would look like, other than to say it should be lower
    than the $625,000 that we've talked about.
        Senator Collins. Thank you.
        Senator Murray. Senator Blunt.

                         STATEMENT OF SENATOR ROY BLUNT

        Senator Blunt. Thank you, Chairman, just a couple of
    questions quickly. I know we're on a timeframe here, and I
    appreciate that.
        So, what impact does it have on the housing market when
    you--this may be in your prepared statement, too, Secretary, I
    apologize if I've missed this already--if you lower this limit?
    How does that impact an already fragile housing market? Are you
    concerned about that?
        Secretary Donovan. What we have seen, in fact, is that
    there is a relatively small share of FHA's overall lending,
    significantly less than 10 percent, that is above that $625,000
    limit at this point. So, that initial step----
        Senator Blunt. Significantly lower than what?
        Secretary Donovan. Than the $625,000 limit which would go
    into effect--that lower limit that would go into effect on
    October 1. So, while it has some impact on FHA, the bigger
    impact would be on lending by Fannie Mae and Freddie Mac. And
    that would be an important step for us, to see if private
    capital were to return to that level of lending, and what kind
    of rates it would be at.
        As we just discussed, the much more significant impact
    would be to begin to look at going back down to significantly
    lower limits--$417,000 was the limit before. It was raised by
    the Housing and Economic Reform Act (HERA) up to the $625,000,
    then to be raised further after that.
        Really, what you're looking is more like about 20 to 25
    percent of our lending that's between that $417,000 limit and
    the $625,000 limit. So, that's really where I think we need to
    have a fuller discussion with the Congress about where we ought
    to go. And I would particularly mention that this will be
    important in higher cost markets; a much larger share of our
    lending in California, in certain metropolitan areas, like
    Seattle, is at that higher limit. And so, the localized impacts
    could go significantly higher than that 20 or 25 percent of our
    business that I talked about.

                              FHA PREMIUM INCREASE

        Senator Blunt. And in terms of the premiums--I know you're
    talking about FHA, raising the new premium structure--what's
    the likelihood that that structure will serve the purpose for
    the full budget year and beyond, or that you'll have to have
    another adjustment?
        Secretary Donovan. First of all, the impact of the 25-
    basis-point increase is in the range of $30 a month. And given
    that interest rates remain very low, given that our Ginnie Mae
    securities, in particular, continue to be very attractive
    investments, I am not substantially concerned. We do expect
    some decrease in volume. As I've said, we do expect to see
    private capital return--mortgage insurers and others--to step
    up as we increase the premiums. But I don't think that it will
    have a major effect, and certainly not a significant effect, on
    the overall national market.
        I think it's very hard to say, Senator, today, without
    knowing the initial impacts that the combination of a change in
    loan limits and the premium structure--we've also seen Fannie
    Mae and Freddie Mac increase their pricing structure as well. I
    would really want to see what the impacts are, where the
    housing market is, through the critical summer period that
    we're going to be coming into, before I would say specifically
    whether we need to continue to increase premiums or not. At
    this point, given the actuarial review and where we are, I'm
    confident that this premium increase will help us rebuild the
    reserves to through 2012. Beyond that, I really would like to
    come back once we see the initial impact and have a fuller
    discussion with you.

                               PREPARED STATEMENT

        Senator Blunt. Okay, Madam Chairman, thank you.
        [The statement follows:]

                    Prepared Statement of Senator Roy Blunt

        Thank you Chairman Murray and Ranking Member Collins for holding
    today's hearing. The topics for this hearing are extremely important
    and in the forefront of many people's minds.
        Also, welcome back Secretary Donovan and thank you for appearing
    before our subcommittee on behalf of the now acting commissioner, Bob
    Ryan. As we recover from the recent housing crisis, I look forward to
    serious discussions with you about our current housing finance system.
        Since the crisis, Federal Housing Administration (FHA) has become
    the lender of first resort for both homebuyers and homeowners who want
    to refinance. FHA alone now guarantees about one-third of all home
    loans, up from about 3 percent before the financial crisis. Like many,
    I have grave concerns that with an implicit guarantee from the Federal
    Government, this agency could be the next big bailout waiting to
    happen.
        FHA was to be self-sustaining and was founded to help low- to
    moderate-income borrowers achieve home ownership; so it is troubling to
    see this dramatic increase in lending authority. People with
    substantial borrowing power should not make up such a substantial
    portion of the FHA loan portfolio, and I am interested in hearing how
    you plan to address this unsustainable growth.
        Last year, FHA's capital-reserve ratio fell below the
    congressionally mandated level of 2 percent for a second year in a row.
    While I recognize that FHA is in a stronger fiscal position this year
    than it was in 2009, I would like to hear when these reserves will
    return to their mandatory levels and how FHA intends to keep these
    reserves from dipping below 2 percent in the future.
        I have serious concerns about the current vacancies in both the FHA
    Commissioner and the Federal Housing Finance Agency Director positions.
    In a still very fragile housing market, all agency oversight positions
    must be filled without disruption and I will continue to remind the
    President.
        Mr. Secretary, I know you realize how serious these issues are and
    I look forward to hearing your plans to keep FHA solvent and off of the
    backs of the taxpayers as we consider alternatives to the Federal
    Government's role in financing the housing market.

                         MUTUAL MORTGAGE INSURANCE FUND

        Senator Murray. Thank you very much.
        I think you answered my question that I was going to ask
    you about the independent audit on the Mutual Mortgage
    Insurance Fund (MMI Fund), and why you felt it was necessary to
    raise that premium again.
        Can you just give me a quick glimpse on how you determined
    the size of that increase, and just let us know what your
    thinking is on that?
        Secretary Donovan. Yes. We did very careful analysis of the
    impacts that we would see, both on the capital reserves, but
    also looked at what barrier it might pose to access to home
    ownership, and analyzed that across a range of income groups, a
    range of markets, and felt that 25 basis points was the right
    balance of helping to build our reserves and yet not impacting
    particularly under-served communities that we've seen have been
    particularly hurt by the downturn. And so, we felt it was the
    right balance.
        I also would just have to add a thank you to the
    subcommittee for working with us. It would not have been
    possible to implement that--a premium increase, which goes into
    effect on April 18--without the very strong partnership that we
    had with this subcommittee as well as your colleagues on the
    Banking Committee to get that passed very quickly and give us
    that flexibility. So, thank you again.
        Senator Murray. Okay. Over the last 2 years, FHA has
    implemented a series of reforms which you talked about in your
    written testimony. These changes will improve the quality of
    new loans being insured, but the MMI Fund problems right now
    stem from the loans that FHA endorsed in prior years--
    particularly those that it took on in the height of the housing
    boom. So, the size of the losses facing FHA will be affected by
    the overall recovery of the housing market, which, as we know,
    continues to deal with foreclosures and depressed home values.
    In fact, the current discussion on the housing market is about
    the possibility of a double dip in home prices.
        Are you concerned about a possible double dip?
        Secretary Donovan. Certainly the data that we've seen over
    the last few weeks has raised concerns about where the market
    is going. We have seen declines in house prices pretty
    consistently over the last few months, as well as, after a
    number of months of increasing existing home sales, a decline.
    There is some information through pending home sales that we
    may see home sales start to trend up. And obviously, as we're
    entering the spring and the summer selling seasons, which are
    the strongest seasons of the year, we're going to be watching
    very, very closely.
        What I would say is, really, two things. First of all,
    rightly, as you point out, our ability to ensure that we
    continue to grow the capital reserve--there are many factors
    that we control. We've taken enormous steps forward--again,
    working with this subcommittee and the Banking Committee--to
    improve our enforcement. We need to continue to do that so that
    we weed out bad lenders and can enforce against problems that
    we've seen with our existing book.
        But beyond that, I think the most critical thing that we
    can do is to hold servicers accountable to helping those that
    can remain in their homes to do that. And frankly, what we have
    found in our investigations of FHA servicers is a consistent
    pattern of not helping borrowers soon enough in the process--
    and that is a lose-lose situation. It's a loss for that
    homeowner, obviously--devastating impacts; it's a loss for that
    community, where homeowners who are paying their bills, are
    current on their mortgages, see their house prices decline even
    further; and it's a loss for the servicers and the investors in
    those loans, because they, where they could help that family
    recover and continue to see them pay, will end up taking deeper
    losses on those loans because they haven't helped those
    families stay in their homes.
        So, that's why I'm very focused, and working closely with
    my colleagues in the Administration, the State Attorneys
    General, to hold those servicers accountable and to make sure
    that we help families who can stay in their homes, stay in
    their homes. Mark Zandi has said that if we can help an
    additional 500,000 borrowers to stay in their homes, he thinks
    that could make the difference between a double dip and a
    stronger recovery in the housing market. So, that is a critical
    focus that I have in making sure that we hold not just FHA
    servicers accountable, but all servicers accountable.

                        LENDER OVERSIGHT AND ENFORCEMENT

        Senator Murray. I personally appreciate the focus you've
    put on oversight and enforcement that you've just talked about.
    We know that at the height of the housing boom, really, too
    many loans were poorly underwritten and putting people in
    unaffordable mortgages, and here we are.
        I know, I've watched carefully and seen that you've really
    increased the enforcement. I know the Mortgagee Review Board
    meets regularly now, and it's removed nearly 15 times as many
    lenders in the last 2 years than in the previous 9 years
    combined.
        Can you talk a little bit about how that enforcement has
    actually impacted FHA's financial standing and the performance
    of FHA lenders?
        Secretary Donovan. I think the most direct impact of that
    is that what we've seen is substantially improved quality of
    loans that we're making. As we've weeded out bad lenders, we've
    seen our early payment defaults decline substantially. And
    frankly, all of that comes back to benefiting the taxpayer. We
    have out-performed the predictions, as I said earlier, not just
    of our own actuaries, but dramatically out-performed the
    predictions that CBO had for the performance of our loans. And
    that is, I think, the most responsible thing that we can be
    doing, particularly given the context--as you said, the
    elephant in the room today is this broader budget discussion.
    And the President has talked about smart government. I think
    FHA is a very good example of how, through better managing
    government, we can ensure that we have benefits--not just to
    homeowners, but to taxpayers as well.
        Senator Murray. I very much appreciate that. Thank you.
        Senator Collins.
        Secretary Donovan. Thank you.

                                FHA UNDERWRITING

        Senator Collins. Thank you.
        Let me follow up on the issue of problem lenders and HUD's
    efforts to protect the FHA Insurance Fund from bad loans. I
    note that HUD has made enormous strides in this area in recent
    years, and I want to give you credit for that. But,
    nevertheless, the inspector general continues to have concerns
    regarding HUD's oversight of its underwriting program, despite
    the significant actions that HUD has taken.
        For example, there's a recent inspector general report that
    says the Department missed critical chances to recover up to
    $11 million in losses to the FHA's Insurance Fund on bad
    mortgage loans. And what was more troubling to me is the
    inspector general raised the concern that there are still
    systemic problems with the underwriting of FHA-insured loans,
    and the resulting costs for the Insurance Fund for loans that
    just never should have been insured in the first place.
        In the sample that the inspector general conducted, it
    found that lenders did not properly underwrite 140 of the 284
    loans reviewed--that's almost 50 percent--because they were not
    properly following FHA requirements. Similarly, there was a
    very recent story in USA Today that talked about a New York
    mortgage company that had been flagged in October 2007, and it
    says that HUD knew back then, or, FHA knew back then that this
    company, Cambridge Home Capital, posed a danger to homebuyers
    and repeatedly violated the agency's safe lending standards.
    Even so, FHA continued to approve mortgages for this company
    until June of this year, and that was nearly 3 years after the
    agency had flagged this company as being potentially
    fraudulent.
        What is being done to ensure that when FHA's early warning
    system, which is the database that flags problem lenders,
    identifies a lender, that there is swift action to prevent that
    lender from continuing to make more mortgages that are insured
    by FHA?
        Secretary Donovan. Senator Collins, first, let me just
    start by saying, I am very proud of the work that we've done to
    increase enforcement. And in fact, the partnership that we've
    had with our inspector general has been, I think, very strong.
    The inspector general report, the report that you talked about,
    was actually focused on lenders that we brought to their
    attention, and had identified as problem lenders through our
    systems, and I would just quote from Ken Donohue when he
    testified last May, that he had seen FHA do more in the last
    year than he had seen in all of the previous 8 years combined
    as inspector general. So, I think we've made substantial
    progress.
        And in particular, I would point to the fact that we have
    done more enforcement actions--I think, Madam Chair, you just
    cited this--15 times more enforcement actions in the past year
    than we'd done in the 9 previous years combined.
        Having said that, are we perfect? Do we still have a ways
    to go? We are not perfect. We still have a significant distance
    that I think we can go, and we should go, to strengthen those
    tools. And I would really point to two things: Too often today,
    our--what we call--postendorsement technical reviews, which are
    really one of our ways of catching these problems, are manual,
    or, we don't have the depth of automated systems that we need.
    One of the critical things that we worked with this
    subcommittee to do last year was to create the Transformation
    Initiative (TI).
        One of the two largest investments we're making with TI is
    to create a much more sophisticated set of systems within FHA
    that would allow us to have a structural way, a systemic way,
    of identifying potential fraud and poor underwriting much
    earlier in the process. So, I want to make sure that we
    continue to work together to invest in the state-of-the-art
    technology that will allow us to identify that fraud on a
    systemic basis earlier.
        The second thing I would say is, we still have limitations
    in our statutory authority to be able to go after some of the
    worst lenders, and in particular, to go after some of the
    principals. And it is frustrating to us, for example, that we
    can only terminate a branch, or a region of a lender, but not
    terminate the entire company from operating in FHA through our
    Neighborhood Watch system. That is one of the legislative
    changes that was proposed in legislation last year that we got
    close to getting done but we didn't get done. I would really
    like to make sure that we continue to work with the Banking
    Committee to get further authority to allow us to enforce more
    strongly.
        Senator Collins. Thank you.
        Secretary Donovan. Thank you.
        Senator Murray. Senator Blunt.

                            FHA COMMISSIONER VACANCY

        Senator Blunt. Yes. I have one more set of questions here
    that I hope will be pretty quick.
        Mr. Secretary, last month David Stevens, the FHA
    Commissioner, who'd only been on the job 6 or 7 months, I
    think, I think started last July, announced he was going to
    leave and become president of the Mortgage Bankers Association.
    You haven't had a permanent Director at the Federal Housing
    Finance Agency (FHFA) since 2008. I'd just like your comment.
    What are we doing here, and how is this hampering your efforts
    as Secretary, not having these positions filled--and when we do
    fill one, I think that was confirmable, and the person's
    confirmed, and then they come and go so quickly, as----
        Secretary Donovan. Yes. Actually, Commissioner Stevens was
    at FHA for closer to 2 years. He was a nominee right when we
    came into office. It took roughly 3 months for him to get
    confirmed. And so, he was there, and that is not atypical for a
    commissioner to stay for 2 years. And frankly, he was pretty
    clear, having worked in the private sector, that he would
    return there at some point. But I think the important thing
    there is that we have built a very strong team within FHA. With
    Dave's help, we brought in the agency's first ever Chief Risk
    Officer, Bob Ryan. The President asked Bob to be Acting
    Commissioner during this period. And I'm fully confident, with
    his work, the work of Vicki Bott, and Carol Galante's
    leadership, that there is a very, very strong continuity, and
    that while we will be nominating a successor in the coming
    weeks, I'm very confident that the work that we've done
    continues.
        On the FHFA post, to be frank, I think, we were frustrated.
    We had nominated an outstanding candidate in Joe Smith. And
    because of delays in the ability to get confirmed, he was asked
    to take on increased responsibilities in the State of North
    Carolina and made a decision when the last Congress ended in
    December that he would withdraw from the process, given the
    delays that we've had. And so, I think it's absolutely critical
    that we have a strong permanent nominee and leader at FHFA. I
    think Ed DeMarco's done a good job as Acting Commissioner. But
    the confirmation process there has really stood in the way of
    our being able to get a permanent leader at FHFA.
        Senator Blunt. Thank you.
        Chairman, I'm sure you're probably involved in these
    discussions to try to cut down the number of people that have
    to go through this process. I'm supportive of that and hope
    that we can give more attention to the people that we think
    absolutely need attention, and be less of an impediment to
    leadership in the Government generally----
        Senator Murray. I'll agree with that.
        Senator Blunt [continuing]. So, thank you, Chairman.

                              RISK RETENTION RULE

        Senator Murray. Thank you.
        I just have a couple more questions. I wanted to ask you,
    as we continue to think about how to create a stronger, safer
    housing system--managing risk is going to be a central concern.
    And we have to be very careful not to overcorrect.
        Looking at the administration's proposed rule for risk
    retention and the definition of a qualified residential
    mortgage, I do have some concerns about the impact of a 20-
    percent downpayment requirement. I get the skin in the game. I
    understand that. But when I think about the high cost of
    housing in my State, the idea of middle-class families trying
    to come up with 20 percent of a downpayment on a mortgage is
    really daunting. And I really worry that we're putting home
    ownership out of the ability of many middle-class Americans
    today with that.
        FHA demonstrated last year when it announced its new tiered
    downpayment system that credit risk is more than just about
    loan to value ratio--it's also about creditworthiness. So, the
    risk retention rule calls for 20 percent. But I saw that you
    also have an alternative for 10 percent. Can you talk a little
    bit about why you put that out?
        Secretary Donovan. I think you've just made an eloquent
    case for why it's important that, as we are discussing this
    rule--it's a proposed rule--that we have a vigorous debate
    about the proper balance between downpayment requirements, and
    access and affordability. Home ownership has been, continues to
    be an important gateway to the middle class. And we've made, in
    our broader housing finance reform proposal, a strong case that
    FHA needs to continue to be a critical source of access to home
    ownership by insuring that first-time homebuyers, for whom a
    downpayment is typically the biggest barrier to home ownership,
    can continue to get access to the wealth building and the
    stability that home ownership can provide.
        So, there's no question the downpayments affect
    performance. But too often, I think, in this debate we focus on
    downpayments and don't focus on the other aspects of
    underwriting--whether it be credit history, whether it be debt-
    to-income (DTI) ratios, the nature of the products that we're
    talking about--all of those are critical steps. And what we've
    learned from the crisis is, it's really when you start to layer
    risk--low downpayments with high DTIs, with poorly chosen
    products for that homeowner--all of those, when you layer them
    on top of each other, lead to exponential increases in risk.
    And so, we thought it was very important, as we put out the
    rule, to have an alternative in the preamble that focuses on a
    10 percent downpayment, rather than a 20 percent.
        Again, we want to make sure, as we finalize this rule, that
    we have this full and open debate. I do think it's important
    that, in particular, we ensure that we don't pull up the
    drawbridge, if you will, to those who can be successful
    homeowners in this debate.
        Senator Murray. Yes. And as you know, getting the
    downpayment, can be a huge barrier, but the question is, for
    many homeowners, were you able to make the mortgage payment
    every month? So, creditworthiness has to be an important part
    of that, and I appreciate your thoughts on that. And we'll
    continue to follow it.
        The same question can be asked about the GSE reform. Do we
    put in place so many barriers and changes that we don't allow
    average middle-class families to be able to get into the
    market? And you put forward three proposals on that. Are you
    thinking about that in the same context?
        Secretary Donovan. Absolutely. I think part of the question
    is really about what happens in a moment of crisis like we've
    been through, and ensuring that we can step up our response in
    a responsible way, just as I think FHA's been able to do
    through this crisis.
        But there's also a fundamental question about, what does
    our housing finance market look like in normal times? There's
    no question that we went too far.
        Senator Murray. Yes.
        Secretary Donovan. Seller-funded downpayments, all of the,
    frankly, crazy products that we saw. People making loans that
    we knew families couldn't afford on the day those loans were
    made. We have to get back to safer, saner products, there's no
    question. But we have to think about as well, as we've
    acknowledged, that relative to the crazy place that we were,
    the cost of housing finance is going to go up--we have to
    balance that, those increases in costs, the strengthening of
    underwriting standards, with really looking carefully at the
    data and understanding where we are confident that families can
    be successful homeowners. And I think we've had that experience
    in FHA, and that we really bring that to this debate as we will
    go forward.
        Senator Murray. Yes, and I appreciate that. I mean, we all
    know that we went too far, the market went too far. But we
    can't overcorrect and create a situation that makes it
    impossible for people to purchase homes. So, it is a tough
    balance, and I appreciate your thoughts on that.
        Senator Collins.

                              FDA'S RISK EXPOSURE

        Senator Collins. Mr. Secretary, I'm curious what the impact
    has been on FHA's risk exposure as a result of the increase in
    the higher mortgage limit that FHA is insuring. Has that
    increased the risk exposure for FHA?
        Secretary Donovan. Because the loans that we've made at
    these larger loan limits are relatively young--they're
    relatively new loans--it's too early to definitively say
    whether the performance of those loans is better or worse than
    other loans, and whether they would increase the risk exposure.
    There have been some faulty studies, frankly, that have looked
    at this.
        Our best estimate at this point, as we look at it--
    obviously, with Bob Ryan's work as the first Chief Risk
    Officer, this is an issue he's looked carefully at--and the
    early data that we have shows that those loans perform roughly
    the same as the rest of the portfolio. So, I think it's fair to
    say that moving to those larger loans--particularly given that
    the highest-cost loans represent a relatively small share, as
    the loans that are above $625,000 represent only around 3
    percent of our lending--that we really haven't seen a
    significant change in our risk profile as a result of the
    higher loan limits. But, we should continue to look at that as
    these loans age.
        Senator Collins. Because they're pretty young loans.
        Secretary Donovan. Yes.
        Senator Collins. What percentage of FHA's insured loans are
    delinquent at this point?
        Secretary Donovan. Let me get specifics. What I will say is
    both our seriously delinquent share and our 30-plus day
    delinquencies have declined quite consistently over the last
    roughly 15 months. So, from the beginning of last year we've
    seen fairly significant declines. We're in the range of 8
    percent today--serious delinquency at 8.2 percent today.
        And I would just point out, we'd be happy to get you more
    data that looks at this in a range of ways. We analyze this by
    how recently the loans were made, as well. And one of the most
    encouraging things we see is, when we separate out recent
    originations, we see dramatically lower early payment defaults,
    and at just about every stage, as they age we've seen
    significantly lower defaults on newer loans.
        I would also point out that our defaults remain about one-
    third of the performance of subprime loans. And so, while we do
    have somewhat higher serious default rates than, for example,
    prime loans in the GSE books, if you look at them compared to
    the subprime default rates, which are well more than 20
    percent--serious delinquencies--it's a dramatic difference, and
    that you can see the sort of consistent, safe underwriting that
    we've done coming through in that.

                             CAPITAL RESERVE RATIO

        Senator Collins. My final question, because I know that we
    do need to adjourn, concerns the capital reserve ratio. It's my
    understanding that the ratio is currently below the
    congressionally mandated level of 2 percent, and I know that
    last year HUD established a performance goal to restore the
    excess capital reserve ratio of the MMI Fund to the mandated
    level of 2 percent by the year 2014.
        Could you give us an update on whether you believe that at
    the end of this fiscal year you will improve over last fiscal
    year? And are you on track to reach the congressionally
    mandated level by 2014?
        Secretary Donovan. Based on everything that we know today,
    we are somewhat ahead of the path that was laid out in the
    actuarial review last year, which was to be able to get back to
    the 2 percent by 2014.
        The reason for that is because we have outperformed
    predictions that the actuarial review made in a range of areas,
    to the point where, as I said earlier, our projection is that
    our receipts would be about almost $10 billion this year. Our
    volume's down a little bit in the last few months. It may be
    that they come in somewhat lower than that. But that's
    substantially higher than what the actuary predicted and, as I
    mentioned, CBO. So, the indications are good.
        There are two cautions I would give to that. One is that we
    have seen a buildup in pending foreclosures, so we're not
    realizing claims on those. Because we've seen delays on behalf
    of lenders, particularly with the problems that we've found in
    servicing and in the foreclosure process, many lenders have
    gone back to re-look at those processes. So, I think it's fair
    to say we will see a jump in claims as those foreclosures
    proceed--at least some of them--in the coming months.
        I think the larger issue, though, is what we don't control.
    The single largest factor in the performance or where we are in
    the actuarial review in the capital ratio is the direction of
    home prices. We were relatively conservative in the projections
    that we used--they're independent projections, but I think they
    were relatively conservative--they predicted a more than 5-
    percent decline this year in house prices.
        There's nothing that concerns me at this point in terms of
    the performance being worse than was projected in the
    actuarial. Having said that, if we do see a slowdown in the
    broader economy--whether it's the effects of what's happening
    overseas or other issues that would slow down the economy--a
    jump in interest rates, those kind of broader macroeconomic
    effects and the way that they affect house prices, is the
    single biggest variable that we, frankly, don't control with
    our actions at FHA, that could impact where we are on the
    capital reserve ratio.
        I don't want to get in the business of predicting or saying
    I'm absolutely confident that we'll be in a stronger position
    next year. All indications are that way, but there's lots of
    time between now and then for the market to evolve.
        Senator Collins. Thank you.
        Senator Murray. Thank you very much.
        And, Mr. Secretary, thank you so much for your statements
    this morning.

                         ADDITIONAL COMMITTEE QUESTIONS

        We will leave the record open for any additional questions
    to be submitted, and we look forward to your responses.
        [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

                       OPERATION WATCHDOG RECOMMENDATIONS

        Question. Last month, the Department of Housing and Urban
    Development (HUD) Office of Inspector General (OIG) issued a report
    based on ``Operation Watchdog'', an initiative prompted by the Federal
    Housing Administration (FHA) concerns over increasing claim rates. This
    OIG focused its attention on Direct Endorsement (DE) lenders, and
    discovered instances where HUD failed to identify problems in
    underwriting resulting in claims paid on unqualified FHA loans. The OIG
    has recommended that FHA implement procedures to review riskier loans
    and that HUD seek administrative remedies to recover losses. I
    understand that one of the FHA legislative reforms being sought is
    indemnification authority against DE lenders, which would address part
    of the OIG's concern.
        How HUD is working to address the OIG recommendation?
         Answer. In recent years, FHA has significantly strengthened its
    ability to review and evaluate mortgagees' underwriting and servicing
    operations for compliance with HUD requirements. Even before Operation
    Watchdog was announced, FHA had been taking stock of its oversight and
    enforcement activities and had begun to initiate several changes to its
    policies and practices. Recent changes include:
      --The expansion of the Credit Watch Termination Initiative to include
            DE mortgagees. This endeavor allows FHA to evaluate lender
            underwriting performance on a quarterly basis and take action
            to quickly terminate poorly performing lenders.
      --The development of comprehensive lender performance metrics and
            reporting. These reporting capabilities significantly improve
            FHA's ability to analyze and evaluate lender performance in
            order to timely identify lenders whose performance poses
            potential or actual risks to FHA.
      --The pursuit of statutory authority to require indemnification by DE
            mortgagees. At present, FHA only has authority to request
            rather than require indemnification from DE mortgagees.
            Therefore, the Department has eagerly sought legislation that
            would expand its authority to require indemnification from
            these lenders.
      --A comprehensive overhaul of FHA's loan-level review procedures.
            This effort has yielded improved risk-based targeting and
            evaluation methodologies and better aligned the Department's
            various loan review processes to more effectively identify
            loans that do not comply with FHA's requirements.
      --The development of a comprehensive counterparty risk management
            information technology (IT) solution. Employing state-of-the-
            art technologies and practices, these new IT tools will improve
            HUD's risk analysis and recognition capabilities throughout the
            FHA lending life cycle.
        In sum, FHA is executing substantial changes to its policies and
    procedures that are dramatically improving the Department's ability to
    identify and mitigate risks to its insurance funds, via the development
    of risk-based monitoring and analysis, implementation of strengthened
    oversight and enforcement mechanisms, and the acquisition and
    utilization of substantially improved technologies. FHA is ensuring
    that it possesses the tools necessary to conduct its business in ways
    that are consistent with industry best practices and appropriately
    protect the Department's insurance funds. These changes were underway
    long before the release of the Operation Watchdog audit report.
    Operation Watchdog merely validated that the improvements FHA is
    pursuing already are both necessary and appropriate.
         Question. Why does HUD lack the authority to recoup losses against
    these types of lenders and how will the legislation you are seeking
    address this?
        Answer. FHA-insured single-family mortgages are originated and
    underwritten through the DE process, which permits an FHA-approved DE
    lender to underwrite mortgages without FHA's prior review and submit
    them directly for insurance endorsement. High-performing DE lenders
    with acceptable default and claim rates may apply for approval to
    participate in the Lender Insurance (LI) Program, which enables them to
    endorse FHA mortgage loans without a pre-endorsement review by FHA. As
    of April 30, 2011, there were 1,859 active DE lenders. Of this total,
    687 were approved for participation in the LI Program.
        Current statutory authority at section 256(c) of the National
    Housing Act (12 U.S.C. 1715z-21) permits the Secretary to require
    indemnification if a mortgage approved by the Secretary pursuant to
    delegation of authority through the LI Program was not originated or
    underwritten in accordance with requirements established by the
    Secretary, and the Secretary pays an insurance claim within a
    reasonable period specified by the Secretary. If fraud or
    misrepresentation was involved in connection with the origination or
    underwriting, the Secretary may require the lender to indemnify the
    Secretary for the loss regardless of when an insurance claim is paid.
    This existing authority only applies to indemnification by LI lenders
    and does not include DE lenders that are not participants in the LI
    Program.
        Therefore, FHA is seeking to extend the Secretary's authority such
    that HUD can require indemnification by all DE lenders, not simply
    those approved for participation in the LI Program. The Secretary's
    existing indemnification authority only provides recourse for FHA to
    avoid or recoup losses through required indemnification for loans that
    were improperly originated or underwritten, or in which fraud or
    misrepresentation were involved, from LI lenders. As stated above, only
    687, or 37 percent, of DE lenders, are approved LI Program
    participants. Therefore, FHA would benefit from explicit authority to
    require indemnification from DE lenders, and thereby recover losses
    from the remaining 63 percent of lenders authorized to make
    underwriting and loan approval decisions on FHA's behalf. The current
    limitation on FHA's counterparty risk management authority with regard
    to DE lenders poses obvious and unnecessary risks to FHA's insurance
    funds. Extending the Secretary's authority to require indemnification
    by lenders to include all FHA-approved DE lenders will ensure that FHA
    will be able to mitigate losses arising from claims on inappropriately
    or fraudulently originated or underwritten loans.

                GOVERNMENT NATIONAL MORTGAGE ASSOCIATION HIRING

        Question. The budget for fiscal year 2012 requests authority to
    alter the way we fund the Government National Mortgage Association
    (Ginnie Mae) salaries and expenses. Instead of receiving direct annual
    appropriations, the budget proposes to allow Ginnie Mae to fund its
    operations using fees it generates under authority provided in
    appropriations bills.
        I share the concern about ensuring that Ginnie Mae has the
    appropriate staff to monitor its growing portfolio, which is why the
    Senate bill for fiscal year 2011 proposed an increase above the
    President's budget request--which actually sought to reduce funding for
    Ginnie Mae staffing. However, I am not convinced that the proposal in
    the budget actually addresses all of the challenges with building
    Ginnie Mae's workforce. As I understand it, Ginnie Mae did not use all
    of the funding the Congress provided it last year, and it wasn't the
    first time Ginnie Mae lapsed funding. This suggests the problem isn't
    really a question of resources.
        What has been the problem with hiring at Ginnie Mae, and given that
    you didn't use all of the resources allocated to Ginnie Mae last year,
    how would this language address the challenge?

    New Funding Structure
         Answer. The President's budget request for fiscal year 2012
    includes a proposal to fund Ginnie Mae with $30 million in personnel
    compensation and benefits, and other administrative expenses through
    collections of multiclass and commitment fees. The proposal is forward
    looking and is designed to provide Ginnie Mae with flexibility to
    accommodate a multiyear hiring initiative. The administration's
    proposal provides Ginnie Mae with certainty as to the level of funding
    that will be available in the next year and thus, Ginnie Mae will be
    able to staff to that level of funding. With the new funding structure,
    Ginnie Mae's hiring would not be hampered by the uncertainty and
    interruptions sometimes caused by insufficient appropriations or
    continuing resolutions.
        During the last few fiscal years, Ginnie Mae has sought an increase
    in its salaries and expense appropriation to increase our staff to
    better manage the housing crisis. Small increases were approved in
    fiscal year 2010 and fiscal year 2011 through reprogramming. However,
    in each of those years, a continuing resolution was in place holding
    agency expenditures to prior-year levels for part of the year making it
    very difficult for Ginnie Mae to take full advantage of the additional
    funds. In addition, even if reprogrammed funds are given in one fiscal
    year, there is no guaranty that the same reprogramming will be
    available the next fiscal year. Thus, in order to avoid beginning the
    next fiscal year at payroll higher than the base appropriated amount,
    Ginnie Mae has limited its hiring. The proposed funding structure will
    provide certainty as to the level of funding available and will allow
    Ginnie Mae to execute its multi-year hiring plan.

    Lapsed Funds Due to Uncertainty
        In recent years, HUD has not had an approved budget at the
    beginning of the fiscal year and has had to operate under a continuing
    resolution. The lack of certainty as to the funding level for the year
    has hampered Ginnie Mae's ability to move aggressively on its planned
    hiring schedule in the past few years. Under a continuing resolution
    Ginnie Mae receives a fraction of the previous year's approved salaries
    and expense budget until a full budget is approved.

                      SUPPORTING COMMUNITY BANK MORTGAGES

        Question. According to estimates, nearly 70 percent of all mortgage
    originations flow through the big four lenders--JPMorgan Chase, Bank of
    America, Citigroup, and Wells Fargo. In the aftermath of the housing
    crisis hundreds of small, community banks have failed. Yet, community
    banks serve an important role and are an important part of a healthy
    market. In your testimony you refer to reforms that you are proposing
    that would assist small, community banks.
         Can you elaborate on the current problem, and how the reforms you
    are proposing would address it?
         Answer. FHA began requiring the submission of audited financial
    statements from Supervised Mortgagees (i.e., banks, thrifts, and credit
    unions) because without receiving audited financial statements from
    these institutions, FHA was not able to adequately assess their
    financial stability and possession of sufficient capital. To put
    supervised lenders on par with FHA's existing requirements for other
    lenders, and to avoid potential losses from undercapitalized
    institutions, HUD decided to begin requiring supervised entities to
    submit audited financials. The failure of 157 banks in 2010 testifies
    to the prudence of this policy change.
        For some small FHA-approved supervised lenders that originate low
    volumes of FHA loans the expense of obtaining an external audit of
    their financial statements is deemed too burdensome to justify their
    continued participation in FHA programs. Because many of these small
    supervised lenders are located in underserved communities that possess
    a limited selection of residential mortgage lending entities, small
    supervised lenders' relinquishment of FHA-approval may decrease access
    to FHA programs for some communities. Given FHA's present prominent
    role in the Nation's mortgage market, a reduction in the availability
    of FHA-insured mortgage credit could adversely impact the recovery of
    some States and communities. In order to accommodate the needs of such
    community banks, HUD issued a waiver in April 2011 of the new audited
    financial statement requirements for small supervised lenders. Small
    supervised lenders that meet the asset thresholds delineated by their
    Federal regulators (the current asset threshold being $500 million)
    will be permitted to submit a copy of their unaudited regulatory report
    (e.g., consolidated or fourth quarter Call Report or Report of
    Condition and Income, Office of Thrift Supervision Report, consolidated
    or fourth quarter Thrift Financial Report, Form 10-K, NCUA Supervisory
    Committee Audit) that aligns with their fiscal year end. These lenders
    will also be required to submit a report on their compliance with HUD
    program requirements.
        The accommodations afforded to small supervised lenders, including
    community banks, represent an appropriate balance between FHA's
    management of counterparty risk and the Department's continued
    commitment to ensuring the participation of community banks and other
    small lenders in its programs.
        Question. What other steps can be taken to make sure that small and
    community banks can compete for mortgage business?
        Answer. In addition to the measures to assist community banks
    described above, HUD is also seeking legislative changes that will
    expand the opportunities for small banks and other lenders to
    participate in FHA programs. Another option by which community banks
    and other small supervised institutions may participate in FHA programs
    is through a sponsored origination relationship. Sponsored originators
    are not subject to FHA lender approval, but are permitted to originate
    FHA loans by partnering with an FHA-approved underwriting mortgagee.
    Community banks that wish to continue originating FHA loans, but that
    do not want to be subject to FHA lender approval requirements and
    processes, may act as sponsored originators.
        Many community banks have cited their inability under the National
    Housing Act to close loans in their own names should they forfeit their
    FHA approval as a deterrent to their acting as sponsored third-party
    originators. FHA has proposed an amendment to 12 U.S.C. 1709(b), which
    has been included in comprehensive FHA Reform legislation, that would
    allow sponsored third-party originators to close loans in their names,
    addressing what has been a chief concern of small community banks in
    considering a switch in status from FHA-approved mortgagee to
    nonapproved sponsored third-party originator. The passage of FHA's
    proposed amendment (which passed the House last fall) would provide yet
    another sensible solution for small community banks, while enabling FHA
    to continue prudently managing its risk and mitigating losses to its
    insurance funds.
        Additionally, the passage of the proposed amendment to the National
    Housing Act would significantly expand access to FHA programs for small
    business lenders of all types without unnecessarily increasing the risk
    to FHA. FHA strongly encourages the Congress to pass the proposed
    amendment in order to protect FHA insurance funds and accommodate the
    interests of community banks and other small lenders.

                              SUBCOMMITTEE RECESS

        Senator Murray. And thank you again for everything.
        Secretary Donovan. Thank you. Get us a budget.
        Senator Murray. All right. Thank you.
        This hearing is recessed.
        [Whereupon, at 10:24 a.m., Thursday, April 7, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

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

                                  ----------

                             THURSDAY, MAY 12, 2011

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:34 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray, Lautenberg, Pryor, and Collins.

                          DEPARTMENT OF TRANSPORTATION

                        Federal Aviation Administration

    STATEMENT OF HON. J. RANDOLPH BABBITT, ADMINISTRATOR
    ACCOMPANIED BY HON. CALVIN L. SCOVEL III, INSPECTOR GENERAL

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. This subcommittee will come to order.
        This morning we are going to be holding a hearing on the
    President's budget request for the Federal Aviation
    Administration (FAA). We will be hearing testimony from the
    Administrator of the FAA, Mr. Randy Babbitt, and the Inspector
    General for the Department of Transportation, Mr. Calvin
    Scovel.
        I want to thank both of you for being here this morning,
    and I look forward to hearing your testimony.
        The United States is a leader in air transportation, and I
    am very proud of our innovation and our safety record. For 3
    out of the past 4 years, there has been less than 1 fatality
    for every 100 million passengers on board commercial air
    carriers. As the agency in charge of overseeing the safety of
    air transportation, the FAA has built a strong record for more
    than 50 years.
        But while we can be proud of the safety record, we can
    never believe that our work is done or let down our guard, not
    even for a moment. So I am very troubled by recent news reports
    that include stories about air traffic controllers falling
    asleep on duty and a dramatic increase in the number of errors
    committed by air traffic controllers.
        The FAA made a series of announcements as more and more of
    these incidents came to light. Soon after the first news
    reports, the FAA promised air traffic controllers will no
    longer be working alone in the middle of the night, and the FAA
    would no longer use certain kinds of schedules that are known
    to worsen fatigue. More recently, the FAA announced a series of
    initiatives, including a new working group that will make
    recommendations to improve the qualifications, placement, and
    training of air traffic controllers. These initiatives may be
    important work for the FAA, but I am troubled by the fact that
    they came as a result of unflattering news reports, especially
    when the inspector general has been sounding the alarm on these
    issues for years.
        Back in 2004, the inspector general recommended the FAA
    develop a method for placing newly hired controllers at its
    various facilities based on skill and ability. This
    recommendation was repeated in 2010. In both cases, the FAA
    agreed and said the agency was working on a test that would be
    used in the placement of its new hires. Today, however, the FAA
    still does not have an objective-reliable test it can use to
    place newly hired controllers.
        The FAA also knew it needed to evaluate how well graduates
    from the training academy in Oklahoma City were prepared to
    enter the workforce and begin their on-the-job training. In
    2008, the inspector general found the FAA had not yet fulfilled
    this promise. In 2010, the inspector general found academy
    training was focused on short-term memorization, and facility
    managers did not believe new hires were prepared for their on-
    the-job training.
        In short, the FAA has known about troubles with how it
    trains and places newly hired controllers for a long time, and
    yet, after a series of news reports, suddenly the FAA announces
    a new working group to address this issue and we are supposed
    to believe that in a few short months, this working group will
    be able to do something the FAA could not accomplish for the
    past 7 years.
        So, we have been down this road before. In fact, it was
    just 3 years ago that this subcommittee held a hearing with the
    FAA and heard about how FAA managers allowed Southwest Airlines
    to violate Federal safety regulations and punished the safety
    inspector who tried to bring these violations to light. The FAA
    acknowledged its safety office had an inappropriate
    relationship with the very airline it was supposed to oversee.
        Again, there was a history of reports and recommendations
    from the inspector general. Importantly, the inspector general
    found safety inspections were being missed and FAA headquarters
    needed to take a more a hands-on approach to make sure
    individual inspection offices were getting the job done.
        I know the FAA is dedicated to its safety mission, but we
    cannot afford to let news stories determine how the FAA does
    its work. We need the FAA to make the right decision before an
    issue gets in the news.
        The Next Generation Air Transportation System (NextGen) is
    another area where we need to see more from the FAA. This
    subcommittee has long understood the importance of NextGen, and
    until this year, we have met all of the administration's budget
    requests for its modernization programs. In fact, this
    subcommittee has provided targeted increases for NextGen,
    giving additional funds to push for more capabilities out of
    the Automatic Dependent Surveillance-Broadcast (ADS-B) program
    and to see more demonstrations of network-enabled operations.
        Still, even when there has been a steady stream of funding,
    we have seen delays and management problems with some of the
    most important capital programs. For example, the En Route
    Automation Modernization (ERAM) program is now years behind the
    FAA's original target, and we still do not know for sure if
    this program is working well enough to control traffic at
    additional sites. Only recently has the FAA started to work
    hand in hand with the air traffic controllers who will be
    working with the ERAM software.
        This year, however, we find ourselves in a completely new
    budget environment. For fiscal year 2011, the Committee enacted
    the largest 1-year cut to discretionary spending in our
    Nation's history, and debates over the fiscal year 2012 budget
    continue to focus on spending cuts. In this kind of
    environment, we cannot afford further delays and mismanagement.
        We need to see a realistic strategy for funding NextGen. To
    date, the FAA has filled its budget request with a laundry list
    of programs and development activities and a vague promise that
    somehow the agency will achieve its goals by 2018, but that
    approach is not enough this year. The FAA must be able to show
    how each of its programs contribute to NextGen goals, and we
    need to hear a clear set of priorities from the FAA so we know
    what the impact of various funding levels will be on
    modernization.
        We are waiting now to get a final spend plan from the FAA
    on how it will distribute the funding levels provided for 2011,
    but the FAA also needs to think about the impact of various
    funding levels in a different way, not a year-by-year basis,
    but with a long-term strategy in mind.

                               PREPARED STATEMENT

        With that, I am going to turn it over to my ranking member,
    Senator Collins, for her opening statement.
        [The statement follows:]

                   Prepared Statement of Senator Patty Murray

        The subcommittee will come to order.
        This morning we will be holding a hearing on the President's budget
    request for the Federal Aviation Administration (FAA).
        We will be hearing testimony from the Administrator of FAA, Mr.
    Randy Babbitt, and the Inspector General for the Department of
    Transportation, Mr. Calvin Scovel.
        I would like to thank both of you for being here this morning, and
    I look forward to hearing your testimony.

                   PROFESSIONALISM OF AIR TRAFFIC CONTROLLERS

        The United States is a leader in air transportation, and I am proud
    of our innovation and our safety record. For 3 out of the past 4 years,
    there has been less than 1 fatality for every 100 million passengers on
    board commercial air carriers.
        As the agency in charge of overseeing the safety of air
    transportation, the FAA has built a strong record for more than 50
    years.
        But while we can be proud of this safety record, we cannot believe
    that our work is done, or let down our guard--not even for a moment.
        So, I am troubled by recent news reports that include stories
    about:
      --air traffic controllers falling asleep on duty; and
      --a dramatic increase in the number of errors committed by air
            traffic controllers.
        The FAA made a series of announcements as more and more of these
    incidents came to light. Soon after the first news reports, the FAA
    promised that air traffic controllers will no longer be working alone
    in the middle of the night, and that the FAA would no longer use
    certain kinds of schedules that are known to worsen fatigue.
        More recently, the FAA announced a series of initiatives, including
    a new working group that will make recommendations to improve the
    qualifications, placement, and training of air traffic controllers.
        These initiatives may be important work for the FAA, but I am
    troubled by the fact that they come as the result of unflattering news
    reports.
        Especially when the inspector general has been sounding the alarm
    on these issues for years.
        For example, in 2004, the inspector general recommended that the
    FAA develop a method for placing newly hired controllers at its various
    facilities based on skill and ability. This recommendation was repeated
    in 2010. In both cases, the FAA agreed, and said that the agency was
    working on a test that would be used in the placement of its new hires.
        Today, however, the FAA still does not have an objective, reliable
    test that it can use to place newly hired controllers.
        The FAA also knew that it needed to evaluate how well graduates
    from its training academy in Oklahoma City were prepared to enter the
    workforce and begin their on-the-job training. In 2008, the inspector
    general found that the FAA had not yet fulfilled this promise. And then
    in 2010, the inspector general found that academy training was focused
    on short-term memorization, and that facility managers did not believe
    that new hires were prepared for their on-the-job training.
        In short, the FAA has known about troubles with how it trains and
    places newly hired controllers for a long time.
        And yet, after series of news reports, suddenly the FAA announces a
    new working group to address this issue. And we're supposed to believe
    that in a few short months, this working group will be able to do
    something that the FAA couldn't accomplish for the past 7 years.
        We've been down this road before.
        In fact, it was just 3 years ago that this subcommittee held a
    hearing with the FAA and heard about how FAA managers allowed Southwest
    Airlines to violate Federal safety regulations and punished the safety
    inspector who tried to bring these violations to light. The FAA
    acknowledged that its safety office had an inappropriate relationship
    with the very airline it was supposed to oversee.
        Again, there was a history of reports and recommendations from the
    inspector general. Importantly, the inspector general had found that
    safety inspections were being missed, and that FAA headquarters needed
    to take a more hands-on approach to make sure that individual
    inspection offices were getting the job done.
        I know the FAA is dedicated to its safety mission. But we cannot
    afford to let news stories determine how the FAA does its work. We need
    the FAA to make the right decision before an issue gets in the news.

