[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.
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    The Department is equally focused on assisting consumers throughout 
the home ownership process, from increasing their knowledge of the 
mortgage products they are considering to protecting them from fraud in 
any phase of that process. Accordingly, the budget also includes $168 
million for housing and homeowner counseling through HUD and the 
Neighborhood Reinvestment Corporation (NeighborWorks). More than 4 
million households have benefited from housing counseling since April 
2009.

Goal 2.--Meet the Need for Quality, Affordable Rental Homes
    With more than one-third of all American families renting their 
homes, it remains more important than ever to provide a sufficient 
supply of affordable rental homes for low-income families.
            Why HUD Investments Are Vital
    While the median income of American families today is more than 
$60,000, families who live in HUD-assisted housing have a median income 
of $10,200 per year--and more than one-half are elderly or disabled. 
The extraordinary vulnerability of residents in HUD-assisted programs 
is why we have chosen to protect the funding that houses these 
families. Indeed, fully 80 percent of our proposed budget keeps current 
residents in their homes and provides basic upkeep to public housing 
while also continuing to serve our most vulnerable populations through 
our homeless programs.
    HUD's fiscal year 2012 budget requests $19.2 billion for the HCV 
program to help more than 2 million extremely low- to low-income 
families with rental assistance live in decent, safe housing in 
neighborhoods of their choice. The budget funds all existing mainstream 
vouchers and provides new vouchers targeted to homeless veterans, 
families, and the chronically homeless. The administration remains 
committed to working with the Congress to improve the management and 
budgeting for the HCV program, including reducing inefficiencies, and 
re-allocating Public Housing Authority voucher reserves based on need 
and performance.




                                Figure 1

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

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TOUGH CHOICES--PUTTING EXCESS PUBLIC HOUSING OPERATING FUND RESERVES TO 
                                  WORK

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

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

            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).
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         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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