                         A STRATEGY FOR FUNDING NEXTGEN

        The Next Generation Air Transportation System (NextGen) is another
    area where we need to see more from the FAA.
        This subcommittee has long understood the importance of NextGen,
    and until this year, we have met all of the administration's budget
    requests for its modernization programs. In fact, this subcommittee has
    provided targeted increases for NextGen, giving additional funds to
    push for more capabilities out of the Automatic Dependent Surveillance-
    Broadcast program and to see more demonstrations of network-enabled
    operations.
        Still, even when there has been a steady stream of funding, we have
    seen delays and management problems with some of the most important
    capital programs.
        For example, the En Route Automation Modernization (ERAM) program
    is now years behind the FAA's original target. And we still don't know
    for sure if the program is working well enough to control traffic at
    additional sites. Only recently has the FAA started to working hand-in-
    hand with the air traffic controllers who will be working with ERAM
    software.
        This year, however, we find ourselves in a completely new budget
    environment. For 2011, the Committee enacted the largest 1-year cut to
    discretionary spending in our Nation's history. And debates over the
    2012 budget continue to focus on spending cuts.
        In this kind of environment, we cannot afford further delays and
    mismanagement.
        We need to see a realistic strategy for funding NextGen. To date,
    the FAA has filled its budget requests with a laundry list of programs
    and development activities, and a vague promise that somehow the agency
    will achieve its goals by 2018.
        But that approach is not enough this year.
        The FAA must be able to show how each of its programs contribute to
    NextGen goals. And we need to hear a clear set of priorities from the
    FAA, so that we know what the impact of various funding levels will be
    on modernization.
        We are waiting to get final spend plans from the FAA on how it will
    distribute the funding levels provided for 2011. But the FAA also needs
    to think about the impact of various funding levels in a different
    way--not a year-by-year basis, but with a long-term strategy in mind.
        With that, I will turn to my ranking member, Senator Collins, for
    her opening statement.

                       STATEMENT OF SENATOR SUSAN COLLINS

        Senator Collins. Thank you very much, Madam Chairman, for
    holding this hearing on the fiscal year 2012 budget request for
    the FAA.
        I want to welcome our two witnesses this morning,
    Administrator Babbitt and Inspector General Scovel, to our
    hearing.
        Let me begin my remarks by associating myself with the
    comments that the chairman made about safety.
        It is extremely worrisome to learn of the incidents over
    the past couple of months regarding air traffic controllers who
    have behaved unprofessionally. It is unacceptable that Federal
    employees who are responsible for the safe arrival and
    departure of our flying public were asleep on the job or
    inattentive to pilot requests, and of course, in reading these
    incidents, one cannot help but think that it is the tip of the
    iceberg--that this problem, as the inspector general perhaps
    will illuminate today, has been going on for some time, but it
    has only recently come to the public's attention.
        The Administrator of FAA has one of the toughest challenges
    in overseeing the national airspace system, the most complex
    airspace in the world. This includes monitoring more than
    45,000 flights per day from commercial air, cargo, military,
    and nearly 240,000 general aviation aircraft that could enter
    the system at any given moment.
        While there are not nearly as many flights going in and out
    of the State of Maine as I would like to see, it is important
    that we ensure that sufficient options are available to rural
    communities, particularly those that support our smaller
    municipal airports.
        In rural States, such as my home State, aviation helps to
    keep residents connected to the rest of the country and is a
    key element in economic development. A lot of times, when we
    are doing business attraction efforts in Maine, the first
    question that we get is what the air service is like. FAA
    resources help airports, particularly general aviation or
    smaller airports with limited resources, to make the necessary
    infrastructure upgrades to improve air traffic services,
    availability, and safety.
        Recognizing safety as the No. 1 priority, ensuring a safe
    civil aviation system is also critically important to the
    overall economy. According to the FAA, aviation adds $1.3
    trillion to our economy and accounts for more than 11 million
    jobs.
        As the chairman has indicated, as we move forward to the
    fiscal year 2012 budget, we will face even tougher choices than
    those in the recently passed 2011 budget. It is, therefore,
    essential that the FAA identifies and prioritizes programs to
    ensure the least amount of consequences to safety and
    operations, and I am particularly concerned about any cuts that
    would delay the implementation of NextGen. The full
    implementation of NextGen by 2025 will total between $20 and
    $25 billion from FAA resources alone.
        The airline industry also needs to be a team player in the
    decisionmaking process, as it too must make an equal amount of
    investments in retrofitting their aircraft. With NextGen,
    however, and despite the costs, the benefits are enormous.
    Airlines will see a reduction in fuel consumption. Travelers
    will see fewer delays, and the environment will benefit from
    lower carbon emissions.

                               PREPARED STATEMENT

        I look forward to hearing the testimony of our witnesses
    today as we consider this very important budget request.
        Thank you, Madam Chairman.
        [The statement follows:]

                  Prepared Statement of Senator Susan Collins

        Good morning, and thank you Chairman Murray for holding this
    hearing on the fiscal year 2012 budget request for the Federal Aviation
    Administration (FAA). I welcome Administrator Babbitt and Inspector
    General Scovel and thank you both for being here today.
        This subcommittee faced many challenges passing the fiscal year
    2011 budget in which important programs had to be reduced or
    eliminated. I appreciate the leadership of Chairman Murray and am glad
    we worked in a bipartisan effort.
        The soaring debt of more than $14 trillion and growing poses a
    grave threat to our Nation's future prosperity. We simply must rein in
    our spending and get our financial house in order.
        It is unacceptable that we came at all close to a government
    shutdown. It is my hope that the Congress and the administration will
    take a much more thoughtful and reasoned approach to the difficult task
    of developing a budget for 2012 and demonstrate to the American people
    that we are willing to work together to put our country back on a
    strong fiscal course.
        Administrator Babbitt has one of the toughest challenges overseeing
    the national airspace system, the most complex airspace in the world.
    This includes monitoring over 45,000 flights per day from commercial,
    air cargo, military, and nearly 240,000 general aviation aircraft that
    could enter the system at any given moment.
        While there are not as many flights going into and out of Maine as
    I would like to see, it is important we ensure that sufficient and
    adequate options are available to rural communities, particularly those
    that support small or municipal airports.
        In rural States, such as my home State of Maine, aviation helps
    keep residents connected with the rest of the country. FAA resources
    help airports, particularly general aviation or small airports with
    limited resources, make the necessary infrastructure upgrades to
    improve air travel services and safety.
        Recognizing safety as the No. 1 priority, ensuring a safe civil
    aviation system is also critically important to the overall economy.
    According to FAA, aviation adds $1.3 trillion to our economy and
    accounts for more than 11 million jobs.
        As this subcommittee moves forward to the fiscal year 2012 budget,
    we will face even tougher choices than those from the recently passed
    fiscal year 2011 budget. It is essential that FAA identify and
    prioritize programs to ensure the least amount of impacts to safety and
    operations, particularly those that could delay the implementation of
    the Next Generation Air Transportation System (NextGen).
        FAA estimates full implementation of NextGen by 2025 will total
    between $20 and $25 billion from FAA resources alone. The airline
    industry also needs to be a team player in the decisionmaking process
    as they too must make an equal amount of investments retrofitting their
    aircraft while struggling with unstable profits and rising operating
    costs. FAA must present the benefits early enough in the process of
    implementing NextGen that outweigh the costs of equipage. With NextGen,
    airlines will see a reduction in fuel consumption, travelers will see
    fewer delays, and the environment will benefit from lower carbon
    emissions.
        I also want to highlight the serious concerns as the chairman noted
    in her statement. It is troubling to hear recent media reports over the
    past couple of months regarding air traffic controllers who behaved
    unprofessionally. It is unacceptable that Federal employees who are
    responsible for the safe arrival and departure of our flying traveling
    public to be asleep on the job or inattentive to pilot requests.
        I appreciate the department for taking action within the Air
    Traffic Organization. Accountability starts at the top with management
    and I am hopeful that FAA will be able to quickly address the issues
    surrounding air traffic controller and pilot fatigue and training to
    avoid further incidents from occurring.
        Chairman Murray, thank you and I look forward to hearing the
    testimony of Administrator Babbitt and Inspector General Scovel as we
    consider the fiscal year 2012 budget request of FAA.

        Senator Murray. Thank you very much.
        Senator Lautenberg, do you have an opening statement for
    us?

                    STATEMENT OF SENATOR FRANK R. LAUTENBERG

        Senator Lautenberg. Thank you very much, Madam Chairman.
        I am pleased that we are inspired with some extra funds to
    do our job here, and we welcome the President's budget for the
    next year.
        We are constantly wrestling with whether or not we have
    adequate population, based on the outline of what should be the
    number of fully trained professionals. And we see in the
    airports in the New York area nowhere near the number that
    should be there to manage the traffic flow. It is made up for
    with trainees, but we would not like trainees going into the
    operating room with us and we should not have an excessive
    number of trainees doing the job of fully prepared, fully
    certified controllers.
        Madam Chairman, one of the things that I look at here with
    some degree of--more than annoyance, and that is the extra fees
    that are put on for baggage. If you want the large pretzels, it
    is $1. If you take the small ones, you might have to pay only
    50 cents. But these things--you do not get it when you use
    other means of travel. I consider it an affront to a welcome to
    travel for the average passenger. One of these days I suspect
    that you are going to be charged for going to the lavatory, and
    maybe they will say, okay, you do not have to pay going in, but
    you have to pay getting out, some kind of scheme that will put
    you under the gun, as they say.
        So we have important things to do. NextGen has been NextGen
    for years. We have spent billions of dollars trying to get
    there and have not yet got what we consider an up-to-date plan
    in place, and we have got to wrestle, as all of you know.
        And I thank you both. The system is terrific. It really is
    when you consider how many passengers are handled each day and
    each year, and with the shortages and with the problems that we
    have--despite them, thank goodness, air travel is really safe.
        So I encourage us to move the budget along as we have,
    Madam Chairman. I am glad that you are doing this and that we
    have Senator Collins here also, people who understand what we
    have got to do to improve our aviation system. So thank you
    very much.
        Senator Murray. Thank you very much, Senator Lautenberg.
        With that, we will turn it over to the testimony from our
    witnesses today and begin with Randy Babbitt.

                 SUMMARY STATEMENT OF HON. J. RANDOLPH BABBITT

        Mr. Babbitt. Good morning, Madam Chairman, Ranking Member
    Collins, subcommittee members as well. Thank you very much for
    the opportunity to come in and discuss with you the
    administration's budget request for the FAA for the fiscal year
    of 2012.
        As you have mentioned, everyone at the FAA is committed to
    continuing to run the safest and most efficient airspace system
    in the entire world. I want to take a moment, however, to
    address some of the issues in the news recently and update you
    on some of our actions.
        Yesterday, we proposed a comprehensive overhaul of pilot
    and crew training that will require pilots to work together and
    demonstrate their skills in real-world scenarios during
    training that will expose them to situations they might
    actually encounter in the cockpit. This is a major effort to
    strengthen performance and represents the most significant
    changes in crew training in more than 20 years. With this
    proposed training, we want pilots and crews to have more
    training in the kinds of rare--but they do happen--type of
    emergency events that test their skills and give them the
    confidence to appropriately handle the situation.
        In addition to this update on crew training, I want you to
    be aware of the latest steps that we have taken with regard to
    the incidents involving air traffic controllers who have
    behaved unprofessionally.
        Last month, I traveled all around the country with the
    National Air Traffic Controllers Association's (NATCA) Paul
    Rinaldi. We went to air traffic facilities across the Nation in
    a call-to-action on professionalism. The visits reinforced for
    me that we have a workforce that is committed to the safety of
    this system 24 hours a day, 7 days a week, 365 days a year, but
    the incidents of a few employees falling asleep on position
    showed us that we have to make changes, and we have.
        We have added a second controller on the midnight shifts in
    some facilities where we only had one.
        We made significant changes to long-time scheduling
    practices that will reduce further the possibility of fatigue,
    and we will do more.
        We have changed management within the FAA in some critical
    positions to ensure that we have the right people in the right
    places.
        We, unfortunately, found it necessary to terminate three
    controllers who were found sleeping on the job.
        We continue to review the 12 recommendations developed by a
    joint FAA/NATCA task force work group that I believe you
    referenced, which was undertaken more than 1 year ago in an
    effort to reduce controller fatigue and do so in a
    collaborative fashion.
        Controllers have a responsibility to report rested and
    ready to work for their shifts, and as management, we have the
    responsibility to make sure that they have the opportunity for
    adequate rest between those shifts. The American public trusts
    us to perform our jobs and make safety the highest priority
    each day, year in and year out. We are committed to making
    whatever difficult changes are necessary to preserve that
    trust.
        The President's 2012 budget is designed to maintain and
    enhance operational safety, as well as to invest in NextGen
    infrastructure and technology. We are facing a very pivotal
    time in aviation history. We are transforming to NextGen. We
    are moving from ground-based radar to a satellite-based style
    of navigation. Air travel will, in fact, become more precise
    and safer. It will leave a smaller carbon footprint, and
    NextGen will create thousands of good jobs. We need to embrace
    this opportunity and lead the way.
        Our budget contains limited discretionary increases and
    really emphasizes cost efficiency. We are taking a good hard
    look at our organizational structure and we are making changes
    to create a more streamlined, as well as a more efficient,
    agency.
        The infrastructure of the future is going to be a marriage
    of NextGen procedures with our airports, our runways, our
    airlines, and the flight crews. This budget supports the
    airport grant program, which enhances the safety, efficiency,
    and capacity of the aviation system. This is vital, because
    delaying infrastructure investments today means the ultimate
    long-term cost to our Nation, to our passengers, and to our
    environment will far exceed the cost of going forward today.
        This budget also pays for safety inspectors who inspect the
    latest generation of innovative aircraft that Americans are
    building. We do not want to be the chokepoint in the assembly
    line of progress. We want to certify aircraft. We want to
    certify equipment and new procedures that keep the Nation's
    aviation economic engine running and running smoothly. So I
    sincerely ask for your support in helping the men and women of
    this agency to perform the tasks that they so proudly do day in
    and day out.

                               PREPARED STATEMENT

        So, thank you very much for this opportunity, and I would
    be happy to answer any questions, should you have some.
        [The statement follows:]

                 Prepared Statement of Hon. J. Randolph Babbitt

        Good morning, Chairman Murray, Ranking Member Collins, and members
    of the subcommittee. Thank you for the opportunity to discuss the
    administration's fiscal year 2012 budget request for the Federal
    Aviation Administration (FAA).

                            FISCAL YEAR 2012 BUDGET

        The FAA's mission is to provide the safest, most efficient air
    transportation system in the world. We have proudly delivered on this
    promise for more than 50 years, providing the world's leading aviation
    system and setting an unparalleled standard for safety and efficiency
    that is emulated globally. Since 2001, we have managed more than 600
    million airport operations, including more than 93 million successful
    flights on U.S. commercial aircraft, transporting more than 6.5 billion
    passengers safely to their destinations. Commercial aviation fatality
    rates are at historic lows and the number of commercial air carrier
    accidents has decreased 83 percent since the mid-1990s. In the last 10
    years, 16 new runways have opened at large commercial airports. And
    we've put in place financial systems that have helped us better account
    for and save taxpayers' money. Despite our many successes, there is
    still more to be done.
        The demand for FAA services has never been more complex or
    comprehensive. We are heading into a period of unprecedented challenge
    as we pilot the future of aviation into our skies and into space. We
    must work to stay ahead of changing technological, economic, social,
    environmental, and energy needs of both our Nation and our global
    partners. We are confident that the President's fiscal year 2012 budget
    request will enable us to take aviation to the next level of safety,
    while providing the public, U.S. business, and our international
    partners with secure, convenient, and environmentally sustainable air
    travel.
        Our vehicle for this transformation is the Next Generation Air
    Transportation System (NextGen), which will enable increased safety,
    capacity and efficiency while providing for a cleaner environment and
    bolstering America's continued economic growth. The next 15 years
    promise to be a pivotal time in the history of air transportation, as
    the face of aviation is transformed around the world. Parts of NextGen
    are already on the ground and in cockpits, and are improving air travel
    for passengers and aviation professionals today. From flight decks to
    control towers, our system is already changing, delivering access
    through innovation. As we change, FAA remains deeply committed to
    providing the safest, most advanced and efficient aviation system in
    the world, and to ensuring air transportation is safe and efficient
    wherever U.S. citizens travel.
        We must continue to fulfill our mission for the flying public,
    delivering a safe and efficient system that continues to set the global
    standard. We are working to promote an increased sense of
    professionalism and accountability, while fostering a culture of
    vigilance and safety. We also aim to support aviation's crucial role in
    our Nation's economic recovery, building on today's successes to meet
    tomorrow's growing demands. That means delivering on the promise and
    benefits of NextGen, offering economic and environmental efficiencies
    and technologies that support America's ability to shape international
    aviation standards and development around the world.
    Operations
        The fiscal year 2012 request of $9.8 billion funds the development
    of the performance-based navigation routes and procedures necessary to
    support NextGen, increased safety staffing, enhanced Information System
    Security protection, implementation of environmental and energy
    technologies, and appropriate staffing to improve safety and hazardous
    materials compliance. The request also supports annualization costs of
    new hires, adjustments for inflation, and maintenance and operating
    costs of National Airspace System (NAS) systems and equipment.
        The fiscal year 2012 request maintains our critical aviation safety
    (AVS) inspector staff changes from recent years, while further
    increasing overall AVS staffing by 178 positions. The request,
    recognizing increasing flight operations and complexity, adds 100 new
    safety inspectors to implement new flight procedures, operation
    methods, airmen qualifications, and Air Carrier Evaluation Program
    functions. These inspectors will also oversee the conformity of new
    designs and the production of new aircraft and aircraft parts. We must
    be responsive to innovation in our Nation's market place while ensuring
    that safety always remains our top priority. We must certify new
    aircraft and new equipment as expeditiously as possible so as not to
    become a bottleneck in the industry's assembly line. The fiscal year
    2012 request enables FAA to perform additional rulemaking,
    certification, and outreach activities necessary to move NextGen
    forward.
        As the National Aeronautics and Space Administration (NASA) retires
    the space shuttle, it will begin to utilize commercial space
    transportation systems to access the International Space Station (ISS).
    The FAA is solidifying our relationships with the Air Force and with
    NASA to ensure a seamless transition to a commercial space
    transportation model that provides access to ISS as we focus on the
    development of commercial human spaceflight systems.
        This change increases the workload of FAA's Office of Commercial
    Space Transportation. In response, our fiscal year 2012 budget includes
    $5 million for the FAA Commercial Spaceflight Technical Center at the
    Kennedy Space Center in Florida and includes $1.3 million to begin
    development and implementation of safety requirements for commercial
    human space flight. We also request $5 million to establish a Low-Cost
    Access to Space Incentive program.
        We must protect against persistent and organized threats that beset
    FAA systems every day, as hackers launch attacks that may compromise
    service to our users. We must also improve safety standards and
    compliance for hazardous materials transportation, while meeting an
    increased requirement for security investigations of new hires and
    existing staff. The budget request includes the enhancement of FAA's
    Cyber Security Management Center (CSMC) to increase information system
    security protection and increased staffing to more effectively support
    our intelligence activities and oversight of hazardous materials in air
    commerce.
        The fiscal year 2012 Operations request includes $45 million in new
    cost savings. In the Air Traffic Organization (ATO), we expect the
    flight services contract to save FAA $1.9 billion over its 13-year
    lifespan and $8 million in fiscal year 2012. The Aviation Safety
    Organization expects to achieve $2.4 million in administrative
    efficiencies. Finally, our budget request incorporates base transfers
    that better align our resources with organizational functions.
    Facilities and Equipment
        Our fiscal year 2012 budget request of $3.1 billion allows FAA to
    meet the challenge of improving the capacity and safety of the current
    NAS while keeping our comprehensive modernization and transformation
    efforts on track.
        To spur job growth and initiate sound multi-year investments, the
    President's budget includes a $50 billion boost more than current law
    spending for roads, railways and runways. As part of this initiative,
    our facilities and equipment (F&E) request includes $250 million in
    mandatory General Fund appropriations that will be used to advance
    NextGen and make near-term improvements in FAA's air traffic control
    infrastructure. Two hundred million dollars will be used to accelerate
    applied research, advance development, and implement engineering
    solutions for NextGen technologies, applications, and procedures while
    $50 million will be used to upgrade existing capital infrastructure
    such as power systems and air traffic control centers and towers.
        The F&E NextGen portfolio of $1.14 billion in fiscal year 2012 will
    continue our ongoing NextGen modernization activities. This includes
    nation-wide Automatic Dependent Surveillance-Broadcast (ADS-B)
    deployment, the data link communications services program, NextGen
    future facilities investment planning, and follow-on En Route
    Automation Modernization (ERAM) data side-position development for
    future NextGen capabilities.
        The remainder of our investment--representing $2 billion--will be
    in legacy areas, including our extensive infrastructure, power systems,
    information technology, navigational aids, and weather systems. In
    fiscal year 2012, FAA plans to award four tower construction contracts.
    Funding is also requested to replace and upgrade aging aerospace
    medical equipment needed to perform research in pilot certification and
    performance, aircrew health, atmospheric and radiation risk data, and
    other medical areas to keep FAA in the forefront of aeromedical
    research.

    Research, Engineering, and Development
        The fiscal year 2012 request of $190 million supports FAA's
    continued work in both NextGen and other research areas such as fire
    research and safety, propulsion and fuel systems, advanced materials
    research, aging aircraft, and environment and energy.
        The request supports our research to enable the use of ``drop in''
    sustainable jet fuels for commercial aviation, reinforcing American
    leadership in clean technologies and enhancing energy supply security.
    It also supports developing alternatives to leaded aviation gasoline to
    lessen general aviation environmental impacts. Other environment and
    energy investments ($35.8 million including NextGen) support a range of
    research activities, from improved science and modeling capabilities
    that characterize and quantify aviation's environmental impacts to
    maturing certifiable clean and quiet aircraft technologies via the
    Continuous Lower Energy, Emission and Noise (CLEEN) program and other
    vehicles.
        FAA must meet our Nation's growing need for unmanned aircraft
    systems (UAS). Our research, engineering, and development (RE&D)
    request continues to support this critical area, providing $3.5 million
    to develop minimum performance requirements for ground control stations
    and to revise standards and guidance that address UAS crew resource
    management and training for both pilots and crewmembers.

    Grants in Aid for Airports
        Airports remain the critical foundation of our Nation's aviation
    system infrastructure. Our fiscal year 2012 request provides the
    funding needed to ensure safety, capacity, and efficiency at our
    Nation's airports through a combination of continued grant funding and
    an increase in passenger facility charges (PFCs). Our fiscal year 2012
    request totals $5.5 billion for the Airport Improvement Program (AIP),
    which includes $2.4 billion from the Airport and Airway Trust Fund and
    $3.1 billion in mandatory General Fund resources. The fiscal year 2012
    request will continue our focus on safety-related development projects,
    including runway safety area improvements, runway incursion reduction,
    AVS management, and improving infrastructure conditions.
        The budget proposes to lower funding for ongoing airport grants to
    $2.4 billion by eliminating guaranteed funding for large- and medium-
    hub airports. The proposal is consistent with the recommendation of the
    President's National Commission on Fiscal Responsibility and Reform to
    eliminate grants to large- and medium-hub airports. Our budget
    continues to support smaller commercial and general aviation airports
    that do not have access to additional revenue or other sources of
    capital. The reduction in AIP funding for larger airports is premised
    on an increase to PFCs of $4.50 to $7 per enplanement, providing these
    airports greater flexibility to generate their own revenue.
        In addition, FAA requests a one-time appropriation of $3.1 billion
    in mandatory General Fund resources for the Grants-in-Aid program.
    While regular AIP eligibility will be suspended for large- and medium-
    hub airports, eligible airports in all size categories will be able to
    compete for the $3.1 billion. Most of this funding will be used for
    runway construction and other airport improvement projects aimed at
    increasing overall system efficiency in the future.
        Our request also includes $101 million for Personnel and Related
    Expenses to support Safety Management Systems (SMS) training in the
    Office of Airports; improved joint use agreements between the
    Department of Defense and airports; data trend analysis; engineering
    support; field operations program/portfolio management/inspectors; and
    information systems security and privacy.
        The budget also provides $29.3 million for Airport Technology
    Research to support enhanced safety and pavement research efforts and
    conduct noise studies. In addition, the budget provides $15 million for
    Airport Cooperative Research.
        The American Recovery and Reinvestment Act of 2009 (ARRA) provided
    resources to preserve and enhance safety, capacity and access while
    maximizing efficiency and operational performance. The FAA obligated
    100 percent of the ARRA funds available for airport grants ahead of
    schedule. Work has been completed on 98 percent of 372 airport grant
    projects at 334 airport locations nationwide. We have improved runways
    and taxiways, modernized terminal buildings, and provided aircraft
    rescue and firefighting improvements at airports that serve millions of
    passengers every year. Our commitment to successfully implementing ARRA
    established FAA's place as a recognized leader in the Department of
    Transportation's (DOT) efforts to bring Americans back to work.

    NextGen Implementation
        The fiscal year 2012 budget request reflects FAA's ongoing
    commitment to the implementation and deployment of innovative NextGen
    solutions. The application of these critical 21st century technologies
    represents a pivotal shift that will transform aviation. NextGen is
    already yielding immediate results for a safer America while working to
    maximize efficiencies to meet future demands. The investment in NextGen
    will reduce taxpayer and industry costs while safeguarding our world's
    precious environment and resources. We are working in cooperation with
    industry toward a shared vision, leveraging powerful technologies and
    setting new standards for the future of global aviation.
        NextGen is our evolutionary blueprint for modernizing air
    transportation with revolutionary technologies. NextGen represents a
    wide-ranging transformation of the entire national air transportation
    system to meet future demand and support the economic viability of
    aviation while improving safety and protecting the environment. The
    application of critical 21st century solutions is already transforming
    aviation from a ground-based system of air traffic control to a
    satellite-based system of air traffic management. We continue to work
    in full partnership with industry, other agencies and departments, and
    our labor groups to achieve a shared vision, leveraging powerful
    technologies and setting new standards for the future of global
    aviation.
        Our fiscal year 2012 budget request bolsters FAA's NextGen
    investment to $1,237 million, distributed among F&E programs ($1,135
    million), RE&D ($77 million), and Operations activities ($25 million).
        The FAA continues to support the Radio Technical Commission for
    Aeronautics (RTCA) NextGen mid-term implementation task force
    recommendations. Our fiscal year 2012 budget request further emphasizes
    our commitments in the areas of surface, metroplex, runway access,
    cruise, as well as some cross-cutting recommendations. As FAA moves
    forward on NextGen implementation, we will continue to evaluate and
    adjust our strategies, priorities and deployment timelines in full
    collaboration with aviation stakeholders.
        We have also been working hard at our Nation's airports to reduce
    delays and improve the environment with NextGen initiatives that help
    curb fuel burn and emissions by improving surface efficiencies. We move
    forward with these initiatives knowing we might have to make
    adjustments due to new information, program interdependencies,
    realignment of priorities, and other changes that can't always be
    anticipated as we pursue our mid-term operational vision.
        Fiscal year 2012 promises to be every bit as productive as last
    year. Design and implementation teams will focus on streamlining
    arrival and departure traffic at clustered metroplex airports. Our work
    on data communications is setting the stage for the delivery of a
    NextGen technology that the 2009 RTCA task force identified as a
    priority. And the report of our ADS-B In rulemaking committee, due in
    September, will give us an indication of which cockpit-based ADS-B
    applications may be most important to the aviation community.
        Our fiscal year 2012 budget includes $9 million in the Operations
    account for 30 new AVS staff to support the certification and oversight
    of NextGen systems and procedures. They will play a pivotal role in the
    implementation of several NextGen initiatives including efficient
    aircraft designs, revolutionary cockpits, data link communications, new
    interactive instrumentation, SMS, and aviation safety information
    analysis and sharing (ASIAS). This will enable AVS to review, process,
    and certify new NextGen-related technology applications from aircraft
    manufacturers and operators, as well as evaluate the safety aspects of
    changes in the airspace system proposed by the ATO. We also are
    striving to streamline our own internal processes to ensure that the
    NextGen capabilities emerging from our test beds and research centers
    begin producing operator benefits as quickly and safely as possible.
    The new policies, standards, and guidance produced by these additional
    staff will facilitate the transition of maturing NextGen research and
    development toward implementation.
        ADS-B is a proven centerpiece component of NextGen, evolving from a
    radar-based system to a sophisticated satellite-derived aircraft
    location data system. Future ADS-B applications will provide
    surveillance, like radar, but will offer greater precision and
    additional services, such as weather and traffic information for
    pilots. In 2010, we successfully integrated ADS-B into all four air
    traffic control automation platforms at key sites across the country.
    Our ADS-B technology deployed in the Gulf of Mexico has opened up
    250,000 square miles of new, positively controlled airspace in the
    gulf, in an area where radar cannot reach.
        We cleared the way to begin integrating ADS-B into FAA air traffic
    control facilities nationwide, and to train both our workforce and
    users. We have issued our ADS-B Out rule requiring aircraft operating
    in most controlled airspace to be equipped to broadcast their position
    to the ADS-B network by the start of 2020. This rule allows
    manufacturers to start mass-producing certified ADS-B avionics, which
    we believe will drive prices down, addressing a key concern of the
    operators.
        Our budget request includes $285 million for our continued rollout
    of ADS-B. This will ensure that our deployment of the ground
    infrastructure that will support ADS-B surveillance remains on time and
    on budget. We are installing more than 800 ground transceiver stations
    nationwide, and 330 ground transceiver stations have been installed to
    date. Of these, 260 are operationally providing services in the NAS.
    FAA plans to complete the ADS-B network in 2013.
        The budget designates $200 million from the President's $50 billion
    ``up-front boost'' in support of NextGen research, so we can stay on
    the forefront of the technology. We have enjoyed success in our early
    efforts to leverage surface data sharing in support of collaborative
    surface traffic management at select locations. We must continue
    developing innovative programs to manage air traffic and provide better
    weather data to general aviation and commercial carriers alike.
        The FAA has already produced a significant number of performance-
    based navigation (PBN) routes and procedures, exceeding our fiscal year
    2010 goal. Our fiscal year 2012 request also includes $26 million to
    improve performance-based GPS-based precision approach and departure
    procedures, better known as area navigation/required navigation
    performance (RNAV-RNP), at airports across the country. Performance-
    based navigation offers our airline industry better routes, added
    capacity, improved on-time performance and lower fuel bills. Our
    country benefits from reduced airspace congestion, more efficient air
    travel, reduced emissions, and a reduced dependency on oil.
        There is a strong business case for NextGen that many companies
    have already embraced. They are already seeing fuel savings. Fuel
    represents about 40 percent of an airline's total expenses, on average,
    and the cost of jet fuel has increased significantly in the last 6
    months. Southwest Airlines started using the precision procedures at a
    dozen airports this year and estimates it will save $60 million per
    year in fuel when it uses NextGen arrival procedures at airports across
    the country. Helicopters in the Gulf of Mexico have benefited from ADS-
    B technology, saving up to 10 minutes and 96 pounds of fuel each
    flight. Airlines flying over the Pacific Ocean are taking advantage of
    a combination of improved capabilities to save 200 to 300 gallons per
    flight. This represents a significant return on their investment, while
    justifying ours.
        Alaska Airlines has long been a NextGen pioneer and is the only
    U.S. carrier to fully equip its entire fleet for high-performance GPS-
    based procedures. This allows aircraft to navigate precisely through
    mountainous terrain in low-visibility conditions. The company estimates
    it would have canceled 729 flights last year into Juneau alone due to
    bad weather if it were not for the GPS-based approaches. Alaska
    Airlines saved $7.5 million last year by making these flights, safely
    transporting passengers to their respective destinations without
    diversions or ground holds.
        The FAA will maintain an ongoing focus on top priorities for the
    development and implementation of NextGen. The detailed planning that
    supports NextGen--including the NAS Enterprise Architecture (EA) and
    the NextGen Segment Implementation Plans (NSIP)--enable cost-effective
    decisions for NextGen projects. Cross program dependencies are captured
    on EA roadmaps, which assist planners in assessing impacts and
    developing alternative plans. The NSIP documents linkages among
    programs and promotes coordination and risk management to support cost-
    effective investments in NextGen.
        As we move forward with NextGen, our goal is to reach the next
    level of safety and prepare our workforce for the future. We will
    continue to work closely with industry to implement new technologies
    and procedures that are sustainable. And we want to work with other
    countries to establish uniform standards around the globe.

    The Airport and Airway Trust Fund
        The Airport and Airway Trust Fund provides all of the funding for
    FAA's airport improvement, facilities and equipment, and research and
    development activities, as well as a share of FAA's operations. As of
    the end of last fiscal year, the Trust Fund had a cash balance of
    approximately $9.4 billion, of which $770 million remains uncommitted.
    The AIR-21 formula for calculating Trust Fund appropriations safeguards
    the future solvency of the Trust Fund by ensuring that expenditures
    will not exceed projected revenue. If revenue forecasts are accurate,
    the uncommitted balance will remain relatively stable for fiscal year
    2012.

    Reauthorization
        We are grateful for the considerable efforts the Congress has made
    to prepare an FAA reauthorization bill. As you already know, the
    current and 18th extension expires on May 31. The budgetary and
    operational uncertainties of repeated extensions make running the FAA
    much more difficult, which makes the passage of a multi-year bill
    vital. Most notably, delaying a multi-year reauthorization has produced
    several hurdles for managing and funding AIP.
        While the administration supports the enactment of a multiyear
    reauthorization bill, the funding levels in the House-passed bill for
    FAA operations and air traffic modernization represent significant
    reductions from levels proposed by the administration. While we will
    never reduce our commitment to safety, if funding were appropriated at
    the levels proposed in the bill, the safe and efficient movement of air
    traffic in the air and on the ground would be degraded--today and in
    the future. In addition, the administrative funding levels for AIP in
    the House bill, if enacted, will seriously undermine the
    administration's ability to execute congressionally mandated airport
    programs.
        The administration looks forward to working with the Congress to
    craft final legislation that will provide adequate funding
    authorization for infrastructure investment, enhance the efficiency and
    safety of the national airspace, accelerate and streamline
    implementation of NextGen, and advance research and sustainable
    technologies to improve efficiencies and reduce environmental impacts.

                                     SAFETY

        Safety is FAA's primary mission and our 2012 budget request
    reflects this most important of strategic objectives. We have
    identified and mitigated many of the major risks in the system and we
    will continue to act on the remaining safety challenges and keep air
    travelers safe. Approximately 49 percent of our fiscal year 2012 budget
    will be required to maintain and improve the agency's safety programs.
    Our day-to-day operations in the four key programs of air traffic, AVS,
    airports, and commercial space transportation contribute toward a
    reduction in air transportation-related injuries and fatalities.
        The FAA continues to address concerns over capacity and safety with
    increased vigilance and professionalism. The flying public must have
    the highest confidence that the airplanes they board are properly
    designed, produced, operated, and maintained. They must know that their
    pilots and air traffic controllers are qualified, trained for their
    mission, and fit for duty. This year we continue to take AVS to a new
    level, making aggressive effort to take advantage of the latest
    research on fatigue to create a rule on pilot flight, duty and rest.
    Our landmark proposal combats fatigue among commercial pilots by
    setting new flight time, duty and rest requirements based on fatigue
    science. Additional rulemaking proposals will be put forward this year,
    such as redefining requirements for pilot certification and
    qualifications, flight crewmember training, leadership and professional
    development.
        The FAA's implementation of an SMS is a critical component of our
    overall approach to safety. SMS is a systematic and continuous
    management process based on proactive identification of hazards and
    analyses of their risk. SMS gives us the wherewithal to gather
    information that takes safety to the next level. Our ASIAS team gathers
    crucial safety information from various data sources and uses
    sophisticated analysis tools to detect trends, identify precursors, and
    assess risks. We are pushing the science of advanced data analysis,
    developing cutting edge tools to find emerging threats, as well as
    identifying previously undiscovered risks that are buried in terabytes
    of safety information.
        AVS inspectors, engineers, and other staff increases are key to
    leveraging standardized SMS processes to implement an integrated, risk-
    based method of oversight while supporting FAA's efforts in rulemaking,
    certification, and outreach activities that will move NextGen forward.
        The FAA will continue to work on focus areas for reducing aviation
    related injuries and fatalities, such as the air tour industry and in
    helicopter emergency medical services (HEMS). The HEMS weather tool
    will be enhanced in 2012 to provide additional altitude and location
    specific data to increase safety. The FAA will collaborate with NASA to
    develop measurement technology and forecast capability of the high ice
    water content conditions that represent a critical safety hazard.
        The FAA places a high priority on initiatives to reduce runway
    incursions and excursions. We continue to implement ambitious training
    programs for pilots, controllers, and airport operators. We will
    implement solutions through technologies and advanced programs such as
    runway status lights, airport surface detection equipment, engineered
    materials arresting systems, improved runway safety areas, and others.
    The Runway Incursion Reduction Program remains a catalyst for
    acquisition of promising safety technologies that have reached a level
    of maturity appropriate for transition and implementation into the NAS.
        The FAA's mandate for AVS includes leading the world safely into an
    exciting new era where international spaceports, commercial space
    transportation and orbital tourism are already becoming a reality. Last
    year, there were four licensed launches, bringing the overall total to
    more than 200, without any fatalities, serious injuries or property
    damage to the public. Our fiscal year 2012 budget request allows us to
    maintain a spotless industry record for safety in the rapidly
    developing industry of commercial human space flight. The FAA will
    develop safety requirements, policies, processes and procedures to
    address and safeguard this bourgeoning industry.
        The FAA's 2012 budget supports continued AVS research, focusing on
    critical areas such as UAS, fire and structural safety, human factors,
    and airworthiness. It further supports enhanced safety and pavement
    airport technology research. Weather systems research continues in
    naturally occurring atmospheric hazards including turbulence, severe
    convective activity, aircraft icing, and restricted visibility.

                              STATE OF GOOD REPAIR

        As good stewards of our aviation system, we apply asset management
    principles proactively to maintain and modernize our airport runways.
    We recognize the safety benefits of ensuring that pavement, marking and
    lighting at airports identified in the National Plan of Integrated
    Airport Systems (NPIAS) meet current safety and design standards.
        Airport infrastructures, particularly airfield facilities, are
    exposed to constant heavy use and harsh environmental conditions.
    Runways, taxiways, and aprons are designed to withstand the heavy
    equipment that operates on them, but even so these facilities require
    frequent maintenance and rehabilitation in order to remain in good
    working condition. Runways and taxiways must be kept clear of snow,
    ice, and ponding water that can jeopardize aircraft directional control
    or braking action. Chemicals and plowing, as well as freeze-thaw
    cycles, all take a toll on runways, taxiways, and other paved areas.
    The smallest bit of broken asphalt or concrete can represent a major
    safety hazard to aircraft.
        We have had a target to ensure that 93 percent of runways are in
    good condition for the past several years, and we have exceeded that
    goal, most recently reaching 97.2 percent. AIP grants and PFC funding
    will continue to support this goal by funding airport pavement and
    lighting system rehabilitation projects, treatments to minimize
    hydroplaning in wet conditions, obstruction removal in runway approach
    zones, perimeter fencing to prevent wildlife entry, and aircraft
    firefighting equipment. By continuing to surpass this target, we are
    not only achieving the goal of a state of good repair, but we are also
    contributing to our overall primary goal of safety.

                            ECONOMIC COMPETITIVENESS

        NextGen remains our most critical investment to ensure our economic
    competitiveness on the global market. NextGen involves the total
    overhaul of our NAS to make air travel more convenient and dependable
    while ensuring our stakeholders have the safest and most secure flights
    possible. Technological advancement and integration of new systems, new
    procedures, aircraft performance capabilities, engines, airframes,
    renewable fuel technologies, new supporting infrastructure, and new
    ways to do business as the Air Transportation System will keep the
    United States globally competitive. We have partnered with industry in
    our CLEEN technology program to develop new technologies to reduce
    aircraft noise, emissions, and fuel burn, and to advance sustainable
    alternative aviation fuels.
        The NextGen portfolio of investments focuses on the implementation
    and integration of key NextGen transformational technologies. The
    capabilities these technologies provide begin a shift of information
    flow from the ground to the cockpit. These include:
      --Automatic Dependent Surveillance-Broadcast (ADS-B);
      --System-Wide Information Management (SWIM);
      --Data Communications;
      --NextGen Network-Enabled Weather (NNEW);
      --Collaborative Air Traffic Management Technologies (CATMT);
      --Time-Based Flow Management (TBFM); and
      --NAS Voice Switch (NVS).
        Our NextGen efforts further include supporting performance-based
    navigation (RNP/RNAV) between select metropolitan areas. Deployed over
    a 3- to 4-year period, these high-altitude performance-based routes
    will provide increased efficiency and flexibility to the aircraft using
    them, as well as significant savings in fuel costs and usage.
        We have already seen the benefits of implementing ADS-B in the Gulf
    of Mexico. For one major helicopter operator in the gulf, only 14
    percent of their flight hours in 2009 were flown by instrument flight
    rules (IFR). But in 2010, the first full year ADS-B was available, the
    percentage went up to nearly 21 percent. And just in the first 2 months
    of this year, 36 percent of flight hours were IFR This means that this
    very important airspace is more accessible, more of the time thanks to
    NextGen innovation.
        NextGen will also provide numerous benefits for the general
    aviation community by facilitating better access to airports, and
    providing more complete weather and traffic information. In addition,
    even those aircraft that are not fully equipped will benefit from the
    improved traffic flow that NextGen will achieve.
        Implementation of NextGen technologies and capabilities, with the
    resulting benefits to economic growth in large and small communities
    around the Nation, is essential if the United States is to maintain its
    global aviation leadership. Timely and effective progress on NextGen
    helps the U.S. aviation sector sustain this position.

                          ENVIRONMENTAL SUSTAINABILITY

        Environmental protection and addressing the energy challenge are
    vital elements to sustaining the future of United States air
    transportation viability and global leadership. We are continuing
    efforts to reduce greenhouse gas emissions, improve water use
    efficiency, prevent pollution, and improve building energy consumption.
        Environmental pressures on the national and international aviation
    system will continue to increase as growth in aviation activity
    returns. FAA supports DOT's environmental sustainability outcomes to
    reduce carbon emissions, improve energy efficiency, and reduce
    dependence on oil. We are reducing transportation-related pollution and
    impacts on the ecosystems while increasing the use of environmentally
    sustainable practices in the transportation sector.
        We are committed to managing aviation's growth while reducing the
    negative impacts of aviation noise and air emissions. Through increased
    efforts on the CLEEN initiative, FAA will develop and mature clean and
    quiet technologies and advance alternative fuels. The Commercial
    Aviation Alternative Fuel Initiative is moving forward to qualify and
    approve new aviation alternative fuels for operational use. And by the
    end of this year we should have approval for a renewable biofuel for
    commercial aircraft made from plants, algae or other sustainable
    sources. These alternative jet fuels are ``drop-in fuels.'' There's no
    need to change the engines or equipment. The source would be renewable
    and would reduce greenhouse gases.
        Sustainable alternative jet fuels offer benefits for both our
    environment and our economy. They can help stabilize supply and the
    cost volatility in the jet fuel market. In 2010, U.S. airlines spent
    $36 billion on jet fuel. This represents $21 billion more than in 2000
    even though the airlines consumed 3 billion gallons less.
        The budget request supports identifying and exploring advances in
    communication, navigation and surveillance technology to advance
    aircraft arrival and departure, surface movements, and en route/oceanic
    procedures for reduced noise, fuel burn, and engine emissions. It also
    supports updating and enhancing the Voluntary Airport Low Emissions
    Program so that airports located in nonattainment or maintenance areas
    for National Ambient Air Quality Standards will have continued
    opportunities to reduce air emissions.
        In addition, we are working to mitigate noise impacts for thousands
    of people exposed to a day/night sound level (the energy-averaged sound
    level metric used by the aviation industry to determine the impact of
    noise) equal to or greater than 65 decibels through ongoing noise
    compatibility efforts. These efforts include the purchase and
    relocation of residences and businesses, the soundproofing of
    residences and buildings used for educational or medical purposes, the
    purchase and installation of noise barriers or monitors, recommended
    land use planning, and public outreach.

                           ORGANIZATIONAL EXCELLENCE

        The fiscal year 2012 budget request provides for a motivated, well-
    trained, and dynamic workforce that possesses the vital resources and
    reliable data necessary to support the continued success of FAA's
    mission for safety and efficiency. It further includes enhanced cost-
    control measures to ensure savings that can be effectively managed to
    fund mission-critical initiatives.
        One of the key challenges we face is building the workforce of the
    future to meet the transition to NextGen. Effecting this transition
    will involve a systematic approach to getting the right number of
    people with the right skills, experience, and competencies in the right
    jobs at the right time.
        We will continue to ensure adequate numbers of safety staff.
    Workforce planning for mission-critical and key occupations will
    benefit our managers as they make staffing decisions to achieve program
    goals based on a rigorous analysis of their organization's activities,
    workforce and expected technological advances. The flying public will
    benefit from a better prepared and well trained workforce.
        The FAA is delivering programs that build leadership capabilities,
    support professional development and promote continuous learning at
    executive, manager, and employee levels. The development of our
    executive corps is grounded in creating a culture of accountability and
    professionalism. Building stronger leadership within the agency helps
    us to achieve strategic goals and manage people and resources
    effectively while driving continuous improvement.
        Part of our organizational excellence goal is to protect agency IT
    assets from cyber-attacks, to ensure alignment between IT investment
    and agency business needs, and provide certain enterprise-wide shared
    services. The FAA's CSMC is a core component of our overall Information
    Security Services. CSMC is tasked with protecting our information
    infrastructure using advanced cyber defense strategies. The CSMC works
    to enhance our architecture to include cybersecurity, to harden
    individual systems and networking elements, improve recover rate times,
    and enhance boundary protection by completing remediation of
    vulnerabilities, improved information sharing, and systemic monitoring
    of systems.
        The budget request supports activities to remediate moderate
    vulnerabilities identified for our information systems that support
    human resources, finance, security/safety, and air traffic services. In
    the last few years, we have focused on high-risk vulnerabilities. Now
    the focus is on remediating the moderate vulnerabilities. The request
    will cover contracts that will conduct information system assessments,
    certifications, recertifications, and risk mitigation activities. The
    funding will allow FAA to handle risks to its information systems
    sooner, which will save out-year dollars and prevent higher and more
    costly system vulnerabilities and remediations.
        The fiscal year 2012 budget request supports continued efforts to
    manage our acquisitions responsibly so we deliver programs on time and
    on budget. In addition, we are implementing a Real Property Asset
    Management Plan to ensure timely disposition of assets are measured by
    the number of days to process inactive assets. Since 2000, FAA has
    removed more than $341 million in real property assets from our
    portfolio.

                                   CONCLUSION

        Despite a challenging economic environment, 713 million passengers
    flew on U.S. airlines in 2010. We anticipate stronger growth this year,
    with a projected increase of 3.5 percent. Economic indicators project
    that we are rapidly approaching a historic milestone of carrying 1
    billion passengers on U.S. airlines annually within the next decade. To
    offer additional perspective, that increase represents an additional
    300 million passengers per year, roughly equal to the entire population
    of the United States.
        In this age of global competition, we have a clear opportunity to
    invest now in America's future even as we prepare our world class
    aviation system to meet the demands of that future. NextGen
    technologies offer our Nation a worthy opportunity for investment in
    safety and innovation. Delaying infrastructure investment means the
    long-term cost to our system, passengers, and environment will far
    exceed the cost of a timely deployment today. NextGen technologies are
    an investment in aviation's continued viability, and will produce
    economic benefits for decades--far beyond their cost. Our Nation and
    airline industry will yield immediate and measurable financial returns
    that will bolster America's future economic stability and continued
    growth, as we continue to meet the challenge of giving the world new
    ways to fly.
        Our Nation's continued economic recovery demands a cautious and
    well-considered fiscal policy. We have to invest carefully in America's
    future where we can be certain of reliable returns.
        Aviation is a growth industry worthy of that investment,
    representing a key element of our country's economy. The FAA is already
    delivering on the promise of tomorrow, and we are grateful that the
    Congress continues to recognize our ongoing mission of safety and
    modernization as a national priority.

        Senator Murray. Thank you very much.
        Mr. Scovel.

                     STATEMENT OF HON. CALVIN L. SCOVEL III

        Mr. Scovel. Madam Chairman, Ranking Member Collins, members
    of the subcommittee, thank you for inviting me here today to
    testify on FAA's proposed fiscal year 2012 budget.
        Like other Federal agencies, FAA faces the formidable
    challenge of achieving its goals in a constrained fiscal
    environment. For FAA, this means ensuring safe operations while
    implementing NextGen, a multi-billion-dollar investment for
    increasing national airspace capacity.
        Our past and ongoing work has shown that a lack of
    comprehensive analyses and rigorous oversight have created
    significant challenges for FAA in meeting its safety,
    modernization, and financial goals. My testimony will outline
    our ongoing concerns related to FAA's efforts to improve safety
    and accommodate aviation growth.
        Maintaining a safe national air transportation system has
    been an ongoing challenge for FAA. Between fiscal years 2009
    and 2010, operational errors by air traffic controllers
    increased 53 percent. FAA primarily attributes this increase to
    the introduction of voluntary, nonpunitive safety reporting.
    However, other factors may contribute to the increase, such as
    the introduction of an automated tool to detect operational
    errors in terminal radar approach controls (TRACONs) and the
    large influx of new controllers in training. Some critical
    facilities have 40 percent of their workforce in training.
        FAA faces a similar challenge with its inspector workforce.
    The agency is requesting almost an additional $12 million to
    support a potential increase of more than 100 inspectors.
    However, we have concerns about FAA's methodology for assigning
    inspectors to high-risk areas and the training they receive on
    how to assess risk. Oversight of aircraft repair stations also
    remains a concern, despite FAA's implementation of a risk-based
    system in 2007.
        Reducing pilot error and fatigue also remains a key safety
    challenge, especially given industry opposition to proposed
    rules on pilot training and rest requirements. FAA's proposed
    requirements for more realistic flight scenarios and special
    hazard training could significantly enhance pilot training.
    However, FAA still lacks adequate systems for tracking poorly
    performing pilots and overseeing pilot training programs. FAA's
    proposed rule for new pilot rest requirements is an important,
    much needed step but may also lack all the elements needed to
    mitigate pilot fatigue.
        As FAA works to address these safety concerns, it must also
    address key challenges with NextGen's advancement. FAA needs to
    make decisions about NextGen's overall design--decisions that
    will impact the program's long-term benefits and costs and
    overcome problems in NextGen systems.
        In particular, FAA needs to resolve technical issues with
    ERAM, a $2.1 billion system for processing en route flight
    data. System testing revealed more than 200 software-related
    problems, pushing estimated completion dates out several years
    and potentially increasing costs by as much as $500 million.
    Cost escalations of this magnitude will affect FAA's capital
    budget and could crowd out other projects.
        At the same time, FAA must tackle known vulnerabilities in
    key programs for delivering critical NextGen capabilities. FAA
    plans to spend more than $2 billion on these programs over the
    next 5 years, but has yet to establish consistent requirements,
    clear lines of accountability, or an integrated plan that will
    address the complex linkages between programs. Without clearly
    defined requirements and program priorities, problems with cost
    and schedule estimates will continue.
        To realize the full benefits of NextGen, FAA must maximize
    capacity at our Nation's airports. Over the past decade, more
    than 20 runways have been built, reconfigured, or extended.
    However, funding, environmental, and legal concerns could
    impede this progress. As runway projects move forward, FAA must
    maintain vigilant oversight to ensure that they are completed
    on time and within budget.
        Rigorous oversight of DOT's $1.1 billion American Recovery
    and Reinvestment Act of 2009 (ARRA)-funded airport grants is
    critical to ensuring funds are available to meet needed
    improvements. Last September, FAA consultants determined that
    14 of 24 airports did not have adequate support to justify
    their ARRA payment requests, a finding consistent with those we
    reported in December. Specifically, we identified $6 million in
    improper payments made to non-ARRA-funded Airport Improvement
    Program (AIP) grantees due in part to weaknesses in FAA's
    financial oversight strategies.
        Continued schedule delays and program weaknesses in FAA's
    safety, NextGen, and airport infrastructure programs will have
    a significant impact on its current and future budgets. FAA
    needs sound strategies for identifying impediments to meeting
    its goals that will allow the agency to prioritize its
    oversight and maximize its investments.

                               PREPARED STATEMENT

        Madam Chairman, this concludes my statement. I would be
    happy to answer any questions you or members of the
    subcommittee may have.
        [The statement follows:]

                Prepared Statement of Hon. Calvin L. Scovel III

        Madam Chairman and members of the subcommittee: Thank you for
    inviting me to testify today on the Federal Aviation Administration's
    (FAA) fiscal year 2012 budget request. As you know, FAA faces
    significant challenges to control costs in a tight budget environment
    while ensuring a safe and modern National Airspace System (NAS). This
    past year, FAA has taken actions to address many significant safety
    issues, most notably with its recent airworthiness directive to inspect
    aging Boeing 737s in response to a recent in-flight hull breach.
    However, much work remains to meet other key goals, including improving
    pilot and air traffic controller training, effectively managing its
    multibillion-dollar capital investments for the Next Generation Air
    Transportation System (NextGen), and overseeing Federal airport grants.
        My testimony today focuses on three major challenges FAA faces:
      --addressing ongoing safety concerns;
      --managing NextGen advancement while controlling costs; and
      --maximizing airport infrastructure funding to accommodate aviation
            growth.
        In summary, FAA faces the formidable challenge of safely operating
    and maintaining an increasingly strained NAS system while developing
    the next generation of air traffic control--all within a severe
    budgetary environment. FAA will require resources to address safety
    issues related to pilot, controller, and inspector workforces and to
    make critical, long-delayed decisions about NextGen's overall design--
    decisions that will impact the program's long-term costs and benefits.
    At the same time, FAA requires better controls to instill
    accountability and better manage airport infrastructure contracts and
    grants. FAA's fiscal year 2012 budget request reflects the agency's
    plans to improve its NextGen efforts, but it also reveals the
    difficulties FAA has had in controlling its costs and schedules.
    Effectively balancing agency priorities now is essential to deliver a
    future system to travelers and airspace users that provides a return on
    taxpayers' investment, functions safely and efficiently, and adapts to
    growing capacity needs and industry changes for many years to come.

                                   BACKGROUND

        FAA's budget funds four accounts:
      --Operations;
        --Operations funds most of FAA's day-to-day activities, including
                the agency's safety oversight and air traffic control
                functions.
      --Facilities and equipment (F&E);
        --F&E funds the agency's NextGen initiatives and other
                modernization activities such as improving aging
                infrastructure, power systems, navigational aids, and
                weather systems.
      --The Airport Improvement Program (AIP); and
        --AIP funds grants to airports to pay for runway construction and
                other related projects.
      --Research, engineering, and development (RE&D).
        --RE&D funds NextGen and other research areas such as fire research
                and safety, aging aircraft, and other activities.
        FAA's total fiscal year 2012 budget request of $18.7 billion
    represents a 17-percent increase more than this year's appropriated
    amount and includes significant funding increases for infrastructure
    and modernization projects over its fiscal years 2010 and 2011 budgets
    (see table 1).

                             TABLE 1.--FAA BUDGET FISCAL YEAR 2010 THROUGH FISCAL YEAR 2012
                                                  [Dollars in millions]
    ----------------------------------------------------------------------------------------------------------------
                                                                                                       Increase from
                         Account                        2010 Actual    2011 Enacted    2012 Request    2011 to 2012
                                                                                                         (percent)
    ----------------------------------------------------------------------------------------------------------------
    Operations......................................          $9,351          $9,514          $9,823               3
    F&E.............................................           2,928           2,731           3,120              14
    AIP.............................................           3,121           3,515           5,524              57
    RE&D............................................             191             170             190              12
                                                     ---------------------------------------------------------------
          Total.....................................          15,591      \1\ 15,929          18,657              17
    ----------------------------------------------------------------------------------------------------------------
    Source: FAA's Office of Budget.
    \1\ Figures may not add up due to rounding.

        FAA proposes to shift the focus of its AIP account--which
    represents the largest requested increase--to smaller commercial and
    general aviation airports and eliminate guaranteed AIP funding for
    large- and medium-hub airports. The proposal would also increase the
    passenger facility charge (PFC) limit from $4.50 to $7 per enplanement
    for all eligible airports, giving large- and medium-hub airports
    greater flexibility to generate their own revenue.
        Almost 37 percent of FAA's F&E account request, which represents
    the second largest increase, is allocated for NextGen activities. Most
    of the increase in FAA's Operations budget is to fund inflation
    adjustments and the National Air Traffic Controllers Association
    (NATCA) contract. Nearly 71 percent of the total requested amount for
    Operations is used to pay for the salaries and benefits of most FAA
    employees, including safety inspectors and air traffic controllers.
        FAA is currently financed by two mechanisms:
      --excise taxes deposited into the Airport and Airway Trust Fund; and
      --a General Fund contribution.
        While the General Fund has paid for about one-third of FAA's total
    budget the past 2 years, in fiscal year 2012 the General Fund is
    expected to contribute $8.2 billion, or 44 percent, toward the total
    budget. In addition, past differences between FAA's budget, Trust Fund
    revenues, and General Fund contribution were bridged by drawing down
    the Trust Fund's uncommitted balance. These draw downs have caused a
    90-percent decline in the uncommitted balance, from $7.3 billion at the
    end of fiscal year 2001 to $770 million at the end of fiscal year 2010
    (see Figure 1).

                       ADDRESSING ONGOING SAFETY CONCERNS

        The United States has the world's safest air transportation system;
    however, our current audit work and recent events, such as the near
    mid-air collision between an American Airlines flight and two Air Force
    planes near New York City, underscore the need for FAA to take
    additional actions to improve its safety oversight functions. Key
    safety issues that FAA needs to address include a significant increase
    in operational errors, controller staffing and training at air traffic
    control critical facilities, oversight of air carrier and repair
    stations, and pilot training and fatigue.

    Causes of Increases in Air Traffic Controllers' Operational Errors Are
            Not Fully Known
        The number of operational errors by air traffic controllers
    increased by 53 percent between fiscal years 2009 and 2010--from 1,234
    to 1,887. According to FAA, the rise in errors is primarily due to the
    introduction of voluntary, nonpunitive safety reporting programs, such
    as its new Air Traffic Safety Action Program (ATSAP). ATSAP encourages
    controllers to voluntarily report operational errors in an effort to
    better capture the actual number of errors and identify and address
    their root causes. However, other factors may also contribute to the
    recent increases, including the large influx of new controllers in
    training and the implementation of the Traffic Analysis and Review
    Program (TARP), an automated system to identify when operational errors
    (or other losses of separation between aircraft) occur at terminal
    facilities.
        The National Transportation Safety Board (NTSB) has raised concerns
    about the reliability of FAA's process for assessing and reporting
    incidents involving losses of separation and is currently reviewing
    reports of Traffic Collision and Avoidance Systems (TCAS)
    advisories.\1\ Since NTSB issued its final rule requiring aircraft
    operators to report certain TCAS advisories in January 2010, the Board
    has received nearly 950 reports of these collision advisories and has
    initiated investigations into nine of the more severe incidents.\2\
    These mid-air incidents raise further concerns about controller
    performance and how FAA classifies, reports, and mitigates losses of
    aircraft separation within these new reporting systems. At the request
    of members of the Senate Committee on Commerce, Science, and
    Transportation, as well as the ranking member of the House
    Transportation and Infrastructure Subcommittee on Aviation, we will
    begin two audits to assess FAA's implementation and oversight of ATSAP
    and evaluate FAA's process for tracking and reporting near mid-air
    collisions and mitigating those risks.
    ---------------------------------------------------------------------------
        \1\ An onboard TCAS issues advisories for pilots to take evasive
    actions when the system detects a potential collision with other
    aircraft.
        \2\ After review by NTSB, many of these reports were considered
    ``nuisance alerts'' (i.e., situations in which there was no collision
    risk, but TCAS generated a resolution advisory). However, about 260
    reports required additional data in order for NTSB to understand and
    evaluate the circumstances that caused the apparent conflict and to
    determine whether further action was warranted.
    ---------------------------------------------------------------------------

    Critical Facilities May Need More Certified Professional Controllers To
            Effectively Train New Controllers
        FAA is taking action to hire and train nearly 11,000 new
    controllers through fiscal year 2020 to replace large numbers of
    retiring controllers hired after the 1981 strike. However, FAA must
    focus on staffing and controller skill levels at those facilities that
    are most critical to NAS operations. As of March 2011, 25 percent of
    FAA's controller workforce was in training--compared to 15 percent in
    2004--meaning fewer certified controllers in the workforce to control
    air traffic and provide on-the-job training for new controllers. In
    addition, due to the attrition surge, FAA has had to assign newly hired
    controllers to complex air traffic control locations, such as southern
    California, Atlanta, Chicago, and New York. Normally, new hires would
    start their on-the-job training at less complex facilities and
    eventually transfer to a higher-level facility.
        While FAA has ongoing actions or plans to improve controller
    training and placement, some of the most critical facilities now have a
    significant percentage of their workforce in training. For example,
    Denver Terminal Radar Approach Control has 43 percent of its workforce
    in training, and LaGuardia Air Traffic Control Tower has 39 percent. We
    are reviewing FAA's plans to provide its critical facilities with
    appropriate controller staffing, training resources, and other support
    necessary to ensure continuity of facility operations. We expect to
    report on our results later this year.

    FAA Has Not Addressed Inspector Training and Staffing Issues That Would
            Enhance Its Risk-Based Oversight
        Since 2003, FAA has enhanced the Air Transportation Oversight
    System (ATOS), its risk-based oversight system for air carriers, by
    improving inspector guidance and completing key processes for analyzing
    inspection results. However, in December 2010, we identified additional
    improvements FAA needed to make to strengthen ATOS, such as requiring
    that inspectors' risk assessments include analyses of all available
    data sources--such as voluntary self-disclosure data--and changes that
    occurred in the airline industry, such as mergers and acquisitions. We
    also reported that ATOS implementation at smaller air carriers was
    hindered due to inspectors' frustrations with adapting ATOS principles
    to their operations, staffing limitations, and insufficient data to
    support ATOS's data-driven approach. A contributing factor may be that
    inspectors experienced gaps of 3 years or longer between when they
    received systems safety training and when they actually used the
    system. FAA is currently addressing our recommendations to ensure
    inspectors receive timely training and use all available data sources
    for more accurate and relevant air carrier risk assessments.
        Another concern has been FAA's inadequate oversight of aircraft
    repair stations, a weakness we reported on in 2003. While FAA
    strengthened its procedures for monitoring inspections of foreign
    repair stations that are conducted by aviation authorities on its
    behalf and implemented a risk-based system in 2007 to target repair
    stations with increased risk, concerns remain. As a result, the
    Congress directed us to assess FAA's oversight system for foreign and
    domestic repair stations. We began our review in January of this year.
        FAA must also ensure it targets limited resources to areas of
    greatest risk by placing its approximately 4,300 inspectors where they
    are most needed to effectively oversee a dynamic aviation industry. In
    a 2006 study directed by the Congress, the National Research Council
    concluded that FAA's methodology for allocating inspector resources was
    not effective and recommended that FAA develop a new approach. In
    response, FAA completed a new staffing model in October 2009. After
    completing the model, FAA tested it using actual staffing data to
    determine whether it was ready for full deployment. FAA used the model
    to assist in developing its fiscal year 2012 budget request for an
    additional $11.9 million to support an increase of up to 106
    inspectors. However, FAA is still refining the model to make it more
    reliable. As directed by the Congress, we are evaluating FAA inspector
    staffing and the new staffing model.

    FAA and Industry Have Not Fully Addressed Pilot Training and Fatigue
        Pilot training and fatigue continue to present challenges to FAA.
    The February 2009 fatal crash of Colgan Air flight 3407 underscores the
    importance of addressing these long-standing safety concerns. In
    January 2009, FAA issued a Notice of Proposed Rulemaking (NPRM) to
    revise crew training requirements by requiring more realistic training
    scenarios with a complete flight crew, using flight simulator devices,
    and working with new special hazard practices for pilots and crew
    members. Because of the extensive industry comments on this proposed
    rule, FAA plans to submit a Supplemental Notice of Proposed Rulemaking
    (SNPRM) to address the concerns. However, as of April 2011, the SNPRM
    had not been issued. While the proposed rule could significantly
    enhance pilot training programs, FAA still faces challenges tracking
    pilots with poor performance and training deficiencies and overseeing
    air carrier programs aimed at improving pilot skills.
        FAA has also taken steps to address pilot fatigue issues, as
    required by the Airline Safety and FAA Extension Act of 2010.\3\ In
    September 2010, FAA published an NPRM to institute new flight, duty,
    and rest requirements for pilots based on factors such as time of day
    flown and sleep consideration rather than type of flight operation.
    Issuing the NPRM was an important step toward changing outdated
    regulations. However, FAA has already received more than 2,500 comments
    from industry, most of which oppose the NPRM. Given industry's
    historical opposition to revamping rest rules, it will be a substantial
    challenge for FAA to finalize the rule by the congressionally mandated
    deadline of August 2011. Further, the NPRM would not require carriers
    to track pilots with lengthy commutes, a factor that can contribute to
    pilot fatigue. FAA officials stated that enforcing this requirement
    would be difficult and not necessarily result in responsible commuting.
    FAA instead issued draft advisory guidance on pilots' and carriers'
    responsibility to ensure proper rest before flying. However, without
    FAA and industry efforts to collect and analyze data on pilot
    commuting, the current proposed actions to mitigate fatigue in aviation
    may not fully address this critical safety issue.
    ---------------------------------------------------------------------------
        \3\ Airline Safety and Federal Aviation Administration Extension
    Act of 2010 Public Law 111-216, section 212 (August 2010).
    ---------------------------------------------------------------------------
             MANAGING NEXTGEN'S ADVANCEMENT WHILE CONTROLLING COSTS

        FAA is developing NextGen, a satellite-based air traffic control
    system intended to replace the current ground-based system, to better
    manage air traffic and meet future air travel demands. However, FAA
    faces several management challenges in implementing key NextGen
    programs in an efficient and cost-effective manner. These include
    mitigating ongoing cost increases and schedule delays with FAA's ERAM
    program that will impact several NextGen programs and capabilities,
    better managing contracts and its acquisition workforce to protect the
    taxpayers' interest, and keeping its operating costs from crowding out
    capital investments in NextGen.

    Uncertain Design Decisions Put NextGen's Cost and Schedule Targets at
            Risk
        FAA is making progress on near and mid-term NextGen efforts in
    response to recommendations from a government-industry task force but
    must address long-term cost, schedule, and performance issues.\4\ In
    response to one of the task force's most critical recommendations, FAA
    launched its ``metroplex initiative''--a 7-year effort aimed at
    improving airspace efficiency to reduce delays at 21 congested airports
    in major metropolitan areas. While FAA has completed studies at two
    prototype sites and plans to study five more sites this year, many
    unresolved issues could delay the effort and ultimately increase costs.
    For example, FAA has not established detailed milestones to complete
    initiatives at high-activity locations or a mechanism for integrating
    its metroplex initiative with other related task force recommendations,
    such as better managing airport surface operations. Further, FAA needs
    to resolve concerns that airline and air traffic facility officials
    have expressed about FAA's execution thus far, such as the slow pace of
    the effort and a lack of clearly defined benefits to airspace users.
    ---------------------------------------------------------------------------
        \4\ NextGen Mid-Term Implementation Task Force Report, September 9,
    2009.
    ---------------------------------------------------------------------------
        Realizing these benefits, however, depends on the timely deployment
    of new flight procedures. As we noted in our December 2010 report,\5\
    FAA's flight procedures are mostly overlays of existing routes, which
    do not provide shorter flight paths to alleviate congestion. Because
    FAA has mainly focused on developing a targeted number of procedures
    each year--not on measuring user benefits--airlines have not widely
    used the new procedures. At the same time, FAA faces several
    organizational, policy, logistical, and training challenges that could
    impede NextGen implementation in the midterm, including working across
    diverse agency lines of business.
    ---------------------------------------------------------------------------
        \5\ OIG report number AV-2011-025, ``FAA Needs To Implement More
    Efficient Performance-Based Navigation Procedures and Clarify the Role
    of Third Parties'', December 10, 2010.
    ---------------------------------------------------------------------------
        FAA's most recent NextGen Implementation Plan provides a framework
    for what NextGen will resemble in the 2015 to 2018 timeframe and
    broadly outlines the linkages between FAA and stakeholder investments.
    While the plan is responsive to the task force, it does not outline
    NextGen capabilities, timing, and costs, which FAA committed to in
    previous plans and budget requests to the Congress. For example, the
    plan does not discuss how delays in critical design decisions will
    affect NextGen performance. Delayed decisions include:
      --division of responsibility delegated to pilots in the cockpit and
            to controllers and FAA ground systems for tracking aircraft;
      --level of automation needed to support division of responsibility,
            ranging from today's largely manual flight management to a
            primarily automated system with little controller involvement;
            and
      --the number and locations of air traffic facilities needed to
            support NextGen.

    Unresolved Technical Problems With ERAM Have Resulted in Delays and
            Cost Increases
        Numerous technical problems with ERAM--the primary tool that will
    process en route flight data--have pushed schedules well beyond
    original completion dates and increased cost estimates by hundreds of
    millions of dollars. FAA planned to complete deployment of ERAM to 20
    en route facilities by the end of 2010 at a cost of $2.1 billion.
    However, ERAM testing at initial operating sites revealed more than 200
    software-related problems, such as radar processing failures, errors
    that tag flight data to the wrong aircraft, and hand-off problems
    between controllers. As a result of these problems at the initial
    sites, FAA postponed its plans to continue deployment of ERAM at
    additional sites--originally scheduled for December 2009.
        FAA is requesting $120 million for ERAM in its fiscal year 2012
    budget request and now plans to complete ERAM in 2014--a schedule slip
    of 4 years. However, FAA and its contractor plan to add new
    capabilities while attempting to resolve problems identified in earlier
    software versions, which could cause further schedule delays. New
    software releases have already exhibited problems, including a
    significant software failure that caused one site to revert back to
    using the legacy operating system for several weeks.
        While FAA estimates that delays with ERAM will translate into an
    additional $330 million to complete deployment, our work and a recent
    MITRE analysis suggest the total cost growth could be as much as $500
    million.\6\ Cost escalations of this magnitude will affect FAA's F&E
    budget and crowd other projects. Further, FAA will incur additional
    costs to sustain aging equipment longer than planned and retrain
    controllers on both the legacy and ERAM systems. The MITRE analysis
    cautions that implementing ERAM at more complex sites, like Chicago and
    New York, may require additional time and resources. Continued problems
    with ERAM will also affect both the cost and pace of FAA's other key
    NextGen efforts--some of which have already been allocated more than
    $500 million to integrate and align with ERAM. ERAM delays will also
    affect FAA's ability to develop trajectory-based operations \7\ and
    transition to a common automation platform for terminal and en route
    operations.
    ---------------------------------------------------------------------------
        \6\ MITRE Corporation and Massachusetts Institute of Technology/
    Lincoln Laboratory Report, Independent Assessment of the ERAM Program,
    October 15, 2010.
        \7\ Trajectory-based operations focus on more precisely managing
    aircraft from departure to arrival with the benefits of reduced fuel
    consumption, lower operating costs, and reduced emissions.
    ---------------------------------------------------------------------------
    FAA Lacks an Integrated Master Schedule To Mitigate Risks in NextGen's
            Transformational Programs
        FAA has not approved total program cost, schedule, or performance
    baselines for any of NextGen's transformational programs \8\ and faces
    significant risks and challenges to successfully implementing them.
    FAA's fiscal year 2012 budget request includes $590 million for the six
    programs, and the agency plans to spend more than $2 billion on them
    between 2012 and 2016. Three transformational programs that are
    critical to achieving streamlined and more efficient data sharing for
    airspace users face uncertainty with respect to what they will
    ultimately cost, when they will be completed, and what they will
    deliver.
    ---------------------------------------------------------------------------
        \8\ FAA's transformational programs, defined as programs directly
    related to the delivery of NextGen capabilities, will fundamentally
    change NAS by enhancing communications, improving the tracking of
    aircraft, and revamping overall air traffic management.
    ---------------------------------------------------------------------------
                Automatic Dependent Surveillance-Broadcast (ADS-B)
        ADS-B ($285 million requested for fiscal year 2012) is a satellite-
    based surveillance technology that combines the use of aircraft
    avionics and ground-based systems. FAA is planning to implement ADS-B
    in four segments but has only approved $1.7 billion for the initial two
    segments to deploy the system's ground infrastructure. FAA has deployed
    275 of the planned 800 radio ground stations and also published a final
    rule mandating that airspace users equip ADS-B avionics by 2020. As we
    noted in our October report,\9\ realizing the full range of ADS-B
    benefits will depend on:
    ---------------------------------------------------------------------------
        \9\ OIG report number AV-2011-002, ``FAA Faces Significant Risks in
    Implementing Automatic Dependent Surveillance-Broadcast Program and
    Realizing Benefits'', October 12, 2010.
    ---------------------------------------------------------------------------
      --finalizing requirements for capabilities to display traffic
            information in the cockpit;
      --modifying the systems controllers rely on to manage traffic;
      --addressing broadcast frequency congestion concerns;
      --implementing procedures for separating aircraft; and
      --assessing security vulnerabilities.
        These risks, if not successfully mitigated, could lead to cost,
    schedule, and performance shortfalls.
                System-Wide Information Management (SWIM)
        SWIM ($66 million requested for fiscal year 2012) is expected to
    form the basis for a secure network that manages and shares information
    more efficiently among all air traffic systems that will comprise
    NextGen. Key benefits expected from SWIM are streamlined data
    communications and real-time information that will improve air traffic
    management, enhance airspace capacity, reduce flight delays, and
    decrease costs for FAA and aviation users. FAA is planning to implement
    SWIM in three segments but has only approved funding for the first
    segment at an estimated cost of $284 million. FAA has already increased
    costs for the first segment by more than $100 million and delayed its
    completion by at least 2 years. Further, FAA has not established clear
    lines of accountability for overseeing how SWIM is developed and
    managed. Without a consistent vision of SWIM's requirements and clearly
    defined program priorities, the true cost and timeline to deploy SWIM
    and the realization of expected benefits are unknown. We have
    transmitted recommendations to FAA for improving SWIM and expect to
    issue our final report this spring.
                Data Communications (DataComm)
        DataComm ($150 million requested for fiscal year 2012) will provide
    two-way data communication between controllers and pilots that is
    analogous to wireless email. FAA plans to implement DataComm in at
    least two segments, and a final investment decision is not expected
    until fiscal year 2012. Total program costs are uncertain but estimated
    to be almost $3 billion. Developing and implementing DataComm is a
    complex, high-risk effort, and industry officials have expressed
    skepticism about FAA's ability to deliver on such a program because the
    agency abandoned a data link effort in the past due to cost concerns.
    The successful implementation of DataComm faces the challenges of
    integrating with FAA automation systems and overcoming users'
    reluctance to equip.
        FAA's approach of baselining smaller segments of larger programs
    may reduce some risks in the short-term, but as requirements continue
    to evolve, programs are left with no clear end-state and decisionmakers
    lack sufficient information to assess progress. Moreover, delays with
    one program can significantly slow another, since the programs have
    complex interdependencies and integration issues with FAA's existing
    automation and communications systems. While FAA recognizes the need
    for an integrated master schedule to manage the implementation of these
    NextGen capabilities, it has yet to develop one. Without a master
    schedule, FAA will continue to be challenged to fully address
    operational, technical, and programmatic risks and prioritize and make
    informed trade-offs among the programs.

    Contract Oversight and Administration Problems Contribute to Cost
            Overruns With FAA Acquisitions
        Our work on large FAA acquisition programs and high-risk
    procurements has repeatedly identified weaknesses in the agency's
    contract administration. For example, FAA awarded an $859 million
    contract for training air traffic controllers \10\ without correctly
    assessing how many controllers needed training or addressing the risk
    that the contractor's proposed instructor hours were too low. These
    weaknesses contributed to a $46 million cost overrun for the first 2
    years of the contract.
    ---------------------------------------------------------------------------
        \10\ OIG report number AV-2010-126, ``FAA's Air Traffic Controller
    Optimum Training Solution Contract: Sound Contract Management Practices
    are Needed to Achieve Program Outcomes'', September 30, 2010.
    ---------------------------------------------------------------------------
        Our ongoing work has similarly found weaknesses in FAA's cost and
    price analysis processes for noncompetitive contracts. In fiscal year
    2009, FAA obligated more than $541 million for more than 16,500
    noncompetitive contract actions. These contracts have a high risk of
    overpayment because the contractor is assured to receive the award.
    However, for 8 of the 25 contracts we reviewed, FAA did not perform
    effective cost and price analyses and was unable to demonstrate that
    prices paid were reasonable. We expect to issue our final report later
    this month.
        Another ongoing audit has identified concerns with FAA's Systems
    Engineering 2020 (SE-2020) contracts to augment FAA staff and support
    NextGen implementation. The contracts have a cumulative maximum value
    greater than $7 billion--the largest award in FAA history. To date, our
    assessment of FAA's contract award processes, oversight mechanisms, and
    performance-based methods found that they may not be adequate to
    achieve intended outcomes. We plan to issue our report later this year.
        At the same time, FAA faces challenges in maintaining an
    acquisition workforce with the skills needed to oversee its NextGen
    contracts. Currently, 20 percent of FAA's experienced acquisition
    workforce is eligible to retire, with a cumulative retirement
    eligibility of 40 percent by fiscal year 2015. FAA's Acquisition
    Workforce Plan outlines the acquisition competencies needed,
    establishes hiring strategies, and describes new certification and
    training programs.\11\ However, the plan excludes Federal and
    contractor acquisition employees working on FAA's support services
    contracts and technical officer representatives responsible for
    overseeing contracts vital to NextGen, such as ERAM. Further, FAA fell
    short of its planned hiring targets and hired less than 40 percent of
    the engineers needed to support acquisition programs. FAA's primary
    staffing needs are for engineers, which are critical to implementing
    NextGen programs. However, FAA could not accurately determine whether
    it hired enough engineers or program managers for NextGen because FAA's
    hiring data were either inaccurate or missing. FAA's tracking systems
    are also ineffective in monitoring the training and certification of
    its acquisition workforce. We expect to issue our final report on FAA's
    acquisition workforce this summer.
    ---------------------------------------------------------------------------
        \11\ FAA issued its workforce plan in 2009 and updated the plan in
    2010, projecting its acquisition workforce needs through fiscal year
    2014.
    ---------------------------------------------------------------------------
    Increasing Operating Costs Risk Crowding Out NextGen Capital
            Investments
        FAA estimates that the 2009 collective bargaining agreement with
    NATCA will cost the agency $669 million more than it would have cost to
    extend the work rules established in 2006 for 3 more years. In the
    past, our audit work found that uncontained increases in operating
    costs have crowded capital investments.
        Several factors in the agreement may further increase FAA's costs:
      --Most estimated costs are for increased salaries and benefits for
            controllers, but these will depend on the rate at which veteran
            controllers retire and are replaced by new controllers with
            lower salaries and benefits.
      --Negotiated memorandums of understanding (MOU) may incur additional
            costs. FAA has had problems with managing its MOUs in the past.
            For example, in 2003 we identified negotiated MOUs that
            resulted in millions of dollars in cost overruns.\12\ As a
            result of our review, FAA established controls that it believes
            will prevent additional costs with MOUs in the agreement.
            However, some local air traffic managers and regional managers
            are not strictly complying with these controls. FAA must
            consider these issues as well as its budgetary constraints when
            negotiating its next collective bargaining agreement.
    ---------------------------------------------------------------------------
        \12\ OIG report number AV-2003-059, ``FAA's Management of and
    Control Over Memorandums of Understanding'', September 12, 2003. OIG
    reports are available on our Web site: www.oig.dot.gov.
    ---------------------------------------------------------------------------
       MAXIMIZING AIRPORT INFRASTRUCTURE FUNDING TO ACCOMMODATE AVIATION
                                     GROWTH

        FAA projects that passenger traffic will grow by 3.7 percent
    annually each of the next 5 years, and that by 2021 there will be 1
    billion passengers. Ensuring enough capacity at the Nation's airports
    is essential to meeting this demand, reducing delays, and realizing the
    full benefits of NextGen. This includes keeping key runways that are
    planned or under construction on schedule and improving oversight of
    airport grant programs to ensure funds are appropriately spent.

    Funding, Legal, and Other Concerns Could Undermine Efforts To Keep
            Runway Projects on Track
        FAA has made progress in overseeing opening and improving runways
    at our Nation's airports; however, with capacity-enhancing airspace
    changes being developed, FAA must ensure that current runway projects
    remain on schedule. Since the start of fiscal year 2000, 17 new runways
    have been built,\13\ 4 runways were reconfigured, 2 runways were
    extended, and 3 taxiways have opened.
    ---------------------------------------------------------------------------
        \13\ These projects included new runways at Boston, Chicago O'Hare,
    Atlanta, and Washington Dulles airports.
    ---------------------------------------------------------------------------
        FAA is pursuing several airspace redesign projects nationwide--
    including major efforts to revamp airspace in the Atlanta, New York-New
    Jersey-Philadelphia, and Chicago areas--that require a sufficient
    amount of runways to accommodate additional traffic. Several runway
    projects either under construction or planned at key airports will
    accommodate future air traffic growth and coincide with airspace
    redesign efforts (see table 2). However, FAA and local airport
    authorities face challenges that could impede the progress of these
    projects, including funding issues, extensive environmental reviews,
    coordination among numerous stakeholders, and legal issues. As these
    projects move forward, FAA should continue its efforts to ensure that
    these projects are completed on time and within budget.

                                      TABLE 2.--STATUS OF MAJOR NEW RUNWAY PROJECTS
                                                  [Dollars in millions]
    ----------------------------------------------------------------------------------------------------------------
                                                                                                       Total cost
                    Airport                             Phase            Estimated completion date      estimate
    ----------------------------------------------------------------------------------------------------------------
    Atlanta (Runway 9L/27R)................  Site prep.................  2012.....................               $46
    Chicago O'Hare (Runway 1 0C/28C).......  Construction..............  December 2013............            $1,265
    Chicago O'Hare (Runway 9R/27L) \1\.....  On hold \2\...............  October 2015.............              $357
    Chicago O'Hare (Runway 9C/27C).........  On hold \2\...............  October 2015.............            $1,470
    Chicago O'Hare (Runway 10R/28L)........  Site prep.................  January 2015.............              $578
    Fort Lauderdale (Runway 9R/27L) \1\....  Design....................  June 2014................              $720
    Philadelphia (Runway 9R/27L, 8/26,\1\    Record of decision,         To be determined.........            $5,200
     9R/27L) \1\.                             December 2010.
    ----------------------------------------------------------------------------------------------------------------
    Source: OIG analysis of FAA's quarterly report ``Runway Projects at Core Airports Under Construction'' for
      October--December 2010 (published February 1, 2011).
    \1\ Extension of existing runway.
    \2\ Due to lack of funding, completion dates for these projects could be extended up to 5 years.

    FAA's AIP Program Is Vulnerable to Improper Payments
        Our continuing work on FAA's $1.1 billion ARRA-funded airport
    grants indicates that FAA has primarily focused its oversight on the
    construction status of projects, not on ensuring grantees comply with
    FAA and Office of Management and Budget financial oversight
    requirements. While FAA commissioned a review of ARRA payments, its
    consultants determined in September 2010 that 14 of 24 airports did not
    have adequate support to justify their ARRA payment requests. This is
    consistent with findings we reported in December 2010 on FAA's
    oversight of non-ARRA-funded AIP grants.\14\
    ---------------------------------------------------------------------------
        \14\ OIG report number FI-2011-023, ``Improper Payments Identified
    in FAA's Airport Improvement Program'', December 1, 2010.
    ---------------------------------------------------------------------------
        In our December report, we identified $13 million in improper
    payments made to AIP grantees; $7 million of that amount was due to
    documentation problems, and $6 million could have been recovered by
    FAA. The $6 million of recoverable funds included grantees receiving
    payments for ineligible services or paying ineligible recipients and
    FAA making incorrect and duplicate payments. For example, during fiscal
    years 2007 and 2008, the county of Sacramento billed FAA and was
    reimbursed a total of $675,000--the full amount of construction
    invoices received--but FAA reimbursed the county before the county had
    actually paid its construction contractor. Subsequently, FAA agreed
    that these AIP payments were improper.
        Both our prior and ongoing AIP and ARRA work have identified
    several potential weaknesses in FAA's financial oversight that make its
    grant funds vulnerable to improper payments. First, FAA relies on
    grantees to self-certify that they adhere to their grant agreements and
    to maintain documentation validating payment requests. Second, FAA does
    not review grantee payment requests beyond summary documentation, which
    does not include actual contractor invoices. Third, grantees approve
    change orders for contract work without required cost or price
    analyses--and without FAA approval. Finally, FAA employees often cited
    staff and resource limitations as impediments to more rigorous
    oversight.

                                   CONCLUSION

        FAA's fiscal year 2012 budget proposal comes at a time when FAA
    must prepare for the increasingly complex demands of the air system of
    the future--while continuing to improve safety for the public today.
    Whether the particular issue at hand is operational errors by air
    traffic controllers, technical problems affecting NextGen's
    advancement, or grant oversight of airport infrastructure projects, FAA
    needs sound strategies for identifying trends that may be impeding its
    safety, modernization, and financial goals. Effective data, analyses,
    and oversight will prove critical for FAA to ensure taxpayer dollars
    are used wisely to maintain a safe, modern, and efficient American
    airspace.
        Madam Chairman, this concludes my statement. I would be happy to
    address any questions that you or other members of the subcommittee may
    have.

                     CONTROLLER FATIGUE--OPERATIONAL ERRORS

        Senator Murray. Thank you very much. I appreciate both of
    your testimonies today.
        Let me start with the issue about the air traffic
    controllers falling asleep on duty. I know the FAA has
    announced several new reforms and initiatives.
        Mr. Babbitt, you quickly began to work with NATCA to visit
    some of the FAA facilities and talk about the importance of
    professionalism, and in the most recent announcement, the FAA
    started to look more carefully at its own management team. The
    agency said it would revisit how managers are selected and how
    their performance is evaluated. And I know that the FAA is
    going to send out some review teams to look into the management
    practices of some of the facilities.
        But the agency, as I said earlier, already had questions
    about how well its facility managers follow FAA policies. In
    fact, in 2007, the FAA learned that managers at certain
    facilities had been covering up a number of errors committed by
    their air traffic controllers.
        So I wanted to ask you today why the FAA did not take a
    closer look at the management of its facilities before we saw
    these stories in the press.
        Mr. Babbitt. Madam Chairman, of course, I did not arrive at
    the FAA until 2009, in the summer.
        Senator Murray. Correct. I should state that, but yes.
        Mr. Babbitt. A number of the things that you have mentioned
    to us are absolutely points of focus for us. And we have
    undertaken some very serious attempts to reform. These do not
    happen quickly. There are 49,000 employees. We have facilities
    all over the country. But we have been working for more than 1
    year. For example, the fatigue study was undertaken by a joint
    agreement with NATCA.
        The management changes that we have taken--first, we have
    made some changes in the upper management structure, followed
    by a broader review, as we work our way down, and making
    certain that all of our facilities do, in fact, stay consistent
    with the policies that we want and the procedures that we
    expect them to follow. We made it very clear there is no
    tolerance in the FAA for this type of ``looking the other
    way.''
        We have a very dedicated workforce, and unfortunately, what
    came to light are the sins of a few, not the good deeds of
    many. And so we are working very, very hard to maintain the
    morale--as a matter of fact, to increase it, and at the same
    time, making certain that everyone follows the same guidelines
    and principles. That is a difficult transition for us to make.
        We have streamlined our internal workings. As of 6 months
    ago, internally, we had more than 30 different governing
    committees that were structured inside the FAA. Next month, we
    will have five. We are far more efficient. We have realigned a
    number of our businesses and streamlined the way we do things
    to give ourselves better program oversight. I would invite--it
    is probably unheard of for the administrator to invite the
    inspector general to come over, but I would be delighted to
    have them look at some of the changes that we have done in
    program management and program oversight that we have done in
    the last 6 to 12 months. So, I think we are going to be a much
    more efficient agency going forward, and we have taken to heart
    some of the very constructive criticisms that people have
    brought to us.
        Senator Murray. When you announced your review teams, you
    only identified a couple of facilities that would be visited by
    those review teams. One of them is Cleveland, where the air
    traffic controller was found watching a movie, I believe, on
    duty. Can you tell us why review teams are not going out more
    aggressively to a larger number of facilities?
        Mr. Babbitt. We have a finite number of people that can
    conduct the review teams, and so we took a few right off the
    top of the bat. We took a look at the facilities that we
    thought would most benefit from the immediate review. But the
    plan is to review everyone, all facilities, over time.
        Senator Murray. Over what kind of time period?
        Mr. Babbitt. I would actually be giving you a wag here, but
    I would hope within the next 6 months.

                         CONTROLLER TRAINING--PLACEMENT

        Senator Murray. In following a lot of these news reports,
    the FAA announced it was pulling together this working group
    that will make recommendations about how new air traffic
    controllers are trained and placed into FAA facilities.
        But as I said in my opening statement, the inspector
    general has actually been talking about this for many years.
    Mr. Scovel, both in 2004 and again in 2010, your office
    recommended the FAA develop an objective, reliable method for
    placing new air traffic controllers at FAA facilities based on
    skills, and the FAA actually agreed they needed that. But to
    date we still don't have or see a way that FAA is placing these
    air traffic controllers based on an objective test.
        Can you tell us why an objective, reliable way of placing
    air traffic controllers is so important?
        Mr. Scovel. Thank you, Madam Chairman.
        Yes, it is important. In the course of conducting our 2010
    audit of FAA's practices for assigning new air traffic
    controllers, we found that new air traffic controllers were
    promised duty assignments before they had even started
    training. It appears to us to have been a part of the
    recruitment and hiring process. There was little attention, if
    any, paid at that time to an objective, reasonable method based
    on the new air traffic controllers' capabilities and
    performance at the Air Traffic Control Academy in Oklahoma City
    to determine where these people might best be placed. And in
    fact, we have found that new air traffic controllers in
    increasing numbers are being assigned to the most complex
    facilities: the New York TRACON, for instance; the Cleveland
    facility that you mentioned; areas that govern complex
    airspace, have high traffic volumes, and require intense on-
    the-job training by the certified professional controllers
    assigned to those stations.
        We can only urge in the strongest terms that FAA quickly
    adopt a reasonable method, whether it is by test, by interview,
    or whether it is by performance at the training academy in
    determining where new air traffic controllers should be
    assigned.
        Senator Murray. After their training, I assume, not pre-,
    when they are----
        Mr. Scovel. Exactly. We assume that this will be an item of
    intense interest to applicants for air traffic controller
    spots, but it must be made clear to them that while certain
    duty options and stations might be available, final assignment
    will remain with the discretion of the agency.
        Senator Murray. So, Mr. Babbitt, where are we on putting in
    place a reliable test?
        Mr. Babbitt. One of the key changes that has been made
    might not appear to have anything to do with controller
    placement, but it has everything to do with it, and that had to
    do with the collective bargaining agreement. We have a new
    agreement with our controllers. It was reached shortly after I
    took the Administrator position.
        During the last agreement, there was absolutely no
    incentive to bid controllers into higher paying positions. So
    if we had a vacancy in the most complex facility in our system,
    there was absolutely no incentive for a controller to bid over
    there. And so we were forced to assign people out of the
    academy. There was no other way to fill the vacancies. That is
    not a good practice. I will tell you now, it is not a good
    practice, and we have eliminated it.
        So now we have the ability to incentivize seasoned
    controllers who can take that opportunity. And in fact, when
    they go to a more complex facility, they are going to work
    harder. It is a more difficult task, and they are going to be
    compensated accordingly. That gives us the opportunity to put
    new hire controllers into facilities that are more suited to
    their skill set.
        Senator Murray. Is there an objective test developed to
    give to air traffic controllers on assignment yet?
        Mr. Babbitt. We test all the air traffic controllers, and
    while I realize everyone would like to appreciate that we would
    have a range, we like to think that all of the controllers are
    qualified. When they are qualified, they are qualified to do
    anything. We would never want to be in the position of saying,
    well, we sent the good ones here, but the not-so-good ones went
    here.
        Senator Murray. I have additional questions about that, but
    I have gone over my time. So I am going to turn it over to
    Senator Collins.
        Senator Collins. Thank you, Senator Murray.
        I actually am going to pick up exactly on the point that
    Senator Murray was raising with you because I have read the
    March 30 report of the inspector general, which points out that
    the FAA will need to hire and train nearly 11,000 new air
    traffic controllers through fiscal year 2019, because there are
    going to be a large number of retiring controllers.
        And the inspector general's report finds that the FAA's
    reported training failure rate was not accurate and is critical
    of the metrics. In the report, it explains that when there are
    student controllers who are unable to pass the training
    process, they are either transferred within their assigned
    facility to a new area of operation, or transferred to a less
    complex facility, or terminated. It bothers me if individuals
    who could not pass the training are being placed in any
    position. So is that still happening?
        Mr. Babbitt. I believe that the training that you are
    talking about--we have a variety of controllers. We have tower
    controllers. We have en route center controllers, and we also
    have controllers in the very complex areas. If someone has, for
    example, been a very effective tower controller working for a
    number of years fully trained and wished to upgrade to another
    level and simply did not master that training, we would let
    them go back to their previous area where they had exhibited a
    success rate.
        Senator Collins. That makes sense, but that is not what
    this report seems to be saying is going on. Are you familiar
    with this March 30 report from the inspector general?
        Mr. Babbitt. Yes, ma'am.
        Senator Collins. And do you agree with the findings?
        Mr. Babbitt. I believe that we have incorporated--and I
    believe that the inspector general has concurred with the
    suggestions that we made going forward. One of the points of
    that report I think we partially concurred with, and I think
    one area of the report was simply a data measurement point in
    terms of failure rate. I believe the inspector general's team
    was looking at a certain period, and we were looking at a
    longer period of time. I think if you go to the end, the
    failure rates come back into alignment. In other words, we
    would say we had someone who was still in school at the end of
    a year and we failed them at 18 months. We were counting that
    person as having passed at the 1-year point, and I think the
    inspector general said, well, they ultimately failed. You
    should reflect it that way. And we understand the difference in
    the accounting of that.

                               OPERATIONAL ERRORS

        Senator Collins. Let me ask you both a basic question. It
    seems that in the last year, there has been an alarming
    increase in close calls in the air and on the ground,
    collisions that were narrowly averted. In addition, we have
    seen these reports about the air traffic controllers falling
    asleep or being inattentive.
        What are your views on the increase in operational errors,
    and also in these incidents with the air traffic controllers?
    Are we seeing a true increase, or has this problem been going
    on all the time and there has just not been public awareness of
    it? There is just better coverage of it now?
        I am going to start with the inspector general and then
    hear the Administrator.
        Mr. Scovel. Thank you, Senator Collins.
        As I mentioned in my opening statement, operational errors
    by controllers increased between 2009 and 2010 by 53 percent,
    from 1,234 operational errors to 1,887 operational errors. At
    this point, we do not have a good handle on what the true cause
    may be, and I suspect that we will not find a single true
    cause. We have examined National Transportation Safety Board
    (NTSB) investigations as well, where operational errors have
    been discussed, and found that they too have not found any kind
    of silver bullet. But there have been a number of reasons,
    perhaps, advanced to explain it.
        One that the agency points to frequently--in recent weeks,
    in the last month or so, since all of this has arisen in the
    news, is what Mr. Babbitt likes to call the enhanced safety
    culture and safety awareness in the agency. That is due, in
    large part, the agency believes, to the Air Traffic Safety
    Action Program (ATSAP), the voluntary, nonpunitive disclosure
    program that was recently put in place for air traffic
    controllers. The theory is that controllers, now, without
    fearing punishment, will be more willing to report operational
    errors. And that may be a cause.
        Another cause might be the automated tool that was recently
    put in place at TRACON facilities, which up until recent times
    did not have any kind of automated tool to capture operational
    errors committed by controllers in those facilities. This is
    the TARP program, the Traffic Analysis and Review Program. That
    certainly has flushed out more operational errors, I would
    speculate.
        A final cause might be--and some point to the fact that we
    have all been talking about this just this morning--the
    increase in newly hired controllers at air traffic control
    facilities, and the question of if they might not be committing
    more operational errors.
        At this point, we do not know and neither does FAA, neither
    does NTSB.
        I commend Mr. Babbitt for naming an independent team--that
    panel that he has charged with investigating the seeming rise
    in operational errors that is due to report in the early fall.
        This week, too, my office has announced audits to get to
    the root cause of all these operational errors. We are going to
    be looking at ATSAP, the voluntary disclosure program that I
    mentioned. We are also going to be looking at the agency's loss
    index, their loss of standard separation index, which attempts
    to capture all the different types of proximity events. We want
    to look at all of that and see if we can identify the range of
    causes. And I suspect that, like NTSB, we will not find a
    single one or even a couple, but it could be attributed to a
    number of them.
        Senator Collins. Thank you.
        Mr. Babbitt, what are your initial impressions on the cause
    of the increase in operational errors?
        Mr. Babbitt. I believe that the inspector general
    highlighted a number that we concur with. Certainly it is a
    concern whenever the rate goes up, but we have made such
    important strides in so many areas. Runway incursions, for
    example, have been reducing at a rate of 50 percent per year
    for the last 3 years. We had a grand total of six serious
    runway incursions last year, and that is out of 50 million
    operations. Had we maintained the same rate we had in 2005,
    there would have been more than 100. So dramatic reductions
    have been made, and that is attributed to a lot of things: the
    professional controller workforce, the attentiveness, new
    electronic gear, Airport Surface Detection Equipment, Model X
    (ASDE-X) radar on the ground. All of these are leading to that.
        By the same token, we may be somewhat being penalized by
    the fact that we do have better electronic ways of reporting.
    As the inspector general mentioned, this electronic reporting,
    this TARP program, allows us to flag things electronically that
    if no one had seen, we would not have noticed. And so we are
    taking the position that it is not necessarily the amount of
    operational errors that is increasing, but that we are
    capturing them. And that is a good thing. We want to capture
    what is happening. The next question is, then what is causing
    them? What do we need to change? Are we asking controllers to
    put airplanes too close together? Are we not being clear with
    our navigational instructions? We want to get to the bottom so
    that we can train to reduce these.
        But I use the example: I had an office over in Arlington
    for years, and at the intersection, there were two or three
    traffic light violations being given a week. They put in a
    camera and there were suddenly 40 being given a week. There
    were not more people running the light. There were more people
    getting caught running the light. In a sense, that is what we
    have done with this electronic capture, is our ability to find
    them. But again, that is a good thing. It is not a bad thing.
        Senator Collins. And it still begs the question of the
    cause, as you indicated.
        Thank you, Madam Chairman. As you know, I need to leave to
    go to the White House, and I would ask unanimous consent to put
    questions in the record. Thank you.
        Senator Murray. Absolutely. And I appreciate that. Your
    questions will be submitted for the record, and we will get a
    response. Thank you very much.
        Senator Lautenberg.

                  FUNDING CONSTRAINTS AND CONTROLLER ATTRITION

        Senator Lautenberg. Thanks again for your being here and
    for the excellent support that you have brought to the system--
    being constantly on guard to rid ourselves of those occasional
    slips. Mr. Babbitt, you know that no matter how many flights it
    is compared to, the fact is that we will look simply at the
    number of incursions or other close calls. Those are the ones.
    It could be millions of airplanes flying or in the air, but we
    want to make sure that we catch all of the problems.
        In terms of what we see happening, the House Republicans
    have threatened to cut back FAA funds to fiscal year 2008
    levels. Yet, a large number of trainees are entering the air
    traffic controller system, particularly--with a large wave, not
    unexpected, of controller retirements expected soon. Now, would
    that impair the system's ability to maintain the safety levels
    or that can be improved in the future?
        Mr. Babbitt. Let me answer. I read that as sort of a two-
    part question. We have a training program that will accommodate
    what we anticipate for retirements. In the hiring program, we
    did have, from about 2005 through about 2009, an exceedingly
    high number of retirements, far above what was anticipated,
    which put a huge demand on our training. That has abated. We
    now are down to what we believe is a steady state rate of
    replacing our controller workforce as they age, and I am very
    comfortable that the profile that we have now--we are also
    seeing the ratios of fully trained certified professional
    controllers to train these----
        Senator Lautenberg. Can we do better with less?
        Mr. Babbitt. No, sir, I would fear that we could not. We
    have four fundamental areas that we have to address, and if you
    said we are going to do with less, then we would have to
    certainly take priorities into consideration and something
    would have to give.
        Senator Lautenberg. So this would not help protect the
    public more than they are protected now.
        Mr. Babbitt. The priorities--we would certainly share with
    the subcommittee here what our new priorities would be and----
        Senator Lautenberg. You are the boss, Mr. Babbitt. You have
    got the orchestra in front of you and you are the conductor.
    Will the sounds be the same? Will the system be the same if we
    have less to work with? Is it fair to assume that the answer
    would be no?
        Mr. Babbitt. You are correct. The answer would be no.
        Senator Lautenberg. Thank you.

                             PASSENGER BAGGAGE FEES

        The airlines are tacking on fees that account for an
    additional 20 percent of the ticket costs, and we have seen
    what happened when one airline imposes a new fee. Others
    quickly follow suit. These fees are on everything, as I said
    earlier, from checking your bags to pretzels. I would like to
    have the airlines required to publish what fees they are going
    to charge above the basic airline ticket so that a prospective
    passenger can make a comparison. Maybe I can get a bite to eat
    and not have to pay for it. And everybody who flies is not a
    millionaire.
        So, Madam Chairman, I would like to propose that we try to
    put a system like that into play. And I do not know whether
    this is an appropriate moment or hearing to move this along,
    but I would like that to be in the works.

                            JFK AIR FRANCE INCIDENT

        Last month, a large Air France plane struck a much smaller
    Delta plane at JFK. Luckily nobody was seriously injured, but
    it gave everyone pause to think about how something like that
    can happen. What went wrong that permitted that incident to
    take place?
        Mr. Babbitt. Yes, sir. That was an instance where an
    aircraft was on a taxiway that was being controlled by air
    traffic ground control at Kennedy Airport. The aircraft in
    front of it, a smaller airplane, was exited onto a private
    ramp.
        Now, I should mention this is under investigation by the
    NTSB, and we are party to that investigation. There has not
    been a conclusion reached, but I would say that the airplane
    went to a traffic area that is managed by their local ramp no
    longer in our control. Clearance needs to be provided----
        Senator Lautenberg. We would like to hear the conclusion
    there----
        Mr. Babbitt. Yes, sir.
        Senator Lautenberg [continuing]. Because it seems almost
    impossible that that is the situation.
        Mr. Babbitt. We will certainly get back to you when the
    NTSB concludes.
        [The information follows:]

        The National Transportation Safety Board (NTSB) has not yet
    completed its investigation into the April 11, 2011, incident at John
    F. Kennedy International Airport (New York, New York) where the wing of
    an Airbus A380 (Air France Flight 7 bound for Paris, France) clipped
    the tail of a Bombardier CRJ 700 regional jet (Comair Flight 293 in-
    bound from Boston) that was waiting to park at an arrival gate.
        The agency will provide the subcommittee with a copy of the NTSB's
    finding once the investigation report is made available.

        Senator Lautenberg. Madam Chairman, if my colleague,
    Senator Pryor, would indulge, just one last thing here.
        Is there anything on the drawing board that either of you,
    or you particularly, Mr. Babbitt, are aware of that might
    suggest that further noise reductions could take place? Because
    that affects our airspace usage and design enormously.
        Mr. Babbitt. Yes, sir. I know a lot of times we are sort of
    charged with, so, where is NextGen and how is it progressing.
    We are actually very well along, and we are operating at a
    number of airports around the country utilizing very complex
    and robust procedures that utilize NextGen technologies. In
    Seattle, for example, we use these continuous descent arrivals
    that save 60 to 80 gallons of fuel and produce much less noise
    in the communities by using required navigational performance
    (RNP), and satellite-based navigation. Aircraft arriving into
    Seattle use curved approaches and avoid flying over populous
    areas and therefore produce much less noise with a much smaller
    carbon footprint. We are doing those procedures in Atlanta, Los
    Angeles, Seattle, and Philadelphia. We have a lot of
    opportunities where this is actually being deployed today. So,
    yes, sir, there is a huge benefit available.
        Senator Lautenberg. Yes. Bring it up to New Jersey, please,
    Mr. Babbitt.
        Thank you.
        Senator Murray. Senator Pryor.

                          AIRPORT IMPROVEMENT PROGRAM

        Senator Pryor. Thank you, Madam Chair. And I want to thank
    our witnesses for being here today. We appreciate your service.
        Mr. Babbitt, let me start with you. I would like to ask
    about AIP, and I would like to focus on one particular case
    that I hope you will look at and see if we can get some help
    with.
        There is a city in Arkansas about 30 miles outside of
    Little Rock called Conway, Arkansas. It is a great community.
    They have great people there, and it is growing. It is a
    robust, very energetic community.
        For the last 17 years, they have been trying to move their
    airport, and they have taxed themselves in order to do so. They
    have done everything they need to do. They have a location.
    They have a plan. They have all this. They want to do it over a
    3-year period. FAA says they need to do it over a 5-year
    period. I am not sure why the FAA wants to go slower.
        But there is a compelling reason why I think we need to
    move the airport as quickly as possible, and that is the
    current airport is very old. On one end of the runway is
    Interstate 40. On the other end is a neighborhood. And I know
    they have had at least two, maybe more incidents, where planes
    are landing or taking off and actually crash into homes and
    kill people. So it really needs to be moved to a safer
    location.
        Again, this community is totally behind this. They have
    taxed themselves. They have a great plan. I wish you would look
    at that. I know that they are in line to get some grant money
    this year too, and I know because of the budget issues we have
    been going through recently, you guys have not done that
    allocation yet. But I hope you will look at that as well.
    Conway, Arkansas. We will get you more information on that.
        Why would the FAA want to go slower than a community? Do
    you know the answer to that?
        Mr. Babbitt. I can give you one of several potential
    answers. Oftentimes we are limited. We might suggest that we
    could do that in 3 years and--I will just make up a number--
    that it might cost $20 million. However, between authorizations
    and appropriations, they might say, well, you can have $15
    million and you can get the next $5 million later on. And so we
    are compelled to say to the airport we simply cannot get the
    money that fast for you, and of course, you are in competition
    with a lot of other airports. And it is based on a very
    thoughtful formula of what that airport expansion and change
    will do to improve the overall effectiveness of the national
    airspace system. But usually those are limited simply by the
    amount of funds that we have to flow at the rate of change, and
    it is always slower than both of us would like to be, and
    limited by the amount of money available.
        Senator Pryor. I just hope you will look at the Conway
    issue.
        Mr. Babbitt. Yes, sir. I have jotted that down.
        [The information follows:]

        The Federal Aviation Administration (FAA) supports the city's
    efforts to relocate Conway Municipal Airport (KCWS).
        The agency has invested more than $5.4 million in seven separate
    Airport Improvement Program (AIP) grants to support the airport
    relocation efforts. These grants were used for planning, land
    acquisition, and the first stage of construction.
        The Office of the Secretary of Transportation announced on June 20,
    2011, an AIP grant award in the amount of $2.3 million for the second
    stage of construction at KCWS. The FAA Southwest Regional Office will
    continue to work closely with the city on the administration of this
    grant.
        Additionally, the FAA Southwest Regional Office carefully assessed
    opportunities to speed up the project and accelerate the construction
    schedule, taking into consideration other critical needs across the
    Arkansas system. After examining various options, a strategy was
    developed to complete the project over a 4-year period, enabling KCWS
    to be funded 1 year earlier than previously reported to city officials.

        Senator Pryor. Thank you very much.
        And the other thing is I know that we are all--and I know
    Senator Murray has been a leader in this as well--trying to
    look for ways to be more efficient and to trim our spending. We
    are trying to do it in a way that does not harm the public and
    that would be considered a smart way to trim our spending.
        Last year I added a provision in the FAA bill as it came
    through the legislative process. It would require a study on a
    proposed Air Traffic Control Modernization Board to look at
    whether there should be consolidation of air traffic control
    towers. We had problems a few years ago with some strong
    indicators that they were going to consolidate a tower--in
    fact, it was the Little Rock tower--and take it offline and
    just use the Memphis tower. But we could never get real
    clarification on that from FAA.
        So my question for you is: Are there any plans to
    consolidate any air towers that we need to know about?
        Mr. Babbitt. Yes, sir. We have looked at a number of
    consolidations. I think for clarity, we would be talking about
    consolidating the radar functions and the TRACON functions. For
    example, in the State of California, we have two very large
    northern and southern California TRACONs where the people in
    those facilities control the air traffic at literally dozens of
    airports.
        Senator Pryor. Right.
        Mr. Babbitt. NextGen technology will allow us to really
    capitalize on those kinds of efficiencies. Let me give you an
    example. If we had 10 facilities in an area, every one of those
    facilities would have a radar room, and in that radar room, we
    would have all the necessary hardware, software, backup
    generators and backup IT capability. All of that would be
    duplicated times 10. We, on the other hand, could consolidate
    that, and with the digital technology we have today, the
    controllers do not need to sit underneath the air traffic they
    are controlling. They can do it very efficiently. You have a
    lot easier staffing. You have a lot of efficiencies that come
    from that. So we are weighing those things with our colleagues
    in the House and the Senate, as well as the people we work
    with, the air traffic controllers. We want to look at this
    thoughtfully. Does this make sense? Is this good use of our
    technology? And are we truly more efficient, or is there any
    harm done? So we have working groups that are looking at this,
    and in the interest of being efficient with our tax dollars, it
    is something we have to look at.
        Senator Pryor. I am all for efficiency, but you also need
    some redundancy in the system in case one location goes down.
    In our region, we have had a situation I know a couple of times
    in the last 3 or 4 years where the Memphis airport, for one
    reason or other, storms or whatever, has lost power. And they
    have had to go down, and the Little Rock TRACON takes up the
    slack on the Memphis area. So do you not want some redundancy
    in the system?
        Mr. Babbitt. Absolutely, yes, sir.
        And one of the things when we talk about--it is very
    germane to your question there. When we transition completely
    to ERAM, the ERAM system and aircraft equipped with ADS-B, we
    have the same fidelity as terminal approach radar so that if a
    TRACON, for example, were to have some catastrophic power
    failure, the center controllers would have the same update
    rates that TRACON enjoys today. That is not the case today with
    the host system and, essentially, the analog type radar we use.
        Senator Pryor. Thank you.
        Madam Chair, I have other questions I will just submit for
    the record. Thank you very much.
        Senator Murray. Thank you very much.

                       EN ROUTE AUTOMATION MODERNIZATION

        I did want to ask about the ERAM program. It is a
    fundamental part of the FAA's NextGen effort, and under ERAM,
    the FAA is completely replacing a key part of the agency's air
    traffic control system. Unfortunately, that means that when
    there are problems with ERAM, there are problems in other parts
    of NextGen.
        Now, this subcommittee has provided a steady stream of
    funding for ERAM, but the program fell years behind on its
    schedule, and those delays are now affecting other important
    programs, like the data communications program, that need the
    new features that ERAM is supposed to be offering.
        According to the inspector general, the ERAM program is
    facing additional cost increases between $330 and $500 million,
    and because of those delays and cost overruns, the FAA is going
    to be establishing a new budget and schedule for ERAM this
    summer.
        If more funds are needed for ERAM, will you be identifying
    which programs will be cut in order to make room for the cost
    increases on those?
        Mr. Babbitt. I am going to start with the positive approach
    that I am very optimistic that we will not need sufficient new
    funds. ERAM was a program that was started more than 9 years
    ago. It was a quite ambitious program, and I think, candidly,
    it was more ambitious than people gave it credit for and more
    complex than people appreciated that it might be. We have run
    into some serious complications in integrating this type of
    technology into the national airspace system.
        With that said, it was clear to me within 1 year of my
    arrival that this program was not on track. We literally
    stopped the program and brought it to a halt and said, let us
    analyze it top to bottom. We invited MITRE to come in. We
    invited outside--certainly the inspector general has looked at
    it and the results. We have revamped it. We have revamped some
    of the cost allocations.
        And yes, those numbers were re-baselined, but they were
    done with a lot of transparency, a lot of openness. And the
    cascade of implementation, or waterfall, if you would, that we
    set forth is a very achievable process and program.
        Second, we changed completely our program management
    oversight. We have completely revamped how we do that. I think
    it is more state of the art. I think it is something that we
    probably should have done some time ago. But the bottom line is
    here today. We also are carefully monitoring each of the
    stages.
        I think one of the most important things that we have done
    is we have now incorporated our air traffic controllers. They
    were not really involved in the implementation schedules. They
    have been a great benefit. These are people who have wonderful
    practical experience in how this program should work. They have
    been very helpful in working with us, and we have identified a
    lot of the open items. I just read a report in the last 2 or 3
    days; there was something like 150 open items as of 6 months
    ago with one of the operating systems. Today we are down to
    about seven or eight. Granted, that is seven or eight too many,
    but it is a dramatic improvement over where we were. We now
    have ERAM operating in two different areas, Seattle and Salt
    Lake. Once we have our initial service decision in place, we
    will move on with implementation in other areas, and I believe
    we are on track.
        Senator Murray. Mr. Scovel, you have disagreed with the FAA
    on this cost estimate. They have said that the cost increase
    will not exceed $330 million. You said it could be as high as
    $500 million. Why do you see the cost increase being so high?
        Mr. Scovel. Madam Chairman, the cost increase is a
    difficult figure to pin down. The agency has specified, as you
    pointed out, $330 million, and extended the initial timeline
    for ERAM by about 4 years. The work of our office and that of
    MITRE as well has suggested that $330 million might only be the
    start.
        Mr. Babbitt has spoken to the extreme technical
    difficulties and unpredictable nature of putting ERAM in place
    first at the initial operating sites, much less at other places
    around the country. We can anticipate that those difficulties,
    in fact, will continue. The Salt Lake City and Seattle sites
    were selected as test beds precisely because they are less
    complex than some of the other locations where ERAM will need
    to be installed, like New York, Chicago, and Cleveland. When
    ERAM is put in place in those areas, we can anticipate new
    problems cropping up, especially more software problems. More
    time and more effort will be needed in order to bring those to
    closure, and that, of course, translates into more expense. We
    and MITRE have predicted perhaps an upper range of $500 million
    in order to accomplish all of those fixes.
        Mr. Babbitt is absolutely correct. ERAM is critical to
    NextGen. There is a logjam right now in NextGen, and ERAM is
    the key log. The agency is working night and day to work on
    fixes. They appreciate the seriousness of the situation.
        At times, however, in our opinion, the agency has been
    over-eager, a bit too quick to declare temporary victory in the
    face of some of the limited accomplishments that it has
    achieved. For instance, the in-service decision actually was
    announced at the end of March but then quickly suspended in the
    face of protests from the NATCA representatives that Mr.
    Babbitt has mentioned, and also from an independent operating
    assessment team that the agency had commissioned to review ERAM
    fixes to date.
        That is the kind of over-eagerness that can sometimes lead
    to skepticism on the part of decisionmakers like you, and by
    users in the industry, and by oversight authorities like my
    office. We would strongly encourage the agency to adopt a very
    sober and rational approach in deciding what needs to be
    accomplished with ERAM, and then putting it in place and
    testing it thoroughly before taking the next step.
        Senator Murray. And so, Mr. Babbitt, you answered my
    question on what you would cut in order to make room for the
    cost increase, with the positive attitude that you will not
    have to do that. But having been around here for a while
    watching this, I would come back to you and say that we do need
    to know from you what programs you will cut in order to deal
    with that cost increase because that will be what this
    subcommittee will have to deal with here in the coming months.
    So I would ask you to go back and look at that, and for the
    record, if you could give that answer back to me, I would
    appreciate it.
        Mr. Babbitt. Absolutely. I mean, we clearly would have to
    reevaluate our priorities, but the savings that come from
    implementation of NextGen are so powerful and so far outweigh
    the incremental costs. For example, for every month we delay
    the implementation--we do appreciate staying on schedule,
    because every month that we delay the implementation of a fully
    robust ERAM system, we continue to support an old legacy system
    that costs us $10 million a month.
        Senator Murray. I do not disagree with the long-term
    projections at all. I totally am where you are. I am dealing
    with the immediacy of a budget that does not appear to be
    growing. So we need to make some tough decisions here, and we
    will need your input as we do that.
        Mr. Babbitt. We will do that.
        [The information follows:]

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Fiscal year                      Fiscal year
     Budget                                                    Fiscal year     Fiscal year     Fiscal year        2012                         2012 revised
      line       Program name          Summary of impact     2011 enacted @  2012 request @  2012 mandatory   discretionary    ERAM funding   $2.87 billion--
      item                                                    $2.73 billion   $3.12 billion  @ $250 million      @ $2.87        adjustment     $28.5 million
                                                                                                                 billion
    --------------------------------------------------------------------------------------------------------------------------------------------------------
       2B07 ATCT/TRACON Improve  Will delay the execution      $45,508.80      $61,900.00       $5,000.00      $56,900.00      $(6,900.00)      $50,000.00
                                  of backlogged and new
                                  projects.
       2D03 WAAS                 Funding for the                94,810.00      125,500.00  ..............      125,500.00      (12,200.00)      113,300.00
                                  deployment of a 5th GEO
                                  Satellite was reduced.
       2B17 ASR-8 SLEP/          ASR-8 Relocation--              2,594.80        2,700.00  ..............        2,700.00       (2,700.00)  ..............
             Relocation           Bismark, North Dakota.
                                  This was to complete a
                                  congressionally
                                  directed item in the
                                  fiscal year 2008
                                  budget. The airport
                                  secured an earmark to
                                  relocate the ASR-8 to
                                  make room for an
                                  industrial park.
       4A08 CAASD                Will reduce the planned        73,755.20       80,800.00  ..............       80,800.00       (6,700.00)       74,100.00
                                  level of 263 MITRE
                                  technical staff years
                                  that will support
                                  communications
                                  modernization,
                                  performance-based NAS,
                                  enroute evolution,
                                  terminal operations and
                                  evolution, airspace
                                  design and analysis,
                                  NAS System operations,
                                  aviation safety, and
                                  security--13-percent
                                  reduction.
       2A01 ERAM                 Accelerated funding for       181,935.40      120,000.00  ..............      120,000.00       28,500.00       148,500.00
                                  ERAM into fiscal year
                                  2012 from fiscal year
                                  2014 in order to meet
                                  the programs fiscal
                                  year 2014 schedule
                                  goal. Revised fiscal
                                  year 2012 funding does
                                  not increase the
                                  overall program
                                  baseline cost which
                                  remains at $330 million.
    --------------------------------------------------------------------------------------------------------------------------------------------------------
            \1\ The total reduction of ERAM funding adjustment is $0.

                       SYSTEM-WIDE INFORMATION MANAGEMENT

        Senator Murray. I wanted to ask about the System-Wide
    Information Management (SWIM) program. It is an essential part
    of FAA's NextGen effort as well. And under SWIM, the FAA will
    be able to have a network of different computer systems and
    programs. It is about sharing data and working more
    efficiently, a good long-term goal, and we support that.
        But, Mr. Scovel, in your written testimony, you talk about
    the fact that the SWIM program has already seen a cost increase
    of about $100 million. Now, I understand the FAA has been
    setting a very cautious baseline for SWIM, committing to only 2
    years of funding at a time, and the FAA has stayed within the
    budget set by those baselines. But the overall cost of this
    program is increasing, and I wanted to ask you today to explain
    what these 2-year baselines mean for a program and how a
    program can stay within its short-term baselines and still
    experience long-term cost growth.
        Mr. Scovel. Madam Chairman, SWIM is a key transformational
    program for NextGen. It is a program, however, that is now in
    trouble. It started off at $179 million for the first segment
    estimated cost. Now it is $104 million or so above that and
    extended by about another 2 years on this first segment. We do
    not have the cost estimates, in fact, for the next couple of
    segments--not that my office has seen, at any rate.
        If I could drop a footnote at this point, I would say that
    had FAA published a detailed NextGen implementation plan or an
    integrated master schedule that would be of benefit to
    decisionmakers like you, we might know. We might have some
    visibility over the longer term of how SWIM would fit in, along
    with other programs, in terms of cost, benefits, timing, and
    sequence. The agency has not yet given us that.
        In the meantime, we see a program like SWIM that appears to
    be in trouble. When we commissioned our audit, the initial
    report, which we have submitted to the agency for their
    comments back--we think that we have identified a root cause of
    the problem, and that is the diffused and decentralized nature
    of the development and management structure of the program.
    Rather than a strong central program office, SWIM, in fact, has
    devolved or delegated key implementation decisions to the seven
    subordinate programs or peer programs that will draw on SWIM's
    capabilities--programs like ERAM. And we just discussed that
    and how the requirements and fixes for ERAM are very much in
    flux.
        We have suggested to the agency, and we have recently
    learned that they have, in fact, put in place a way to clarify
    accountability and authority over SWIM. It will be the deputy
    administrator who will adjudicate disputes between the SWIM
    program office and other program offices as to what SWIM should
    include, and what requirements should be, and fixes to be put
    in place.

                       LIFE-CYCLE PROGRAM COST MANAGEMENT

        Senator Murray. Mr. Babbitt, can you tell me how the agency
    manages the cost of a program over its entire lifetime, and
    does not just look at the short-term baselines?
        Mr. Babbitt. It is a complicated answer that I have to give
    you. We do, in fact, have a NextGen implementation plan, but
    that is simply the mechanics and the actual layout and rollout
    of the various functions. To attach a budget to that is more
    complex.
        Oftentimes we would ask for--and I think it explains, or I
    hope to explain the question to you with a suitable answer. We
    might say, for example: We would like to be funded. We would
    like to put this program in place that would cost $50 million
    and take us 2 years. What we may get back instead is, well, you
    can only have $30 million. So now it makes it a 3-year program
    which will be, in fact, more expensive. And so then we will re-
    baseline and we will reprogram the funding for that. So those
    things change for us subject to how we are allocated funds. It
    does make it difficult.
        Of course, we are on our 18th extension. It does make it
    very difficult to give you a budget forecast with all these
    very short-term extensions. It makes it a little more
    complicated for us. And sometimes it would appear that, well,
    you did not do a very good job of your forecast when, in fact,
    it was necessary to change the timeline.
        Senator Murray. It is my understanding that SWIM has gotten
    all of its funding that they requested.
        Mr. Babbitt. As the inspector general has noted, it is a
    complex program, and we have run into some technical
    difficulties.
        Two things that I think are very important: We have changed
    the reporting structure and the accountability to very much
    more centralize this to overcome the very things that were
    pointed out. We had a very diverse and not very transparent
    process, and we were not leveraging the technology that we had,
    or the skills inside the agency. I think we have made great
    steps toward that.
        Our program management oversight has been changed. A number
    of the changes that I mentioned to you that have been
    undertaken are now being implemented. I truly hope that we will
    produce a far better and more realistic result to your
    subcommittee and others.

                           NEXTGEN FUNDING PRIORITIES

        Senator Murray. As we face these continuing budget cuts, we
    have to know that. This subcommittee is watching it very
    closely. So we will stay in touch with you on that.
        You mentioned the managing of NextGen, and I know FAA has
    come under a lot of criticism for its management. Good
    questions have been asked about whether the FAA can manage a
    wide variety of programs as a single portfolio and whether the
    FAA has set appropriate goals and metrics to measure the
    success of NextGen. But I think recent pressure to make drastic
    cuts to the budget raises new kinds of issues about NextGen.
        When there is only a limited amount of funding available,
    we need to know what FAA's priorities are and what benefits we
    are going to get for the money that we spend. I know that right
    now you are working on a new spend plan for 2011. But I am just
    not convinced that the FAA has a strategy for identifying its
    highest priorities for the long term, and not just on a year-
    by-year basis. So I wanted to ask you if you could tell me
    which NextGen capabilities have the highest priority for
    funding if there is not enough money to pay for all of it.
        Mr. Babbitt. That is a very complicated question. Let me
    see if I can tackle it for you. Some of this is going to be
    dependent--remember, there are two components, or actually
    three components internal to the FAA. But there is the fourth
    component of equipage on aircraft outside the FAA.
        Now, we have taken great lengths to determine the
    prioritization of what we would want to do, and we took it to
    an outside group, RTCA. We showed them our draft program for
    the NextGen implementation, and we asked them to review it.
    Now, these were 300 people from around the industry. These were
    manufacturers, pilot groups, mechanics, air traffic
    controllers, all the people directly affected by NextGen. And
    we asked them to look over what we had done.
        And they have given us a new set of priorities, which are
    now the steps we are following. We revised our NextGen
    implementation plan to align ourselves with what the industry
    said would be most effective. In other words, the industry
    said--for example, we were going to build something for data
    communication. They said that does not do us any good until we
    get something else. You should do the something else first. So
    we have realigned our priorities to that extent.
        So if showing you the new NextGen implementation plan and
    then putting dollars with it--that would probably do about as
    good a job of laying out for you the priorities that we have
    accepted, driven by the industry, driven by the consumers, and
    that would be the steps we would follow.
        Now, having said that, I am very concerned that you cannot
    just take one brick out of a building and say, well, this is
    the brick we will save. That may be a very foundational brick
    and we would want to be very cautious in thinking about--even
    though it might not be the highest priority, it might be very
    necessary to support the rest of the program. So we would have
    to go back and look.
        And this has been complicated by an uncertainty of funding.
    Given a finite amount of money, we can tell you what we are
    going to do. Given sort of an unknown quantity, it is
    different.
        One of the things that does concern me--I just recently
    read an independent study that shows the benefits of NextGen if
    it were to be fully implemented by 2025 and if we spent every--
    even on the high-side dollars, it would cost, in round numbers,
    $22 billion to fully implement. But the benefit to the global
    economy of the world is $897 billion. This has an enormous
    return on its investment. So we would want to be very careful
    about saying we can save a billion here if it delays the
    program implementation. But this independent report says, if
    you delay the implementation 5 years, it reduces the $148
    billion.
        So we would want to be very thoughtful and we certainly
    would want to have your understanding and concurrence before we
    said, well, we are going to cut back here. We are going to save
    $4 billion over the next 2 years, but it is going to cost us
    $80 billion in the long run. So I think we need to be----
        Senator Murray. Those are issues we are dealing with in
    every program here, and we are trying to be sober about what we
    can realistically do. So we will work with you.
        Mr. Scovel, do you have any ideas on how the FAA can
    prioritize this as we face these continuing challenges here
    with budget cuts?
        Mr. Scovel. We would commend the agency for their efforts
    in the short-term implementation for NextGen to have worked
    with the RTCA so-called Task Force 5. And by the short term, we
    are talking about from the present up to the 2015-2017
    timeframe. FAA, we think, has very wisely chosen to focus its
    short-term efforts on the Metroplex initiative, and working
    with users in the industry to determine those benefits that can
    be most quickly and most tangibly achieved at those key
    locations throughout the country. And FAA has been working on
    airspace and procedural changes in order to accomplish that.
        Looking out over the longer term, we would cite a couple of
    programs. And I am certain the Administrator would likely
    agree. ERAM, as we have talked about, needs to be fixed, and as
    quickly as possible. ADS-B is absolutely critical. One that has
    not been mentioned yet today, apart from our written
    statements, is terminal modernization. In order for the
    benefits of NextGen to be achieved, and specifically for the
    ADS-B benefits to be put in place, not only ERAM at the en
    route centers, but also the modernization platforms at the
    TRACONs need to be in place. The users have been clamoring for
    some certainty and identification as to when, and how, and
    where those initiatives will take place, and we would certainly
    second that.

                   AIR FRANCE FLIGHT 447--LOSS OF SEPARATION

        Senator Murray. I appreciate both of your testimony on all
    those complex budget issues.
        Mr. Babbitt, while I have you, I just want to ask you one
    question. It was almost 2 years ago when Air France flight 447
    disappeared into the Atlantic Ocean, and the New York Times
    published a lengthy story on that this week which was very
    interesting. I know that was not under FAA's watch, but I
    wanted to ask you, while you are here, what procedures are
    followed when U.S. aircraft controllers lose contact with the
    aircraft.
        Mr. Babbitt. I guess that changes depending on other
    circumstances. But if an aircraft were to lose contact, we
    would certainly institute a set of procedures to try and regain
    radio communications. If that is not possible after about 10
    minutes, we go into----
        Senator Murray. That soon.
        Mr. Babbitt. Yes. We start notifying other agencies. We
    escalate it. Now, that is just radio communication.
        If we lose radio and radar communication--in other words,
    we lose sight of the target--we immediately assume that some
    catastrophic loss has occurred. If we cannot even get a primary
    target, meaning there is no radar return whatsoever, we would
    assume that the airplane is down and we would go to another
    level. We would notify the NTSB. We would notify other
    agencies. We would begin search and rescue.
        Senator Murray. How soon? Because I think it was a day
    before they began search and rescue. How soon would we be
    looking at search and rescue?
        Mr. Babbitt. We would have notified people within 30
    minutes. So, we would have been reacting very, very quickly. Of
    course, this was an airplane that was not a U.S.-registered
    aircraft and it was not in U.S. control.
        Senator Murray. Yes. My question was more, what do we have
    in place that is dissimilar to that. It seemed like it just
    took them--from reading the article--I do not know if you read
    it, but it just seemed like it took them forever to do
    anything.
        Mr. Babbitt. Right. Yes. No, we would have responded more
    quickly. That one was complicated in consideration of the
    circumstances. That airplane could not have been further from
    anything than it was. It was in a very remote area across the
    ocean, which really complicated the authorities' ability to
    move there. But I do not know the exact timeline of when they
    implemented. But things would be well underway in this country
    in 30 minutes.
        Senator Murray. That is good to know.

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                   Question Submitted by Senator Patty Murray
                       performance and retention bonuses
        Question. Please explain what changes the Federal Aviation
    Administration (FAA) has made to its procedures in the past year to
    ensure it is using its retention bonus authority appropriately. Please
    compare how FAA's retention bonus policy differs from that of other
    department modes.
        Answer. To ensure appropriate and responsible use its Retention
    Incentive Program, in October 2010, FAA raised the approval level for
    all retention incentives to the FAA Administrator. In addition, FAA is
    in the process of strengthening its policy that will:
      --require increased analysis and written justification based on
            specific factors;
      --require a period of employment with FAA of at least 1 year prior to
            being authorized any retention incentive; and
      --add an annual review to determine continued business need for the
            retention incentive.
        Other than the approval level, these added requirements mirror the
    Department of Transportation's incentive policy. Pursuant to 49 U.S.C.
    40122, the FAA Administrator holds the final approval authority for pay
    decisions.
                                     ______

                Questions Submitted by Senator Richard J. Durbin

                    FAA AIRPORT PRIVATIZATION PILOT PROGRAM

        Question. Since the Federal Aviation Administration (FAA) Airport
    Privatization Pilot Program began in 1997, how many airports have
    applied to participate in the program?
        Answer. Since the program's inception in 1997, 10 airports have
    submitted applications for participation in the Pilot Program:
      --Stewart International Airport, Newburgh, New York;
      --San Diego Brown Field, San Diego, California;
      --Rafael Hernandez Airport, Aguidilla, Puerto Rico;
      --Niagara Falls International Airport, Niagara Falls, New York;
      --New Orleans Lakefront Airport, New Orleans, Louisiana;
      --Chicago Midway International Airport, Chicago, Illinois;
      --Louis Armstrong International Airport, New Orleans, Louisiana;
      --Luis Munoz Marin International Airport, San Juan, Puerto Rico;
      --Gwinnett County-Briscoe Field, Lawrenceville, Georgia; and
      --Hendry County Airglades Airport, Clewiston, Florida.
        Question. How many airports have applied to be sold or privatized
    under the pilot program? How many airports have successfully been
    privatized under the program?
        Answer. Ten airports have submitted applications for participation
    in the pilot program. Title 49 U.S.C. 47134 requires that commercial
    service airports can only be leased while general aviation (GA)
    airports can be leased or sold. Nine airports have applied for leases;
    Hendry County Airglades Airport, a GA airport, is the only GA airport
    considering a sale.
        To date, Stewart International Airport (SWF) in Newburgh, New York,
    is the only airport to receive final agency approval. National Express
    Group, a private company from the United Kingdom, operated SWF from
    March 2000 until October 2007, when the Port Authority of New York and
    New Jersey purchased the National Express Group's Airport Lease. SWF is
    no longer privatized.
        Question. How many applications are currently pending in the
    privatization program? What airports are currently participating in the
    program?
        Answer. Of the five slots available in the pilot program, FAA has
    four slots reserved:
      --Chicago Midway International Airport, Chicago, Illinois;
      --Luis Munoz Marin International Airport, San Juan, Puerto Rico;
      --Gwinnett County Briscoe Field, Lawrenceville, Georgia; and
      --Hendry County Airglades Airport, Clewiston, Florida.
        Question. The privatization pilot program allows FAA to exempt the
    public airport sponsor from the obligation to repay Federal grants and
    return property acquired with Federal assistance upon the lease or sale
    of the airport. Is this authority discretionary or is FAA required to
    exempt airport sponsors from repaying Federal grants?
        Answer. Title 49 U.S.C. 47134(b)(2) gives the Secretary
    discretionary authority to grant an exemption to an airport sponsor
    necessary to waive an obligation to repay Federal grants.
        Question. The privatization pilot program allows FAA to exempt the
    public airport sponsor from the obligation to repay Federal grants and
    return property acquired with Federal assistance upon the lease or sale
    of the airport. Has the FAA ever used this discretionary authority?
        Answer. In the case of SWF, FAA granted an exemption to the New
    York State Department of Transportation from its obligations to repay
    Airport Improvement Program grants. Title 49 U.S.C. 47134(b)(1)
    requires that the exemption permitting revenue to be used for
    nonairport purposes must be approved by at least 65 percent of the air
    carriers serving the airport; and by air carriers whose aircraft
    landing at the airport had a total landed weight of at least 65 percent
    of the total landed weight of all aircraft landing at the airport. The
    air carriers declined to approve New York State's request to use
    airport revenue for nonairport purposes.
        Consequently lease proceeds remained airport revenue. The State of
    New York could only receive reimbursement for capital contributions
    incurred within the past 6 years as permitted by existing statute. An
    exemption was issued waiving the obligation to return Federal surplus
    property.
        Question. The privatization pilot program allows FAA to exempt the
    public airport sponsor from the obligation to repay Federal grants and
    return property acquired with Federal assistance upon the lease or sale
    of the airport. If so, when and how much funding were airport sponsors
    exempted from repaying?
        Answer. In 2000, New York State Department of Transportation was
    exempted by FAA from repaying $59,118,796 in AIP funds and repaying an
    Economic Development Administration grant for the construction of an
    air cargo terminal. The Federal obligations were transferred to the
    private operator. Since the air carriers declined to approve New York
    State's request to use the lease proceeds for nonairport purposes, the
    lease proceeds remained airport revenue, and therefore the exemption
    was not used.
        Question. The privatization pilot program allows FAA to exempt the
    public airport sponsor from the obligation to repay Federal grants and
    return property acquired with Federal assistance upon the lease or sale
    of the airport. If FAA did not require repayment at any airport
    involved in the privatization program, how much total Federal funding
    would each airport sponsor in the privatization program be exempted
    from repaying?
        Answer. If FAA did not require repayment by any of the four active
    applicants in the privatization pilot program, the exemptions issued
    would equal approximately $215,931,838 in total Federal funding. The
    amounts due the Federal Government would include:
      --Chicago Midway, $145,340,713;
      --Luis Munoz Marin, $42,736,309;
      --Gwinnett County Briscoe Field, $24,408,257; and
      --Hendry County Airglades Airport, $3,446,559.
        These amounts include the remaining useful life of grant-funded
    pavement, buildings, and equipment. Grant amounts are amortized over
    the 20-year useful life of the physical asset. The FAA would not
    require repayment for federally acquired land as long as the airport
    remained an airport. These amounts do not include improvements older
    than 20 years or intangible investments like studies and planning that
    are not depreciable assets.
        Question. The privatization pilot program allows FAA to exempt the
    public airport sponsor from the obligation to repay Federal grants and
    return property acquired with Federal assistance upon the lease or sale
    of the airport. Have any of the public airport sponsors interested in
    privatization received Federal funding for land acquisition to build
    their airport? How would these types of grants be considered in the
    requirement to repay Federal grants?
        Answer. Yes, some of the public airport sponsors interested in
    privatization have received Federal funding for land acquisition to
    build their airport. Since the useful life of land does not end or
    depreciate, the obligations associated with the Federal purchase of
    land do not expire. Federal surplus property deeds conveying land for
    airport purposes also do not expire. FAA would not require repayment
    associated with land acquisition because sponsors would want those
    obligations released. FAA would not normally seek reimbursement for the
    land, in order to ensure that these airports remain federally
    obligated.
        Question. Midway Airport in Chicago is currently the only large-hub
    airport in the privatization program. How much total Federal funding
    has gone to build and maintain Midway Airport?
        Answer. The FAA has obligated $376,480,477 in AIP grant funds for
    Midway Airport in the last 20 years.
        Question. Midway Airport in Chicago is currently the only large-hub
    airport in the privatization program. How much Federal funding would
    the city of Chicago need to repay if it were successfully privatized
    under the program and FAA did not use their authority to exempt
    repayment of previously received Federal grants?
        Answer. The FAA could require repayment associated with the
    remaining useful life of the Federal investment without repayment for
    the cost of land. The city of Chicago and its private operator would
    have to repay $145,340,713. This would include the depreciated value of
    pavement, buildings, and equipment. This sum would not include
    improvements older than 20 years or intangible investments like studies
    and planning.
        Question. Midway Airport in Chicago is currently the only large-hub
    airport in the privatization program. What other large-hub airports
    have expressed interest in the privatization program?
        Answer. It is unclear what other large-hub airports are interested.
    The FAA has not received applications from other large-hub airports
    because Midway currently holds the only slot for large hubs.
        Question. Under the current privatization pilot program, what
    disclosure requirements does the private entity wishing to buy or lease
    the airport have?
        Answer. The disclosure requirements are identified in the FAA's
    Airport Privatization Pilot Program: Application Procedures, 62 Federal
    Register 48693, September 16, 1997. Such disclosures include the
    following:
      --qualifications of private airport operator, including the identity,
            experience and responsibility of key personnel;
      --financial resources, including copies of 10K annual reports filed
            with the Securities and Exchange Commission, if not filed,
            balance sheet and income statement prepared in accordance with
            generally accepted accounting principles, with all footnotes
            applicable to the financial statements;
      --description of the private operator's capability of complying with
            the public sponsor's existing grant assurances;
      --affiliations with air carriers or other persons engaged in
            aeronautical business activity at an airport (other than
            airport management); and
      --description of all charges of unfair or deceptive practices or
            unfair methods of competition brought against the private
            operator, private operator's key personnel and in the case of a
            private operator that is a joint venture, partnership or other
            consortium, the separate members of the entity in the past 10
            years.
        The description should include the disposition or current status of
    each such proceeding. If application is approved, the private operator
    is subject to financial reporting requirements provided for in 49
    U.S.C. 47107(a)(15) and (19) and as implemented in Grant Assurance Nos.
    13 and No. 26. Additionally, if the application is approved, the
    private operator would be subject to periodic audits of the financial
    records and operations of an airport receiving an exemption under the
    pilot program and the applicant indicates their express assent to this
    provision. Private operators may file a request for confidentiality of
    documents or information submitted to protect the disclosure of
    confidential business information.
        Question. Do private airport sponsors need to disclose any conflict
    of interests they may have with parties involved in a sale or lease
    agreement?
        Answer. According to the application procedures, private operators
    must disclose affiliations with air carriers or other persons engaged
    in aeronautical activity at an airport (other than airport management).
    Private operators must also disclose all charges of unfair or deceptive
    practices or unfair methods of competition brought against the private
    operator and or key personnel within the past 10 years. The private
    applicant would also be subject to applicable State law conflict of
    interest requirements when submitting a response to a request for
    proposal and/or bid.
        Question. Do private airport sponsors need to disclose an estimated
    amount of tax benefits over the life of a long-term lease or sale of a
    privatized airport?
        Answer. Neither the statute nor the application procedures require
    the private operator to disclose estimated tax benefits over the life
    of a long-term lease or sale of a privatized airport.
        Question. Do private airport sponsors need to disclose savings they
    may receive from changes in workforce, wages, benefits, or rules? Are
    the private entities required to disclose any tax or financing benefits
    they receive from entering into a long-term lease of an asset like an
    airport?
        Answer. Neither the statute nor the application procedures require
    the private operator to disclose savings or estimated tax benefits over
    the life of a long-term lease or sale of a privatized airport. The
    statute does require that any collective bargaining agreement that
    covers airport employees and is in effect on the date of the sale or
    lease of the airport not be abrogated by the sale or lease.
    Additionally, if the application is approved, the private operator
    would be required to comply with all applicable Internal Revenue
    Service (IRS) rules and regulations.
        Question. Under the current privatization pilot program, what
    disclosure requirements does the airport sponsor have before they sell
    or lease their airport?
        Answer. The disclosure requirements are identified in the FAA's
    Airport Privatization Pilot Program: Application Procedures, 62 Federal
    Register 48693, September 16, 1997. Public Sponsors interested in
    applying must file a preliminary application to reserve a slot,
    followed by a final application for the exemption. The application
    procedures require the sponsor to submit a statement of the public
    sponsor's authority to sell or lease the airport, with a citation to
    legal authorities. The sponsor is required to file a distribution ready
    copy of the request for proposals (RFP) for the management and
    operation of the airport which should contain references to the nine
    statutory objectives listed in 49 U.S.C. 47134. In the RFP, the sponsor
    will need to disclose whether it is proposing to sell or lease a GA
    airport, or to lease any other type of airport. The applications are
    filed on www.regulations.gov and available for public review and
    comment. The FAA conducts a public hearing in the local community and
    holds a 60-day public comment period before making a decision. Public
    Sponsors must disclose the amount of airport revenue that will be used
    for non airport purposes and the amount of airport revenue that will be
    paid to the private operator. The FAA encourages airport sponsor to
    augment FAA's efforts with their local means of communicating with the
    general public. The FAA requires a description of any local public
    outreach efforts by the applicant.
        Question. Does the public airport sponsor need to conduct an
    assessment of whether a sale or lease with a private entity would
    represent a better public and financial benefit than keeping the
    airport under public ownership and control?
        Answer. No, not formally through the privatization application
    process. The FAA views the type of management structure an airport
    owner chooses to manage its airport as a local decision. However, as a
    matter of prudence, FAA would expect an airport sponsor to perform
    appropriate due diligence in considering whether to privatize its
    public use airport. Most airport owners have conducted some form of
    assessment and made a decision to seek private investment and operation
    prior to submitting an application for the privatization pilot program.
        As stated in the application procedures, it was the intent of
    Congress in enacting the airport privatization pilot program to
    determine if new investment and capital from the private sector can be
    attracted through innovative financial arrangements. The FAA and the
    public have a reasonable expectation that a private operator will
    provide new capital and create new investment opportunities at the
    airport.
        Furthermore, the airport sponsor is required to describe how the
    private operator, the public sponsor, or both will address operation,
    maintenance, and development of the airport after the proposed
    transfer, and the continued operation of the airport in the event of
    bankruptcy or other financial or legal impairment of the private
    operator. One approach would be through reversion of the airport back
    to the public sponsor.
        Question. Does the public airport sponsor need to disclose how much
    revenue they will lose from selling or leasing an airport?
        Answer. The application procedures require the public airport
    sponsor to disclose the lease or sale proceeds from the transaction
    that will be used for nonairport purposes. As with all Federal
    obligated airports, FAA can require airport owners and operators to
    submit financial information. The FAA did caution the sponsor and the
    private applicant for Niagara Falls International Airport about its
    concern about the level of investment in a proposed privatization
    process. This application was ultimately closed out in January 2002 for
    failure to proceed.
        Question. Does the public sponsor need to disclose their plan for
    spending any up-front payments received in a sale or lease of an
    airport?
        Answer. Yes, typically this occurs when the sponsor responds to the
    preliminary application question related to a summary narrative of the
    objectives of the privatization initiative--what the public sponsor
    wants to accomplish by the solicitation. The application procedures
    require the sponsor to disclose the amounts and timing of payments, and
    the amounts of payments to sponsor to be used, respectively, for
    airport purposes (including recoupment of public sponsor investments
    not previously recovered) and other purposes.
                                     ______

                   Questions Submitted by Senator Mark Pryor

        Question. How do small communities benefit from the Essential Air
    Service (EAS) program?
        Answer. The Department of Transportation's (DOT) EAS program was
    established in the 1978 Airline Deregulation Act (ADA) as a safety net
    for smaller and more isolated communities to have access to the
    national air transportation system. Under the program, small
    communities are assured a basic level of air service, linking them to
    the national air transportation system--generally with two departures
    per day, 6 days per week.
        As of July 1, 2011, EAS-subsidized service was provided at 153
    communities across the country--44 in Alaska and 109 in the rest of the
    country and Puerto Rico. Funding is now provided via an annual $50
    million payment from the Federal Aviation Administration (FAA), which
    derives the funds from air traffic control fees for international
    overflights, and an additional amount through annual appropriations.
    Program budget amounts have increased from $22.6 million in fiscal year
    1992 to $200 million in fiscal year 2010.
        The EAS program has largely retained its basic eligibility criteria
    since the ADA was enacted; it specified that those communities then
    receiving scheduled airline service were ensured of receiving at least
    a basic level of service thereafter, with subsidy if necessary. The
    guarantee was originally scheduled to expire after 10 years, but it has
    been extended indefinitely. The most notable change in eligibility
    dates from 1990, when Federal statute excluded from subsidy eligibility
    those communities in the 48 contiguous States that were located fewer
    than 70 highway miles from the nearest large- or medium-hub airport, or
    that require a rate of subsidy per passenger in excess of $200, unless
    the point is more than 210 miles from the nearest large- or medium-hub
    airport. Public Law 106-69, title III, section 332. DOT is precluded by
    statute from making any determinations that would exclude communities
    from subsidy eligibility on any other basis. 49 U.S.C. 41731(b).
        Question.What effect will the EAS provisions that have been added
    to the Senate version of the FAA bill with regard to the 100-mile rule
    have on small communities? How many airports will be affected by the
    100-mile rule?
        Answer. Senator Coburn's 100-mile amendment was subsequently
    modified, such that what was adopted by the Senate would define an
    eligible place for EAS as a place in the United States (but excluding
    Alaska) that ``is located not less than 90 miles from the nearest
    medium or large hub.'' See S. 223, section 420, as passed the Senate on
    February 17, 2011. A 90-mile limitation, by DOT calculation, would
    affect 10 communities and produce an annual savings potential of
    approximately $12.5 million. (Increasing the limitation to 100 miles
    would affect three additional communities, at a potential additional
    savings of $4.2 million.)

                            FEDERAL CONTRACT TOWERS

        Question. Contract tower cost share programs are important to my
    State as well as several others. An amendment I introduced to FAA bill
    would set a local cost share cap on the cost-share airports
    participating in the contract tower program and provide relief for
    airports recovering from the recession. What steps are you taking to
    assist cost share contract tower communities currently struggling due
    to the economic downturn?
        Answer. The FAA is keenly aware of the challenges faced by airports
    that are recovering from the economic downturn and has taken steps to
    lessen the financial impact of the cost share program on local
    communities. Historically, FAA updated its benefit cost (B/C) ratios on
    a biennial cycle; however, given the drastic decline in general
    aviation (GA) traffic in the past few years, FAA had delayed its B/C
    update until recently to avoid unnecessarily penalizing communities.
    However, the agency now believes the lower growth rate in GA traffic is
    going to persist for the foreseeable future and is in the process of
    revising its B/C ratios. We are taking steps to make sure the
    methodology and data involved in updating our B/C results as well as
    how that information is communicated and potentially appealed by
    communities is open and transparent.
        While the hourly wages of the air traffic controllers are
    determined by the Department of Labor, FAA continuously evaluates and
    verifies the staffing for each facility. This is done to ensure the
    facilities are adequately staffed to provide safe, efficient operations
    and not overstaffed, to keep the price of each facility as low as
    possible. This successful program provides highly trained, experienced
    controllers at a reduced cost to the taxpayers.
        Capping the local cost share for airports will have budget impacts
    on the FAA and opportunity costs for other programs as it will lead to
    a need to increase the funds made available to the current and future
    Cost Share program. It will also limit FAA's ability to allow new
    towers and communities into the program. There may also be lower-cost
    alternatives over time with the capacity of Next Generation Air
    Transportation System (NextGen) to deploy ``virtual towers'' with
    automatic dependent surveillance-broadcast capability.

                       AIR TRAFFIC CONTROL MODERNIZATION

        Question. The budget request includes an estimated $1.2 billion to
    support the ongoing NextGen program that will modernize the Air Traffic
    Control system. This is about a $350 million increase more than the
    fiscal year 2010 enacted level. What is the rationale for the increase?
        Answer. The fiscal year 2012 President's budget request for NextGen
    totals $1.237 billion, an increase of $369 million, or 43 percent more
    than the fiscal year 2010 enacted level of $868 million. While this is
    a significant funding increase, it:
      --includes a one-time $200 million mandatory spending request in
            support of the President's $50 billion infrastructure
            initiative;
      --is consistent with the FAA's Capital Investment Plan and NextGen
            Implementation Plan; and
      --underscores the declaration by this administration that NextGen is
            a top national transportation and infrastructure priority.
        The NextGen Implementation Plan lays out FAA's plan for delivering
    significant benefits by the 2018 timeframe. Specifically, our most
    recent estimates show that by 2018, NextGen air traffic management
    improvements will reduce total delays (in flight and on the ground) by
    about 35 percent compared with what would happen if we did nothing.
    This delay reduction will provide $23 billion in cumulative benefits
    from 2010 through 2018 to the traveling public, aircraft operators, and
    the FAA. We will save about 1.4 billion gallons of aviation fuel during
    this period, and cut carbon dioxide emissions by 14 million tons.
        Aviation is critical to our Nation's economy. As recently as 2009,
    civil aviation contributed to $1.3 trillion annually to the national
    economy, and constituted 5.2 percent of the gross domestic product. It
    generated more than 10 million jobs, with earnings of $397 billion.
        Question. One of my goals is to ensure that all taxpayer dollars
    are spent wisely and effectively, particularly given the fiscal
    situation we are in right now. Can you give me some specific examples
    of how taxpayers will benefit from this spending (i.e., what is the
    return on investment for taxpayers)?
        Answer. The advantages of NextGen will benefit almost all
    taxpayers, whether they are frequent flyers or never fly at all. Those
    who do fly will enjoy fewer delays, the highest level of safety, and
    more predictable trips. Those living in neighborhoods near airports
    will experience less aircraft noise and fewer emissions. Communities
    will make better use of their airports and strengthen their local
    economy, as well as our national economy.
        Specifically, our most recent estimates show that by 2018, NextGen
    air traffic management improvements will reduce total delays (in flight
    and on the ground) by about 35 percent compared with what would happen
    if we did nothing. This delay reduction will provide $23 billion in
    cumulative benefits from 2010 through 2018 to the traveling public,
    aircraft operators, and the FAA. We will save about 1.4 billion gallons
    of aviation fuel during this period, and cut carbon dioxide emissions
    by 14 million tons.
        NextGen mid-term improvements made during this time will continue
    to accrue benefits beyond 2018. Total cumulative benefits through 2030
    are estimated to be worth $123 billion, including a total savings of
    6.7 billion gallons of fuel and 64 million tons of carbon dioxide. This
    represents a net present value to the taxpayers of $33 billion.\1\
    ---------------------------------------------------------------------------
        \1\ Net present value equals discounted benefits, minus discounted
    costs.
    ---------------------------------------------------------------------------
                                     ______

                   Question Submitted by Senator Daniel Coats

              AIRPORT SLOT ALLOCATIONS AT REAGAN NATIONAL AIRPORT

        Question. I am concerned about the fairness of the criteria used
    for counting slots at Washington, DC's Ronald Reagan Washington
    National Airport (DCA). It appears the current regulation has led the
    agency to double-count the number of ``holds'' an airline possesses for
    purposes of qualifying as a ``limited incumbent'' (See 14 CFR 93.213).
    For example, Republic Airways Holdings, an Indiana-based company,
    maintains control over fewer than 20 slots at DCA. But the company
    cannot qualify as a limited incumbent due to its minority interests in
    and financial transactions with other airlines. Under the current
    method of counting, these investment interests result in Republic
    holding more than 100 slots at DCA. But airlines other than Republic
    retain complete control over the use of those slots--and the slots
    count against the controlling airlines as well as against Republic.
    Thus, numerous slots are being double-counted for purposes of
    qualifying as a limited incumbent. Why has the agency adopted a policy
    that results in such dramatic double-counting of slots? Is there a way
    to end double-counting and promote accuracy and fairness when counting
    slots for purposes of qualifying as a limited incumbent at DCA?
        Answer. Pursuant to 14 CFR 93.213, a ``limited incumbent'' at high-
    density airports is defined as a carrier that ``holds or operates''
    fewer than 20 slots, including slot exemptions. The limit was increased
    from 12 to 20 in the AIR-21 legislation, Public Law 106-181, an action
    we interpret as indicating congressional recognition and support for
    the ``hold or operate'' approach.
        In this case, Republic Airways Holdings, Inc. clearly holds 113
    slots at DCA, Republic Airlines (a subsidiary of Republic Airways
    Holdings), holds 16 slots and Frontier Airlines, another subsidiary of
    Republic Airways Holdings, holds 6 slots. We understand Republic
    Airways Holdings' claims that under their agreement US Airways
    effectively has control over use of the slots, but there appears to be
    no dispute either that Republic Airways Holdings is in fact the holder
    of the 113 slots or that it derives financial benefit as a result of
    such holdings.
        Notwithstanding this point, in the latest ``slot counting'' issue
    at DCA--in which Delta Air Lines is proposing to swap certain slots at
    DCA for slots held by US Airways at LaGuardia Airport--the Department
    has demonstrated some flexibility in its approach by proposing to allow
    Frontier Airlines to be eligible to compete for certain slots to be
    divested, despite the fact that it is wholly owned by Republic Airways
    Holdings. While the issue remains open for comment, the Department of
    Transportation tentatively found that Frontier Airlines maintained a
    discretely different low-cost carrier business plan than its parent and
    that Frontier Airline's presence as an eligible bidder would help to
    stimulate and maintain competition at these airports.

                              SUBCOMMITTEE RECESS

        Senator Murray. I appreciate both of your testimonies today
    and look forward to working with you.
        With that, this hearing is recessed.
        [Whereupon, at 10:52 a.m., Thursday, May 12, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

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

                                  ----------

                             TUESDAY, MAY 17, 2011

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:18 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Patty Murray (chairman) presiding.
        Present: Senators Murray, Lautenberg, and Collins.

                          DEPARTMENT OF TRANSPORTATION

                        Federal Railroad Administration

    STATEMENT OF HON. JOSEPH C. SZABO, ADMINISTRATOR

                   OPENING STATEMENT OF SENATOR PATTY MURRAY

        Senator Murray. This subcommittee will come to order.
        This morning we are holding a hearing on the President's
    budget request for the Federal Railroad Administration (FRA)
    and the budget request for the National Passenger Railroad
    Corporation (Amtrak).
        I want to welcome the Administrator of the Federal Railroad
    Administration, Mr. Joseph Szabo, and Amtrak's President and
    CEO, Mr. Joe Boardman. Thank you both for being here this
    morning, and we look forward to your testimony.
        We are now at a pivotal moment for our Nation's
    transportation policy. Over the last several years, we have
    made important investments in our rail infrastructure. But the
    recent focus in the Congress on budget cuts has created a race
    to the bottom that will make it difficult to continue those
    investments.
        Rail offers an environmentally sound and efficient
    alternative to move people and goods. It creates jobs, reduces
    the price of goods being shipped, and helps commuters across
    the country get to work.
        Our population is projected to reach 420 million by mid-
    century, almost 140 million more than in 2000. If you think
    travel on our roads and at our airports are crowded today, just
    wait. Building more and wider roads will not be enough. We have
    to look to other alternatives such as passenger rail for the
    future.
        But we need to be smart about building intercity passenger
    rail in a way that works with our systems of road and aviation.
    We need to make targeted investments where it makes economic
    sense to improve mobility options in and between America's
    congested cities.
        I know communities around the country value their rail
    service. I know families in my home State of Washington deeply
    value our Amtrak service, the Cascade Line, which just set
    record ridership for the second year in a row. Which is why I
    am so disappointed that the new Republican majority in the
    House of Representatives has targeted rail transportation for
    their budget cuts.
        A year ago, we sat together in this room at our last
    hearing on rail and discussed the financial constraints of the
    fiscal year 2011 annual appropriations. A year later, we have
    instituted the largest 1-year reduction in discretionary
    spending in our Nation's history. These budget cuts have had a
    severe impact on our rail transportation programs. Capital
    grants to Amtrak were cut by $78 million and new funding for
    intercity and high-speed rail was eliminated for fiscal year
    2011.
        But many Republicans in the House say these cuts are not
    enough, and they are clamoring for more. The House version of
    the 2011 bill would have cut Amtrak by $151 million, resulting
    in furloughs for up to 1,600 employees. It also would have
    taken back more than $2.5 billion of high-speed and intercity
    rail grants.
        I agree that leaders here in Washington, DC need to tighten
    our belts and work together to get our Nation's debt under
    control. But we cannot be reckless about this. We cannot put
    together a Federal budget that will put our fragile economy and
    millions of jobs at risk. And we must continue making
    investments we know will make our country more competitive in
    the long term.
        As we develop the budget for fiscal year 2012, the bar has
    never been higher for concrete results to justify Federal
    investment. The administration used its budget request to show
    its vision of rail placed on par with other modes of
    transportation. But in today's environment, a big vision just
    will not cut it. We need to see realistic alternatives to the
    kind of slash and burn politics that have taken over our budget
    debates. I am disappointed that the budget request does not
    offer that.
        You have significant competition for very limited resources
    in the Department of Transportation (DOT). Transit systems are
    suffering across the country, shutting down services, and
    unable to make operating costs under constrained State budgets.
    The Next Generation Air Transportation System (NextGen) air
    traffic control system is costly and fundamentally necessary
    for the future of air transportation as well.
        That is why I need more from you, Mr. Szabo. I recognize
    the hard work that you and the staff at FRA have done to
    protect the agency's role as a rail safety organization and to
    build its capacity to oversee multi-billion dollar investment
    choices. It was no small task, and I commend you for your
    efforts.
        But I need you to improve transparency in FRA's work. We
    need detailed and compelling answers to basic questions about
    the awards that FRA is making to States, like what markets make
    the most sense to target rail investment and why. What will it
    cost to build? What are the benefits to investment? And what
    will it cost to operate?
        A March 2011 Government Accountability Office (GAO) report
    on the program found the criteria and evaluation of the grants
    to be sound. GAO's only recommendation was that FRA provide
    more detailed information of its record of decisions. And I
    could not agree more. As this program matures, transparency
    about the analysis and consideration of projects can only aid
    in resolving the criticisms about the integrity of the program.
    We also need to dispel some of the myths that seem to plague
    the intercity and high-speed rail program.
        There should be no question about interest from States. In
    the most recent $2.4 billion grant competition, FRA received
    more than 90 applications from 24 States, the District of
    Columbia, and Amtrak for projects along the Northeast corridor,
    with preliminary requests totaling nearly $10 billion. This
    includes the State of Wisconsin's application for $230 million.
    That was a State that previously returned an American Recovery
    and Reinvestment Act (ARRA) award.
        I support investment in intercity and high-speed rail, but
    it is now time to address the program's critics head on, and it
    is time for the program to produce and communicate tangible
    results that the Congress and American taxpayers clearly
    understand.
        I am sure Mr. Boardman can sympathize with the difficult
    position you are in, Mr. Szabo. I remember a point not too long
    ago when there were discussions about the end of Amtrak. This
    subcommittee saw a series of budget requests coming out of the
    previous administration that would have bankrupted the
    railroad. I worked hard for adequate funding for Amtrak and to
    see reforms of its financial management. The Passenger Rail
    Investment and Improvement Act of 2008 (PRIIA) helped put
    Amtrak on the right track for success, and a new management
    team has done so much to improve the way Amtrak does its work.
        Amtrak has a new level of cooperation between its board and
    management teams. They have worked diligently to complete a new
    strategic plan, developed a system to prioritize capital
    projects, built a plan for fleet modernization, improved the
    transparency of the annual budget, and developed a
    comprehensive business plan.
        As the leadership at FRA and Amtrak face significant
    challenges in the years ahead, I cannot emphasize enough the
    importance that you administer your programs and manage their
    funding effectively and responsibly.

                               PREPARED STATEMENT

        Finally, I look forward today to discussing with you the
    security challenges that you face and what steps you are taking
    to safeguard our Nation's rail passengers. As you well know,
    there is no higher priority, and with details of terrorist
    plots against rail targets emerging from the raid on bin
    Laden's compound, I want to make sure you have the resources
    you need to protect our railways and the passengers.
        Thank you very much, and I now yield to Senator Collins for
    her opening statement.
        [The statement follows:]

                   Prepared Statement of Senator Patty Murray

        This morning we will be holding a hearing on the President's budget
    request for the Federal Railroad Administration (FRA) and the budget
    request of the National Passenger Railroad Corporation (Amtrak).
        I would like to welcome the Administrator of FRA, Mr. Joseph Szabo,
    and Amtrak's president and CEO, Mr. Joe Boardman.
        Thank you for being here this morning, and I look forward to
    hearing your testimony.
        We are now at a pivotal moment for our Nation's transportation
    policy. Over the past few years, we have made important investments in
    our rail infrastructure. But the recent focus in the Congress on budget
    cuts has created a race to the bottom that will make it difficult to
    continue those investments.
        Rail offers an environmentally sound and efficient alternative to
    move people and goods. It creates jobs, reduces the price of goods
    being shipped, and helps commuters across the county get to work.
        Our population is projected to reach 420 million by mid-century,
    almost 140 million more than in 2000. If you think travel on our roads
    and at our airports is crowded today, just wait. Building more and
    wider roads won't be enough. We have to look to other alternatives such
    as passenger rail for the future.
        But we need to be smart about building intercity passenger rail in
    a way that works with our system of roads and aviation. We need to make
    targeted investments where it makes economic sense to improve mobility
    options in and between America's congested cities.
        I know communities around the country value their rail service. I
    know families in my home state of Washington deeply value our Amtrak
    service--the Cascade Line which just set record ridership for the
    second year in a row. Which is why I am so disappointed that the new
    Republican majority in the House of Representatives has targeted rail
    transportation for their budget cuts.
        A year ago, we sat together in this room at our last hearing on
    rail and discussed the financial constraints of the fiscal year 2011
    annual appropriations.
        One year later, we have instituted the largest 1-year reduction in
    discretionary spending in our Nation's history.
        These budget cuts have had a severe impact on our rail
    transportation programs. Capital grants to Amtrak were cut by $78
    million, and new funding for intercity and high speed rail was
    eliminated for fiscal year 2011.
        But many Republicans in the House say these cuts are not enough,
    and they are clamoring for more. The House version of the 2011 bill
    would have cut Amtrak by $151 million resulting in furloughs for up to
    1,600 employees. It also would have taken back over $2.5 billion of
    high speed and intercity rail grants.
        I agree that leaders in Washington, DC need to tighten our belts
    and work together to get our Nation's debt under control. But we cannot
    be reckless about this. We cannot put together a Federal budget that
    will put our fragile economy, and millions of jobs at risk.
        And we must continue making investments we know will make our
    country more competitive long-term.
        As we develop the budget for fiscal year 2012, the bar has never
    been higher for concrete results to justify Federal investment.
        The administration used its budget request to show its vision of
    rail placed on par with other modes of transportation. But in today's
    environment, a big vision just won't cut it.
        We need to see realistic alternatives to the kind of slash and burn
    politics that have taken over our budget debates. I am disappointed
    that the budget request does not offer that.
        You have significant competition for very limited resources in the
    Department of Transportation. Transit systems are suffering across the
    country shutting down services and unable to make operating costs under
    constrained state budgets. The Next Generation Air Transportation
    System air traffic control system is costly and fundamentally necessary
    for the future of air transportation as well.
        That is why I need more from you Mr. Szabo.
        I recognize the hard work you and the staff at FRA have done to
    protect the agency's role as a rail safety organization, and to build
    its capacity to oversee multi-billion dollar investment choices. This
    was no small task and I commend you for your efforts. But I need you to
    improve transparency in FRA's work.
        We need detailed and compelling answers to basic questions about
    the awards that FRA is making to States like: What markets make the
    most sense to target rail investment and why? What will it cost to
    build? What are the benefits to investment? And what will it cost to
    operate?
        A March 2011 Government Accountability Office (GAO) report on the
    program found the criteria and evaluation of the grants to be sound.
    GAO's only recommendation was that FRA provide more detailed
    information of its record of decisions.
        I could not agree more. As this program matures, transparency about
    the analysis and consideration of projects can only aid in resolving
    the criticisms about the integrity of the program. We also need to
    dispel some of the myths that seem to plague the intercity and high
    speed rail program.
        There should be no question about interest from States. In the most
    recent $2.4 billion grant competition, FRA received more than 90
    applications from 24 States, the District of Columbia, and Amtrak for
    projects along the Northeast corridor with preliminary requests
    totaling nearly $10 billion. This includes the State of Wisconsin's
    application for $230 million, a State that previously returned a
    Recovery Act award.
        I support investment in intercity and high speed rail, but it is
    now time to address the programs critics head on. And it is time for
    the program to produce and communicate tangible results that the
    Congress and the American taxpayer clearly understand.
        I am sure Mr. Boardman can sympathize with the difficult position
    you are in Mr. Szabo. I remember a point not too long ago when there
    were discussions about the end of Amtrak. This subcommittee saw a
    series of budget requests coming out of the previous administration
    that would have bankrupted the railroad.
        I worked hard for adequate funding for Amtrak, and to see reforms
    of its financial management. The Passenger Rail Investment and
    Improvement Act of 2008 helped put Amtrak on the right track for
    success, and a new management team has done so much to improve the way
    Amtrak does its work.
        Amtrak has a new level of cooperation between its board and
    management teams. They have worked diligently to: complete a new
    strategic plan, develop a system to prioritize capital projects, built
    a plan for fleet modernization, improve the transparency of the annual
    budget, and develop a comprehensive business plan.
        As the leadership at FRA and Amtrak face significant challenges in
    the year ahead, I cannot emphasize the importance that you administer
    your programs and manage their funding effectively and responsibly.
        I also look forward to discussing with you today the security
    challenges that you face and what steps you are taking to safeguard our
    Nation's rail passengers. As you well know, there is no higher
    priority, and with details of terrorist plots against rail targets
    emerging from the raid on bin Laden's compound I want to make sure you
    have the resources you need to protect our railways. Thank you.

                   OPENING STATEMENT OF SENATOR SUSAN COLLINS

        Senator Collins. Thank you. Good morning.
        First, let me join the chairman in welcoming Mr. Szabo and
    Mr. Boardman to this important hearing.
        I want to begin by thanking the Administrator for working
    with me, State, and county officials to preserve critical rail
    freight service in northern Maine. The 233 miles of rail line
    serving this area of my State had been proposed for
    abandonment, and that would have endangered some 1,700 jobs.
    Now, thanks to a cooperative effort, we can begin the important
    work of upgrading the tracks to preserve and actually improve
    this important freight rail service. So thank you, Mr. Szabo,
    for coming to Maine and for all that you did to make that
    possible.
        Over the past few years, FRA has begun to transform itself
    from essentially a safety oversight agency to one with the
    added responsibility of allocating and overseeing billions of
    dollars in high-speed rail and intercity passenger rail
    projects. I agree with the chairman that we need to have a
    better understanding of how money is being allocated under this
    program.
        Many, however, have questioned the basic economic
    efficiency of building a high-speed rail network in our
    country. Several States have already rejected funding for which
    their States had been awarded. With looming budget shortfalls
    in many States, the cost of building and maintaining high-speed
    rail lines is proving to be daunting. FRA has an ambitious
    national rail plan in place. However, the agency has yet to
    provide cost estimates on what it would take to build and
    maintain a new network of this magnitude.
        In March, Secretary LaHood approved the latest designated
    high-speed rail corridor, the Northeast corridor. This
    designation now allows Amtrak to apply directly for high-speed
    rail funding. Amtrak has projected that the planning and
    construction of the high-speed rail lines for the Northeast
    corridor could cost upward of $117 billion over the next 30
    years. I can only imagine the cost to complete a national
    system when the other 10 corridors are included.
        The administration's budget also calls for a significant
    change in the manner in which Amtrak is funded. Under this
    proposal, the direct appropriation to Amtrak would be
    eliminated, and it appears to force Amtrak to compete for
    funding through FRA. I am interested, as a longtime Amtrak
    supporter, in better understanding how that would work.
        With more than 28 million passengers in the last year,
    Amtrak ridership has increased, I believe, by 5.5 percent, with
    more than 137,000 passengers from March 2010 to March 2011. I
    suspect that escalating gasoline prices will push ridership
    levels even higher.
        Amtrak's Downeaster service between Portland, Maine and
    Boston has become very successful, and last August we
    celebrated the arrival of the first shipment of rail for the
    Downeaster expansion project which will expand the line from
    Portland to Freeport to Brunswick. And I appreciate the
    Administrator's participation in that celebration. This
    infrastructure project is particularly welcome in the Brunswick
    area, given the recent closure of the Brunswick Naval Air
    Station.
        Federal investment plays an important role for Amtrak, but
    in this time of budget constraints, it must be done in a
    fiscally responsible manner. I do commend Amtrak for cutting
    its debt level substantially from $4 billion in 2002 to $1.8
    billion today. But there still is a net operating loss, which
    for fiscal year 2012 is some $616 million, which is nearly $200
    million more than the fiscal year 2010 operating loss. This
    stems largely from the unprofitable long-distance routes that
    continue to prove unsuccessful from a dollars and cents
    standpoint.
        Finally, let me just add to what Chairman Murray said. Only
    a few days after our operation in Pakistan removed Osama bin
    Laden as a threat to our country, the Department of Homeland
    Security (DHS) and the Federal Bureau of Investigation (FBI)
    released an alert about rail security. This was a result of the
    intelligence that was gathered from bin Laden's compound. I was
    pleased to see the quick turnaround that intelligence gathered
    from halfway around the world was analyzed so quickly and an
    alert issued.
        Although this intelligence was not connected to any
    particular city or rail line and was dated from early last
    year, it demonstrates that mass transit remains a tempting
    target for terrorists. And of course we all know that, based on
    terrorist attacks on trains and subways in Madrid, in London,
    in Mumbai, and in Moscow. We are all thankful that there has
    not yet been a similar attack here in our country, but we
    cannot become complacent as al Qaeda or even homegrown
    terrorists could launch attacks, particularly given the warning
    that we have received from the intelligence from bin Laden's
    compound.
        With an eye toward ensuring that taxpayer dollars are used
    as efficiently as possible, we must be certain that adequate
    security measures and technology deployment are implemented
    throughout the passenger rail sector, and although that is
    primarily the responsibility of the Transportation Security
    Administration (TSA), I look forward to getting the thoughts of
    our witnesses on this issue today.

                               PREPARED STATEMENT

        Thank you, Madam Chairman.
        [The statement follows:]

                  Prepared Statement of Senator Susan Collins

        Good morning, and thank you Chairman Murray for holding this
    important hearing. I welcome the Federal Railroad Administrator (FRA)
    and the National Passenger Railroad Corporation's (Amtrak) CEO to this
    hearing.
        Let me begin by thanking Administrator Szabo for his working with
    me, State, and county officials to preserve critical rail freight
    service in northern Maine. I worked closely with the Department of
    Transportation to secure $10.5 million in Federal funds on a crucial
    rail line project in my home State. The 233 miles of rail line serving
    northern Maine had been proposed for abandonment, which would have
    endangered nearly 1,700 jobs. Now we can begin the important work of
    upgrading the tracks to preserve and improve this rail service.
        Over the past few years, FRA has begun to transform itself from
    essentially a safety oversight organization to one with the added
    responsibility of allocating and overseeing billions of dollars in
    high-speed rail and intercity passenger rail projects.
        Many question the economic efficiency of building a high-speed rail
    network in the United States. Several States have already rejected
    funding for which their States have been awarded. With looming budget
    shortfalls in many States, the cost of building and maintaining high-
    speed rail lines is daunting.
        FRA has an ambitious national rail plan in place; however, the
    agency has yet to provide cost estimates on what it will take to build
    and maintain a new network of this magnitude.
        In March of this year, Secretary LaHood approved the latest
    designated high-speed rail corridor, the Northeast corridor. This
    designation now allows Amtrak to apply directly for high-speed rail
    funding. Amtrak has projected that the planning and construction of the
    high-speed rail lines for the Northeast corridor to cost upward of $117
    billion over the next 30 years. I can only imagine the cost to complete
    a national system when the other 10 corridors are included. I am
    hopeful the FRA will be able to provide a cost estimate to the
    subcommittee soon.
        The administration's budget also calls for a significant change in
    how Amtrak is funded. Under the proposal, the direct appropriation to
    Amtrak would be eliminated, forcing Amtrak to compete for funding
    through FRA. I am interested in hearing the details regarding the
    potential outcomes of such a change.
        Amtrak has been operating intercity passenger train service since
    1971. With more than 28 million passengers in fiscal year 2010,
    ridership has increased over the previous years, with a 5.5-percent
    increase, more than 137,000 passengers, from March 2010 to March 2011.
    I suspect the escalating gasoline prices will push ridership levels
    even higher.
        Amtrak's Downeaster service between Portland, Maine, and Boston has
    become a success. Last August, we celebrated the arrival of the first
    shipment of rail for the Downeaster Expansion Project, which will
    expand the line from Portland to Brunswick. I appreciate Administrator
    Szabo's participation in that event. This infrastructure project is
    especially welcome in the Brunswick area, which is coping with the
    closure of the Brunswick Naval Air Station.
        Federal investment plays an important role for Amtrak, but must be
    done in a fiscally responsible manner. Amtrak has cut its debt level
    from $4 billion in 2002 to $1.8 billion today. While progress has been
    made in reducing the debt level, more needs to be done. Amtrak's net
    operating loss for fiscal year 2012 is $616 million, which is nearly
    $200 million more than fiscal year 2010's net operating loss. This
    stems from the unprofitable long distance routes that continue to prove
    unsuccessful from a business standpoint.
        Only a few days after our U.S. Navy SEALs removed Osama bin Laden
    as a threat to America, the Department of Homeland Security and the
    Federal Bureau of Investigation released an alert about rail security.
    I was pleased with the quick turnaround that intelligence gathered from
    halfway around the world was analyzed and an alert was issued.
        Though this intelligence was not connected to any particular city
    or rail line and was dated from early last year, it demonstrated that
    mass transit remains a tempting target for terrorists.
        We all remember watching in horror as the television relayed the
    devastating aftermath of the terrorist attacks on trains in Madrid in
    2004, London in 2005, Mumbai in 2006, and Moscow in 2010.
        We are thankful that there have not yet been similar attacks here
    in America, but we cannot become complacent as al Qaeda or even
    homegrown terrorists could launch attacks, particularly given the
    intelligence from bin Laden's compound.
        With an eye towards ensuring taxpayer dollars are used as
    efficiently as possible, we must make certain that adequate security
    measures and technology deployment are implemented throughout the
    passenger rail sector.
        I am looking forward to working with you Chairman Murray as well as
    Administrator Szabo and Mr. Boardman as we consider the fiscal year
    2012 budget requests.

        Senator Murray. Thank you very much.
        Senator Lautenberg.

                    STATEMENT OF SENATOR FRANK R. LAUTENBERG

        Senator Lautenberg. Thank you, Madam Chairman. It is good
    to be sitting with colleagues who understand the urgent need to
    get on with investing in rail systems, and Amtrak particularly,
    and improving the opportunity to get cars off the road and
    improve air quality and save money on fuel.
        Trains have helped move America's economy forward since the
    19th century when the transcontinental railroad was built--an
    engineering marvel that captured imaginations across the world.
    Almost 150 years later, railroads are still an engine of
    economic success, but the United States is no longer leading
    the way.
        I recently returned from China, which spends heavily on
    high-speed rail, investing about 9 percent of its GDP on
    infrastructure, more than three times the amount we invest here
    in the United States. China's investments are paying off. When
    I was there, I road on a train that moved faster than 200 miles
    an hour--also, I might add, without, Mr. Boardman, the rattle,
    shake, and move, hard to write as it is now on Amtrak. And I
    use it twice a week. So I do not want people to think my
    handwriting is a product of age, but rather a rough ride.
        By comparison, our fastest trains travel 150 miles an hour
    and that is under optimal conditions over very short distances.
        And to remain competitive globally, America must strengthen
    its high-speed rail network and give more people access to
    faster trains. It is going to help spark job creation as
    businesses flock to communities served by new train stations.
    And we see that. We have seen it abundantly in New Jersey,
    where we added a couple of new rail sections, and within a very
    short period, businesses will move to places convenient to
    train travel. It is better for their employees and their
    customers and their staff alike. So we found also that it
    boosted property values in the areas that were served by good
    rail service.
        Now, in our State, I am working with Amtrak to help build
    the Gateway Tunnel with an innovative project that will expand
    high-speed rail in the Northeast corridor. Each week, this
    corridor takes 30,000 cars off our highways and 243 flights out
    of the skies. I cannot help but repeat something that everybody
    can understand, and that is Penn Station in New York handles
    more passengers in a day than all three major airports that
    service our area. It is quite a fantastic thing. And more would
    come if there was room and high speed and comfort.
        I commend Amtrak on its success in the Northeast corridor.
    It demonstrates that when Americans have access to trains, they
    will gladly take them. I came down last night and the train was
    pretty much filled, and I have seen that more often than not.
        President Obama recognizes this, and the administration has
    made a $1 billion investment in improving high-speed rail in
    our region.
        Now, the President's bold vision to build a world-class
    high-speed rail network will carry America into the future.
    Faster trains give Americans a better alternative to spending
    their time stuck in traffic on our congested highways,
    absorbing the air pollution that accompanies it, and waiting in
    endless lines at the airport.
        Now, unfortunately, some say we cannot afford an investment
    in high-speed rail right now, and they are determined to slam
    the brakes on our progress. But I say we cannot afford the cuts
    proposed in the House budget without imperiling a return to a
    more robust economy. It is part of the plan and we must do it.
    This short-sighted view ignores great transportation
    achievements of the past, like the George Washington Bridge
    built during the Great Depression. It created jobs, but also
    created a travel opportunity between New York and New Jersey
    and principal highways going north and south.
        So, Madam Chairman, I look forward to hearing from today's
    witnesses about how we can reclaim our role as the world's
    leader in rail and get our economy back on track. Thank you.
        Senator Murray. Thank you very much.
        We will now turn to our witnesses for their opening
    statement. Mr. Szabo, we will begin with you.

                   SUMMARY STATEMENT OF HON. JOSEPH C. SZABO

        Mr. Szabo. Thank you, Chairwoman Murray, Ranking Member
    Collins, Senator Lautenberg, and members of the subcommittee. I
    am honored to appear before you today on behalf of President
    Obama and Secretary LaHood to discuss the President's proposed
    fiscal year 2012 budget for the Federal Railroad
    Administration.
        By 2050, the U.S. Census Bureau projects a population
    increase of an additional 100 million people. To put that in
    context, that is like adding the population of another New
    York, California, Florida, and Texas combined.
        To plan for the future, this budget proposal details how
    strategic investments will build an innovative, national rail
    network to move people and goods safely with speed and
    flexibility.
        Railroad safety remains a top priority, and I am pleased to
    report that the industry's safety record for 2010 achieved all-
    time lows in the number of accidents per million train miles
    traveled. And this is a direct result of FRA's multifaceted
    approach to bringing about change, taking one of the most
    dangerous industries and making it now one of the safest.
        To continue this progress, the fiscal year 2012 budget
    proposes $223 million for Safety and Operations. With more
    freight and passengers moving as the economy improves, this
    funding enables FRA to remain squarely focused on new and
    comprehensive safety strategies while building a national rail
    network.
        And while we remain squarely focused on safety, the
    momentum and groundwork for the high-speed intercity passenger
    rail program continues. Over the past year, FRA has obligated
    more than $5.8 billion from ARRA and annual appropriations,
    bringing dollars to States and real projects across the country
    and putting Americans to work.
        With the help of FRA, States have entered into
    groundbreaking agreements with freight rail partners on four
    major corridors that assure that Federal investments will
    produce quantifiable performance outcomes for passenger rail
    while preserving and improving a world class freight rail
    system.
        The demand is stronger than ever by States competing to get
    into the rail business. Just last week, we announced $2 billion
    in high-speed rail awards for 15 States and Amtrak. The
    competition was tough. Twenty-four States submitted more than
    90 applications requesting nearly $10 billion. And for our
    fiscal year 2010 funding request, FRA received 132 applications
    from 32 States. And since the award selections in October, we
    have been busy obligating these projects. Response to the
    program has been overwhelming.
        And it is no wonder that States are clamoring to be a part
    of the rail movement. Gas prices are on the rise, and future
    population growth figures are skyrocketing. We know that our
    existing air and roadway systems are among the best in the
    world, but congestion and traffic threaten to stymie the
    American economy and our productivity. We have to provide
    Americans with new and enhanced mobility options.
        The President's budget strategically invests $8.2 billion
    in fiscal year 2012 for the continued development of high-speed
    intercity passenger rail, as part of the bold, $53 billion, 6-
    year transportation proposal. And $8.2 billion will lay the
    foundation for the passenger railways of the future,
    consolidating passenger rail into two accounts through the
    Transportation Trust Fund: Network Development and System
    Preservation. The budget proposal places passenger rail on
    equal footing with other surface transportation programs.
    Funding for Amtrak and new passenger rail corridors keep us on
    track, providing 80 percent of Americans access to a high-speed
    rail network within the next 25 years.
        Our goal is to create a balanced transportation system,
    with highways, transit, and aviation enhanced with high-speed
    intercity passenger rail. Developing a passenger rail network
    requires a long-term commitment at both the Federal and State
    levels to keep the American people moving and communities
    connected.
        The strategic investments in rail that were made in 2009
    and 2010 are paying off. We are enhancing the global economic
    competitiveness of America, boosting domestic manufacturing,
    reducing reliance on imported oil, and creating a new base of
    highly skilled, well-paying jobs. And we are establishing a
    pipeline of rail projects for future corridor development.

                               PREPARED STATEMENT

        For decades, investments in transportation have connected
    cities and States from coast to coast and served as a
    foundation for economic growth and our prosperity. By providing
    a long-term commitment for high-speed intercity passenger rail
    today, we are taking a bold and definitive approach to
    addressing the Nation's near- and long-term passenger and
    freight mobility demands, and ensuring that future generations
    will have access to the high quality, safe, and efficient rail
    transportation for decades to come.
        I look forward to your questions.
        [The statement follows:]

                   Prepared Statement of Hon. Joseph C. Szabo

        Chairman Murray, Ranking Member Collins, and members of the
    subcommittee, I am honored to appear before you today on behalf of
    President Obama and Secretary LaHood to discuss the administration's
    fiscal year 2012 budget proposal for the Federal Railroad
    Administration (FRA).
        The President is requesting a bold new 6-year, $53 billion rail
    plan that will bring high-speed rail in line with our other surface
    modes in order to meet the Nation's transportation needs today and into
    the future. In fiscal year 2012, $8.2 billion sets the framework for
    building networks and infrastructure to realize the President's vision
    of providing 80 percent of Americans with access to an intercity
    passenger rail network featuring high-speed service within 25 years
    while continuing to make the necessary investments in FRA's highest
    priority--assuring the safety of all aspects of our rail industry--
    freight, commuter, traditional intercity passenger service as well as
    high-speed rail.
        While safety is our highest priority, the President's budget
    proposal will provide critical new travel options for Americans. But it
    must also be the right level of investment for the market needs which
    will serve to underwrite the future of true American high-speed rail.

                             INVESTING IN TOMORROW

        The President, in his State of the Union Address said:

    ``The future is ours to win. But to get there, we can't just stand
    still . . . Sustaining the American Dream has never been about standing
    pat. It has required each generation to sacrifice, and struggle, and
    meet the demands of a new age. Now it is our turn.''

        The administration didn't come up with our high-speed rail
    initiative overnight. National, State, and local high-speed rail
    interest and planning has permeated throughout U.S. transportation
    history. Capitalizing on the timing and decades of work, this
    administration leveraged the American Recovery and Reinvestment Act of
    2009 (ARRA) funding as a way to provide a beginning--a ``down-payment''
    on a new and needed transportation alternative while also putting
    people to work.

                                MOBILITY CHOICES

        Our existing air and roadway systems are among the best in the
    world, but congestion and highway traffic are threatening to stymie the
    American economy and our productivity. High-speed rail will help
    complement today's systems and keep goods and people moving. Americans
    experience an average delay of 36 hours every year while idling in
    highway traffic and this number rises to 51 hours in the largest
    metropolitan areas.\1\ Aviation congestion, meanwhile, has also risen
    in recent years, with an estimated annual economic impact of $10
    billion according to the Air Transport Association.\2\
    ---------------------------------------------------------------------------
        \1\ Texas Transportation Institute, ``2009 Annual Urban Mobility
    Report''.
        \2\ Air Transport Association, ``Annual and Per-Minute Cost of
    Delays to U.S. Airlines''.
    ---------------------------------------------------------------------------
        The Nation expects a nearly 25-percent increase in the population
    (to 390 million) \3\ by 2035. The U.S. Census Bureau projects growth
    will be concentrated in a small number of growing and merging areas of
    urbanization known as mega-regions. All of this new growth, and the
    ensuing economic output, will need development of new and enhanced
    mobility options. A more comprehensive and balanced transportation
    system of highways, transit, and aviation assets would be strengthened
    by high-speed intercity passenger rail, which can be effective in
    meeting the intercity travel demands in such regions.
    ---------------------------------------------------------------------------
        \3\ Table 1.--Projections of the Population and Components of
    Change for the United States: 2010 to 2050, Population Division, U.S.
    Census Bureau, Release Date: August 14, 2008.
    ---------------------------------------------------------------------------
        Investments in rail will ease demand for Federal and State highway
    and aviation funding and create balanced public funding options. By
    providing an alternative to regional flights that clog runways and
    airspace, high-speed rail investment will permit the aviation industry
    to focus on the market segment of higher yielding long-haul flights.

                               INVESTMENT PROFILE

        Developing a comprehensive intercity passenger rail network will
    require a long-term commitment by Federal, State, and local as well as
    private partners. ARRA's down-payment on high-speed intercity passenger
    rail, followed by fiscal year 2010 appropriations, emphasized strategic
    investments that will yield tangible benefits to rail infrastructure.
    We're starting to see a ``pipeline'' of projects for future corridor
    development and the beginnings of a domestic market for world-class
    rail engineering, equipment, and technology development. Since the
    jump-start of ARRA funding, FRA has ramped up its high-speed rail team,
    hammered out service agreements with freight railroads and forged
    partnerships with State and local stakeholders. To date, we have
    entered into 49 cooperative agreements obligating nearly $5.8 billion.
        To further enhance this progress, the fiscal year 2012 budget
    proposes $53 billion over 6 years to continue construction of a high-
    speed rail network. It places passenger rail on equal footing with
    other surface transportation programs and includes funding for long-
    deferred capital investments in Amtrak's aging equipment and
    infrastructure, state of good repair, and systems performance
    reliability. It envisions the construction of new ``core express'',
    ``regional'', and ``emerging'' corridors which will be backed by
    careful cost-benefit analysis. The proposal offers high-speed rail
    where it makes sense, cost-justified, and at the right level of
    investment for the market needs. It will underwrite the future of true
    American high-speed rail.
        To effectively accomplish this going forward, the right
    organizational and administrative construct is required. The fiscal
    year 2012 President's budget consolidates passenger rail programs into
    two accounts to ensure comprehensive and effective management of high-
    speed rail. Through the proposed rail account of the new Transportation
    Trust Fund, Network Development and System Preservation focus on two
    main business lines: building high-speed rail and operating/maintaining
    existing and new assets and infrastructure. Included in the request is
    $5.5 billion from the President's ``up-front'' $50 billion call for
    transportation investment, which will begin corridor development and
    address existing long-standing backlog such as Amtrak's aging assets
    and rail stations inaccessible to those with disabilities.
        Just recently, we received more than 90 applications from 24
    States, the District of Columbia, and Amtrak totaling nearly $10
    billion for competition for $2 billion available for high-speed rail
    projects. The demand to participate transcended political lines because
    communities will grow, manufacturing activity will expand, and mobility
    will improve. Not unlike the bold step under President Eisenhower, the
    development of our interstate highway system needed significant
    spending even during the recessionary period of the late 1950s. Our
    leaders recognized this spending was simply needed and worth it, not
    only for the many transportation benefits but also for the creation of
    industries, communities and jobs of the future.

                              CREATING JOBS TODAY

        While the President's vision describes a goal for tomorrow, it's
    also about creating jobs today. We're seeing real results from existing
    high-speed and intercity passenger rail projects. For example, through
    ARRA investments, State and freight rail working together, the Union
    Pacific Railroad's modern Track Renewal Train is pulling up antiquated
    wooden crossties and replacing them with modern concrete crossties, all
    in one step. This will permit increased passenger train operations to
    110 miles-per-hour; and lay the groundwork for frequent service with
    competitive trip times in the Chicago to St. Louis corridor. The Union
    Pacific estimates that it will have 700 employees working on the
    project this year. In addition, during fiscal year 2011, we will see
    construction activity from Amtrak's Northeast corridor to the Pacific
    Northwest, which will create hundreds of rail-related jobs.
        Similar to the Interstate System plan in the 1950s, we haven't
    finalized all the lines on the map or precisely calculated the costs,
    but we know a major undertaking like this will have a ripple effect on
    job creation across the Nation. The impact extends beyond the regional
    transportation and economic development benefits. The rail being laid
    today is coming from places like Pueblo, Colorado; Columbia City,
    Indiana; and Steelton, Pennsylvania. The crossties are coming from
    places like Tucson, Arizona; Durham, Connecticut; and Sciotoville,
    Ohio. Specialized track work such as turnouts and crossovers are coming
    from places like Birmingham, Alabama; Newport, Arizona; Newton, Kansas;
    Knoxville, Tennessee; Sherman, Texas; and Vancouver, Washington.
    Ballast is coming from places like Sprague, Washington; Westbrook,
    Maine; Gad's Hill, and Iron Mountain, Missouri. Most of these places
    are not likely to see high-speed passenger rail service in the near
    future. However, they are seeing the positive employment impacts of
    high-speed rail development today.

                               ECONOMIC BENEFITS

        While mobility is essential to our current and future economic well
    being, high-speed rail offers the potential for further long-term
    economic benefits. Throughout our history, transportation has served as
    a catalyst in developing the new industries and businesses that make
    our economy the envy of the world. The 19th century railroad
    investments were a catalyst for the creation of a steel industry. The
    development of improved highways served as a catalyst for the
    development of the automotive industry. The development of airports and
    aids to navigation has served as a catalyst for advancements in the
    civilian aircraft industry.
        High-speed intercity passenger rail offers an opportunity for
    equipment, component, and supporting manufacturers to build a robust
    and sustainable passenger rail system. Once ``Made in America'' meant
    the standard for the world in passenger rail transportation. The
    President, Secretary LaHood, and I are committed to re-invigorating
    that standard through implementation of a strong ``Buy America'' policy
    that will ensure that whenever possible, American companies will
    provide the materials and equipment we need to keep our rail lines up
    and running.
        Companies from across the Nation--from New York to California--are
    starting up, expanding or leveraging work already begun to compete in
    terms of quality, price, and U.S. content. U.S. companies are
    applauding that our program makes domestic production a competitive
    advantage. The manufacturer of Amtrak's new single-level long-distance
    coaches committed to exceeding minimum U.S. content requirements and
    moved functions in-house that were previously performed offshore. The
    Canadian manufacturer of Amtrak's Acela rail cars in the 1990s opened a
    factory in New York State that can do work once done beyond our
    borders. But the key to building a sustainable domestic industry, an
    industry where companies strategically plan, develop new products, and
    create stable, long-term employment with good salaries and benefits, is
    a sufficiently large and reliable domestic market demand. Our proposal
    provides the stability needed to grow the industry and will provide
    U.S. companies manufacturing opportunities.
        Rail investments also influence our communities and invite new
    development and economic activity. Washington's Union Station was once
    in a depressed part of town and the station was in ruins. With
    determination and vision, our predecessors restored the rail station as
    an intermodal hub linking high-speed rail service on the Northeast
    corridor to Washington's regional and local transportation. Union
    Station attracts over 32 million visitors per year and its intermodal
    connections attracted new companies like Sirius XM, Kaiser Permanente,
    and CNN who were eager for good workers. Creating an opportunity for
    corporate development and investment goes beyond the rail platform and
    station to include surrounding localities.
        High-speed rail not only benefits larger cities but also small,
    rural communities. The Northern New England Rail Passenger Authority
    (NNEPRA) has been tracking the influence of intercity passenger rail
    service on the communities served by Amtrak's Downeaster. The service
    began 10 years ago and NNEPRA estimates that more than $350 million in
    public/private development projects have been completed or are underway
    in Maine, creating jobs, revitalizing downtowns, and generating new
    revenues for the surrounding areas. Within weeks of DOT's announcement
    that it was allocating funds for the expansion of the service, private
    developers began to invest near rail stations in Freeport and
    Brunswick. Many cities and towns contact us every week looking to
    compete and bring high-speed rail and those benefits to their area.

                        ENERGY AND ENVIRONMENT BENEFITS

        High-speed intercity passenger rail uses less energy, often from
    cleaner sources than other transportation alternatives. The U.S.
    transportation sector consumes 13.8 million barrels of oil every day
    and consumption per capita is nearly twice that of the European
    Union.\4\ Imported oil accounts for two-thirds of U.S. demand and has
    substantial implications for our economy and national security--each
    day, the United States spends $1 billion from foreign countries.\5\
    More efficient than airplanes and vehicles, high-speed rail offers the
    opportunity to power intercity transportation with domestically
    generated electricity. Instead of travelers spending more money for
    higher cost imported fuel, we can keep the money here and help
    strengthen our economy.
    ---------------------------------------------------------------------------
        \4\ CIA World Factbook.
        \5\ ``Remarks by the President to the Nation on the BP Oil Spill.''
    15 June 2010.
    ---------------------------------------------------------------------------
        Fuel savings will result in a healthier environment by reducing
    emissions. The United States emitted 14 percent more greenhouse gases
    in 2008 than it did in 1990 with nearly one-third of emissions from the
    transportation sector. There's a concern growing about climate change
    and other air pollutants. Our vehicles, aircraft, and rail will need to
    reduce emissions in the years ahead. Rail can help our economy and our
    environment, with its greater efficiency and the opportunity it affords
    to use domestically produced, renewable, or low-emissions electricity.

                                     AMTRAK

        For the last several years, Amtrak's Northeast corridor service has
    been a real world demonstration of the potential for high-speed rail in
    the United States. Amtrak increased ridership on its high-speed
    service--Acela--from 2.5 million trips in 2005 to 3.2 million in 2010.
    The Northeast corridor carried more than 10.3 million passenger trips
    in 2010. The Northeast regional economy wouldn't be the engine it is
    today without passenger rail. Just last month, Amtrak posted its 18th
    consecutive month of year-over-year increased ridership and it is on
    target for another record year. In the first half of the fiscal year,
    Amtrak's ridership is up 5.9 percent, while its yields are up 5.5
    percent--more than twice the rate of inflation.
        Amtrak and its new management have made many positive changes to
    maintain an effective and reliable train system. However, years of
    underinvestment and cyclical Federal support have challenged Amtrak's
    ability to provide service levels the public expects. This is evident
    in antiquated bridges (some old as 100 years) and main power systems
    (going on 80 years of service) on the Northeast corridor. Rail stations
    need improvement and accessibility to comply with ADA requirements, and
    Amtrak's aging fleet is due for major replacement.
        The fiscal year 2012 budget proposes stable and sufficient
    resources to operate and maintain a safe and reliable rail system for
    the American public. First, we recognize that Amtrak provides important
    national connectivity and backbone systems such as ticket reservations
    upon which intercity passenger rail depends. The proposal provides
    dedicated funds to Amtrak for the near-term to continue foundational
    systems as well as develop integrated and improved high-speed and
    intercity passenger rail service.
        Further, Amtrak's vital special services such as custodians of the
    intercity passenger rail equipment fleet and other publicly controlled
    assets and infrastructure require directed funds in the short-term.
    However, as ownership of rail equipment for Regional Express and
    Emerging High-Speed Rail Corridors mature and develop, that approach
    will be revisited and other service providers will compete for funds.
    In the area of new corridor development, Amtrak would be the lone
    recipient or partner with States. The key for Amtrak is that the
    competition be based upon a ``level playing field'' and that the
    corporation continues its progress in improving efficiency and
    responsiveness which will be essential in a competitive environment.
        The fiscal year 2012 proposal builds on the paradigm of Federal
    rail investment created by PRIIA. Historically Federal investment in
    intercity passenger rail was a bilateral arrangement--FRA grants to
    Amtrak. Going forward, many different arrangements would be available
    to develop and operate intercity passenger rail. There will also be an
    important role for private capital investment as well. The transition
    has begun with the funding provided in ARRA and in fiscal year 2010. I
    am confident that Amtrak will continue to play an important and growing
    role in America's emerging high-speed intercity passenger rail program.

                                     SAFETY

        FRA's backbone mission is safety. Together with the rail industry,
    FRA has made significant progress in changing what was once one of the
    most dangerous sectors to one of the safest. An independent study
    conducted as part of the fiscal year 2009 Annual Enforcement Report
    states that ``the safety program as a whole, including the effects of
    civil penalties, is highly effective.'' However, when rail accidents do
    occur, they carry a high probability of risk to lives and communities.
    The budget proposes safety funding and programs that build upon
    existing approaches to prevent accidents and reduce potential injuries.
        The most significant element of our new strategies is the risk
    reduction program (RRP). We are supplementing our existing regulatory
    and inspection system with a new focus on the precursors of accidents
    and incidents. FRA's RRP is an FRA-led industry wide initiative which
    builds strong safety cultures by addressing systemic contributive
    factors using ``upstream'' predictive data. This system is most
    effective with a range of programs such as confidential close call
    reporting system, peer-to-peer coaching, management development systems
    and collision hazard analysis currently in place on some commuter
    railroads.
        FRA's Office of Safety and Office of Research and Development have
    been collaborating on the development of new metrics, such as the Track
    Quality Index, that address trends in safety-sensitive infrastructure
    and equipment and identifies those precursors needing monitoring. Those
    offices are also developing technologies such as the autonomous track
    geometry system, the joint bar inspection system, and guided wave rail
    flaw detection that will permit FRA and the rail industry to more
    closely monitor infrastructure and equipment to prevent accidents
    before they occur.

                                 MOVING FORWARD

        The new strategies that FRA is pursuing require not just more
    resources but different skills and abilities to build upon our
    traditional safety program. Our staffing request focuses on additional
    safety and safety-related research and development personnel.
    Specifically, it includes an increase of 83 full-time equivalents
    including 24 for the high-speed rail program. The proposal also gives
    FRA the authority to use program funds for FRA's costs related project
    implementation and oversight. Ultimately, FRA's assistance programs
    will closely mirror familiar Federal Highway and Federal Transit
    Administration programs. These resources are essential for FRA to
    continue successful implementation of our new mission.
        Despite the challenges FRA has faced, I am proud of the job FRA has
    done. The Government Accountability Office's (GAO) recent report:
    Intercity Passenger Rail: Recording Clearer Reasons for Award Decisions
    Would Improve Otherwise Good Grantmaking Practices praised FRA's merit-
    based practices in identifying projects and awarding grants and
    particularly called FRA a top agency for communicating critical
    information on the competitive high-speed intercity passenger rail
    program. Conversely, GAO's suggestions for improvement will be
    incorporated into the grant making process. Coming from an independent
    source such as GAO, I still see this as validation of the efforts of a
    small agency that just 5 years ago had only $30 million in
    discretionary grants.

                     WHERE WE'RE HEADED--WINNING THE FUTURE

        The President's fiscal year 2012 budget and bold vision to invest
    in high-speed rail is important not only for folks hoping for another
    option, but for our children and their children who will need one. One
    of the projects funded by ARRA is the replacement of a nearly 100-year-
    old bridge over the Pattagansett River near East Lyme, Connecticut. It
    has been a vital link for Amtrak and travelers through seven wars, 19
    Presidents, and numerous cycles of our economy. That bridge was an
    investment by our great grandparents' generation and helped America
    develop the greatest economy and transportation system in the world.
        The challenge today is for us to recognize--as our forefathers
    did--that even in uncertain times, we must invest in our infrastructure
    to ensure we meet the transportation needs of the future. A long-term
    commitment to developing high-speed intercity passenger rail will pay
    significant dividends for our children and grand-children. We must be
    willing to make this investment to win the future.

        Senator Murray. Thank you very much.
        Mr. Boardman.

                NATIONAL RAILROAD PASSENGER CORPORATION (AMTRAK)

    STATEMENT OF HON. JOSEPH H. BOARDMAN, PRESIDENT AND
                CHIEF EXECUTIVE OFFICER
    ACCOMPANIED BY JOHN O'CONNOR, VICE PRESIDENT AND CHIEF OF POLICE,
                AMTRAK POLICE DEPARTMENT
        Mr. Boardman. Thank you. Good morning, Senator Murray,
    Senator Collins, and Senator Lautenberg.
        Before I get into the 2012 funding need, I would like to
    take just a second to discuss some of the revelations that have
    come in the wake of Osama bin Laden's demise.
        We have worked closely with both domestic security
    organizations and foreign rail organizations. The European
    network of Railway Police Forces (RAILPOL), for example, has
    been created, and I have our Vice President and Chief of Police
    John O'Connor with us today, who has taken an active role in
    making sure that we are keeping an eye on what is happening not
    only in this country, but in Europe, in terms of the way that
    this is being investigated.
        We are most concerned with the possibility of an external
    attack on a train at a vulnerable point, whether that be a
    bridge or a tunnel, and we are seeking as best we can, in
    cooperation with DHS and TSA, additional support to find
    warning and detection systems that would help us in the event
    of such an attack.
        The Administrator talked a little bit about his program,
    and there is a large part of his program that involves
    development. And if you look at some of the technology that is
    available today, adopting that, extending it, and using it for
    the future, we think, has real possibilities for us.
        I think it is important to really think about what we are
    really threatened with, rather than some of the other ideas
    that have been expressed. And what we are really looking at
    today is ridership that has increased month-over-month for the
    last 18 months in Amtrak. We see people flocking back to using
    rail. And as Senator Lautenberg talked about, there is standing
    room only in many, many of our trains today. Our ridership has
    grown 36 percent since 2000, and last week the DOT awarded us a
    $450 million grant to improve speeds on our Northeast corridor,
    a line through New Jersey. And the Senator already asked me
    this morning when that was going to be done, and I do not have
    that schedule yet, Senator. That improvement will be one of the
    steps in recognizing for the future our vision for a greatly
    improved Northeast corridor service that was talked about this
    morning.
        For fiscal year 2012, Amtrak has asked for a total of $2.22
    billion, divided into $616 million to support our operations,
    $1.285 billion for capital programs, and $271 million for debt
    service, as we are working hard on debt, as you have already
    recognized. With the exception of about $50 million in funding
    we requested for the Northeast corridor Gateway Project in New
    York, and the additional debt service money to buy out leases,
    these are levels that are authorized by the Passenger Rail
    Investment and Improvement Act of 2008.
        We have detailed many of our major programs in the written
    portion of our testimony, and we have just updated the fleet
    plan. We placed orders for new electric locomotives and single-
    level long-distance cars. We need to add capacity to the Acela
    services; we expect to be able to add 40 cars to the existing
    20 Acela passenger service vehicles. This investment will
    generate for us about $100 million of additional revenue once
    we deploy it. We plan to begin that procurement with these cars
    in fiscal year 2012.
        Amtrak has focused heavily on controlling its costs. We
    have cut our debt level from $4 billion to $1.8 billion, as has
    already been mentioned. We are the most cost-efficient
    passenger railroad in America, covering 85 percent of our total
    operating costs from revenue, of which 76 percent is generated
    through ticket sales.
        We are improving how we are doing our work with point-of-
    sale solutions on our trains, with e-ticketing, with Wi-Fi on
    the Acela trains, which in and of itself increased an
    incremental 1.5 percent improvement in our ridership,
    translating into 47,000 riders and $6.5 million of incremental
    revenues in 2011.

                               PREPARED STATEMENT

        I understand, as Amtrak understands, there will be
    difficult fiscal choices for you to make. As you know,
    continued capital funding will allow us to reduce or eliminate
    problems that translate into increased operating expenses. Over
    the long term, an effective capital investment program can
    translate into permanent reductions in expenses. I also look
    forward to questions.
        [The statement follows:]

                 Prepared Statement of Hon. Joseph H. Boardman

        Good morning, Chairman Murray, Ranking Member Collins, and members
    of the subcommittee. On behalf of the Amtrak Board of Directors and the
    men and women of Amtrak, I'm pleased to have the opportunity to come
    before the subcommittee today to discuss our fiscal year 2012 funding
    request. To start with, I have some very good news to report: Amtrak
    has just finished 18 straight months of year-over-year ridership
    growth. This was our best April ever, and we're on track to set another
    annual ridership record. This is part of a long-term trend we've seen
    since 2000 of growth in demand for our services, and many of our
    individual services are likewise setting records and seeing similar
    trends of growth--the Downeaster service in Maine, for example, just
    finished its best April ever in terms of ridership and revenue.
        Systemwide, our ridership has grown more than 36 percent since
    2000, and I expect that trend to continue--and if gas prices continue
    to rise, to accelerate; our only restriction will be the available
    capacity. Last year, we carried more than 28.7 million people. Of
    those, about 10.4 million rode Northeast corridor (NEC) trains, and
    13.8 million rode other short-distance corridor, many of them in
    California, whose three corridor services carried about 5.2 million
    riders. Our 15 long-distance trains, which carried more than 4.5
    million riders, are the only Amtrak service in 23 States and at 223 of
    the 516 stations we serve. They provide an important service to
    passengers with disabilities who travel on long-distance trains at a
    proportionally higher rate than the other services; 42 percent of the
    passengers with disabilities who took an Amtrak train in 2010 traveled
    on one of those 15 trains.
        Amtrak plays an important role as a provider of rural
    transportation services, which has become increasingly important as bus
    and air services to rural areas contract. The Bureau of Transportation
    Statistics estimates that almost 16 percent of Americans enjoy access
    to only 1 of 3 intercity transportation modes (train, bus, or
    airplane), and bus routes today serve 12 percent fewer rural residents
    than they did in 2005. About 152 of Amtrak's stations serve rural
    communities, many of which have no intercity bus service.
        To sustain this system, Amtrak has asked for a total of $2.22
    billion in fiscal year 2012, divided into $616 million to support our
    operations, $1.285 billion for capital programs, and $271 million for
    debt service. With the exception of the $50 million in funding we've
    requested for our NEC Gateway project in New York, and some additional
    debt service money to buy out leases, these levels are those authorized
    by the Passenger Rail Investment and Improvement Act of 2008. The
    administration has proposed a considerably higher number, totaling more
    than $53 billion over a 6-year period. As Secretary LaHood recently
    testified, this money would both preserve the existing system and
    continue construction on a national high-speed rail network. Their plan
    will level the playing field, funding high-speed rail in a manner
    similar to the way other modes such as aviation and highways have been
    funded for decades. The administration's proposal will simultaneously
    help to fund Amtrak's state-of-good-repair needs, and it will go a long
    way toward advancing the goal of making passenger rail more accessible
    to more Americans.
        These are major needs, and Amtrak strongly supports this effort to
    invest in transportation modes that provide Americans alternatives to
    congested highways and airports. We detailed some of the major programs
    in our grant request, which we submitted in February. Foremost among
    the needs we have identified are rolling stock replacement and capacity
    development. We have just published an update to our fleet plan, which
    identifies some of our major equipment needs, and we have placed orders
    for new electric locomotives and single level, long-distance cars to
    replace the aging Heritage Fleet that we inherited from predecessor
    railroads.
        As an interim measure, we have used American Recovery and
    Reinvestment Act of 2009 funding wisely to return stored cars and
    diesel locomotives to service. A total of about 60 Amfleet cars (enough
    for 11 NEC trains) and 15 locomotives, as well as 21 Superliner cars,
    were put back to work after rebuilding at our shops in Bear, Delaware
    and Beech Grove, Indiana. This equipment has eased the strain on a
    fleet that's aging and hard-run and has helped us to expand capacity on
    our heavily patronized Northeast Regional trains. We would like to
    expand capacity on our Acela Express trains, but to do so will require
    the addition of 40 cars to the fleet. We plan to begin the procurement
    of these cars in fiscal year 2012.
        Amtrak is also working to realize our vision for high-speed rail in
    the Northeast. We recently unveiled our vision for ``next-generation''
    high-speed rail in the NEC, and we announced our plans for the ``NEC
    Gateway'' into New York in January. Our grant request included a
    specific request for $50 million in funding to begin this project, and
    we are also actively pursuing High-Speed Intercity Passenger Rail
    Program (HSIPR) grant funding from the Federal Railroad Administration
    for components of the project. We are working closely with States to
    pursue projects that will improve existing services. The States of
    Washington and Oregon have received about $590 million in HSIPR grant
    funding to improve the Cascades route, lay the groundwork for faster
    service, and make immediate improvements in service reliability, route
    capacity, on-time performance, and trip times. Maine has received a $35
    million grant to restore 30 miles of track and extend the Downeaster
    service to Brunswick and Freeport. In addition to these ongoing
    projects, Amtrak has partnered with Maine, Oregon, and Washington,
    among others, to seek additional grant funding under the HSIPR program.
    Last month, we supported applications for $62 million to add double
    track on portions of the Downeaster route. We also supported a series
    of applications for more than $105 million in funding to replace aging
    bridges, eliminate bottlenecks, and add equipment to the Cascades
    service.
        Amtrak is focusing heavily on cost-effectiveness, and projects like
    these will sustain the system, reduce operating costs, and generate
    additional revenues. We've made significant progress in paying down our
    debt, cutting our debt level in half, from $4 billion in 2002 to $1.8
    billion today. Amtrak reduced its debt by $850 million in fiscal year
    2010 alone, and we have addressed recent audit findings to improve our
    financial controls and accountability. We're in the process of
    launching a new financial accounting system, and I expect that this
    will help us greatly in our ongoing efforts to improve accountability
    and management procedures.
        Amtrak is already the most cost-efficient passenger railroad in
    America, generating 76 percent of its operating need out of the farebox
    and covering more than 85 percent of its total operating costs from
    revenues. We are working constantly to find solutions that will
    generate more revenue from each person-hour worked. For example, we are
    developing electronic ``point-of-sale'' solutions for our on-board
    environment that will replace the time-consuming and costly process of
    manually tracking stock in every cafe and dining car on every trip with
    a system that will automatically track sales and allow our workforce to
    focus instead on selling food. Similarly, we are in the process of
    implementing an e-ticketing system that will deliver a real-time
    manifest and ultimately replace the traditional conductor's ticket
    punch with a handheld ``smart phone'' device to lift tickets
    electronically. The first phase of this system went into operation on
    the Auto-Train, where we use gate check-in, in February, and it is
    already providing us with improved customer service and manifest
    information. We expect to extend testing with the conductor handheld to
    the Downeaster service this month, followed by the Capitol Corridor in
    California. The program, which should be complete by the end of fiscal
    year 2012, will greatly improve our manifest system, make ticketing
    easier, and allow better customer service and reduced costs.
        Wi-Fi on our Acela trains, which we introduced in fiscal year 2010,
    is another such success. Conservatively we estimate Wi-Fi has delivered
    an incremental 1.5 percent improvement in Acela ridership, which
    translates into 47,000 riders and $6.5 million in incremental revenues
    in fiscal year 2011. In fiscal year 2012, we expect incremental
    ridership and revenue from Acela Wi-Fi to grow to 63,000 and $8.6
    million, respectively. Given this proven success, and working with our
    State partners, Amtrak is now in the process of extending Wi-Fi to our
    eastern and western corridor services this year. In fiscal year 2012,
    these new offerings are expected to generate an additional $13.7
    million in ticket revenue while simultaneously adding more than 250,000
    additional riders (the exact number is 280,400).
        Solutions like these are dependent on capital funding, but have
    proven themselves capable of raising revenues and improving our cost
    recovery rate. Similarly, the process of replacing outdated
    infrastructure can reduce maintenance and operating expenses, and for
    that reason, we're seeking every penny we can get so that we can
    continue to develop a more cost-efficient and effective operation.
        I understand that there will be some difficult choices this year
    and in the coming years with regard to Federal spending and the budget
    deficit. Amtrak recognizes the funding challenges and will continue to
    provide financial transparency for all of our programs so that the
    Congress and our stakeholders have the information they need regarding
    the way in which we are expending federally appropriated funds. As you
    can appreciate, continued capital funding will allow us to reduce or
    eliminate problems that translate in turn into higher levels of
    operating expense. Over the long term, an effective investment in
    capital can translate into a permanent reduction in expenses, and I
    hope the subcommittee members will consider this carefully as they
    discuss our proposed funding levels in coming months.
        Thank you and I welcome the opportunity to answer your questions.

        Senator Murray. Thank you very much.

                      RAIL SECURITY AND TERRORIST THREATS

        As has been mentioned a number of times now, we have
    discovered credible and specific documentation about al Qaeda's
    interest in launching an attack against our national rail
    network from information that was gathered at Osama bin Laden's
    compound. That information strongly suggests the administration
    become more diligent in recognizing rail transportation as a
    potential target, and we have got to take some active steps to
    secure our passengers and hazardous materials in particular.
        Mr. Boardman, can you please comment on the steps you are
    taking to protect your passengers, your partnership with DHS,
    and what financial support they provide to assist the
    corporation with its homeland security mission?
        Mr. Boardman. Yes, ma'am. We have a very strong partnership
    with DHS and TSA. My vice president for security and chief of
    police has almost a daily conversation with TSA staff in terms
    of what we can work together to do.
        Security grants since 2005 total almost $200 million, and
    we have used those for infrastructure protection--for bridges,
    for example--and also to expand our K-9 program. Our K-9
    program has grown from about 23 animals and handlers to 47
    today, and we believe that we are probably the best in the
    United States with both vapor wake dogs and with determining or
    detecting improvised explosive device (IED) explosives. Even in
    one of our recent competitions, our dogs and team handlers came
    in first, third, and fourth across the country in terms of our
    ability. We have the ability to train--and we do--every single
    day to stay at a high level of readiness with those animals and
    with their handlers.

                          OFFICE OF INSPECTOR GENERAL

        We have increased our patrols. We have had a public
    outreach program and worked diligently with DHS and the
    Secretary on ``See Something, Say Something.'' We have a
    Regional Alliance Including Local, State, and Federal Efforts
    (RAILSAFE) program, which really is a multistate and multi-
    agency effort to immediately mobilize and provide assistance
    from all of the community resources that are available for
    security and enforcement. We have been able to demonstrate our
    ability to set that up in a very short period of time, as a
    matter of fact.
        We were able to help Alabama with our own mobile command
    post, and our employees in Hackleburg, Alabama, by providing
    them with assistance during the recent tornado, and we have an
    entire team of Amtrak police and security folks that provided
    that assistance.
        We work with the TSA on regular screenings on an irregular
    basis, and we are proposing today and looking at an inspector
    right-of-way patrol, some of the visible intermodal prevention
    and response (VIPR) operations, maybe even some air support on
    things that we are trying to provide across the country.
        The no-ride list issue is a very difficult one for
    everybody to deal with, especially in railroads. Railroad
    security is very different than aviation security in the sense
    of the access there is, even on the Northeast corridor. So
    often we talk about Amtrak ridership nationally being 28
    million, but every day we handle in the neighborhood of 600,000
    to 700,000 commuters on the Northeast corridor, using most of
    the facilities that we operate, handle, manage, and control. So
    we are well into the millions of ridership that depend on
    Amtrak's ability to do that job.
        Senator Murray. What about additional security checks?
        Mr. Boardman. Pardon me?
        Senator Murray. What about additional security checks?
        Mr. Boardman. Additional security checks?
        Senator Murray. Yes.
        Mr. Boardman. We have worked with especially the New York
    City police agencies to make those additional checks at Penn
    Station, and also up and down the corridor--we have many of our
    VIPR teams providing that.

                    COLLABORATION WITH OTHER SECURITY FORCES

        Senator Murray. Mr. Szabo, do you want to comment on FRA's
    collaboration with Homeland Security?
        Mr. Szabo. Well, I think that President Boardman did a
    great job articulating it from an Amtrak perspective.
        From an FRA perspective, we talk at least weekly with TSA,
    who has primary jurisdiction here--more often if necessary. We
    meet with them at least quarterly, more often if necessary, to
    ensure that we have the proper level of coordination. We are
    deeply involved in the inspection and implementation of
    programs to protect hazardous material shipments and work very
    closely with TSA on that.
        I think one of the most important things we can do for the
    future is to ensure that we have appropriate funding for
    research and development (R&D). There is quite a bit that we
    can do through enhanced technology to make sure that there is
    no interference with the railroad right-of-way, to make sure
    that both passenger trains, as well as freight trains, are
    properly protected. We have got some R&D underway that I think
    would be helpful on this as far as rail detection in real time.
    But ensuring that programs like that, technologies like that
    move forward would be very important.
        We do require and regularly inspect both the rail carriers'
    and the shippers' plans for their personnel security, what
    guarantees they have to prevent unauthorized access to the
    property and their en route security plans.
        Senator Murray. Well, I appreciate the comments from both
    of you. I want to reiterate that rail security going forward is
    going to be very important. As both of you know, and we all
    know, long before potential plots were uncovered in Osama bin
    Laden's compound, security officials have been warning the
    United States that our railways were potential terrorist
    targets. They did that, in part, because we had seen attacks
    abroad, but also because there were failed attacks on our
    surface transportation systems here at home.
        The Congress passed the 9/11 Commission Implementation Act
    which required TSA to address a variety of surface
    transportation security issues, including passenger rail and
    mass transit. But unfortunately, there are many unfilled
    requirements of the act that are of concern. TSA developed
    several risk assessments to address rail and other public
    transportation at high risk of attack, but they have not done a
    comprehensive risk assessment of all modes of transportation.
    And I am concerned that TSA's security strategy for freight
    rail focuses almost exclusively on rail shipments of toxic
    inhalation hazards, despite other assessments that have
    identified potential security targets, such as tunnels and
    bridges.
        So despite nearly doubling TSA's surface transportation
    security budget, these issues do remain unaddressed and
    unanswered. In fact, a Wall Street Journal article recently
    pointed out the fact that for every $50 TSA spends on aviation
    security, the agency budgets $1 to protect surface
    transportation.
        Now, I realize that these issues are not solely under the
    jurisdiction of our witnesses today, but I do feel that they
    are very critical issues moving forward, and I want to work
    with my friend and colleague, Sue Collins--she and I wrote the
    Port Security Act--and move forward on that. And I think that
    is very important, that we really focus on this as we move
    forward, and I look forward to working with anyone who will
    work with us again to do that.
        Thank you very much. And I will turn it over to Senator
    Collins.
        Senator Collins. Thank you.

                   AMTRAK RESPONSE TO AL QAEDA TERROR THREAT

        Mr. Boardman, let me just follow up on the chairman's
    questions. You mentioned--and you are exactly right--that it is
    far more challenging to deal with train security than air
    security. Air security--you can vet every passenger. The plane
    is presumably out of danger during the transit if there has
    been appropriate screening of passengers and baggage and other
    freight. But trains can be vulnerable every step of the
    journey.
        So my question to you, without asking you to disclose
    classified information, is: When you received the joint
    intelligence bulletin about the data that was confiscated in
    bin Laden's compound, what specific additional steps did you
    take to improve rail security for Amtrak? You talked about
    inspections and K-9 use, but those have been around for some
    time. What additional measures did you put in place in response
    to this intelligence?
        Mr. Boardman. I think the answer to that is that we needed
    to think about how this may happen and where it might happen,
    for example. And you have already pointed out that it could
    happen anywhere. It could happen anywhere across the country.
        So one of the things I looked at, being the former FRA
    Administrator, was to look at what does FRA and what does the
    industry have on its plate, and looking at development of the
    detection devices that we might be able to employ, using work
    already done by the FRA and industry. FRA, as was pointed out
    earlier, has been primarily a safety organization, and works on
    rail flaw detection to see where there might be a potential for
    a derailment based on some flaw in the rails that exist.
        But the technology began to come forward with ultrasonic
    testing and laser-based projection of that technology to see
    ahead of a train, to see how far ahead we could investigate
    whether a rail had the ability to sustain the train, and maybe
    even if you are looking ahead and looking at the gauge of the
    track, whether there was any widening of the gauge or narrowing
    of the gauge in some fashion. So the first real step was to
    think about what it was that we could do for the future to
    detect it through technology. And there is some potential.
        Right now, the way they are looking at it, though, is at
    speeds of 40 miles an hour. That is okay for freight, but it is
    not okay for passenger, especially for our very high-speed
    rail. There needs to be an improvement in that. There is not
    funding there to do that, and whether the capability is there
    or not, investigation funding needs to happen to see us improve
    that technology.
        The second thing was that we needed more right-of-way
    patrols that we could look at and find whether there was any
    difficulty at vulnerable locations. There have been studies in
    the past done to identify vulnerable infrastructure, at least
    in many places early on. After 9/11, we began to look and
    catalog what those vulnerable locations are so that there would
    be an increase in the number of patrols. Some of that has
    occurred. More of it needs to happen. We are working with TSA
    and DHS to find a better way to do that as well.

                PARTNERING WITH STATE AND LOCAL LAW ENFORCEMENT

        Senator Collins. One of the lessons that we have learned in
    the Homeland Security Committee is the importance of the
    partnership among all levels of government, and it occurs to me
    that given the challenge you face, in addition to looking to
    technology, maybe we should look at some sort of program like
    Operation Stonegarden, which DHS has, where the Border Patrol
    works with State, county, and local law enforcement to do
    patrols along the border. Because Federal officials, Federal
    law enforcement, Homeland Security, Amtrak officials, cannot be
    everywhere. It is simply impossible. But if in fact you tap
    into State, local and county law enforcement, it really is a
    force multiplier, and the Operation Stonegarden program has
    worked very well in that regard.
        So I would be interested in your taking a look at whether
    we should create some sort of similar program for training
    security where you can work in partnership with State, local,
    and county officials to do some of those patrols along your
    railways. I think that would be a way to expand coverage in an
    economical way. The partnership is absolutely essential if we
    are going to increase the security of our country, no matter
    the mode of transportation.
        Mr. Boardman. May I respond?
        Senator Collins. Yes, please.
        Mr. Boardman. I absolutely agree with you and I think a few
    years ago, Amtrak had lost its way in terms of what it was
    going to do for security. We now have a direction of a very
    strong relationship in community policing that begins or helps
    with the kind of thing that you are talking about, and we do
    that with RAILSAFE.
        The one caveat--and I am sure you already recognize this--
    is we have to be careful with having untrained people in any
    kind of right-of-way along the railroad because of the danger
    that is involved. Even our own folks have lost their lives
    because of how quick a train is upon somebody.
        So, yes, I agree with what you are saying. Yes, I think we
    can do better and do something different, and I will talk to
    our staff about doing that. But it needs to be people that are
    knowledgeable about the environment they are in.
        Senator Collins. Thank you.
        Senator Murray. Senator Lautenberg.
        Senator Lautenberg. Thank you each for the work that you do
    and the leadership that you provide in your respective
    departments. We see really good progress being made.

                           FUNDING FOR RAIL SECURITY

        However, it is not enough. This is not a discredit to you.
    It is the fact that we are not devoting enough energy, enough
    funding, and enough attention to what the circumstances are
    with rail. Last year, we saw 700 million airline passenger
    trips on airlines, 10 billion on transit and rail trips, and
    yet we spend 98 percent of our money on aviation security and 2
    percent on rail security. And we know the risks are real. I
    mean, if we look at the experience of Madrid, London, Moscow,
    and Mumbai, we know that these are soft points for terrorists,
    and that is confirmed, obviously, by the information obtained
    as a result of the Osama bin Laden information that has come
    out.
        So we have got a job to do, and it is frustrating, and I am
    sure you feel it as we do here. Why is this subject
    overwhelming and not a place that we have to battle to get
    basic funding for these projects? The George Washington Bridge
    was built during the Depression. Jobs, and improvement in the
    future--and that is what we are looking about.
        Now, when we talk about the population growth that might
    come in 30 or 40 years, when I get there, I want to feel that
    we can travel with ease. So I would like that word of
    cooperation from you. Say: Frank, 40 years from now, when that
    population growth includes you, you will be able to move
    around.

             HIGH-SPEED RAIL INVESTMENTS IN THE NORTHEAST CORRIDOR

        But apart from that attempt at humor, I commend the
    administration for recognizing the importance of the Northeast
    corridor by awarding Amtrak nearly $500 million in high-speed
    rail funds to upgrade the corridor in New Jersey. And I ask
    specifically, Mr. Szabo, how will these funds, like the Gateway
    Tunnel, help advance the President's national high-speed rail
    plan?
        Mr. Szabo. It is about making those improvements that
    really do three things: reduce trip times, improve reliability,
    and provide for additional capacity. The improvements that were
    announced last week, particularly those investments in the
    power supply in the catenary, do all three. They have been a
    source of reliability problems historically. So we will help
    fix that problem. The new catenary is going to allow for top-
    end speeds up to 160 miles per hour. And so with that, it is
    reducing trip times. And the ability to expand utilization of
    the Northeast corridor has historically been hindered because
    of the power supply. So it provides that additional power that
    will allow for future enhancements.
        I think it has to be viewed as, these are only first steps,
    but they are very, very important steps that do those three
    things: improve reliability, reduce trip times, and provide for
    additional capacity.
        Senator Lautenberg. Mr. Boardman, Amtrak included $50
    million for the Gateway Tunnel project in its budget request
    for next year. What will be the impairment of these ideas to
    the ability to develop a more reliable, higher-speed system?
    What will be the impairment if we do not build that Gateway
    Tunnel?
        Mr. Boardman. I think we are out of capacity in the
    Northeast corridor. We cannot add, especially in Penn Station.
    So we have tunnels. We have signals and approaches. We have
    power. We have nowhere to put the New Jersey Transit trains,
    for example, that come into Penn Station. Whereas the Long
    Island Railroad trains come in and go to the west side yard and
    get out of the way, we do not have an ability to find a place
    to put the New Jersey Transit trains. So capacity is really
    beginning to constrain the ability to add service, and then the
    fluidity of high-speed service. If we are really going to have
    high-speed service that works so we have 3 hours between Boston
    and Washington, DC, we need not to have New York be any more of
    a bottleneck than it already is.
        Senator Lautenberg. So that is a key item in the
    development of the high-speed system.
        Mr. Boardman. Absolutely critical.
        Senator Lautenberg. Without question, a tunnel is
    essential.
        Mr. Boardman. Yes.
        Senator Lautenberg. You know, we have had a few attempts at
    other designs and so forth, but this one, in this early stage,
    looks like it really fills the bill, will permit more Amtrak
    trains to get through on an hourly basis and improve the
    transit business, the transit opportunities as well.
        Mr. Boardman. We all work together.
        Senator Lautenberg. Thank you, Madam Chairman. I assume
    that we will have an opportunity to submit questions for the
    record.
        Senator Murray. Yes, you will have an opportunity to submit
    questions. Any member will. Thank you very much.

                    HIGH-SPEED RAIL GRANT SELECTION CRITERIA

        I know that FRA has done extensive work to develop a
    commercial feasibility study for high-speed rail development, a
    strategic plan, and a progress report on the national rail
    plan. And as GAO reported recently, you have done a good job of
    developing clear application criteria and a merit-based review
    process for high-speed rail grants.
        At this point, the Congress is looking for more detailed
    information about the designated corridors, regional services,
    and emerging routes you have identified. For example, we want
    to know, where does it make sense to focus investment in the
    short and long term? What it will cost in terms of initial
    capital and operations and maintenance? And what are the
    tangible benefits that we achieve with these investments.
        Mr. Szabo, when will you have answers for this subcommittee
    on questions like that?
        Mr. Szabo. First off, let me say this. We were very pleased
    with the GAO report backing up to that. It was the first time
    in more than a decade that the term ``good'' has been used in a
    title of a GAO report. It happens once for every 12,000 reports
    that they issue. So we appreciate the fact that the vast
    majority of that report was complimentary in our selection
    process.
        You made a statement in your opening address which is
    imperative, and that is that we show that these corridors make
    economic sense. We absolutely have to provide the business case
    that shows we are not simply building high-speed rail just to
    build high-speed rail, but in fact that we are selecting
    corridors that make sense from both an economic standpoint,
    public benefit standpoint, as well as a transportation
    standpoint.
        We are in the process now of putting together both what I
    would call a broader business case that will analyze and
    quantify the broad benefits of high-speed rail for the Nation,
    and then as a second component of that, building the business
    case on the individual high-speed rail projects for the
    corridors. We intend to have information out to you in the next
    couple of months.
        Senator Murray. In the next couple months. The budget is
    not going to get any better, and we need to be able to show
    exactly what we are doing and why. So if we can get that sooner
    rather than later and have a clear idea of how you evaluate the
    public benefit for us and what those investments need to be, we
    will need this as we put this budget together.

                 STATE SUPPORT FOR HIGH-SPEED RAIL INVESTMENTS

        The high-speed and intercity rail grants that have been
    awarded so far have largely supported capital projects.
    Obviously, there are costs associated with operating new rail
    services. One of the reasons that Florida and Ohio pulled out
    of the program was due to concerns by the newly elected
    Governors about the life-cycle costs for operations and
    maintenance and services.
        Can you tell us how FRA is ensuring that States will be
    capable of sustaining services from those investments?
        Mr. Szabo. Yes. First off, I think it is important to note,
    while there is a lot of chatter about the fact that three
    States chose to pull out, one of them chose to get back in and
    apply again, No. 1. And more important than that, 32 States and
    the District of Columbia and Amtrak continue to move forward
    with projects. So the vast majority of States in this Nation
    are choosing to move forward.
        To your question, first off, there is an old saying that
    the more you capitalize, the less you have to subsidize
    relative to operations. By having modern infrastructure, modern
    equipment, and a good on-time performance and frequency of
    service, you can actually drive down the operating subsidy to
    the point where in many cases, if you choose the right markets,
    you can eliminate it entirely. I think the Northeast corridor
    is a great example there, that there is the appropriate level
    of service, frequency, and reliability that allows them to
    actually generate a net operating profit.
        If you take a look at the President's fiscal year 2012
    proposal, our budget proposal, we do propose in there
    transitional assistance for the States with the understanding
    that as some of these corridors go through their initial
    startup period, it does take a period of time to grow the
    ridership. And so we are, in fact, proposing in the 2012 budget
    this transitionary help for the States, to be phased out over a
    period of time at the point that either they become self-
    sustainable or at least the State knowingly went in to a
    position that they would have to cover operating support
    because of other public benefits that they are receiving.
        But that is a part of the application that we review from
    the States, their business plan, and they understand their
    commitment to have to cover the cost of operations should there
    be a deficit.

                     OVERTIME PAYMENTS TO AMTRAK EMPLOYEES

        Senator Murray. Mr. Boardman, I wanted to ask you about
    some recent criticism about Amtrak for excessive overtime
    payments to some of its employees. As we try to put together a
    bill in this very tough environment, we need to know that every
    expense is justified. So I wanted to ask you today if you can
    explain why the corporation faces those expenses, or whether or
    not it is more cost-effective than increasing the workforce and
    what steps you are taking to manage those costs.
        Mr. Boardman. Thank you. Yes, ma'am.
        The particular area of overtime costs is really on
    maintenance-of-way and the capital work that we are sustaining.
    It is not a new problem for Amtrak. It has been a series of
    problems over the years on being able to control that cost. It
    is very difficult to control initially because it requires 24
    to 30 months of training for the people that are involved to do
    the work that is expected to be done.
        It is difficult to do that planning--and I think it is part
    of what the Administrator was talking about on their proposal
    of having a different way of giving Amtrak money for the
    future--on a 12-month timetable that we operate on for our
    capital program. For example, when we got the additional ARRA
    funds, one of the things that increased the overtime cost was
    the demand to get so much of that work done as quickly as it
    needed to get done.
        But in terms of whether you hire more staff or not and take
    that couple of years to train them, the overtime is actually at
    a lower cost burden. In other words, there is about a 54
    percent or so benefit package that goes along with full-time
    employees and then the overtime. That comes down to about 18
    percent. And even though the numbers of overtime dollars look
    high--and they are--there actually would have been an overall
    higher cost if we would have been able to get people on board,
    train them, and get them working at that point in time. And
    then when the ARRA funding went away, we would have had to lay
    them off and we would not have gotten it done in the same
    period of time.
        All that being said, we were not doing as good a job
    managing the overtime as we could have with the work rules that
    were available, even though those work rules in some cases are
    not very flexible for us and so the percentage of the amount of
    overtime paid as opposed to the percentage of straight-time
    paid was escalating beyond where it should be.
        That has backed down now already with a focus on that. The
    Chief Financial Officer and the Chief Engineer have made great
    strides in making that happen. I know that has happened because
    the number of grievances has gone up among the workforce
    because of their concerns about having some of that overtime
    down.
        Senator Murray. Thank you very much. I appreciate it.
        Senator Collins.
        Senator Collins. Thank you.

                            AMTRAK OPERATING LOSSES

        Mr. Boardman, let me ask you a fundamental question. In
    your testimony, you noted that Amtrak has enjoyed 18 straight
    months of year-over-year ridership increases. Yet, as I noted
    in my opening statement, your projected deficit, your operating
    loss, for this year is actually projected to be worse than last
    year.
        So reconcile this for me. I do not understand how you can
    be serving more passengers than ever before--and it is not just
    a quick blip. It is every month for the last 18 months. So that
    presumably means you are getting more revenue and fuller trains
    by everyone's experience. So how come you are losing more
    money?
        Mr. Boardman. It is a difficult thing to understand, but I
    think I can explain it pretty well. It is the long-distance
    trains, and it is almost entirely the long-distance trains.
    There are several reasons. Wages have gone up. The fuel costs
    have gone up. The expenses for us to operate those services
    have increased. While there has been an increase in both
    revenue and ridership on the long-distance trains, it is
    nowhere near what the increase in revenue and ridership has
    been on the Northeast corridor.
        What makes it look even worse is we were able to, in the
    past, use some of the money that we received over and above the
    Northeast corridor revenues to offset and reduce the demand or
    need for long-distance train subsidy. Now it is more difficult
    because we are actually executing a fleet plan and we are using
    the potential of the revenue that is coming from the Northeast
    corridor to go to pay for the debt costs on the 70 electric
    locomotives that we purchased, which means that there is a
    greater need again on the long-distance trains.
        If the business model for long-distance trains does not
    work--and the pro-rail folks always shudder and worry and get
    very concerned when I talk like this. And that is part of what
    is necessary for this transparency, to understand that you are
    not going to cut costs far enough on the long-distance trains
    to make the long-distance trains profitable. We can cut costs.
    Food and beverage costs are continuing to be something we are
    focusing on to bring down.
        There is a fairly significant cost today, about $60
    million, that we pay the freight railroads for on-time
    performance. That needs to be adjusted. The program does not
    work in every fashion and form the way we would like it to do.
        So it becomes more a question of policy in the United
    States about whether we are going to have a border-to-border,
    coast-to-coast surface transportation connectivity in the
    United States. Forty-two percent of the disabled people that
    ride Amtrak ride the long-distance trains. The rural isolated
    are particularly dependent on the long-distance trains. And it
    is not just the long-distance trains. About $180 million worth
    of subsidy is needed for the State-supported trains because we
    have not gotten back from the States yet the amount that was
    expected in the PRIIA legislation. So, on the corridors that
    they operate, some of them are part of the long-distance
    network and some of them operate independently. But it is that
    area where there is a low density that it is difficult to
    recover those kinds of costs.
        Senator Collins. Would you consider recommending the
    termination of some of those long-distance routes that are
    unprofitable year after year?
        Mr. Boardman. They are all unprofitable. They are all
    unprofitable.
        Senator Collins. Some are more unprofitable than others.
        Mr. Boardman. And as soon as we eliminate those, there will
    then be some that are more unprofitable than the remaining
    ones. It is kind of like the old story about if you live in a
    red house and people are coming to take away the people in the
    red house, the people in the yellow house do not care until
    they come for the people in the yellow house.
        The fact is that my recommendation is we either run them or
    do not run them. But if you do not run them, the first-year
    cost--and this is a business decision--is a little more than $1
    billion because of the protections that are there for labor,
    but also putting away the equipment and protecting it and so on
    and so forth.
        We bring a huge benefit economically to the rural portions
    of the United States by having a place that people can actually
    get on a surface transportation mode of service.
        The FAA itself, the whole FAA is 50,000 people in the DOT
    out of 60,000. Fifty thousand people are paid for for the FAA
    for aviation, and about 33 percent of their salaries are
    covered back from the aviation industry. But because of the way
    that we are financed or subsidized compared to other modes, it
    does not stick out like that where we have that kind of cost.
        Senator Collins. I assume, therefore, that you are not a
    fan of former Pennsylvania Governor Ed Rendell's proposal to
    spin off the Northeast corridor into a separate public/private
    corporation because that would reduce the subsidy that you have
    available for those other lines. Is that an accurate----
        Mr. Boardman. I am not. British Rail, when they spun off,
    they went from about, let us say, $1 billion a year to about $7
    billion a year in public subsidy by the time they were done.
    And I believe that you need a connected intercity passenger
    rail service in the United States.
        Senator Collins. Thank you. I was not endorsing it. I was
    just soliciting the views of the witness.
        Madam Chairman, I am participating in the Holocaust
    Remembrance Ceremony in the Capitol which begins very shortly,
    so I am going to excuse myself. Thank you for holding this
    hearing.
        Senator Murray. You can submit all of your further
    questions for the record.
        Senator Collins. Thank you.
        Senator Murray. I just have a few more.

                    FUNDING FOR AMTRAK'S CAPITAL INVESTMENTS

        Mr. Boardman, I really appreciate that Amtrak's new
    leadership has focused on strategic long-term capital planning.
    The fleet strategy is evidence of that. It describes how Amtrak
    will replace its railcars and locomotives, and I understand
    that Amtrak applied for a $563 million loan from DOT to pay for
    those 70 electric locomotives back in October 2009. However,
    FRA and Amtrak have yet to finalize the loan agreement.
        So, Mr. Szabo, can you explain why this process is taking
    so long, and when do we expect to have this agreement
    finalized?
        Mr. Szabo. We are prohibited about talking about pending
    applications, but I will say this. We are incredibly close to
    having that closed.
        Senator Murray. Incredibly close, okay.
        Amtrak is requesting $79 million to fund its fleet plan in
    fiscal year 2012, and of this, $16 million is for the first
    four installments to purchase new Acela cars along the
    Northeast corridor. I understand this investment would result
    in sufficient revenue to repay the cost of procurement by 2018.
        Mr. Boardman, why have you asked for a direct appropriation
    rather than a DOT loan for those Acela cars?
        Mr. Boardman. I do not remember. Hold on a minute.
        It is a backup plan. If we do not receive the loan, then we
    need to get the money, but we need to move forward.
        Senator Murray. Okay. So you are hoping that that is what
    happens at this point?
        Mr. Boardman. The application for the loan is not in yet,
    but we intend to.

                  THE FEDERAL ROLE IN THE NATION'S RAIL SYSTEM

        Senator Murray. Mr. Szabo, at our hearing last year, you
    indicated one reason for the delay in the development of a
    national rail plan was that the Congress shaped this program as
    a State-driven process, and the FRA's 2012 budget request
    argues that there should be a stronger Federal role in the
    development of rail infrastructure than the current statutory
    framework allows.
        Can you define for us what an enhanced Federal authority
    means and how it would change FRA's relationship with the
    States?
        Mr. Szabo. Think interstate system. Frankly, this is based
    on the feedback that we received from the States and from our
    partners over the past year--the past 18 months in implementing
    this brand new program. It will always continue to be a strong
    Federal-State partnership. It is going to have to continue to
    be a strong partnership.
        But we believe, particularly when you start talking about
    the core express service--the top tier where you are talking
    150 to 220 miles per hour, because this is going to be multiple
    States, more regionally based in most every case--there needs
    to be a stronger hand in the development of those segments of
    the high-speed rail network.
        In addition, our experience in the past 18 months has shown
    us that States continue to need a much higher level of support
    from us than I think we first anticipated. A great example
    would be dealing with the freight rail industries who are the
    hosts, in many cases, for the emerging rail lines. They are
    national in scope, and so the States have been coming to us
    looking for a much stronger hand from FRA.
        You know, we have got basically 70-80 years of experience
    with the U.S. DOT and State DOTs in building highways. We have
    now got about 24 months of experience in building high-speed
    rail corridors, and clearly there is a need for a stronger
    Federal hand.

                             POSITIVE TRAIN CONTROL

        Senator Murray. I wanted to ask you about positive train
    control. The Rail Safety Improvement Act mandated it, and as we
    know, the GAO has been saying that delay risks completing the
    remaining steps necessary. Can you tell us where we are? Are we
    going to meet the 2015 deadline on positive train control?
        Mr. Szabo. It is a statutory deadline, and FRA is
    absolutely committed to ensuring that that deadline is met. And
    we do believe that it is achievable. The implementation plans
    are in from all of the carriers. Particularly for the class 1s,
    they are very, very strong. There is no question it is an
    aggressive timeline and that everything must fall into place--
    --
        Senator Murray. You are not proposing any changes to----
        Mr. Szabo. We are not. We are not. Now, there is a more
    significant challenge for the commuters than there is for the
    class 1s. But, no, we believe the deadline can and should be
    met.

           AMTRAK COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT

        Senator Murray. Mr. Boardman, I wanted to ask you about
    American with Disabilities Act (ADA) compliance. Can you
    explain to us what challenges you have been encountering and
    how those will affect Amtrak's ability to meet the ADA
    compliance targets?
        Mr. Boardman. I think the challenge, Senator, was first to
    understand what needed to be done, who owned the station,
    whether we could get agreement from either the local community
    or the freight railroad or both to get whatever it was that was
    necessary for that particular station done. All that was a
    bigger challenge than we ever really expected across the
    country, with the number of stations that we were dealing with,
    well into the hundreds--400-some-odd stations.
        But we are now making real progress, we believe, in terms
    of making that happen. And yes, because of that progress, we
    are going to meet, at least in the spirit of what needs to be
    done, our responsibilities for ADA.
        Senator Murray. Okay, thank you very much.

                         ADDITIONAL COMMITTEE QUESTIONS

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

                  Questions Submitted to Hon. Joseph C. Szabo
                Questions Submitted by Senator Richard J. Durbin

                                 ROLLING STOCK

        Question. How can this funding help bring railcar and manufacturing
    jobs to Illinois? What actions is the Federal Railroad Administration
    (FRA) taking to help bring manufacturing jobs to the United States to
    build new passenger rail rolling stock?
        Answer. The Department of Transportation (DOT) is committed to
    expanding economic activity and the jobs across the country including
    Illinois. This is a core part of our High-Speed Intercity Passenger
    Rail Program. In fact, the track work that was undertaken this summer
    between Chicago and St. Louis created a significant number of jobs in
    Illinois. While construction jobs are the most visible, new jobs are
    also created at manufacturers through supply orders; for example, track
    components for the project were made at the Nor-Trak plant in Decatur,
    Illinois. To date the Congress has committed more than $10 billion to
    developing high-speed rail. That Federal investment means many new
    orders and jobs at suppliers across the country, even in areas that
    will not see new service immediately. On the Illinois project alone,
    supplies have been produced in Arizona, Colorado, Nebraska, Nevada,
    Texas, Arkansas, and Missouri.
        With respect to passenger cars and locomotives, DOT and FRA are
    actively supporting the Administration's goal to rebuild domestic
    passenger equipment manufacturing under three initiatives:
      --Development of standard designs for the equipment so that it can be
            used in emerging high-speed corridors nationwide. This will
            reduce unit costs, improve maintenance and provide a
            significant degree of flexibility to the States and Amtrak;
      --Creation of a large enough order of a single-equipment design that
            it will attract the interest of manufacturers and create the
            critical mass necessary to stand-up the necessary domestic
            manufacturing facilities; and
      --Establishment of a strong Buy America program that will assure the
            equipment and its components are manufactured in the United
            States, not just assembled here. We will be working with the
            Department of Commerce's Manufacturing Extension Program to
            identify U.S. companies that can make components and
            subcomponents for the trains of the future. Not only does this
            provide jobs in the short-term, it helps provide U.S.-based
            manufacturers with the incentive to build upon prior equipment
            designs that can then result in equipment that meet both
            domestic and international market needs.
        Year to date tangible achievements include:
      --The Section 305 Committee, which is comprised of Amtrak, the
            States, and FRA, has already developed standard designs for
            passenger equipment.
      --FRA grants to California and Illinois are expected to result in the
            largest order of new intercity passenger rail equipment in a
            generation.
      --The solicitation of proposals and contract awards for this
            equipment will incorporate FRA's aggressive new Buy America
            standards.

                AIR QUALITY--UNION STATION AND DIESEL EMISSIONS

        Question. What are your thoughts about creating a way for Amtrak
    some other entity to make a pool of trainsets and then allowing States
    to lease the equipment rather than have to purchase and maintain the
    equipment themselves?
        Answer. FRA is very interested in this concept and is exploring it
    within the context of the Next Generation Corridor Train Equipment Pool
    Committee established by Section 305 of the Passenger Rail Investment
    and Improvement Act of 2008 (PRIIA). FRA also awarded over $200 million
    in High-Speed Intercity Passenger Rail Program grants to Illinois to
    purchase rail cars and locomotives for a Midwest equipment pool. FRA
    requires a final equipment ownership, management, and maintenance plan
    to be developed by August 2012 that will address issues related to a
    multi-State equipment pool, in addition to many other issues. This plan
    will be developed by California, Illinois, Michigan, Missouri, and
    Washington, in collaboration with the PRIIA Section 305 Committee, and
    submitted to the FRA for prior review and approval.
        Question. Administrator Szabo, what can FRA do to help improve the
    diesel emissions of passenger trains?
        Answer. The Environmental Protection Agency regulates the emissions
    from diesel locomotives, with progressively more stringent standards
    applying to locomotives newly manufactured or remanufactured after 2004
    (tier 2), 2011 (tier 3), and 2014 (tier 4). FRA oversees and manages
    rail financial assistance programs available to States and passenger
    rail operators for investing in new technologies and systems such as
    modern and more environmentally sound locomotives.
        In addition, FRA's Research and Development Program is actively
    funding research to develop technologies to reduce diesel fuel
    emissions. Among those initiatives are:
      --Development of battery-powered locomotives;
      --Addressing improvements in clean energy storage such as advanced
            battery and super capacitor designs; and
      --Use of biodiesel that reduces certain types of emission.
        Finally, FRA's Office of Safety is involved with Metra's working
    groups that are working to identify and address means of reducing the
    worker and public exposures to diesel exhaust in the Chicago union
    station environment.
                                     ______

                 Questions Submitted to Hon. Joseph H. Boardman
                   Question Submitted by Senator Patty Murray

        Question. As you know, the fiscal year 2010 conference agreement
    provided $3 million for Amtrak to deploy and study the use of human
    emulation technology on the Amtrak Web site. The subcommittee and the
    Congress agreed this technology had the potential to reduce Amtrak's
    operating costs, improve customer service over the telephone and
    online, and to provide consumers with better feedback through voice,
    text and page navigation support, as has been the case with deployment
    of such technology on private sector, transportation booking Web sites,
    among others. Furthermore, Amtrak was directed to provide a
    comprehensive report to the House and Senate Committees on
    Appropriations an evaluation of the impact of the utilization of such
    technology in achieving cost savings, and improving customer service
    and overall utilization. The deadline for this report is December 16,
    2011. The subcommittee is aware that Amtrak has initiated a request for
    information (RFI), thus, beginning this process, however, I am
    concerned that Amtrak is in danger of missing the deadline set for this
    report. Therefore, I want to take this opportunity to reiterate the
    subcommittee's interest in this subject and request that Amtrak provide
    me with a specific timeline for consideration of such technology
    improvements to the Amtrak Web site.
        Answer. Human emulation technology (HET) allows users to query an
    automated system to answer questions and/or provide issue resolution.
    It engages users through natural language dialog and has intelligence
    to understand a question and determine the correct answer with a high
    degree of accuracy. The system can deliver this cost savings by
    answering questions through automated systems and reducing call volume.
        Amtrak's exposure to this technology dates back to November 2007.
    Though still an emerging technology, HET suppliers suggested it could
    deliver a more satisfactory experience for the online customer than the
    current Web site search engine. However, internal research conducted at
    that time surfaced limitations including prohibitive costs, unknown
    benefits and an immature, untested technology. As a result, Amtrak
    initially deferred exploration of HET.
        In August 2010, Amtrak found that the technology had matured and
    undertook a 5-month pilot program with an external vendor. As this
    trial found mixed results, Amtrak subsequently issued an RFI to gain
    more industry insights, including into functionality it was not able to
    explore during the pilot. The resulting 3-month review allowed Amtrak
    to evaluate four potential solutions. The two highest-scoring vendors
    presented in-depth presentations of their technology. It was concluded
    from the RFI that this technology continued to improve and had the
    potential to be a worthwhile investment for Amtrak both in terms of
    customer service and cost savings. The team subsequently began
    developing a request for proposals (RFP).
        Presently, the RFP has been finalized and is scheduled to be issued
    in late August. Assuming bids can meet RFP goals within a reasonable
    cost, Amtrak anticipates awarding the contract in October or November
    and is targeting completing full implementation in late summer 2012.
        The following timeline outlines in more detail the history and
    actions Amtrak has taken in regard to HET.

                                    TIMELINE

    November 2007
        Amtrak was introduced to HET technology, and though it appeared
    promising, the cost of the solution was priced as a function of usage,
    exposing Amtrak to unknown costs. As the technology was new, the value
    to our customers and contribution to the bottom line were unclear.

    June 2010
        Amtrak issued a request to implement a proof-of-concept trial
    recognizing that this technology was still emerging and questions
    remained about its efficacy with customers. One vendor offered a unique
    product and was willing to test the solution with us. Conditionally, if
    the trial proved promising and Amtrak wished to pursue this further,
    the solution would be put out for competitive bidding.

    June 29, 2010
        Amtrak representatives met with Senator Murray's staff to discuss
    HET. The group agreed that Amtrak would:
      --Explore the technology further to more accurately assess the value,
            including through results from the pilot program; and
      --Assuming the pilot proved that the technology was worthwhile,
            solicit an expanded program through a competitive bid process
            (per Amtrak's internal procurement policy).
        The amount of money required to support this program was not yet
    known, but was expected to be within $3 million.

    August 2010 to January 2011
        In August 2010, Amtrak began a pilot program to test the value of
    HET. The pilot program ended with generally favorable results, though
    results were limited to qualitative findings and it was not possible to
    quantitatively demonstrate changes in customer handling costs. Based on
    these findings, Amtrak began the procurement process through
    development of an RFI. An RFI was then issued at the beginning of
    January 2011. The goal of the RFI was to learn more and to improve the
    team's confidence in the application's potential benefits.

    February to March 2011
        RFI responses were received in February. The RFI evaluation
    committee reviewed and scored the four submissions, and then asked for
    demonstrations from the top two vendors. Both vendors showed strong
    expertise in a key factor for evaluation: enterprise-wide (multi-
    channel) support.

    April 2011
        Vendor presentations concluded and the team determined that this
    technology had the potential to be a worthwhile investment for Amtrak
    both in terms of customer service and cost savings. Beyond customer
    handling savings, the team came to understand that there could also be
    efficiencies in reducing content management costs. As the HET interface
    would allow companies to manage/modify their enterprise-wide content
    from a single source, for example, it mitigates the expense of placing
    all relevant content in one place.

    May 2011
        An interdepartmental Amtrak team agreed to move forward and issue
    an RFP; Amtrak's Finance Department agreed funding would be available
    through fiscal year 2012 (until the project's completion).

    July 2011-Forward
        The RFP was finalized. Procurement is expected to issue the RFP in
    August and to award the contract in October/November. Work is expected
    to be completed by late summer 2012.
                                     ______

                Questions Submitted by Senator Richard J. Durbin

                                 ROLLING STOCK

        Question. President Boardman, States across the country are
    expanding passenger rail service. For example, in Illinois we are
    adding new routes from Chicago to the Quad Cities and Rockford.
    However, the trains running in the Midwest now are very old and seem to
    breakdown more frequently.
        Does Amtrak currently have enough equipment to serve these new
    routes? Are there other areas across the country where there is an
    equipment shortage?
        Answer. Amtrak's existing fleet of aged equipment is experiencing
    very high levels of utilization across the country, and we currently
    have very little spare equipment that can be used on new routes.
        Recently announced Federal grants will support the procurement of
    new equipment to be used throughout the Midwest States and California.
    This equipment will replace some of the older, less reliable equipment
    Amtrak operates, as well as provide capacity for planned new and
    expanded services. The State of Washington has also received Federal
    funds to procure equipment necessary for additional service once
    infrastructure improvements are completed.
        Amtrak continues to experience unprecedented ridership growth that
    is expected to continue into the future. Without new equipment,
    capacity issues will likely be experienced on many routes throughout
    the country. Additionally, managing growth with the aging profile of
    our current fleet will be more difficult that it would otherwise be
    with modern equipment. In order to meet the increasing demands for new
    services and to increase the efficiency and reliability of existing
    services, obsolete and costly to maintain equipment must be
    systematically replaced, as outlined in Amtrak's Fleet Strategy Plan.
    To execute this plan, additional investment in equipment beyond the
    scope of the recent Federal grants will be necessary.

                AIR QUALITY--UNION STATION AND DIESEL EMISSIONS

        Question. Last fall, the Chicago Tribune conducted an investigative
    report showing Metra commuters and workers may be exposed to
    excessively high levels of diesel soot. The Tribune found dangerous
    levels of particulates in both the train cabins and in Union Station in
    Chicago. The Tribune's studies show the increased levels of air
    pollution are the result of Metra and Amtrak's aging locomotives.
        Mr. Boardman, what can Amtrak do to help clean up the air quality
    in and around Union Station?
        Answer. Results from Amtrak industrial hygiene surveys indicate
    that the operating areas of Chicago Union Station are below
    Occupational Safety and Health Administration standards for air
    contaminant exposure, including particulate concentrations. However,
    further reducing exposure is important to Amtrak passengers and
    employees, and there are a number of measures that could improve the
    current situation.
        For one, upgrading Amtrak's diesel locomotive fleet could certainly
    improve air quality in and around Union Station. Amtrak's current
    diesel locomotive fleet meets Environmental Protection Agency tier 0
    emissions standards. Tier 4 emissions standards, which will have to be
    met by 2015, are expected to reduce particulate matter emissions by 95
    percent.
        The Next Generation Corridor Equipment Pool Committee developed a
    specification for a new high-speed diesel locomotive that will be
    compliant with tier 4 requirements. Additionally, Amtrak's Fleet
    Strategy Plan contemplates a large number of diesel locomotives being
    delivered in 2015. Combining Amtrak's diesel locomotive requirements
    with those of the States would make for a substantially larger and more
    cost-effective procurement of lower-emission, tier 4-compliant
    locomotives.
        In addition to procuring new locomotives, plugging locomotives
    waiting at the station into 480-volt ground power sources would reduce
    idling and associated diesel emissions.
        Further, for the holders of air rights above Chicago Union Station,
    there is semiannual testing of their station-area fan equipment. The
    results of these tests are used as a tool to monitor compliance with
    the building owner's responsibility for maintaining their exhaust
    equipment. This testing is performed in the spring and fall. A system
    to check that the ventilation systems are operating continuously would
    be helpful as a monitoring tool.
        Amtrak is also undertaking a study for concept-level design of an
    improved ventilation system at the station. We expect this study to
    begin shortly and be completed during fiscal year 2012 or fiscal year
    2013, subject to available funding.
                                     ______

                             CONCLUSION OF HEARINGS

        Senator Murray. I appreciate both of your testimonies
    today, and I just want to reiterate that safety is a concern to
    everyone, as we all know, and I look forward to working with
    you as a number of proposals come forward on the safety and
    security of our national railway systems. Thank you very much.
        [Whereupon, at 11:30 a.m., Tuesday, May 17, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

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

                                  ----------

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

                           NONDEPARTMENTAL WITNESSES

        [The following testimonies were received by the
    Subcommittee on Transportation and Housing and Urban
    Development, and Related Agencies for inclusion in the record.
    The submitted materials relate to the fiscal year 2012 budget
    request for programs within the subcommittee's jurisdiction.]

      Prepared Statement of the American Public Transportation Association

                                  INTRODUCTION

        Mr. Chairman and members of the subcommittee, on behalf of the
    American Public Transportation Association (APTA), I thank you for this
    opportunity to submit written testimony on the fiscal year 2012
    Transportation and Housing and Urban Development, and Related Agencies
    appropriations bill as it relates to Federal investment in public
    transportation and high-speed and intercity passenger rail (HSIPR).
        APTA's highest priority is the enactment of a well-funded, 6-year,
    multimodal surface transportation authorization bill, as it is one of
    the most important actions the Congress can take to improve mobility
    for our citizens and put our Nation's economic engine into high gear.
    We recognize the challenge that the absence of an authorization bill
    places on the Appropriations Committee, yet we must stress the
    tremendous needs that persist for public transportation agencies
    throughout the country. A strong commitment to investment in our
    transportation infrastructure remains essential to the Nation's
    economic prosperity and fiscal health. Failure to invest will force
    private sector businesses in the transit industry and other industries
    to lay off employees and to invest overseas. For the Nation's tens of
    millions of transit riders, it will mean less service, fewer travel
    options, higher costs, and longer commutes.

                 OVERVIEW OF FISCAL YEAR 2012 FUNDING REQUESTS

        The fiscal year 2012 Obama administration budget requests $22.4
    billion for public transportation programs, and $8.3 billion for HSIPR.
    This includes a one-time, upfront investment of $11.5 billion for the
    Federal Transit Administration (FTA) programs and the first installment
    of the administration's $53 billion 6-year proposal for high-speed and
    intercity rail investment.
        APTA strongly supports the President's proposed public
    transportation budget request. APTA's authorization recommendations,
    which had assumed enactment of authorizing legislation 2 years ago,
    proposed a Federal transit investment of $17.9 billion in fiscal year
    2012. APTA urges the Congress to resist efforts to make further cuts to
    general fund components of the Federal transit program, such as Capital
    Investment Grants and research, as these are important elements of
    Federal surface transportation investment. We are most disappointed
    with the severity of cuts in the Full-Year Continuing Appropriations
    Act for fiscal year 2011, as the need for these investments is only
    growing, and the costs associated with these investments will be
    greater in future years.
        Our funding request continues to be instructed by APTA's
    recommendations for surface transportation authorization and the
    estimated Federal funding growth required to meet at least 50 percent
    of the $59.2 billion in annual capital needs by the end of the
    authorization period. These levels are intended to support a projected
    doubling of transit ridership over the next 20 years. The American
    Association of State Highway and Transportation Officials agrees with
    APTA's estimate, stating in its ``Bottom Line Report for
    Transportation--2009'' that ``if transit ridership grows yearly by 3.5
    percent, investment would have to increase to $59 billion annually.''
    It is important that steady and growing investment continue despite
    economic or fiscal situations, as demand and long-term planning
    requirements for transportation investment continue as well.
        APTA strongly opposes the elimination of prior-year HSIPR funding.
    These funds are needed to ensure that the 32 States and the District of
    Columbia which are forging ahead with planning and implementing HSIPR
    improvements can continue their efforts to modernize and expand our
    Nation's passenger rail services.
        Finally, we encourage the Congress to fund the Rail Safety
    Technology Grants program (section 105) of the Rail Safety Improvement
    Act (RSIA) at a level significantly higher than the $50 million annual
    authorization, to assist with the implementation of congressionally
    mandated positive train control (PTC) systems. The federally imposed
    deadline for implementation of PTC systems is rapidly approaching, and
    neither the Congress nor the administration is proposing to put the
    necessary funding behind this safety priority.

                    THE NEED FOR FEDERAL TRANSIT INVESTMENT

        In previous testimony to this subcommittee, I have presented the
    case for increasing Federal investment in public transportation. APTA
    has recommended $123 billion of transit investment over 6 years, and
    President Obama has proposed $119 billion in the same period. In either
    scenario, new Federal investment would produce much-needed progress
    toward bringing our Nation's public transportation infrastructure up to
    a state of good repair, improving safety, and building the capacity for
    millions of new riders who will want quality transit service in the
    coming years. The Department of Transportation (DOT) estimates that a
    one-time investment of more than $78 billion is needed to bring transit
    infrastructure up to a state of good repair, and this does not include
    annual costs to maintain and preserve the existing system. Research on
    transit needs shows that capital investment from all sources--Federal,
    State, and local--should be doubled if we are to prepare for future
    ridership demands.
        I want to stress that the demand for public transportation and the
    need for Federal leadership will not diminish in the months and years
    ahead. As gasoline prices continue to increase, Americans are turning
    to public transportation in record numbers, just as they did in 2008
    when gas reached an average price of $4.11 per gallon. APTA recently
    completed an analysis that reveals if regular gas prices reach $4 a
    gallon across the Nation, as many experts have forecast, an additional
    670 million passenger trips could be expected, resulting in more than
    10.8 billion trips per year, roughly a 6-percent increase. If pump
    prices jump to $5 a gallon, the report predicts an additional 1.5
    billion passenger trips can be expected, resulting in more than 11.6
    billion trips per year. And if prices were to soar to $6 a gallon,
    expectations go as high as an additional 2.7 billion passenger trips,
    resulting in more than 12.9 billion trips per year. The volatility of
    the price at the pump is another wake up call for our Nation to address
    the increasing demand for public transportation services.

                    FEDERAL TRANSIT ADMINISTRATION PROGRAMS

        Capital Investment Grants (New Starts).--The New Starts program is
    the primary source of Federal investment in the construction or
    expansion of bus rapid transit projects, heavy and light rail transit
    systems, and commuter rail systems. Unlike most other FTA programs, the
    New Starts program is funded from the General Fund, not the Mass
    Transit Account of the Federal Highway Trust Fund. Funding for New
    Starts was previously included in funding guarantees for highway and
    transit programs, and the success of these major, multi-year capital
    projects requires predictable support by the Congress and FTA. The
    Congress established Full Funding Grant Agreements to ensure this
    predictability. A continued commitment to Federal investment will also
    influence the willingness of private financial markets to fund public
    transportation projects and it will guarantee that the bond ratings
    will remain high and interest rates will remain low. Going forward,
    whether the New Starts program is funded out of the general fund or
    from a trust fund, APTA believes that the program should grow at the
    same rate as the rest of the transit program. New Starts is essential
    to enhancing our Nation's mobility, accessibility, and economic
    prosperity while promoting energy conservation and environmental
    quality.
        Formula and Bus and Bus Facilities.--Like other elements of the
    program, we urge the Congress to grow funding for existing formula
    programs, including urban and rural formula, small transit intensive
    cities, fixed guideway modernization, and others at a rate consistent
    with overall FTA funding. These formula programs address core needs of
    our public transportation systems, and deserve the continued support of
    the Congress. In our authorization recommendations, APTA recommends
    modifying the current Bus and Bus Facilities program to create two
    separate categories of funding, with 50 percent distributed under bus
    formula factors, and the remaining 50 percent available under a
    discretionary program distributed either through congressional
    direction or a competitive grants process administered by FTA. This is
    particularly relevant to the consideration of appropriations
    legislation as we recognize that the Congress will attempt to address
    the issue of earmarks and discretionary spending accounts. It is
    important to recognize that certain transit needs like facilities
    projects, are often larger than an agency's typical formula allotment,
    and as such, will require discretionary decisionmaking on either the
    part of the Congress, or the administration, in order to effectively
    fund such projects.

                    FEDERAL RAILROAD ADMINISTRATION PROGRAMS

        Positive Train Control.--A high priority for APTA within the
    programs of the Federal Railroad Administration (FRA) is the adequate
    funding of the Railroad Safety Technology Grants Program, section 105
    of RSIA of 2008. APTA is very discouraged that the Congress has
    rescinded fiscal year 2010 appropriations for this program in addition
    to the possibility of leaving it unfunded in fiscal year 2011. RSIA
    requires commuter rail operators implement PTC systems by December 31,
    2015, and APTA is urging the Congress to increase the authorized levels
    for implementation of PTC systems required under RSIA. The cost of
    implementing PTC on public commuter railroads alone is estimated to
    exceed $2 billion, not including costs associated with acquiring the
    necessary radio spectrum or the subsequent software and operating
    expenses. Our Nation's commuter rail systems are committed to complying
    with the PTC mandate and implementing critical safety upgrades.
    However, both the costs associated with implementing PTC, as well as
    the challenges associated with a technology that is still under
    development, are quite substantial. Full funding will help ensure that
    these important safety improvements can be implemented within the
    required timeframe.
        High-Speed and Intercity Passenger Rail Investment.--Ridership in
    the overall passenger rail market in the United States has been
    steadily growing, with commuter rail being one of the most frequently
    used methods of public transportation for those traveling from outlying
    suburban areas to commercial centers of metropolitan areas, often to
    and from places of employment, education, commerce and medical care.
    The most recently published APTA public transportation ridership
    report, which provides data on transit passenger ridership for U.S.
    transit agencies, shows a continued strong demand for public
    transportation despite the economic downturn, with nearly 10.2 billion
    trips taken on public transportation nationally in 2010. The demand for
    commuter rail service has also remained strong, with 13 of 26 commuter
    rail systems in operation for all of 2010 reporting ridership increase.
    Similarly, despite the Nation's slow economy, Amtrak experienced record
    ridership in the last fiscal year, reporting a ridership increase of
    4.6 percent for an overall ridership of more than 28.7 million
    passengers. As the current political unrest in many oil producing
    nations continues, more and more commuters are turning to public
    transportation to escape rising gas prices, and many transit operators
    are reporting double digit ridership increases this year.
        In addition to commuter rail, it is critical that intercity
    passenger rail become a more useful transportation option for travelers
    looking for alternatives to high gas prices and congested road and air
    travel in many corridors. While much attention has been lavished on
    three Governors who rejected Federal rail funding for their States, 32
    other States plus the District of Columbia are forging ahead in
    planning and implementing rail improvements. Funding from the three
    States which opted to cancel their HSIPR programs is being redirected
    by DOT to other HSIPR projects across the country.

                                   CONCLUSION

        I thank the subcommittee for allowing me to share APTA's views on
    fiscal year 2012 public transportation and high-speed and intercity
    rail appropriations issues. We look forward to working with the
    subcommittee to make the necessary investments to grow the public
    transportation program. We urge the subcommittee to invest in making
    commuter, intercity, and high-speed rail safer by fully appropriating
    the funds authorized in the RSIA. Finally, we support the efforts of
    the Congress thus far to invest in a high-speed rail system and
    encourage your subcommittee to continue support for this effort. This
    is a critical time for our Nation to continue to invest in transit
    infrastructure that promotes economic growth, energy independence, and
    a better way of life for all Americans.

                                   ABOUT APTA

        APTA is a nonprofit international association of nearly 1,500
    public and private-member organizations, including transit systems and
    commuter, intercity and high-speed rail operators; planning, design,
    construction, and finance firms; product and service providers;
    academic institutions; transit associations and State departments of
    transportation. APTA members serve the public interest by providing
    safe, efficient, and economical public transportation services and
    products. More than 90 percent of the people using public
    transportation in the United States and Canada are served by APTA-
    member systems.
                                     ______

        Prepared Statement of the Manufactured Housing Association for
                               Regulatory Reform

        The Manufactured Housing Association for Regulatory Reform (MHARR)
    is a national trade association representing the views and interests of
    producers of manufactured housing. Manufactured housing has
    historically been the Nation's leading source of affordable,
    nonsubsidized home ownership. But, the manufactured housing industry is
    in danger of disappearing, with devastating consequences for affordable
    housing, employment, and job creation. Over the past decade,
    manufactured home production has declined by more than 86 percent (from
    373,143 units in 1998 to 50,046 in 2010), nearly 75 percent of the
    industry's production facilities have closed (from 430 to fewer than
    110), together with more than 7,500 retail centers, resulting in the
    loss of more than 200,000 jobs.
        The decline of the manufactured housing industry began long before
    the decline of the broader housing market, and has been much more
    severe. This disparity is principally a result of two factors. The
    first is a costly and unjustified expansion of Department of Housing
    and Urban Development (HUD) regulation, in the face of rapidly
    diminishing production. Second, this regulatory expansion, imposed by
    circumventing or undermining key program reforms mandated by the
    Congress in the Manufactured Housing Improvement Act of 2000, has
    ensured the continuing status of manufactured homes as ``trailers,''
    fueling discrimination against manufactured homes and manufactured home
    purchasers.
        The HUD program has been able to engage in this unwarranted
    regulatory expansion because of an artificially inflated budget which
    has not had adequate oversight either within HUD or by the Congress in
    recent years. The HUD manufactured housing program was originally
    conceived as a self-funding program. In fiscal year 2009, HUD, for the
    first time, sought and received a direct appropriation of $5.4 million
    in general revenue funds, supposedly as a one-time request, to
    implement the new Federal installation and alternate dispute resolution
    (ADR) programs mandated by the 2000 law. In fiscal year 2010, however,
    HUD requested an additional $9 million direct appropriation. This
    infusion of millions of dollars in tax funds, though, has not been used
    to implement the new programs of the 2000 law. Instead, these funds
    have been used to impose a needless ``make-work'' regulatory expansion
    and, with it, an increase in the size of HUD program staff and the
    duties and functions of its entrenched inspection ``monitoring''
    contractor, all at a time of dramatically reduced production levels,
    while revenue allocated to the States for consumer protection has been
    significantly reduced.
        Now, in its fiscal year 2012 budget request, despite continued
    weakness in the manufactured housing market, HUD is seeking $14 million
    in total program budget authority. This involves yet another $7 million
    direct appropriation of general revenue funds and an announced label
    fee increase from $39 to $60 per home section. HUD claims that it needs
    $3.8 million for an ``installation inspect and enforcement'' contract
    and $1.4 million for a ``dispute resolution enforcement'' contract.
    These are the same contracts, however, for which HUD requested tax
    revenues in 2009 and 2010, but did not award, while it used the
    additional funds provided by the Congress to needlessly expand
    regulation and program staff, and increase funding for its inspection
    ``monitoring'' contractor. In fact, though, there is no legitimate
    basis for a budget of this size or further infusions of taxpayer
    dollars when industry production continues to decline and the Federal
    Government faces a large deficit. Accordingly, the Congress should
    carefully scrutinize HUD's fiscal year 2012 budget request, as detailed
    below, based on section 620 of the 2000 law, pertaining to program
    funding and expenditures.

                  IMPROPER EXPANSION OF PRODUCTION REGULATION

        Section 620(a)(1)(A) of the 2000 law provides for the use of the
    authorized fee paid by manufacturers to conduct ``inspections and
    monitoring.'' Section 620(c), however, as amended by the 2000 law,
    prohibits HUD from using ``any fee collected under this section'' for
    ``any purpose or activity not specifically authorized by this title.''
        Section 604(b) of the law specifically requires HUD to bring
    proposed regulations or amendments to the Manufactured Housing
    Consensus Committee (MHCC) for consensus review and input, followed by
    notice and comment rulemaking. Section 604(b)(6) of the 2000 law
    further requires HUD to bring any change to ``policies practices, or
    procedures relating to . . . inspections, monitoring, or other
    enforcement activities'' to the MHCC for consensus review and input,
    followed by notice and comment rulemaking. The section further provides
    that ``any change adopted in violation'' of its requirements ``is
    void.''
        Starting in 2008, HUD has systematically imposed on manufacturers a
    costly de facto expansion of in-plant regulation without complying with
    the requirements of either section 604(b) generally or section
    604(b)(6) specifically. Indeed, HUD, through a February 5, 2010,
    ``interpretive rule,'' issued with no opportunity for public comment,
    has effectively read section 604(b)(6) out of the law completely.
    Absent compliance with section 604(b) and section 604(b)(6), the
    imposition of this program of de facto expanded regulation and
    enforcement is not an activity ``specifically authorized'' by
    applicable law. As a result, its costs--including additional amounts
    paid to contractors for inspections, oversight, or enforcement--should
    not be funded.

                            INADEQUATE STATE FUNDING

        State administrative agencies (SAAs) are the first line of
    protection for home buyers living in a growing number of both new and
    existing manufactured homes. The law envisions a Federal-State
    partnership for the enforcement of the Federal standards. To ensure
    State participation in this partnership, section 620(a)(1)(B) of the
    law requires HUD to ``provid[e] funding to the States. . . .'' The
    proposed HUD fiscal year 2012 budget, however, as with the last three
    HUD budgets, keeps funding for the States flat (at approximately one-
    half the fiscal year 2005 funding level--$3.7 million in 2012, as
    contrasted with $6.6 million in 2005), while artificially and
    unnecessarily increasing contractor funding (and program staff), even
    though the responsibilities of SAAs are more extensive than the
    monitoring contractor. Thus, at the same time that HUD has artificially
    inflated the functions performed by its monitoring contractor, HUD is
    failing to properly fund State participation in the Federal program.

                        NONCAREER PROGRAM ADMINISTRATOR

        HUD has refused to appoint a noncareer administrator for the
    Federal program, maintaining that such an appointment is discretionary
    under section 620(a)(1). This interpretation of the 2000 law, however,
    is incorrect. The law, as amended in 2000, grants the Secretary of HUD
    permissive authority under section 620(a)(1) to establish a
    ``reasonable fee'' to fund specific program functions if the Secretary
    wishes. If such a fee is established, however, as it has been (i.e.,
    the HUD label fee), the use of that fund, to offset expenses in
    connection with statutory HUD ``responsibilities'' listed in
    subsections (620)(a)(1)(A)-(G), is nondiscretionary. Despite this
    nondiscretionary ``responsibility,'' the HUD manufactured housing
    program has not had a noncareer administrator since 2004.

                     UNWARRANTED EXPANSION OF PROGRAM STAFF

        Section 620(a)(1)(D) provides for the use of the authorized fee
    paid by manufacturers to provide ``the funding for salaries and
    expenses of employees of the Department to administer the manufactured
    housing program.'' This provision was designed to encourage HUD to use
    its own employees to carry out most program functions, rather than
    relying on revenue-driven contractors. Due to HUD's make-work expansion
    of in-plant regulation, however, HUD has not only increased program
    staff to 14 employees, its highest level ever, but has also
    systematically increased the functions of--and payments to--its
    monitoring contractor, even though manufactured housing production has
    declined by a factor of more than 86 percent.

                    MANUFACTURED HOUSING CONSENSUS COMMITTEE

        Section 620(a)(1)(E) provides for the use of the authorized fee
    paid by manufacturers to administer the Manufactured Housing Consensus
    Committee (MHCC) established by the 2000 law. But the independence,
    role, and authority of the MHCC are being emasculated by HUD
    regulators.
        Among other things, HUD career regulators:
      --have refused to trigger the MHCC consensus process for regulations
            as required by section 604(b) of the 2000 law;
      --have read the ``catch-all'' provision (section 604(b)(6)) requiring
            MHCC consideration of all new policies and practices affecting
            enforcement out of the 2000 law through an ``interpretive
            rule'' issued without public comment;
      --have improperly taken control of the MHCC's agenda, focus, and
            procedures;
      --have undermined the balance of the MHCC required by law through
            politicized appointments, by unilaterally selecting the current
            chairman, by gerrymandering the composition of MHCC
            subcommittees, and by excluding collective industry
            representation while appointing four board members and
            executives of the same consumer group and two former HUD
            employees/contractors to the committee; and
      --have attempted to improperly suppress stakeholder and public
            participation in MHCC deliberations.
        HUD maintains that these restrictions are required by the Federal
    Advisory Committee Act (FACA), but that statute does not mandate such
    restrictions, as is demonstrated by a review of the bylaws of other
    FACA committees. Moreover, FACA, by its express terms, is superseded by
    contrary provisions in the authorizing legislation for specific
    advisory committees. In this case, section 604 of the 2000 law
    specifically describes the role, authority, functions and operation of
    the MHCC. To the extent that those provisions conflict with FACA, they
    are controlling.

                FAILURE TO ENSURE PARITY OF MANUFACTURED HOUSING

        Section 620(a)(1)(F) provides for the use of the fee paid by
    manufacturers to facilitate ``the acceptance of the quality,
    durability, safety and affordability of manufactured housing within the
    Department.'' This provision reflects the over-riding purpose of the
    2000 law--to complete the transition of manufactured housing from the
    ``trailers'' of the cold war era to legitimate ``housing.'' HUD
    regulators, however, have not made any effort--known to MHARR--to
    advance manufactured housing as an equal participant in all HUD housing
    programs and, by failing to fully and properly implement the 2000 law,
    continue to treat manufactured homes as ``trailers,'' thus fueling and
    intensifying discrimination that is crippling the industry.

                FAILURE TO PROPERLY IMPLEMENT 2000 LAW PROGRAMS

        Section 620(a)(1)(G) provides for the use of the fee paid by
    manufacturers for ``the administration and enforcement'' of the Federal
    installation standards and the Federal dispute resolution system in
    ``default'' States that do not adopt their own programs under State
    law. Under section 605(c)(2)(B) and section 623(c)(12) of the 2000 law,
    both of these programs were to have been operational by December 2005.
    Yet, according to the latest information available from HUD, neither
    has been fully implemented and, to date, no significant implementation
    contracts have been awarded, even though HUD has included funding for
    contractors for both programs in its budget requests since at least
    2008.

               ANNOUNCED LABEL FEE INCREASE--SECTIONS 620(D)-(E)

        Section 620(d) of the 2000 law provides that ``the amount of any
    fee collected under this section may only be modified as specifically
    approved in advance in an annual appropriations Act''. Section
    620(e)(2) further provides that ``amounts from any fee collected under
    this section shall be available for expenditure only to the extent
    approved in advance in an annual appropriations Act''.
        HUD's proposed fiscal year 2012 program budget includes a label fee
    increase of more than 50 percent--from $39 per section to $60 per
    section--in addition to an appropriation of general revenue funds in
    the amount of $7 million. HUD provides no specific justification for a
    label fee increase of this magnitude, or a $7 million direct
    appropriation, other than its unsupported assertion that its
    responsibilities remain unchanged notwithstanding a 48-percent decline
    in industry production--and corresponding drop in label fee revenues--
    just since 2007. The facts, however, do not support this claim. HUD's
    assertion that its responsibilities remain ``unchanged'' despite a
    sharp decline in industry production is unsupportable. In 2007, the
    industry produced 95,752 HUD Code homes. In 2010, the industry produced
    50,046 HUD Code homes. Accordingly, the program's raw oversight burden
    today is nearly one-half what it was in 2007. This decline should have
    meant lower program expenditures between 2007 and proposed fiscal year
    2012. Instead, the fiscal year 2007 appropriation of $6.510 million
    grew to $16 million in 2009 and 2010, and now a requested $14 million
    for fiscal year 2012.

                                   CONCLUSION

        For all the above reasons, the Congress should:
      --require HUD to appoint a noncareer program administrator;
      --require HUD to choose between either a direct appropriation or a
            label fee increase, but not both; and
      --direct HUD to divert funding from expanded staff and contractor
            functions to provide adequate funding for State participation
            in the manufactured housing program.
                                     ______

           Prepared Statement of the National AIDS Housing Coalition

        The National AIDS Housing Coalition (NAHC) requests $362 million
    for the Housing Opportunities for Persons With AIDS (HOPWA) program for
    fiscal year 2012. NAHC is a national nonprofit membership housing
    organization founded in 1994 that works to end the HIV/AIDS epidemic by
    ensuring that persons living with HIV/AIDS have quality, affordable,
    and appropriate housing. NAHC's members are people living with HIV/AIDS
    (PLWHA), service providers, developers, researchers, public health and
    housing departments, and advocates.
        Research findings presented through NAHC's Research Summit Series
    overwhelmingly confirm that housing is a strategic point of
    intervention to address HIV/AIDS, homelessness, and the concomitant
    effects of race and gender, poverty, mental illness, chronic drug use,
    incarceration, and exposure to trauma and violence. HIV housing
    interventions are a cost-effective means to prevent new HIV infections,
    improve HIV health outcomes, reduce mortality, and reduce reliance on
    other public systems such as expensive emergency and inpatient medical
    services.
        The HOPWA program is relied upon by HIV/AIDS service organizations
    nationwide to assure that stable, affordable housing and the critical
    supportive services that help people remain housed is available to
    those coping with the debilitating and impoverishing effects of HIV/
    AIDS. HOPWA's hallmark is its flexibility to provide a continuum of
    housing and housing-related case management and supportive services for
    low-income individuals living with HIV/AIDS and their families. HOPWA
    dollars are used for short- and longer-term rents, facility-based
    assistance as well as limited rent, mortgage, or utility payments that
    play a critical role in homelessness prevention. HOPWA can also be used
    for new development and rehabilitation. In the face of shrinking
    resources, HOPWA's importance to community strategic planning efforts
    cannot be underestimated--facilitating better coordination of local and
    private resources and filling gaps in local systems of care to meet
    housing need among people with HIV/AIDS and their families.

                  AIDS HOUSING IS CENTRAL FOR HIV/AIDS HEALTH

        A now substantial body of research shows that housing status has a
    direct, independent, and powerful impact on HIV incidence and the
    health of PLWHA, regardless of demographics, drug use, health and
    mental health status, or receipt of other services. Housing affects an
    individual's ability to avoid exposure to HIV; an HIV-positive
    individual's ability to avoid exposing others to HIV; and the ability
    to receive and benefit from HIV healthcare. Whatever else makes one
    vulnerable to HIV infection--homelessness magnifies the risk. Whatever
    other factors lead to disparities in care--for women; for youth; for
    sexual minorities; for people of color; for those who experience mental
    illness, addiction, violence, abuse, or incarceration--housing
    instability amplifies their vulnerability for poor health outcomes and
    early death. Research has consistently shown that people without stable
    housing are significantly more likely to become HIV-infected, they will
    have limited access to care once they are infected, and they will live
    less healthy and shorter lives--compared to people just like them who
    are fortunate enough to have a home.
        Recent findings from the U.S. Centers for Disease Control and
    Prevention (CDC) show how that poverty and homelessness contribute to
    worsening HIV health disparities. CDC surveillance data reveal that at
    least 2.1 percent of heterosexuals living in high-poverty urban areas
    in the United States are HIV-positive--an HIV prevalence rate that is
    more than 20 times greater than the rate among all heterosexuals in the
    United States (0.1 percent), and that exceeds the 1-percent infection
    rate that defines a generalized HIV epidemic. Poverty--not race--is the
    most important demographic factor associated with HIV infection among
    inner-city heterosexuals. Men and women in low-income neighborhoods who
    live below the poverty line are twice as likely to have HIV infection
    as those living above it, and other social factors--including
    unemployment, low-education level, and housing status--are also
    independently associated with infection. Within the low-income
    communities examined, the rate of new HIV infections almost twice as
    high (1.8 times) for inner-city heterosexuals who had experienced
    homelessness in the past year, compared to low-income persons with
    housing.

          AIDS HOUSING WORKS TO IMPROVE HEALTH AND REDUCE PUBLIC COSTS

        Research also shows that receipt of housing assistance is
    independently associated over time with reduced HIV risk behaviors,
    better health outcomes, and sharp reductions in costly emergency and
    inpatient services. Recent findings from housing-based interventions
    provide new evidence that housing supports create stability and
    connection to care for people living with HIV--improving healthcare
    outcomes, changing the individual behaviors that put people at risk of
    acquiring HIV infection, and reducing overall public costs.
        PLWHA who are unstably housed lack ongoing HIV care and rely more
    on expensive crisis services including shelters, jails, and avoidable
    emergency and hospital care. Housing assistance for people with HIV who
    are homeless improves their health outcomes and dramatically reduces
    emergency and inpatient health services, criminal justice involvement,
    and other crisis costs. A recent study funded by the CDC and HUD found
    that more stable housing for people with HIV reduced emergency medical
    visits by 35 percent and hospitalizations by 57 percent. Each new HIV
    infection prevented through more stable housing saves countless life
    years and more than $300,000 in lifetime medical costs. Indeed, housing
    assistance for homeless and unstably housed people living with HIV
    leads to savings in avoidable health services that can more than offset
    the costs of the housing intervention.
        This consistent evidence base supports housing assistance as a
    cost-effective healthcare intervention for homeless and unstably housed
    persons with HIV. Action to meet HIV housing needs costs far less than
    inaction, making HOPWA and other low-income housing programs that serve
    people living with HIV a wise use of limited public resources.

                    HOUSING NEED AMONG PEOPLE WITH HIV/AIDS

        More than 56,000 people became infected with HIV in the past year
    in the United States. Experts estimate that more than one-half of PLWHA
    will need some form of housing assistance during the course of their
    illness, while national research has shown that housing is the greatest
    unmet service need for people living with HIV disease. Data indicates
    that approximately 72 percent of PLWHA have incomes less than $30,000;
    the number in need is likely to increase proportionally with the
    weakened economy and sustained high unemployment levels.
        In 2011, HOPWA will continue providing housing support for more
    than 60,000 households in 133 formula-eligible jurisdictions, providing
    assistance in all 50 States, the District of Columbia, Puerto Rico, and
    the Virgin Islands. Under the current formula configuration, two to
    five new jurisdictions may become available, from cities diverse as
    Greenville, South Carolina to Syracuse, New York. In addition, 91
    competitive grants are currently operating. The program is tied to
    positive client outcomes in the 60,699 households served in the current
    fiscal year, making it possible for assisted individuals to better
    attend to their health needs, function in their families and society.
    AIDS housing is a cost-effective way to end homelessness and achieve
    positive individual and community health outcomes. HUD reports that 94
    percent of all HOPWA rental assistance households in a recent program
    year were able to achieve maximum stability, reducing risks of
    homelessness, and participating in healthcare.
        NAHC recommends a funding level of $362 million, which would permit
    assistance to an additional 4,800 people with HIV/AIDS in need of
    housing.

                EXAMPLES OF AIDS HOUSING NEED ACROSS THE COUNTRY

        AIDS housing need has exploded in virtually every region of the
    country. Though waiting lists are no longer maintained in many
    jurisdictions, affordable housing need continues to grow. Below is a
    snapshot of the number of HOPWA-eligible households with unmet housing
    needs in cities and states across the country:

    ------------------------------------------------------------------------
                                                                    No. of
                                                                    HOPWA-
                                                                   eligible
                          City and/or State                       households
                                                                  with unmet
                                                                    housing
                                                                     needs
    ------------------------------------------------------------------------
    Alabama.....................................................       3,621
    California:
        Los Angeles.............................................     > 8,000
        San Francisco...........................................      13,000
        San Jose................................................         279
    District of Columbia........................................        >700
    Tampa, Florida..............................................         285
    Honolulu, Hawaii............................................         130
    Chicago, Illinois...........................................      10,257
    Iowa........................................................         115
    Maine.......................................................         110
    Lowell, Massachusetts.......................................         624
    Minnesota...................................................         309
    New York:
        New York City...........................................      11,000
        Syracuse................................................         103
    Columbus, Ohio..............................................         115
    Oregon......................................................         202
    Philadelphia, Pennsylvania..................................       6,000
    Texas:
        Dallas..................................................         617
        El Paso.................................................          56
    Seattle, Washington.........................................         425
    ------------------------------------------------------------------------

                OTHER LOW-INCOME HOUSING PROGRAMS REMAIN CRUCIAL

        Of course, HOPWA will never fully meet the housing need for all
    those living with HIV/AIDS and their families. AIDS housing providers
    urge full and adequate funding for the range of low-income housing
    programs relied upon in the continuum of housing and services for
    people with HIV/AIDS, including Homeless Assistance Grants, Tenant-
    Based Rental Assistance, Public Housing, and Section 811 Housing for
    People with Disabilities, among others.
        In conclusion, NAHC urges the subcommittee to fund the HOPWA
    program at the highest level possible for fiscal year 2011 to
    accommodate new formula jurisdictions expected to become eligible and
    to assist existing programs in moving closer to meeting the actual
    housing needs in their jurisdictions.
        NAHC respectfully asks the subcommittee to approve funding of $362
    million for the HOPWA program for fiscal year 2012.
                                     ______

     Prepared Statement of the National Association of Railroad Passengers

        Thank you for the opportunity to submit this statement. Thank you
    also for the positive role that you and your subcommittee have played
    over the years in providing funding for intercity passenger trains.
        Energy-efficient passenger trains are more important than ever as
    Amtrak ridership continues to rise, along with gasoline prices.
    Ridership growth is colliding with the realities of a fleet that is too
    small.
        Thus, our key requests for intercity passenger trains for fiscal
    year 2012 are:
      --Full funding of the Obama administration's requested $8 billion for
            intercity passenger trains, including approximately $4 billion
            each for network development (capital upgrades to tracks and
            stations and procurement of new or rebuilt equipment) and for
            system preservation and renewal. We support this as the
            baseline for the multi-year commitment as outlined in the
            administration's budget.
      --The bare minimum should be $4.7 billion, comprised of Amtrak's
            request of $2.2 billion plus the 2010 level at which High Speed
            and Intercity Passenger Rail (HSIPR) program was funded, $2.5
            billion.
        We strongly support the Department of Transportation's (DOT)
    approach in HSIPR grants to the States. We applaud the agreements
    reached to date with BNSF (Washington State), Norfolk Southern (North
    Carolina) and Union Pacific (Illinois). We look forward to the early
    conclusion of agreements with CSX, especially for Virginia and New
    York.
        Failure to meet, at minimum, the funding targets Amtrak identified
    in its fiscal year 2012 grant and legislative request puts the country
    close to a no-growth scenario, which would be extremely unfortunate
    given the likelihood that high gasoline prices are here to stay.
    ``Smart growth'' housing, intercity passenger trains, and rail transit
    have two things in common:
      --Both help enable Americans to sustain the highest possible quality
            of life in a competitive world economy, and to mitigate what
            The Weekly Standard's Christopher Caldwell called ``America's
            almost unbelievable demand for oil.'' Caldwell noted that this
            demand ``has led [the United States] to diverge from the rest
            of the west on energy policy,'' a polite way of saying that we
            are headed for trouble if we don't make it possible for more
            people to burn less oil. (Quotes: Financial Times column, April
            2.)
      --Demand for both exceeds supply, indicating that the public is ahead
            of the policymakers and moving faster than the market place can
            react.
        We continue to urge consideration of the use of tax credits and/or
    asset depreciation benefits to encourage private leasing companies to
    buy equipment and lease it to States and perhaps Amtrak. This could
    help reduce the high upfront costs that taxpayer-supported agencies
    face when procuring new equipment.
        As gasoline prices continue their steady upward climb, airfares are
    at historic highs, and intercity bus service has been dramatically
    scaled back over the past 4 years, America's growing population is
    seeking better, more affordable mobility. Amtrak's historically high
    ridership--even though the railroad's fares are as high as the market
    can bear, especially on the Northeast corridor--is evidence of this.
        The need to maintain mobility for our citizens, bolster our
    Nation's economic competitiveness and energy efficiency, provide good
    jobs for Americans, and reduce our transportation system's negative
    environmental impact all demand that we ramp up investment in modern
    passenger trains.
        The following table, showing 2008 data, comes from the annual
    Transportation Energy Data Book (Edition 29, released in 2010),
    published by Oak Ridge National Laboratory under contract to the
    Department of Energy, at http://cta.ornl.gov/data/chapter2.shtml:

    ------------------------------------------------------------------------
                                                               BTUs \1\ per
                              Mode                            passenger-mile
                                                                    \2\
    ------------------------------------------------------------------------
    Amtrak..................................................           2,398
    Commuter trains.........................................           2,656
    Certificated air carriers (domestic)....................           2,995
    Cars....................................................           3,437
    Light trucks (2-axle, 4-tire)...........................           3,641
    ------------------------------------------------------------------------
    \1\ BTU = British thermal unit.
    \2\ Passenger-mile = one passenger traveling 1 mile.

        The table indicates that Amtrak is 20 percent and 30 percent more
    energy efficient per passenger-mile, respectively, than airlines and
    autos. That is true even though Amtrak's fleet averages 37 years old
    while the airplane and automobile fleet is constantly turning over with
    energy efficiency generally improving. Thus, the Amtrak 2008 figures
    understate rail's true potential.
        We are disappointed that negotiations between Amtrak and Union
    Pacific Railroad apparently remain stalled regarding Amtrak's
    initiative to provide daily service over the entire line between New
    Orleans and Los Angeles.
        We fully support Amtrak's Gateway Tunnel project, which will create
    a long-overdue expansion in track capacity between New York City and
    New Jersey, and for the entire Northeast corridor.
        We are concerned about the impact of Passenger Rail Investment and
    Improvement Act's section 209 which directs States to provide full-
    operating support for intercity trains whose routes total 750 miles or
    less. It is important that this not become an obstacle to service
    continuation. We continue to urge consideration, at least in emergency
    situations, of allowing Federal support for such routes' continued
    operation on a 50-50 matching basis, without making Amtrak swallow the
    difference.
        Thank you for considering our views.
                                     ______

       Prepared Statement of the University Corporation for Atmospheric
                                    Research

        On behalf of the University Corporation for Atmospheric Research
    (UCAR), a consortium of 76 research universities that manages the
    National Center for Atmospheric Research, I submit this written
    testimony regarding the fiscal year 2012 appropriation for the record
    of the Senate Committee on Appropriations, Subcommittee on
    Transportation, Housing and Urban Development, and Related Agencies. I
    urge the subcommittee to fully fund the fiscal year 2012 $110 million
    request for the Federal Highway Administration's (FHWA) Intelligent
    Transportation Systems (ITS) program including the ITS Wireless
    Innovation Initiative. Further, I ask that the subcommittee support
    $2.87 billion for the Federal Aviation Administration's (FAA)
    Facilities and Equipment (F&E) account and $190 million for its
    Research, Engineering and Development (RE&D) account.
        The Department of Transportation (DOT) relies on its partnerships
    with State DOTs, local transportation agencies, the first responder
    community, freight community, and the academic community, to meet its
    mission of ensuring a fast, safe, efficient, accessible, and convenient
    transportation system that meets our vital national interests and
    enhances the quality of life of the American people. The academic and
    research community contributes directly to this mission with applied
    research and development (R&D) of cutting-edge technologies to move
    people and shipments safely and expeditiously. Research on the physics
    of microbursts, for example, has resulted in the development of wind
    shear detection technologies that, since full implementation, have
    reduced aircraft crashes caused by downbursts to zero. Applied research
    is now being conducted on road snow and ice control, aircraft icing,
    and turbulence, and other weather hazards, resulting in products that
    are saving industry and States tens of millions of dollars per year and
    making the traveling public far safer on the roads and in the skies. I
    urge you to support the requested levels for the following programs:

     FEDERAL HIGHWAY ADMINISTRATION'S RESEARCH, TECHNOLOGY, AND EDUCATION
                                    PROGRAM

        Understanding and addressing adverse weather conditions helps to
    mitigate the impacts of congestion and accidents, and is a high
    priority for the FHWA. The Research, Technology, and Education Program
    provides for a comprehensive, nationally coordinated program that will
    advance DOT organizational goals and accelerate innovation delivery and
    technology implementation. The request includes $257 million for the
    following Research and Innovative Technology Administration programs on
    which I would like to comment.

    Intelligent Transportation Systems
        Every year, thousands of people are injured or killed in accidents
    on our Nation's highways because of bad weather and poor road
    conditions. The consequences go beyond those human costs to include
    lost productivity to commercial motor vehicle operators and the expense
    to local governments responsible for clearing accidents and repairing
    damaged roadways, to say nothing of the inconvenience to motorists.
        Because of R&D investments, innovative new wireless technologies
    will soon allow cars to share with vehicles behind them important
    safety data such as adverse weather and road conditions. Knowing about
    icy or foggy road conditions 2 miles ahead, for example, will save
    lives and keep traffic moving smoothly. DOT's IntelliDrive (recently
    renamed ``Connected Research Vehicle'') program is the centerpiece of
    the DOT ITS 2010-2014 Strategic Research Plan. Intellidrive partners
    government, industry, academia, and others to specify, develop, and
    produce the necessary technology to gather and broadcast a car's
    ``heartbeat'' continuously, including weather conditions. Road weather-
    connected vehicle applications are the next generation of applications
    and services that assess, forecast, and address the impacts of weather
    on roads, vehicles, and travelers. Such applications will build upon
    decision support tools currently undergoing development, testing, and
    deployment such as the Clarus Regional Demonstrations, the Maintenance
    Decision Support System and Vehicle Data Translator.
        To meet its core research and technology transfer mission, I urge
    you to support the requested fiscal year 2012 amount of $110 million
    for the FHWA's ITS, including IntelliDrive and its V-V and V-I
    Communications for Safety program ($43.3 million) and Dynamic Mobility
    Applications ($14 million). However, I am concerned about the proposed
    consolidation of Road Weather Research with these larger programs. The
    risk is that this successful, small program could be seriously
    compromised. Road Weather Research has been highly leveraged by States
    and localities to save lives and millions of dollars. I urge you to
    ensure that at least $5 million for a distinct road weather research
    program is included as an important safety and mobility R&D topic in
    the previously mentioned programs. This funding is consistent with the
    Safe, Accountable, Flexible, Efficient Transportation Act: A Legacy for
    Users (SAFETEA-LU).

    Intelligent Transportation Systems Wireless Initiative
        DOT's ITS program is launching a new research initiative to improve
    transportation safety, relieve traffic congestion, and enhance
    productivity. The budget request includes funding for the ITS Wireless
    Initiative, which will be managed by RITA and funded out of the
    Miscellaneous Appropriations account. This new program will develop
    ``living laboratories'' where innovative wireless communications
    methods and applications can be developed for eventual deployment. To
    accomplish its goals, the DOT will leverage the knowledge, expertise,
    and experience of the research community. I urge you to support the
    fiscal year 2012 request of $100 million for FHWA's ITS Wireless
    Initiative.

                  FAA'S RESEARCH, ENGINEERING, AND DEVELOPMENT

        The FAA's fiscal year 2012 budget request supports continued
    aviation safety and capacity R&D, focusing on critical areas such as
    turbulence, in-flight icing, storm prediction, oceanic weather, and
    restricted visibility. For more than two decades, the FAA has funded
    R&D efforts to improve forecasting of weather affecting aviation.
        The fiscal year 2012 request continues important work in current
    research areas, including aviation weather. This budget supports
    enhanced Next Generation Air Transportation System (NextGen) R&D
    efforts in the areas of improved weather information for integration
    into decisionmaking, weather information for pilots, and environmental
    research for aircraft technologies and alternative fuels to improve
    aviation's environmental and energy performance. The following programs
    can be found within the RE&D section of the fiscal year 2012 FAA budget
    request:

    Weather Program
        The goal of the Weather Program is to increase safety and capacity,
    and to support NextGen. A number of aviation weather research projects
    are underway, in collaboration with industry representatives, focusing
    on in-flight icing, turbulence, winter weather, and deicing protocols,
    thunderstorms, ceiling, and visibility. One example of a system that
    translates a large amount of weather data into significant safety and
    delay improvements is the Consolidated Storm Prediction for Aviation
    (CoSPA). Thunderstorms and winter storms have long been recognized as
    significant safety hazards, as well as major causes of system delays.
    Using CoSPA, accurate forecasts of storms can be translated into
    probable impacts to the system. This allows for improved decisionmaking
    resulting in improved safety and reduced delays.
        I am very concerned that the budget request of $16.4 million will
    not support the R&D needs of the Weather Program within RE&D. The
    request for this program is reduced more than 2 percent from the fiscal
    year 2010 level and is operating at one-half the level of funding
    appropriated 10 years ago. To address the pressing challenges and to
    meet the research needs of NextGen, the Weather Program must receive,
    at a minimum, $18 million for fiscal year 2012.

    Weather Technology in the Cockpit
        The 2009 crash of an Air France jet over the Atlantic Ocean,
    killing all 216 passengers and 12 crew members, is very likely an
    example of the limits of pilots' ability to cope with severe weather.
    Pilots currently have little weather information as they fly over
    remote stretches of the ocean where some of the worst turbulence
    encounters occur. Providing pilots with at least an approximate picture
    of developing storms could help guide them safely around areas of
    potentially severe turbulence.
        The Weather Technology in the Cockpit Program leverages research
    activities with other agencies, academia, and the private sector by
    enabling the adoption of cockpit technologies that provide pilots with
    hazardous weather information and improve situational awareness.
        I am very concerned that the fiscal year 2012 request for this
    small, but life-saving program within RE&D was reduced by almost 4
    percent from fiscal year 2010 levels. I urge you to fund the Weather
    Technology in the Cockpit program at $10 million, at a minimum.

                         FAA'S FACILITIES AND EQUIPMENT

        Delays in the National Airspace System (NAS) are primarily
    attributable to weather. According to the FAA, during the last 5 years
    more than 70 percent of delays of 15 minutes or more, on average, were
    caused by weather. Weather also impacts safety. Between 1994 and 2003,
    weather was determined to be a contributing factor in more than 20
    percent of all accidents. Currently, most operational decision tools do
    not utilize weather information effectively or at all. Therefore,
    exploring, identifying, and employing better methods for data
    collection and communication will help facilitate the flow of
    operation-specific weather data and information to end users. Within
    F&E, I would like to call your attention to the following two very
    important programs:
        NextGen Network Enabled Weather.--NextGen Network Enabled Weather
    (NNEW) is a transformational, multiagency project dedicated to using
    and developing technologies and standards for NextGen that will support
    effective dissemination of weather data. NNEW will develop the FAA's
    portion of the 4-D Weather Data Cube which will provide standardized
    information from multiple contributors and locations to a variety of
    end-users including air traffic managers and pilots.
        The fiscal year 2012 request for NNEW is $27.35 million, a $7
    million increase more than fiscal year 2010. To develop the NextGen
    weather dissemination system smoothly and efficiently, I urge you to
    support this request.
        NextGen Reduce Weather Impact.--The goal of the NextGen Reduce
    Weather Impact program is to provide increased capacity in NAS while
    reducing congestion and meeting projected demand in an environmentally
    sound manner. The current weather observing network is inadequate to
    the needs of NextGen and improvements will be central to the work in
    the Reduce Weather Impact Program. Working with appropriate scientific,
    modeling, and user communities, current sensor information and
    dissemination shortfalls will be identified and evaluated.
    Investigating technologies for optimizing and improving automated
    aircraft weather reporting will also be conducted, to meet NextGen
    requirements.
        The Reduce Weather Impact portfolio will leverage the NNEW
    transformational program that will interface with the National Oceanic
    and Atmospheric Administration's 4-D Weather Data Cube, for universal
    common access to weather information.
        I urge you to increase the NextGen Reduce Weather Impact program
    funding to $43.2 million for fiscal year 2012, an increase of $7.6
    million from fiscal year 2010.
        On behalf of UCAR, I want to thank the subcommittee for its
    leadership in supporting research, development and technology transfer
    programs within the FHWA and FAA, and for your commitment to ensuring
    safer, more efficient air and road travel.
                                     ______

                       Prepared Statement of the YWCA USA

        Thank you Chairman Murray, Ranking Member Collins, and members of
    the subcommittee for the opportunity to submit testimony. My name is
    Gloria Lau, and I am the chief executive officer of the YWCA USA. As
    the Congress works on priorities for the fiscal year 2012 Federal
    budget, I would like to highlight one vital program in particular under
    the jurisdiction of this subcommittee: the Community Development Block
    Grant (CDBG) which is administered by the Department of Housing and
    Urban Development (HUD).
        The YWCA USA is a national, not-for-profit (501(c)(3)) membership
    organization committed to eliminating racism, empowering women, and
    promoting peace, justice, freedom, and dignity for all. We represent
    more than 2 million women and girls with nearly 300 local associations
    nationwide. We serve thousands of women, girls, and their families
    annually through a variety of programs including violence prevention
    and recovery programs, housing programs, job training, and employment
    programs, childcare and early education programs, and more. Our clients
    include women and girls who come from all walks of life, including
    those escaping violence, low-income women and children, women veterans,
    elderly women, disabled women, and homeless women and their families.
        The YWCA is a major provider of social services to women, children,
    and families throughout the United States. Today, the YWCA is the
    largest provider of battered women's shelters in the Nation and one of
    the largest providers of childcare. As a major provider of social
    services, the YWCA is extremely supportive of the CDBG. Every day, in
    communities across this country, we witness the important role CDBG
    plays in helping communities meet the needs of their low-income women,
    children, and families. Today, CDBG is one of three main funding
    streams for YWCA programs and services nationwide. YWCAs use CDBG
    funding for a variety of programs, including programs that assist
    victims of domestic violence and sexual assault, children and youth,
    and homeless women and children. CDBG also provides flexible funding
    for YWCAs nationwide to make capital improvements to their buildings
    such as installing wheelchair ramps or security cameras.
        Because of our strong support for the CDBG, the YWCA asks the
    subcommittee to concur at a minimum to fund the CDBG program in HUD at
    $4 billion. This call for support comes directly from local communities
    across the country, as local YWCA associations surveyed in December
    2010 identified this vital block grant as one of their most critical
    funding sources for the services they provide.
        As members of the subcommittee know, the CDBG, created in 1974, is
    a block grant program that provides funding to local communities across
    the United States. The CDBG provides annual grants on a formula basis
    to more than 1,200 units of local government and States, which then use
    the funds to pay for community development initiatives, affordable
    housing programs, and anti-poverty initiatives. CDBG helps communities
    provide social services to low-income women, children, and families who
    reside in their communities, but cannot afford the cost of services.
        While CDBG is often perceived as a funding stream mainly for local
    governments, the impact of this program on nonprofit organizations,
    such as the YWCA, is substantial. Local governments that receive CDBG
    collaborate with community service providers, such as YWCAs, to provide
    social services. The local governments then pass through the CDBG funds
    to the service providers to help cover the cost of the services
    provided.
        As a service provider working with women, children, and families
    with unique needs, the YWCA values the fact that CDBG is not a cookie-
    cutter/one-size-fits-all program; it is a block grant funding stream
    that provides local governments and States flexibility in developing
    programs and services most appropriate to meet the needs of its low-
    income residents. Thanks to the flexibility afforded under the block
    grant, YWCAs are able to use CDBG funding for a variety of programs and
    services that help countless women, children, and families annually.
    For example, YWCAs use CDBG funding to provide:
      --short-term shelter and supportive services for homeless families;
      --night and day shelter and services for chronically homeless women;
      --economic assistance programs that help low-income working women pay
            for work uniforms, tools, transportation, background checks,
            and certification and licensing fees;
      --housing programs such as emergency, transitional, and permanent
            housing for women and families;
      --programs and services for vulnerable women and children including
            programs that help formerly incarcerated women returning to the
            community;
      --after-school groups and youth recreation programs in at-risk
            neighborhoods for girls and boys; and
      --programs for adult and child survivors of domestic violence and
            sexual assault.
        In addition, though often not recognized as an important source of
    funding for addressing violence against women and children, CDBG plays
    a critical role in the ability of YWCAs to meet the needs of women and
    children who are crime victims. For example, YWCAs nationwide are
    allocated CDBG funds by their local governments to provide anti-
    violence services such as emergency shelters and services for victims
    of domestic violence; sexual assault crisis services including 24-hour
    hotlines, support group and crisis counseling; hospital, police
    department and court accompaniments; and prevention education.
        Given the flexible nature of CDBG, it is not surprising that YWCAs
    cite CDBG as one of the most vital sources of Federal funds available
    to serve people in their communities. Stories abound of how YWCAs have
    been able to serve women and families in cities and towns across the
    United States because of CDBG funding. The following are just a few
    stories:\1\
    ---------------------------------------------------------------------------
        \1\ Ibid.
    ---------------------------------------------------------------------------
        The YWCA of Lancaster uses CDBG funding to run its Sexual Assault
    Prevention and Counseling Center, which serves 700 to 1,000 direct
    service clients annually. Specifically, the YWCA uses CDBG funding to
    hire counselors to work directly with the victims of sexual assault. A
    loss in CDBG funding for the YWCA of Lancaster would mean sexual
    assault victims would not be able to receive services and would be
    placed on a waiting list. Maureen Powers, the executive director of the
    YWCA of Lancaster, comments, ``One-third of our direct service clients
    are children, and we really should not have a waiting list for child
    clients. It takes a lot for them to disclose sexual abuse to begin
    with.'' Though these are tight fiscal times for our Nation, I think
    many of us would agree that funding to help child victims of sexual
    assault is taxpayer money well spent.
        Another story,\2\ this time from the YWCA of Binghamton/Broome
    County in Binghamton, New York, further demonstrates how CDBG helps the
    most vulnerable in our communities. The YWCA of Binghamton/Broome
    County uses CDBG funding to run its emergency shelter for women, which
    serves more than 300 women and children a year. Many of the women and
    children served by the shelter are victims of domestic violence. CDBG
    funds, which come to the program through the city of Binghamton annual
    Emergency Shelter Grant, are the shelter's primary funding source. A
    loss in CDBG funding would mean the women and children served by the
    shelter would not be able to receive housing and the shelter, the only
    facility of its kind in the community, would possibly have to close.
    ---------------------------------------------------------------------------
        \2\ As reported in ``A Better Budget for All: Saving Our Economy
    and Helping Those in Need'' published by Coalition on Human Needs for
    the ``For the SAVE for All Campaign: Strengthening America's Values and
    Economy for All'', on February 25, 2011, and downloaded from http://
    www.chn.org/pdf/2011/BetterBudget4AllReport.pdf.
    ---------------------------------------------------------------------------
        In today's anti-spending climate, people often believe Federal
    funding provides total operating funding for social service programs.
    That is not the case for local YWCAs that use Federal, State, and local
    funding as well as individual, foundation, and corporate donations.
    Even if CDBG does not provide total program funding for YWCA programs,
    CDBG provides funding for critical components of those programs. For
    YWCAs across this country, every dollar counts.
        In addition to helping fund vital components of social services
    programs, CDBG helps nonprofit service providers leverage other sources
    of funding--whether from other government sources or private community
    support--to further assist women and children in need. For example, in
    2010, the YWCA Seattle/King/Snohomish in Washington used more than $1.4
    million in CDBG funding to leverage approximately $19 million in other
    funding to support some of its most critical programs such as those for
    homeless individuals and families and those with very low incomes.
    Though CDBG accounted for just a small percentage of this YWCA's
    government grants and operating income, the YWCA would have had to
    decrease services without CDBG funds.
        In Lewiston, Maine, the YWCA has used support from community block
    grant funds to make an aging facility more safe, more energy efficient
    and more usable for the 10,000 people from a tri-county area who look
    to the YWCA for support and services. With just a modest amount of
    funding support, this Maine YWCA is working in close cooperation with
    its community to be more green, more accessible to disabled clients and
    more responsive to the women and their families who come to the YWCA
    for lifesaving support.
        As you can see, this call for your support of CDBG comes directly
    from communities across the country. CDBG is an invaluable tool that
    assists local governments in addressing domestic violence, sexual
    assault, homelessness, and poverty. Severely cutting CDBG funding would
    cause budget gaps for local governments, lead to the discontinuation of
    many vital community services, and place in harm's way some of our
    Nation's most vulnerable women and children.
        Though my testimony today is on behalf of the YWCA, the importance
    of CDBG is also recognized by the leaders of our Nation's cities and
    our U.S. Senators. These leaders recognize that cutting CDBG would be
    harmful because it promotes private sector growth.
        For example, every $1 from the CDBG program brings in $1.62 in non-
    CDBG funds.\3\ As noted by the National League of Cities, for nearly
    four decades, CDBG has served as a catalyst for financing housing,
    infrastructure, and economic development in America's cities and towns.
    The program has also been credited with retaining and creating
    employment opportunities. According to a letter written in March 2011
    to the chairman and ranking member of the Appropriations Committee,
    signed by about one-third of the Senate, ``Based on data that grantees
    have reported to the U.S. Department of Housing and Urban Development
    over the past 6 years, the CDBG program has . . . created or retained
    259,346 jobs for low- and moderate-income persons through a variety of
    economic development activities.'' The letter also notes that CDBG has:
    ---------------------------------------------------------------------------
        \3\ National League of Cities CDBG Issue Brief, downloaded April
    12, 2011, from http://www.nlc.org/ASSETS/
    4D74A625F6714A6688F93FC892AA0FAC/CDBG-Issue-Brief.pdf.
    ---------------------------------------------------------------------------
      --Assisted 865,874 low- and moderate-income households through
            single-family and multifamily residential rehabilitation, home
            ownership assistance, energy efficient improvements and lead-
            based paint abatement;
      --Benefited 22,998,047 low- and moderate-income households through
            such public improvements as the development of senior centers,
            childcare centers, and centers for the disabled; and
      --Benefited 73,863,286 low- and moderate-income households through
            public services such as employment and training, youth
            services, meals and other assistance to the elderly, and
            services for abused and neglected children.
        The contribution of the CDBG program to thousands of communities
    across the country and hundreds of thousands of people in the United
    States cannot be denied.
        In closing, the YWCA recognizes these are unique times in our
    Nation's history and we agree that our Nation must address its deficit
    and debt. At the same time, the YWCA believes strongly that investments
    in local communities and programs are wise uses of Federal funds that
    provide substantial returns to our Nation. On behalf of YWCAs
    nationwide, we look to you for continued commitment to the women,
    children, and families we serve through the CDBG and respectfully ask
    the subcommittee to support the President's fiscal year 2012 budget
    request for $4 billion dollars in funding for CDBG.
        Thank you once again for the opportunity to provide testimony to
    your subcommittee. Your attention and assistance are greatly
    appreciated.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page

    American Public Transportation Association, Prepared Statement of
      the............................................................   245

    Babbitt, Hon. J. Randolph, Administrator, Federal Aviation
      Administration, Department of Transportation...................   157
        Prepared Statement of........................................   165
        Summary Statement of.........................................   163
    Bertram, Christopher, Assistant Secretary of Transportation for
      Budget and Programs, and Chief Financial Officer, Department of
      Transportation.................................................    79
    Blunt, Senator Roy, U.S. Senator From Missouri:
        Prepared Statements of........................11, 90, 104, 144, 145
        Statement of.................................................    10
    Boardman, Hon. Joseph H., President and Chief Executive Officer,
      National Railroad Passenger Corporation (Amtrak):
        Prepared Statement of........................................   225
        Questions Submitted to.......................................   240
        Statement of.................................................   224

    Coats, Senator Daniel, U.S. Senator From Indiana, Question
      Submitted by...................................................   208
    Collins, Senator Susan, U.S. Senator From Maine:
        Opening Statement of.........................................   213
        Prepared Statements of.........................9, 88, 130, 162, 215
        Statements of.......................................7, 85, 129, 161

    Donovan, Hon. Shaun, Secretary, Office of the Secretary,
      Department of Housing and Urban Development....................1, 125
        Prepared Statements of......................................15, 132
        Summary Statements of.......................................11, 131
    Durbin, Senator Richard J., U.S. Senator From Illinois, Questions
      Submitted by............................................202, 239, 242

    Feinstein, Senator Dianne, U.S. Senator From California,
      Questions Submitted by........................................55, 114

    Hutchison, Senator Kay Bailey, U.S. Senator From Texas, Questions
      Submitted by...................................................    61

    Kirk, Senator Mark, U.S. Senator From Illinois:
        Prepared Statements of....................................... 6, 85
        Questions Submitted by......................................63, 121

    LaHood, Hon. Ray, Secretary, Office of the Secretary, Department
      of Transportation..............................................    79
        Prepared Statement of........................................    91
        Statement of.................................................    79
        Summary Statement of.........................................    90
    Lautenberg, Senator Frank R., U.S. Senator From New Jersey:
        Questions Submitted by.......................................    56
        Statements of..............................................163, 216

    Manufactured Housing Association for Regulatory Reform, Prepared
      Statement of the...............................................   248
    Murray, Senator Patty, U.S. Senator From Washington:
        Opening Statements of..........................1, 79, 125, 157, 209
        Prepared Statements of.........................4, 83, 127, 159, 212
        Questions Submitted by.......................45, 113, 153, 202, 240

    National AIDS Housing Coalition, Prepared Statement of the.......   251
    National Association of Railroad Passengers, Prepared Statement
      of the.........................................................   253

    O'Connor, John, Vice President and Chief of Police, Amtrak Police
      Department, National Railroad Passenger Corporation (Amtrak)...   224

    Pryor, Senator Mark, U.S. Senator From Arkansas:
        Prepared Statement of........................................     9
        Questions Submitted by.................................57, 119, 206

    Scovel, Hon. Calvin L., III, Inspector General, Department of
      Transporta-
      tion...........................................................   157
        Prepared Statement of........................................   175
        Statement of.................................................   174
    Szabo, Hon. Joseph C., Administrator, Federal Railroad
      Administration, Department of Transportation...................   209
        Prepared Statement of........................................   219
        Questions Submitted to.......................................   239
        Summary Statement of.........................................   217

    University Corporation for Atmospheric Research, Prepared
      Statement of
      the............................................................   255

    YWCA USA, Prepared Statement of the..............................   257

                                 SUBJECT INDEX

                                  ----------

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

                         Federal Housing Administration

                                                                       Page

    Additional Committee Questions...................................   153
    Capital Reserve Ratio............................................   152
    FDA's Risk Exposure..............................................   151
    FHA:
        Commissioner Vacancy.........................................   149
        Premium Increase.............................................   144
        Underwriting.................................................   147
    FHA's:
        Fiscal Year 2012 Budget......................................   134
        Role in the Market and Consequences of a Shutdown............   127
    Government:
        National Mortgage Association (Ginnie Mae) Hiring............   155
        Shutdown.....................................................   141
    Housing Market...................................................   127
    Lender Oversight and Enforcement.................................   147
    Loan Limits......................................................   143
    Mutual Mortgage Insurance (MMI) Fund.............................   145
    Operation Watchdog Recommendations...............................   153
    Oversight of FHA.................................................   127
    Overview of HUD's Fiscal Year 2012 Budget........................   132
    Responding to the Evolving Housing Crisis........................   133
    Review of FHA's Financial Condition..............................   137
    Risk Retention:
        And Qualified Residential Mortgage (QRM).....................   128
        Rule.........................................................   150
    Supporting Community Bank Mortgages..............................   155
    The:
        Future of Housing Finance....................................   139
        Housing Market and Government-Sponsored Enterprise (GSE)
          Reform.....................................................   128

                            Office of the Secretary

    Additional Committee Questions...................................    45
    Affordable Housing for Low-Income Seniors and Individuals With
      Disabili-
      ties...........................................................    56
    Budget:
        Numbers......................................................    33
        Request for HUD's Core Programs and Promising Initiatives....     5
    Census Data and Formula Funds....................................    63
    Community Development Block Grant (CDBG) and HOME Programs.......    55
    Congressional Views and Actions..................................    58
    Disaster Recovery:
        Activities at HUD............................................    57
        Funding......................................................    61
        Report.......................................................    35
    Duplication in Federal Programs..................................    36
    Emergency Capital Funding for Public Housing Authorities.........    57
    Federal Housing Administration (FHA) Reserves....................    41
    FHA's Future Role................................................    39
    Fiscal Year 2011 and the House's Year-Long Continuing Resolution.     4
    Freddie Mac and Fannie Mae Reform................................    40
    Ginnie Mae.......................................................    40
    Government Accountability Office (GAO) Report on Duplicative
      Government Programs............................................    58
    Healthy Homes Program............................................    55
    Homelessness.....................................................13, 30
    Housing First Model..............................................    38
    HUD-Veterans Affairs Supportive Housing (VASH)...................    13
    Information Technology (IT) Funding and Management...............    47
    Major Program Evaluations/Audits/Issues..........................    58
    Meeting Our Responsibilities.....................................    17
    Mortgage Programs................................................    60
    Moving-to-Work (MTW).............................................    63
    National Resource Bank (NRB) and the Transformation Initiative...49, 52
    Native American Needs Assessment.................................    53
    OneCPD and the Transformation Initiative.........................    50
    Oversight of HUD Programs........................................     6
    Public Housing:
        Authorities (PHAs).......................................13, 32, 43
        Authority:
            Oversight................................................    44
            Reserves.................................................    45
        Preservation Program                                             14
    Replacing the Activities of the Public Housing Drug Elimination
      Program........................................................    56
    Responding to the Crisis.........................................    15
    Rural Housing....................................................    34
        Stability Program............................................    13
    Section:
        8 Contracts..................................................    42
        108 Loan Guarantee Program...................................    37
        811 Funding and Reform.......................................    53
    Sustainable Communities Initiative...............................    14
    The:
        Homeless Emergency Assistance and Rapid Transition to Housing
          (HEARTH) Act...............................................    31
        Housing Market and Government-Sponsored Enterprise Reform....     5
    Transformation Initiative (TI)...................................    13
    Transforming Rental Assistance Program Funding...................    48
    Waste/Fraud/Abuse Oversight......................................    64
    Winning the Future...............................................    16

                          DEPARTMENT OF TRANSPORTATION

                        Federal Aviation Administration

    A Strategy for Funding NextGen...................................   160
    Additional Committee Questions...................................   202
    Addressing Ongoing Safety Concerns...............................   177
    Air:
        France Flight 447--Loss of Separation........................   201
        Traffic Control Modernization................................   207
    Airport:
        Improvement Program (AIP)....................................   191
        Slot Allocations at Reagan National Airport..................   208
    Controller:
        Fatigue--Operational Errors..................................   184
        Training--Placement..........................................   185
    Economic Competitiveness.........................................   171
    En Route Automation Modernization (ERAM).........................   193
    Environmental Sustainability.....................................   172
    FAA Airport Privatization Pilot Program..........................   202
    Federal Contract Towers..........................................   206
    Fiscal Year 2012 Budget..........................................   165
    Funding Constraints and Controller Attrition.....................   189
    JFK Air France Incident..........................................   190
    Life-Cycle Program Cost Management...............................   198
    Managing NextGen's Advancement While Controlling Costs...........   179
    Maximizing Airport Infrastructure Funding To Accommodate Aviation
      Growth.........................................................   182
    NextGen Funding Priorities.......................................   199
    Operational Errors...............................................   187
    Organizational Excellence........................................   173
    Passenger Baggage Fees...........................................   190
    Performance and Retention Bonuses................................   202
    Professionalism of Air Traffic Controllers.......................   159
    Safety...........................................................   170
    State of Good Repair.............................................   171
    System-Wide Information Management (SWIM)........................   198

                        Federal Railroad Administration

    Amtrak...........................................................   222
    Creating Jobs Today..............................................   220
    Economic Benefits................................................   221
    Energy and Environment Benefits..................................   222
    Investing in Tomorrow............................................   219
    Investment Profile...............................................   220
    Mobility Choices.................................................   219
    Moving Forward...................................................   223
    Safety...........................................................   223
    Where We're Headed--Winning the Future...........................   223

                            Office of the Secretary

                                                                         79
    Additional Committee Questions...................................   112
    Build America Bonds..............................................   109
    Building for the Future..........................................    92
    California High-Speed Rail.......................................   117
    Commercial Vehicle Information System Network (CVISN)............   113
    Cross-Border Trucking............................................   100
        Pilot Program................................................   120
    Ensuring Safety..................................................    93
    Fiscal Year:
        2011 and the House's Year-Long Continuing Resolution.........    83
        2012 Budget Request..........................................   101
    Fuel Prices......................................................   112
    Goods Movement...................................................   118
    H.R. 1...........................................................    94
    High-Speed Rail..................................84, 103, 108, 110, 123
        Funding......................................................   105
    Hours of Service Rule............................................    96
    Maintenance of Highway Infrastructure............................   119
    Metra New Starts.................................................   121
    Metrics..........................................................   121
    Motor Carrier Weight Restrictions................................    97
    National Infrastructure Bank (NIB)...............................   118
    Next Generation Air Transportation System (NextGen)..............   109
    Obligation of Funds for California Projects......................   114
    Other:
        Highlights...................................................    94
        Issues.......................................................    85
    Positive Train Control (PTC) Implementation......................   117
    Reauthorization Proposal.........................................   106
    Reforming Government and Exercising Responsibility...............    93
    Regional Transportation Authority (RTA)..........................   121
    Safety Grants....................................................   100
    Spurring Innovation..............................................    92
    Status of the Highway Trust Fund.................................    95
    The Department's Budget Proposal and SAFETEA-LU..................    84
    Title XI Loans...................................................   111
    Toyota Investigation.............................................    99
    Transportation of Hazardous Materials............................   113
    Unsecured Loads..................................................   114
    ``Up-Front'' $50 Billion.........................................   107

                NATIONAL RAILROAD PASSENGER CORPORATION (AMTRAK)

    Additional Committee Questions...................................   239
    Air Quality--Union Station and Diesel Emissions................240, 242
    Amtrak:
        Compliance With the Americans With Disabilities Act..........   238
        Operating Losses.............................................   235
        Response to al Qaeda Terror Threat...........................   229
    Collaboration With Other Security Forces.........................   228
    Funding for:
        Amtrak's Capital Investments.................................   237
        Rail Security................................................   231
    High-Speed Rail:
        Grant Selection Criteria.....................................   233
        Investments in the Northeast Corridor........................   232
    Office of Inspector General (OIG)................................   228
    Overtime Payments to Amtrak Employees............................   234
    Partnering With State and Local Law Enforcement..................   230
    Positive Train Control...........................................   238
    Rail Security and Terrorist Threats..............................   227
    Rolling Stock..................................................239, 242
    State Support for High-Speed Rail Investments....................   233
    The Federal Role in the Nation's Rail System.....................   237
    Timeline.........................................................   241

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